COLLINS & AIKMAN FLOOR COVERINGS INC, 10-K405, 2000-04-28

COLLINS & AIKMAN FLOOR COVERINGS INC
10-K405, 2000-04-28
CARPETS & RUGS

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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended January 29, 2000

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

Commission File Number 333-24699

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, 30721
Dalton, Georgia (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (706) 259-9711

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

Title of Each Class Name of each exchange on which registered:
10% Senior Subordinated Notes
Due 2007 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

As of April 28, 2000, 1,000 shares of the Registrant's common stock, no par
value, were outstanding and held entirely by CAF Holdings, Inc. None of the
Registrant's common stock was held by non-affiliates.

Documents incorporated by reference: None.
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PART I

Item 1. Business

GENERAL
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Collins & Aikman Floorcoverings, Inc. ("CAF" or the "Company"), a Delaware
corporation, is a leading manufacturer of vinyl-backed specified commercial
floorcovering and high-style specified commercial broadloom carpet. The
Company designs, manufactures and markets its C&A, Monterey and Crossley brands
to a wide variety of commercial end-markets, including corporate offices,
education, healthcare and government facilities and retail stores. The
specified commercial market tends to be less price sensitive than the
residential and "off the shelf" commercial markets. In addition, because of the
Company's diversity of end-use markets, its business tends to be less cyclical
than its competitors, which rely heavily on the corporate office market. All
three of the Company's brands have developed leading positions in niche segments
of the floorcovering market. The ability to offer a "package of product
offerings" in various forms, coupled with the Company's flexible distribution
channels, allows the Company to provide a wide array of floorcovering solutions
for its customers. Another key distinction is the Company's differentiation
from the competition by offering superior product technologies, leading design
capabilities, a broad product offering, exceptional customer-focused services,
flexible distribution channels and the most advanced recycling program in the
industry. In the fiscal year ended January 29, 2000, the Company generated net
sales and EBITDA of $243.4 million and $49.4 million, respectively.

The Company's primary brand, C&A, has the number one market position in
six-foot roll carpet and is a leader in modular carpet tile. Both products'
superior durability characteristics and the Company's patented Powerbond/(R) /RS
peel and stick adhesive system help to differentiate C&A from its competitors in
serving institutional and commercial customers with high-traffic applications.
The exceptional performance and wear characteristics of the Company's products
provide a superior long-term return on investment for customers relative to less
expensive traditional products.

The Company's Monterey brand is a recognized design leader in the high-
style, fashion-oriented segment of the commercial broadloom market. Monterey
products have the appearance of being woven but are actually tufted using
innovative tufting technology. This technology allows Monterey to produce
highly creative designs with intricate scrolling and patterns in a wide variety
of colors, textures, pile heights and densities. The result is a floorcovering
product ideally suited to the end-user whose primary specifications are style,
design, beauty and aesthetics rather than durability, longevity or appearance
retention. The Company's Monterey brand has been recognized with multiple
design awards, such as the International NeoCon show's award for design
excellence. Highly regarded by the nation's top architects and designers, the
Monterey brand is rated number one for design and in the top five for quality,
service, performance and price/value in an industry survey conducted by Floor
Focus, a leading industry publication.

The Company's Crossley brand is a leading Canadian tufted and woven
broadloom brand that is well-respected in both the United States and Canada and
serves the specified commercial and residential carpet markets. The brand's
woven styles are manufactured using Crossley's patented Crossweave/(R) /looms,
which provide the basis for the brand's heritage of innovation and excellence in
product design and quality. As a single integrated fabric, woven carpets offer
exceptional strength and stability, as well as locked-in yarns to prevent
zippering or pulling. Furthermore, woven products provide for increased styling
and pattern flexibility to meet the needs of interior design professionals.

Prior to February 6, 1997, the Company was a wholly owned subsidiary of
Collins & Aikman Floor Coverings Group, Inc. ("C&A Group"), a wholly owned
subsidiary of Collins & Aikman Products Co. ("C&A Products"), a wholly owned
subsidiary of Collins & Aikman Corporation. On February 6, 1997, pursuant to an
agreement entered into among CAF Holdings, Inc. ("Holdings"), a corporation
sponsored by Quad-C, Inc. ("Quad-C"), a Virginia merchant banking firm, and
Paribas Principal Partners ("Paribas"), the

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United States private equity group of Paribas, CAF Acquisition Corporation
("CAF"), a wholly owned subsidiary of Holdings, the Company and C&A Products,
CAF purchased all of the issued and outstanding capital stock of Collins &
Aikman Floor Coverings, Inc. from C&A Group for $197.0 million (including $27.0
million in consideration of a tradename license agreement) which was reduced to
$195.6 million after a $1.4 million working capital adjustment (the
"Floorcoverings Acquisition").

In June 1999, the Company acquired Monterey Carpets, Inc. ("Monterey"), a
leading California-based designer and manufacturer of high-style specified
commercial broadloom carpet. Monterey was founded in 1976 as a small tufting
operation. In 1988, members of the current Monterey management team purchased
the business and began expanding the operations, targeting the medium-to-high
end of the specified commercial broadloom carpet market. In 1993, Jack Mishkin,
co-founder of Bentley Mills, joined Monterey as Executive Vice President of
Product Development. Under his leadership, Monterey rapidly expanded product
development and began aggressively penetrating the corporate and design segments
of the broadloom market. The acquisition of Monterey has enhanced the Company's
overall product innovation and design leadership, broadened its product offering
to include high-style broadloom carpet, augmented its position in the corporate
and design segments, and has opened up tremendous opportunities for cross-
selling and enterprise marketing.

In July 1999, the Company acquired Crossley Carpet Mills Limited
("Crossley"), a leading Canadian manufacturer of tufted and woven broadloom
carpet serving the specified commercial and residential markets. Crossley was
founded in 1963 as a joint venture between John Crossley & Sons of the United
Kingdom and Karastan Rug Mills of the United States. Since that time, Crossley
has developed a very strong brand in Canada with an unparalleled reputation for
quality and styling. Crossley's niche position in the market has been supported
and continually enhanced with creativity, innovation and state-of-the-art
technology. The Crossley acquisition has enhanced the Company's product
innovation and design leadership, broadened the product offering to include
high-style woven carpet and provided a strong platform to aggressively penetrate
the Canadian market. The acquisition has also created market opportunities for
the cross-selling of C&A, Monterey and Crossley products in the United States
and Canada.

The United States commercial carpet market, which is comprised of the
specified and non-specified segments, is estimated by management to have
generated sales of approximately $3.5 billion in 1999. The specified commercial
market, which represents approximately $2.65 billion of the total United States
commercial carpet market, is differentiated from the non-specified market, in
that products are specified by architects, designers and owners rather than
being purchased off the shelf. While competition in the non-specified market is
based largely on price, the key differentiating factors in the specified markets
are product durability, appearance retention, product design and service, as
well as price.

Within the specified commercial market, the Company historically competed
in the six-foot roll and modular carpet tile segments. As a result of the
Monterey and Crossley acquisitions, the Company competes in the six-foot roll,
modular carpet tile, twelve-foot designer broadloom and woven sub-markets in the
middle to high-end price range. The Company's focus on these niche products
provides a competitive advantage as they tend to have proprietary specifications
and generally cannot be produced on standard broadloom carpet manufacturing
equipment utilized by the majority of manufacturers in the carpet industry. The
Company believes it has a reputation for outstanding product quality and
innovative, problem-solving products. As a result, the Company has historically
been able to achieve sales growth in excess of that in the general commercial
carpet industry. The Company's net sales have grown from $108.0 million in 1993
to $243.4 million in 1999, representing a compound annual growth rate ("CAGR")
of 14.5%.

The Company believes that the diversity of its end-markets provides
significant stability to its revenue base. The Company's focus on end use
markets which are characterized by high renovation rates, as opposed to new
construction, reduces its exposure to economic fluctuations. Historically,
renovation activity has been significantly less cyclical than new construction.
Management estimates that

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approximately 65.0% of the Company's sales are related to renovation projects
and approximately 35.0% are attributable to new construction. Due to the
current favorable United States economy, continued low interest rates and low
vacancy rates in commercial real estate, management believes that new
construction and renovation demands will continue to be strong in the near term.

Competitive Strengths

The Company considers its competitive strengths to include the following:

Superior Product Technology

The Company has demonstrated an ability to develop value-added products
that differentiate it from its competition. The C&A brand's patented,
proprietary carpet backing technology, Powerbond/(R)/, uses a closed-cell
construction that is impermeable to moisture, exhibits demonstrably superior
durability, seamability and cleaning characteristics, and provides comfort under
foot, thereby combining the advantages of both hard surface and carpet
floorcoverings. Powerbond/(R)/ was enhanced with the patented RS system, which
employs a "peel and stick" dry adhesive for installation of both six-foot roll
goods and modular carpet tile. This system allows for quicker installation,
eliminates the fumes associated with wet adhesives generally used in
conventional carpet installation, and substantially reduces total installation
costs. The Company's Monterey brand utilizes customized tufting technology to
create intricate scrolling designs and patterns. This technology allows
Monterey to produce carpet in a wide variety of colors, patterns, textures, pile
heights and densities. The Crossley brand manufacturers its high-style woven
products utilizing its patented Crossweave/(R) /technology. This technology
allows Crossley to produce woven carpets with exceptional strength and stability
as well as with increased styling and pattern flexibility.

Leading Positions in Niche Products

In 1967, the Company pioneered a vinyl-backed flooring system (which
includes six-foot roll and modular carpet tile) in the United States specified
commercial carpet industry as an alternative to hard surface flooring and
broadloom carpet. The Company is the leader in the vinyl-backed commercial
carpet industry which includes the number one position in the fast growing six-
foot roll market and a leading producer of modular carpet tile and designer
broadloom and woven markets.

Unique Marketing Segmentation

The C&A brand has implemented a segmented marketing strategy which targets
sales and marketing efforts to the specific needs (i.e., product, service,
performance, aesthetics, distribution and budget) of each end-market within a
given geographic area. C&A's end-markets include corporate offices, education,
health care and government facilities and retail stores. The segmentation
strategy requires each account manager to develop an expertise in a specific
end-market, resulting in greater customer-focused service, comprehensive market
coverage and increased sales productivity over time. In order to implement this
segmentation strategy, C&A has doubled its sales organization from 45 in 1993 to
98 presently. Management expects that, over time, the growth and maturation of
the sales force will increase sales productivity, as has been the case
historically. C&A's market-specific focus differentiates it from many of its
competitors, which generally have a geographically-assigned sales organization
wherein the account managers are responsible for all end-use markets. In
addition, the diversity of the end-markets served provides significant stability
to the Company's revenue base.

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Broad Product Offering

As a result of the recent Monterey and Crossley acquisitions, the Company
is able to serve different needs of the same customer through its six-foot roll,
modular carpet tile and high-style broadloom and woven product offerings. For
example, a customer who specifies high-style and beauty for executive suites or
boardrooms, which are frequently remodeled to reflect ever-changing styles and
fashion trends, is best served by high-style broadloom or woven products while
the same customer may prefer six-foot roll for its superior product performance,
appearance retention and durability in higher traffic areas, such as hallways or
lobbies, or require modular tile for raised floor applications. The Company is
now able to offer, through a single source, a full range of high-end specified
commercial floorcoverings.

Innovative Product Development and Design Capabilities

Leadership in product development and design is important in the commercial
floorcovering marketplace as designers and customers seek up-to-date product
aesthetics. Management believes that the ability of its creative professionals
at each brand to consistently introduce new designs and styles, coupled with the
technical strength of the Company's products, provide it with a sustainable
competitive advantage. The development teams for each brand develop specific
products tailored to the requirements of specific market segments, unlike many
of the Company's competitors who manufacture standard products that serve a wide
cross-section of markets. In addition, through numerous awards, all three of
the Company's brands have been recognized for excellence in innovative product
development and design.

Flexible Distribution

The Company operates with a flexible distribution philosophy to meet the
needs of the customer rather than mandating from whom the customer can buy the
Company's products. By addressing the exact needs of the customer, the Company's
distribution strategy allows the Company's sales and marketing personnel to (i)
establish multiple relationships within specific market segments and regions,
and (ii) maximize total value delivered to individual customers. The Company has
established a distribution system which allows customers ultimate flexibility in
purchasing the Company's products through three primary channels: flooring
dealers, Source One, (the Company's in-house turn-key project management
department) and directly from the Company on a material only basis. Management
believes that this strategy provides the Company with a competitive advantage
over competitors that insist that customers acquire their products through a
single, pre-determined channel.

Environmental Leadership

The Company has established itself as the environmental leader for the
industry. One particular strength has been in the recycling area. The Company
produces carpet backing for its C&A brand through a patented, proprietary
technology for recycling vinyl manufacturing waste and reclaimed post-consumer,
vinyl-backed floorcovering. In addition to recycling its own products, the
Company can reclaim and recycle the post-consumer, vinyl-backed floorcovering of
its competitors. This unique capability eliminates the need for landfill
disposal or incineration of these waste products. Through this technology, the
Company produces backing for new six-foot roll carpet, modular carpet tile and
other value-added commercial products, such as industrial block flooring. Since
late 1998, 100% of the Company's carpet tile has been made with recycled content
carpet backing, known as ER3. ER3 is sold at no additional cost to the customer
and, since it was fully implemented, has resulted in lower material costs to the
Company. Furthermore, management believes that each of the Company's recycled
content products are superior in their stability and durability and are able to
be recycled repeatedly. The Company is leading the industry in environmental
initiatives at a time when many end-users, including government agencies and
professional designers, increasingly prefer and/or require products with
recycled content.

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Experienced Management Team and Significant Employee Involvement

The Company has assembled an experienced and successful management team
with an average of 23 years experience within the floorcoverings industry and an
average of over 14 years experience with the Company. The Company's strong and
deep management team has succeeded in increasing sales and operating
profitability by increasing penetration of existing markets, introducing higher
value-added products, improving manufacturing processes and reducing overhead
and administrative costs. The Company has successfully redeployed cost savings
from its manufacturing processes into expanding its sales force to broaden
distribution. Management has promoted Company-wide employee involvement in
every phase of the manufacturing and selling process, which has resulted in the
implementation of suggestions regarding Company operations from both hourly and
salaried associates throughout the Company. Manufacturing employees are cross-
trained in several functions and have access to ongoing internal training
programs as well as external educational programs.

Management believes that employee involvement is a significant factor in
the Company's increased profitability. Management initiated a Company-wide
system of measuring and improving manufacturing quality in 1989. This system
includes extensive training, the establishment of quality checkpoints during the
manufacturing process and the formation of quality leadership and improvement
teams. Various quality measurements are taken each month and displayed
graphically in each plant so that employees can track progress. Results are
reviewed each month in planning meetings involving all employees. An employee
suggestion system called Opportunity For Improvement ("OFI") has been
implemented to provide a vehicle for suggestions related to product quality,
employee safety, manufacturing costs, workplace improvement and environment.
Additionally, the Company has for over five years, utilized an additional
program called CIP (Cost Improvement Program) which tracks the true cost savings
of various initiatives to the Company. For 1999, $3.6 million cost savings (on
an annualized basis) were identified. These cost savings help offset cost
increases in other areas.

Industry Overview

The Company's sales are in one industry segment, commercial floorcoverings.
Commercial carpet is manufactured in two basic forms, roll products and modular
carpet tile. Roll carpet products are manufactured in one of two principal
types: conventional twelve-foot broadloom carpet or six-foot roll vinyl-backed
carpet.

Historically, six-foot roll goods were primarily used in the education and
health care markets. These products in recent years have been accepted in other
end use markets such as corporate office space, where handling and transport of
twelve-foot broadloom is not always practical or feasible, and retail stores and
public spaces (such as airports) where comfort under foot and durability are
important criteria.

Modular carpet tile is offered in a variety of sizes to accommodate the
full range of domestic and international requirements. Because of its
flexibility within open office landscape systems, the primary uses of modular
carpet tile are for the corporate office space and government markets. Office
systems are often reconfigured to react to ever-changing office dynamics. For
example, modular carpet tile is particularly well suited to the use of raised
floor systems in which continual access to underfloor power systems is required.
Tiles are simply removed to reveal the access panel and replaced when work is
completed. Broadloom carpet cannot withstand this activity as it must be cut
open and cannot adequately be repaired.

Broadloom carpet is generally tufted carpet sold primarily in twelve-foot
rolls. Broadloom is particularly suited for fashionable designs and stylish
interiors as its width provides an expanse of canvas upon which bold colors,
intricate patterns and complex textures can be displayed. Designer broadloom, a
subset of this market, is primarily used in areas where aesthetics, beauty and
style are the drivers.

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The Company believes that within the commercial floorcovering market, the
demand for six-foot roll goods, modular carpet tile and high-style broadloom
carpet will continue to increase in the near future as (i) more end-users
recognize the advantages of vinyl-backed products, including durability and
design flexibility and the design benefits of high-end broadloom, and (ii)
corporate office demand continues to expand.

Sales, Marketing and Distribution

Sales. Each of the Company's brands currently maintains a separate sales
and marketing organization. However, to promote enterprise marketing as well as
cross-selling of the Company's brands, the Company has implemented various
Company-wide sales incentives and marketing programs. The C&A brand represents
the largest of the Company's three sales and marketing organizations. Since
1993, C&A has employed its unique segmented sales and marketing strategy, under
which each account manager targets specific end-use market segments within a
particular geographic area. The strategy has proven very successful for the C&A
brand and has helped create exceptional growth in revenues since its
implementation. Monterey and Crossley have also generated exceptional growth in
sales by pursuing a slightly different sales and marketing model. Sales of the
Monterey and Crossley brands are not targeted to as broad a range of end-use
markets as the C&A brand. As a result, their sales and marketing organizations
are structured according to geographic region rather than end-use segment.
However, given the two brands' primary focus on the corporate and design
markets, they are to a large degree naturally segmented. While differences exist
between the strategies, all three brands have created motivated, efficient sales
and marketing organizations that are highly focused and tailored to meet the
needs of the end-user.

Across all three brands, the majority of sales are specified by the
facility owner, professional designer or architect. Since each end-user or
market segment has distinct performance, design and installation requirements,
the Company's account managers focus on educating the facility owners and their
design professionals on (i) the technical specifications and proprietary
advantages of its products, (ii) the Company's unique design capabilities, (iii)
the Company's dedications to responsive delivery of customer service and (iv)
the Company's environmental initiatives.

Marketing. As part of the C&A brand's segmentation strategy, each market
segment has a dedicated in-house marketing director responsible for the
identification of market opportunities, communications and program
implementation. Marketing personnel provide account managers with important
market information, including demographic profiles, competitive analysis, and
merchandising support in the form of brochures, advertising and videos. The
marketing group also provides specific input into product development for each
market segment. The C&A brand has an in-house design team dedicated to
developing new, innovative designs for each of its primary end-markets.

Corporate Office Space. The corporate office space market involves
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project-oriented work and/or multi-site purchasing agreements. Management has
focused on projects where C&A tends to excel on the basis of product
performance, customer service and lower life cycle cost rather than pricing. As
part of its strategy to increase penetration of this market, C&A recently
implemented a national accounts program that targets the country's largest
corporations. In addition, a majority of new Monterey products are designed for
and are being introduced into the corporate office segment. The increasing
importance of design in the corporate sector offers the Monterey brand potential
for substantial growth and increased profitability.

Retail Stores. Retail store planning is the Company's newest market
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segment with a focus on major retail chains which have the potential for large,
nationwide volumes. A significant portion of these sales flow directly through
the Company's Source One program. The Company's "on time every time"
installation commitments and RS' ease of installation are critical to meet short
construction schedules and to minimize business interruption and loss of
revenues in the retail sector. While the Company has experienced rapid growth
since its entry into this market segment in 1993, in part due to the relatively
small starting base of sales, the Company believes that its penetration is
nowhere near its segment potential.

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Education. The education market has been a primary focus for C&A since the
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development of Powerbond(R) in 1967. Powerbond(R)`s long-term appearance
retention characteristics have been the principal factor behind C&A's success in
this segment. Customers in the education segment tend to be particularly
sensitive to durability, longevity and ongoing maintenance costs. Historically,
C&A has focused on the kindergarten through twelfth grade market. Powerbond(R)
in many of these installations has been in use for more than 20 years. C&A
aggressively uses this track record in its marketing to potential customers.
Over the last few years, C&A has begun to direct its attention toward the
college and university market. The education market has benefited and is
expected to continue benefiting from strong demographic trends.

Health Care. C&A's RS system is particularly well-suited to the health
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care market because of its moisture impermeability and quick, safe installation.
RS, which is installed without wet adhesives, facilitates use immediately
following installation, a critical concern within the health care market. With
the growth and consolidation of national health care organizations, the
Company's Source One program, providing project management services and single
source responsibility, is well-suited to serve this market.

Government. The Company sells to federal, state and local governments.
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The Company is a supplier to the federal government's purchasing arm, the
General Services Administration, which establishes product categories and
related minimum product specifications for various budget levels and aesthetic
requirements. State and local governments purchase floorcovering products
independently through contracts with approved suppliers. The Company is
currently an approved supplier to several states and municipalities. Management
believes that its success in the government market is due in part to the
Company's environmental initiatives, including both the RS "peel and stick"
backing system and ER3, its recycled content product offering.

International Markets. The Company established its first international
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sales office in 1989 in the United Kingdom and in 1998 acquired a carpet backing
manufacturer headquarters in Wales. In addition, in August 1998, the Company
acquired a 51.0% interest in Collins & Aikman Floorcoverings Asia Pte. Ltd., a
start-up commercial carpet distribution venture in Singapore. The Company's
presence in such international markets enables it to distribute its product
offerings throughout Europe, North and South America, South East Asia, China,
Korea and Taiwan. In 1996, the Company was awarded the primary contract for the
Kuala Lumpur City Centre in Malaysia (currently the tallest building in the
world). The Company has expanded its sales and distribution efforts into
Canada, Mexico, South America and Europe. Sales to international customers
constituted less than 10.0% of C&A's revenues during 1999. The Company plans
to continue to add distributors and dedicated sales personnel in strategic
international markets.

Distribution. Although a majority of the Company's invoicing is through
floorcovering dealers, the Company's primary marketing efforts are focused on
the end-user and professional designers and architects who create specifications
for its products ("market to end-user; sell through any channel the end-user
desires"). The Company's products are sold and distributed through three
primary channels: through dealers, Source One and direct to the end-user. The
Company operates with a flexible distribution philosophy to meet the needs of
the customer rather than mandating from whom the customer can buy the Company's
products. The company's distribution channels are outlined below:

Dealer. The carpet industry traditionally has sold products to customers
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through local dealers, who typically broker products from manufacturers and
subcontract installation through local installers. Many customers request that
the product be delivered through a local dealer who provides a range of project
management services, including carpet removal, staging and installations.

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Through a non-exclusive alignment with DuPont Flooring Systems, a
nationwide network of owned and franchised floorcovering dealers, the Company is
able to provide turn-key floorcovering services, including estimations, take-
offs, installation, reclamation of existing and future materials and
maintenance.

Source One. Introduced in late 1992, the Company's in-house project
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management department provides the first single-source coordination and turn-key
project management service offered by a floorcovering manufacturer. The
department was established to provide a "one phone call, single-source" project
management service to meet the specific needs of the Company's customer base.
The service includes facility measurement, project coordination, order entry,
delivery and installation of a wide range of interior finishes, including the
Company's C&A, Monterey and Crossley brand products. Installation is provided
by a network of approximately 1,200 Company-certified installers throughout the
nation.

Direct. Direct distribution allows end-users to purchase floorcovering
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directly from the Company. The Company's account managers work directly with
the customer to advise, educate and make recommendations for the selection and
specification of the right product for the particular application. The customer
is responsible for project management and installation.

Backlog

The Company's backlog of unshipped orders was approximately $34.4 million
at March 25, 2000, compared to approximately $21.6 million at March 27, 1999.
All of the backlog of orders at March 25, 2000 are expected to be shipped within
three months of that date. Orders on hand are not necessarily indicative of
total future sales.

Products and Product Features

The Company's products are available in a wide variety of textures,
densities, colors and patterns designed to meet both the performance and
aesthetic requirements of a broad spectrum of commercial end-users. The product
offerings are available in both six-foot roll goods, modular carpet tiles and
high-style woven and tufted broadloom, which enables the Company to market an
integrated system of product solutions to address the specific requirements of
end-users. These products offer distinctive characteristics of use and
application. Additionally, the vinyl-backed products are recyclable through the
Company's industry leading environmental program into backing for new carpet and
other value added commercial products, such as industrial block flooring.
Management believes that the ability to offer a full range of specified
commercial floorcoverings is a distinct competitive advantage since each product
provides unique features and benefits as follows:

Six-Foot Roll Goods. C&A is the leading brand six-foot wide commercial
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carpet in the United States. Six-foot roll products, which provide performance
advantages over conventional twelve-foot broadloom and hardwood flooring, are
used primarily in applications that require long-term appearance retention,
longer life cycle cost benefits and ease of maintenance. All of the Company's
six-foot products utilize the proprietary Powerbond/(R)/ backing technology and
the patented RS "peel and stick" installation system. In addition to superior
performance characteristics, the six-foot roll product provides handling and
transport advantages over twelve-foot rolls as well as cost advantages over
modular carpet tiles.

Modular Carpet Tiles. C&A was the first manufacturer in the United States
---------------------
to introduce modular carpet tile technology in 1969 and today is a leading
domestic producer of carpet tile. The Company's modular carpet tile system is
specifically engineered to have a monolithic appearance on the floor and is
marketed as the most seamless tile in the industry. It is often difficult to
discern whether an installation is tile or six-foot roll because of the
product's unique seamability. The Company's modular carpet tile products are
offered in a variety of sizes to accommodate a range of domestic and
international requirements. Additionally, in January 1999, the Company
announced the standardization of ER3(RS) backing for all of its tile products.
This provides a strategic advantage in the market place since many customers
today are looking for products of high recycled content.

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High-Style Commercial Broadloom. Monterey and Crossley are leading brands
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for high-style specified commercial broadloom carpet in the medium-to-high end
market. High-style broadloom products include both tufted and woven products.
Broadloom carpet is designed for beauty and aesthetics and is typically more
frequently replaced than six-foot roll goods or carpet tile, because of its
prevalence in spaces which are regularly renovated in order to reflect current
fashion trends and styles. Monterey and Crossley implement technologically
advanced methods to create products in a wide variety of colors, patterns,
textures, pile heights and densities to meet the practical and aesthetic needs
of its primary end-users.

Competition

The Company's C&A brand competes with other brands of vinyl-backed carpet,
as well as twelve-foot broadloom carpet and other types of commercial
floorcovering. The Company's Monterey and Crossley brands compete for sales of
specialty commercial broadloom carpet with other carpet manufacturers and
manufacturers of vinyl and other types of floorcovering. Management believes
that the Company is the largest manufacturer of six-foot roll goods in the
United States, with a market share over two and a half times that of its nearest
competitor, a leading manufacturer of modular carpet tile in the United States
and a design leader in the high-style commercial broadloom market in the United
States.

The Company believes the principal competitive factors in its primary
floorcovering markets are performance, durability, service, style and price. In
the specified commercial market, six-foot roll goods and modular carpet tiles
compete with various floorcoverings, of which broadloom carpet has the largest
market share. The performance, durability, customer service, and ease of
installation and maintenance of C&A's six-foot roll goods and modular carpet
tile are its principal competitive advantages. In the high-style specified
commercial broadloom market, the principal competitive advantages of the
Monterey and Crossley brands are aesthetics, service and quality. The highly
focused sales force for all three brands provides an additional competitive
advantage.

Some of the Company's major competitors have significantly higher
commercial carpet sales than the Company since broadloom carpet products
comprise the majority of their sales. The market for commercial broadloom
products is substantially larger than the commercial vinyl-backed carpet market
in which the C&A brand competes. The Company's recent acquisitions of Monterey
and Crossley, design leaders in the specified commercial broadloom industry,
have enabled the Company to compete directly in this larger market focusing on
the mid to high-end segment.

9
<PAGE>

Manufacturing and Facilities

The following table summarizes the Company's manufacturing, distribution
and sales facilities. In the opinion of Management, the Company's manufacturing
capacity is sufficient to meet the Company's requirement for the foreseeable
future.

<TABLE>
<CAPTION>
Approximate
Location Operation Owned/Leased Square Feet
- -------- --------- ------------ ---------------
<S> <C> <C> <C>
Dalton, Georgia........................ Yarn Processing Owned 161,500
Carpet Dyeing
Dalton, Georgia........................ Tufting Owned 154,990
Corporate Offices
Dalton, Georgia........................ Six-Foot Finishing Owned 245,800
Tile Finishing
Tile Printing
Recycling
Dalton, Georgia........................ Distribution Warehouse Owned 133,200
Sales Service Office
Finance & Administration
Dalton, Georgia........................ Warehouse Leased 95,350
Chagrin Falls, Ohio.................... Sales / Showroom Leased 1,100
Chicago, Illinois...................... Sales / Showroom Leased 5,498
Dallas, Texas.......................... Sales / Showroom Leased 1,960
Denver, Colorado....................... Sales / Showroom Leased 1,318
Marietta, Georgia...................... Sales / Showroom Leased 2,129
New York, New York..................... Sales / Showroom Leased 3,800
Newport Beach, California.............. Sales / Showroom Leased 1,600
Richmond, Virginia..................... Sales / Showroom Leased 1,783
San Francisco, California.............. Sales / Showroom Leased 3,330
Westborough, Massachusetts............. Sales / Showroom Leased 120
Blaina, Gwent, Wales................... Six Foot and Tile Finishing Leased 3,000
Blaina, Gwent, Wales................... Six Foot and Tile Finishing Owned 32,000
Blaina, Gwent, Wales................... Warehousing Owned 14,000
Blaina, Gwent, Wales................... Sales/Warehouse Leased 4,860
Blaina, Gwent, Wales................... Chemical Mixing Leased 4,000
Blaina, Gwent, Wales................... Sales / Showroom Leased 5,500
Singapore.............................. Sales / Showroom Leased 1,265
Santa Ana, California.................. Warehouse Leased 88,266
Samples
Administration
Santa Ana, California.................. Tufting Leased 102,758
Yarn Processing
New York, New York..................... Sales Office Leased 1,578
Chicago, Illinois...................... Sales Office Leased 300
Troy, Michigan......................... Sales Office Leased 180
Wrentham, Massachusetts................ Sales Office Leased 385
Truro, Nova Scotia, Canada............. Administration Owned 365,000
Manufacturing
Warehouse
Mississauga, Ontario, Canada........... Sales / Showroom Leased 2,306
Reading, Massachusetts................. Sales Office Leased 1,050
</TABLE>

10
<PAGE>

Raw Materials

The manufacturing of carpet involves the purchasing or manufacturing of
yarn, which comprises about one-third of the carpet's typical cost structure and
in excess of 50% of total raw material costs. The Company uses DuPont 6.6
continuous filament yarn for a significant number of its products. Yarn is
either purchased directly from the yarn manufacturer to be processed internally
or from outside yarn processors who process DuPont yarn prior to delivery.
Other significant raw materials used by the Company in its manufacturing process
include coater materials, such as vinyl resins, and primary backing.

The Company has never experienced a problem sourcing nylon, processed yarn
or any other raw material used in the manufacture of carpet from its suppliers
and does not anticipate any difficulties in sourcing these raw materials in the
future.

Patents and Trademarks

The Company owns a number of patents in the United States including its
Powerbond RS patent, which expires in 2008 and its newly obtained patents
(process and product) for the ER3 backing produced from its environmental
program. The Company considers its know-how and technology more important to
its current business than patents and, accordingly, believes that expiration of
existing patents would not have a material adverse effect on its operations.
However, the Company maintains an active patent and trade secret program in
order to protect its proprietary technology, know-how and trade secrets. The
Company also owns numerous registered trademarks in the United States, including
Powerbond(R). As part of the acquisition of CAF by CAF Holdings, Inc.
("Holdings) in 1997 from C&A Products, the Company and Holdings entered into a
Tradename License Agreement with C&A Products, which, subject to compliance with
the terms of the Agreement, gave the Company a perpetual license to use the name
Collins & Aikman Floorcoverings, Inc.

Employees

At January 29, 2000, the Company had a total of 1,451 employees of which
915 were hourly and 536 salaried. The Company has experienced no work stoppages
and believes that its employee relations are good. All of the Company's
employees are non-union with the exception of Crossley's manufacturing work
force. Crossley's current union contract expires in September 2000.
Management is not aware of any discussions or attempts to organize the workforce
within any of the Company's other facilities.

Environmental Matters

The Company's operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of, certain materials, substances and
wastes. The Company believes that its operations are in material compliance
with the terms of all applicable environmental laws and regulations as currently
interpreted. The cost of such compliance is immaterial to the financial
position and results of operations of the Company.

Item 2. Properties

For information concerning the principal physical properties of the
Company, see "Item 1. Business - Manufacturing and Facilities."

11
<PAGE>

Item 3. Legal Proceedings

The Company from time to time is subject to claims and suits arising in the
ordinary course of business, including workers' compensation and product
liability claims, which may or may not be covered by insurance. It is the
opinion of management that the various asserted claims and litigation in which
the Company is currently involved will not have a material adverse effect on its
financial position or results of operations.

Item 4. Submission of Matters to A Vote of Security Holders

None.

12
<PAGE>

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

As of April 28, 2000, there was one holder of record of the Company's
common stock. There is no public trading market for the Company's common stock.
The Company has not historically paid dividends and has no intention to pay
dividends in the future.

Item 6. Selected Financial Data

The following data is qualified in its entirety by the consolidated
financial statements of the Company and other information contained elsewhere
herein. The financial data as of and for the years ended January 27, 1996,
January 25, 1997, January 31, 1998, January 30, 1999 and January 29, 2000 have
been derived from the audited financial statements of the Company. The
historical consolidated financial statements of the Company contained elsewhere
herein are presented as if the Company was a separate entity for all periods
presented. The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
appearing elsewhere herein.

13
<PAGE>

The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company in its Floorcoverings, Monterey and Crossley
Acquisitions. Such accounting generally results in increased amortization and
depreciation reported in periods subsequent to the Floorcoverings Acquisition.
In addition, pre-Floorcoverings Acquisition results include accruals and costs
allocated by C&A Products. Accordingly, pre-Floorcoverings Acquisition results
of the Company and post-Floorcoverings Acquisition results are not comparable in
all material respects. A vertical black line on the table below distinguishes
between the pre-Floorcoverings Acquisition and post-Floorcoverings Acquisition
results.

<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------------
January 27, January 25, January 31, January 30, January 29,
1996 1997 1998(a) 1999 2000
(Fiscal 1995) (Fiscal 1996) (Fiscal 1997) (Fiscal 1998) (Fiscal 1999)
----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales.............................................. $122,169 $136,124 $ 160,383 $175,662 243,364
Costs of goods sold.................................... 73,615 81,715 97,263 103,739 150,093
--------- ---------- --------- --------- --------
Gross profit........................................... 48,554 54,409 63,120 71,923 93,271
Selling, general and administrative expenses (b)....... 27,364 28,971 34,769 38,514 52,846
Corporate general & administrative allocated
costs (c)........................................ 1,591 1,531 649 -- --
Goodwill and other intangibles amortization (d)........ -- -- 8,468 7,375 7,898
--------- ---------- --------- --------- --------

Operating income....................................... 19,599 23,907 19,234 26,034 32,527
Loss on sales of accounts receivable (e)............... 3,269 3,489 -- --
Minority interest in income of subsidiary.............. -- -- -- 10 62
Equity in earnings of affiliate (f).................... -- -- -- -- 1,215
Interest expenses (g).................................. 3,098 2,854 15,122 14,715 16,338
--------- ---------- --------- --------- --------
Income before income taxes............................. 13,232 17,564 4,112 11,309 17,342
Income tax expense.................................... 5,127 6,729 1,710 4,871 8,496
Extraordinary gain on early extinguishment of
debt, net of tax (h)............................ -- -- -- -- 1,226
--------- ---------- --------- --------- --------
Net Income............................................. $ 8,105 $ 10,835 $ 2,402 $ 6,438 10,072
========= ========== ========= ========= ========
Other Data:
EBITDA (i)............................................. $ 23,371 $ 27,118 $ 35,085 $ 39,268 49,388
Capital expenditures................................... 4,290 7,897 5,119 7,972 8,378
Depreciation and amortization.......................... 2,154 2,201 13,263 13,244 15,708

Cash Flows Data:
Net cash provided by operating activities.............. $ 11,744 $ 12,375 $ 24,201 $ 19,514 27,590
Net cash used in investing activities.................. (4,270) (7,856) (202,856) (12,680) (61,055)
Net cash provided by (used in) financing
Activities (j)................................... (7,347) (4,508) 184,210 (10,322) 35,368

Balance Sheet Data (end of period):
Working capital (k).................................... $ 3,805 $ 6,485 $ 27,454 $ 27,561 39,317
Total assets (k)....................................... 31,231 39,614 216,823 215,414 288,288
Long-term debt (l)..................................... 43,300 25,400 142,000 132,382 186,201
Stockholder's equity (deficit)......................... (29,645) (3,780) 54,076 60,529 70,696
</TABLE>

(a) The fiscal period ended January 31, 1998 included 53 weeks.
(b) Amounts include costs incurred by the Company relating to certain matters
retained by C&A Products totaling $1,618,000 in fiscal 1995 and $1,010,000
in fiscal 1996. The above amounts represent all costs, including
remediation, legal expenses, travel expenses and claim settlements,
incurred by the Company in connection with certain claims and litigation
that either were retained by C&A Products or were incurred by the Company
in anticipation of the sale of the Company.

14
<PAGE>

(c) Prior to fiscal 1997, amounts relate to services provided by C&A Products
and include tax, treasury, risk management, employee benefits, legal, data
processing, application of cash receipts and other general corporate
services. The costs of the services provided by C&A Products were
allocated to the Company based upon a combination of estimated use and the
relative sales of the Company's business to the total consolidated
operations of C&A Products. In the opinion of management, the method on
which these costs were allocated was believed to be reasonable. However,
the costs of these services charged to the Company are not necessarily
indicative of the costs that would have been incurred if the Company had
performed these functions. Fiscal 1997 amounts relate to amounts paid to
the majority shareholder as a management fee and amounts paid to C&A
Products to provide the Company with services as described above.
(d) In connection with various acquisitions, the Company has recorded goodwill
and other intangible assets of $177.8 million, which are being amortized
over lives of 7 to 40 years.
(e) C&A Products was party to a receivables sale agreement with Carcorp, a
wholly owned, bankruptcy-remote subsidiary of C&A Products. The accounts
receivable were purchased by Carcorp at the face amount of the accounts
receivable less a defined discount. Upon closing of the Floorcoverings
Acquisition, the Company was terminated as a seller under the receivables
sale agreement.
(f) Upon consummation of the Monterey Acquisition, the Company, through
Monterey, became party to an agreement with two other parties in a
partnership, which operates a carpet dyeing and finishing plant.
(g) Substantially all of the Company's interest expense prior to the fiscal
year ended January 31, 1998 relates to the allocated debt of C&A Products
referred to in note (l) below.
(h) In fiscal 1999, the Company experienced a net extraordinary gain of
approximately $1.2 million, net of income tax expense, due to (i) a gain of
$1.3 million, net of tax expense, related to the forgiveness of sinking
funds bonds at a face value of $2.1 million, pursuant to an agreement with
the issuer and holder, the Nova Scotia Business Development Corporation and
(ii) a net loss of $0.1 million, net of tax benefit, related to the
purchase of Senior Subordinated Notes with a face amount of $8.5 million.
(i) EBITDA represents earnings before deductions for interest expense, loss on
sales of accounts receivable, income tax expense, depreciation,
amortization, non-recurring charges related to the costs incurred in
connection with certain matters retained by C&A Products (see note (b)
above), the effect of writing up inventory to fair value at the time of the
Floorcoverings Acquisition and (for fiscal 1998 and 1999) minority interest
in income of subsidiary and equity in earnings of affiliate. Because of
certain of these adjustments, the measure presented may not be comparable
to similarly titled measures reported by other companies. The Company
understands that certain investors believe EBITDA reflects a company's
ability to satisfy principal and interest obligations with respect to its
indebtedness and to utilize cash for other purposes. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles.
(j) Prior to the Floorcoverings Acquisition, net cash used in financing
activities includes net cash transactions with C&A Products.
(k) For periods prior to the Floorcoverings Acquisition, amounts exclude all
domestic trade accounts receivable sold by the Company pursuant to the
receivables sale agreement referred to in note (e) above.
(l) Amounts for periods prior to fiscal 1997 represent the debt of C&A Products
that had been allocated to the Company as a result of its guarantee of
certain C&A Products debt. In connection with the sale of the Company, the
Company was released from this guarantee, and accordingly, the Company was
not required to repay any of the allocated amounts.

15
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

GENERAL

In 1999 the Company had $243.4 million in sales and $49.4 million in
EBITDA, which is the sixth consecutive record year for both measurements. For
the five-year period from 1995 to 1999, sales and EBITDA experienced compounded
annual growth rates of 14.5% and 16.1%, respectively. The Company's success
over the last five years is attributable to (i) the sales to diverse end-use
markets served, (ii) the highly focused segmentation philosophy within sales and
marketing, (iii) the continued strong demand by customers to utilize the
Company's Source One program of turn-key services, (iv) the focus on cost
containment through all operations of the Company, and (v) the continued input
from all associates of the Company through the formalized suggestion systems.

ACQUISITIONS

On July 30, 1999, the Company acquired all the outstanding capital stock of
Crossley Carpet Mills Limited ("Crossley") for $22.1 million (the "Crossley
Acquisition") including $17.6 million in assumed debt. Based in Nova Scotia,
Canada, Crossley is a manufacturer of tufted and woven broadloom carpet. The
Crossley Acquisition has been accounted for by the purchase method, to which the
purchase price has been allocated among the acquired assets and liabilities.
The excess of the purchase price over the fair value of the net assets acquired
amounted to approximately $3.9 million, which is being accounted for as goodwill
and is being amortized over 20 years using the straight line method. Of the
debt assumed in this acquisition, approximately $9.5 million of the assumed
long-term debt is sinking fund bonds held and issued by the Nova Scotia Business
Development Corporation (the "Bond Holder"). The Bond Holder agreed to forgive
principal amount of the bonds up to a maximum of $6.3 million at various rates,
dependent upon certain factors. The remaining balance will become repayable over
five years once the forgiveness has expired.

On June 28, 1999, pursuant to an Agreement and Plan of Merger, dated June
4, 1999 (the "Merger"), the Company, through its wholly owned subsidiary,
Monterey Merger Company, Inc. ("Merger Sub"), acquired all the outstanding
capital stock of Monterey for $50.0 million, subject to a working capital
adjustment (the "Monterey Acquisition"). Simultaneous with the consummation of
the Merger, Merger Sub was merged with and into Monterey, with Monterey as the
surviving corporation in the merger. In addition, approximately $0.4 million of
indebtedness of Monterey was extinguished by the Company commensurate with the
acquisition. The consideration paid was financed through the Company's existing
credit facility as amended. The Monterey Acquisition has been accounted for by
the purchase method, to which the purchase price has been allocated among the
acquired assets and liabilities. The excess of the purchase price over the fair
value of the net assets acquired was approximately $34.4 million which is being
accounted for as goodwill and is being amortized over 20 years using the
straight line method.

16
<PAGE>

In August 1998, the Company entered into a joint venture with a group of
individuals to form Collins & Aikman Floorcoverings Asia Pte. Ltd. Based in
Singapore, the newly formed company will market and distribute the Company's
products throughout the Asia Pacific region. The Company obtained a 51.0%
ownership in the new company.

In June 1998, the Company acquired all of the outstanding capital stock of
Advance Carpet Tiles, Ltd. ("ACT") from Headlam Group PLC ("Headlam") for $5.6
million, (the "ACT Acquisition") including assumed debt of $0.6 million.
Financing for the ACT Acquisition was provided under the existing credit
facility and an agreement to pay $1.9 million to Headlam in September 2000 at an
effective interest rate of 8.5%. The ACT Acquisition was accounted for using
the purchase method of accounting. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $1.9
million and is being amortized over 40 years using the straight line method.

Results of Operations

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

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
(fiscal 1997) (fiscal 1998) (fiscal 1999)
---------------------------------------------------------
(Percentage of net sales)
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of goods sold.................................. 60.6 59.1 61.7
---------- ---------- -----------
Gross profit........................................ 39.4 40.9 38.3
Selling, general and administrative expenses........ 21.7 21.9 21.7
Corporate general and administrative allocated cost. 0.4 0.0 0.0
Goodwill and intangible amortization................ 5.3 4.2 3.2
---------- ---------- -----------
Operating income.................................... 12.0 14.8 13.4
Minority interest in income of subsidiary........... 0.0 0.0 0.0
Equity in earnings of affiliate..................... 0.0 0.0 0.5
Interest expense.................................... 9.4 8.4 6.7
---------- ---------- -----------
Income before income taxes and extraordinary item... 2.6 6.4 7.2
Income tax expense.................................. 1.1 2.8 3.5
Extraordinary gain on extinguishment of debt, net 0.0 0.0 0.5
of tax............................................. ---------- ---------- -----------
Net income.......................................... 1.5% 3.6% 4.2%
---------- ---------- -----------
EBITDA margin....................................... 21.9% 22.4% 20.3%
========== ========== ===========
</TABLE>

Fiscal Year Ended (52 weeks) January 29, 2000 ("fiscal 1999")
Compared with Fiscal Year Ended (52 weeks) January 30, 1999 ("fiscal 1998")

Net Sales. Net sales represent gross sales less product returns, customer
allowances and various customer discounts. Sales are comprised of six-foot roll
goods, modular carpet tile, broadloom carpet and other products, including
adhesives, industrial block flooring and walk-off mats. The Company's net sales
increased to $243.4 million in fiscal 1999, an increase of $67.8 million or
38.6% over fiscal 1998. The increase in net sales in fiscal 1999 was due to the
inclusion of product sales of Monterey and Crossley and sales growth in the
education, corporate and government end use markets. The Company experienced
volume increases in all product lines with minor average selling price
increases.

Cost of Goods Sold. Cost of goods sold increased to $150.1 million in
fiscal 1999 from 103.7 million, an increase of $46.4 million or 44.7%. As a
percentage of sales, these costs were 61.7% and 59.1% respectively. This cost
increase was due to the inclusion of product sales of Monterey and Crossley and
increased sales volume offset by improved manufacturing efficiencies on the
higher volume in fiscal 1999.

17
<PAGE>

Selling, General and Administrative ("SG&A") Expenses. The Company's SG&A
expenses, including goodwill and intangible assets amortization of $7.9 million,
in fiscal 1999 increased to $60.7 million from $45.9 million, an increase of
32.4% over fiscal 1998 which included goodwill and intangible assets
amortization of $7.4 million. This cost increase is primarily due to increased
costs related to (i) the inclusion of Monterey and Crossley expenses, (ii)
investment in the Company's administrative infrastructure, and (iii) higher
sales commissions related to the higher sales volume.

Interest Expense. Net interest expense for fiscal 1999 increased to $16.3
million, from $14.7 million in fiscal 1998. This increase is due to higher
indebtedness incurred from the Monterey and Crossley acquisitions.

Extraordinary Gain. The Company experienced a net gain of approximately
$1.2 million, net of income tax expense, due to (i) a gain of $1.3 million, net
of tax expense, related to the forgiveness of sinking funds bonds at a face
value of $2.1 million, pursuant to an agreement with the issuer and holder, the
Nova Scotia Business Development Corporation and (ii) a net loss of $0.1
million, net of tax benefit, related to the purchase of Senior Subordinated
Notes with a face amount of $8.5 million.

Net Income. Net income for fiscal 1999 increased to $10.1 million from
$6.4 million in fiscal 1998. This increase of $3.6 million was due to the
combined result of the factors described above. The Company's effective tax
rate was 49.0% and 43.0% for fiscal 1999 and 1998, respectively.

EBITDA. EBITDA is defined as operating income plus depreciation,
amortization and equity in earnings of affiliate. EBITDA of $49.4 million in
fiscal 1999 was $10.1 million or 25.8% higher than the $39.3 million for fiscal
1998. As a percentage of sales, EBITDA decreased to 20.3% in fiscal 1999 from
22.4% in fiscal 1998. The change in EBITDA and EBITDA margin was the combined
result of the factors described above. EBITDA is provided as certain investors
commonly use it as a measure of a company's ability to service its indebtedness.
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net income
as a measure of performance or to cash flow as a measure of liquidity.

Fiscal Year Ended (52 weeks) January 30, 1999 ("fiscal 1998")
Compared with Fiscal Year Ended (53 weeks) January 31, 1998 ("fiscal 1997")

Net Sales. Net sales represent gross sales less product returns, customer
allowances and various customer discounts. Sales are comprised of six-foot roll
goods, modular carpet tile and other products, including adhesives, industrial
block flooring and walk-off mats. Sales in 1998 also include the commission
finishing revenue of Advance Carpet Tile. The Company's net sales increased to
$175.7 million in fiscal 1998, an increase of $15.3 million or 9.5% over fiscal
1997. The increase in net sales in fiscal 1998 was due to sales growth in the
government, healthcare and education end use markets as well as the addition of
Advance Carpet Tiles. The Company experienced strong volume increases in six-
foot roll goods with minor average price decreases in both six-foot roll goods
and modular carpet tiles.

Cost of Goods Sold. Cost of goods sold increased to $103.7 million in
fiscal 1998 from $97.3 million, an increase of $6.5 million or 6.6%. As a
percentage of sales, these costs were 59.1% and 60.6%, respectively. This cost
increase was due to increased sales volume offset by improved manufacturing
efficiencies on the higher volume and, during fiscal 1997, the effect of a $2.6
million inventory charge. This inventory charge was a result of writing-up
inventory to fair market value for the Floorcoverings Acquisition, and expensing
the write-up amount during fiscal 1997 as the inventory completely turned.
Excluding the $2.6 million inventory effect, cost of goods sold for fiscal 1997
was $94.7 million resulting in a 9.6% increase when comparing fiscal 1998 to
fiscal 1997.

18
<PAGE>

Selling, General and Administrative ("SG&A") Expenses. The Company's SG&A
expenses, including goodwill and intangible assets amortization of $7.4 million,
in fiscal 1998 increased to $45.9 million from $43.9 million, an increase of
4.6% over fiscal 1997 which included goodwill and intangible assets amortization
of $8.5 million and corporate, general and administrative allocated costs of
$0.6 million. This cost increase is primarily due to increased costs related to
(i) investment in the Company's administrative infrastructure, (ii) higher sales
commissions related to the higher sales volume and (iii) continued investment in
the Company's segmentation marketing strategy partially offset by reduced
amortization of intangible assets.

Interest expense. Net interest expense for fiscal 1998 decreased to $14.7
million, from $15.1 million in fiscal 1997. This slight decrease was due to
lower total indebtedness during the period partially offset by higher interest
rates due to outstanding revolver borrowings and 5 additional days of
outstanding indebtedness during fiscal 1998 due to the timing of the
Floorcoverings Acquisition in the first quarter of 1997.

Net Income. Net income for fiscal 1998 increased to $6.4 million from net
income of $2.4 in fiscal 1997. This increase of $4.0 million was due to the
combined result of the factors described above. The Company's effective tax
rate was 43.0% and 41.5% for fiscal 1998 and 1997, respectively.

EBITDA. EBITDA is defined as operating income plus depreciation,
amortization and, for fiscal 1997, the effect of the write-up of inventory to
fair market value. EBITDA of $39.3 million in fiscal 1998 was $4.2 million or
11.9% higher than the $35.1 million for fiscal 1997. As a percentage of sales,
EBITDA increased to 22.4% in fiscal 1998 from 21.9% in fiscal 1997. The change
in EBITDA and EBITDA margin was the combined result of the factors described
above. EBITDA is provided as certain investors commonly use it as a measure of
a company's ability to service its indebtedness. EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity.

Liquidity and Capital Resources

The Company's primary cash needs have historically been for operating
expenses, working capital and capital expenditures. The Company has financed
its cash requirements primarily through internally generated cash flow and,
prior to February 1997, intercompany advances from C&A Products.

Net cash provided by operating activities in the fiscal 1999 was $27.6
million compared to $19.5 million in the fiscal 1998. The change was primarily
due to a positive $6.8 million swing in net working capital, the $3.6 million
increase in net income off set by a negative $2.3 million swing in non-cash
charges.

Capital expenditures totaled $8.4 million during fiscal 1999 compared to
$8.0 million during fiscal 1998. This increase in capital expenditures for the
fiscal 1999 period is due to the inclusion of Monterey and Crossley. Fiscal
1999 capital expenditures were focused on cost reduction/maintenance measures,
efficiency improvements and other capacity enhancements.

The Company has significant indebtedness which consisted of $91.5 million
in Senior Subordinated Notes due 2007 (the "Senior Notes"); a $125.0 million
credit facility (the "Credit Facility") which, at January 29, 2000 had
outstanding balances of $28.0 million ("A-1 Term Loan Facility") and $40.0
million ("A-2 Term Loan Facility") in term loan borrowings and $8.3 million in
revolving credit borrowings; $4.1 million in seller's notes from the June 1998
acquisition of Advance Carpet Tiles and the July 1999 Crossley acquisition; $1.7
million in purchase money indebtedness; $4.7 million in revolving line of credit
borrowings and $7.9 million in sinking funds bonds under Crossley.

19
<PAGE>

The A-1 Term Loan facility of the Credit Facility will mature on June 30,
2002 and, as of January 29, 2000, will require principal payments (payable in
quarterly installments) totaling $1.3 million in the third quarter of fiscal
2000, $3.7 million in the fourth quarter of fiscal 2000, $15.0 million in fiscal
2001 and $8.0 million in fiscal 2002. The A-2 Term Loan Facility will mature on
December 31, 2003 and requires principal payments (also payable in quarterly
installments) totaling $12.0 million in fiscal 2002 and $28.0 million in fiscal
2003. The revolving credit portion of the Credit Facility will mature on June
30, 2002 and may be repaid and reborrowed from time to time. During fiscal 1998
and 1999, the Company voluntarily prepaid $12.1 million and $1.9 million,
respectively, of the term loan borrowings. As of January 29, 2000, there was
$16.6 million (net of $8.3 million in borrowings and $5.1 million in letters of
credit outstanding) available under the revolving credit portion of the Credit
Facility.

The Company has made six amendments to the Credit Facility. The first
amendment related to certain restrictive covenants of the Credit Facility
allowing increased flexibility for foreign acquisitions and increased annual
limits for capital expenditures over the next four years. The second amendment
provided better interest rates based on the Company's leverage ratio for the
immediately preceding twelve months. The third amendment provided for the
ability to purchase up to $5.0 million of the Company's Senior Subordinated
Notes on open markets. The fourth amendment increased the limit for capital
expenditures during fiscal 1998. The fifth amendment (i) expanded the term loan
facility to include a second term loan of $40.0 million, payable in quarterly
installments due September 2002 through December 2003; (ii) allowed greater
flexibility in making acquisitions including the Monterey and Crossley
acquisitions; and (iii) adjusted certain covenants. The sixth amendment allowed
the purchase of an additional $10.0 million of the Company's Senior
Subordinated Notes on open markets.

Concurrent with the consummation of the Crossley Acquisition, the Company
agreed to pay the seller $2.0 million over the next four years, subject to
certain conditions, at an effective interest rate of 7.5%. In addition, the
Company assumed debt of approximately $17.5 million. Of this amount, term loans
associated with financing of equipment purchases and other specific needs
totaled $1.1 million. At January 29, 2000, $1.1 million was outstanding. These
term loans are payable monthly according to set schedules of repayment with the
lenders. Approximately $6.9 million of short-term debt was assumed which relates
to Crossley's revolving line of credit agreement with a Canadian bank, which is
used to finance working capital requirements. At January 29, 2000, $4.7 million
was outstanding and $2.9 million was available under this line of credit.
Approximately $9.5 million of long-term debt assumed was sinking fund bonds held
and issued by the Nova Scotia Business Development Corporation (the "Bond
Holder"). The Bond Holder agreed to forgive principal amount of these bonds up
to a maximum of $6.3 million at various rates, dependant upon certain factors.
For the year ended January 29, 2000, $2.1 million was forgiven. The remaining
balance will become repayable over five years once the forgiveness has expired.

The Company's ability to make scheduled payments of principal or to pay
interest on, or to refinance its indebtedness (including the Senior Notes),
depends on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond the Company's control. Based upon the current level of
operations and anticipated growth, management believes that cash flow from
operations, together with available borrowings under the Credit Facility, will
be adequate to meet the Company's anticipated future requirements for capital
expenditures and debt service. 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, including the Senior Notes, or to make necessary
capital expenditures.

20
<PAGE>

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
while schools generally are closed and floorcovering can be installed.

Year 2000

The Company did not experience any significant Year 2000 problems.

Recent Accounting Pronouncements

During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). Since the Company does not hold any
derivative instruments, SFAS 133 does not have any impact on the Company's
results from operations or financial position.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Disclosures are not required at this time.

Item 8. Financial Statements and Supplemental Data

See the consolidated financial statements of Collins & Aikman
Floorcoverings, Inc. and subsidiaries included herein beginning on page F-1 and
listed on the index to financial statements set forth in Item 14 (a) of this
Form 10-K report.

Item 9. Change In and Disagreements With Accountants on Accounting and
Financial Disclosure

None.

21
<PAGE>

PART III

Item 10. Directors and Executive Officers

The following table sets forth the name, age and position of each
director or executive officer of the Company. The directors of the Company are
also the directors of Holdings. Each director will continue to hold office until
the next annual meeting of the shareholder of the Company or until his successor
has been elected and qualified. The Shareholders Agreement governs the election
of directors of the Company. See "Item 12. Security Ownership - Shareholders
Agreement". Officers of the Company are elected by the Board of Directors of the
Company and serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers.

Name Age Positions
<S> <C> <C>
Edgar M. Bridger........ 48 President, Chief Executive Officer and Director
Lee H. Schilling........ 59 Senior Vice President of Marketing and Sales
Darrel V. McCay......... 39 Vice President, Chief Financial Officer and Director
Jeffrey M. Raabe........ 38 Vice President of Sales
Wallace J. Hammel....... 54 Vice President of Manufacturing
Henry L. Millsaps, Jr... 44 Vice President of Human Resources
Larry C. Jones.......... 59 President of Monterey Carpets, Inc. and Director
Terrence D. Daniels..... 57 Chairman of the Board
Gary A. Binning......... 39 Director
Stephen M. Burns........ 38 Director
Thad M. Jones........... 28 Director
Robert D. Haswell....... 30 Director
</TABLE>

Edgar M. (Mac) Bridger, President, Chief Executive Officer and
Director became a director of Holdings upon consummation of the Floorcoverings
Acquisition. Mr. Bridger joined the Company in 1987 as the Midwest District
Manager. Prior to being appointed President and Chief Executive Officer in
February 1997, he served as the Company's President since December 1993. Mr.
Bridger previously served as Vice President of Sales and as National Sales
Manager. Mr. Bridger is also a director of a privately-held corporation.

Lee H. Schilling, Senior Vice President of Marketing and Sales, joined
the Company in 1985 as National Sales Manager. In 1987, he was promoted to Vice
President of Marketing and Sales, and in December 1993, he was promoted to his
present position.

Darrel V. McCay, Vice President, Chief Financial Officer and Director,
joined the Company in March 1989 as Division Controller and became Vice
President of Administration and Control in August 1994. Mr. McCay was appointed
Chief Financial Officer in February 1997. Mr. McCay became a director of
Holdings in 1999.

Jeffrey M. Raabe, Vice President of Sales, joined the Company in 1990
as a Contract Specialist in Atlanta, Georgia. Prior to being promoted to his
present position with the Company in February 1996, he served as the Southeast
District Sales Manager and Director of North American Sales.

Wallace J. Hammel, Vice President of Manufacturing, joined the Company
in March 1983 as Finishing Manager. Mr. Hammel served as Director of Customer
Service and Claims from July 1991 through April 1994 when he assumed his present
position.

Henry L. Millsaps, Jr., Vice President of Human Resources, joined the
Company in 1980. Mr. Millsaps was Human Resource Director from March 1988 until
1995, when he was promoted to his present position.

22
<PAGE>

Larry C. Jones, President of Monterey Carpets, Inc. and Director,
became a director of the Company upon the consummation of the acquisition of
Monterey Carpets in 1999. Since 1988, Mr. Jones has been President & Chief
Executive Officer of Monterey Carpets. For the five years preceding that, he was
President of DesignWeave, the commercial division of Tuftex Industries.

Terrence D. Daniels, Chairman of the Board, has served as a director
and as Chairman of the Board of Holdings since 1996 and became the Chairman of
the Board of Directors of the Company upon consummation of the Floorcoverings
Acquisition. Since 1990, Mr. Daniels has been President of Quad-C, Inc. During
1989 and prior thereto, Mr. Daniels was a Vice Chairman and director of W. R.
Grace & Co. with responsibility for the Specialty Chemical, Health Care, Natural
Resource, Restaurant, Retail and Corporate Technical groups. Mr. Daniels is also
a director of IGI, Inc., and several privately-held corporations.

Gary A. Binning, Director, has served as a director and as a Vice
President of Holdings since 1996 and became a director of the Company upon
consummation of the Floorcoverings Acquisition. Since 1992, Mr. Binning has been
with Paribas where he is currently a Partner with Paribas Principal Partners and
an officer and director of Paribas Principal, Inc. Mr. Binning is also a
director of several privately-held corporations.

Stephen M. Burns, Director, has served as a director of Holdings since
1996 and became a director of the Company upon consummation of the
Floorcoverings Acquisition. Since 1992, Mr. Burns has been a Vice President of
Quad-C. Prior to joining Quad-C, Mr. Burns was a Vice President of Paribas North
America and Paribas. Mr. Burns is also a director of several privately-held
corporations.

Thad M. Jones, Director, has served as a director of Holdings since
1999. Since 1998, Mr. Jones has been an Associate of Quad-C. Prior to joining
Quad-C, Mr. Jones was an Associate of Croft & Bender, LLC and The Robinson-
Humphrey Company. Mr. Jones is also a director of a privately held corporation.

Robert D. Haswell, Director, has served as a director of Holdings
since 1999. Mr. Haswell joined Paribas in 1995, and worked first in Paribas'
Principal Merchant Banking Group before joining Paribas Partners in 1996. Prior
to 1995, Mr. Haswell was an associate of Ernst & Young, LLP. Mr. Haswell is also
a director of several privately held corporations.

Compliance with Section 16(a) of the Exchange Act.

The Company does not have a class of equity securities registered
pursuant to Section 12 of the Exchange Act.

23
<PAGE>

Item 11. Executive Compensation

The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and each of the other four most highly
compensated executive officers ("Named Executive Officers") during the fiscal
years presented.

Summary Compensation Table

Long - Term
Annual Compensation ($) (a) Compensation
------------------------------------ --------------------
Securities Underlying All Other
Name and Principal Position Year Salary Bonus (b) Options (#) Compensation
- ------------------------------------ ---- ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Edgar M. Bridger................... 1999 $ 276,492 $ 99,000 -- $ 5,593 (d)
President and Chief 1998 259,398 139,776 -- 7,747
Executive Officer 1997 250,000 250,000 (b) 205,020 (c) 6,918
Lee H. Schilling................... 1999 $ 161,210 $ 44,352 -- $ 5,611 (e)
Senior Vice President of 1998 154,500 66,144 -- 8,840
Marketing and Sales 1997 150,000 120,000 (b) 97,920 (c) 7,420
Jeffrey M. Raabe................... 1999 $ 139,550 $ 38,478 -- $ 3,581 (f)
Vice President of 1998 131,246 57,200 -- 5,410
Sales 1997 125,000 100,000 (b) 88,740 (c) 3,145
Wallace J. Hammel.................. 1999 $ 139,441 $ 38,478 -- $ 3,592 (g)
Vice President of 1998 131,246 57,200 -- 1,784
Manufacturing 1997 125,000 100,000 (b) 88,740 (c) 1,548
Darrel V. McCay.................... 1999 $ 137,498 $ 38,280 -- $ 1,115 (h)
Vice President and 1998 126,251 54,080 -- 1,929
Chief Financial Officer 1997 115,000 92,000 (b) 88,740 (c) 228
</TABLE>

(a) None of the Named Executive Officers received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of the total of their
salary and bonus.
(b) Amounts do not include bonuses paid by C&A Products, the Company's parent
prior to the Floorcoverings Acquisition, conditioned upon the sale of the
Company in the approximate amounts of $576,120, $295,352, $237,740,
$217,868 and $187,740 to Messrs. Bridger, Schilling, Raabe, Hammel and
McCay, respectively.
(c) Shares of CAF Holdings, the Company's parent.
(d) Reflects $3,208 401(k) plan employer matching contribution and $2,385
premiums for life insurance made on Mr. Bridger's behalf.
(e) Reflects $3,208 401(k) plan employer matching contribution and $2,403
premiums for life insurance made on Mr. Schilling's behalf.
(f) Reflects $3,208 401(k) plan employer matching contribution and $373
premiums for life insurance made on Mr. Raabe's behalf.
(g) Reflects $2,296 401(k) plan employer matching contributions and $1,296
premiums for life insurance made on Mr. Hammel's behalf.
(h) Reflects $802 401(k) plan employer matching contribution and $313 premiums
for life insurance made on Mr. McCay's behalf.

Stock Option Grants in Last Fiscal Year

No options were granted during fiscal 1999 to the Named Executive Officers.

Aggregated Option Exercises in Last Fiscal Year And Fiscal Year End Option
Values

No options were exercised and there is no market for Holdings' common
stock.

24
<PAGE>

Retirement Plan

Provided certain eligibility requirements are met, at the end of each
calendar month pay credits are added to a participant's account under the
Company's Pension Account Plan (the "Plan"). The percentage of compensation is
based on the participant's length of credited service and compensation (as
defined in the Plan) during that month. For participants aged 50 or older, the
percentage of compensation is based on either credited service or age, whichever
results in a higher percentage.

The following chart sets forth how pay credits were determined under the
Company's plan :

Percentage of Compensation
Eligibility Requirements Used to Determine Pay Credits
--------------------------------------- ------------------------------
Years of Up to 1/3 Over 1/3
Credited of the S.S. of the S.S.
Service or Age Wage Base Wage Base
---------- ------------ ----------- ----------
<S> <C> <C> <C>
less than 10 less than 50 2.5% 4.5%
10 - 14 50 - 54 3.0% 5.5%
15 - 19 55 - 59 4.0% 6.5%
20 - 24 60 - 64 5.0% 8.0%
25 or more 65 or more 6.0% 10.0%

</TABLE>

Participants make no contributions to the plan. Employer contributions are
100% vested after five years of service or at age 65, whichever was earlier, and
might have vested under certain other circumstances as set forth in the plan.
The estimated annual benefits payable upon retirement at normal retirement age
under the plan for Messrs. Bridger, Schilling, Raabe, Hammel and McCay are
$5,302, $3,511, $6,746, $4,188 and $6,710, respectively. Participants in the
plan have the option, however, of receiving the value of their vested account in
a lump sum following termination of employment.

Director Compensation

The Company pays no additional remuneration to its employees or to
executives of Quad-C or Paribas for serving as directors.

Employment Agreements

The Company has no employment agreement with any Named Executive Officer.

Compensation Committee Interlocks

The compensation committee consists of Terrence D. Daniels, Stephen M.
Burns and Gary A. Binning, none of which are officers or employees of the
Company. No interlocking relationship exists between any member of the
Compensation Committee and any member of any other company's board of directors
or compensation committee, nor did any such interlocking relationship exist
during the fiscal year ended January 29, 2000.

Item 12. Security Ownership

The authorized capital stock of the Company consists of 1,000 shares of
common stock, par value $.01 per share, all of which are issued and outstanding
and are presently held by Holdings.

25
<PAGE>

Holdings' authorized capital stock consists of 50,000,000 common shares, no
par value (the "Common Shares"). Holdings has outstanding 5,157,600 Common
Shares. The table below sets forth certain information, as of April 28, 2000,
regarding equity ownership of Holdings by (i) each director or executive officer
of Holdings who owns Common Shares, (ii) all directors and executive officers of
Holdings as a group and (iii) each person or entity who beneficially owns 5% or
more of the Common Shares. There is no established public trading market for the
securities of Holdings.

<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENTAGE OF
NAME SHARES COMMON SHARES
- ---------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
DIRECTORS:
Terrence D. Daniels (c).......................................... 70,000 1.37 %
Gary A. Binning (b) (d).......................................... -- *
Stephen M. Burns................................................. 15,000 *
Robert D. Haswell (b) (d)........................................ -- *
Edgar M. Bridger **............................................. 30,000 *
Darrel V. McCay **............................................... 10,000 *
Larry C. Jones................................................... -- *

NAMED EXECUTIVE OFFICERS:
Lee H. Schilling................................................. 17,500 *
Jeffrey M. Raabe................................................. 12,500 *
Wallace J. Hammel................................................ 12,500 *

ALL DIRECTORS AND NAMED EXECUTIVE OFFICERS AS A
GROUP................................................................. 167,500 3.25

BENEFICAL OWNERS OF MORE THAN 5%:
Quad-C Partners II, L.P. (a)..................................... 190,000 3.68
Quad-C Partners III, L.P. (a).................................... 360,000 6.98
Quad-C Partners IV, L.P. (a)..................................... 2,295,000 44.50
Paribas Principal, Inc. (b)...................................... 2,000,000 38.78
</TABLE>

* Less than 1%.
** Mr. Bridger and Mr. McCay are also Named Executive Officers.

(a) The address of Quad-C Partners II, L.P., Quad-C Partners III, L.P., Quad-C
Partners IV, L.P is 230 East High Street, Charlottesville, Virginia 22902.
(b) The address of Paribas Principal Inc. is 787 Seventh Avenue, New York, New
York 10019.
(c) Excludes 2,845,000 Common Shares held by Quad-C Partners II, L.P., Quad-C
Partners III, L.P. and Quad-C Partners IV, L.P., as to which shares Mr.
Daniels disclaims beneficial ownership except to the extent of his
interests in such partnerships, and includes 20,000 Common Shares held by
children of Mr. Daniels, as to which shares Mr. Daniels disclaims
beneficial ownership.
(d) Excludes 2,000,000 Common Shares held by Paribas Principal Inc., as to
which shares Mr. Binning and Mr. Haswell disclaim beneficial ownership.

Shareholders Agreement

Quad-C, Paribas and the other shareholders of Holdings entered into a
shareholders' agreement effective as of February 6, 1997. Subject to certain
requirements under the shareholders' agreement, each shareholder will vote the
Common Shares held by it so as to elect to the Board of Directors of Holdings
four designees of Quad-C (the "Quad-C Directors"), two designees of Paribas (the
"Paribas Directors"), and the chief executive officer of the Company. Although
most action by the Board of Directors requires only the vote of a majority of
the directors, certain significant corporate actions require the approval of a
majority of the Quad-C Directors and at least one Paribas Director.

26
<PAGE>

Under the shareholders agreement, subject to certain exceptions, transfers
of Holdings' Common Shares and Holdings' Preferred Shares are subject to rights
of first refusal in favor of the Company and the other shareholders. In
addition, the other shareholders are entitled to require the transferee of
shares from Quad-C or Paribas to purchase a certain percentage of the shares
held by such shareholder, and, subject to certain limitations, each shareholder
is obligated to transfer all of its shares to a third party to whom the holders
of a majority of the outstanding Common Shares wish to sell their shares.

The shareholders agreement will terminate, with certain limitations, upon
the earlier of a transfer of control of Holdings to a third party or a qualified
public offering (as defined therein) of Common Shares.

Item 13. Certain Relationships and Related Transactions

Quad-C and Paribas. Holdings has entered into an agreement with Quad-C
pursuant to which Holdings retained Quad-C to render consulting services to it
regarding the Company, its financial and business affairs, its relationship with
its lenders and securityholders, and the operation and expansion of its
business. The agreement provides for payment to Quad-C of an annual fee of
$350,000, payable quarterly and reimbursement of out-of-pocket expenses. The
agreement expired in 1999, but will be automatically renewed for successive one-
year terms unless either party provides written notice of termination 60 days
prior to the scheduled renewal date. Paribas was reimbursed for its out-of-
pocket expenses in connection with the Floorcoverings Acquisition.

Policy. As required by Delaware law, the material facts as to the
relationship or interest of any person or entity that is affiliated with the
Company with respect to a proposed future transaction between the Company and
such person or entity will be disclosed to the Company's board of directors or
the transaction will be fair to the Company at the time of authorization by the
board of directors. Furthermore, under the Shareholders Agreement among Holdings
and its shareholders, any transaction with an affiliate must be approved by a
majority of the Quad-C Directors and at least one Paribas Director.

27
<PAGE>

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

<TABLE>
<CAPTION>
(a) (1) FINANCIAL STATEMENTS:
---------------------
Page
Number
------
<S> <C>
Report of Independent Public Accountants....................................... F-1

Consolidated Statements of Operations for the Years Ended January 31, 1998,
January 30, 1999 and January 29, 2000......................................... F-2

Consolidated Statements of Comprehensive Income for the Years Ended
January 31, 1998, January 30, 1999 and January 29, 2000....................... F-3

Consolidated Balance Sheets as of January 30, 1999 and January 29, 2000........ F-4

Consolidated Statements of Stockholder's Equity (Deficit) for the Years Ended
January 31, 1998, January 30, 1999 and January 29, 2000....................... F-5

Consolidated Statements of Cash Flows for the Years Ended January 31, 1998,
January 30, 1999 and January 29, 2000......................................... F-6

Notes to Consolidated Financial Statements..................................... F-7
</TABLE>

(2) FINANCIAL SCHEDULES:
--------------------

The following financial statement schedule of Collins & Aikman
Floorcoverings, Inc. and Subsidiaries for the fiscal years ended January 31,
1998, January 30, 1999 and January 29, 2000 is filed as part of this Report and
should be read in conjunction with the consolidated financial statements of
Collins & Aikman Floorcoverings, Inc. and Subsidiaries.

Page
Number
------

Report of Independent Public Accountants on Schedule................. S-1
Schedule II- Valuation and Qualifying Accounts....................... S-2

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are omitted
because they are not required, are inapplicable, or the information is included
in the consolidated financial statements or notes thereto.

28
<PAGE>

(3) EXHIBITS:
---------

EXHIBIT
NUMBER DESCRIPTION
------ -----------

*1.1 Purchase Agreement among CAF Holdings, Inc., CAF Acquisition
Corporation and BT Securities Corporation, dated as of January 29,
1997, incorporated by reference to Exhibit 1.1 of the Registration
Statement of Form S-4 filed with the Securities and Exchange
Commission on June 4, 1997 under the Securities Act of 1933, as
amended (SEC file number 333-24699) (the "Registration Statement").

*2.1 Acquisition Agreement, by and among Collins & Aikman Products Co.,
Collins & Aikman Floor Coverings Group, Inc., the Registrant, CAF
Holdings, Inc. and CAF Acquisition Corporation, dated as of December
9, 1996, as amended, incorporated by reference to Exhibit 2.1 of the
Registration Statement.

*2.2 Agreement and Plan of Merger among Collins & Aikman Floorcoverings,
Inc., Monterey Merger Company, Inc. and Monterey Carpets, Inc. dated
June 4, 1999, incorporated by reference to Exhibit 2.2 of the
Company's Form 8-K filed on July 9, 1999.

*3.1 Certificate of Incorporation of the Registrant, as amended to date,
incorporated by reference to Exhibit 3.1 of the Registration
Statement.

*3.2 By-Laws of the Registrant, incorporated by reference to Exhibit 3.2 of
the Registration Statement.

*4.1 Indenture, dated as of February 6, 1997, by and among CAF Acquisition
Corporation and IBJ Schroder Bank & Trust Company, incorporated by
reference to Exhibit 4.1 of the Registration Statement.

*4.2 First Supplemental Indenture, dated as of February 6, 1997, by and
among the Registrant and IBJ Schroder Bank & Trust Company,
incorporated by reference to Exhibit 4.2 of the Registration
Statement.

*4.3 Form of Series B 10% Senior Subordinated Note, incorporated by
reference to Exhibit 4.3 of the Registration Statement.

*4.4 Registration Rights Agreement, dated as of February 6, 1997, by and
between CAF Acquisition Corporation and BT Securities Corporation,
incorporated by reference to Exhibit 4.4 of the Registration
Statement.

*10.1 Credit Agreement among CAF Holdings, Inc., CAF Acquisition
Corporation, various lending institutions and Bankers Trust Company,
as Agent dated as of February 6, 1997, incorporated by reference to
Exhibit 10.1 of the Registration Statement.

*10.1(a) First Amendment to the Credit Agreement among CAF Holdings, Inc., CAF
Acquisition Corporation, various lending institutions and Bankers
Trust Company as Agent, incorporated by reference to Exhibit 10.1(a)
of the Company's report on Form 10-Q for the fiscal quarter ended
April 30, 1998.

*10.1(b) Second Amendment to the Credit Agreement among CAF Holdings, Inc.,
Collins & Aikman Floorcoverings, Inc., various lending institutions
and Bankers Trust Company as Agent, incorporated by reference to
Exhibit 10.1(b) of the Company's report on Form 10-Q for the fiscal
quarter ended August 1, 1998.

29
<PAGE>

*10.1(c) Third Amendment to the Credit Agreement among CAF Holdings, Inc.,
Collins & Aikman Floorcoverings, Inc., various lending institutions
and Bankers Trust Company as Agent, incorporated by reference to
Exhibit 10.1(c) of the Company's report on Form 10-Q for the fiscal
quarter ended October 31, 1998.

*10.1(d) Fourth Amendment to the Credit Agreement among CAF Holdings, Inc.,
Collins & Aikman Floorcoverings, Inc., various lending institutions
and Bankers Trust Company as Agent.

*10.1(e) Fifth Amendment to the Credit Agreement among CAF Holdings, Inc.,
Collins & Aikman Floorcoverings, Inc. various lending institutions and
Bankers Trust Company as Agent, incorporated by reference to Exhibit
101(d) of the Company's report on Form 10-Q for the fiscal quarter
ended July 31, 1999.

*10.1(f) Sixth Amendment to the Credit Agreement among CAF Holdings, Inc.,
Collins & Aikman Floorcoverings, Inc., various lending institutions
and Bankers Trust Company as Agent incorporated by reference to
Exhibit 10.1(e) of the Company's report on Form 10-Q for the fiscal
quarter ended October 30, 1999.

*10.2 Tradename License Agreement, dated as of February 6, 1997, by and
between Collins & Aikman Floor Coverings Group, Inc., CAF Holdings,
Inc. and the Registrant, incorporated by reference to Exhibit 10.2 of
the Registration Statement.

*10.3 Consulting Services Agreement dated as of February 6, 1997, among CAF
Holdings, Inc., the Registrant and Quad-C, Inc., incorporated by
reference to Exhibit 10.3 of the Registration Statement.

*10.4 1997 Stock Option Plan and Form of Grant Letter, incorporated by
reference to Exhibit 10.4 of the Registration Statement.

*10.5 Non-Competition Agreement among CAF Holdings, Inc., the Registrant,
Collins & Aikman Corporation and Collins & Aikman Products Co., dated
as of February 6, 1997, incorporated by reference to Exhibit 10.5 of
the Registration Statement.

*10.6 Tax Sharing Agreement, dated as of February 6, 1997, between CAF
Holdings, Inc. and the Registrant, incorporated by reference to
Exhibit 10.6 of the Registration Statement.

21.1 Subsidiaries of Registrant.

27.1 Financial Data Schedule.

*99.1 Form of Letter of Transmittal for the 10% Senior Subordinated Notes
due 2007, incorporated by reference to Exhibit 99.1 of the
Registration Statement.

*99.2 Notice of Guaranteed Delivery, incorporated by reference to Exhibit
99.2 of the Registration Statement.

* Previously filed.

30
<PAGE>

(b) REPORTS ON FORM 8-K
-------------------

1. On July 9, 1999, the Company filed on Form 8-K information regarding
the acquisition of the capital stock of Monterey Carpets, Inc. which
occurred on June 28, 1999.

2. On August 24, 1999, the Company filed on Form 8-K information
regarding a press release concerning the acquisition of the capital
stock of Crossley Carpet Mills Limited which occurred on July 30,
1999.

3. On September 9, 1999, the Company filed on Form 8-K/A information to
amend Item 7 of the Company's current report on Form 8-K dated July 9,
1999.

31
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 April 28, 2000.

COLLINS & AIKMAN FLOORCOVERINGS, INC.

By: /s/ Edgar M. Bridger
----------------------------------------
Edgar M. Bridger
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
the capacities and on the dates indicated.

Name Title Date
---- ----- ----

/s/ Edgar M. Bridger President, Chief Executive April 28, 2000
- ------------------------------
Edgar M. Bridger Officer and Director
(Principal Executive Officer)

/s/ Darrel V. McCay Vice President, Chief April 28, 2000
- ------------------------------
Darrel V. McCay Financial Officer and

Director (Principal Financial
& Accounting Officer)

/s/ Larry C. Jones President of Monterey April 28, 2000
- ------------------------------
Larry C. Jones Carpets, Inc. and Director

/s/ Terrence D. Daniels Director April 28, 2000
- ------------------------------
Terrence D. Daniels

/s/ Stephen M. Burns Director April 28, 2000
- ------------------------------
Stephen M. Burns

/s/ Thad M. Jones Director April 28, 2000
- ------------------------------
Thad M. Jones

/s/ Gary A. Binning Director April 28, 2000
- ------------------------------
Gary A. Binning

/s/ Robert D. Haswell Director April 28, 2000
- ------------------------------
Robert D. Haswell

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------

To Collins & Aikman Floorcoverings, Inc.:

We have audited the accompanying consolidated balance sheets of COLLINS & AIKMAN
FLOORCOVERINGS, INC. (a Delaware corporation) and Subsidiaries as of January 30,
1999 and January 29, 2000 and the related consolidated statements of operations,
comprehensive income, stockholder's equity and cash flows for each of the three
years in the period ended January 29, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Collins & Aikman
Floorcoverings, Inc. and subsidiaries as of January 30, 1999 and January 29,
2000 and the results of their operations and their cash flows for each of the
three years in the period ended January 29, 2000 in accordance with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Chattanooga, Tennessee
March 23, 2000

F-1
<PAGE>

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For The Years Ended January 31, 1998, January 30, 1999 and January 29, 2000

(In Thousands)

<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
(53 weeks) (52 weeks) (52 weeks)
---------------- ------------------ -------------------
<S> <C> <C> <C>
NET SALES........................................... $ 160,383 $ 175,662 $ 243,364
---------------- ------------------ -------------------

COST OF GOODS SOLD.................................. 97,263 103,739 150,093
SELLING, GENERAL & ADMIN. EXPENSES................. 43,886 45,889 60,744
---------------- ------------------ -------------------
141,149 149,628 210,837
---------------- ------------------ -------------------
OPERATING INCOME.................................... 19,234 26,034 32,527
MINORITY INTEREST IN INCOME OF SUBSIDIARY........... -- 10 62
EQUITY IN EARNINGS OF AFFILIATE..................... -- -- 1,215
NET INTEREST EXPENSE................................ 15,122 14,715 16,338
---------------- ------------------ -------------------
INCOME BEFORE INCOME TAXES.......................... 4,112 11,309 17,342
INCOME TAX EXPENSE.................................. 1,710 4,871 8,496
---------------- ------------------ -------------------
NET INCOME BEFORE EXTRAORDINARY ITEM................ 2,402 6,438 8,846
EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT
OF DEBT, NET OF TAX.............................. -- -- 1,226
---------------- ------------------ -------------------
NET INCOME.......................................... $ 2,402 $ 6,438 $ 10,072
================ ================== ===================
</TABLE>

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

F-2
<PAGE>

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income
For the Years Ended January 31, 1998, January 30, 1999 and January 29, 2000
(In Thousands)

<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
------------- ------------ --------------
<S> <C> <C> <C>
NET INCOME........................... $ 2,402 $ 6,438 $ 10,072

OTHER COMPREHENSIVE INCOME
(EXPENSE) NET OF TAX:
Foreign Currency Translation (124) 15 95
Adjustments....................
------------- ------------ --------------
COMPREHENSIVE INCOME................. $ 2,278 $ 6,453 $ 10,167
============= ============ ==============
</TABLE>

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

F-3
<PAGE>

COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
As of January 30, 1999 and January 29, 2000
(In Thousands, Except Share Amounts)

<TABLE>
<CAPTION>
January 30, January 29,
ASSETS 1999 2000
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents............................................ $ 2,211 $ 4,114
Due From Factor...................................................... -- 4,813
Accounts Receivable net of Allowances of $335 and $838 in Fiscal
1998 and 1999, respectively.......................................... 23,465 33,572
Inventories.......................................................... 17,343 32,137
Deferred Tax Assets.................................................. 1,098 2,831
Prepaid Expenses and Other........................................... 752 1,377
----------- -----------
Total Current Assets....................................... 44,869 78,844

PROPERTY, PLANT AND EQUIPMENT, NET...................................... 40,085 47,720
DEFERRED TAX ASSETS..................................................... -- 276
GOODWILL AND OTHER INTANGIBLES, NET..................................... 123,365 154,096
OTHER ASSETS............................................................ 7,095 7,352
----------- -----------
$ 215,414 $ 288,288
=========== ===========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts Payable..................................................... $ 8,442 $ 13,945
Accrued Expenses..................................................... 8,704 13,052
Revolving Line of Credit............................................. -- 4,673
Current Portion of Long Term Debt.................................... 162 7,857
----------- -----------
Total Current Liabilities.................................. 17,308 39,527

OTHER LIABILITIES, INCLUDING POST RETIREMENT BENEFIT OBLIGATION......... 4,041 4,180
DEFERRED TAX LIABILITIES................................................ 1,163 --
LONG TERM DEBT.......................................................... 132,220 173,671
MINORITY INTEREST....................................................... 153 214

COMMITMENTS AND CONTINGENCIES (Note 16).................................

STOCKHOLDER'S EQUITY:
Common Stock ($.01 Par Value per Share, 1,000 Shares Authorized,
Issued and Outstanding Fiscal 1998 and Fiscal 1999)............... -- --
Paid-in Capital...................................................... 51,576 51,576
Retained Earnings.................................................... 8,840 18,912
Accumulated Other Comprehensive Income............................... 113 208
----------- -----------
60,529 70,696
----------- -----------
$ 215,414 $ 288,288
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4
<PAGE>

COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholder's Equity
For the Years Ended January 31, 1998, January 30, 1999 and January 29, 2000

(In Thousands)

<TABLE>
<CAPTION>
Investments & Accumulated
Advances from Other
Common Paid-In Retained (to) C&A Comprehensive
Stock Capital Earnings Products Income
------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 25, 1997 $ -- $ 7,821 $ 18,940 $ (30,386) $ (155)

- ----------------------------------------------------------------------------------------------------------------------------------

Acquisition of C&A Floor Coverings, Inc.:
Elimination of Predecessor Accounts................ -- (7,821) (18,940) 30,386 377
Purchase of C&A Floor Coverings, Inc............... -- 51,000 -- -- --
Capital Contribution by CAF Holdings, Inc............. -- 576 -- -- --
Net Income............................................ -- -- 2,402 -- --
Foreign Currency Translation Adjustment............... -- -- -- -- (124)
------ --------- --------- --------- ------
BALANCE, January 31,1998................................. -- 51,576 2,402 -- 98

Net Income............................................ -- -- 6,438 -- --
Foreign Currency Translation Adjustment............... -- -- -- -- 15
------ --------- --------- --------- ------
BALANCE, January 30, 1999................................ -- 51,576 8,840 -- 113

Net Income............................................ -- -- 10,072 -- --
Foreign Currency Translation Adjustment............... -- -- -- -- 95
------ --------- --------- --------- ------
BALANCE, January 29, 2000................................ $ -- $ 51,576 $ 18,912 $ -- $ 208
====== ========= ========= ========= ======

<CAPTION>
Total
----------
<S> <C>
BALANCE, January 25, 1997 $ (3,780)

- -----------------------------------------------------------------------------

Acquisition of C&A Floor Coverings, Inc.:
Elimination of Predecessor Accounts................ 4,002
Purchase of C&A Floor Coverings, Inc............... 51,000
Capital Contribution by CAF Holdings, Inc............. 576
Net Income............................................ 2,402
Foreign Currency Translation Adjustment............... (124)
---------
BALANCE, January 31,1998................................. 54,076

Net Income............................................ 6,438
Foreign Currency Translation Adjustment............... 15
---------
BALANCE, January 30, 1999................................ 60,529

Net Income............................................ 10,072
Foreign Currency Translation Adjustment............... 95
---------
BALANCE, January 29, 2000................................ $ 70,696
=========
</TABLE>

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

F-5
<PAGE>

COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For The Years Ended January 31, 1998, January 30, 1999 and January 29, 2000
(In Thousands)

<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income........................................................ $ 2,402 $ 6,438 $ 10,072
---------- --------- ---------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and leasehold amortization..................... 4,795 5,869 7,810
Amortization of goodwill & other intangible assets.......... 8,468 7,375 7,898
Amortization of deferred financing fees..................... 1,314 1,316 1,316
Deferred income tax expense................................. 78 2,966 1,330
Equity in earnings of affiliate............................. -- -- (1,215)
Minority interest in income of subsidiary................... -- 10 62
Extraordinary gain on early extinguishment of debt.......... -- -- (1,985)
Changes in operating assets and liabilities net of effects of
acquisitions:
Due from factor............................................ -- -- 1,379
Accounts receivable........................................ (2,062) (2,502) (3,902)
Inventories................................................ 2,519 (1,237) (783)
Accounts payable........................................... 362 615 1,682
Accrued expenses........................................... 5,785 (868) 3,072
Other, net................................................. 540 (468) 854
---------- --------- ---------
Total adjustments......................................... 21,799 13,076 17,518
---------- --------- ---------
Net cash provided by operating activities................. 24,201 19,514 27,590
---------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired................... (197,737) (5,001) (53,805)
Equity Distribution From Affiliate................................ -- -- 1,128
Additions to Property, Plant & Equipment.......................... (5,119) (7,972) (8,378)
Other, net........................................................ -- 293 --
---------- --------- ---------
Net cash used in investing activities..................... (202,856) (12,680) (61,055)
---------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds From Revolving Credit Facilities..................... -- -- 5,904
Proceeds from Issuance of Long Term Debt.......................... 157,000 1,906 40,319
Repayments of Long Term Debt...................................... (15,000) (12,228) (10,855)
Capital Contributions from CAF Holdings........................... 51,576 -- --
Financing Costs................................................... (9,366) -- --
---------- --------- ---------
Net cash (used in) provided by financing activities....... 184,210 (10,322) 35,368
---------- --------- ---------

NET CHANGE IN CASH.................................................. 5,555 (3,488) 1,903
CASH, Beginning of Year............................................. 144 5,699 2,211
---------- --------- ---------
CASH, End of Year................................................... $ 5,699 $ 2,211 $ 4,114
========== ========= =========
</TABLE>

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

F-6
<PAGE>

COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Collins & Aikman Floor Coverings, Inc. (the "Company") is a leading manufacturer
of floor coverings for the specified commercial sector of the floor coverings
market offering vinyl-backed six foot and modular tiles and tufted and woven
broadloom products. The Company is a wholly owned subsidiary of CAF Holdings,
Inc. ("Holdings"), a corporation sponsored by Quad-C, Inc. ("Quad-C"), a
Virginia merchant banking firm, and Paribas Principal Partners ("Paribas"), the
United States private equity group of Paribas.

On February 6, 1997, CAF Acquisition Corporation ("CAF"), a wholly owned
subsidiary of Holdings, acquired from an indirect wholly owned subsidiary of
Collins & Aikman Corporation all the outstanding capital stock of the Company
(the "Floor Coverings Acquisition"). Simultaneous with the consummation of the
Floor Coverings Acquisition, CAF was merged with and into the Company. When
necessary, results or amounts relating to the Company prior to the
Floor Coverings Acquisition are referred to as Predecessor amounts or results
and are separated by a solid black line.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Collins &
Aikman Floor Coverings, Inc., its subsidiaries and its equity investment. All
significant intercompany items have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.

Use of Estimates

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

Fiscal Year

The fiscal year of the Company ends on the last Saturday of January.
Fiscal 1997 was a 53-week year which ended on January 31, 1998, fiscal 1998 was
a 52-week year which ended on January 30, 1999 and fiscal 1999 was a 52-week
year which ended on January 29, 2000.

Foreign Currency

Foreign currency activity is reported in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation."
SFAS No. 52 generally provides that the assets and liabilities of foreign
operations be translated at the current exchange rates as of the end of the
accounting period and that revenues and expenses be translated using average
exchange rates. The

F-7
<PAGE>

resulting translation adjustments arising from foreign currency translations are
accumulated as a separate component of stockholder's equity. Translation
adjustments resulted in changes in accumulated other comprehensive income of
approximately $(124,000) in fiscal 1997, $15,000 in fiscal 1998 and $95,000 in
fiscal 1999.

Gains and losses resulting from foreign currency transactions are
recognized in income.

Revenue Recognition

Revenue is recognized when goods are shipped. For shipments subject to
customer approval, revenue is recognized upon acceptance by the customer.

Financial Instruments

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents,
trade accounts receivable and long term debt. Because of the short maturity of
cash and cash equivalents and trade accounts receivables, carrying value
approximates fair value.

The carrying value of the senior credit facility portion of the Company's
long term debt approximates the fair value as the Company's credit facility (see
Note 11) is subject to variable interest rates. The fair value of the Company's
senior subordinated notes (see Note 11) at January 29, 2000, representing the
amount at which the debt could be exchanged on the open market, is $87.8
million.

Cash and Cash Equivalents

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

Inventories

Inventories are valued at the lower of cost or market, but not in excess of
net realizable value. Cost is determined on the first-in, first-out basis.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Provisions for
depreciation are primarily computed on a straight-line basis over the estimated
useful lives of the assets, presently ranging from 3 to 40 years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated
useful lives of the improvements.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.

F-8
<PAGE>

Income Taxes

The Company accounts for income taxes under an asset and liability approach
pursuant to SFAS No. 109 "Accounting for Income Taxes". This method requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than enactments of changes
in tax laws or rates. The effect on deferred tax assets and liabilities of a
change in tax rates will be recognized as income or expense in the period that
includes the enactment date.

Recent Accounting Pronouncements

During fiscal 1999, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". Since
the Company does not hold any derivative instruments, SFAS No. 133 does not have
any impact on the Company's results of operations or financial position.

3. Acquisitions and Investment in Joint Venture

On June 28, 1999, pursuant to an Agreement and Plan of Merger dated June 4,
1999, the Company acquired all the outstanding capital stock of Monterey
Carpets, Inc. ("Monterey") for $50.0 million, subject to a working capital
adjustment (the "Monterey Acquisition"). In addition, approximately $0.4 million
of indebtedness of Monterey was extinguished by the Company commensurate with
the acquisition. Based in California, Monterey is a manufacturer of high-style
broadloom carpet. The Monterey Acquisition has been accounted for by the
purchase method, pursuant to which the purchase price has been allocated among
the acquired assets and liabilities. The excess of the purchase price over the
fair value of the net assets acquired amounted to approximately $34.4 million
which is being accounted for as goodwill and is being amortized over 20 years
using the straight line method.

On July 30, 1999, the Company acquired all the outstanding capital stock of
Crossley Carpet Mills Limited ("Crossley") for $22.1million (the "Crossley
Acquisition"). Based in Nova Scotia, Canada, Crossley is a manufacturer of
tufted and woven broadloom carpet. The Crossley Acquisition has been accounted
for by the purchase method, to which the purchase price has been allocated among
the acquired assets and liabilities. The excess of the purchase price over the
fair value of the net assets acquired amounted to approximately $3.9 million,
which is being accounted for as goodwill and is being amortized over 20 years
using the straight-line method. As a result of this acquisition, the Company
assumed approximately $17.5 million in debt. Approximately $9.5 million of the
assumed long-term debt is sinking fund bonds held and issued by the Nova Scotia
Business Development Corporation (the "Bond Holder"). The Bond Holder agreed to
forgive principal amount of the bonds up to a maximum of $6.3 million at various
rates, dependant upon certain factors. The remaining balance will become
repayable over five years once the forgiveness has expired.

The following summary presents unaudited pro forma results of operations as
if these acquisitions occurred as of February 1, 1998 and January 31, 1999 (in
thousands):

<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------
January 30, January 29,
1999 2000
------------------------- --------------------------
<S> <C> <C>
Net Sales.................................................... $ 253,237 $ 284,086
Income Before Extraordinary Item, Net of Tax................. $ 5,385 $ 10,510
Net Income................................................... $ 6,958 $ 11,736
</TABLE>

F-9
<PAGE>

These pro forma results neither purport to represent what the Company's
results of operations would have been if these acquisitions had occurred as of
such date, nor what results will be for any future period.

In June 1998, the Company acquired all of the outstanding capital stock of
Advance Carpet Tiles, Ltd. ("ACT") from Headlam Group PLC ("Headlam") for $5.6
million, (the "ACT Acquisition") including assumed debt of $0.6 million.
Financing for the ACT Acquisition was provided under the existing credit
facility and an agreement to pay $1.9 million to Headlam in September 2000 at an
effective interest rate of 8.5%. The ACT Acquisition was accounted for using the
purchase method of accounting. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $1.9
million and is being amortized over 40 years using the straight line method.

The following information relates to the ACT Acquisition in fiscal 1998 and
the Monterey and Crossley Acquisitions in fiscal 1999:

<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
January 30, January 29,
1999 2000
------------------- --------------------
<S> <C> <C>
Business Acquisitions, Net of Cash Acquired:
Fair value of assets acquired................................ $ 4,719 $ 40,282
Purchase price in excess of net assets acquired.............. 1,892 38,690
Liabilities assumed.......................................... (1,610) (25,167)
------------------- --------------------
Net Cash Paid for Acquisition..................................... $ 5,001 $ 53,805
=================== ====================
</TABLE>

4. INVENTORIES

Net inventory balances are summarized below (in thousands):

<TABLE>
<CAPTION>
January 30, January 29,
1999 2000
------------------- ------------------
<S> <C> <C>
Raw materials..................................................... $ 8,951 $ 13,347
Work in process................................................... 2,440 4,815
Finished goods.................................................... 5,952 13,975
------------------- ------------------
$ 17,343 $ 32,137
=================== ==================
</TABLE>

5. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment, net, are summarized below (in thousands):

<TABLE>
<CAPTION>
January 30, January 29,
1999 2000
------------------- ------------------
<S> <C> <C>
Land and improvements............................................. $ 1,600 $ 1,641
Buildings......................................................... 12,051 13,483
Machinery and equipment........................................... 34,162 44,009
Leasehold improvements............................................ 43 838
Construction in progress.......................................... 2,851 5,104
------------------- ------------------
50,707 65,075
Less accumulated depreciation and amortization.................... (10,622) (17,355)
------------------- ------------------
$ 40,085 $ 47,720
=================== ==================
</TABLE>

F-10
<PAGE>

Depreciation expense and leasehold amortization of property, plant and
equipment was $4.8 million for fiscal 1997, $5.9 million for fiscal 1998 and
$7.8 million for fiscal 1999.

6. ACCRUED EXPENSES

Accrued expenses are summarized below (in thousands):

<TABLE>
<CAPTION>
January 30, January 29,
1999 2000
----------------- ------------------
<S> <C> <C>
Payroll and employee benefits..................................... $ 4,228 $ 6,284
Accrued taxes..................................................... 901 2,065
Customer claims................................................... 1,507 2,062
Accrued interest.................................................. 828 1,068
Other............................................................. 1,240 1,573
----------------- ------------------
$ 8,704 $ 13,052
================= ==================
</TABLE>

7. FACTORING OF RECEIVABLES

Monterey is party to a credit and factoring agreement with a commercial
bank, under which substantially all of Monterey's receivables are factored
primarily on a nonrecourse basis with respect to collection of approved
accounts. For nonfactored receivables, Monterey performs ongoing credit
evaluations and maintains reserves for potential losses. The agreement has been
terminated effective February 1, 2000.

The bank provided ongoing cash advances limited to 90 percent of eligible
accounts receivable sold to the bank on a factoring basis. Advances were subject
to interest computed at the bank's prime rate (8.5 percent at January 29, 2000)
less 0.5 percent. The Company paid service charges of 0.45 or 0.55 percent of
factored receivables, based on the creditworthiness of the customer. The
Company's credit and factoring agreement provided for receipt of funds utilizing
an average due date computation wherein the Company received the net invoice
amount of the previous month's shipments on an adjusted dollar-weighted average
maturity date. Any advances taken on the due from factor balance under the
credit facility during the period are offset against the subsequent proceeds
received from the bank under the factoring facility. At January 29, 2000,
factored receivables included approximately $64,800 of receivables factored with
recourse. Due from factor balance represents receivables assigned to the bank.
Total monies received from the factor aggregated $34.8 million for fiscal 1999.

8. INVESTMENT IN AFFILIATE

In 1993, Monterey entered into an agreement with two other parties in a
partnership which operates a carpet dyeing and finishing plant. All partners are
carpet manufacturers who supply business volume to the facility.

Upon entering the partnership agreement, Monterey and the other partners
each agreed to purchase carpet dyeing and finishing services exclusively from
the partnership. These service agreements can be canceled with a one-year
notice. Charges for these services are expected to equal prevailing market
prices for comparable services. During fiscal 1999, the Company was charged $4.6
million for these services.

In addition, Monterey agreed to provide certain executive management and
operational services at cost while the partnership agreed to provide Monterey
with certain maintenance and utility services at cost. During fiscal 1999, the
Company charged $0.7 million for the management and operation services while the
partnership was charged the Company $0.6 million for the maintenance and utility
services.

F-11
<PAGE>

The partnership has received a cancellation notice from one of its
partners. Effective September 1, 2000, Monterey and the other remaining partner
will each hold a one-half interest in the general partnership.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of the net assets of the
acquired entities over the fair market value of net tangible and identified
intangible assets in connection with the acquisition. The Company reviews the
carrying value of goodwill for impairment using undiscounted cash flows whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable.

Goodwill and other intangible assets are summarized below (in thousands):

<TABLE>
<CAPTION>
January 30, January 29,
1999 2000
-------------------- -------------------
<S> <C> <C>
Goodwill......................................................... $ 73,207 $ 111,836
Patent........................................................... 27,000 27,000
Trade Name Use Agreement......................................... 27,000 27,000
Non-Compete Agreement............................................ 12,000 12,000
Accumulated Amortization......................................... (15,842) (23,740)
------------------- -------------------
$ 123,365 $ 154,096
=================== ===================
</TABLE>

Amortization is calculated on the straight-line basis over the following
lives:

Goodwill........................ 20 to 40 Years
Patent.......................... 11 Years
Trade Name Use Agreement........ 40 Years

Amortization for the Non-Compete Agreement is calculated using the double-
declining balance method over seven years.

10. EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

Substantially all domestic employees of the Company who met eligibility
requirements are covered under a defined contribution plan, which is
administered by the Company. The Company's contributions are based on formulas
as specified in the plan document. The accompanying statements of operations
includes expenses of approximately $467,000 and $542,000 for fiscal 1998 and
1999, respectively, for the Company's contributions to the plan.

Domestic Defined Benefit Plan

Substantially all domestic employees of the Company who met eligibility
requirements participate in a defined benefit plan, which is administered by the
Company. Plan benefits are generally based on years of service and employee's
compensation during their years of employment. The Company's policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Assets of the pension plan are held in a trust invested primarily
in mutual funds.

F-12
<PAGE>

The following tables provide a reconciliation of the projected benefit
obligation, a reconciliation of plan assets, the funded status of the plans, and
amounts recognized in the Company's consolidated financial statements at January
30, 1999 and January 29, 2000 (in thousands) using December 31 as a measurement
date for all actuarial calculations of asset and liability values and
significant actuarial assumptions.

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
January 30, January 29,
1999 2000
---------------------- -------------------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year...................... $ 452 $ 1,162
Service cost................................................. 533 630
Interest cost................................................ 75 86
Actuarial loss (gain)........................................ 102 (79)
Benefits paid................................................ -- (139)
---------------------- -------------------
Benefit obligation at end of year............................ $ 1,162 $ 1,660
====================== ===================
Change in Plan Assets:
Fair value of plan assets at beginning of year............... $ -- $ 330
Company contributions........................................ 298 934
Actual return on plan assets................................. 32 34
Benefits paid................................................ -- (139)
---------------------- -------------------
Fair value of plan assets at end of year..................... $ 330 $ 1,159
====================== ===================
Funded Status of the Plan:
Funded status at end of year................................. $ (832) $ (501)
Unamortized net actuarial loss (gain)........................ 74 (12)
---------------------- -------------------
Accrued benefit cost......................................... $ (758) $ (513)
====================== ===================
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
January 30, January 29,
1999 2000
---------------------- -------------------
<S> <C> <C>
Net Pension Cost Includes the Following Components:
Service cost - benefits earned during the period.............. $ 533 $ 630
Interest cost on project benefit obligations.................. 75 86
Expected return on plan assets................................ (9) (41)
Recognized net actuarial losses............................... 5 14
---------------------- -------------------
Net periodic pension expense for year......................... $ 604 $ 689
====================== ===================
</TABLE>

The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0% at January 30, 1999 and 8.0% at January
29, 2000. The expected rate of increase in future compensation levels was 5.0%
in fiscal 1998 and 1999 and the expected long-term rate of return on plan assets
was 8.0% in fiscal 1998 and 1999.

Canadian Defined Benefit Plan

Substantially all Canadian employees of Crossley who met eligibility
requirements participate in a defined benefit plan, which is 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 that can be deducted for federal income
tax purposes. Assets of the pension plan are held in a trust invested primarily
in mutual funds.

F-13
<PAGE>

The following tables provide a reconciliation of the projected benefit
obligation, a reconciliation of plan assets, the funded status of the plans, and
amounts recognized in the Company's consolidated financial statements at January
29, 2000 (in thousands) using December 31 as a measurement date for all
actuarial calculations of asset and liability values and significant actuarial
assumptions.

<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------
January 29,
2000
--------------------------
<S> <C>
Change in Benefit Obligation:
Benefit obligation at date of acquisition.......................................... $ 5,006
Service cost....................................................................... 133
Interest cost...................................................................... 145
Benefits paid...................................................................... (190)
--------------------------
Benefit obligation at end of year.................................................. $ 5,094
==========================
Change in Plan Assets:
Fair value of plan assets at date of acquisition................................... $ 5,066
Company contributions.............................................................. 110
Actual return on plan assets....................................................... 325
Benefits paid...................................................................... (190)
--------------------------
Fair value of plan assets at end of year........................................... $ 5,311
==========================
Funded Status of the Plan:
Funded status at end of year....................................................... $ 217
Unamortized net actuarial gain..................................................... (238)
--------------------------
Accrued benefit cost............................................................... $ (21)
==========================
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------
January 29,
2000
----------------------------
<S> <C>
Net Pension Cost Includes the Following Components:
Service cost - benefits earned during the period.................................... $ 128
Interest cost on project benefit obligations........................................ 140
Expected return on plan assets...................................................... (141)
Recognized net actuarial losses..................................................... (1)
--------------------------
Net periodic pension expense for year............................................... $ 126
==========================
</TABLE>

The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0% at January 29, 2000. The expected rate of
increase in future compensation levels was 5.0% in fiscal 1999 and the expected
long-term rate of return on plan assets was 7.0% in fiscal 1999.

Postretirement Benefit Plan

The Company provides life and health coverage for certain of the Company's
retirees under the plan currently in effect. The plan is closed to new
enrollment; therefore, the Company's current employees will not be eligible for
coverage when they reach retirement age. Participation in the plan is limited to
those employees retired as of February 6, 1997.

F-14
<PAGE>

The following tables provide a reconciliation of the projected benefit
obligation, the funded status of the plans and amounts recognized in the
Company's financial statements at January 30, 1999 and January 29, 2000 (in
thousands).

Fiscal Year Ended
---------------------------------------------------------
January 30, January 29,
1999 2000
------------------------ ------------------------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year..................... $ 1,344 $ 1,477
Service cost................................................ 47 64
Interest cost............................................... 93 95
Actuarial loss (gain)....................................... 27 (201)
Benefits paid............................................... (34) (84)
------------------------- ------------------------
Benefit obligation at end of year........................... $ 1,477 $ 1,351
========================= ========================

Funded Status of the Plan:
Funded status at end of year................................ $ (1,477) $ (1,351)
Unamortized net actuarial loss (gain)....................... 27 (90)
------------------------- ------------------------
Accrued benefit cost........................................ $ (1,450) $ (1,441)
========================= ========================
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------
January 30, January 29,
1999 2000
------------------------- ------------------------
<S> <C> <C>
Net Pension Cost Includes the Following Components:
Service cost - benefits earned during the period............. $ 47 $ 64
Interest cost on project benefit obligations................. 93 95
------------------------- ------------------------
Net periodic pension expense for year........................ $ 140 $ 159
========================= ========================
</TABLE>

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at January 30, 1999 and 8.0% at
January 29, 2000. This plan is unfunded. The Plan does not allow for increases
in employer-paid costs after 1998; therefore, the health care cost trend rate
assumption has no impact on the obligation of the Company.

11. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
January 30, January 29,
1999 2000
------------------------- -----------------------
<S> <C> <C>
10% Senior Subordinated Notes, due 2007........................ $ 100,000 $ 91,500
Senior Secured Credit Facility................................. 29,900 76,300

Sinking Fund Bonds............................................. -- 7,874
Revolving Line of Credit....................................... -- 4,673
Other Debt..................................................... 2,482 5,854
------------------------- -----------------------
Total Debt........................................... $ 132,382 $ 186,201
Less Current Maturities........................................ 162 12,530
------------------------- -----------------------
$ 132,220 $ 173,671
========================= =======================
</TABLE>

F-15
<PAGE>

SENIOR SUBORDINATED NOTES

In 1997, the Company issued $100.0 million of 10% Senior Subordinated Notes
(the "Senior Notes") due January 15, 2007. Interest is payable semi-annually
commencing July 15, 1997. The notes are unsecured obligations of the Company and
are subordinated in right of payment to all existing and future senior debt of
the Company. The indenture governing the Senior Notes contains certain
restrictive covenants that limit the ability of the Company, among other things,
to incur additional indebtedness, to pay dividends or make certain other
restricted payments, limitations on the incurrence of indebtedness, asset
dispositions and transactions with affiliates.

During fiscal 1999, the Company repurchased $8.5 million of the Senior
Notes in the open market. In connection with these transactions, the Company
recorded extraordinary losses of approximately $62,000, net of tax benefits,
which consisted of the write off of a pro rate share of deferred financing costs
associated with the issuance of the Senior Notes.

SENIOR SECURED CREDIT FACILITY

The Company has a $125.0 million Senior Secured Credit Facility (the
"Credit Facility") with a group of banks. The Credit Facility consists of a
$55.0 term loan facility ("A-1 Term Loan Facility"), a $40.0 million term loan
facility ("A-2 Term Loan Facility"), and a $30.0 million revolving credit
facility, which includes a letter of credit sublimit of $8.0 million.

The A-1 Term Loan Facility of the Credit Facility will mature on June 30,
2002 and, as of January 29, 2000, will require annual principal payments
(payable in quarterly installments) totaling $1.3 million in the third quarter
of fiscal 2000, $3.7 million in the fourth quarter of fiscal 2000, $15.0 million
in fiscal 2001 and $8.0 million in fiscal 2002. The A-2 Term Loan Facility will
mature on December 31, 2003 and requires annual principal payments (also payable
in quarterly installments) totaling $12.0 million in fiscal 2002 and $28.0
million in fiscal 2003. The revolving credit portion of the Credit Facility will
mature on June 30, 2002 and may be repaid and reborrowed from time to time.
During fiscal 1998 and 1997, the Company voluntarily prepaid $23.1 million of
the term loan borrowings. Additionally, during fiscal 1999, the Company prepaid
an additional $1.9 million of the term loan borrowings. As of January 29, 2000,
there was $16.6 million (net of $8.3 million in borrowings and $5.1 million in
letters of credit outstanding) available under the revolving credit portion of
the Credit Facility.

The Company's obligations under the Credit Facility are secured by a pledge
of all the capital stock and the tangible and intangible assets of the Company
and 65% of the capital stock of, or equity interests in, each foreign subsidiary
of the Company.

The Credit Facility contains restrictive covenants including minimum levels
of consolidated EBITDA (earnings before interest, taxes, depreciation,
amortization and other non-cash charges), interest coverage and leverage ratios.
In addition, the Credit Facility also contains covenants which, among other
things, limit the incurrence of additional indebtedness, capital expenditures,
dividends, transactions with affiliates, asset sales, acquisitions, mergers,
prepayments of other indebtedness, liens and encumbrances, and other matters
customarily restricted in loan agreements.

The Company has made six amendments to the Credit Facility. The first
amendment related to certain restrictive covenants of the Credit Facility
allowing increased flexibility for foreign acquisitions and increased annual
limits for capital expenditures over the next four years. The second amendment
provided better interest rates based on the Company's leverage ratio for the
immediately preceding twelve months. The third amendment provided for the
ability to purchase up to $5.0 million of the Company's Senior Subordinated
Notes on open markets. The fourth amendment increased the limit for capital
expenditures during fiscal 1998. The fifth amendment (i) expanded the term loan
facility to include the A-2 Term Loan Facility; (ii) allowed greater flexibility
in making acquisitions including the Monterey and Crossley acquisitions; and
(iii) adjusted certain covenants. The sixth amendment allowed the purchase of an
additional $10.0 million of the Company's Senior Subordinated Notes on open
markets.

F-16
<PAGE>

The Credit Facility bears interest at a per annum rate equal to the
Company's choice of (a) an adjusted rate based on the Eurodollar Rate plus a
Eurodollar margin or (b) a Base Rate, as defined by the Credit Facility, plus a
Base Rate Margin. The Eurodollar Margin and the Base Rate Margin adjust
quarterly on a sliding scale based on the Company's leverage ratio for the
immediately preceding twelve months. The weighted average interest rate under
the Credit Facility at January 29, 2000 was 8.2%.

OTHER LONG-TERM DEBT

Concurrent with the consummation of the Crossley Acquisition, the Company
agreed to pay the seller $2.0 million over the next four years, subject to
certain conditions, at an effective interest rate of 7.5%. In addition, the
Company assumed debt of approximately $17.5 million. Of this amount, term loans
associated with financing of equipment purchases and other specific needs
totaled $1.1 million. At January 29, 2000, $1.1 million was outstanding. These
term loans are payable monthly according to set schedules of repayment with the
lenders. Approximately $6.9 million of short-term debt was assumed which relates
to Crossley's revolving line of credit agreement with a Canadian bank, which is
used to finance working capital requirements. At January 29, 2000, $4.7 million
was outstanding and $2.9 million was available under this line of credit.
Approximately $9.5 million of long-term debt assumed was sinking fund bonds held
and issued by the Nova Scotia Business Development Corporation (the "Bond
Holder"). The Bond Holder agreed to forgive principal amounts of the bonds up to
a maximum of $6.3 million at various rates, dependant upon certain factors. For
the year ended January 29, 2000, $2.1 million was forgiven. The remaining
balance will become repayable over five years once the forgiveness has expired.
In connection with the forgiveness of the sinking fund bonds, the Company
recorded extraordinary gain of $1.3 million, net of tax expense.

Concurrent with the consummation of the ACT Acquisition, the Company agreed
to pay to the seller $2.1 million in September 2000 at an effective interest
rate of 8.5%. In addition, the Company assumed certain loans related to vendor
financing related to equipment purchases which are payable monthly. At January
29, 2000, $0.6 million was outstanding under vendor financing loans.

Financing costs of $7.0 million and $5.7 million associated with the
issuance of the Credit Facility and Senior Notes are included in other assets on
the accompanying Balance Sheets as of January 30, 1999 and January 29, 2000,
respectively. These costs are being amortized on the straight-line method over
the term of the respective debt agreements. Amortization expense charged to
interest expense was $1.3 million in fiscal 1997, 1998 and 1999.

At January 29, 2000, the scheduled annual maturities of long-term debt are
as follows (in thousands):

Fiscal Year:
2000................... $ 12,530
2001................... 16,035
2002................... 29,175
2003................... 33,889
2004................... 913
Thereafter............. 93,659
----------
$ 186,201
==========

Total interest paid by the Company on all indebtedness was $12.8 million,
$13.6 million and $13.3 million for fiscal 1997, 1998 and 1999, respectively.

F-17
<PAGE>

12. INCOME TAXES

Domestic and foreign components of income before income taxes are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
-------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Domestic...................................... $ 4,112 $ 12,166 $ 19,013
Foreign....................................... -- (857) (1,671)
-------------------- ------------------------ -----------------------
$ 4,112 $ 11,309 $ 17,342
==================== ======================== =======================
</TABLE>

Components of the income tax provision for fiscal 1997, fiscal 1998, and
fiscal 1999 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
----------------------- ------------------------ ----------------------
<S> <C> <C> <C>
Current:
Federal.................................. $ 1,485 $ 1,682 $ 6,420
State.................................... 147 223 1,155
Foreign.................................. -- -- (409)
--------------------- ------------------------ ----------------------
1,632 1,905 7,166
--------------------- ------------------------ ----------------------
Deferred:
Federal.................................. 71 2,758 782
State.................................... 7 208 41
Foreign.................................. -- -- 507
--------------------- ------------------------ ----------------------
78 2,966 1,330
--------------------- ------------------------ ----------------------
Income tax expense............................ $ 1,710 $ 4,871 $ 8,496
===================== ======================== ======================
</TABLE>

No benefit was recorded for the foreign operating losses of the Company in
fiscal 1997 and 1998.

Reconciliation between income taxes computed at the federal rate and the
provision for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------------
January 31, January 30, January 29,
1998 1999 2000
----------------------- ------------------------ ----------------------
<S> <C> <C> <C>
Amount at statutory federal rate of 35%....... $ 1,439 $ 3,962 $ 6,070
State income taxes, net of federal
Income tax benefit......................... 142 385 1,176
Nondeductible expenses........................ 129 191 569
Foreign taxes................................. -- (50) (164)
Change in valuation allowance................. -- 257 741
Other......................................... -- 126 104
--------------------- ------------------------ ----------------------
Income tax expense............................ $ 1,710 $ 4,871 $ 8,496
===================== ======================== ======================
</TABLE>

F-18
<PAGE>

The components of the net deferred tax assets as of January 30, 1999 and
January 29, 2000 were as follows (in thousands):

<TABLE>
<CAPTION>
January 30, January 29,
1999 2000
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Warranty & customer claims accruals............................. $ 1,232 $ 1,490
Employee benefits............................................... 861 904
Inventory reserves.............................................. 98 733
Accrued taxes................................................... 173 515
Other liabilities and reserves.................................. 541 1,414
Book depreciation in excess of tax.............................. -- 2,466
Foreign net operating loss carryforwards........................ 348 1,188
Valuation allowance............................................. (348) (1,089)
----------------- -----------------
Total deferred tax assets............................. 2,905 7,621
----------------- -----------------
Deferred tax liabilities:
Deferred financing fees......................................... 416 342
Tax depreciation in excess of book.............................. 1,774 2,468
Goodwill and intangible amortization............................ 780 1,704
----------------- -----------------
Total deferred tax liabilities....................... 2,970 4,514
----------------- -----------------
Net deferred tax assets (liabilities)................................ $ (65) $ 3,107
================= =================
</TABLE>

The valuation allowance is provided because, in management's assessment, it
was uncertain whether the net deferred tax asset related to certain foreign net
operating loss carryforwards would be realized.

Payments for income taxes by the Company amounted to $1.3 million, $3.4
million and $6.3 million for fiscal 1997, 1998 and 1999, respectively.

13. STOCK OPTIONS

In February 1997, Holdings adopted the 1997 Stock Option Plan (the "1997
Plan"), under which 800,000 shares of CAF Holdings, Inc. common stock are
authorized and reserved for use in the Plan. In June 1999, Holdings adopted the
1999 Stock Option Plan (the "1999 Plan"), under which 280,000 shares of CAF
Holdings, Inc. common stock are authorized and reserved for use in the Plan.
The plans allow the issuance of nonqualified stock options at an exercise price
determined by Holdings' board of directors. A certain number of options granted
under both plans become exercisable over nine years and expire eleven years from
the date of grant. Accelerated vesting may occur for these options, as well as
for incremental levels of additional options, based on achievement of specific
performance targets. Accelerated vesting may also occur due to a change in
control. At January 30, 1999 and January 29, 2000, no shares are exercisable.
The following table summarizes the activity in the plans for fiscal 1997, 1998
and 1999:

<TABLE>
<CAPTION>
Average
Number of Exercise
Shares Price
-------------------- --------------------
<S> <C> <C>
Granted in fiscal 1997 and outstanding at January 31, 1998........... 714,609 $ 1.00
Granted.............................................................. 7,770 $ 1.00
Canceled............................................................. (11,426) $ 1.00
-------------------- --------------------
Outstanding at January 30, 1999...................................... 710,953 $ 1.00

Granted in fiscal 1999............................................... 351,275 $ 16.86
Canceled in fiscal 1999.............................................. (8,913) $ 1.00
-------------------- --------------------
Outstanding at January 29, 2000...................................... 1,053,315 $ 6.29
==================== ====================
</TABLE>

F-19
<PAGE>

The Company has elected to account for its stock-based compensation plan
under Accounting Principles Board Opinion No. 25; however, the Company has
computed for pro forma disclosure purposes the value of all options granted
using the minimum value option pricing model as prescribed by SFAS No. 123,
"Accounting for Stock-Based Compensation," and using a weighted average risk-
free interest rate of 6.8%, an expected dividend yield of 0%, and an expected
life of nine years.

The total values of the options granted during 1997, 1998 and 1999 were
approximately $128,000, $128,000 and $363,000, respectively, which would be
amortized over the vesting period of the options. If the Company had accounted
for the plan in accordance with SFAS No. 123, additional compensation expense
related to these options would have been immaterial for fiscal 1997, 1998 and
1999.

14. Segment Information

The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement addresses reporting of
operating segment information and disclosures about products, services,
geographic areas and major customers. Management has reviewed the requirements
of SFAS No. 131 concluding the Company operates its business as one reportable
segment.

No single customer amounted to or exceeded 10.0% of the Company's sales for
any period presented.

Information relative to sales and identifiable assets for the United States
and other countries for the fiscal years ended January 29, 2000, January 30,
1999 and January 31, 1998 are summarized in the following tables (amounts in
thousands). Identifiable assets include all assets associated with operations
in the indicated geographic area excluding intercompany receivables and
investments.

<TABLE>
<CAPTION>
United Other
States Countries Consolidated
------------ ----------- ------------
<S> <C> <C> <C>
Fiscal 1999:
Sales....................... $ 215,602 $ 27,762 $ 243,364
Identifiable Assets......... 253,962 34,326 288,288

Fiscal 1998:
Sales....................... $ 161,613 $ 14,049 $ 175,662
Identifiable Assets......... 200,102 15,312 215,414

Fiscal 1997:
Sales....................... $ 147,425 $ 12,958 $ 160,383
Identifiable Assets......... 215,609 1,214 216,823
</TABLE>

F-20
<PAGE>

15. QUARTERLY FINANCIAL DATA (Unaudited)

The quarterly financial data below is based on the Company's fiscal periods
(in thousands):

<TABLE>
<CAPTION>
Fiscal 1999
-----------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales............................... $ 39,179 $ 67,341 $ 71,785 $ 65,059
Gross Profit............................ 16,100 28,005 26,372 22,794
Income Before Extraordinary Item (a).... 642 6,031 2,168 5
Net Income.............................. 642 6,031 2,137 1,262

Fiscal 1998
-----------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales............................... $ 38,943 $ 55,161 $ 45,055 $ 36,503
Gross Profit............................ 16,403 23,180 17,778 14,562
Income Before Extraordinary Item (a).... 472 4,698 1,464 (196)
Net Income.............................. 472 4,698 1,464 (196)
</TABLE>

(a) During fiscal 1999, the Company incurred an extraordinary loss on early
extinguishment of debt of $31,000 (net of tax) in the third quarter and an
extraordinary gain in the fourth quarter due to (i) an extraordinary gain or
forgiveness of debt of $1.3 million (net of tax) and (ii) an extraordinary loss
of $31,000 (net of tax) due to early distinguishment of debt (see Note 11).

16. RELATED-PARTY TRANSACTIONS

Holdings has an agreement with Quad-C whereby Holdings retained Quad-C to
render consulting services to it regarding the Company, its financial and
business affairs, its relationship with its lenders and security holders, and
the operation and expansion of its business. The agreement provides for payment
to Quad-C of an annual fee of $350,000, payable quarterly and reimbursement of
out-of-pocket expense. The agreement expired in 1999, but will be automatically
renewed for successive one-year terms unless either party provides written
notice of termination 60 days prior to the scheduled renewal date. Paribas is
reimbursed for its out of pocket expenses associated with the operations of the
Company.

17. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CERTAIN RISKS

Lease Commitments

The Company is obligated under various leases for office space, machinery
and equipment. At January 29, 2000 future minimum lease payments under operating
leases are as follows (in thousands):

Fiscal Year:
2000............................ $ 2,271
2001............................ 2,129
2002............................ 1,589
2003............................ 1,173
2004............................ 476
Thereafter...................... 554
----------
$ 8,192
==========

Rental expense under operating leases was approximately $942,000,
$1,307,000 and $1,522,000 in fiscal 1997, fiscal 1998 and fiscal 1999,
respectively.

F-21
<PAGE>

Environmental

The Company is subject to federal, state and local laws and regulations
concerning the environment. At January 29, 2000, management concluded that no
environmental reserves were required. 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.

Litigation

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.

Other Commitments

In connection with certain product installation contracts, the Company
issues performance bonds. No liability for these bonds is reflected in the
accompanying balance sheets because, in management's opinion, based on the facts
presently known to it, all product installation contracts have been and will be
fulfilled in accordance with their terms.

Reliance on Principal Supplier

One supplier currently supplies a significant amount of the Company's
requirements for nylon yarn, the principal raw material used in the Company's
floorcovering products. While the Company believes that there are adequate
alternative sources of supply from which it could fulfill its nylon yarn
requirements, the unanticipated termination of the current supply arrangement or
a prolonged interruption in shipments could have a material adverse effect on
the Company.

Concentrations of Labor

As of January 29, 2000, the Company employed approximately 1,450 persons
on a full-time or full time equivalent basis. Approximately 231 of such
employees are represented by a labor union. The collective bargaining
agreements, which represent this union, expire during fiscal 2000.

F-22
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Collins & Aikman Floorcoverings, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Collins & Aikman
Floorcoverings, Inc. and Subsidiaries included in this Form 10-K, and have
issued our report thereon dated March 23, 2000. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14 of this Form 10-K is the responsibility
of the company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Chattanooga, Tennessee
March 23, 2000

S-1
<PAGE>

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

Schedule II - Valuation and Qualifying Accounts
For the Years ended January 31, 1998, January 30, 1999 and January 29, 2000
(In Thousands)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION PERIOD EXPENSES ADDITIONS ACCOUNTS (a) (b) PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY

Year ended January 31, 1998
Allowance for doubtful accounts... $ 15 $ 116 $ 303 (c) $ -- $ (134) $ 300

Year ended January 30, 1999
Allowance for doubtful accounts... $ 300 $ 159 $ 47 (d) $ -- $ (171) $ 335

Year ended January 29, 2000
Allowance for doubtful accounts... $ 335 $ 626 $ 285 (e) $ 23 $ (431) $ 838
</TABLE>

Notes:

(a) Represents reclassifications and collections of accounts previously
written off.
(b) Represents write-off accounts to be uncollectible, less recovery of
amounts previously written off.
(c) Represents additional provision recorded at the purchase of C&A Floor
Coverings, Inc.
(d) Represents provision recorded at the purchase of Advance Carpet Tiles,
Ltd.
(e) Represents provision recorded at the purchase of Monterey Carpets,
Inc. and Crossley Carpets Limited.

S-2

<PAGE>

EXHIBIT 21.1

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

List of Subsidiary Corporations

Entity Jurisdiction of Origin
- ------ ----------------------

Collins & Aikman Floorcoverings UK Limited United Kingdom
Advance Carpet Tiles, Ltd. United Kingdom
Collins & Aikman Floorcoverings Asia Pte. Ltd. Singapore
Monterey Carpets, Inc. California
Crossley Carpet Mills, Ltd. Canada
1811367 Nova Scotia Limited Canada
Crossley Carpets (U.S.) Limited Canada

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 4,114
<SECURITIES> 0
<RECEIVABLES> 39,223
<ALLOWANCES> 838
<INVENTORY> 32,137
<CURRENT-ASSETS> 78,844
<PP&E> 65,075
<DEPRECIATION> 17,355
<TOTAL-ASSETS> 288,288
<CURRENT-LIABILITIES> 39,527
<BONDS> 173,671
0
0
<COMMON> 0
<OTHER-SE> 70,696
<TOTAL-LIABILITY-AND-EQUITY> 288,288
<SALES> 243,364
<TOTAL-REVENUES> 243,364
<CGS> 150,093
<TOTAL-COSTS> 150,093
<OTHER-EXPENSES> 60,744
<LOSS-PROVISION> 626
<INTEREST-EXPENSE> 16,338
<INCOME-PRETAX> 17,342
<INCOME-TAX> 8,496
<INCOME-CONTINUING> 8,846
<DISCONTINUED> 0
<EXTRAORDINARY> 1,226
<CHANGES> 0
<NET-INCOME> 10,072
<EPS-BASIC> 0
<EPS-DILUTED> 0

</TABLE>