<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: AUGUST 6, 1999
------------------------------
(DATE OF EARLIEST EVENT REPORTED)
WSI INDUSTRIES, INC.
--------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 0-619 41-0691607
--------- ----- ----------
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OR INCORPORATION)
2605 WEST WAYZATA BOULEVARD
LONG LAKE, MINNESOTA 55356
--------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 473-1271
<PAGE>
The undersigned registrant hereby amends the following items of its Current
Report on Form 8-K filed August 21, 1999.
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 August 21, 1999, the registrant appends to the Form 8-K the following
financial statements and pro forma financial information:
(a) Financial Statements of Business Acquired
The following financial statements of Bowman Tool & Machining,
Inc. are attached hereto as Appendix A:
1. Report of Independent Auditors
2. Balance Sheets at July 31, 1999 and 1998
3. Statements of Income for the two years ended July 31,
1999
4. Statement of Changes in Shareholders' Equity for the
two years ended July 31, 1999
5. Statements of Cash Flows for the two years ended July
31, 1999
6. Notes to Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is attached
hereto as Appendix B:
1. Unaudited Pro Forma Combined Statements of Operations
for the year ended August 30, 1998.
2. Notes to Unaudited Pro Forma Financial Statements
3. Unaudited Pro Forma Combined Statement of Operations
for the thirty-nine weeks ended May 30, 1999
4. Unaudited Pro Forma Combined Balance Sheet as of
May 30, 1999
5. Notes to Unaudited Pro Forma Financial Statements
(c) Exhibits
23. Consent of Ernst & Young LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the
undersigned hereunto duly authorized.
WSI INDUSTRIES, INC.
By: /s/ Michael J. Pudil
---------------------------
Michael J. Pudil
President & CEO
By: /s/ Paul D. Sheely
---------------------------
Paul D. Sheely
Vice President Finance & CFO
October 19, 1999
<PAGE>
FINANCIAL STATEMENTS
BOWMAN TOOL & MACHINING, INC.
YEARS ENDED JULY 31, 1999 AND 1998
<PAGE>
Bowman Tool & Machining, Inc.
Financial Statements
Years ended July 31, 1999 and 1998
CONTENTS
Report of Independent Auditors......................1
Audited Financial Statements
Balance Sheets......................................2
Statements of Income................................4
Statement of Stockholders' Equity...................5
Statements of Cash Flows............................6
Notes to Financial Statements.......................7
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Bowman Tool & Machining, Inc.
We have audited the accompanying balance sheets of Bowman Tool & Machining,
Inc. as of July 31, 1999 and 1998, and the related statements of income and
cash flows for the years then ended. 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 financial position of Bowman Tool & Machining,
Inc. at July 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Minneapolis, MN
September 23, 1999
1
<PAGE>
Bowman Tool & Machining, Inc.
Balance Sheets
<TABLE>
<CAPTION>
JULY 31
1999 1998
-------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $1,603,968 $1,253,188
Marketable securities 1,188,498 867,197
Accounts receivable 741,196 1,082,013
Inventories 526,665 566,290
Prepaid expenses 2,602 36,230
-------------------------------------
Total current assets 4,062,929 3,804,918
Property, plant and equipment, at cost:
Leasehold improvements - 238,623
Equipment 4,548,730 3,308,718
Vehicles 18,382 117,373
-------------------------------------
4,567,112 3,664,714
Less accumulated depreciation (2,987,250) (2,707,983)
-------------------------------------
Net property, plant and equipment 1,579,862 956,731
-------------------------------------
Total assets $5,642,791 $4,761,649
-------------------------------------
-------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
JULY 31
1999 1998
--------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 372,090 $ 451,587
Accrued liabilities 55,910 157,222
Accrued distribution payable - 642,000
Current portion of long-term debt 168,413 -
--------------------------------------
Total current liabilities 596,413 1,250,809
Long-term debt 627,846 -
Stockholders' equity:
Common stock, no par value:
Authorized shares - 1,000
Issued and outstanding shares - 100 5,000 5,000
Accumulated other comprehensive income 61,281 (144,657)
Retained earnings 4,352,251 3,650,497
--------------------------------------
Total stockholders' equity 4,418,532 3,510,840
--------------------------------------
Total liabilities and stockholders' equity $5,642,791 $4,761,649
--------------------------------------
--------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Bowman Tool & Machining, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1999 1998
-------------------------------------
<S> <C> <C>
Net sales $8,538,144 $8,367,908
Cost of goods sold 5,754,175 5,747,040
-------------------------------------
Gross margin 2,783,969 2,620,868
General and administrative 358,182 397,815
-------------------------------------
Operating profit 2,425,787 2,223,053
-------------------------------------
Other income (expense):
(Loss) gain on sale of investments (161,772) 132,559
Interest expense (57,511) (4,376)
Interest income 76,843 66,244
-------------------------------------
Income before income taxes 2,283,347 2,417,480
Provision for income taxes - (507)
-------------------------------------
Net income $2,283,347 $2,416,973
-------------------------------------
-------------------------------------
Earnings per common share $24,451.19 $22,844.14
-------------------------------------
-------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Bowman Tool & Machining, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
----------------------------- COMPREHENSIVE RETAINED
SHARES AMOUNT INCOME EARNINGS TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1997 100 $5,000 $(106,089) $3,180,062 $3,078,973
Dividends paid - - - (1,946,538) (1,946,538)
Comprehensive income:
Net income - - - 2,416,973 2,416,973
Net unrealized loss (38,568) (38,568)
------------------
Total comprehensive income 2,378,405
---------------------------------------------------------------------------------
Balance at July 31, 1998 100 5,000 (144,657) 3,650,497 3,510,840
Dividends paid - - - (1,581,593) (1,581,593)
Comprehensive income:
Net income - - - 2,283,347 2,283,347
Net unrealized gain 205,938 205,938
------------------
Total comprehensive income 2,489,285
---------------------------------------------------------------------------------
Balance at July 31, 1998 100 $5,000 $ 61,281 $4,352,251 $4,418,532
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Bowman Tool & Machining, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1999 1998
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,283,347 $2,416,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 427,861 231,002
Loss (gain) on investment in marketable securities 161,772 (132,559)
Changes in operating assets and liabilities:
Accounts receivable 340,817 (457,318)
Inventories 39,625 75,842
Prepaid expenses 33,628 (20,439)
Accounts payable (79,497) 181,417
Accrued expenses (101,312) 141,506
---------------------------------
Net cash provided by operating activities 3,106,241 2,436,424
INVESTING ACTIVITIES
Marketable securities (277,135) (102,285)
Distributions to stockholders related to sale of property,
plant and equipment 180,140 -
Payments for acquisition of property, plant and equipment (1,231,132) (262,078)
---------------------------------
Net cash used in investing activities (1,328,127) (364,363)
FINANCING ACTIVITIES
Net borrowings on long-term debt 796,259 -
Distributions to stockholders (2,223,593) (1,304,538)
---------------------------------
Net cash used in financing activities (1,427,334) (1,304,538)
---------------------------------
Net increase in cash 350,780 767,523
Cash at beginning of year 1,253,188 485,665
---------------------------------
Cash at end of year $1,603,968 $1,253,188
---------------------------------
---------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 76,843 $ 66,244
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Bowman Tool & Machining, Inc.
Notes to Financial Statements
July 31, 1999
1. NATURE OF BUSINESS
Bowman Tool & Machining, Inc. specializes in the production of high quality,
precision machined parts ranging from the smallest of components within
computers, the dairy industry and medical supplies up to the large parts
required in defense and heavy equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market as determined using the
first-in, first-out (FIFO) method.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements 5 to 20 years
Equipment 3 to 7 years
Vehicles 5 years
</TABLE>
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. Cash
equivalents are recorded at cost which approximates market value.
7
<PAGE>
Bowman Tool & Machining, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
Short-term investments include all purchased mutual fund obligations with
maturities greater than three months. Investments are classified as
available-for-sale because the Company does not have the intent to hold such
securities to maturity. Investments are stated at fair value, with unrealized
gains and losses reported in a separate component of shareholders' equity.
Realized gains and losses are included in interest income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
interest income.
INCOME TAXES
The Company has elected to be treated as an S corporation for federal income
tax purposes. Generally, S corporations are not taxable entities for federal
income tax purposes. All items of tax consequence are passed through to the
stockholders.
The Company has elected to be taxed at the corporate level in certain states
in which it does business; therefore, the Company has provided for taxes
attributable to those states.
EARNINGS PER COMMON SHARE
Basic earnings per share is based on the weighted average shares outstanding
and excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share for the Company is the same as basic
earnings per share because the Company does not have any options or warrants
outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
8
<PAGE>
Bowman Tool & Machining, Inc.
Notes to Financial Statements (continued)
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Finished goods $ 92,628 $ 58,293
Work in process 249,571 228,185
Raw materials 184,466 279,812
------------------------------------
$526,665 $566,290
------------------------------------
------------------------------------
</TABLE>
4. LONG-TERM DEBT
In September 1998, the Company entered into a $927,000 equipment loan with a
bank through September 2003. The note is due in monthly installments of
$18,686 including interest at 7.75%. The note is secured by the purchased
equipment. The outstanding note at July 31, 1999 is $796,259 and the current
portion is $168,413.
The entire note was paid off in August 1999.
5. OPERATING LEASES
The Company leases its manufacturing and office facility under an operating
lease. The lease of the facility is with the owner of the Company and
provides for a base monthly rent for an indefinite period ($6,000 through
December 1998 and $10,000 thereafter). Rental expense under these agreements
was $100,000 and $72,000 in 1999 and 1998, respectively.
6. DEFERRED COMPENSATION
The Company maintains a 401(k) Profit Sharing Plan and Trust covering all
employees over 21 years old. The contribution is determined by management and
is allocated based on a percentage of each employee's compensation. The
profit sharing plan is funded out of current operations.
The Company recorded expense related to the profit sharing plan of $22,204
and $32,083 for the years ended July 31, 1999 and 1998, respectively.
9
<PAGE>
Bowman Tool & Machining, Inc.
Notes to Financial Statements (continued)
7. MAJOR CUSTOMERS
Sales to one customer accounted for 67% and 79% of gross sales for the years
ended July 31, 1999 and 1998, respectively.
8. SUBSEQUENT EVENT
On August 6, 1999, the Company sold all of the issued and outstanding stock
to WSI for $6,000,000 cash and a $886,618 subordinated promissory note to the
Company's shareholder. The note is due in three annual installments
commencing August 6, 2002, with an interest rate of 7.75% payable in
quarterly installments commencing November 1999. An additional as yet
undetermined amount, not to exceed $1,500,000, will be payable by WSI to the
shareholder, such amount to be based upon the sales and operating income of
the Company through January 24, 2001. The Company also entered into a
non-compete agreement with WSI through August 2004 for $1,000,000 payable
$50,000 per quarter commencing November 1, 1999. Upon the closing of the
Stock Purchase Agreement, the Company entered into a one-year lease with the
shareholder for the facility used in its business.
9. YEAR 2000 ISSUE (UNAUDITED)
The Company has completed its plan to modify its information technology to
recognize the year 2000 and has converted its data processing systems. The
Company has incurred minimal costs and does not expect any additional costs
in excess of costs incurred through July 31, 1999.
10
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On August 6, 1999, WSI Industries, Inc. ( the "Company"), acquired all the
outstanding shares of stock of Bowman Tool & Machining., Inc. ("Bowman"). The
Company's unaudited pro forma financial statements assume the Bowman
acquisition occurred (1) as of the beginning of the period for the purposes
of the unaudited pro forma statements of operations and (2) on May 30, 1999
for the purposes of the unaudited pro forma balance sheet.
The Company's unaudited pro forma financial statements combine the results of
operations of the Company for the year ended August 30, 1998 and the
thirty-nine weeks ended May 30, 1999 with the twelve months ended July 31,
1998 and the nine months ended April 30, 1999, respectively, of Bowman. The
pro forma balance sheet combines the Company's May 30, 1999 balance sheet
with the Bowman July 31, 1999 balance sheet. These dates reflect the
financial results of Bowman recast to be within a 93 day period of the actual
fiscal results of the Company.
On February 15, 1999, the Company acquired Taurus Numeric Tool, Inc.
Accordingly, the Company's May 30, 1999 Statement of Operations includes 2
1/2 months of Taurus' operations. The pro forma adjustments for the
thirty-nine weeks ended May 30, 1999 therefore also include an adjustment to
include Taurus operations for the entire thirty-nine week period. The year
ended August 30, 1998 Statement of Operations also includes a pro forma
adjustment for Taurus operations for the year ended September 30, 1998.
The acquisition has been accounted for under the purchase method of
accounting. The total cost of the acquisition has been preliminarily
allocated to the assets acquired and liabilities assumed based upon their
respective fair values as determined through internal estimates that WSI
believes are reasonable. The actual allocation of purchase cost, however, and
the resulting effect on income may differ from the proforma amounts included
herein.
The following unaudited pro forma combined financial information does not
purport to reflect the financial position or results of operations that
actually would have resulted had the above transactions occurred as of the
dates indicated or to project the results of operations for any future
period. The unaudited pro forma combined financial information should be read
in conjunction with the historical financial statements of WSI and Bowman.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
WSI Bowman Adjustments Combined
-------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net sales $ 23,948,116 $ 8,367,908 $7,601,715 (5) $ 39,917,739
Cost of goods sold 19,547,136 5,747,040 5,310,719 (1) 30,604,895
-------------- ------------- ---------- -------------
Gross Margin 4,400,980 2,620,868 2,290,996 9,312,844
Selling and administrative expense 2,452,496 397,815 982,867 (1) 3,833,178
Interest and other income (161,753) (198,803) 249,099 (3) (111,457)
Interest expense 190,353 4,376 941,913 (2) 1,136,642
-------------- ------------- ---------- -------------
Earnings before income taxes 1,919,884 2,417,480 117,117 4,454,481
Provision for income taxes 45,800 507 529,000 (4) 575,307
-------------- ------------- ---------- -------------
Net Earnings $ 1,874,084 $ 2,416,973 $ (411,883) $ 3,879,174
-------------- ------------- ---------- -------------
-------------- ------------- ---------- -------------
Basic earnings per common share $ .77 $ 1.59
-------------- -------------
Diluted earnings per common share $ .73 $ 1.52
-------------- -------------
-------------- -------------
Basic shares outstanding 2,434,125 2,434,125
-------------- -------------
-------------- -------------
Diluted shares outstanding 2,555,518 2,555,518
-------------- -------------
-------------- -------------
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1.
- -------
The pro forma adjustment to reflect the effect of the preliminary purchase
price allocation on cost of goods sold and general and administrative
expenses assumes:
Cost of goods sold -
Depreciation of amounts allocated to machinery
and equipment over 7 years. $ 104,474
Impact of Taurus from Note 5 5,206,245
-------------
$ 5,310,719
-------------
-------------
General and administrative expenses -
Amortization of goodwill over 20 years 152,700
Impact of Taurus from Note 5 830,167
-------------
$ 982,867
-------------
-------------
NOTE 2.
- -------
The pro forma adjustment to interest expense assumes: Additional interest
expense related to $6,044,000 of net additional borrowings $ 552,660
Impact of Taurus from Note 5 389,253
-------------
$ 941,913
-------------
-------------
NOTE 3.
- -------
The pro forma adjustments eliminate all interest income as it is assumed that
there would be minimal cash balances due to the acquisition. $ 321,508
Impact of Taurus from Note 5 (72,409)
-------------
$ 249,099
-------------
-------------
NOTE 4.
- -------
The pro forma adjustment to the provision for income taxes assumes mandatory
state income taxes as well as federal income taxes to the extent there is
taxable income above and beyond the Company's existing net operating loss
position and AMT credit carryforwards.
NOTE 5.
- -------
WSI Industries, Inc. acquired Taurus Numeric Tool, Inc in a separate
transaction on February 15, 1999. Accordingly, the pro forma adjustments also
include an unaudited adjustment to reflect Taurus operations for the year
ended September 30, 1998 as follows:
Sales $ 7,601,715
Cost of goods sold 5,206,245
-------------
Gross margin 2,395,470
Selling and administrative expense 830,167
Interest and other income (72,409)
Interest expense 389,253
-------------
Earnings before income taxes $ 1,248,459
-------------
-------------
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED MAY 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
WSI Bowman Adjustments Combined
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 15,359,113 $ 6,759,659 $ 4,300,262 (7) $ 26,419,034
Cost of goods sold 13,412,318 4,536,801 2,754,981 (2) 20,704,100
-------------- ------------- ------------- --------------
Gross margin 1,946,795 2,222,858 1,545,281 5,714,934
Selling and administrative expense 1,851,490 333,343 737,284 (2) 2,922,117
Interest and other income (137,952) (60,996) 108,449 (5) (90,499)
Interest expense 304,295 41,565 687,142 (3) 1,033,002
-------------- ------------- ------------- --------------
Earnings (loss) before income taxes (71,038) 1,908,946 12,406 1,850,314
Provision for income taxes 15,800 - 51,000 (4) 66,800
-------------- ------------- ------------- --------------
Net earnings $ (86,838) $ 1,908,946 $ (38,594) $ 1,783,514
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Basic earnings per common share $ (.04) $ .73
-------------- -------------
-------------- -------------
Diluted earnings per common share $ (.03) $ .70
-------------- -------------
-------------- -------------
Basic shares outstanding 2,451,307 2,451,307
-------------- -------------
-------------- -------------
Diluted shares outstanding 2,540,934 2,540,934
-------------- -------------
-------------- -------------
</TABLE>
<PAGE>
UNAUDTIED PRO FORMA COMBINED BALANCE SHEET
MAY 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
WSI Bowman Adjustments Combined
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and marketable securities $ - $ 2,792,466 $ (2,502,698) (6) $ 289,768
Accounts receivable, net 2,446,749 741,196 - 3,187,945
Inventories 3,399,280 526,665 - 3,925,945
Other current assets 108,039 2,602 - 110,641
-------------- ------------- ------------- -------------
Total current assets 5,954,068 4,062,929 (2,502,698) 7,514,299
Property, Plant and Equipment, net 9,159,067 1,579,862 1,848,001 (1) 12,586,930
Intangible assets, net 2,573,313 - 3,053,899 (1) 5,627,212
-------------- ------------- ------------- ------------
Total Assets $ 17,686,448 $ 5,642,791 $ 2,399,202 $25,728,441
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 1,014,016 $ 372,090 $ - $ 1,386,106
Current portion of long-term debt 618,083 168,413 383,587 (6) 1,170,083
Accrued expenses 1,664,002 55,910 500,000 (6) 2,219,912
-------------- ------------- ------------- ------------
Total current liabilities 3,296,101 596,413 883,587 4,776,101
Long-term debt, less current portion 6,117,355 627,846 4,864,247 (6) 11,609,448
Pension liability and deferred compensation 356,660 - - 356,660
Stockholders' Equity 7,916,332 4,418,532 (3,348,632) 8,986,232
-------------- ------------- -------------- ------------
Total Liabilities and Stockholders' Equity $ 17,686,448 $ 5,642,791 $ 2,399,202 $ 25,728,441
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1.
- -------
The Bowman Acquisition was financed through additional borrowings of
$2,700,000 under a term loan with the Company's bank, a mortgage of
$2,500,000 also from the Company's bank and $844,093 of subordinated debt
financed by the seller of Bowman.
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:
Purchase price per the Asset Purchase Agreement $ 6,886,618
Additional payment to seller for tax considerations 500,000
Portion of purchase price related to change in book
value from pro forma date to agreement date (42,525)
Acquisition costs 270,000
-------------
Total pro forma purchase price 7,614,093
Pro forma historical net book value of assets acquired 2,712,093
-------------
Excess of purchase price over net book value of
Assets acquired 4,902,000
Allocated to:
Machinery and equipment 1,848,101
Intangible assets 270,000
Remaining excess of cost over fair value of net assets
acquired (goodwill) $ 2,783,899
-------------
-------------
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 Bowman Acquisition
as determined by valuations or other studies. The final purchase price
allocation may differ from the preliminary allocation.
NOTE 2.
- -------
The pro forma adjustment to reflect the effect of the preliminary purchase
price allocation on cost of goods sold and general and administrative
expenses assumes:
Cost of goods sold -
Depreciation of amounts allocated to machinery
and equipment over 7 years. $ 14,009
Impact of Taurus from Note 7 2,740,972
-------------
2,754,981
-------------
-------------
General and administrative expenses -
Amortization of goodwill over 20 years 114,525
Impact of Taurus from Note 7 622,759
-------------
$ 737,284
-------------
-------------
<PAGE>
NOTE 3.
- -------
The pro forma adjustment to interest expense assumes: Additional interest
expense related to $6,044,000 of net additional borrowings $ 414,495
Elimination of Bowmans' interest expense (41,565)
Impact of Taurus from Note 7 314,212
-------------
$ 687,142
-------------
-------------
NOTE 4.
- -------
The pro forma adjustment to the provision for income taxes assumes mandatory
state income taxes as federal income taxes would be offset by the Company's
existing net operating loss carryforward.
NOTE 5.
- -------
The pro forma adjustment to interest and other income
eliminates all interest income as it is assumed that there would be minimal
cash balances due to the acquisition:
Eliminate WSI interest income $ 73,703
Eliminate Bowman interest income 60,996
Impact of Taurus from Note 7 (26,250)
--------------
$ 108,449
--------------
--------------
NOTE 6.
- -------
The pro forma adjustments to cash and long-term debt assumes:
Purchase price to Seller $ 7,614,093
Paid by bank term loan (2,700,000)
Paid by bank mortgage (2,500,000)
Paid by Seller subordinated debt (844,093)
Paid by WSI revolving line of credit (1,070,000)
Amount accrued (500,000)
--------------
$ -
--------------
--------------
Dividend paid to seller prior to acquisition $ 1,706,439
Payoff of Bowman long-term debt 796,259
-------------
Net adjustment to cash and marketable securities $ 2,502,698
-------------
-------------
Current Long-term Total
--------------- -------------- --------------
Bank term loan $ 385,000 $ 2,315,000 $ 2,700,000
Mortgage 167,000 2,333,000 2,500,000
Seller Subordinated debt 844,093 844,093
Payoff of Bowman debt (168,413) (627,846) (796,259)
--------------- -------------- --------------
Net adjustments to debt $ 383,587 $ 4,864,247 $ 5,247,834
--------------- -------------- --------------
--------------- -------------- --------------
<PAGE>
NOTE 7.
- -------
WSI Industries, Inc. also acquired Taurus Numeric Tool, Inc in a separate
transaction on February 15,1999. The May 30, 1999 WSI Statement of Operations
includes Taurus activity from February 15, 1999 through May 30, 1999.
Accordingly, the pro forma adjustments also include an unaudited adjustment
to reflect Taurus operations for the period August 31, 1998 through
February 14, 1999 as follows:
Sales $ 4,300,262
Cost of goods sold 2,740,972
-------------
Gross margin 1,559,290
Selling and administrative expense 622,759
Interest and other income (26,250)
Interest expense 314,212
-------------
Earnings before income taxes 648,569
Provision for income taxes 17,500
-------------
Net earnings $ 631,069
-------------
-------------
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- ----------------------------
23 Consent of Ernst & Young LLP
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-75087, No. 33-19650 and No. 33-58565 of WSI Industries, Inc. on Form S-8 of
our report, dated September 23, 1999 on the Financial Statements of Bowman
Tool & Machining, Inc. for the Years Ended July 31, 1999 and 1998, appearing
in this Current Report on Form 8-K/A of WSI Industries, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 18, 1999
