SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the Period ended June 30, 1996.
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-13143
INNOVEX, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1223933
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1313 South Fifth Street, Hopkins, Minnesota 55343-9904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 938-4155
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
As of August 2, 1996, 7,110,127 shares of the registrant's common stock, $.04
par value per share, were outstanding.
Exhibit Index, page 10
PART 1: ITEM 1 FINANCIAL INFORMATION
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
ASSETS (Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,930,954 $ 7,384,298
Short-term investments 15,455,000 15,130,000
Accounts receivable, less allowance for
doubtful accounts of $329,000 and $265,000) 11,232,428 5,787,282
Inventories 5,171,782 2,191,345
Other current assets 2,507,278 1,738,438
----------- -----------
Total current assets 36,297,442 32,231,363
Property, plant and equipment, net of accumulated
depreciation of $7,897,000 and $6,357,000 12,375,447 7,067,876
Intangible assets, net of amortization of $1,616,000
and $1,008,000 2,935,544 1,979,244
Other assets 889,000 5,000
----------- -----------
$52,497,433 $41,283,483
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 108,000 $ 358,000
Accounts payable 2,442,123 1,486,154
Accrued compensation 1,797,413 1,570,983
Income taxes payable 1,341,222 60,360
Other accrued liabilities 666,620 393,870
----------- -----------
Total current liabilities 6,355,378 3,869,367
Long-term debt 1,108,777 1,172,798
Other long-term liabilities 375,185 212,145
Stockholders' equity:
Common stock, $.04 par value; 15,000,000 shares authorized,
7,110,127 and 7,062,127 shares issued and outstanding 284,405 282,485
Capital in excess of par value 9,207,834 8,930,301
Retained earnings 35,165,854 26,816,387
----------- -----------
Total stockholders' equity 44,658,093 36,029,173
----------- -----------
$52,497,433 $41,283,483
=========== ===========
</TABLE>
See accompanying notes.
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
1996 1995
------------ ------------
Net sales $ 19,254,632 $ 14,025,617
Costs and expenses:
Cost of sales 11,960,015 7,760,021
Selling, general and administrative 1,833,857 1,366,483
Engineering 625,630 716,594
Net interest (income) expense (205,458) (163,029)
Other (income) expense (46,546) (144)
------------ ------------
Income before taxes 5,087,134 4,345,692
Provision for income taxes 1,525,000 1,391,000
------------ ------------
Net income $ 3,562,134 $ 2,954,692
============ ============
Primary and fully dilutive net income per share: $ 0.49 $ 0.41
============ ============
Common and common equivalent shares outstanding:
Primary 7,235,728 7,198,041
============ ============
Assuming full dilution 7,251,887 7,198,041
============ ============
Nine months Ended June 30,
1996 1995
------------ ------------
Net sales $ 47,040,796 $ 35,694,306
Costs and expenses:
Cost of sales 28,215,881 20,638,549
Selling, general and administrative 4,390,017 3,611,430
Engineering 1,841,353 1,770,861
Net interest (income) expense (602,005) (453,202)
Other (income) expense (46,039) 212,637
------------ ------------
Income before taxes 13,241,589 9,914,031
Provision for income taxes 3,972,000 3,220,000
------------ ------------
Net income $ 9,269,589 $ 6,694,031
============ ============
Primary and fully dilutive net income per share: $ 1.28 $ 0.94
============ ============
Common and common equivalent shares outstanding:
Primary 7,230,779 7,112,692
============ ============
Assuming full dilution 7,245,725 7,112,692
============ ============
See accompanying notes.
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,269,589 $ 6,694,031
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,615,419 2,058,729
Other non-cash charges (credits) 130,948 (53,026)
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable (3,793,276) (2,090,419)
Inventories (1,631,230) (279,784)
Other current assets (662,993) (222,793)
Accounts payables (50,030) 577,715
Other liabilities (109,348) (99,487)
Income taxes payable 1,280,862 926,123
------------ ------------
Net cash provided by (used in) operating activities 7,049,941 7,511,089
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,927,040) (2,065,519)
Business and product line acquisitions (7,389,990) (310,698)
Investment in limited partnership (884,000) --
Proceeds from sale of assets 13,637 75
Purchase of held-to-maturity securities (9,255,000) (12,205,000)
Maturities of held-to-maturity securities 8,930,000 4,785,000
Sale of available-for-sale securities -- 3,215,915
------------ ------------
Net cash provided by (used in) investing activities (11,512,393) (6,580,227)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (350,226) (325,427)
Proceeds from exercise of stock options 279,453 896,807
Dividends paid (920,119) (801,641)
------------ ------------
Net cash provided by (used in) financing activities (990,892) (230,261)
Increase (decrease) in cash and cash equivalents (5,453,344) 700,601
Cash and cash equivalents at beginning of year 7,384,298 1,719,587
------------ ------------
Cash and cash equivalents at end of period $ 1,930,954 $ 2,420,188
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES:
The Company considers all highly liquid investments with a maturity date of
three months or less when purchased to be "cash equivalents."
In May 1996, the Company acquired certain assets in connection with a business
acquisition by assuming liabilities of approximately $1,788,000.
Cash paid for interest was $66,000 and $91,000 in 1996 and 1995, respectively.
Income tax payments were $2,691,000 and $2,291,000 in 1996 and 1995,
respectively.
See accompanying notes.
INNOVEX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions on Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited condensed
consolidated financial statements include the accounts of Innovex, Inc. and its
subsidiaries (the "Company") after elimination of all significant intercompany
transactions and accounts. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of operating results have been made. Operating results for interim periods are
not necessarily indicative of results which may be expected for the year as a
whole. For further information, refer to the consolidated financial statements
and footnotes included in the registrant's annual report on Form 10-K for the
year ended September 30, 1995.
NOTE 2 - THREE FOR TWO STOCK SPLIT
Net income per share calculations for prior periods have been adjusted
to reflect a three for two stock split effective on May 31, 1995.
NOTE 3 - BUSINESS ACQUISITION
On May 16, 1996, the Company purchased substantially all of the assets
of Litchfield Precision Components, Inc. The purchase price of approximately
$9,178,000 was in the form of $3,500,000 in cash and the assumption of specified
liabilities amounting to $5,678,000. Approximately $4,000,000 of the assumed
debt was paid off at the time of close. The acquisition has been accounted for
as a purchase and, accordingly, the results of operations since acquisition are
included in the accompanying financial statements. The purchase price and fair
value of the assets acquired were as follows in thousands:
Current assets $ 3,081
Property, plant and equipment 4,773
Intangible assets 1,324
-------
$ 9,178
=======
PART I: ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Innovex, Inc. (the Company), through its largest division, Precision
Products, develops, engineers and manufactures specialty precision
electromagnetic products for original equipment manufacturers ("OEM's"). Lead
wire assemblies for the thin film disk drive market are the Division's primary
product.
Effective May 16, 1996, the Company purchased substantially all of the
assets of Litchfield Precision Components, Inc. (LPC) for approximately $9.2
million. LPC designs and manufactures highly complex flexible circuitry and
chemically machined components. Approximately 40% of LPC's sales are medical
product applications, 40% are computer and computer peripheral applications with
the remaining 20% primarily being communications industry or other applications.
The purchased assets include several buildings and all of the manufacturing
equipment required to operate the business as a division at its present location
in Litchfield, Minnesota.
The Company also operates two other divisions, Iconovex and InnoMedica.
These divisions currently only produce a small portion of the Company's revenue.
Iconovex is responsible for the further development and marketing of a document
handling software product which was purchased in November 1993. The purchased
software prepares indexes and abstracts of documents stored on electronic media.
The initial application derived from the purchased software, Indexicon, was
designed for use on personal computers and began shipping in fiscal 1994.
Another product, AnchorPage, was released in fiscal 1995. AnchorPage enables
Internet World Wide Web sites to provide their users access to web site
information automatically using conceptual navigational techniques. The
division's newest product, EchoSearch, will be available for sale during the
fiscal 1996 fourth quarter. EchoSearch, is a desktop based tool for browsers of
the World Wide Web which enables users to simultaneously query multiple search
engines. The search responses are indexed and abstracted to present the user a
condensed view that improves both the speed and accuracy of the search. The
Division intends to focus future attention on licensing its technology to OEM
software developers.
InnoMedica was formed late in fiscal 1993 to further develop the
Company's medical business. In line with this strategy, the Company acquired
Daig Corporation's pacemaker lead wire and adapter product line in September
1993 and Possis Medical, Inc's pacemaker lead wire product line in March 1994.
Revenue generated by this division should continue to increase throughout fiscal
1996 as its customer base expands.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales from operations totaled $19,255,000 for the
quarter, up 37% from $14,026,000 reported in fiscal 1995. Sales of $47,041,000
for the nine months ended June 30, 1996 increased 32% from the prior year
period. The increases were due to the continued strong demand for lead wire
assemblies caused by increased demand for disk drives and the addition of sales
from the May 16, 1996 LPC acquisition. The increase in lead wire assembly unit
sales volume was partially offset by decreases in selling price of the low end
inductive lead wire assemblies which were primarily volume driven. Also
contributing to the sales increase was an increasing portion of high end MR lead
wire assemblies being included in the product mix, partially as a result of the
success of Innovex's new WAT technology. These MR lead wire assemblies have a
higher value added content and sell for a higher price than the low end
inductive assemblies. The lead wire assembly demand is expected to remain strong
throughout the remainder of the fiscal year with an increasing portion of the
lead wire sales being the high end MR products. The LPC acquisition should also
continue to contribute to an increase in sales for the remainder of the fiscal
year.
GROSS MARGINS
The Company's consolidated gross profit as a percent of sales for the
third quarter decreased to 38% from the 45% reported for the same period last
year while the gross margin percent for the first nine months decreased to 40%
from the 42% reported for the same period last year. The primary causes of the
current quarter decrease include lead wire assembly selling price reductions
which partially offset the increased unit sales volume in the current year and
the inclusion of LPC sales which receive a lower gross margin than the Precision
Products Division's lead wire assemblies. The gross margin may be slightly
lower in the fourth quarter due to the inclusion of a full quarter of sales from
the LPC acquisition. Gross margins for the existing lead wire assembly business
should remain relatively stable for the remainder of the fiscal year as improved
manufacturing efficiencies should offset any price concessions which may occur.
OPERATING EXPENSES
Operating expenses were 12.8% of sales for the current quarter, down
from 14.9% in the prior year's third quarter. Operating expenses for the first
nine months of fiscal 1996 were 13.2% of sales, down from 15.1% for the prior
year's first nine months. The decrease in operating expenses as a percent of
sales for the current year is primarily due to the increase in sales more than
offsetting the increase in total operating expenses. Total operating expenses
increased primarily due to the inclusion of operating costs from LPC which was
acquired on May 16, 1996 and the higher level of costs being incurred by the two
start up divisions as compared to the prior year. The level of operating
expenses is not expected to change significantly as a percent of sales for the
remainder of the fiscal year.
OPERATING PROFIT
Consolidated operating profit of $4,835,000 in the current quarter was
up from the $4,183,000 profit for the prior year third quarter. Consolidated
operating profit for the first nine months was $12,594,000 versus $9,673,000 for
the same period last year. This is primarily the result of the increased sales
volume. Operating profit for the remainder of the fiscal year is expected to
remain strong due to the continued high demand for thin-film lead wire
assemblies and the inclusion of LPC's operating results. Although revenues from
the Company's Iconovex and InnoMedica Divisions are expected to continue to
increase they will remain a small portion of the Company's total sales and are
not expected to operate at a profitable level until the next fiscal year.
NET INCOME
Consolidated net income for the 1996 third quarter was $3,562,000 or
$0.49 per share as compared to $2,955,000 or $0.41 per share for the prior year
third quarter. Consolidated net income for the first nine months of fiscal 1996
was $9,270,000 or $1.28 per share versus $6,694,000 or $0.94 per share for the
same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments decreased to $17.4 million at June 30,
1996 from $22.5 million at September 30, 1995. This decrease was primarily due
to the purchase of substantially all of the assets of LPC on May 16, 1996. Cash
payments of approximately $7.3 million were made at the time of close including
the payoff of selected assumed liabilities.
Accounts receivable at June 30, 1996 increased by $3,793,000 from
September 30, 1995, net of the LPC acquisition, due to the increased level of
sales at the end of the third quarter and the timing of payments received from
one customer. Inventory increased by $1,631,000 from September 30, 1995, net of
the LPC acquisition, to support the increased level of activity.
Working capital totaled $29.9 million and $28.4 million at June 30,
1996 and September 30, 1995, respectively.
Since September 30, 1995, the Company has invested $2.9 million in
fixed assets. These additions include approximately $2.3 million for equipment
and remodeling to expand and further automate the lead wire assembly production
and packaging process.
Management believes that internally generated funds will provide
adequate sources of capital for supporting projected growth in fiscal 1996.
PART II - OTHER INFORMATION
Responses to Items 1 through 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11 Statement regarding Computation of Per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K Current Report dated May 16,1996 was filed including
Item 2 reporting the acquisition of substantially all of the assets of
Litchfield Precision Components, Inc. and Item 7 reporting pro forma financial
information and exhibits relating to the acquisition.
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 thereunto duly authorized.
INNOVEX, INC.
Registrant
Date: August 13, 1996
By \s\ Thomas W. Haley
Thomas W. Haley
Chief Executive Officer
By \s\ Douglas W. Keller
Douglas W. Keller
Corporate Controller
INDEX TO EXHIBITS
Exhibits Page
11 Computation of Per Share Net Income 11
27 Financial Data Schedule 12
EXHIBIT 11 - COMPUTATION OF PER SHARE NET INCOME
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Net income for the period used in
determining net income per share $3,562,134 $2,954,692
Weighted average common and common equivalent
shares used in determining net income per share:
Primary 7,235,728 7,198,041
Assuming full dilution 7,251,887 7,198,041
Primary and fully dilutive net income per share $0.49 $0.41
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Net income for the period used in
determining net income per share $9,269,589 $6,694,031
Weighted average common and common equivalent
shares used in determining net income per share:
Primary 7,230,779 7,112,692
Assuming full dilution 7,245,725 7,112,692
Primary and fully dilutive net income per share $1.28 $0.94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THE 10-Q FOR THE QUARTER ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-END> Jun-30-1996
<CASH> 1,931
<SECURITIES> 15,455
<RECEIVABLES> 11,562
<ALLOWANCES> 329
<INVENTORY> 5,172
<CURRENT-ASSETS> 36,297
<PP&E> 20,272
<DEPRECIATION> 7,897
<TOTAL-ASSETS> 52,497
<CURRENT-LIABILITIES> 6,355
<BONDS> 1,109
0
0
<COMMON> 284
<OTHER-SE> 44,374
<TOTAL-LIABILITY-AND-EQUITY> 52,497
<SALES> 47,041
<TOTAL-REVENUES> 47,041
<CGS> 28,216
<TOTAL-COSTS> 28,216
<OTHER-EXPENSES> 6,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 13,242
<INCOME-TAX> 3,972
<INCOME-CONTINUING> 9,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,270
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
