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, 1997.
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 July 28, 1997, 14,584,304 shares of the registrant's common stock, $.04
par value per share, were outstanding.
Exhibit Index, page 9
<PAGE>
PART 1: ITEM 1
FINANCIAL INFORMATION
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
ASSETS (Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,062,684 $ 5,635,534
Short-term investments 26,870,000 16,140,000
Accounts receivable, less allowance for
doubtful accounts of $601,000 and $317,000 21,481,691 12,034,349
Inventories 6,770,903 5,570,582
Other current assets 3,551,005 2,648,112
----------- -----------
Total current assets 68,736,283 42,028,577
Property, plant and equipment, net of accumulated depreciation
of $11,198,000 and $8,743,000 19,295,281 12,731,980
Intangible assets, net of accumulated amortization of $2,814,000
and $2,317,000 2,051,451 2,308,737
Other assets 291,052 1,175,052
----------- -----------
$90,374,067 $58,244,346
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 96,000 $ 96,000
Accounts payable 4,591,984 3,581,628
Accrued compensation 2,738,305 2,158,834
Income taxes payable 4,587,710 1,809,038
Other accrued liabilities 793,493 841,150
----------- -----------
Total current liabilities 12,807,492 8,486,650
Long-term debt 985,492 1,063,253
Other long-term liabilities 309,110 294,327
Stockholders' equity:
Common stock, $.04 par value; 30,000,000 shares authorized,
14,565,384 and 14,221,254 shares issued and outstanding 582,615 284,425
Capital in excess of par value 10,840,955 9,418,376
Retained earnings 64,848,403 38,697,315
----------- -----------
Total stockholders' equity 76,271,973 48,400,116
----------- -----------
$90,374,067 $58,244,346
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
1997 1996
------------ ------------
Net sales $ 41,960,060 $ 19,254,632
Costs and expenses:
Cost of sales 23,597,133 11,960,015
Selling, general and administrative 2,185,779 1,833,857
Engineering 893,120 625,630
Net interest and other (income) expense (346,290) (252,004)
------------ ------------
Income before taxes 15,630,318 5,087,134
Provision for income taxes 4,688,000 1,525,000
------------ ------------
Net income $ 10,942,318 $ 3,562,134
============ ============
Primary and fully dilutive net income per share: $ 0.72 $ 0.25
============ ============
Common and common equivalent shares outstanding:
Primary 15,221,231 14,471,456
============ ============
Assuming full dilution 15,221,231 14,503,774
============ ============
Nine Months Ended June 30,
1997 1996
------------- -------------
Net sales $ 109,660,885 $ 47,040,796
Costs and expenses:
Cost of sales 61,608,458 28,215,881
Selling, general and administrative 7,212,908 4,390,017
Engineering 2,625,942 1,841,353
Net interest and other (income) expense (838,456) (648,044)
------------- -------------
Income before taxes 39,052,033 13,241,589
Provision for income taxes 11,715,000 3,972,000
------------- -------------
Net income $ 27,337,033 $ 9,269,589
============= =============
Net income per share:
Primary $ 1.81 $ 0.64
============= =============
Fully dilutive $ 1.80 $ 0.64
============= =============
Common and common equivalent shares outstanding:
Primary 15,129,909 14,461,558
============= =============
Assuming full dilution 15,176,731 14,491,450
============= =============
See accompanying notes.
<PAGE>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,337,033 $ 9,269,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,338,774 2,615,419
Other non-cash charges (credits) 128,767 130,948
Changes in operating assets and liabilities:
Accounts receivable (9,447,342) (3,793,276)
Inventories (1,200,321) (1,631,230)
Other current assets (902,893) (662,993)
Accounts payable 1,010,356 (50,030)
Other liabilities 546,597 (109,348)
Income taxes payable 2,778,672 1,280,862
------------ ------------
Net cash provided by (used in) operating activities 23,589,643 7,049,941
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,841,453) (2,927,040)
Business acquisition -- (7,389,990)
Investment in limited partnership -- (884,000)
Proceeds from sale of investment in limited partnership 884,000 --
Proceeds from sale of assets 67,898 13,637
Purchase of held-to-maturity securities (23,060,000) (9,255,000)
Maturities of held-to-maturity securities 12,330,000 8,930,000
------------ ------------
Net cash provided by (used in) investing activities (19,619,555) (11,512,393)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (77,761) (350,226)
Proceeds from exercise of stock options 1,720,769 279,453
Dividends paid (1,185,946) (920,119)
------------ ------------
Net cash provided by (used in) financing activities 457,062 (990,892)
Increase (decrease) in cash and cash equivalents 4,427,150 (5,453,344)
Cash and cash equivalents at beginning of year 5,635,534 7,384,298
------------ ------------
Cash and cash equivalents at end of period $ 10,062,684 $ 1,930,954
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest was $62,000 and $66,000 in 1997 and 1996.
Income tax payments were $9,173,000 and $2,691,000 in 1997 and 1996.
</TABLE>
See accompanying notes.
<PAGE>
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. Preparation of the Company's consolidated
financial statements requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and related revenues and
expenses. Actual results could differ from these estimates. 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, 1996.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No.
128, Earnings Per Share, which is effective for financial statements issued for
periods ending after December 15, 1997. Early adoption of the new standard is
not permitted. The new standard eliminates primary and fully diluted earnings
per share and requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts were computed. The pro
forma effect of adopting the new standard for the quarters ended June 30, 1997
and 1996 would be basic earnings per share of $0.76 and $0.25 and diluted
earnings per share of $0.72 and $0.25. The pro forma effect of adopting the new
standard for the nine month periods ended June 30, 1997 and 1996 would be basic
earnings per share of $1.90 and $0.65 and diluted earnings per share of $1.81
and $0.64.
NOTE 3 - TWO FOR ONE STOCK SPLIT
All share and per share information for prior periods has been adjusted
to reflect a two for one stock split effective on December 23, 1996.
PART I: ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Innovex, Inc. and its subsidiaries (the Company) operate through four
divisions, Precision Products, Litchfield Precision Components, InnoMedica and
Iconovex. Each division has its own administrative, engineering, manufacturing
and marketing organizations.
The 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. Lead wire assemblies are fine twisted
magnet wires that connect the back end electronics of a disk drive with the thin
film heads which read or write the information on the disk.
The Litchfield Precision Components Division (LPC) designs and
manufactures highly complex flexible circuitry and chemically machined
components. Approximately 30% of LPC's sales are medical product applications,
50% are computer and computer peripheral applications with the remaining 20%
being other applications. LPC is one of a limited number of companies in the
world able to produce flexible circuits with line and spacing tolerances of less
than 2 mills.
<PAGE>
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 Division intends to locate either a marketing partner, buyer or licensee for
its technology prior to the end of the fiscal year.
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.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales from operations totaled $41,960,000 for the
quarter, up 118% from $19,255,000 reported in fiscal 1996. Sales of $109,661,000
for the nine months ended June 30, 1997 increased 133% 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. Also contributing to the sales increase
was an increasing portion of high end MR lead wire assemblies being included in
the product mix. 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 shipments in the fiscal 1997 fourth quarter are expected to be down as
compared to the third quarter. Demand is expected to increase again during
fiscal 1998. Sales generated by LPC should continue to increase over their
levels from the prior fiscal year.
GROSS MARGINS
The Company's consolidated gross profit as a percent of net sales for
the quarter increased to 44%, up from the 38% reported for the same period last
year. The gross margin percent for the first nine months increased to 44% from
the 40% reported last year. Gross margin percents increased primarily due to the
growth in sales volume increasing faster than the related overhead costs causing
an increased leverage of those costs. The gross margin percent is expected to
moderate in the fiscal 1997 fourth quarter from year to date margins as a result
of the anticipated reduced sales volume. Comparisons to the prior fiscal year
will continue to be extremely favorable. Gross margins are expected to remain
strong during the next fiscal year with the projected increase in demand.
OPERATING EXPENSES
Operating expenses were 7.3% of sales for the current quarter, as
compared with 12.8% in the prior year's third quarter. Operating expenses for
the first nine months of fiscal 1997 were 9.0%, down from 13.2% for the same
period last year. The decrease in operating expenses as a percent of net sales
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 addition of infrastructure required to handle the higher level of activity
within the Precision Products Division. The level of operating expenses is not
expected to change significantly for the remainder of the fiscal year.
OPERATING PROFIT
Consolidated operating profit of $15,284,000 in the current quarter was
up 216% from the $4,835,000 profit for the prior year third quarter.
Consolidated operating profit for the first nine
<PAGE>
months was $38,214,000 versus $12,594,000 for the same period last year. These
increases are primarily the result of increased sales volume. Operating profit
for the remainder of the fiscal year is expected to remain strong as compared to
the prior year due to the higher demand for thin-film lead wire assemblies.
Revenues from the Company's Iconovex and InnoMedica Divisions remain a small
portion of the Company's total sales. Both Iconovex and InnoMedica generated
operating losses during the third quarter and are not expected to improve
significantly for the remainder of the fiscal year. InnoMedica is expected to
break-even during the next fiscal year while efforts are being made to find a
buyer or joint venture partner for Iconovex which should improve their impact on
the Company's combined fiscal 1998 operating results.
NET INCOME
Consolidated net income for the fiscal 1997 third quarter was
$10,942,000 or $0.72 per share as compared to $3,562,000 or $0.25 per share for
the prior year third quarter. Consolidated net income for the first nine months
of fiscal 1997 was $27,337,000 versus $9,270,000 for the same period last year.
Primary and fully diluted net income per share for the first nine months of
fiscal 1997 were $1.81 and $1.80 compared with $0.64 for the prior year nine
month period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased to $36.9 million at June 30,
1997 from $21.8 million at September 30, 1996. This increase was primarily due
to income generated from operating activities.
Accounts receivable at June 30, 1997 increased by $9,447,000 from
September 30, 1996 due to the increased level of sales. Inventory increased by
$1,200,000 from September 30, 1996 to support the increased level of activity
and the start up of a new sub-contractor in China.
Working capital totaled $55.9 million and $33.5 million at June 30,
1997 and September 30, 1996. The increase is primarily due to income generated
from operating activities.
Since September 30, 1996, the Company has invested over $9.8 million in
capital expenditures. These additions include equipment to expand and further
automate the lead wire assembly production process, computer equipment and
software, leasehold improvements for a new corporate office and research and
development facility and initial spending on a new automated flexible circuit
production facility.
Management believes that internally generated funds will provide
adequate sources of capital for supporting projected growth in the foreseeable
future, including the planned $20 million expansion of the Litchfield Precision
Components operation over the next two years.
FORWARD LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, in letters to shareholders,
elsewhere in the Company's Form 10-Q and in future filings by the Company with
the SEC, except for historical information contained herein and therein, are
"foreword looking statements" that involve risks and uncertainties, including
the timely availability and acceptance of new products, the impact of
competitive products and pricing and a general downturn in the Company's
principal market. The Company disclaims any obligation subsequently to revise
any foreword looking statements to reflect subsequent events or circumstances or
the occurrence of unanticipated events.
<PAGE>
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 Computation of Per Share Net Income
27 Financial Data Schedule
b) Reports on Form 8-K
None.
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 8, 1997
By \s\ Thomas W. Haley
Thomas W. Haley
Chief Executive Officer
(Principal Executive Officer)
By \s\ Douglas W. Keller
Douglas W. Keller
Vice President, Finance
(Principal Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
11 Computation of Per Share Net Income 10
27 Financial Data Schedule 11
EXHIBIT 11
COMPUTATION OF PER SHARE NET INCOME
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Net income for the period used in
determining net income per share $10,942,318 $ 3,562,134
Weighted average common and common equivalent shares
used in determining net income per share:
Primary 15,221,231 14,471,456
Assuming full dilution 15,221,231 14,503,774
Primary and fully dilutive net income per share $ 0.72 $ 0.25
For the Nine Months Ended June 30,
1997 1996
----------- -----------
Net income for the period used in
determining net income per share $27,337,033 $ 9,269,589
Weighted average common and common equivalent shares
used in determining net income per share:
Primary 15,129,909 14,461,558
Assuming full dilution 15,176,731 14,491,450
Net income per share:
Primary $ 1.81 $ 0.64
Assuming full dilution $ 1.80 $ 0.64
</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, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,063
<SECURITIES> 26,870
<RECEIVABLES> 22,083
<ALLOWANCES> 601
<INVENTORY> 6,771
<CURRENT-ASSETS> 68,736
<PP&E> 30,493
<DEPRECIATION> 11,198
<TOTAL-ASSETS> 90,374
<CURRENT-LIABILITIES> 12,807
<BONDS> 985
0
0
<COMMON> 583
<OTHER-SE> 75,689
<TOTAL-LIABILITY-AND-EQUITY> 90,374
<SALES> 109,661
<TOTAL-REVENUES> 109,661
<CGS> 61,608
<TOTAL-COSTS> 61,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 39,052
<INCOME-TAX> 11,715
<INCOME-CONTINUING> 27,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,337
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.80
</TABLE>
