COLLINS & AIKMAN CORP, 10-Q, 2000-08-15

COLLINS & AIKMAN CORP
10-Q, 2000-08-15
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<PAGE> 1

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

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended July 1, 2000

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

For the transition period from ______ to _____

Commission File Number 1-10218

COLLINS & AIKMAN CORPORATION
(Exact name of registrant, as specified in its charter)

Delaware 13-3489233
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

5755 New King Court
Troy, Michigan 48098
(Address of principal executive offices, including zip code)

(248) 824-2500
(Registrant's telephone number, including area code)

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 [ ].

As of August 15, 2000, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 61,895,369 shares.

<PAGE> 2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDE
---------------------------- -------------------------------
JULY 1, JUNE 26, JULY 1, JUNE 26,
2000 1999 2000 1999
(13 WEEKS) (13 WEEKS) (27 WEEKS) (26 WEEKS)
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales............................................ $ 507,209 $ 486,821 $ 1,041,970 $ 965,158
Cost of goods sold................................... 423,076 408,559 874,122 816,308
---------- ---------- ------------ ----------
Gross profit......................................... 84,133 78,262 167,848 148,850
Selling, general and administrative expenses......... 37,983 38,322 81,536 79,077
Restructuring charge................................. -- 4,554 -- 4,554
---------- ---------- ------------ ----------
Operating income..................................... 46,150 35,386 86,312 65,219

Interest expense, net................................ 24,429 23,009 49,491 44,824
Loss on sale of receivables.......................... 1,988 1,323 5,806 2,634
Other expense (income)............................... 2,527 (983) 1,447 1,194
---------- ---------- ------------ ----------

Income before income taxes........................... 17,206 12,037 29,568 16,567
Income tax expense .................................. 6,102 6,719 11,449 8,933
---------- ---------- ------------ ----------

Income from continuing operations before cumulative
effect of a change in accounting principle......... 11,104 5,318 18,119 7,634
Income from discontinued operations, net of income
taxes of $4,400.................................... 6,600 -- 6,600 --
---------- ---------- ------------ ----------
Income before cumulative effect of a change in
accounting principle............................... 17,704 5,318 24,719 7,634
Cumulative effect of a change in accounting
principle, net of income taxes of $5,083........... -- -- -- (8,850)
---------- ---------- ------------ ----------

Net income (loss).................................... $ 17,704 $ 5,318 $ 24,719 $ (1,216)
========== ========== ============ ==========

Net income (loss) per basic and diluted common share:
Continuing operations.............................. $ 0.18 $ 0.09 $ 0.29 $ 0.12
Discontinued operations............................ 0.11 -- 0.11 --
Cumulative effect of a change in accounting
principle....................................... -- -- -- (0.14)
---------- ---------- ------------ ----------
Net income (loss).................................... $ 0.29 $ 0.09 $ 0.40 $ (0.02)
========== ========== ============ ==========

Average common shares outstanding:
Basic.............................................. 61,879 61,947 61,884 61,970
========== ========== ============ ==========
Diluted............................................ 62,631 62,303 62,498 62,327
========== ========== ============ ==========
</TABLE>

I-1

<PAGE> 3

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 1, DECEMBER 25,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 63,478 $ 13,980
Accounts and other receivables, net............................. 223,973 233,819
Inventories..................................................... 132,303 132,625
Other........................................................... 79,554 84,942
----------- -----------

Total current assets.......................................... 499,308 465,366

Property, plant and equipment, net................................. 437,471 443,526
Deferred tax assets................................................ 80,394 86,235
Goodwill, net...................................................... 249,987 256,362
Other assets....................................................... 83,348 97,401
----------- -----------

$ 1,350,508 $ 1,348,890
=========== ===========

LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings........................................... $ 6,500 $ 3,088
Current maturities of long-term debt............................ 115,929 27,992
Accounts payable................................................ 168,767 198,466
Accrued expenses................................................ 132,477 132,709
----------- -----------

Total current liabilities..................................... 423,673 362,255

Long-term debt..................................................... 802,088 884,550
Other, including post-retirement benefit obligation................ 259,627 253,206
Commitments and contingencies......................................

Common stock (150,000 shares authorized, 70,521 shares
issued and 61,895 shares outstanding at July 1, 2000
and 70,521 shares issued and 61,904 shares outstanding
at December 25, 1999)........................................... 705 705
Other paid-in capital.............................................. 585,978 585,484
Accumulated deficit................................................ (616,398) (641,117)
Accumulated other comprehensive loss............................... (42,177) (33,260)
Treasury stock, at cost (8,626 shares at July 1, 2000
and 8,617 shares at December 25, 1999).......................... (62,988) (62,933)
----------- -----------

Total common stockholders' deficit............................ (134,880) (151,121)
----------- -----------
$ 1,350,508 $ 1,348,890
=========== ===========
</TABLE>

I-2

<PAGE> 4

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDE
----------------------- -----------------------
JULY 1, JUNE 26, JULY 1, JUNE 26,
2000 1999 2000 1999
(13 WEEKS) (13 WEEKS) (27 WEEKS) (26 WEEKS)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations................................... $ 11,104 $ 5,318 $ 18,119 $ 7,634
Adjustments to derive cash flow from continuing operating
activities:
Impairment of long-lived assets................................ -- 536 -- 536
Deferred income tax expense (benefit).......................... 3,194 (38) 5,337 (1,231)
Depreciation and amortization.................................. 18,493 17,699 37,254 34,931
Decrease in accounts and other receivables..................... 17,074 34,326 26,466 13,551
Decrease (increase) in inventories............................. 5,231 (751) 322 10,383
Decrease in accounts payable................................... (19,374) (8,041) (29,699) (21,207)
Increase (decrease) in interest payable....................... (13,408) (12,783) 1,502 1,348
Other, net..................................................... (15,124) (10,346) 16,844 (4,507)
--------- --------- --------- ---------

Net cash provided by continuing operating activities......... 7,190 25,920 76,145 41,438
--------- --------- --------- ---------

Net cash provided by (used in) discontinued operations.............. 7,434 (2,748) 4,246 (4,431)
--------- --------- --------- ---------

INVESTING ACTIVITIES
Additions to property, plant and equipment.......................... (15,477) (19,843) (30,572) (32,377)
Sales of property, plant and equipment.............................. 500 193 574 2,634
Acquisition of businesses, net of cash acquired..................... -- (369) -- (369)
Other, net.......................................................... -- -- -- (800)
--------- --------- --------- ---------

Net cash used in investing activities........................ (14,977) (20,019) (29,998) (30,912)
--------- --------- --------- ---------

FINANCING ACTIVITIES
Issuance of long-term debt.......................................... -- 100,000 -- 100,000
Repayment of long-term debt......................................... (7,777) (4,897) (21,453) (9,486)
Reduction of participating interests in accounts receivable......... (5,169) (10,500) (9,820) (2,200)
Net borrowings (repayments) on revolving credit facilities.......... 36,668 (26,881) 26,205 (17,381)
Increase (decrease) on short-term borrowings........................ (1,404) (7,423) 4,274 (5,272)
Reissuance (purchase) of treasury stock, net........................ 35 83 (101) (1,308)
Dividends paid...................................................... -- (44,005) -- (50,198)
--------- --------- --------- ---------

Net cash provided by (used in) financing activities.......... 22,353 6,377 (895) 14,155
--------- --------- --------- ---------

Net increase in cash and cash equivalents........................... 22,000 9,530 49,498 20,250
Cash and cash equivalents at beginning of period.................... 41,478 34,475 13,980 23,755
--------- --------- --------- ---------
Cash and cash equivalents at end of period.......................... $ 63,478 $ 44,005 $ 63,478 $ 44,005
========= ========= ========= =========
</TABLE>

I-3

<PAGE> 5

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

A. ORGANIZATION:

Collins & Aikman Corporation (the "Company") is a Delaware corporation.
As of July 1, 2000, Blackstone Capital Partners L.P. ("Blackstone Partners") and
Wasserstein Perella Partners, L.P. ("WP Partners") and their respective
affiliates collectively owned approximately 87% of the common stock of the
Company (the "Common Stock").

The Company conducts all of its operating activities through its
wholly-owned Collins & Aikman Products Co. ("C&A Products") subsidiary.

B. BASIS OF PRESENTATION:

The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. In the opinion of management, the accompanying
condensed consolidated financial statements reflect all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of
financial position and results of operations. Certain prior year items have been
reclassified to conform with the fiscal 2000 presentation. Results of operations
for interim periods are not necessarily indicative of results for the full year.

The Company's fiscal year ends on the last Saturday of December. The
2000 fiscal year will consist of 53 weeks. In a 53-week year, the Company's
policy is to include the additional week in the first quarter of the year. As a
result, the quarter ended April 1, 2000 consisted of 14 weeks. The quarters
ended July 1, 2000, June 26, 1999 and March 27, 1999 consisted of 13 weeks.

For further information, refer to the consolidated financial statements
and footnotes thereto included in the Collins & Aikman Corporation Annual Report
on Form 10-K for the fiscal year ended December 25, 1999.

C. FOREIGN CURRENCY PROTECTION PROGRAMS:

The primary purpose of the Company's foreign currency hedging
activities is to protect against the volatility associated with intercompany
funding arrangements, third party loans and foreign currency purchase and sale
transactions. Corporate policy prescribes the range of allowable hedging
activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months. The Company
has in place forward exchange contracts denominated in multiple currencies which
will mature during fiscal 2000. These contracts aggregated a U.S. dollar
equivalent of $160.0 million at July 1, 2000. The fair value of these contracts
approximated the contract value at July 1, 2000.

During 2000 and 1999, the Company purchased option contracts giving the
Company the right to purchase U.S. dollars for use by its Canadian operations.
The premiums associated with these contracts are amortized over the contracts'
terms which are one year or less. The total notional amount purchased was $171.0
million with associated premiums of $1.4 million. The total notional amount
outstanding at July 1, 2000 was $68.3 million.

D. INVENTORIES:

Inventory balances are summarized below (in thousands):

JULY 1, DECEMBER 25,
2000 1999
------------ ------------

Raw materials.................. $ 71,445 $ 69,182
Work in process................ 25,656 27,073
Finished goods................. 35,202 36,370
------------ ------------
$ 132,303 $ 132,625
============ ============

I-4

<PAGE> 6

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

E. GOODWILL:

Goodwill, representing the excess of purchase price over the fair value
of net assets of acquired entities, is being amortized on a straight-line basis
over a period of forty years. Amortization of goodwill applicable to continuing
operations was $1.8 million and $3.6 million for the quarter and six months
ended July 1, 2000 and $2.1 million and $3.8 million for the quarter and six
months ended June 26, 1999, respectively. Accumulated amortization at July 1,
2000 was $28.5 million. The carrying value of goodwill at an enterprise level is
reviewed periodically based on the projected non-discounted cash flows and
pretax income of the entities acquired over the remaining amortization periods.
Should this review indicate that the goodwill balance will not be recoverable,
the Company's carrying value of the goodwill will be reduced. At July 1, 2000,
the Company believes the recorded value of its goodwill of $250.0 million is
fully recoverable.

F. LONG-TERM DEBT:

In addition, the Credit Agreement Facilities include a provision for a
Term Loan C credit facility (the "Term Loan C Facility") of up to $150 million.
On May 13, 1999, the Company closed on the Term Loan C Facility in the principal
amount of $100 million. The Term Loan C Facility is payable in quarterly
installments beginning in December 1999 through final maturity in December 2005.
The Company used approximately $44 million of the proceeds from the Term Loan C
Facility to pay a special dividend to shareholders on May 28, 1999. The
remaining proceeds were used to repay amounts outstanding on the Revolving
Credit Facility and for general corporate purposes.

At July 1, 2000, the Company had outstanding $71.3 million on the Term
Loan A Facility, $119.0 million on the Term Loan B Facility, $97.0 million on
the Term Loan C Facility and $137.8 million under the Revolving Credit Facility
(including $12.8 million borrowed by the Canadian Borrowers).

Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility, as amended March 8, 1999,
bears interest at a per annum rate equal to the Company's choice of (i) The
Chase Manhattan Bank's ("Chase's") Alternate Base Rate (which is the highest of
Chase's announced prime rate, the Federal Funds Rate plus .5% and Chase's base
certificate of deposit rate plus 1.00%) plus a margin (the "ABR/Canadian Prime
Rate Margin") ranging from .25% to 1.25% or (ii) the offered rates for
Eurodollar deposits ("LIBOR") of one, two, three, six, nine or twelve months, as
selected by the Company, plus a margin (the "LIBOR/BA Margin") ranging from
1.25% to 2.25%. Margins, which are subject to adjustment based on changes in the
Company's ratio of funded debt to EBITDA (i.e., earnings before interest, taxes,
depreciation, amortization and other non-cash charges), were 2.25% in the case
of the LIBOR/BA Margin and 1.25% in the case of the ABR/Canadian Prime Rate
Margin on July 1, 2000. Canadian-dollar denominated indebtedness incurred by the
Canadian Borrowers under the Revolving Credit Facility bears interest at a per
annum rate equal to the Canadian Borrowers' choice of (i) the Canadian Prime
Rate (which is the greater of Chase's prime rate for Canadian dollar-denominated
loans in Canada and the Canadian dollar-denominated one month bankers'
acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate Margin or (ii) the
bill of exchange rate ("Bankers' Acceptance" or "BA") denominated in Canadian
dollars for one,

I-5

<PAGE> 7

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

two, three or six months plus the LIBOR/BA Margin. Indebtedness under the Term
Loan B Facility as amended March 8, 1999 bears interest at a per annum rate
equal to the Company's choice of (i) Chase's Alternate Base Rate (as described
above) plus a margin ranging from 1.25% to 1.75% (the "Tranche B ABR Margin") or
(ii) LIBOR of one, two, three, or six months, as selected by the Company, plus a
margin ranging from 2.25% to 2.75% (the "Tranche B LIBOR Margin"). The Tranche B
ABR Margin and the Tranche B LIBOR Margin were 1.75% and 2.75%, respectively, at
July 1, 2000. Indebtedness under the Term Loan C Facility bears interest at a
per annum rate equal to LIBOR plus 3.25% (the "Tranche C LIBOR Margin") or
Chase's Alternate Base Rate plus 2.25% (the "Tranche C ABR Margin"). The
weighted average rate of interest on the Credit Agreement Facilities at July 1,
2000 was 9.3%.

In addition, under the Credit Agreement Facilities, C&A Products is
generally prohibited from paying dividends or making other distributions to the
Company except to the extent necessary to allow the Company to (w) pay taxes and
ordinary expenses, (x) make permitted repurchases of shares or options, (y) make
permitted investments in finance, foreign or acquired subsidiaries and (z) pay
permitted dividends. The Company is permitted to pay dividends and repurchase
shares of the Company (i) in any fiscal year in an aggregate amount up to $12
million and (ii) if certain financial ratios are satisfied, for the period from
April 28, 1996 through the last day of the Company's most recently ended fiscal
quarter, in an aggregate amount equal to 50% of the Company's cumulative
consolidated net income for that period and, in addition, is permitted to pay
dividends and repurchase shares in amounts representing net proceeds from the
sale of the Company's Imperial Wallcoverings, Inc., subsidiary
("Wallcoverings"). The Company's obligations under the Credit Agreement
Facilities are secured by a pledge of stock of C&A Products and its significant
subsidiaries and certain intercompany indebtedness.

At July 1, 2000, the scheduled maturities of long-term debt are as
follows (in thousands):

Remainder of fiscal year 2000................. $ 7,784
Fiscal year 2001.............................. 115,957
Fiscal year 2002.............................. 32,832
Fiscal year 2003.............................. 28,261
Fiscal year 2004.............................. 191,654
Later years................................... 541,529
----------
$ 918,017
==========

G. RECEIVABLES FACILITY:

On December 27, 1999, the Company entered into a new receivables
facility (the "New Receivables Facility"), replacing the Company's previous
receivables facility (the "Old Receivables Facility") which had expired. The New
Receivables Facility utilizes funding provided by commercial paper conduits
sponsored by three of the Company's lenders under its Credit Agreement
Facilities. Carcorp, a wholly-owned, bankruptcy remote subsidiary of C&A
Products, remains the purchaser of the Sellers' trade receivables, transferring
rights to collections on those receivables to the conduits. The conduits in turn
issue commercial paper which is collateralized by those rights. The liquidity
facilities backing the New Receivables Facility have terms of 364 days,
renewable annually for up to five years.

The total funding available to the Company on a revolving basis under
the New Receivables Facility is up to $171.6 million, depending upon criteria
similar to those in the Old Receivables Facility. On December 27, 1999, the
Company funded $120 million through the New Receivables Facility, leaving
approximately $12 million available, but unutilized. At July 1, 2000, $106.7
million was funded under the New Receivables Facility, resulting in the full
utilization of the facility. The interest rate on sold interests is equal to the
rate paid by the conduits to the holders of the commercial paper plus a margin
of .70% and dealer fees of .05% (7.36% at inception and 7.39% at July 1, 2000).
In addition, the Company pays .25% on the unused committed portion of the
facility. The New Receivables Facility contains certain other restrictions on
Carcorp (including maintenance of $40 million net worth) and on the Sellers
(including limitations on liens on receivables, modifications of the terms of
receivables, and change in credit and collection practices) customary for
facilities of this type. The commitments under the New Receivables Facility are
subject to termination prior to their term upon the occurrence of certain
events, including payment defaults, breach of covenants, including defined
interest coverage and leverage ratios, bankruptcy, insufficient eligible
receivables to support the outstanding certificates, default by C&A Products in
servicing the receivables and failure of the receivables to satisfy certain
performance criteria.

I-6

<PAGE> 8

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

H. RESTRUCTURING:

On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North American
Automotive Interior Systems, headquartered in the Detroit metropolitan area, and
European Automotive Interior Systems, headquartered in Wiesbaden, Germany. In
addition, the Company subsequently implemented a global account manager
structure for each of the Company's automotive original equipment manufacturer
("OEM") customers. The Company undertook the Reorganization to reduce costs and
improve operating efficiencies through the Company's operations and to more
effectively respond to the OEMs' demand for complete interior trim systems and
more sophisticated components. As part of the Reorganization, the Company also
established the Specialty Automotive Products division, which includes the
Company's automotive fabrics and Dura Convertible Systems businesses. Although
these products have not historically been sold in conjunction with the Company's
other interior trim offerings, the Company's new strategy of leveraging its
acoustic capabilities with its design and styling expertise is anticipated to
change the marketing approach for all of the Company's products.

The 1999 Reorganization includes the closure of three facilities. The
Homer, Michigan plastics facility was closed in August 1999 and its operations
were relocated to an existing plastics facility. The Cramerton, North Carolina
fabrics facility was sold in September 1999 and its operations are in the
process of being relocated to another fabrics facility. The acoustics facility
in Vastra Frolunda, Sweden, is scheduled to be closed in September 2000. In
addition to these closures, the Company recognized severance costs for operating
personnel at the Company's plastics operations in the United Kingdom and the
Company's fabrics, convertibles and accessory floormats operations in North
America. The Company also recognized severance costs for management and
administrative personnel at the Company's former North Carolina headquarters and
North American Automotive Interior Systems division. At July 1, 2000,
approximately 750 employees had been terminated. When completed, the
Reorganization will affect approximately 1,100 employees. The Company currently
expects the Reorganization plan to be substantially completed by December 2000.

During the quarter ended June 26, 1999, the Company recognized a
pre-tax restructuring charge of $4.6 million including asset impairments of $0.5
million. During 1999, the Company recognized a total pre-tax restructuring
charge related to the Reorganization of $33.4 million, including $13.4 million
of asset impairments, $15.0 million of severance costs and $5.0 million related
to the termination of sales commissions contracts at the Company's North
American plastics operations.

The components of the reserves for the restructuring charges are as
follows (in thousands):
Original Changes in Remaining
Reserve Reserve Reserve
-------- ---------- ---------

Anticipated severance benefits...... $ 15,061 $ (10,008) $ 5,053
Anticipated payments related to
the termination of sales
commission arrangements........... 4,969 (1,669) 3,300
-------- --------- --------
$ 20,030 $ (11,677) $ 8,353
======== ========= ========

I. RELATED PARTY TRANSACTIONS:

Under the Amended and Restated Stockholders' Agreement among the
Company, C&A Products, Blackstone Partners and WP Partners, the Company pays
Blackstone Partners and WP Partners, or their respective affiliates, each an
annual monitoring fee of $1.0 million, which is payable in quarterly
installments.

I-7

<PAGE> 9

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

J. INFORMATION ABOUT THE COMPANY'S OPERATIONS:

The Company's continuing operations primarily supply automotive
interior systems - textile and plastic products, acoustics and convertible top
systems - to the global automotive industry.

North American Automotive Interior Systems and European Automotive
Interior Systems include the following product groups: molded floor carpet,
luggage compartment trim, acoustical products, accessory floormats and
plastic-based interior modules, systems and components. The Specialty Automotive
Products division includes automotive fabrics and convertible top systems. The
three divisions also produce other automotive and non-automotive products.

The Company evaluates performance based on profit or loss from
operations before interest expense, foreign exchange gains and losses, loss on
sale of receivables, other income and expense, and income taxes.

Information about the Company's divisions is presented below (in thousands):

<TABLE>
<CAPTION>
Quarter Ended July 1, 2000 (13 weeks)
----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
External revenues.......... $ 315,454 $ 76,967 $ 114,788 $ -- $ 507,209
Inter-segment revenues..... 3,448 9,424 10,743 (23,615) --
Depreciation and
amortization.......... 10,728 4,397 2,964 404 18,493
Operating income .......... 30,999 4,958 9,589 604 46,150
Total assets............... 783,212 238,951 236,053 92,292 1,350,508
Capital expenditures....... 7,836 4,607 4,112 (1,078) 15,477
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended June 26, 1999 (13 weeks)
----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
External revenues.......... $ 292,445 $ 77,226 $ 117,150 $ -- $ 486,821
Inter-segment revenues..... 21,313 7,060 9,362 (37,735) --
Depreciation and
amortization.......... 9,051 4,667 3,772 209 17,699
Operating income (loss).... 21,482 3,035 14,532 (3,663) 35,386
Total assets............... 785,818 249,200 257,300 95,432 1,387,750
Capital expenditures....... 11,429 3,893 3,172 1,349 19,843
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended July 1, 2000 (27 weeks)
----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
External revenues.......... $ 642,067 $ 163,215 $ 236,688 $ -- $1,041,970
Inter-segment revenues..... 8,417 18,805 21,481 (48,703) --
Depreciation and
amortization.......... 21,569 8,690 6,255 740 37,254
Operating income (loss).... 59,285 7,357 20,492 (822) 86,312
Total assets............... 783,212 238,951 236,053 92,292 1,350,508
Capital expenditures....... 16,904 7,690 6,680 (702) 30,572
</TABLE>

I-8

<PAGE> 10

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 26, 1999 (26 weeks)
----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
External revenues.......... $ 576,057 $ 159,093 $ 230,008 $ -- $ 965,158
Inter-segment revenues..... 44,073 14,343 18,134 (76,550) --
Depreciation and
amortization.......... 18,322 8,611 7,540 458 34,931
Operating income (loss).... 40,226 3,919 25,479 (4,405) 65,219
Total assets............... 785,818 249,200 257,300 95,432 1,387,750
Capital expenditures....... 18,479 7,037 4,454 2,407 32,377
</TABLE>

(a) Other includes the Company's discontinued operations, non-operating units
and the effect of eliminating entries.

Sales for the Company's primary product groups are as follows (in
thousands):

<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------- ------------------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
(13 weeks) (13 weeks) (27 weeks) (26 weeks)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Molded floor carpet........................ $ 120,741 $ 117,926 $ 244,839 $ 232,088
Luggage compartment trim................... 22,444 19,861 47,312 35,157
Acoustical products........................ 58,802 46,108 122,390 102,116
Accessory floormats........................ 36,245 42,897 82,683 82,861
Plastic-based interior modules,
systems and components................... 133,072 114,984 267,017 224,894
Automotive fabrics......................... 71,428 67,575 142,417 132,573
Convertible top systems.................... 31,113 36,658 68,019 70,086
Other...................................... 33,364 40,812 67,293 85,383
---------- ---------- ---------- ----------
Total...................................... $ 507,209 $ 486,821 $1,041,970 $ 965,158
========== ========== ========== ==========
</TABLE>

The Company performs periodic credit evaluations of its customers'
financial condition and, although the Company does not generally require
collateral, it does require cash payments in advance when the assessment of
credit risk associated with a customer is substantially higher than normal.
Receivables generally are due within 45 days of shipment, and credit losses have
consistently been within management's expectations and are provided for in the
consolidated financial statements.

Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:

Six Months Ended
----------------------------
July 1, June 26,
2000 1999
------- --------

General Motors Corporation........ 30.4% 31.8%
Ford Motor Company................ 19.8% 20.4%
DaimlerChrysler AG................ 18.7% 18.8%

I-9

<PAGE> 11

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Sales for the Company's continuing operations in different geographic
areas are presented below (in thousands):

<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------- ------------------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
(13 weeks) (13 weeks) (27 weeks) (26 weeks)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States...................... $ 289,246 $ 278,854 $ 589,519 $ 550,754
Canada............................. 113,062 104,881 228,179 199,644
Mexico............................. 27,935 25,860 61,057 55,667
United Kingdom..................... 31,999 30,391 67,795 62,943
Other (a).......................... 44,967 46,835 95,420 96,150
---------- ---------- ---------- ----------
Consolidated....................... $ 507,209 $ 486,821 $1,041,970 $ 965,158
========== ========== ========== ==========
</TABLE>

(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and
the Netherlands.

Long-lived assets for the Company's continuing operations in different
geographical regions is presented below (in thousands):

July 1, June 26,
2000 1999
----------- -----------

United States...................... $ 532,788 $ 557,614
Canada............................. 86,425 81,022
Mexico............................. 24,018 17,003
United Kingdom..................... 54,423 58,147
Other (a).......................... 73,152 79,671
----------- -----------
Consolidated....................... $ 770,806 $ 793,457
=========== ===========

(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and
the Netherlands, and the Company's discontinued operations.

K. COMMITMENTS AND CONTINGENCIES:

See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings." The
ultimate outcome of the 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 effect on the Company's consolidated financial
condition or future results of operations.

See also "PART I - FINANCIAL INFORMATION, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

During the quarter ended July 1, 2000, the Company settled claims for
certain environmental matters related to discontinued operations for a total of
$20 million. Settlement proceeds will be paid to the Company in three
installments. The first installment of $7.5 million was received on June 30,
2000, with the second and third installments of $7.5 million and $5.0 million
to be received in June 2001 and 2002, respectively. Of the total $20 million
settlement, the Company recorded the present value of the settlement as $7.0
million of additional environmental reserves, based on its assessment of
potential environmental exposures, and $6.6 million, net of income taxes, as
income from discontinued operations.

C&A Products has assigned leases related to real and personal property
of divested businesses. Although C&A Products has obtained releases from the
lessors of certain of these properties, C&A Products remains contingently liable

I-10

<PAGE> 12

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

under most of the leases. C&A Products' future liability for these leases, in
management's opinion, based on the facts presently known to it, will not have a
material effect on the Company's consolidated financial condition or future
results of operations.

L. COMMON STOCKHOLDERS' DEFICIT:

Total comprehensive income for the quarters ended July 1, 2000 and June
26, 1999 was $12.5 million and $1.1 million, respectively. For this six months
ended July 1, 2000 and June 26, 1999, comprehensive income (loss) was $15.8
million and $(12.4) million, respectively. Activity in the common stockholders'
deficit since December 25, 1999 is as follows (in thousands):

<TABLE>
<CAPTION>
Current Year Other
Comprehensive Accumulated Accumulated Other Common Paid-In Treasury
Income Total Deficit Comprehensive Loss Stock Capital Stock
------------- ---------- ----------- ------------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 25, 1999......... $(151,121) $(641,117) $ (33,260) $ 705 $ 585,484 $(62,933)
Comprehensive income:
Net income....................... $ 24,719 24,719 24,719 -- -- -- --
Other comprehensive income
(loss), net of tax:
Foreign currency
translations adjustments..... (8,971) (8,971) -- (8,971) -- -- --
Pension equity adjustment...... 54 54 -- 54 -- -- --
--------
$ 15,802
========
Compensation expense adjustment.... 540 -- -- -- 540 --
Purchase of treasury stock
(26 shares)..................... (141) -- -- -- -- (141)
Exercise of stock options
(17 shares)..................... 40 -- -- -- (46) 86
--------- --------- --------- ----- --------- --------
Balance at July 1, 2000.............. $(134,880) $(616,398) $ (42,177) $ 705 $ 585,978 $(62,988)
========= ========= ========= ===== ========= ========
</TABLE>

The accumulated balances and current period activity for each component
of Accumulated Other Comprehensive Loss are as follows (in thousands):

Foreign Currency Pension Accumulated Other
Translation Equity Comprehensive
Adjustments Adjustment Loss
---------------- ---------- -----------------

Balance at December 25, 1999... $ (32,203) $ (1,057) $ (33,260)
Current period change.......... (8,971) 54 (8,917)
--------- -------- ---------
Balance at July 1, 2000........ $ (41,174) $ (1,003) $ (42,177)
========= ======== =========

I-11

<PAGE> 13

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

M. SIGNIFICANT SUBSIDIARY:

The Company conducts all of its operating activities through its
wholly-owned subsidiary, C&A Products. The following represents summarized
consolidated financial information of C&A Products and its subsidiaries for the
following periods (in thousands):

<S> <C> <C>
Current assets....................... $ 499,227 $ 465,312
Noncurrent assets.................... 851,200 883,524
Current liabilities.................. 423,673 362,226
Noncurrent liabilities............... 1,059,133 1,135,174
</TABLE>

Separate financial statements of C&A Products are not presented because
they would not be material to the holders of any debt securities of C&A Products
that have been or may be issued, there being no material differences between the
financial statements of C&A Products and the Company. The absence of separate
financial statements of C&A Products is also based upon the fact that any debt
of C&A Products issued, and the assumption that any debt to be issued, under the
Registration Statement on Form S-3 filed by the Company and C&A Products
(Registration No. 33-62665) is or will be fully and unconditionally guaranteed
by the Company.

N. NEWLY ISSUED ACCOUNTING STANDARDS:

In September 1999, the Financial Accounting Standards Board's ("FASB's")
Emerging Issue Task Force ("EITF") reached a consensus regarding EITF Issue No.
99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply
Arrangements". EITF No. 99-5 requires that design and development costs for
products to be sold under long-term supply arrangements be expensed as incurred,
and costs incurred for molds, dies and other tools that will be used in
producing the products under long-term supply arrangements be capitalized and
amortized over the shorter of the expected useful life of the assets or the term
of the supply arrangement. The consensus can be applied prospectively to costs
incurred after December 31, 1999 or as a cumulative effect of a change in
accounting principle as of the beginning of a company's fiscal year. The Company
adopted the provisions of EITF No. 99-5 on a prospective basis on December 26,
1999. The adoption of EITF No. 99-5 did not have a material effect on the
consolidated financial position or the results of operations of the Company. At
July 1, 2000, the Company had assets of approximately $5.3 million recognized
pursuant to agreements that provide for contractual reimbursement of
pre-production design and development costs, approximately $42.2 million for
molds, dies and other tools that are customer-owned and approximately $2.3
million for molds, dies and other tools that the Company owns.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a

I-12

<PAGE> 14

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. In July 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133". Under SFAS No. 137, SFAS No. 133 is now effective for fiscal
years beginning after June 15, 2000. A company may also implement SFAS No. 133
as of the beginning of any fiscal quarter after issuance. SFAS No. 133 cannot be
applied retroactively. On June 15, 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities --
an Amendment of FASB Statement No. 133," which provides additional guidance for
certain derivative instruments and hedging activities addressed in SFAS No. 133.
SFAS No. 138 shall be adopted concurrently with the adoption of SFAS No. 133.
The Company is currently analyzing the impact of adoption of SFAS Nos. 133 and
138. The adoption of SFAS Nos. 133 and 138 could increase volatility in earnings
and other comprehensive income.

In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires that all non-governmental
entities expense the costs of start-up activities as these costs are incurred
instead of being capitalized and amortized. The Company adopted SOP 98-5 on
December 27, 1998. The initial impact of adopting SOP 98-5 resulted in a charge
of approximately $8.9 million, net of income taxes of $5.1 million, which has
been reflected as a cumulative effect of a change in accounting principle in the
accompanying consolidated statement of operations for the six months ended June
26, 1999.

I-13

<PAGE> 15

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company's fiscal year ends on the last Saturday of December. The 2000 fiscal
year will consist of 53 weeks. In a 53-week year, the Company's policy is to
include the additional week in the first quarter of the year. As a result, the
quarter ended April 1, 2000 consisted of 14 weeks. The quarter ended July 1,
2000, June 26, 1999 and March 27, 1999 all consisted of 13 weeks. Therefore,
sales in all divisions and associated costs and expenses were impacted by the
longer reporting period in the first quarter of 2000.

NET SALES: Net sales for the second quarter of 2000 increased 4.2% to $507.2
million, up $20.4 million from the second quarter of 1999. For the six months
ended July 1, 2000, net sales increased 8.0% to $1,042.0 million compared to
$965.2 million for the six months ended June 26, 1999. Management estimates that
approximately $35.0 million of the year-to-date increase is due to the inclusion
of the additional week in the first quarter of 2000. Net sales for the North
American Interior Systems division during the quarter were up approximately 8.0%
to $315.4 million. For the six months ended July 1, 2000, net sales for the
Company's North American Interior Systems division were up 11% to $642.1 million
compared to $576.1 million in 1999. These increases primarily resulted from
strong production schedules and a favorable model mix. Net sales for the
European Automotive Interior Systems division for the quarter were flat compared
to the second quarter of 1999 at $77 million. The European division experienced
gains from industry production and new business activity, but these gains were
offset by the negative impact of foreign currency translation. For the six
months ended July 1, 2000, net sales for the Company's European Automotive
Interior Systems division increased 3% to $163.2 million compared to 1999. The
year-to-date increase resulted from increased sales levels for the carpet,
acoustics and plastics operations among several customers. Net sales for the
Specialty Automotive Products division decreased 2.0% to $114.8 million compared
to the second quarter of 1999. The decrease is due primarily to lower
convertible production volumes on Ford's Mustang and reduced production for
Chrysler's Sebring convertible which is undergoing a major model changeover. For
the six months ended July 1, 2000, net sales for the Company's Specialty
Automotive Products division increased 3% to $236.7 million primarily due to
production volume increases in the fabrics business.

Approximately 18% of the Company's year-to-date sales for 2000 and 1999, were
attributable to products utilized in vehicles built outside North America. The
Company's North American content per vehicle was approximately $90 for the six
months ended July 1, 2000, compared to an average of $88 for the 1999 fiscal
year. The Company's European content per vehicle was approximately $15 for the
six months ended July 1, 2000, compared to an average of $15 for the 1999 fiscal
year.

GROSS MARGIN: For the second quarter of 2000, gross margin was 16.6%, up from
16.1% in the comparable 1999 period. For the six months ended July 1, 2000,
gross margin was 16.1%, up from 15.4% in the comparable 1999 period. These
increases are primarily a result of increased operating efficiencies related to
higher volume in North America and Europe, the benefits of the restructuring
program implemented in 1999 and 2000 and improvements made at the Company's
plastics facility in Manchester, Michigan, which experienced significant
start-up costs in 1999 related to a program launch. These improvements were
partially offset by costs associated with the relocation of the Company's
headliner fabric business from Cramerton, North Carolina to another fabrics
facility, as well as the impact of lower convertible volumes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the second quarter of 2000 were $38.0 million
compared to $38.3 million in the 1999 period. For the six months ended July 1,
2000, selling, general and administrative expenses increased 3.1% primarily due
to spending for product development for new convertible top programs,
establishment of headquarter operations in Troy, Michigan and Wiesbaden,
Germany, continued investment in computer systems and the inclusion of the
additional week in the first quarter of 2000. As a percentage of sales, selling,
general and administrative expenses were 7.5% and 7.9% for the second quarters
of 2000 and 1999, respectively, and 7.8% and 8.2% for the six months ended July
1, 2000 and June 26, 1999, respectively.

RESTRUCTURING CHARGE: During the second quarter of 1999, the Company recognized
a $4.6 million restructuring charge, principally representing severance costs
associated with employee reductions in connection with the Reorganization. The
charge also includes a $0.5 million impairment loss related to assets located in
a plastics facility which was closed as part of the Reorganization.

INTEREST EXPENSE: Interest expense, net of interest income of $0.8 million and
$0.6 million for the second quarter of 2000 and 1999, respectively, increased
$1.4 million to $24.4 million for the second quarter of 2000. For the six months

I-14

<PAGE> 16

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

ended July 1, 2000, interest expense, net of interest income of $1.4 million for
the six months ended July 1, 2000 and June 26, 1999, increased $4.7 million to
$49.5 million. These increases in interest expense are primarily attributed to
higher average interest rates and higher average debt balances than in the
comparative 1999 periods. Also, on a year-to-date basis, interest expense
increased due to the impact of the additional week in the first quarter of
fiscal 2000.

LOSS ON SALE OF RECEIVABLES: The Company sells on a continuous basis, through
its Carcorp subsidiary, interests in a pool of accounts receivable. In
connection with the receivables sales, a loss of $2.0 million was recognized
during the second quarter of 2000, compared to a loss of $1.3 million for the
second quarter of 1999. The $0.7 million increase is primarily due to higher
interest rates, increased sales of eligible receivables under the facility and
hedging costs on non-U.S. dollar receivables. Losses of $5.8 million and $2.6
million were recognized for the six months ended July 1, 2000 and June 26, 1999,
respectively. During the first quarter of 2000, the Company entered into a new
accounts receivable securitization arrangement, resulting in a one-time expense
for initial fees totaling $1.6 million. The remaining year-to-date increase is
due to higher interest rates. The Company's prior securitization facility
expired in December, 1999.

OTHER EXPENSE (INCOME): The Company recognized other expense of $2.5 million in
the second quarter of 2000, compared to other income of $1.0 million in the
second quarter of 1999. The increase in other expense resulted primarily from
foreign exchange losses on the Canadian dollar, Mexican peso and British pound
sterling in 2000. For the six months ended July 1, 2000, the Company recognized
other expense of $1.4 million, compared to other expense of $1.2 million in the
comparable 1999 period.

INCOME TAXES: The Company recognized income tax expense of $6.1 million in the
second quarter of 2000 compared to income tax expense of $6.7 million in the
second quarter of 1999. For the six months ended July 1, 2000 the Company
recognized income tax expense of $11.4 million, compared to income tax expense
of $8.9 million in the comparable 1999 period. The Company's effective tax rate
was 35.5% and 55.8% in the second quarters of 2000 and 1999, respectively, and
38.7% and 53.9% for the six months ended July 1, 2000 and June 26, 1999,
respectively. The percentage decreases in the Company's reported tax rates for
the quarter and six months ended July 1, 2000 are primarily due to the impact of
one-time items, including R&D credits and state franchise tax refunds, along
with the effects of certain state taxes and non-deductible goodwill, which do
not fluctuate with income.

DISCONTINUED OPERATIONS: During the second quarter of fiscal 2000, the Company
settled environmental claims related to discontinued operations for a total of
$20 million. Of this amount, $6.6 million was recorded as income from
discontinued operations, net of income taxes of $4.4 million.

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE: The Company adopted the
provisions of Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") at the beginning of 1999. SOP 98-5 provides
guidance on the financial reporting of start-up costs and organization costs and
requires that all nongovernmental entities expense the costs of start-up
activities as these costs are incurred instead of being capitalized and
amortized. The initial impact of SOP 98-5 resulted in a charge of $8.9 million,
net of income taxes of $5.1 million.

NET INCOME (LOSS): The combined effect of the foregoing resulted in net income
of $17.7 million in the second quarter of 2000, compared to net income of $5.3
million in the second quarter of 1999. The Company recognized net income of
$24.7 million for the six months ended July 1, 2000 and a net loss of $1.2
million for the six months ended June 26, 1999.

LIQUIDITY AND CAPITAL RESOURCES

The Company and its subsidiaries had cash and cash equivalents totaling
$63.5 million and $14.0 million at July 1, 2000 and December 25, 1999,
respectively. The Company had a total of $112.5 million of borrowing
availability under its credit arrangements as of July 1, 2000. Availability as
of July 1, 2000 has been reduced by outstanding letters of credit of $16.6
million. The total was comprised of $95.6 million under the revolving credit
facility (including $47.2 million available to the Canadian Borrowers, as
hereinafter defined), and approximately $16.9 million under bank demand lines of
credit in Austria and Canada and a line of credit for certain other European
locations.

I-15

<PAGE> 17

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

On May 28, 1998, the Company entered into new credit facilities
consisting of: (i) a senior secured term loan facility in the principal amount
of $100 million payable in quarterly installments until final maturity on
December 31, 2003 (the "Term Loan A Facility"); (ii) a senior secured term loan
facility in the principal amount of $125 million payable in quarterly
installments until final maturity on June 30, 2005 (the "Term Loan B Facility"
and, together with the Term Loan A Facility and the Term Loan C Facility, as
hereinafter defined, the "Term Loan Facilities"); and (iii) a senior secured
revolving credit facility in an aggregate principal amount of up to $250 million
terminating on December 31, 2003, of which $60 million (or the equivalent
thereof in Canadian dollars) is available to two of the Company's Canadian
subsidiaries (the "Canadian Borrowers"), and of which up to $50 million is
available as a letter of credit facility (the "Revolving Credit Facility" and
together with the Term Loan Facilities, the "Credit Agreement Facilities"). On
May 13, 1999, the Company closed on a senior term loan facility in the principal
amount of $100 million, payable in quarterly installments beginning in December
1999 through final maturity in December 2005 (the "Term Loan C Facility"). The
proceeds from the Term Loan C Facility were used to pay a $44.0 million special
dividend in May, 1999, repay amounts outstanding under the Company's Revolving
Credit Facility and for general corporate purposes.

At July 1, 2000, the Company had outstanding $71.3 million under the
Term Loan A Facility, $119.0 million under the Term Loan B Facility, $97.0
million under the Term Loan C Facility, and $137.8 million under the Revolving
Credit Facility (including $12.8 million borrowed by the Canadian Borrowers).

The Credit Agreement Facilities, which are guaranteed by the Company
and its U.S. subsidiaries (subject to certain exceptions), contain restrictive
covenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities.
Effective March 8, 1999, the Company, in view of the decreased sales of
automotive fabrics and the General Motors strike in 1998, obtained an amendment
to the Credit Agreement Facilities primarily in order to modify the covenants
relating to interest coverage and leverage ratios throughout the existing terms
of the Credit Agreement Facilities. The amendment resulted generally in an
increase in the interest rates charged under the Credit Agreement Facilities.
For additional discussion of the Credit Agreement Facilities and related
restrictive covenants, see Note F to the Condensed Consolidated Financial
Statements and Note 10 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 25, 1999 (the
"10-K").

In June 1996, the Company's wholly-owned subsidiary, C&A Products,
issued at face value $400 million principal amount of 11 1/2% Senior
Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by
the Company. The Subordinated Notes indenture contains restrictive covenants
(including, among others, limitations on the incurrence of indebtedness, asset
dispositions and transactions with affiliates) which are customary for such
securities. These covenants are also subject to a number of significant
exceptions. The Company does not currently meet the Subordinated Notes
indenture's general test for the incurrence of indebtedness, and does not expect
to meet such test during the remainder of 2000. However, the Company expects all
its borrowing needs for the foreseeable future to be allowed under exceptions
for permitted indebtedness in the indenture. For additional discussion of the
Subordinated Notes, see Note 10 to the Consolidated Financial Statements
included in the 10-K.

At July 1, 2000, JPS Automotive had approximately $86.9 million of
indebtedness outstanding (including a premium of $0.9 million) related to the
JPS Automotive 11 1/8% Senior Notes due 2001 (the "JPS Automotive Senior
Notes"). On July 24, 2000, $5.9 million principal amount of the JPS Automotive
Senior Notes were repurchased by JPS Automotive on the open market and retired.
The Company is operating JPS Automotive as a restricted subsidiary under the
Credit Agreement Facilities and the indenture governing the Subordinated Notes.
For additional discussion of the JPS Automotive Senior Notes, see Note 10 to the
Consolidated Financial Statements included in the 10-K.

On December 27, 1999, the Company entered into a new receivables
facility (the "New Receivables Facility"), replacing the Company's previous
receivables facility (the "Old Receivables Facility"). The New Receivables
Facility utilizes funding provided by commercial paper conduits sponsored by
three of the Company's lenders under its Credit Agreement Facilities. Carcorp
remains the purchaser of the Sellers' trade receivables, transferring rights to
collections on those receivables to the conduits. The conduits in turn issue
commercial paper, which is collateralized by those rights. The liquidity
facilities backing the New Receivables Facility have terms of 364 days,
renewable annually for up to five years.

I-16

<PAGE> 18

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Company funded $120 million through the New Receivables Facility, leaving
approximately $12 million available, but unutilized. At July 1, 2000, $106.7
million was funded under the New Receivables Facility, resulting in the full
utilization of the facility. For further discussion of the New Receivables
Facility, see Note G to the Condensed Consolidated Financial Statements and Note
11 to the Consolidated Financial Statements included in the 10-K.

The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At July 1, 2000, the Company had
approximately $20.0 million of potential availability under this master lease
for future machinery and equipment requirements of the Company subject to the
lessor's approval. In the quarter ended July 1, 2000, the Company made lease
payments relating to continuing operations of approximately $1.4 million for
machinery and equipment sold and leased back under this master lease. The
Company expects lease payments for continuing operations under this master lease
to be approximately $3.3 million during the remainder of fiscal 2000.

The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Credit Agreement
Facilities and the sale of receivables under the New Receivables Facility. Net
cash provided by the continuing operating activities of the Company was $7.2
million for the quarter ended July 1, 2000, compared to net cash provided of
$25.9 million in the quarter ended June 26, 1999. Net cash provided by
continuing operating activities of the Company was $76.1 million for the six
months ended July 1, 2000 compared to $41.4 for the six months ended June 26,
1999. The decrease in cash provided by continuing operating activities for the
quarter ended July 1, 2000, is primarily due to a decrease in accounts payable
associated with the timing of vendor payments and a decrease in accounts
receivable collections resulting from customers delaying payments partially
offset by the increase in income from continuing operations. The increase in
cash provided by operating activities for the six months ended July 1, 2000, is
primarily due to the increase in income from continuing operations, improved
collections of accounts receivable resulting from a compensation program
implemented in 1999 which is based in part upon maximizing cash flow and
increasing asset utilization, and the release of cash collateral (reflected in
Other, net in the accompanying consolidated statement of cash flows for the six
months ended July 1, 2000) associated with the Old Receivables Facility when it
was replaced in the first quarter of fiscal 2000 partially offset by an increase
in inventory related to program launches in the fabrics and convertibles
businesses.

The Company's principal uses of funds from operating activities and
borrowings for the next several years are expected to be to fund interest and
principal payments on its indebtedness, net working capital increases, income
tax payments, costs associated with the Company's previously divested businesses
and capital expenditures. At July 1, 2000, the Company had total outstanding
indebtedness of $918.0 million (excluding short-term borrowings and
approximately $16.5 million of outstanding letters of credit) at a weighted
average interest rate of 10.4 % per annum.

The Company's Board of Directors authorized the expenditure of up to
$1.4 million in 2000 to repurchase shares of the Company's Common Stock at
management's discretion. The Company believes it has sufficient liquidity under
its existing credit arrangements to effect the repurchase program. The Company
spent approximately $140 thousand to repurchase shares during the six months
ended July 1, 2000 and $1.4 million during the six months ended June 26, 1999.

Cash interest paid was $38.1 million and $36.1 million for the quarters
ended July 1, 2000 and June 26, 1999, respectively. Cash interest paid was $48.4
million was $44.2 million for the six months ended July 1, 2000 and June 26,
1999, respectively.

Due to the variable interest rates under the Credit Agreement
Facilities and the New Receivables Facility, the Company is sensitive to changes
in interest rates. Based upon amounts outstanding at July 1, 2000 a .5% increase
in each of LIBOR and Canadian bankers' acceptance rates (6.64% and 6.59%,
respectively, at July 1, 2000) would impact interest costs by approximately $2.0
million annually on the Credit Agreement Facilities and $0.5 million annually on
the New Receivables Facility.

The current maturities of long-term debt primarily consist of the JPS
Automotive Senior Notes, the current portion of the Credit Agreement Facilities,
vendor financing, an industrial revenue bond and other miscellaneous debt. The
maturities of long-term debt of the Company's continuing operations during the
remainder of 2000 and for 2001, 2002, 2003 and 2004 are $7.8 million, $116.0
million, $32.8 million, $28.3 million and $191.7 million, respectively. The JPS
Automotive Senior Notes will mature in June, 2001. The Company plans to satisfy
the JPS Automotive Senior Notes obligation primarily with cash generated from
operations with a portion being refinanced. In addition, the Credit Agreement
Facilities provide for mandatory prepayments of the Term Loan Facilities with
certain excess cash flow of the Company, net cash proceeds of

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COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

certain asset sales or other dispositions by the Company, net cash proceeds of
certain sale/leaseback transactions and net cash proceeds of certain issuances
of debt obligations. The indenture governing the Subordinated Notes provides
that in the event of certain asset dispositions, C&A Products must apply net
proceeds (to the extent not reinvested in the business) first to repay Senior
Indebtedness (as defined, which includes the Credit Agreement Facilities) and
then, to the extent of remaining net proceeds, to make an offer to purchase
outstanding Subordinated Notes at 100% of their principal amount plus accrued
interest. C&A Products must also make an offer to purchase outstanding
Subordinated Notes at 101% of their principal amount plus accrued interest if a
Change in Control (as defined) of the Company occurs. In addition, the indenture
governing the JPS Automotive Senior Notes requires JPS Automotive to apply the
net proceeds from the sale of assets of JPS Automotive to offer to purchase JPS
Automotive Senior Notes, to the extent not applied within 270 days of such asset
sale to an investment in capital expenditures or other long term tangible assets
of JPS Automotive, to permanently reduce senior indebtedness of JPS Automotive
or to purchase JPS Automotive Senior Notes in the open market.

The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of July 1, 2000, the Company's continuing
operations had approximately $10.5 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations for fiscal 2000 will be in the range of $70 million to $75
million, a portion of which may be financed through leasing arrangements. The
Company's capital expenditures in future years will depend upon demand for the
Company's products and changes in technology.

The Company is sensitive to price movements in its raw materials supply
base. During the second quarter of 2000, prices for most of the Company's
primary raw materials remained constant with price levels at December 25, 1999.
While the Company may not be able to pass on future raw materials price
increases to its customers, it believes that a significant portion of the
increased cost can be offset by continued results of its value engineering/value
analysis in conjunction with its major customers and by continued reductions in
the cost of off-quality products and processes.

The Company has significant obligations relating to postretirement,
casualty, environmental, lease and other liabilities of discontinued operations.
In connection with the sale and acquisition of certain businesses, the Company
has indemnified the purchasers and sellers for certain environmental
liabilities, lease obligations and other matters. In addition, the Company is
contingently liable with respect to certain lease and other obligations assumed
by certain purchasers and may be required to honor such obligations if such
purchasers are unable or unwilling to do so. On January 5, 2000, Imperial Home
Decor Group, Inc., which purchased Wallcoverings in March 1998, filed voluntary
petitions for protection under Chapter 11 of the U.S. Bankruptcy Code. The
Company is currently assessing the impact of that bankruptcy filing. Management
currently anticipates that the net cash requirements of its discontinued
operations will be approximately $11.5 million for the remainder of fiscal 2000.
However, because the requirements of the Company's discontinued operations are
largely a function of contingencies, it is possible that the actual net cash
requirements of the Company's discontinued operations could differ materially
from management's estimates. Management believes that the Company's cash needs
relating to discontinued operations can be provided by operating activities from
continuing operations and by borrowings under its credit facilities.

TAX MATTERS

At December 25, 1999, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $268.1 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2019. The Company also has unused Federal tax credits of approximately $18.9
million, $6.7 million of which expire during the period 2000 to 2019.

Future sales of common stock by the Company or its principal
shareholders, or changes in the composition of its principal shareholders, could
constitute a "change in control" that would result in annual limitations on the
Company's use of its NOLs and unused tax credits. Management cannot predict
whether such a "change in control" will occur. If such a "change in control"
were to occur, the resulting annual limitations on the use of NOLs and tax
credits would depend on the value of the equity of the Company and the amount of
"built-in gain" or "built-in loss" in the Company's assets at the time of the
"change in control", which cannot be known at this time.

Management has reviewed the Company's operating results for recent
years as well as the outlook for its continuing businesses in concluding it is
more likely than not that the net deferred tax assets of $82.5 million at July
1, 2000 will be realized. A major goal of the Reorganization is to lower the
overall cost structure of the Company and

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<PAGE> 20

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

thereby increase profitability. These factors along with the timing of the
reversal of its temporary differences and the expiration dates of its NOLs were
also considered in reaching this conclusion. The Company's ability to generate
future taxable income is dependent on numerous factors, including general
economic conditions, the state of the automotive industry and other factors
beyond management's control. Therefore, there can be no assurance that the
Company will meet its expectation of future taxable income.

The valuation allowance at July 1, 2000 provides for certain deferred
tax assets that in management's assessment may not be realized due to tax
limitations on the use of such amounts or that relate to tax attributes that are
subject to uncertainty due to the long-term nature of their realization.

ENVIRONMENTAL MATTERS

The Company is subject to Federal, state and local environmental laws
and regulations that (i) affect ongoing operations and may increase capital
costs and operating expenses and (ii) impose liability for the costs of
investigation and remediation and otherwise relate to on-site and off-site
contamination. The Company's management believes that it has obtained, and is in
material compliance with, all material environmental permits and approvals
necessary to conduct its various businesses. Environmental compliance costs for
continuing businesses currently are accounted for as normal operating expenses
or capital expenditures of such business units, except for certain costs
incurred at acquired locations. Environmental compliance costs relating to
conditions existing at the time the locations were acquired are generally
charged to reserves established in purchase accounting. In the opinion of
management, based on the facts presently known to it, such environmental
compliance costs will not have a material adverse effect on the Company's
consolidated financial condition or future results of operations.

The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating contaminated sites, remediation efforts by other parties, data
released by the United States Environmental Protection Agency, the professional
judgment of the Company's environmental experts, outside environmental
specialists and other experts, and the likelihood that other parties which have
been named as PRPs will have the financial resources to fulfill their
obligations at sites where they and the Company may be jointly and severally
liable. Under the theory of joint and several liability, the Company could be
liable for the full costs of investigation and remediation even if additional
parties are found to be responsible under the applicable laws. It is difficult
to estimate the total cost of investigation and remediation due to various
factors including incomplete information regarding particular sites and other
PRPs, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. As of July 1, 2000, excluding sites at which the
Company's participation is anticipated to be de minimis or otherwise
insignificant or where the Company is being indemnified by a third party for the
liability, there are 23 sites where the Company is participating in the
investigation or remediation of the site, either directly or through financial
contribution, and 11 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of July 1, 2000, the
Company's estimate of its liability for these 31 sites, is approximately $23.3
million. As of July 1, 2000, the Company has established reserves of
approximately $38.7 million for the estimated future costs related to all its
known environmental sites. In the opinion of management, based on the facts
presently known to it, the environmental costs and contingencies will not have a
material adverse effect on the Company's consolidated financial condition or
future results of operations. However, there can be no assurance that the
Company has identified or properly assessed all potential environmental
liability arising from the activities or properties of the Company, its present
and former subsidiaries and their corporate predecessors.

During the quarter ended July 1, 2000, the Company settled claims for
certain environmental matters related to discontinued operations for a total of
$20 million. Settlement proceeds will be paid to the Company in three
installments. The first installment of $7.5 million was received on June 30,
2000, with the second and third installments of $7.5 million and $5.0 million to
be received in June 2001 and June 2002, respectively. Of the total $20 million
settlement, the Company recorded the present value of the settlement as $7.0
million of additional environmental reserves,

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<PAGE> 21

COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

based on its assessment of potential environmental exposures, and $6.6 million,
net of income taxes, as income from discontinued operations.

SAFE HARBOR STATEMENT

This Report on Form 10-Q contains statements which, to the extent they
are not historical facts, constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking
statements involve risks and uncertainties. The forward-looking statements in
this Report on Form 10-Q are intended to be subject to the safe harbor
protection provided by the Safe Harbor Acts.

Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this Report on Form 10-Q include general economic conditions in the markets in
which the Company operates and industry-based factors such as possible declines
in the North American and European automobile and light truck builds, labor
strikes at the Company's major customers, changes in consumer preferences,
dependence on significant automotive customers, the level of competition in the
automotive supply industry, pricing pressure from automotive customers and, as
well as factors such as the substantial leverage of the Company and its
subsidiaries, limitations imposed by the Company's debt facilities, changes made
in connection with the integration of operations acquired by the Company and the
implementation of the global reorganization program. The Company's divisions may
also be affected by changes in the popularity of particular vehicle models or
particular interior trim packages or the loss of programs on particular vehicle
models and risks associated with conducting business in foreign countries. For a
discussion of certain of these and other important factors which may affect the
Company's operations, products and markets, see the Company's Securities and
Exchange Commission filings, including without limitation "ITEM 1. BUSINESS" and
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" in the 10-K and above in this Form 10-Q and also see the
Company's other filings with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

For the period ended July 1, 2000, the Company did not experience any
material changes from the quantitative and qualitative disclosures about market
risk presented in the 10-K.

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<PAGE> 22

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There have been no material developments in legal proceedings involving
the Company or its subsidiaries since those reported in the Company's Report on
Form 10-K for fiscal year ended December 25, 1999.

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

On May 1, 2000, the Company held its Annual Meeting of Stockholders. At
such meeting, stockholders voted on the following matters: (1) the election of
three directors to hold office until the year 2003 Annual Meeting of
Stockholders and thereafter until their successors are elected and qualified,
(2) the approval of the amendment of certain provisions of the Company's 1994
Employee Stock Option Plan, and (3) the approval of the Company's 2000 Employee
Stock Option Plan. The results of voting were as follows:

1. Election of Directors

Nominee For Withheld Broker Nonvotes
------------------- ---------- -------- ---------------

Robert C. Clark 57,811,740 25,322 0
Marc S. Goldberg 57,811,740 25,322 0
Neil P. Simpkins 57,813,690 23,372 0

2. Approval of the Amendment of the 1994 Employee Stock Option Plan

For Against Abstain Broker Nonvotes
------------------- ---------- -------- ---------------

54,937,448 648,287 410 2,250,917

3. Approval of the 2000 Employee Stock Option Plan

For Against Abstain Broker Nonvotes
------------------- ---------- -------- ---------------

54,937,448 648,287 410 2,250,917

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

Please note that in the following description of exhibits, the title of
any document entered into, or filing made, prior to July 7, 1994 reflects the
name of the entity a party thereto or filing, as the case may be, at such time.
Accordingly, documents and filings described below may refer to Collins & Aikman
Holdings Corporation, Collins & Aikman Group, Inc. or Wickes Companies, Inc., if
such documents and filings were made prior to July 7, 1994.

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

3(i).1 - Restated Certificate of Incorporation of Collins & Aikman
Corporation and Amendment thereto is hereby incorporated by
reference to Exhibit 3.1 of Collins & Aikman Corporation's Report
on Form 10-Q for the fiscal quarter ended June 26, 1999.

3(i).2 - Certificate of Elimination of Cumulative Exchangeable Redeemable
Preferred Stock of Collins & Aikman Corporation is hereby
incorporated by reference to Exhibit 3.3 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended
October 28, 1995.

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<PAGE> 23

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

3(ii) - By-laws of Collins & Aikman Corporation, as amended, are hereby
incorporated by reference to Exhibit 3.2 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended
January 27, 1996.

Collins & Aikman Corporation agrees to furnish to the Commission
upon request in accordance with Item 601 (b)(4) (iii) (A) of
Regulation S-K copies of instruments defining the rights of
holders of long-term debt of Collins & Aikman Corporation or any
of its subsidiaries, which debt does not exceed 10% of the total
assets of Collins & Aikman Corporation and its subsidiaries on a
consolidated basis.

10.1 - Employment Agreement dated as of March 29, 2000 between Collins &
Aikman Products Co. and an executive officer is hereby
incorporated by reference to Exhibit 10.1 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended
April 1, 2000.

10.2 - Change in control agreement dated as of April 2000, between
Collins & Aikman Corporation and an executive officer.

10.3 - Employment agreement dated as of April 1, 2000, between Collins &
Aikman Products Co. and an executive officer.

10.4 - Change in control agreement dated as of April 1, 2000, between
Collins & Aikman Products Co. and an executive officer.

10.5 - Collins & Aikman Products Co. 2000 Executive Incentive
Compensation Plan.

10.6 - 2000 Employee Stock Option Plan.

11 - Computation of Earnings Per Share.

27 - Financial Data Schedule.

(b) Reports on Form 8-K
During the quarter for which this Report on Form 10-Q is being filed, the
Company filed no reports on Form 8-K.

II-2

<PAGE> 24

SIGNATURE

Pursuant to the requirements 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.

Dated: August 14, 2000

COLLINS & AIKMAN CORPORATION
(Registrant)

By: /s/ Rajesh K. Shah
-------------------------------------------
Rajesh K. Shah
Chief Financial Officer and
Executive Vice President

(On behalf of the Registrant and as Principal
Financial and Chief Accounting Officer)