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) JUNE 30, 1998
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-9580 76-0289495
(State of other jurisdiction (Commission File Number) (IRS Employer
incorporation) Identification No.)
7135 ARDMORE HOUSTON, TEXAS 77054
(Address of principal executive (Zip Code)
Registrant's telephone number, including area code (713) 747-1025
(Former name or former address, if changed since last report.)
1
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ITEM 5. OTHER EVENTS
(a) Financial Statements of Acquired Companies
Report of Independent Certified Public Accountants........ 3
Balance Sheets at March 31, 1998.......................... 4
Statement of Operations for the Year Ended March 31, 1998.. 5
Statement of Stockholder's Equity for the Year Ended
March 31, 1998........................................ 6
Statement of Cash Flows for the Year Ended March 31, 1998.. 7
Notes to Financial Statements.............................. 8
Balance Sheets at June 30, 1998 (Unaudited).................13
Statements of Operations for the Three Months Ended
June 30, 1998 and 1997 (Unaudited)....................14
Statements of Cash Flows for the Three Months
Ended June 30, 1998 and 1997 (Unaudited)...............15
Notes to Unaudited Financial Statements.....................16
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Financial Statements
(Unaudited)............................................17
Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1998 (Unaudited)..............................19
Notes to Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1998..........................................21
Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended June 30, 1998 (Unaudited)...22
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997 (Unaudited).......23
Notes to Pro Forma Condensed Consolidated Statement of
Operation..............................................24
2
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
July 31, 1998
The Board of Directors
Beaird Industries,Inc.
We have audited the accompanying balance sheet of Beaird Industries, Inc.
("Company") as of March 31, 1998, and the related statements of operations,
stockholder's equity and cash flows for the year then ended. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 the Company at March 31, 1998,
and the results of its operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
Simonton, Kutac & Barnidge, LLP
3
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BEAIRD INDUSTRIES, INC.
BALANCE SHEETS
MARCH 31, 1998
ASSETS
Current Assets
Cash ................................................... $ 105,075
Accounts receivable - trade ............................ 14,415,710
Inventories ............................................ 10,364,672
Prepaid expenses and other ............................. 1,705
------------
Total Current Assets ................................ 24,887,162
Property, Plant and Equipment:
Land ................................................... 80,321
Building ............................................... 263,841
Leasehold improvements ................................. 14,955,151
Machinery and equipment ................................ 45,088,091
Office furniture and equipment ......................... 1,733,710
Construction in progress ............................... 528,646
------------
62,649,760
Less: accumulated depreciation ........................ (51,228,404)
Total Property, PlanT and Equipment ................. 11,421,356
Other Assets:
Accounts receivable - retentions ....................... 336,743
------------
Total Assets ................................................. $ 36,645,261
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable ....................................... $ 1,965,203
Accrued expenses ....................................... 912,103
------------
Total Current Liabilities ........................... 2,877,306
Stockholder's Equity:
Common stock; $1 par value, 1,000 shares
authorized, issued and outstanding .................. 1,000
Additional paid in capital ............................. 32,328,864
Retained earnings ...................................... 1,438,091
------------
Total Stockholder's Equity .......................... 33,767,955
Total Liabilities and Stockholder's Equity ................... $ 36,645,261
The accompanying notes are an integral part of these financial statements.
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BEAIRD INDUSTRIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
Sales ..................................................... $ 58,367,517
Cost of sales ............................................. 48,913,346
Gross Profit ..................................... 9,454,171
Operating Expenses:
General and administrative .......................... 6,654,723
Net Operating Income ...................................... 2,799,448
Other Income (Expense)
Other income ........................................ 5,408
Royalty expense ..................................... (1,357,766)
Total Other Income (Expense) ..................... (1,352,358)
Net income before taxes ................................... 1,447,089
Provision for income taxes ................................ 721,222
Net income ................................................ $ 725,867
============
Earnings per common share:
Primary and diluted .................................... $ 725.87
============
Weighted average common shares outstanding:
Primary and diluted .................................... 1,000
The accompanying notes are an integral part of these financial statements.
5
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BEAIRD INDUSTRIES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED MARCH 31, 1998
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ----------- ---------- -----------
Balance, April 1, 1997 ....... $1,000 $32,328,864 $ 712,224 $33,042,088
Net income ................... -- -- 725,867 725,867
------ ----------- ---------- -----------
Balance, March 31, 1998 ...... $1,000 $32,328,864 $1,438,091 $33,767,955
====== =========== ========== ===========
The accompanying notes are an integral part of these financial statements.
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BEAIRD INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1998
Cash Flows from Operating Activities:
Net income .............................................. $ 725,867
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization ........................ 1,384,381
Allocation from Parent of income taxes expense ....... 721,222
Allocation from Parent of royalty expense ............ 1,357,766
Increase in accounts receivable ...................... (3,644,649)
Increase in inventories .............................. (2,601,324)
Decrease in prepaid expenses and other ............... 113,976
Increase in accounts payable ......................... 137,993
Decrease in accrued expenses ......................... (169,760)
-----------
Total adjustments ............................... (2,700,395)
-----------
Net Cash Used in Operating Activities ........... (1,974,528)
-----------
Cash Flows from Investing Activities:
Capital expenditures .................................... (1,131,758)
Net decrease in due from Parent ......................... 3,210,235
Net Cash Provided by Investing Activities ....... 2,078,477
Net Increase in Cash .......................................... 103,949
Cash at beginning of period ................................... 1,126
Cash at end of period ......................................... $ 105,075
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year ................................. $ --
===========
Income tax paid during the year ............................... $ --
===========
The accompanying notes are an integral part of these financial statements.
7
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BEAIRD INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Beaird Industries, Inc. (the "Company") is an ISO-9001 registered company and a
long-term experienced designer and manufacturer of fabricated-machined metal
products. Capabilities cover a range from light to very heavy plate fabrication
and machining. Products include AMSE Code pressure vessels for the hydrocarbon
processing industries and pressure vessels and heavy-machined weldments for pulp
and paper, transportation, powered generation, marine, mining, cement and
aluminum industries. The Company also manufactures products for industries
requiring seawater evaporators, heat transfer products, industrial silencers,
specialized fabricated and machine weldments, and rail cars. The Company's
manufacturing facility is located in Shreveport, Louisiana. The Company is a
wholly-owned subsidiary of Trinity Industries, Inc. ("Parent").
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid short-term
investments with a maturity of ninety days or less from the purchase date to be
cash equivalents.
ACCOUNTS RECEIVABLE -- The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required. If
amounts become uncollectible, they wil be charged to operations when that
determination is made.
INVENTORIES -- Inventories consist of raw materials and finished goods.
Inventories are valued at the lower of cost or market using the standard cost
method, which approximates First-in and First-out (FIFO). Inventories consisted
of the following as of March 31, 1998:
AMOUNT
-----------
Raw materials ........................................ $ 6,442,336
Work-in-process ...................................... 815,844
Finished goods ....................................... 3,106,492
-----------
$10,364,672
REVENUE AND EXPENSE RECOGNITION -- Revenues from the sale of manufactured items
are recorded when the products are shipped or when title passes.
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BEAIRD INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues on long-term contracts involving the manufacture of products for a
single installation are recorded using the pecentage-of-completion method
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. The portion of the total
contract price accrued is based on the ratio of standard labor hours earned to
date to total estimated standard labor hours on each contract. Advanced billings
in excess of revenues earned have been applied to work-in-process.
Expenses on long-term contracts include work-in-process at standard cost and
standard price and usage variances. Standard cost variances associated with job
costs are charged to expense in the period incurred. Losses, if any to be
incurred on contracts in progress, are charged to income in full as soon as they
become apparent.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations on a straight-line basis over their estimated
service lives ranging from 2 to 30 years. Depreciation expense amounted to
$1,384,381 for the year ended March 31, 1998.
INCOME TAXES -- Deferred income taxes are reported for temporary differences
between items of income or expense reported in the financial statements and
those reported for income tax purposes. For income tax purposes, the Company
depreciates property, plant and equipment using accelerated methods.
USE OF ESTIMATES -- In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilitities, the 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.
NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income." This statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. Under this statement, the Company is
required to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings in the stockholder's equity section of
the balance sheet.
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BEAIRD INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE -- Basic earnings per share have been computed by dividing
net income by the weighted average number of shares outstanding during the
period. Diluted earnings per share has been computed by dividing net income by
the weighted average number of shares plus common stock equivalents outstanding
during the period, computed using the treasury stock method.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company leases an office and manufacturing facility under an operating lease
expiring in year 2041. For the year ended March 31, 1998, such lease payments
amounted to $12,000.
The minimum rental commitments under operating leases are as follows:
FOR THE YEAR ENDED
MARCH 31, AMOUNT
- ------------------- ------------
1999 $ 12,000
2000 12,000
2001 12,000
2002 12,000
2003 12,000
Thereafter 717,000
------------
Total $ 777,000
============
The Company is engaged in various lawsuits either as plaintiff or defendant. In
the opinion of management, based upon advice of counsel, the ultimate outcome of
these lawsuits will not have a material impact on the Company's financial
statements.
NOTE 3 - INCOME TAXES
The Company and its Parent file a consolidated federal income tax return. Income
tax expense in the Company's income statement has been allocated based upon a
percentage of taxable income for the current and deferred tax components of the
Company's earnings.
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BEAIRD INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 4 - SIGNIFICANT CUSTOMERS
The Company had sales to one customer representing 14% of total sales in fiscal
1998. Additionally, the Company had sales to its Parent representing 11% of
total sales in fiscal 1998.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company had sales to its Parent amounting to $6,470,905 in fiscal 1998.
Additionally, the Company had purchases from its Parent amounting to $1,852,612
in fiscal 1998.
NOTE 6 - COLLECTIVE BARGAINING AGREEMENT
Substantially all of the Company's non-management manaufacturing employees are
covered by a collective bargaining agreement. The agreement with manufacturing
workers is scheduled to expire in November 1998. If the Company and The
International Union, United Automobile, Aerospace & Agricultural Implement
Workers of America, AFL-CIO, CLC representing such workers (aggregating
approximately 48% of all employees) are unable to agree on a new contract prior
to expiration of the current contract, a work stoppage may occur that could
adversely affect results of operations.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a contributory profit sharing pension plan under Internal
Revenue Service Code Section 401(k). The plan covers all non-union employees who
meet certain age and years of service requirements. The Company's contribution
to this plan, as defined, is based on consolidated dividends and earnings of the
Parent.
Pension plans are in effect which provide income and death benefits for eligible
non-union employees of the Company. The Parent's policy is to fund retirement
costs accrued to the extent such amounts are deductible for income tax purposes.
Benefits are based upon years of credited service and compensation. Additional
details relating to coverages, funding policies, and plan description can be
found in the plan documents of the Company which can be obtained upon request
from the Company.
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NOTE 7 - EMPLOYEE BENEFIT PLANS (CONTINUED)
Separate pension plans are in effect which provide income and death benefits for
eligible unionized labor of the Company. The Parent's policy is to fund
retirement costs accrued to the extent such amounts are deductible for income
tax purposes. Benefits are based upon years of credited service and
compensation. Additional details relating to coverages, funding policies, and
plan description can be found in the plan documents of the Company which can be
obtained upon request from the Company.
Unionized employees are provided a contributory savings plan. The plan covers
all unionized employees who meet certain age and years of service requirements.
The Company's matching contribution is based on the employee contribution (1% to
10%), but in no event will exceed 50% of the employee contribution, or $50 per
month, whichever is the lesser. The Company, at its discretion, may suspend or
discontinue Company contribution.
The Parent allocates expenses for the various pension plans maintained by the
Company. Actual expenses are included in the Parent income statement. Allocation
of pension expense is based upon 4.5 percent of the gross payroll of the
Company. For the year ended March 31, 1998, the Parent allocated pension
expenses of approximately $832,600 to the Company, which are included in the
income statement.
NOTE 8 - SUBSEQUENT EVENT
At the close of business on June 30, 1998, all of the outstanding capital stock
of the Company was acquired by Industrial Holdings, Inc. ("IHI"), a Houston,
Texas-based manufacturer, pursuant to a stock purchase agreement.
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BEAIRD INDUSTRIES, INC.
BALANCE SHEETS (UNAUDITED)
JUNE 30, 1998
ASSETS
Current Assets
Cash ................................................. $ 6,000
Accounts receivable - trade .......................... 13,895,735
Inventories .......................................... 9,511,067
Prepaid expenses and other ........................... 17,624
------------
Total Current Assets .............................. 23,430,426
------------
Property, Plant and Equipment, net ......................... 11,117,377
Other Assets ............................................... 413,781
------------
Total assets ............................................... $ 34,961,584
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable ..................................... $ 2,868,868
Accrued expenses ..................................... 635,232
------------
Total Current Liabilities ......................... 3,504,100
Stockholder's Equity:
Common stock; $1 par value, 1,000 shares
authorized, issued and outstanding ................ 1,000
Additional paid in capital ........................... 32,328,864
Retained earnings .................................... (872,379)
------------
Total Stockholder's Equity ........................ 31,457,485
------------
Total Liabilities and Stockholder's Equity ................. $ 34,961,585
============
See notes to unaudited financial statements.
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BEAIRD INDUSTRIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30
1998 1997
----------- -----------
Sales ...................................... $16,993,510 $16,926,153
Cost of sales .............................. 14,734,538 14,699,617
----------- -----------
Gross Profit ...................... 2,258,972 2,226,536
Operating Expenses:
General and administrative ........... 1,805,274 1,614,564
----------- -----------
Net Operating Income ....................... 453,698 611,972
----------- -----------
Other Income ............................... 1,081 2,843
----------- -----------
Net income before taxes .................... 454,779 614,815
Provision for income taxes ................. 216,000 221,000
----------- -----------
Net income ................................. $ 238,779 $ 393,815
=========== ===========
See notes to unaudited financial statements.
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BEAIRD INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income .......................................................... $ 238,779 $ 393,815
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization .................................... 730,292 703,614
(Increase) decrease in accounts receivable ....................... 519,975 (4,089,532)
Decrease in inventories .......................................... 853,605 1,341,430
Increase in prepaid expenses and other ........................... (92,957) (33,533)
Increase (decrease) in accounts payable and
accrued expenses .............................................. 626,794 (667,544)
----------- -----------
Total adjustments ............................................. 2,637,709 (2,745,565)
----------- -----------
Net Cash Provided by (Used in) Operating Activities ........... 2,876,488 (2,351,751)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures ................................................ (426,313) (649,674)
Net (increase) decrease in due from Parent .......................... (2,549,250) 3,003,975
----------- -----------
Net Cash Provided by (Used in) Investing Activities............ (2,975,563) 2,354,301
----------- -----------
Net Increase (Decrease) in Cash ......................................... (99,075) 2,550
Cash at beginning of period ............................................. 105,075 1,125
----------- -----------
Cash at end of period ................................................... $ 6,000 $ 3,675
=========== ===========
</TABLE>
See notes to unaudited financial statements.
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BEAIRD INDUSTRIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. These financial
statements include the accounts of Beaird Industries, Inc. ("Beaird").
Operating results for the three months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the twelve
months ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in
Beaird's audited financial statements for the year ended March 31, 1998
included herein.
Note B INVENTORIES
Inventories consist of the following at June 30, 1998:
Raw materials ........................................ $5,768,271
Work-in-process ...................................... 3,168,753
Finished goods ....................................... 574,043
----------
$9,511,067
==========
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INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to (i)
the acquisitions of Manifold Valve Services, Inc. ("MVS"), WALKER BOLT
Manufacturing, Inc. ("WALKER") and Philform, Inc. ("Philform") between March
1997 and February 1998 (the "Prior Acquisitions") in transactions accounted for
as purchases, (ii) the merger of wholly-owned subsidiaries of the Company with
Whir Acquisition, Inc. ("Ameritech"), GHX, Incorporated ("GHX"), and Moores Pump
and Supply, Inc. ("Moores") between March 1998 and April 1998 (the "1998
Mergers") in transactions accounted for as poolings-of-interest, and (iii) the
acquisition of Beaird Industries, Inc. ("Beaird") (the "Beaird Acquisition") at
the close of business on June 30, 1998 effective July 1, 1998 in a transaction
accounted for as a purchase. The allocation of the purchase price of the Prior
Acquisitions and Beaird Acquisition is based on preliminary information
currently available and will be revised as necessary. The estimated purchase
price adjustments are subject to completion of asset appraisals, the final
determination of certain tax liabilities, differences between the estimated and
actual costs of professional fees and adjustments to certain other accruals.
The unaudited condensed consolidated balance sheet as of June 30, 1998 is
based on the balance sheets of Industrial Holdings, Inc. (the "Company")
included in its Report on Form 10-Q for the quarter ended June 30, 1998 and
Beaird included elsewhere in this Report on Form 8-K. The Prior Acquisitions and
the 1998 Mergers were completed prior to June 30, 1998 and their balance sheets
as of June 30, 1998 are included in that of the Company.
The unaudited pro forma condensed consolidated statements of operations are
based on the income statements of the Company, the Prior Acquisitions, 1998
Mergers and Beaird (not presented separately herein) as if the acquisitions and
mergers had occurred at the beginning of the period presented. Such unaudited
pro forma condensed consolidated financial statements combine (i) the audited
operating results for the Company for the year ended December 31, 1997 and
unaudited operating results for the six months ended June 30, 1998; (ii) the
unaudited operating results of MVS for the two-months ended February 28, 1997;
(iii) the unaudited operating results of WALKER for the ten months ended October
31, 1997; (iv) the audited operating results of Ameritech for the year ended
December 31, 1997; (v) the operating results of GHX for the twelve months ended
December 31, 1997; (vi) the operating results of Moores for the twelve months
ended December 31, 1997; and (vii) the operating results of Beaird for the
twelve months ended December 31, 1997 and the six months ended June 30, 1998.
The results of operations for the one month ended January 31, 1997 for Lone Star
and the one month ended January 31, 1998 for Philform have not been presented
based upon management's belief that such would not be significant to the pro
forma statements of operations.
The Company acquired WALKER effective November 1, 1997, MVS on March 1,
1997, Lone Star on February 1, 1997 and Philform on February 1, 1998 and the
operating results subsequent to the date of acquisition are reflected in the
Company's historical information for the periods presented. The 1998 Mergers
were accounted for as poolings-of-interests and as such their operating
17
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results for the six months ended June 30, 1998 were included in the financial
statements of the Company for that same period.
The pro forma financial information does not purport to be indicative either
of the results of operations that would have occurred had the purchases been
made at the beginning of the periods presented or future results of operations
of the combined companies. These unaudited pro forma financial statements should
be read in conjunction with the historical financial statements and notes
thereto of the Company included in its 1997 Annual Report on Form 10-K and
Report on Form 10-Q for the quarter ended June 30, 1998, the financial
statements of Lone Star filed with Form 8-K/A dated February 6, 1997, MVS filed
with Form 8-K/A dated June 12, 1997, WALKER filed with Form 8-K dated December
1, 1997, Philform filed with Form 8-K/A dated March 31, 1998, Moores filed with
Form 8-K/A dated September 11, 1998 and Beaird included elsewhere in this Form
8-K.
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INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(000'S OMITTED)
HISTORICAL
(AS REPORTED) PRO FORMA
------------------ ------------------------
ADJUSTMENTS
IHI BEAIRD (NOTE 2) COMBINED
-------- ------- -------- --------
ASSETS
Current assets:
Cash and equivalents ......... $ 2,129 $ 6 $ (1,112)(a) $ 1,023
Accounts receivable-trade .... 20,656 13,896 (7,000)(b) 27,552
Inventories .................. 21,855 9,511 31,366
Employee advances ............ 59 -- -- 59
Notes receivable, current .... 4,507 -- -- 4,507
Other current assets ......... 1,056 18 -- 1,074
-------- ------- -------- --------
Total current assets 50,262 23,431 (8,112) 65,581
Property and equipment, net ..... 28,996 11,117 6,163(c) 46,276
Notes receivable ................ 2,569 2,569
Other assets .................... 4,670 413 300(c) 5,383
Goodwill, net ................... 16,428 -- -- 16,428
-------- ------- -------- --------
Total assets ......... $102,925 $34,961 $ (1,649) $136,237
======== ======= ======== ========
19
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INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
------------------- ------------------------
ADJUSTMENTS
IHI BEAIRD (NOTE 2) COMBINED
-------- -------- -------- --------
LIABILITIES
Current liabilities:
<S> <C> <C> <C>
Notes payable ........................ $ 15,201 -- $ 1,000(d) $ 16,201
Accounts payable-trade ............... 10,325 $ 2,869 (2,869)(b) 10,325
Accrued expenses and other ........... 4,466 635 (635)(b) 4,466
Long-term debt, current .............. 3,071 -- 3,485(d) 6,556
-------- -------- -------- --------
Total current liabilities ........ 33,063 3,504 981 37,548
Long-term debt, less current portion ..... 11,323 -- 28,828(d) 40,149
Deferred compensation payable ............ 229 -- -- 229
Deferred income taxes payable ............ 2,834 -- -- 2,834
Shareholders' equity
Common stock ......................... 109 1 (1)(e) 109
Additional paid-in capital ........... 44,282 32,328 (32,328)(e) 44,282
Retained earnings .................... 11,085 (872) 872 (e) 11,085
-------- -------- -------- --------
Total shareholders' equity ....... 55,476 31,457 (31,457) 55,476
-------- -------- -------- --------
Total liabilities and shareholders' equity $102,925 $ 34,961 $ (1,649) $136,237
======== ======== ======== ========
</TABLE>
20
<PAGE>
Note 1 - The Company acquired all the capital stock of Beaird for $33.3 million
(subject to certain post closing purchase price adjustments). The allocation of
purchase price is based on preliminary information and is subject to change
based on the final determination of post closing purchase price adjustments,
differences between estimated and actual costs of professional fees, adjustments
to certain other accruals and completion of asset appraisals.
(a) Record payment of transaction expenses.
(b) Eliminate accounts receivable not acquired and liabilities not assumed
as part of purchase agreement.
(c) Adjust assets and liabilities to their fair market values at date of
acquisition.
(d) Record issuance of (i) $12 million term note, (ii) $15 Bridge note,
(iii) $5.3 million convertible debenture (conversion at $12.75 per
share of common stock).
(e) Eliminate shareholders equity.
21
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR
YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
------------------------------------------------------------ -------------------------
1998 RESTATED PRIOR ADJUSTMENTS
IHI MERGERS IHI ACQUISITIONS BEAIRD (NOTE 2) COMBINED
-------- -------- --------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales .......................... $ 83,564 $ 43,703 $ 127,267 $ 21,753 $ 65,272 (225)(a) $ 200,304
-- -- -- -- -- (13,763)(b) --
Cost of sales .................. 63,277 32,177 95,454 14,098 55,568 279 (c) 156,358
-- -- -- -- -- (225)(a) --
-- -- -- -- -- (8,816)(b) --
-------- -------- --------- -------- -------- ------- ---------
Gross profit ................... 20,287 11,526 31,813 7,655 9,704 (5,226) 43,946
Selling, general and
administrative ............... 14,493 9,373 23,866 4,332 6,600 (875)(d) 31,334
-- -- -- -- -- (2,692)(b) --
-- -- -- -- -- 103 (c) --
Income from operations ......... 5,794 2,153 7,947 3,323 3,104 (1,762) 12,612
Equity in earnings of limited
partnership ............... -- -- -- -- -- 1,026 (b) 1,026
Other income (expense):
Interest expense ............ (1,745) (642) (2,387) (138) (337) (3,080)(e) (5,942)
Interest income ............. 160 160 64 6 (6)(h) 224
Other income (expense) ...... 368 148 516 3 (595) 595 (h) 519
-------- -------- --------- -------- -------- ------- ---------
Total other income (expense) (1,217) (494) (1,711) (71) (926) (2,491) (5,199)
-------- -------- --------- -------- -------- ------- ---------
Income before income taxes ..... 4,577 1,659 6,236 3,252 2,178 (3,227) 8,439
Income tax provision ........... 1,868 640 2,508 818 996 (1,259)(f) 3,062
-------- -------- --------- -------- -------- ------- ---------
Net income ..................... $ 2,709 $ 1,019 $ 3,728 $ 2,434 $ 1,182 $(1,968) $ 5,376
======== ======== ========= ======== ======== ======= =========
Earnings per share - basic (g) . $ .44 -- $ .44 -- -- -- $ .60
======== ======== ========= ======== ======== ======= =========
Earnings per share - diluted (g) $ .39 -- $ .39 -- -- -- $ .54
======== ======== ========= ======== ======== ======= =========
</TABLE>
22
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
-------------------- ------------------------
ADJUSTMENTS
IHI BEAIRD (NOTE 2) COMBINED
-------- -------- ----- ---------
<S> <C> <C> <C>
Sales .............................. $ 75,862 $ 31,554 -- $ 107,416
Cost of sales ...................... 56,674 26,499 $ 65(c) 83,238
-------- -------- ----- ---------
Gross profit ....................... 19,188 5,055 (65) 24,178
Selling, general and ............... 14,095 3,481 (130)(d) 17,446
-------- -------- ----- ---------
administrative
Income from operations ............. 5,093 1,574 65 6,732
Other income (expense):
Interest expense ................ (1,305) -- (1,524)(e) (2,829)
Interest income ................. 205 3 -- 208
Other income (expense) .......... 742 (1,358) 1,358 (h) 742
-------- -------- ----- ---------
Total other income (expense) ... (358) (1,355) (166) (1,879)
-------- -------- ----- ---------
Income before income taxes ......... 4,735 219 (101) 4,853
Income tax provision ............... 1,745 134 (90)(f) 1,878
-------- -------- ----- ---------
Net income ......................... $ 2,990 $ 85 $ (11) $ 2,974
======== ======== ===== =========
Earnings per share - basic (g) ..... $ .28 -- -- $ .28
Earnings per share - diluted (g) ... $ .27 -- -- $ .27
</TABLE>
23
<PAGE>
Note 2 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition of the Prior Acquisitions, the March 1998
Mergers and the Beaird:
a. Eliminate intercompany sales.
b. Eliminate sales, cost of sales and selling, general and administrative
expenses of Philform and to record 49% of the pro forma net income of
the Partnership calculated as follows:
1997 income of Philform from operations ....................... $ 2,255
To eliminate 1997 directors' fees for Philform ................ 300 (d)
Adjust depreciation expense ................................... (413)(c)
Adjust interest expense for $574,000 term note
assumed by the Partnership ................................. (49)
$ 2,093
*49%
-------
$ 1,026
=======
c. For Prior Acquisitions and Beaird, adjust depreciation and amortization
expense for changes resulting from (i) the increase in acquired
property, plant and equipment as a result of the allocation of the
purchase price and depreciation of the fair market value of the
acquired property, plant and equipment over their remaining useful
lives of 3 to 30 years and (ii) amortization of goodwill over 20 years.
d. For Prior Acquisitions and Moores Merger, reduce cost of sales and
selling, general and administrative expenses for contractual reduction
as part of the acquisition in executive payrolls and elimination of
directors fees.
e. Adjust interest expense as a result of debt incurred in connection with
the Prior Acquisitions and Beaird Acquisition.
f. Adjust income taxes as a result of the changes in the pro forma pretax
earnings of the Prior Acquisitions, Beaird and Moores and to record an
income tax provision for Walker and Ameritech, Sub S corporations.
g. Change in earnings per share as a result of pro forma earnings of the
Prior Acquisitions, the 1998 Mergers and the Beaird Acquisition and
increase in weighted average of common stock equivalents for the effect
of 1,103,984 shares of Company common stock issued to the selling
shareholders in connection with the Prior Acquisitions and for the
2,417,878 shares of common stock issued in connection with the 1998
Mergers.
h. For Beaird, eliminate corporate allocation from former parent not to be
incurred in future periods.
24
<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
CHIEF FINANCIAL OFFICER
Date: September 14, 1998
25
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report on Beaird Industries, Inc. dated July 31, 1998,
included in this Form 8-K/A into Industrial Holdings, Inc's previously filed S-3
registration statement No. 333-53285 and S-8 registration statement No.
333-62653.
SIMONTON, KUTAC & BARNIDGE, L.L.P.
Houston, Texas
September 11, 1998
26
