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 (Date of earliest event reported) November 18, 1996
Industrial Holdings, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Texas 1-9580 76-0289495
(State of other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
</TABLE>
7135 Ardmore Houston, Texas 77054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 747-1025
______________________________________________________________
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 5. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Acquired Company.
1. Financial Statements of American Rivet Company, Inc.
Independent Auditors' Report................................... 7
Balance Sheets at September 30, 1996 (unaudited) and
August 31, 1996 and 1995................................... 8
Statements of Operations and Retained Earnings for the
One Month Ended September 30, 1996 and 1995 (unaudited)
and for the Years Ended August 31, 1996, 1995 and 1994..... 10
Statements of Cash Flows for the One Month Ended
September 30, 1996 and 1995 (unaudited) and for the
Years Ended August 31, 1996, 1995 and 1994.................. 11
Notes to Financial Statements.................................. 12
(b) Pro Forma Financial Information
1. Pro Forma Financial Statements:
Pro Forma Condensed Consolidated Financial
Statements (Unaudited)...................................... 20
Pro Forma Condensed Consolidated Balance Sheet
at September 30, 1996 (Unaudited)........................... 21
Notes to Pro Forma Condensed Consolidated
Balance Sheet at September 30, 1996 (Unaudited)............. 23
Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended
September 30, 1996 (Unaudited).............................. 24
Pro Forma Condensed Consolidated Statement
of Operations for the Year Ended December 31,
1995 (Unaudited)............................................ 25
Notes to Pro Forma Condensed Consolidated
Statements of Operations (Unaudited)........................ 26
EXHIBITS
23.1 Consent of KPMG Peat Marwick LLP.......................... 28
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
INDUSTRIAL HOLDINGS, INC.
By: /s/ Christine A. Smith
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Date: January 24, 1997
3
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
23.1 Consent of KPMG Peat Marwick LLP
4
<PAGE>
AMERICAN RIVET COMPANY, INC.
Financial Statements and Schedules
August 31, 1996, 1995, and 1994
(With Independent Auditors' Report Thereon)
5
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page(s)
-------
Independent Auditors' Report.................................... 7
Financial Statements:
Balance Sheets............................................. 8-9
Statements of Operations and Retained Earnings............. 10
Statements of Cash Flows................................... 11
Notes to Financial Statements.............................. 12
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Rivet Company, Inc:
We have audited the accompanying balance sheets of American Rivet Company, Inc.
as of August 31, 1996 and 1995, and the related statements of operations and
retained earnings and cash flows for each of the years in the three-year period
ended August 31, 1996. 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 American Rivet Company, Inc. as
of August 31, 1996 and 1995 and the results of its operations and its cash flows
for the years in the three-year period ended August 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 2 to the financial statements, the Company changed
its method of accounting for investments as of September 1, 1994 to adopt the
provisions of Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities."
KPMG Peat Marwick LLP
October 2, 1996
7
<PAGE>
AMERICAN RIVET COMPANY, INC.
Balance Sheets
September 30, 1996, August 31, 1996 and 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS September 30, August 31, August 31,
1996 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 576,776 $ 967,540 1,105,816
Marketable securities 1,776,464 1,668,638 1,706,113
Accounts and notes receivable:
Trade, net of allowance of $20,000 in
1996 and 1995 1,265,773 1,133,439 1,155,708
Officer and employee receivables -- 447 16,163
Other 900 912 2,514
Inventories 648,745 559,413 669,280
Prepaid expenses 67,054 56,563 18,214
Deferred income taxes 62,666 62,666 64,164
- -------------------------------------------------------------------------------------------------------
Total current assets 4,398,378 4,449,618 4,737,972
- -------------------------------------------------------------------------------------------------------
Other assets:
Deferred income taxes 37,306 37,306 26,793
Deposits 425 425 152,113
Cash surrender value of officers' life insurance 128,499 126,876 107,405
- -------------------------------------------------------------------------------------------------------
166,230 164,607 286,311
- -------------------------------------------------------------------------------------------------------
Property, plant and equipment, net of accumulated
depreciation 1,974,850 1,999,859 1,487,915
Intangible assets:
Goodwill 117,254 117,254 117,254
Organizational expense 958 958 958
- -------------------------------------------------------------------------------------------------------
118,212 118,212 118,212
- -------------------------------------------------------------------------------------------------------
Deferred charges 159,440 154,482 155,237
- -------------------------------------------------------------------------------------------------------
$6,817,110 6,886,778 6,785,647
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
AMERICAN RIVET COMPANY, INC.
Balance Sheets
September 30, 1996, August 31, 1996 and 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, August 31, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable - trade $ 254,263 92,843 196,332
Accrued liabilities:
Salaries, wages, and commissions 51,460 75,312 90,099
Property taxes 97,848 149,000 150,519
Profit-sharing trust 4,150 68,101 106,554
Payroll taxes 2,327 948 23,626
Deferred compensation 23,390 23,390 21,597
Dividends -- -- 78,000
Insurance 70,674 70,674 70,674
Income taxes 43,806 32,106 87,706
Waste removal 42,000 42,000 42,000
Other 2,648 60,468 924
- -------------------------------------------------------------------------------------------------------
Total current liabilities 592,566 614,842 868,031
- -------------------------------------------------------------------------------------------------------
Deferred compensation 429,610 428,699 418,617
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,022,176 1,043,541 1,286,648
- -------------------------------------------------------------------------------------------------------
Stockholders' equity:
Net unrealized gain on marketable securities 195,162 164,383 122,846
Common stock, par value $10 per share.
Authorized 1,000,000 shares; issued 100,000
shares 1,000,000 1,000,000 1,000,000
Retained earnings 5,107,893 5,186,975 4,884,274
- -------------------------------------------------------------------------------------------------------
6,303,055 6,351,358 6,007,120
Less common stock held in treasury, at cost,
22,000 shares 508,121 508,121 508,121
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,794,934 5,843,237 5,498,999
- -------------------------------------------------------------------------------------------------------
$6,817,110 6,886,778 6,785,647
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
AMERICAN RIVET COMPANY, INC.
Statement of Operations and Retained Earnings
One month ended September 30, 1996 and 1995, and years ended August 31, 1996,
1995 and 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited)
One Month Ended
September 30 Years Ended August 31
-------------------------- ------------------------------
1996 1995 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross sales $686,891 629,885 8,799,350 9,188,341 8,666,053
Returns and allowances 3,871 5,243 56,977 37,911 30,075
- ---------------------------------------------------------------------------------------------------------------------
Net sales 683,020 624,642 8,742,373 9,150,430 8,635,978
Cost of sales 525,527 530,237 6,792,944 6,880,036 6,590,781
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 157,493 94,405 1,949,429 2,270,394 2,045,197
Selling and administrative expenses 122,373 112,402 1,502,114 1,520,403 1,445,371
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 35,120 (17,997) 447,315 749,991 599,826
- ---------------------------------------------------------------------------------------------------------------------
Other income (expense);
Investment income, net 7,497 3,853 104,934 113,514 88,634
Deferred compensation expense (634) (777) (8,546) (9,281) (7,590)
Realized gain (loss) on securities
transactions, net (408) 212 33,685 7,871 105
Gain on sale of property, plant,
and equipment -- -- 5,000 54,093 500
Unclassified (5,517) 182 (302) 1,510 638
- ---------------------------------------------------------------------------------------------------------------------
938 3,470 134,771 167,707 82,287
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 36,058 (14,527) 582,086 917,698 682,113
Income tax expense (benefit) 15,300 (4,700) 240,385 355,900 253,200
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) 20,758 (9,827) 341,701 561,798 428,913
Retained earnings at beginning of year 5,186,975 4,884,274 4,884,274 4,478,476 4,166,563
Cash dividends paid or accrued per
share of $1.28, $0, $.50, $2.00, and
$1.50, respectively (99,840) -- (39,000) (156,000) (117,000)
- ---------------------------------------------------------------------------------------------------------------------
Retained earnings at end of year $ 5,107,893 4,874,447 5,186,975 4,884,274 4,478,476
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
AMERICAN RIVET COMPANY, INC.
Statements of Cash Flows
One month ended September 30, 1996 and 1995, and years ended August 31, 1996,
1995 and 1994
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
One Month Ended
September 30 Years Ended August 31
--------------------------- -----------------------------------------
1996 1995 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $20,758 (9,827) 341,701 561,798 428,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 25,009 17,289 258,204 217,700 214,860
Deferred income taxes -- -- (9,015) (26,400) (38,800)
Deferred compensation 2,777 2,777 11,875 15,110 14,918
Gain on sale of property, plant, and equipment -- -- (5,000) (54,093) (500)
(Gain) loss on sale of marketable securities 408 (212) (33,685) (7,871) (105)
Changes in assets and liabilities:
Decrease (increase) in accounts and notes
receivable (131,875) 69,093 39,587 (26,339) (75,958)
Decrease (increase) in inventories and
prepaid expenses (99,823) (50,894) 71,518 (43,442) 132,424
Increase (decrease) in income taxes 11,700 (4,700) (55,600) 90,300 (2,594)
Decrease (increase) in other noncurrent assets (6,581) (6,954) (18,716) (6,907) (16,749)
Increase (decrease) in accounts payable and
accrued liabilities other than deferred
compensation and income taxes (33,976) (155,446) (121,382) 223,332 (20,183)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities ( 211,603) (138,874) 479,487 943,188 636,226
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant, and equipment -- (3,552) (770,148) (324,259) (109,336)
Proceeds from sale of property, plant, and
equipment -- -- 5,000 61,005 12,810
Proceeds from sale of marketable securities -- 15,087 490,233 358,863 74,151
Purchase of marketable securities (77,456) (29,104) (377,536) (299,762) (675,211)
Decrease (increase) in deposits -- (208,730) 151,688 (151,572) 4,661
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (77,456) (226,299) (500,763) (355,725) (692,925)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid to stockholders (99,840) -- (117,000) (78,000) (117,000)
Principal payments on long-term deferred
compensation (1,865) (1,722) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (101,705) (1,722) (117,000) (78,000) (117,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents(390,764) (366,895) (138,276) 509,463 (173,699)
Cash and cash equivalents at beginning of year 967,540 1,105,816 1,105,816 596,353 770,052
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 576,776 738,921 967,540 1,105,816 596,353
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information-
cash paid during the year for income taxes, net
of refunds received $ -- -- 305,000 292,000 373,000
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
AMERICAN RIVET COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
DESCRIPTION OF BUSINESS
American Rivet Company ("Company") is a national manufacturer of rivets with
approximately 35% of its annual net sales derived from the automotive
industry. Approximately 10% of the Company's net sales were provided by one
customer for the years ended August 31, 1996 and 1995.
INTERIM UNAUDITED FINANCIAL STATEMENTS
The unaudited interim financial data as of September 30, 1996 and for the one
month ended September 30, 1996 and 1995 reflects all normal recurring
adjustments, consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of financial
position and operating results for the interim periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect 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, but management does not
believe such differences will materially affect its financial position,
results of operations or cash flows.
MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115 (SFAS
115), "Accounting for Certain Investments in Debt and Equity Securities,"
effective September 1, 1994. The cumulative effect of the adoption of SFAS
115 resulted in an increase in stockholders' equity of $63,451. In accordance
with SFAS 115, prior years' financial statements have not been restated to
reflect the change in accounting method. At August 31, 1994 marketable
securities were classified as available-for-sale and were reported at the
lower of aggregate amortized cost or fair value.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to maturity are
classified as available-for-sale, along with the Company's investment in
equity securities. Securities available for sale are carried at fair value,
with unrealized gains and losses reported in a separate component of
shareholders' equity. At August 31, 1996, the Company had no investments that
qualified as trading or held to maturity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. Realized
gains and losses are shown separately. The cost of securities sold is based
on the specific identification method.
At August 31, 1996, the Company's investments in debt and equity securities
were classified as marketable securities. These investments are diversified
among high credit quality securities in accordance with the Company's
investment policy.
12
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
INVENTORIES
Inventories are valued at the lower of cost or market. The last-in, first-out
(LIFO) method is used to determine cost for the rivet business inventories,
and the first-in, first-out (FIFO) method is used to determine cost for the
automatic rivet setting machine parts inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is generally calculated using accelerated methods
over the estimated useful lives of between 5-45 years of the respective
assets. When assets are retired or otherwise disposed of, the cost and
related depreciation are removed from the accounts, and any gain or loss is
recognized in income for the period. The cost of maintenance is charged to
income as incurred; significant renewals and betterments are capitalized.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
GOODWILL AND ORGANIZATIONAL EXPENSE
The goodwill and organizational expense which arose in 1953 is not being
amortized, as it has no determinable life.
DEFERRED CHARGES
Deferred charges consist of certain tools and factory supplies which are
charged to operations as they are used in production.
DEFERRED COMPENSATION
The Company has deferred compensation contracts with certain past and present
key executives. Periodic accrual is being made, over the projected active
term of employment of present executives, of an amount equivalent to the
present value of the benefits at the date of retirement.
13
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
PROFIT-SHARING PLAN
The Company maintains a qualified noncontributory profit-sharing plan for
full-time employees who satisfy minimum age and service requirements.
Contributions to the plan are at the discretion of the Board of Directors.
The Board of Directors authorized contributions of $53,000, $88,000 and
$40,000 for fiscal years 1996, 1995, and 1994 respectively.
The Company amended the plan, effective September 1, 1993, to add a 401(k)
provision in addition to the existing plan. The 401(k) offers two investment
options: the Balanced Fund and Fixed Income Fund. In fiscal 1994 the Company
matched $0.50 on the dollar for employee contributions of up to $400. In
fiscal years 1995 and 1996, the Company matched $0.75 on the dollar for
employee contributions of up to $500. The Company matched contributions at a
cost of $15,101, $15,277 and $6,725 for fiscal years 1996, 1995 and 1994,
respectively.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of these items. The Company's marketable securities are
presented in the financial statements at fair market value as determined by
quoted market prices.
(2) MARKETABLE SECURITIES AND CASH EQUIVALENTS
In accordance with SFAS 115, the Company's marketable securities have been
classified as available-for-sale securities and are reported at their fair
value of $2,007,441 and $2,037,282 compared to a historical cost of
$1,843,058 and $1,914,436 for fiscal 1996 and 1995, respectively. The net
unrealized gains of $164,383 and $122,846 are reported as a separate
component of stockholders' equity at August 31, 1996 and 1995, respectively.
A summary of the Company's investment securities follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
September 30, 1996 (Unaudited)
------------------------------------------------------------------
Gross Gross
Estimated unrealized unrealized
Cost fair value gains losses
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities $ 1,132,453 1,317,755 195,872 10,570
Corporate bonds 43,644 45,775 2,131 --
U.S. Treasury notes 405,206 412,934 7,728 --
- ----------------------------------------------------------------------------------------------------------
1,581,303 1,776,464 205,731 10,570
Cash equivalents 276,234 276,234 -- --
- ----------------------------------------------------------------------------------------------------------
$1,857,537 2,052,698 205,731 10,570
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
August 31, 1996
------------------------------------------------------------------
Gross Gross
Estimated unrealized unrealized
Cost fair value gains losses
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities $1,012,130 1,159,710 155,580 8,000
Corporate bonds 86,919 99,038 14,669 2,550
U.S. Treasury notes 405,206 409,890 5,778 1,094
- ----------------------------------------------------------------------------------------------------------
1,504,255 1,668,638 176,027 11,644
Cash equivalents 338,803 338,803 -- --
- ----------------------------------------------------------------------------------------------------------
$1,843,058 2,007,441 176,027 11,644
- ----------------------------------------------------------------------------------------------------------
August 31, 1995
------------------------------------------------------------------
Gross Gross
Estimated unrealized unrealized
Cost fair value gains losses
- ----------------------------------------------------------------------------------------------------------
Equity securities $1,104,544 1,205,200 104,981 4,325
Corporate bonds 74,517 76,163 2,371 725
U.S. Treasury notes 404,206 424,750 20,544 --
- ----------------------------------------------------------------------------------------------------------
1,583,267 1,706,113 127,896 5,050
Cash equivalents 331,169 331,169 -- --
- ----------------------------------------------------------------------------------------------------------
$ 1,914,436 2,037,282 127,896 5,050
- ----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
Contractual maturities of debt securities (Corporate bonds and U.S.Treasury
notes) at August 31, 1996 are shown below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Amortized Estimated
cost fair value
- -------------------------------------------------------------------------------
Due in:
1997 $ 199,956 205,734
1998 - 2001 -- --
2002 - 2006 275,500 285,044
2007 and later 16,669 18,150
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Proceeds, gross realized gains, and gross realized losses during the years ended
August 31, 1996 and 1995 were as follows:
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
Proceeds from sales $ 490,233 358,863
Gross realized gains 36,558 22,074
Gross realized losses 2,873 14,203
- -------------------------------------------------------------------------------
For the purposes of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3)INVENTORIES
Inventories at September 30, 1996, August 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
(Unaudited)
September 30 August 31
1996 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rivet business:
Raw materials $ 668,545 645,883 704,109
Work in process and finished goods 638,796 563,006 548,770
- -----------------------------------------------------------------------------------------------------------
1,307,341 1,208,889 1,252,879
Less LIFO reserve 664,878 655,758 616,000
- -----------------------------------------------------------------------------------------------------------
642,463 553,131 636,879
Automatic rivet setting machine parts 6,282 6,282 32,401
- -----------------------------------------------------------------------------------------------------------
$ 648,745 559,413 669,280
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
If the Company had valued rivet business inventories under the FIFO method,
net income for fiscal 1996, 1995 and 1994 would have increased by
approximately $23,800, $19,000 and $9,000, respectively, and retained
earnings would have been higher by $386,800, $363,000 and $335,000 in fiscal
1996, 1995 and 1994, respectively.
16
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4)PROPERTY, PLANT, AND EQUIPMENT
Major categories of property, plant, and equipment at August 31, 1996 and
1995 are summarized as follows:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
Land and land improvements $ 229,631 229,631
Building and building improvements 1,660,311 1,653,817
Machinery and equipment 8,374,175 7,617,114
Automatic rivet setting machines - leased 42,482 42,482
Office furniture, fixtures, and equipment 344,518 337,925
Automobiles 147,312 147,312
Condominium, including furnishings 211,647 211,647
- -----------------------------------------------------------------------------
11,010,076 10,239,928
Less accumulated depreciation 9,010,217 8,752,013
- -----------------------------------------------------------------------------
$ 1,999,859 1,487,915
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Depreciation expense for fiscal 1996, 1995, and 1994 amounted to $258,204,
$217,700 and $214,860, respectively.
(5) INCOME TAX EXPENSE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Income tax expense (benefit) is summarized as follows:
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Current:
Federal $ 198,200 313,000 243,700
State 51,200 69,300 48,300
- ------------------------------------------------------------------------------
249,400 382,300 292,000
Deferred (9,015) (26,400) (38,800)
- ------------------------------------------------------------------------------
$ 240,385 355,900 253,200
- ------------------------------------------------------------------------------
17
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A reconciliation of the statutory U.S. Federal income tax rate of 34% in fiscal
1996, 1995, and 1994 to the Company's effective tax rate for the corresponding
periods is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax at 34% $ 197,900 312,000 231,900
Add (deduct) tax effect of:
State taxes, net of federal tax effect 33,800 45,700 31,900
Dividend exclusion (4,500) (4,300) (3,200)
Tax-exempt interest (7,200) (6,800) (4,600)
Officers' life insurance premiums 3,100 2,500 2,600
Travel and entertainment 3,900 9,500 6,800
Other, net 13,385 (2,700) (12,200)
- -----------------------------------------------------------------------------------------------------------
Provision for income taxes $ 240,385 355,900 253,200
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at August 31, 1996 and
1995 are presented as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation $ 174,596 $ 170,010
Health insurance accrual 27,294 27,294
Accounts receivable 7,724 7,724
Waste removal accrual 16,220 16,220
Other 2,373 4,585
- --------------------------------------------------------------------------------
Total gross deferred tax assets 228,207 225,883
Deferred tax liability - property,
plant, and equipment (128,235) (134,876)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 99,972 90,957
- --------------------------------------------------------------------------------
A valuation allowance has not been provided for deferred tax assets at August
31, 1996 or 1995 as management believes it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax assets.
18
<PAGE>
AMERICAN RIVET COMPANY, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) RELATED PARTIES
Deferred compensation relates to agreements with certain key past and present
officers of the Company. These agreements are in the form of annuities
beginning at age 65 and continuing over a ten year period or less depending
on the last survival of the officer or spouse. Amounts accrue straight-line
to the date of retirement and all agreements are fully funded. The current
portion of the accrual at August 31, 1996 and 1995 represents payments due
within the next twelve months for a past officer's beneficiary. Deferred
compensation expense was approximately $33,000 in fiscal 1996, 1995 and 1994.
(7)SUBSEQUENT EVENTS
Some aspects of the Company's business are regulated by environmental laws,
and the Company regularly takes steps to comply with applicable requirements.
The Company believes it is in compliance with the environmental laws. In
October, 1996, the Company engaged environmental engineering consultants to
review the Company's facility. The tests and findings have not been
completed, but do indicate that some expenditures related to environmental
matters may be necessary. Since the extent or range of the cost is not yet
known, no accrual has been made in the financial statements for costs related
to the environmental matters. Based upon information presently available,
such costs are not expected to have a material adverse effect on the
Company's financial position or its results of operations.
(8) COMMITMENTS AND CONTINGENCIES
Subsequent to year end, the Company's Board of Directors authorized a
dividend of $1.28 per share for stockholders of record on September 5, 1996.
The total amount of $99,840 was paid subsequently.
19
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to
the acquisition by Industrial Holdings, Inc. ("IHI") of American Rivet Company,
Inc. ("American") in a transaction accounted for as a purchase which closed
November 1996. The allocation of purchase price is based on preliminary
information currently available and will be revised as necessary prior to the
issuance of the 1996 financial statements, although no material adjustments are
anticipated. The following unaudited pro forma financial statements also give
effect to the exercise of 621,914 Class A Warrants, the issuance of 621,914
shares of Common Stock and the application of the net proceeds therefrom which
occurred December 15, 1996.
The unaudited pro forma condensed consolidated balance sheet is based on
the September 30, 1996 balance sheets of IHI included in the financial
statements of IHI filed with Form 10-Q for the quarter ended September 30, 1996
and in the 1995 Annual Report filed on Form 10-K and the financial statements of
American appearing elsewhere in this Form 8-K, and has been prepared to reflect
the acquisition of American and the exercise of warrants as if the acquisition
and exercise had occurred at September 30, 1996. The acquisition of MRMC, Inc's
("MRMC") Fastener Division ("CRivet") was completed in December 1995 and its
balance sheet as of September 30, 1996 is included in that of IHI.
The unaudited pro forma condensed consolidated statements of operations
are based on the income statements of IHI filed with Form 10-Q for the quarter
ended September 30, 1996 and in the 1995 Annual Report filed on Form 10-K and
the financial statements and the income statement of American for the 12-month
period ended December 31, 1995 and the nine-month period ended September 30,
1996 (not presented separately herein). Additionally, the unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1995 is based on the Statement of Direct Revenues and Direct Expenses of CRivet
for the period from January 1, 1995 through December 7, 1995 (not presented
separately herein). The unaudited pro forma condensed consolidated statements of
operations combine the results of operations of IHI, CRivet and American for the
year ended December 31, 1995, as if the acquisitions had occurred on January 1,
1995 and combine the results of operations of IHI and American for the nine
months ended September 30, 1996 as if the acquisition had occurred on January 1,
1996.
These unaudited pro forma financial statements should be read in
conjunction with the historical financial statements and notes thereto of IHI
filed with Form 10-Q for the quarter ended September 30, 1996 and in the 1995
Annual Report filed on Form 10-K and the financial statements of CRivet filed
with Form 8-K/A3 dated July 5, 1996 and American included elsewhere in this Form
8-K.
20
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ----------------------------
ADJUSTMENTS
IHI AMERICAN (NOTE 1) COMBINED
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and equivalents $ 1,131 $ 301 $ (103) (d) $ 1,329
Marketable securities 2,053 (2,053) (d)
Accounts receivable-trade 6,027 1,266 7,293
Inventories 8,782 649 656 (a) 10,087
Property and equipment held for sale 100 100
Advances to shareholders 17 17
Notes receivable, current portion 284 284
Other current assets 495 67 562
--------- ------- ----------- --------
Total current assets 16,836 4,336 (1,500) 19,672
Property and equipment, net 10,258 1,975 3,125 (a) 15,158
(200) (c)
Notes receivable 1,249 1,249
Other assets 152 288 (134) (a) 306
Goodwill, net 1,831 118 3,706 (b) 5,655
--------- -------- -------- --------
Total assets $ 30,326 $ 6,717 $ 4,997 $42,040
========= ======== ======== =======
</TABLE>
21
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ---------------------------
ADJUSTMENTS
IHI AMERICAN (NOTE 1) COMBINED
-------- ----------- ------- -------
<S> <C> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 6,500 $ $ 7,212 (d) $ 10,112
(3,600) (f)
Accounts payable-trade 4,610 254 4,864
Accrued expenses and other 1,050 338 478 1,866
Current portion of long-term debt 1,136 360 (d) 1,496
-------- ----------- ------- -------
Total current liabilities 13,296 592 4,450 18,338
Long-term debt, less current portion 4,252 1,440 (d) 5,692
Deferred compensation payable 430 (36) (a) 394
Deferred income taxes payable 819 (100) 1,338 (h) 2,057
-------- -------- -------- -------
Total liabilities 18,367 922 7,192 26,481
Shareholders' equity
Net unrealized gain on marketable
securities 195 (195) (e)
Common stock 41 1,000 (1,000) (e) 47
6 (f)
Less: Treasury stock (508) 508 (e)
Additional paid-in capital 11,135 3,594 (f) 14,729
Retained earnings 783 5,108 (5,108) (e) 783
--------- -------- -------- ----------
Total shareholders' equity 11,959 5,795 (2,195) 15,559
-------- -------- -------- ---------
Total liabilities and
shareholders' equity $ 30,326 $ 6,717 $ 4,997 $ 42,040
======== ======== ======== =========
</TABLE>
22
<PAGE>
Note 1 - The pro forma balance sheet reflects the acquisition of American for a
purchase price of $11,759,000 plus estimated acquisition expenses of $670,000,
the exercise of 621,914 Class A Warrants, the issuance of 621,914 shares of
Common Stock and the application of the net proceeds therefrom. Pro forma
adjustments are made to:
a. Adjust the assets and liabilities of American to the estimated fair
market values at the acquisition date.
b. Record goodwill on the purchase of American.
c. Reflect the distribution of Florida real estate to sellers.
d. Record the issuance of a 12% bridge note payable in the amount of
$3,500,000, the drawdown of $3,712,000 on the 8.25% Comerica Bank
Demand Note, the issuance of an 8.25% term note in the amount of
$1,800,000, and the disbursement of $2,156,000 of American cash and
marketable securities to complete the purchase acquisition.
e. Eliminate the common stock, treasury stock, unrealized gains and
retained earnings of American.
f. Reflect the repayment of the Comerica Bank Demand Note with the
$3,600,000 in net proceeds from the exercise of the 621,914 Class A
Warrants and the related issuance of 621,914 shares of Common Stock.
g. Establish a net deferred income tax liability for deferred income
taxes applicable to differences in fair market values and book bases
of assets acquired and liabilities assumed in a. above.
23
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- -------------------------------------
ACQUISITION
ADJUSTMENTS
IHI AMERICAN (NOTE 1) COMBINED
--- -------- -------- --------
<S> <C> <C> <C>
Sales $ 38,498 $ 6,786 $ $ 45,283
Cost of sales 29,975 5,118 (28) (a) 35,032
(26) (b)
(6) (c)
Gross profit 8,523 1,668 60 10,251
Operating expenses:
Selling, general and 6,186 1,157 (583) (a) 6,760
administrative
Depreciation and amortization 293 7 133 (b) 433
--------- ----------- -------- ---------
Total operating expenses 6,479 1,164 (450) 7,193
-------- --------- --------- --------
Income from operations 2,044 504 510 3,058
Other income (expense):
Interest expense (960) (388) (d) (1,348)
Interest income 96 71 (71) (e) 96
Other income (3) 26 (26) (e) (3)
---------- ------------ ----------- ------------
Total other income (expense) (867) 97 (485) (1,255)
--------- ------------ ---------- -----------
Income before income taxes 1,177 601 25 1,803
Income tax expense 413 240 10 (i) 663
--------- ----------- --------- -----------
Net income $ 764 $ 361 $ 15 $ 1,140
======== ========== ======== ==========
Earnings per share (j) $ .19 $ .24
========= ===========
</TABLE>
24
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------
ACQUISITION ADJUSTMENTS
HISTORICAL (NOTE 1)
----------------------------------- --------------------------------
IHI CRIVET AMERICAN CRIVET AMERICAN COMBINED
-------- ----------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 38,983 $ 9,986 $ 8,718 $ (1,122) (k) $ 56,565
Cost of sales 30,613 7,979 6,790 (557) (f) 43,797
(389) (g)
180 (h)
312 (b) 46
(1,122) (k)
(c) (12)
(a) (43)
Gross profit 8,370 2,007 1,928 454 9 12,768
Cost of sales:
Selling, general and 6,512 779 1,461 210 (1) 8,392
administrative 100 (m)
(a) (670)
Depreciation and amortization 413 40 (b) 175 628
-------- ----------- ---------- ----------- -------- --------
Total operating expenses 6,925 779 1,501 310 (495) 9,020
------- --------- --------- --------- -------- --------
Income from operations 1,445 1,228 427 144 504 3,748
Other income (expense):
Interest expense (982) (523) (d) (518) (2,023)
Interest income 140 130 (e) (130) 140
Other income (expense) 18 57 (e) (57) 18
--------- ----------- --------- ----------- -------- ---------
Total other income (expense) (824) 187 (523) (705) (1,865)
-------- ----------- -------- -------- ------- --------
Income before income taxes 621 1,228 614 (379) (201) 1,883
Income tax expense 76 0 238 335 (i) (78) 571
---------- ----------- --------- --------- -------- --------
Net income $ 545 $ 1,228 $ 376 $ (714) $ (123) $ 1,312
======== ========= ======== ========= ======== =======
Earnings per share (j) $ .17 $ .34
========= ========
</TABLE>
25
<PAGE>
Note 1 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition and the issuance of debt related to the
acquisition outlined in Note 1 to the pro forma balance sheet:
a. Reduce cost of sales and selling, general and administrative expenses
for reductions in executive payrolls, reductions in professional fees,
elimination of directors fees, reduction in executive benefits,
elimination of profit sharing plan contributions and elimination of
expenses related to Florida real estate.
b. Record change in depreciation and amortization expense resulting from
(i) the increase in acquired property, plant and equipment as a result
of the allocation of the purchase price and (ii) amortization of
acquired goodwill over 20 years.
c. Reduce cost of sales for the effect of the difference in lifo and fifo
basis of accounting for inventory.
d. Reflect interest charges (i) for American on $1,800,000 of 8.25% term
debt, $3,712,000 8.25% Comerica Bank Demand Note, 12% $3,500,000 bridge
note and $3,600,000 reduction in short term borrowings as a result of
application of net proceeds from the exercise of 621,914 Class A
Warrants; (ii) for CRivet on $1,000,000 of 12% convertible notes,
$2,800,000 of 9.85% term note and $1,400,000 Demand Note secured to
finance the acquisition.
e. Eliminate interest income and other income.
f. Reduce payroll expense for employees not hired upon acquisition of
CRivet and which are not needed to operate at historical levels of
operations when the operations of CRivet are combined with those of IHI.
Pro forma production staffing levels at CRivet are comparable to those
at Landreth and include 65 employees compared to 71 production employees
at Landreth. Pro forma sales and engineering staffing levels include 8
employees at CRivet compared to 8 employees at Landreth. Substantially
all other administrative functions will be performed by Landreth. These
staffing reductions are as a result of Landreth's more efficient
operating and management techniques. Pro forma adjustments for 1995
include the elimination of an additional 32 production employees not
hired by Landreth at acquisition.
g. Reverse the effect of the CRivet obsolescence reserve recorded in the
period ended December 7, 1995.
h. Increase expense for the rental of CRivet plant facility at $15,000 per
month.
i. Increase in income taxes as a result of the pro forma pretax earnings of
CRivet and American.
j. Increase in earnings per share as a result of pro forma earnings of
CRivet and American and increase in weighted average of common stock
equivalents (i) for American for the effect of 540,000 warrants sold in
connection with $3,500,000 bridge note, (ii) for CRivet for the effect
of 400,000 warrants sold in connection with $1,000,000 convertible note,
and (iii) the issuance of 621,914 shares of common stock and the related
common stock equivalents for the additional incentive warrants issued in
connection with the exercise of Class A Warrants.
k. Eliminate intercompany sales and cost of goods sold between CRivet and
Landreth.
26
<PAGE>
l. Increase CRivet general and administrative expenses for office supplies,
data processing, telephone, professional fees and travel and
entertainment. Pro forma amounts based on Landreth's historical usage,
data processing system to be implemented, number of telephones,
estimated additional audit and legal fees and travel anticipated between
Houston and Connecticut.
m. Increase CRivet commission expense by 1% to percentage expected to be
paid by Landreth.
27
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements on
Form S-3 (Nos. 333-4160, 33-68376 and 33-99852) and in the registration
statement on Form S-8 (No. 33-68354) of Industrial Holdings, Inc. of our report
dated October 2, 1996, with respect to the balance sheets of American Rivet
Company, Inc. as of August 31, 1996 and 1995, and the related statements of
operations and retained earnings and cash flows for each of the years in the
three-year period ended August 31, 1996, which report appears in the Form 8-K of
Industrial Holdings, Inc. dated November 18, 1996.
KPMG Peat Marwick LLP
Chicago, Illinois
January 24, 1997
