<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K\A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 30, 1999
Commission File Number: 33-29942-NY
------------------------
NATIONS FLOORING, INC.
[Exact name of registrant as specified in its charter]
Delaware 2836, 2835 11-2925673
(State or Other (Primary Standard (IRS Employer
Jurisdiction Industrial Classification Identification Number
Of Incorporation or Code Number)
Organization)
100 Maiden Lane
New York, New York 10038
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 898-8888
- --------------------------------------------------------------------------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
As of the close of business on June 30, 1999, Carpet Barn,
Inc. a Delaware corporation ("Carpet Barn"), a wholly owned
subsidiary of Nations Flooring, Inc. ("Nations"), entered into
an Asset Purchase Agreement with DuPont Flooring Systems, Inc.
(a wholly owned subsidiary of E.I. DuPont De Nemours and
Company) (DuPont) pursuant to which Carpet Barn acquired
certain assets of DuPont (the "Assets") for an aggregate
purchase price of $1,800,000 plus the assumption of certain
liabilities. The source of such funds was the working capital
of Carpet Barn, including funds borrowed pursuant to Carpet
Barn's senior credit facility with Fleet Capital Corporation.
The Assets purchased by Carpet Barn under the Agreement
consist of all of the properties and assets previously used by
DuPont in the business of retailing, distributing and
installation of residential floor covering products and
flooring systems under the "Kemper" name in the greater
Washington D.C. area.
The acquisition is accounted for as a purchase for financial
reporting purposes, as a result of which Nations will record
the assets acquired and liabilities assumed at fair values,
and the results of the operations of Kemper will be included
in Nations' consolidated financial statements commencing July
1, 1999.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial statements of business acquired.
(b) Pro forma financial information.
(c) Exhibits.
1. Asset Purchase Agreement effective as of June 30, 1999 by and among
Carpet Barn and DuPont.
Incorporated by reference from Form 8-K, dated June 30, 1999.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed by the undersigned
hereunto duly authorized.
NATIONS FLOORING, INC.
By: /s/ Philip A. Herman
--------------------------
Philip A. Herman
Chairman of the Board and President
Dated: September 9, 1999
3
<PAGE>
KEMPER CARPETS
(A DIVISION OF DUPONT FLOORING SYSTEMS, INC.)
STATEMENTS OF ASSETS ACQUIRED AND
LIABILITIES ASSUMED AND
STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1998 and June 30, 1999
CONTENTS
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS
Statements of assets acquired and liabilities assumed F-3
Statements of revenues and direct operating expenses F-4
Notes to financial statements F-5 - F-7
<PAGE>
Independent Auditor's Report
To the Board of Directors
Nations Flooring, Inc.
New York, New York
We have audited the accompanying special purpose statements of assets acquired
and liabilities assumed of Kemper Carpets (the Company), a division of DuPont
Flooring Systems, Inc. (a wholly owned subsidiary of E.I. DuPont De Nemours and
Company) as of December 31, 1998 and June 30, 1999 and the related special
purpose statements of revenues and direct operating expenses for the year ended
December 31, 1998 and the six month period ended June 30, 1999. 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.
As described in Note 1 to the financial statements, these special purpose
financial statements are prepared to reflect the assets acquired and liabilities
assumed by Nations Flooring, Inc. in its acquisition of Kemper Carpets, as well
as Kemper Carpets' revenues and direct operating expenses. The special purpose
financial statements are not intended to be a complete presentation of DuPont
Flooring Systems, Inc.'s assets and liabilities or results of its operations,
and accordingly, these special purpose financial statements are not intended to
be a presentation in accordance with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired and liabilities assumed of Kemper
Carpets as of December 31, 1998 and June 30, 1999 and the results of its
revenues and direct operating expenses for the year ended December 31, 1998 and
the six month period ended June 30, 1999, on the basis of accounting described
in Note 1.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Las Vegas, Nevada
August 19, 1999
F-2
<PAGE>
KEMPER CARPETS
(A DIVISION OF DUPONT FLOORING SYSTEMS, INC.)
STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
December 31, 1998 and June 30, 1999
<TABLE>
<CAPTION>
(Note 1) December 31, June 30,
ASSETS 1998 1999
----------------------------------
<S> <C> <C>
Current Assets
Accounts receivable, less allowance for doubtful
accounts 1998 $60,000; 1999 $75,000 (Note 3) $ 554,783 $ 510,489
Inventory (Note 2) 435,890 579,382
Prepaid expenses and other 49,572 47,720
----------------------------------
Total current assets 1,040,245 1,137,591
Equipment and Leasehold Improvements, net (Note 1) 157,840 133,871
==================================
$ 1,198,085 $ 1,271,462
==================================
LIABILITIES AND EXCESS OF ASSETS ACQUIRED OVER LIABILITES ASSUMED
Current Liabilities
Current maturities of capital lease obligations (Note 4) $ 11,571 $ 12,161
Accounts payable 164,308 107,684
Accrued bonus 30,005 -
Accrued rents 58,466 51,968
Other accrued expenses 28,197 39,164
Customer deposits 118,157 230,819
----------------------------------
Total current liabilities 410,704 441,796
Capital Lease Obligations, less current maturities (Note 4) 31,349 25,119
Commitments (Note 4)
Excess of Assets Acquired Over Liabilities Assumed 756,032 804,547
==================================
$ 1,198,085 $ 1,271,462
==================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
KEMPER CARPETS
(A DIVISION OF DUPONT FLOORING SYSTEMS, INC.)
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1998 and Six Month Period Ended June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
(Note 1) 1998 1999
---------------------------------------
<S> <C> <C>
Net sales (Note 3) $ 6,300,467 $ $ 3,331,290
Cost of sales 4,213,701 2,269,313
---------------------------------------
Gross Profit 2,086,766 1,061,977
Selling, general and administrative expenses 1,458,854 690,644
Amortization and depreciation 56,714 24,561
Interest on capital lease obligations 4,867 2,032
---------------------------------------
Excess of revenues over direct operating expenses $ 566,331 $ 344,740
=======================================
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
KEMPER CARPETS
(A DIVISION OF DUPONT FLOORING SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
Kemper Carpets (Kemper or Company), a division of DuPont Flooring Systems, Inc.
(DFS) (a wholly owned subsidiary of E.I. DuPont De Nemours and Company) is in
the business of selling and installing floorcovering and related products to
residential contract, retail replacement and commercial markets. Kemper operates
through three retail showrooms and one warehouse in the greater Washington D.C.
area. The Company grants credit principally to new homebuilders. Segment
information is not presented since all of the Company's revenue is attributed to
a single reportable segment.
Basis of presentation
The accompanying statements of assets acquired and liabilities assumed as of
December 31, 1998 and June 30, 1999 and revenues and direct operating expenses
for the year ended December 31, 1998 and the six month period ended June 30,
1999 have been prepared for the purpose of complying with rules and regulations
of the Securities and Exchange Commission.
On June 30, 1999, Carpet Barn, Inc. a wholly owned subsidiary of Nations
Flooring, Inc. (Nations) entered into an Asset Purchase Agreement with DFS to
purchase the tangible assets used in conducting the business of DFS' Kemper
division for an aggregate purchase price of $1,800,000, and the assumption of
certain liabilities of the Kemper division. In addition to the tangible assets,
Nations agreed to complete all uncompleted customer orders and DFS has agreed
not to compete with Nations in a line of business similar to Kemper in Kemper's
general business territory for five years.
The statements of assets acquired and liabilities assumed include the amounts
of the tangible assets of Kemper acquired, and its liabilities assumed by
Nations Flooring, Inc. (Nations) in its acquisition of Kemper, presented in
accordance with generally accepted accounting principles applicable to DFS.
Nations assumed control of the operations of Kemper on July 1, 1999. The
estimated fair value of the net assets to be assigned in the allocation of the
purchase price by Nations may differ from the reported values.
The statements of revenues and direct operating expenses include only those
revenues and operating expenses directly related to the sale of Kemper's
products. All non-direct expenses allocated to Kemper from DFS such as income
taxes, treasury, corporate accounting and legal services, estimated or actual
losses resulting from the self insured liability and property plans and
allocated interest expense, have been excluded.
A summary of the Company's significant accounting policies follows.
Use of estimates in the preparation of financial statements
In preparing the statements of assets acquired and liabilities assumed and
revenues and direct operating expenses, Kemper's management is required to make
estimates and assumptions which significantly affect the amounts reported and
disclosed in the statements of assets acquired and liabilities assumed and
revenues and direct operating expenses. Actual results could differ from those
estimates.
Inventory
Material inventory consists primarily of carpet, vinyl and wood and is stated at
the lower of cost (first-in, first-out method) or market. Work in process
inventory represents material and labor on jobs for which the installation
process is not yet complete.
Equipment and leasehold improvements
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided on the straight-line and
accelerated methods for financial reporting purposes. Amortization is provided
on the straight-line basis over the shorter of the economic life of the asset or
the lease term. Depreciation expense on assets acquired under capital leases is
included with depreciation on owned assets.
F-5
<PAGE>
KEMPER CARPETS
(A DIVISION OF DUPONT FLOORING SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Equipment and leasehold improvements (continued)
Equipment and leasehold improvements consist of the following at December 31,
1998 and June 30, 1999:
<TABLE>
<CAPTION>
Depreciation December 31, June 30,
Lives 1998 1999
---- ----
<S> <C> <C> <C>
Furniture and equipment 7 $ 241,992 $ 242,055
Equipment acquired under capital leases 5 60,674 60,674
Autos and trucks 5 79,295 79,295
Leasehold improvements 3 -5 48,251 48,843
-----------------------------
430,212 430,867
Less accumulated depreciation and amortization, including amounts
applicable to assets acquired under capital leases 1998 $19,669:
1999 $25,736 (Note 3) 272,372 296,996
================================
Equipment and leasehold improvements, net $ 157,840 $ 133,871
================================
</TABLE>
The Company assesses the impairment of long-lived assets by comparison to the
projected undiscounted cash flows to be derived from the related assets. The
Company has concluded that no impairment in the carrying amount of long-lived
assets existed at December 31, 1998 and June 30, 1999.
Vendor coop marketing and purchase discounts
The Company participates in various advertising and marketing programs with
suppliers. Certain of the Company's costs incurred in connection with these
programs are reimbursed. The Company records these reimbursements when earned.
The Company also records accounts payable net of anticipated purchase discounts.
Comprehensive Income
The Company does not have any elements of "other comprehensive income," as
defined in Statement of Financial Accounting Standards 130, "Reporting
Comprehensive Income," that are not included in the determination of net income
and accordingly does not present a statement of comprehensive income.
Revenue recognition
Revenue is recorded for commercial and retail floorcovering sales upon
installation.
Advertising
All costs related to marketing and advertising the Company's products are
expensed in the period incurred.
Advertising expense, net of cooperative advertising earned, for the year ended
December 31, 1998 and the period ended June 30, 1999 totaled $4,157 and $7,612,
respectively.
Fair value of financial instruments
The carrying amounts of financial instruments including accounts receivable,
accounts payable, accrued expenses and customer deposits approximate their fair
values because of their short maturities. The carrying amounts of capital lease
obligations approximate their fair values because the inherent interest rates
approximate market rates.
Derivative Instruments and Hedging Activities
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). The company will first be required to apply
SFAS 133 in the first quarter of 2000. SFAS 133 in general requires that
entities recognize all derivative financial instruments as assets or
liabilities, measured at fair value, and include in earnings the changes in the
fair value of such assets and liabilities. SFAS 133 also provides that changes
in the fair value of assets or liabilities being hedged with recognized
derivative instruments be recognized and included in earnings. The Company does
not utilize derivative instruments, either for hedging or other purposes, and
therefore anticipates that the adoption of the requirements of SFAS 133 will not
have a material affect on its consolidated financial statements.
F-6
<PAGE>
KEMPER CARPETS
(A DIVISION OF DUPONT FLOORING SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
Note 2. Inventory
Inventory consists of the following at December 31, 1998 and June 30, 1999:
December 31, June 30,
1998 1999
Material inventory $ 285,384 $ 414,728
Work in process 150,506 164,654
==============================
$ 435,890 $ 579,382
==============================
Note 3. Major Customers
Sales for the Company include sales to, and accounts receivable due from, the
following major customers:
<TABLE>
<CAPTION>
Percent to Total Sales
--------------------------------
Year Ended Period Ended Percent to Total Accounts Receivable
----------------------------------------
December 31, June 30, December 31, June 30,
Customer 1998 1999 1998 1999
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
A 8% 15% 18% 13%
</TABLE>
Note 4. Lease Commitments
Operating leases
The Company has entered into agreements to rent retail and warehouse space and
certain vehicles under separate operating leases expiring through March 2002,
which are being assumed by Nations. Monthly lease payments are net of taxes,
insurance and utilities, and total $31,358. The monthly base rent will be
adjusted annually to predetermined amounts, or to reflect any increases in the
Consumer Price Index. The future minimum lease commitment under these leases at
December 31, 1998 is as follows:
Year ending December 31:
1999 $ 346,440
2000 287,922
2001 139,304
2002 22,563
=============
$ 796,229
=============
Total rent expense under the above leases for the year ended December 31, 1998
and the six month period ended June 30, 1999 was approximately $363,000 and
$182,000, respectively.
Capital leases
The Company leases certain warehouse and office equipment under capital leases
expiring through June 2002, which are being assumed by Nations. The leases call
for monthly payments totaling $1,278, including interest at 10%.
The following is a schedule by years of the future minimum lease payments under
the capital leases together with the present value of the net minimum lease
payments as of December 31, 1998:
Year ending December 31:
1999 $ 15,336
2000 15,336
2001 15,336
2002 4,538
--------------
Total minimum lease payments 50,546
Less the amount representing interest 7,626
==============
Present value of net minimum lease payments $ 42,920
==============
F-7
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of the close of business on June 30, 1999, Carpet Barn, Inc. a Delaware
corporation ("Carpet Barn"), a wholly owned subsidiary of Nations Flooring, Inc.
("Nations"), entered into an Asset Purchase Agreement with DuPont Flooring
Systems, Inc. (DFS) (a wholly owned subsidiary of E.I. DuPont De Nemours and
Company) pursuant to which Carpet Barn acquired certain assets of DFS (the
"Assets") for an aggregate purchase price of $1,800,000 plus the assumption of
certain liabilities. The source of such funds was the working capital of Carpet
Barn, including funds borrowed pursuant to Carpet Barn's senior credit facility
with Fleet Capital Corporation. Nations assumed control of the operations of
Kemper on July 1, 1999.
The Assets purchased by Carpet Barn under the Agreement consist of all of the
properties and assets previously used by DFS in the business of retailing,
distributing and installation of residential floor covering products and
flooring systems under the "Kemper" name in the greater Washington D.C. area.
The acquisition is accounted for as a purchase for financial reporting purposes,
as a result of which Nations will record the assets acquired and liabilities
assumed at fair values, and the results of the operations of Kemper will be
included in Nations' consolidated financial statements commencing July 1, 1999.
The accompanying pro forma condensed consolidated financial statements are
derived from the historical audited financial statements of Nations and of
Kemper (which include only the assets acquired and liabilities assumed by
Nations and the revenues and direct operating expenses of the operations
acquired by Nations) as of and for the year ended December 31, 1998 and
historical financial statements of Nations (unaudited) and of Kemper (audited)
as of and for the six month period ended June 30, 1999. The balance sheet is
presented as if the transaction occurred on June 30, 1999 and the statements of
operations are presented as if the transaction occurred on January 1, 1998. The
unaudited pro forma condensed consolidated financial statements do not
necessarily indicate the financial position or results of operations which would
have occurred had the acquisition been completed at such times, nor do they
necessarily indicate future results that may be expected. These statements
should be read in conjunction with the historical consolidated financial
statements of Nations, including notes thereto, included in its annual report on
Form 10-K, and the historical financial statements of Kemper included elsewhere
herein.
A further description of the acquisition, nature and amount of consideration
given and pro forma adjustments follow the unaudited pro forma condensed
consolidated financial statements.
1
<PAGE>
Nations Flooring, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1999
<TABLE>
<CAPTION>
Historical Historical Pro forma
Nations Kemper Pro forma Nations
Flooring, Inc. Carpets Adjustments Flooring, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Accounts receivable, net $ 4,657,318 $ 510,489 $ $ 5,167,807
Inventories 1,614,111 579,382 2,193,493
Other current assets 594,627 47,720 230,819 (1) 873,166
Property and equipment, net 2,327,995 133,871 36,129 (1) 2,497,995
Intangible assets, net 14,773,390 - 728,505 (1) 15,501,895
----------------------------------------- -------------------
Total assets $ 23,967,441 $ 1,271,462 $ $ 26,234,356
========================================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Note payable $ 3,328,084 $ - $ 1,500,000 (1) $ 4,828,084
Accounts payable 2,475,553 107,684 300,000 (1) 2,883,237
Other current liabilities 2,257,342 103,293 2,360,635
Customer deposits 1,785,205 230,819 2,016,024
Deferred income taxes 600,000 - 600,000
Long-term debt 4,133,364 25,119 4,158,483
Due to principal stockholder 2,000,000 - 2,000,000
----------------------------------------- -------------------
16,579,548 466,915 18,846,463
----------------------------------------- -------------------
Stockholders' Equity
Preferred stock 5 - 5
Common stock 3,730 - 3,730
Additional paid-in-capital 9,652,241 - 9,652,241
Retained earnings (deficit) (2,268,083) - (2,268,083)
Excess of assets, Kemper Carpets - 804,547 (804,547) (1) -
----------------------------------------- ----------------
7,387,893 804,547 7,387,893
----------------------------------------- -------------------
Total liabilities and
stockholders' equity $ 23,967,441 $ 1,271,462 $ 26,234,356
========================================= ===================
</TABLE>
2
<PAGE>
Nations Flooring, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Month Period Ended June 30, 1999
<TABLE>
<CAPTION>
Historical Historical Pro forma
Nations Kemper Pro forma Nations
Flooring, Inc. Carpets Adjustment Flooring, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 25,222,130 $ 3,331,290 $ $ 28,553,420
Cost of sales 18,779,038 2,269,313 21,048,351
--------------------------------------- ---------------------
Gross profit 6,443,092 1,061,977 7,505,069
--------------------------------------- ---------------------
Selling, general and administrative expenses 5,067,018 690,644 5,757,662
Amortization and depreciation 547,807 24,561 26,000 (1) 598,368
--------------------------------------- ---------------------
5,614,825 715,205 6,356,030
--------------------------------------- ---------------------
Operating income 828,267 346,772 1,149,039
Other income (expense): (477,433) (2,032) (67,000) (2) (546,465)
--------------------------------------- ---------------------
Income before income taxes 350,834 344,740 602,574
Income taxes 132,380 - 84,620 (3) 217,000
--------------------------------------- ---------------------
Net income 218,454 344,740 385,574
Preferred stock dividends 309,600 - 309,600
--------------------------------------- ---------------------
Net income (loss) available to common
stockholders $ (91,146) $ 344,740 $ 75,974
======================================= =====================
Basic and dilutive income (loss) per
common share $ (0.02) $ 0.02
=================== =====================
</TABLE>
3
<PAGE>
Nations Flooring, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical Historical Pro forma
Nations Kemper Pro forma Nations
Flooring, Inc. Carpets Adjustment Flooring, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 45,000,387 $ 6,300,467 $ $ 51,300,854
Cost of sales 33,907,293 4,213,701 38,120,994
----------------------------------------- ---------------------
Gross profit 11,093,094 2,086,766 13,179,860
Selling, general and administrative expenses 8,175,710 1,458,854 9,634,564
Amortization and depreciation 1,132,331 56,714 52,000 (1) 1,241,045
----------------------------------------- ---------------------
9,308,041 1,515,568 10,875,609
----------------------------------------- ---------------------
Operating income 1,785,053 571,198 2,304,251
Other income (expense): (1,450,152) (4,867) (135,000) (2) (1,590,019)
----------------------------------------- ---------------------
Income before income taxes, dividends to
preferred stockholders of subsidiary, and
amortization of discount on preferred stock
of subsidiary 334,901 566,331 714,232
Income taxes 120,000 - 137,000 (3) 257,000
Dividends to preferred stockholders of subsidiary 466,000 - 466,000
Amortization of discount on preferred stock
of subsidiary 1,542,726 - 1,542,726
----------------------------------------- ---------------------
Net income (loss) (1,793,825) 566,331 (1,551,494)
Preferred stock dividends 98,200 - 98,200
----------------------------------------- ---------------------
Net income (loss) available to common
stockholders $ (1,892,025) $ 566,331 $ (1,649,694)
========================================= =====================
Basic and dilutive loss per
common share $ (0.52) $ (0.45)
=================== =====================
</TABLE>
4
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Description of Acquisition
As of the close of business on June 30, 1999, Carpet Barn, Inc. a Delaware
corporation ("Carpet Barn"), a wholly owned subsidiary of Nations Flooring, Inc.
("Nations"), entered into an Asset Purchase Agreement with DuPont Flooring
Systems, Inc. (a wholly owned subsidiary of E.I. DuPont De Nemours and Company)
(DuPont) pursuant to which Carpet Barn acquired certain assets of DuPont (the
"Assets") for an aggregate purchase price of $1,800,000 plus the assumption of
certain liabilities. The source of such funds was the working capital of Carpet
Barn, including funds borrowed pursuant to Carpet Barn's senior credit facility
with Fleet Capital Corporation.
The Assets purchased by Carpet Barn under the Agreement consist of all of the
properties and assets previously used by DuPont in the business of retailing,
distributing and installation of residential floor covering products and
flooring systems under the "Kemper" name in the greater Washington D.C. area.
The acquisition is accounted for as a purchase for financial reporting purposes,
as a result of which Nations will record the assets acquired and liabilities
assumed at their estimated fair values, and the results of the operations of
Kemper will be included in Nations' consolidated financial statements commencing
July 1, 1999. The adjustments related to the expected purchase price allocations
by Nations are based upon preliminary valuations which have not yet been
finalized. The actual allocation of purchase price and the resulting effect on
income may differ from the pro forma amounts included herein.
Balance Sheet Pro Forma Adjustments as of June 30, 1999
(1) To record the payment and allocation of the purchase price, including the
borrowings used by Nations to finance the payment to DFS. The components
and allocation of the purchase price reflected in the pro forma
adjustment are as follows:
Components of purchase price
Cash paid, financed through borrowings under line of credit $ 1,500,000
Seller financed through account payable to DuPont 300,000
-------------
1,800,000
Liabilities assumed 466,915
-------------
Total purchase price $ 2,266,915
=============
Allocated to:
Fair value of net tangible assets acquired $ 1,370,591
Receivable from DuPont to fund customer deposits 230,819
Covenant not to compete 100,000
Goodwill 628,505
=============
$ 2,266,915
=============
5
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income Statement Pro Forma Adjustments for the Year Ended December 31, 1998 and
the Six Month Period Ended June 30, 1999
The following is a description and summary of the pro forma adjustments
associated with the combined statements of operations:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
(1) Amortization and depreciation 52,000 26,000
To (i) adjust Kemper Carpets historical depreciation expense for the
increase to fair value of the property and equipment acquired
reflecting the lives and methods used by Nations, (ii) reflect the
amortization of the covenant not to compete over its five year term and
(iii) reflect the amortization of the goodwill recorded in the
acquisition, which will be amortized on a straight-line basis over 25
years.
(2) Interest expense 135,000 67,000
To reflect additional interest expense on the debt incurred to finance
the acquisition, at an expected interest rate of 9%
(3) Provision for income taxes 137,000 84,620
To reflect income tax expense not carried on the special purpose
financial statements of Kemper Carpets.
</TABLE>
6
