ACQUISITIONS

Atlas Carpet Mills, Inc.

Effective March 19, 2014, the Company acquired all outstanding stock of Atlas Carpet Mills, Inc. ("Atlas") for total purchase price consideration of $18,740, including a cash payment of $16,543, accrued consideration relating to holdbacks for certain inventories and customer claims of $923 and accrued consideration for a working capital adjustment of $1,274. The Company financed the transaction with availability under its amended credit facility. The Company incurred direct acquisition costs of approximately $595 related to this acquisition. These incremental costs are classified as selling and administrative expenses in the Company's Consolidated Condensed Statements of Operations.

Atlas is a California-based manufacturer and marketer of high-end commercial broadloom and tile carpeting serving soft floorcovering markets. Atlas has a strong reputation for exceptional design, quality and service. This brand will be sold through the existing Atlas sales force and will serve to broaden the Company's product offerings for commercial applications along with the Company's Masland Contract brand.

The purchase price consideration was as follows:



Cash paid	$	16,543
Accrued consideration for holdbacks	923
Accrued consideration for working capital adjustment	1,274
Total purchase price consideration	$	18,740

The acquisition was accounted for as a business combination which generally requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The acquisition did not represent a significant business combination. The preliminary fair value of the net assets acquired exceeded the purchase price resulting in a bargain purchase. The recorded gain is subject to adjustment because the Company has not yet completed its evaluation and determination of the fair value, or fair value less cost to sell as applicable, of certain assets acquired and liabilities assumed, which will include the final valuation and assessment of (i) property, plant and equipment acquired including assets held for sale and (ii) net working capital acquired. The Company expects these final valuations and assessments to be completed by the end of fiscal 2014. During the second quarter of 2014, based on further information, the Company retroactively applied adjustments to the initial provisional amounts to the first quarter of 2014. Such adjustments are presented in the table below. The most significant adjustments were to assets held for sale and inventories. The amount of assets held for sale were revised based on a pending offer with a buyer and revisions in estimated costs to sell. Inventories were revised for a change in their initial fair value. As a result of the adjustments, previously reported first quarter pre-tax earnings were increased by $1,818 ($1,127 after tax). The adjusted bargain gain recognized in the Consolidated Condensed Statement of Operations is $10,562 ($6,548 after tax).



	Originally						As
	Reported			Adjustments			Adjusted
Cash	$	2,466		$	—		$	2,466
Receivables	4,304			—			4,304
Inventories	11,511			(530		)	10,981
Other current assets	956			(159		)	797
Assets held for sale (1)	3,250			1,902			5,152
Property, plant and equipment	6,929			87			7,016
Finite intangible asset	3,300			—			3,300
Other assets	623			236			859
Accounts payable	(2,286		)	—			(2,286		)
Accrued expenses	(3,036		)	153			(2,883		)
Capital lease obligation	(404		)	—			(404		)
Fair value of net assets acquired	$	27,613		$	1,689		$	29,302
Total consideration	18,869			(129		)	18,740
Gain on purchase of business	$	(8,744	)	$	(1,818	)	$	(10,562	)

(1)

As part of the acquisition of Atlas, the Company announced that the Atlas dyeing operations would be consolidated into the Company's Santa Ana, California operations. All of the dye house equipment was either relocated or disposed of by the end of the Company's third fiscal quarter. The land and building have been classified in the Company's Consolidated Condensed Balance Sheet as assets held for sale at fair value less the costs to sell.

The Company believes that several factors were significant in the recognition of a gain from the acquisition of Atlas. Atlas had higher cost of dyeing due to the lack of capacity utilization and therefore needed to lower costs by combining dye facilities with another operation. In addition, Atlas had a higher cost of modular carpet tile manufacturing due to outsourcing the tile manufacturing operations. Therefore, Atlas would have had to make significant investments in product and manufacturing equipment to be competitive in the modular carpet manufacturing business. Finally, the Seller had the desire to see Atlas operated as an independent brand and organization in the future. All of these objectives were achieved by combining Atlas with the Company in a mutually advantageous relationship.

The Company determined that it is impracticable to provide comparative pro forma financial information related to the acquisition. Atlas, a private company, did not historically prepare financial statements in accordance with U.S. GAAP for interim financial reporting. Accordingly, significant estimates of amounts to be included in pro forma financial information would be required and subject to an inordinate level of subjectivity. Net sales related to Atlas included in the Company’s Consolidated Condensed Statement of Operations for the three and nine months ended September 27, 2014 were $12,079 and $25,927, respectively.

Burtco Enterprises, Inc.

Effective September 22, 2014, the Company acquired certain assets and assumed certain liabilities of Burtco Enterprises, Inc. ("Burtco") for total purchase price consideration of $2,432, including a cash payment of $2,330 and accrued consideration for a working capital adjustment of $102. The Company incurred direct acquisition costs of approximately $76 related to this acquisition. These incremental costs are classified as selling and administrative expenses in the Company's Consolidated Condensed Statements of Operations.

Since 1979, Burtco has created high-quality, custom-crafted carpet designed for the hospitality industry. Burtco manufactures both wool and solution-dyed computer yarn placement (CYP) products that are used in public spaces and hotel guest rooms.

These products will broaden the product offerings for commercial applications under the Company's Masland Contract brand.