SECURITIESTable ANDof EXCHANGE COMMISSION Contents

~~Washington~~UNITED ~~D.C.~~STATES ~~20549~~

~~FORM~~SECURITIES ~~10-K~~ AND EXCHANGE COMMISSION

xWashington ~~Annual~~D.C. ~~Report~~20549 ~~Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~For~~FORM ~~the~~10-K ~~Fiscal Year Ended January 25, 2003~~

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

~~Commission~~For ~~File~~the ~~Number~~Fiscal ~~333-88212~~Year Ended January 28, 2006

~~COLLINS~~¨ &Transition ~~AIKMAN~~Report ~~FLOORCOVERINGS,~~Pursuant ~~INC.~~to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~(Exact~~Commission ~~name~~File ofNumber ~~registrant~~333-88212 ~~as specified in its charter)~~

Delaware		58-2151061
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
311 Smith Industrial Boulevard, Dalton, Georgia		30721
(Address of principal executive offices)		(Zip Code)

COLLINS & AIKMAN FLOORCOVERINGS, INC.

~~Registrant’s~~(Exact ~~telephone~~name ~~number,~~of ~~including~~registrant ~~area~~as ~~code:~~specified ~~(706)~~in ~~259-9711~~its charter)

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

Delaware

58-2151061

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

~~Securities~~311 ~~registered~~Smith ~~pursuant~~Industrial toBoulevard Section 12(g) of the Act: None*

*The Issuer filed a registration statement on Form S-4 (Registration No. 333-88212) effective pursuant to the Securities Act of 1933Dalton, asGeorgia ~~amended,~~30721 ~~on August 12, 2002. Accordingly, the Issuer files this report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended, and Rule 15(d)-1 of the regulations thereunder.~~

~~Indicate by check mark whether the Registrant~~ (1)Address ~~has filed all reports required to be filed by Section 13 or 15(d)~~ of ~~the~~principal ~~Securities~~executive ~~Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports~~offices)~~, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨~~

~~Indicate~~(706) ~~by check if disclosure of delinquent filers pursuant to Item 405 of Regulation S~~259-K9711 is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

~~Indicate by check mark whether the registrant is an accelerated filer~~ (asRegistrant’s ~~defined~~telephone innumber, ~~Rule~~including ~~12b-2~~area ~~of the Exchange Act~~code)~~. Yes ¨ No x~~

AsSecurities ofregistered ~~April~~pursuant ~~24,~~to ~~2003,~~Section 12 ~~1,000 shares~~ (b) of the ~~Registrant’s~~Act: ~~common stock, no par value, were outstanding and held entirely by Tandus Group, Inc.~~ None ~~of the Registrant’s common stock was held by non-affiliates.~~

~~Documents~~Securities ~~incorporated~~registered ~~by reference~~pursuant to Section 12(g) of the Act: None.*

~~PART~~* IThe Issuer filed a registration statement on Form S-4 (Registration No. 333-88212) effective pursuant to the Securities Act of 1933, as amended, on August 12, 2002. Accordingly, the Issuer files this report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended, and Rule 15(d)-1 of the regulations thereunder.

~~Item~~Indicate 1by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ~~Business~~Yes ¨ No x

~~General~~Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

~~Based~~Indicate onby ~~annual~~check ~~sales~~mark ~~and~~whether ~~product brands, Collins & Aikman Floorcoverings, Inc. (~~the ~~“Company”), a Delaware corporation~~Registrant ~~incorporated in 1995, is a leading manufacturer of floorcovering products for the North American specified commercial carpet market. The Company’s floorcovering products include~~ (i1) has ~~vinyl-backed~~filed ~~six-foot~~all ~~roll~~reports ~~carpet~~required and modular carpet tile, and (ii) high style tufted and woven broadloom carpet. The Company designs, manufactures and markets its C&A, Monterey and Crossley brands under the “Tandus Group” name, for a wide variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. Because of the Company’s diversity of its end markets, management believes its business tends to be ~~less~~filed ~~cyclical~~by ~~than~~Section 13 ~~that~~or of15(d) ~~many~~ of ~~its competitors, which rely more heavily on~~ the ~~corporate~~Securities ~~market.~~Exchange ~~The~~Act ~~ability to provide a “package~~ of ~~product~~1934 ~~offerings”~~during ~~coupled with flexible distribution channels, allows~~ the ~~Company~~preceding to12 ~~provide~~months a(or ~~wide array of floorcovering solutions~~ for ~~each~~such ofshorter ~~its~~period ~~customers. Management believes~~ that the ~~Company~~Registrant ~~distinguishes~~was ~~itself~~required ~~from~~to ~~its~~file ~~competitors~~such ~~by offering superior product technologies~~reports), ~~leading design capabilities, a broad product offering, exceptional customer-focused services, flexible distribution channels~~ and ~~the most advanced~~ ~~recycling~~(2) has ~~program~~been insubject ~~the~~to ~~industry.~~such ~~The~~filing ~~Company~~requirements isfor ~~headquartered in Georgia, with additional locations in California, Canada,~~ the ~~United~~past ~~Kingdom,~~90 ~~and Singapore~~days. Yes x No ¨

WeIndicate ~~believe~~by ~~that~~check ~~our~~mark ~~C&A~~if ~~brand~~disclosure ~~holds~~of ~~the~~delinquent ~~number~~filers ~~one~~pursuant ~~market~~to ~~position~~Item 405 inof Regulation ~~six~~S-~~foot~~K ~~roll~~is ~~carpet~~not contained herein, and iswill ~~among~~not ~~the~~be ~~leading~~contained, ~~brands~~to ~~within~~ the ~~modular~~ ~~carpet~~best ~~tile market. Our C&A brand products are highly regarded as a result~~ of ~~their~~registrant’s ~~appearance retention~~knowledge, ~~comfort~~in ~~under~~definitive ~~foot,~~proxy ~~installation~~or ~~ease,~~information ~~longer~~statements ~~useful~~incorporated ~~life~~by ~~and~~reference ~~advanced~~in ~~backing~~Part ~~technology,~~III ~~which~~of ~~includes~~this ~~our~~Form ~~RS “peel & stick” adhesive system for vinyl~~10-~~backed~~K ~~product~~or ~~installation,~~any ~~our~~amendment ~~ER3~~to ~~carpet~~this ~~recycling technology and our six~~Form 10-~~foot vinyl cushion backing~~K. x

~~Our~~Indicate ~~Monterey~~by ~~brand~~check ismark awhether ~~recognized design leader in~~ the ~~high-style,~~Registrant ~~fashion-oriented~~is ~~sector~~a oflarge ~~the~~accelerated ~~commercial~~filer, ~~broadloom~~an ~~carpet~~accelerated ~~market~~filer, ~~due~~or toa ~~its~~non-accelerated ~~creative~~filer ~~designs~~(as ~~and~~defined ~~intricate~~by ~~patterns~~Rule in12b-2 ~~a wide variety~~ of ~~colors,~~the ~~textures,~~Act). ~~pile~~Large ~~heights~~accelerated ~~and~~filer ¨ Accelerated filer ¨ Non-Accelerated ~~densities.~~filer x

~~Our~~Indicate ~~Crossley~~by ~~brand~~check ismark awhether ~~recognized leader in Canada in~~ the ~~tufted~~Registrant ~~and~~is ~~woven~~a ~~broadloom~~shell ~~commercial~~company ~~carpet~~(as ~~markets.~~defined ~~The~~in ~~Crossley~~Rule ~~brand uses its crossweave looms to produce high~~12b-~~quality~~2 ~~woven products in a wide variety~~ of ~~styles and patterns to meet~~ the ~~needs~~Exchange ~~of interior design professionals~~Act). Yes ¨ No x

~~Prior~~As toof ~~February 6~~April 27, ~~1997~~2006, ~~the Company was a wholly owned subsidiary of Collins & Aikman Floor Coverings Group~~1,000 ~~Inc.~~shares ~~(“C&A Group”), a wholly owned subsidiary~~ of ~~Collins~~the &Registrant’s ~~Aikman~~common ~~Products Co. (“C&A Products”)~~stock, apar ~~wholly~~value ~~owned subsidiary of Collins & Aikman Corporation~~$.01 Onper ~~February 6~~share, ~~1997,~~were ~~pursuant~~outstanding toand anheld ~~agreement~~entirely ~~entered~~by ~~into~~Tandus ~~among CAF Holdings~~Group, Inc. ~~(“Holdings”),~~None ~~a corporation sponsored by Quad-C, Inc. (“Quad-C”), a Virginia merchant banking firm, and Paribas Principal Partners (“Paribas”), the United States private equity group~~ of ~~Paribas, CAF Acquisition Corporation (“CAF”), a wholly owned subsidiary of Holdings,~~ the ~~Company~~Registrant’s ~~and~~common ~~C&A Products, CAF purchased all of the issued and outstanding capital~~ stock ~~of Collins & Aikman Floor Coverings, Inc. from C&A Group for $197.0 million (including $27.0 million in consideration of a tradename license agreement) which~~ was ~~reduced to~~held ~~$195~~by non-affiliates.6 ~~million after a $1.4 million working capital adjustment (the “Floorcoverings Acquisition”).~~

OnDocuments ~~January~~incorporated ~~25, 2001, our parent company was acquired in a recapitalization transaction~~ by anreference: ~~investor group led by OCM Principal Opportunities Fund II, L~~None.P. (“Oaktree Fund”), Banc of America Capital Investors (“BACI”) and members of our senior management. The recapitalization was financed through a cash investment by Oaktree Fund, BACI and other investors of $192.5 million, senior bank borrowings of $209.0 million and “rollover” equity of $38.4 million by certain existing stockholders, including members of our senior management team.

OaktreeTable Fund is the private equity investment group of Oaktree Capital Management, LLC, a Los Angeles-based private investment firm, with offices in New York, London, Tokyo and Singapore, that manages Contents

1 TABLE OF CONTENTS

approximately $25.0 billion in private equity and certain other niche investments for institutions and wealthy individuals. Oaktree Fund and its predecessor funds focus on investments for control or significant influence through both equity and distressed debt investing.


			Page
Cautionary Statement Regarding Forward-Looking Statements

Part I.
	Item 1.	Business	1
	Item 1A.	Risk Factors	8
	Item 1B.	Unresolved Staff Comments	9
	Item 2.	Properties	9
	Item 3.	Legal Proceedings	9
	Item 4.	Submission of Matters to a Vote of Security Holders	10

Part II.
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
	Item 6.	Selected Financial Data	12
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	25
	Item 8.	Financial Statements and Supplementary Data	27
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	67
	Item 9A.	Controls and Procedures	67
	Item 9B.	Other Information	67

Part III.
	Item 10.	Directors and Executive Officers of the Registrant	68
	Item 11.	Executive Compensation	71
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	76
	Item 13.	Certain Relationships and Related Transaction	77
	Item 14.	Principal Accounting Fees and Services	78

Part IV.
	Item 15.	Exhibits and Financial Statement Schedules	79

Signatures

BACITable is a division of Bank of America’s $5.0 billion Principal Investing unit. With 32 investment professionals in Chicago and Charlotte, BACI has made more than $1.0 billion of direct private equity and mezzanine investments buyouts, recapitalizations, and growth financings. Contents

~~On May 8, 2002, CAF Extrusion, Inc. (“Extrusion”), a wholly-owned subsidiary, acquired a yarn extrusion manufacturing plant~~ ~~located~~Cautionary inStatement ~~Calhoun,~~Regarding Georgia for approximately $32.4 million. In addition, Extrusion purchased the real property on which the plant is located from a third party for approximately $2.4 million. The acquisition was funded from cash on hand. In connection with the transaction, Extrusion entered into a threeForward-~~year~~Looking ~~supply~~Statements agreement with the seller of the manufacturing plant. Extrusion will be a non-exclusive supplier to the seller, and is to make available certain quantities of product at predetermined prices defined in the supply agreement, which is adjusted quarterly to reflect changes in the actual manufacturing costs. As a result of this acquisition, the Company will have a portion of its primary raw material internally produced at significant lower costs than the Company has historically procured from the open market. In addition, the lower cost raw material is expected to allow each operating brand to expand its focus into additional markets.

WeCollins & ~~estimate~~Aikman ~~that~~Floorcoverings, ~~the U~~Inc.S., ~~commercial~~together ~~carpet~~with ~~market~~its subsidiaries, ~~which~~unless ~~is comprised~~the ofcontext implies otherwise (“the ~~specified~~Company”), ~~and~~has ~~non~~made in this Form 10-~~specified~~K ~~segments,~~and ~~generated~~from ~~sales~~time ofto ~~approximately~~time ~~$3.5~~may ~~billion~~make inwritten ~~2002~~and oral forward-looking statements. WeWritten ~~focus~~forward-looking onstatements may appear in documents filed with the ~~specified~~Securities ~~commercial~~and ~~carpet~~Exchange ~~market~~Commission, ~~which~~in wepress ~~estimate~~releases ~~represented~~and ~~approximately~~in $2reports to investors.6 ~~billion~~The Private Securities Litigation Reform Act of ~~the~~1995 ~~total~~contains Ua safe harbor for forward-looking statements.S. ~~commercial carpet~~The ~~market~~Company relies on this safe harbor in ~~2002~~making such disclosures. InAll ~~the~~statements ~~specified~~contained ~~commercial~~in ~~carpet~~this ~~market~~Annual Report on Form 10-K as to future expectations and financial results including, ~~products~~but ~~are~~not ~~manufactured~~limited to, statements containing the ~~specifications~~words of“plans,” ~~architects~~“believes,” “intends,” ~~designers~~“anticipates,” ~~and~~“expects,” ~~owners~~“projects,” as“should,” ~~compared~~“will” toand ~~the~~similar ~~non-specified~~expressions, ~~market~~should inbe ~~which~~considered ~~products~~forward-looking ~~are~~statements ~~purchased~~subject ~~off-~~to the~~-shelf~~ safe harbor. The ~~key~~forward-looking ~~competitive~~statements ~~factors~~are inbased ~~the~~on ~~specified~~management’s ~~carpet~~current ~~market~~beliefs ~~are~~and ~~product~~assumptions ~~durability~~about expectations, ~~appearance retention~~estimates, ~~product~~strategies ~~design~~ and ~~service,~~projections ~~rather~~for ~~than~~the ~~price~~Company. WeThese statements are ~~well-positioned~~not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to ~~capitalize~~predict. onTherefore, ~~positive~~actual ~~trends~~outcomes ~~within~~and ~~the~~results ~~specified~~may ~~commercial~~differ ~~carpet~~materially ~~market~~from what is expressed or forecasted in such forward-looking statements. The risks, ~~including~~ ~~(1)~~uncertainties ~~six~~and assumptions regarding forward-~~foot~~looking statements ~~roll~~include, ~~carpet~~but ~~continuing~~are not limited to, ~~gain~~product demand and market ~~share~~acceptance ~~from~~risks; ~~other~~product ~~floorcoverings~~development inrisks, ~~end~~such ~~markets~~as delays or difficulties in ~~which~~developing, itproducing ~~has~~and ~~distinct~~marketing ~~performance~~new ~~advantages~~products; the impact of competitive products, ~~such~~pricing asand advertising; ~~ease~~constraints resulting from the financial condition of ~~maintenance~~the Company, ~~appearance~~including ~~retention~~the degree to which the Company is leveraged; cycles in the construction and ~~longer~~renovation ~~useful~~of ~~life~~commercial and institutional buildings; ~~(2)~~failure ~~modular~~to ~~carpet~~retain senior ~~tile~~executives ~~increasingly~~and ~~being~~other ~~used~~qualified ~~for~~personnel; unanticipated termination or interruption of the ~~office~~Company’s ~~market~~arrangement ~~instead~~with its primary third-party supplier of ~~other~~nylon ~~flooring~~yarn; ~~surfaces~~debt ~~due~~service torequirements ~~increased~~and ~~raised~~restrictions ~~flooring~~under ~~applications~~credit agreements and indentures; continued compliance with the ~~continuing~~covenants ~~trend~~under ~~toward~~the ~~modular~~Company’s ~~furniture~~Senior ~~systems~~Credit Facility; general economic conditions in the United States and ~~(3)~~in ~~increasing~~markets ~~customer~~outside ~~demand~~of ~~for~~the ~~high-style broadloom~~United ~~carpet~~States ~~with~~served ~~complex~~by ~~patterns~~the Company; government regulations; risks of loss of material customers; and ~~textures~~environmental matters. The Company undertakes no obligation to revise these statements following the date of the filing of this Form 10-K for any reason.

CompetitiveTable Strengthsof Contents

We ~~believe~~PART ~~that~~I ~~the following strengths will allow us to continue to enhance our position within the North American commercial carpet industry.~~

~~Leading Brands. We believe that the C&A, Monterey and Crossley brands are well known in~~ ~~the specified commercial carpet markets in which they compete due to the wide array of capabilities and the superior functionality of our products~~Item 1. ByBusiness marketing our products under the Tandus Group name, we are able to capitalize on our portfolio of leading brands to offer one source to meet our customer’s floorcovering needs. Also, we believe that our strong brand reputation enables us to introduce and gain acceptance of new product innovations.

~~Diverse~~All ~~End Markets. We~~references ~~manufacture~~in ~~and sell our products to a diverse group of end markets, including corporate, education, healthcare, government and retail stores. We believe~~ this ~~segmented~~Form ~~strategy~~10-K ~~makes us less sensitive~~ to ~~economic downturns than our competitors who rely more heavily on~~ the ~~cyclical~~“Company” ~~corporate~~refer ~~market. In addition, we believe that end markets such as education, healthcare and government tend~~ to beCollins & ~~less susceptible to economic downturns than~~Aikman ~~the corporate market. For example~~Floorcoverings, ~~despite a challenging economic environment for the past two years, our net sales to these three end markets were $152~~Inc.4 ~~million~~and inits ~~fiscal 2002, as compared to $151~~subsidiaries.3 million in fiscal 2001. Our focus on selling to diverse end markets has also limited our exposure to any single customer, as our largest customer in our Floorcoverings operating segment in fiscal 2002 represented less than 5.0% of our net sales. One customer accounted for approximately 75.6% of the net sales of our extrusion operating segment’s net sales in fiscal 2002.

2General

~~Segmented~~Collins & ~~Marketing~~Aikman ~~Strategy~~Floorcoverings, Inc. We, ~~have~~a ~~implemented~~Delaware aCorporation ~~segmented~~formed ~~marketing~~in ~~strategy~~1995, ~~that~~is ~~requires~~a ~~each~~manufacturer ~~sales~~of ~~person~~floorcovering toproducts ~~develop~~principally anfor ~~expertise~~the inNorth ~~specific~~American ~~end~~specified ~~markets,~~commercial ~~resulting~~carpet inmarket. ~~greater~~The Company’s floorcovering ~~customer~~products include (i) vinyl-~~focused~~backed ~~service,~~six-foot ~~comprehensive~~roll ~~market~~carpet ~~coverage~~and modular carpet tile and ~~increased~~(ii) high-style ~~sales~~tufted ~~productivity.~~and ~~This~~woven ~~approach~~broadloom ~~targets~~carpets. ~~our~~The ~~sales~~Company designs, manufactures and ~~marketing~~markets ~~efforts~~its toC&A, ~~the~~Monterey ~~specific~~and ~~needs~~Crossley ofbrands under the ~~customers~~Tandus name infor ~~each~~a ofwide ~~our~~variety of end markets, ~~and~~including ~~differentiates~~corporate usoffices, ~~from~~education, ~~our competitors~~healthcare, ~~whose~~government ~~sales~~facilities ~~forces~~and ~~are~~retail ~~generally~~stores. ~~responsible~~The ~~for~~ability ~~all~~to ~~end~~provide ~~markets~~a ~~within~~“package aof ~~geographical~~product ~~region.~~offerings” ~~This~~in ~~segmented~~various ~~approach~~forms, ~~allows~~coupled ~~our~~with ~~sales~~flexible distribution ~~forces~~channels, toallows ~~better~~the ~~respond~~Company to ~~the~~provide ~~changing~~a ~~needs~~wide array of ~~our~~floorcovering ~~customers~~solutions. The Company is headquartered in Georgia, with additional manufacturing locations in Canada, the United Kingdom and China.

~~Superior~~The ~~Product Technology. We~~Company’s ~~believe~~C&A ~~our~~brand ~~focus~~products, onsix-foot ~~technology~~roll ~~has~~carpet ~~resulted~~and inmodular ~~the~~carpet ~~development~~tile, are highly regarded as a result of ~~industry~~their long-~~leading~~term ~~innovations~~performance, ~~that~~comfort ~~have~~under foot, ~~helped~~installation toease, ~~differentiate~~longer useful life and advanced backing technology, which includes our ~~products.~~RS ~~The~~“peel & ~~following~~stick” ~~are~~adhesive ~~examples~~system offor ~~some~~vinyl-backed ofproduct installation, and our ~~product innovations:~~ER3 carpet recycling technology.

~~Powerbond is~~The aCompany’s ~~vinyl~~Monterey ~~cushion~~brand ~~backing~~is ~~system~~a ~~that~~known ~~exhibits~~design ~~superior~~leader ~~durability~~in the high-style, ~~appearance~~fashion-oriented ~~retention~~sector ~~and~~of ~~reduced~~the ~~seam~~commercial ~~visibility,~~broadloom ~~thereby~~carpet ~~combining~~market ~~the~~due ~~best~~to ~~attributes~~its ofcreative designs ~~hard~~and ~~surface~~intricate ~~(longer~~patterns ~~useful~~in ~~life~~a ~~and~~wide ~~ease~~variety of ~~maintenance)~~colors, ~~and carpet floorcoverings (comfort~~textures, ~~acoustics~~pile heights and ~~aesthetics)~~densities. ~~Powerbond~~The ~~uses~~brand ahas ~~closed-cell~~been ~~construction,~~acknowledged ~~which traps moisture and soil~~ on ~~the~~numerous ~~surface,~~occasions ~~facilitating~~with ~~easy,~~various ~~low-cost~~awards ~~maintenance~~for ~~and~~its ~~stain~~design ~~removal~~leadership.

RSThe Company’s Crossley brand is a ~~releasable~~recognized ~~“peel~~design &leader ~~stick”~~in ~~adhesive~~Canada ~~system~~in ~~for~~the ~~vinyl-backed product~~tufted ~~installation,~~and ~~which~~woven ~~dramatically~~broadloom ~~simplifies~~commercial ~~installation~~carpet markets. ~~This~~The ~~“dry~~Crossley ~~adhesive”~~brand ~~eliminates~~uses ~~the~~crossweave looms ~~fumes~~and ~~associated~~state ~~with~~of the ~~adhesive~~art ~~generally~~tufting ~~used~~technology into ~~conventional~~produce ~~carpet~~high-quality ~~installation~~woven and ~~provides~~tufted products in a ~~faster,~~wide ~~cleaner,~~variety ~~lower~~of ~~cost installation~~patterns ~~without~~and ~~materially~~prices ~~disrupting~~to ~~usable~~meet ~~space~~the needs of interior design professionals, flooring contractors and end users.

~~ER3~~The isCompany ~~a breakthrough in carpet recycling technology. ER3~~ is a ~~patented~~wholly-owned ~~backing~~subsidiary ~~produced~~of ~~from~~Tandus ~~both~~Group, ~~post-consumer~~Inc. ~~and~~(“Tandus ~~post-industrial~~Group”). ~~carpet~~Subsequent ~~waste.~~to ~~This~~a ~~closed-loop~~recapitalization ~~system~~transaction ~~allows~~on usJanuary 25, to2001, investment ~~reclaim~~funds ~~vinyl-backed~~managed ~~carpet~~by ~~waste from~~Oaktree ~~our~~Capital ~~customers~~Management, ~~upon~~LLC ~~renovation~~(“Oaktree”) and ~~use~~Banc itof asAmerica aCapital ~~raw~~Investors ~~material~~(“BACI”), ~~for~~specifically ~~producing~~OCM ~~new~~Principal ~~product.~~Opportunities ~~This~~Fund ~~system~~II, ~~eliminates~~L.P. ~~our~~(the ~~customer’s~~“Oaktree ~~disposal~~Fund”) ~~costs~~ and ~~keeps~~BancAmerica ~~waste~~Capital Investors ~~out~~II, ~~of landfills at a time when environmental sensitivities are high~~L.P. ~~We are~~ (the ~~only~~ ~~company~~“B inof ~~the~~A ~~industry~~Fund”), ~~with this capability~~respectively, ~~which~~control ~~has~~a ~~been~~majority aof ~~deciding~~the ~~factor~~outstanding oncapital ~~many~~stock ~~competitive~~of ~~contracts~~Tandus Group.

~~Sales~~On ~~and Market Share Growth. Historically~~August 10, 2004, the Company ~~has~~and ~~demonstrated~~its aparent ~~track~~announced ~~record~~plans ofto ~~sales growth~~consolidate ~~and~~its ~~market~~broadloom ~~share~~operations ~~gains~~by inclosing ~~spite~~its ofSanta ~~very~~Ana, ~~difficult~~California ~~economic~~production ~~conditions.~~facility ~~Since~~and ~~1998,~~moving weequipment ~~believe~~and ~~the~~production ~~specified~~to ~~commercial~~its ~~market~~manufacturing ~~has~~facility ~~declined~~in byTruro, ~~6.8%.~~Nova ~~During~~Scotia ~~this~~(the “Facility ~~period,~~Maximization”). ~~our~~The ~~net~~Facility ~~sales~~Maximization ~~grew~~was atapproved aby ~~compound~~the ~~annual~~Company’s ~~growth~~Board ~~rate~~ of ~~13.~~Directors on August 9%, ~~(2.8% excluding~~2004, ~~acquisitions).~~and ~~This~~was ~~has~~completed ~~been~~during ~~accomplished~~fiscal ~~through~~year ~~our~~2005. ~~disciplined~~The ~~acquisition~~Facility ~~strategy~~Maximization ~~and~~will ~~effective~~increase ~~sales~~utilization ~~and~~in ~~marketing~~the ~~efforts~~Truro, Nova Scotia facility.

~~Strong~~The ~~Free~~U.S. ~~Cash~~commercial ~~Flow~~carpet ~~Generation. Due~~market tois ~~low~~comprised ~~maintenance~~of ~~capital~~the ~~expenditures~~ specified and ~~working~~non-specified ~~capital~~segments. ~~requirements~~The Company focuses on the specified commercial carpet market, wewhich ~~convert~~makes aup ~~high~~the ~~level~~majority of ~~Adjusted~~the ~~EBITDA~~total asU.S. ~~defined~~commercial incarpet ~~Item~~market. 6In the specified commercial carpet market, products are manufactured to ~~cash~~the ~~flow~~specifications ~~from~~of ~~operations.~~architects, ~~For~~designers ~~fiscal~~and ~~2002~~owners, weas ~~generated~~compared ~~cash~~to ~~from~~the non-specified ~~operations~~market ofin ~~approximately~~which ~~$25~~products are purchased off-the-shelf.7 ~~million~~The key competitive factors in the specified carpet market are product durability, orlong-term 47performance, product design, service and price.8% ofThe ~~Adjusted~~Company ~~EBITDA,~~believes ~~allowing~~it is uswell-positioned to ~~reduce~~capitalize ~~our~~on ~~bank~~trends ~~borrowings~~within bythe ~~$8.0~~specified ~~million~~commercial carpet market, including (of1) six-foot ~~which~~roll ~~all~~carpet ~~was~~continuing to gain market share from other floorcoverings in ~~excess~~end markets in which it has distinct performance advantages, such as ease of ~~required~~maintenance, ~~amortization)~~long-term performance and ~~increase~~longer ~~cash~~useful onlife; ~~the~~(2) modular ~~balance~~carpet ~~sheet~~tile byincreasingly ~~$8.3~~being ~~million.~~used Ininstead ~~addition,~~of weother ~~have~~flooring ~~sufficient~~surfaces ~~manufacturing~~due ~~capacity~~ to ~~increase~~increased ~~production~~raised ~~without incurring~~flooring ~~significant~~applications, ~~incremental~~the ~~capital~~continuing ~~expenditures~~trend toward modular furniture systems, ~~which~~greater weuse ~~believe~~of ~~will~~modular ~~enable~~tile usas toa ~~increase~~design ~~Adjusted~~tool, ~~EBITDA~~and acceptance of tile in new markets; and ~~improve~~(3) increasing ~~margins~~customer demand for high-style broadloom carpet with complex patterns and textures.

~~Strong~~Products Management Team. We have assembled an experienced and successful senior management team, whose members have been with us (or predecessor companies) for an average of 14 years. In addition, our management team has a significant equity investment in our business, having invested approximately $18.0 million in equity value in the recapitalization transaction in January 2001.

~~Business~~Tandus designs, manufactures and markets a comprehensive ~~Strategy~~package of complementary products under the C&A, Monterey and Crossley brands, including six-foot roll carpet, modular carpet tile and woven and tufted broadloom carpets. With a portfolio of products available in a wide variety of colors, textures, pile heights, densities and prices, the Company is able to market itself as a

~~Key~~1 ~~components of our business strategy include:~~

FocusTable on Profitable Niche End Markets. We will continue to focus on high margin categories in the specified commercial carpet market in which sales are driven primarily by product features and characteristics, including performance, durability, aesthetics, customer-focused services and ease of maintenance and Contents

3one-stop solution for specified commercial carpet. The Company believes that each of its products offers distinctive characteristics for use and application. The Company believes its ability to offer a complete package of product offerings is an advantage since each product provides distinct features and benefits to each application.

~~installation,~~Six-Foot inRoll ~~contrast~~Carpet. toThe ~~the~~Company’s ~~more~~C&A ~~price~~brand ~~sensitive~~holds a dominant market position in vinyl-backed, ~~non~~six-~~specified~~foot ~~segment~~roll ofcarpet. ~~the~~Six-foot ~~commercial~~roll carpet provides ~~market.~~performance ~~Our~~advantages ~~leading~~over ~~customer~~twelve-foot ~~service capabilities,~~broadloom ~~flexible~~carpet ~~distribution~~and ~~system~~hard surface flooring and ~~mature~~is ~~sales~~used ~~force~~primarily ~~have~~in ~~enabled~~applications usthat torequire ~~cultivate~~(i) long-term ~~strong~~appearance ~~relationships~~retention, ~~with~~(ii) ease ~~our~~of ~~customers,~~maintenance ~~which~~and we(iii) comfort ~~believe~~under ~~will~~foot. The beCompany’s asix-foot ~~source~~roll ofcarpet ~~continued~~utilizes ~~business~~the ~~opportunities~~Powerbond backing technology and the patented RS “peel and stick” installation system.

~~Capitalize~~Modular onCarpet ~~Comprehensive Brand Portfolio~~Tile. The ~~Tandus~~Company ~~organization~~believes ~~markets~~it awas ~~comprehensive package of complementary products under~~ the ~~C&A,~~first ~~Monterey~~manufacturer ~~and~~in ~~Crossley~~North ~~brands,~~America ~~including~~to ~~six~~introduce vinyl-~~foot~~backed ~~roll carpet,~~ modular carpet tile ~~and~~technology ~~woven~~ and ~~tufted~~ ~~broadloom~~is ~~carpet.~~among ~~With~~the aleading ~~portfolio~~brands ofwithin ~~products~~the ~~available~~domestic inmodular acarpet ~~wide variety of colors, textures, pile heights and densities, we~~ tile market. ~~ourselves~~The asCompany’s amodular ~~one-stop solution for specified commercial~~ carpet. Bytile ~~marketing our~~ products ~~under~~are ~~the~~offered ~~Tandus Group~~in ~~name,~~a wevariety ~~have~~of ~~been~~sizes ~~able~~ to ~~increase~~accommodate ~~our recognition in the marketplace as~~ a ~~single~~range ~~source~~of ~~supplier~~domestic ~~for specified carpet~~ and ~~leverage~~international ~~the strength of each of our individual brands~~requirements. WeThe ~~believe~~Company’s ~~that~~C&A ~~this~~brand ~~ability~~carpet totile ~~satisfy~~is ~~our~~being ~~customers’ desire~~made ~~for~~with ~~a single~~ER3, ~~national~~a ~~supplier~~patented ~~will~~recycled content ~~continue to lead to new opportunities and larger contracts~~backing.

~~Leverage~~Broadloom ~~yarn~~Carpet. ~~extrusion~~The ~~capability. Through~~Monterey ~~our~~and ~~recent~~Crossley ~~acquisition~~brands ofare arecognized ~~yarn~~design ~~extrusion~~leaders ~~plant,~~in wethe ~~plan~~high-style, fashion-oriented tosector ~~develop~~of athe ~~number~~commercial ofbroadloom ~~new~~carpet ~~products~~market. ~~utilizing~~Sold ~~our~~in ~~internally~~twelve-foot ~~produced~~rolls, ~~nylon.~~Monterey ~~This~~broadloom ~~yarn~~is ~~will~~tufted, bewhile ~~produced~~Crossley atprovides ~~significantly~~both ~~lower~~tufted ~~costs~~and ~~than~~woven webroadloom. ~~have~~In ~~been~~woven ~~able~~broadloom carpet, yarn is woven together to ~~purchase~~form a single integrated fabric and is distinguishable from tufted broadloom in which yarn is sewn into a primary backing with the ~~open~~later ~~market~~addition of a second backing. ~~This~~Broadloom ~~capability~~is ~~will~~particularly ~~give~~suited ~~all~~for ~~three~~fashionable ~~brands~~designs ~~flexibility~~and ~~(1)~~stylish interiors as its width provides a broad area toupon ~~compete~~which creative designs and intricate patterns can be displayed in ~~new~~a ~~markets~~wide variety of colors, ~~(2)~~textures, ~~more~~pile ~~deeply~~heights ~~penetrate~~and ~~existing~~densities. Specified broadloom carpet is primarily used in end markets, where aesthetics and ~~(3)~~style ~~increase~~are ~~gross~~the ~~margin~~drivers rather than durability or long-term appearance retention. In general, broadloom carpet is more frequently replaced than six-foot roll goods or carpet tile because of its prevalence in spaces which are regularly renovated in order to reflect current fashion trends and styles.

~~Expand~~Product ~~Reach~~Features into Additional End Markets. We plan to continue to expand our segmented marketing strategy by targeting additional end markets, which we believe will provide further diversification. Our ability to customize our products and services to respond to the specific requirements of the customers within each new market will provide us with opportunities to gain new customers. Consistent with our segmented marketing strategy, we intend to manage each additional end market separately, enabling us to develop an effective and targeted marketing strategy specifically tailored to these end markets.

~~Continue~~Powerbond. ~~to Reduce~~In ~~Costs~~1967, the Company’s C&A brand introduced Powerbond, the industry’s first vinyl cushioned backing system. ~~Our~~ ~~current~~This ~~management~~closed-cell ~~team~~backing ~~has~~technology ~~developed~~exhibits asuperior ~~culture~~durability ofand ~~continuous~~cleaning characteristics ~~cost~~and ~~improvement~~reduced ~~aimed~~seam atvisibility. ~~monitoring~~Powerbond combines the best attributes of hard surfaces (longer useful life and ~~controlling~~ease ~~our~~of ~~manufacturing~~maintenance) and ~~administrative~~carpet ~~expenses~~floorcoverings (comfort, acoustics and aesthetics). ~~Some~~It eliminates problems associated with traditional broadloom carpet, including delamination (separation of ~~our~~carpet ~~cost~~backing), ~~reductions~~zippering and unraveling. In addition, these products are installed using chemically-welded seams rather than conventional glued seams to provide a homogeneous, ~~the~~impermeable ~~result~~moisture ofbarrier. ~~employee~~Other ~~suggestions~~Powerbond ~~gathered~~features ~~through~~include its ease of repair, long-term appearance, a ~~formal~~50% ~~initiative~~to ~~known~~100% aslonger ~~the~~useful ~~Cost~~life ~~Improvement~~than ~~Program~~conventional ~~established~~broadloom incarpet ~~fiscal~~and ~~1992.~~15 ~~During~~to ~~fiscal~~25 ~~2002,~~year wenon-prorated ~~reduced~~warranty ~~costs~~against bydelamination, ~~$3.1~~loss ~~million~~of cushion ~~through~~resiliency ~~this~~and ~~program~~watermarking.

~~Capitalize~~RS. onIn ~~Environmental Initiatives. We~~1988, ~~believe~~the ~~that~~Company ~~our~~introduced ~~environmental~~its ~~initiatives~~RS technology, ~~including~~a ~~our~~ patented ~~ER3~~releasable “peel & ~~technology,~~stick” ~~provide~~adhesive asystem ~~distinct~~for ~~competitive~~Powerbond ~~advantage~~vinyl-backed product installation, aswhich ~~many~~dramatically ofsimplifies ~~our~~installation. ~~customers~~The ~~prefer~~RS totechnology ~~purchase~~enables orproducts ~~are~~to ~~required~~be bonded to a surface without the use of wet adhesives thus ~~purchase~~minimizing ~~environmentally~~disruption ~~friendly~~to ~~products.~~customers Induring ~~addition,~~the ~~our~~installation ~~environmental~~process. ~~initiatives~~Conventional ~~have~~installations ~~reduced~~with ~~our~~wet ~~manufacturing~~adhesives ~~costs~~normally ~~and~~require ~~our~~significant ~~customers’~~downtime ~~disposal~~for ~~costs.~~the ~~Our~~adhesive ~~commitment~~to cure prior to ~~environmental~~installation. ~~programs~~The ~~runs~~RS ~~deeply~~technology ~~through~~also ~~our~~addresses ~~organization,~~carpet-related ~~including~~indoor ~~manufacturing~~air ~~controls,~~quality ~~vendor~~concerns ~~sourcing~~by ~~and~~eliminating ~~product~~the ~~design.~~fumes Wetypically ~~have~~associated ~~been~~with ~~nationally~~wet ~~recognized~~adhesives. ~~for~~The ~~our~~RS ~~environmental~~technology ~~achievement~~minimizes disruption to usable space, ~~having~~which ~~won~~is ~~numerous~~critical ~~awards~~in ~~for~~each ~~our~~of ~~environmental~~the ~~initiatives~~Company’s ~~since~~end ~~1994~~markets.

~~Pursue Strategic Acquisitions~~ER3. ~~Our~~ ~~senior~~ER3 ~~management~~is ~~team~~a ~~has~~patented ~~experience~~100% inrecycled ~~acquiring~~content ~~and~~backing ~~integrating~~for ~~companies~~modular ~~and~~carpet ~~plans~~tile toproduced ~~follow~~from aboth ~~disciplined~~post-consumer ~~approach~~and topost-industrial ~~potential~~carpet ~~future acquisitions~~waste. WeThis closed-loop ~~plan~~system (waste-to-product) ~~target~~allows ~~acquisitions~~us ~~that~~to ~~(1) expand~~take ~~our~~used ~~geographic~~carpet ~~focus;~~tile ~~(2)~~from ~~further~~our ~~diversify~~customers ~~our~~and ~~portfolio~~use ofit ~~products;~~as ~~(3)~~raw ~~enhance~~material ~~penetration~~for ofproducing ~~existing~~new ~~end~~carpet ~~markets~~tile. ~~and~~This ~~enter~~system ~~new~~eliminates ~~end~~our ~~markets;~~customers’ disposal costs and ~~(4)~~keeps ~~lower~~waste ~~operating~~out ~~costs~~of ~~and~~landfills ~~improve~~at ~~manufacturing~~a time ~~efficiencies~~when environmental sensitivities are high. ~~Through~~The ~~our~~100% ~~acquisitions of~~recycled ~~Monterey~~content ~~and~~backing ~~Crossley,~~results wein ~~have~~an ~~expanded~~overall ~~our~~34% ~~product~~to ~~capability~~51% ~~and~~total ~~geographic~~recycled ~~reach~~content ofcarpet, when adding in the ~~Tandus~~face ~~Group~~fiber weight.

~~Products~~ethos. In 2004, the Company introduced ethos, an evolutionary, recycled-content carpet backing, which is a non-chlorinated, high-performance backing for commercial carpet that provides all of the durability attributes of polyvinyl chloride (PVC). It is made from the polyvinyl butyral film reclaimed from recycled laminated safety glass. There was no previous commercial use for this used material that accounts for millions of pounds of landfill waste. Our ethos backing represents an exciting alternative to PVC, ethylene vinyl acetate, polyurethane, and polyolefin carpet backings. Additional features are extremely low volatile organic compound emissions, permanent closed cell cushion for durability and lifelong resilience, molecularly bonded seams and repairs, better comfort under foot than conventional cushion or non-cushion backings, better rollability than alternative cushion backings, and better flexibility for ease of installation and positive conformity to the floor. And, ethos is 100% recyclable today and can even be converted back into new carpeting.

~~The~~2 Tandus Group designs, manufactures and markets a comprehensive package of complementary products under the C&A, Monterey and Crossley brands, including, six-foot roll carpet, modular carpet tile and woven and tufted broadloom carpet. In woven broadloom carpet, yarn is woven together to form a single integrated fabric and is distinguishable from tufted broadloom in which yarn is sewn into a preformed primary backing with the later addition of a second backing. With a portfolio of products available in a wide variety of

4Table of Contents

~~colors,~~Crossley ~~textures,~~Weaving ~~pile~~Heritage. ~~heights~~Weaving ~~and~~continues ~~densities,~~to webe ~~market~~an ~~ourselves~~important asdifferentiation afor ~~one~~us in high-~~stop~~end markets. ~~solution~~Woven ~~for~~fabrics ~~specified~~are ~~commercial~~unique ~~carpet.~~in ~~Each~~construction ofand ~~our products~~valued ~~offers~~by ~~distinctive~~professional ~~characteristics~~designers ~~for~~as ~~use~~a result of their more refined styling capability and ~~application~~pattern flexibility. WeWoven ~~believe~~carpets are a single, integrated fabric that ~~our~~offer ~~ability~~strength, stability and locked-in-yarns to ~~offer~~prevent azippering ~~complete~~or ~~package~~pulling. ofToday, ~~product~~the ~~offerings~~Company is aone ~~distinct~~of ~~competitive~~only ~~advantage~~a ~~since~~few ~~each~~manufacturers ~~product~~in ~~provides~~North ~~unique~~America ~~features~~with ~~and~~weaving ~~benefits~~capability. ~~as follows:~~

~~Six-Foot Roll~~End ~~Carpet. We~~Markets believe that our C&A brand holds the number one market position in vinyl-backed, six-foot roll carpet. Six-foot roll carpet provides performance advantages over twelve-foot broadloom carpet and hard surface flooring and is used primarily in applications that require ease of maintenance, long-term appearance retention, comfort under foot and longer useful life. A vast majority of our six-foot roll carpet utilizes the Powerbond backing technology and the patented RS “peel and stick” installation system. We believe this cushion system and the patented RS technology enhancement give us a distinct competitive advantage in each end market.

~~Modular Carpet Tile~~Corporate. We ~~believe~~The ~~C&A~~Company ~~was~~offers ~~the~~a ~~first~~complete ~~domestic~~package ~~manufacturer~~of inproduct ~~the~~offerings ~~United~~that ~~States~~addresses tovirtually ~~introduce~~every ~~vinyl-backed~~carpeting ~~modular~~need of ~~carpet~~the ~~tile~~corporate ~~technology~~facility manager and istheir ~~currently~~interior ~~among~~designers ~~the~~and ~~leading~~architects, ~~brands~~including ~~within~~six-foot ~~the~~roll ~~domestic~~carpet, modular carpet tile ~~market.~~and ~~Our~~tufted ~~modular~~and ~~carpet~~woven ~~tile~~broadloom ~~system~~carpets. isThe ~~specifically~~Company ~~engineered~~has toa ~~have~~dedicated asales ~~monolithic~~force ~~appearance~~that focuses exclusively on ~~the~~marketing its ~~floor~~brands ~~and~~to ~~because~~corporate ofend ~~the~~use ~~product’s~~markets. ~~unique~~This ~~seamability,~~group itworks iswith ~~often~~the ~~mistaken~~individual brands to develop flooring solutions for ~~roll~~corporate ~~goods.~~facility ~~Our~~managers, ~~modular~~architects ~~carpet~~and ~~tile~~designers. ~~products are~~The ~~offered~~Company inhas afocused ~~variety~~on ofprojects ~~sizes~~where it tends to ~~accommodate~~excel aon ~~range~~the basis of product ~~domestic~~durability, appearance retention, production design and ~~international~~service ~~requirements~~rather than pricing. AAs ~~majority~~part of ~~our~~its ~~C&A~~strategy ~~brand~~to ~~carpet~~increase ~~tile~~penetration isof ~~being~~this ~~made with ER3~~market, ~~our~~the ~~recycled~~Company ~~content~~has ~~backing,~~a ~~which~~national weaccounts ~~believe~~program ~~provides~~that atargets ~~distinct~~the ~~competitive~~country’s largest ~~advantage~~corporations. ~~and~~This ~~has~~group ~~been~~focuses aon ~~deciding~~Fortune ~~factor~~1000 oncorporations ~~many~~by ~~competitive~~developing ~~contracts~~relationships at the senior levels in facility management and purchasing.

~~Broadloom Carpet~~Education. ~~Monterey~~ ~~and~~The ~~Crossley~~education ~~are~~market ~~recognized~~has ~~design~~been ~~leaders~~a inprimary ~~the~~focus ~~high-style,~~for ~~fashion-oriented~~the ~~sector~~C&A ofbrand since the ~~commercial~~development ~~broadloom~~of ~~carpet~~Powerbond ~~market~~in 1967. ~~Sold~~Powerbond’s ~~primarily in twelve~~long-~~foot~~term ~~rolls,~~appearance ~~Monterey~~retention ~~broadloom~~characteristics ~~carpet~~have isbeen ~~tufted,~~the ~~while~~principal ~~Crossley~~factor behind ~~manufacturers~~its ~~both~~success ~~tufted~~in ~~and~~this ~~woven~~market, ~~broadloom~~as ~~carpet.~~customers ~~Broadloom~~tend ~~carpet~~to isbe particularly ~~suited~~sensitive ~~for~~to ~~fashionable~~longer ~~designs~~useful ~~and~~life, ~~stylish~~comfort, ~~interiors~~acoustics asand ~~its~~ease ~~width provides an expanse~~ of ~~canvas~~ ~~upon~~maintenance. ~~which~~The ~~creative~~Powerbond ~~designs~~product ~~and~~in ~~intricate~~many ~~patterns~~of ~~can~~these beinstallations ~~displayed~~has been in ause ~~wide~~for ~~variety~~more ofthan ~~colors,~~20 ~~textures~~years. Historically, ~~pile~~the ~~heights~~Company ~~and~~has ~~densities.~~focused ~~Specified~~on ~~commercial~~the ~~broadloom~~kindergarten ~~carpet~~through is12th ~~primarily~~grade ~~used~~market; inhowever, ~~end~~over ~~markets~~the ~~where~~last ~~aesthetics and style are the~~few ~~drivers~~years, ~~rather~~it ~~than~~has ~~durability~~focused ormarketing ~~long-term~~efforts ~~appearance~~on ~~retention.~~expanding Ininto ~~general,~~the ~~broadloom~~college ~~carpet~~and isuniversity ~~more~~market. ~~frequently~~The ~~replaced~~Company ~~than~~expects ~~six-foot~~to ~~roll~~capitalize ~~goods~~on orits ~~carpet~~broad ~~tile~~product ~~because~~offerings ofto ~~its~~grow ~~prevalence~~this inmarket, ~~spaces~~as ~~which~~colleges ~~are~~and ~~regularly~~universities ~~renovated~~have inmore ~~order~~diverse tofloorcovering ~~reflect~~needs ~~current~~than ~~fashion~~the ~~trends~~primary and ~~styles~~secondary school markets.

~~Product~~Healthcare. ~~Features~~We believe that Powerbond RS is particularly well suited to the healthcare market because of its moisture impermeability and quick, safe installation. Powerbond RS, which is installed without wet adhesives, facilitates use immediately following installation, a critical concern within the healthcare market, and its moisture impermeability and welded seams make it easy to maintain. Long-term care is the fastest growing segment within the healthcare market due to compelling demographics. These facilities strive to create a home-like environment for residents, which provides an opportunity for the Company to promote all its products, including the broadloom brands.

~~Powerbond~~Government. In ~~1967,~~The weCompany ~~introduced~~markets and ~~Powerbond,~~sells ~~the~~to ~~industry’s~~federal, ~~first~~state ~~vinyl~~and ~~cushioned~~local ~~backing system~~governments. ~~This~~The ~~closed-cell~~Company ~~backing~~is ~~technology~~a ~~exhibits~~supplier ~~superior~~to ~~durability~~the ~~and cleaning characteristics and reduced seam visibility~~U.S. ~~Powerbond~~General ~~combines~~Services ~~the~~Administration, ~~best~~which ~~attributes~~establishes ofproduct ~~hard~~categories ~~surfaces (longer useful life~~ and ~~ease~~related ofminimum ~~maintenance)~~product ~~and~~specifications ~~carpet~~for ~~floorcoverings~~various ~~(comfort,~~budget ~~acoustics~~levels and ~~aesthetics)~~aesthetic requirements. ~~Powerbond~~State ~~eliminates~~and ~~problems~~local ~~associated with~~governments ~~traditional~~purchase ~~broadloom~~floorcovering ~~carpet,~~products ~~including~~independently ~~delamination~~through ~~(separation~~contracts ofwith ~~carpet~~approved ~~backing), zippering and unraveling~~suppliers. InThe ~~addition,~~Company ~~these~~is ~~products~~currently ~~are~~an ~~installed~~approved ~~using~~supplier ~~chemically-welded~~to ~~seams~~several ~~rather~~states ~~than~~and ~~conventional~~municipalities. ~~glued~~The ~~seams~~Company tobelieves ~~provide~~that aits ~~homogeneous,~~success ~~impermeable~~in ~~moisture~~the ~~barrier.~~government ~~Other~~market ~~Powerbond~~is ~~features~~due ~~include~~in ~~its~~part ~~ease~~to ofits ~~repair,~~environmental ~~long-term appearance~~initiatives, aincluding ~~50%~~both tothe ~~100%~~Powerbond ~~longer~~RS ~~useful~~“peel & ~~life~~stick” ~~than~~backing ~~conventional~~system ~~broadloom carpet~~ and 15its toER3 20recycled ~~year~~content ~~non-prorated~~product ~~warranty against delamination, loss of cushion resiliency and watermarking~~offerings.

RSRetail Stores. In ~~1988,~~The weCompany ~~introduced~~focuses ~~our~~on RSmajor ~~technology,~~retail achains ~~patented~~which ~~releasable~~have ~~“peel~~the &potential ~~stick”~~for ~~adhesive~~large, ~~system~~nationwide ~~for~~volumes. ~~Powerbond~~This ~~vinyl-backed~~segment ~~product~~requires ~~installation,~~a ~~which dramatically~~diverse ~~simplifies~~product ~~installation.~~offering, ~~The~~as RSneeds ~~technology~~vary ~~enables~~from ~~products~~high-end boutiques to bemass ~~bonded~~merchandisers. toThe aCompany ~~surface~~believes ~~without~~that ~~the~~its ~~use~~products ofare ~~wet~~particularly ~~adhesives~~suited ~~thus~~to ~~minimizing~~fulfill ~~disruption~~these toneeds ~~customers~~and ~~during~~provide the ~~installation~~added ~~process.~~advantage ~~Conventional~~of ~~installations~~reducing ~~with~~potential ~~wet~~“slip ~~adhesives~~and ~~normally~~fall” ~~require~~liability. A significant ~~downtime~~portion ~~for~~of ~~the~~these ~~adhesive~~sales tois ~~cure~~managed ~~prior~~by tothe ~~installation.~~Company’s ~~The~~Source RSOne ~~technology~~department, ~~also~~which ~~addresses~~arranges ~~carpet-related~~turnkey ~~indoor~~product ~~air~~installation ~~quality~~for ~~concerns~~its bycustomers. ~~eliminating~~These ~~the~~installation ~~fumes~~services ~~typically~~and ~~associated~~comprehensive ~~with~~project ~~wet~~management ~~adhesives.~~capabilities ~~The RS technology minimizes~~are ~~disruption~~critical to ~~usable~~meeting ~~space,~~tight ~~which~~construction isschedules ~~critical~~inherent in ~~each~~the ofretail ~~our end markets~~market.

5International Markets. The Company participates in markets throughout Europe and Asia through its production facilities located in Wales in the United Kingdom (“U.K.”) and Suzhou, China, respectively. The Company maintains sales personnel and distributor relationships throughout these regions which allow the Company to distribute products around the world and strengthen its relationships with the U.S.-based multinational corporate accounts. The Company intends to continue to grow its distributors and sales personnel in strategic international geographic locations to increase its worldwide sales of its products. In conjunction with this effort, the Company recently created a presence in Amsterdam, The Netherlands which will serve as the sales headquarters for continental Europe.

~~ER3. ER3~~3 is a breakthrough in carpet recycling technology. ER3 is a patented backing produced from both post-consumer and post-industrial carpet waste. This closed-loop system allows us to reclaim vinyl-backed carpet waste from our customers upon renovation and use it as raw material for producing new products. This system eliminates our customers’ disposal costs and keeps waste out of landfills at a time when environmental sensitivities are high. We are the only company in the industry with this capability, which has been the deciding factor on many competitive contracts.

CrossleyTable Weaving Heritage. John Crossley was the first to use the power loom for carpet production in 1852. As the pioneer, weaving continues to be an important differentiation for us in high-end markets. Woven fabrics are unique in construction and highly valued by professional designers as a result of their more refined styling capability and pattern flexibility. Woven carpets are a single integrated fabric that offer strength, stability and locked-in-yarns to prevent zippering or pulling. Today, we are one of only a few manufacturers in North America with weaving capability. Contents

~~End~~Sales ~~Markets~~and Segmentation Strategy

~~Corporate. We believe~~The ~~this~~Company ~~market~~utilizes ~~provides our greatest opportunity for growth. We estimate that our current market share is less than 10.0%. We offer~~ a ~~complete~~segmented ~~package~~sales ofand ~~product~~marketing ~~that~~strategy ~~addresses~~to ~~virtually~~target ~~every need of~~ the ~~corporate~~specific ~~facility~~needs manager and their interior designers and architects, including six-foot roll carpet, modular carpet tile and tufted and woven broadloom carpet. The Tandus Corporate selling organization focuses exclusively on marketing all of ~~our brands to~~ the ~~corporate~~customers ~~market.~~in ~~This group~~each ~~develops~~of ~~flooring~~its ~~solutions for corporate facility managers calling on the~~ end ~~user~~markets. WeThis ~~have~~segmented ~~focused~~marketing onstrategy ~~projects~~requires ~~where~~each wesales ~~tend~~person to ~~excel~~develop onan expertise ~~the~~in ~~basis~~a ofspecific ~~product~~end ~~durability~~market, ~~appearance~~resulting ~~retention,~~in ~~production~~greater ~~design~~customer-focused ~~and~~ service, ~~rather~~comprehensive ~~than pricing. As part of our strategy to increase penetration of this~~ market, wecoverage ~~have~~and aincreased ~~national~~sales ~~accounts program that targets the country’s largest corporations~~productivity. ~~This group focuses on Fortune 1000 corporations by developing relationships at the senior levels in facility management and purchasing.~~

~~Education.~~ The Company’s ~~education market has been a primary focus for the~~ C&A, ~~brand~~Monterey ~~since~~and ~~the~~Crossley ~~development~~brands ofprovide ~~Powerbond~~custom indesigned ~~1967.~~products ~~Powerbond’s~~and ~~long-term~~promotional ~~appearance~~materials ~~retention~~for ~~characteristics have~~each ~~been~~end ~~the~~market ~~principal~~which ~~factor~~highlight ~~behind~~the advantages of its ~~success~~products in ~~the~~several ~~end~~key ~~market,~~performance ascategories. ~~customers~~Each ~~tend~~end tomarket beis ~~particularly~~ sensitive to different ~~longer~~issues ~~useful~~and ~~life,~~places ~~comfort,~~value ~~acoustics~~on ~~and~~different ~~ease~~product ~~of maintenance~~characteristics. The ~~Powerbond~~Company ~~product~~has indeveloped ~~many~~its ofproprietary ~~these~~products ~~installations~~and ~~has~~technical ~~been~~innovations in ~~use~~ ~~for~~response ~~more~~to ~~than~~the 20needs ~~years~~of its target customers and segments. WeWhile ~~aggressively~~the ~~use~~Company ~~this~~will ~~track~~assist ~~record~~a distributor in ~~marketing~~order to ~~potential~~arrange ~~customers.~~for ~~Historically~~delivery and sale, wethe ~~have~~Company’s ~~focused~~primary oncontact with the ~~kindergarten~~customer or customer representative is through ~~12th~~its ~~grade~~sales ~~market;~~force ~~however,~~and ~~over~~not ~~the~~through ~~last~~an ~~few~~intermediary. ~~years,~~This weenables ~~have~~the ~~focused~~Company onto ~~expanding~~continue ~~into~~to ~~the~~customize ~~college~~its products and ~~university~~services ~~market.~~to Asrespond ~~part~~to of the ~~new~~specific ~~Tandus~~needs ~~selling~~of ~~strategy,~~ the customer. The Company has ~~established~~an ~~six segmented~~in-house ~~positions~~design inteam ~~key~~for ~~markets~~each brand that is dedicated to ~~focus~~developing ~~exclusively~~new, oninnovative ~~the~~designs ~~higher~~for ~~education~~each primary end market.

~~Health~~Across ~~Care. We~~the ~~believe~~brands, ~~that~~the ~~Powerbond~~majority RSof issales ~~particularly~~are ~~well~~specified ~~suited~~by to the ~~health~~facility ~~care~~owner ~~market~~or ~~because~~a ofprofessional ~~its~~architect ~~moisture~~or ~~impermeability and quick, safe installation~~designer. ~~Powerbond~~Because ~~RS,~~each ~~which~~market ishas ~~installed~~distinct ~~without wet adhesives~~performance, design ~~facilitates~~and ~~use~~installation ~~immediately~~requirements, ~~following~~the ~~installation,~~Company’s aaccount ~~critical~~managers ~~concern~~focus ~~within~~on educating the ~~health~~facility ~~care~~owners ~~market,~~ and ~~its~~architect ~~moisture impermeability~~ and ~~welded~~design ~~seams~~professionals ~~make~~on it(i) the ~~easy~~technical tospecifications ~~maintain.~~and ~~As healthcare~~proprietary ~~facilities~~advantages ~~continue~~of toeach ~~create “home like” environments for their patients~~product, (ii) unique wedesign ~~anticipate~~capabilities ~~that there will be increased demand~~ for aspecific ~~combination~~market ~~of high-performance and high-style products~~segments, ~~allowing~~(iii) environmental ~~our~~initiatives ~~diverse product lines to compliment each other. With the growth~~ and ~~consolidation~~(iv) available ~~of national health care organizations~~unique, ~~we believe we are well~~value-~~positioned~~added toservices. ~~cross~~The ~~promote~~Company ~~Monterey~~believes ~~and~~this ~~Crossley~~end tomarket-oriented ~~existing~~strategy ~~customer~~has ~~relationships~~resulted ~~that~~in ~~have~~greater ~~a need~~ visibility for ~~broadloom~~its ~~products in addition to Powerbond RS products~~brands.

~~Government. We~~Distribution market and sell to federal, state and local governments. We are suppliers to the U.S. General Services Administration, which establishes product categories and related minimum product specifications for various budget levels and aesthetic requirements. State and local governments purchase floorcovering products independently through contracts with approved suppliers. We are currently an approved supplier to several states and municipalities. We believe that our success in the government market is due in part to our environmental initiatives, including both the Powerbond RS “peel & stick” backing system and our ER3 recycled content product offerings.

6The Company sells and distributes its products through three primary channels: direct to the end customer, Source One and dealers. Although a majority of invoicing is through floorcovering dealers, the Company’s primary marketing efforts are focused on the end customer and professional designers and architects who create specifications for the Company’s products. By focusing on the needs of the end customer, the Company’s distribution strategy enables the sales and marketing personnel to establish multiple relationships within specific segments and regions. This flexible distribution philosophy allows the needs of the customer to be the priority rather than mandating from whom the customers can purchase products. The distribution channels are outlined below.

~~Retail Stores~~Direct. We ~~focus~~Direct ondistribution ~~major~~allows ~~retail~~customers ~~chains~~to ~~which~~purchase ~~have~~floorcovering ~~the~~products ~~potential~~directly ~~for large, nationwide volumes. This end market requires a diverse product offering, as needs vary~~ from ~~high-end boutiques to mass merchandisers.~~the WeCompany. ~~believe~~Account ~~that~~managers ~~our~~work ~~products~~directly ~~are~~with ~~particularly~~the ~~suited~~customer to ~~fulfill~~advise, ~~these~~educate ~~needs~~ and ~~provide~~make ~~the~~recommendations ~~added~~for ~~advantage~~the ofselection ~~reducing potential “slip~~ and ~~fall”~~specification ~~liability. A significant portion~~ of ~~these~~the ~~sales~~right ~~are~~product ~~managed~~for bythe ~~our~~particular ~~Source One department~~application. ~~This~~ ~~turn-key~~The ~~installation~~customer ~~service~~is ~~and~~responsible ~~our~~for ~~comprehensive~~sub-contracting the project management ~~capabilities~~and ~~are critical to meet short construction schedules inherent in the retail market~~installation.

~~International~~Source ~~Markets~~One. In ~~July~~Source ~~1999~~One, wean ~~acquired Crossley, a leading Canadian floor covering brand, based~~ in-house ~~Nova~~project ~~Scotia.~~management ~~Since that time~~department, ~~the~~provides ~~principal business of Crossley has come from~~ the ~~Canadian~~first single-source ~~market.~~coordination ~~With~~and ~~the~~turnkey ~~reorganization~~project ofmanagement ~~the~~service ~~U.S.~~offered ~~sales~~by ~~force,~~a wefloorcoverings ~~believe that the Crossley brand will experience growth in the future~~manufacturer. InThe ~~addition,~~department inwas ~~August~~established ~~1998,~~to weprovide ~~acquired~~ a ~~51.0%~~“one ~~interest~~phone ~~in Collins & Aikman Floorcoverings Asia Pte. Ltd.~~call,” ~~a start~~“single-upsource” ~~commercial~~project ~~carpet~~management ~~distribution~~service ~~venture~~to inmeet ~~Singapore. We established our first international sales~~the ~~office~~specific inneeds ~~1989~~of in the ~~United~~customer ~~Kingdom,~~base. ~~and~~The inservice ~~1998~~includes ~~acquired~~facility ameasurement, ~~carpet~~project ~~backing~~coordination, ~~manufacturer~~order ~~headquartered~~entry, indelivery ~~Wales.~~and ~~Our~~installation ~~presence~~of ina ~~such~~wide ~~international~~range ~~markets~~of ~~enables~~interior usfinishes tofrom ~~distribute~~the ~~our~~Company’s ~~products~~broad ~~throughout~~product ~~the world~~offerings. WeA ~~also~~network ~~have~~of ~~expanded~~over ~~our sales~~300 ~~and~~certified ~~distribution~~installers ~~efforts into Mexico, South America~~ and ~~Europe.~~strategic Wedealer ~~plan~~partnerships tothroughout ~~continue~~the toUnited ~~add~~States ~~distributors~~provides ~~and dedicated sales personnel in strategic international markets~~installation.

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

~~We utilize a segmented sales and marketing strategy to target the specific needs of the customers in each of~~Backlog our end markets. This strategy differentiates us from our competitors, whose sales forces are generally responsible for all end markets within a geographical region. This segmented marketing strategy requires each sales person to develop an expertise in a specific end market, resulting in greater customer-focused service, comprehensive market coverage and increased sales productivity.

WeThe ~~provide~~backlog ~~custom~~of ~~designed~~unshipped ~~products,~~orders ~~performance~~as ~~studies and promotional materials for each end market which highlight the advantages~~ of ~~our~~ ~~products~~January 28, in2006 ~~several~~was ~~key~~approximately ~~performance categories~~$25.1 ~~Each end market is sensitive to different issues and places value on different performance characteristics~~million. We have developed our proprietary products and technical innovations in response to the needs of our target customers and segments. Although we will work with a distributor in order to arrange for delivery and saleHistorically, ~~our~~backlog ~~primary contact with the customer~~ is ~~through~~subject ~~our sales force and not through an intermediary. This enables us~~ to significant ~~continue~~fluctuations todue ~~customize our products and services~~ to ~~respond to~~ the ~~specific~~timing ~~requirements~~ of ~~our~~orders ~~customers, which we believe is a unique approach in the industry. We have an in-house design team dedicated to developing new, innovative designs~~ for ~~each of~~individual ~~our~~large ~~primary end markets~~projects.

~~Across~~Product ~~our~~Development ~~brands, the majority of sales are specified by the facility owner, whose purchasing decision frequently is influenced by interior designers~~ and ~~architects.~~Design Because each market has distinct performance, design and installation requirements, our account managers focus on educating the facility owners and their design professionals on (i) the technical specifications and proprietary advantages of our products, (ii) our superior design capabilities for specific market segments, (iii) our dedication to responsive delivery of customer service and (iv) our environmental initiatives. We believe this end market-oriented strategy has resulted in market share growth in each of our end markets.

~~Distribution~~Leadership in product development and design is important in the commercial floorcovering marketplace as designers and customers seek up-to-date product aesthetics. Unlike many competitors, which manufacture standard products that serve a wide cross-section of markets, the Company develops products tailored to the requirements of specific market segments. This process begins with feedback

We4 sell and distribute our products through three primary channels: direct to the end customer, Source One and independent dealers. Although a majority of our invoicing is through floorcovering dealers, our primary marketing efforts are focused on the end customer and professional designers and architects who create specifications for our products. By focusing on the needs of the end customer, our distribution strategy enables the sales and marketing personnel to establish multiple relationships within specific segments and regions. We operate with this flexible distribution philosophy to meet the needs of the customer rather than mandating from whom our customers can buy our products. Our distribution channels are outlined below.

7Table of Contents

~~Direct. Direct~~from ~~distribution~~leading ~~allows~~designers and customers toin ~~purchase~~each ~~floorcoverings~~segment ~~directly~~relating ~~from~~to ~~us.~~product ~~Our~~features ~~account~~such ~~managers~~as ~~work directly with the customer to advise~~color, ~~educate~~texture and ~~make recommendations~~pattern. ~~for~~This ~~the~~marketplace ~~selection~~input ~~and~~is ~~specification~~vital ofas the ~~right~~ product/styling needs vary for ~~the~~each ~~particular~~end ~~application~~market. The ~~customer~~product development group is ~~responsible~~highly ~~for~~integrated ~~sub-contracting~~with the ~~project~~sales ~~management~~organization and ~~installation~~customer base, which increases the effectiveness of the product development process.

~~Source~~A ~~One. Source~~portion ~~One,~~of ~~our in-house project management department, provides~~ the ~~first~~Company’s ~~single-source~~sales ~~coordination~~involve ~~and~~custom ~~turn-key~~colors ~~project~~or ~~management~~designs ~~service~~requiring ~~offered~~accurate byinterpretation ~~a floorcoverings manufacturer. The department was established to provide a “one phone call”, “single-source” project management service to meet the specific needs~~ of ~~our~~ customer ~~base.~~needs ~~The service includes facility measurement, project coordination, order entry, delivery~~ and ~~installation~~timely ofconversion into a ~~wide~~sample ~~range of interior finishes from our broad product offerings~~fabric. ~~A network~~Each ofmanufacturing ~~over~~facility ~~1,000~~has ~~certified~~dedicated ~~installers~~sample ~~and~~equipment ~~strategy~~that ~~dealer~~facilitates ~~partnerships~~quick ~~throughout~~turnaround ~~the~~of ~~United~~custom ~~States~~design ~~provides installation~~requests.

~~Dealers. The~~Competition carpet industry traditionally has sold products to customers through local dealers, who typically broker products from manufacturers and subcontract installation through local installers. The Company maintains excellent relationships with independent dealers throughout North America. Many customers request that the product be delivered through a local dealer who provides a range of project management services, including carpet removal, staging and installation. Tandus has field technical personnel trained in floor covering installation processes that assists local dealers in proper installation practices for each of the brand’s products.

~~Product~~The ~~Development~~commercial floorcovering industry is highly competitive. The C&A brand competes with other brands of vinyl-backed carpet, as well as twelve-foot broadloom carpet and ~~Design~~other types of commercial floorcoverings. The major competitors to the C&A brand are Interface, Inc., Mohawk Industries, Inc. and Shaw Industries, Inc. in six-foot roll goods, and Interface Flooring System, Inc. (owned by Interface, Inc.), Milliken, Mohawk Industries, Inc. and Shaw Industries, Inc. in modular carpet tile products. The Monterey and Crossley brands compete with other broadloom manufacturers. The major competitors to the Monterey and Crossley brands are Bentley Mills (owned by Interface, Inc.), Mohawk Industries, Inc., Atlas Carpets, Masland Carpets and Shaw Industries, Inc. Although the industry recently has experienced consolidation, a large number of manufacturers remain. In North America, the Company maintains that it is the largest manufacturer of six-foot roll carpet, a leading manufacturer of modular carpet tile and a design leader in the high-style specified commercial broadloom carpet market. There are a number of domestic competitors that manufacture these products and certain of these competitors have greater financial resources than the Company.

~~Leadership~~The inCompany ~~product~~believes ~~development~~the ~~and~~key ~~design~~competitive isfactors ~~important~~ in ~~the~~its ~~commercial~~primary floorcovering ~~marketplace~~markets asare ~~designers~~product ~~and~~durability, ~~customers~~product ~~seek~~design ~~up-to-date~~and ~~product~~color, ~~aesthetics.~~appearance Weretention, ~~believe~~service ~~that~~and price. In the ~~ability~~specified ofcommercial ~~our~~market, six-foot ~~creative~~roll carpet and ~~technical professionals~~modular tocarpet ~~consistently~~tiles ~~introduce~~compete ~~new~~with ~~designs~~various ~~and~~floorcoverings, ~~product~~of ~~styles~~which ~~provides~~broadloom uscarpet ~~with~~has athe ~~key~~largest ~~competitive~~market ~~advantage~~share. ~~Unlike~~The ~~many~~Company’s ofsix-foot ~~our~~roll ~~competitors~~carpet ~~which~~has ~~manufacture~~gained ~~standard~~market ~~products~~share ~~that~~from ~~serve~~traditional abroadloom ~~wide~~carpet ~~cross-section~~in of end markets, wein ~~develop~~which ~~specific products~~it ~~tailored~~has todistinct ~~the~~performance ~~requirements~~advantages, such as ease of ~~different~~maintenance, ~~market~~appearance ~~segments.~~retention ~~This~~and ~~process~~longer ~~begins~~useful ~~with~~life. ~~feedback~~Modular ~~from~~carpet ~~leading~~tile ~~designers~~has ~~and~~also ~~customers~~increasingly been used in ~~each~~place ~~end~~of ~~market~~other ~~relating~~flooring surfaces due to ~~product~~raised ~~features~~flooring applications, ~~such~~which asenable ~~color,~~under-the-floor ~~texture~~cable management and ~~pattern.~~air ~~This~~delivery ~~process~~systems, isand ~~vital as~~ the ~~product/styling~~continuing ~~needs~~trend ~~may~~toward bemodular ~~very~~furniture ~~different~~systems, ~~for~~which ~~each~~require ~~segment.~~the ~~Our~~functionality ~~Product~~of ~~Development~~tile. ~~Group~~Ease isof ~~highly~~maintenance ~~integrated~~(replacement) ~~with~~and ~~our~~flexibility ~~sales~~of ~~organization~~design ~~and~~are also ~~customer~~emerging ~~base,~~trends ~~which~~for ~~increases~~tile. In the ~~effectiveness~~high-style ofspecified ~~the~~commercial ~~product~~broadloom ~~development~~carpet ~~process.~~market, WeMonterey ~~currently offer~~and ~~over~~Crossley ~~200~~primarily ~~standard~~compete ~~styles~~based upon aesthetics, service and quality.

InManufacturing ~~the development of each new style, we implement a process of quality assurance called “fabric adoption.” Through this process, we evaluate each style~~ and ~~color~~Facilities ~~for seam visibility, color mix, overall aesthetics and manufacturing feasibility. This process increases customer satisfaction and lowers off-quality costs.~~

WeThe ~~estimate~~Company ~~that~~currently ~~approximately~~operates ~~one-third~~four ofmanufacturing ~~our~~facilities ~~sales~~in ~~involve~~Dalton, ~~custom~~Georgia including ~~colors~~(i) a oryarn ~~designs~~processing plant with carpet dyeing capabilities, (ii) a carpet tufting plant, (iii) a carpet finishing and tile cutting plant, which ~~require~~includes ~~accurate~~tile ~~interpretation~~printing ofand ~~customer~~recycling ~~needs~~operations and (iv) a ~~timely~~customer service ~~conversion~~center ~~into~~and distribution warehouse. CAF Extrusion, Inc. (“Extrusion”), a ~~sample~~yarn ~~fabric~~extrusion facility, is operated in Calhoun, Georgia. ~~Each~~The ~~brand~~Company also operates a manufacturing, administrative and warehouse facility in Truro, Nova ~~has~~Scotia. ~~dedicated~~Tandus ~~sample~~Europe ~~equipment~~operates ~~which~~two ~~facilitates~~facilities ~~quick~~in ~~turnaround~~the ofU.K., ~~custom~~including ~~design~~a ~~requests~~six-foot roll and tile finishing plant. The Company operated a carpet tufting, administrative and wewarehouse ~~believe~~facility ~~that~~in ~~our~~Santa ~~custom~~Ana, ~~design~~California ~~capability~~until isits closure in August 2005. The Company operates a ~~competitive~~tufting ~~advantage~~and finishing operation in Suzhou, ~~particularly~~China which began production in July 2005. The Company believes its manufacturing capacity is sufficient to meet its requirements for the ~~corporate~~foreseeable ~~market~~future. In addition to these facilities, the Company leases a number of sales and service facilities and one warehouse in the United States and one sales and service facility in the U.K.

~~Competition~~5

TheTable commercial floorcovering industry is highly competitive. Our C&A brand competes with other brands of vinyl-backed carpet, including vinyl-backed rolls of similar lengths, as well as twelve-foot broadloom carpet and other types of commercial floorcovering. The major competitors to the C&A brand are Lees Carpet and Shaw Industries, Inc. in the six-foot roll goods and Interface Flooring System, Miliken, Lees Carpet and Shaw Industries, Inc. in modular carpet tile products. Our Monterey and Crossley brands compete with other carpet manufacturers and manufacturers of vinyl and other types of floorcovering. The major competitors to the Monterey and Crossley brands are Bentley Mills, Mohawk Industries, Lees Carpet, Atlas Carpets, Masland Carpets and Shaw Industries, Inc. Although the industry recently has experienced consolidation, a large number of manufacturers remain. We believe that we are the largest manufacturer of six-foot roll carpet in North America, a leading manufacturer of modular carpet tile in North America and a design leader in the high-style commercial broadloom carpet market in North America. There are a number of domestic and foreign competitors that manufacture these products and certain of these competitors have greater financial resources than our Company. Contents

8The following table summarizes our manufacturing, distribution and sales facilities:

We believe the key competitive factors in our primary floorcovering markets are product durability, appearance retention, product design and service. In the specified commercial market, six-foot roll carpet and modular carpet tiles compete with various floorcoverings, of which broadloom carpet has the largest market share. Our six-foot roll carpet has gained market share from traditional broadloom carpet in end markets in which it has distinct performance advantages, such as ease of maintenance, appearance retention and longer useful life. Modular carpet tile has also increasingly been used instead of other flooring surfaces due to increased raised flooring applications, which enable under-the-floor cable management and air delivery systems, and the continuing trend toward modular furniture systems which require the functionality of tile. In the high-style specified commercial broadloom carpet market, the principal competitive advantage of the Monterey and Crossley brands are aesthetics, service and quality.


Location		Operation	Segment	Owned/ Leased	Approximate Square Feet
United States	Dalton, Georgia	Yarn Processing	Floorcovering	Owned	161,500
		Carpet Dyeing
	Dalton, Georgia	Tufting	Floorcovering	Owned	154,900
		Corporate Offices
	Dalton, Georgia	Six-Foot Finishing	Floorcovering	Owned	245,800
		Tile Finishing
		Tile Printing
		Recycling
	Dalton, Georgia	Environmental Center	Floorcovering	Leased	198,500
		Warehouse
	Dalton, Georgia	Distribution Warehouse	Floorcovering	Owned	133,200
		Sales Service Office
		Finance & Administration
	Dalton, Georgia	Sample Warehouse	Floorcovering	Leased	105,000
	Chicago, Illinois	Sales / Showroom	Floorcovering	Leased	3,819
	Dallas, Texas	Sales / Showroom	Floorcovering	Leased	1,725
	Denver, Colorado	Sales / Showroom	Floorcovering	Leased	2,158
	Marietta, Georgia	Sales / Showroom	Floorcovering	Leased	2,129
	New York, New York	Sales / Showroom	Floorcovering	Leased	5,821
	Los Angeles, California	Sales / Showroom	Floorcovering	Leased	5,300
	San Francisco, California	Sales / Showroom	Floorcovering	Leased	4,858
	Santa Ana, California	Sales / Showroom	Floorcovering	Leased	3,959
	Atlanta, Georgia	Sales / Showroom	Floorcovering	Leased	4,200
	Chicago, Illinois	Sales / Showroom	Floorcovering	Leased	3,119
	Houston, Texas	Sales / Showroom	Floorcovering	Leased	1,015
	Reston, Virginia	Sales / Showroom	Floorcovering	Leased	3,905
	Calhoun, Georgia	Yarn Extrusion	Extrusion	Owned	125,400

Canada	Truro, Nova Scotia	Administration	Floorcovering	Owned	365,000
		Manufacturing
		Warehouse
	Mississauga, Ontario	Sales / Showroom	Floorcovering	Leased	4,027

United Kingdom	Blaina, Gwent Wales	Six Foot and Tile	Floorcovering	Owned	32,000
		Finishing
	Blaina, Gwent Wales	Warehousing	Floorcovering	Owned	14,000
	Blaina, Gwent Wales	Sales / Warehouse	Floorcovering	Leased	4,860
	Blaina, Gwent Wales	Chemical Mixing	Floorcovering	Leased	4,000
	Blaina, Gwent Wales	Sales / Showroom	Floorcovering	Leased	5,500

Other	Singapore	Sales / Showroom	Floorcovering	Leased	2,106
	Singapore	Sales / Showroom	Floorcovering	Leased	2,153
	Malaysia	Office	Floorcovering	Leased	926
	Shanghai, China	Office	Floorcovering	Leased	915
	Suzhou, China	Office / Manufacturing	Floorcovering	Leased	63,669
	Duiven, The Netherlands	Sales / Office	Floorcovering	Leased	3,000

~~Manufacturing~~Raw ~~and~~Materials ~~Facilities~~

WeThe ~~own~~Company’s ~~four~~raw ~~manufacturing facilities in Dalton~~materials, ~~Georgia~~ including ~~(i) a~~ yarn, ~~processing~~nylon ~~plant~~and ~~with~~polypropylene ~~carpet~~chip, ~~dyeing~~primary ~~capabilities~~backing, ~~(ii)~~coater amaterials, ~~carpet~~and ~~tufting~~dye ~~plant~~chemicals, ~~(iii)~~represent athe ~~carpet~~single ~~finishing~~largest ~~and~~component ~~tile~~of ~~cutting~~its ~~plant,~~carpet ~~which~~production ~~includes~~costs. ~~tile~~Yarn ~~printing~~comprises ~~and~~approximately one-third ~~recycling~~of ~~operations~~the ~~and~~total ~~(iv)~~carpet acost ~~customer~~structure ~~service center~~ and ~~distribution~~in ~~warehouse.~~excess ~~Extrusion~~of ~~owns~~one-half aof ~~yarn~~total ~~extrusion~~raw ~~facility~~material incosts. ~~Calhoun~~Historically, ~~Georgia.~~yarn ~~Crossley~~price ~~owns~~increases ahave ~~manufacturing,~~been ~~administrative~~passed ~~and~~to ~~warehouse~~the ~~facility~~customer in ~~Truro,~~the ~~Nova~~ordinary ~~Scotia.~~course ~~ACT~~of ~~owns~~business. ~~two~~However, ~~facilities~~ in the ~~United~~last ~~Kingdom~~18 months, ~~including a~~numerous ~~six-foot~~increases ~~roll~~have ~~and tile finishing plant~~occurred. ~~Monterey~~Due ~~leases~~to ~~a carpet tufting~~this, ~~administrative~~market ~~and~~absorption ~~warehouse~~of ~~facility in Santa Ana, California. In addition to~~ these ~~facilities,~~cumulative weprice ~~lease~~increases 19has ~~sales~~been ~~and~~slow. ~~service~~Continued ~~facilities~~increases ~~and one warehouse~~ in the ~~United States~~cost ~~and~~of ~~one~~petroleum-based ~~sales~~raw ~~and~~materials ~~service~~could ~~facility~~create inan ~~the~~adverse ~~United~~affect ~~Kingdom.~~if Weunable ~~believe~~to ~~our~~be ~~manufacturing~~passed ~~capacity~~through ~~is sufficient~~ to ~~meet our requirements for~~ the ~~foreseeable future~~ customer.

9Invista, Inc. (“Invista”) currently supplies a majority of the Company’s requirements for nylon yarn, the primary raw material used in the Company’s floorcovering products. The unanticipated termination or interruption of the supply arrangement with Invista could have a material adverse effect on the Company because of the cost and delay associated with shifting this business to another supplier. Historically, the Company has not experienced significant interruptions in the supply of nylon yarn from Invista, although no assurances can be given that it will not experience interruption in supply in the future.

~~The~~6 ~~following table summarizes our manufacturing, distribution and sales facilities:~~

Location	Operation	Owned/Leased	Approximate Square Feet
Dalton, Georgia	Yarn Processing Carpet Dyeing	Owned	161,500
Dalton, Georgia	Tufting Corporate Offices	Owned	154,990
Dalton, Georgia	Six-Foot Finishing Tile Finishing Tile Printing Recycling	Owned	245,800
Dalton, Georgia	Environmental Center Warehouse	Leased	103,500
Dalton, Georgia	Distribution Warehouse Sales Service Office Finance & Administration	Owned	133,200
Dalton, Georgia	Warehouse	Leased	95,350
Calhoun, Georgia	Yarn Extrusion	Owned	125,400
Chagrin Falls, Ohio	Sales / Showroom	Leased	1,100
Chicago, Illinois	Sales / Showroom	Leased	5,498
Dallas, Texas	Sales / Showroom	Leased	1,960
Denver, Colorado	Sales / Showroom	Leased	1,318
Marietta, Georgia	Sales / Showroom	Leased	2,129
New York, New York	Sales / Showroom	Leased	3,800
Newport Beach, California	Sales / Showroom	Leased	1,600
Richmond, Virginia	Sales / Showroom	Leased	1,783
San Francisco, California	Sales / Showroom	Leased	3,330
Westborough, Massachusetts	Sales / Showroom	Leased	120
Blaina, Gwent, Wales	Six Foot and Tile Finishing	Leased	3,000
Blaina, Gwent, Wales	Six Foot and Tile Finishing	Owned	32,000
Blaina, Gwent, Wales	Warehousing	Owned	14,000
Blaina, Gwent, Wales	Sales/Warehouse	Leased	4,860
Blaina, Gwent, Wales	Chemical Mixing	Leased	4,000
Blaina, Gwent, Wales	Sales / Showroom	Leased	5,500
Singapore	Sales / Showroom	Leased	1,265
Santa Ana, California	Warehouse Samples Administration	Leased	88,266
Santa Ana, California	Tufting Yarn Processing	Leased	102,758
New York, New York	Sales Office	Leased	1,578
Chicago, Illinois	Sales Office	Leased	300
Chicago, Illinois	Sales/Showroom	Leased	3,119
Troy, Michigan	Sales Office	Leased	180
Wrentham, Massachusetts	Sales Office	Leased	385
Truro, Nova Scotia, Canada	Administration Manufacturing Warehouse	Owned	365,000
Mississauga, Ontario, Canada	Sales / Showroom	Leased	2,306

10While Invista is an important vendor, it is believed that there are adequate alternative sources of supply from which the synthetic fiber requirement could be fulfilled including, but not limited to, nylon yarn produced by Extrusion. In addition to Invista, there are at least three major third party suppliers to the commercial carpet industry from whom the Company acquires yarn.

WeThe ~~have~~other asignificant ~~50% partnership~~raw ~~interest~~materials inused ~~Chroma~~by ~~Systems~~the ~~Partners,~~Company ~~which operates an 88,266 square foot carpet dyeing and finishing plant~~ in ~~Santa~~its ~~Ana, California. Monterey and the other partner have agreed to purchase~~ carpet ~~dyeing~~manufacturing ~~and~~process ~~finishing~~include ~~services~~coater ~~exclusively from Chroma at market prices. These service agreements can be canceled upon one-year’s notice and withdrawal from the partnership. In addition~~materials, ~~Monterey~~such ~~has~~as ~~agreed~~vinyl ~~to provide certain executive management and operational services at cost while~~resins ~~Chroma has agreed to provide Monterey with certain maintenance~~ and ~~utility~~primary ~~services at cost~~backing.

~~Raw~~The ~~Materials~~Company has not experienced a problem sourcing nylon, processed yarn or any other raw material used in the manufacture of carpet from suppliers and does not anticipate any difficulties in sourcing these raw materials in the future, although no assurances can be given.

~~Raw~~At ~~materials, including yarn, nylon and polypropylene chip, primary backing, coater materials, and dye chemicals, represent~~ the ~~single largest component of costs. Yarn comprises about one-third of the carpet~~ Company’s ~~cost structure~~yarn ~~and~~extrusion ~~in excess of 50.0% of total raw material costs. Historically~~facility, ~~we have been able to pass on yarn price increases in~~ the ~~ordinary~~significant ~~course~~raw ofmaterials ~~business~~are innylon ~~response~~and topolypropylene ~~published~~polymer ~~increases by major yarn~~ and ~~polymer~~dye ~~suppliers~~pigments. ~~Increases~~The inchips ~~the cost~~purchased ofare ~~petroleum-based~~used ~~raw materials could adversely effect us if we were unable~~ to ~~pass~~manufacture the ~~increase through to our customers. Unanticipated termination or interruption of our arrangement with our primary third-party supplier of~~ nylon ~~yarn~~and ~~could have~~polypropylene ~~a material adverse effect on us~~yarn. WeThe ~~use~~dye ~~DuPont~~and ~~6.6~~pigments ~~continuous~~give ~~filament~~the yarn color for solution ~~the~~dyed ~~majority of our products~~yarns.

~~Yarn~~Patents, isCopyrights ~~primarily purchased directly from DuPont to be processed through the yarn~~ and ~~dye~~Trademarks plant in Dalton or from outside yarn processors who process DuPont yarn prior to delivery. The unanticipated termination or interruption of the supply arrangement with DuPont could have a material adverse effect on us because of the cost and delay associated with shifting this business to another supplier. However, we believe that there are adequate alternative sources of supply from which we could fulfill our synthetic fiber requirement.

The Company owns numerous copyrights and patents in the United States and certain other ~~significant~~countries, ~~raw~~including ~~materials~~the ~~used~~Powerbond byRS uspatent, which expires in ~~our~~2008, ~~carpet~~and ~~manufacturing~~patents (process ~~include~~and ~~coater~~product) ~~materials,~~for ~~such~~the asER3 ~~vinyl~~backing ~~resins~~produced ~~and~~from environmental ~~primary~~programs, ~~backing~~which expire in 2014. WeThe ~~have~~Company ~~never~~also ~~experienced~~owns anumerous ~~problem~~registered ~~sourcing~~trademarks ~~nylon~~in the United States, ~~processed~~including ~~yarn~~Powerbond, orPowerbond ~~any~~RS ~~other~~and ~~raw~~ethos. ~~material~~Industry ~~used~~knowledge inand technology are considered more important to the ~~manufacture~~current ofbusiness than ~~carpet~~patents, ~~from~~copyrights ~~our~~or ~~suppliers~~trademarks and, doaccordingly, ~~not~~the ~~anticipate~~expiration ~~any~~of ~~difficulties~~existing inpatents ~~sourcing~~or ~~these~~loss ~~raw~~of ~~materials~~a incopyright ~~the~~or ~~future~~trademark will not have a material adverse effect on operations. However, the patents, trademarks, copyrights and trade secrets are actively maintained and enforced.

AtSeasonality our yarn extrusion plant, significant raw materials are nylon and polypropylene polymer and dye chemicals. The polymer purchased is used to manufacture nylon 6 and polypropylene yarn. The dyes and chemicals purchased are used as color pigments in the extrusion process. We have never experienced a problem sourcing nylon, polypropylene chip, dyes or chemicals from our suppliers and do not anticipate any difficulties in sourcing these materials in the future.

~~Patents~~The Company experiences seasonal fluctuations, ~~Copyrights~~with generally lower sales and ~~Trademarks~~gross profit in the first and fourth quarters of the fiscal year and higher sales and gross profit in the second and third quarters of the fiscal year. The seasonality of sales and profitability is primarily a result of disproportionately higher sales in the education end market during the summer months while schools generally are closed and floorcovering can be installed.

WeCustomers own numerous copyrights patents and trademarks in the United States and certain other countries, including our Powerbond RS patent which expires in 2008, and our recently-obtained patents (process and product) for the ER3 backing produced from our environmental programs, which expire in 2014. We consider our know-how and technology more important to our current business than our patents and, accordingly, believe that expiration of existing patents would not have a material adverse effect on our operations. However, we actively maintain and enforce patents and trade secrets. We also own numerous registered trademarks in the United States, including Powerbond and Powerbond RS.

~~Seasonality~~No single customer represented 10% or more of the Floorcovering segment’s sales for any year presented in the accompanying financial statements. In the Extrusion segment, the Company had two customers that represented more than 10% of the segment’s sales in fiscal 2005 and 2004, of which one also represented more than 10% of fiscal 2003 sales. Sales to the first customer represented 12.8%, 35.4% and 81.6% of total sales for fiscal 2005, 2004 and 2003, respectively. Sales to the second customer represented 22.9% and 14.0% of total sales for fiscal 2005 and 2004, respectively. No other Extrusion segment customers represented 10% or more of sales for any year presented in the accompanying financial statements.

~~The Company~~International ~~experiences~~Sales seasonal fluctuations, with generally lower sales and gross profit in the first and fourth quarters of the fiscal year and higher sales and gross profit in the second and third quarters of the fiscal year. The seasonality of sales and profitability is primarily a result of disproportionately higher education end market sales during the summer months while schools generally are closed and floorcovering can be installed.

International net sales of the Company were $37.2 million, or 11.4%, and $41.3 million, or 12.1%, of the Company’s total net sales for fiscal years 2005 and 2004, respectively. Canadian customers comprised $25.9, or 8.0%, and $31.0 million, or 9.1%, of total net sales for fiscal years 2005 and 2004, respectively, while the remaining international sales, primarily to customers in Southeast Asia, the U.K. and South America, were $11.3 million, or 3.4%, and $10.3 million, or 3.0%, in fiscal years 2005 and 2004, respectively.

Employees

At January 25 28, ~~2003~~2006, wethe Company had a total of 1,~~623~~ 523 employees, of which 1,~~072~~022 were hourly and ~~591~~501 salaried. WeThe ~~have~~Company experienced no work stoppages and ~~believe~~it ~~that~~is ~~our~~believed that employee relations are good. All ~~of our~~ employees are non-union with the exception of ~~Crossley’s~~ approximately ~~222~~350 manufacturing workers in Canada that ~~which~~ are ~~unionized~~subject to a collective bargaining agreement. The collective bargaining agreement ~~which~~that represents this union expires on June 30, ~~2003~~2007. ~~We are not aware of any discussions or attempts to organize the workforce within any of our other facilities.~~

We7 have made a significant investment in our employees. In addition to ongoing quality training seminars, we also offer General Equivalency Diploma (GED) tutoring. We believe our employee turnover and absentee rates are low compared to our competitors. Benchmarking surveys of quality performance and monthly meetings of employees to share manufacturing initiatives and ideas are reflective of a motivated workforce and a unique partnership culture.

EnvironmentalTable Mattersof Contents

~~Our~~Environmental ~~operations~~Matters are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. The environmental management systems of our floorcovering manufacturing facilities are certified under ISO 14001.

~~Financial~~The ~~Information~~Company’s ~~About~~operations ~~Operating~~are ~~Segments~~subject to federal, state and ~~Geographic~~local ~~Areas~~laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on the financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. The environmental management systems of the floorcovering manufacturing facilities are certified under ISO 14001.

~~The~~Financial ~~Company operates in two industry segments: floorcoverings and extrusion.~~ Information ~~relating~~About toOperating ~~the~~Segments ~~Company’s two operating segments can be found in Note 15 to the Company’s consolidated financial statements for the year ended January 25, 2003. Certain information concerning our net sales~~ and Geographic ~~long-lived~~Areas ~~assets by geographic areas can also be found in Note 15.~~

The Company operates in two industry segments: Floorcoverings and Extrusion. Information relating to the Company’s two operating segments can be found in Note 14 to the Company’s consolidated financial statements for the year ended January 28, 2006, contained herein in Part II, Item 8. 2Certain information concerning net sales and long-lived assets by geographic areas can also be found in Note 14. ~~Properties~~

~~For~~Available ~~information~~Information ~~concerning the principal physical properties of the Company, see “Item 1. Business—Manufacturing and Facilities.”~~

~~Item~~The 3Company electronically files periodic reports (Forms 10-K, 10-Q and 8-K) with the Securities and Exchange Commission (“SEC”). ~~Legal~~ ~~Proceedings~~The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company also makes its filings available, free of charge, through its website, www.tandus.com, as soon as reasonably practical after the electronic filing of such material with the SEC.

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

The Company isprovides ~~subject~~its tostockholder ~~federal,~~with ~~state,~~unaudited ~~and~~interim ~~local laws~~ and ~~regulations~~annual ~~concerning~~financial ~~the~~information ~~environment.~~that Inhas ~~the~~been ~~opinion~~examined ofand ~~the~~reported ~~Company’s management, based~~ on ~~the~~with ~~facts~~an ~~presently~~opinion ~~known~~expressed toby ~~it,~~ the ~~ultimate~~ ~~outcome of any environmental matter is not expected to have a material adverse effect on the~~ Company’s ~~financial~~independent ~~condition or results of operations~~auditor.

Item 4 1A. ~~Submission~~ ofRisk ~~Matters~~Factors ~~to A Vote of Security Holders~~

~~None~~Raw materials price increases may reduce results of operations.

12The cost of raw materials represents the single largest component of the Company’s manufacturing costs. Of the raw materials used, yarn constitutes in excess of one half of total raw materials costs. Increases in the costs of raw materials could adversely affect profitability. Although pricing may be increased in an effort to offset increases in raw material costs, such adjustments may not be sufficient to, or occur in a timely manner such as to, prevent a materially adverse effect on results of operations and cash flows.

~~PART~~Fuel IIand energy price increases may reduce results of operations.

~~Item~~The 5Company’s manufacturing operations and shipping needs require the use of substantial amounts of electricity, natural gas, and petroleum based products, which are subject to price fluctuations due to changes in supply and demand. ~~Market~~ ~~for~~Significant ~~Registrant~~increases in the cost of these commodities may have adverse effects on the Company’s ~~Common~~results ~~Equity~~of operations and ~~Related~~cash ~~Stockholder~~flows ~~Matters~~ should the Company be unable to pass these increases to its customers through means of price increases in a timely manner.

AsThe ~~of April 24, 2003, there was one holder of record of the~~ Company’s ~~common stock. There~~ is nosubject ~~public~~to ~~trading~~federal, ~~market~~state ~~for~~and ~~the~~local ~~Company’s~~laws ~~common~~and ~~stock.~~regulations ~~The~~relating ~~Company has not historically paid dividends due~~ to ~~our~~environmental ~~philosophy of repaying debt with excess cash~~matters.

~~The~~While ~~following~~the ~~table~~costs ~~provides~~of complying ~~information~~with asenvironmental protection laws and regulations have not had a material adverse impact on the financial condition or results of ~~December~~operations 31of the Company in the past, ~~2002,~~ ~~with~~changes ~~respect~~in tolaws ~~compensation~~and ~~plans~~regulations ~~under~~or ~~which~~the ~~Tandus~~discovery ~~Group~~of ~~equity~~new ~~securities~~information could ~~are~~have ~~authorized~~a ~~for~~potential ~~issuance~~future adverse effect.

~~Equity~~The ~~Compensation~~Company ~~Plan~~is ~~Information~~subject to foreign currency risk.

Plan category	Number of securitiesto be issued uponexercise ofoutstanding options, warrants and rights	Weighted-averageexercise price of outstanding options, warrants and rights	Number of securities remaining available forfuture issuance underequity compensationplans excluding securities already issued
Equity compensation plans approved by shareholders(1)	57,061.64	$35.70	4,807.38
Equity compensation plans not approved by shareholders	—	—	—
Total	57,061.64	$35.70	4,807.38

The Company has foreign operations principally located in the United Kingdom, Canada and Asia that transact business in their local currencies. Significant changes in foreign exchange rates may have an adverse effect on the Company’s financial position or results of operations. In addition to foreign exchange rates, changes in foreign economic conditions, laws and regulations and political situations may contribute to adverse effects.

~~(1)~~8 ~~Consists of 57,061.64 shares subject to awards granted under Tandus’ 2001 Executive and Management Stock Option Plan.~~

13Table of Contents

~~Item~~ 6Item 1B. ~~Selected~~ ~~Financial~~Unresolved ~~Data~~Staff Comments

~~The following data is qualified in its entirety by the consolidated financial statements of the Company and other information contained elsewhere herein~~None. The financial data as of and for the years ended January 30, 1999, January 29, 2000, January 27, 2001, January 26, 2002 and January 25, 2003 have been derived from the audited financial statements of the Company. The following financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing elsewhere herein.

	Fiscal Year Ended(2)
	January 30, 1999 (Fiscal 1998)(1)			January 29, 2000 (Fiscal 1999)(3)			January 27, 2001 (Fiscal 2000)			January 26, 2002 (Fiscal 2001)			January 25, 2003 (Fiscal 2002)(4)
	(Dollars in thousands)
Operating Data:
Net sales	$	191,079		$	262,148		$	341,293		$	322,036		$	321,165
Costs of goods sold		119,156			169,214			219,969			207,036			211,020
Gross profit		71,923			92,934			121,324			115,000			110,145
Selling, general and administrative expenses		38,514			52,509			70,083			66,606			67,248
Goodwill and other intangibles amortization(5)		7,375			7,898			8,066			9,946			5,461
Recapitalization compensation charge(6)		—			—			30,223			—			—
Operating income		26,034			32,527			12,952			38,448			37,436
Equity in earnings of Chroma		—			1,215			2,293			1,534			1,733
Net interest expense(7)		14,715			16,399			28,592			24,193			23,910
Net income (loss)(8)	$	6,438		$	10,072		$	(8,558	)	$	8,284		$	5,781
Other Financial Data:
Adjusted EBITDA(9)	$	39,278		$	49,363		$	62,888		$	59,834		$	53,820
Depreciation and amortization		13,244			15,708			17,648			17,894			14,452
Capital expenditures		7,972			8,378			10,702			8,224			9,027
Cash Flows Data:
Net cash provided by (used in) operating activities	$	19,514		$	27,590		$	33,187		$	38,089		$	25,698
Net cash used in investing activities		(12,680	)		(61,055	)		(9,365	)		(6,974	)		(42,265	)
Net cash provided by (used in) financing activities		(10,322	)		35,368			(22,185	)		(30,632	)		31,240
Balance Sheet Data (end of period):
Total assets	$	215,414		$	288,288		$	301,663		$	270,433		$	318,413
Long-term debt		132,220			173,671			212,093			185,197			218,666

Item 2. Properties

~~(1)~~For Weinformation ~~acquired~~concerning ~~Advance~~the ~~Carpet~~principal ~~Tiles,~~physical ~~Ltd.~~properties ~~in June 1998. The results~~ of ~~operations~~the ofCompany, ~~this~~see ~~acquired~~“Item ~~business~~1. Business ~~have~~– ~~been~~Manufacturing ~~included~~and inFacilities” ~~our~~contained ~~consolidated financial statements since its date of acquisition~~herein.

13 Item 3.1 Legal Proceedings

Employers Mutual Insurance Companies (2“EMC”) ~~Our~~filed ~~results~~suit ofin ~~operations~~the United States District Court for ~~periods~~the ~~prior~~Southern District of Iowa on August 6, 2002 alleging that carpet tile sold by the Company to ~~acquisitions~~EMC ~~may~~in ~~not~~1996 beand ~~comparable~~1997 experienced premature wearing and discoloration and asserted that the Company should pay damages based upon theories of violation of warranties, negligence and fraud. On March 18, 2004, the jury entered a verdict in favor of the Company on the fraudulent misrepresentation and fraudulent nondisclosure claims and in favor of EMC on the express oral warranty and implied warranty of fitness for particular purpose and awarded EMC $0.8 million in damages for full replacement of this carpet. The Company appealed and on August 16, 2005, the appellate court granted the Company’s appeal. Subsequently, on September 12, 2005, EMC agreed to ~~our~~terminate ~~results~~its suit, releasing the Company of ~~operations~~all liability for ~~subsequent~~damages. ~~periods~~Accordingly, the Company released the litigation accrual related to this suit in full in the third quarter of fiscal 2005.

~~(3) We acquired~~ Monterey Carpets, Inc., (“Monterey”) in ~~June~~connection ~~1999~~with ~~and~~its ~~Crossley~~previous ~~Carpet~~50% ~~Mills~~ownership ~~Limited~~interest in ~~July~~Chroma ~~1999~~Systems Partners (“Chroma”), was a co-defendant in an alleged claim by Enron Energy Services, Inc. ~~The~~(“Enron”) ~~results~~that ofChroma ~~operations~~and ofits ~~these~~partners ~~acquired~~were ~~businesses~~liable ~~have~~for ~~been~~amounts ~~included~~related into ~~our~~certain ~~consolidated~~energy ~~financial~~contracts ~~statements~~which ~~since~~existed ~~their~~between ~~respective~~Chroma ~~dates~~and Enron prior to the filing of ~~acquisition~~Enron’s Chapter 11 proceedings. ~~Our~~During ~~results~~the third quarter of ~~operations~~fiscal ~~for~~2005, ~~periods~~the ~~prior~~Company toentered ~~these~~into ~~acquisitions~~a ~~may~~$0.4 ~~not~~million besettlement ~~comparable~~agreement tothat ~~our~~was ~~results~~approved by the bankruptcy court that was overseeing Enron’s bankruptcy case and relieved the Company of ~~operations~~any ~~for~~future liability ~~subsequent~~related ~~periods~~to this matter. During fiscal 2004, Monterey terminated its partnership interest in Chroma as part of the Facility Maximization.

On September 18, 1998, James Bradley Thomason (4“Thomason”) Wefiled ~~acquired~~an ~~CAF~~action ~~Extrusion~~against Linda Gomez Whitener, ~~Inc~~Steve Whitener, and Gomez Floor Covering (the “Gomez Defendants”), the Company, and Mannington Commercial. inThomason alleged ~~May~~that ~~2002~~the Gomez Defendants had breached a contract with Thomason to pay him certain commissions and had conspired with the Company and Mannington to cut Thomason out of several carpet installation transactions stemming from a carpet-buying contract held by the Texas General Services Commission for State of Texas agencies (the “Contract”). Thomason settled his claims against the Gomez Defendants and Mannington Commercial. The ~~results~~Court granted the Company’s motion for summary judgment and as a result, all of ~~operations~~Thomason’s claims against the Company were dismissed. The appellate court affirmed the lower court ruling on all points, except for a claim of quantum meruit (value of services where no contract exists) related to having C&A products listed on the ~~acquired~~Contract. ~~business~~That ~~has~~claim ~~been~~was ~~included~~tried before a jury and on February 10, 2006, the jury entered a verdict in ~~our~~favor ~~consolidated~~of ~~financial~~the ~~statements~~plaintiff ~~since~~in ~~their~~the amount of $1,050,000. Under Texas law, the plaintiff may also make a claim for attorney’s fees and pre-judgment interest. As of the date of ~~acquisition~~this report, the Court has not entered judgment on the jury verdict or the claims for attorneys’ fees or prejudgment interest. The Company has filed a motion to overturn the jury verdict. To date, no ruling has been issued on this motion.

~~(5)~~Should Inthe Company’s motion to overturn the ~~fourth~~jury ~~quarter~~verdict not be granted, the Company believes it has meritorious grounds to seek reversal of ~~fiscal~~the ~~2001~~judgment on appeal, and the Company intends to vigorously prosecute an appeal of the jury verdict and any award of attorney’s ~~United~~fees ~~Kingdom~~and ~~subsidiary~~prejudgment ~~recorded~~interest athat may ~~non-cash~~be ~~impairment~~granted ~~charge~~by ofthe $2Court.2 ~~million~~The ~~relating~~prosecution toof the ~~investment~~appeal could result in ~~its~~several ~~wholly-owned~~possible ~~subsidiary,~~outcomes: ~~Advance~~a ~~Carpet~~reversal ~~Tiles~~of the jury verdict, ~~Ltd.~~a ~~The~~reversal ~~impairment~~and ~~charge~~remand ~~consisted~~for a new trial, a modification of the ~~write-off~~judgment ofstriking all ~~goodwill~~or ~~recorded~~a atportion of the ~~initial~~jury verdict, ~~acquisition~~attorney’s ~~date.~~fees ~~The~~or ~~remaining~~prejudgment ~~investment~~interest ~~value~~awarded ~~approximates~~by the ~~value~~Court or an affirmation of ~~net~~the ~~assets~~judgment as ~~determined~~entered by ~~third-party~~the ~~appraisals~~Court. The Company has recorded an accrued liability of $1,050,000 related to this case in its accompanying statement of financial condition as of January 28, 2006.

~~(6)~~On AsJune 21, ~~part~~2005, ofthe Company filed in the ~~January~~United ~~2001~~States ~~recapitalization~~District Court for the Northern District of Georgia, weRome, ~~incurred~~Georgia, Division a ~~non-recurring~~joint ~~compensation~~lawsuit ~~charge~~with Shaw Industries Group, Inc. (“Shaw”) and Mohawk Industries, Inc. (“Mohawk”) against Interface Inc. (“Interface”), regarding a patent on a particular pattern of carpet ~~approximately~~tile ~~$30~~that Interface recently received (the “Rome Action”).2 ~~million~~The ~~for~~Rome ~~fiscal~~Action ~~2000~~asks ~~relating~~the court to declare that the ~~cancellation~~Interface ofpatent ~~all~~is ~~our~~invalid, ~~parent~~unenforceable ~~company’s~~and ~~outstanding~~not ~~options~~infringed. ~~This~~Interface ~~charge~~and ~~represents~~certain of its affiliated companies, on the same ~~difference~~day, ~~between~~filed separate suits in Atlanta, Georgia against the ~~fair~~Company ~~market~~and ~~value~~other carpet manufacturers asserting infringement of the ~~parent~~aforementioned ~~company~~patent. ~~common~~In ~~stock~~response ~~issuable~~to ~~upon~~motions ~~exercise~~filed ofboth in the ~~options~~Rome Action and with the ~~exercise~~court ~~price~~in ofAtlanta, Interface’s ~~these~~suits ~~options~~against the Company, Shaw and Mohawk were transferred to Rome, Georgia and consolidated with the Rome Action. The Company, Shaw and Mohawk remain as plaintiffs in the Rome Action. To date, no substantive issues have been addressed by the court. The Company denies liability and intends to vigorously defend this matter.

~~(7)~~9 Net interest expense for the year ended January 26, 2002 includes $5.2 million for the changes in fair market value of our interest rate hedging arrangements relating to our senior credit facility. These hedging arrangements were cancelled in connection with the offering of the outstanding notes.

(8)Table Included in net income for fiscal 2002 is a non-cash charge of $3.2 million for the cumulative effect of a change in accounting principle related to goodwill as discussed in Note 3 to the financial statements. If the Company had applied the non-amortization provisions of SFAS No. 142 for all periods presented, net income would have increased by $1.5 million in fiscal 1998, $2.2 million in fiscal 1999, $2.6 million in fiscal 2000 and $2.6 million in fiscal 2001.Contents

~~(9)~~From ~~Adjusted~~time ~~EBITDA~~to istime ~~defined as earnings before interest, taxes, depreciation and amortization plus~~ the ~~cumulative~~Company ~~effect~~is ofsubject ~~change~~to inclaims ~~accounting principle, Chroma cash dividends,~~ and ~~minority~~suits ~~interest~~arising in ~~income~~the ofordinary ~~subsidiary~~course ~~less equity in earnings~~ of ~~Chroma~~business, ~~plus~~including workers’ ~~the recapitalization~~ compensation ~~charge~~ and aproduct ~~non-cash~~liability ~~charge relating to goodwill impairment write-off for our acquisition of Advance Carpet Tiles~~claims, ~~Ltd.~~which ~~Adjusted~~may ~~EBITDA~~or ismay ~~presented~~not ~~because~~be ~~such~~covered ~~measures are commonly used~~ by ~~certain investors and analysts to analyze a company’s ability to service debt~~insurance. WeManagement ~~utilize~~believes ~~Adjusted~~that ~~EBITDA~~the asvarious ~~(a)~~asserted aclaims ~~benchmark for our annual budget~~ and ~~our~~litigation ~~long range plan, (b) a valuation method for potential acquisitions and (c) a measure to determine whether we are~~ in ~~compliance~~which ~~with~~the ~~our~~Company ~~senior credit facility debt covenants. However, Adjusted EBITDA~~ is ~~not~~currently ainvolved ~~measure~~will ~~of financial performance under generally accepted accounting principles and should~~ not behave ~~considered an alternative to operating income or net income as~~ a ~~measure~~material ofadverse effect ~~operating~~on ~~performance~~its ~~or to net cash provided by operating activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these~~ financial ~~statements~~position ~~may~~or ~~not~~results ~~be comparable to those disclosed by other companies. In the Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operation, a reconciliation from net income (loss) to Adjusted EBITDA is provided~~operations.

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

~~Item 7~~None. ~~Management’s~~ ~~Discussion and Analysis of Financial Condition and Results of Operations~~

~~General~~10

TheTable followingof discussion and analysis should be read in conjunction with and is qualified in its entirety by reference to our consolidated financial statements and the accompanying notes. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons. Contents

~~Overview~~ PART II

~~Based on annual sales and product brands, Collins & Aikman Floorcoverings, Inc~~ Item 5. ~~(the~~Market ~~“Company”), a Delaware Corporation, is a leading manufacturer of floorcovering products~~ for ~~the North American specified commercial carpet market. The Company~~Registrant’s ~~floorcovering~~Common ~~products include (i) vinyl-backed six-foot roll carpet and modular carpet tile~~Equity, ~~and~~Related ~~(ii)~~Stockholder ~~high~~Matters ~~style tufted~~ and ~~woven~~Issuer ~~broadloom~~Purchases ~~carpet. The Company designs, manufactures and markets its C&A, Monterey and Crossley brands under the “Tandus Group” name for a wide variety~~ of ~~end~~Equity ~~markets,~~Securities including corporate office, education, healthcare, government facilities and retail stores. Because of the Company’s diversity of its end markets, management believes its business tends to be less cyclical than that of many of its competitors, which rely more heavily on the corporate market. The ability to provide a “package of product offerings” in various forms, coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom and Asia.

~~The~~As ~~Company is a wholly owned subsidiary~~ of ~~Tandus Group~~April 27, ~~Inc. (“Tandus”)~~2006, ~~formerly~~there ~~known~~was asone ~~CAF~~holder ~~Holdings,~~of ~~Inc.~~record ~~Subsequent to a recapitalization transaction on January 25, 2001, a majority~~ of ~~Tandus~~the Company’s ~~outstanding~~common ~~capital~~ stock. There is ~~controlled~~no bypublic ~~investment~~trading ~~funds managed~~market byfor ~~Oaktree~~the ~~Capital~~Company’s ~~Management,~~common ~~LLC (“Oaktree”) and Banc of America Capital Investors (“BACI”)~~stock.

The following table provides information as of January 28, ~~2001~~2006, ~~Recapitalization~~with respect to compensation plans under which Tandus Group equity securities are authorized for issuance.

On January 25, 2001, Tandus Group consummated a recapitalization transaction pursuant to which Oaktree Fund, BACI and their co-investors acquired an 83.4% ownership interest in Tandus Group for approximately $192.5 million and Tandus Group’s management and other existing stockholders retained a 16.6% ownership interest. The transaction was treated as a recapitalization whereby the assets and liabilities of Tandus Group remained at their historical cost.


	Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans excluding securities already issued
Equity compensation plans approved by shareholders (1)	57,061.64	$	35.70	14,379.49

Equity compensation plans not approved by shareholders	—		—	—

Total	57,061.64	$	35.70	14,379.49

~~As part of the recapitalization, we~~ (i1) ~~incurred~~Consists ~~a non-recurring compensation charge~~ of ~~approximately $30~~57,061.264 ~~million~~shares ~~representing~~subject ~~the~~to ~~difference~~awards ~~between~~granted ~~the~~under ~~fair market value of the~~ Tandus Group’s ~~common stock~~2001 ~~issuable~~Executive ~~upon exercise of the options cancelled in connection with the recapitalization~~ and ~~the~~Management ~~exercise~~Stock ~~price~~Option ~~of the options; (ii) recorded an extraordinary loss on early extinguishment of debt of $0~~Plan.6 million, net of tax expense of $0.4 million, consisting of the write-off of deferred financing costs associated with the repayment of our prior senior credit facility; and (iii) recorded an extraordinary loss on early extinguishment of debt of $6.0 million, net of tax benefit of $4.2 million, consisting of the write-off of deferred financing costs associated with the repurchase of approximately $84.8 million of our 10.0% senior subordinated notes due 2007 ($250,000 of which are still outstanding) and a premium paid to the holders of those notes of $7.4 million. In October 2001, we paid a $5.1 million post-closing purchase price adjustment relating to the recapitalization, which was funded out of cash flow from operations. Additionally, prior to the recapitalization, during fiscal 2000, we repurchased $6.5 million of the 10.0% senior subordinated notes due 2007 in the open market, resulting in an extraordinary loss of approximately $69,000, net of tax benefit of approximately $46,000, which included the write-off of a pro rata share of deferred financing cost associated with the issuance of the 10.0% senior subordinated notes. These extraordinary loss items have been reclassified to conform with the presentation required by SFAS No. 145 as discussed in Note 3.

~~Acquisitions~~Dividends

OnThe ~~May~~declaration 8and payment of dividends is at the discretion of the Board of Directors and depends upon, ~~2002~~among ~~our~~other ~~wholly~~things, ~~owned~~investment ~~subsidiary~~policy and opportunities, ~~CAF~~results ~~Extrusion~~of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by the ~~Inc~~Board at the time of its determination. ~~(“Extrusion”),~~Such ~~acquired~~other afactors ~~yarn~~include ~~extrusion~~certain ~~manufacturing~~limitations ~~plant~~in ~~located~~covenants contained in ~~Calhoun,~~the ~~Georgia~~Company’s ~~from~~senior credit facility and in the indentures governing the public indebtedness. The ~~Dixie~~Company paid no dividends to its parent, Tandus Group, Inc., ~~(“Dixie”)~~in ~~for~~fiscal ~~approximately~~years 2005 and 2004.

1611

$32.4 million.Table Inof addition, Extrusion purchased the real property on which the plant is located from a third party for approximately $2.4 million. In connection with the transaction, we entered into a three-year supply agreement with Dixie. The acquisitions were funded from cash on hand. Contents

~~In July 1999, we acquired all the outstanding capital stock of Crossley Carpet Mills Limited for $22.1 million, including $17.5 million in~~ ~~assumed debt~~Item 6. ~~Based~~Selected inFinancial ~~Nova~~Data ~~Scotia, Canada, Crossley is a manufacturer of tufted and woven broadloom carpet.~~

InThe ~~June~~following ~~1999,~~data weis ~~acquired~~qualified ~~all~~in ~~the~~its ~~outstanding~~entirety ~~capital~~by ~~stock~~the consolidated financial statements of ~~Monterey~~the ~~Carpets,~~Company ~~Inc.~~and ~~for~~other ~~$50.8~~information ~~million.~~contained ~~Based~~elsewhere inherein. ~~California,~~The ~~Monterey~~financial ~~is a~~data ~~recognized~~as ~~design~~of ~~leader~~and infor the ~~high-style,~~years ~~fashion-oriented~~ended ~~sector~~January 28, of2006, January 29, ~~the~~2005, January 31, ~~commercial~~2004, January 25, ~~broadloom~~2003 ~~carpet~~and ~~market.~~January 26, ~~Through Monterey we~~ 2002 have abeen ~~50.0%~~derived ~~partnership~~from ~~interest~~the inaudited ~~Chroma,~~financial ~~which~~statements ~~owns~~of ~~and~~the ~~operates~~Company. aThe ~~carpet~~following ~~dyeing~~financial ~~and~~data ~~finishing~~should ~~plant~~be read in ~~Santa Ana,~~conjunction ~~California~~with Item 7. ~~Under~~“Management’s ~~the~~Discussion ~~terms~~and Analysis of ~~the~~Financial ~~partnership~~Condition ~~agreement,~~and ~~Chroma~~Results isof Operations” ~~required~~and tothe ~~distribute~~consolidated ~~all~~financial ofstatements ~~its~~and ~~earnings~~notes onthereto acontained ~~quarterly~~in ~~basis~~Item 8 ~~to its partners~~herein.

In August 1998, we entered into a joint venture with a group of individuals to form Collins & Aikman Floorcoverings Asia Pte. Ltd. Based in Singapore, the company markets and distributes our products throughout the Asia Pacific region. We obtained a 51.0% ownership in the new company.


	Fiscal Year Ended (1)
	January 28, 2006 (Fiscal 2005)			January 29, 2005 (Fiscal 2004)			January 31, 2004 (3) (Fiscal 2003)			January 25, 2003 (2) (Fiscal 2002)			January 26, 2002 (Fiscal 2001)
	(Dollars in thousands)
Operating Data:
Net Sales	$	325,056		$	340,474		$	311,057		$	321,165		$	322,036
Cost of Goods Sold		227,868			226,601			209,798			211,020			207,036

Gross Profit		97,188			113,873			101,259			110,145			115,000
Selling, General and Administrative		80,337			78,227			73,356			67,248			68,848
Other Intangible Asset Amortization (4)		2,620			3,112			8,846			5,461			7,704

Operating Income (Loss)		14,231			32,534			19,057			37,436			38,448
Equity in Earnings of Affiliate		—			893			1,386			1,733			1,534
Net Interest Expense (5)		20,133			20,494			21,343			23,910			24,193
Net Income (Loss) (6)		(4,629	)		6,703			1,234			5,781			8,284

Other Financial Data:
Adjusted EBITDA (7)	$	36,569		$	51,024		$	42,701		$	53,820		$	59,834
Depreciation and Amortization		12,927			13,582			16,537			14,452			17,894
Capital Expenditures		10,461			11,862			8,830			9,027			8,224
Dividend to Parent (8)		—			—			2,263			3,153			4,615

Cash Flow Data:
Net Cash Provided by (Used in) Operating Activities	$	(4,646	)	$	27,245		$	20,019		$	27,482		$	38,333
Net Cash Used In Investing Activities		(10,091	)		(10,848	)		(5,308	)		(42,265	)		(6,974	)
Net Cash Provided By (Used In) Financing Activities		(5,184	)		(1,523	)		(24,253	)		31,240			(30,632	)

Balance Sheet Data:
Total Assets	$	302,528		$	318,610		$	299,148		$	319,015		$	270,433
Long-Term Debt		197,673			207,536			207,516			218,666			185,197

In(1) ~~June~~The ~~1998,~~Company’s weresults ~~acquired all~~ of ~~the~~operations ~~outstanding~~for ~~capital~~years ~~stock~~prior ofto ~~Advance~~acquisitions ~~Carpet~~may ~~Tiles,~~not ~~Ltd.,~~be acomparable ~~manufacturer~~to ofthe ~~carpet~~Company’s ~~backing,~~results ~~from Headlam~~of ~~Group~~operations ~~PLC~~ for ~~$5.6~~subsequent ~~million, including assumed debt of $0~~years.~~6 million.~~

~~Results~~(2) The Company acquired Extrusion in May 2002. The results of ~~Operations~~the acquired business have been included in the Company’s consolidated financial statements since the date of acquisition.

(3) The ~~following~~fiscal ~~table~~year ~~sets~~ended ~~forth~~January ~~certain~~31, ~~operating~~2004 ~~results~~included as53 ~~a percentage of net sales for the periods indicated~~weeks.

	Fiscal Year Ended
	January 27, 2001(fiscal 2000)		January 26, 2002(fiscal 2001)		January 25, 2003 (fiscal 2002)
	(Percentage of net sales)
Net sales	100.0	%	100.0	%	100.0	%
Cost of goods sold	64.5		64.3		65.7
Gross profit	35.5		35.7		34.3
Selling, general and administrative expenses	29.4		21.4		20.9
Goodwill and other intangible assets amortization	2.4		2.4		1.7
Operating income	3.7		11.9		11.7
Net interest expense	8.4		7.5		7.4
Net (loss) income	(2.5	)%	2.6	%	1.8	%

(4)

In the fourth quarter of fiscal 2001, the Company’s U.K. subsidiary recorded a non-cash impairment charge of $2.2 million related to its investment in its wholly-owned subsidiary, Advanced Carpet Tiles, Ltd. The impairment charge consisted of the write-off of all goodwill recorded at the initial acquisition date. In the fourth quarter of fiscal 2003, Extrusion recorded a non-cash impairment charge of $2.6 million related to a supply agreement. The impairment charge was to reduce the net carrying value of the supply agreement to its fair value.

~~Fiscal~~(5) ~~Year~~Net ~~Ended~~interest ~~(52 weeks)~~expense for the year ended January 2526, ~~2003~~2002 included $5.2 million for the changes in fair market value of the Company’s interest rate hedging arrangements relating to its 2001 Senior Credit Facility. These hedging arrangements were cancelled in connection with the offering of the outstanding $175.0 million of the Senior Subordinated Notes (the “~~fiscal~~9.75% ~~2002~~Notes”) .

~~Compared~~12 ~~with Fiscal Year Ended (52 weeks) January 26, 2002 (“fiscal 2001”)~~

Net Sales. NetTable sales for fiscal 2002 were $321.2 million, a decrease of $0.8 million or 0.3%, from fiscal 2001 of $322.0 million. The decrease in net sales for fiscal 2002 was due to the continued slow demand throughout the specified commercial market in the United States. In particular, the demand in the corporate office and retail markets have been slow since 2001. For fiscal 2002, the Company’s net sales to the corporate office and retail market decreased by 18.7% as compared to fiscal 2001. This decrease was offset by $23.2 million of net sales generated by the extrusion operation which was acquired May 8, 2002. Contents

~~Cost~~(6) ofIncluded ~~Goods~~in ~~Sold. Cost~~net ofincome ~~goods~~for ~~sold~~fiscal ~~increased~~2002 tois ~~$211.0~~a ~~million~~non-cash ~~in fiscal~~charge ~~2002~~of ~~from~~ $~~207~~3.02 million infor ~~fiscal~~the ~~2001,~~cumulative aneffect ~~increase~~ of ~~$4.0~~a ~~million~~change orin ~~1.9%.~~accounting Asprinciple arelated ~~percentage~~to ofgoodwill. ~~net~~If ~~sales,~~the ~~these~~Company ~~costs~~had ~~were~~applied ~~65.7%~~the ~~and~~non-amortization ~~64.3%~~provisions ~~for~~of ~~fiscal~~SFAS ~~2002~~No. ~~and fiscal 2001~~142, ~~respectively.~~“Goodwill ~~The~~and ~~increase~~Other ~~resulted~~Intangible ~~from~~Assets”, ~~the~~for ~~inclusion~~all ofperiods ~~the~~presented, ~~costs of~~net ~~the~~income ~~extrusion~~would ~~operation~~have ofincreased by $202.36 million. in fiscal 2001.

17(7) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization plus the cumulative effect of change in accounting principle, Chroma cash dividends, non-cash charges or expenses (other than the write down of current assets), minority interest in income (loss) of subsidiary, costs related to acquisitions and attempted acquisitions, less equity in earnings of Chroma and gain on forgiveness of debt. Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze a company’s ability to service debt. The Company utilizes Adjusted EBITDA as a benchmark for its annual budget and long range plan and as a valuation method for potential acquisitions. Consolidated EBITDA as defined under the Company’s Senior Credit Facility provides for additional adjustments. Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America and should not be considered an alternative to operating income or net income (loss) as a measure of operating performance or to net cash provided by (used in) operating activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to those disclosed by other companies. A reconciliation of net income (loss) to Adjusted EBITDA is presented in the following table:

Selling, General and Administrative Expenses. The Company’s selling, general and administrative expenses, excluding other intangible assets amortization of $5.5 million, in fiscal 2002 increased to $67.2 million, an increase of $0.6 million or 1.0% from $66.6 million for fiscal 2001, excluding goodwill and other intangible assets amortization of $7.7 million and a non-cash goodwill impairment charge of $2.2 million. As a percentage of sales, these expenses, excluding amortization and the impairment charge, were 20.9% for fiscal 2002 and 20.7% in fiscal 2001. The minimal increase was primarily due to increased professional services of $0.8 million and marketing expenses of $1.3 million, which was partially offset by foreign exchange gains of $1.5 million. The significant decrease in amortization expense is due to the Company’s adoption of SFAS No. 142 which requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually.


	Fiscal 2005			Fiscal 2004			Fiscal 2003			Fiscal 2002			Fiscal 2001
Net Income (Loss)	$	(4,629	)	$	6,703		$	1,234		$	5,781		$	8,284
Cumulative Effect of Change in Accounting Principle		—			—			—			3,240			—
Intangible Asset Impairment Charge		—			—			2,616			—			2,242
Income Tax Expense (Benefit)		(358	)		5,961			(2,147	)		6,788			9,204
Net Interest Expense		20,133			20,494			21,343			23,910			24,193
Gain on Forgiveness of Debt		—			—			—			(570	)		(1,728	)
Depreciation		10,307			10,470			10,307			8,991			10,190
Amortization		2,620			3,112			6,230			5,461			7,704
Chroma Cash Dividends		—			922			3,522			1,932			1,250
Equity in Earnings of Chroma		—			(893	)		(1,386	)		(1,733	)		(1,534	)
Minority Interest in Income (Loss) of Subsidiary		(24	)		97			13			20			29
Facility Maximization Costs		8,158			3,986			—			—			—
Non-Recurring Costs Associated With Successful Acquisition		—			—			969			—			—
Other Non-Cash Items		362			172			—			—			—

Adjusted EBITDA	$	36,569		$	51,024		$	42,701		$	53,820		$	59,834

Interest Expense. Net interest expense for fiscal 2002 decreased to $23.9 million from $24.2 million in fiscal 2001. Debt levels were higher during fiscal 2002 than fiscal 2001 due to the completion of the offering of the $175.0 million of senior subordinated notes (~~the “9.75% Notes”~~8) inDividend ~~February 2002. Additionally, fiscal 2002 includes a charge~~ to ~~interest~~parent ~~expense~~represents ofpayments ~~$2.6 million to reflect the write-off~~ of acertain ~~pro-rata share~~expenses ofattributable ~~deferred~~to ~~financing costs associated with the prepayment of term debt from proceeds of the 9.75% Notes offering~~ and ~~cash~~paid ~~generated~~ by ~~operations. The fiscal 2001 amount includes a charge to interest expense of $5.2 million to reflect~~ the ~~fair~~ ~~value of the~~ Company’s ~~interest~~on ~~rate~~behalf ~~hedging agreements. These agreements were terminated in February 2002. Also included in fiscal 2002 and fiscal 2001 net interest expense is interest income~~ of ~~$0.4~~its ~~million~~parent, ~~and~~Tandus ~~$0.1 million~~Group, ~~respectively.~~ Inc.

~~Net Income. Net~~13 ~~income for fiscal 2002 decreased to $5.8 million from $8.3 million in fiscal 2001. This was due to the combined result of the factors described above.~~

AdjustedTable EBITDA. Adjusted EBITDA represents earnings before interest, taxes, depreciation, and amortization plus the cumulative effect of change in accounting principle, Chroma cash dividends and minority interest in income of subsidiary less equity in earnings of Chroma, plus the recapitalization compensation charge and a non-cash charge relating to goodwill impairment write-off for our acquisition of Advance Carpet Tiles, Ltd. Adjusted EBITDA for fiscal 2002 decreased to $53.8 million from $59.8 million in fiscal 2001, a decrease of 10.1%. As a percentage of sales, Adjusted EBITDA was 16.8% in fiscal 2002 compared to 18.6% in fiscal 2001. Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze a company’s ability to service debt. The Company utilizes Adjusted EBITDA as (a) a benchmark for its annual budget and long range plan, (b) a valuation method for potential acquisitions, and (c) a measure to determine compliance with senior credit facility debt covenants. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to those disclosed by other companies. Contents

A Item 7. ~~reconciliation~~Management’s ~~from~~Discussion ~~net~~and ~~income~~Analysis toof ~~Adjusted~~Financial ~~EBITDA~~Condition isand asResults ~~follows:~~of Operations

	Fiscal Year Ended
	January 26, 2002			January 25, 2003
Net income	$	8,284		$	5,781
Cumulative effect of change in accounting principle		—			3,240
Non-cash goodwill impairment charge		2,242			—
Gain on forgiveness of debt		(1,728	)		(570	)
Income tax expense		9,204			6,788
Net interest expense		24,193			23,910
Depreciation and amortization		17,894			14,452
Chroma cash dividends		1,250			1,932
Equity in earnings of Chroma		(1,534	)		(1,733	)
Minority interest in income of subsidiary		29			20
Adjusted EBITDA	$	59,834		$	53,820

GENERAL

18The following management assessment should be read in conjunction with the consolidated financial statements and notes thereto contained herein in Item 8. With the exception of historical information, the discussions in this section contain forward-looking statements that involve certain risks and uncertainties that could cause future results to differ materially from those discussed below.

~~Fiscal~~Overview ~~Year Ended (52 weeks) January 26, 2002 (“fiscal 2001”)~~

~~Compared~~Collins & ~~with~~Aikman Floorcoverings, ~~Fiscal~~Inc. ~~Year~~(the ~~Ended~~“Company”), a Delaware corporation, is a manufacturer of floorcovering products for the North American specified commercial carpet market. The Company’s floorcovering products include (52i) vinyl-backed six-foot ~~weeks~~roll carpet and modular carpet tile and (ii) high-style ~~January~~tufted 27and woven broadloom carpets. The Company designs, ~~2001~~manufactures ~~(“fiscal~~and markets its C&A, Monterey and Crossley brands under the Tandus name for a wide variety of end ~~2000~~markets, including corporate offices, education, healthcare, government facilities and retail stores. The ability to provide a “package of product offerings”) coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions. The Company is headquartered in Georgia, with additional manufacturing locations in Canada, the United Kingdom and China.

~~Net Sales. Net~~The ~~sales~~Company ~~for~~is ~~fiscal~~a ~~2001~~wholly-owned ~~were~~subsidiary ~~$322.0~~of ~~million~~Tandus Group, Inc. As a ~~decrease~~result of ~~5.6%~~a ~~from~~recapitalization ~~$341.3~~transaction ~~million~~on ~~for~~January 25, ~~fiscal~~2001, ~~2000.~~investment ~~The~~funds ~~net~~managed ~~sales~~by ~~increase~~Oaktree inand ~~the~~BACI, ~~education~~specifically ~~end~~the ~~market~~Oaktree ofFund ~~3.5%~~and ~~was offset by~~ the ~~decline~~B inof ~~the~~A ~~corporate~~Fund, ~~end~~respectively, ~~market~~control ofa ~~12.8%~~majority ~~caused~~of by the ~~slowness~~outstanding incapital ~~the~~stock ~~overall~~of ~~U.S.~~Tandus ~~economy~~Group.

~~Cost~~Acquisitions of Goods Sold. Cost of goods sold decreased to $207.0 million for fiscal 2001 from $220.0 million for fiscal 2000, a decrease of 5.9% due to lower sales and management’s cost control initiatives. As a percentage of net sales, these costs declined to 64.3% for fiscal 2002 from 64.5% for fiscal 2001.

~~Selling,~~In ~~General~~August ~~and Administrative Expenses. Selling~~1998, ~~general~~the ~~and~~Company ~~administrative~~acquired ~~expenses, excluding goodwill and non-recurring charges, decreased to $66.6 million for fiscal 2001 from $70.1 million for fiscal 2000. As~~ a ~~percentage of net sales, these expenses increased slightly to 20~~51.70% ~~from~~interest ~~20.5%.~~in ~~These~~Collins & ~~lower~~Aikman ~~costs~~Floorcoverings ~~are~~Asia ~~primarily due to lower sample expense of $1~~Pte.4 ~~million, lower sales commissions of $1~~Ltd.4 ~~million~~(“C&A ~~resulting~~Asia”), ~~from~~a ~~lower~~start-up ~~sales~~commercial ~~and~~carpet distribution ~~lower~~venture ~~advertising~~in ~~and promotional expenses of $0~~Singapore.7 ~~million.~~On ~~Excluded~~December 30, ~~charges from selling~~2005, ~~general~~the ~~and~~Company ~~administrative~~purchased ~~expenses~~the ~~were~~remaining ~~goodwill and other intangibles amortization and a non-recurring charge for recapitalization compensation~~49.0% ~~Goodwill~~of ~~and~~C&A ~~other~~Asia ~~intangibles amortization increased~~ for ~~fiscal~~approximately ~~2001 to~~ $~~10.~~0.3 million ~~from $8~~.1 ~~million~~Historically, inthe ~~fiscal~~results ~~2000~~had ~~primarily~~been ~~due~~reported toon a ~~$2.2~~consolidated ~~million non-cash~~basis ~~goodwill~~with ~~impairment write-off charge relating to~~ the ~~Company’s United Kingdom subsidiary’s investment in its wholly-owned subsidiary, Advance Carpet Tiles, Ltd~~49.0% ~~The~~reflected ~~non-recurring recapitalization compensation charge of $30.2~~as ~~million~~minority ~~in fiscal 2000 related to the cancellation of all of our parent company’s outstanding options resulting from our January 2001 recapitalization~~interest.

~~Net~~Results ~~Interest Expense. Net interest expense for fiscal 2001 decreased to $24.2 million from $28.6 million for fiscal 2000. This decrease relates to $11.3 million in the write-off~~ of ~~financing~~Operations fees in fiscal 2000 due to the recapitalization transaction, partially offset by the inclusion in fiscal 2001 of $5.2 million for changes in fair market value of our interest rate hedging arrangements relating to our senior credit facility, which arrangements were cancelled.

~~Net~~The following ~~Income~~table ~~(Loss). Net~~sets ~~income~~forth ~~for~~certain ~~fiscal~~operating ~~2001~~results ~~was~~as ~~$8.3~~a ~~million~~percentage asof ~~compared~~net tosales afor ~~net~~the ~~loss~~periods ~~of $8~~indicated.6 ~~million~~Fiscal ~~for~~years ~~fiscal~~2005 ~~2000.~~and ~~This~~2004 ~~was~~contained ~~due~~52 toweeks ~~the~~while ~~combined~~fiscal ~~result~~year of2003 ~~the~~contained ~~factors~~53 ~~described above~~weeks.

Adjusted EBITDA. Adjusted EBITDA for fiscal 2001 was $59.8 million compared to $62.9 million for fiscal 2000. This was due to the combined result of the factors described above.


	Fiscal Year Ended
	January 28, 2006 (Fiscal 2005)		January 29, 2005 (Fiscal 2004)		January 31, 2004 (Fiscal 2003)
	(Percentage of net sales)
Net Sales	100.0	%	100.0	%	100.0	%
Cost of Goods Sold	70.1	%	66.6	%	67.4	%

Gross Profit	29.9	%	33.4	%	32.6	%
Selling, General and Administrative Expenses	24.7	%	23.0	%	23.6	%
Amortization	0.8	%	0.9	%	2.8	%

Operating Income	4.4	%	9.5	%	6.2	%

Net Interest Expense	6.2	%	6.0	%	6.9	%

Net Income (Loss)	(1.4	)%	2.0	%	0.4	%

A14 ~~reconciliation from net income to Adjusted EBITDA is a follows:~~

	Fiscal Year Ended
	January 27, 2001			January 26, 2002
Net income (loss)	$	(8,558	)	$	8,284
Non-cash goodwill impairment charge		—			2,242
Gain on forgiveness of debt		(1,816	)		(1,728	)
Income tax (benefit) expense		(3,040	)		9,204
Net interest expense		28,592			24,193
Recapitalization compensation charge		30,223			—
Depreciation and amortization		17,648			17,894
Chroma cash dividends		2,065			1,250
Equity in earnings of Chroma		(2,293	)		(1,534	)
Minority interest in income of subsidiary		67			29
Adjusted EBITDA	$	62,888		$	59,834

19Fiscal Year Ended January 28, 2006 (“fiscal 2005”)

~~Liquidity~~Compared ~~and~~with ~~Capital Resources~~Fiscal Year Ended January 29, 2005 (“fiscal 2004”)

~~The~~Net Sales. Net sales for fiscal 2005 were $325.1 million, a decrease of 4.5% from $340.5 million in fiscal 2004. Net sales of the Company’s ~~primary~~Floorcoverings ~~cash~~segment were $298.3 million for ~~needs~~fiscal ~~have~~2005 ~~historically~~as ~~been~~compared to $317.2 million for ~~operating~~fiscal ~~expenses~~2004, ~~working~~a ~~capital~~decrease of $18.9 million or 6.0%, ~~debt~~primarily ~~repayment~~attributable to the North American operations. Within these operations, the decrease in the Floorcoverings segment’s net sales was primarily attributable to a 17.6% decrease in broadloom sales combined with a 1.5% decrease in sales of structure-back carpets (six foot and ~~capital~~carpet ~~expenditures~~tile). The ~~Company~~decrease ~~has~~in ~~financed~~overall ~~its~~net ~~cash~~sales ~~requirements~~was primarily ~~through~~related ~~internally~~to ~~generated~~lost ~~cash~~broadloom ~~flow~~sales due to complications associated with the Facility Maximization, ~~borrowings~~as discussed more fully herein and in Note 11 of the ~~offering~~“Notes to Consolidated Financials Statements” contained herein in Item 8. During fiscal 2005, the Company’s delay in delivering products caused a decline in corporate end use sales. Additionally, federal budget pressures also resulted in reduced sales. The current year results reflect a decrease in both Institutional sales (Healthcare, Education and Government) and Corporate sales, including Retail, principally due to the items discussed above. Net sales of the 9Extrusion segment were $26.758 million for fiscal 2005 as compared to $23.3 million for fiscal 2004, an increase of $3.5 million or 15.0%. The ~~Notes~~increase in sales for the Extrusion segment was due to overall higher demand from the Extrusion segment’s external customers during fiscal 2005.

~~Net~~Cost ~~cash~~of ~~provided~~Goods bySold. ~~operating~~Cost ~~activities in~~of ~~fiscal~~goods ~~2002~~sold was $25227.79 million, ~~compared~~or to70.1% ~~net~~of ~~cash~~sales, ~~provided~~for offiscal 2005 as compared to $38226.16 million, or 66.6% of sales, in fiscal ~~2001~~2004. The ~~change~~increase iswas primarily due to athe ~~negative~~inclusion ~~impact~~in the fiscal 2005 expenses of $156.12 inmillion ~~net~~related ~~working~~to ~~capital.~~the ~~This~~Facility ~~decrease~~Maximization, ~~relates~~as ~~primarily~~compared to 2004 expenses of $42.36 million. ~~attributable~~(See tofurther discussion in “Liquidity and Capital Resources” contained herein and Note 11 of the ~~May~~“Notes to ~~2002~~Consolidated ~~acquisition~~Financial ofStatements” contained herein in Item 8.) Excluding the ~~yarn~~Facility ~~extrusion~~Maximization ~~plant~~costs, cost of goods sold for fiscal years 2005 and 2004 were $7221.67 million, ~~resulting~~or ~~from~~68.2% ~~accrued~~of ~~interest~~sales, onand ~~the~~$224.0 9million, or 65.758% ~~Notes~~of sales, respectively. ~~The~~Cost ~~Company~~of ~~invested~~sales in ~~working~~the ~~capital~~current ~~initially~~year ~~for~~was also impacted by a $0.5 million write-down related to inventory that was not transferred from the ~~extrusion~~Santa Ana, California facility to the Truro, Nova Scotia facility. In addition, the Company has also experienced increases in the prices of several raw materials, including yarns, resins, and ~~expects~~other ~~more~~agents ~~level~~and ~~working~~chemicals. ~~capital~~As ~~requirements~~a ~~going~~percentage of sales, the increase in costs of goods sold is primarily attributable to lower overall sales volume in ~~forward~~addition to the impact of rising raw material prices.

~~Net~~Selling, ~~cash~~General ~~used~~and inAdministrative ~~investing~~Expenses. ~~activities~~Selling, general inand administrative expenses for fiscal ~~2002~~2005 ~~was~~were $4280.3 million, ~~compared~~an toincrease $of 2.7% from $78.02 million in fiscal ~~2001~~2004. ~~The~~During ~~increase~~the inyear, ~~cash~~the ~~used~~Company inincurred ~~investing~~$1.1 ~~activities~~million ~~was~~of ~~primarily~~supplementary ~~due~~administrative costs related to the ~~acquisition~~delayed ofexit from the Santa ~~yarn~~Ana, ~~extrusion~~California ~~manufacturing~~facility, ~~plant~~$0.9 million in severance charges related to specific staffing reductions and ~~real~~recorded ~~property~~a on$0.4 ~~which~~million litigation settlement related to the ~~plant~~Company’s isprevious ownership interest in Chroma Systems Partners due to ~~located~~an ~~for~~alleged claim by Enron Energy Services, Inc. The Company also recorded a charge of $351.21 million related to a February 10, 2006 jury verdict in a litigation matter in Texas regarding a certain carpet-buying contract. ~~Capital~~(See ~~expenditures~~further ~~for~~discussion in ~~fiscal~~Note ~~2002~~16 ~~were~~of the “Notes to Consolidated Financial Statements” contained herein in Item 8 and Legal Proceedings in Part I, Item 3.) The Company incurred Facility Maximization costs of $92.0 million ~~compared~~during fiscal 2005 as compared to the prior year of $81.4 million. In addition, the Company experienced a decrease in the foreign currency transaction gain of $1.4 million and higher samples expense of approximately $1.0 million. These increases were partially offset by lower salaries, taxes and benefits of $2.8 million. ~~for~~As ~~fiscal~~a ~~2001~~percentage of sales, these expenses increased to 24.4% from 23.0% in the prior year.

~~Net~~Amortization. ~~cash~~Intangible ~~provided~~asset byamortization ~~financing~~decreased ~~activities~~to ~~in fiscal 2002 was~~ $~~31.~~2.6 million ~~compared~~for tofiscal ~~net~~2005 ~~cash~~as ~~used~~compared ofto $303.61 million infor fiscal ~~2001~~2004. The ~~increase~~ indecrease ~~cash provided by financing activities~~ was due ~~primarily~~ to the ~~issuance~~Company’s ofsupply ~~the~~agreement ~~9.75%~~being ~~Notes~~fully ~~and~~amortized ~~repayment~~as of ~~$125.0 million of the senior credit facility with a portion of the proceeds. Additionally, $8.0 million of the senior credit~~ ~~facility was prepaid during fiscal 2002 with internally generated cash. Subsequent to the fiscal year end~~April 30, ~~the Company prepaid $10~~2005.0 ~~million on the outstanding term borrowings.~~

~~The~~Gain ~~Company~~on ~~has~~Early ~~significant~~Extinguishment ~~indebtedness~~of ~~which~~Debt. ~~consists~~During offiscal ~~$175.0~~2005, ~~million~~the Company purchased in ~~senior~~the ~~subordinated~~open ~~notes~~market ~~due~~subordinated ~~2010;~~notes with a face value of $~~109~~10.0 million ~~senior~~for ~~credit~~an ~~facility~~aggregate ~~which,~~price atof ~~January~~$9.0 ~~25,~~million. ~~2003~~These ~~had~~notes anhave ~~outstanding~~been ~~balance~~classified ofas ~~$51~~defeased.0 ~~million~~The inCompany ~~term~~realized ~~loan~~a ~~borrowings;~~ $01.60 million ingain ~~seller’s~~on ~~notes~~the ~~from~~purchase, ~~the~~which ~~Company’s~~was ~~July~~partially ~~1999~~offset ~~acquisition~~by a write-off of ~~Crossley;~~a ~~$0.6~~portion ~~million~~of the indeferred ~~purchase~~financing ~~money~~fees ~~indebtedness;~~related ~~$0.0~~to ~~million~~these issuances in ~~revolving~~the ~~line~~amount of ~~credit borrowings and~~ $30.32 million ~~sinking funds bonds under Crossley~~.

InInterest ~~connection~~Expense. ~~with~~Net ~~our~~interest ~~January~~expense ~~2001~~for ~~recapitalization, we entered into a senior credit facility, which consisted of a $50.0 million tranche~~fiscal Ayears ~~term~~2005 ~~loan~~and ~~facility,~~2004 awas $~~156~~20.01 million ~~tranche B term loan facility~~ and a $5020.05 million, ~~revolving credit facility~~respectively, which included ainterest ~~letter-of-credit~~income ~~sublimit~~ of $~~15.~~0 ~~million~~.3 The proceeds from our senior credit facility were used to fund our January 2001 recapitalization, which included the retirement of certain previously outstanding senior and subordinated debt and the payment of related fees and expenses. We repaid the tranche A term loan in full ($44.7 million) and ~~repaid a portion of the tranche B term loan (~~$800.32 million~~) with a portion of the proceeds of the 9.75% Notes. In connection with the 9.75% Notes~~, ~~we amended our senior credit facility, which allows for up to $75~~respectively.0 million of additional term loans to be made under the senior credit facility, subject to one or more lenders committing to provide such loans and other specific requirements, including compliance with financial covenants.

InIncome ~~connection~~Taxes. ~~with~~The ~~the~~Company ~~Crossley~~had ~~acquisition,~~an weincome ~~agreed~~tax tobenefit ~~pay~~of ~~the seller~~ $2.0.4 million ~~over~~for ~~four~~fiscal ~~years beginning~~2005 inas ~~June~~compared ~~2000.~~to Inexpense ~~addition,~~of ~~we assumed approximately~~ $176.50 million offor ~~debt~~fiscal ~~of Crossley, including approximately $0~~2004.8 ~~million~~During offiscal ~~obligations~~2005, ~~under~~the ~~equipment~~Company ~~financing~~experienced ~~arrangements,~~a ~~approximately~~net ~~$6.9~~loss ~~million~~in ~~relating~~its ~~to Crossley’s~~domestic ~~revolving~~operations ~~credit~~against ~~line~~which ~~(none~~a oftax ~~which~~benefit was ~~outstanding~~recorded. ~~and~~During ~~$4.6~~fiscal ~~million~~2004, ofthe ~~which~~Company ~~was~~experienced ~~available~~net asprofitability ofin ~~January~~its ~~25,~~domestic ~~2003),~~operations ~~and~~against ~~approximately~~which $9tax expense was recorded.5 ~~million~~During ofboth ~~sinking~~fiscal ~~fund~~years ~~bond~~2005 ~~obligations~~and ~~(the~~2004, ~~“NSBDC~~net ~~Bonds”)~~losses ~~owed~~were toincurred in the ~~Nova~~Company’s ~~Scotia~~foreign ~~Business Development~~operations, ~~Corporation~~against ~~(the~~which ~~“NSBDC”).~~no ~~The~~tax ~~NSBDC~~benefit ~~agreed~~can tobe ~~forgive~~recognized. ~~approximately~~In addition, a $60.39 million ofvaluation ~~the~~allowance ~~NSBDC~~was ~~Bonds,~~recorded ~~subject~~in tofiscal ~~maintaining~~2004 against certain ~~level~~state ofincome ~~annual~~tax ~~hours~~credits ~~worked~~related byto ~~its~~the ~~employees.~~closure As of ~~January~~the 25Company’s Santa Ana, ~~2003~~California ~~the~~facility ~~NSBDC~~(see ~~had~~further ~~forgiven the~~discussion ~~$6.3~~in ~~million.~~Note ~~The~~11 ~~remaining balance~~ of the ~~NSBDC~~“Notes ~~Bonds~~to ~~amortizes~~Consolidated ~~over~~Financial ~~five~~Statements” ~~years~~contained ~~beginning~~herein in ~~2003~~Item 8).

~~During~~15 fiscal 2002, the Company prepaid $133.0 million in term debt with the proceeds of the 9.75% Notes and cash generated from operations. In connection with these prepayments, the Company recorded the write-off of a pro-rata share of deferred financing costs associated with the term debt. The amount of these expenses were $2.6 million and are reflected in interest expense in the consolidated statement of operations.

20Table of Contents

~~The Company’s~~Net ~~ability~~Income to(Loss). ~~make~~The ~~scheduled~~Company ~~payments~~incurred ~~of principal, interest, or to refinance its indebtedness, depends on its future performance, which, to~~ a ~~certain~~net ~~extent,~~loss isof ~~subject to general economic, financial, competitive, and other factors beyond its control~~$4.6 ~~However,~~million ~~there~~for ~~can~~fiscal be2005 nocompared ~~assurance that the Company’s business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient~~ to ~~enable~~net ~~the Company to service its~~income ~~indebtedness~~of ~~or to make necessary capital expenditures~~$6.7 Wemillion ~~periodically~~for ~~evaluate~~fiscal ~~potential acquisitions of businesses, which complement our existing operations~~2004. ~~Depending~~The onprimary ~~various~~contributors ~~factors,~~were ~~including,~~a ~~among~~decrease ~~others, the cash consideration required~~ in ~~such~~net ~~potential~~sales ~~acquisitions,~~coupled wewith ~~may~~higher ~~determine~~Facility toMaximization ~~finance~~charges, ~~any~~as ~~such~~discussed ~~transaction with existing sources of liquidity~~above.

~~The~~Adjusted ~~following~~EBITDA. ~~table~~Adjusted ~~contains~~EBITDA represents earnings before interest, taxes, depreciation, amortization, non-cash charges or expenses (other than the write-down of current assets), costs related to acquisitions and attempted acquisitions, expenses related to the Facility Maximization, plus Chroma cash dividends and minority interest in income (loss) of subsidiary less equity in earnings of Chroma. Adjusted EBITDA for fiscal 2005 decreased to $36.6 million from $51.0 million in fiscal 2004. As a ~~summary~~percentage of sales, Adjusted EBITDA was 11.3% in fiscal 2005 compared to 15.0% in fiscal 2004. The decrease in fiscal 2005 was principally due to lower sales volume in the Floorcoverings segment and the items discussed above. In addition, due to the Company’s ~~future~~withdrawal ~~minimum~~from ~~payments~~the Chroma partnership as discussed in Note 7 of the “Notes to Consolidated Financial Statements” contained herein in Item 8, the Company’s Adjusted EBITDA decreased due to the termination of receipt of Chroma dividends. Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze a company’s ability to service debt. The Company utilizes Adjusted EBITDA as a benchmark for its annual budget and long-range plan and as a valuation method for potential acquisitions. Consolidated EBITDA as defined under ~~contractual~~the ~~obligations~~Company’s Senior Credit Facility provides for additional adjustments. Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America and should not be considered an alternative to operating income or net income (loss) as a measure of ~~January~~operating 25performance or to net cash provided by (used in) operating activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, ~~2003~~the presentation in these statements may not be comparable to those disclosed by other companies.

	Payments Due By Period
	2003		2004		2005		2006		2007		Thereafter		Total
Long-term debt	$	12.1	$	1.6	$	1.5	$	1.1	$	39.5	$	175.0	$	230.8
Operating leases		2.6		1.5		1.4		0.9		0.3		0.3		7.0
Total	$	14.7	$	3.1	$	2.9	$	2.0	$	39.8	$	175.3	$	237.8

A reconciliation of net income (loss) to Adjusted EBITDA is as follows (in thousands):

Management believes that cash generated by its operations and availability under its $50.0 million revolving credit line will be sufficient to fund the Company’s current commitments and planned requirements.


	Fiscal Year Ended
	January 28, 2006			January 29, 2005
Net Income (Loss)	$	(4,629	)	$	6,703
Income Tax Expense (Benefit)		(358	)		5,961
Net Interest Expense		20,133			20,494
Depreciation		10,307			10,470
Amortization		2,620			3,112
Chroma Cash Dividends		—			922
Equity in Earnings of Chroma		—			(893	)
Minority Interest in Income (Loss) of Subsidiary		(24	)		97
Facility Maximization Costs		8,158			3,986
Other Non-Cash Items		362			172

Adjusted EBITDA	$	36,569		$	51,024

~~Critical~~Fiscal ~~Accounting~~Year ~~Policies~~Ended January 29, 2005 (“fiscal 2004”)

~~Our~~Compared ~~significant~~with ~~accounting~~Fiscal ~~policies~~Year ~~are~~Ended more fully described in Note 3 to the audited consolidated financial statements. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their natureJanuary 31, ~~these~~2004 ~~judgments~~(“fiscal ~~are~~2003”) subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. The Company’s significant accounting policies include:

~~Revenue~~Net ~~Recognition~~Sales. ~~Revenue~~ isNet ~~recognized~~sales ~~when~~for ~~goods~~fiscal ~~are~~2004 ~~shipped~~were $340.5 million, ~~which is~~an ~~when~~increase ~~legal~~of ~~title~~$29.4 ~~passes~~million toor 9.5%, from $311.1 million in fiscal 2003. Net sales of the ~~customer~~Company’s floorcovering segment were $317.2 ~~For~~million ~~product~~for ~~installations~~fiscal ~~subject~~2004 as compared to ~~customer~~$283.0 ~~approval,~~million ~~revenue~~for isfiscal ~~recognized~~2003, ~~upon~~an ~~acceptance~~increase byof ~~the~~$34.2 ~~customer~~million or 12.1%. The ~~Company~~increase ~~provides~~in ~~certain~~the ~~installation~~floorcovering ~~services~~segment’s net sales was due to ~~customers~~improved ~~utilizing~~demand ~~independent~~throughout the specified commercial market in ~~third-party~~North ~~contractors~~America. ~~The~~Increases ~~billings~~were achieved in both the Institutional and ~~expenses~~Corporate end uses, driven by the overall market demand. Net sales of the Extrusion segment were $23.3 million for ~~these~~fiscal ~~services~~2004 ~~are~~as ~~included~~compared into $28.0 million for 2003, a decrease of $4.8 million or 17.1%. The lower external net sales for the Extrusion segment was due to significantly increased usage by the Company’s floorcovering segment and ~~cost~~lower ofsales ~~goods~~to ~~sold,~~the ~~respectively~~former owner than in the prior year. The reduction was partially offset by increased sales to new external customers.

~~Impairment~~Cost of ~~Goodwill~~Goods Sold. ~~The~~ ~~Company~~Cost ~~periodically~~of ~~evaluates~~goods ~~acquired~~sold ~~businesses~~increased ~~for~~to ~~potential~~$226.6 million in ~~impairment~~fiscal ~~indicators~~2004 from $209.8 ~~Judgments~~million ~~regarding~~in ~~the~~fiscal ~~existence~~2003, an increase of ~~impairment~~$16.8 ~~indicators~~million ~~are~~or ~~based~~8.0%. onIncluded ~~legal~~in ~~factors,~~cost ~~market~~of ~~conditions~~goods ~~and~~sold ~~operational~~for ~~performance~~the of2004 ~~our~~period ~~acquired~~are ~~businesses.~~expenses ~~Future~~of ~~events~~$2.6 ~~could~~million ~~cause~~related to the Company’s toplanned ~~conclude~~closure ~~that~~and ~~impairment~~transfer of assets from its Santa ~~indicators~~Ana, ~~exist~~California facility. (See further discussion in “Liquidity and ~~that~~Capital ~~goodwill~~Resources”). ~~associated~~As ~~with~~a ~~acquired~~percentage ~~businesses~~of issales, ~~impaired~~these costs were 66.6% ~~Any~~for ~~resulting~~fiscal ~~impairment~~2004 ~~loss~~and ~~could~~67.4% ~~have~~for fiscal 2003. The percentage decrease was primarily due to the increased absorption of fixed manufacturing costs as a ~~material~~result ~~adverse~~of ~~impact~~improved onsales volume, increased usage of the yarn from the Company’s ~~financial~~Extrusion ~~condition~~facility and ~~results~~manufacturing ofcost ~~operations~~improvements.

~~Accounts~~16 receivable. We provide allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluation of the financial condition of our customers and the collectability of our accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay their debts, allowances recorded in our financial statements may not be adequate.

21 Table of Contents

~~Inventory Reserves~~Selling, General and Administrative Expenses. ~~Inventories~~ ~~are~~The ~~stated~~Company’s atselling, ~~the~~general ~~lower~~and administrative expenses in fiscal 2004 were $78.2 million, an increase of ~~cost~~$4.8 million or ~~market~~6.5% ~~Cost~~from is$73.4 ~~determined~~million ~~using~~for ~~the~~fiscal ~~first-in~~2003. As a percentage of sales, ~~first-out~~these ~~method~~expenses were 23.0% ~~Reserves~~for ~~are~~fiscal ~~established~~2004, ~~based~~compared onto ~~percentage~~23.6% ~~markdowns~~for ~~applied~~fiscal 2003. The increase in dollars was primarily due to ~~inventories~~higher ~~aged~~compensation ~~for~~and ~~certain~~related ~~time~~benefits of $5.7 million and commissions of $0.6 million, which were partially offset by lower legal and professional fees of $1.5 million, sampling and related costs of $1.1 million and advertising, ~~periods~~marketing and ~~size~~related costs of ~~lot~~$1.5 million. Foreign currency gains in fiscal 2004 decreased $2.0 million as compared to fiscal 2003. In addition, selling, general and administrative expenses for fiscal 2004 include expenses of $1.4 million related to the Company’s Facility Maximization. (See further discussion in “Liquidity and Capital Resources”).

~~Allowance and/or~~Amortization. ~~reserve~~Intangible ~~for~~asset ~~product~~amortization ~~warranty~~decreased ~~and~~to ~~returns~~$3. ~~Warranty~~1 ~~reserve~~million ~~and~~in ~~allowance~~fiscal ~~for~~2004 ~~product~~from ~~returns~~$8.8 ismillion ~~established~~in ~~based~~fiscal ~~upon~~2003. ~~best~~The ~~estimates~~decrease ofwas ~~the~~due ~~amounts~~to ~~necessary~~the toCompany’s ~~settle~~non-compete ~~future~~with ~~and~~its ~~existing~~former ~~claims~~parent onbeing ~~products~~fully ~~sold~~amortized as of ~~the~~January 31, ~~balance~~2004, ~~sheet date. While we believe that our warranty reserve~~ and lower ~~allowance~~amortization ~~for~~of ~~product~~the ~~returns~~extrusion issupply ~~adequate~~agreement ~~and~~due ~~that~~to the ~~judgment~~non-cash ~~applied~~impairment ischarge ~~appropriate~~of ~~based~~$2.6 ~~upon~~million ~~our~~during ~~historical~~the ~~experience~~fourth ~~for~~quarter ~~these~~of ~~items,~~fiscal ~~actual amounts determined to be due and payable could differ and additional allowances may be required~~2003.

~~Effects~~Net Interest Expense. Net interest expense for fiscal 2004 and fiscal 2003 was $20.5 million and $21.3 million, respectively, which included interest income of ~~Inflation~~$0.2 million and $0.1 million, respectively. Fiscal 2003 includes a charge to interest expense of $0.4 million to reflect the write-off of a pro-rata share of deferred financing costs associated with the prepayment of term debt with cash generated by operations. There were no write-offs of deferred financing costs or unscheduled prepayments of debt in fiscal 2004.

Income Taxes. The Company had income tax expense of $6.0 million for fiscal 2004 versus ~~impact~~an income tax benefit of ~~inflation~~$2.1 onmillion ~~the~~for fiscal 2003. The Company’s ~~operations~~effective ~~has~~tax ~~not~~rate ~~been~~for ~~significant~~fiscal in2004 ~~recent~~was ~~years~~47.1% ~~However~~and was primarily due to (1) higher profitability of the Company and its subsidiaries in the United States, ~~there~~(2) combined net loss of its foreign subsidiaries against which no tax benefit can be norecognized ~~assurance~~and, ~~that~~(3) the recognition of a ~~high~~$0.9 ~~rate~~million ofvaluation ~~inflation~~allowance inagainst ~~the~~certain ~~future~~domestic ~~would~~state income tax credits carried forward from prior periods that may not be ~~have~~utilized anin ~~adverse~~future ~~effect~~periods. onThese credits were produced by the Company’s ~~operating~~California ~~results~~subsidiary, and management believes it is more likely than not that their use may be limited after the closure of the Santa Ana, California facility. The tax benefit for fiscal 2003 was primarily due to the initial qualification for these credits, which included a component related to prior years, and was recorded during fiscal 2003.

~~Seasonality~~Net Income. Net income for fiscal 2004 increased to $6.7 million from $1.2 million in fiscal 2003. This was due to the combined result of the factors described above.

~~The~~Adjusted ~~Company~~EBITDA. ~~experiences~~Adjusted ~~seasonal~~EBITDA ~~fluctuations~~represents earnings before interest, ~~with~~taxes, ~~generally lower~~depreciation, ~~sales~~amortization, ~~and~~non-cash ~~gross~~charges ~~profit~~or inexpenses (other than the ~~first~~write-down of current assets), costs related to acquisitions and ~~fourth~~attempted ~~quarters~~acquisitions, ofexpenses related to the ~~fiscal~~Facility ~~year~~Maximization, ~~and~~plus ~~higher~~Chroma ~~sales~~cash dividends and ~~gross~~minority ~~profit~~interest in ~~the~~income ~~second~~(loss) ~~and~~of ~~third~~subsidiary ~~quarters~~less equity in earnings of Chroma. ~~the~~Adjusted EBITDA for fiscal ~~year~~2004 was $51.0 ~~The~~million ~~seasonality~~compared to $42.7 million in fiscal 2003, an increase of $8.3 million or 19.5%. As a percentage of sales, ~~and~~Adjusted ~~profitability~~EBITDA improved to 15.0% in fiscal 2004 compared to 13.7% in fiscal 2003. Adjusted EBITDA is ~~primarily~~presented because it is commonly used by certain investors and analysts to analyze a ~~result~~company’s ofability to service debt. The Company utilizes Adjusted EBITDA as a benchmark for its annual budget and long range plan and as a ~~disproportionately~~valuation ~~higher~~method ~~education~~for ~~end~~potential ~~market~~acquisitions. ~~sales~~Consolidated ~~during~~EBITDA as defined under the ~~summer~~Company’s ~~months~~Senior ~~while~~Credit ~~schools~~Facility provides for additional adjustments. Adjusted EBITDA is not a measure of financial performance under accounting principles generally ~~are~~accepted ~~closed~~in the United States of America and ~~floorcovering~~should ~~can~~not be ~~installed~~considered an alternative to operating income or net income (loss) as a measure of operating performance or to net cash provided by (used in) operating activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to those disclosed by other companies.

~~Reliance~~17 ~~on Primary Third-Party Supplier of Nylon Yarn~~

E.I.Table DuPont de Nemours and Company (“DuPont”) currently supplies a majority of our requirements for nylon yarn, the principal raw material used in our floorcovering products. The unanticipated termination or interruption of the supply arrangement with DuPont could have a material adverse effect on us because of the cost and delay associated with shifting this business to another supplier. Historically, we have not experienced significant interruptions in the supply of nylon yarn from DuPont. Contents

~~Recent~~A ~~Accounting~~reconciliation ~~Pronouncements~~from net income to Adjusted EBITDA is a follows:

In June 2001, the Financial Accounting Standards Board (“FASB”) finalized SFAS No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations. SFAS No. 141 also requires the recognition of acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS No. 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001.


	Fiscal Year Ended
	January 29, 2005			January 31, 2004
Net Income	$	6,703		$	1,234
Income Tax Expense (Benefit)		5,961			(2,147	)
Intangible Asset Impairment Charge		—			2,616
Net Interest Expense		20,494			21,343
Depreciation		10,470			10,307
Amortization		3,112			6,230
Chroma Cash Dividends		922			3,522
Equity in Earnings of Chroma		(893	)		(1,386	)
Minority Interest in Income of Subsidiary		97			13
Facility Maximization Costs		3,986			—
Non-Recurring Costs Associated		—			969
Other Non-Cash Items		172			—

Adjusted EBITDA	$	51,024		$	42,701

~~SFAS~~Liquidity No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires the identification of reporting units for the purpose of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and ~~cease~~Capital ~~amortization~~Resources of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS No. 142 requires a transitional goodwill impairment test six months from the date of adoption while a second test, if needed, measures the amount of impairment, if any. Any impairment change resulting from the transitional impairment tests will be reflected as the cumulative effect of a change in accounting principle. The Company adopted the provisions of SFAS No. 142 effective January 27, 2002. The Company expects to evaluate goodwill for impairment during the fourth quarter of each year.

22The Company’s principal uses of cash have historically been for operating expenses, working capital, capital expenditures and debt repayment. The Company has financed its cash requirements through internally generated cash flows, borrowings and the offering of the senior subordinated notes.

~~The~~Net ~~net~~cash ~~income (loss)~~used ~~shown~~in ~~below~~operating ~~has~~activities ~~been~~in ~~adjusted~~fiscal 2005 was $4.6 million compared to ~~reflect~~net ~~the~~cash ~~results~~provided ~~for~~by ~~the~~operating ~~respective~~activities ~~periods~~of as$27.2 ifmillion ~~SFAS~~in Nofiscal 2004. ~~142~~The ~~had~~change ~~been~~was inprimarily ~~effect~~due ~~for~~to ~~all~~a ~~periods~~net ~~presented~~loss ~~(in~~for ~~thousands).~~the ~~The~~current ~~impact~~year, tocoupled ~~these~~with ~~items~~higher isworking ~~shown~~capital ~~net~~requirements of ~~tax~~$15.4 million, including costs related to the Facility Maximization.

	Fiscal Year Ended
	January 27, 2001			January 26, 2002
Net income (loss)	$	(5,935	)	$	10,903
A reconciliation from the previously reported results to the adjusted results is shown below:
Net income (loss) as reported	$	(8,558	)	$	8,284
Plus: Goodwill amortization		2,218			2,214
Plus: Trade name amortization		405			405
Adjusted net income (loss)	$	(5,935	)	$	10,903

Net cash used in investing activities in fiscal 2005 and 2004 was $10.1 million and $10.8 million, respectively. Capital expenditures for fiscal 2005 were $10.5 million compared to $11.9 million for fiscal 2004. Included in capital expenditures for fiscal years 2005 and 2004 are $2.7 million and $2.0 million, respectively, related to the Facility Maximization. The Company anticipates capital expenditures for fiscal 2006 to be approximately $10.0 million.

InNet ~~June 2001,~~cash ~~the~~used ~~FASB~~in ~~approved~~financing ~~the~~activities ~~issuance~~in offiscal ~~SFAS~~2005 ~~No.~~and ~~143,~~2004 was ~~“Accounting~~$5.2 ~~for~~million ~~Asset~~and ~~Retirement Obligations~~$1.”5 ~~SFAS~~million, Norespectively. ~~143~~The ~~establishes~~cash ~~accounting~~used ~~standards~~in financing for ~~the~~fiscal ~~recognition~~2005 and ~~measurement~~2004 ofrelated ~~legal~~to ~~obligations~~repayments ~~associated with the retirement~~ of ~~tangible~~ long-~~lived~~term ~~assets~~debt. SFAS No. 143 will become effective for us on January 26, 2003 and requires recognition of a liability for an asset retirement of obligation in the period in which it is incurred. SFAS No. 143 is not expected to materially impact the Company’s financial statements.

InThe ~~October~~Company has ~~2001~~significant indebtedness which, as of January 28, 2006, consists of $175.0 million of 9.75% senior subordinated notes due 2010 (the ~~FASB~~“9.75% ~~issued~~Notes”) ~~SFAS~~of Nowhich $165.0 ~~144~~million is outstanding, ~~“Accounting~~a ~~for~~$109.0 ~~the~~million ~~Impairment~~credit orfacility ~~Disposal~~which ofhad an ~~Long-Lived~~outstanding ~~Assets~~balance of $30.”6 ~~SFAS~~million Noin term loan borrowings (the “Senior Credit Facility”), $1.7 ~~144~~million ~~addresses~~in ~~financial~~purchase ~~accounting~~money and ~~reporting~~other ~~for~~indebtedness, ~~the~~and ~~impairment~~$1.3 ormillion ~~disposal~~in ofsinking ~~long-lived~~fund ~~assets~~bonds under Crossley. The ~~provisions~~sinking offund ~~this~~bonds ~~statement~~are subject to forgiveness beginning in fiscal 2006 given certain requirements are ~~effective~~met. ~~for~~See ~~financial~~further ~~statements~~discusssion ~~issued~~contained ~~for~~herein ~~fiscal~~and ~~years~~Notes ~~beginning~~9 ~~after~~and ~~December~~11 15of the “Notes to Consolidated Financial Statements” contained herein in Item 8. As of January 28, ~~2001~~2006, the Company’s $50.0 ~~The~~million ~~implementation~~revolving line of ~~SFAS~~credit ~~No.~~had ~~144~~no ~~did~~borrowings ~~not~~outstanding ~~have~~and an$4.3 ~~impact~~million onof ~~the~~letters ~~consolidated~~of ~~earnings~~credit oroutstanding ~~financial~~leaving ~~position~~total availability of ~~the~~$45.7 million. Crossley has a $4.4 million revolving line ~~Company~~of credit agreement with a Canadian bank which had $3.6 million in borrowings outstanding as of January 28, 2006.

~~Effective~~The inCompany’s ~~fiscal~~semi-annual interest ~~year~~payments ~~2000,~~of the ~~Company~~ ~~adopted~~9.75% ~~the~~Notes ~~FASB~~are ~~Emerging~~due ~~Issues~~on ~~Task~~each ~~Force~~February 15 ~~Issue No. 00-10, “Accounting for Shipping~~ and ~~Handling~~August 15 ~~Fees~~through ~~and~~February 15, ~~Costs~~2010.” ~~Therefore~~During 2005, ~~freight~~the ~~charged~~Company torepurchased ~~customers~~$10.0 ismillion ~~included~~of inthe ~~sales~~9.75% ~~rather~~Notes ~~than~~on asthe anopen ~~offset~~market. Subsequent to ~~freight~~the ~~expense.~~repurchase, ~~Freight~~the ~~costs~~interest ~~included~~amount indue ~~sales~~on ~~were~~each ~~$4.9~~date ~~million,~~is $4.8.0 million~~, and $4~~.7 ~~million~~Prior into ~~fiscal~~the ~~2000~~repurchase, ~~2001,~~the ~~and~~amount ~~2002,~~due ~~respectively~~on each date was $8.5 million.

InThe ~~April~~Company’s ~~2002,~~ability ~~the~~to make ~~FASB~~scheduled ~~issued~~payments ~~SFAS No. 145, “Rescission~~ of ~~FASB Statements No. 4~~principal, 44interest, ~~and~~or ~~64,~~to ~~Amendment~~refinance ofits ~~FASB Statement No. 13~~indebtedness, ~~and~~ ~~Technical~~depends ~~Corrections.”~~on ~~SFAS~~its ~~No.~~future ~~145 rescinds FASB Statement No. 4~~performance, ~~“Reporting Gains and Losses from Extinguishment of Debt”~~which, ~~FASB~~to ~~Statement~~a ~~No.~~certain 44extent, ~~“Accounting~~is ~~for~~subject ~~Intangible~~to ~~Assets~~general ~~of Motor Carriers”~~economic, ~~FASB Statement No. 64~~financial, ~~“Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements”~~competitive, and ~~amends~~other ~~FASB~~factors ~~Statement~~beyond ~~No.~~its ~~13, “Accounting for Leases~~control.” ~~SFAS No. 145 addresses the treatment of gains and losses related to debt extinguishments and~~However, ~~should~~there ~~only~~can be ~~classified~~no asassurance ~~extraordinary~~that ~~items if they meet certain criteria. The provisions of this Statement were effective beginning May 15, 2002. The fiscal 2002 financial statements included herein reflect~~ the ~~adoption of SFAS No. 145 as of the beginning of the~~ Company’s ~~fiscal~~business ~~year.~~will ~~Prior~~generate ~~year~~sufficient ~~financial~~cash ~~statements~~flow ~~have~~from ~~also~~operations ~~been~~or ~~restated~~that tofuture ~~reflect the adoption of SFAS No. 145.~~

2318

TheTable tables that follow show the reconciliation of changes to items reported for the adoption of SFAS 145 (in thousands): Contents

	Fiscal Year Ended January 27, 2001
	As Originally Reported			Adjustments Per SFAS 145			As Adjusted Results
Operating income	$	12,952		$	—		$	12,952
Minority interest in income of subsidiary		67			—			67
Equity in earnings of affiliate		2,293			—			2,293
Gain on forgiveness of debt		—			1,816			1,816
Net interest expense		17,151			11,441			28,592
Loss before income taxes and extraordinary item		(1,973	)		(9,625	)		(11,598	)
Income tax expense (benefit)		968			(4,008	)		(3,040	)
Net income before extraordinary item		(2,941	)		(5,617	)		(8,558	)
Extraordinary gain (loss) on early extinguishment of debt, net of tax		(5,617	)		5,617			—
Net loss	$	(8,558	)	$	—		$	(8,558	)
	Fiscal Year Ended January 26, 2002
	As Originally Reported			Adjustments Per SFAS 145			As Adjusted Results
Operating income	$	38,448		$	—		$	38,448
Minority interest in income of subsidiary		29			—			29
Equity in earnings of affiliate		1,534			—			1,534
Gain on forgiveness of debt		—			1,728			1,728
Net interest expense		23,645			548			24,193
Income before income taxes and extraordinary item		16,308			1,180			17,488
Income tax expense		8,774			430			9,204
Net income before extraordinary item		7,534			750			8,284
Extraordinary gain (loss) on early extinguishment of debt, net of tax		750			(750	)		—
Net income	$	8,284		$	—		$	8,284

borrowings will be available in an amount sufficient to enable the Company to service its indebtedness or to make necessary capital expenditures. Potential acquisitions of businesses that complement existing operations are periodically evaluated. Depending on various factors, including, among others, the cash consideration required in such potential acquisitions, the Company may determine to finance any such transaction with existing sources of liquidity.

InDuring ~~June 2002,~~ the ~~FASB~~first ~~issued~~quarter ~~SFAS~~of ~~No.~~fiscal ~~146~~2004, ~~“Accounting~~the Company ~~for~~leased ~~Costs~~a ~~Associated~~facility ~~With~~to ~~Exit~~be orused ~~Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting~~ for ~~costs~~a ~~associated~~carpet ~~with~~tile ~~exit~~production orfacility ~~disposal~~in ~~activities~~Suzhou, ~~and nullifies Emerging Issues Task Force issue No~~China. ~~94-3,~~Products ~~“Liability~~manufactured ~~Recognition~~at ~~for~~this ~~Certain~~facility ~~Employee~~are ~~Termination~~principally ~~Benefits and Other Costs~~ to ~~Exit~~be ansold ~~Activity~~into ~~(Including~~mainland ~~Certain~~China ~~Costs~~and ~~Incurred~~throughout inSoutheast ~~a Restructuring)~~Asia.” ~~This~~Funding ~~statement~~of ~~requires~~$3.0 ~~that~~million awas ~~liability for a~~provided ~~cost~~during ~~associated~~fiscal 2003 with an ~~exit~~additional or$2.0 ~~disposal~~million ~~activity~~provided beduring ~~recognized~~fiscal ~~and~~2004. ~~measured~~Minimal ~~initially~~funding athas ~~fair~~been ~~value~~provided ~~only~~during ~~when~~fiscal ~~the liability is incurred~~2005. The ~~provisions~~Company ofbegan ~~this~~production ~~statement~~at ~~are~~this ~~effective~~facility ~~for~~during ~~exit~~fiscal ~~or disposal activities that are initiated after December 31, 2002, with early application encouraged~~2005. ~~SFAS No. 146 is not expected to materially impact the Company’s financial statements.~~

InOn ~~December~~August 18, ~~2002~~2004, the ~~FASB~~Company ~~issued~~executed ~~SFAS~~Amendment No. 3 ~~148,~~ (“~~Accounting~~Amendment 3”) to its Senior Credit Facility. Amendment 3 provided for, ~~Stock-Based~~among ~~Compensation—Transition~~other things, (1) the transfer of certain of the broadloom manufacturing fixed assets located in Santa Ana, California to its facility located in Truro, Nova Scotia, (2) the disposal of and/or ~~Disclosure—an~~transfer to the Company of substantially all of the ~~Amendment~~remaining Santa Ana, California fixed assets and transfer all or substantially all of ~~FASB~~the ~~Statement~~accounts ~~No.~~receivable, ~~123.”~~inventory ~~SFAS~~and ~~No.~~other ~~148~~liquid ~~amends~~current ~~FASB~~assets ~~No.~~from ~~123~~Monterey Carpets, Inc. (“~~Accounting~~Monterey”), ~~for~~a ~~Stock~~wholly-~~Based~~owned ~~Compensation”~~subsidiary of the Company, to the ~~provide~~Company, ~~alternative~~(3) the ~~methods~~release of ~~transition~~Monterey ~~for~~as a ~~voluntary~~subsidiary ~~change~~guarantor tounder the ~~fair~~subsidiary ~~value~~guarantee ~~based~~agreement ~~method~~and ofthe ~~accounting~~security ~~for stock-based~~agreement ~~employee~~and ~~compensation.~~any ~~Additionally,~~other ~~SFAS~~loan ~~No.~~documents ~~148~~to ~~amends~~which it is a party, (4) the ~~disclosure~~exclusion ~~requirements~~from ofthe ~~SFAS~~financial ~~No.~~covenants calculations ~~123~~of up to ~~require~~$10.0 ~~prominent~~million ~~disclosures~~of incosts ~~both~~related ~~annual~~to ~~and~~the ~~interim~~move ~~financial~~and ~~statements~~relocation ~~about~~to the ~~method~~Truro, ofNova ~~accounting~~Scotia ~~for~~plant ~~stock-based~~(the ~~employee compensation~~“Crossley transfer”), and (5) the ~~effect~~reduction of the ~~method~~credit ~~after~~spread ~~December~~to ~~15,~~LIBOR ~~2002~~plus 2.75 ~~The~~on ~~Company~~the ~~has~~Term ~~adopted~~B Loan. Amendment 3 further authorized the ~~applicable~~collateral ~~disclosure~~agent ~~provisions~~to ofrelease ~~SFAS~~any ~~No.~~and ~~148~~all inliens ~~its~~held ~~consolidated~~by ~~financial~~the ~~statements~~collateral ~~for~~agent in or on the ~~year~~assets ~~ended~~forming ~~January~~part ~~25,~~of ~~2003~~the Crossley transfer.

24Effective October 29, 2005, the Company executed Amendment No. 4 (“Amendment 4”) to its Senior Credit Facility to modify certain financial covenants. Amendment 4 eliminated the interest coverage ratio requirement and modified the fixed charge coverage ratio (as defined) for third quarter of fiscal 2005 and all future measurement periods to be 1.0 to 1.0. Amendment 4 also provided for the exclusion from the financial covenants calculations of additional costs related to the Company’s broadloom consolidation project in addition to other specified charges. In addition to the modification to the covenants, Amendment 4 reset the Company’s $5 million investment basket and provides the Company the ability to purchase its Subordinated Notes subject to a minimum senior leverage ratio and minimum liquidity requirements.

~~Forward~~As is customary in debt agreements, in the event the Company is not in compliance with the covenants of the Senior Credit Facility, the Company will also be subject to the provisions of a cross-~~looking~~default ~~Statements~~for the 9.75% Notes. The Company was in compliance with all covenants as of January 28, 2006, and expects to remain in compliance throughout fiscal 2006, although no assurances to that effect can be given.

~~The Company may from time to time make~~Employers ~~written~~Mutual ~~and~~Insurance ~~oral~~Companies ~~forward-looking~~(“EMC”) ~~statements.~~filed ~~Written~~suit ~~forward-looking statements may appear~~ in ~~documents filed with~~ the ~~Securities~~United ~~and~~States ~~Exchange~~District ~~Commission,~~Court infor ~~press~~the ~~releases~~Southern ~~and~~District inof ~~reports~~Iowa toon ~~shareholders.~~August 6, ~~The~~2002 ~~Private~~alleging ~~Securities~~that ~~Litigation~~carpet ~~Reform~~tile ~~Act of~~sold ~~1995~~by ~~contains~~the ~~a safe harbor for forward-looking statements. The~~ Company ~~relies~~to onEMC ~~this safe harbor~~ in ~~making~~1996 ~~such~~and ~~disclosures.~~1997 ~~All~~experienced ~~statements~~premature ~~contained~~wearing and indiscoloration ~~this~~and ~~Annual~~asserted ~~Report~~that onthe ~~Form~~Company ~~10-K~~should aspay todamages ~~future~~based ~~expectations~~upon ~~and~~theories ~~financial~~of ~~results~~violation ~~including, but~~of ~~not limited to~~warranties, ~~statements~~negligence ~~containing~~and ~~the~~fraud. ~~words~~On ~~“plans~~March 18,” ~~“believes~~2004,” ~~“intends,”~~the ~~“anticipates,”~~jury ~~“expects,”~~entered ~~“projects,”~~a ~~“should,”~~verdict ~~“will”~~in ~~and~~favor ~~similar~~of ~~expressions, should be considered forward-looking statements subject to~~ the ~~safe~~Company ~~harbor. The forward-looking statements are based~~ on ~~management’s~~the ~~current~~fraudulent ~~beliefs~~ misrepresentation and ~~assumptions~~fraudulent ~~about~~nondisclosure ~~expectations,~~claims ~~estimates, strategies~~ and ~~projections~~in ~~for~~favor ~~the Company. These statements are not guarantees~~ of ~~future~~EMC ~~performance~~on ~~and~~the ~~involve~~express ~~risks,~~oral ~~uncertainties~~warranty and ~~assumptions~~implied ~~that~~warranty ~~are~~of ~~difficult~~fitness tofor ~~predict.~~particular ~~Therefore,~~purpose ~~actual outcomes~~ and ~~results~~awarded ~~may~~EMC ~~differ~~$0.8 ~~materially~~million ~~from what is expressed or forecasted~~ in ~~such forward-looking~~damages ~~statements.~~for ~~The~~full ~~Company~~replacement ~~undertakes no obligation to update publicly any forward-looking statements whether as a result~~ of ~~new~~this ~~information, future events or otherwise~~carpet. The ~~risks,~~Company ~~uncertainties~~appealed and ~~assumptions regarding forward-looking~~on ~~statements include~~August 16, ~~but are not limited to~~2005, ~~product~~the ~~demand~~appellate ~~and~~court ~~market~~granted ~~acceptance~~the ~~risks;~~Company’s ~~product~~appeal. ~~development risks~~Subsequently, ~~such~~on asSeptember 12, ~~delays or difficulties in developing~~2005, ~~producing~~EMC ~~and~~agreed ~~marketing~~to ~~new~~terminate ~~products;~~its ~~the impact of competitive products~~suit, ~~pricing~~releasing ~~and advertising constraints resulting from~~ the ~~financial~~Company ~~condition~~ of ~~the~~all ~~Company,~~liability ~~including~~for ~~the~~damages. ~~degree~~Accordingly, ~~to which~~ the Company isreleased ~~leveraged; cycles in~~ the litigation ~~construction~~accrual ~~and~~related ~~renovation of commercial and institutional buildings; failure~~ to ~~retain~~this ~~senior executives~~suit and other qualified personnel; unanticipated termination or interruption of the Company’s arrangement with its primary third-party supplier of nylon yarn; debt service requirements and restrictions under credit agreements and indentures; general economic conditions in ~~the~~full ~~United States and~~ in ~~markets outside of~~ the ~~United~~third ~~States~~quarter ~~served by the Company; government regulations; risks~~ of ~~loss~~fiscal ~~of material customers; environmental matters; and other risks described in the Company’s Securities and Exchange Commission filings~~2005.

~~Item~~Monterey 7ACarpets, Inc. ~~Quantitative~~, (“Monterey”) in connection with its previous 50% ownership interest in Chroma Systems Partners (“Chroma”), was a co-defendant in an alleged claim by Enron Energy Services, Inc. (“Enron”) that Chroma and ~~Qualitative~~its ~~Disclosures~~partners ~~About~~were ~~Market~~liable ~~Risk~~for amounts related to certain energy contracts which existed between Chroma and Enron prior to the filing of Enron’s Chapter 11 proceedings. During the third quarter of fiscal 2005, the Company entered into a $0.4 million settlement agreement that was approved by the bankruptcy court that was overseeing Enron’s bankruptcy case and relieved the Company of any future liability related to this matter. During fiscal 2004, Monterey terminated its partnership interest in Chroma as part of the Facility Maximization.

~~Market~~On ~~risk is the potential loss arising from adverse changes in market rates and prices~~September 18, ~~such as foreign currency exchange and interest rates. Although we are not subject to material foreign currency exchange risk~~1998, weJames ~~are~~Bradley ~~exposed~~Thomason to(“Thomason”) ~~changes~~filed inan ~~interest~~action ~~rates.~~against ~~Other~~Linda ~~than~~Gomez ~~the 9.75% Notes~~Whitener, ~~substantially~~Steve ~~all of our debt is variable rate debt. Therefore~~Whitener, ~~interest~~and ~~rate~~Gomez ~~changes generally~~Floor doCovering ~~not affect~~ (the ~~fair~~“Gomez ~~market value of such debt but do impact future earnings and cash flows~~Defendants”), ~~assuming~~the ~~other factors are held constant. Conversely~~Company, ~~for fixed rate debt, interest changes do not impact future cash flow~~ and ~~earnings,~~Mannington ~~but do impact the fair market value of such debt of $51~~Commercial.0 ~~million~~Thomason ~~and~~alleged ~~fixed~~that ~~rate~~the ~~debt~~Gomez ofDefendants ~~$175.3~~had ~~million.~~breached ~~The~~a ~~variable~~contract ~~interest~~with ~~rate~~Thomason ~~per annum applicable~~ to ~~borrowings~~pay ~~under~~him ~~Senior~~certain ~~Credit~~commissions ~~Facility~~and ishad ~~equal~~conspired towith the Company’s ~~choice~~and ofMannington ~~(a) an adjusted rate based~~to ~~upon~~cut ~~the~~Thomason ~~LIBOR~~out ~~plus~~of aseveral ~~Eurodollar~~carpet ~~margin~~installation ortransactions ~~(b)~~stemming anfrom ~~alternative~~a ~~base~~carpet-buying ~~rate,~~contract asheld ~~defined~~ by ~~Senior Credit Facility, plus a base rate margin. The Eurodollar margin and~~ the ~~base~~Texas ~~rate~~General ~~margin~~Services ~~adjust~~Commission ~~quarterly~~for onState aof ~~sliding~~Texas ~~scale~~agencies ~~based on our leverage ratio for~~ (the ~~immediately preceding four fiscal quarters~~“Contract”). ~~See~~Thomason ~~“Note~~settled 12his ~~Long-Term~~claims ~~Debt”~~against in the ~~accompanying financial statements.~~ Gomez

~~Item~~19 ~~8. Financial Statements and Supplemental Data~~

SeeTable the consolidated financial statements of Collins & Aikman Floorcoverings, Inc. and subsidiaries included herein beginning on page F-1 and listed on the index to financial statements set forth in Item 15 (a) of this Form 10-K report. Contents

~~Item~~Defendants 9and Mannington Commercial. ~~Change~~ InThe Court granted the Company’s motion for summary judgment and ~~Disagreements~~as ~~With~~a ~~Accountants~~result, all of Thomason’s claims against the Company were dismissed. The appellate court affirmed the lower court ruling on ~~Accounting~~all points, except for a claim of quantum meruit (value of services where no contract exists) related to having C&A products listed on the Contract. That claim was tried before a jury and ~~Financial~~on ~~Disclosure~~February 10, 2006, the jury entered a verdict in favor of the plaintiff in the amount of $1,050,000. Under Texas law, the plaintiff may also make a claim for attorney’s fees and pre-judgment interest. As of the date of this report, the Court has not entered judgment on the jury verdict or the claims for attorneys’ fees or prejudgment interest. The Company has filed a motion to overturn the jury verdict. To date, no ruling has been issued on this motion.

~~Effective~~Should ~~June~~the ~~28,~~Company’s ~~2002~~motion to overturn the jury verdict not be granted, the Company ~~engaged~~believes ~~Ernst~~it &has ~~Young~~meritorious ~~LLP~~grounds asto ~~our~~seek ~~independent~~reversal ~~auditor~~of ~~for~~the judgment on appeal, and the ~~fiscal~~Company ~~year~~intends ~~ended~~to ~~January~~vigorously ~~25,~~prosecute ~~2003.~~an Weappeal ~~dismissed~~of ~~our~~the ~~previous~~jury ~~independent~~verdict ~~accountant,~~and ~~Arthur~~any ~~Andersen,~~award ~~LLP,~~of ~~effective~~attorney’s ~~June~~fees ~~28,~~and ~~2002.~~prejudgment Ininterest ~~connection~~that ~~with~~may be granted by the ~~audits~~Court. The prosecution of the ~~two~~appeal ~~fiscal~~could ~~years~~result ~~ended~~in ~~January~~several 26possible outcomes: a reversal of the jury verdict, ~~2002~~ ~~there~~a ~~have~~reversal ~~been~~and noremand ~~disagreements~~for ona ~~any~~new ~~matter~~trial, a modification of ~~accounting~~the ~~principles~~judgment striking all or ~~practices,~~a ~~financial~~portion ~~statement~~of ~~disclosure~~the jury verdict, attorney’s fees or prejudgment ~~auditing~~interest ~~scope~~awarded ~~and~~by ~~procedures~~the ~~which,~~Court ifor ~~not~~an ~~resolved~~affirmation toof the ~~satisfaction~~judgment ofas ~~Arthur~~entered ~~Andersen~~by ~~LLP,~~the ~~would~~Court. ~~have~~The ~~caused~~Company ~~Arthur Andersen~~has ~~LLP~~recorded toan ~~make~~accrued ~~reference~~liability of $1,050,000 related to ~~the~~this ~~matter~~case in ~~their~~its ~~report~~accompanying statement of financial condition as of January 28, 2006.

25On June 21, 2005, the Company filed in the United States District Court for the Northern District of Georgia, Rome, Georgia, Division a joint lawsuit with Shaw Industries Group, Inc. (“Shaw”) and Mohawk Industries, Inc. (“Mohawk”) against Interface Inc. (“Interface”), regarding a patent on a particular pattern of carpet tile that Interface recently received (the “Rome Action”). The Rome Action asks the court to declare that the Interface patent is invalid, unenforceable and not infringed. Interface and certain of its affiliated companies, on the same day, filed separate suits in Atlanta, Georgia against the Company and other carpet manufacturers asserting infringement of the aforementioned patent. In response to motions filed both in the Rome Action and with the court in Atlanta, Interface’s suits against the Company, Shaw and Mohawk were transferred to Rome, Georgia and consolidated with the Rome Action. The Company, Shaw and Mohawk remain as plaintiffs in the Rome Action. To date, no substantive issues have been addressed by the court. The Company denies liability and intends to vigorously defend this matter.

~~The~~From ~~report~~time ~~of Arthur~~to ~~Andersen~~time ~~LLP on~~ the ~~consolidated~~Company ~~financial~~is ~~statements~~subject ~~for~~to ~~the~~claims ~~past~~and ~~two~~suits ~~fiscal~~arising ~~years~~in ~~did~~the ~~not~~ordinary ~~contain~~course of anbusiness, ~~adverse~~including ~~opinion~~workers’ orcompensation ~~a disclaimer of opinion~~ and ~~were~~product ~~not~~liability ~~qualified or modified as to uncertainty~~claims, ~~audit~~which ~~scope~~may or ~~accounting~~may ~~principles, except~~not ~~the~~be ~~report~~covered ofby ~~Arthur~~insurance. ~~Andersen~~Management ~~LLP~~believes ~~dated~~that ~~as of March 28, 2002 (except with~~ the ~~respect~~various toasserted ~~the~~claims ~~matter~~and ~~discussed~~litigation in ~~the last paragraph of Note 18 to~~ which the ~~date~~Company is ~~May~~currently 2,involved ~~2002)~~will ~~of Collins & Aikman Floorcoverings, Inc. and Subsidiaries as~~not ofhave ~~January~~a ~~26,~~material ~~2002~~adverse ~~that~~effect ~~stated~~on ~~that~~its ~~Arthur Andersen LLP did not audit the~~ financial ~~statements~~position ofor ~~Crossley~~results ~~Carpet Ltd. as~~ of ~~January 27, 2001 and January 26, 2002 and for the two years ended January 26, 2002 but rather relied on the report of other auditors in connection with these matters~~operations.

~~We have~~Management ~~not~~believes ~~been~~that ~~able~~cash togenerated ~~obtain,~~by ~~after~~its ~~reasonable~~operations ~~efforts,~~and availability ~~written~~under ~~consent~~its of$50.0 ~~Arthur~~million ~~Andersen~~revolving ~~LLP~~credit toline ~~our~~will ~~naming~~be itsufficient into ~~these~~fund ~~financial~~the ~~statements~~Company’s ascurrent ~~having~~commitments ~~certified~~and ~~our~~planned ~~consolidated~~requirements. ~~financial~~Management ~~statements~~also ~~for~~believes that the ~~two~~Company ~~years~~will ~~ended~~be able to replace its revolving credit facility upon its expiration in January ~~26,~~2007 ~~2002~~on similar terms and conditions. However, ~~as required~~no byassurances ~~Section~~can 7be ofgiven ~~the~~with ~~Securities~~respect ~~Act~~to the foregoing.

24On August 10, 2004, the Company and its parent announced its intent to close its manufacturing facility in Santa Ana, California, and transfer the production to its existing Truro, Nova Scotia, Canada facility.1 The plan to close the facility was approved by the Board of Directors on August 9, 2004, and the transition was completed during the Company’s fourth fiscal quarter in 2005. The Company had previously expected that the consolidation of the facilities would be completed by the end of the Company’s first fiscal quarter in 2005. However, the transfer of production was slowed to accommodate the training of associates and the completion of certain manufacturing system enhancements. During the delayed transition the Company experienced production inefficiencies that resulted in delayed deliveries to its customers and additional costs.

~~PART~~As ~~III~~part of the Facility Maximization, the Company negotiated with the Nova Scotia government the forgiveness of debt consisting of the remaining $1.3 million of Crossley’s outstanding sinking fund bonds. The forgiveness, which commences in fiscal 2006, will be over the remaining five-year term of the current note, and is based upon maintaining a defined level of full-time equivalent employees. The debt is also non-interest bearing.

~~Item~~The ~~10. Directors~~original anticipated total expenditures and ~~Executive~~actual ~~Officers~~costs incurred for the Facility Maximization are as follows (in millions):

The following table sets forth the names and ages for each of the directors of Tandus Group, Inc. and each of our directors and executive officers and the positions they hold:


	Anticipated Total Expenditures as of August 10, 2004		Amounts Incurred During Fiscal Year Ended January 29, 2005		Amounts Incurred During Fiscal Year Ended January 28, 2006		Cumulative Amounts Incurred as of January 28, 2006
Severance Costs	$	1.8	$	1.5	$	0.6	$	2.1
Contractual Obligations and Professional Fees		3.1		0.4		0.8		1.2
Other Project Costs		1.5		2.1		6.8		8.9

Gross Project Expenditures	$	6.4	$	4.0	$	8.2	$	12.2

Name
Edgar M. (Mac) Bridger	51	President and Executive Officer and Director of the Company and Director of Tandus Group
Lee H. Schilling	62	Senior Vice President of Marketing and Sales of the Company
Darrel V. McCay	42	Vice President, Chief Financial Officer and Secretary of the Company and Director of Tandus Group
Wallace J. Hammel	57	Vice President of Manufacturing of the Company
Jeffrey M. Raabe	41	Vice President of Sales of the Company
Henry L. Millsaps, Jr.	47	Vice President of Human Resources of the Company
Ralph H. Grogan	45	Chief Executive Officer and President of Monterey
Gordon Laing	42	Chief Executive Officer and President of Crossley
Ronald N. Beck	47	Chairman of the Board of Directors of Tandus Group
Stephen M. Burns	41	Director of Tandus Group
Timothy C. DeVries	46	Director of Tandus Group
Caleb S. Kramer	33	Director of the Company and of Tandus Group
Jason A. Mehring	31	Director of the Company and of Tandus Group
Robert F. Perille	44	Director of Tandus Group

Set forthTable is a brief description of the business experience of each of our directors and executive officers. Contents

~~Edgar~~The M.accrued ~~(Mac)~~Facility ~~Bridger~~Maximization ~~has~~costs ~~served~~at asJanuary 29, ~~President~~2005 ~~and~~amounted ~~Chief~~to ~~Executive~~$0.8 ~~Officer~~million ofwhich ~~the~~consisted ~~Company~~of ~~since February 1997,~~ severance and asother aprojected ~~director~~related ~~of the Company since February 1997~~costs. ~~Prior~~These tocosts ~~that~~are ~~time,~~included hein ~~has~~accrued ~~served~~expenses asin the ~~Company’s~~accompanying ~~President~~consolidated ~~from~~statement ~~December~~of ~~1993~~financial ~~to February 1997~~condition. InThere ~~addition,~~were ~~Mr.~~minimal ~~Bridger~~remaining ~~served~~Facility asMaximization ~~Vice~~costs ~~President~~accrued ~~of Sales from February 1993 to November 1993 and served~~ as ~~National~~ ~~Sales~~of ~~Manager from July 1991 to~~ January 28, ~~1993~~2006.

~~Lee~~Off-Balance H.Sheet ~~Schilling~~Arrangements has served as Senior Vice President of Marketing and Sales of the Company since June 1994. Prior to that time, he served as Vice President of Marketing and Sales from July 1987 to June 1994. From January 1985 to July 1987, Mr. Schilling served as National Sales Manager.

~~Darrel~~The V.Company ~~McCay~~ has ~~served~~no asoff-balance ~~Vice~~sheet ~~President,~~arrangements ~~Chief Financial Officer and Secretary of the Company since February 1997 and~~ as ~~a director~~ of ~~Tandus Group since February 1997. Prior to that time~~January 28, he2006 ~~served as Vice President of Administration~~ and ~~Control from August 1994 to February 1997. From March 1989 to August 1994~~January 29, Mr2005. ~~McCay also served as Division Controller.~~

~~Wallace J. Hammel has served as Vice President of Manufacturing of the Company since April 1994. From July 1991 to April 1994, Mr.~~Contractual ~~Hammel~~Obligations ~~served as the Director of the Customer Service and Claims of the Company. Mr. Hammel joined the Company in March 1983 as a Finishing Manager.~~

~~Jeffery~~The M.following ~~Raabe~~table ~~has~~contains ~~served~~a assummary ~~Vice President~~ of ~~Sales of~~ the Company’s ~~since~~future ~~February~~minimum ~~1996.~~payments ~~Prior~~under tocontractual ~~that~~obligations ~~time, he served~~ as ~~the Southeast Direct Sales manager and Director~~ of ~~North American Sales of the Company from October 1990 to February 1996. Mr. Raabe joined the Company in~~ January ~~1989 as a Contract Specialist in~~ ~~Atlanta~~28, ~~Georgia~~ 2006.


	2006		2007		2008		2009		2010		Thereafter		Total
Long-Term Debt	$	4.6	$	30.7	$	0.4	$	0.4	$	165.4	$	0.8	$	202.3
Interest Related to Debt (1)		18.5		17.7		16.1		16.1		8.0		—		76.4
Operating Leases		2.1		1.7		1.5		1.0		1.0		0.2		7.5

Total	$	25.2	$	50.1	$	18.0	$	17.5	$	174.4	$	1.0	$	286.2

~~Henry~~(1) ~~L. Millsaps,~~Assumes ~~Jr.~~interest ~~has~~rates ~~served~~on asfloating ~~Vice~~rate ~~President~~debt ofequates ~~Human~~to ~~Resources of~~ the ~~Company~~interest ~~since~~rates ~~April 1995. Mr. Millsaps joined the Company in 1980 and served~~ as ~~Human~~of ~~Resource~~January ~~Director~~28, ~~from March 1988 until April 1995~~2006.

~~Ralph~~Purchase H.orders ~~Grogan~~or ~~joined~~contracts for the ~~Company~~purchase asof ~~Chief~~inventory ~~Executive Officer~~and other goods and ~~President~~services ofare ~~Monterey~~not included in ~~December~~the ~~2002~~table above. ~~Prior~~We are not able to determine the aggregate amount of such purchase orders that ~~time~~represent contractual obligations, ~~Mr.~~as ~~Grogan~~purchase ~~was~~orders ~~with~~may ~~Burlington~~represent ~~Industries,~~authorizations ~~Inc.~~to ~~for~~purchase 22rather ~~years~~than binding agreements. ~~While~~Our ~~with~~purchase ~~Burlington~~orders ~~Industries,~~are ~~Inc.,~~based heon ~~served~~our ~~most~~current ~~recently~~distribution asneeds ~~President~~and ofare ~~Burlington~~fulfilled ~~House~~by ~~Floor~~our ~~Accent Division~~vendors ~~from~~within ~~1999~~short totime ~~2002~~horizons. ~~and~~We asdo not ~~Vice~~have ~~President~~significant ~~and~~agreements ~~General~~for ~~Manager~~the purchase of ~~Lees~~inventory ~~Carpet~~or ~~from~~other ~~1994~~goods ~~until~~specifying ~~1999.~~minimum ~~Mr.~~quantities ~~Grogan~~or ~~has~~set 12prices ~~years~~that ofexceed ~~carpet~~our ~~industry~~expected ~~experience~~requirements for three months.

~~Gordon~~Critical ~~Laing~~Accounting ~~has~~Policies served as Chief Executive Officer and President of Crossley since August 1999. Prior to that time, he served as Vice President Finance Administration of Crossley from January 1995 to August 1999. Mr. Laing was the Director of Finance and Administration Chief Financial Officer of Crossley from January 1994 to January 1995.

~~Ronald~~Our N.significant ~~Beck~~accounting ~~has~~policies ~~been~~are ~~Chairman~~more offully ~~the Board~~described ofin ~~Tandus~~Note ~~Group~~2 ~~since~~to ~~January~~the consolidated ~~2001.~~financial Hestatements ~~joined~~included ~~Oaktree~~herein ~~Capital~~in ~~Management,~~Item 8. ~~LLC~~Certain asof ~~Managing~~our ~~Director~~accounting inpolicies ~~May~~require ~~2000 and is~~ the ~~co-head~~application of ~~the~~significant ~~Principle~~judgment ~~Opportunities~~by ~~Group,~~management ~~which~~in ~~includes~~selecting ~~OCM~~the ~~Principle~~appropriate ~~Opportunities~~assumptions ~~Fund~~for ~~II,~~calculating Lfinancial estimates.P. ~~and~~By ~~its~~their ~~predecessor~~nature, ~~funds.~~these ~~Prior~~judgments toare ~~joining~~subject ~~Oaktree~~to ~~Capital~~an ~~Management,~~inherent ~~LLC,~~degree ~~Mr.~~of ~~Beck~~uncertainty ~~managed~~and ~~Seneca~~actual ~~Capital~~results ~~Partners~~could ~~LLC,~~differ afrom ~~private~~these ~~equity~~estimates. ~~investment~~These ~~firm~~judgments ~~that~~are hebased ~~co-founded~~on inour ~~1996.~~historical ~~Mr.~~experience, ~~Beck~~terms ~~holds~~of aexisting ~~B.A.~~contracts, incurrent ~~Economics~~economic ~~from~~trends ~~Stanford~~in ~~University~~the industry, ainformation ~~J.D.~~provided ~~from Stanford~~by ~~Law~~our ~~School~~customers, and aninformation ~~M.B.A.~~available from ~~the~~outside ~~Stanford~~sources, ~~Graduate~~as ~~School~~appropriate. ofThe ~~Business.~~Company’s significant accounting policies include:

~~Stephen~~Basis ~~M. Burns has been a director~~ of ~~Tandus~~Consolidation. ~~Group~~The ~~since~~accompanying ~~November~~consolidated ~~1996.~~financial Hestatements ~~has~~include ~~been~~the aaccounts ~~Vice President~~ of ~~Quad-C~~Collins & ~~Management~~Aikman Floorcoverings, Inc. ~~since~~and ~~1992.~~its ~~Prior to joining Quad~~wholly-Cowned ~~Management, Mr~~subsidiaries. ~~Burns~~All ~~was~~significant ~~Vice~~intercompany ~~President~~transactions ofand ~~Paribas~~balances ~~North~~have ~~American~~been ~~and Paribas~~eliminated.

~~Timothy~~Revenue CRecognition. ~~DeVries~~Revenue ~~has~~is ~~been~~recognized awhen ~~director~~goods ofare ~~the~~shipped, ~~Company~~which ~~since~~is ~~January~~when ~~2001~~legal title passes to the customer. HeFor ~~has~~product ~~been~~installations ~~with~~subject ~~Norwest~~to ~~Equity~~customer ~~Partners~~approval, ~~since~~revenue ~~1998.~~is ~~Prior~~recognized toupon ~~that~~acceptance ~~time,~~by hethe ~~worked~~customer. atThe ~~Churchill~~Company ~~Companies,~~provides ~~where~~certain ~~for~~installation ~~more~~services ~~than~~to 11customers ~~years~~utilizing heindependent ~~led~~third-party ~~Churchill’s~~contractors. ~~real~~The ~~estate,~~billings ~~financial~~and expenses for these services are included in net sales and ~~industrial~~cost ~~acquisition~~of ~~efforts.~~goods Mrsold, respectively. ~~DeVries~~Additionally, ~~holds~~freight acharged ~~B.A.~~to ~~from~~customers ~~Bethel~~is ~~College~~included in net sales.

~~Caleb~~A S.customer ~~Kramer~~claims ~~has~~reserve ~~been~~and aallowance ~~director~~for ofproduct ~~the~~returns ~~Company~~is ~~since~~established ~~January~~based ~~2001~~upon ~~and~~historical claims experience as a ~~director~~percent of ~~Tandus~~gross ~~Group~~sales ~~since~~as ~~January~~of ~~2001~~the balance sheet date. HeThe allowance for customer claims is ~~a Managing~~recorded ~~Director~~upon shipment of ~~Oaktree~~goods ~~Capital~~and ~~Management,~~is ~~LLC.~~recorded ~~Prior~~as toa ~~joining~~reduction ~~Oaktree~~of ~~Capital~~sales. ~~Management,~~While ~~LLC~~management inbelieves ~~May~~that ~~2000.~~the ~~Mr.~~customer ~~Kramer~~claims ~~co-founded~~reserve ~~Seneca~~and ~~Capital~~allowance ~~Partners,~~for ~~LLC,~~product areturns ~~private~~is ~~equity~~adequate ~~investment~~and ~~firm.~~that ~~From~~the ~~1994~~judgment applied tois ~~1996,~~appropriate ~~Mr.~~based ~~Kramer~~upon ~~was~~historical ~~employed~~experience ~~by Archon~~for ~~Capital~~these ~~Partners~~items, anactual ~~investment~~amounts ~~firm.~~determined ~~Mr.~~to ~~Kramer~~be ~~holds~~due aand ~~B.A.~~payable incould ~~economics~~differ ~~from~~and ~~the~~additional ~~University~~allowances ofmay ~~Virginia~~be required.

~~Jason~~Foreign ACurrency Translation. ~~Mehring~~Effective ~~has~~July 31, ~~been~~2005, athe ~~director~~Company’s ofCanadian subsidiary adopted the ~~Company~~U.S. ~~since~~dollar ~~January~~as ~~2001~~its ~~and~~functional acurrency. ~~director~~Prior ofto ~~Tandus~~this ~~Group~~date, ~~since~~the ~~January~~Canadian ~~2001~~dollar had served as the subsidiary’s functional currency. HeThe istransition ~~a Principal~~to ~~with~~the ~~BACI~~U.S. ~~and~~dollar ~~has~~as ~~been~~the ~~with~~functional ~~Bank~~currency was primarily due to the high volume of ~~America~~this ~~Corporation~~subsidiary’s ~~and~~transactions ~~its~~that ~~predecessors~~are ~~since~~denominated ~~1994~~in U.S. ~~Prior~~dollars, tothe ~~that~~high ~~time~~volume of intercompany transactions, Mrand the extensive interrelationship between the Company’s U.S. ~~Mehring~~operations ~~was~~and ~~with~~those ~~Firststar~~of the Canadian subsidiary. The financial information of the Company’s Canadian subsidiary for the quarter ended July 30, 2005 aand ~~regional~~prior ~~commercial~~periods ~~bank~~have ~~based~~been presented in ~~Milwaukee~~U. MrS. ~~Mehring~~dollars ~~holds~~in accordance with a ~~B.B.A.~~translation ~~from~~of convenience method using the ~~University~~exchange ~~of Wisconsin-Eau~~rate ~~Claire~~at ~~and~~July 30, an2005 Mof US$1.~~B.A.~~00 ~~from~~being ~~The~~equal Jto CDN$1.L.2241, ~~Kellogg~~the ~~School~~Bank of ~~Management~~Canada atclosing ~~Northwestern~~buying ~~University~~rate at July 30, 2005. For periods

~~Robert~~21 F. Perille has been a director of Tandus Group since January 2001. Mr. Perille is a Managing Director of BACI. Mr. Perille has been employed by Bank of America Corporation and its predecessors since 1980. Mr. Perille is also a director of Zimmerman Sign Company. Mr. Perille holds a B.A. from Lawrence University and an M.B.A. from Babson College.

CommitteesTable of the Board of Directors Contents

~~Tandus~~subsequent ~~Group’s~~to ~~board~~July 30, of2005, ~~directors~~the ~~currently~~Canadian ~~has~~dollar ~~three standing~~amounts ~~committees.~~are ~~Its~~remeasured ~~executive~~into ~~committee~~the ~~is composed of Mr~~U.S. ~~Beck,~~dollar ~~who~~reporting iscurrency using the ~~chairman,~~temporal ~~and Messrs~~method. ~~Bridger~~When ~~and~~the ~~Perille.~~temporal ~~Its~~method ~~compensation committee~~ is ~~composed~~used ofto ~~Mr.~~translate ~~Perille, who is~~ the ~~chairman,~~local ~~and~~currency ~~Messrs.~~of ~~Beck~~a ~~and~~foreign ~~Bridger.~~entity ~~Its~~into ~~audit~~its ~~committee is~~functional ~~composed of Mr. Mehring~~currency, ~~who is~~ the ~~chairman,~~resulting ~~and~~translation ~~Messrs.~~adjustment ~~DeVries~~is ~~and~~reported ~~Kramer. Each of these committees was established~~ in ~~October~~the ~~2001.~~current ~~Our~~period’s ~~board~~statement of ~~directors does not currently have any standing committees~~operations.

28Assets and liabilities of the U.K. and Asian subsidiaries are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Translation adjustments are accumulated as a separate component of shareholders’ equity. Foreign currency gains (losses) are recognized in the statement of operations.

~~Director~~Impairment ~~Compensation~~of Goodwill and Indefinite Lived Intangible Asset. In addition to the annual impairment tests required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Company may periodically evaluate the carrying value of its goodwill and indefinite lived intangible asset for potential impairment. Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance. Future events could cause the Company to conclude that impairment indicators exist and that the goodwill and indefinite lived intangible asset associated with acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.

~~None~~Accounts ofReceivable ~~Tandus~~Allowances. ~~Group’s~~The orCompany ~~The~~provides allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluation of the financial condition of the Company’s ~~directors~~customers ~~are~~and ~~entitled~~collectability toof ~~receive~~the ~~any~~Company’s ~~fees~~accounts ~~for~~receivable. ~~serving~~If asthe ~~directors.~~financial ~~All~~condition of ~~Tandus~~the ~~Group~~Company’s ~~and~~customers ~~our~~were ~~directors~~to ~~are~~deteriorate, ~~reimbursed~~resulting ~~for~~in an ~~out-~~impairment of ~~pocket~~their ~~expenses~~ability ~~related~~ to pay their ~~service~~debts, asallowances ~~directors~~recorded in the Company’s financial statements may not be adequate.

~~Compliance~~Inventory Reserves. ~~with~~Inventories ~~Section~~are ~~16(a)~~stated at the lower of cost or market. Cost is determined using the ~~Exchange~~first-in, ~~Act~~first-out, method. Reserves are established based on percentage markdowns applied to inventories aged for certain time periods and size of lot.

Income Taxes. The Company ~~does~~uses ~~not~~the ~~have~~liability amethod ~~class~~in ofaccounting ~~equity~~for ~~securities~~income taxes. Deferred tax assets and liabilities are recorded for ~~registered~~temporary ~~pursuant~~differences tobetween ~~Section~~the 12tax basis of assets and liabilities and their reported amounts in the ~~Exchange Act~~consolidated financial statements using statutory rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the rate change.

~~Item~~Effects ~~11. Executive~~of ~~Compensation~~Inflation

~~The~~Petroleum-based ~~following~~products ~~table~~comprise ~~sets~~a ~~forth~~predominant ~~certain~~portion ~~information~~of ~~concerning~~raw ~~compensation~~materials ofthe Company uses in manufacturing. While the Company’s ~~Chief~~attempts ~~Executive~~to ~~Officer~~match cost increases with corresponding price increases, large increases in the cost of petroleum-based raw materials has adversely affected and ~~each~~could adversely affect the future financial results of the ~~other~~Company ~~four~~if ~~most~~it ~~highly~~is ~~compensated~~unable ~~executive~~to ~~officers (“Named~~pass ~~Executive~~through ~~Officers”)~~such ~~during~~price ~~the~~increases ~~fiscal~~in ~~years~~raw material ~~presented~~costs to customers.

~~Summary~~The ~~Compensation~~impact ~~Table~~of inflation on the Company’s operations has not been significant in recent years with the exception of petroleum-based products noted above which have risen due to demand. There can be no assurance that a high rate of inflation in the future would not have an adverse effect on the Company’s operating results if the Company is unable to pass through the cost increases to its customers.

	Annual Compensation ($)(a)					Long-Term Compensation
Name and Principal Position	Year	Salary		Bonus		Restricted Stock Awards(#)	All Other Compensation(b)(c)
Edgar M. Bridger President and Chief Executive Officer	2002 2001 2000	$	340,000 306,667 300,000	$	— — 243,000	— 8,559.25 —	$	8,122 5,828 5,351
Lee H. Schilling Senior Vice President of Marketing and Sales	2002 2001 2000	$	184,740 176,000 168,000	$	— — 108,864	— 2,853.08 —	$	3,286 855 2,958
Darrel V. McCay Vice President and Chief Financial Officer	2002 2001 2000	$	175,585 165,833 150,000	$	— 25,000 93,960	— 3,423.70 —	$	5,518 3,349 1,200
Jeffrey M. Raabe Vice President of Sales	2002 2001 2000	$	170,000 160,000 145,750	$	— — 94,446	— 3,432.70 —	$	3,058 3,461 3,199
Wallace J. Hammel Vice President of Manufacturing	2002 2001 2000	$	169,167 160,000 145,750	$	— — 94,446	— 2,853.08 —	$	4,362 4,648 3,392

Seasonality

~~(a)~~The ~~None~~Company ofexperiences seasonal fluctuations, with generally lower sales and gross profit in the ~~Named~~first ~~Executive~~and ~~Officers~~fourth ~~received~~quarters ~~perquisites~~of orthe ~~other~~fiscal ~~personal~~year ~~benefits~~and higher sales and gross profit in ~~excess~~the second and third quarters of the ~~lesser~~fiscal year. The seasonality of ~~$50,000~~sales orand ~~10%~~profitability is primarily a result of disproportionately higher sales in the ~~total~~education ofend ~~their~~market ~~salary~~during the summer months while schools generally are closed and ~~bonus~~floorcovering can be installed.

~~(b)~~Reliance ~~Includes payments of the following amounts for life insurance~~ on ~~behalf~~Primary ofThird-Party ~~each~~Supplier of ~~the~~Nylon ~~executive~~Yarn officers above for fiscal 2002: $2,622 for Mr. Bridger, $3,289 for Mr. Schilling, $518 for Mr. McCay, $530 for Mr. Raabe and $2,262 for Mr. Hammel. Includes 401(k) plan employer matching contributions on behalf of each of the executive officers above for fiscal 2002: $5,500 for Mr. Bridger, $0 for Mr. Schilling, $5,000 for Mr. McCay, $2,538 for Mr. Raabe, and $2,100 for Mr. Hammel. Includes payments of the following amounts for life insurance on behalf of each of the executive officers above for fiscal 2001; $2,123 for Mr. Bridger, $855 for Mr. Schilling, $763 for Mr. Raabe, $943 for Mr. Hammel and $805 for Mr. McCay. Includes 401(k) plan employer matching contributions on behalf of each of the executive officers above for fiscal 2001; $3,705 for Mr. Bridger, $0 for Mr. Schilling, $2,698 for Mr. Raabe, $3,705 for Mr. Hammel and $2,544 for Mr. McCay. Includes payments of the following amounts for life insurance on behalf of each

29Invista, Inc. (“Invista”) currently supplies a majority of the Company’s requirements for nylon yarn, the primary raw material used in the Company’s floorcovering products. The unanticipated termination or interruption of the supply arrangement with Invista could have a material adverse effect on the Company because of the cost and delay associated with shifting this business to another supplier. Historically, the Company has not experienced significant interruptions in the supply of nylon yarn from Invista, although no assurances can be given that it will not experience interruption in supply in the future.

of22 the executive officers above for fiscal 2000: $2,056 for Mr. Bridger, $806 for Mr. Schilling, $561 for Mr. Raabe, $561 for Mr. Hammel and $596 for Mr. McCay. Includes 401(k) plan employer matching contribution on behalf of each of the executive officers above for fiscal 2000: $3,295 for Mr. Bridger, $2,152 for Mr. Schilling, $2,638 for Mr. Raabe, $2,831 for Mr. Hammel and $604 for Mr. McCay.

(c)Table Excludes payments of amounts relating to the cancellation of all outstanding stock options in connection with our January 2001 recapitalization.Contents

~~Stock~~While ~~Option~~Invista ~~Grants~~is inan ~~Last~~important ~~Fiscal~~vendor, ~~Year~~it is believed that there are adequate alternative sources of supply from which the synthetic fiber requirement could be fulfilled including, but not limited to, nylon yarn produced by Extrusion. In addition to Invista, there are at least three major third party suppliers to the commercial carpet industry from whom the Company acquires yarn.

NoThe ~~options~~other ~~were~~significant ~~granted~~raw ~~during~~materials ~~fiscal~~used ~~2002 to~~by the ~~Named~~Company ~~Executive~~in ~~Officers~~its carpet manufacturing process include coater materials, such as vinyl resins and primary backing.

~~Aggregated~~Recent ~~Option~~Accounting ~~Exercises in~~Pronouncements ~~Last Fiscal Year and Fiscal Year End Option Values~~

In October 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position Financial Accounting Standard 123(R)-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R)” ~~options~~(“FSP ~~were~~123(R)-2”). ~~exercised~~FSP by123(R)-2 provides an exception to the ~~Named~~application ~~Executive~~of ~~Officers~~the concept of “mutual understanding” as expressed in ~~fiscal~~FASB ~~2002~~Statement ~~and~~No. 123(R), ~~there~~“Share-Based Payment” (“SFAS No. 123(R)”), regarding the determination of whether a grant date or measurement date, as applicable, has occurred. The exception permits companies to measure compensation cost for equity awards to employees on the Board approval date if certain conditions are met, provided that the communication to the employees occurs within a “relatively short period of time” from the approval date. The guidance in FSP 123(R)-2 is noto ~~market~~be applied upon initial adoption of SFAS No, 123(R), or to the first reporting period after October 18, 2005, for ~~Tandus’s~~which ~~common~~financial ~~stock~~statements or interim reports have not been issued should an entity have previously adopted the provisions of SFAS No. 123(R). The Company does not expect the adoption of FSP 123(R)-2 to have a material impact on its consolidated financial statements.

~~Retirement~~In ~~Plan~~October 2005, the FASB issued FASB Staff Position Financial Accounting Standard 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”). FSP 13-1 states that rental costs associated with ground or building operating leases that are incurred during a construction period should be recognized as rental expense and included in income from continuing operations. The guidance is to be applied to the first reporting period beginning after December 15, 2005. Early adoption and retrospective application are permitted but not required. The Company does not expect the adoption of the provisions of FSP 13-1 to have a material impact on its consolidated financial statements.

~~Provided~~In ~~certain~~August ~~eligibility~~2005, ~~requirements~~the ~~are~~FASB ~~met,~~issued atFASB ~~the~~Staff ~~end~~Position ofFinancial ~~each~~Accounting ~~calendar~~Standard ~~month~~123(R)-1, ~~pay~~“Classification ~~credits~~and ~~are~~Measurement ~~added~~of toFreestanding aFinancial ~~participant’s~~Instruments ~~account under~~Originally ~~the~~Issued ~~Company’s~~in ~~Pension~~Exchange ~~Account~~for ~~Plan~~Employee Services under FASB Statement No. 123(~~the~~R)” (“~~Plan~~FSP 123(R)-1”). ~~The~~FSP ~~percentage~~123(R)-1 defers indefinitely the requirement of ~~compensation~~SFAS isNo. 123(R) that a share-based onpayment to an employee subject to SFAS No. 123(R) becomes subject to the recognition ~~participant’s~~and ~~length~~measurement requirements of ~~credited~~other ~~service~~applicable ~~and~~GAAP ~~compensation~~when ~~(as~~the ~~defined~~rights inconveyed by the ~~Plan)~~instrument ~~during~~are ~~that~~no ~~month~~longer dependent on the holder being an employee. ~~For~~A ~~participants~~freestanding ~~aged~~instrument 50issued to an employee in exchange for past or future employee services that is subject to SFAS No. 123(R) or ~~older,~~was subject to SFAS No. 123 (R) upon initial adoption shall continue to be subject to the ~~percentage~~recognition and measurement provisions of ~~compensation~~SFAS No. 123(R) throughout the life of the instrument, unless its terms are modified when the holder is ~~based~~no onlonger ~~either~~an ~~credited~~employee. ~~service~~The deferral excludes awards exchanged for nonemployee services or ~~age,~~a ~~whichever~~combination ~~results~~of inemployee and nonemployee services. The deferral does not have a ~~higher~~material impact ~~percentage~~on the Company’s consolidated financial statements.

~~The~~In ~~following~~July ~~chart~~2005, ~~sets~~the ~~forth~~FASB ~~how~~issued ~~pay~~FASB ~~credits~~Staff ~~were~~Position ~~determined~~Accounting Principles Board 18-1, “Accounting by an Investor for its Proportionate Share of Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, upon a Loss of Significant Influence” (“FSP 18-1”). FSP 18-1 requires that if an investor loses significant influence over an investee, the investor’s proportionate share of the investee’s equity adjustments for Other Comprehensive Income should be offset against the carrying value of the investment at the time significant influence is lost by the investor. To the extent that the offset results in a negative carrying value of the investment, an investor should reduce the carrying value of the investment to zero and record the remaining balance in income. FSP 18-1 is effective as of the first reporting period beginning after July 12, 2005. Comparative financial statements shall be retrospectively adjusted to reflect application of these provisions. The adoption of FSP 18-1 did not have an impact on the Company’s ~~plan:~~consolidated financial statements.

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

In June 2005, the FASB issued FASB Staff Position Financial Accounting Standard 150-5, “Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable” (“FSP 150-5”). FSP 150-5 provides an interpretation of FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). This FSP addresses whether freestanding warrants and other similar instruments on shares that are redeemable are subject to the requirements in SFAS No. 150, regardless of the timing of the redemption feature or the redemption price. FSP 150-5 is effective for the first reporting period beginning after June 30, 2005. If the guidance in this FSP results in changes to previously reported information, a cumulative effect adjustment is required. The adoption of this FSP did not have an impact on the Company’s consolidated financial statements.

~~Participants~~23 make no contributions to the Plan. Employer contributions are 100% vested after five years of service or at age 65, whichever was earlier, and might have vested under certain other circumstances as set forth in the Plan. The estimated annual benefits payable upon retirement at normal retirement age under the Plan for Messrs. Bridger, Schilling, Raabe, Hammel and McCay are $12,504, $7,857, $16,846, $9,341 and $16,698, respectively. Participants in the Plan have the option, however, of receiving the value of their vested account in a lump sum following termination of employment. During fiscal 2002, the Company elected to freeze the plan.

CompensationTable Committeeof Interlocks and Insider Participation Contents

NoIn ~~member~~June of2005, ~~our~~the ~~Board~~FASB ofissued ~~Directors~~FASB ~~serves~~Staff asPosition a143-1, ~~member~~“Accounting offor ~~the~~Electronic Equipment Waste ~~Board~~Obligations” of(“FSP ~~Directors~~143-1”). orFSP ~~Compensation~~143-1 ~~Committee~~addresses the accounting for obligations associated with Directive 2002/96/EC regarding Waste Electrical and Electronic Equipment adopted by the European Union (“EU”). FSP 143-1 is effective upon the later of ~~any~~the ~~entity~~first reporting period that ~~has~~ends ~~one~~after orJune 8, ~~more~~2005, ~~executive~~or ~~officers~~the ~~serving~~date asthat athe EU-member ofcountry ~~our~~adopts ~~Board~~the law. The adoption of ~~Directors.~~this FSP did not have an impact on the Company’s consolidated financial statements.

~~Employment~~In ~~Agreements~~May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that a change in depreciation, amortization or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect that the adoption of SFAS No. 154 will have a material impact on its consolidated financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company ~~has~~does nonot ~~employment~~expect ~~agreement~~the ~~with~~adoption ~~any~~of ~~Named~~FIN ~~Executive~~47 ~~Officer~~to have a material impact on its consolidated financial statements.

30In December 2004, the FASB issued FASB Staff Position 109-1, “Application of FASB Statement No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (“FSP 109-1”). The American Jobs Creation Act of 2004 (the “Jobs Act”), enacted October 22, 2004, introduces a special tax deduction of up to 9.0 percent when fully phased in, of the lesser of “qualified production activities income” or taxable income. FSP 109-1 clarifies that this deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. The Company is currently evaluating the benefit, if any, that FSP No. 109-1 will have on its consolidated financial statements; however, the Company believes any impact will be immaterial.

~~Compensation~~In ~~Committee~~December ~~Report~~2004, the FASB issued FASB Staff Position 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”), which provides guidance under SFAS No. 109 with respect to recording the potential impact of the repatriation provisions of the Jobs Act on enterprises’ income tax expense and deferred tax liability. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment for purposes of applying FASB Statement No. 109. The Company has not yet completed evaluating the impact, if any, of the repatriation provisions and has not adjusted its tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Act; however, the Company believes any impact will be immaterial.

~~The~~In ~~Compensation~~December ~~Committee~~2004, ofthe ~~Tandus’~~FASB ~~Board~~issued ofSFAS ~~Directors~~No. 123R, ~~(the~~“Share-Based Payment” (“~~Compensation~~SFAS ~~Committee~~No. 123R”). ~~also~~This statement is a ~~serves~~revision asto ~~our~~Statement ~~compensation~~of ~~committee~~Financial Accounting Standards No. 123 ~~During~~and ~~fiscal~~supersedes ~~2002~~Accounting Principles Board Opinion No. 25. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the ~~Compensation~~accounting ~~Committee~~for ~~was~~transactions ~~comprised~~in which an entity obtains employee services in share-based payment transactions. Companies will be required to measure the cost of ~~Messrs~~employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). ~~Bridger~~That cost will be recognized over the period during which an employee is required to provide service, ~~Beck~~the ~~and~~requisite ~~Perille~~service period (~~Chairman~~usually the vesting period), in exchange for the award. The ~~Compensation~~grant-date ~~Committee~~fair value of employee share options and similar instruments will be estimated using option-pricing models. If an equity award is ~~responsible~~modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. SFAS No. 123R will be effective for: fiscal years beginning after June 15, 2005, due to the Securities and Exchange Commission’s Rule 2005-57, which amended the effective date of SFAS No. 123R. The adoption of SFAS No. 123R is not expected to have a material impact on the Company’s consolidated financial statements.

•24 ~~setting our compensation philosophy and policies;~~

•Table establishing the compensation of our Chief Executive Officer and approving the compensation of the other executive officers; andContents

•In ~~administering~~December ~~and~~2004, ~~awarding~~the ~~options~~FASB issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets” (“SFAS No. 153”). SFAS No. 153 amends the guidance in Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate certain exceptions to the principle that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. SFAS No. 153 eliminates the exception for nonmonetary exchanges of similar productive assets and ~~other~~replaces ~~awards~~it ~~under~~with ~~our~~a ~~stock~~general ~~incentive~~exception ~~plans~~for exchanges of nonmonetary assets that do not have commercial substance. This statement is effective for nonmonetary asset exchanges in fiscal years beginning after June 15, 2005. The adoption of SFAS No.153 is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

~~Our~~In ~~compensation~~November ~~policies~~2004, ~~are~~the ~~designed~~FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs-An Amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing” (“ARB No. 43”), to ~~align~~clarify the ~~financial~~accounting ~~interests~~for abnormal amounts of ~~our~~idle ~~management~~facility ~~with~~expense, ~~those~~freight, ofhandling ~~our~~costs and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, ~~shareholders~~excessive spoilage, double freight, and tore-handling ~~take~~costs ~~into~~be ~~account~~recognized ~~our~~as ~~operating~~current-period ~~environment~~charges ~~and~~regardless ~~expectations~~of ~~for~~whether ~~continued~~they ~~growth~~meet ~~and~~the ~~enhanced~~criterion ~~profitability~~of “so abnormal” as stated in ARB No. 43. ~~Compensation~~Additionally, ~~for~~SFAS ~~each~~No. 151 requires that the allocation of ~~our~~fixed ~~executive~~production ~~officers~~overhead ~~generally~~to ~~consists~~the costs of aconversion ~~base~~be ~~salary~~based ~~and~~on the ~~opportunity~~normal tocapacity ~~receive~~of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the ~~annual~~adoption ~~bonus~~of SFAS No. 151 will have a material impact on its consolidated financial statements.

~~The~~In ~~Compensation~~November ~~Committee’s~~2004, the Emerging Issues Task Force ~~current~~reached ~~philosophy~~a isconsensus ~~that~~on Issue No. 03-13, “Applying the ~~predominate~~Conditions ~~portion~~in Paragraph 42 of anFASB ~~executive’s~~Statement ~~compensation~~No. 144, ~~should~~“Accounting befor ~~based~~the ~~directly~~Impairment ~~upon~~or Disposal of Long-Lived Assets in Determining Whether to Report Discontinued Operations”“ (“EITF 03-13”). Under the ~~value~~consensus, the approach for assessing whether cash flows of ~~incentive~~the ~~compensation~~component inhave been eliminated from the ~~form~~ongoing operations of the entity focuses on whether continuing cash ~~bonuses~~flows are direct or indirect cash flows. ~~The~~Cash ~~Compensation~~flows ~~Committee~~of ~~believes~~the ~~that~~component ~~providing~~would ~~executives~~not ~~with~~ be eliminated if the ~~opportunity~~continuing cash flows to ~~obtain~~the entity are considered direct cash ~~bonuses,~~flows. ~~while~~The ~~maintaining~~consensus ~~our~~should ~~base~~be ~~salaries~~applied atto ~~competitive~~a ~~levels~~component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, ~~will~~2004. ~~enable~~The usadoption toof ~~attract~~EITF ~~and~~03-13 ~~retain~~did ~~executives~~not ~~with~~have ~~the~~an ~~outstanding~~impact ~~management~~on ~~abilities~~the ~~and~~Company’s ~~entrepreneurial~~financial ~~spirit~~position, ~~who~~results ~~are~~of ~~essential~~operations toor ~~our~~cash ~~success~~flows.

~~Furthermore~~In December 2003, the ~~Compensation~~FASB ~~Committee~~issued ~~believes that~~Statement ~~this~~of ~~approach~~Financial toAccounting ~~compensation~~Standards No. 132 (revised 2003), as“Employers’ ~~well~~Disclosure asabout Pensions and Other Postretirement Benefits” (“SFAS 132”). The revision of SFAS 132 provides for additional disclosures including the ~~opportunity~~description toof ~~receive~~the types of plan assets, investment strategy, measurement date(s), plan obligations, cash ~~bonuses~~flows ~~based~~and components onof ~~our~~net periodic benefit cost recognized in interim periods. The revision of SFAS 132 was effective for the Company’s consolidated financial ~~performance~~statements as of January 31, ~~motivates~~2004 ~~executives~~and todid ~~perform~~not tohave ~~their~~an ~~fullest~~impact ~~potential~~on its financial position, results of operations or cash flows.

~~Base~~In ~~Salary. At~~May ~~least annually~~2003, the ~~Compensation~~FASB ~~Committee~~issued ~~reviews~~Statement ~~salary recommendations~~of ~~for~~Financial ~~our~~Accounting ~~executives~~Standards ~~and~~No. 150, ~~then~~“Accounting ~~approves~~for ~~such~~Certain Financial ~~recommendations,~~Instruments with ~~any~~Characteristics ~~modifications~~of itBoth ~~considers~~Liabilities ~~appropriate~~and Equity” (“SFAS No. 150”). ~~The~~SFAS ~~annual~~No. 150 ~~salary~~establishes ~~recommendations~~standards for ~~such~~how ~~persons~~an ~~are~~issuer ~~made~~classifies ~~under~~and ~~the~~measures ~~ultimate~~certain ~~direction~~financial ofinstruments ~~the~~with ~~Chief~~characteristics ~~Executive Officer,~~of ~~based~~both onliabilities ~~total~~and ~~compensation~~equity ~~packages for comparable companies in our industry,~~ as well as ~~evaluations~~imposes ofadditional ~~the~~disclosure ~~individual~~requirements ~~executive’s past~~ and ~~expected~~is ~~future~~effective ~~performance.~~for ~~Similarly,~~interim ~~the~~periods ~~Compensation~~beginning ~~Committee~~after ~~fixes~~December 15, ~~the~~2004. ~~base~~The ~~salary~~Company ofadopted the ~~Chief Executive~~provisions ~~Officer based on its review~~ of ~~competitive~~SFAS ~~compensation~~No. 150 ~~data~~effective ~~from companies in our industry~~February 1, ~~the Chief Executive Officer’s overall compensation package~~2004, which ~~and~~did ~~the~~not ~~Compensation~~have ~~Committee’s~~an ~~assessment~~impact ofon ~~his~~its ~~past~~financial ~~performance~~position, ~~our performance~~results ~~and~~of ~~its~~operations ~~expectation~~or ascash ~~to his future performance in leading us~~flows.

~~Annual Bonuses. The Compensation Committee determined the bonus in fiscal 2002 to be paid to our Chief Executive Officer based upon our bonus plan which outlines certain~~ ~~profitability targets~~Item 7A. AQuantitative bonus may also be paid to our Chief Executive Officer in the discretion of the Compensation Committee. Bonus recommendations for Named Executive Officers, other than the Chief Executive Officer, were made under the direction of the Chief Executive Officer and ~~were~~Qualitative ~~reviewed~~Disclosures ~~and~~About ~~approved~~Market byRisk ~~the Compensation Committee.~~

~~Compensation~~Market ofrisk ~~Chief Executive Officer. The base salary paid to Mr. Bridger~~ is ~~reviewed annually by~~ the ~~Compensation~~potential ~~Committee~~loss ~~and~~arising ~~may be adjusted based on competitive~~from ~~compensation~~adverse ~~information~~changes ~~available~~in tomarket ~~the~~rates ~~Compensation~~and ~~Committee~~prices, ~~his~~such ~~overall~~as ~~compensation~~foreign ~~package~~currency exchange and ~~the~~interest ~~Compensation~~rates. ~~Committee’s~~The ~~assessment~~Company ofis ~~his~~exposed ~~past experience and its expectation as~~ to ~~his~~changes ~~future contributions~~ in ~~leading~~interest usrates and ~~our businesses~~foreign currency.

~~The~~Interest ~~Compensation~~Rate ~~Committee~~Risk evaluates our compensation policies and procedures with respect to executives on an ongoing basis. Although the Compensation Committee believes that current compensation policies have been successful in aligning the financial interests of executive officers with those of our shareholders and with our performance, it continues to examine what modifications, if any, should be implemented to further link executive compensation with both individual and our performance.

31The Company’s senior debt has variable interest rates. Therefore, interest rate changes generally do not affect the fair market value of such debt but do impact future earnings and cash flows, assuming other factors are held constant. Conversely, for the Company’s 9.75% fixed rate debt, interest rate changes do not impact future cash flows and earnings, but do impact the fair market value of such debt, assuming other factors are held constant. At January 28, 2006, the Company had variable rate debt of $34.2 million and fixed rate debt of $168.1 million, which includes approximately $3.1 million of capitalized leases. The variable interest rate per annum applicable to borrowings under the Senior Credit Facility is equal to the Company’s choice of (a) an adjusted rate based upon LIBOR plus a Eurodollar margin or (b) an alternative base rate, as defined by Senior Credit Facility, plus a base rate margin. The Eurodollar margin and the base rate margin adjust quarterly on a sliding scale based on our total leverage ratio for the immediately preceding four

~~Section~~25 162(m) of the Internal Revenue Code of 1986, as amended, generally limits amounts that can be deducted for compensation paid to certain executives to $1,000,000 unless certain requirements are met. No executive officer receives compensation in excess of $1,000,000 and therefore there are no compensation amounts that are nondeductible at present. The Compensation Committee will continue to monitor the applicability of Section 162(m) to our compensation program.

SubmittedTable byof the Compensation Committee Robert F. Perille (Chairman) Edgar M. Bridger Ronald N. BeckContents

32fiscal quarters. See “Note 9 Long-term Debt” in the accompanying notes to consolidated financial statements contained herein in Item 8. The impact on our results of operations of an increase of 100 basis points in the interest rate on the outstanding balance of our variable rate debt for fiscal 2005 would be approximately $0.2 million, net of tax.

~~Item 12. Security~~Foreign ~~Ownership~~Currency ofExchange ~~Certain~~Rate ~~Beneficial~~Risk ~~Owners and Management~~

~~All~~If ofon January 28, ~~our~~2006, ~~outstanding~~currency ~~capital~~exchange ~~stock~~rates iswere ~~owned~~to decline by ~~Tandus~~10% ~~Group.~~against ~~The table below sets forth certain information regarding~~ the ~~beneficial~~U.S. ~~ownership~~dollar ofand ~~Tandus~~that ~~Group’s~~decline ~~common~~remained ~~stock~~in asplace offor ~~April 24~~2006, ~~2003 by~~we ~~(i)~~estimate, ~~each~~based ~~person~~on ~~known~~our toyear-end us2005 toinvestments ~~beneficially~~in ~~own~~financial ~~more~~instruments ~~than~~and 5%holding ofeverything ~~any class of Tandus Group’s common stock~~else constant, ~~(ii)~~that ~~each of~~ the ~~directors~~effect ofon ~~Tandus Group and each of~~ our ~~directors~~fiscal ~~and~~2006 ~~named~~results ~~executed officers and (iii) all~~ of ~~the~~operations ~~directors~~would ~~of Tandus~~be ~~Group and all of our directors and named executive officers as a group~~immaterial.

~~Beneficial~~26 ownership is determined in accordance with the rules of the SEC, which generally attributes beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

Name	Number ofShares of Common Stock	Percentage of Common Stock
Principal Stockholders:
OCM Principal Opportunities Fund II, L.P.(1) 333 South Grand Avenue 28th FloorLos Angeles, CA 90071	112,044.82	34.68	%
BancAmerica Capital Investors II, L.P.(2) 231 South LaSalle StreetChicago, IL 60697	91,036.41	28.17	%
Norwest Equity Partners VII, L.P.(3) 300 Sand Hill RoadMenlo Park, CA 94025	28,011.20	8.67	%
Quad-C Management, Inc.(4) 230 East High StreetCharlottesville, VA 22902	27,091.39	8.38	%
Abu Dhabi Investment Authority(5) P. O. Box 7106 Comiche StreetAbu Dhabi, United Arab Emirates	21,008.40	6.50	%
Directors and Executives Officers(6)
Edgar M. Bridger	6,302.52	1.95	%
Lee H. Schilling	2,450.98	*
Jeffery M. Raabe	2,100.84	*
Wallace J. Hammel	1,820.73	*
Darrel V. McCay	2,240.90	*
Ronald N. Beck(7)	—	*
Stephen M. Burns(8)	83.87	*
Timothy C. DeVries(9)	—	*
Caleb S. Kramer(10)	—	*
Jason A. Mehring(11)	—	*
Robert F. Perille(12)	—	*
All directors and officers as a group (14 people)	16,708.52	5.17	%

* Item 8. ~~Less~~Financial ~~than~~Statements ~~one~~and ~~percent~~Supplementary Data

~~(1)~~REPORT ~~Oaktree~~OF ~~Capital~~INDEPENDENT ~~Management,~~REGISTERED ~~LLC,~~PUBLIC asACCOUNTING ~~the sole general partner of the Oaktree Fund, may be deemed to beneficially own the shares held of record by the Oaktree Fund.~~FIRM

~~(2)~~The ~~BancAmerica~~Stockholder ~~Capital~~and ~~Management~~Board ~~II, L.P., as the general partner~~ of ~~BancAmerica~~Directors Capital Investors II, L.P. (“BACI L.P.”), may be deemed to beneficially own the shares held of record by BACI L.P. BACM II GP, LLC, as the general partner of BancAmerica Capital Management II, L.P., may also be deemed to beneficially own the shares held of record by BACI L.P.

33Collins & Aikman Floorcoverings, Inc.

~~(3)~~We ~~Itasca~~have ~~LBO~~audited ~~Partners~~the ~~VII~~accompanying consolidated statement of financial condition of Collins & Aikman Floorcoverings, LPInc. and Subsidiaries as of January 28, 2006 and January 29, 2005, and the related consolidated statements of operations, stockholder’s equity and cash flows for the fiscal years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Crossley Carpet Mills Limited, a wholly-owned subsidiary, as of and for the ~~general~~fiscal ~~partner~~year ended January 29, 2005, which statements reflect total assets of ~~Norwest~~9 ~~Equity~~percent ~~Partners~~of ~~VII~~consolidated total assets as of January 29, LP2005 and total revenues of 13 percent of consolidated revenues for the year then ended. Those statements were audited by other auditors, ~~may~~whose bereport ~~deemed~~thereon has been furnished to ~~beneficially~~us, ~~own~~and our opinion, insofar as it relates to the ~~shares~~amounts ~~held~~included byfor ~~Norwest~~Crossley ~~Equity~~Carpet ~~Partners~~Mills ~~VII~~Limited, Lis based solely on the report of the other auditor.P.

~~(4)~~We ~~Includes~~conducted ~~1,062.41~~our ~~shares~~audits ofin accordance ~~common~~with ~~stock~~the ~~owned~~standards byof ~~Quad-C~~the ~~Partners~~Public ~~II,~~Company ~~L.P.~~Accounting Oversight Board (~~Quad-C~~United ~~II”~~States). ~~2,012.98~~Those ~~shares~~standards ofrequire ~~common~~that ~~stock~~we ~~owned~~plan byand ~~Quad-C~~perform ~~Partners~~the ~~III,~~audits ~~L.P.~~to ~~(Quad-C~~obtain ~~III”),~~reasonable ~~12,832.76~~assurance ~~shares~~about ofwhether ~~common~~the ~~stock~~financial ~~owned~~statements byare ~~Quad-C~~free ~~Partners~~of ~~IV, LP (“Quad-C IV”), 5,376~~material misstatement.34 ~~shares~~The ofCompany ~~common~~is ~~stock~~not ~~owned~~required byto ~~QCP Investors~~have, ~~LLC~~nor ~~(“QCP~~were ~~Investors”)~~we ~~and~~engaged ~~215.28~~to ~~shares~~perform, ofan ~~common~~audit ~~stock~~of ~~owned~~its byinternal ~~QPC~~control ~~Investors~~over IIfinancial ~~LLC (“QCP Investors II)~~reporting. ~~Quad-C~~Our ~~XI,~~audit ~~L.L.C.~~included asconsideration ~~the general partner~~ of ~~Quad-C~~internal ~~II;~~control ~~Quad-C~~over ~~II,~~financial ~~L.L.C.~~reporting as ~~the~~a ~~general~~basis ~~partner~~for ofdesigning audit ~~Quad-C~~procedures ~~III,~~that ~~L.L.C.;~~are ~~and~~appropriate ~~Quad-C~~in ~~IV, L.L.C. as~~ the ~~general partner of Quad-C IV~~circumstances, ~~may~~but benot ~~deemed~~for tothe ~~beneficially~~purpose ~~own~~of ~~shares~~expressing ~~held~~an ofopinion ~~record~~on by the ~~entity~~effectiveness of ~~which~~the itCompany’s isinternal ~~the~~control ~~general~~over ~~partner~~financial reporting. ~~Terry Daniels~~Accordingly, aswe ~~the~~express ~~managing~~no ~~member~~such ofopinion. ~~each~~An ofaudit includes ~~these general partners~~examining, ~~and~~on asa ~~the~~test ~~managing~~basis, ~~member~~evidence ofsupporting ~~each~~the ofamounts ~~QCP~~and ~~investors~~disclosures ~~and~~in ~~QCP~~the ~~Investors~~financial IIstatements, ~~may~~assessing ~~also~~the beaccounting ~~deemed~~principles toused ~~beneficially~~and ~~own~~significant ~~the~~estimates ~~shares~~made ~~held~~by ofmanagement, ~~record~~as bywell ~~each~~as ofevaluating ~~these~~the ~~entities.~~overall ~~Also~~financial statement ~~includes 5,591~~presentation.62 ~~shares~~We ofbelieve ~~common~~that ~~stock~~our ~~owned~~audits ofand ~~record~~the byreport ~~Paribas~~of ~~Principal~~the ~~Inc.,~~other ~~which~~auditors ~~Quad-C~~provide ~~Management,~~a ~~Inc.~~reasonable ~~has~~basis ~~the~~for ~~power~~our ~~to vote pursuant to a proxy~~opinion.

~~(5)~~In ~~The~~our ~~Abu~~opinion, ~~Dhabi~~based on ~~Investment~~our ~~Authority~~audits isand anthe ~~instrumentality~~report of the ~~government~~other ofauditors, the ~~Emirate~~consolidated financial statements referred to above present fairly, in all material respects, the financial position of ~~Abu~~Collins & ~~Dhabi~~Aikman Floorcoverings, Inc. and isSubsidiaries ~~wholly~~as ~~owned~~of January 28, 2006 and ~~controlled~~January 29, by2005, ~~that~~and ~~government~~the results of their operations and their cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.

~~(6)~~Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The ~~address~~Schedule II for the year ended January 28, 2006, is presented for purposes of ~~each~~additional ~~director~~analysis and ~~executive~~is ~~officer~~not isa ~~c/o~~required ~~Collins~~part &of ~~Aikman~~the ~~Floorcoverings,~~basic ~~Inc~~financial statements., This ~~311~~schedule ~~Smith~~has ~~Industrial~~been ~~Boulevard~~subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, ~~Dalton~~in our opinion, ~~Georgia~~is ~~30722~~fairly stated in all material respects in relation to the basic financial statements taken as a whole.

~~(7)~~/s/ ~~Mr.~~GRANT ~~Beck is a co-manager of Oaktree Fund and the Principal Opportunities Group of Oaktree Capital Management~~THORNTON, ~~LLC.~~LLP ~~Mr. Beck disclaims beneficial ownership of all shares beneficially owned by Oaktree Fund, except for those shares which he has pecuniary interest.~~

~~(8) Mr. Burns is a Vice-President of Quad-C Management~~Atlanta, ~~Inc.~~Georgia ~~Mr. Burns disclaims beneficial ownership of all shares owned by Quad-C Management, Inc. except for those shares in which he has a pecuniary interest.~~

~~(9) Mr. DeVries is a Partner of Norwest Equity Partners. Mr. DeVries disclaims beneficial ownership of all shares beneficially owned by Norwest Equity Partners~~April 12, ~~except~~2006 ~~for those shares in which he has a pecuniary interest.~~

~~(10)~~27 Mr. Kramer is a Managing Director of Oaktree Capital Management, LLC. Mr. Kramer disclaims beneficial ownership of all shares beneficially owned by Oaktree Fund, except for those shares in which he has a pecuniary interest.

(11)Table Mr. Mehring is a Principal of BACI L.P. Mr. Mehring disclaims beneficial ownership of all shares beneficially owned by BACI L.P., except those shares in which he has a pecuniary interest.Contents

~~(12)~~REPORT ~~Mr.~~OF ~~Perille~~INDEPENDENT isREGISTERED aPUBLIC ~~Managing~~ACCOUNTING ~~Director~~FIRM ~~of BACI L.P. Mr. Perille disclaims beneficial ownership of all shares beneficially owned by BACI L.P., except those shares in which he has a pecuniary interest.~~

~~Item 13. Certain~~To ~~Relationships~~the ~~and~~Board ~~Related~~of ~~Transactions~~Directors of

InCrossley ~~connection~~Carpet ~~with~~Mills ~~the~~Limited January 2001 recapitalization, the Company entered into Professional Services Agreements with each of Oaktree Fund and a certain affiliate of BACI. The term of both agreements are substantially the same. Oaktree Fund and an affiliate of BACI will provide management and financial consulting services to us as we may request from time to time. These services will include consulting on business strategy, future investments, future acquisitions and divestitures, and debt and equity financing. For these services we have agreed to pay each of Oaktree Fund and BACI’s affiliate quarterly fees of $62,500 and to reimburse them for reasonable travel and other out-of-pocket fees and expenses incurred by them in providing services to us (including, but not limited to, fees and expenses incurred in attending Company related meetings). We have also agreed to indemnify each of Oaktree Fund and BACI against any losses they may suffer arising out of the services they provide to us in connection with these agreements, such as losses arising from third party suits. The agreements terminate on the first of the date on which Oaktree Fund and BACI, as the case may be, own less than 25% of the capital stock in Tandus Group they purchased in the January 2001 recapitalization, the date on which Tandus Group is either sold to a party who does not currently own more than 5% of Tandus Group’s common stock or substantially all the assets of Tandus Group are sold.

34We have audited the consolidated balance sheet of Crossley Carpet Mills Limited (a wholly owned subsidiary of Collins & Aikman Floorcoverings, Inc.) as at January 29, 2005 and the consolidated statements of loss and retained earnings and cash flow for the period ended January 29, 2005 (not presented separately herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

~~Item~~We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and 14perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. ~~Controls~~ We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and ~~Procedures~~disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~Within~~In 90our ~~days~~opinion, ~~prior to~~ the ~~date~~financial ofstatements ~~filing~~referred ofto ~~this~~above ~~report~~present fairly, ~~the~~in ~~Company~~all ~~carried~~material ~~out an evaluation~~reports, ~~under~~ the ~~supervision~~consolidated ~~and~~financial ~~with~~position ~~the participation~~ of the Company’s ~~Chief~~as ~~Executive~~at ~~Officer and Chief Financial Officer~~January 29, of2005 ~~the design~~ and ~~operation of~~ the ~~Company’s~~consolidated ~~disclosure~~results ~~controls~~of ~~and procedures pursuant to Exchange Act Rule 13a-14. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s~~its ~~disclosure~~operations ~~controls~~ and ~~procedures~~cash ~~are~~flows ~~effective~~ for ~~gathering, analyzing and disclosing~~ the ~~information~~period ~~the~~ended ~~Company is required to disclose in the reports it files under the Securities Exchange Act of 1934~~January 29, ~~within~~2005 ~~the time periods specified~~ in ~~the SEC’s~~conformity rules and forms. The Chief Executive Officer and Chief Financial Officer also concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. In connection with ~~the~~Canadian ~~new~~generally ~~rules,~~accepted ~~the~~accounting Company is in the process of further reviewing and documenting its disclosure controls and procedures, including its internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that the Company’s systems evolve with its businessprinciples.

~~There have been no significant changes in the Company’~~/s/ ~~internal~~Ernst & ~~controls~~Young orLLP in(Canada) ~~other factors that could significantly affect internal controls subsequent to the date of this evaluation.~~

35Chartered Accountants

~~PART~~Halifax, IVCanada

~~ITEM 15. Exhibits~~March 11, ~~Financial~~2005 ~~Statement Schedules, and Reports on Form 8-K~~

(a)	(1) FINANCIAL STATEMENTS:
		Page Number
	Report of Independent Auditors	F-1
	Consolidated Statements of Operations for the Years Ended January 27, 2001, January 26, 2002 and January 25, 2003	F-2
	Consolidated Balance Sheets as of January 26, 2002 and January 25, 2003	F-3
	Consolidated Statements of Stockholder’s Equity for the Years Ended January 27, 2001, January 26, 2002 and January 25, 2003	F-4
	Consolidated Statements of Cash Flows for the Years Ended January 27, 2001, January 26, 2002 and January 25, 2003	F-5
	Notes to Consolidated Financial Statements	F-6

(2) FINANCIALTable SCHEDULE:of Contents

~~The~~REPORT ~~following~~OF ~~financial~~INDEPENDENT ~~statement~~REGISTERED ~~schedule~~PUBLIC ofACCOUNTING ~~Collins~~FIRM & Aikman Floorcoverings, Inc. and Subsidiaries for the fiscal years ended January 27, 2001, January 26, 2002 and January 25, 2003 is filed as part of this Report and should be read in conjunction with the consolidated financial statements of Collins & Aikman Floorcoverings, Inc. and Subsidiaries and related footnotes.

~~Page~~To ~~Number~~the ~~Schedule~~Stockholder ~~II—Valuation~~ and ~~Qualifying~~Board ~~Accounts~~of ~~S-1~~Directors

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

We have audited the accompanying consolidated statements of operations, stockholder’s equity, and cash flows of Collins & Aikman Floorcoverings, Inc. (3a Delaware Corporation) ~~EXHIBITS:~~ for the fiscal year ended January 31, 2004. Our audit also included the related information shown in the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.

EXHIBIT NUMBER		DESCRIPTION
3.1		Certificate of Incorporation of Collins & Aikman Floorcoverings, Inc., as amended to date (Incorporated by reference from Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed on June 4, 1997 (File No. 333-24699)).
3.2		By-Laws of Collins & Aikman Floorcoverings, Inc. (Incorporated by reference from Exhibit 3.2 to the Company’s Registration Statement on Form S-4 filed on June 4, 1997 (File No. 333-24699)).
4.1		Indenture, dated February 15, 2002, among Collins & Aikman Floorcoverings, Inc., Monterey Carpets, Inc., Monterey Color Systems, Inc. and The Bank of New York, as Trustee, for 9 3/4% Senior Subordinated Notes Due 2010 (Incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
4.2		Registration Rights Agreement, dated as of February 20, 2002, among Collins & Aikman Floorcoverings, Inc., Monterey Carpets, Inc., Monterey Color Systems, Inc., Credit Suisse First Boston Corporation, Banc of America Securities, LLC, BNP Paribas Securities Corp., First Union Securities, Inc. and Fleet Securities, Inc. (Incorporated by reference from Exhibit 4.2 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

36In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Collins & Aikman Floorcoverings, Inc. and Subsidiaries for the fiscal year ended January 31, 2004, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the fiscal year ended January 31, 2004, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

EXHIBIT NUMBER		DESCRIPTION
10.1		Credit Agreement, dated January 25, 2001, by and among Collins & Aikman Floorcoverings, Inc., Tandus Group, Inc., the lenders named therein and Credit Suisse First Boston Corporation, as Administrative Agent, BNP Paribas, as Syndication Agent and Fleet Capital Corporation, as Documentation Agent (Incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.2		Amendment No. 1 to Credit Agreement, dated February 11, 2002, by and among Collins & Aikman Floorcoverings, Inc., Tandus Group, Inc. the Lenders (as defined therein) and Credit Suisse First Boston, as Administrative Agent (Incorporated by reference from Exhibit 10.2 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.3		Security Agreement, dated January 25, 2001, by and among Collins & Aikman Floorcoverings, Inc., Tandus Group, Inc., the Subsidiary Guarantors named therein and Credit Suisse First Boston, as Collateral Agent (Incorporated by reference from Exhibit 10.3 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.4		Pledge Agreement, dated January 25, 2001, by and among Collins & Aikman Floorcoverings, Inc., Tandus Group, Inc., the Subsidiary Guarantors named therein and Credit Suisse First Boston, as Collateral Agent (Incorporated by reference from Exhibit 10.4 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.5		Investor Rights Agreement, dated January 25, 2001, by and among OCM Principal Opportunities Fund II, L.P., BancAmerica Capital Investors II, L.P., the rollover participants named therein, the co-investors named therein, the executives named therein and the stockholders named therein (Incorporated by reference from Exhibit 10.5 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.6		Professional Services Agreement, dated as of January 25, 2001, by and between Collins & Aikman Floorcoverings, Inc. and OCM Principal Opportunities Fund II, L.P. (Incorporated by reference from Exhibit 10.6 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.7		Professional Services Agreement, dated as of January 25, 2001, by and between Collins & Aikman Floorcoverings, Inc. and BA SBIC Sub, Inc. (Incorporated by reference from Exhibit 10.7 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.8		Tradename License Agreement, dated as of February 6, 1997, by and between Collins & Aikman Floor Coverings Group, Inc., CAF Holdings, Inc. and Collins & Aikman Floorcoverings, Inc. (Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-4 filed on June 4, 1997, as amended (File No. 333-24699)).
10.9		Asset Purchase Agreement, dated as of May 1, 2002, by and among CAF Extrusion, Inc., Collins & Aikman Floorcoverings, Inc., Candlewick Yarns, Inc., Bretlin, Inc. and Dixie Group, Inc. (Incorporated by reference from Exhibit 10.9 to the Company’s Registration Statement on Form S-4 filed on May 14, 2002 (File No. 333-88212)).
10.10		Debt Restructuring Agreement dated December 23, 1998 by and among Crossley Carpet Mills Limited, Montreal Trust Company of Canada and W.L. Single.
10.11		2001 Tandus Group, Inc. Executive and Management Stock Option Plan.
10.12		2001 Tandus Group, Inc. Management Stock Purchase Plan.

/s/ ERNST & YOUNG, LLP

37Chattanooga, Tennessee

EXHIBIT NUMBER		DESCRIPTION
21.1		List of Subsidiaries.
99.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
99.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

April 26, 2004

3829

SIGNATURESTable of Contents

~~Pursuant~~COLLINS to& ~~the~~AIKMAN ~~requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934~~FLOORCOVERINGS, ~~the~~INC. ~~Registrant has~~AND ~~duly~~SUBSIDIARIES ~~caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on April 24, 2003.~~

~~COLLINS~~Consolidated &Statements ~~AIKMAN~~of ~~FLOORCOVERINGS,~~Financial ~~INC.~~Condition ~~By: /s/ EDGAR M. BRIDGER Edgar M. Bridger President and Chief Executive Officer~~

~~Pursuant~~(In ~~to the requirements of the Securities Exchange Act of 1934~~Thousands, ~~this~~Except ~~Report~~Share ~~has~~Amounts) ~~been signed by the following persons on behalf of the Registrant and the capacities and on the dates indicated.~~

Name	Title		Date
	January 28,2006			January 29,2005
/s/ EDGAR M. BRIDGER Edgar M. Bridger	President, Chief Executive Officer and Director (Principal Executive Officer)		April 24, 2003
ASSETS
/s/ DARREL V. MCCAY Darrel V. McCay	Vice President, Chief Financial Officer and Director (Principal Financial & Accounting Officer)		April 24, 2003
CURRENT ASSETS:
/s/ CALEB S. KRAMER Caleb S. Kramer	Director		April 24, 2003
Cash and Cash Equivalents	$	5,803		$	25,726
/s/ JASON A. MEHRING Jason A. Mehring	Director		April 24, 2003
Accounts Receivable, net of allowances of $579 and $822 in fiscal 2005 and 2004, respectively		46,691			41,863
Inventories		39,993			38,978
Deferred Tax Assets		5,553			5,412
Prepaid Expenses and Other		3,524			1,813
Total Current Assets		101,564			113,792
PROPERTY, PLANT AND EQUIPMENT, net		67,697			67,687
GOODWILL		98,378			98,378
OTHER INTANGIBLE ASSETS, net		28,650			31,143
OTHER ASSETS		6,239			7,610
TOTAL ASSETS	$	302,528		$	318,610
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts Payable	$	16,803		$	18,213
Accrued Expenses		25,148			28,228
Current Portion of Long-Term Debt		4,648			713
Total Current Liabilities		46,599			47,154
OTHER LIABILITIES, including post-retirement benefit obligation		5,364			4,884
DEFERRED TAX LIABILITIES		4,441			4,979
LONG-TERM DEBT, net of current portion		197,673			207,536
MINORITY INTEREST		—			440
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDER’S EQUITY:
Common stock ($0.01 par value per share, 1,000 shares authorized, issued and outstanding in fiscal 2005 and fiscal 2004)					—
Paid-in Capital		72,648			72,648
Retained Deficit		(22,435	)		(17,806	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(553	)		(271	)
Minimum pension liability adjustment, net of tax		(1,209	)		(954	)
Total Stockholder’s equity		48,451			53,617
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	302,528		$	318,610

39The accompanying notes are an integral part of these consolidated financial statements.

~~CERTIFICATION~~30

I,Table Edgarof M. Bridger, certify that: Contents

~~1. I~~COLLINS ~~have reviewed this annual report on Form 10-K of Collins~~ & ~~Aikman~~AIKMAN ~~Floorcoverings~~FLOORCOVERINGS, ~~Inc~~INC.; AND SUBSIDIARIES

~~2. Based~~NOTES onTO myCONSOLIDATED ~~knowledge,~~FINANCIAL ~~this~~STATEMENTS annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

~~3. Based~~Consolidated onStatements ~~my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results~~ of ~~operations~~Operations ~~and cash flows of the registrant as of, and for, the periods presented in this annual report;~~

~~4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures~~ (asIn ~~defined in Exchange Act Rules 13a-14 and 15d-14~~Thousands) ~~for the registrant and we have:~~

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;


	Fiscal Year Ended
	January 28, 2006 (52 Weeks)			January 29, 2005 (52 Weeks)			January 31, 2004 (53 Weeks)
Net Sales	$	325,056		$	340,474		$	311,057

Cost of Goods Sold		227,868			226,601			209,798
Selling, General & Administrative Expenses		80,337			78,227			73,356
Amortization		2,620			3,112			8,846

Operating Expenses		310,825			307,940			292,000

Operating Income		14,231			32,534			19,057
Minority Interest in (Income) Loss of Subsidiary		24			(97	)		(13	)
Equity in Earnings of Affiliate		—			893			1,386
Gain on Early Extinguishment of Debt		795			—			—
Net Interest Expense		20,133			20,494			21,343
Other		96			(172	)		—

Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle		(4,987	)		12,664			(913	)
Income Tax Expense (Benefit)		(358	)		5,961			(2,147	)

Net Income (Loss)	$	(4,629	)	$	6,703		$	1,234

~~b) evaluated~~The ~~the~~accompanying ~~effectiveness~~notes ofare ~~the~~an ~~registrant’s~~integral ~~disclosure controls~~part ~~and procedures as~~ of athese ~~date~~consolidated ~~within~~financial 90statements. ~~days prior to the filing date of this annual report (the “Evaluation Date”); and~~

~~c) presented~~31 ~~in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

5. TheTable registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): Contents

~~a) all~~COLLINS ~~significant~~& ~~deficiencies~~AIKMAN ~~in the design or operation of internal controls which could adversely affect the registrant’s ability to record~~FLOORCOVERINGS, ~~process,~~INC. ~~summarize~~AND ~~and~~SUBSIDIARIES ~~report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and~~

~~b) any~~NOTES ~~fraud,~~TO ~~whether or~~CONSOLIDATED ~~not~~FINANCIAL ~~material,~~STATEMENTS ~~that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

~~6. The~~Consolidated ~~registrant’s~~Statements other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of ~~our~~Stockholder’s ~~most~~Equity ~~recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.~~

~~Date:~~(In ~~April 24~~Thousands, ~~2003~~Except Share Amounts)

/s/ EDGAR M. BRIDGER


	Common Stock (Shares)	Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)						Total
	Common Stock (Shares)	Paid-in Capital		Retained Earnings (Deficit)			Foreign Currency Translation			Minimum Pension Liability			Total
BALANCE, January 25, 2003	1,000	$	72,648	$	(23,480	)	$	(809	)	$	(1,209	)	$	47,150
Net income	—		—		1,234			—			—			1,234
Change in foreign currency translation adjustment, net of tax	—		—		—			316			—			316
Change in minimum pension liability adjustment, net of tax	—		—		—			—			255			255

Total Comprehensive Income														1,805

Dividend to parent	—		—		(2,263	)		—			—			(2,263	)

BALANCE, January 31, 2004	1,000		72,648		(24,509	)		(493	)		(954	)		46,692
Net income	—		—		6,703			—			—			6,703
Change in foreign currency translation adjustment, net of tax	—		—		—			222			—			222
Change in minimum pension liability adjustment, net of tax	—		—		—			—			—			—

Total Comprehensive Income														6,925

BALANCE, January 29, 2005	1,000		72,648		(17,806	)		(271	)		(954	)		53,617
Net loss	—		—		(4,629	)		—			—			(4,629	)
Change in foreign currency translation adjustment, net of tax	—		—		—			(282	)		—			(282	)
Change in minimum pension liability adjustment, net of tax	—		—		—			—			(255	)		(255	)

Total Comprehensive Income														(5,166	)

BALANCE, January 28, 2006	1,000	$	72,648	$	(22,435	)	$	(553	)	$	(1,209	)	$	48,451

~~Edgar~~The M.accompanying ~~Bridger~~notes are an integral part of these consolidated financial statements.

~~President~~32 ~~and Chief Executive Officer~~

40Table of Contents

~~CERTIFICATION~~COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

I,NOTES ~~Darrel~~TO V.CONSOLIDATED ~~McCay,~~FINANCIAL ~~certify that:~~STATEMENTS

~~1. I~~Consolidated ~~have~~Statements ~~reviewed this annual report on Form 10-K~~ of ~~Collins~~Cash &Flows ~~Aikman Floorcoverings, Inc.;~~

~~2. Based~~(In onThousands) my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;


	Fiscal Year Ended
	January 28, 2006			January 29, 2005			January 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(4,629	)	$	6,703		$	1,234
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and leasehold amortization		10,307			10,470			10,307
Amortization of intangible assets		2,620			3,112			6,230
Amortization and write-off of deferred financing fees		1,158			1,259			1,720
Change in deferred income tax		(679	)		3,561			(1,261	)
Equity in earnings of affiliate		—			(893	)		(1,386	)
Minority interest in income (loss) of subsidiary		(24	)		97			13
Gain on early extinguishment of debt		(795	)		—			—
Loss on disposal of fixed assets		36			172			—
Non-cash impairment charge		—			—			2,616
Changes in operating assets and liabilities:
Accounts receivable		(4,828	)		(5,844	)		2,508
Inventories		(1,015	)		(3,515	)		258
Accounts payable		(1,410	)		491			1,803
Accrued expenses		(3,080	)		7,930			982
Other, net		(2,307	)		3,702			(5,005	)

Total adjustments		(17	)		20,542			18,785

Net cash provided by (used in) operating activities		(4,646	)		27,245			20,019

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of capital assets		370			92			—
Equity distribution from affiliate		—			922			3,522
Additions to property, plant, and equipment		(10,461	)		(11,862	)		(8,830	)

Net cash used in investing activities		(10,091	)		(10,848	)		(5,308	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		19,530			15,280			8,500
Repayments of revolving credit facilities		(15,888	)		(15,280	)		(8,500	)
Proceeds from issuance of long-term debt		752			641			—
Repayments of long-term debt		(9,322	)		(1,784	)		(21,972	)
Dividends to Tandus Group, Inc.		—			—			(2,263	)
Financing costs		(256	)		(380	)		(18	)

Net cash used in financing activities		(5,184	)		(1,523	)		(24,253	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(2	)		(189	)		(324	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(19,923	)		14,685			(9,866	)

CASH AND CASH EQUIVALENTS, Beginning of Year		25,726			11,041			20,907

CASH AND CASH EQUIVALENTS, End of Year	$	5,803		$	25,726		$	11,041

4. The ~~registrant’s~~accompanying ~~other~~notes ~~certifying officer and I~~ are ~~responsible~~an ~~for establishing~~integral ~~and~~part ~~maintaining~~of ~~disclosure~~these ~~controls~~consolidated ~~and~~financial ~~procedures~~statements. ~~(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:~~

~~a) designed~~33 such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluatedTable the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and Contents

~~c) presented~~COLLINS in& ~~this~~AIKMAN ~~annual~~FLOORCOVERINGS, ~~report~~INC. ~~our~~AND ~~conclusions~~SUBSIDIARIES ~~about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

~~5. The~~NOTES ~~registrant’s~~TO ~~other~~CONSOLIDATED ~~certifying~~FINANCIAL ~~officer~~STATEMENTS ~~and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):~~

~~a) all significant deficiencies in the design or operation of internal controls which could~~1. ~~adversely~~ORGANIZATION ~~affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and~~

bCollins & Aikman Floorcoverings, Inc. (the “Company”) ~~any~~, ~~fraud~~a Delaware Corporation, ~~whether~~is a manufacturer of floorcovering orproducts ~~not~~for ~~material~~the North American specified commercial carpet market. The Company’s floorcovering products include (i) vinyl-backed six-foot roll carpet and modular carpet tile, ~~that~~and ~~involves~~(ii) high ~~management~~style ortufted ~~other~~and ~~employees~~woven ~~who~~broadloom ~~have~~carpets. The Company designs, manufactures and markets its C&A, Monterey and Crossley brands under the Tandus name for a ~~significant~~wide ~~role~~variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. The ability to provide a “package of product offerings” in various forms, coupled with flexible distribution channels, allows the ~~registrant’s~~Company ~~internal~~to ~~controls;~~provide a wide array of floorcovering solutions. The Company is headquartered in Georgia, with additional manufacturing locations in Canada, the United Kingdom and China.

6. The ~~registrant’s~~Company ~~other~~is ~~certifying~~a ~~officer~~wholly-owned ~~and~~subsidiary Iof ~~have~~Tandus ~~indicated~~Group, inInc. ~~this~~(“Tandus Group”). ~~annual~~Subsequent ~~report~~to ~~whether~~a orrecapitalization ~~not~~transaction ~~there were~~on ~~significant~~January 25, ~~changes~~2001, ininvestment ~~internal~~funds ~~controls~~managed orby inOaktree ~~other~~Capital ~~factors~~Management, ~~that~~LLC ~~could~~(“Oaktree”) ~~significantly~~and ~~affect~~Banc ~~internal~~of ~~controls~~America ~~subsequent~~Capital toInvestors (“BACI”), specifically OCM Principal Opportunities Fund II, L.P. (the ~~date~~“Oaktree ofFund”) ~~our~~and ~~most~~BancAmerica ~~recent~~Capital ~~evaluation~~Investors II, ~~including~~L.P. ~~any~~(the ~~corrective~~“B ~~actions~~of ~~with~~A ~~regard~~Fund”), torespectively, ~~significant~~control ~~deficiencies~~a ~~and material~~majority ~~weaknesses~~of the outstanding capital stock of Tandus Group.

~~Date:~~2. ~~April~~SUMMARY ~~24,~~OF ~~2003~~SIGNIFICANT ACCOUNTING POLICIES

~~/s/ DARREL~~Principles V.of ~~MCCAY~~ Consolidation

~~Darrel~~The Vconsolidated financial statements include the accounts of Collins & Aikman Floorcoverings, Inc., ~~McCay~~its subsidiaries, joint venture and its equity investment. All significant intercompany items have been eliminated in consolidation.

~~Vice~~Reclassifications ~~President and Chief Financial Officer~~

41Certain reclassifications have been made to the prior years to conform to the current year presentation.

~~NOTE:~~Use ~~THIS~~of ISEstimates ~~A COPY OF A REPORT ISSUED BY ARTHUR ANDERSEN LLP, OUR FORMER INDEPENDENT ACCOUNTANTS. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.~~

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

ToFiscal ~~Collins~~Year ~~& Aikman Floorcoverings, Inc. and Subsidiaries:~~

WeThe ~~have~~fiscal ~~audited~~year ~~the accompanying consolidated balance sheets~~ of ~~COLLINS~~the &Company ~~AIKMAN~~ends ~~FLOORCOVERINGS,~~on ~~Inc. (a Delaware corporation) AND SUBSIDIARIES as of January 27, 2001 and January 26, 2002 and~~ the ~~related~~last ~~consolidated~~Saturday ~~statements~~ of ~~operations, comprehensive income (loss), stockholder’s equity, and cash flows for each of the three years in the period ended~~ January ~~26, 2002~~. ~~These~~Fiscal ~~financial~~years ~~statements~~ are ~~the~~identified ~~responsibility~~according ofto the ~~Company’s~~calendar ~~management. Our responsibility is to express an opinion on these~~year ~~financial~~in ~~statements~~which ~~based on our audits. We did not audit~~ the ~~financial~~majority ~~statements~~ of ~~Crossley~~the ~~Carpets~~months ~~Ltd~~fall. asFiscal ofyears ~~January~~2005 ~~27, 2001~~ and ~~January~~2004 ~~26,~~were ~~2002~~52-week ~~and for the two~~ years inwhich ~~the period~~ ended ~~January~~on 26January 28, ~~2002,~~2006 ~~which statements reflect total assets~~ and ~~total revenues of 8.0% and 11.0% in 2001~~January 29, ~~respectively~~2005, ~~and 9.0% and 11.0% in 2002,~~ respectively, ofwhile ~~the~~fiscal ~~related~~2003 ~~consolidated~~was ~~totals.~~a ~~Those~~53-week ~~statements~~year ~~were~~which ~~audited~~ended byon ~~other auditors whose report has been furnished to us~~January 31, ~~and our opinion, insofar as it relates to the amounts included for this entity, is based solely on the report of the other auditors~~2004.

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

InRevenue is recognized when goods ~~our~~are ~~opinion~~shipped, ~~based~~which onis ~~our~~when ~~audits~~legal ~~and~~title passes to the ~~report~~customer. ofFor ~~the~~product ~~other~~installations ~~auditors~~subject to customer approval, revenue is recognized upon acceptance by the ~~financial~~customer. ~~statements~~The ~~referred~~Company provides certain installation services to ~~above~~customers ~~present~~utilizing independent ~~fairly,~~third-party incontractors. ~~all~~The ~~material~~billings ~~respects,~~and ~~the~~expenses ~~financial~~for ~~position~~these ofservices ~~Collins~~are &included ~~Aikman~~in ~~Floorcoverings,~~net ~~Inc.~~sales and ~~Subsidiaries~~cost as of ~~January~~ 27goods sold, ~~2001~~respectively. These billings and ~~January~~expenses 26were $14.6 million, ~~2002~~$15.0 million and ~~the~~$12.9 ~~results~~million offor ~~their~~fiscal ~~operations~~2005, 2004 and ~~their~~2003, ~~cash~~respectively. ~~flows~~Freight ~~for~~charged ~~each~~to ofcustomers ~~the~~is ~~three~~included ~~years~~in net sales. Freight fees included in ~~the~~net ~~period~~sales ~~ended~~were ~~January~~$6.1 26million, ~~2002~~$5.5 inmillion ~~conformity~~and ~~with~~$4.7 ~~accounting~~million ~~principles~~in ~~generally~~fiscal ~~accepted~~2005, in2004 ~~the~~and ~~United~~2003, ~~States~~respectively.

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

~~March~~34 ~~28, 2002~~

(exceptTable with respectof to the matter Contents

~~discussed~~COLLINS in& ~~the~~AIKMAN ~~last~~FLOORCOVERINGS, ~~paragraph~~INC. ofAND ~~Note~~SUBSIDIARIES 18

toNOTES ~~which~~TO ~~the~~CONSOLIDATED ~~date~~FINANCIAL isSTATEMENTS ~~May~~– ~~2, 2002~~(continued)

~~REPORT~~Cost OFof ~~INDEPENDENT~~Goods ~~AUDITORS~~Sold

ToCost ~~the~~of ~~Stockholder~~goods ~~and~~sold ~~Board~~includes ofraw ~~Directors~~materials, labor, manufacturing overhead, freight costs, depreciation and the cost of ~~Collins~~installation &services ~~Aikman~~provided ~~Floorcoverings,~~to ~~Inc~~our customers through independent third-party contractors.:

~~We have audited the accompanying consolidated balance sheet of COLLINS & AIKMAN FLOORCOVERINGS~~Selling, ~~INC.~~General ~~(a Delaware corporation)~~ and ~~Subsidiaries~~Administrative ~~as of January 25, 2003, and the related consolidated statements of operations, stockholder’s equity~~Expenses and cash flows for the year ended January 25, 2003. Our audit also included the financial statement schedule listed in the index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. The consolidated financial statements and schedule of Collins & Aikman Floorcoverings, Inc. and Subsidiaries for the two years ended January 26, 2002 were audited by other auditors who have ceased operations and whose report dated March 28, 2002 (except with respect to the matter discussed in the last paragraph of Note 18 to which the date is May 2, 2002) expressed an unqualified opinion on those statements and schedule (except for the reference to and reliance thereon of other auditors for the audits of the financial statements of Crossley Carpets Ltd. as of January 27, 2001 and January 26, 2002 and for the two years in the period ended January 26, 2002, which statements reflect total assets and total revenues of 8.0% and 11.0% in 2001, respectively, and 9.0% and 11.0% in 2002, respectively, of the related consolidated totals) before the restatement adjustments reflected on the consolidated balance sheet as of January 26, 2002, consolidated statements of operations and consolidated statements of cash flows for the years ended January 26, 2002 and January 27, 2001, as described in Note 3 to the consolidated financial statements.

WeSelling, ~~conducted our~~general ~~audit~~and inadministrative ~~accordance~~expenses ~~with~~include ~~auditing~~compensation ~~standards generally accepted in the United States. Those standards require that we plan~~ and ~~perform~~related ~~the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining~~expenses, onselling aand ~~test~~marketing ~~basis~~expenses, ~~evidence~~travel ~~supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management~~expenses, asprofessional ~~well~~services, asdepreciation ~~evaluating~~and ~~the overall financial statement presentation~~amortization. ~~We believe that our audit provides a reasonable basis for our opinion.~~

InForeign ~~our~~Currency ~~opinion,~~Translation the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Collins & Aikman Floorcoverings, Inc. and Subsidiaries as of January 25, 2003 and the results of their operations and their cash flows for the year ended January 25, 2003 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended January 25, 2003, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

AsEffective ~~discussed above~~July 31, 2005, the ~~consolidated~~Company’s ~~financial~~Canadian ~~statements~~subsidiary ~~and~~adopted ~~schedule~~the ofU.S. ~~Collins~~dollar &as ~~Aikman~~its ~~Floorcoverings,~~functional ~~Inc~~currency. ~~and~~Prior ~~Subsidiaries~~to ~~for~~this ~~the two years ended January 26~~date, ~~2002,~~the ~~were~~Canadian ~~audited~~dollar byhad ~~other~~served ~~auditors~~as ~~who~~the ~~have~~subsidiary’s ~~ceased~~functional ~~operations~~currency. ~~As reflected in the~~ ~~consolidated~~The ~~statements~~transition ofto ~~operations for~~ the ~~two~~U.S. ~~years~~dollar ~~ended January 26, 2002, and~~ as ~~further~~the ~~described~~functional incurrency ~~Note~~is 3,primarily ~~the~~due ~~Company~~to ~~reclassified~~ the ~~gain~~high ~~(loss)~~volume ~~on early extinguishment~~ of ~~debt,~~this ~~net~~subsidiary’s oftransactions ~~tax,~~that ~~from~~are andenominated ~~extraordinary~~in ~~item~~U.S. todollars, ~~net~~the ~~interest expense~~high ~~and~~volume ~~gain on forgiveness~~ of ~~debt~~intercompany intransactions, ~~accordance~~and ~~with~~ the ~~issuance~~extensive interrelationship ofbetween ~~SFAS~~the ~~No.~~Company’s ~~145, “Rescission of FASB Statements No~~U.S. 4,operations ~~44,~~ and ~~64.”~~those ~~Additionally,~~of the ~~gains~~Canadian ~~(losses)~~subsidiary. ~~related~~The tofinancial ~~the~~information ~~early extinguishment~~ of ~~debt were separately disclosed in~~ the Company’s ~~consolidated~~Canadian ~~statements~~subsidiary offor ~~cash~~the ~~flows,~~quarter ~~which~~ended ~~were~~July 30, ~~revised~~2005 toand ~~conform~~prior ~~with~~periods ~~the~~have ~~SFAS~~been ~~No. 145 presentation. The Company also~~ presented ~~these same reclassifications~~ in ~~Note 20~~ U.S. ~~Our~~dollars ~~audit~~in ~~procedures~~accordance ~~included:~~with (a) ~~agreeing the~~translation ~~previously~~of ~~reported~~convenience ~~net~~method ~~income~~using ~~(loss) and~~ the ~~amounts~~exchange ~~related~~rate toat ~~extraordinary~~July 30, ~~gain~~2005 ~~(loss) on early extinguishment~~ of ~~debt,~~US$1.00 ~~net~~being ofequal ~~tax,~~ to ~~the previously issued financial statements~~CDN$1.2241, ~~(b) agreeing~~ the ~~adjustments~~Bank ~~to reported income (loss) to reclassify the gain (loss) on extinguishment~~ of ~~debt~~Canada toclosing ~~net~~buying ~~interest~~rate ~~expense~~at orJuly 30, ~~gain~~2005. onFor ~~forgiveness~~periods ofsubsequent ~~debt and~~ to July 30, ~~income~~2005, ~~tax expense (benefit) related to~~ the ~~consolidated~~Canadian ~~statements~~dollar ofamounts ~~operations~~are ~~and~~remeasured tointo ~~Note 20 for~~ the ~~two~~U.S. ~~years~~dollar ~~ended~~reporting ~~January~~currency ~~26, 2002~~using to the ~~Company’s~~temporal ~~underlying~~method. ~~records~~When ~~obtained from management, (c) agreeing reclassifications in~~ the ~~January~~temporal ~~27,~~method ~~2001~~is ~~and~~used ~~January 26, 2002 consolidated statements of cash flows and in Note 20 from extraordinary gain (loss) on early extinguishment of debt~~ to ~~gain~~translate ~~(loss)~~the onlocal ~~foregiveness~~currency of ~~debt and amortization and write off of deferred financing fees as~~ a ~~result~~foreign ofentity ~~SFAS~~into ~~No.~~its ~~145~~functional tocurrency, the resulting ~~Company’s~~translation ~~underlying~~adjustment ~~records~~is ~~obtained~~reported ~~from~~in ~~management and (d) testing~~ the ~~mathematical accuracy~~current ofperiod’s ~~the~~statement ~~reconciliation~~ of ~~adjusted net income (loss) to reported net income (loss)~~operations.

FAssets and liabilities of the U.K. and Asian subsidiaries are translated to U.S. dollars at year-1end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Translation adjustments are accumulated as a separate component of shareholders’ equity. Foreign currency gains (losses) are recognized in the statement of operations.

AsNet ~~also discussed~~foreign incurrency ~~Notes~~gains 3recognized ~~and~~in ~~10,~~ the consolidated ~~financial~~ statements of ~~the~~operations ~~Company~~were asapproximately ~~of January 26, 2002, have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No~~$0.0 ~~142~~million, ~~Goodwill and Other Intangibles (“SFAS No~~$1.4 ~~142”),~~million ~~which was adopted by the Company as of January 27, 2002. In addition, the consolidated balance sheet of the Company as of January 26, 2002 has been revised to reflect separately goodwill~~ and ~~other intangible assets as required by SFAS No~~$3.4 ~~142.~~million ~~Our~~for ~~audit~~fiscal procedures with respect to the reclassification in the consolidated balance sheet and the additional disclosures in Notes 3 and 10 included (a) agreeing the previously reported goodwill and other intangibles assets, net in the years ~~ended January 26~~2005, ~~2002~~2004 ~~to the previously issued financial statements, (b) agreeing adjustments to separately reflect goodwill~~ and ~~other intangible assets~~2003, net to the Company’s underlying records obtained from management, (c) agreeing the adjustments to previously reported net income (loss) for the year ended January 26, 2002 and January 27, 2001 representing goodwill and trade name amortization expense that is no longer being amortized as result of initially applying SFAS Norespectively. 142 to Company’s underlying records obtained from management, (d) testing the mathematical accuracy of the reclassification in the balance sheet and the reconciliation of reported net income (loss) to adjusted net income (loss), and (e) as of January 26, 2002, agreeing accumulated amortization for non-compete and patent intangible assets, and the net carrying amount of trade name intangible assets to the Company’s underlying records obtained from management.

InFinancial ~~our~~Instruments opinion, the above adjustments and disclosures are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the January 27, 2001 and January 26, 2002 consolidated financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on those consolidated financial statements taken as a whole.

~~/s/ Ernst~~Financial &instruments, ~~Young~~which ~~LLP~~potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, trade accounts receivable, and long-term debt. Because of the short-term maturity of cash and cash equivalents and trade accounts receivable, carrying value approximates fair value.

~~Chattanooga~~The carrying value of the senior credit facility portion of the Company’s long-term debt approximates the fair value as the Company’s credit facility (Note 9) is subject to variable interest rates. As of January 28, ~~Tennessee~~2006, the carrying value of the 9.75% Notes exceeded their estimated fair value by approximately $12.4 million. Fair values of the 9.75% Notes are determined by market sources.

~~April~~Cash ~~18,~~and ~~2003~~Cash Equivalents

FCash and cash equivalents include all cash balances and investments with an original maturity of three months or less. The Company invests its excess cash in short-2term investments and has not experienced any losses on those investments.

~~COLLINS~~Accounts &Receivable ~~AIKMAN~~and ~~FLOORCOVERINGS,~~Allowances ~~INC. AND SUBSIDIARIES~~

~~Consolidated~~The ~~Statements~~Company sells floorcovering products to a wide variety of ~~Operations~~manufacturers and retailers located primarily throughout the United States and generally does not require collateral. The Company’s trade accounts receivable are non-interest bearing and are recorded at the invoiced amounts. Allowances are provided for expected cash discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluations of the financial condition of the Company’s customers and collectability of the Company’s accounts receivable. These allowances are maintained at a level which management believes is sufficient to cover potential credit losses. Accounts receivable balances are aged according to invoice date and applicable terms, and are written off as uncollectible only after all reasonable collection efforts have been made.

~~For~~35 ~~The Years Ended January 27, 2001, January 26, 2002 and January 25, 2003~~

(InTable Thousands)of Contents

	Fiscal Year Ended
	January 27, 2001(52 weeks)			January 26, 2002(52 weeks)		January 25, 2003(52 weeks)
NET SALES	$	341,293		$	322,036	$	321,165
COST OF GOODS SOLD		219,969			207,036		211,020
SELLING, GENERAL & ADMINISTRATIVE EXPENSES		108,372			76,552		72,709
		328,341			283,588		283,729
OPERATING INCOME		12,952			38,448		37,436
MINORITY INTEREST IN INCOME OF SUBSIDIARY		67			29		20
EQUITY IN EARNINGS OF AFFILIATE		2,293			1,534		1,733
GAIN ON FORGIVENESS OF DEBT		1,816			1,728		570
NET INTEREST EXPENSE		28,592			24,193		23,910
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(11,598	)		17,488		15,809
INCOME TAX (BENEFIT) EXPENSE		(3,040	)		9,204		6,788
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(8,558	)		8,284		9,021
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTINGPRINCIPLE		—			—		(3,240	)
NET INCOME (LOSS)	$	(8,558	)	$	8,284	$	5,781

COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

~~The~~NOTES ~~accompanying~~TO ~~notes~~CONSOLIDATED ~~are~~FINANCIAL anSTATEMENTS ~~integral~~– ~~part~~(continued) ~~of these consolidated statements.~~

~~F-3~~Inventories

~~COLLINS &~~Inventories ~~AIKMAN~~are ~~FLOORCOVERINGS~~stated at the lower of cost or market. Cost is determined using the first-in, ~~INC~~first-out method. ~~AND~~Reserves ~~SUBSIDIARIES~~are established based on percentage markdowns applied to inventories aged for certain time periods and size of lot.

~~Consolidated~~Property, ~~Balance~~Plant, ~~Sheets~~and Equipment

AsProperty, plant, and equipment are stated at cost. Provisions for depreciation are primarily computed on a straight-line basis over the estimated useful lives of ~~January~~the 26assets, ~~2002~~presently ranging from 3 to 40 years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. Repairs and ~~January~~maintenance ~~25,~~are ~~2003~~charged to operations as incurred.

~~(In Thousands~~Long-Lived, ~~Except~~Goodwill ~~Share~~and ~~Amounts)~~Other Intangible Assets

	January 26, 2002			January 25, 2003
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents	$	6,234		$	20,907
Accounts Receivable, net of allowances of $745 and $865 in fiscal 2001 and 2002, respectively		33,524			38,527
Inventories		31,834			35,721
Deferred Tax Assets		3,955			1,863
Prepaid Expenses and Other		1,667			1,699
Total Current Assets		77,214			98,717
PROPERTY, PLANT AND EQUIPMENT, NET		45,390			66,258
DEFERRED TAX ASSETS		3,876			870
GOODWILL		95,987			98,378
OTHER INTANGIBLES, NET		40,560			43,100
OTHER ASSETS		7,406			11,090
	$	270,433		$	318,413
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts Payable	$	11,416		$	15,919
Accrued Expenses		19,150			18,714
Current Portion of Long Term Debt		4,787			12,105
Total Current Liabilities		35,353			46,738
OTHER LIABILITIES, INCLUDING POSTRETIREMENT BENEFIT OBLIGATION		3,991			5,529
LONG TERM DEBT		185,197			218,666
MINORITY INTEREST		310			330
COMMITMENTS AND CONTINGENCIES (Note 19)
STOCKHOLDER’S EQUITY:
Common Stock ($.01 par value per share, 1,000 shares authorized, issued and outstanding fiscal 2001 and fiscal 2002)		—			—
Paid-in Capital		72,648			72,648
Retained Deficit		(26,108	)		(23,480	)
Accumulated Other Comprehensive Loss		(958	)		(2,018	)
		45,582			47,150
	$	270,433		$	318,413

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the guidance in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets in Determining Whether to Report Discontinued Operations (“SFAS No. 144”). If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset.

~~The~~Goodwill and other intangible assets with an ~~accompanying~~indefinite ~~notes~~useful life are antested ~~integral~~for ~~part~~impairment annually in accordance with the guidance in Statement of ~~these~~Financial ~~consolidated~~Accounting ~~statements~~Standards No. 142,” Goodwill and Other Intangible Assets” (“SFAS No. 142”). An intangible asset with a finite life is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the guidance in SFAS No. 144.

~~F-4~~Income Taxes

~~COLLINS~~The provision for income taxes includes federal, state, &local ~~AIKMAN~~and ~~FLOORCOVERINGS~~foreign taxes. The Company accounts for income taxes under an asset and liability approach pursuant to Statement of Financial Accounting Standards No. 109, ~~INC~~“Accounting for Income Taxes (SFAS No. 109”). ~~AND~~This ~~SUBSIDIARIES~~method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of changes in tax rates will be recognized as income or expense in the period that includes the enactment date. Future tax benefits are recognized to the extent that realization of those benefits is considered to be more likely than not. A valuation allowance is established for deferred tax assets for which realization is not assured.

~~Consolidated~~Stock ~~Statements~~Based ofCompensation ~~Stockholder’s Equity~~

~~For~~ The ~~Years~~Company accounts ~~Ended~~for ~~January~~its ~~27,~~stock ~~2001~~based compensation plan under the recognition and measurement principals of Accounting Principles Board Opinion No. 25, ~~January~~“Accounting for Stock Issued to Employees” (“APB No. 25”) and follows the 26disclosure option of Statement of Financial Accounting Standards No. 123, ~~2002~~“Accounting ~~and~~for ~~January~~Stock-Based 25Compensation” (“SFAS No. 123”), ~~2003~~as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation -Transition and Disclosure—an Amendment of FASB Statement No. 123” (“SFAS No. 148”).

(In ~~Thousands~~August 2001, Tandus adopted the 2001 Tandus Group, Inc., Executive and Management Stock Option Plan (the “2001 Plan”) under which 57,061.64 shares of Tandus Group, Inc. common stock were authorized and reserved for use in the 2001 Plan. The plan allows the issuance of non-qualified stock options at an exercise price determined by Tandus’ board of directors. The options granted under the 2001 Plan become exercisable over five years and expire ten years from the date of grant. These options vest only upon the achievement of certain earnings targets, as defined. Accelerated vesting could occur due to a change in control. The Company will account for these options as variable options and will record expenses based on increases and decreases in the fair market value of the Company’s common stock at the end of each reporting period. As of January 28, 2006, the Company has not recorded any expense as the Company has not achieved the targets established under the program. At January 28, 2006, no shares are exercisable and the weighted average contractual life of the options outstanding is 5.5 years.

							Accumulated Other Comprehensive Income (Loss)
	Common Stock (Shares)	Paid-In Capital		Retained Earnings (Deficit)			Foreign Currency Translation Adjustment			Minimum Pension Liability			Total
BALANCE, January 29, 2000	1,000	$	51,576	$	18,912		$	208		$	—		$	70,696
Net loss .	—		—		(8,558	)		—			—			(8,558	)
Net capital contributions by Tandus Group, Inc.	—		849		—			—			—			849
Cancellation of stock options	—		20,223		—			—			—			20,223
Dividend to parent	—		—		(40,131	)		—			—			(40,131	)
Foreign currency translation adjustment	—		—		—			(184	)		—			(184	)
Minimum pension liability adjustment, net of tax	—		—		—			—			(146	)		(146	)
BALANCE, January 27, 2001	1,000		72,648		(29,777	)		24			(146	)		42,749
Net income	—		—		8,284			—			—			8,284
Dividend to parent	—		—		(4,615	)		—			—			(4,615	)
Foreign currency translation adjustment	—		—		—			(543	)		—			(543	)
Minimum pension liability adjustment, net of tax	—		—		—			—			(293	)		(293	)
BALANCE, January 26, 2002	1,000		72,648		(26,108	)		(519	)		(439	)		45,582
Net income	—		—		5,781			—			—			5,781
Dividend to parent	—		—		(3,153	)		—			—			(3,153	)
Foreign currency translation adjustment	—		—		—			(290	)		—			(290	)
Minimum pension liability adjustment, net of tax	—		—		—			—			(770	)		(770	)
BALANCE, January 25, 2003	1,000	$	72,648	$	(23,480	)	$	(809	)	$	(1,209	)	$	47,150

The accompanyingTable notes are an integral part of these consolidated statements. Contents

~~F-5~~COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

~~COLLINS &~~NOTES ~~AIKMAN~~TO ~~FLOORCOVERINGS,~~CONSOLIDATED ~~INC.~~FINANCIAL ~~AND~~STATEMENTS ~~SUBSIDIARIES~~– (continued)

~~Consolidated~~No ~~Statements~~stock-based employee compensation cost is reflected in net income (loss), as all options granted under the plan had an exercise price equal to the market value of ~~Cash~~the ~~Flows~~underlying common stock on the date of grant. The following table illustrates the effect on net income if the Company had applied the fair market value recognition provisions of SFAS No. 123 to stock-based employee compensation.

For The Years Ended January 27, 2001, January 26, 2002 and January 25, 2003


	Fiscal Year Ended
(in thousands)	January 28, 2006			January 29, 2005		January 31, 2004
Net income (loss), as reported	$	(4,629	)	$	6,703	$	1,234
Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of tax		29			33		38

Proforma net income (loss)	$	(4,658	)	$	6,670	$	1,196

~~(In~~Recent ~~Thousands)~~Accounting Pronouncements

	Fiscal Year Ended
	January 27, 2001(52 weeks)			January 26, 2002 (52 weeks)			January 25, 2003(52 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(8,558	)	$	8,284		$	5,781
Adjustments to reconcile net income (loss) to net cashprovided by operating activities:
Depreciation and leasehold amortization		9,582			10,190			8,991
Amortization of goodwill & other intangible assets		8,066			7,704			5,461
Amortization and write off of deferred financing fees		12,643			1,635			3,975
Change in deferred income tax		(5,386	)		763			5,098
Equity in earnings of affiliate		(2,293	)		(1,534	)		(1,733	)
Minority interest in income of subsidiary		67			29			20
Gain on forgiveness of debt		(1,816	)		(1,728	)		(570	)
Cancellation of Tandus Group, Inc. stock options		30,223			—			—
Non-cash goodwill impairment charge		—			2,242			—
Cumulative effect of change in accounting principle		—			—			3,240
Changes in operating assets and liabilities, net ofeffects of acquisitions:
Due from factor		4,813			—			—
Accounts receivable		(14,273	)		14,321			(5,003	)
Inventories		(2,369	)		2,672			(2,456	)
Accounts payable		(755	)		(7,942	)		4,503
Accrued expenses		4,491			1,607			(436	)
Other, net		(1,248	)		(154	)		(1,173	)
Total adjustments		41,745			29,805			19,917
Net cash provided by operating activities		33,187			38,089			25,698
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired		(728	)		—			(35,170	)
Equity distribution from affiliate		2,065			1,250			1,932
Additions to property, plant & equipment		(10,702	)		(8,224	)		(9,027	)
Net cash used in investing activities		(9,365	)		(6,974	)		(42,265	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving credit facilities		(12,848	)		(3,000	)		—
Proceeds from issuance of long term debt		209,222			101			175,000
Repayments of long term debt		(161,496	)		(23,118	)		(133,441	)
Capital contributions from Tandus Group, Inc.		849			—			—
Dividends to Tandus Group, Inc.		(33,963	)		(4,615	)		(3,153	)
Tender premiums on repurchased senior subordinated notes		(7,411	)		—			—
Cash paid for cancellation of Tandus Groups, Inc. stock options		(10,000	)		—			—
Financing costs		(6,538	)		—			(7,166	)
Net cash (used in) provided by financing activities		(22,185	)		(30,632	)		31,240
NET CHANGE IN CASH		1,637			483			14,673
CASH, Beginning of Year		4,114			5,751			6,234
CASH, End of Year	$	5,751		$	6,234		$	20,907

In October 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position Financial Accounting Standard 123(R)-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R)” (“FSP 123(R)-2”). FSP 123(R)-2 provides an exception to the application of the concept of “mutual understanding” as expressed in FASB Statement No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), regarding the determination of whether a grant date or measurement date, as applicable, has occurred. The exception permits companies to measure compensation cost for equity awards to employees on the Board approval date if certain conditions are met, provided that the communication to the employees occurs within a “relatively short period of time” from the approval date. The guidance in FSP 123(R)-2 is to be applied upon initial adoption of SFAS No, 123(R), or to the first reporting period after October 18, 2005, for which financial statements or interim reports have not been issued should an entity have previously adopted the provisions of SFAS No. 123(R). The Company does not expect the adoption of FSP 123(R)-2 to have a material impact on its consolidated financial statements.

In October 2005, the FASB issued FASB Staff Position Financial Accounting Standard 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”). FSP 13-1 states that rental costs associated with ground or building operating leases that are incurred during a construction period should be recognized as rental expense and included in income from continuing operations. The guidance is to be applied to the first reporting period beginning after December 15, 2005. Early adoption ~~accompanying~~and ~~notes~~retrospective application are anpermitted ~~integral~~but ~~part~~not required. The Company does not expect the adoption of ~~these~~the provisions of FSP 13-1 to have a material impact on its consolidated financial statements.

FIn August 2005, the FASB issued FASB Staff Position Financial Accounting Standard 123(R)-61, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R)” (“FSP 123(R)-1”). FSP 123(R)-1 defers indefinitely the requirement of SFAS No. 123(R) that a share-based payment to an employee subject to SFAS No. 123(R) becomes subject to the recognition and measurement requirements of other applicable GAAP when the rights conveyed by the instrument are no longer dependent on the holder being an employee. A freestanding instrument issued to an employee in exchange for past or future employee services that is subject to SFAS No. 123(R) or was subject to SFAS No. 123 (R) upon initial adoption shall continue to be subject to the recognition and measurement provisions of SFAS No. 123(R) throughout the life of the instrument, unless its terms are modified when the holder is no longer an employee. The deferral excludes awards exchanged for nonemployee services or a combination of employee and nonemployee services. The deferral does not have a material impact on the Company’s consolidated financial statements.

~~COLLINS~~In &July ~~AIKMAN~~2005, ~~FLOORCOVERINGS~~the FASB issued FASB Staff Position Accounting Prinicples Board 18-1, ~~INC~~“Accounting by an Investor for its Proportionate Share of Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18, ~~AND~~The ~~SUBSIDIARIES~~Equity Method of Accounting for Investments in Common Stock, upon a Loss of Significant Influence” (“FSP 18-1”). FSP 18-1 requires that if an investor loses significant influence over an investee, the investor’s proportionate share of the investee’s equity adjustments for Other Comprehensive Income should be offset against the carrying value of the investment at the time significant influence is lost by the investor. To the extent that the offset results in a negative carrying value of the investment, an investor should reduce the carrying value of the investment to zero and record the remaining balance in income. FSP 18-1 is effective as of the first reporting period beginning after July 12, 2005. Comparative financial statements shall be retrospectively adjusted to reflect application of these provisions. The adoption of FSP 18-1 did not have an impact on the Company’s consolidated financial statements.

~~NOTES~~37 ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~

1. ORGANIZATIONTable of Contents

~~Based~~COLLINS ~~on annual sales and product brands, Collins~~ & ~~Aikman~~ ~~Floorcoverings,~~AIKMAN ~~Inc. (the “Company”)~~FLOORCOVERINGS, ~~a Delaware Corporation, is a leading manufacturer of floorcovering products for the North American specified commercial carpet market~~INC. ~~The~~AND ~~Company’s~~SUBSIDIARIES floorcovering products include (i) vinyl-backed six-foot roll carpet and modular carpet tile, and (ii) high style tufted and woven broadloom carpet. The Company designs, manufacturers and markets its C&A, Monterey and Crossley brands for a wide variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. Because of the Company’s diversity of its end markets, management believes its business tends to be less cyclical than that of many of its competitors, which rely more heavily on the corporate market. The ability to provide a “package of product offerings” in various forms, coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom, and Singapore.

~~The~~NOTES ~~Company~~TO isCONSOLIDATED aFINANCIAL ~~wholly~~STATEMENTS ~~owned~~– ~~subsidiary of Tandus Group, Inc.~~ (~~“Tandus”~~continued), formerly known as CAF Holdings, Inc. Subsequent to a recapitalization transaction on January 25, 2001, a majority of Tandus’s outstanding capital stock is controlled by investment funds managed by Oaktree Capital Management, LLC (“Oaktree”) and Banc of America Capital Investors (“BACI”). Prior to the Recapitalization, the majority of Tandus’ outstanding capital stock was controlled by Quad-C, Inc. (“Quad-C”), a Virginia merchant banking firm, and Paribas Principal partners (“Partners”).

2In June 2005, the FASB issued FASB Staff Position Financial Accounting Standard 150-5, “Issuer’s Accounting under FASB Statement No. ~~RECAPITALIZATION~~ 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable” (“FSP 150-5”). FSP 150-5 provides an interpretation of FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). This FSP addresses whether freestanding warrants and other similar instruments on shares that are redeemable are subject to the requirements in SFAS No. 150, regardless of the timing of the redemption feature or the redemption price. FSP 150-5 is effective for the first reporting period beginning after June 30, 2005. If the guidance in this FSP results in changes to previously reported information, a cumulative effect adjustment is required. The adoption of this FSP did not have an impact on the Company’s consolidated financial statements.

OnIn ~~January~~June 252005, ~~2001,~~the ~~Tandus~~FASB ~~was~~issued ~~acquired~~FASB inStaff aPosition 143-1, ~~recapitalization~~“Accounting ~~transaction~~for byElectronic anEquipment ~~investor~~Waste ~~group~~Obligations” ~~led~~(“FSP by143-1”). ~~investment~~FSP ~~funds~~143-1 ~~controlled~~addresses bythe ~~Oaktree~~accounting ~~and~~for ~~BACI,~~obligations ~~and~~associated ~~members~~with ofDirective ~~management.~~2002/96/EC ~~The~~regarding ~~recapitalization~~Waste ~~was~~Electrical ~~financed~~and ~~through~~Electronic aEquipment ~~cash~~adopted ~~investment~~ by the European ~~Oaktree~~Union ~~and~~(“EU”). ~~BACI~~FSP ~~Funds~~143-1 ~~and~~is ~~other~~effective ~~investors~~upon ~~of $192.5~~the ~~million,~~later ~~senior~~of ~~bank~~the ~~borrowings~~first ofreporting ~~$209.0~~period ~~million~~that ~~and~~ends ~~“rollover”~~after ~~equity~~June 8, of2005, ~~$38.4~~or ~~million~~the bydate ~~certain~~that ~~existing~~the ~~stockholders,~~EU-member ~~including~~country ~~members~~adopts ofthe ~~management~~law. The ~~transaction~~adoption ~~was~~of ~~treated~~this asFSP adid ~~recapitalization~~not ~~whereby~~have ~~the~~an ~~assets~~impact ~~and~~on the ~~liabilities~~Company’s ofconsolidated ~~Tandus~~financial ~~remained at their historical cost~~statements.

In ~~conjunction~~May ~~with the Recapitalization~~2005, the ~~Company~~FASB ~~entered~~issued ~~into~~Statement aof ~~$256.0~~Financial ~~million~~Accounting ~~Senior~~Standards ~~Secured~~No. 154, ~~Credit Facility (the~~ “~~2001~~Accounting Changes ~~Credit~~and ~~Facility”)~~Error ~~with~~ Corrections-a ~~group~~replacement of ~~banks,~~APB ofOpinion ~~which~~No. 20 ~~the~~and ~~Company~~FASB ~~borrowed~~Statement ~~$209~~No.0 3” ~~million to extinguish its existing credit facility~~ (~~Note~~“SFAS 12No. 154”),. ~~repurchase~~SFAS ~~the~~No. 154 ~~senior~~replaces ~~subordinated~~APB ~~notes~~Opinion ~~(Note 12)~~No. 20, ~~pay~~“Accounting aChanges,” ~~dividend~~and toFASB ~~Tandus for $40~~Statement No.~~1 million~~ 3, ~~and~~“Reporting ~~pay~~Accounting ~~other~~Changes ~~direct~~in ~~costs~~Interim ~~associated~~Financial ~~with the transaction~~Statements.” OfSFAS ~~the dividend to Tandus, $6~~No.2 154 ~~million was~~requires ~~recorded~~retrospective asapplication ~~a payable~~ to ~~Tandus~~prior inperiods’ ~~the accompanying~~ financial statements atfor ~~January~~changes ~~27,~~in ~~2001.~~accounting ~~As part of the Recapitalization~~principle, ~~all~~unless ~~outstanding~~it ~~options~~is ~~for~~impracticable ~~Tandus’~~to determine ~~common stock were canceled~~ either ~~through~~the ~~cash~~period-specific ~~settlement,~~effects ~~issuance of common stock,~~ or ~~conversion~~the tocumulative aeffect ~~deferred~~of ~~benefit,~~the ~~as defined~~change. ~~The~~SFAS ~~cancellation~~No. 154 ofalso ~~the~~requires ~~options~~that ~~resulted in~~ a ~~compensation~~change ~~charge~~in ofdepreciation, ~~approximately~~amortization ~~$30.2~~or ~~million~~depletion ~~related~~method tofor ~~employees~~long-lived, ofnon-financial ~~the~~assets ~~Company,~~be ofaccounted ~~which~~for ~~$10.0~~as ~~million~~a ~~was~~change ~~settled~~ in accounting ~~cash~~estimate ~~and~~effected ~~$20.2 million~~by ~~was~~a ~~settled~~change in ~~stock~~accounting ~~and deferred compensation of Tandus~~principle. OfSFAS ~~the $10~~No.0 154 ~~million~~is ~~settled~~effective infor ~~cash,~~accounting ~~$0.3~~changes ~~million was paid by the Company~~ and ~~$9.7~~corrections ~~million~~of ~~was~~errors ~~paid~~made onin ~~behalf~~fiscal ofyears ~~Tandus~~beginning ~~and~~after ~~reflected~~December 15, ~~in paid-in capital~~2005. The Company ~~also~~does ~~recorded~~not ~~an $8.9~~expect ~~million~~that ~~return~~the adoption of ~~capital~~SFAS ~~for~~No. 154 ~~the~~will ~~fees~~have ~~paid~~a bymaterial ~~the~~impact ~~Company~~ on ~~behalf~~its ofconsolidated ~~Tandus~~financial ~~related to the direct costs of the Recapitalization~~statements.

In ~~fiscal~~March ~~2002 and 2001~~2005, the ~~Company~~FASB ~~paid~~issued ~~approximately~~FASB $3Interpretation No.2 47, ~~million~~“Accounting ~~and~~for ~~$5.4~~Conditional ~~million~~Asset Retirement Obligations, ~~respectively~~an interpretation of FASB Statement No. 143” (“FIN 47”), inwhich ~~additional~~requires ~~purchase~~an ~~price~~entity to recognize a liability for the ~~recapitalization~~ onfair ~~behalf~~value of ~~Tandus.~~a ~~These~~conditional ~~amounts~~asset retirement ~~are~~obligation ~~shown~~when asincurred aif ~~dividend~~the toliability’s ~~parent~~fair value can be reasonably estimated. ~~The~~FIN ~~fiscal~~47 ~~2001~~is ~~amount~~effective ~~was~~no ~~offset~~later bythan ~~approximately~~the $0end of fiscal years ending after December 15, 2005.8 ~~million~~The Company does not expect the adoption of aFIN ~~payable~~47 to have ~~Tandus~~a ~~that~~material ~~was~~impact ~~forgiven~~on its consolidated financial statements.

FIn December 2004, the FASB issued FASB Staff Position 109-71, “Application of FASB Statement No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (“FSP 109-1”). The American Jobs Creation Act of 2004 (the “Jobs Act”), enacted October 22, 2004, introduces a special tax deduction of up to 9.0 percent when fully phased in, of the lesser of “qualified production activities income” or taxable income. FSP 109-1 clarifies that this deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. The adoption of this FSP did not have an impact on the Company’s consolidated financial statements.

~~COLLINS~~In &December ~~AIKMAN~~2004, ~~FLOORCOVERINGS~~the FASB issued FASB Staff Position 109-2, ~~INC~~“Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”), which provides guidance under SFAS No. 109 ~~AND~~with ~~SUBSIDIARIES~~respect to recording the potential impact of the repatriation provisions of the Jobs Act on enterprises’ income tax expense and deferred tax liability. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment for purposes of applying FASB Statement No. 109. The adoption of this FSP did not have an impact on the Company’s consolidated financial statements.

~~NOTES~~In TODecember ~~CONSOLIDATED~~2004, ~~FINANCIAL~~the ~~STATEMENTS—~~FASB issued SFAS No. 123R, “Share-Based Payment” (~~Continued~~“SFAS No. 123R”). This statement is a revision to Statement of Financial Accounting Standards No. 123 and supersedes Accounting Principles Board Opinion No. 25. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. Companies will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, the requisite service period (usually the vesting period), in exchange for the award. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. SFAS No. 123R will be effective for fiscal years beginning after June 15, 2005, due to the Securities and Exchange Commission’s Rule 2005-57, which amended the effective date of SFAS No. 123R. The adoption of SFAS No. 123R is not expected to have a material impact on the Company’s consolidated financial statements.

~~3. SUMMARY~~38 ~~OF SIGNIFICANT ACCOUNTING POLICIES~~

PrinciplesTable of Consolidation Contents

~~The~~COLLINS ~~consolidated financial statements include the accounts of Collins~~ & ~~Aikman~~AIKMAN ~~Floorcoverings~~FLOORCOVERINGS, ~~Inc~~INC., ~~its~~AND ~~subsidiaries,~~SUBSIDIARIES ~~joint venture, and its equity investment. All significant intercompany items have been eliminated in consolidation.~~

~~Reclassifications~~ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

~~Certain~~In ~~reclassifications~~December ~~have~~2004, ~~been~~the ~~made~~FASB issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets” (“SFAS No. 153”). SFAS No. 153 amends the guidance in Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate certain exceptions to the principle that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. SFAS No. 153 eliminates the ~~fiscal~~exception ~~2000~~for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This statement is effective for nonmonetary asset exchanges in fiscal ~~2001~~years ~~financial~~beginning ~~statements~~after toJune 15, ~~conform~~2005. The adoption of SFAS No.153 is not expected to have an impact on the ~~fiscal~~Company’s ~~2002~~financial ~~presentation~~position, results of operations or cash flows.

~~Use~~In November 2004, the FASB issued Statement of ~~Estimates~~Financial Accounting Standards No. 151, “Inventory Costs-An Amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing” (“ARB No. 43”), to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 will have a material impact on its consolidated financial statements.

~~The~~In ~~preparation~~November of2004, ~~financial~~the ~~statements~~Emerging inIssues ~~conformity~~Task ~~with~~Force ~~accounting~~reached ~~principles~~a ~~generally~~consensus ~~accepted~~on Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accounting for the ~~United~~Impairment ~~States~~or ~~requires~~Disposal ~~management~~of Long-Lived Assets in Determining Whether to ~~make~~Report ~~estimates~~Discontinued ~~and~~Operations”“ ~~assumptions~~(“EITF ~~that~~03-13”). ~~affect~~Under the ~~reported~~consensus, ~~amounts~~the approach offor ~~assets~~assessing ~~and liabilities~~whether ~~and~~cash ~~disclosure~~flows of ~~contingent~~the ~~assets~~component ~~and~~have ~~liabilities~~been ateliminated from the ~~date~~ongoing operations of the ~~financial~~entity ~~statements~~focuses ~~and~~on ~~the~~whether ~~reported~~continuing ~~amounts~~cash flows are direct or indirect cash flows. Cash flows of ~~revenues~~the ~~and~~component ~~expenses~~would ~~during~~not be eliminated if the ~~reporting~~continuing ~~period~~cash flows to the entity are considered direct cash flows. ~~Actual~~The consensus should be applied to a component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. The adoption of EITF 03-13 did not have an impact on the Company’s financial position, results ~~could~~of ~~differ~~operations ~~from~~or ~~those~~cash ~~estimates~~flows.

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

~~The~~In ~~fiscal~~May ~~year~~2003, the FASB issued Statement of ~~the~~Financial ~~Company~~Accounting ~~ends~~Standards onNo. 150, ~~the~~“Accounting ~~last~~for ~~Saturday~~Certain Financial Instruments with Characteristics of Both ~~January~~Liabilities and Equity” (“SFAS No. 150”). ~~Fiscal~~SFAS ~~years~~No. 150 ~~are~~establishes ~~identified~~standards ~~according~~for tohow ~~the~~an ~~calendar~~issuer ~~year~~classifies inand ~~which~~measures ~~the~~certain ~~majority~~financial instruments with characteristics of ~~the~~both ~~months~~liabilities ~~fall.~~and ~~Fiscal~~equity ~~2000~~as ~~was~~well aas ~~52-week~~imposes additional ~~year~~disclosure ~~which~~requirements ~~ended~~and onis ~~January~~effective ~~27,~~for ~~2001~~interim periods beginning after December 15, ~~fiscal~~2004. ~~2001~~The ~~was~~Company aadopted ~~52-week~~the ~~year~~provisions ~~which~~of ~~ended~~SFAS onNo. 150 ~~January~~effective 26February 1, ~~2002~~2004, ~~and~~which ~~fiscal 2002~~did ~~was~~not ahave ~~52-week~~an ~~year~~impact ~~which ended~~ on ~~January~~its 25financial position, ~~2003~~results of operations or cash flows.

~~Foreign~~3. ~~Currency~~INVENTORIES

~~Foreign currency~~Net ~~activity~~inventory isbalances reported in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation.” SFAS No. 52 generally provides that the assets and liabilities of foreign operations be translated at the current exchange rates as of the end of the accounting period and that revenues and expenses be translated using average exchange rates. The resulting translation adjustments arising from foreign currency translations are ~~accumulated~~ assummarized abelow ~~separate component of stockholder’s equity. Translation adjustments resulted in changes in accumulated other comprehensive income~~ (~~loss) of approximately $(184,000)~~ in ~~fiscal 2000, $(543,000~~thousands): ~~in fiscal 2001 and $(290,000) in fiscal 2002.~~

Gains and losses resulting from foreign currency transactions are recognized in income and were not material.


	January 28, 2006		January 29, 2005
Raw materials	$	17,427	$	20,315
Work in process		6,296		5,634
Finished goods		16,270		13,029

	$	39,993	$	38,978

~~Revenue~~39 ~~Recognition~~

RevenueTable isof recognized when carpet products and related accessories are shipped. The terms for these sales are FOB shipping point. For product installations subject to customer approval, revenue is recognized upon acceptance by the customer. Contents

~~The~~COLLINS ~~Company~~& ~~provides~~AIKMAN ~~installation services to customers utilizing independent third-party contractors. The billings and expenses for these services are included in net sales and cost of goods sold~~FLOORCOVERINGS, ~~respectively, in the accompanying statements of operations~~INC. ~~These~~AND ~~billings~~SUBSIDIARIES ~~and expenses were $13.1 million, $14.6 million and $13.6 million for fiscal 2000, 2001 and 2002, respectively.~~

~~F-8~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

~~COLLINS~~4. ~~& AIKMAN FLOORCOVERINGS~~PROPERTY, ~~INC.~~PLANT AND ~~SUBSIDIARIES~~EQUIPMENT

~~NOTES~~Property, TOplant ~~CONSOLIDATED~~and ~~FINANCIAL~~equipment, ~~STATEMENTS—~~net, are summarized below (~~Continued~~in thousands):

Cost of Goods Sold


	Depreciable Lives	January 28, 2006			January 29, 2005
Land improvements	15 years	$	2,121		$	2,128
Buildings	35 years		22,484			19,442
Machinery and equipment	3-9 years		108,687			104,138
Leasehold improvements	Lease term or 10 years		4,687			4,690
Construction in progress	—		1,078			6,237

			139,057			136,635
Less accumulated depreciation			(71,360	)		(68,948	)

		$	67,697		$	67,687

~~Cost~~Depreciation ofexpense ~~goods~~and ~~sold~~leasehold ~~includes~~amortization ~~raw~~of ~~materials~~property, ~~labor,~~ ~~manufacturing~~plant ~~overhead,~~and ~~freight~~equipment ~~costs,~~was ~~depreciation~~$10.3 ~~and~~million ~~the~~for ~~cost~~fiscal 2005, of$10.5 ~~installation~~million ~~services~~for ~~provided~~fiscal to2004 ~~our~~and ~~customers~~$10.3 ~~through~~million ~~independent~~for ~~third-party~~fiscal ~~contractors~~2003.

~~Selling,~~5. ~~General~~OTHER ~~and~~INTANGIBLE ~~Administrative~~ASSETS ~~Expenses~~

~~Selling,~~The ~~general~~gross ~~and~~carrying ~~administrative~~amount ~~expenses~~and ~~include~~accumulated ~~compensation~~amortization ~~and~~of ~~related~~the ~~expenses,~~intangible ~~selling~~assets ~~and~~that ~~marketing expenses,~~are ~~travel~~subject ~~expenses,~~to ~~professional~~amortization ~~services,~~are ~~depreciation~~as ~~and~~follows ~~amortization.~~(in thousands):

Financial Instruments


	January 28, 2006					January 29, 2005
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized Intangible Assets:
Non-compete	$	12,000	$	(12,000	)	$	12,000	$	(12,000	)
Patent		27,000		(22,090	)		27,000		(19,634	)
Supply Agreement		8,000		(8,000	)		8,000		(7,836	)

Total	$	47,000	$	(42,090	)	$	47,000	$	(39,470	)

~~Financial~~The ~~instruments~~Company’s non-compete with its former parent was being amortized over a seven year period using a double-declining balance method and was fully amortized as of January 31, ~~which~~2004. ~~potentially~~The ~~subject~~patent is being amortized over an eleven-year period using the ~~Company~~straight-line tomethod. ~~concentrations~~The ofsupply ~~credit~~agreement ~~risk,~~was ~~consist~~being ~~primarily~~amortized ofover ~~cash~~a three-year period using the straight-line method and ~~cash~~was ~~equivalents~~fully amortized as of April 30, ~~trade~~2005. ~~accounts~~In ~~receivable~~the fourth quarter of fiscal 2003, ~~and~~Extrusion ~~long~~recorded a non-~~term~~cash ~~debt~~impairment charge related to the supply agreement. ~~Because~~During fiscal 2003, The Dixie Group, Inc. (“Dixie”) completed the divestiture of certain portions of their business. Dixie is the ~~short-term~~seller ~~maturity~~from whom the Company acquired Extrusion on May 8, 2002. Due to an anticipated reduction in the requirements of ~~cash~~the extrusion operations to Dixie and ~~cash~~to ~~equivalents~~the ~~and~~successor ~~trade~~of ~~accounts~~the ~~receivable~~portion of the business that was sold, ~~carrying~~the ~~value~~Company ~~approximates~~recorded an impairment charge of $2.6 million to reflect the Supply Agreement at its fair value.

The Company has an unamortized intangible asset with an indefinite life, other than goodwill. The carrying ~~value~~amount of the ~~senior~~trade ~~credit~~name ~~facility~~was ~~portion~~$23,613 as of ~~the~~January 28, 2006. The Company’s ~~long-term~~also ~~debt~~has ~~approximates~~an ~~the~~unamortized intangible ~~fair~~asset ~~value~~related asto ~~the~~its ~~Company’s~~defined ~~credit~~benefit ~~facility~~plans ~~(Note~~in ~~12)~~the isamount ~~subject~~of to$127 ~~variable~~as ~~interest rates~~of January 28, 2006.

~~Cash~~40 ~~and Cash Equivalents~~

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

~~Credit~~COLLINS ~~and~~& ~~Market~~AIKMAN ~~Risk~~FLOORCOVERINGS, INC. AND SUBSIDIARIES

~~The~~NOTES ~~Company~~TO ~~sells~~CONSOLIDATED ~~floorcovering~~FINANCIAL ~~products~~STATEMENTS to– a(continued) wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally dose not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses. The Company invests its excess cash in short-term investments and has not experienced any losses on those investments.

~~Inventories~~Actual and estimated amortization expense is as follows (in thousands):

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


	Fiscal Year Ended
	January 28, 2006		January 29, 2005		January 31, 2004
Aggregate amortization expense	$	2,620	$	3,112	$	8,846

Estimated amortization expense:
Fiscal 2006		2,455
Fiscal 2007		2,455
Fiscal 2008		—
Fiscal 2009		—
Fiscal 2010		—

~~Property,~~During ~~Plant,~~fiscal years 2005 and ~~Equipment~~2004, there were no changes to the carrying value of goodwill.

~~Property, plant, and equipment are stated at cost~~6. ~~Provisions~~ACCRUED ~~for~~EXPENSES depreciation are primarily computed on a straight-line basis over the estimated useful lives of the assets, presently ranging from 3 to 40 years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. Repairs and maintenance are charged to operations as incurred.

~~Long-Lived~~Accrued ~~Assets~~expenses are summarized below (in thousands):

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. As discussed in Note 10, the Company recorded an impairment charge of $2.2 million during fiscal 2001 related to an investment in one of its subsidiaries.


	January 28, 2006		January 29, 2005
Payroll and employee benefits	$	6,495	$	12,178
Customer claims		1,798		2,715
Accrued interest		7,796		8,085
Accrued professional fees		3,323		3,184
Other		5,774		2,066

	$	25,186	$	28,228

~~F-9~~7. INVESTMENT IN AFFILIATE

~~COLLINS~~Prior &to ~~AIKMAN~~and ~~FLOORCOVERINGS~~during fiscal 2004, ~~INC~~the Company and another partner each held a one-half interest in Chroma Systems Partners (“Chroma”), a general partnership, which provided carpet dyeing and finishing services to the partners and outside third parties. ~~AND~~As ~~SUBSIDIARIES~~the Company did not exercise control over the partnership, the Company accounted for the partnership under the equity method of accounting.

~~NOTES~~On TOAugust 10, ~~CONSOLIDATED~~2004, ~~FINANCIAL~~the ~~STATEMENTS—~~Company and its parent announced its intent to close its manufacturing facility in Santa Ana, California, and transfer the production to its existing Truro, Nova Scotia, Canada facility. As part of the closing of the California facility, the Company successfully negotiated its exit from the Chroma partnership and entered into the Chroma Transition Agreement with Dixie Group, Inc. (~~Continued~~“Dixie”) to allow for the transition of dyeing and finishing services needed until the Santa Ana, California manufacturing facility was closed. A charge of $0.2 million was recorded during fiscal 2004 to reflect the negotiated settlement related to the early termination of its Dyeing and Finishing Agreement with Chroma and withdrawal from the Chroma Partnership. The closure of the Santa Ana, California facility was completed in fiscal 2005.

~~Customer~~During ~~Claims~~the ~~Reserve~~term of the Company’s held interest in Chroma, the Company and the other partner had agreed to purchase carpet dyeing and finishing services exclusively from the partnership. Charges for these services were equal to prevailing market prices for comparable services. During fiscal years 2004 and 2003, the Company was charged $9.8 million and $10.0 million for these services, respectively.

The Company ~~maintains~~leased ana ~~accrual~~portion ~~for customer~~of ~~claims~~its ~~such~~carpet as manufacturing ~~issues,~~and ~~product~~administrative ~~returns~~space from the partnership. During fiscal years 2004 and 2003, ~~sales~~the ~~accommodations~~Company paid the partnership approximately $0.4 million during each year for rent expense. In addition, ~~shipping~~the ~~errors~~Company had agreed to provide certain executive management and ~~administrative~~operational ~~issues.~~services ~~The~~at ~~accrual~~cost iswhile ~~based~~the ~~upon~~partnership ~~historical~~agreed ~~claims~~to ~~analysis~~provide the Company with executive management and iscertain ~~recorded~~maintenance ~~monthly~~and asutility aservices ~~percentage~~at ofcost. ~~net~~During ~~sales~~fiscal years 2004 and 2003, the Company charged approximately $0.1 ~~Actual~~million ~~claims that~~during ~~are~~each ~~paid~~year ~~monthly~~for ~~reduces~~the management and operation services while the ~~accrual~~partnership charged the Company approximately $0.3 million during each year for executive management and maintenance and utility services.

~~Income~~41 ~~Taxes~~

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

~~Stock~~COLLINS ~~Based~~& ~~Compensation~~AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

AtNOTES ~~January~~TO ~~25,~~CONSOLIDATED ~~2003,~~FINANCIAL ~~the~~STATEMENTS ~~Company~~– ~~has~~(continued) one stock-based employee compensation plan, which is described more fully in Note 13. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation.

	Fiscal Year Ended
	January 27, 2001			January 26, 2002			January 25, 2003
Net income (loss) as reported	$	(8,558	)	$	8,284		$	5,781
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax		—			(28	)		(35	)
Proforma net income (loss)	$	(8,558	)	$	8,256		$	5,746

8. EMPLOYEE BENEFIT PLANS

~~Recent~~Defined ~~Accounting Pronouncements~~Contribution Plan

InSubstantially ~~June~~all ~~2001,~~domestic ~~the~~employees ~~Financial Accounting~~of ~~Standards~~the ~~Board~~Company ~~(“FASB”)~~who ~~finalized~~meet ~~SFAS~~eligibility ~~No.~~requirements ~~141,~~are ~~“Business~~covered ~~Combinations,”~~under ~~and~~a ~~No.~~defined ~~142~~contribution plan, ~~“Goodwill~~which ~~and~~is ~~Other~~administered ~~Intangible~~by ~~Assets.”~~the ~~SFAS No~~Company. ~~141~~Eligible ~~requires~~participants ~~the~~can ~~use~~contribute ofup ~~the~~to ~~purchase method of accounting and prohibits~~10% ~~the use~~ of ~~the~~their ~~pooling-of-interests~~annual ~~method~~compensation ofand <

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