================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 30, 1996
------------
MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
Delaware 06-1095650
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
Commission File Number 1-9843
469 McLaws Circle, Williamsburg, Virginia 23185
(Address of principal executive offices) (Zip Code)
(757) 564-1700
(Registrant's telephone number, including area code)
------------
================================================================================
<PAGE>
The undersigned registrant hereby amends the following items of its
Current Report on Form 8-K filed September 13, 1996 as set forth in the pages
attached hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ----------------------------------------------------------------------------
In accordance with Item 7 of the registrant's Current Report on Form
8-K filed September 13, 1996, the registrant appends to the Form 8-K the
following financial statements, pro forma information and exhibits:
(a) Financial Statements of Business Acquired
The following financial statements of Tennessee Building
Products, Inc. and Subsidiary are attached hereto as Appendix
A:
1. Report of Independent Accountants
2. Consolidated Balance Sheets at December 31, 1994 and
1995 and June 30, 1996 (unaudited)
3. Consolidated Statements of Operations for the three
years ended December 31, 1995 and for the six months
ended June 30, 1995 and 1996 (unaudited)
4. Consolidated Statements of Changes in Stockholders'
Equity for the three years ended December 31, 1995
and the six months ended June 30, 1996 (unaudited)
5. Consolidated Statements of Cash Flows for the three
years ended December 31, 1995 and the six months
ended June 30, 1995 and 1996 (unaudited)
6. Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
The following combined pro forma financial information is
attached hereto as Appendix B:
1. Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1995
2. Unaudited Pro Forma Combined Statement of Operations
for the six months ended June 29, 1996
3. Unaudited Pro Forma Combined Balance Sheet at June
29, 1996
4. Notes to Unaudited Pro Forma Combined Financial
Statements
(c) Exhibits
1. Consent of Kraft Bros., Esstman, Patton & Harrell, PLLC
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MORGAN PRODUCTS LTD.
By: /s/ Douglas H. MacMillan
_____________________________
Douglas H. MacMillan
Vice President and Chief
Financial Officer
DATE: September 27, 1996
-3-
<PAGE>
APPENDIX A
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Tennessee Building Products, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of Tennessee
Building Products, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tennessee Building
Products, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 14 to the financial statements, on July 28, 1996, the
Companies entered into an agreement to sell substantially all of their assets
and operations.
/s/ KRAFT BROS., ESSTMAN, PATTON & HARRELL, PLLC
Nashville, Tennessee
February 16, 1996, except for Note 14 which is dated August 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1994 1995 1996
---- ---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents - Note 13 $ 313,627 $ 827,023 $ 152,627
Accounts receivable - trade, less
allowance for doubtful accounts:
1995 - $664,408; 1994 - $614,608
- Notes 5 and 13 5,539,676 6,021,346 6,640,255
Federal and state income taxes
receivable --- 114,585 7,395
Inventories - Notes 2 and 5 6,526,039 5,912,959 6,442,642
Prepaid expenses and other 173,351 115,225 246,401
----------- ----------- -----------
TOTAL CURRENT ASSETS 12,552,693 12,991,138 13,489,320
PROPERTY AND EQUIPMENT - at cost,
less accumulated depreciation -
Notes 3 and 5 1,268,846 1,271,082 1,361,315
OTHER-ASSETS
Deferred income taxes - Note 4 43,988 86,100 117,495
Cash surrender value of officer's
life insurance 21,155 49,833 49,833
----------- ----------- -----------
$13,886,682 $14,398,153 $15,017,963
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 1,650,191 $ 2,380,082 $ 2,601,462
Accrued taxes and expenses
- Note 12 1,423,414 1,349,798 1,062,557
Federal and state income
taxes payable 226,906 4,553 ---
Accrued management fees - Note 9 1,207,435 1,352,932 846,571
Note payable - revolving credit
line obligation --- --- 984,639
Current portion of long-term debt -
Note 5 101,354 81,139 81,139
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 4,609,300 5,168,504 5,576,368
LONG-TERM DEBT, less current
portion - Note 5 860,848 88,002 45,199
SALARY CONTINUATION PLAN OBLIGATION -
Note 11 27,238 136,198 190,678
MINORITY INTEREST 580,131 709,008 792,534
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995 1996
---- ---- --------
(Unaudited)
<S> <C> <C> <C>
COMMITMENTS AND CONTINGENCIES
- Notes 6, 10, 11 and 13
STOCKHOLDERS' EQUITY
Common stock - $1 par value,
authorized 100,000 shares;
issued and outstanding
22,500 shares 22,500 22,500 22,500
Additional paid-in capital 3,671,393 3,671,393 3,671,393
Retained earnings 4,115,272 4,602,548 4,719,291
7,809,165 8,296,441 8,413,184
----------- ----------- -----------
$13,886,682 $14,398,153 $15,017,963
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES-NET $41,893,893 $47,527,285 $46,822,159 $22,681,907 $24,386,783
COST OF GOODS SOLD 31,695,827 36,051,409 35,012,962 17,203,225 18,059,877
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 10,198,066 11,475,876 11,809,197 5,478,682 6,326,906
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Warehouse and distribution 3,028,990 3,373,987 3,479,527 1,736,821 1,889,583
Selling 2,832,170 3,066,661 3,259,047 1,556,536 1,823,763
General and administrative 2,346,406 2,339,469 2,505,132 1,202,293 1,235,176
Management fees - Note 9 1,386,410 1,470,854 1,719,061 773,347 1,126,571
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 9,593,976 10,250,971 10,962,767 5,268,997 6,075,093
OPERATING INCOME 604,090 1,224,905 846,430 209,685 251,813
OTHER INCOME AND (EXPENSE)
Interest expense (164,647) (168,114) (73,268) (61,422) (26,718)
Miscellaneous - net - Note 7 205,008 110,442 159,340 95,769 120,139
40,361 (57,672) 86,072 34,347 93,421
INCOME BEFORE PROVISION FOR
INCOME TAXES 644,451 1,167,233 932,502 244,032 345,234
PROVISION FOR INCOME TAXES
(BENEFIT) - Note 4
Current 270,987 458,379 358,461 117,169 176,360
Deferred 2,000 (32,808) (42,112) (41,923) (31,395)
272,987 425,571 316,349 75,246 144,965
INCOME BEFORE MINORITY
INTEREST 371,464 741,662 616,153 168,786 200,269
MINORITY INTEREST IN
EARNINGS OF SUBSIDIARY 81,985 156,901 128,877 41,791 83,526
----------- ----------- ----------- ----------- ----------
NET INCOME $ 289,479 $ 584,761 $487,276 $126,995 $116,743
=========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1993 22,500 $22,500 $2,841,147 $3,241,032 $6,104,679
Net income for the year -- -- -- 289,479 289,479
Capital contribution
from stockholders
- Note 9 -- -- 830,246 -- 830,246
------ ------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 1993 22,500 22,500 3,671,393 3,530,511 7,224,404
Net income for the year -- -- -- 584,761 584,761
------ ------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 1994 22,500 22,500 3,671,393 4,115,272 7,809,165
Net income for the year -- -- -- 487,276 487,276
------ ------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 1995 22,500 22,500 3,671,393 4,602,548 8,296,441
Net income for the six
months (Unaudited) -- -- -- 116,743 116,743
------ ------- ---------- ---------- ----------
BALANCE - JUNE 30, 1996
(Unaudited) 22,500 $22,500 $3,671,393 $4,719,291 $8,413,184
====== ======= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1993 1994 1995 1995 1996
---- ---- ---- ---- (UNAUDITED) ----
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the period $289,479 $584,761 $ 487,276 $126,995 $116,743
---------- --------- --------- -------- ---------
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Depreciation 288,713 325,229 308,163 171,053 189,048
Deferred income taxes 2,000 (32,808) (42,112) (41,923) (31,395)
Minority interest in earnings of
subsidiary 81,985 156,901 128,877 41,791 83,526
(Gain) loss on dispositions of
property and equipment (20,050) 18,420 1,698 1,098 (4,850)
(Increase) decrease in:
Accounts receivable - trade 1,386,410 (558,246) (481,670) 141,801 (618,909)
Federal and state income taxes
receivable (421,311) --- (114,585) (110,842) 107,190
Inventories (5,881) (593,589) 613,080 898,322 (529,683)
Prepaid expenses and other 252,722 41,526 58,126 (5,096) (131,176)
Increase (decrease) in:
Account payable - trade (56,125) (48,158) 729,891 143,877 221,380
Accrued taxes and expenses 414,299 94,572 (73,616) (365,533) (287,241)
Federal and state income taxes
payable 32,027 164,874 (222,353) (226,906) (4,553)
Accrued management fees --- 1,207,435 145,497 (720,216) (506,361)
Salary continuation plan obligation --- 27,238 108,960 54,480 54,480
---------- --------- --------- -------- ----------
TOTAL ADJUSTMENTS 1,954,789 803,394 1,159,956 (18,094) (1,458,544)
---------- --------- --------- -------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,244,268 1,388,155 1,647,232 108,901 (1,341,801)
---------- --------- --------- -------- ----------
-6-
<PAGE>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1993 1994 1995 1995 1996
---- ---- ---- ---- (UNAUDITED) ----
INVESTING ACTIVITIES
Acquisition of property and
equipment (415,872) (682,723) (317,897) (77,557) (281,014)
Proceeds from disposition of
property and equipment 17,600 6,805 5,800 6,399 6,583
Increase in cash surrender
value of officer's life
insurance --- (21,155) (28,678) --- ---
---------- --------- --------- -------- ----------
NET CASH USED IN INVESTING ACTIVITIES (398,272) (697,073) (340,775) (71,158) (274,431)
---------- --------- --------- -------- ----------
(Continued)
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1993 1994 1995 1995 1996
---- ---- ---- ---- (UNAUDITED) ----
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Increase in (reduction of) notes payable (1,978,841) (554,571) (793,061) 228,581 941,836
---------- --------- --------- -------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,978,841) (554,571) (793,061) 228,581 941,836
---------- --------- --------- -------- ----------
NET INCREASE (DECREASE) IN CASH
FOR THE PERIOD (132,845) 136,511 513,396 266,324 (674,396)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 309,961 177,116 313,627 313,627 827,023
---------- --------- --------- -------- ----------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 177,116 $ 313,627 $ 827,023 $579,951 $152,627
========== ========= ========= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- -8-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Tennessee Building Products, Inc., Nashville, Tennessee ("Parent"), and its
78.96%-owned subsidiary, Titan Building Products, Inc., Charlotte, North
Carolina ("Subsidiary"). Material intercompany accounts and transactions have
been eliminated in consolidation.
The Companies are suppliers of building products, with warehouse and showroom
locations in Nashville and Chattanooga, Tennessee, Charlotte, North Carolina,
and Greenville, South Carolina, as well as a showroom only in Huntsville,
Alabama. The Company also has a division that specializes in glass products
located in Nashville, Tennessee.
Cash and cash equivalents
For purposes of the statements of cash flows, all highly liquid debt instruments
with a maturity date at purchase of three months or less are considered cash
equivalents. There were no cash equivalents as of December 31, 1995 or 1994.
Inventories
Inventories are reported at lower of cost or market, with cost determined by the
last-in, first-out (LIFO) method for the majority of inventories, and the
first-in, first-out (FIFO) method for the balance.
Properties and depreciation
Properties are reported at cost and include improvements that significantly add
to utility or extend useful lives. Costs of maintenance and repairs are charged
to expense. When depreciable assets are disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any gain (except on
trade-ins) or loss is included in earnings for the period. Gains on trade-ins
are applied to reduce the cost of the new acquisition. Depreciation and
amortization are calculated principally by the straight-line method to allocate
the cost of depreciable assets over their estimated useful lives.
-9-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30,1995 AND 1996 IS NOT PRESENTED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
The Parent Company is classified as an S corporation under the Internal Revenue
Code. For federal income tax purposes, earnings of the Parent Company are
taxable to the stockholders individually, and the Parent does not incur federal
income tax obligations. Such status has no effect on the Company's state income
tax obligation.
The Subsidiary is classified as a C corporation for federal income tax purposes.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities. Such
differences will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Substantially all consolidated retained earnings at December 31, 1995, 1994 and
1993, result from either accumulations of the Parent prior to the date the S
election became effective, or accumulations attributable to the Subsidiary.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of Financial
Instruments." SFAS 107 requires companies to disclose the fair value of their
financial instruments, whether or not recognized in the consolidated balance
sheet, where it is practical to estimate that value. In management's opinion,
the carrying amount of all financial instruments approximates market value.
-10-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments (continued)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash
The carrying amount approximates fair value.
Long-term Debt
The carrying amounts of the Company's borrowings under its bank
line-of-credit and acquisition loans with variable interest rates
approximate their fair value.
Salary Continuation Plan Obligation
The carrying amount of the Company's salary continuation plan obligation,
which is discounted to present value based on current rates, is considered
to approximate its fair value.
Reclassification
Certain items on the income statements have been reclassified from the
previously issued audited financial statements, with no effect to net income, to
comply with reporting requirements under Regulation S-X of the Securities and
Exchange Commission.
Unaudited Interim Statements
The interim financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary to a fair
presentation of the financial position, results of operations, and cash flows
for the interim periods.
-11-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 2 - INVENTORIES
A summary of ending inventories included in the determination of cost of goods
sold for the years ended December 31, 1993, 1994 and 1995, follows:
<TABLE>
<CAPTION>
1992 1993 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Inventories stated at LIFO:
At lower of cost
(first-in, first-out
method) or market $6,729,998 $7,255,648 $7,779,764 $6,885,542
Adjustment to LIFO (1,111,927) (1,618,906) (1,744,301) (1,441,121)
---------- ---------- ---------- ----------
5,618,071 5,636,742 6,035,463 5,444,421
Inventories stated at
lower of cost (FIFO)
or market 308,498 295,708 490,576 468,538
---------- ---------- ---------- ----------
$5,926,569 $5,932,450 $6,526,039 $5,912,959
========== ========== ========== ==========
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31:
1994 1995
---- ----
Automobiles and trucks $1,049,852 $1,164,554
Warehouse machinery and equipment 1,085,423 1,080,749
Office machinery and equipment 559,944 619,149
Leasehold improvements 430,742 618,720
Construction in progress 212,623 42,426
---------- ----------
3,338,584 3,525,598
Less accumulated depreciation 2,069,738 2,254,516
---------- ----------
$1,268,846 $1,271,082
========== ==========
Depreciation expense totals $288,713, $325,229 and $308,163 in 1993, 1994 and
1995, respectively. The general range of useful lives is 3 to 30 years for
leasehold improvements and 3 to 10 years for all other depreciable assets. Fully
depreciated assets amount to approximately $1,532,600 as of December 31, 1995.
-12-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC, AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30,1995 AND 1996 IS NOT PRESENTED)
NOTE 4 - INCOME TAXES
A schedule of the provision for income taxes, substantially all of which is
attributable to pre-tax earnings of the Subsidiary, follows:
1993 1994 1995
---- ---- ----
Federal:
Current $213,548 $391,595 $288,846
Deferred 853 ( 8,345) (17,652)
-------- -------- --------
214,401 383,250 271,194
-------- -------- --------
State:
Current 57,439 66,784 69,615
Deferred 1,147 ( 24,463) ( 24,460)
-------- -------- --------
58,586 42,321 45,155
-------- -------- --------
Provision for income taxes $272,987 $425,571 $316,349
======== ======== ========
Total income taxes paid $239,913 $328,362 $695,399
======== ======== ========
The net deferred tax asset included in other assets in the accompanying balance
sheets consists of the following amounts of deferred tax assets and liabilities
as of December 31:
1994 1995
---- ----
Deferred tax asset $70,656 $121,327
Deferred tax liability (26,668) (35,227)
------- --------
Net deferred tax asset $43,988 $ 86,100
======= ========
-13-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 4 - INCOME TAXES (CONTINUED)
The deferred tax effects of principal temporary differences as of December 31,
1994 and 1995, are shown in the following table:
1994 1995
---- ----
Property and equipment ($25,161) ($34,535)
Allowance for doubtful accounts 63,653 75,863
Inventory capitalization 3,861 36,600
Salary continuation plan obligation 1,635 8,172
------- -------
$43,988 $86,100
======= =======
The following is a reconciliation of the actual provision for income taxes with
the provision computed at the federal statutory rate (34%):
1993 1994 1995
---- ---- ----
Provision computed at
statutory rate $219,113 $396,859 $317,051
Effect of accounting losses
of Parent Company
(S Corporation) for which
there is no current tax benefit 5,493 8,692 5,422
Tax effect of state income taxes 34,199 27,932 29,802
State income tax refund - ( 29,975) -
Other 14,182 22,063 (35,926)
-------- -------- --------
Provision for income taxes $272,987 $425,571 $316,349
======== ======== ========
-14-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
1994 1995
Total Current Total Current
Balance Portion Balance Portion
------- ------- ------- -------
Revolving credit line
obligations-
SunTrust Bank (1) $686,156 $ - $ - $ -
Revolving credit line
obligation-
NationsBank (2) 276,046 101,354 169,141 81,139
-------- -------- -------- -------
$962,202 $101,354 $169,141 $81,139
======== ======== ======== =======
(1) The Company is a party to a certain Loan Agreement (the "Agreement")
with SunTrust Bank (formerly Third National Bank) in Nashville,
Tennessee (the "Bank"), which provides for a maximum $2,000,000 Line of
Credit and $3,000,000 Revolving Credit. The loans were scheduled to
mature September, 1995. Subsequent to year end, the Agreement was
extended to mature in September, 1996. Borrowings against these lines,
which had a zero balance at December 31, 1995, are evidenced by notes
which bear interest, payable monthly, at the Bank's "base rate". The
notes are collateralized by a security interest in all accounts
receivable and inventories.
In addition to various other terms and conditions, the Agreement
requires the Company to maintain certain minimum balances and ratios
pertaining principally to net worth and debt. The Company is also
required to maintain a zero outstanding balance under the $2,000,000
Line of Credit Note for at least 30 consecutive days each year.
Combined borrowings under the agreements ranged up to a maximum of
$1,972,000 in 1995 ($3,544,000 in 1994) and averaged $668,000
($2,169,434 in 1994), at an average effective interest rate of 8.07%
(6.73% in 1994).
-15-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 5 - LONG-TERM DEBT (CONTINUED)
(2) The Company has an additional line of credit, based on an agreement
entered into in October, 1989, with NationsBank. Borrowings under
the agreement are evidenced by notes maturing January 1, 2000,
April 1, 2001, November 1, 1997 and June 1, 1998. The notes require
monthly interest payments computed at an annual rate of 1/4 of 1%
below the Bank's published prime rate, and are collateralized by a
security interest in certain machinery, equipment and vehicles. The
maximum amount outstanding under the line may not exceed the
aggregate net book value of such collateral. Accordingly, the
current portion of the obligation as of December 31, 1995, is
reflected in the amount of the projected decrease in net book value
of the assets pledged. Borrowings under the line, which had a
balance of $169,141 at December 31, 1995, ranged up to a maximum of
$276,046 ($364,213 in 1994), and averaged $274,663 in 1995
($336,417 in 1994), at an average effective interest rate of 9.01%
in 1995 (7.08% in 1994). In addition to other conditions, the
agreement requires the Company to maintain a certain minimum debt
to tangible net worth ratio (as defined), and prohibits the Company
from incurring a net operating loss for four consecutive quarters.
The obligation is secured by equipment with a net book value of
$185,000 as of December 31, 1995.
Aggregate annual principal maturities of all long-term debt are as follows: 1996
- - $81,139; 1997 $54,180; 1998 - $21,627; and 1999 - $12,195.
Total interest paid on all indebtedness amounted to: 1994 - $168,114; 1995 -
$73,268.
-16-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30,1995 AND 1996 IS NOT PRESENTED)
NOTE 6 - OPERATING LEASES
The Company is lessee under various cancelable and noncancelable operating
leases. Following is a summary of rental expense incurred under all operating
leases by major class:
<TABLE>
<CAPTION>
1993 1994
Related Related
Parties Outsiders Total Parties Outsiders Total
------- --------- ----- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Real property $444,189 $273,856 $718,045 $444,189 $309,450 $753,639
Equipment --- 48,637 48,637 --- 59,889 59,889
Vehicles --- 158,544 158,544 --- 164,869 164,869
-------- -------- -------- -------- -------- --------
Total $444,189 $481,037 $925,226 $444,189 $534,208 $978,397
======== ======== ======== ======== ======== ========
1995
Related
Parties Outsiders Total
------- --------- -----
Real property $493,765 $373,068 $866,833
Equipment --- 57,268 57,268
Vehicles --- 144,727 144,727
Total $493,765 $575,063 $1,068,828
======== ======== ==========
</TABLE>
-17-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 6 - OPERATING LEASES (CONTINUED)
The rental expense for real property paid to related parties has not been
reduced by sublease rentals received on a portion of the Chattanooga warehouse
in the amount of $1,800, $43,380 and $51,213 in 1993, 1994 and 1995,
respectively. The sublease agreement expires in November, 1996.
The lease on the Nashville, Tennessee warehouse and office facility runs through
December 31, 2002. The lease on the Charlotte, North Carolina warehouse and
office facility has been renewed through February 28, 2000. During 1993, 1994
and 1995, applicable lease provisions under the North Carolina facility lease
were amended for additional square footage added to the leased premises at
similar rental rates. The leases require monthly rental payments plus payment of
all property taxes and insurance.
The Company also leases certain vehicles under short-term arrangements and
various items of warehouse equipment.
Real property leases, some of which are with a related partnership whose
partners are the principal officers and stockholders of the Company, also
require payment of related repairs, utilities, property taxes and insurance. A
schedule of minimum future rentals required under all noncancelable operating
leases, including the renewal lease of the Charlotte, North Carolina facility
referred to above, follows:
Related
Parties Outsiders Total
1996 $510,996 $ 413,435 $924,431
1997 510,996 400,511 911,507
1998 510,996 383,309 894,305
1999 510,996 336,520 847,516
2000 510,996 53,619 564,615
Thereafter 1,021,992 - 1,021,992
--------- --------- ---------
$3,576,972 $1,587,394 $5,164,366
========== ========== ==========
-18-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 7 - MISCELLANEOUS INCOME AND EXPENSE
Miscellaneous income and (expense) consisted of the following in 1993, 1994, and
1995.
1993 1994 1995
---- ---- ----
Rebates $ 23,547 $ 12,361 $24,792
Service charges on
accounts receivable 113,332 130,190 113,320
Rental income 6,501 48,630 55,746
Other - net 10,088 9,751 30,478
Gain (loss) on
dispositions of
property
and equipment 20,050 (18,420) ( 1,698)
Collection expense (38,566) (43,022) (32,667)
Bank service charges (25,717) (29,048) (30,631)
Sales tax refunds 95,773 - -
-------- -------- -------
Miscellaneous
income - net $205,008 $110,442 $159,340
======== ======== ========
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) profit-sharing plan covering employees who are at
least 21 years old, and have at least one year of service with the Company.
The amount of annual employer contributions to the plan is discretionary, as
determined by the Board of Directors, up to the maximum deduction allowable for
federal income tax purposes. The Company contributed $75,000 to the plan for
1993, and $50,000 each year for 1994 and 1995.
-19-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30,1995 AND 1996 IS NOT PRESENTED)
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES
The Parent Company has a management agreement with F & S Management Company, a
Tennessee general partnership (the "Partnership"), whose owners are the two
principal officers and stockholders of the Company. The agreement provides for
the Company to pay the Partnership an annual management fee based on a formula
tied to the Parent's taxable income before management fee.
Management fees paid or payable under the agreement amounted to $1,386,410,
$1,470,854 and $1,719,061 for 1993, 1994 and 1995, respectively, of which the
unpaid balances of $1,207,435 and $1,352,932 as of December 31, 1994 and 1995,
respectively, are reported under current liabilities.
Accrued management fees under the agreement for 1993 were paid on December 31,
1993, by issuance of a note payable to the Partnership, of which a portion of
the 1993 note was simultaneously distributed out of the Partnership to the
partners and contributed by them back to the Company as additional paid-in
capital.
NOTE 10 - SELF-INSURANCE PROGRAM
The Company has a self-insured program for its employees' medical claims. A
portion of these costs are covered by employee payroll deductions. The Company's
maximum liability for any one year (less employee contributions) is $60,000 per
claim. The Company's total expense under the plan amounted to $497,859, $393,169
and $401,704 in 1993, 1994 and 1995, respectively.
-20-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS NOT PRESENTED)
NOTE 11 - SALARY CONTINUATION PLAN
During 1994, the Company formalized a nonqualified salary continuation plan for
certain key officers. Plan benefits provided under the plan are contingent on
the continuous employment of the officer with the Company through retirement and
compliance with other terms specified in the agreement. The agreement provides
that monthly payments will be made to the officer or his beneficiary for fifteen
years beginning upon the earliest to occur of the officer's death or retirement.
The principal cost of the plan is being accrued on the straight-line basis over
the anticipated remaining period of active employment, based on the present
value of the expected retirement benefit. The recognized liability relating to
the plan amounted to $27,238 in 1994 and $136,198 in 1995. The recognized
expense relating to the plan amounted to $27,238 in 1994 and $108,960 in 1995.
NOTE 12 - ACCRUED TAXES AND EXPENSES
Accrued taxes and expenses consist of the following as of December 31:
1994 1995
---- ----
Accrued payroll $ 581,103 $493,435
Accrued commissions 176,190 235,303
Sales tax collected and payable 214,903 219,074
Accrued contribution to 401(k) plan 50,000 50,000
Accrued taxes and licenses 158,497 147,117
Accrued group health insurance 165,000 159,911
Accrued professional fees 44,000 39,406
Other 33,721 5,552
--------- --------
$1,423,414 $1,349,798
========== ==========
-21-
<PAGE>
TENNESSEE BUILDING PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30,1995 AND 1996 IS NOT PRESENTED)
NOTE 13 - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash and cash equivalent balances at a financial
institution in Tennessee. Accounts at the institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured balances per bank
amounted to approximately $749,000 at December 31, 1995.
The majority of the Company's sales are derived from customers within a 50-mile
radius of Charlotte, North Carolina and a 100-mile radius of Nashville,
Tennessee. The Company extends trade credit to its customers which consist
principally of building contractors. Concentrations of credit risk with respect
to trade receivables are limited, since the risk is spread over a large number
of customers that make up the Company's customer base. The Company controls
credit risk through credit approvals, credit limits and monitoring procedures.
The Company performs in-depth credit evaluations for all new customers. Bad debt
expenses have not been material.
NOTE 14 - SALE OF BUSINESS
On July 28, 1996, the Companies and their shareholders entered into an agreement
with Morgan Products Ltd. to sell substantially all of the assets, less certain
liabilities, and operations of the Companies for a selling price of
approximately $15,300,000. The closing date is to be determined upon performance
of certain items specified in the agreement, with good faith efforts of both
parties to accomplish closing by September 30, 1996.
-22-
<PAGE>
APPENDIX B
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following sets forth the Company's Unaudited Pro Forma Combined
Statement of Operations and the Company's Unaudited Pro Forma Combined Balance
Sheet, in each case giving effect to the acquisition of Tennessee Building
Products, Inc. and Subsidiary ("TBP Acquisition") described in Note 1 hereto as
if such acquisition had been consummated as of January 1, 1995 (in the case of
the Unaudited Pro Forma Combined Statements of Operations) and on June 29, 1996
(in the case of the Unaudited Pro Forma Combined Balance Sheet). The Unaudited
Pro Forma Combined Financial Statements of the Company do not purport to present
the financial position or results of operations of the Company had the
acquisition assumed herein occurred on the dates indicated, nor are they
necessarily indicative of the results of operations which may be expected to
occur in the future.
The TBP Acquisition will be accounted for by the Company as a purchase
whereby the basis for accounting for TBP's assets and liabilities will be based
upon their fair values at the date of the TBP Acquisition. Pro forma
adjustments, including the preliminary purchase price allocation resulting from
the TBP Acquisition as described in Note 1 of the Notes to the Unaudited Pro
Forma Combined Financial Statements, represent the Company's initial
determination of these adjustments and are based upon preliminary information,
assumptions and operating decisions which the Company considers reasonable under
the circumstances. Final amounts may differ from those set forth herein.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Pro Forma
Morgan TBP Adjustments Combined
------ ---- ----------- ----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales............................. $338,026 $46,822 $ 0 $384,848
Cost of goods sold.................... 290,563 35,013 420 (2)(4) 325,996
-------- ------- --------- ---------
Gross profit.......................... 47,463 11,809 (420) 58,852
-------- ------- --------- ---------
Operating expenses:
Sales and marketing................... 35,652 6,739 0 42,391
General and administrative............ 11,033 2,505 316 (2) 13,854
Management fees....................... 0 1,719 (1,719)(3) 0
Provision for restructuring........... 51 0 0 51
-------- ------- --------- ---------
46,736 10,963 (1,403) 56,296
-------- ------- --------- ---------
Operating income...................... 727 846 983 2,556
-------- ------- --------- ---------
Other (expense) income:
Interest.............................. (3,763) (73) (1,473)(5) (5,309)
Other................................. 450 159 0 609
-------- ------- --------- ---------
(3,313) 86 (1,473) (4,700)
-------- ------- --------- ---------
Income (loss) before income
taxes............................. (2,586) 932 (490) (2,144)
Provision for income taxes............ 42 316 (316)(6) 42
-------- ------- --------- ---------
Net income (loss) before
minority interest................. $ (2,628) 616 (174) (2,186)
Minority interest in earnings of 0 129 (129)(7) 0
subsidiary........................
-------- ------- --------- ---------
Net income (loss)..................... $ (2,628) $ 487 $ (45) $ (2,186)
-------- ------- --------- ---------
-------- ------- --------- ---------
Income (loss) per share............... $ (0.30) $ (0.25)
--------- --------
--------- --------
Weighted average common shares 8,644 8,644
and common equivalent shares --------- -------
outstanding.................. --------- -------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Pro Forma
Morgan TBP Adjustments Combined
------ --- ----------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales...................................... $169,744 $24,387 $ 0 $194,131
Cost of goods sold............................. 144,867 18,060 128 (2)(4) 163,055
-------- ------- -------- --------
Gross profit................................... 24,877 6,327 (128) 31,076
-------- ------- -------- --------
Operating expenses:
Sales and marketing............................ 16,641 3,713 0 20,354
General and administrative..................... 6,071 1,235 158 (2) 7,464
Management fees................................ 0 1,127 (1,127)(3) 0
Provision for restructuring.................... 881 0 0 881
-------- ------- -------- --------
23,593 6,075 (969) 28,699
-------- ------- -------- --------
Operating income............................... 1,284 252 841 2,377
-------- ------- -------- --------
Other (expense) income:
Interest....................................... (1,369) (27) (725)(5) (2,121)
Other.......................................... 137 120 0 257
-------- ------- -------- --------
(1,232) 93 (725) (1,864)
-------- ------- -------- --------
Income before income
taxes...................................... 52 345 116 513
Provision for income taxes..................... 49 145 (145)(6) 49
-------- ------- -------- --------
Net income before
minority interest.......................... 3 200 261 464
Minority interest in earnings of 0 83 (83)(7) 0
subsidiary.................................
-------- ------- -------- --------
Net income..................................... $ 3 $ 117 $ 344 $ 464
-------- ------- -------- --------
-------- ------- -------- --------
Income per share............................... $ 0.00 $ 0.05
-------- --------
-------- --------
Weighted average common shares 8,684 8,684
and common equivalent shares -------- --------
outstanding........................... -------- --------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 29, 1996
(IN THOUSANDS)
Morgan Pro Forma Pro Forma
Products TBP Adjustments Combined
-------- --- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 2,105 $ 153 $ (153)(1) $ 2,105
Accounts receivable, net.......... 32,906 6,640 0 39,546
Inventories....................... 52,924 6,443 1,193 (1) 60,560
Other current assets.............. 804 254 (58)(1) 1,000
--------- -------- -------- --------
Total current assets.......... 88,739 13,490 982 103,211
--------- -------- -------- --------
PROPERTY, PLANT & 19,490 1,361 700(1) 21,551
EQUIPMENT, net.................... --------- -------- -------- ---------
OTHER ASSETS 4,211 167 4,059(8) 8,437
TOTAL ASSETS $112,440 $ 15,018 $ 5,741 $133,199
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES &
STOCKHOLDERS' EQUITY
Short-term debt................... $ 221 $ 985 $ 0 $ 1,206
Current maturities of long-
term debt..................... 928 81 0 1,009
Accounts payable.................. 16,060 2,602 (443)(1) 18,219
Other current liabilities......... 10,211 1,909 (30)(9) 12,090
--------- -------- -------- ---------
Total current liabilities..... 27,420 5,577 (473) 32,524
--------- -------- -------- ---------
LONG-TERM DEBT........................ 32,057 45 15,610 (10) 47,712
SALARY CONTINUATION
PLAN OBLIGATION................... 0 191 (191)(1) 0
MINORITY INTEREST..................... 0 792 (792)(1) 0
STOCKHOLDERS' EQUITY
Common stock...................... 865 23 (23) 865
Paid-in capital................... 33,779 3,671 (3,671) 33,779
Retained earnings................. 18,632 4,719 (4,719) 18,632
--------- -------- -------- ---------
53,276 8,413 (8,413) 53,276
Treasury stock........................ (48) 0 0 (48)
Unamortized value of (265) 0 0 (265)
restricted stock.................. --------- -------- -------- ---------
TOTAL STOCKHOLDERS' 52,963 8,413 (8,413)(1) 52,963
EQUITY............................ --------- -------- -------- ---------
TOTAL LIABILITIES & $112,440 $ 15,018 $ 5,741 $133,199
STOCKHOLDERS' -------- -------- -------- --------
EQUITY........................ -------- -------- -------- ---------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
-4-
<PAGE>
- ----------------------
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. The Company's Unaudited Pro Forma Combined Financial Statements assume
the TBP Acquisition (1) as of January 1, 1995 for purposes of the
Unaudited Pro Forma Combined Statements of Operations and (2) on June 29,
1996 for purposes of the Unaudited Pro Forma Combined Balance Sheet.
Under the terms of the Asset Purchase Agreement, certain assets of TBP
were excluded and certain liabilities were not assumed. Accordingly, the
pro forma adjustments reflect decreases in cash ($153), other current
assets ($58), other assets ($167), accounts payable ($443), other current
liabilities ($1,207), salary continuation plan obligation ($191), and
minority interest ($792), along with a corresponding increase to TBP
stockholders' equity ($2,255).
The TBP Acquisition was financed through borrowings of $15,300 under the
company's existing credit facility and a $1,177 additional variable
amount payable related to the change in net book value from December 31,
1995 to June 29, 1996.
The excess of cost over fair value of net assets acquired resulting from
the preliminary purchase price allocation is assumed to be as follows:
Pro forma purchase price --
Fixed amount stated in Asset Purchase Agreement.................. $15,300
Variable amount related to assumed purchase price
adjustment; calculated based on TBP net book value
and excluded assets and liabilities at June 29, 1996........... 1,177
Acquisition costs................................................ 310
-------
Total pro forma purchase price........................ 16,787
-------
Pro forma historical net book value of assets acquired --
Book value per historical financial statements................... 8,413
Net liabilities excluded as described above...................... 2,255
-------
Total pro forma historical net book value of
assets acquired....................................... 10,668
-------
Excess of purchase price over net book value of assets acquired.... 6,119
Allocated to:
Inventories........................................... 1,193
Machinery and equipment............................... 700
Intangible assets..................................... 500
------
Remaining excess of cost over fair value of net assets
acquired (goodwill).............................................. $3,726
======
The foregoing preliminary purchase price allocation is based on available
information and certain assumptions the Company considers reasonable. The
final purchase price allocation will be based upon a determination of the
fair value of the net assets acquired at the date of the TBP Acquisition
as determined by valuations and other studies, including an audit of the
closing balance sheet, which are not yet complete. The final purchase
price allocation may differ from the preliminary allocation.
2. The pro forma adjustment to reflect the effect of the preliminary
purchase price allocation on costs of goods sold and general and
administrative expense assumes:
Year Ended Six Months Ended
December 31, 1995 June 29, 1996
----------------- --------------
Cost of goods sold --
Depreciation of amounts allocated to $ 117 $ 58
machinery and equipment over 6 years........ ======== =======
General and administrative expenses --
Amortization of amounts allocated to other
intangible assets over 3 years.............. $ 167 $ 83
Amortization of goodwill over 25 years....... 149 75
------- ------
$ 316 $ 158
======= ======
3. The management fees previously charged by F&S Management Company to TBP
will not be incurred after the TBP Acquisition due to the cancellation of
the management agreement.
-5-
<PAGE>
4. The Company has elected the FIFO inventory method for the costing of
inventory; as such the LIFO effect on cost of goods sold of $303 and $70
for the year ended December 31, 1995 and the six-months ended June
29,1996, respectively, was eliminated.
5. The pro forma adjustment to interest expense assumes:
Year Ended Six Months Ended
December 31, 1995 June 29, 1996
----------------- --------------
Additional interest expense related to --
$15,610 of net additional borrowings
under the Company's credit facility...... $ 1,370 $ 674
$1,177 purchase price adjustment........... 103 51
-------- --------
$ 1,473 $ 725
======== ========
Interest expense is calculated assuming an average rate of 8.78% and
8.63% for 1995 and 1996, respectively.
6. The pro forma adjustment to the provision for income taxes assumes no
federal or state income taxes as income would be offset by the Company's
existing net operating loss position.
7. The allocation of income to a minority interest will not occur after the
TBP Acquisition due to the elimination of the minority shareholder.
8. The pro forma adjustment to other assets assumes:
Eliminate excluded assets in the
Asset Purchase Agreement.............................. $ (167)
Record certain intangible
assets................................................ 500
Record goodwill related to the TBP Acquisition........ 3,726
--------
$ 4,059
--------
--------
9. The pro forma adjustment to other current liabilities assumes:
Eliminate excluded liabilities in
the Asset Purchase Agreement.......................... $ (1,207)
Record purchase price adjustment...................... 1,177
---------
$ (30)
---------
---------
10. The pro forma adjustment to long-term debt assumes:
Record net additional borrowings under the Company's credit facility:
Cash purchase price to seller........................ $ 15,300
Acquisition transaction costs........................ 310
--------
$ 15,610
--------
--------
-6-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
23 Consent of Kraft Bros., Esstman, Patton &
Harrell, PLLC
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (No. 33-32264 and
No. 33-23882) and the Registration Statement on Form S-8 (No. 33-62148) of
Morgan Products Ltd. of our report dated February 16, 1996, except for Note 14,
which is dated August 30, 1996, relating to the consolidated financial
statements of Tennessee Building Products, Inc. and Subsidiary which appear in
this Current Report on Form 8-K/A.
/s/ KRAFT BROS., ESSTMAN, PATTON & HARRELL, PLLC
Nashville, Tennessee
September 27, 1996
<PAGE>
