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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

For the Fiscal Year Ended January 31, 2004

Commission File Number 333-88212

COLLINS & AIKMAN FLOORCOVERINGS, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).    Yes  ¨    No  x

As of April 26, 2004, 1,000 shares of the Registrant’s 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 incorporated by reference: None.

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PART I

Item 1. Business

All references in this Form 10-K to “we”, “us”, “our” or the “Company” refer to Collins & Aikman Floorcoverings, Inc. and subsidiaries.

Forward-Looking Statements

The Company has made in this Form 10-K and from time to time may make written and oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, in press releases and in reports to shareholders. The Private Securities Litigation Reform Act of 1995 contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such disclosures. All statements contained in this Annual Report on Form 10-K as to future expectations and financial results including, but not limited to, statements containing the words “plans,” “believes,” “intends,” “anticipates,” “expects,” “projects,” “should,” “will” and similar expressions, should be considered forward-looking statements subject to the safe harbor. The forward-looking statements are based on management’s current beliefs and assumptions about expectations, estimates, strategies and projections for the Company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes or results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of future information, future events or otherwise. The risks, uncertainties and assumptions regarding forward-looking statements include, but are not limited to, product demand and market acceptance risks; product development risks, such as delays or difficulties in developing, producing and marketing new products; the impact of competitive products, pricing and advertising; constraints resulting from the financial condition of the Company, including the degree to which the Company is leveraged; cycles in the construction and renovation of commercial and institutional buildings; failure to retain senior executives 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 United States and in markets outside of the United States served by the Company; government regulations; risks of loss of material customers; environmental matters; and other risks described in the Company’s Securities and Exchange Commission filings.

General

Based on annual sales and brand recognition, we are a leading manufacturer of floorcovering products for the North American specified commercial carpet market. The Company’s 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, 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 diversity of the Company’s end markets, management believes its business tends to be less sensitive to economic downturns than many of our competitors, which rely more heavily on the corporate market. 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 tailored for each of its customers. The Company was formed in 1995 as a Delaware corporation and is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom, and Singapore.

We believe that our C&A brand holds the number one market position in six-foot roll carpet, and is among the leading brands within the modular carpet tile market. Our C&A brand products are highly regarded as a result of their long-term performance, comfort under foot, installation ease, longer useful life and advanced backing technology.

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Our Monterey brand is a known design leader in the high-style, fashion-oriented sector of the commercial broadloom carpet market due to its creative designs and intricate patterns in a wide variety of colors, textures, pile heights and densities. The brand has been acknowledged on numerous occasions with various awards for its design leadership.

The Crossley brand is a recognized design leader in Canada in the tufted and woven broadloom commercial carpet markets. The Crossley brand uses its crossweave looms and state of the art tufting technology to produce high-quality woven and tufted products in a wide variety of patterns and price points to meet the needs of interior design professionals, flooring contractors and end users.

On January 25, 2001, our parent company, CAF Holdings, Inc. (“CAF Holdings”), was acquired in a recapitalization transaction by an investor group led by OCM Principal Opportunities Fund II, L.P. (“Oaktree”), Banc of America Capital Investors (“BACI”) along with other private equity investors and members of our senior management team. 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 senior management.

On May 8, 2002, CAF Extrusion, Inc., (“Extrusion”) a wholly-owned subsidiary, acquired a yarn extrusion manufacturing plant located in Calhoun, Georgia for approximately $32.4 million. In addition, CAF Extrusion, Inc. 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.

We estimate that the U.S. commercial carpet market, which is comprised of the specified and non-specified segments, generated sales of approximately $2.9 billion in 2003. We focus on the specified commercial carpet market, which we estimate represented approximately $2.5 billion of the total U.S. commercial carpet market in 2003. In the specified commercial carpet market, products are manufactured to the specifications of architects, designers and owners, as compared to the non-specified market in which products are purchased off-the-shelf. The key competitive factors in the specified carpet market are product durability, long-term performance, product design and service, rather than price. We believe the company is well-positioned when trends within the specified commercial carpet market improve, including (1) six-foot roll carpet continuing to gain market share from other floorcoverings in end markets in which it has distinct performance advantages, such as ease of maintenance, long-term performance and longer useful life; (2) modular carpet tile increasingly being used instead of other flooring surfaces due to increased raised flooring applications and the continuing trend toward modular furniture systems; and (3) increasing customer demand for high-style broadloom carpet with complex patterns and textures.

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Products

The 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 colors, textures, pile heights, densities and price points, we are able to market ourselves as a one-stop solution for specified commercial carpet. Each of our products offers distinctive characteristics for use and application. We believe that our ability to offer a complete package of product offerings is a distinct competitive advantage since each product provides unique features and benefits as follows:

Six-Foot Roll Carpet. We 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 (i) long-term appearance retention, (ii) ease of maintenance and (iii) comfort under foot. Our six-foot roll carpet utilizes the Powerbond backing technology and the patented RS “peel and stick” installation system.

Modular Carpet Tile. We believe C&A was the first manufacturer in the United States to introduce vinyl-backed modular carpet tile technology and is among the leading brands within the domestic modular carpet tile market. Our modular carpet tile system is specifically engineered to have a monolithic appearance on the floor and because of the product’s unique reduced seam visibility, it is often mistaken for roll goods. Our modular carpet tile products are offered in a variety of sizes to accommodate a range of domestic and international requirements. Our C&A brand carpet tile is being made with ER3, our patented recycled content backing.

Broadloom Carpet. The Monterey and Crossley brands are recognized design leaders in the high-style, fashion-oriented sector of the commercial broadloom carpet market. Sold primarily in twelve-foot rolls, Monterey broadloom carpet is tufted carpet, while Crossley manufactures both tufted and woven broadloom carpet. Broadloom carpet is particularly suited for fashionable designs and stylish interiors as its width provides a broad area upon which creative designs and intricate patterns can be displayed in a wide variety of colors, textures, pile heights and densities. Specified broadloom carpet is primarily used in end markets where aesthetics and style are the 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 that are regularly renovated in order to reflect current fashion trends and styles.

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Product Features

Powerbond. In 1967, our C&A brand introduced Powerbond, the industry’s first vinyl cushioned backing system. This closed-cell backing technology exhibits superior durability, cleaning characteristics and reduced seam visibility. Powerbond combines the best attributes of hard surfaces (longer useful life and ease of maintenance) and carpet floorcoverings (comfort, acoustics and aesthetics). It eliminates problems associated with traditional broadloom carpet, including delamination (separation of carpet backing), zippering and unraveling. In addition, these products are installed using chemically-welded seams rather than conventional glued seams to provide a homogeneous, impermeable moisture barrier. Other Powerbond features include its ease of repair, long-term appearance, a 50% to 100% longer useful life than conventional broadloom carpet and 15 to 20 year non-prorated warranty against delamination, loss of cushion resiliency and watermarking.

RS. In 1988, we introduced our RS technology, a patented releasable “peel & stick” adhesive system for Powerbond vinyl-backed product installation, which dramatically simplifies installation. The RS technology enables products to be bonded to a surface without the use of wet adhesives thus minimizing disruption to customers during the installation process. Conventional installations with wet adhesives normally require significant downtime for the adhesive to cure prior to installation. The RS technology also addresses carpet-related indoor air quality concerns by eliminating the fumes typically associated with wet adhesives. The RS technology minimizes disruption to usable space, which is critical in each of our end markets.

ER3. ER3 is a patented backing for modular carpet tile produced from both post-consumer and post-industrial carpet waste. This closed-loop system (waste-to-product) allows us to take used carpet tile from our customers and use it as raw material for producing new carpet tile. This system eliminates our customers’ disposal costs and keeps waste out of landfills at a time when environmental sensitivities are high.

Crossley Weaving Heritage. 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. We are one of only a few manufacturers in North America with weaving capability.

End Markets

Corporate. We offer a complete package of product offerings that addresses virtually every need of the corporate facility manager and their interior designers and architects, including six-foot roll carpet, modular carpet tile and tufted and woven broadloom carpet. In early 2000, we established the Corporate Development Group, which focuses exclusively on marketing all of our brands to the corporate market. This group works with the individual brands to develop flooring solutions for corporate facility managers. We have focused on projects where we tend to excel on the basis of product durability, appearance retention, product design and service rather than pricing. As part of our strategy to increase penetration of this market, we have a national accounts program that targets the country’s largest corporations. This group focuses on Fortune 1000 corporations by developing relationships at the senior levels in facility management and purchasing.

Education. The education market has been a primary focus for the C&A brand since the development of Powerbond in 1967. Powerbond’s long-term appearance retention characteristics have been the principal factor behind its success in this market, as customers tend to be particularly sensitive to longer useful life, comfort, acoustics and ease of maintenance. The Powerbond product in many of these installations has been in use for more than 20 years. Historically, we have focused on the kindergarten through 12^th grade market, however, over the last few years, we have focused our marketing efforts on expanding into the college and university market. We expect to capitalize on our broad product offerings to grow this segment, as colleges and universities have more diverse floorcovering needs than the primary and secondary school markets.

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Health Care. We believe that Powerbond RS is particularly well suited to the health care 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 health care market, and its moisture impermeability and welded seams make it easy to maintain. As healthcare facilities continue to create “home like” environments for their patients, we anticipate that there will be increased demand for a combination of high-performance and high-style products, allowing our diverse product lines to compliment each other. With the growth and consolidation of national health care organizations, we believe we are well-positioned to cross promote the Monterey and Crossley brands to existing C&A customer relationships that have a need for broadloom products.

Government. We 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.

Retail Stores. We focus on major retail chains which have the potential for large, nationwide volumes. This segment requires a diverse product offering, as needs vary from high-end boutiques to mass merchandisers. We believe that our products are particularly suited to fulfill these needs and provide the added advantage of reducing potential “slip and fall” liability. A significant portion of these sales is managed by our Source One department, which arranges product installation for our customers. Our installation service and our comprehensive project management capabilities are critical to meet short construction schedules inherent in the retail market.

International Markets. In July 1999, we acquired Crossley Carpet Mills, Ltd (“Crossley”) of Truro, Nova Scotia. This acquisition has allowed us to market all three brands in Canada through the Crossley organization. In addition, in August 1998, we acquired a 51.0% interest in Collins & Aikman Floorcoverings Asia Pte. Ltd., a start-up commercial carpet distribution venture in Singapore. We established our first international sales office in 1989 in the United Kingdom, and in 1998 acquired a carpet backing manufacturer headquartered in Wales. Our presence in such international markets enables us to distribute our products throughout the world and strengthen our relationships with U.S.-based multi-national corporate accounts. We plan to continue to add distributors and dedicated sales personnel in strategic international geographies to increase our share of the global commercial carpet market. During the second half of fiscal 2004, we expect to begin production of carpet tile products in Suzhou, China. We plan to sell the products manufactured at this facility into mainland China and throughout southeast Asia.

Sales and Segmentation Strategy

We utilize a segmented sales and marketing strategy to target the specific needs of the customers in each of our end markets. 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.

Our brands provide custom designed products and promotional materials for each end market, which highlight the advantages of our products in several key performance categories. Each end market is sensitive to different issues and places value on different performance characteristics. 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 sale, our primary contact with the customer is through our sales force and not through an intermediary. This enables us to continue to customize our products and services to respond to the specific needs of the customer, which we believe is a unique approach in the industry. We have an in-house design team for each brand that is dedicated to developing new, innovative designs for each of our primary end markets.

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Across our brands, the majority of sales are specified by the facility owner or a professional designer. Because each market has distinct performance, design and installation requirements, our account managers focus on educating the facility owners and design professionals on (i) the technical specifications and proprietary advantages of our products, (ii) our unique design capabilities for specific market segments, (iii) our environmental initiatives and (iv) our unique, value-added services. We believe this end market-oriented strategy has resulted in greater visibility for our brands.

Distribution

We sell and distribute our products through three primary channels: direct to the end customer, Source One and 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.

Direct. Direct distribution allows customers to purchase floorcoverings directly from us. Our account managers work directly with the customer to advise, educate and make recommendations for the selection and specification of the right product for the particular application. The customer is responsible for sub-contracting the project management and installation.

Source One. Source One, our in-house project management department, provides single-source coordination and turn-key project management service. The department was established to provide a “one phone call,” “single-source” project management service to meet the specific needs of our customer base. The service includes facility measurement, project coordination, order entry, delivery and installation of a wide range of interior finishes from our broad product offerings. A network of over 1,000 certified installers and strategic dealer partnerships throughout the United States is utilized for product installation.

Dealers. The carpet industry has traditionally sold products to customers through the use of local dealers, who typically broker products from manufacturers and subcontract installation through local installers. Many customers request that the product be delivered through a local dealer who provides a range of project management services, including carpet removal, staging and installation services. Through a non-exclusive alignment with The Invironmentalists, a nationwide network of owned and franchised floorcovering dealers, we provide turn-key floorcovering services, including estimations, installation, reclamation of existing materials and maintenance.

Backlog

Our backlog of unshipped orders was approximately $27.2 million at January 31, 2004. Historically, backlog is subject to significant fluctuations due to the timing of orders for individual large projects.

Product Development and Design

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 of our competitors, which manufacture standard products that serve a wide cross-section of markets, we develop products tailored to the requirements of specific market segments. This process begins with feedback from leading designers and customers in each segment relating to product features such as color, texture and pattern. This marketplace input is vital as the product/styling needs are very different for each end market. Our Product Development Group is highly integrated with our sales organization and customer base, which increases the effectiveness of the product development process.

We estimate that approximately 30% of our sales involve custom colors or designs requiring accurate interpretation of customer needs and timely conversion into a sample fabric. Each brand has dedicated sample equipment that facilitates quick turnaround of custom design requests.

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Competition

The 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 (recently acquired by Mohawk Industries, Inc.) and Shaw Industries, Inc. in the six-foot roll goods and Interface Flooring System (owned by Interface, Inc.), 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 (owned by Interface, Inc.), Mohawk Industries, Atlas Carpets, Masland Carpets and Shaw Industries, Inc. Although the industry has experienced consolidation, a large number of manufacturers remain. In North America, we believe we are the largest manufacturer of six-foot roll carpet, a leading manufacturer of modular carpet tile and a design leader in the high-style 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 we do.

We believe the key competitive factors in our primary floorcovering markets are product durability, appearance retention, product design and service. In this 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 factors of the Monterey and Crossley brands are aesthetics, service and quality.

Manufacturing and Facilities

We own four manufacturing facilities in Dalton, Georgia including (i) a yarn processing plant with carpet dyeing capabilities, (ii) a carpet tufting plant, (iii) a carpet finishing and tile cutting plant, which includes tile printing and recycling operations and (iv) a customer service center and distribution warehouse. Extrusion owns a yarn extrusion facility in Calhoun, Georgia. Crossley owns a manufacturing, administrative and warehouse facility in Truro, Nova Scotia. Advance Carpet Tiles, Ltd. (“ACT”) owns two facilities in the United Kingdom, including a six-foot roll and tile finishing plant. Monterey Carpets, Inc. (“Monterey Carpets”) leases a carpet tufting, administrative and warehouse facility in Santa Ana, California. In addition to these facilities, we lease a number of sales and service facilities and one warehouse in the United States and one sales and service facility in the United Kingdom. We believe our manufacturing capacity is sufficient to meet our requirements for the foreseeable future. During the second half of fiscal 2004, we plan to begin production of carpet tile products in Suzhou, China. We plan to sell the products manufactured at this facility into mainland China and throughout southeast Asia.

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

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We have a 50% partnership interest in Chroma System Partners (“Chroma”), which operates an 88,266 square foot carpet dyeing and finishing plant in Santa Ana, California. Monterey and the other partner have agreed to purchase carpet dyeing and finishing services exclusively from Chroma at market prices. These service agreements may be canceled upon a one-year’s notice and withdrawal from the partnership. In addition, Monterey has agreed to provide certain executive management and operational services at cost while Chroma has agreed to provide Monterey with certain maintenance and utility services at cost.

Raw Materials

Our raw materials, including yarn, nylon and polypropylene chip, primary backing, coater materials, and dye chemicals, represent the single largest component of our carpet’s costs. Yarn comprises about one-third of the carpet’s cost structure and in excess of 50.0% of total raw material costs. Historically, we have been able to pass on yarn price increases in the ordinary course of business in response to published increases by major yarn suppliers. Increases in the cost of petroleum-based raw materials could adversely effect us if we were unable to pass the increase through to our customers. Unanticipated termination or interruption of our arrangement with our primary third-party supplier of nylon yarn could have a material adverse effect on us. We use Invista 6,6 continuous filament yarn for the majority of our products.

While Invista is a very important vendor, we believe that there are adequate alternative sources of supply from which we could fulfill our synthetic fiber requirement.

The other significant raw materials used by us in our carpet manufacturing process include coater materials, such as vinyl resins and primary backing. We have not experienced a problem sourcing nylon, processed yarn or any other raw material used in the manufacture of carpet from our suppliers and do not anticipate any difficulties in sourcing these raw materials in the future although no assurances can be given.

At our yarn extrusion plant, significant raw materials are nylon and polypropylene chips and dye chemicals. The chips purchased are used to manufacture nylon 6 and polypropylene yarn. The dyes and chemicals purchased are used to dye the yarn.

Patents, Copyrights and Trademarks

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

Seasonality

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

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Employees

At January 31, 2004, we had a total of 1,584 employees of which 985 were hourly and 599 salaried. We have experienced no work stoppages and believe that our employee relations are good. All of our employees are non-union with the exception of Crossley’s approximately 204 manufacturing workers in Canada that are subject to a collective bargaining agreement. The collective bargaining agreement that represents this union expires on June 30, 2006.

Environmental Matters

Our operations 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 Information About Operating Segments and Geographic Areas

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 31, 2004. Certain information concerning our net sales and long-lived assets by geographic areas can also be found in Note 14.

Item 2. Properties

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

Item 3. Legal Proceedings

In 1996 and 1997, the Company sold approximately $0.6 million of carpet tile product to Employers Mutual Insurance Companies (“EMC”). EMC subsequently filed suit in the United States District Court for the Southern District of Iowa on August 6, 2002, alleging the carpet experienced premature wearing and discoloration, and asserted that the Company should pay damages based upon theories of violation of warranties, negligence and fraud. The Company examined EMC’s claim prior to commencement of the action and determined that EMC had not properly maintained the carpet, resulting in irreversible damage to the carpet. The Company filed a motion for summary judgment and the United States District Court for the Southern District of Iowa ruled in favor of the Company on the negligence, written warranty claims and implied warranty of merchantability. Other claims included express oral warranty, implied warranty of fitness for particular purpose, fraudulent misrepresentation and fraudulent nondisclosure were tried to a jury. On March 18, 2004, subsequent to the Company’s fiscal year-end, 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. The jury awarded EMC $0.8 million in damages for full replacement of the carpet.

The Company believes substantial errors were committed in the trial, including the failure of the trial court to render judgment as a matter of law that the Company did not owe EMC a fiduciary duty, and in the erroneous application by the jury of its instructions on the measure of damages. The Company continues to deny liability and is evaluating its options, which include filing a motion for judgment as a matter of law pursuant to Rule 50 of the Federal Rules of Civil Procedure and a motion for a new trial. The judgment award of $0.8 million has been recorded as an accrued liability in the January 31, 2004 consolidated balance sheet. The Company incurred legal expenses during fiscal 2003 related to the EMC lawsuit of approximately $0.7 million. These expenses are included in the Company’s consolidated statement of operations for fiscal 2003.

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

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

None.

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PART II

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

As of April 26, 2004, there was one holder of record of the Company’s common stock. There is no public trading market for the Company’s common stock.

The following table provides information as of January 31, 2004, with respect to compensation plans under which Tandus Group equity securities are authorized for issuance.

Dividends

The declaration and payment of dividends is at the discretion of our Board, and depends upon, among other things, our investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board at the time of its determination. Such other factors include certain limitations in covenants contained in our senior credit facility and in the indentures governing our public indebtedness. Due to these limitations, the Board plans to pay no dividends in the forseeable future.

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Item 6. Selected Financial Data

The following data is qualified in its entirety by the consolidated financial statements of the Company and other information contained elsewhere herein. The financial data as of and for the years ended January 29, 2000, January 27, 2001, January 26, 2002, January 25, 2003 and January 31, 2004 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.

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outstanding stock options. This charge represents the difference between the fair market value of the Tandus Group common stock issuable upon exercise of the options and the exercise price of these options.

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

GENERAL

The following 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 as a result of a number of factors.

Overview

Based on annual sales and brand recognition, we are a leading manufacturer of floorcovering products for the North American specified commercial carpet market. The Company’s 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, manufactures and markets its C&A, Monterey and Crossley brands under the Tandus Group name for a wide variety of end markets, including corporate office, education, healthcare, government facilities and retail stores. Because of the diversity of the Company’s end markets, management believes its business tends to be less sensitive to economic downturns than many of its competitors, which rely more heavily on the corporate market. 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 tailored for each of its customers. The Company is headquartered in Georgia, with manufacturing locations in California, Canada, the United Kingdom and China.

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The Company is a wholly owned subsidiary of Tandus Group, Inc. (“Tandus Group”), formerly known as CAF Holdings, Inc. Subsequent to a recapitalization transaction on January 25, 2001, a majority of Tandus Group’s outstanding capital stock is controlled by investment funds managed by Oaktree and BACI.

January 2001 Recapitalization

On January 25, 2001, Tandus Group consummated a recapitalization transaction pursuant to which Oaktree, 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.

Acquisitions

On May 8, 2002, Extrusion, a wholly-owned subsidiary, acquired a yarn extrusion manufacturing plant located in Calhoun, Georgia. In addition, Extrusion purchased the real property on which the plant is located from a third party. The acquisition was funded from cash on hand. The cash purchase price was $34.8 million plus $0.3 million for acquisition related expenses and consisted of $2.4 million for the land and building, $1.4 million for inventory, $17.7 million for machinery and equipment, $5.6 million for goodwill and $8.0 million for a supply agreement (“Supply Agreement”), which is being amortized over its term of three years. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations of Extrusion have been included in the Company’s consolidated financial statements from May 8, 2002.

On November 12, 2003, subsequent to the end of the Company’s third quarter, The Dixie Group, Inc. (“Dixie”) completed the previously announced agreement to divest of certain portions of their business. Dixie is the seller from whom the Company acquired Extrusion on May 8, 2002. Company management expects a reduction in the requirements of the extrusion operations to Dixie and to the successor of the portions of Dixie’s business that were sold. Based upon these facts, the Company obtained an independent valuation of the net carrying value of the Supply Agreement for impairment. As a result of this valuation, the Company recorded an impairment charge of $1.6 million, net of tax, to reflect the Supply Agreement at its fair value.

In July 1999, we acquired all the outstanding capital stock of Crossley for $22.1 million, including $17.5 million in assumed debt. Crossley is based in Nova Scotia, Canada and is a manufacturer of tufted and woven broadloom carpet.

In June 1999, we acquired all the outstanding capital stock of Monterey Carpets for $50.8 million. Monterey Carpets is based in Santa Ana, California and is a recognized design leader in the high-style, fashion-oriented sector of the commercial broadloom carpet market. Through Monterey Carpets we have a 50.0% partnership interest in Chroma, which owns and operates a carpet dyeing and finishing plant in Santa Ana, California. Under the terms of the partnership agreement, Chroma is required to distribute all of its earnings on a quarterly basis to its partners.

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Results of Operations

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

Fiscal Year Ended (53 weeks) January 31, 2004 (“fiscal 2003”)

Compared with Fiscal Year Ended (52 weeks) January 25, 2003 (“fiscal 2002”)

Net Sales. Net sales for fiscal 2003 were $311.1 million, a decrease of $10.1 million or 3.1%, from $321.2 million in fiscal 2002. Net sales of the Company’s floorcovering segment were $283.0 million for fiscal 2003 as compared to $298.0 million for fiscal 2002, a decrease of $15.0 million or 5.0%. The decrease in the floorcovering segment’s net sales for fiscal 2003 was due to the continued slow demand throughout the specified commercial market in the United States. In particular, the demand in the corporate office market has been slow since 2001. This decrease was partially offset by the inclusion of the extrusion operation’s net sales for the full year ended January 31, 2004 as compared to a partial year in the prior year. The extrusion operation was acquired May 8, 2002.

Cost of Goods Sold. Cost of goods sold decreased to $209.8 million in fiscal 2003 from $211.0 million, a decrease of $1.2 million or 0.6%. This decrease resulted from lower net sales and cost reduction initiatives partially offset by the inclusion of the costs of the extrusion operation for the full fiscal year in 2003. As a percentage of sales, these costs were 67.4% for fiscal 2003 and 65.7% for fiscal 2002.

Selling, General and Administrative Expenses. The Company’s selling, general and administrative expenses, excluding other intangible assets amortization of $6.2 million and a non-cash impairment charge of $2.6 million, in fiscal 2003 increased to $73.4 million, an increase of $6.1 million or 9.1% from $67.2 million for fiscal 2002, which excluded goodwill and other intangible assets amortization of $5.5 million. As a percentage of sales, these expenses, excluding amortization, were 23.6% for fiscal 2003 and 20.9% in fiscal 2002. The increase was primarily due to increased salaries and related benefits of $3.6 million, sampling and related costs of $2.0 million, legal and professional fees of $2.2 million and marketing and promotional expenses of $1.6 million, which were partially offset by lower commissions of $1.3 million and foreign exchange gains of $2.0 million. A portion of the increased salaries and related benefits, sampling and related cost and marketing and promotional expenses were related to the Company’s new selling strategy, which was implemented beginning January 26, 2003, and to support a number of new floorcovering product lines introduced during the year. The legal and professional fee increase includes the costs of a lawsuit judgment of $0.8 million and $0.7 million of legal expenses related to this lawsuit and $1.0 million on non-recurring costs associated with an unsuccessful acquisition.

Net Interest Expense. Net interest expense for fiscal 2003 and fiscal 2002 was $21.3 million and $23.9 million respectively, which included interest income of $0.1 million and $0.4 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. Fiscal 2002 includes a charge to interest expense of $2.7 million to reflect the write-off of a pro-rata share of deferred financing costs associated with the prepayment of term debt from proceeds of the 9.75% Notes offering and from cash generated by operations.

Income Taxes. The Company has an income tax benefit of $2.1 million for fiscal 2003 versus a tax provision of $6.8 million for fiscal 2002. The 2003 income tax benefit results from the Company’s loss before income taxes which is attributable to lower net sales and higher selling, general and administrative expenses as discussed above. The income tax benefit also results from the Company

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qualifying for certain state income tax credits not previously obtained. A portion of the credits is available for refund with the remainder to be carried forward. The Company has completed and filed amended returns for the prior years in which a refund is available. The receivable recorded in the Company’s financial statements is $0.4 million, and the deferred amount of credits is $0.9 million, both net of the effect of federal income taxes. The credits to be carried forward have no expiration date. The Company also reduced its reserve for certain tax contingency items by $0.9 million in fiscal 2003.

Net Income. Net income for fiscal 2003 decreased to $1.2 million from $5.8 million in fiscal 2002. This was due to the combined result of the factors described above.

Adjusted EBITDA. Adjusted EBITDA represents earnings before interest, taxes, depreciation, and amortization plus the cumulative effect of change in accounting principle, Chroma cash dividends, minority interest in income of subsidiary and non-recurring costs associated with an unsuccessful acquisition less equity in earnings of Chroma, plus a non-cash charge relating to the impairment of a supply agreement at Extrusion. Adjusted EBITDA for fiscal 2003 decreased to $42.7 million from $53.8 million in fiscal 2002, a decrease of 20.7%. As a percentage of sales, Adjusted EBITDA was 13.7% in fiscal 2003 compared to 16.8% in fiscal 2002. 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 accounting principles generally accepted in the United States 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.

A reconciliation of net income to Adjusted EBITDA is presented in the following table:

Fiscal Year Ended (52 weeks) January 25, 2003 (“fiscal 2002”)

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

Net Sales. Net 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 market have been slow since 2001. This decrease was offset by $23.2 million of net sales generated by the extrusion operation which was acquired May 8, 2002.

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Cost of Goods Sold. Cost of good sold increased to $211.0 million in fiscal 2002 from $207.0 million in fiscal 2001, an increase of $4.0 million or 1.9%. As a percentage of net sales, these costs were 65.7% and 64.3% for fiscal 2002 and fiscal 2001, respectively. The increase resulted from the inclusion of the costs of the extrusion operation of $20.3 million.

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% fiscal 2001. The minimal increase was primarily due to increased professional services of $0.8 million and marketing expenses of $1.3 million, which 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, companies to no longer amortize goodwill and intangible assets with an indefinite life, but instead test these assets for impairment at least annually.

Net 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 9.75% Notes in February 2002. Additionally, fiscal 2002 includes a charge to interest expense of $2.6 million to reflect the write-off of a pro-rata share of deferred financing costs associated with the prepayment of term debt from proceeds of the 9.75% Notes offering and cash 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 rate 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 million and $0.1 million, respectively.

Net Income. Net 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.

Adjusted EBITDA. Adjusted EBITDA represents earnings before interest, taxes, depreciation, and amortization plus the cumulative effect of change in accounting principle, Chroma cash dividends, 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 accounting principles generally accepted in the United States 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.

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A reconciliation of net income to Adjusted EBITDA is presented in the following table:

Liquidity and Capital Resources

The Company’s primary cash needs have historically been for operating expenses, working capital, debt repayment and capital expenditures. The Company has financed its cash requirements primarily through internally generated cash flow, borrowings and the offering of the 9.75% Notes.

Net cash provided by operating activities in fiscal 2003 was $20.0 million compared to net cash provided of $27.5 million in fiscal 2002. The change is primarily due to a decrease in net income of $4.5 million, an increase in deferred tax provision of $6.4 million, the impact of the cumulative effect of a change in accounting principle of $3.2 million, partially offset by a positive impact of $3.3 million in net working capital, an impairment charge of $2.6 million for the Extrusion supply agreement and $0.6 million gain on forgiveness of debt.

Net cash used in investing activities in fiscal 2003 was $5.3 million compared to $42.3 million in fiscal 2002. The decrease in cash used in investing activities was primarily due to the absence of a transaction similar to our May 8, 2002 acquisition of the yarn extrusion manufacturing plant and the real property on which the plant is located. Capital expenditures for fiscal 2003 were $8.8 million compared to $9.0 million for fiscal 2002.

Net cash used in financing activities in fiscal 2003 was $24.3 million compared to net cash provided of $31.2 million in fiscal 2002. The decrease in cash provided by financing activities was due primarily to the issuance of the 9.75% Notes and repayment of $125 million of the Company’s term debt with a portion of the proceeds during fiscal 2002 as well as a net repayment of long-term debt of $22.0 million during fiscal 2003.

The Company has significant indebtedness which consists of $175.0 million of our 9.75% senior subordinated notes due 2010; $31.0 million in senior term debt; $0.6 million in purchase money and other indebtedness; and $2.7 million in sinking fund bond obligations owed to the Nova Scotia Business Development Corporation (the “NSBDC Bonds”) issued by Crossley. As of January 31, 2004, the Company’s $50.0 million revolving line of credit had no borrowings outstanding and $1.1 million of letters of credit outstanding leaving total availability of $48.9 million. The Company was in compliance with all debt covenants as of January 31, 2004.

During the fourth quarter of fiscal 2003, the Company invested $3.0 million into one of its subsidiaries to be used for a carpet tile production facility in Suzhou, China. Products manufactured at this facility will be sold into mainland China and throughout southeast Asia. Additional funding of approximately $2.0 million is anticipated, primarily during the first half of fiscal 2004.

The Company’s semi-annual interest payments of the 9.75% Notes are due on each February 15 and August 15 through February 15, 2010. The amount due on each date during fiscal 2004 is $8.5 million.

Subsequent to the Company’s fiscal year end, a jury found in favor of EMC related to alleged violations of express oral warranty and implied warranty of fitness for particular purpose and awarded damages totalling $0.8 million. We have accrued the full judgment of $0.8 million as of January 31, 2004. During fiscal 2003, we paid approximately $0.7 million of legal expenses related to this lawsuit.

The Company continues to deny liability and is evaluating its options which include a motion for a new trial. If the Company pursues those options and is unsuccessful, it will be required to pay the $0.8 million judgment.

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In connection with the Crossley acquisition in July 1999, we agreed to pay the seller $2.0 million over four years beginning in June 2000. In addition, we assumed approximately $17.5 million of debt of Crossley, including approximately $0.8 million of obligations under equipment financing arrangements, approximately $6.9 million relating to Crossley’s revolving credit line (none of which was outstanding and $4.6 million of which was available as of January 31, 2004), and approximately $9.5 million of the NSBDC Bonds. The NSBDC agreed to forgive approximately $6.3 million of the NSBDC Bonds, subject to maintaining a certain level of annual hours worked by its employees. Through January 25, 2003 the NSBDC had forgiven the $6.3 million. The remaining balance of the NSBDC Bonds began amortizing over five years beginning in 2003.

During fiscal 2003, the Company prepaid $20.0 million of the Senior Credit Facility. In connection with these prepayments, the Company recorded the write-off of $0.4 million of deferred financing costs associated with the term debt, which is reflected in net interest expense in the consolidated statement of operations.

The Company’s ability to make scheduled payments of principal, interest or to refinance its indebtedness, depends on its future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors beyond its control. However, there can be no assurance the Company’s business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable the Company to service its indebtedness or to make necessary capital expenditures. The Company periodically evaluates potential acquisitions of businesses, which complement existing operations. 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.

Effective May 1, 2004, the Company entered into a second amendment to the Senior Credit Facility to revise certain of its covenants. Primarily as a result of operating results in the third and fourth quarters of fiscal 2003 and more restrictive covenant requirements for fiscal 2004, the Company had believed a covenant violation as early as the end of the first fiscal quarter of 2004, which ended May 1, 2004, was probable.

The principal financial covenants under our Senior Credit Facility, prior to its second amendment on May 1, 2004, required a fixed charge coverage ratio of 1.1:1.0 from and including January 27, 2002 to and including January 31, 2004. Our fixed charge coverage ratio was 1.3:1.0 at January 31, 2004. The second amendment to the Senior Credit Facility revises the requirement for the fixed charge coverage ratio to 1.0:1:0 from and including February 1, 2004 to and including October 30, 2004, and 1.1:1.0 thereafter. Our covenants required an interest coverage ratio of 2.1:1.0 from and including January 27, 2002 to and including January 31, 2004. Our interest coverage ratio was 2.2:1.0 at January 31, 2004. The amended covenants require an interest coverage ratio of 1.75:1.00 from and including February 1, 2004 to and including July 31, 2004; 1.85:1.00 from and including August 1, 2004 to and including October 30, 2004; and 2.00:1.00 from and including October 31, 2004 to and including January 29, 2005. The company was in compliance with all covenants for all periods through and including fiscal 2003 (ended January 31, 2004) and, with the amendment, expects to remain in compliance throughout fiscal 2004, although no assurances can be given.

Contractual Obligations

The following table contains a summary of the Company’s future minimum payments under contractual obligations as of January 31, 2004.

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.

Purchase orders or contracts for the purchase of inventory and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current distribution needs and are fulfilled by our vendors within short time horizons. We do not have significant agreements for the purchase of inventory or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months.

Critical Accounting Policies

Our significant accounting policies are 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 nature, these judgments are 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,

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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 Recognition. Revenue is recognized when goods are shipped, which is when legal title passes to the customer. For product installations subject to customer approval, revenue is recognized upon acceptance by the customer. The Company provides certain 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, respectively.

A 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 we believe that our customer claims reserve and allowance for product returns is adequate and that the judgment applied is appropriate based upon our historical experience for these items, actual amounts determined to be due and payable could differ and additional allowances may be required.

Impairment of Goodwill and Indefinite Lived Intangible Asset. In addition to the annual impairment tests required by 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.

Accounts Receivable Allowances. The Company 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 customers and collectability of the Company’s accounts receivable. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to pay their debts, allowances recorded in the Company’s financial statements may not be adequate.

Inventory Reserves. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, 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 uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the 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.

Effects of Inflation

The impact of inflation on the Company’s operations has not been significant in recent years. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on the Company’s operating results.

Seasonality

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

Reliance on Primary Third-Party Supplier of Nylon Yarn

Invista, 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.

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On November 17, 2003, Koch Industries, Inc. reached a definitive agreement with DuPont to purchase the business segment that currently supplies a majority of the Company’s requirements for nylon yarn. The closing of this transaction is expected to occur in the first half of 2004, and is subject to regulatory approvals and customary closing conditions. The Company’s management anticipates little or no disruption in shipments that are currently supplied by Invista.

Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (“FASB”) issued interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 supercedes Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others,” and provides guidance on the recognition and disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. The initial recognition and measurement provisions of FIN 45 are effective for guarantees issued or modified after December 31, 2002, and are to be applied prospectively. The disclosure requirements are effective for financial statements for interim or annual periods ending after December 15, 2002. The adoption of FIN 45 has had no impact on the Company’s consolidated financial statements beyond the additional disclosures as presented in Note 19.

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46”). Generally, a variable interest entity (“VIE”) is any legal structure used for business purposes that either (1) does not have equity investors with voting rights or (2) has equity investors that do not provide sufficient financial resources for the entity to support its operations. FIN 46 requires a VIE to be consolidated by the company if it is subject to a majority of the risk of loss from the variable interest entity’s operations or entitled to receive a majority of the entity’s residual returns. FIN 46 requires consolidation of a VIE created after January 31, 2003 and initially applied to existing variable interest entities in the first year or interim period beginning after June 15, 2003. In October 2003, a FASB Staff position, No. FIN 46-6, was issued, which deferred the implementation of FIN 46 until the end of the first interim or annual period ending after December 15, 2003 when an interest in a VIE was created before February 1, 2003. The Company adopted the provisions of FIN 46 effective October 26, 2003, which did not have an impact on our financial position, results of operations or cash flows.

Monterey holds a variable interest in a partnership described in further detail in Note 8 to the consolidated financial statements. The Company currently accounts for the partnership under the equity method of accounting. Although the partnership qualifies as a VIE, the Company does not qualify as a primary beneficiary and is not required to consolidate the partnership. Consolidated net income and Adjusted EBITDA for the period and the Company’s partnership equity at the end of the period are the same whether the investment in the partnership is accounted for under the equity method or the partnership is consolidated. Any change in disclosure or presentation has no impact on the Company’s debt covenants. The Company’s maximum exposure to loss as a result of its involvement with the partnership is limited primarily to its initial investment in the partnership and its undistributed share of the partnership’s earnings. The partners have historically financed the operation of the partnership by utilizing the initial capital contributions of the partners, internally generated funds and proceeds from the third party loans. To the extent that the operations of the partnership cannot be financed in this manner, the partnership agreement allows for a call for additional capital contributions, which is obligatory to the partners. Historical and current results of the partnership’s operations indicate that current sources of funds will continue to be adequate, and that no such call for an additional capital contribution should be required.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity as well as imposes additional disclosure requirements and is effective for interim periods beginning after December 15, 2004. The Company is in the process of determining the impact of SFAS No. 150 on its consolidated financial statements.

In December 2003, the FASB issued SFAS 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 is effective for our consolidated financial statements as of January 31, 2004 and did not have an impact on our financial position, results of operations or cash flows.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. Although the Company is not subject to material foreign currency exchange risk, the Company is exposed to changes in interest rates. Other than the 9.75% Notes, substantially all of our debt is variable rate debt. 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 fixed rate debt, interest rate changes do not impact future cash flow and earnings, but do impact the fair market value of such debt, assuming other factors are held constant. At January 31, 2004, the Company had variable rate debt of $31.0 million and fixed rate debt of $178.3 million. The variable interest rate per annum applicable to borrowings under 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 leverage ratio for the immediately preceding four fiscal quarters. See Note 11 to the accompanying consolidated financial statements. The impact on our results of operations of a one-point rate change on the outstanding balance of our term loan as of the end of fiscal 2003 would be approximately $0.2 million, net of tax.

Item 8. Financial Statements and Supplemental Data

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

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

Effective June 28, 2002, the Company engaged Ernst & Young LLP as our independent auditor for the fiscal year ended January 25, 2003. We dismissed our previous independent accountant, Arthur Andersen, LLP, effective June 28, 2002. The decision to change accountants was approved by the Board of Directors. In connection with the audits of the fiscal year ended January 26, 2002 there was no disagreement on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP to make reference to the matter in their report.

Item 9A. Controls and Procedures

As of January 31, 2004, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s 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.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.

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PART III

Item 10. Directors and Executive Officers

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:

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

Edgar M. (Mac) Bridger has served as President and Chief Executive Officer of the Company since February 1997, and as a director of the Company since February 1997. Prior to that time, he has served as the Company’s President from December 1993 to February 1997. In addition, Mr. Bridger served as Vice President of Sales from February 1993 to November 1993 and served as National Sales Manager from July 1991 to January 1993.

Lee H. Schilling 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.

Stephen M. Powell has served as Vice President of Finance of the Company since February 2004. Prior to that time, he served as Controller of the Company from April 2001 to February 2004. Prior to joining the Company in April 2001 Mr. Powell served as Controller and Chief Accounting Officer of Chattem, Inc. for five years. He is a certified public accountant and practiced in public accounting for eight years.

Wallace J. Hammel has served as Vice President of Manufacturing of the Company since April 1994. From July 1991 to April 1994, Mr. Hammel 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 M. Raabe has served as Vice President of Sales of the Company since February 1996. Prior to that 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, Georgia.

Henry L. Millsaps, Jr. has served as Vice President of Human Resources of the Company since April 1995. Mr. Millsaps joined the Company in 1980 and served as Human Resource Director from March 1988 until April 1995.

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Ralph H. Grogan joined the Company as Chief Executive Officer and President of Monterey in December 2002. Prior to that time, Mr. Grogan was with Burlington Industries, Inc. for 22 years. While with Burlington Industries, Inc., he served most recently as President of Burlington House Floor Accent Division from 1999 to 2002 and as Vice President and General Manager of Lees Carpet from 1994 until 1999. Mr. Grogan has 12 years of carpet industry experience.

Gordon Laing has 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 N. Beck has been Chairman of the Board of Tandus Group since January 2001. He joined Oaktree Capital Management, LLC as Managing Director in May 2000 and is the co-head of the Principal Opportunities Group, which includes OCM Principal Opportunities Fund II, L.P. and its predecessor funds. Prior to joining Oaktree Capital Management, LLC, Mr. Beck managed Seneca Capital Partners LLC, a private equity investment firm that he co-founded in 1996. Mr. Beck holds a B.A. in Economics from Stanford University, a J.D. from Stanford Law School and M.B.A. from the Stanford Graduate School of Business.

Stephen M. Burns has been a director of Tandus Group since November 1996. He has been a Vice President of Quad-C Management, Inc. since 1992. Prior to joining Quad-C Management, Mr. Burns was Vice President of Paribas North American and Paribas.

Timothy C. DeVries has been a director of Tandus Group since January 2001. He has been with Norwest Equity Partners since 1998. Prior to that time, he worked at Churchill Companies, where for more than 11 years he led Churchill’s real estate, financial services and industrial acquisition efforts. Mr. DeVries holds a B.A. from Bethel College.

Caleb S. Kramer has been a director of the Company since January 2001 and a director of Tandus Group since January 2001. He is a Managing Director of Oaktree Capital Management, LLC. Prior to joining Oaktree Capital Management, LLC in May 2000. Mr. Kramer co-founded Seneca Capital Partners, LLC, a private equity investment firm. From 1994 to 1996, Mr. Kramer was employed by Archon Capital Partners, an investment firm. Mr. Kramer holds a B.A. in economics from the University of Virginia.

Jason A. Mehring has been a director of the Company since January 2001 and a director of Tandus Group since January 2001. He is a Principal with BACI and has been with Bank of America Corporation and its predecessors since 1994. Prior to that time, Mr. Mehring was with Firststar, a regional commercial bank based in Milwaukee. Mr. Mehring holds a B.B.A. from the University of Wisconsin-Eau Claire and an M.B.A. from the J.L. Kellogg School of Management at Northwestern University.

Robert F. Perille has been a director of Tandus Group since January 2001. He is currently a principal of Silver Birch Capital Partners. Mr. Perille was previously a Managing Director of BACI, and was employed by Bank of America Corporation and its predecessors from 1980 through 2003. Mr. Perille holds a B.A. from Lawrence University and a M.B.A. from Babson College.

Term

Our Directors serve a term of one year and until their successors are duly elected and qualified. Our officers serve at the pleasure of the Board.

Committees of the Board of Directors of Tandus Group

Tandus Group’s board of directors currently has three standing committees. Its executive committee is composed of Mr. Beck, who is the chairman, and Messrs. Bridger and Perille. Its compensation committee is composed of Mr. Perille, who is the chairman, and Messrs. Beck and Bridger. Tandus Group has an audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit committee is composed of Mr. Mehring, who is the chairman, and Messrs. DeVries and Kramer. Each of these committees was established in October 2001. The executive committee met one time in 2003, the compensation committee met one time in 2003 and the audit committee met one time in 2003. The Board of Directors has determined that Mr. Mehring is an audit committee financial expert and that Mr. Mehring is independent as such term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act using the definition of independent under the rules of NASDAQ.

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Committees of the Board of Directors of the Company

The Company’s board of directors does not have any standing committees. The committees of the board of directors of Tandus Group serve as the committees of the board of directors of the Company.

Director Compensation

None of Tandus Group’s or the Company’s directors are entitled to receive any fees for serving as directors. All of Tandus Group’s and our directors are reimbursed for out-of pocket expenses related to their service as directors.

Code of Ethics

The Company has adopted a Code of Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics is available on the Company’s investor relations website at www.powerbond.com. The Company intends to post amendments to this Code of Ethics and waivers to the extent applicable at this location of this website. In addition, the Company will provide without charge a copy of the Code of Ethics to any person submitting a written request for the same to Investor Relations; 311 Smith Industrial Boulevard; Dalton, Georgia 30721.

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

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

Item 11. Executive Compensation

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

Summary Compensation Table

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Stock Option Grants in Last Fiscal Year

No options were granted during fiscal 2003 to the named executive officers.

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

No options were exercised by the named executive officers in fiscal 2003 and there is no market for Tandus Group’s common stock.

Retirement Plan

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

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

Participants make no contributions to the Plan. Employer contributions are 100% vested after five years of service or at age 65, whichever was earlier, and might have vested under certain other circumstances as set forth in the Plan. The estimated annual benefits payable upon retirement at normal retirement age under the Plan for Messrs. Bridger, Schilling, Raabe, Hammel and McCay are, $11,578, $7,529, $16,222, $9,005 and $16,089, 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.

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Compensation Committee Interlocks and Insider Participation

No member of our Board of Directors serves as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers serving as a member of our Board of Directors.

Employment Agreements

The Company has no employment agreement with any named executive officer.

Compensation Committee Report

The Compensation Committee of Tandus’ Board of Directors (the “Compensation Committee”) also serves as our compensation committee. During fiscal 2003, the Compensation Committee was comprised of Messrs. Bridger, Beck, and Perille (Chairman). The Compensation Committee is responsible for:

Our compensation policies are designed to align the financial interests of our management with those of our shareholders, and to take into account our operating environment and expectations for continued growth and enhanced profitability. Compensation for each of our executive officers generally consists of a base salary and the opportunity to receive an annual bonus.

The Compensation Committee’s current philosophy is that the predominate portion of an executive’s compensation should be based directly upon the value of incentive compensation in the form of cash bonuses. The Compensation Committee believes that providing executives with the opportunity to obtain cash bonuses, while maintaining our base salaries at competitive levels, will enable us to attract and retain executives with the outstanding management abilities and entrepreneurial spirit who are essential to our success.

Furthermore, the Compensation Committee believes that this approach to compensation, as well as the opportunity to receive cash bonuses based on our financial performance, motivates executives to perform to their fullest potential.

Base Salary. At least annually, the Compensation Committee reviews salary recommendations for our executives and then approves such recommendations, with any modifications it considers appropriate. The annual salary recommendations for such persons are made under the ultimate direction of the Chief Executive Officer, based on total compensation packages for comparable companies in our industry, as well as evaluations of the individual executive’s past and expected future performance. Similarly, the Compensation Committee fixes the base salary of the Chief Executive Officer based on its review of competitive compensation data from companies in our industry, the Chief Executive Officer’s overall compensation package, and the Compensation Committee’s assessment of his past performance, our performance and its expectation as to his future performance in leading us.

Annual Bonuses. The Compensation Committee determined the bonus in fiscal 2003 to be paid to our Chief Executive Officer based upon our bonus plan which outlines certain profitability targets. A bonus

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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 reviewed and approved by the Compensation Committee.

Compensation of Chief Executive Officer. The base salary paid to Mr. Bridger is reviewed annually by the Compensation Committee and may be adjusted based on competitive compensation information available to the Compensation Committee, his overall compensation package and the Compensation Committee’s assessment of his past experience and its expectation as to his future contributions in leading us and our businesses.

The Compensation Committee 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.

Section 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.

Submitted by the Compensation Committee

Robert F. Perille (Chairman)        

Edgar M. Bridger                          

Ronald N. Beck                            

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Audit Committee Report

The Audit Committee is currently comprised of three members, each of which is an “independent director,” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act. Each of the members of the Audit Committee is financially literate and Jason Mehring qualifies as an “audit committee financial expert” under federal securities laws. The Audit Committee’s purposes are to assist the Board in overseeing: (a) the quality and integrity of our financial statements; (b) the qualifications and independence of our independent auditors; and (c) the performance of our independent auditors.

In carrying out its responsibilities, the Audit Committee has:

Based on the review and discussions noted above and our independent auditors’ report to the Audit Committee, the Audit Committee has recommended to the Board that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004.

This report is not to be deemed incorporated by reference by any general statement that incorporates by reference this Form 10-K into any filing under the Securities Act or the Exchange Act, and it is not to be otherwise deemed filed under either such Act.

Submitted by the Audit Committee

Jason Mehring (Chairman)

Timothy DeVries

Caleb Kramer

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Item 12. Security Ownership

All of our outstanding capital stock is owned by Tandus Group. The table below sets forth certain information regarding the beneficial ownership of Tandus Group’s common stock as of April 26, 2004 by (i) each person known to us to beneficially own more than 5% of any class of Tandus Group’s common stock, (ii) each of the directors of Tandus Group and each of our directors and named executed officers and (iii) all of the directors of Tandus Group and all of our directors and named executive officers as a group.

Beneficial 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.

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Item 13. Certain Relationships and Related Transactions

In connection with the 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.

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Item 14. Principal Accounting Fees and Services

Aggregate fees for professional services rendered by Ernst & Young LLP, our principal accountants, are as follows:

Audit Fees. This category includes the aggregate fees billed for professional services rendered for the audits of our consolidated financial statements for our fiscal years ended January 31, 2004, and January 25, 2003, for the reviews of the financial statements included in our quarterly reports on Form 10-Q during fiscal 2003 and 2002, and for services that are normally provided by Ernst & Young LLP in connection with statutory and regulatory filings or engagements for the relevant fiscal years.

Audit-Related Fees. This category includes the aggregate fees billed in each of the last two fiscal years for assurance and related services by Ernst & Young LLP that are reasonably related to the performance of the audits or reviews of the financial statements and are not reported under “Audit Fees,” as noted above. These services generally consist of fees for accounting consultation and audits of employee benefit plans.

Tax Fees. This category includes the aggregate fees billed in each of the last two fiscal years for professional services rendered by Ernst & Young LLP for tax compliance, tax planning and tax advice.

All Other Fees. This category includes the aggregate fees billed in each of the last two fiscal years for products and services provided by Ernst & Young LLP that are not reported under “Audit Fees,” “Audit-Related Fees” or “Tax Fees,” as noted above. These services principally consist of general projects and services.

The Audit Committee reviews and pre-approves audit and non-audit services performed by Ernst & Young LLP, our independent auditors, as well as the fee charged for such services. Pre-approval is generally provided for up to one year, is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee may also pre­approve particular services on a case-by-case basis. The Chairman of the Audit Committee may delegate pre-approval authority for such services, whose decisions are then presented to the full Audit Committee at its next scheduled meeting.

The Audit Committee has considered and determined the fees charged for services other than “Audit Fees” discussed above are compatible with maintaining independence by Ernst & Young LLP. Beginning January 26, 2003, 100% of the audit and non-audit services provided by our independent auditors were pre-approved by the Audit Committee in accordance with the Audit Committee Charter, other than the audit services related to benefit plans.

Independent Auditors

Upon the recommendation of the Audit Committee, the Board has reappointed Ernst & Young as independent auditors to audit our consolidated financial statements for the fiscal year ending January 29, 2005. Ernst & Young LLP has served in such capacity continuously since June 28, 2002.

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PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) FINANCIAL STATEMENTS:

(2) FINANCIAL SCHEDULES:

The following financial statement schedule of Collins & Aikman Floorcoverings, Inc. and Subsidiaries for the fiscal years ended January 26, 2002, January 25, 2003 and January 31, 2004 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.

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

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None

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on April 30, 2004.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each of the directors of the Registrant whose signature appears below hereby appoints Edgar M. Bridger and Stephen M. Powell, and each of them severally, as his attorney-in-fact to sign in his name and behalf, in any and all capacities stated below, and to file with the Securities and Exchange Commission any and all amendments to this report on Form 10-K, making such changes in this report on Form 10-K as appropriate, and generally to do all such things in their behalf in their capacities as directors and/or officers to enable the Registrant to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission.