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 ~~July~~October 3130, 2004

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

Commission File Number 000-22791

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 ~~September~~December 10, 2004.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

INDEX

		Page No.	~~Page No.~~
Part I.	Financial Information
	Item 1.	Financial Statements
	Item 1. Financial Statements
		Consolidated Balance Sheets – As of January 31, 2004 and July 31, 2004	3
	Consolidated Balance Sheets – As of January 31, 2004 and October 30, 2004	3
		Consolidated Statements of Income – Thirteen Weeks and Twenty-Six Weeks Ended July 26, 2003 and July 31, 2004	4
	Consolidated Statements of Income – Thirteen Weeks and Thirty-Nine Weeks Ended October 25, 2003 and October 30, 2004	4
		Consolidated Statements of Stockholder’s Equity – Twenty-Six Weeks Ended July 31, 2004	5
	Consolidated Statements of Stockholder’s Equity – Thirty-Nine Weeks Ended October 30, 2004	5
		Consolidated Statements of Cash Flows – Twenty-Six Weeks Ended July 26, 2003 and July 31, 2004	6
	Consolidated Statements of Cash Flows – Thirty-Nine Weeks Ended October 25, 2003 and October 30, 2004	6
	Notes to Consolidated Financial Statements	~~Notes to Consolidated Financial Statements~~7	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4.	Controls and Procedures	33
	Item 4. Controls and Procedures	34
Part II.	Other Information
	Item 1.	Legal Proceedings	33
	Item 1. Legal Proceedings	35
	Item 6.	Exhibits and Reports on Form 8-K	34
	Item 6. Exhibits	35
Signature		36	35

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands)

	January 31,2004			~~July~~October 3130, 2004
				(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,041		$	1017,~~024~~558
Accounts receivable, net of allowances of $918 and $856 in fiscal 2003 and 2004, respectively		36,019			51,269
Accounts receivable, net of allowances of $918 and $843 in fiscal 2003 and 2004, respectively		36,019			40,464
Inventories		35,463			4345,~~916~~322
Deferred tax assets		4,013			43,~~850~~976
Prepaid expenses and other		4,961			2,~~449~~201
Total current assets		91,497			~~112~~109,~~508~~521
PROPERTY, PLANT AND EQUIPMENT, net		66,062			6465,~~243~~418
GOODWILL		98,378			98,378
OTHER INTANGIBLE ASSETS, net		34,255			3231,~~722~~956
OTHER ASSETS		8,956			8,~~562~~334
TOTAL ASSETS	$	299,148		$	~~316~~313,~~413~~607
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	17,722		$	1915,~~464~~979
Accrued expenses		20,298			2923,~~177~~425
Current portion of long-term debt		1,791			~~1,553~~477
Total current liabilities		39,811			5039,~~194~~881
OTHER LIABILITIES, including post-retirement benefit obligation		4,768			4,~~306~~310
DEFERRED TAX LIABILITIES		19			15,~~615~~607
LONG-TERM DEBT, net of current portion		207,516			~~206~~207,~~121~~280
MINORITY INTEREST		342			~~320~~323
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER’S EQUITY:
Common stock; $.01 par value per share, 1,000 shares authorized, issued, and outstanding in fiscal 2003 and 2004		—			—
Paid-in capital		72,648			72,648
Retained deficit		(24,509	)		(1715,~~313~~486	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(493	)		(~~524~~2	)
Minimum pension liability adjustment, net of tax		(954	)		(954	)
Total stockholder’s equity		46,692			5356,~~857~~206
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	299,148		$	~~316~~313,~~413~~607

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

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited and In Thousands)

	Thirteen Weeks Ended						~~Twenty-Six Weeks Ended~~	Thirty-Nine Weeks Ended
	July 26,2003			July 31,2004			July 26,2003			July 31, 2004
	October 25,2003				October 30, 2004			October 25,2003			October 30, 2004
NET SALES	$	9374,~~931~~139		$	~~99,602~~$	82,501	$	~~165,500~~$	239,639	$	~~177,287~~$	259,788
COST OF GOODS SOLD		5951,~~169~~851			~~60,567~~	55,014		~~107,501~~	159,352		~~111,983~~	166,997
SELLING, GENERAL & ADMINISTRATIVE EXPENSES		1917,~~452~~066			~~20,130~~	17,548		~~36,910~~	53,976		~~41,134~~	58,682
AMORTIZATION		1,528			~~765~~	768		~~3,056~~	4,584		~~1,531~~	2,299
OPERATING EXPENSES		8070,~~149~~445			~~81,462~~	73,330		~~147,467~~	217,912		~~154,648~~	227,978
OPERATING INCOME		133,~~782~~694			~~18,140~~	9,171		~~18,033~~	21,727		~~22,639~~	31,810
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARY		32			14			16			(22	)
NET INTEREST EXPENSE		5,381				4,876			15,986			15,149
EQUITY IN EARNINGS OF AFFILIATE		326			365			687			776
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARY		10				2			26			(20	)
NET INTEREST EXPENSE		5,199			5,150			10,605			10,273
EQUITY IN EARNINGS OF AFFILIATE		387				117			1,074			893
INCOME BEFORE INCOME TAXES		8,877			13,341			8,099			13,164
OTHER EXPENSE		—				133			—			133
INCOME TAX EXPENSE		3,799			5,390			3,118			5,968
INCOME (LOSS) BEFORE INCOME TAXES		(1,310	)			4,277			6,789			17,441
NET INCOME	$	5,078		$	7,951		$	4,981		$	7,196
INCOME TAX EXPENSE (BENEFIT)		(1,345	)			2,450			1,773			8,418
NET INCOME	$	35			$	1,827		$	5,016		$	9,023

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

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

FOR THE ~~TWENTY~~THIRTY-~~SIX~~NINE WEEKS ENDED ~~JULY~~OCTOBER 3130, 2004

(Unaudited and In Thousands, Except Share Amounts)

	Common Stock			~~Paid - in Capital~~		~~RetainedEarnings (Deficit)~~			Accumulated Other Comprehensive Income (Loss)						~~Total~~
	Shares	Amount		Paid - inCapital		Retained Earnings(Deficit)			Foreign ~~Currency~~CurrencyTranslation ~~TranslationAdjustment~~Adjustment			Minimum ~~Pension Liability~~PensionLiability			Total
BALANCE, January 31, 2004	1,000	$	—	$	72,648	$	(24,509	)	$	(493	)	$	(954	)	$	46,692
Net income	—		—		—		7,196			—			—			7,196
Net Income	—		—		—		9,023			—			—			9,023
Foreign currency translation Adjustment	—		—		—		—			(31	)		—			(31	)
Foreign Currency Translation Adjustment	—		—		—		—			491			—			491
Total Comprehensive Income (Loss)	—		—		—		7,196			(31	)		—			7,165
Total Comprehensive Income	—		—		—		9,023			491			—			9,514
BALANCE, July 31, 2004	1,000	$	—	$	72,648	$	(17,313	)	$	(524	)	$	(954	)	$	53,857
BALANCE, October 30, 2004	1,000	$	—	$	72,648	$	(15,486	)	$	(2	)	$	(954	)	$	56,206

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

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and In Thousands)

	Twenty-Six Weeks Ended
	Thirty-Nine Weeks Ended
	July 26,2003			July 31,2004
	October 25,2003			October 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	45,~~981~~016		$	79,~~196~~023
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and leasehold amortization		57,~~024~~689			57,~~119~~688
Amortization of other intangible assets		34,~~056~~584			12,~~531~~299
Amortization and write-off of deferred financing fees		~~630~~1,381			~~840~~1,259
Change in deferred income tax		~~(616~~310	)		~~759~~5,625
Equity in earnings of affiliate		(~~687~~1,074	)		(~~776~~893	)
Minority interest in income (loss) of subsidiary		1626			(2220	)
Changes in operating assets and liabilities:
Accounts receivable		~~(13~~1,~~726~~728	)		(154,~~250~~445	)
Inventories		(84,~~830~~527	)		(89,~~453~~859	)
Accounts payable		6(3,~~193~~219	)		(1,~~742~~743	)
Accrued expenses		7(2,~~010~~691	)		83,~~879~~127
Other, net		(~~683~~426	)		12,~~695~~016
Total adjustments		(23,~~613~~781	)		(35,~~936~~054	)
Net cash provided by operating activities		28,~~368~~797			314,~~260~~077
CASH FLOWS FROM INVESTING ACTIVITIES:
Equity distribution from affiliate		23,~~282~~023			922
Additions to property, plant, and equipment		(47,~~130~~220	)		(36,~~411~~647	)
Net cash used in investing activities		(14,~~848~~197	)		(25,~~489~~725	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		3,500			15,280
Repayments of revolving credit facility		(3,500	)		(15,280	)
Repayments of long-term debt		(1121,~~130~~912	)		(1,~~573~~618	)
Cash dividends to Tandus Group, Inc.		(2,263	)		—
Financing costs		(18	)		(~~237~~380	)
Net cash used in financing activities		(1324,~~411~~193	)		(1,~~810~~998	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		~~318~~36			22163
NET CHANGE IN CASH AND CASH EQUIVALENTS		(1219,~~573~~557	)		(16,~~017~~517	)
CASH AND CASH EQUIVALENTS, beginning of period		20,907			11,041
CASH AND CASH EQUIVALENTS, end of period	$	81,~~334~~350		$	1017,~~024~~558

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

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~~U.S. ~~principles~~ generally accepted inaccounting ~~the~~principles ~~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~~U.S. ~~principles~~ generally accepted inaccounting ~~the~~principles ~~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 for the year ended January 31, 2004, which was filed in May 2004 with the Securities and Exchange Commission. 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 & 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 for a wide variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. 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 tailored for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom, Singapore and China.

The Company is a wholly owned subsidiary of Tandus Group, Inc. (“Tandus Group”). Subsequent to a recapitalization transaction on January 25, 2001, investment funds managed by Oaktree Capital Management, LLC (“Oaktree”) and Banc of America Capital Investors (“BACI”) control a majority of the outstanding capital stock of Tandus Group.

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.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Inventories

Net inventory balances are summarized below (in thousands):

	January 31,2004		~~July~~October 3130, 2004
			(Unaudited)
Raw materials	$	16,074	$	2122,~~942~~843
Work in process		5,153		7,~~458~~395
Finished goods		14,236		1415,~~516~~084
	$	35,463	$	4345,~~916~~322

6. 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. These billings and expenses were $611.02 million and $59.75 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July 26~~October 25, 2003, respectively, and $3.5.0 million and $3.48 million for the thirteen weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, respectively.

A customer claims reserve and allowance for product returns is established based upon historical claims experience as a percent of gross sales. The allowance for customer claims is recorded upon shipment of goods and is recorded as a reduction of sales. While we believe the customer claims reserve and allowance for product returns is adequate and the judgment applied is appropriate based upon historical experience for these items, actual amounts determined to be due and payable could differ and additional allowances may be required.

7. Accrued Expenses

Accrued expenses are summarized below (in thousands):

	January 31,2004		~~July~~October 3130, 2004
			(Unaudited)
Payroll and employee benefits	$	5,952	$	810,~~385~~039
Accrued taxes		—		51,~~068~~331
Customer claims		2,206		2,~~716~~825
Accrued interest		8,145		83,~~172~~835
Accrued professional fees		2,862		3,~~197~~257
Other		1,133		12,~~639~~138
	$	20,298	$	2923,~~177~~425

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 ~~July~~October 3130, 2004 are as follows:

	July 31, 2004
	October 30, 2004
	Gross CarryingAmount		AccumulatedAmortization
Amortized intangible assets:
Non-compete	$	12,000	$	(12,000	)
Patent		27,000		(18,~~383~~985	)
Supply Agreement		8,000		(7,~~508~~672	)
Total	$	47,000	$	(3738,~~891~~657	)

The Company’s non-compete with its former parent was being amortized over a seven-year period using the double-declining balance method and was fully amortized as of January 31, 2004. The patent is being amortized over an eleven-year period using the straight-line method. The supply agreement is being amortized over a three-year period using the straight-line method. In the fourth quarter of fiscal 2003, CAF Extrusion, Inc. (“Extrusion”), a wholly-owned subsidiary, recorded a non-cash impairment charge of $1.6 million, net of tax, related to the supply agreement with the seller. The impairment charge was to reduce the net carrying value of the supply agreement to its fair value.


Unamortized intangible assets:
Trade name	$	23,613

Thirteen Weeks Ended

~~Twenty~~Thirty-~~Six~~Nine Weeks Ended

July 26, 2003

July 31, 2004

July 26, 2003

July 31, 2004

October 25,2003

October 30,2004

October 25,2003

October 30,2004

Aggregate amortization expense

1,528

~~765~~768

34,~~056~~584

12,~~531~~299

Estimated amortization expense:
Fiscal 2004	$	3,~~090~~091
Fiscal 2005	$	2,639
Fiscal 2006	$	2,~~450~~455
Fiscal 2007	$	2,455
Fiscal 2008	$	—

For the period ended ~~July~~October 3130, 2004, there were no changes to the carrying value of goodwill.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Stock Based Compensation

As of ~~July~~October 3130, 2004, the Company had one stock-based employee compensation plan, which is described more fully in Note 13 of of the audited consolidated financial statements included in the Company’s Form 10-K for the year ended January 31, 2004, which was filed in May 2004 with the Securities and Exchange Commission. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company accounts for these options as variable options and records expense 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 ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, the Company ~~had~~ had not recorded any expense related to this plan as the Company had 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 on net income if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation,” to the stock-based employee ~~compensation~~ compensation (in thousands).

	Thirteen Weeks Ended						~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	July 26, 2003			July 31, 2004			July 26, 2003			July 31, 2004
	October 25,2003			October 30,2004			October 25,2003			October 30,2004
Net income as reported	$	~~5,078~~35		$	71,~~951~~827		$	45,~~981~~016		$	79,~~196~~023
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax		(716	)		(106	)		(1531	)		(1824	)
Proforma net income	$	~~5,071~~19		$	71,~~941~~821		$	4,~~966~~985		$	78,~~178~~999

10. Recent Accounting Pronouncements

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 modifies the accounting for certain financial instruments, that under previous guidance could be accounted for as either a liability or equity, to require liability treatment for those instruments in a company’s statement of financial position. This statement is effective for our interim periods beginning after December 15, 2003. The adoption of SFAS 150 did not have an impact on our financial position, results of operations or cash flows.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosure about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106” (“SFAS No. 132”). The revision of SFAS No. 132 provides for additional disclosures including the description of the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows and components of net periodic benefit cost recognized in interim periods. The revision of SFAS No. 132 is effective for our consolidated financial statements as of January 31, 2004 and did not have an impact on our financial position, results of operations or cash flows.

11. Long-Term Debt

On August 18, 2004, the Company executed Amendment No. 3 (the “Amendment”) to its Senior Credit Facility. The ~~Amendment~~amendment provides for, among other things, 1) the transfer of certain of the broadloom manufacturing fixed assets located in Santa Ana, California to the ~~Company’s~~ facility located in Truro, Nova Scotia, 2) the disposal of and/or transfer to ~~Collins~~the &Company ~~Aikman Floorcoverings, Inc.~~ of substantially all of the remaining Santa Ana, California fixed assets and transfer of all or substantially all of the accounts receivable, inventory and other liquid current assets from ~~its~~ Monterey Carpets, Inc. ~~legal entity to Collins & Aikman Floorcoverings~~(“Monterey”), ~~Inc.,~~a 3)wholly-owned ~~the~~subsidiary ~~release~~ of ~~Monterey Carpets as a subsidiary guarantor under the~~

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the Company, to the Company, 3) the release of Monterey as a subsidiary ~~guarantee~~guarantor under the subsidiary guarantee agreement and the security agreement and any other loan documents to which it is a party, 4) the exclusion from the financial covenants calculation of ~~covenants~~up ofto ~~the~~$10.0 ~~costs~~million ~~incurred~~of incosts ~~connection~~related ~~with~~to the ~~consolidation~~move ofand uprelocation to ~~$10.0~~the ~~million~~Truro, Nova Scotia plant (“the Crossley transfer”) and 5) the reduction of the credit spread to ~~Libor~~LIBOR plus 2.75 on the Term B Loan. The Amendment further authorizes the collateral agent to release any and all liens held by the collateral agent in or on the assets forming topart beof ~~transferred~~the ~~from~~Crossley ~~Santa Ana, California to Truro, Nova Scotia~~transfer.

Effective May 1, 2004, the Company amended its Senior Credit Facility to revise certain covenants. The amended principal financial covenants are as follows:


	Q1	Q2	Q3	Q4	Thereafter
Fixed charge coverage ratio	1.00:1.00	1.00:1.00	1.00:1.00	1.10:1.00	1.10:1.00
Interest coverage ratio	1.75:1.00	1.75:1.00	1.85:1.00	2.00:1.00	2.25:1.00

The Company’s fixed charge coverage ratio and interest coverage ratio were 1.4973:1.00 and 2.2954:1.00, respectively, at ~~July~~October 3130, 2004. As is customary in debt agreements, in the event the Company is not in compliance with the covenants of the Senior Credit Facility, the Company will also be subject to the provisions of a cross-default for the 9.75% Senior Subordinated Notes. The Company was in compliance with all covenants as of ~~July~~October 3130, 2004 and expects to remain in compliance throughout fiscal 2004, although no assurances to that effect can be given.

Total net interest expense was $54.29 million and $5.24 million for the thirteen weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, respectively, which ~~included~~includes minimal interest income. Total net interest expense was $1015.31 and $1016.60 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, respectively, which ~~included~~includes minimal interest income.

12. Segment Information

~~The~~Based ~~Company~~on ~~has~~the ~~adopted~~provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”). ~~This statement~~ which addresses reporting of operating segment information and disclosures about products, services, geographic areas, and major customers., ~~Management~~management believes that the Company has ~~reviewed~~two reportable segments: Floorcoverings and Extrusion. Accounting policies of the ~~requirements~~segments are the same as those described in the summary of ~~SFAS~~significant Noaccounting policies. ~~131~~Performance ~~concluding~~of ~~that~~the segments is evaluated on Adjusted EBITDA, which represents earnings before interest, taxes, depreciation and amortization, noncash charges or expenses (other than the ~~Company~~write-down ~~operates~~of ~~its~~current ~~business~~assets), ascosts ~~two~~related ~~reportable~~to ~~segments:~~board-approved ~~Floorcoverings~~acquisitions and ~~Extrusion.~~attempted acquisitions, expenses related to the facility maximization project, plus Chroma cash dividends and minority interest in income (loss) of subsidiary, less equity in earnings of Chroma.

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 and amortization plus Chroma cash dividends and minority interest in income (loss) of subsidiary, 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 and 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~~four ~~customer~~largest external customers accounted for 1525.85%, 25.1%, 14.3% and 3710.03% of sales ~~and~~in ~~its~~the ~~second~~thirteen weeks ended October 30, 2004. The Extrusion segment’s largest external customer accounted for 1040.25% and 10its second largest external customer accounted for 14.31% of sales in the ~~thirteen weeks and twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004~~, respectively~~.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended		~~Twenty-Six Weeks Ended~~
	July 26, 2003				July 31, 2004				July 26, 2003			July 31, 2004
	October 25,2003			October 30,2004			October 25,2003			October 30,2004
Net Sales to External Customers
Floorcoverings	$	8667,~~743~~546		$	$76,835	~~94,917~~	$	218,086	$	~~150,540~~$	241,762	$	~~164,927~~
Extrusion		76,~~188~~593			5,666	~~4,685~~		21,553		~~14,960~~	18,026		~~12,360~~
Total Sales to External Customers	$	9374,~~931~~139		$	$82,501	~~99,602~~	$	239,639	$	~~165,500~~$	259,788	$	~~177,287~~
	Thirteen Weeks Ended								Twenty-Six Weeks Ended
	July 26,2003				July 31,2004				July 26,2003			July 31,2004
Adjusted EBITDA
Floorcoverings	$	16,881			$	21,484			$	25,662		$	28,133
Extrusion		1,346				598				2,733			2,078
Total Adjusted EBITDA	$	18,227			$	22,082			$	28,395		$	30,211
	Thirteen Weeks Ended								Twenty-Six Weeks Ended
	July 26,2003				July 31,2004				July 26,2003			July 31, 2004
Net income	$	5,078			$	7,951			$	4,981		$	7,196
Income taxes		3,799				5,390				3,118			5,968
Net interest expense		5,199				5,150				10,605			10,273
Depreciation		2,512				2,533				5,024			5,119
Amortization		1,528				765				3,056			1,531
Chroma cash dividends		405				644				2,282			922
Equity in earnings in Chroma		(326	)			(365	)			(687	)		(776	)
Minority interest in income (loss) of subsidiary		32				14				16			(22	)
Adjusted EBITDA	$	18,227			$	22,082			$	28,395		$	30,211

	As of January 31, 2004		As of July 31, 2004
	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
Consolidated Assets
	October 25,2003		October 30,2004		October 25,2003		October 30,2004
Floorcoverings	$	267,090	$	287,470
Adjusted EBITDA
Extrusion		32,058		28,943
Floorcoverings	$	8,183	$	12,710	$	33,846	$	40,843
Total Consolidated Assets	$	299,148	$	316,413
Extrusion		1,236		816		3,969		2,894
Total Adjusted EBITDA	$	9,419	$	13,526	$	37,815	$	43,737


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 25, 2003			October 30, 2004			October 25, 2003			October 30, 2004
Net income	$	35		$	1,827		$	5,016		$	9,023
Income tax expense (benefit)		(1,345	)		2,450			1,773			8,418
Net interest expense		5,381			4,876			15,986			15,149
Depreciation		2,665			2,569			7,689			7,688
Amortization		1,528			768			4,584			2,299
Chroma cash dividends		740			—			3,023			922
Equity in earnings in Chroma		(387	)		(117	)		(1,074	)		(893	)
Minority interest in income (loss) of subsidiary		10			2			26			(20	)
Other Noncash Expense		—			133			—			133
Expenses associated with facility maximization project		—			1,018			—			1,018
Costs associated with unsuccessful acquisition		792			—			792			—

Adjusted EBITDA	$	9,419		$	13,526		$	37,815		$	43,737


	As of January 31, 2004		As of October 30, 2004
Consolidated Assets
Floorcoverings	$	267,090	$	285,068
Extrusion		32,058		28,539

Total Consolidated Assets	$	299,148	$	313,607

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13. Investment in Equity Affiliate

~~Monterey~~Subsequent ~~Color~~to ~~Systems~~October 30, 2004, the Company successfully negotiated its exit from the Chroma partnership and entered into the Chroma Transition Agreement with Dixie Group, Inc. (“Dixie”) to allow for the transition of dyeing and finishing services needed until the Santa Ana, aCalifornia ~~wholly~~manufacturing ~~owned~~facility ~~subsidiary~~has been closed. Prior to the execution of this Agreement, Monterey ~~Carpets~~Color Systems, Inc. (“Monterey ~~Carpets~~Color Systems”), ~~has~~had a fifty percent (50%) ownership interest in Chroma ~~Systems Partners (“Chroma”)~~, which operates a carpet dyeing and finishing plant. Because the Company ~~does~~did not exercise control over Chroma, the Company ~~accounts~~accounted for its interest in Chroma under the equity method of accounting. The unaudited condensed financial information of Chroma for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, and as of ~~July~~October 3130, 2004 and January 31, 2004 are summarized below:

	As of January 31, 2004		As ~~ofJuly~~of 31October 30, 2004
Current Assets	$	2,203	$	2,~~094~~274
Non-current Assets		7,925		7,~~861~~750
Total Assets	$	10,128	$	910,~~955~~024
Current Liabilities	$	1,517	$	1,~~105~~254
Long Term Debt		8,513		8,~~420~~371
Partners’ Capital		98		~~430~~399
Total Liabilities and Partners’ Capital	$	10,128	$	910,~~955~~024

	Twenty-Six Weeks Ended
	Thirty-Nine Weeks Ended
	July 26, 2003		July 31,2004
	October 26,2003		October 30, 2004
Net Sales	$	813,~~872~~801	$	1014,~~172~~887
Cost of Goods Sold		710,~~004~~847		811,~~100~~895
Gross Profit		12,~~868~~954		2,~~072~~992
Income From Operations		12,~~412~~252		12,~~573~~254
Net Income		12,~~338~~124		12,~~477~~112

On August 11, 2004, Monterey ~~Carpets~~ gave notice to ~~The~~ Dixie ~~Group, Inc. (“Dixie”)~~ that it ~~has~~had elected to terminate its supply arrangement with Chroma effective August, 2005. Chroma ~~currently~~has ~~dyes~~historically dyed and ~~finishes~~finished substantially all of Monterey ~~Carpets~~’ s carpet production and Dixie’s Fabrica Division’s carpet production and performs dyeing and finishing operations for other carpet mills. ~~Under~~The Chroma Transition Agreement provides for the ~~terms~~Company’s ofwithdrawal from the partnership ~~agreement,~~and ~~Monterey~~for ~~Carpets’~~the ~~decision~~transition ~~will~~of ~~effectively~~the ~~give~~continued dyeing and ~~Dixie~~finishing needs of Monterey, until the ~~option~~closing of the Santa Ana, California facility is completed. A charge of $0.2 million has been recorded as of October 30, 2004 to ~~acquire~~reflect ~~Monterey~~the ~~Carpets~~negotiated settlement related to Monterey’s ~~interest~~early intermination ~~the~~of its ~~partnership~~Dyeing ~~for~~and aFinishing ~~nominal~~Agreement ~~value~~with Chroma and ~~assume~~withdrawal ~~full~~from ~~control~~the Chroma Partnership. It is anticipated that the closure of ~~Chroma’s~~the ~~operations~~Santa ~~when~~Ana, California facility will be complete by the ~~supply~~end ~~agreement~~of ~~terminates.~~the Company’s first fiscal quarter in 2005.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. Comprehensive Income

Comprehensive income is as follows (in thousands):

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 26,2003		July 31,2004		July 26,2003		July 31,2004
	October 25,2003		October 30,2004		October 25,2003		October 30,2004
Net Income	$	~~5,078~~35	$	71,~~951~~827	$	45,~~981~~016	$	79,~~196~~023
Other Comprehensive Income (Loss): Foreign Currency Translation Adjustments		245		21		660		(31	)
Other Comprehensive Income:
Comprehensive Income	$	5,323	$	7,972	$	5,641	$	7,165
Foreign Currency Translation Adjustments		127		522		787		491
Comprehensive Income	$	162	$	2,349	$	5,803	$	9,514

1315. Commitments and Contingencies

During March 2004, a jury found in favor of Employers Mutual Insurance Companies (“EMC”) related to alleged violations of express oral warranty and implied warranty of fitness for particular purpose and awarded damages to EMC totaling $0.8 million. The Company accrued the full judgment amount of $0.8 million as of January 31, 2004. During the thirteen and thirty-nine weeks ended October 30, 2004, the Company incurred approximately $0.1 million and $0.6 million, respectively, of legal expenses related to this lawsuit. The Company requested a new trial. The judge granted the Company’s motion for a new trial but allowed EMC to reduce the judgment by $0.2 million to avoid a new trail. EMC agreed to the reduction of the judgment by $0.2 million. The Company has appealed the $0.2 million reduction of the judgment and EMC has counter appealed. If the Company is unsuccessful, it will be required to pay the judgment amount and related legal and professional fees. The amount accrued in the consolidated balance sheet for the judgment was reduced to $0.6 million during the thirteen weeks ended October 30, 2004.

On August 10, 2004, the Company and its parent announced its intent to close its manufacturing facility in Santa Ana, California, and transfer the production to its existing Truro, Nova Scotia, Canada, facility (the “facility maximization project”). The plan to close the facility was approved by the Company’s Board of Directors on August 9, 2004, and is expected to be complete by the end of the Company’s first fiscal quarter in 2005. It is anticipated that the costs incurred will be less than the $6.4 million previously disclosed by the Company in its Form 8-K filed on August 10, 2004. It is currently estimated that the remaining costs will be approximately $3.9 million and consist of severance, lease termination, moving, reinstallation, professional fees and other costs. As part of the facility maximization project, the Company negotiated with the Nova Scotia government the forgiveness of the remaining $1.3 million of Crossley’s sinking fund bonds debt outstanding. The forgiveness will be over the remaining five-year term of the current note and is based upon certain employee hours worked during the year and will commence in fiscal 2005. The debt will also be non-interest bearing. During the thirteen weeks ended October 30, 2004, the Company incurred approximately $1.0 million in costs associated with the facility maximization project, which consist of professional fees, severance and other related costs. Costs of Goods Sold included $0.4 million and Selling, General and Administrative Expenses included $0.6 million of these expenses in the accompanying Consolidated Statement of Income. In addition the Company anticipates capital expenditures of approximately $3.0 million related to the move.

The costs incurred and the anticipated expenditures remaining are as follows:


(Amounts in millions)	Anticipated Total Expenditures as of August 10, 2004		Change in Estimate of Expenditures as of October 30, 2004			Amounts Incurred as of October 30, 2004		Anticipated Remaining Expenditures
Severance Costs	$	1.8	$	0.3		$	0.4	$	1.7
Contractual Obligations and Professional Fees		3.1		(1.8	)		0.1		1.2
Other Project Costs		1.5		—			0.5		1.0

Gross Project Expenditures	$	6.4	$	(1.5	)	$	1.0	$	3.9

The accrued facility maximization costs at October 30, 2004 amounted to $0.6 million, which consisted of severance and other costs. These costs are included in Accrued Expenses in the accompanying Consolidated Balance Sheets.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15On November 8, 2004, the Company executed the Chroma Transition Agreement (the “Agreement”). ~~Commitments~~As &part ~~Contingencies~~of the Agreement and California Partnership Law, the Company retains its share of the third party claims that may be asserted for the period prior to the Company’s exit from the partnership.

On August 10, 2004, the Company and its parent announced its intent to close its manufacturing facility in Santa Ana, California, and transfer the production to its existing Truro, Nova Scotia, Canada, facility. The plan to close the facility was approved on August 9, 2004, and is expected to be complete by the end of the Company’s first fiscal quarter in 2005. It is anticipated that there will be one-time costs of approximately $6.4 million consisting of severance, moving, reinstallation, professional fees and other costs. In addition the Company anticipates capital expenditures of approximately $2.8 million related to the move. No costs have been incurred or accrued as of July 31, 2004.

16. Employee Benefit Plans

The Company maintains a defined benefit program for its domestic employees, which was frozen during fiscal 2002. Accordingly, no new benefits are being accrued under the plan. Participant accounts are credited with interest at the ~~rates~~federally ~~defined~~mandated ~~by the plan~~rates. Company contributions are based on computations by independent actuaries, although the Company may decide to make additional contributions to the plan beyond minimum funding requirements as is deemed appropriate by management. Plan assets at ~~July~~October 3130, 2004 and ~~January~~October 3125, ~~2004~~ 2003 were invested primarily in mutual funds and money market funds.

Net periodic pension cost for the thirteen weeks and ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003 was comprised of the following components:

	Thirteen Weeks Ended						~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	July 26,2003			July 31,2004			July 26,2003			July 31, 2004
	October 25,2003			October 30,2004			October 25,2003			October 30, 2004
Service cost – benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation		~~(25~~72	)		~~(136~~69	)		~~145~~217			~~137~~206
Expected return on plan assets		23(66	)		65(2	)		(~~130~~196	)		(~~181~~183	)
Recognized net actuarial losses		~~(12~~36	)		~~(88~~25	)		73109			4974
Net periodic pension cost (benefit)	$	(14	)	$	(159	)	$	88		$	5
Net periodic pension cost	$	42		$	92		$	130		$	97

Employer contributions of $0.32 million and $0.23 million were made for the thirteen weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, and $0.57 million and $0.58 million were made for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, respectively. There is no additional minimum employer contribution required for the remainder of fiscal 2004.

Canadian Defined Benefit Plan

Substantially all Canadian employees of Crossley Carpets Ltd. (“Crossley”) who meet eligibility requirements can participate in a defined benefit plan administered by the Company. Plan benefits are generally based on years of service and employees’ compensation during their years of employment. The Company’s policy is to contribute ~~annually~~ the maximum amount annually that can be deducted for income tax purposes. Assets of the pension plan are held in a trust invested primarily in mutual funds.

1415

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Net periodic pension cost for the thirteen weeks and ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July~~ 26October 25, 2003 was comprised of the following components:

Thirteen Weeks Ended

~~Twenty~~Thirty-~~Six~~Nine Weeks Ended

July 26,2003

July 31,2004

July 26,2003

July 31, 2004

October 25,2003

October 30,2004

October 25,2003

October 30, 2004

Service cost – benefits earned during the period

~~166~~99

~~198~~140

~~199~~298

~~279~~419

Interest cost on projected benefit obligation

~~152~~91

~~128~~101

~~182~~273

~~202~~303

Expected return on plan assets

(~~154~~93

)

(~~145~~110

)

(~~185~~278

)

(~~220~~330

)

Recognized net actuarial losses

2(1

)

1—

Net periodic pension cost

~~166~~96

~~182~~131

~~199~~295

~~262~~393

Employer contributions for fiscal 2004 are dependent upon the amounts contributed by employees and were $0.1 million and $0.2 million for the thirteen weeks and ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 and ~~July~~October 2625, 2003, respectively. Company contributions are expected to be approximately $0.31 million induring the fourth quarter of fiscal 2004.

Postretirement Benefit Plan

The Company provides a fixed dollar reimbursement for life and medical coverage for certain of the Company’s retirees (over age 65 with 10 years of service or more) under the plan currently in effect. The plan is unfunded.

Net periodic ~~postretirement~~pension ~~benefit~~ costs for the thirteen weeks and ~~twenty~~thirty-~~six~~nine weeks ended October ~~July 31~~30, 2004 and ~~July~~October 2625, 2003 was comprised of the following components:

	Thirteen Weeks Ended				~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	July 26,2003		July 31,2004		July 26,2003		July 31, 2004
	October 25,2003		October 30,2004		October 25,2003		October 30, 2004
Service cost – benefits earned during the period	$	5644	$	3759	$	80124	$	83142
Interest cost on projected benefit obligation		4333		2845		6093		62107
Net periodic postretirement benefit cost	$	99	$	65	$	140	$	145
Net periodic pension cost	$	77	$	104	$	217	$	249

17. Condensed Consolidating Financial Statements

The 9.75% Notes of the Company are guaranteed by the Company’s domestic subsidiaries. Effective August 18, 2004, Monterey ~~Carpets, Inc.~~ was released as a guarantor. The guarantee of the guarantor subsidiaries is full and unconditional and joint and several and arose in conjunction with the Company’s issuance of the 9.75% Notes on February 20, 2002 and the $109.0 million Senior Credit Facility, which was amended by the Company on February 20, 2002, May 1, 2004 and August 18, 2004. 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 ~~July~~October 3130, 2004 is $~~214~~209.48 million. This represents the principal amount outstanding of the Company’s Senior Credit Facility, the 9.75% Notes and accrued interest on both obligations. ~~The condensed~~As ~~consolidating~~discussed ~~financial~~in ~~information~~Note of11, ~~the~~on ~~Company~~August ~~and~~18, ~~its~~2004, ~~subsidiaries~~the asCompany ofexecuted ~~July~~the ~~31,~~Amendment ~~2004~~to ~~and~~its ~~January~~Senior ~~31,~~Credit ~~2004,~~Facility. ~~and~~The ~~for~~condensed ~~each~~consolidating financial information of the ~~thirteen~~Company ~~weeks~~ and ~~twenty-six~~its ~~weeks~~subsidiaries ~~ended~~as ~~July~~of 31October 30, 2004 ~~and~~reflect ~~July~~the ~~26,~~changes ~~2003~~in ~~are~~the guarantor subsidiaries as ~~follows:~~discussed above.

1516

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The condensed consolidating financial information of the Company and its subsidiaries as of October 30, 2004 and January 31, 2004, and for each of the thirteen weeks and thirty-nine weeks ended October 30, 2004 and October 25, 2003 are as follows:

Guarantor Financial Statements

Condensed Consolidating Balance Sheets

~~July~~October 3130, 2004

(Unaudited and In Thousands)

	Issuer			GuarantorSubsidiaries			~~Non-GuarantorSubsidiaries~~	Non-GuarantorSubsidiaries			~~Eliminations~~	Eliminations			~~ConsolidatedTotal~~	ConsolidatedTotal
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	614,~~290~~449		$	—		$	~~3,734~~$	3,109		$	—$	—		$	~~10,024~~$	17,558
Accounts receivable, net		3329,~~056~~775			113,~~218~~357			~~6,995~~	7,332			—	—			~~51,269~~	40,464
Inventories		2231,~~078~~251			123,~~233~~845			~~9,605~~	10,226			—	—			~~43,916~~	45,322
Deferred tax assets		3,~~290~~125			~~859~~86			~~701~~	765			—	—			~~4,850~~	3,976
Prepaid expenses and other		~~783~~798			~~448~~—			~~1,218~~	1,403			—	—			~~2,449~~	2,201
Total current assets		6579,~~497~~398			247,~~758~~288			~~22,253~~	22,835			—	—			~~112,508~~	109,521
PROPERTY, PLANT AND EQUIPMENT, net		32,~~674~~161			1915,~~838~~199			~~11,731~~	18,058			—	—			~~64,243~~	65,418
DEFERRED TAX ASSETS		—			~~2,225~~—			~~1,871~~	2,341			~~(4,096~~	)(2,341	)		—	—
GOODWILL		62,386			355,~~992~~631			—	30,361			—	—			~~98,378~~	98,378
OTHER INTANGIBLE ASSETS, net		3231,~~230~~628			~~492~~328			—	—			—	—			~~32,722~~	31,956
INVESTMENT IN SUBSIDIARIES		71,~~059~~416			—			—	—			~~(71,059~~	)(71,416	)		—	—
OTHER ASSETS		8,~~468~~144			393			91	97			—	—			~~8,562~~	8,334
TOTAL ASSETS	$	~~272~~285,~~314~~133		$	8328,~~308~~539		$	~~35,946~~$	73,692		$	~~(75,155~~$	)(73,757	)	$	~~316,413~~$	313,607
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	95,~~483~~040		$	53,~~400~~587		$	~~4,581~~$	7,352		$	—$	—		$	~~19,464~~$	15,979
Accrued expenses		1812,~~506~~266			~~7,666~~227			~~3,005~~	10,932			—	—			~~29,177~~	23,425
Current portion of long-term debt		~~241~~321			—			~~1,312~~	156			—	—			~~1,553~~	477
Total current liabilities		2817,~~230~~627			133,~~066~~814			~~8,898~~	18,440			—	—			~~50,194~~	39,881
INTERCOMPANY (RECEIVABLE) PAYABLE		(256,~~715~~695	)		125,~~586~~074			~~24,129~~	(18,379	)		—	—			—	—
OTHER LIABILITES, including post- retirement obligation		4,222			—			84				—				4,306
OTHER LIABILITES, including post-retirement obligation		4,234			—				76				—				4,310
DEFERRED TAX LIABILITES		57,~~711~~832			—107			—	9			~~(4,096~~	)(2,341	)		~~1,615~~	5,607
LONG-TERM DEBT, net of current portion		~~206~~205,~~009~~929			—			~~112~~	1,351			—	—			~~206,121~~	207,280
MINORITY INTEREST		—			—			—	—			~~320~~	323			~~320~~	323
STOCKHOLDER’S EQUITY
Preferred stock		—			—			~~133~~	133			~~(133~~	)(133	)		—	—
Common stock		—			~~2,056~~—			~~9,061~~	11,117			~~(11,117~~	)(11,117	)		—	—
Paid-in capital		72,648			~~49,699~~—			~~2,365~~	52,064			~~(52,064~~	)(52,064	)		~~72,648~~	72,648
Retained earnings (deficit)		(1715,~~313~~486	)		~~16,901~~(456	)		~~(8,410~~	)8,785			~~(8,491~~	)(8,329	)		~~(17,313~~	)(15,486	)
Accumulated other comprehensive loss		(~~1,478~~956	)		—			~~(426~~	)96			~~426~~	(96	)		~~(1,478~~	)(956	)
Total stockholders’ equity		5356,~~857~~206			~~68,656~~(456	)		~~2,723~~	72,195			~~(71,379~~	)(71,739	)		~~53,857~~	56,206
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	~~272~~285,~~314~~133		$	8328,~~308~~539		$	~~35,946~~$	73,692		$	~~(75,155~~$	)(73,757	)	$	~~316,413~~$	313,607

1617

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Balance Sheets

January 31, 2004

(In Thousands)

	Issuer			GuarantorSubsidiaries		Non- GuarantorSubsidiaries			Eliminations			ConsolidatedTotal
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,667		$	106	$	4,268		$	—		$	11,041
Accounts receivable, net		18,443			10,882		6,694			—			36,019
Inventories		15,586			11,124		8,753			—			35,463
Deferred tax assets		2,677			633		703			—			4,013
Prepaid expenses and other		524			105		1,138			3,194			4,961
Total current assets		43,897			22,850		21,556			3,194			91,497
PROPERTY, PLANT AND EQUIPMENT, net		34,232			21,607		10,223			—			66,062
DEFERRED TAX ASSETS		—			2,250		1,876			(4,126	)		—
GOODWILL		62,386			35,992		—			—			98,378
OTHER INTANGIBLE ASSETS, net		33,435			820		—			—			34,255
INVESTMENT IN SUBSIDIARIES		71,335			—		—			(71,335	)		—
OTHER ASSETS		8,687			177		92			—			8,956
TOTAL ASSETS	$	253,972		$	83,696	$	33,747		$	(72,267	)	$	299,148
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	8,487		$	5,751	$	3,484		$	—		$	17,722
Accrued expenses		8,260			6,096		2,748			3,194			20,298
Current portion of long-term debt		80			—		1,711			—			1,791
Total current liabilities		16,827			11,847		7,943			3,194			39,811
INTERCOMPANY (RECEIVABLE) PAYABLE		(24,520	)		4,585		19,935			—			—
OTHER LIABILITIES, including post-retirement obligation		4,667			—		101			—			4,768
DEFERRED TAX LIABILITIES		4,136			—		9			(4,126	)		19
LONG-TERM DEBT, net of current portion		206,170			—		1,346			—			207,516
MINORITY INTEREST		—			—		—			342			342
STOCKHOLDER’S EQUITY:
Preferred stock		—			—		133			(133	)		—
Common stock		—			2,056		9,061			(11,117	)		—
Paid-in capital		72,648			49,699		2,365			(52,064	)		72,648
Retained earnings (deficit)		(24,509	)		15,509		(6,751	)		(8,758	)		(24,509	)
Accumulated other comprehensive loss		(1,447	)		—		(395	)		395			(1,447	)
Total stockholders’ equity		46,692			67,264		4,413			(71,677	)		46,692
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	253,972		$	83,696	$	33,747		$	(72,267	)	$	299,148

1718

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Statements of Income

For the Thirteen Weeks Ended ~~July~~October 3130, ~~2004~~ 2004

(Unaudited and In Thousands)

	Issuer			~~GuarantorSubsidiaries~~	GuarantorSubsidiaries		~~Non-GuarantorSubsidiaries~~	Non- GuarantorSubsidiaries			~~Eliminations~~	Eliminations			~~ConsolidatedTotal~~	ConsolidatedTotal
Net Sales	$	7254,~~161~~445		$	~~25,139~~$	7,308	$	~~13,773~~$	33,232		$	~~(11,471~~$	)(12,484	)	$	~~99,602~~$	82,501
Cost of Goods Sold		4034,~~999~~715			~~19,663~~	7,008		~~11,376~~	25,775			~~(11,471~~	)(12,484	)		~~60,567~~	55,014
Selling, General & Administrative Expenses		1310,~~060~~999			~~4,508~~	—		~~2,562~~	6,549			—	—			~~20,130~~	17,548
Amortization		~~602~~603			~~163~~	165		—	—			—	—			~~765~~	768
Operating Expenses		5446,~~661~~317			~~24,334~~	7,173		~~13,938~~	32,324			~~(11,471~~	)(12,484	)		~~81,462~~	73,330
Operating Income		178,~~500~~128			~~805~~	135		~~(165~~	)908			—	—			~~18,140~~	9,171
Minority Interest in Income of Subsidiary		—			—			14				—				14
Net Interest Expense		4,855				—			21				—				4,876
Equity in Earnings of Affiliate		—			365			—				—				365
Minority Interest in Income of Subsidiary		—				—			2				—				2
Equity in Earnings of Subsidiaries		490			—			—				(490	)			—
Equity in Earnings of Affiliate		—				—			117				—				117
Net Interest Expense		5,123			—			27				—				5,150
Equity in Earnings of Subsidiaries		(164	)			—			—				164				—
Income (Loss) Before Income Taxes		12,867			1,170			(206	)			(490	)			13,341
Other Expense		—				133			—								133
Income Tax Expense		4,916			456			18				—				5,390
Income Before Income Taxes		3,109				2			1,002				164				4,277
Net Income (Loss)	$	7,951		$	714		$	(224	)		$	(490	)		$	7,951
Income Tax Expense		1,282				2			1,166				—				2,450
Net Income (Loss)	$	1,827			$	—		$	(164	)		$	164			$	1,827

1819

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Statement of Income

For the Thirteen Weeks Ended ~~July~~October 2625, ~~2003~~ 2003

(Unaudited and In Thousands)

	Issuer			~~GuarantorSubsidiaries~~	GuarantorSubsidiaries		~~Non-GuarantorSubsidiaries~~		Non-GuarantorSubsidiaries		~~Eliminations~~		Eliminations		~~ConsolidatedTotal~~		ConsolidatedTotal
Net Sales	$	6445,~~962~~410		$	~~23,438~~$	23,519	$	~~11,831~~	$	12,113	$	~~(6,300~~	)$	(6,903	$)	~~93,931~~	$	74,139
Cost of Goods Sold		3729,~~527~~966			~~17,743~~	17,941		~~10,199~~		10,847		~~(6,300~~	)	(6,903	)	~~59,169~~		51,851
Selling, General & Administrative Expenses		1310,~~066~~691			~~4,681~~	5,181		~~1,705~~		1,194		—		—		~~19,452~~		17,066
Amortization		874			~~654~~	654		—		—		—		—		~~1,528~~		1,528
Operating Expenses		5141,~~467~~531			~~23,078~~	23,776		~~11,904~~		12,041		~~(6,300~~	)	(6,903	)	~~80,149~~		70,445
Operating Income (Loss)		133,~~495~~879			~~360~~	(257	)	~~(73~~	)	72		—		—		~~13,782~~		3,694
Minority Interest in Income of Subsidiary		—			—			32				—				32
Net Interest Expense		5,334				—				47				—				5,381
Equity in Earnings of Affiliate		—			326			—				—				326
Minority Interest in Income of Subsidiary		—				—				10				—				10
Equity in Earnings of Subsidiaries		215			—			—				(215	)			—
Equity in Earnings of Affiliate		—				387				—				—				387
Net Interest Expense		5,151			—			48				—				5,199
Equity in Earnings of Subsidiaries		799				—				—				(799	)			—
Income (Loss) Before Income Taxes		~~8,559~~(656	)		~~686~~	130		~~(153~~	)	15		~~(215~~	)	(799	)	~~8,877~~		(1,310	)
Income Tax Expense		3,481			282			36				—				3,799
Income Tax Expense (Benefit)		(691	)			(691	)			37				—				(1,345	)
Net Income (Loss)	$	~~5,078~~35		$	~~404~~$	821	$	~~(189~~	)$	(22	$)	~~(215~~	)$	(799	$)	~~5,078~~	$	35

1920

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Statement of Income

For the ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~July~~October 3130, 2004

(Unaudited and In Thousands)

	Issuer			GuarantorSubsidiaries		Non- GuarantorSubsidiaries			Eliminations			ConsolidatedTotal
Net Sales	$	~~121~~176,~~606~~051		$	5023,~~992~~185	$	2593,~~348~~695		$	(2033,~~659~~143	)	$	~~177~~259,~~287~~788
Cost of Goods Sold		72106,~~107~~822			3921,~~823~~846		2071,~~712~~472			(2033,~~659~~143	)		~~111~~166,~~983~~997
Selling, General & Administrative Expenses		2536,~~636~~635			~~9,293~~—		622,~~205~~047			—			4158,~~134~~682
Amortization		1,~~204~~807			~~327~~492		—			—			12,~~531~~299
Operating Expenses		98145,~~947~~264			4922,~~443~~338		2693,~~917~~519			(2033,~~659~~143	)		~~154~~227,~~648~~978
Operating Income (Loss)		22,659			1,549		(1,569	)		—			22,639
Operating Income		30,787			847		176			—			31,810
Minority Interest in Loss of Subsidiary		—			—		(22	)		—			(22	)
Net Interest Expense		15,074			—		75			—			15,149
Equity in Earnings of Affiliate		—			776		—			—			776
Minority Interest in Loss of Subsidiary		—			—		(20	)		—			(20	)
Deficit in Earnings of Subsidiaries		(246	)		—		—			246			—
Equity in Earnings of Affiliate		—			—		893			—			893
Net Interest Expense		10,219			—		54			—			10,273
Equity in Earnings of Subsidiaries		(410	)		—		—			410			—
Income (Loss) Before Income Taxes		12,194			2,325		(1,601	)		246			13,164
Other Expense		—			133		—			—			133
Income Tax Expense		4,998			933		37			—			5,968
Income Before Income Taxes		15,303			714		1,014			410			17,441
Net Income (Loss)	$	7,196		$	1,392	$	(1,638	)	$	246		$	7,196
Income Tax Expense		6,280			290		1,848			—			8,418
Net Income (Loss)	$	9,023		$	424	$	(834	)	$	410		$	9,023

2021

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Statements of Income

For the ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~July 26,~~October 25, 2003

(Unaudited and In Thousands)

	Issuer		GuarantorSubsidiaries			Non- GuarantorSubsidiaries			Eliminations			ConsolidatedTotal
Net Sales	$	~~108~~154,~~649~~059	$	4468,~~762~~281		$	2335,~~037~~150		$	(1017,~~948~~851	)	$	~~165~~239,~~500~~639
Cost of Goods Sold		6494,~~570~~536		3452,~~134~~075			1930,~~745~~592			(1017,~~948~~851	)		~~107~~159,~~501~~352
Selling, General & Administrative Expenses		2435,~~387~~078		813,~~740~~921			34,~~783~~977			—			3653,~~910~~976
Amortization		12,~~748~~622		1,~~308~~962			—			—			34,~~056~~584
Operating Expenses		90132,~~705~~236		4467,~~182~~958			2335,~~528~~569			(1017,~~948~~851	)		~~147~~217,~~467~~912
Operating Income (Loss)		1721,~~944~~823		~~580~~323			(~~491~~419	)		—			1821,~~033~~727
Minority Interest in Income of Subsidiary		—		—			16			—			16
Net Interest Expense		15,859		—			127			—			15,986
Equity in Earnings of Affiliate		—		687			—			—			687
Minority Interest in Income of Subsidiary		—		—			26			—			26
Equity in Earnings of Subsidiaries		676		—			—			(676	)		—
Equity in Earnings of Affiliate		—		1,074			—			—			1,074
Net Interest Expense		10,525		—			80			—			10,605
Equity in Earnings of Subsidiaries		1,475		—			—			(1,475	)		—
Income (Loss) Before Income Taxes		87,~~095~~439		1,~~267~~397			(~~587~~572	)		(~~676~~1,475	)		86,~~099~~789
Income Tax Expense (Benefit)		32,~~114~~423		(66757	)		70107			—			31,~~118~~773
Net Income (Loss)	$	45,~~981~~016	$	12,~~333~~154		$	(~~657~~679	)	$	(~~676~~1,475	)	$	45,~~981~~016

2122

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Statements of Cash Flows

For the ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~July~~ 31October 30, 2004

(Unaudited and In Thousands)

	Issuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Consolidated Total
CASH FLOWS FROM OPERATING ACTIVITIES	$	~~(11~~9,~~588~~843	)	$	~~(736~~135	)	$	154,~~584~~099		$	314,~~260~~077
CASH FLOWS FROM INVESTING ACTIVITIES:
Equity distribution from affiliate		—			~~922~~—			—922			922
Additions to property, plant and equipment		(~~932~~1,681	)		(~~186~~135	)		(24,~~293~~831	)		(36,~~411~~647	)
Net cash (used in) provided by investing activities		(932	)		736			(2,293	)		(2,489	)
Net cash used in investing activities		(1,681	)		(135	)		(3,909	)		(5,725	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		15,280			—			—			15,280
Repayments of revolving credit facilities		(15,280	)								(15,280	)
Repayments of long-term debt		—			—			(1,~~573~~618	)		(1,~~573~~618	)
Financing costs		(~~237~~380	)		—			—			(~~237~~380	)
Net cash used in financing activities		(~~237~~380	)		—			(1,~~573~~618	)		(1,~~810~~998	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		—			—			22163			22163
NET CHANGE IN CASH AND CASH EQUIVALENTS		~~(12~~7,~~757~~782	)		—			11(1,~~740~~265	)		(16,~~017~~517	)
CASH AND CASH EQUIVALENTS, beginning of period		196,~~047~~667			—			(84,~~006~~374	)		11,041
CASH AND CASH EQUIVALENTS, end of period	$	614,~~290~~449		$	—		$	3,~~734~~109		$	1017,~~024~~558

2223

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Guarantor Financial Statements

Condensed Consolidating Statement of Cash Flows

For the ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~July 26,~~October 25, 2003

(Unaudited and In Thousands)

	Issuer			GuarantorSubsidiaries			Non- GuarantorSubsidiaries			Consolidated Total
CASH FLOWS FROM OPERATING ACTIVITIES	$	38,~~876~~316		$	(1,~~758~~598	)	$	~~250~~2,079		$	28,~~368~~797
CASH FLOWS FROM INVESTING ACTIVITIES:
Equity distribution from affiliate		—			23,~~282~~023			—			23,~~282~~023
Additions to property, plant and equipment		(24,~~772~~826	)		(~~476~~1,365	)		(~~882~~1,029	)		(47,~~130~~220	)
Net cash provided by (used in) investing activities		(24,~~772~~826	)		1,~~806~~658			(~~882~~1,029	)		(14,~~848~~197	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		3,500			—			—			3,500
Proceeds from revolving credit facilities		3,500			—			—			3,500
Repayments of revolving credit facility		(3,500	)		—			—			(3,500	)
Repayments of revolving credit facilities		(3,500	)		—			—			(3,500	)
Repayments of long-term debt		(1020,000	)		—			(1,~~130~~912	)		(1121,~~130~~912	)
Dividends to Tandus Group, Inc.		(2,263	)		—			—			(2,263	)
Financing Costs		(18	)		—			—			(18	)
Net cash used in financing activities		(1222,281	)		—			(1,~~130~~912	)		(1324,~~411~~193	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		—			—			~~318~~36			~~318~~36
NET CHANGE IN CASH AND CASH EQUIVALENTS		(1118,~~177~~791	)		4860			(~~1,444~~826	)		(1219,~~573~~557	)
CASH AND CASH EQUIVALENTS, beginning of period		19,047			—			1,860			20,907
CASH AND CASH EQUIVALENTS, end of period	$	~~7,870~~256		$	4860		$	~~416~~1,034		$	81,~~334~~350

18. ~~Subsequent~~Income ~~Events~~ Taxes

OnThe ~~August~~Company’s ~~10,~~effective ~~2004,~~tax ~~the~~rate ~~Company~~was 48.3% and ~~its~~26.1% ~~parent~~for ~~announced~~the ~~its~~thirty-nine ~~intent~~weeks toended ~~close~~October ~~its~~30, ~~manufacturing~~2004 ~~facility~~and inOctober ~~Santa Ana~~25, ~~California~~2003, ~~and~~respectively. ~~transfer~~The ~~the~~higher ~~production~~rate tofor ~~its~~the ~~existing~~thirty-nine ~~Truro,~~weeks ~~Nova~~ended ~~Scotia,~~October ~~Canada~~30, ~~facility.~~2004 ~~The~~was ~~plan~~primarily due to ~~close~~ the ~~facility~~recognition ~~was~~of ~~approved~~a ~~on August~~ $0.9, ~~2004,~~million ~~and~~valuation isallowance ~~expected~~against tocertain bestate ~~complete~~income tax bycredits ~~the~~carried ~~end~~forward offrom ~~the~~prior ~~Company’s~~periods ~~first~~that ~~fiscal~~may ~~quarter~~not be utilized in ~~2005~~future periods. ItThese credits were produced by Monterey and management believes it is ~~anticipated~~more likely than not that ~~there~~their ~~will~~use may be ~~one-time~~limited ~~costs~~after the closure of ~~approximately~~the $6Santa Ana, California facility.4 ~~million~~The ~~consisting~~tax ofbenefit ~~severance,~~for ~~moving,~~the ~~reinstallation,~~thirty-nine ~~professional~~weeks ~~fees~~ended ~~and~~October ~~other~~25, ~~costs.~~2003 Inwas ~~addition~~primarily due to the ~~Company~~ ~~anticipates~~initial ~~capital~~qualification ~~expenditures~~for ofthese ~~approximately~~credits, ~~$2.8~~which ~~million~~included a component related to ~~the~~prior ~~move.~~years Noand ~~costs~~was ~~have~~recorded ~~been~~during ~~incurred~~the orthirteen ~~accrued~~weeks ended asOctober ~~of July 31~~25, ~~2004~~2003.

~~On August 11, 2004, Monterey gave notice to Dixie that it has elected to terminate its supply arrangement with Chroma effective August 2005~~19. ~~Chroma currently~~Subsequent ~~dyes~~Events and finishes substantially all of Monterey’s carpet production and Dixie’s Fabrica Division’s carpet production and performs dyeing and finishing operations for other carpet mills. Under the terms of the partnership agreement, Monterey’s decision will effectively give Dixie the option to acquire Monterey’s interest in the partnership for a nominal value and assume full control of Chroma’s operations when the supply agreement terminates.

23Subsequent to October 30, 2004, the Company successfully negotiated its exit from the Chroma partnership and entered into the Chroma Transition Agreement (“Agreement”) with Dixie to allow for the transition of dyeing and finishing services needed until the Santa Ana, California manufacturing facility has been closed. It is anticipated to be complete by the end of the Company’s first fiscal quarter in 2005.

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On August 18, 2004, the Company executed Amendment No. 3 (the “Amendment”) to its Senior Credit Facility. The amendment provides for, among other things, 1) the transfer of certain of the broadloom manufacturing fixed assets located in Santa Ana, California to the Company’s facility, located in Truro, Nova Scotia, 2) the disposal of and/or transfer to Collins & Aikman Floorcoverings, Inc. of substantially all of the remaining Santa Ana, California fixed assets and transfer all or substantially all of the accounts receivable, inventory and other liquid current assets from its Monterey Carpets, Inc. legal entity to Collins & Aikman Floorcoverings, Inc., 3) the release of Monterey Carpets, Inc. as a subsidiary guarantor under the subsidiary guarantee agreement and the security agreement and any other loan documents to which it is a party, 4) the exclusion from the calculation of covenants of the costs incurred in connection with the consolidation of up to $10.0 million, and 5) the reduction of the credit spread to Libor plus 2.75 on the Term B Loan. The Amendment further authorizes the collateral agent to release any and all liens held by the collateral agent in or on the assets to be transferred from Santa Ana, California to Truro, Nova Scotia.

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 brand recognition,~~ 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 name for a wide variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. Because of the diversity of the Company’s end markets, management believes its business tends to be less sensitive to economic downturns than 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 tailored for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom, Singapore and China.

RESULTS OF OPERATIONS

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

	Thirteen Weeks Ended				~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	July 26,2003		July 31,2004		July 26,2003		July 31, 2004
	October 25,2003		October 30,2004		October 25,2003		October 30, 2004
Net Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of Goods Sold	6370.0		6066.87		6566.05		6364.23
Gross Profit	3730.0		3933.23		3533.05		3635.87
Selling, General & Administrative Expenses	2019.72		2021.23		22.35		2322.26
Amortization	12.61		0.89		1.89		0.89
Operating Income	144.79		1811.21		~~10.~~9.1		12.82
Net Interest Expense	57.53		5.29		6.47		5.8
Net Income	50.40		82.02		32.01		43.15
Adjusted EBITDA	1912.47		2216.24		1715.28		1716.08

Thirteen Weeks Ended ~~July~~October 3130, 2004 As Compared with the Thirteen Weeks Ended ~~July~~October 2625, 2003

Net Sales. Net sales for the thirteen weeks ended October ~~July 31~~30, 2004 were $9982.65 million, an increase of 611.13% from the $9374.91 million for the thirteen weeks ended ~~July~~October 2625, 2003. Net sales of the Company’s Floorcovering segment were $9476.98 million for the thirteen weeks ended ~~July~~October 3130, 2004 as compared to $8667.75 million for the thirteen weeks ended ~~July~~October 2625, 2003, an increase of $89.3 million or 913.68%. The increase in the Floorcovering segment’s net sales was due to improved demand throughout the specified commercial market in ~~the United States~~North America. Net sales of the Extrusion segment were $45.7 million for the thirteen weeks ended ~~July~~October 3130, 2004 as compared to $76.26 million for the thirteen weeks ended ~~July~~October 2625, 2003, a decrease of $20.59 million or 3413.86%. The reduction in sales for the Extrusion segment was due to lower sales this quarter to the ~~Extrusion~~former ~~segment’s~~owner ~~two~~than ~~largest~~in ~~customers~~the asprior ~~well~~year asperiod and significantly increased usage by the Company’s Floorcovering segment. The reduction was partially offset by increased sales to new ~~and existing~~ external customers ~~as well as increased usage by the Company’s Floorcovering segment~~.

Cost of Goods Sold. Cost of goods sold was $6055.60 million for the thirteen weeks ended ~~July~~October 3130, 2004 as compared to $5951.29 million in the thirteen weeks ended ~~July~~October 2625, 2003. As a percentage of sales, costs of goods sold were 6066.87% and 63 70.0% for the thirteen weeks ended ~~July 31~~October 30, 2004 and ~~July~~October 2625, 2003, respectively. The percentage decrease was primarily due to the increased absorption of fixed manufacturing costs as a result of improved sales volume, increased usage of yarn from the Company’s Extrusion facility and cost manufacturing improvements. Included in cost of goods sold for the 2004 period are expenses of $0.4 million related to the Company’s planned closure of its manufacturing facility in Santa Ana, California and transfer of production to its existing Truro, Nova Scotia facility. (See further discussion in Liquidity and Capital Resources.)

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $2017.15 million for the thirteen weeks ended October ~~July 31~~30, 2004, an increase of 32.18% from $1917.51 million in the thirteen weeks ended ~~July~~October 2625, 2003. This increase was primarily due to increased salaries, taxes and benefits of $01.89 million, ~~sampling~~partially ~~and~~offset ~~related~~by ~~costs~~lower oflegal ~~$0.6 million, commissions of $0.1 million,~~ and ~~currency~~professional expenses ~~exchange costs~~ of $01.30 million, ~~partially~~ ~~offset by~~ lower ~~legal~~advertising and ~~professional~~other expenses of $0.91 million and ~~advertising~~lower ~~and~~sampling ~~other~~expenses of $0.24 million. As a percentage of sales, these expenses decreased to 20.21% from 2023.71% in the prior year. Included in the selling, general and administrative expenses for the 2004 period is $0.6 million of expenses related to the Company’s planned closure and relocation of assets from the Santa Ana, California facility.

Amortization. Intangible asset amortization decreased to $0.8 million for the thirteen weeks ended ~~July~~October 3130, 2004 as compared to $1.5 million for the thirteen weeks ended ~~July~~October 2625, 2003. The decrease was due to the Company’s non-compete with its former parent being fully amortized as of January 31, 2004, and lower amortization of the extrusion supply agreement due to the non-cash impairment charge during the fourth quarter of fiscal 2003.

Interest Expense. Net interest expense was $4.9 million and $5.4 million for the thirteen weeks ended ~~July~~October 3130, 2004 and ~~thirteen~~October ~~weeks~~25, ~~ended~~2003, ~~July 26~~respectively, ~~2003~~which ~~was~~included ~~$5.2~~minimal ~~million~~interest ~~for~~income. ~~both~~The reduction ~~periods,~~was ~~which~~principally ~~included~~due ~~minimal~~to lower interest ~~income~~rates and lower levels of debt outstanding during the 2004 period.

Income Taxes. The Company had income tax expense of $52.45 million for the thirteen weeks ended ~~July~~October 3130, 2004 as compared to a tax benefit of $31.8 3 million for the thirteen weeks ended ~~July~~October 2625, 2003. The ~~increase~~Company’s effective tax rate for the thirteen weeks ended October 30, 2004 was ~~predominantly~~57.3% and was primarily due to ~~the~~1) higher profitability of the Company ~~during~~and its subsidiaries in the ~~second~~United States, ~~quarter~~2) combined net loss of ~~fiscal~~its ~~2004~~foreign subsidiaries against which no tax benefit can be recognized and, 3) the recognition of a $0.9 million valuation allowance against certain state income tax credits carried forward from prior periods that may not be utilized in future periods. These credits were produced by Monterey and management believes it is more likely than not that their use may by limited after the closure of the Santa Ana, California facility. The tax benefit for the thirteen weeks ended October 25, 2003 was primarily due to the initial qualification for these credits, which included a component related to prior years and was recorded during the thirteen weeks ended October 25, 2003.

Net Income. Net income for the thirteen weeks ended July 31, 2004 increased to $8.0 million compared to $5.1 million in the thirteen weeks ended July 26, 2003. This was due to the combined result of the factors described above.

Adjusted EBITDA. Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization plus Chroma cash dividends and minority interest in income of subsidiary less equity in earnings of Chroma. Adjusted EBITDA for the thirteen weeks ended July 31, 2004 increased to $22.1 million from $18.2 million in the thirteen weeks ended July 26, 2003. As a percentage of sales, Adjusted EBITDA was 22.2% in the thirteen weeks ended July 31, 2004 compared to 19.4% in the thirteen weeks ended July 26, 2003. The increase was principally due to the increased sales volume. 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 accounting principles generally accepted in the United States and should not be

~~considered~~Net anIncome. ~~alternative~~Net ~~to operating~~ income orfor ~~net~~the ~~income~~thirteen asweeks aended ~~measure~~October of30, ~~operating~~2004 ~~performance~~increased or to ~~net~~$1.8 ~~cash provided~~million bycompared ~~operating~~to ~~activities as a measure of liquidity~~$0.04 ~~Because~~million ~~Adjusted~~in ~~EBITDA~~the isthirteen ~~not~~weeks ~~calculated~~ended ~~identically~~October ~~by all companies~~25, ~~the~~2003. ~~presentation~~This inwas ~~these~~due ~~statements~~to ~~may~~the ~~not~~combined beresult ~~comparable~~of tothe ~~those~~factors ~~disclosed~~described ~~by other companies~~above.

Adjusted EBITDA. Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, noncash charges or expenses (other than the write-down of current assets), costs related to board-approved acquisitions and attempted acquisitions, expenses related to the facility maximization project, plus Chroma cash dividends and minority interest in income of subsidiary less equity in earnings of Chroma. Adjusted EBITDA for the thirteen weeks ended October 30, 2004 increased to $13.5 million from $9.4 million in the thirteen weeks ended October 25, 2003. As a percentage of sales, Adjusted EBITDA was 16.4% in the thirteen weeks ended October 25, 2004 compared to 12.7% in the thirteen weeks ended October 25, 2003. The increase was principally due to the increased sales volume, partially offset by the reduction of Chroma dividends due to the facility maximization project. 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 U.S. 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
	July 26, 2003			July 31,2004
	October 25,2003			October 30, 2004
Net income	$	~~5,078~~35		$	71,~~951~~827
Income taxes		3(1,~~799~~345	)		52,~~390~~450
Net interest expense		5,~~199~~381			54,~~150~~876
Depreciation		2,~~512~~665			2,~~533~~569
Amortization		1,528			~~765~~768
Chroma cash dividends		~~405~~740			~~644~~—
Equity in earnings of Chroma		(~~326~~387	)		(~~365~~117	)
Minority interest of income of subsidiary		3210			142
Adjusted EBITDA	$	18,227		$	22,082
Other Noncash Expense		—			133
Expenses associated with facility maximization project		—			1,018
Costs associated with unsuccessful acquisition		792			—
Adjusted EBITDA	$	9,419		$	13,526

RESULTS OF OPERATIONS

~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~July~~October 3130, 2004 As Compared with the ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~July~~October 2625, 2003

Net Sales. Net sales for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 were $~~177~~259.38 million, an increase of 78.14% from the $~~165~~239.56 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. Net sales of the Company’s Floorcovering segment were $~~164~~241.98 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 as compared to $~~150~~218.51 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003, an increase of $1423.47 million or 910.69%. The increase in the Floorcovering segment’s net sales was due to improved demand throughout the specified commercial market in ~~the~~North ~~United States~~America. Net sales of the Extrusion segment were $1218.40 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 as compared to $1521.06 million for the ~~twenty~~thirty-~~six~~nine weeks ended October ~~July 26~~25, 2003, a decrease of $23.6 million or 1716.34%. The reduction in sales for the Extrusion segment was due to lower sales to the ~~Extrusion~~former ~~segment’s~~owner ~~two~~and ~~largest~~successor ~~customers~~of asthe ~~well~~supply asagreement and significantly increased usage by the Company’s Floorcovering segment. The reduction in sales was partially offset by increased sales to new and existing external customers.

Cost of Goods Sold. Cost of goods sold was $112.0 million for the twenty-six weeks ended July 31, 2004 as compared to $107.5 million in the twenty-six weeks ended July 26, 2003. As a percentage of sales, cost of goods sold were 63.2% and 65.0%, respectively. The percentage decrease was primarily due to the increased absorption of fixed manufacturing costs as a result of improved sales volume, increased usage of the yarn from the Company’s Extrusion facility and manufacturing cost improvements.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the twenty-six weeks ended July 31, 2004 were $41.1 million, an increase of 11.3% from $36.9 million in the twenty-six weeks ended July 26, 2003. The increase was primarily due to increased salaries, taxes and benefits of $1.8 million, sampling and related costs of $0.9 million, commissions of $0.5 million, advertising and other of $0.2 million and currency exchange costs of $1.1 million, partially offset by lower legal and professional expenses of $0.3 million. As a percentage of sales, these expenses increased to 23.2% from 22.3% in the prior year.

Amortization. Intangible asset amortization decreased to $1.5 million for the twenty-six weeks ended July 31, 2004 as compared to $3.1 million for the twenty-six weeks ended July 26, 2003. The decrease was due to the Company’s non-compete with its former parent being fully amortized as of January 31, 2004 and lower amortization of the Extrusion supply agreement due to the non-cash impairment charge during the fourth quarter of fiscal 2003.

~~Interest~~Cost ~~Expense~~of Goods Sold. ~~Net~~Cost ~~interest~~of ~~expense~~goods sold was $167.0 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July 31~~October 30, 2004 ~~and~~as compared to $159.4 million in the ~~twenty~~ thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003 ~~was $10~~.3 ~~million~~As ~~and~~a ~~$10.6~~percentage ~~million,~~of ~~respectively~~sales, ~~which~~cost ~~included~~of ~~interest~~goods ~~income~~sold ofwere $064.13% ~~million~~ and $066.~~1 million~~5%, respectively. The ~~twenty-six~~percentage ~~weeks~~decrease ~~ended~~was ~~July~~primarily ~~26,~~due ~~2003~~to ~~included~~the increased absorption of fixed manufacturing costs as a ~~charge~~result toof ~~interest~~improved ~~expense~~sales volume, increased usage of the yarn from the Company’s Extrusion facility and manufacturing cost improvements. Included in cost of goods sold for the 2004 period are expenses of $0.24 million related to ~~reflect~~ the ~~write-off~~Company’s ofplanned aclosure ~~pro-rata~~and ~~share~~transfer of ~~deferred~~assets ~~financing~~from ~~costs~~its ~~associated~~Santa ~~with~~Ana, ~~the~~California ~~prepayment~~facility. of(See ~~term~~further ~~debt~~discussion ~~from~~in ~~cash~~Liquidity ~~generated~~and byCapital ~~operations~~Resources.)

~~Income~~Selling, ~~Taxes~~General and Administrative Expenses. ~~The~~Selling, ~~Company~~general ~~has~~and ~~income~~administrative ~~tax~~expenses ~~expense~~for the thirty-nine weeks ended October 30, 2004 were $58.7 million, an increase of 8.7% from $654.0 million ~~for~~in the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3125, ~~2004~~2003. ~~as compared~~The increase was primarily due to increased salaries, taxes and benefits of $3.7 million, sampling and related costs of $0.4 million, commissions of $0.5 million, advertising and other costs of $0.5 million and foreign currency expense of $1.2 million, partially offset by lower legal and professional expenses of $1.3 million. As a percentage of sales, these expenses were 22.5% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2630, ~~2003~~2004 and 22.5% ~~The~~for ~~increase~~the ~~was~~thirty-nine ~~predominantly~~weeks ~~due~~ended toOctober ~~the~~25, ~~higher~~2003. ~~profitability~~Included ofin the ~~Company~~selling, ~~during~~general and administrative expenses for the ~~first~~2004 ~~six~~period ~~months~~is $0.6 million of ~~the~~expenses ~~current~~related ~~fiscal~~to the ~~year~~Company’s ~~combined~~planned ~~with~~closure ~~tax~~and ~~benefits~~relocation onof ~~foreign~~assets ~~losses which~~from ~~carry~~the aSanta ~~full~~Ana, ~~valuation~~California ~~allowance~~facility.

~~Net Income~~Amortization. ~~Net~~Intangible ~~income~~asset amortization decreased to $2.3 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 ~~increased~~as compared to $74.26 million for ~~from $5.0 million in~~ the ~~twnety~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. ~~This~~The decrease was due to the ~~combined~~Company’s ~~result~~non-compete with its former parent being fully amortized as of January 31, 2004 and lower amortization of the ~~factors~~extrusion ~~described~~supply ~~above~~agreement due to the non-cash impairment charge during the fourth quarter of fiscal 2003.

~~Adjusted~~Interest ~~EBITDA~~Expense. ~~Adjusted~~Net ~~EBITDA represents earnings before~~ interest~~, taxes,~~ ~~depreciation,~~expense ~~amortization, plus Chroma cash dividends and minority interest in income (loss) of subsidiary less equity in earnings of Chroma. Adjusted EBITDA~~ for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 ~~increased~~and ~~to $30.2 million from $28.4 million in~~ the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. Aswas a$15.1 ~~percentage~~million ofand ~~sales, Adjusted EBITDA was 17~~$16.0% inmillion, ~~the~~respectively, ~~twenty-six~~which ~~weeks~~included ~~ended~~interest ~~July~~income ~~26,~~of ~~2003 compared to 17~~$0.2%1 million in ~~the~~both ~~twenty-six weeks ended July 26, 2003~~periods. The ~~increase was principally due to the increased sales volume in the twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3125, ~~2004,~~2003 ~~although~~included ita ~~was~~charge ~~partially~~to ~~offset~~interest byexpense ~~a special dividend~~ of $10.84 million ~~distributed~~to byreflect ~~Chroma in~~ the ~~twenty~~write-~~six~~off ~~weeks~~of ~~ended July 26, 2003. Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze~~ a ~~company’s~~pro-rata ~~ability~~share toof ~~service~~deferred ~~debt.~~financing ~~The~~costs ~~Company~~associated ~~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~~the ~~credit~~prepayment ~~facility debt covenants. Adjusted EBITDA is not a measure~~ of ~~financial~~term ~~performance~~debt ~~under accounting principles generally accepted in the United States and should not be~~from ~~considered~~cash angenerated ~~alternative~~by tooperations. ~~operating~~The ~~income~~reduction orwas ~~net~~principally ~~income~~due ~~as a measure of operating performance or~~ to ~~net~~lower ~~cash~~interest ~~provided~~rates byand ~~operating~~lower ~~activities~~levels ~~as a measure~~ of ~~liquidity.~~debt ~~Because~~outstanding ~~Adjusted~~during ~~EBITDA is not calculated identically by all companies,~~ the ~~presentation~~ in2004 ~~these statements may not be comparable to those disclosed by other companies~~period.

AIncome ~~reconciliation~~Taxes. The Company has income tax expense of $8.4 million for the thirty-nine weeks ended October 30, 2004 as compared to $1.8 million for the thirty-nine weeks ended October 25, 2003. The Company’s effective tax rate for the thirty-nine weeks ended October 30, 2004 was 48.3%, and was primarily due to 1) higher profitability of the Company and its subsidiaries in the United States, 2) combined net loss of its foreign subsidiaries against which no tax benefit can be recognized and, 3) the recognition of a $0.9 million valuation allowance against certain state income totax ~~Adjusted~~credits ~~EBITDA~~carried forward from prior periods that may not be utilized in future periods. These credits were produced by Monterey and management believes it is asmore ~~follows:~~likely than not that their use may be limited after the closure of the Santa Ana, California facility. The Company’s effective tax rate for the thirty-nine weeks ended October 25, 2003 was 41.5%. The lower effective tax rate in fiscal 2003 was primarily due to the initial qualification for the credits, which included a component related to prior years and was recorded during the thirteen weeks ended October 25, 2003.

	Twenty-Six Weeks Ended
	July 26,2003			July 31, 2004
Net income	$	4,981		$	7,196
Income taxes		3,118			5,968
Net interest expense		10,605			10,273
Depreciation		5,024			5,119
Amortization		3,056			1,531
Chroma cash dividends		2,282			922
Equity in earnings of Chroma		(687	)		(776	)
Minority interest in income (loss) of subsidiary		16			(22	)
Adjusted EBITDA	$	28,395		$	30,211

Net Income. Net income for the thirty-nine weeks ended October 30, 2004 increased to $9.0 million from $5.0 million in the thirty-nine weeks ended October 25, 2003. This was due to the combined result of the factors described above.

(loss) of subsidiary less equity in earnings of Chroma. Adjusted EBITDA for the thirty-nine weeks ended October 30, 2004 increased to $43.7 million from $37.8 million in the thirty-nine weeks ended October 25, 2003. As a percentage of sales, Adjusted EBITDA was 16.8% in the thirty-nine weeks ended October 30, 2004 compared to 15.8% in the thirty-nine weeks ended October 25, 2003. The increase was principally due to the increased sales volume in the thirty-nine weeks ended October 30, 2004, although it was partially offset by a special dividend of $1.8 million distributed by Chroma in the thirty-nine weeks ended October 25, 2003. 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 accounting principles generally accepted in the United States 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 25, 2003			October 30, 2004
Net income	$	5,016		$	9,023
Income taxes		1,773			8,418
Net interest expense		15,986			15,149
Depreciation		7,689			7,688
Amortization		4,584			2,299
Chroma cash dividends		3,023			922
Equity in earnings of Chroma		(1,074	)		(893	)
Minority interest in income (loss) of subsidiary		26			(22	)
Other Noncash Expense		—			133
Expenses associated with facility maximization project		—			1,018
Costs associated with unsuccessful acquisition		792			—

Adjusted EBITDA	$	37,815		$	43,737

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 ~~twenty~~ thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 was $314.31 million compared to $28.4 8 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. The change was primarily due to the increased profitability of $24.20 million ~~partially offset by higher working capital requirements of $1~~.4 ~~million.~~

Net cash used in investing activities in the ~~twenty~~thirty-~~six~~nine weeks ended ~~July 31,~~October 30, 2004 was $2.5.7 million compared to $14.82 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. The increase in cash used in investing activities in the current year was primarily due to a special dividend having been declared from Chroma Systems in the ~~twenty~~ thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003, and no such special dividend in the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004. Capital expenditures for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 were $36.46 million compared to $47.12 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. The Company anticipates capital expenditures for the remainder of the year to be approximately $63.0 to $74.0 million.

Net cash used in financing activities for the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 was $12.80 million compared to $1324.4 2 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003. The decrease in cash used by financing activities was due primarily to lower prepayment amounts of the Senior Credit Facility and reduced dividends to the Company’s parent during the ~~twenty~~ thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 as compared to the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 2625, 2003.

The Company has significant indebtedness which, as of July 31, 2004, consists of $175.0 million of 9.75% senior subordinated notes due 2010, $31.0 million of senior term debt, $0.5 million in purchase money and other indebtedness and $1.2 million in sinking fund bonds under Crossley. As of July 31, 2004, the Company’s $50.0 million revolving line of credit had no borrowings outstanding and $2.2 million of letters of credit outstanding leaving total availability of $47.8 million. The Company was in compliance with all covenants as of July 31, 2004.

The Company’s semi-annual interest payments of the 9.75% Notes are due on each February 15 and August 15 through February 15, 2010. The amount due on each date is $8.5 million.

During the first quarter of fiscal 2004, the Company leased a facility to be used for a carpet tile production facility in Suzhou, China. Products manufactured at this facility will be sold into mainland China and throughout southeast Asia. Funding of $3.0 million was provided during fiscal 2003 with additional $2.0 million provided on August 6, 2004. Additional funding of up to $1.0 million may be required during the remainder of the year.

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. We periodically evaluate potential acquisitions of businesses, which complement our existing operations. Depending on various factors, including, among others, the cash consideration required in such potential acquisitions, we may determine to finance any such transaction with existing sources of liquidity.

OnThe ~~August 18, 2004, the~~ Company ~~executed~~has ~~Amendment~~significant ~~No.~~indebtedness ~~3 to its Senior Credit Facility. The Amendment provides for~~which, ~~among~~as ~~other things, 1) the transfer~~ of ~~certain~~October ~~of the broadloom manufacturing fixed assets located in Santa Ana~~30, ~~California to the Company’s facility located in Truro~~2004, ~~Nova~~consists ~~Scotia,~~of 2)$175.0 ~~the~~million ~~disposal~~ of 9.75% ~~and/or~~senior ~~transfer~~subordinated tonotes ~~Collins &~~due ~~Aikman Floorcoverings~~2010, ~~Inc~~$31.0 ofmillion ~~substantially all~~ of ~~the~~senior ~~remaining~~term ~~Santa Ana~~debt, ~~California~~$0.5 ~~fixed~~million ~~assets~~in ~~and~~purchase ~~transfer~~money ~~all or substantially all of the accounts receivable, inventory~~ and other ~~liquid~~indebtedness ~~current~~and ~~assets from its Monterey Carpets, Inc~~$1. ~~legal~~3 ~~entity~~million toin ~~Collins~~sinking &fund ~~Aikman~~bonds ~~Floorcoverings,~~under ~~Inc~~Crossley., 3)As ~~the release~~ of ~~Monterey~~October ~~Carpets~~30, ~~Inc.~~2004, ~~as a subsidiary guarantor under~~ the ~~subsidiary~~Company’s ~~guarantee~~$50.0 ~~agreement and the security agreement and any other loan documents to which it is a party, 4)~~million ~~the~~revolving ~~exclusion~~line ~~from the calculation~~ of ~~covenants~~credit ofhad ~~the~~no ~~costs~~borrowings ~~incurred~~outstanding inand ~~connection with the consolidation of up to~~ $103.0 million ~~and~~of 5)letters ~~the reduction~~ of ~~the~~ credit ~~spread~~outstanding toleaving ~~Libor~~total ~~plus~~availability ~~2.75~~of ~~on the Term B Loan~~$47.0 ~~The Amendment further authorizes the collateral agent to release any and all liens held by the collateral agent in or on the assets to be transferred from Santa Ana, California to Truro, Nova Scotia~~million.

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. 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 that would 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.

The Company’s semi-annual interest payments of the 9.75% Notes are due on each February 15 and August 15 through February 15, 2010. The amount due on each date is $8.5 million.

On August 18, 2004, the Company executed Amendment No. 3 (the “Amendment”) to its Senior Credit Facility. The Amendment provides for, among other things, 1) the transfer of certain of the broadloom manufacturing fixed assets located in Santa Ana, California to its facility located in Truro, Nova Scotia, 2) the disposal of and/or transfer to the Company of substantially all of the remaining Santa Ana, California fixed assets and transfer all or substantially all of the accounts receivable, inventory and other liquid current assets from Monterey Carpets, Inc. (“Monterey”), a wholly-owned subsidiary of the Company, to the Company, 3) the release of Monterey as a subsidiary guarantor under the subsidiary guarantee agreement and the security agreement and any other loan documents to which it is a party, 4) the exclusion from the financial covenants calculation of up to $10.0 million of costs related to the move and relocation to the Truro, Nova Scotia plant (the Crossley transfer”), and 5) the reduction of the credit spread to LIBOR plus 2.75 on the Term B Loan. The Amendment further authorizes the collateral agent to release any and all liens held by the collateral agent in or on the assets forming part of the Crossley transfer.

Effective May 1, 2004, the Company amended its Senior Credit Facility to revise certain covenants. The amended principal financial covenants are as follows:


	Q1	Q2	Q3	Q4	Thereafter
Fixed charge coverage ratio	1.00:1.00	1.00:1.00	1.00:1.00	1.10:1.00	1.10:1.00
Interest coverage ratio	1.75:1.00	1.75:1.00	1.85:1.00	2.00:1.00	2.25:1.00

The Company’s fixed charge coverage ratio and interest coverage ratio were 1.4973:1.00 and 2.2954:1.00, respectively, at ~~July~~October 3130, 2004. As is customary in debt agreements, in the event the Company is not in compliance with the covenants of the Senior Credit Facility, the Company will also be subject to the provisions of a cross-default for the 9.75% Senior Subordinated Notes. The Company was in compliance with all covenants as of ~~July~~October 3130, 2004, and expects to remain in compliance throughout fiscal 2004, although no assurances to that effect can be given.

On August 10, 2004, the Company and its parent announced its intent to close its manufacturing facility in Santa Ana, California, and transfer the production to its existing Truro, Nova Scotia, Canada, facility (the “facility maximization project”). The plan to close the facility was approved by the Company’s Board of Directors on August 9, 2004, and is expected to be complete by the end of the Company’s first fiscal quarter in 2005. It is anticipated that the ~~there~~costs incurred will be ~~one~~less than the $6.4 million previously disclosed by the Company in its Form 8-~~time~~K filed on August 10, 2004. It is currently estimated that the remaining costs ofwill be approximately $63.49 million ~~consisting~~and consist of severance, lease termination, moving, reinstallation, professional fees and other costs. As part of the facility maximization project, the Company negotiated with the Nova Scotia government the forgiveness of the remaining $1.3 million of Crossley’s sinking fund bonds debt outstanding. The forgiveness will be over the remaining five-year term of the current note and is based upon certain employee hours worked during the year and will commence in fiscal 2005. The debt will also be non-interest bearing. During the thirteen weeks ended October 30, 2004, the Company incurred approximately $1.0 million in costs associated with the facility maximization project, which consist of professional fees, severance and other related costs. Costs of Goods Sold included $0.4 million and Selling, General and Administrative Expenses included $0.6 million of these expenses in the accompanying Consolidated Statements of Income. In addition the Company anticipates capital expenditures of approximately $23.8 0 million related to the move. NoThe costs ~~have been~~ incurred orand ~~accrued~~the asanticipated ofexpenditures ~~July~~remaining ~~31,~~are ~~2004.~~as follows:


(Amounts in millions)	Anticipated Total Expenditures as of August 10, 2004		Change in Estimate of Expenditures as of October 30, 2004			Amounts Incurred as of October 30, 2004		Anticipated Remaining Expenditures
Severance Costs	$	1.8	$	0.3		$	0.4	$	1.7
Contractual Obligations and Professional Fees		3.1		(1.8	)		0.1		1.2
Other Project Costs		1.5		—			0.5		1.0

Gross Project Expenditures	$	6.4	$	(1.5	)	$	1.0	$	3.9

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.

As discussed in Note 13, subsequent to the end of the quarter, the Company terminated its partnership interest in Chroma. The Company will receive no future cash dividends from Chroma.

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

Invista, Inc. (“Invista”) 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 Invista 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 Invista, although no assurances can be given.

RECENT ACCOUNTING PRONOUNCEMENTS

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 for the year ~~neded~~ended January 31, 2004, which was filed with the Securities and Exchange Commission in May 2004. 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.

A32 customer claims reserve and allowance for product returns is established based upon historical claims experience as a percent of gross sales as of the balance sheet date. The allowance for customer claims is recorded upon shipment of goods and is recorded as a reduction of sales. 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 could differ and additional allowances may be required.

Impairment of Goodwill and Indefinite Lived Intangible Assets. In addition to the annual impairment tests required by SFAS No. 142, the Company may periodically evaluate the carrying value of its goodwill and indefinite lived intangible asset for potential impairment. Judgments regarding the existence of impairment

~~indicators~~A ~~are~~customer claims reserve and allowance for product returns is established based onupon ~~legal~~historical ~~factors,~~claims ~~market~~experience ~~conditions~~as ~~and~~a percent ~~operational~~of ~~performance~~gross sales as of the balance sheet date. ~~Future~~The ~~events~~allowance ~~could~~for ~~cause~~customer ~~the Company~~claims tois ~~conclude~~recorded ~~that~~upon ~~impairment~~shipment ~~indicators~~of ~~exist~~goods and is recorded as a reduction of sales. While we believe that ~~goodwill~~our customer claims reserve and ~~indefinite~~allowance ~~lived~~for ~~intangible~~product ~~asset~~returns ~~associated~~is adequate ~~with~~and ~~acquired~~that ~~businesses~~the judgment applied is ~~impaired.~~appropriate ~~Any~~based ~~resulting~~upon ~~impairment~~our ~~loss~~historical ~~could~~experience ~~have~~for athese ~~material~~items, ~~adverse~~actual ~~impact~~amounts ondetermined ~~the~~to ~~Company’s financial~~be ~~condition~~due and ~~results~~payable ofcould ~~operations~~differ and additional allowances may be required.

~~Accounts~~Impairment ~~Receivable~~of Goodwill and Indefinite Lived Intangible Assets. In addition to the ~~Allowances~~annual impairment tests required by SFAS No. ~~The~~142, the Company ~~provides~~may ~~allowances~~periodically ~~for~~evaluate ~~expected~~the ~~cash~~carrying ~~discounts,~~value ~~returns,~~of ~~claims~~its goodwill and ~~doubtful~~indefinite ~~accounts~~lived ~~based~~intangible ~~upon~~asset ~~historical~~for ~~experience~~potential ~~and~~impairment. ~~periodic~~Judgments ~~evaluation~~regarding the existence of ~~the~~impairment ~~financial~~indicators ~~condition~~are based ofon ~~the~~legal ~~Company’s~~factors, ~~customers~~market conditions and ~~collectability of~~operational performance. Future events could cause the Company’s ~~accounts~~to ~~receivable.~~conclude Ifthat ~~the~~impairment ~~financial~~indicators ~~condition~~exist ofand ~~the~~that ~~Company’s~~goodwill ~~customers~~and ~~were~~indefinite tolived ~~deteriorate,~~intangible ~~resulting~~assets inassociated anwith ~~impairment~~acquired ofbusinesses are ~~their~~impaired. ~~ability~~Any toresulting ~~pay~~impairment ~~their~~loss ~~debts,~~could ~~allowances~~have ~~recorded~~a inmaterial adverse impact on the Company’s financial ~~statements may~~condition ~~not~~and beresults ~~adequate~~of operations.

~~Inventory~~Accounts ~~Reserves~~Receivable Allowances. ~~Inventories~~The ~~are~~Company ~~stated~~sells atfloorcovering products to a wide variety of manufacturers and retailers located primarily throughout the United ~~lower~~States ofand ~~cost~~generally ordoes ~~market~~not require collateral. ~~Cost~~Allowances isare ~~determined~~provided ~~using~~for ~~the~~expected ~~first-in~~cash discounts, ~~first-out~~return, ~~method~~claims and doubtful accounts based upon historical experience and periodic evaluations of the financial condition of the Company’s customers and collectability of the Company’s accounts receivable. ~~Reserves~~These allowances are ~~established~~maintained ~~based~~at ona ~~percentage~~level ~~markdowns~~which ~~applied~~management believes is sufficient to ~~inventories~~cover potential credit losses. Accounts receivable balances are aged ~~for~~according ~~certain~~to ~~time~~invoice and ~~periods~~applicable terms, and ~~size~~are ofwritten ~~lot~~off as uncollectible only after all reasonable collection efforts have been made.

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

Income Taxes. The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements using statutory rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the rate change.

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.

3233

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 we are not subject to material foreign currency exchange risk, we are 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 flows and earnings, but do impact the fair market value of such debt, assuming other factors are held constant. At ~~July~~October 3130, 2004, we had variable rate debt of $31.23 million and fixed rate debt of $176.45 million. The variable interest rate per annum applicable to borrowings under the Senior ~~Credit~~ 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~~ base rate margin adjust quarterly on a sliding scale based on our leverage ratio for the immediately preceding four fiscal quarters. The impact on our results of operations of a one-point change on the outstanding balance of our term loan as of the ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004 would be approximately $0.2 million annually, net of tax.

Item 4. Controls and Procedures

As of ~~July~~October 3130, 2004, 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-15. 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 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

During March 2004, a jury found in favor of Employers Mutual Insurance Companies (“EMC”) related to alleged violations of express oral warranty and implied warranty of fitness for particular purpose and awarded damages to EMC totaling $0.8 million. The Company ~~has~~ accrued the full judgment amount of $0.8 million as of January 31, 2004. During the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~July~~October 3130, 2004, the Company incurred approximately $0.01 million and $0.56 million, respectively, of legal ~~expenses~~ expenses related to this lawsuit. The Company ~~continues~~requested toa ~~deny~~new ~~liability~~trial. ~~and~~The isjudge ~~evaluating~~granted ~~its~~the ~~options,~~Company’s ~~which~~motion ~~include~~for a ~~motion~~new ~~for~~trial but allowed EMC to reduce the judgment by $0.2 million to avoid a new ~~trial~~trail. IfEMC agreed to the reduction of the judgment by $0.2 million. The Company ~~pursues~~has ~~those~~appealed ~~options~~the $0.2 million reduction of the judgment and EMC has counter appealed. If the Company is unsuccessful, it will be required to pay the ~~full~~ judgment amount and related legal and professional fees. ~~Subsequent~~The toamount accrued ~~the~~in ~~end of~~ the ~~second~~consolidated ~~quarter~~balance ofsheet ~~fiscal~~for ~~2004,~~ the judgment ~~amount~~ was reduced ~~from $0.8 million~~ to $0.6 million. ~~However,~~during the ~~reduction~~thirteen ~~may~~weeks beended ~~appealed~~October ~~by EMC through September 20~~30, 2004.

33On November 8, 2004, the Company executed the Chroma Transition Agreement (the “Agreement”). As part of the Agreement and California Partnership Law, the Company retains its share of the third party claims that may be asserted for the period prior to the Company’s exit from the partnership.

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 matters 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


Exhibits

10.1		Chroma Transition Agreement, dated November 8, 2004

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

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

~~10.1~~35 ~~Amendment No. 3 to Senior Credit Facility, dated August 18, 2004 (incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on August 24, 2004)~~

31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

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

(b) Reports on Form 8-K

Current Report Form 8-K: Announcement of appointment of Leonard F. Ferro as the Company’s Vice President and Chief Financial Officer, dated June 9, 2004

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 ~~September~~December 1410, 2004.


COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Registrant)

By:		/s/ Leonard F. Ferro
		Leonard F. Ferro
		Chief Financial Officer and Vice President
		(duly authorized officer and principal
		financial and accounting officer)

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Filing Compare · COLLINS & AIKMAN FLOOR COVERINGS INC