## Management’s Discussion and Analysis of Results of Operations and Financial Condition 

(dollars in thousands) 

## RESULTS OF OPERATIONS 

During the three-year period ended December 29, 2001, the Company acquired Fabrica International (together with a 50% interest in Chroma Systems Partners), Multitex Corporation of America, Inc. ("Globaltex"), and Graphic Technologies, Inc. The Company’s textile knit fabric and apparel and specialty yarn businesses were sold in 1999. The Company's business now consists entirely of manu- facturing, selling and distributing finished carpet, rugs and carpet yarns. 

The Company’s floorcovering businesses are segmented between carpet manufacturing, including rugs, and floorcovering base materials (carpet yarns). Its carpet manufacturing operations supply carpet and rugs to higher-end residential and commercial customers serviced by Masland Carpets and Fabrica International. Its North Georgia carpet manufacturing operations supply tufted and needlebond floor- covering products to the factory-built housing, recreational vehicle and exposition tradeshow markets through Carriage Carpets and to consumers through major retailers under the Bretlin, Globaltex, and Alliance Mills names. Its floorcovering base materials operations supply extruded, plied and heat-set filament, and spun yarns to the Company’s carpet manufacturing segment and, to a lesser extent, to specialty carpet yarn markets through Candlewick Yarns. 

In 1999 and early in 2000, the Company's yarn operations were realigned and its yarn and extrusion capacity expanded. Also, during the early part of 2000, the Company identified a number of prob- lems in its North Georgia operations and developed a strategy to address these problems and to substantially reduce debt and operating cost. Implementation, which began in mid-2000, resulted in the consolidation of three tufting operations into one facility, three dyeing operations into one facility, and multiple distribution centers into one. The Company also sold its two smaller dyeing facilities and combined three information systems. The strategy is continuing and, by the end of the year 2001, included the following results: reductions of 25% in workforce, 26% in inventories and 27% in debt (including amounts advanced under the Company’s accounts receivable securitization program). In early 2002, the Company closed a small carpet yarn plant in California and moved its carpet yarn administrative offices to Calhoun to be located with the Company’s other North Georgia operations. The yarn produced in the California facility can be more efficiently produced in the Company’s larger plants in the Southeast. 

2001 Compared to 2000 – The Company's 2001 fiscal year included 50 operating weeks versus 51 operating weeks in 2000. Sales decreased 6% to $534,598 in 2001 compared to 2000. The acquisition of Fabrica in July 2000 increased carpet sales by $26,401 in 2001 compared with 2000. Excluding Fabrica’s sales and adjusting for the difference in the number of operating weeks in 2001 versus 2000, carpet sales declined 5.9% and floorcovering base materials sales to external customers declined 31%. The most significant decline in 2001 carpet sales was in the factory-built housing market, where sales declined over 20%. The Company believes the factory-built housing industry is recovering from a two- year slump in which this industry’s production declined approximately 40%. The Company's sales to the factory-built housing industry increased in the fourth quarter of 2001 compared with the prior year. 

The decline in the Company's floorcovering base materials sales was principally the result of softness in demand for carpet yarns throughout the carpet industry. Approximately 70% of the Company’s carpet yarn production was utilized by the Company's carpet manufacturing operations in 2001. 

The dollar volumes and percentages of the Company's net sales to The Home Depot were approxi- mately $82,000, or 15%, in 2001, $85,000, or 15%, in 2000, and $56,000, or 9%, in 1999. The loss of The Home Depot business could have a material adverse effect on the Company’s operations. 

