UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO _________
COMMISSION FILE NUMBER: 000-23231
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0530346
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2 NORTHPOINT DRIVE, SUITE 300 77060
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 925-0300
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.001
per share, outstanding at November 13, 1998 was 9,664,562.
INNOVATIVE VALVE TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE
-----
Part I -- Financial Information...................................... 2
Item 1 -- Financial Statements..................................... 2
General Information............................................... 2
Unaudited Pro Forma Combined Statements of Operations for the
Three Months and Nine Months Ended September 30, 1997 and 1998.. 3
Note to Unaudited Pro Forma Combined Statements of Operations .... 4
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 (Unaudited).................................. 6
Consolidated Statements of Operations for the Three Months and ...
Nine Months Ended September 30, 1997 and 1998 (Unaudited).......... 7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1998 (Unaudited)................... 8
Notes to Consolidated Financial Statements (Unaudited)............ 9
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 13
Part II -- Other Information........................................ 19
Item 5 -- Other Information........................................ 19
Item 6 -- Exhibits and Reports on Form 8-K......................... 20
1
INNOVATIVE VALVE TECHNOLOGIES, INC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL INFORMATION
Introduction to Pro Forma Combined Statements of Operations.
Innovative Valve Technologies, Inc. ("Invatec" or the "Company") 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 (Invatec, SSI and all businesses acquired
through the closing of the IPO are collectively referred to herein as the
"Founding Companies"). Earlier in 1997, SSI had purchased three established
businesses. SSI and its subsidiaries were affiliates of Invatec prior to the SSI
Merger.
Following the IPO, the Company acquired additional businesses in 1997 and
the first three quarters of 1998 (these businesses, together with the Founding
Companies, are referred to herein as the "Acquired Businesses"). The Company
accounted for the acquisitions of the Acquired Businesses in accordance with the
purchase method of accounting.
The accompanying unaudited pro forma combined statements of operations of
the Company for the three and nine months ended September 30, 1997 and 1998,
respectively, include the combined operations of the Founding Companies from
January 1, 1997 and the other Acquired Businesses from their respective dates of
acquisition.
2
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
These unaudited pro forma combined financial statements should be read in
conjunction with the unaudited interim historical consolidated financial
statements of the Company elsewhere in this report.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- ----------------------
1997 1997
PRO FORMA 1998 PRO FORMA 1998
--------- -------- --------- ---------
REVENUES ........................... $ 21,432 $ 38,882 $ 68,134 $ 112,753
COST OF OPERATIONS ................. 14,665 26,619 46,857 76,475
--------- -------- --------- ---------
Gross profit .................. 6,767 12,263 21,277 36,278
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ......................... 6,133 12,111 17,840 31,593
NONRECURRING COSTS ................. -- 2,190 -- 2,190
--------- -------- --------- ---------
Income (loss) from operations . 634 (2,038) 3,437 2,495
OTHER INCOME (EXPENSE):
Interest, net ................. (77) (1,723) (243) (3,855)
Other ......................... (4) 150 -- 250
--------- -------- --------- ---------
Total other ................... (81) (1,573) (243) (3,605)
INCOME (LOSS) BEFORE INCOME TAXES .. 553 (3,611) 3,194 (1,110)
PROVISION (BENEFIT) FOR INCOME TAXES 241 (697) 1,456 378
--------- -------- --------- ---------
NET INCOME (LOSS) .................. $ 312 $ (2,914) $ 1,738 $ (1,488)
========= ======== ========= =========
EARNINGS (LOSS)PER SHARE - BASIC ... $ 0.04 $ (0.30) $ 0.22 $ (0.17)
========= ======== ========= =========
EARNINGS (LOSS)PER SHARE - DILUTED . $ 0.04 $ (0.30) $ 0.22 $ (0.17)
========= ======== ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC .............. 7,820 9,665 7,820 8,809
========= ======== ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ............ 7,896 9,665 7,896 8,809
========= ======== ========= =========
The accompanying note is an integral part of these unaudited pro forma combined
financial statements.
3
NOTE TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
The unaudited pro forma combined statements of operations include the
Company's historical consolidated information for the three months and nine
months ended September 30, 1998 and present the historical consolidated
information for the corresponding periods in 1997 (with SSI as the "accounting
acquirer"), as adjusted to give effect to the following 1997 events and
transactions as if they had occurred on January 1, 1997: (i) the SSI Merger;
(ii) the acquisitions of the Founding Companies and the financings thereof;
(iii) certain reverse stock splits of outstanding stock; (iv) the IPO and the
Company's application of the net proceeds therefrom; and (v) the issuance of
shares of Common Stock to repay certain of the Company's indebtedness. The
unaudited pro forma combined statements convert the results of operations of the
Acquired Businesses whose historical fiscal periods were not on a calendar-year
basis to 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 the effects of
recording inventories on a first-in, first-out rather than on a last-in,
first-out basis; (iii) adjustments for pro forma goodwill amortization using a
40-year estimated life; (iv) 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 (v) adjustments to federal and
state income tax provisions.
The unaudited pro forma combined statements of operations include pro
forma adjustments to selling, general and administrative expenses to reflect:
(i) the decrease in salaries and benefits associated with certain owners and
managers of the Acquired Businesses who (a) were not employed by the Company
after the acquisition of their Acquired Business and will not be replaced, or
(b) agreed prospectively to the decrease prior to the acquisition of their
Acquired Business; (ii) the elimination of certain excess administrative support
service fees charged by the former parent company of one of the Acquired
Businesses; and (iii) the reversal of the special non-cash, non-recurring
compensation expense attributable to stock awards made by SSI and Common Stock
sales and option awards made 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. 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. The unaudited pro forma combined
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.
The provision for income taxes included in the unaudited pro forma
combined statement of operations for the three and nine months ended September
30, 1997 is an estimate of the federal and state income taxes that would have
been applicable to the Company had it acquired all the Founding Companies on
January 1, 1997. The tax rates indicated by this provision differ from statutory
federal and state rates primarily because a portion of the goodwill amortization
arising from the acquisitions is not deductible for tax purposes.
The computation of pro forma earnings per share for the three and nine
months ended September 30, 1997 is based on 7,896,059 weighted average shares
outstanding common and common equivalent shares, which include (i) 7,819,920
shares issued and outstanding for the entire three-month and nine-month periods
and (ii) 76,139 shares representing the dilution attributable to outstanding
options to purchase the Company's Common Stock, using the treasury stock method.
4
The unaudited pro forma combined financial information may not be
comparable to and may not be indicative of the Company's future results of
operations because SSI and the Acquired Businesses were not under common control
or management throughout the periods presented.
5
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash ......................................... $ 2,544,450 $ --
Accounts receivable, net of allowance
of $1,079,857 and $1,643,231 ......... 17,680,697 28,816,036
Inventories, net ........................ 15,987,765 25,463,121
Prepaid expenses and other current
assets ................................ 1,171,090 2,961,036
Deferred tax asset ...................... 3,723,448 3,808,947
------------- -------------
Total current assets ........... 41,107,450 61,049,140
PROPERTY AND EQUIPMENT, net .................. 11,474,701 19,089,337
GOODWILL, net ................................ 48,387,981 101,970,118
OTHER NONCURRENT ASSETS, net ................. 4,462,551 3,881,753
------------- -------------
TOTAL ASSETS ................... $ 105,432,683 $ 185,990,348
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ......................... $ 4,660,924 $ --
Current maturities of long-term debt .... 304,310 59,460
Credit Facility ......................... -- 66,877,800
Accounts payable and accrued expenses ... 14,910,638 20,787,907
------------- -------------
Total current liabilities ...... 19,875,872 87,725,167
LONG-TERM DEBT, net .......................... 318,911 1,080,801
CREDIT FACILITY .............................. 11,750,000 --
CONVERTIBLE SUBORDINATED DEBT ................ 12,493,178 12,916,929
OTHER LONG-TERM OBLIGATIONS .................. 1,125,417 1,362,796
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
30,000,000 shares authorized,
7,890,198 and 9,664,562 shares
issued and outstanding ............ 7,890 9,665
Additional paid-in capital .......... 70,212,035 94,734,181
Retained deficit .................... (10,350,620) (11,839,191)
------------- -------------
Total stockholders' equity .... 59,869,305 82,904,655
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....... $ 105,432,683 $ 185,990,348
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
6
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- -----------------------------
1997 1998 1997 1998
------------ ------------ ------------ -------------
REVENUES ..................... $ 13,596,854 $ 38,881,382 $ 33,356,489 $ 112,752,859
COST OF OPERATIONS ........... 9,079,837 26,618,979 22,574,450 76,475,095
------------ ------------ ------------ -------------
Gross profit ............ 4,517,017 12,262,403 10,782,039 36,277,764
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .... 3,190,190 12,111,362 8,107,514 31,593,294
SPECIAL COMPENSATION EXPENSE . -- -- 2,605,005 --
NONRECURRING COSTS ........... -- 2,189,599 -- 2,189,599
------------ ------------ ------------ -------------
Income (loss) from
operations ........... 1,326,827 (2,038,558) 69,520 2,494,871
OTHER INCOME (EXPENSE):
Interest expense, net ... (669,820) (1,722,375) (1,667,932) (3,855,517)
Other ................... 3,694 149,890 5,937 250,045
------------ ------------ ------------ -------------
Total Other ............. (666,126) (1,572,485) (1,661,995) (3,605,472)
INCOME (LOSS) BEFORE INCOME
TAXES ................... 660,701 (3,611,043) (1,592,475) (1,110,601)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................... 278,162 (697,220) 3,067 377,970
------------ ------------ ------------ -------------
NET INCOME (LOSS) ............ $ 382,539 $ (2,913,823) $ (1,595,542) $ (1,488,571)
============ ============ ============ =============
NET INCOME (LOSS) BEFORE
DIVIDENDS APPLICABLE TO
PREFERRED STOCK ......... $ 382,539 $ (2,913,823) $ (1,595,542) $ (1,488,571)
PREFERRED STOCK DIVIDENDS .... (95,000) -- (142,500) --
------------ ------------ ------------ -------------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES ........ $ 287,539 $ (2,913,823) $ (1,738,042) $ (1,488,571)
============ ============ ============ =============
EARNINGS (LOSS) PER SHARE -
BASIC ................... $ 0.12 $ (0.30) $ (0.76) $ (0.17)
============ ============ ============ =============
EARNINGS (LOSS)PER SHARE -
DILUTED ................. $ 0.12 $ (0.30) $ (0.76) $ (0.17)
============ ============ ============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC ........ 2,419,338 9,664,562 2,301,473 8,809,356
============ ============ ============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ...... 2,419,338 9,664,562 2,301,473 8,809,356
============ ============ ============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
7
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
1997 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................. $ (1,595,542) $ (1,488,571)
Adjustments to reconcile net
loss to net cash used in
operating activities -
Depreciation and amortization ............ 919,946 3,119,407
Special compensation expense ............. 2,605,005 --
Gain on sale of property and equipment ... -- (18,430)
Deferred taxes ........................... (233,247) (667,065)
Nonrecurring costs ...................... -- 1,989,599
(Increase) decrease in -
Accounts receivable ................... (1,562,966) (2,722,234)
Inventories ........................... (774,840) (4,382,122)
Prepaid expenses and other
current assets ..................... 327,401 (1,439,617)
Other noncurrent assets ............... 1,561 (1,706,215)
Increase (decrease) in -
Accounts payable and accrued
expenses ........................ (506,206) (3,220,773)
Payable to Innovative Valve
Technologies, Inc. ................. (1,107,750) --
------------ ------------
Net cash used in operating
activities ...................... (1,926,638) (10,536,021)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment .......... 10,226 179,325
Additions to property and
equipment ............................. (434,488) (3,474,440)
Business acquisitions, net of cash
acquired of $135,109 and $818,416 ..... (19,109,479) (39,119,264)
------------ ------------
Net cash used in investing
activities ...................... (19,533,741) (42,414,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt ............. 20,624,541 330,814
Repayments of long-term debt ............. (540,365) (484,944)
Repayments of short-term debt ............ -- (4,660,924)
Net borrowings under Credit Facility ..... -- 55,127,800
Payments on noncompete obligations ....... (85,118) (115,293)
Proceeds from exercise of stock
options ............................... -- 208,497
Proceeds from exercise of common
stock warrant ......................... 1,216,855 --
Preferred stock dividends ................ (142,500) --
------------ ------------
Net cash provided by
financing activities ............ 21,073,413 50,405,950
NET DECREASE IN CASH ........................... (386,966) (2,544,450)
CASH, beginning of period ...................... 396,637 2,544,450
------------ ------------
CASH, end of period ............................ $ 9,671 $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ................... $ 1,211,424 $ 3,366,665
Cash paid for income taxes ............... $ 89,000 $ 2,020,584
The accompanying notes are an integral part of these
consolidated financial statements.
8
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, three businesses in the first quarter of 1998, two in the
second quarter of 1998 and four in the third 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
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 as additional information concerning the valuation of those assets
and liabilities becomes available. The accompanying historical consolidated
financial 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 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
materially 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 September 30, 1997 and 1998.
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, as amended (the "1997 10-K Report"), includes the Company's
consolidated financial statements and related notes for 1997.
9
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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
and unrealized gains and losses on available-for-sale securities). The Company
adopted this standard effective January 1, 1998. The adoption of SFAS No. 130
did not have a material impact on the Company's consolidated financial
statements. For the three- and nine-month periods ended September 30, 1998,
there were no material items of comprehensive income other than net income.
3. CREDIT FACILITY:
The Company has a revolving credit facility (the "Credit Facility") of up
to $90 million (as amended). Invatec's subsidiaries guarantee the repayment of
all amounts due under the facility, and the facility is secured by the capital
stock of those subsidiaries and all assets of the Company. The Credit Facility
prohibits the payment of cash dividends by Invatec, restricts the ability of the
Company to incur other indebtedness and requires the Company to comply with
certain financial covenants. It is scheduled to mature in June 2001.
As of November 13, 1998, the Company was not in compliance with certain of
its loan covenants under the Credit Facility. The Company has therefore
classified amounts due under the Credit Facility as of September 30, 1998, as a
current liability. The Company has obtained waivers of the covenant violations
(terminating November 19, 1998) and is in the process of negotiating an
amendment to the Credit Facility to address future compliance with these
covenants. The Company expects to have finalized the term sheet for such
amendment by November 19, 1998 and to secure an additional waiver until the
amendment is appropriately documented. At November 13, 1998, approximately $70.6
million of borrowings were outstanding under the Credit Facility.
Management believes that the Credit Facility will be amended within the
next 60 days to provide temporary covenant relief and permit the Company to make
borrowings as may be needed to meet its forecasted working capital requirements.
The Company expects the Credit Facility will be further amended in the first
quarter of 1999 to provide for covenants the Company should be able to comply
with thereafter. However, there can be no assurance that such amendments will be
obtained. In the event that the terms of the Credit Facility are not amended so
that the Company is in compliance with that agreement, the Company may need to
seek replacement debt or equity financings to repay the amounts due under the
Credit Facility. There can be no assurance that any such replacement financing
would be available.
4. NONRECURRING COSTS:
Noncurring costs reflect approximately $1.4 million in write-offs of
capitalized costs of abandoned projects, including a friction welding system and
$0.8 million of accrued severance costs.
5. 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.
10
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 and nine months ended September 30, 1997
differs from statutory federal and state rates primarily because of the
partial recognition of certain net operating loss benefits carried forward by
SSI.
6. EARNINGS (LOSS) PER SHARE:
The computation of earnings (loss) per share of Common Stock for the
interim periods is presented in accordance with SFAS No. 128, "Earnings Per
Share," based on the following shares of Common Stock outstanding:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1997 1998 1997 1998
--------- --------- --------- ---------
Issued and outstanding at January 1 . 1,481,919 7,890,198 1,481,919 7,890,198
Issued to acquire businesses in
1998 (weighted) ................... -- 1,749,052 -- 903,086
Issued for stock options exercised
and warrants exercised ........... 937,419 25,312 819,554 16,072
--------- --------- --------- ---------
Weighted average shares outstanding -
Basic ............................ 2,419,338 9,664,562 2,301,473 8,809,356
Dilutive effect of shares issuable
on exercise of stock options ..... -- -- -- --
--------- --------- --------- ---------
Weighted average shares outstanding -
Diluted .......................... 2,419,338 9,664,562 2,301,473 8,809,356
========= ========= ========= =========
Common Share equivalents including options to purchase 1,483,255 shares of
Common Stock and $12.9 million of subordinated debt convertible into Common
Shares at prices ranging between $16.90 and $22.20 per share, outstanding at
September 30, 1998, were not included in the computation of diluted EPS as their
effect on EPS was antidilutive.
7. ACQUISITIONS:
During the quarter ended September 30, 1998, the Company acquired four
businesses for $5.9 million in cash and assumed debt and 441,020 shares of
Common Stock. Of the total purchase price paid for these acquisitions, $6.0
million has been allocated to the net assets acquired and the remaining $6.9
million has been recorded as goodwill. These acquisitions were accounted for as
purchases and the accompanying balance sheet as of September 30, 1998 includes
preliminary allocations of the respective purchase prices which are subject to
final adjustment.
For three businesses acquired in 1998, the Company guaranteed Common Stock
price targets to the sellers at specified future dates. If the guaranteed price
targets are not met or exceeded, the Company is required to either issue
additional shares of Common Stock or pay additional funds to the sellers for the
difference between the price at the acquisition date and the guaranteed price
targets. Using the Common Stock price at November 11, 1998,
11
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
the total additional consideration would be approximately $5.2 million and
617,143 additional shares of Common Stock. The net present value of the price
guarantees are reflected in the accompanying balance sheet at September 30,
1998. The additional consideration is payable to the sellers on the one year
anniversary of the acquisition date.
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 three
quarters 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.
SEPTEMBER 30
-----------------------
1997 1998
--------- ---------
(UNAUDITED AND IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues ........................................ $ 137,948 128,265
Income before income taxes ...................... 4,965 1,348
Net income ...................................... 2,830 768
Earnings per share - basic ...................... $ 0.29 $ 0.08
Earnings per share - diluted .................... $ 0.29 $ 0.07
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the historical
consolidated and unaudited pro forma combined financial statements and the notes
thereto which are included in Item 1 of this Part I. This report contains
"forward-looking" statements that involve a number of risks, uncertainties and
assumptions. No assurance can be given that actual results will not differ
materially from these statements as a result of various factors. See "Factors
That May Affect Future Results" in Item 1 of the Company's Annual Report on Form
10-K/A for the year ended December 31, 1997.
OVERVIEW
The Company derives its revenues principally from (i) sales of industrial
valves and related process-system components to its process-industry customers
and commissions paid by the manufacturers of these products in connection with
the Company's direct sales of these products and (ii) performance of
comprehensive maintenance repair services of industrial valves and related
process-system components for its customers. Costs of operations consist
principally of direct costs of valves and components sold, coupled with labor
and overhead costs connected with the performance of repair services. Selling,
general and administrative expenses consist principally of compensation and
benefits payable to owners and to sales, management and administrative
personnel, insurance, depreciation and amortization and other related expenses.
RESULTS OF OPERATIONS -- PRO FORMA COMBINED (Unaudited)
The unaudited pro forma combined results of operations for the interim
periods presented below do not purport to be comparable to and may not be
indicative of the Company's post-combination results of operations because (i)
SSI and the Acquired Businesses were not under common control or management
throughout the periods presented and (ii) the Company established a new basis of
accounting to record the purchase of the Acquired Businesses under the purchase
method of accounting. See Note 1 in Item 1 of this Part I.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------------- ------------------------------------
1997 1998 1997 1998
--------------- ---------------- --------------- -----------------
(IN THOUSANDS) (IN THOUSANDS)
Revenues ................ $ 21,432 100% $ 38,882 100% $ 68,134 100% $ 112,753 100%
Cost of operations ...... 14,665 68 26,619 68 46,857 69 76,475 68
-------- --- -------- ---- -------- --- --------- ----
Gross profit ............ 6,767 32 12,263 32 21,277 31 36,278 32
Selling, general and
administrative expenses 6,133 29 12,111 31 17,840 26 31,593 28
Nonrecurring costs ...... -- -- 2,190 6 -- -- 2,190 2
-------- --- -------- ---- -------- --- --------- ----
Income (loss)from
operations ............ 634 3 (2,038) (5) 3,437 5 2,495 2
Interest expense, net ... (77) -- (1,723) (4) (243) -- (3,855) (3)
Other income (expense) .. (4) -- 150 -- -- -- 250 --
-------- --- -------- ---- -------- --- --------- ----
Income (loss)from
operations before
income taxes .......... $ 553 3% $ (3,611) (9)% $ 3,194 5% $ (1,110) (1)%
======== === ======== ==== ======== === ========= ====
13
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $17.5 million, or 81%, from $21.4 million
in the three months ended September 30, 1997 to $38.9 million in the
corresponding period in 1998. Approximately $17.8 million of this increase
primarily resulted from the inclusion in the 1998 period of the results of the
businesses acquired during the fourth quarter of 1997 and the first three
quarters of 1998 ("the Acquisitions") offset slightly by a decrease in revenues
at three of the Founding Companies. This decrease is primarily the result of
cost deferral programs implemented by the companies' customers in response to a
downturn in the businesses of those customers.
GROSS PROFIT -- Gross profit increased $5.5 million, or 81%, from $6.8
million in the three months ended September 30, 1997 to $12.3 million in the
corresponding period in 1998, primarily as a result of the incremental gross
margins generated in the 1998 period by the Acquisitions. As a percentage of
revenues, gross profit remained constant at 32%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $6.0 million, or 97%, from $6.1 million in the
three months ended September 30, 1997 to $12.1 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general and
administrative expenses in the 1998 period of the Acquisitions. As a percentage
of revenues, selling, general and administrative expenses increased from 29% in
the third quarter of 1997 to 31% in the third quarter of 1998. For the Founding
Companies, as a percentage of revenues, these expenses were 27% in the third
quarter of 1998, down from 29% in the same period in 1997. These expenses for
the Acquisitions were approximately 35% of revenues. However, these expenses for
the Acquisitions as a percentage of revenues are higher in the quarter ended
September 30, 1998, as compared with the same period in 1997 as a result of
lower revenue volumes in the 1998 period.
INTEREST EXPENSE, NET -- Interest expense increased $1.6 million, or
2,138%, from $0.1 million in the third quarter of 1997 to $1.7 million in the
third quarter of 1998. This increase is primarily the result of borrowings under
the Company's Credit Facility to fund the cash portion of the purchase prices
paid for the Acquisitions.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $44.7 million, or 65%, from $68.1 million
in the nine months ended September 30, 1997, to $112.8 million in the
corresponding period in 1998. Approximately $44.2 million of this increase
resulted from the inclusion in the 1998 period of the results of the
Acquisitions. The remaining increase of approximately $0.5 million was
attributable to internal growth of the Founding Companies in the first quarter
of 1998.
GROSS PROFIT -- Gross profit increased $15.0 million, or 71%, from $21.3
million in the nine months ended September 30, 1997 to $36.3 million in the
corresponding period in 1998, primarily as a result of the incremental gross
margins generated in the 1998 period by the Acquisitions. As a percentage of
revenues, gross profit increased to 32% in the nine months ended September 30,
1998 from 31% in the same period in 1997. This overall 1% increase in gross
margin as a percentage of revenues was primarily the result of the inclusion of
the incremental gross profit of the Acquisitions, which are primarily off-line
repair service operations and historically have generated higher gross profit
levels than the Founding Companies.
14
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $13.8 million, or 77%, from $17.8 million in
the nine months ended September 30, 1997 to $31.6 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general and
administrative expenses of the Acquisitions. As a percentage of revenues,
selling, general and administrative expenses increased from 26% in the nine
months ended September 30, 1997 to 28% in the corresponding period in 1998. This
overall 2% increase in these expenses as a percentage of revenues in 1998
resulted from the incremental effect of including the selling, general and
administrative expenses of the Acquisitions. For the Founding Companies,
selling, general and administrative expenses in the nine months ended September
30, 1998 remained at 26%.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
INTEREST EXPENSE, NET -- Interest expense, net increased $3.6 million, or
1,486%, from $0.3 million in the nine months ended September 30, 1997, to $3.9
million in the corresponding period in 1998. This increase is primarily the
result of borrowings under the Company's Credit Facility to fund the cash
portion of the purchase prices for the Acquisitions.
RESULTS OF OPERATIONS -- HISTORICAL (Unaudited)
The following table sets forth for the Company certain selected
consolidated financial data and that data as a percentage of consolidated
revenues for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------------- -------------------------------
1997 1998 1997 1998
------------- ---------------- ------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Revenues ............... $13,597 100% $ 38,882 100% $33,356 100% $112,753 100%
Cost of operations ..... 9,080 67 26,619 68 22,574 68 76,475 68
------- --- -------- ---- ------- --- -------- ---
Gross profit ........... 4,517 33 12,263 32 10,782 32 36,278 32
Selling, general and
administrative expenses 3,190 23 12,111 31 8,108 24 31,593 28
Nonrecurring expense ... -- -- 2,190 6 -- -- 2,190 2
Special compensation
expense ............. -- -- -- -- 2,605 8 -- --
------- --- -------- ---- ------- --- -------- ---
Income (loss) from
Operations .......... $ 1,327 10% $ (2,038) (5)% $ 69 --% $ 2,495 2%
======= === ======== ==== ======= === ======== ===
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $25.3 million, or 186%, from $13.6 million
in the three months ended September 30, 1997 to $38.9 million in the
corresponding period in 1998. This increase primarily resulted from the
inclusion in the 1998 period of the results of the Acquired Businesses.
GROSS PROFIT -- Gross profit increased $7.8 million, or 171%, from $4.5
million in the three months ended September 30, 1997 to $12.3 million in the
corresponding period in 1998. This increase occurred principally as a result of
the inclusion in the 1998 period of the incremental gross profit of the Acquired
Businesses. As a percentage of revenues, gross profit decreased slightly,
primarily as a result of the relatively fixed nature of the cost of sales
structure combined with a drop in revenues during the third quarter of 1998.
15
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $8.9 million, or 280%, from $3.2 million in
the three months ended September 30, 1997 to $12.1 million in the corresponding
period in 1998. This increase primarily reflected the incremental selling,
general and administrative expenses in the 1998 period of the Acquired
Businesses. As a percentage of revenues, these expenses increased from 23% in
the three months ended September 30, 1997 to 31% in the same period in 1998,
primarily as a result of the inclusion of the results of the Acquired Businesses
coupled with a decrease in the revenue base in the third quarter of 1998
compared with the same period in 1997.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $79.4 million, or 238%, from $33.4 million
in the nine months ended September 30, 1997, to $112.8 million in the
corresponding period in 1998. This increase primarily resulted from the
inclusion in the 1998 period of the results of the Acquired Businesses.
GROSS PROFIT -- Gross profit increased $25.5 million, or 236%, from $10.8
million in the nine months ended September 30, 1997 to $36.3 million in the
corresponding period in 1998, primarily as a result of the inclusion in the 1998
period of the incremental gross profit of the Acquired Businesses. As a
percentage of revenues, gross profit remained relatively flat in 1998 as
compared with 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $23.5 million, or 290%, from $8.1 million in
the nine months ended September 30, 1997 to $31.6 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general, and
administrative expenses in the 1998 period of the Acquired Businesses. As a
percentage of revenues, selling, general and administrative expenses increased
from 24% in the nine months ended September 30, 1997, to 28% in the
corresponding period in 1998. This increase primarily resulted from the
inclusion of the results of the Acquired Businesses.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
SPECIAL COMPENSATION EXPENSE
In connection with the issuance of common stock to certain members of
management and a management services provider, SSI recorded a $2.6 million
non-cash, non-recurring charge in the nine months ended September 30, 1997.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter-to-quarter or year-to-year because of a number of factors, including the
timing of acquisitions, seasonal fluctuations in the demand for the Company's
services and competitive factors. Accordingly, quarterly comparisons of the
Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, the Company's operations
used $10.5 million in cash primarily as a result of an increase in working
capital. Approximately $7.3 million was used to fund an increase in level of
working capital, $4.7 million of retirements of other debt, and $3.5 million in
capital expenditures. Also, during the nine months ended September 30, 1998, the
Company had net
16
borrowings of $55.1 million under its Credit Facility. Of these borrowings,
approximately $39.1 million were used to fund the cash portion of the purchase
prices paid for the businesses acquired during the period.
The Company's Credit Facility is a revolving credit facility of up
to $90 million. Invatec's subsidiaries have guaranteed the repayment of all
amounts due under the facility, and the facility is secured by the capital stock
of those subsidiaries and all of the Company's assets. The Credit Facility
prohibits the payment of cash dividends by Invatec, restricts the ability of the
Company to incur other indebtedness and requires the Company to comply with
certain financial covenants.
As of November 13, 1998, the Company was not in compliance with certain of
its loan covenants under the Credit Facility. The Company has therefore
classified amounts due under the Credit Facility as of September 30, 1998 as a
current liability. The Company has obtained waivers of the covenant violations
(which terminate November 19, 1998) and is in the process of negotiating an
amendment to the Credit Facility to address future compliance with these
covenants. The Company expects to have finalized the term sheet for such
amendment by November 19, 1998 and to secure an additional waiver until the
amendment is appropriately documented. At November 13, 1998, approximately $70.6
million of borrowings were outstanding under the Credit Facility.
Management believes that the Credit Facility will be amended within the
next 60 days to provide temporary covenant relief and permit the Company to make
borrowings as may be needed to meet its forecasted working capital requirements.
The Company expects the Credit Facility will be further amended in the first
quarter of 1999 to provide for covenants the Company should be able to comply
with thereafter. However, there can be no assurances that amendments will be
obtained. In the event that the terms of the Credit Facility are not amended so
that the Company is in compliance with that agreement, the Company may need to
seek replacement debt or equity financing to repay the amounts due under the
Credit Facility. There can be no assurance that any such replacement financing
would be available.
At September 30, 1998, the Company's capitalization included approximately
$12.9 million aggregate principal amount of convertible subordinated notes due
2002-04 that bore a weighted average interest rate of 5.3%. The Company issued
these notes as partial consideration in acquisitions of certain Acquired
Businesses. These notes are convertible into Common Stock at initial conversion
prices ranging from $16.90 to $22.20 per share.
For three businesses acquired in 1998, the Company guaranteed Common Stock
price targets to the sellers at specified future dates. If the guaranteed price
targets are not met or exceeded, the Company is required to either issue
additional shares of Common Stock or pay additional funds to the sellers for the
difference between the price at the acquisition date and the guaranteed price
targets. Using the Common Stock price at November 11, 1998, the total additional
consideration would be approximately $5.2 million and 617,143 additional shares
of Common Stock. The additional consideration is payable to the sellers on the
one year anniversary of the acquisition date.
Management believes that in the event of additional cash needs required to
support the Company's working capital requirements, the Company may need to seek
additional financing through amendments to increase the borrowing capacity under
the existing Credit Facility or the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
YEAR 2000 ISSUE
Many software applications, computer hardware and related equipment and
systems that use embedded technology (such as microporessors) identify dates
using only the last two digits of the year. These products and systems may be
unable to distinguish between dates in the Year 2000 and dates in the year 1900.
that inability (referred to as the "Year 2000" issue), if not addressed, could
cause applications, equipment or systems to fail or provide incorrect
information after December 31, 1999, or when using dates after December 31,
1999. This in turn could have an adverse effect on the Company due to the
Company's direct dependence on its own applications, equipment and systems and
indirect dependence on those of other entities which the Company must interact.
The Company recognizes the need to ensure that its operations will not be
adversely affected by Year 2000 system failures. Therefore, in 1998 the Company
began addressing the Year 2000 issue in an effort to minimize the disruptions to
the Company's business and potential Company liabilities that
17
could result from Year 2000 system failures. The Company has been using its own
employees and outside experts to identify Year 2000 compliance problems, assist
in developing estimates for remediation and complete necessary remediation work,
including reprogramming, replacement and testing of software for Year 2000
compliance.
The Company currently has a plan in place to modify or replace portions of
its administrative and operating software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter,
providing management with consistent operational and financial information
throughout the Company. The Company currently estimates that process should be
completed by the third quarter of 1999. The Company has reviewed its own
computer hardware and embedded technology systems that are material to its
operations and concluded that those items will function properly in the Year
2000 and beyond or can be modified or replaced without any material expense or
disruption of operations. Accordingly, the Company does not expect costs
relating to Year 2000 remediation to have a material adverse effect on its
results of operations or financial condition.
A complete assessment of the Year 2000 issue will involve, among other
things, efforts to obtain representations and assurances from third parties,
including third-party vendors, that their hardware and equipment, embedded
technology systems and software being used by or impacting the Company are or
will be modified to be Year 2000 compliant. The Company has yet to begin its
evaluation of the Year 2000 compliance of any third parties. As a result,
management cannot predict the potential consequences if third parties are not
Year 2000 compliant.
Because the Company plans to address any significant Year 2000 issues
before being affected by them, it has not developed a comprehensive contingency
plan. However, if the Company identifies significant risks related to its Year
2000 compliance or its progress deviates from the anticipated program, the
Company will develop contingency plans as necessary. Furthermore, although the
Company does not anticipate any material adverse effect from Year 2000 failures,
there is no guarantee of total compliance. Specific factors that give rise to
uncertainty include failure to identify all susceptible systems, non-compliance
by third parties whose systems and operations impact the Company, a possible
loss of technical resources to perform the work and other similar uncertainties.
Year 2000 noncompliance could result in a material disruption of the Company's
operations, an interruption in its ability to collect amounts due from
customers, loss of accurate accounting records and various of other
difficulties. Depending on the length of noncompliance and system failure, any
of these situations could have a material adverse impact on the Company's
results of operations and financial position.
18
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RECENT MANAGEMENT CHANGES
On November 3, 1998, Invatec announced several management changes as
follows:
Mr. Charles F. Schugart has been appointed President. Mr. Schugart was
formerly Invatec's Senior Vice President and Chief Financial Officer, and has
been heavily involved in the Company's acquisition activities. He will now
concentrate on improving the financial performance of Invatec's operating
businesses.
Mr. Douglas R. Harrington, Jr., has been promoted to Chief Financial
Officer, succeeding Mr. Schugart. Mr. Harrington was formerly Invatec's
Corporate Controller and Treasurer.
Mr. Curry B. Walker, Vice President of Quality, Safety and Engineering,
has assumed certain of the responsibilities formerly assigned to Denny A. Rigas
(who was terminated in September 1998) and will assume additional
responsibilities to support the marketing and partnering efforts of the Invatec
companies.
Mr. Pliny L. Olivier was appointed as Senior Vice President of Operations
to address the implementation of synergistic opportunities.
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
2.1* -- Stock Purchase Agreement dated as of December 28, 1996
by and among The Safe Seal Company, Inc. ("SSI"),
certain stockholders of Harley Industries, Inc.
("Harley") and Harley (Form S-1 (Reg. No. 333-31617),
Ex. 2.1).
2.2* -- Stock Transfer Agreement dated as of January 24, 1997
by and among SSI, a stockholder of Harley, Harley and
Harley Equipment Corporation (Form S-1 (Reg. No.
333-31617), Ex. 2.2).
2.3* -- Stock Purchase Agreement entered into on June 23, 1997
by and among the Company, Puget Investments, Inc.,
Flickinger-Benicia Inc. and the stockholders named
therein (Form S-1 (Reg. No. 333-31617), Ex. 2.3).
2.4* -- Stock Purchase Agreement dated as of July 15, 1997 by
and among the Company, Industrial Controls & Equipment,
Inc., Valve Actuation & Repair Co. and the other parties
thereto (Form S-1 (Reg. No. 333-31617), Ex. 2.4).
2.5* -- Stock Purchase Agreement dated as of February 26, 1997
by and among SSI and the stockholders of GSV, Inc. (Form
S-1 (Reg. No. 333-31617), Ex. 2.5).
2.6* -- Stock and Real Estate Purchase Agreement dated as of May
22, 1997 by and among SSI, Plant Specialties, Inc., and the
stockholders named therein (Form S-1 (Reg. No.
333-31617), Ex. 2.6).
2.7* -- Agreement and Plan of Reorganization dated as of June
27, 1997 by and among the Company, Southern Valve
Service, Inc. and the other parties thereto (Form S-1
(Reg. No. 333-31617), Ex. 2.7).
2.8* -- Stock Redemption and Purchase Agreement dated as of
June 27, 1997 by and among the Company, Lee Roy Jordan,
Ralph Buffkin and 55 Leasing and Sales, Inc. (Form S-1
(Reg. No. 333-31617), Ex. 2.8).
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997
by and among the Company, IVT Acquisition, Inc. and SSI,
as amended as of August 15, 1997 (Form S-1 (Reg. No.
333-31617), Ex. 2.9).
2.10* -- Uniform Provisions for Acquisitions (incorporated into
the agreements incorporated herein as Exhibits 2.3, 2.4
and 2.7) (Form S-1 (Reg. No. 333-31617), Ex. 2.10).
2.11* -- Merger Agreement dated as of December 17, 1997 by and
among the Company, DIVT Acquisition, LLC, Dalco, Inc.
and the stockholders named therein (Form 8-K dated
December 17, 1997 (File No. 000-23231), Ex. 2).
2.12* -- Stock Purchase Agreement dated as of February 27, 1998
by and among the Company, Cypress Industries, Inc. and
the stockholders named therein (Form 8-K dated February
27, 1998 (File No. 000-23231), Ex. 2).
20
2.13* -- Merger Agreement, dated as of March 16, 1998, by and
among the Company, IPSCO Acquisition, Inc., IPS Holding,
Ltd. ("IPS") and the subsidiaries and stockholders of
IPS named therein (Form 8-K dated March 16, 1998 (File
No. 000-23231), Ex. 2).
-- Pursuant to Item 601(b)(2) of Regulation S-K, certain
schedules and exhibits to the agreements filed or
incorporated by reference as Exhibits 2.1 through 2.13
(all of which are listed therein) have been omitted.
Invatec hereby agrees to furnish supplementally a copy of
any such omitted item to the SEC on request.
3.1 -- Certificate of Incorporation of the Company, as amended.
3.2 -- Amended and Restated Bylaws of the Company.
4.1 -- Loan Agreement, dated as of July 7, 1998, by and among
the Company and Chase Bank of Texas, National Association.
10.1 -- 1997 Incentive Plan of the Company, as amended.
27.1 -- Financial Data Schedule.
________________
* Incorporated by reference to the filing indicated.
(b) Reports on Form 8-K.
None.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Innovative Valve Technologies, Inc., has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
/S/ DOUGLAS R. HARRINGTON, JR.
DOUGLAS R. HARRINGTON, JR.
VICE PRESIDENT
CHIEF FINANCIAL OFFICER
Dated: November 13, 1998
22