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 December 31, 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 February 9, 1998, 14,651,004 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>
December 31, September 30,
1997 1997
ASSETS (Unaudited) (Audited)
- ------ ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,056,213 $ 9,442,620
Short-term investments 30,030,000 28,440,000
Accounts receivable, less allowance for
doubtful accounts of $585,000 and $621,000 17,336,306 22,052,121
Inventories 7,981,599 7,252,596
Other current assets 3,660,398 4,161,938
------------ -----------
Total current assets 75,064,516 71,349,275
Property, plant and equipment, net of accumulated depreciation
of $13,491,000 and $12,202,000 29,206,283 23,748,632
Intangible assets, net of amortization of $3,243,000 and $3,099,000 1,893,404 1,849,381
Other assets 327,466 327,466
------------ -----------
$106,491,669 $97,274,754
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 104,000 $ 104,000
Accounts payable 5,082,938 4,662,543
Accrued compensation 1,510,119 2,980,086
Income taxes payable 3,970,170 864,313
Other accrued liabilities 1,105,552 895,705
------------ -----------
Total current liabilities 11,772,779 9,506,647
Long-term debt 922,421 950,733
Stockholders' equity:
Common stock, $.04 par value; 30,000,000 shares authorized,
14,641,904 and 14,619,504 shares issued and outstanding 585,676 584,780
Capital in excess of par value 14,208,317 14,065,186
Retained earnings 79,002,476 72,167,408
------------ -----------
Total stockholders' equity 93,796,469 86,817,374
------------ -----------
$106,491,669 $97,274,754
============ ===========
</TABLE>
See accompanying notes.
<PAGE>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
1997 1996
------------ ------------
Net sales $ 33,008,635 $ 29,311,887
Costs and expenses:
Cost of sales 19,901,993 17,204,240
Selling, general and administrative 1,921,784 2,403,125
Engineering 1,266,441 873,928
Net interest and other (income) expense (460,747) (224,752)
------------ ------------
Income before taxes 10,379,164 9,055,346
Provision for income taxes 3,105,000 2,717,000
------------ ------------
Net income $ 7,274,164 $ 6,338,346
============ ============
Net income per share:
Basic $ 0.50 $ 0.44
============ ============
Diluted $ 0.48 $ 0.42
============ ============
Weighted average shares outstanding:
Basic 14,634,617 14,311,340
============ ============
Diluted 15,187,201 15,000,557
============ ============
See accompanying notes.
<PAGE>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,274,164 $ 6,338,346
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,514,187 1,049,199
Other non-cash charges (credits) 9,914 3,777
Changes in operating assets and liabilities:
Accounts receivable 4,715,815 (5,679,954)
Inventories (729,003) (701,596)
Other current assets 501,540 108,079
Accounts payable 420,395 1,917,427
Other liabilities (1,260,120) (705,093)
Income taxes payable 3,105,857 533,707
------------ -----------
Net cash provided by (used in) operating activities 15,552,749 2,863,892
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,030,947) (1,680,382)
Proceeds from sale of investment in limited partnership -- 884,000
Proceeds from sale of assets 5,171 --
Purchase of held-to-maturity securities (8,440,000) (7,190,000)
Maturities of held-to-maturity securities 6,850,000 3,790,000
------------ -----------
Net cash provided by (used in) investing activities (8,615,776) (4,196,382)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (28,312) (25,392)
Proceeds from exercise of stock options 144,027 450,259
Dividends paid (439,095) (320,883)
------------ -----------
Net cash provided by (used in) financing activities (323,380) 103,984
Increase (decrease) in cash and cash equivalents 6,613,593 (1,228,506)
Cash and cash equivalents at beginning of year 9,442,620 5,635,534
------------ -----------
Cash and cash equivalents at end of period $ 16,056,213 $ 4,407,028
============ ===========
</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."
Cash paid for interest was $18,000 and $20,000 in 1997 and 1996.
Income tax payments were $116,000 and $876,000 in 1997 and 1996.
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. 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, 1997.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENT
The Company adopted FASB Statement of Financial Accounting Standards
No. 128, Earnings Per Share, which was effective for financial statements issued
for periods ending after December 15, 1997. 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. All share and per share information for prior periods has been
adjusted to reflect the adoption of SFAS 128 effective for the period ending
December 31, 1997.
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%
primarily being communications industry or 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.
The Company also operates two other divisions, Iconovex and InnoMedica.
These divisions currently only produce a small portion of the Company's revenue.
Iconovex was established to market and further develop a technologically
advanced software product. The core software utilizes syntactical analysis to
recognize meanings and relationships among words and phrases in order to prepare
indexes and abstracts of electronically stored information. In October 1997,
Iconovex became the 51% owner of a joint venture with Solutions Corporation of
America. The new joint venture, Smart Solution, intends to target the corporate
intranet market by providing a product to organize, analyze, screen and index
email and to eventually perform the same function for corporate databases.
<PAGE>
InnoMedica provides contract development and manufacturing services
primarily to the medical device industry as well as pacing/defibrillation leads
and adapters for the implantable bradycardia and tachacardia industry.
Manufacture of these products utilizes silicone rubber molding, similar and
dissimilar metal laser welding, product fabrication and miniature product
assembly. Products may be either proprietary or made to customer specifications.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales from operations totaled $33,009,000 for the
quarter, up 13% from $29,312,000 reported in fiscal 1997. The increase was due
to larger shipments of lead wire assemblies caused by increased demand for disk
drives as compared to the prior years first quarter. 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 largest portion of the Company's sales for the remainder of fiscal 1998 will
continue to be generated by the Precision Products Division. Although lead wire
assembly unit volumes for the second quarter are expected to be lower than the
first quarter, unit volumes are expected to increase later in the fiscal year.
An increasing portion of the Company's sales will come from Litchfield Precision
Components(LPC) due to the strong demand for LPC's high end flexible circuit
products including the Head Interconnect Flex (HIF). The HIF product provides a
technologically advanced solution for the Company's customers which is
significantly more cost effective than any competing new technologies. The
Company expects that an increasing portion of the demand for disk drive head
interconnects will be met by products such as the HIF.
GROSS MARGINS
The Company's consolidated gross profit as a percent of sales for the
quarter was 40% as compared to 41% reported for the same period last year. Gross
margins for the existing lead wire assembly business will fluctuate during the
remainder of the fiscal year as a function of unit demand for the disk drive
industry. Increased fixed costs related to the new Litchfield Precision
Components production facility will reduce gross margins during its start up
phase. The gross margins will improve as the production volume in the new
facility increases.
OPERATING EXPENSES
Operating expenses were 9.7% of sales for the current quarter, improved
from 11.2% in the prior year's first quarter. The decrease in operating expenses
as a percent of sales for the current year is primarily due to a reduction in
incentive based compensation and an increased level of sales. Total operating
expenses remained relatively stable as a result of increased engineering
spending offsetting the reduction in incentive based compensation. 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 $9.9 million in the current quarter
was up 12% from the $8.8 million profit for the prior year first quarter as a
result of the increased sales volume. The Precision Products Division's
operating profit for the remainder of the fiscal year will vary depending on
changes in disk drive industry unit volumes. Continued operating profit
improvements are expected at Litchfield Precision Components as the demand for
high end flexible circuits increases. Revenues from the Company's Iconovex and
InnoMedica Divisions are expected to remain a small portion of the Company's
total sales.
<PAGE>
NET INCOME
Consolidated net income for the fiscal 1998 first quarter was
$7,274,000 as compared to $6,338,000 for the prior year. Basic and diluted net
income per share was $0.50 and $0.48 as compared to $0.44 and $0.42 for the
prior year first quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased to $46.1 million at December
31, 1997 from $37.9 million at September 30, 1997. This increase was primarily
due to income generated from operating activities.
Accounts receivable at December 31, 1997 decreased by $4.7million from
September 30, 1997 due to a reduction in days sales outstanding at several large
customers and the decreased level of sales at the end of the quarter. Inventory
increased by $729,000 from September 30, 1997 primarily to support the increased
level of activity at Litchfield Precision Components.
Working capital totaled $63.3 million and $61.8 million at December 31,
1997 and September 30, 1997. The increase is primarily due to the increase in
cash.
Since September 30, 1997, the Company has invested over $7.0 million in
property, plant and equipment. These additions include a portion of the costs to
construct and equip a high volume production facility at Litchfield Precision
Components to meet the expected demand for new high volume applications
including the Head Interconnect Flex (HIF) and chip packaging related products.
Management believes that internally generated funds will provide
adequate sources of capital for supporting projected growth in fiscal 1998.
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
"forward 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 forward looking
statements to reflect subsequent events or circumstances or the occurrence of
unanticipated events.
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
27 Financial Data Schedule
b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INNOVEX, INC.
Registrant
Date: February 13, 1998
By \s\ Thomas W. Haley
Thomas W. Haley
Chief Executive Officer
By \s\ Douglas W. Keller
Douglas W. Keller
Vice President, Finance
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
27 Financial Data Schedule 10
<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
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 16,056
<SECURITIES> 30,030
<RECEIVABLES> 17,922
<ALLOWANCES> 595
<INVENTORY> 7,982
<CURRENT-ASSETS> 75,065
<PP&E> 42,697
<DEPRECIATION> 13,491
<TOTAL-ASSETS> 106,492
<CURRENT-LIABILITIES> 11,773
<BONDS> 922
0
0
<COMMON> 586
<OTHER-SE> 93,211
<TOTAL-LIABILITY-AND-EQUITY> 106,492
<SALES> 33,009
<TOTAL-REVENUES> 33,009
<CGS> 19,902
<TOTAL-COSTS> 19,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 10,350
<INCOME-TAX> 3,105
<INCOME-CONTINUING> 7,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,274
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
</TABLE>
