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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

For the Fiscal Year Ended January 29, 2005

Commission File Number 333-88212

COLLINS & AIKMAN FLOORCOVERINGS, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

As of April 15, 2005, 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

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

Forward-Looking Statements

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

General

Collins & Aikman Floorcoverings, Inc., a Delaware Corporation formed in 1995, is principally a 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 carpets. The Company designs, manufactures and markets its C&A, Monterey and Crossley brands under the Tandus name for a wide variety of end markets, including education, corporate offices, healthcare, government facilities and retail stores. The ability to provide a “package of product offerings” in various forms, coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions. The Company is headquartered in Georgia, with additional locations in California, Canada, the United Kingdom, Singapore and China.

The Company’s C&A brand products, six-foot roll carpet and modular carpet tile, are known for their long-term performance, 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, and our ER3 carpet recycling technology.

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

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

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

On August 10, 2004, the Company and its parent announced plans to consolidate its broadloom operations by moving the production of its Monterey brand to the Crossley manufacturing facility in Truro, Nova Scotia and closing its manufacturing facility in Santa Ana, California (the “Facility Maximization”). The Facility Maximization was approved by the Company’s Board of Directors on August 9, 2004, and is currently expected to be completed by the end of the Company’s second fiscal quarter in 2005. The Facility Maximization is anticipated to substantially increase utilization in the Truro, Nova Scotia facility, create lower costs by better managing fixed assets, increase plant efficiencies and lower working capital requirements previously needed to support the two separate facilities. No assurances can be given that we will be successful in this regard.

The U.S. commercial carpet market, is comprised of the specified and non-specified segments. We focus on the specified commercial carpet market, which makes up the majority of the total U.S. commercial carpet market. In the specified commercial carpet market, products are manufactured to the specifications of architects, designers and owners, as compared to the non-specified market in which products are purchased off-the-shelf. The key competitive factors in the specified carpet market are product durability, long-term performance, product design and service, and price. We believe the Company is well-positioned to capitalize on recently emerging 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, long-term performance and longer useful life; (2) modular carpet tile increasingly being used instead of other flooring surfaces due to increased raised flooring applications, the continuing trend toward modular furniture systems, and greater use of modular tile as a design tool and acceptance of tile in new markets; and (3) increasing customer demand for high-style broadloom carpet with complex patterns and textures.

Products

Tandus 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 primary backing with the later addition of a secondary backing. With a portfolio of products available in a wide variety of colors, textures, pile heights, densities and price points, we market ourselves as a one-stop solution for specified commercial carpet. We believe that 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 competitive advantage since each product provides distinct features and benefits as follows:

Six-Foot Roll Carpet. We believe that our C&A brand holds a dominant market position in vinyl-backed, six-foot roll carpet. Six-foot roll carpet has certain performance advantages versus twelve-foot broadloom carpet and hard surface flooring and is used primarily in applications that require (i) long-term appearance retention, (ii) ease of maintenance and (iii) comfort under foot. Our six-foot roll carpet utilizes the Powerbond backing technology and the patented RS “peel and stick” installation system.

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Modular Carpet Tile. We believe C&A was the first manufacturer in North America to introduce vinyl-backed modular carpet tile technology and is among the leading brands within the domestic modular carpet tile market. Our modular carpet tile products are offered in a variety of sizes to accommodate a range of domestic and international requirements. Our C&A brand carpet tile is being made with ER3, our patented recycled content backing, the only one of its kind in the industry. See “Product Features—ER3”

Broadloom Carpet. The Monterey and Crossley brands are known design leaders in the high-style, fashion-oriented sector of the commercial broadloom carpet market. Sold in twelve-foot rolls, Monterey broadloom is tufted, while Crossley provides both tufted and woven broadloom. Broadloom is particularly suited for fashionable designs and stylish interiors as its width provides a broad area upon which creative designs and intricate patterns can be displayed in a wide variety of colors, textures, pile heights and densities. Specified broadloom carpet is primarily used in end markets where aesthetics and style are the drivers rather than durability or long-term appearance retention. In general, broadloom carpet is more frequently replaced than six-foot roll goods or carpet tile because of its prevalence in spaces, which are regularly renovated in order to reflect current fashion trends and styles.

Product Features

Powerbond. In 1967, our C&A brand introduced Powerbond, the industry’s first vinyl cushioned backing system. This closed-cell backing technology exhibits superior durability 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). It eliminates problems often 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 seamless, 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 25 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 often critical in each of our end markets.

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

Crossley Weaving Heritage. Weaving continues to be an important differentiation for us in high-end markets. Woven fabrics are unique in construction and are believed to be 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.

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End Markets

Corporate. We offer a complete package of carpet product offerings that addresses most needs 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. We have a dedicated sales force that focuses exclusively on marketing our brands to the corporate market. This group works with the individual brands to develop flooring solutions for corporate facility managers. We have focused on projects 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 this market, as customers tend to be particularly sensitive to longer useful life, comfort, acoustics and ease of maintenance. The Powerbond product in many of these installations has been in use for more than 20 years. Historically, we have focused on the kindergarten through 12^th grade market, however, over the last few years, we have expanded our marketing efforts to include the college and university markets. We expect to utilize our other product offerings to grow this segment, as colleges and universities have more diverse floorcovering needs than the primary and secondary school markets.

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

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 we are better able to compete in the government market based on our environmental initiatives, including both the Powerbond RS “peel & stick” backing system and our ER3 recycled content product offerings.

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

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International Markets. In July 1999, we acquired Crossley Carpet Mills, Ltd (“Crossley”) of Truro, Nova Scotia. This acquisition allowed the Company to market all three of our brands in Canada through the Crossley organization. In addition, in August 1998, we acquired a 51.0% interest in Collins & Aikman Floorcoverings Asia Pte. Ltd., a start-up commercial carpet distribution venture in Singapore. We established our first international sales office in 1989 in the United Kingdom, and in 1998 acquired a carpet-backing manufacturer headquartered in Wales. Our presence in such international markets enables us to distribute our products throughout the world and strengthen our relationships with U.S.-based multi-national corporate accounts. We plan to continue to add distributors and dedicated sales personnel in strategic international geographies to increase our share of the global commercial carpet market. During the second quarter of fiscal 2005, we expect to begin production of carpet tile products in Suzhou, China. We plan to sell the products manufactured at this facility into mainland China and throughout Southeast Asia, although no assurance can be given that we will be successful in this regard. In addition, the Company recently formed Tandus Netherlands BV, which will serve as our sales headquarters for continental Europe.

Sales and Segmentation Strategy

We utilize a segmented sales and marketing strategy to target the specific needs of the customers in each of our end markets. This segmented marketing strategy requires each sales person to develop an expertise in a specific end market, which is expected to result in greater customer-focused service, comprehensive market coverage and increased sales productivity.

Our C&A, Monterey and Crossley brands provide custom designed products and promotional materials for each end market, which highlight the advantages of our products in several key performance categories. Each end market is sensitive to different issues and places value on different performance characteristics. We have developed our products and technical innovations in response to the needs of our target customers and segments. Although we will work with a distributor in order to arrange for delivery and sale, our primary contact with the customer is through our sales force and not through an intermediary. This enables us to continue to customize our products and services to respond to the specific needs of the customer. We have an in-house design team for each brand that is dedicated to developing new, innovative designs for each of our primary end markets.

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

Distribution

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

Direct. Direct distribution allows customers to purchase our floorcovering products 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.

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

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

Backlog

Our backlog of unshipped orders was approximately $23.7 million at January 29, 2005. Historically, backlog is subject to significant fluctuations due to the timing of orders for individual large projects.

Product Development and Design

Product development and design is important in the commercial floorcovering marketplace as designers and customers seek up-to-date product aesthetics. We generally develop products tailored to the requirements of specific market segments. This process begins with feedback from leading designers and customers in each segment relating to product features such as color, texture and pattern. This marketplace input is vital as the product/styling needs are very different for each end market. Our product development group is highly integrated with our sales organization and customer base, which increases the effectiveness of the product development process.

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

Competition

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

We believe the key competitive factors in our primary floorcovering markets are product durability, product design and color, appearance retention, service and price. 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,

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appearance retention and longer useful life. Modular carpet tile has also increasingly been used instead of other flooring surfaces due to 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. Ease of maintenance (replacement) and flexibility of design are also emerging trends for tile. In the high-style specified commercial broadloom carpet market, the Monterey and Crossley brands primarily compete on aesthetics, service, quality and price.

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. Tandus Manufacturing Limited owns two facilities in the United Kingdom, including a six-foot roll and tile finishing plant. Monterey, until completion of the facility maximization project, leases a carpet tufting, administrative and warehouse facility in Santa Ana, California. In addition to these facilities, we lease a number of sales and service facilities and one warehouse in the United States and one sales and service facility in the United Kingdom. We believe our manufacturing capacity is sufficient to meet our requirements for the foreseeable future. During the second quarter of fiscal 2005, we plan to begin production of carpet tile products in Suzhou, China. We plan to sell the products manufactured at this facility into mainland China and throughout Southeast Asia. No assurance can be given in this regard.

On August 10, 2004, the Company and its parent announced its intent to close its manufacturing facility in Santa Ana, California, and transfer the production to its existing Truro, Nova Scotia, Canada, facility. The Facility Maximization was approved by the Company’s Board of Directors on August 9, 2004, and is expected to be completed by the end of the Company’s second fiscal quarter in 2005.

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

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Raw Materials

Our raw materials, including yarn, nylon and polypropylene chip, primary backing, coater materials, and dye chemicals, represent the single largest component of our carpet’s costs. Yarn comprises approximately one-third of the carpet’s cost structure and in excess of one-half of total raw material costs. Historically, we have been able to pass on yarn price increases in the ordinary course of business in response to published increases by major yarn suppliers. Increases in the cost of petroleum-based raw materials could adversely affect 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, Invista, Inc. (“Invista”), could have a material adverse effect on us. We use Invista continuous filament yarn for the majority of our products.

While Invista is a very important vendor, we believe that there are adequate alternative sources of supply from which we could fulfill our synthetic fiber requirement including, but not limited to, nylon yarn produced by the Company’s extrusion facility. In addition to Invista, there are at least three major third party suppliers to the commercial carpet industry from whom the Company acquires yarn.

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

At the Company’s yarn extrusion plant, the significant raw materials used are nylon and polypropylene polymer and dye pigments. The chips purchased are used to manufacture the nylon and polypropylene yarn. The dye and pigments give the yarn color for solution dyed yarns.

Patents, Copyrights and Trademarks

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

Seasonality

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

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Customers

No single customer amounted to or exceeded 10.0% of the Floorcovering segment’s sales for any period presented in the accompanying financial statements. The Extrusion segment’s largest customer accounted for 35.4% of sales during fiscal 2004, as a result of a three-year supply agreement with the seller from whom the extrusion facility was acquired. The Extrusion segment’s second largest customer accounted for 14.0% of sales during fiscal 2004.

International Sales

International net sales of the Company were $39.3 million or 12.6% and $41.3 million or 12.1% of the Company’s total net sales for fiscal 2003 and fiscal 2004, respectively. Canadian customers comprised $28.8 million or 9.3% and $31.0 or 9.1% of total net sales for fiscal 2003 and fiscal 2004, respectively, while the remaining international sales, primarily to customers in Southeast Asia, the U.K. and South America, were $10.5 million or 3.4% in fiscal 2003 and $10.3 million or 3.0% in fiscal 2004.

Employees

At January 29, 2005, we had a total of 1,715 employees of which 1,104 were hourly and 611 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 350 manufacturing workers in Canada that are subject to a collective bargaining agreement. The collective bargaining agreement that represents this union expires on June 30, 2006. Under a separate agreement the union and the Company have agreed that there will be no work stoppages through 2011.

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 13 to the Company’s consolidated financial statements for the year ended January 29, 2005. Certain information concerning our net sales and long-lived assets by geographic areas can also be found in Note 13.

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Available Information

The Company files periodic reports (Forms 10-K, 10-Q and 8-K) with the Securities and Exchange Commission (“SEC”). You may read and copy any materials we file with the SEC at the SEC’s public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company’s Internet address is www.tandus.com.

Reports to Security Holders

The Company provides its stockholder with unaudited interim and annual financial information that has been examined and reported on with an opinion expressed by the Company’s independent auditor.

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

In 1996 and 1997, the Company sold approximately $0.6 million of carpet tile product to Employers Mutual Insurance Companies (“EMC”). EMC subsequently filed suit in the United States District Court for the Southern District of Iowa on August 6, 2002 alleging the carpet experienced premature wearing and discoloration, and asserted that the Company should pay damages based upon theories of violation of warranties, negligence and fraud. The Company examined EMC’s claim prior to commencement of the action and determined that EMC had not properly maintained the carpet, resulting in irreversible damage to the carpet. The Company filed a motion for summary judgment and the United States District Court for the Southern District of Iowa ruled in favor of the Company on the negligence, written warranty claims and implied warranty of merchantability. Other claims included express oral warranty, implied warranty of fitness for particular purpose, fraudulent misrepresentation and fraudulent nondisclosure and were tried to a jury. On March 18, 2004, the jury entered a verdict in favor of the Company on the fraudulent misrepresentation and fraudulent nondisclosure claims and in favor of EMC on the express oral warranty and implied warranty of fitness for particular purpose. The jury awarded EMC $0.8 million in damages for full replacement of this carpet. The Company filed a motion for judgment as a matter of law and a motion for a new trial. The judge denied the Company’s motion for judgment as a matter of law but conditionally granted the Company’s motion for a new trial if EMC refused to accept a $0.2 million reduction of the judgment. EMC agreed to the reduction of the judgment, causing the new trial motion to be denied. The Company has appealed the denial of its motion for judgment as a matter of law asserting that EMC failed to prove the affirmative defense of fraudulent concealment by clear, convincing and satisfactory evidence. The Company has posted a letter of credit in favor of EMC for $0.8 million to secure EMC’s recovery should EMC prevail. If the Company is unsuccessful, it will be required to pay the judgment amount and related legal and professional fees.

The Company believes substantial errors were committed in the trial, including the failure of the trial court to render judgment as a matter of law that the Company did not owe EMC a fiduciary duty, and in the erroneous application by the jury of its instructions on the measure of damages. The judgment award of $0.6 million was recorded during the fiscal year ended January 31, 2004, and is included as an accrued liability in the January 29, 2005 consolidated balance sheet. The Company incurred legal expenses during fiscal 2004 related to the EMC lawsuit of approximately $0.6 million. The expenses are included in the Company’s consolidated statement of operations for fiscal 2004.

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Monterey Carpets, Inc., (“Monterey”) in connection with its previous 50% ownership interest in Chroma Systems Partners (“Chroma”), is a co-defendant in an alleged claim by Enron Energy Services, Inc. (“Enron”) that Chroma and its partners are liable for amounts related to certain energy contracts that existed between Chroma and Enron prior to the filing of Enron’s Chapter 11 proceedings. Settlement negotiations are on going and it is not possible to estimate the extent of any possible loss at this time. Monterey has filed its response and intends to vigorously contest Enron’s lawsuit. A mandatory mediation session is currently scheduled for June 2, 2005. During fiscal 2004, Monterey terminated its partnership interest in Chroma as part of the facility maximization project.

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

None.

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PART II

As of April 15, 2005, there was one holder of record of the Company’s common stock. There is no public trading market for the Company’s common stock.

The following table provides information as of January 29, 2005, with respect to compensation plans under which Tandus Group equity securities are authorized for issuance.

Dividends

The declaration and payment of dividends is at the discretion of our Board of Directors and depends upon, among other things, our investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board at the time of its determination. Such other factors include certain limitations in covenants contained in our senior credit facility and in the indentures governing our public indebtedness. The Company paid dividends of approximately $2.3 million to its parent, Tandus Group, Inc., in fiscal 2003 and paid no dividends in fiscal 2004. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

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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 27, 2001, January 26, 2002, January 25, 2003, January 31, 2004 and January 29, 2005 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.