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.
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.
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.
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.
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.
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.
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
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