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): February 27, 1998
INNOVATIVE VALVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-23231 76-0530346
(State or other jurisdiction of (I.R.S. Employer
incorporation) (Commission File Number) Identification No.)
2 NORTHPOINT DRIVE, SUITE 300
HOUSTON, TEXAS 77060
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (281) 925-0300
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 27, 1998 (the "Closing Date"), Innovative Valve
Technologies, Inc., a Delaware corporation (the "Company"), acquired Cypress
Industries, Inc., an Illinois corporation ("Cypress"), through a stock purchase
transaction (the "Acquisition"). The Company completed the Acquisition pursuant
to a stock purchase agreement dated as of February 27, 1998 among the Company,
Cypress, Robert J. Gerth, Robert J. Gerth Trust, Roger A. Szafranski and Roger
A. Szafranski Trust (collectively, the "Stockholders"). As consideration, the
Company paid an aggregate cash purchase price of $11,808,000 and effectively
assumed $5,192,000 of debt. In addition, Cypress distributed $343,000 to the
Stockholders in respect of federal and state taxes attributable to its income
for 1997. The total consideration for the Acquisition is subject to adjustment
for any changes in Cypress' working capital from December 31, 1997 to February
27, 1998. The Company funded the payment of the cash purchase price through
borrowings under its credit facility with Chase Bank of Texas, N.A., as agent,
and the other lenders party thereto. The parties determined the consideration
for the Acquisition through arm's-length negotiations.
Cypress, through its three operating divisions, provides field
machining, valve repair, specialized welding and babbitt bearing repair services
to its customers, which include the power utility industry, steel mills and
other related industrial markets. Cypress is headquartered in Schaumburg,
Illinois and has operating locations in Cincinnati, Ohio and Atlanta, Georgia.
The Company intends to use the acquired operations in the manner previously used
by Cypress.
A copy of the Company's March 5, 1998 press release that relates
to the Acquisition is included as Exhibit 99.1 to this Report and incorporated
herein by reference thereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The historical financial statements of Cypress set forth in the
Company's Registration Statement on Form S-4 (Reg. No. 333-49283) are
incorporated herein by reference thereto. A copy of such financial statements is
included as Exhibit 99.2 to this Report.
(B) PRO FORMA FINANCIAL INFORMATION.
The Unaudited Pro Forma Combined Financial Statements set forth
in the Company's Registration Statement on Form S-4 (Reg. No. 333-49283) are
incorporated herein by reference thereto. A copy of such Unaudited Pro Forma
Combined Financial Statements is included as Exhibit 99.3 to this Report. In
addition, the Consolidated Balance Sheet of the Company and its subsidiaries as
of March 31, 1998, reflecting, among other things, the Company's acquisition of
Cypress, is incorporated herein by reference to Item 1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. A copy of
such Consolidated Balance Sheet, along with the other interim financial
statements of the Company and its subsidiaries included in Item 1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
included as Exhibit 99.4 to this Report.
<PAGE>
(C) EXHIBITS
2* Stock Purchase Agreement dated as of February 27, 1998 by and
among Innovative Valve Technologies, Inc., Cypress Industries,
Inc. and the Stockholders named therein. Pursuant to Item
601(b)(2) of Regulation S-K, the Company has omitted certain
Schedules and Exhibits to the Stock Purchase Agreement (all of
which are listed therein) from this Exhibit 2. It hereby agrees
to furnish supplementally a copy of any such omitted item to the
Securities and Exchange Commission on its request.
23.1 Consent of Crowe, Chizek and Company LLP
99.1* Press release issued March 5, 1998.
99.2 Cypress Industries, Inc. Financial Statements.
99.3 Innovative Valve Technologies, Inc. Pro Forma Financial
Information.
99.4 Item 1 (Financial Statements) of Innovative Valve Technologies,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
----------------
* Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart
Chief Financial Officer and
Senior Vice President -
Corporate Development
Date: May 29, 1998
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 12, 1998 with respect to the December 31, 1997 financial
statements of Cypress Industries, inc. included in this Form 8-K/A dated
Febuary 27, 1998 into Innovative Valve Technologies, Inc.'s previously filed
registration statement on Form S-8 (No. 333-40023).
Crowe, Chizek and Company LLP
Oak Brook, Illinois
May 26, 1998
EXHIBIT 99.2
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cypress Industries, Inc.
Schaumburg, Illinois
We have audited the accompanying balance sheet of Cypress Industries, Inc.
as of December 31, 1997 and the related statements of income, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 Cypress Industries, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 12, 1998
1
<PAGE>
CYPRESS INDUSTRIES, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current assets
Cash............................... $ 24,803
Accounts receivable, less allowance
for doubtful accounts of
$165,000........................ 3,198,719
Accounts receivable -- other....... 39,159
Inventories........................ 348,930
Costs in excess of billings on
uncompleted contracts........... 216,499
------------
Total current assets....... 3,828,110
Property and equipment, net (Note
2)................................... 3,602,181
Other assets
Deposits........................... 10,779
Organizational costs, less
accumulated amortization of
$107,661........................ 272,339
------------
283,118
------------
$ 7,713,409
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit (Note 3)............ $ 1,800,000
Checks written in excess of bank
balance......................... 88,821
Current portion of long-term debt
(Note 4)........................ 640,029
Accounts payable................... 413,796
Accrued expenses................... 683,659
------------
Total current
liabilities.................. 3,626,305
Long-term debt, less current
maturities (Note 4).................. 2,136,823
Shareholders' equity
Common stock -- no par value; 300
shares authorized; 200 shares
issued and outstanding.......... 1,500,000
Retained earnings.................. 450,281
------------
Total shareholders'
equity....................... 1,950,281
------------
$ 7,713,409
============
See accompanying notes to financial statements.
2
<PAGE>
CYPRESS INDUSTRIES, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
Revenues................................ $ 20,061,164
Cost of services........................ 14,790,576
--------------
GROSS PROFIT............................ 5,270,588
General and administrative expenses..... 4,439,881
--------------
INCOME FROM OPERATIONS.................. 830,707
Other income (expense)
Gain on sale of fixed assets.......... 5,953
Interest expense...................... (477,332)
Interest income....................... 2,728
--------------
(468,651)
--------------
INCOME BEFORE PROVISION FOR STATE
REPLACEMENT TAXES..................... 362,056
Provision for state replacement taxes... 15,000
--------------
Net income.............................. $ 347,056
==============
See accompanying notes to financial statements.
3
<PAGE>
CYPRESS INDUSTRIES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
---------- --------- -------------
Balance, December 31, 1996........... $1,500,000 $ 266,225 $1,766,225
Distributions to shareholders........ -- (163,000) (163,000)
Net income........................... -- 347,056 347,056
---------- --------- -------------
Balance, December 31, 1997........... $1,500,000 $ 450,281 $1,950,281
========== ========= =============
See accompanying notes to financial statements.
4
<PAGE>
CYPRESS INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
Cash flows from operating activities
Net income......................... $ 347,056
Adjustments to reconcile net income
to net cash from operating
activities
Depreciation and amortization... 754,126
Provision for bad debts......... 43,000
Gain on sale of fixed assets.... (5,953)
Net changes in assets and
liabilities
Receivables................... 900,445
Inventories and jobs in
progress....................... (111,513)
Checks written in excess of
bank balance................. (72,627)
Accounts payable.............. (205,671)
Accrued expenses.............. (472,454)
--------------
Net cash from operating
activities................ 1,176,409
Cash flows from investing activities
Capital expenditures............... (161,540)
Proceeds on sale of fixed assets... 13,077
--------------
Net cash from investing
activities................ (148,463)
Cash flows from financing activities
Net payments on lines of credit.... (300,000)
Principal payments on long-term
debt............................... (584,811)
Distributions to shareholders...... (163,000)
--------------
Net cash from financing
activities................ (1,047,811)
--------------
Net change in cash................... (19,865)
Cash, beginning of year.............. 44,668
--------------
Cash, end of year.................... $ 24,803
==============
Supplemental disclosures of cash flow
information
Cash paid during the year for
interest........................ $ 489,958
See accompanying notes to financial statements.
5
<PAGE>
CYPRESS INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION: The financial statements of Cypress Industries,
Inc. (the Company) include the divisions of Continental Field Machinery Co.,
Inc. (CFM); New PME, Inc. (PME); and VR-TESCO, Inc. (VR-TESCO) (the Companies).
The nature and summary of the significant accounting policies followed by the
Company are as follows:
NATURE OF OPERATIONS: CFM, located in Schaumburg, Illinois and Atlanta,
Georgia, provides on-site machining for utility, steel mill, and other heavy
industry companies primarily located in the United States. The location in
Atlanta was closed during 1997. PME, which is located in Atlanta, Georgia and
Cincinnati, Ohio, repairs babbitt bearings for utility, steel mill, electric
motor, marine, and other heavy industry companies located primarily in the
eastern half of the United States. VR-TESCO, which is located in Schaumburg,
Illinois, provides valve repair and specialty welding services for utility,
petro chemical, steel, and other heavy industry companies which are primarily
located in the continental United States.
BASIS OF ACCOUNTING: Income from contracts in which the price is firm is
recognized on the completed contract method. This method is used because the
typical firm contract is completed in two months or less and the financial
position and results of operations do not vary significantly from those which
would result from using the percentage-of-completion method. A contract is
considered complete when all costs except insignificant items have been incurred
and the installation is operating according to specifications or has been
accepted by the customer. Income from contracts in which the price is based on
time and materials is recognized on the percentage-of-completion method. Under
this method, revenues are recognized based on contract valuation rates assigned
to the costs incurred. The rates vary depending on the type of cost, such as
labor and materials. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Cost of services
include all direct material and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs, and
depreciation costs. Selling, general, and administrative costs are charged to
expense as incurred.
ACCOUNTS RECEIVABLE: Accounts receivable consists primarily of amounts due
on completed contracts.
INVENTORY: The inventory is valued at the lower of cost (determined on a
first-in, first-out method) or market. CFM inventory consists of carbide steel,
cast iron, carbon, and other machine repair materials and supplies. VR-TESCO
inventory consists of safety valve test systems and other valve testing
materials. PME inventory consists of babbitt tin chips and other babbitt
remanufacturing materials.
CONCENTRATION OF CREDIT RISK: For the year ended December 31, 1997, 28% of
the Company's sales were to one customer. At December 31, 1997, 22% of the
Company's accounts receivable were from one customer.
PROPERTY AND EQUIPMENT: Property and equipment (including major renewals
and betterments) are capitalized in the accounts and valued at cost.
Depreciation is computed using both straight-line and accelerated methods over
the estimated useful life of the asset. Leasehold improvements are amortized
over the remaining life of the lease. Depreciation methods are the same for both
financial reporting and income tax purposes.
ORGANIZATIONAL COSTS: Costs incurred in connection with the organization
of the Company are being amortized over a period of sixty months. Amortization
for the year ended December 31, 1997 totaled $75,996.
INCOME TAXES: The Company has elected to be taxed as an S corporation for
federal income tax purposes. Under the small business provisions of the Internal
Revenue Code, the Company's net income is reflected in the shareholders'
individual income tax returns. Consequently, no provision for federal income
taxes has been made.
6
<PAGE>
CYPRESS INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows at December 31, 1997:
Machinery and equipment.............. $ 4,211,109
Transportation equipment............. 17,788
Furniture and fixtures............... 118,003
Leasehold improvements............... 120,110
Computer equipment and software...... 61,283
------------
4,528,293
Accumulated depreciation............. 926,112
------------
$ 3,602,181
============
NOTE 3 -- REVOLVING LINE OF CREDIT
The Company has a bank line of credit, which expires May 1, 1998, providing
for maximum borrowings of $4,000,000 secured by accounts receivable,
inventories, and machinery and equipment. Borrowings under the line were
$1,800,000 at December 31, 1997. The notes bear interest at the bank's prime
rate which was 8.5% at December 31, 1997. Borrowings under the line have been
guaranteed by the Company's shareholders.
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of a 9% term note, payable in quarterly
installments of $217,962 including interest, with a final payment due August 1,
2001. This note is secured by accounts receivable, inventory, and machinery and
equipment as described in the loan and security agreement dated August 1, 1996.
Borrowings under this agreement have been guaranteed by the Company's
shareholders.
Long-term debt payments for the years subsequent to December 31, 1997 are
as follows:
1998................................. $ 640,029
1999................................. 700,461
2000................................. 766,271
2001................................. 670,091
------------
$ 2,776,852
============
The loan agreement contains certain covenants, including provisions setting
forth requirements that the Company maintain tangible net worth plus
subordinated debt of not less than $750,000, an unsubordinated debt to tangible
net worth ratio of not greater than 10 to 1, after-tax net income of not less
than $100,000, a debt coverage ratio of not less than 1.25 to 1, and capital
expenditures of not greater than $1,000,000. At December 31, 1997, the Company
was in compliance with these covenants.
7
<PAGE>
CYPRESS INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LEASE OBLIGATIONS
At December 31, 1997, the Company was obligated under various operating
leases for office space, shop facilities, and certain equipment which expire on
various dates through 2004. Future minimum lease payments for all leases as of
December 31, 1997 are as follows:
YEAR ENDING
DECEMBER 31,
- -------------------------------------
1998................................. $ 382,585
1999................................. 324,773
2000................................. 258,268
2001................................. 46,720
2002................................. 48,160
Thereafter........................... 85,120
------------
Total minimum lease payments.... $ 1,145,626
============
The Company also leases equipment used on a job-by-job basis. Rent expense,
including short-term equipment leases, for the year ended December 31, 1997 was
$638,343.
NOTE 6 -- 401(K) PLAN
The Company sponsors a 401(k) plan in which all full-time employees are
eligible to participate. Employees may make a voluntary contribution to the plan
as limited by current IRS regulations. The Company contributes 25% of the
employee's contribution up to the first $3,000 contributed for a maximum company
matching of $750 per participant. The Company's contribution for the year ended
December 31, 1997 was $47,395.
NOTE 7 -- WORKERS' COMPENSATION INSURANCE
The Company funds workers' compensation insurance for employee claims
through the use of a third-party administrator who provides aggregate stop loss
coverage. However, the Company is responsible for paying workers' compensation
claims subject to certain maximum aggregate policy limits per claim year.
Provision for losses expected under this program is recorded based upon the
Company's estimates of the aggregate liability for claims incurred. This amount
could vary significantly depending on the actual amount of claim settlements.
NOTE 8 -- COMMITMENTS
The Company has a non-compete/consulting agreement with the former
principal stockholder and chief executive officer of Continental Field Machining
Co., Inc., New PME, Inc., and VR-TESCO, Inc. The agreement provides for monthly
payments of $10,000 through July 31, 2006.
Additionally, the Company is to provide medical and dental coverage to this
individual through July 31, 2006. In consideration, this individual will provide
assistance to the Company through July 31, 2001 with respect to large projects
and to projects wherein his technical expertise or his relationship with
customers will be particularly beneficial to the Company. Additionally, this
individual commits not to directly compete with the Company through July 31,
2006.
NOTE 9 -- SUBSEQUENT EVENT
Subsequent to December 31, 1997, the Company's shareholders began
negotiating the sale of the Company's stock, or all of its net operating assets,
with a third party.
8
EXHIBIT 99.3
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
BASIS OF PRESENTATION
Innovative Valve Technologies, Inc. ("Invatec") was incorporated in
Delaware in March 1997 to create the leading single-source provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components throughout
North America. Except for its purchase of Steam Supply and Rubber Co., Inc. and
three related entities (collectively, "Steam Supply") in July 1997, Invatec
conducted no operations of its own prior to the closing on October 28, 1997 of
(i) its initial public offering (the "IPO") of its common stock, par value
$.001 per share ("Common Stock"), (ii) its purchase of Industrial Controls &
Equipment, Inc. and three related entities (collectively, "ICE/VARCO") and
Southern Valve Services, Inc. and a related entity (collectively, "SSV") and
(iii) a merger (the "SSI Merger") in which The Safe Seal Company, Inc.
("SSI") became its subsidiary. Earlier in 1997, SSI had purchased Harley
Industries, Inc. ("Harley"), GSV, Inc. ("GSV") and Plant Specialties, Inc.
("PSI"). SSI and its subsidiaries were affiliates of Invatec prior to the SSI
Merger.
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of Steam Supply, ICE/VARCO, SVS, Harley, GSV and PSI (collectively,
the "Initial Acquired Businesses"), and, as used herein, the term "Company"
means (i) SSI and its consolidated subsidiaries prior to October 31, 1997 and
(ii) Invatec and its consolidated subsidiaries (including SSI) on that date and
thereafter.
For accounting purposes, the effective dates of the acquisitions of the
Initial Acquired Businesses in 1997 are as follows: (i) Harley -- January 31;
(ii) GSV -- February 28; (iii) PSI -- May 31, (iv) Steam Supply -- July 31, and
(v) ICE/VARCO and SVS -- October 31. Following the IPO, the Company acquired
Dalco, Inc. ("Dalco") and three other additional businesses in 1997. The
effective date of the acquisitions of Dalco and the three other additional
businesses acquired in 1997 is November 30, 1997. In the first quarter of 1998,
the Company acquired three businesses, including Cypress Industries Inc.
("Cypress") and IPS Holding, Ltd., ("IPSCO") (together with the Initial
Acquired Businesses, Dalco and the other businesses acquired during 1997, the
"Acquired Businesses"). The Company accounted for the Acquired Businesses in
accordance with the purchase method of accounting. The allocation of the
purchase prices paid to the assets acquired and the liabilities assumed in the
acquisitions of the Acquired Businesses has been recorded initially on the basis
of preliminary estimates of fair value and may be revised, within one year of
acquisition, as additional information concerning the valuation of those assets
and liabilities becomes available. In management's opinion, the preliminary
allocation of the purchase prices is not expected to differ materially from the
final allocation. To date, there have not been any material changes to goodwill
as a result of purchase price allocations being finalized.
The unaudited pro forma consolidated statement of operations on page F-4
presents historical information as adjusted to give effect to the following
events and transactions as if they had occurred on January 1, 1997: (i) the
formation and organizational financing of Invatec; (ii) the SSI Merger; (iii)
the acquisitions of Acquired Businesses in 1997 and the financing of those
acquisitions; (iv) reverse stock splits of the outstanding Common Stock and the
SSI common stock effected in connection with the IPO; (v) the IPO and Invatec's
application of its net proceeds therefrom; and (vi) the issuance of shares of
Common Stock to repay indebtedness the Company owed to subsidiaries of Philip
Services Corp. (collectively with its subsidiaries, "Philip"). The unaudited
pro forma combined statement of operations on pages 3 and 5 condenses the
unaudited pro forma consolidated statement of operations information on page 4
under the caption "The Company" and adjusts that information to give effect to
the acquisitions of Acquired Businesses in 1998 (through March 31) and the
financing of these acquisitions. All the pro forma statements convert the
results of operations of the Acquired Businesses whose historical fiscal periods
were not on a calendar-year basis and include pro forma adjustments consisting
principally of the following: (i) the adjustments to selling, general and
administrative expenses described below; (ii) adjustments for pro forma goodwill
amortization using a 40-year estimated life; (iii) eliminations of historical
interest expense resulting from the application of proceeds from the IPO and the
use of Common Stock to retire outstanding indebtedness; and (iv) adjustments to
federal and state income tax provisions.
The unaudited pro forma combined statements of operations include
preliminary pro forma adjustments to selling, general and administrative
expenses to reflect: (i) salary differentials associated with certain owners and
managers of the Acquired Businesses; (ii) the elimination of certain excess
administrative support service fees charged by ICE/VARCO's former parent
company: and (iii) the reversal of the special non-cash, non-recurring
compensation expense attributable to certain stock awards made by SSI and
certain sales of Common Stock and issuances of options to purchase Common Stock
by Invatec.
The integration of the Acquired Businesses may present opportunities to
reduce other costs through the elimination of duplicative functions and
operating locations and the development of economies of scale, particularly as a
result of the Company's ability to (i) consolidate insurance programs, (ii)
borrow at lower interest rates than the Acquired Businesses, (iii) obtain
greater discounts from suppliers and (iv) generate savings in other general and
administrative areas. The Company cannot currently quantify these anticipated
savings and expects these savings will be partially offset by incremental costs
that the Company expects to incur, but also cannot currently quantify
accurately. These costs include those associated with corporate management and
administration, being a public company, systems integration and facilities
expansions and consolidations. The unaudited pro forma financial information
herein reflects neither unquantifiable expected savings nor unquantifiable
expected incremental costs.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
(FOR BUSINESSES ACQUIRED THROUGH MARCH 31, 1998)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE
COMPANY
PRO OTHER PRO FORMA PRO FORMA
FORMA CYPRESS IPSCO ACQUISITION ADJUSTMENTS COMBINED
-------- -------- ------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $116,670 $ 20,061 $22,895 $2,633 $-- $162,259
COST OF OPERATIONS................... 79,790 14,791 14,100 1,696 -- 110,377
-------- -------- ------- ------------ ----------- ----------
Gross profit.................... 36,880 5,270 8,795 937 -- 51,882
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............ 30,434 4,440 7,119 856 (1,034)(aa) 42,520
705(bb)
-------- -------- ------- ------------ ----------- ----------
Income from operations.......... 6,446 830 1,676 81 329 9,362
OTHER INCOME (EXPENSE):
Interest, net................... (1,383) (475) (397) 9 (1,385)(cc) (3,631)
Other........................... (20) 6 161 8 -- 155
-------- -------- ------- ------------ ----------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY
INTEREST........................... 5,043 361 1,440 98 (1,056) 5,886
PROVISION FOR INCOME TAXES........... 2,168 15 590 27 (269) (dd) 2,531
-------- -------- ------- ------------ ----------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST........... 2,875 346 850 71 (787) 3,355
-------- -------- ------- ------------ ----------- ----------
MINORITY INTEREST.................... -- -- 94 -- (94)(ee) --
-------- -------- ------- ------------ ----------- ----------
NET INCOME........................... $ 2,875 $ 346 $ 756 $ 71 $ (693) $ 3,355
======== ======== ======= ============ =========== ==========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS -- BASIC..... $ 0.39
==========
PRO FORMA INCOME PER SHARE
FROM CONTINUING
OPERATIONS -- DILUTED.............. $ 0.38
==========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE FROM CONTINUING
OPERATIONS -- BASIC................ 8,702(ff)
==========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE FROM CONTINUING
OPERATONS -- DILUTED............... 8,851(ff)
==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
(FOR BUSINESSES ACQUIRED THROUGH DECEMBER 31, 1997)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ICE/VARCO
PLANT STEAM JANUARY
THE HARLEY GSV SPECIALTIES SUPPLY 1 -
COMPANY JANUARY 1 - JANUARY 1 - JANUARY 1 - JANUARY 1 - OCTOBER
HISTORICAL JANUARY 31 FEBRUARY 28 MAY 31 JULY 31 31
---------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 58,621 $ 1,853 $ 1,637 $ 5,087 $ 9,592 $12,446
COST OF OPERATIONS................... 39,821 1,338 1,258 3,061 6,671 9,227
---------- ----------- ----------- ----------- ----------- ---------
Gross profit..................... 18,800 515 379 2,026 2,921 3,219
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 16,805 640 243 1,203 2,782 2,811
SPECIAL COMPENSATION EXPENSE......... 7,613 -- -- -- -- --
---------- ----------- ----------- ----------- ----------- ---------
Income (loss) from operations.... (5,618) (125) 136 823 139 408
OTHER INCOME (EXPENSE):
Interest, net.................... (2,901) (52) (17) (110) (223) (3)
Other............................ (3) -- (3) 12 9 16
---------- ----------- ----------- ----------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... (8,522) (177) 116 725 (75) 421
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (1,022) (69) -- 272 (29) --
---------- ----------- ----------- ----------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ (7,500) $ (108) $ 116 $ 453 $ (46) $ 421
========== =========== =========== =========== =========== =========
SVS DALCO OTHER THE
JANUARY 1 - JANUARY 1 - SUBSEQUENT PRO FORMA COMPANY
OCTOBER 31 NOVEMBER 30 ACQUISITIONS ADJUSTMENTS PRO FORMA
----------- ----------- ------------- ----------- ----------
REVENUES............................. $ 3,545 $ 8,830 $15,059 $-- $116,670
COST OF OPERATIONS................... 2,458 6,327 9,629 -- 79,790
----------- ----------- ------------- ----------- ----------
Gross profit..................... 1,087 2,503 5,430 -- 36,880
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 826 1,713 4,256 (1,239)(gg) 30,434
724(hh)
(330)(ii)
SPECIAL COMPENSATION EXPENSE......... -- -- -- (7,613)(jj) --
----------- ----------- ------------- ----------- ----------
Income (loss) from operations.... 261 790 1,174 8,458 6,446
OTHER INCOME (EXPENSE):
Interest, net.................... (135) 12 (206) 2,252(kk) (1,383)
Other............................ -- (30) (21) -- (20)
----------- ----------- ------------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 126 772 947 10,710 5,043
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 54 46 356 2,560(ll) 2,168
----------- ----------- ------------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ 72 $ 726 $ 591 $ 8,150 $ 2,875
=========== =========== ============= =========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
(FOR BUSINESSES ACQUIRED THROUGH MARCH 31, 1998)
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CYPRESS IPSCO
THE COMPANY JANUARY 1 - JANUARY 1 - OTHER PRO FORMA PRO FORMA
HISTORICAL FEBRUARY 28 FEBRUARY 28 ACQUISITIONS ADJUSTMENTS COMBINED
------------ ------------ --------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 33,504 $1,721 $ 3,898 $192 $-- $ 39,315
COST OF OPERATIONS................... 22,548 1,294 2,393 108 -- 26,343
------------ ------------ ------- ------------ ------------ ----------
Gross Profit..................... 10,956 427 1,505 84 -- 12,972
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 8,059 613 1,215 91 (180)(aa) 9,899
101(bb)
------------ ------------ ------- ------------ ------------ ----------
Income from operations........... 2,897 (186) 290 (7) 79 3,073
OTHER INCOME (EXPENSE):
Interest, net.................... (709) (56) (69) -- (274)(cc) (1,108)
Other............................ 13 44 12 -- -- 69
------------ ------------ ------- ------------ ------------ ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY
INTEREST........................... 2,201 (198) 233 (7) (195) 2,034
PROVISION FOR INCOME TAXES........... 946 -- 95 -- (167)(dd) 874
------------ ------------ ------- ------------ ------------ ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST........... 1,255 (198) 138 (7) (28) 1,160
------------ ------------ ------- ------------ ------------ ----------
MINORITY INTEREST.................... -- -- 15 -- (15)(ee) --
------------ ------------ ------- ------------ ------------ ----------
NET INCOME (LOSS).................... $ 1,255 $ (198) $ 123 $ (7) $ (13) $ 1,160
============ ============ ======= ============ ============ ==========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS--BASIC....... $ 0.13
==========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS--DILUTED..... $ 0.13
==========
SHARES USED IN COMPUTING PRO FORMA
INCOME PER SHARE FROM CONTINUING
OPERATIONS--BASIC.................. 8,702(ff)
==========
SHARES USED IN COMPUTING PRO FORMA
INCOME PER SHARE FROM CONTINUING
OPERATIONS--DILUTED................ 8,994(ff)
==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
1. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (FOR BUSINESSES ACQUIRED
THROUGH MARCH 31, 1998)
(aa) Adjusts selling, general and administrative expenses to reflect the
decrease in salaries and benefits associated with certain owners and managers of
the Acquired Businesses who either were not employed by the Company after the
acquisition of their Acquired Businesses and will not be replaced or agreed
prospectively to the decrease prior to acquisition of their Acquired Businesses.
(bb) Records pro forma goodwill amortization expense over 40 years.
(cc) Records the adjustment to interest expense resulting from borrowings
under the Credit Facility and pro forma adjustments to debt.
(dd) Records the incremental provision for income taxes as if all Acquired
Businesses had been subject to federal and state income taxes during the period
presented, using an effective tax rate of 43%. In its assumption of the
effective tax rate, management has not considered the utilization of net
operation losses or other tax attributes previously generated by or existing at
certain of the Acquired Businesses.
(ee) Records the elimination of minority interest in one of the Acquired
Businesses.
(ff) Pro forma weighted average shares outstanding are computed as follows
(in thousands):
1997 1998
--------- ---------
Assumed shares outstanding at January
1.................................... 8,702 8,702
Dilutive effect of stock options, net
of assumed repurchases of common
shares............................. 149 292
--------- ---------
Shares used in computing pro forma
income per share from continuing
operations -- diluted.............. 8,851 8,994
========= =========
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (FOR BUSINESSES
ACQUIRED THROUGH DECEMBER 31, 1997)
(gg) Adjusts selling, general and administrative expenses to reflect (i)
the decrease in salaries and benefits associated with certain owners of the
Acquired Businesses who either were not employed by the Company after the
acquisition of their Acquired Businesses and will not be replaced or agreed to
prospectively to the decrease prior to acquisition of their Acquired Businesses,
and (ii) the elimination of certain excess administrative support service fees
charged by ICE/VARCO's former parent.
(hh) Records pro forma goodwill amortization expense over 40 years.
(ii) Records the elimination of non-recurring IPO bonuses.
(jj) Records the elimination of non-cash, non-recurring special
compensation expense of $7.6 million attributable to certain awards of stock,
stock options and certain stock sales.
(kk) Records the pro forma adjustment to interest expense resulting from
(i) the application of the net proceeds of the IPO, (ii) borrowings under the
Credit Facility and, (iii) the elimination of certain financing fees paid to
Philip.
(ll) Records the incremental provision for income taxes as if all Acquired
Businesses had been subject to federal and state income taxes during the period
presented, using an effective tax rate of 43%. In its assumption of the
effective tax rate, management has not considered the utilization of net
operation losses or other tax attributes previously generated by or existing at
certain of the Acquired Businesses.
EXHIBIT 99.4
INNOVATIVE VALVE TECHNOLOGIES, INC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.................................... $ 2,544,450 $ 365,094
Accounts receivable, net of allowance of
$1,079,857 and $1,423,465............. 17,680,697 27,851,234
Inventories, net........................ 15,987,765 20,996,852
Prepaid expenses and other current
assets................................ 1,171,090 1,763,520
Deferred tax asset...................... 3,723,448 3,944,898
------------ -------------
Total current assets.......... 41,107,450 54,921,598
PROPERTY AND EQUIPMENT, net............. 11,474,701 16,279,083
GOODWILL, net........................... 48,387,981 81,128,397
PATENT COSTS, net....................... 682,436 675,064
OTHER NONCURRENT ASSETS, net............ 3,780,115 3,916,521
------------ -------------
$105,432,683 $156,920,663
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt......................... $ 4,660,924 $ --
Current maturities of long-term debt.... 304,310 642,113
Accounts payable and accrued expenses... 14,910,638 18,610,425
------------ -------------
Total current liabilities..... 19,875,872 19,252,538
LONG-TERM DEBT, net..................... 318,911 321,555
CREDIT FACILITY......................... 11,750,000 50,127,800
CONVERTIBLE SUBORDINATED DEBT........... 12,493,178 12,916,928
OTHER LONG-TERM OBLIGATIONS............. 1,125,417 1,247,624
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
30,000,000 shares authorized,
7,890,198 and 8,702,338 shares
issued and outstanding........... 7,890 8,702
Additional paid-in capital......... 70,212,035 82,141,828
Retained deficit................... (10,350,620) (9,096,312)
------------ -------------
Total stockholders' equity.... 59,869,305 73,054,218
------------ -------------
$105,432,683 $156,920,663
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31
---------------------------
1997 1998
------------ ------------
REVENUES................................ $ 6,944,997 $ 33,504,037
COST OF OPERATIONS...................... 4,750,866 22,548,216
------------ -------------
Gross profit....................... 2,194,131 10,955,821
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,951,357 8,058,774
SPECIAL COMPENSATION EXPENSE ........... 2,605,005 --
------------ -------------
Income (loss) from operations...... (2,362,231) 2,897,047
OTHER INCOME (EXPENSE):
Interest expense, net.............. (342,699) (709,490)
Other.............................. (38) 12,983
------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES....... (2,704,968) 2,200,540
PROVISION (BENEFIT) FOR INCOME TAXES.... (549,416) 946,232
------------ -------------
NET INCOME (LOSS)....................... $ (2,155,552) $ 1,254,308
============ =============
NET INCOME (LOSS) BEFORE DIVIDENDS
APPLICABLE TO PREFERRED STOCK......... $ (2,155,552) $ 1,254,308
PREFERRED STOCK DIVIDENDS............... (47,500) --
------------- ------------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES................................ $ (2,203,052) $ 1,254,308
============= ============
EARNINGS PER SHARE - BASIC.............. $ (1.06) $ 0.16
============= ============
EARNINGS PER SHARE - DILUTED............ $ (1.06) $ 0.15
============= ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC................... 2,087,941 8,029,092
============= ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED................. 2,087,941 8,684,764
============= ============
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
-----------------------------
1997 1998
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................... $ (2,155,552) $ 1,254,308
Adjustments to reconcile net income
(loss) to net cash used in
operating activities --
Depreciation and amortization ........... 141,949 736,916
Special compensation expense ............ 2,605,005 --
Deferred taxes .......................... -- 241,778
(Increase) decrease in --
Accounts receivable .................. (1,837,333) (3,651,014)
Inventories .......................... 131,026 (1,732,334)
Prepaid expenses and other
current assets ................... (838,886) (653,373)
Other noncurrent assets .............. (629,916) 766,418
Increase (decrease) in --
Accounts payable and accrued
expenses ......................... 1,616,525 (1,249,657)
------------ ------------
Net cash used in operating
activities ..................... (967,182) (4,286,958)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment .............................. (80,881) (746,162)
Business acquisitions, net of cash
acquired of $39,250 and $185,094 ....... (10,186,417) (30,674,244)
------------ ------------
Net cash used in investing
activities ..................... (10,267,298) (31,420,406)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt .............. 10,743,245 --
Repayments of long-term debt .............. -- (151,208)
Repayments of short-term debt ............. -- (4,660,924)
Net borrowings on credit facility ......... -- 38,377,800
Payments on noncompete
obligations ............................ -- (65,160)
Proceeds from exercise of stock
options .............................. -- 27,500
Proceeds from exercise of common
stock warrant .......................... 596,000 --
Preferred stock dividends ................. (47,500) --
------------ ------------
Net cash provided by
financing activities ........... 11,291,745 33,528,008
NET INCREASE (DECREASE) IN CASH ................ 57,265 (2,179,356)
CASH, beginning of period ...................... 396,637 2,544,450
------------ ------------
CASH, end of period ............................ $ 453,902 $ 365,094
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .................... $ 342,699 $ 397,244
Cash paid for income taxes ................ $ -- $ 333,111
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Innovative Valve Technologies, Inc. ("Invatec") was incorporated in
Delaware in March 1997 to create the leading single-source provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components throughout
North America. Except for its purchase of an established business in July 1997,
Invatec conducted no operations of its own prior to the closing on October 28,
1997 of (i) its initial public offering (the "IPO") of its common stock ("Common
Stock"), (ii) its purchase of two established businesses and (iii) a merger (the
"SSI Merger") in which The Safe Seal Company, Inc. ("SSI") became its
subsidiary. Earlier in 1997, SSI had purchased three established businesses. SSI
and its subsidiaries were affiliates of Invatec prior to the SSI Merger.
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of the seven businesses it and Invatec purchased through the IPO
closing date(collectively, the "Initial Acquired Businesses"), and, as used
herein, the term "Company" means (i) SSI and its consolidated subsidiaries prior
to October 31, 1997 and (ii)Invatec and its consolidated subsidiaries (including
SSI) on that date and thereafter.
Following the IPO, the Company purchased four businesses in the fourth
quarter of 1997 and three businesses in the first quarter of 1998 (these
businesses, together with the Initial Acquired Businesses, are referred to
herein as the "Acquired Businesses"). The Company is accounting for the
acquisitions of the Aqcuired Businesses in accordance with the purchase method
of accounting. The allocation of the purchase prices paid to the assets acquired
and the liabilities assumed in the acquisitions of the Acquired Businesses has
been recorded initially on the basis of preliminary estimates of fair value and
may be revised as additional information concerning the valuation of those
assets and liabilities becomes available. The accompanying historical
consolidated statements of operations present historical information of the
Company which gives effect to the acquisitions as of their respective
acquisition dates.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to rules and regulations of the Securities and
Exchange Commission (the "SEC") which permit certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles to be condensed or omitted. The
Company believes the presentation and disclosures herein are adequate to make
the information not misleading, and the financial statements reflect all
elimination entries and normal adjustments that are necessary for a fair
presentation of the results for the interim periods ended March 31, 1997 and
1998.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results for interim periods are not necessarily indicative of the
results for full years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fluctuations in Operating Results" in
Item 2 of this Part I. Invatec's Annual Report on Form 10-K/A for the year ended
December 31, 1997 (the "1997 10-K Report") includes the Company's consolidated
financial statements and related notes for 1997.
2. NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income (such as
additional minimum pension liability changes, currency translation adjustments,
unrealized gains and losses on available for sale securities). The Company
adopted this standard effective January 1, 1998. The adoption of this standard
did not have a material impact on its consolidated financial statements. For the
three month period ended March 31, 1998, there were no material items of
comprehensive income other than net income.
3. INCOME TAXES:
Certain of the Acquired Businesses' were subject to the provisions of
subchapter S of the Internal Revenue Code prior to their acquisition by the
Company. Under these provisions, their former stockholders paid income taxes on
their proportionate share of the earnings of these businesses. Because the
stockholders were taxed directly, their businesses paid no federal income tax
and only certain state income taxes.
The Company files a consolidated federal income tax return that includes
the operations of the Acquired Businesses for periods subsequent to their
respective acquisition dates.
The provision for income taxes included in the unaudited consolidated
statement of operations for the three months ended March 31, 1997 differs from
statutory federal and state rates primarily because of the partial recognition
of certain net operating loss benefits carried forward by SSI.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. EARNINGS PER SHARE:
The computation of net income per share of common stock for the interim
periods presented is presented in accordance with SFAS No. 128 "Earnings Per
Share" based on the following shares of Common Stock outstanding:
1997 1998
---- ----
Issued and outstanding at January 1 .............. 1,481,919 7,890,198
Issued to acquire a business in the
first quarter of 1998(weighted) ............... -- 134,638
Issued for stock options exercised
and warrants exercised ........................ 606,022 4,256
--------- ---------
Weighted average shares outstanding
- basic ....................................... 2,087,941 8,029,092
Dilutive effect of shares issuable
on conversion of convertible notes .............. -- 363,502
Dilutive effect of shares issuable
on exercise of stock options .................... -- 292,170
--------- ---------
Weighted average shares outstanding -
diluted ........................................ 2,087,941 8,684,764
========= =========
The weighted average diluted earnings per share reflects the effect of
convertible subordinated notes which were outstanding during the periods
presented. The interest expense related to dilutive convertible subordinated
notes was approximately $46,000.
5. ACQUISITIONS:
During the quarter ended March 31, 1998, the Company acquired three
businesses for $30.4 million in cash and assumed debt, $0.4 million of
convertible subordinated notes and 807,828 shares of Common Stock. Of the total
purchase price paid for these acquisitions, $11 million has been allocated to
the net assets acquired and the remaining $32 million has been recorded as
goodwill. These acquisitions were accounted for as purchases and the
accompanying balance sheet as of March 31, 1998 includes preliminary allocations
of the respective purchase prices and are subject to final adjustment.
The following table reflects, on an unaudited pro forma basis, certain
results of the combined operations of the Company as if the IPO, the SSI Merger,
the Company's acquisitions of Acquired Businesses in 1997 and the first quarter
of 1998 and certain other events and transactions discussed in Note 1 had taken
place on January 1, 1997.
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations the Company
would have obtained had the acquisitions taken effect on January 1, 1997, has
obtained since the dates of acquisition or may obtain in the future.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
March 31,
---------------------------
1997 1998
--------- -------
(Unaudited and in thousands,
except per share data)
Revenues ....................................... $39,606 $39,315
Income before income taxes ..................... 669 2,034
Net income ..................................... 381 1,160
======= =======
Earnings per share - basic ..................... $ 0.04 $ 0.13
======= =======
Earnings per share - diluted ................... $ 0.04 $ 0.13
======= =======
