NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements which do not include all the information and footnotes required by generally accepted accounting principles in the United States of America for complete annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 2001 annual report filed on Form 10-K with the Securities and Exchange Commission, which includes consolidated financial statements for the fiscal year ended December 29, 2001. Operating results for the three and nine month periods ended September 28, 2002 are not necessarily indicative of the results that may be expected for the entire 2 002 year.

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB (Financial Accounting Standards Board) issued SFAS (Statement of Financial Accounting Standards) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 became effective for the Company on December 30, 2001 and did not materially impact the Company's financial statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers", FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements", and amends FASB Statement No. 13, "Accounting for Leases." SFAS No. 145 addresses the treatment of gains and losses that are related to debt extinguishments and that should only be classified as extraordinary items if they meet certain criteria. The provisions of this Statement became effective beginning May 15, 2002. The financial statements included herein reflect the adoption of SFAS No. 145.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this Statement is not expected to have a significant impact on the Company's financial statements.

NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS

As of December 30, 2001, the Company adopted SFAS No. 142 which provides that goodwill and certain other intangible assets no longer will be amortized and requires the Company to evaluate its goodwill for impairment on at least an annual basis. During the second quarter of 2002, the Company tested its goodwill for impairment and determined that there was no impairment. The Company expects to evaluate goodwill for impairment during the fourth quarter of each year. At September 28, 2002, the Company's unamortized goodwill amounted to $99,303, representing 21.9% of total assets and 87.6% of total equity. The following table presents the Company's net income assuming goodwill had not been amortized during the three and nine months ended September 29, 2001.

On May 14, 2002, the Company entered into a senior revolving credit and term loan facility to replace its 1998 senior credit facility and its accounts receivable securitization program. The credit agreement provides the lender with a security interest in substantially all of the Company's assets, contains financial covenants relating to fixed charges, debt and net worth and among other matters, limits future acquisitions, capital expenditures, and does not permit the payment of dividends. The new credit facility provides revolving credit of up to $110,000 through a five-year commitment period and a $40,000 term loan. Borrowing availability under the revolving credit facility is limited by the level of the Company's accounts receivable and inventory. The term loan became payable in quarterly installments of $1,429 beginning August 1, 2002 and is due in May 2007. Interest rates available under the facility may be selected from a number of options that effectively allow for b orrowing at rates ranging from the lender's prime rate of the lender's prime rate plus 1% for base rate loans, or at rates ranging from LIBOR plus 2.25% to LIBOR plus 3.50% for LIBOR loans.

Commitment fees, ranging from .375% to .50% per annum are payable on the average daily unused balance of the revolving credit facility. At September 28, 2002, the borrowing availability under the existing credit facility was $22,951.

NOTE G - DERIVATIVE FINANCIAL INSTRUMENTS

The Company is party to an interest rate swap arrangements, effective through March 11, 2005, under which the Company pays a fixed rate of interest times a notional principal amount of $70,000, and receives in return an amount equal to a specified variable rate of interest times the same notional principal amount. The fixed interest rate per the arrangement is 6.75% through March 10, 2003 and 3.4% thereafter. The average variable rate related to the portion of the arrangement expiring on March 10, 2003 was 1.81%, at September 28, 2002 and 1.83% for the arrangement, entered into in October 2002, that becomes effective on March 11, 2003. These arrangements are considered a highly effective hedge for accounting purposes as of September 28, 2002. The arrangements' estimated fair value as of September 28, 2002 was a liability of approximately $1,698, which is recorded in current liabilities with an offset to other comprehensive loss, net of applicable income taxes (See Note H).

NOTE H - COMPREHENSIVE INCOME

NOTE I - EARNINGS PER SHARE

NOTE J - SEGMENT INFORMATION

The Company has two reportable segments in its continuing operations: carpet manufacturing and floorcovering base materials. Each reportable segment is organized around product similarities. The carpet manufacturing segment contains three operating businesses that manufacture and sell finished carpet and rugs. The floorcovering base materials segment manufactures and sells yarn to external customers and transfers a significant portion of its unit volumes to the Company's carpet manufacturing segment.

The profit performance measure for the Company's segments is internal EBIT (earnings before interest, taxes, and other non-segment items). Assets measured in each reportable segment include long-lived assets and goodwill, inventories, and accounts receivable.

Allocations of corporate, general and administrative expenses are used in the determination of segment profit performance; however, assets of the corporate departments are not used in the segment asset performance measurement.

The first nine months of 2002 included pre-tax gains of approximately $6,900 principally from the sale of the Company's carpet yarn extrusion facility, pre-tax charges of $4,087, principally related to long-lived asset impairments, and a $2,769 write-off of deferred financing costs associated with replacement of the Company's senior credit facility. These unusual gains and losses were offsetting and had no significant net effect on the Company's operating results. The first nine months of 2001 included charges of $1,453 ($900 after-tax), or $0.08 per diluted share, related to workforce reductions and asset write-offs.

Net Sales. Net sales for the quarter ended September 28, 2002 were $125,680, down 5.0% from $132,289 for the quarter ended September 29, 2001. Net sales for the nine months ended September 28, 2002 were $388,981 compared with $410,864 for the first nine months of 2001, a decline of 5.3%.

Carpet manufacturing sales declined 2.8% in the quarter and nine-month periods ended September 28, 2002 compared with the same periods in the prior year. Lower sales in 2002 are primarily attributable to soft sales to our home center / mass merchant markets. Sales to higher-end markets continued to gain momentum and showed positive comparisons to the prior year in the third quarter, although high-end commercials markets continued to be slow. Sales to the factory-built and modular-housing markets grew due to increasing demand for modular and aftermarket products during the quarter.

Carpet yarn sales were down 26.5% in the quarter ended September 28, 2002 and 27.9% for the first nine months of 2002, compared with the same periods in 2001. The lower carpet yarn sales reflect our continued de-emphasis of external carpet yarn business in favor of supplying yarn to our carpet operations, softness in external carpet yarn markets and, to a lesser extent, the sale of our extrusion business in May 2002.

The dollar volumes and percentages of our net sales to The Home Depot were approximately $14,825, or 11.8% in the three months ended September 28, 2002, $55,792, or 14.3% in the nine months ended September 28, 2002. The loss of The Home Depot business could have a material adverse effect on our operations.

We believe we are the largest supplier of carpet to the factory-built housing industry, with approximately 20% of our total net sales to customers in this industry. The factory-built housing industry appears to continue to be negatively affected by soft sales, financing issues for sales at retail, high percentages of repossessed homes, a weak economy and difficult access to capital. We believe we have adequately provided for our credit risk at September 28, 2002; however, continued deterioration of the factory-built housing industry could have a negative impact on our operations and could materially increase credit losses.

Cost of Sales. Despite softness in sales and increased raw material cost, cost of sales decreased significantly in both our carpet manufacturing and carpet yarn operations. As a result, our gross margin increased to 24.5% and 23.9% of sales respectively for the three and nine-month periods ended September 28, 2002, compared with 22.2% and 21% of sales respectively for the three and nine-month periods ended September 29, 2001. The improvement is principally attributable to lower manufacturing costs that reflect the benefits to our cost structure of consolidating our North Georgia carpet operations. The consolidation reduced our workforce and improved efficiencies and asset utilization. Margins also improved due to growth in sales of higher margin products.

Selling and Administrative Expenses. Excluding the effects of $721 of severance recorded in the first quarter of 2001, selling and administrative expenses decreased $959 and $2,279, respectively in the quarter and nine month periods ended September 28, 2002, compared with the same reporting periods in 2001. These costs as a percentage of sales were slightly higher in 2002 as a result of lower sales.

Other (Income) Expense - Net. Other (income) expense - net reflected an improvement of $2,173 for the nine months ended September 28, 2002 compared with the nine months of 2001. The lower cost in 2002 is principally due to the elimination of goodwill amortization and the reduction in expenses associated with the Company's accounts receivable securitization program in 2002, which was terminated in May of this year.

Interest Expense. Interest expense decreased in the quarter and nine months ended September 28, 2002 compared with the same periods in 2001 due to lower levels of debt.

Income Tax Provision (Benefit). Our effective income tax rate was 37.1% and 37.8% for the three and nine month periods ended September 28, 2002, respectively, and 48.6% and a benefit of 34.0% for the three and nine month periods ended September 29, 2001, respectively. The change in the effective tax rates is principally due to the relationship of certain costs that are not deductible for income tax purposes to pre-tax earnings in each of these reporting periods.

LIQUIDITY AND CAPITAL RESOURCES

On May 14, 2002, we entered into a secured revolving credit and term-loan facility with a new group of lenders to replace our prior senior credit facility and our accounts receivable securitization program. The new credit facility provides revolving credit of up to $110,000 through a five-year commitment period and a $40,000 term-loan. The level of our accounts receivables and inventories limit borrowing availability under the revolving credit facility. The term-loan became payable in quarterly installments of $1,429 beginning August 1, 2002 and is due in May 2007. We may select Interest rates under the new credit facility from a number of options that effectively allow for borrowing at rates ranging from the lender's prime rate to the lender's prime rate plus 1.0% for base rate loans, or at rates ranging from LIBOR plus 2.25% to LIBOR plus 3.5% for LIBOR loans. Commitment fees, ranging from .375% to .50% per annum are payable on the average daily unused balance of the revolving credit facility. On Septe mber 28, 2002, the borrowing availability under the revolving credit facility was $22,951.

During the first nine months of 2002, our operations generated $15,282 of funds (excluding $25,951 associated with termination of the Company's accounts receivable securitization program in May 2002). These funds and $31,516 of proceeds from asset sales were used to finance $5,644 of capital expenditures, decrease debt by $38,399 (including amounts advanced under our accounts receivable securitization program) and fund our operations.

During the first nine months of 2002, capital expenditures were $5,644 while depreciation and amortization was $16,993. We expect capital expenditures to be less than $8,000 for the fiscal year 2002, while depreciation and amortization is expected to be approximately $22,000.

In May 2002, we sold our extrusion manufacturing facility for $30,800 and entered into a three-year supply agreement with the purchaser of the facility. Net proceeds from the sale were used to reduce debt.

Fabrica's sales in 2002 reached the levels that will require us to pay an additional $50,000 of consideration due April 1, 2003 under the terms of the original acquisition agreement. Accordingly, we treated the additional acquisition cost as goodwill and recognized a current liability in the amount of the contingent consideration in our balance sheet.

The Fabrica acquisition agreement also provides for an additional contingent amount of up to $2,500 to be paid in April 2005 if Fabrica's cumulative earnings before interest and taxes for the five-year period beginning January 2000 exceed certain levels. We expect that any contingent payments that may become due under the cumulative earnings test would be treated as additional costs of the acquisition.

The purchase price for our interest in Chroma Systems Partners in 2000 is subject to an adjustment generally equal to our share of Chroma's income or loss for the three years ending June 30, 2003, less $1,800. A significant portion of the amounts due by us as a result of this adjustment is paid monthly.

Our ownership interest in Fabrica and Chroma secures our obligation to make these contingent payments.

In accordance with the 1999 acquisition of Multitex Corporation of America, Inc ("Globaltex"), we have certain contingent payment obligations related to revenue growth of a specific customer through 2003. Such payments have been $1,491, $1,561, and $252 for the fiscal years ended 2001, 2000 and 1999, respectively.

We believe operating cash flows and credit availability under the new senior credit facility are adequate to finance our normal liquidity requirements. However, the Fabrica purchase contingency due in April 2003, will require supplemental financing or other sources of liquidity. Our improved operating results and lower debt levels have enhanced our financial flexibility and created financing options that were not available to us earlier in the year. We are considering various financing alternatives to satisfy the Fabrica obligation. The availability and pricing of any such alternatives will be subject to future market conditions and there can be no assurance that other sources of funding can be obtained or will be obtained on terms favorable to us.

ACCOUNTING PRONOUNCEMENTS

We completed our analysis of the carrying value of goodwill beginning fiscal 2002 pursuant to Statement of Financial Standard No. 142. The analysis indicated that the enterprise value for each of our operating units exceeded their related carrying value and therefore there was no impairment of goodwill. Goodwill and intangible assets are subject to annual impairment testing which are based on determining the fair value of the specified reporting units. Judgments and assumptions are used to derive the fair values of the respective reporting units. A material change in these judgments and assumptions could change the value of the specified reporting units and therefore could materially impact our consolidated financial statements.

In October 2001, the FASB (Financial Accounting Standards Board) issued SFAS (Statement of Financial Accounting Standards) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 became effective for us on December 30, 2001 and did not materially impact our financial statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers", FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements", and amends FASB Statement No. 13, "Accounting for Leases." SFAS No. 145 addresses the treatment of gains and losses related to debt extinguishments and should only be classified as extraordinary items if they meet certain criteria. The provisions of this Statement are effective beginning May 15, 2002. The financial statements included herein reflect the adoption of SFAS No. 145.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." This statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this statement is not expected to have a significant impact on our financial statements.


CERTAIN FACTORS AFFECTING THE COMPANY'S PERFORMANCE

In addition to the other information provided in this Form 10-Q, the following risk factors should be considered when evaluating results of operations, future prospects and an investment in shares of the Company's Common Stock. Any of these factors could cause the Company's actual financial results during any period to differ materially from historical results, and could give rise to events that might have a material adverse effect on the Company's business, financial condition and results of operations.


The floorcovering industry is cyclical and prolonged declines in residential or commercial construction activity, corporate remodeling and refurbishments, or in the factory-built housing industry, could have a material adverse effect on our business.


The U.S. floorcovering industry is cyclical and is influenced by a number of general economic factors. The floorcovering industry in general is dependent on residential and commercial construction activity, including new construction as well as remodeling. In addition, sales of certain of the Company's principal products are significantly influenced by sales of factory-built housing, recreational vehicles and yachts. New construction activity, as well as sales in the factory-built housing, recreational vehicle and yachting industries, all are cyclical in nature. To a somewhat lesser degree, this also is true with residential and commercial remodeling. A prolonged decline in any of these industries could have a material adverse effect on the Company's business, financial condition and results of operations. The level of activity in these industries is significantly affected by numerous factors, all of which are beyond the Company's control, including: