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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

For the Fiscal Year Ended January 25, 2003

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*

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

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 in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 24, 2003, 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.

PART I

Item 1.    Business

General

Based on annual sales and product brands, Collins & Aikman Floorcoverings, Inc. (the “Company”), a Delaware corporation incorporated in 1995, is 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 Company’s diversity of its end markets, management believes its business tends to be less cyclical than that of many of its competitors, which rely more heavily on the corporate market. The ability to provide a “package of product offerings” coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions for each of its customers. Management believes that the Company distinguishes itself from its competitors by offering superior product technologies, leading design capabilities, a broad product offering, exceptional customer-focused services, flexible distribution channels and the most advanced recycling program in the industry. The Company 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 appearance retention, comfort under foot, installation ease, longer useful life and advanced backing technology, which includes our RS “peel & stick” adhesive system for vinyl-backed product installation, our ER3 carpet recycling technology and our six-foot vinyl cushion backing.

Our Monterey brand is a recognized 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.

Our Crossley brand is a recognized leader in Canada in the tufted and woven broadloom commercial carpet markets. The Crossley brand uses its crossweave looms to produce high-quality woven products in a wide variety of styles and patterns to meet the needs of interior design professionals.

Prior to February 6, 1997, the Company was a wholly owned subsidiary of Collins & Aikman Floor Coverings Group, Inc. (“C&A Group”), a wholly owned subsidiary of Collins & Aikman Products Co. (“C&A Products”), a wholly owned subsidiary of Collins & Aikman Corporation. On February 6, 1997, pursuant to an agreement entered into among CAF Holdings, Inc. (“Holdings”), a corporation sponsored by Quad-C, Inc. (“Quad-C”), a Virginia merchant banking firm, and Paribas Principal Partners (“Paribas”), the United States private equity group of Paribas, CAF Acquisition Corporation (“CAF”), a wholly owned subsidiary of Holdings, the Company and C&A Products, CAF purchased all of the issued and outstanding capital stock of Collins & Aikman Floor Coverings, Inc. from C&A Group for $197.0 million (including $27.0 million in consideration of a tradename license agreement) which was reduced to $195.6 million after a $1.4 million working capital adjustment (the “Floorcoverings Acquisition”).

On January 25, 2001, our parent company was acquired in a recapitalization transaction by an investor group led by OCM Principal Opportunities Fund II, L.P. (“Oaktree Fund”), Banc of America Capital Investors (“BACI”) and members of our senior management. The recapitalization was financed through a cash investment by Oaktree Fund, BACI and other investors of $192.5 million, senior bank borrowings of $209.0 million and “rollover” equity of $38.4 million by certain existing stockholders, including members of our senior management team.

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

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

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

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, Extrusion purchased the real property on which the plant is located from a third party for approximately $2.4 million. The acquisition was funded from cash on hand. In connection with the transaction, Extrusion entered into a three-year supply agreement with the seller of the manufacturing plant. Extrusion will be a non-exclusive supplier to the seller, and is to make available certain quantities of product at predetermined prices defined in the supply agreement, which is adjusted quarterly to reflect changes in the actual manufacturing costs. As a result of this acquisition, the Company will have a portion of its primary raw material internally produced at significant lower costs than the Company has historically procured from the open market. In addition, the lower cost raw material is expected to allow each operating brand to expand its focus into additional markets.

We estimate that the U.S. commercial carpet market, which is comprised of the specified and non-specified segments, generated sales of approximately $3.5 billion in 2002. We focus on the specified commercial carpet market, which we estimate represented approximately $2.6 billion of the total U.S. commercial carpet market in 2002. 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, appearance retention, product design and service, rather than price. We are well-positioned to capitalize on positive trends within the specified commercial carpet market, 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, appearance retention and longer useful life; (2) modular carpet tile increasingly being used for the office market 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.

Competitive Strengths

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

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

Diverse End Markets.    We manufacture and sell our products to a diverse group of end markets, including corporate, education, healthcare, government and retail stores. We believe this segmented strategy makes us less sensitive to economic downturns than our competitors who rely more heavily on the cyclical corporate market. In addition, we believe that end markets such as education, healthcare and government tend to be less susceptible to economic downturns than the corporate market. For example, despite a challenging economic environment for the past two years, our net sales to these three end markets were $152.4 million in fiscal 2002, as compared to $151.3 million in fiscal 2001. Our focus on selling to diverse end markets has also limited our exposure to any single customer, as our largest customer in our Floorcoverings operating segment in fiscal 2002 represented less than 5.0% of our net sales. One customer accounted for approximately 75.6% of the net sales of our extrusion operating segment’s net sales in fiscal 2002.

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Segmented Marketing Strategy.    We have implemented a segmented marketing strategy that requires each sales person to develop an expertise in specific end markets, resulting in greater customer-focused service, comprehensive market coverage and increased sales productivity. This approach targets our sales and marketing efforts to the specific needs of the customers in each of our end markets and differentiates us from our competitors, whose sales forces are generally responsible for all end markets within a geographical region. This segmented approach allows our sales forces to better respond to the changing needs of our customers.

Superior Product Technology.    We believe our focus on technology has resulted in the development of industry-leading innovations that have helped to differentiate our products. The following are examples of some of our product innovations:

Powerbond is a vinyl cushion backing system that exhibits superior durability, appearance retention and reduced seam visibility, thereby combining the best attributes of hard surface (longer useful life and ease of maintenance) and carpet floorcoverings (comfort, acoustics and aesthetics). Powerbond uses a closed-cell construction, which traps moisture and soil on the surface, facilitating easy, low-cost maintenance and stain removal.

RS is a releasable “peel & stick” adhesive system for vinyl-backed product installation, which dramatically simplifies installation. This “dry adhesive” eliminates the fumes associated with the adhesive generally used in conventional carpet installation and provides a faster, cleaner, lower cost installation without materially disrupting usable space.

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

Sales and Market Share Growth.    Historically, the Company has demonstrated a track record of sales growth and market share gains in spite of very difficult economic conditions. Since 1998, we believe the specified commercial market has declined by 6.8%. During this period, our net sales grew at a compound annual growth rate of 13.9% (2.8% excluding acquisitions). This has been accomplished through our disciplined acquisition strategy and effective sales and marketing efforts.

Strong Free Cash Flow Generation.    Due to low maintenance capital expenditures and working capital requirements, we convert a high level of Adjusted EBITDA as defined in Item 6 to cash flow from operations. For fiscal 2002, we generated cash from operations of approximately $25.7 million, or 47.8% of Adjusted EBITDA, allowing us to reduce our bank borrowings by $8.0 million (of which all was in excess of required amortization) and increase cash on the balance sheet by $8.3 million. In addition, we have sufficient manufacturing capacity to increase production without incurring significant incremental capital expenditures, which we believe will enable us to increase Adjusted EBITDA and improve margins.

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

Business Strategy

Key components of our business strategy include:

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

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installation, in contrast to the more price sensitive, non-specified segment of the commercial carpet market. Our leading customer service capabilities, flexible distribution system and mature sales force have enabled us to cultivate strong relationships with our customers, which we believe will be a source of continued business opportunities.

Capitalize on Comprehensive Brand Portfolio.    The Tandus organization 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. With a portfolio of products available in a wide variety of colors, textures, pile heights and densities, we market ourselves as a one-stop solution for specified commercial carpet. By marketing our products under the Tandus Group name, we have been able to increase our recognition in the marketplace as a single source supplier for specified carpet and leverage the strength of each of our individual brands. We believe that this ability to satisfy our customers’ desire for a single, national supplier will continue to lead to new opportunities and larger contracts.

Leverage yarn extrusion capability.    Through our recent acquisition of a yarn extrusion plant, we plan to develop a number of new products utilizing our internally produced nylon. This yarn will be produced at significantly lower costs than we have been able to purchase from the open market. This capability will give all three brands flexibility (1) to compete in new markets, (2) more deeply penetrate existing markets, and (3) increase gross margin.

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

Continue to Reduce Costs.    Our current management team has developed a culture of continuous cost improvement aimed at monitoring and controlling our manufacturing and administrative expenses. Some of our cost reductions are the result of employee suggestions gathered through a formal initiative known as the Cost Improvement Program established in fiscal 1992. During fiscal 2002, we reduced costs by $3.1 million through this program.

Capitalize on Environmental Initiatives.    We believe that our environmental initiatives, including our patented ER3 technology, provide a distinct competitive advantage, as many of our customers prefer to purchase or are required to purchase environmentally friendly products. In addition, our environmental initiatives have reduced our manufacturing costs and our customers’ disposal costs. Our commitment to environmental programs runs deeply through our organization, including manufacturing controls, vendor sourcing and product design. We have been nationally recognized for our environmental achievement, having won numerous awards for our environmental initiatives since 1994.

Pursue Strategic Acquisitions.    Our senior management team has experience in acquiring and integrating companies and plans to follow a disciplined approach to potential future acquisitions. We plan to target acquisitions that (1) expand our geographic focus; (2) further diversify our portfolio of products; (3) enhance penetration of existing end markets and enter new end markets; and (4) lower operating costs and improve manufacturing efficiencies. Through our acquisitions of Monterey and Crossley, we have expanded our product capability and geographic reach of the Tandus Group.

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

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colors, textures, pile heights and densities, we 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 ease of maintenance, long-term appearance retention, comfort under foot and longer useful life. A vast majority of our six-foot roll carpet utilizes the Powerbond backing technology and the patented RS “peel and stick” installation system. We believe this cushion system and the patented RS technology enhancement give us a distinct competitive advantage in each end market.

Modular Carpet Tile.    We believe C&A was the first domestic manufacturer in the United States to introduce vinyl-backed modular carpet tile technology and is currently 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 seamability, 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. A majority of our C&A brand carpet tile is being made with ER3, our recycled content backing, which we believe provides a distinct competitive advantage and has been a deciding factor on many competitive contracts.

Broadloom Carpet.    Monterey and Crossley 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, while Crossley manufacturers both tufted and woven broadloom carpet. Broadloom carpet is particularly suited for fashionable designs and stylish interiors as its width provides an expanse of canvas upon which creative designs and intricate patterns can be displayed in a wide variety of colors, textures, pile heights and densities. Specified commercial 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 which are regularly renovated in order to reflect current fashion trends and styles.

Product Features

Powerbond.    In 1967, we introduced Powerbond, the industry’s first vinyl cushioned backing system. This closed-cell backing technology exhibits superior durability and 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). Powerbond 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.

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

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

End Markets

Corporate.    We believe this market provides our greatest opportunity for growth. We estimate that our current market share is less than 10.0%. We offer a complete package of product 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. The Tandus Corporate selling organization focuses exclusively on marketing all of our brands to the corporate market. This group develops flooring solutions for corporate facility managers calling on the end user. We have focused on projects where we tend to excel on the basis of product durability, appearance retention, production 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 the end 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. We aggressively use this track record in marketing to potential customers. Historically, we have focused on the kindergarten through 12^th grade market; however, over the last few years, we have focused on expanding into the college and university market. As part of the new Tandus selling strategy, the Company has established six segmented positions in key markets to focus exclusively on the higher education market.

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 Monterey and Crossley to existing customer relationships that have a need for broadloom products in addition to Powerbond RS 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.

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Retail Stores.    We focus on major retail chains which have the potential for large, nationwide volumes. This end market 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 are managed by our Source One department. This turn-key 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, a leading Canadian floor covering brand, based in Nova Scotia. Since that time, the principal business of Crossley has come from the Canadian market. With the reorganization of the U.S. sales force, we believe that the Crossley brand will experience growth in the future. 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. We also have expanded our sales and distribution efforts into Mexico, South America and Europe. We plan to continue to add distributors and dedicated sales personnel in strategic international markets.

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

We provide custom designed products, performance studies 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 requirements of our customers, which we believe is a unique approach in the industry. We have an in-house design team dedicated to developing new, innovative designs for each of our primary end markets.

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

Distribution

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

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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 the first single-source coordination and turn-key project management service offered by a floorcoverings manufacturer. The department was established to provide a “one phone call”, “single-source” project management service to meet the specific needs of our customer base. 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 strategy dealer partnerships throughout the United States provides installation.

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

Product 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. We believe that the ability of our creative and technical professionals to consistently introduce new designs and product styles provides us with a key competitive advantage. Unlike many of our competitors which manufacture standard products that serve a wide cross-section of markets, we develop specific products tailored to the requirements of different market segments. This process begins with feedback from leading designers and customers in each end market relating to product features such as color, texture and pattern. This process is vital as the product/styling needs may be very different for each segment. Our Product Development Group is highly integrated with our sales organization and customer base, which increases the effectiveness of the product development process. We currently offer over 200 standard styles.

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

We estimate that approximately one-third of our sales involve custom colors or designs which require accurate interpretation of customer needs and a timely conversion into a sample fabric. Each brand has dedicated sample equipment which facilitates quick turnaround of custom design requests, and we believe that our custom design capability is a competitive advantage, particularly in the corporate market.

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

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

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. ACT owns two facilities in the United Kingdom, including a six-foot roll and tile finishing plant. Monterey leases a carpet tufting, administrative and warehouse facility in Santa Ana, California. In addition to these facilities, we lease 19 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.

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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 Systems Partners, 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 can be canceled upon 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

Raw materials, including yarn, nylon and polypropylene chip, primary backing, coater materials, and dye chemicals, represent the single largest component of costs. Yarn comprises about one-third of the carpet’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 and polymer 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 DuPont 6.6 continuous filament yarn for the majority of our products.

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

The other significant raw materials used by us in our carpet manufacturing process include coater materials, such as vinyl resins and primary backing. We have never 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.

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

Patents, Copyrights and Trademarks

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

Seasonality

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.

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Employees

At January 25, 2003, we had a total of 1,623 employees, of which 1,072 were hourly and 591 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 222 manufacturing workers in Canada which are unionized. The collective bargaining agreement which represents this union expires on June 30, 2003. We are not aware of any discussions or attempts to organize the workforce within any of our other facilities.

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

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 15 to the Company’s consolidated financial statements for the year ended January 25, 2003. Certain information concerning our net sales and long-lived assets by geographic areas can also be found in Note 15.

Item 2.    Properties

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

Item 3.    Legal Proceedings

The Company from time to time 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. It is the opinion of management that the various asserted claims and litigation in which the Company is currently involved will not have a material adverse effect on its financial position or results of operations.

The Company is subject to federal, state, and local laws and regulations concerning the environment. In the opinion of the Company’s management, based on the facts presently known to it, the ultimate outcome of any environmental matter is not expected to have a material adverse effect on the Company’s financial condition 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 24, 2003, 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 Company has not historically paid dividends due to our philosophy of repaying debt with excess cash.

The following table provides information as of December 31, 2002, with respect to compensation plans under which Tandus Group equity securities are authorized for issuance.

Equity Compensation Plan Information

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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 30, 1999, January 29, 2000, January 27, 2001, January 26, 2002 and January 25, 2003 have been derived from the audited financial statements of the Company. The following financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing elsewhere herein.

13.1

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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 for many reasons.

Overview

Based on annual sales and product brands, Collins & Aikman Floorcoverings, Inc. (the “Company”), a Delaware Corporation, is 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 Company’s diversity of its end markets, management believes its business tends to be less cyclical than that of many of its competitors, which rely more heavily on the corporate market. The ability to provide a “package of product offerings” in various forms, coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom and Asia.

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

January 2001 Recapitalization

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

As part of the recapitalization, we (i) incurred a non-recurring compensation charge of approximately $30.2 million representing the difference between the fair market value of the Tandus Group common stock issuable upon exercise of the options cancelled in connection with the recapitalization and the exercise price of the options; (ii) recorded an extraordinary loss on early extinguishment of debt of $0.6 million, net of tax expense of $0.4 million, consisting of the write-off of deferred financing costs associated with the repayment of our prior senior credit facility; and (iii) recorded an extraordinary loss on early extinguishment of debt of $6.0 million, net of tax benefit of $4.2 million, consisting of the write-off of deferred financing costs associated with the repurchase of approximately $84.8 million of our 10.0% senior subordinated notes due 2007 ($250,000 of which are still outstanding) and a premium paid to the holders of those notes of $7.4 million. In October 2001, we paid a $5.1 million post-closing purchase price adjustment relating to the recapitalization, which was funded out of cash flow from operations. Additionally, prior to the recapitalization, during fiscal 2000, we repurchased $6.5 million of the 10.0% senior subordinated notes due 2007 in the open market, resulting in an extraordinary loss of approximately $69,000, net of tax benefit of approximately $46,000, which included the write-off of a pro rata share of deferred financing cost associated with the issuance of the 10.0% senior subordinated notes. These extraordinary loss items have been reclassified to conform with the presentation required by SFAS No. 145 as discussed in Note 3.

Acquisitions

On May 8, 2002 our wholly owned subsidiary, CAF Extrusion, Inc. (“Extrusion”), acquired a yarn extrusion manufacturing plant located in Calhoun, Georgia from The Dixie Group, Inc. (“Dixie”) for approximately

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

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

In June 1999, we acquired all the outstanding capital stock of Monterey Carpets, Inc. for $50.8 million. Based in California, Monterey is a recognized design leader in the high-style, fashion-oriented sector of the commercial broadloom carpet market. Through Monterey 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.

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

In June 1998, we acquired all of the outstanding capital stock of Advance Carpet Tiles, Ltd., a manufacturer of carpet backing, from Headlam Group PLC for $5.6 million, including assumed debt of $0.6 million.

Results of Operations

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

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 markets have been slow since 2001. For fiscal 2002, the Company’s net sales to the corporate office and retail market decreased by 18.7% as compared to fiscal 2001. This decrease was offset by $23.2 million of net sales generated by the extrusion operation which was acquired May 8, 2002.

Cost of Goods Sold.    Cost of goods 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.

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

Interest Expense.    Net interest expense for fiscal 2002 decreased to $23.9 million from $24.2 million in fiscal 2001. Debt levels were higher during fiscal 2002 than fiscal 2001 due to the completion of the offering of the $175.0 million of senior subordinated notes (the “9.75% Notes”) 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 and minority interest in income of subsidiary less equity in earnings of Chroma, plus the recapitalization compensation charge and a non-cash charge relating to goodwill impairment write-off for our acquisition of Advance Carpet Tiles, Ltd. Adjusted EBITDA for fiscal 2002 decreased to $53.8 million from $59.8 million in fiscal 2001, a decrease of 10.1%. As a percentage of sales, Adjusted EBITDA was 16.8% in fiscal 2002 compared to 18.6% in fiscal 2001. Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze a company’s ability to service debt. The Company utilizes Adjusted EBITDA as (a) a benchmark for its annual budget and long range plan, (b) a valuation method for potential acquisitions, and (c) a measure to determine compliance with senior credit facility debt covenants. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to those disclosed by other companies.

A reconciliation from net income to Adjusted EBITDA is as follows:

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

Compared with Fiscal Year Ended (52 weeks) January 27, 2001 (“fiscal 2000”)

Net Sales.    Net sales for fiscal 2001 were $322.0 million, a decrease of 5.6% from $341.3 million for fiscal 2000. The net sales increase in the education end market of 3.5% was offset by the decline in the corporate end market of 12.8% caused by the slowness in the overall U.S. economy.

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

Selling, General and Administrative Expenses.    Selling, general and administrative expenses, excluding goodwill and non-recurring charges, decreased to $66.6 million for fiscal 2001 from $70.1 million for fiscal 2000. As a percentage of net sales, these expenses increased slightly to 20.7% from 20.5%. These lower costs are primarily due to lower sample expense of $1.4 million, lower sales commissions of $1.4 million resulting from lower sales and lower advertising and promotional expenses of $0.7 million. Excluded charges from selling, general and administrative expenses were goodwill and other intangibles amortization and a non-recurring charge for recapitalization compensation. Goodwill and other intangibles amortization increased for fiscal 2001 to $10.0 million from $8.1 million in fiscal 2000 primarily due to a $2.2 million non-cash goodwill impairment write-off charge relating to the Company’s United Kingdom subsidiary’s investment in its wholly-owned subsidiary, Advance Carpet Tiles, Ltd. The non-recurring recapitalization compensation charge of $30.2 million in fiscal 2000 related to the cancellation of all of our parent company’s outstanding options resulting from our January 2001 recapitalization.

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

Net Income (Loss).    Net income for fiscal 2001 was $8.3 million as compared to a net loss of $8.6 million for fiscal 2000. This was due to the combined result of the factors described above.

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

A reconciliation from net income to Adjusted EBITDA is a follows:

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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 2002 was $25.7 million compared to net cash provided of $38.1 million in fiscal 2001. The change is primarily due to a negative impact of $15.1 in net working capital. This decrease relates primarily to $4.3 million attributable to the May 2002 acquisition of the yarn extrusion plant and $7.6 million resulting from accrued interest on the 9.75% Notes. The Company invested in working capital initially for the extrusion facility and expects more level working capital requirements going forward.

Net cash used in investing activities in fiscal 2002 was $42.3 million compared to $7.0 million in fiscal 2001. The increase in cash used in investing activities was primarily due to the acquisition of the yarn extrusion manufacturing plant and real property on which the plant is located for $35.2 million. Capital expenditures for fiscal 2002 were $9.0 million compared to $8.2 million for fiscal 2001.

Net cash provided by financing activities in fiscal 2002 was $31.2 million compared to net cash used of $30.6 million in fiscal 2001. The increase in cash provided by financing activities was due primarily to the issuance of the 9.75% Notes and repayment of $125.0 million of the senior credit facility with a portion of the proceeds. Additionally, $8.0 million of the senior credit facility was prepaid during fiscal 2002 with internally generated cash. Subsequent to the fiscal year end, the Company prepaid $10.0 million on the outstanding term borrowings.

The Company has significant indebtedness which consists of $175.0 million in senior subordinated notes due 2010; a $109.0 million senior credit facility which, at January 25, 2003 had an outstanding balance of $51.0 million in term loan borrowings; $0.6 million in seller’s notes from the Company’s July 1999 acquisition of Crossley; $0.6 million in purchase money indebtedness; $0.0 million in revolving line of credit borrowings and $3.3 million sinking funds bonds under Crossley.

In connection with our January 2001 recapitalization, we entered into a senior credit facility, which consisted of a $50.0 million tranche A term loan facility, a $156.0 million tranche B term loan facility and a $50.0 million revolving credit facility, which included a letter-of-credit sublimit of $15.0 million. The proceeds from our senior credit facility were used to fund our January 2001 recapitalization, which included the retirement of certain previously outstanding senior and subordinated debt and the payment of related fees and expenses. We repaid the tranche A term loan in full ($44.7 million) and repaid a portion of the tranche B term loan ($80.3 million) with a portion of the proceeds of the 9.75% Notes. In connection with the 9.75% Notes, we amended our senior credit facility, which allows for up to $75.0 million of additional term loans to be made under the senior credit facility, subject to one or more lenders committing to provide such loans and other specific requirements, including compliance with financial covenants.

In connection with the Crossley acquisition, 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 25, 2003), and approximately $9.5 million of sinking fund bond obligations (the “NSBDC Bonds”) owed to the Nova Scotia Business Development Corporation (the “NSBDC”). The NSBDC agreed to forgive approximately $6.3 million of the NSBDC Bonds, subject to maintaining certain level of annual hours worked by its employees. As of January 25, 2003 the NSBDC had forgiven the $6.3 million. The remaining balance of the NSBDC Bonds amortizes over five years beginning in 2003.

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

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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 that the Company’s business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable the Company to service its indebtedness or to make necessary capital expenditures. We periodically evaluate potential acquisitions of businesses, which complement our existing operations. Depending on various factors, including, among others, the cash consideration required in such potential acquisitions, we may determine to finance any such transaction with existing sources of liquidity.

The following table contains a summary of the Company’s future minimum payments under contractual obligations as of January 25, 2003.

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.

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, 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.

Impairment of Goodwill.    The Company periodically evaluates acquired businesses for potential impairment indicators. Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our acquired businesses. Future events could cause the Company to conclude that impairment indicators exist and that goodwill 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.    We provide allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluation of the financial condition of our customers and the collectability of our accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay their debts, allowances recorded in our financial statements may not be adequate.

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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.

Allowance and/or reserve for product warranty and returns.    Warranty reserve and allowance for product returns is established based upon best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. While we believe that our warranty 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.

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

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

Recent Accounting Pronouncements

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

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

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The net income (loss) shown below has been adjusted to reflect the results for the respective periods as if SFAS No. 142 had been in effect for all periods presented (in thousands). The impact to these items is shown net of tax.

In June 2001, the FASB approved the issuance of SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 establishes accounting standards for the recognition and measurement of legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 will become effective for us on January 26, 2003 and requires recognition of a liability for an asset retirement of obligation in the period in which it is incurred. SFAS No. 143 is not expected to materially impact the Company’s financial statements.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. The implementation of SFAS No. 144 did not have an impact on the consolidated earnings or financial position of the Company.

Effective in fiscal year 2000, the Company adopted the FASB Emerging Issues Task Force Issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs.” Therefore, freight charged to customers is included in sales rather than as an offset to freight expense. Freight costs included in sales were $4.9 million, $4.8 million, and $4.7 million in fiscal 2000, 2001, and 2002, respectively.

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

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

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

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123.” SFAS No. 148 amends FASB No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method after December 15, 2002. The Company has adopted the applicable disclosure provisions of SFAS No. 148 in its consolidated financial statements for the year ended January 25, 2003.

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Forward-looking Statements

The Company may from time to time 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 and 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 new 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.

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 we are not subject to material foreign currency exchange risk, we are 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 changes do not impact future cash flow and earnings, but do impact the fair market value of such debt of $51.0 million and fixed rate debt of $175.3 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 the 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 12 Long-Term Debt” in the accompanying financial statements.

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. In connection with the audits of the two fiscal years ended January 26, 2002 there have been no disagreements 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.

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The report of Arthur Andersen LLP on the consolidated financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except the report of Arthur Andersen LLP dated as of March 28, 2002 (except with the respect to the matter discussed in the last paragraph of Note 18 to which the date is May 2, 2002) of Collins & Aikman Floorcoverings, Inc. and Subsidiaries as of January 26, 2002 that stated that Arthur Andersen LLP did not audit the financial statements of Crossley Carpet Ltd. as of January 27, 2001 and January 26, 2002 and for the two years ended January 26, 2002 but rather relied on the report of other auditors in connection with these matters.

We have not been able to obtain, after reasonable efforts, written consent of Arthur Andersen LLP to our naming it in these financial statements as having certified our consolidated financial statements for the two years ended January 26, 2002, as required by Section 7 of the Securities Act.

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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.

Darrel V. McCay has served as Vice President, Chief Financial Officer and Secretary of the Company since February 1997 and as a director of Tandus Group since February 1997. Prior to that time, he served as Vice President of Administration and Control from August 1994 to February 1997. From March 1989 to August 1994, Mr. McCay also served as Division Controller.

Wallace J. Hammel has served as Vice President of Manufacturing of the Company since April 1994. From July 1991 to April 1994, Mr. 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.

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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.

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 Principle Opportunities Group, which includes OCM Principle 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 an 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 the Company 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. Mr. Perille is a Managing Director of BACI. Mr. Perille has been employed by Bank of America Corporation and its predecessors since 1980. Mr. Perille is also a director of Zimmerman Sign Company. Mr. Perille holds a B.A. from Lawrence University and an M.B.A. from Babson College.

Committees of the Board of Directors

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. Its 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. Our board of directors does not currently have any standing committees.

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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.

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 2002 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 2002 and there is no market for Tandus’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 $12,504, $7,857, $16,846, $9,341 and $16,698, respectively. Participants in the Plan have the option, however, of receiving the value of their vested account in a lump sum following termination of employment. During fiscal 2002, the Company elected to freeze the plan.

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.

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Compensation Committee Report

The Compensation Committee of Tandus’ Board of Directors (the “Compensation Committee”) also serves as our compensation committee. During fiscal 2002, 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 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 2002 to be paid to our Chief Executive Officer based upon our bonus plan which outlines certain profitability targets. A bonus may also be paid to our Chief Executive Officer in the discretion of the Compensation Committee. Bonus recommendations for Named Executive Officers, other than the Chief Executive Officer, were made under the direction of the Chief Executive Officer and were 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.

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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.

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Item 12.    Security Ownership of Certain Beneficial Owners and Management

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 24, 2003 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.    Controls and Procedures

Within 90 days prior to the date of filing of this report, the Company 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-14. 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. In connection with the new rules, the Company is in the process of further reviewing and documenting its disclosure controls and procedures, including its internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that the Company’s systems evolve with its business.

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 IV

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