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, 2000.
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.)
5540 Pioneer Creek Drive, Maple Plain, Minnesota 55359-9003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 479-5300
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, 2000, 14,841,070 shares of the registrant's common stock, $.04
par value per share, were outstanding.
Exhibit Index, page 13
<PAGE>
PART I: ITEM 1 FINANCIAL INFORMATION
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
ASSETS (Unaudited) (Audited)
------ ------------- -------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 7,378,158 $ 6,231,430
Short-term investments 5,000 19,310,000
Accounts receivable 22,223,936 28,498,621
Inventories 18,542,453 15,891,945
Income taxes receivable 3,418,317 --
Other current assets 9,180,612 6,385,053
------------- -------------
Total current assets 60,748,476 76,317,049
Property, plant and equipment, net of accumulated
depreciation of $15,308,000 and $18,740,000 93,876,492 87,158,237
Intangible and other assets, net of accumulated
amortization of $1,100,000 and $506,000 7,259,717 4,841,025
Deferred income taxes 10,897,908 10,442,908
Other assets 41,137 46,905
------------- -------------
$ 172,823,730 $ 178,806,124
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 5,385,720 $ 307,702
Line of credit 8,500,000 9,163,931
Accounts payable 23,877,126 25,104,517
Accrued compensation 2,537,190 932,573
Income taxes payable -- 592,264
Other accrued liabilities 16,129,115 9,195,392
------------- -------------
Total current liabilities 56,429,151 45,296,379
Long-term debt, less current maturities 21,685,247 26,375,546
Stockholders' equity:
Common stock, $.04 par value; 30,000,000 shares
authorized, 14,841,070 and 14,822,104 shares
issued and outstanding 593,643 592,884
Capital in excess of par value 16,282,408 16,181,730
Retained earnings 77,833,281 90,359,585
------------- -------------
Total stockholders' equity 94,709,332 107,134,199
------------- -------------
$ 172,823,730 $ 178,806,124
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2 of 14
<PAGE>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
------------- -------------
<S> <C> <C>
Net sales $ 38,433,243 $ 20,636,068
Costs and expenses:
Cost of sales 31,660,185 14,313,843
Selling, general and administrative 4,011,065 2,003,330
Engineering 1,883,599 924,137
Restructuring charges (183,928) 1,695,387
Net interest (income) expense 745,726 (543,561)
Net other (income) expense (234,948) 116,261
------------- -------------
Income before taxes 551,544 2,126,671
Provision for income taxes 159,000 617,000
------------- -------------
Net income $ 392,544 $ 1,509,671
============= =============
Net income per share:
Basic $ 0.03 $ 0.10
============= =============
Diluted $ 0.03 $ 0.10
============= =============
Weighted average shares outstanding:
Basic 14,837,671 14,804,630
============= =============
Diluted 14,941,741 15,060,356
============= =============
<CAPTION>
Nine Months Ended June 30,
2000 1999
------------- -------------
Net sales $ 124,546,000 $ 63,367,708
Costs and expenses:
Cost of sales 108,411,008 43,183,819
Selling, general and administrative 12,389,832 6,538,951
Engineering 5,455,105 2,867,831
Restructuring charges 13,601,157 1,695,387
Net interest (income) expense 1,860,098 (1,425,299)
Net other (income) expense (361,680) 585,480
------------- -------------
Income (loss) before taxes (16,809,520) 9,921,539
Provision for income taxes (4,876,164) 2,878,000
------------- -------------
Net income (loss) $ (11,933,356) $ 7,043,539
============= =============
Net income (loss) per share:
Basic $ (0.80) $ 0.48
============= =============
Diluted $ (0.80) $ 0.47
============= =============
Weighted average shares outstanding:
Basic 14,826,952 14,792,330
============= =============
Diluted 14,826,952 15,085,692
============= =============
</TABLE>
See accompanying notes to condensed consolidating financial statements.
Page 3 of 14
<PAGE>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(11,933,356) $ 7,043,539
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,647,705 5,046,373
Restructuring and asset impairment charges 13,601,157 1,695,382
Other non-cash charges (credits) 149,295 (143,812)
Changes in operating assets and liabilities:
Accounts receivable 6,093,317 (1,588,872)
Inventories (2,980,455) (608,617)
Other current assets (2,795,559) 1,046,852
Accounts payable (1,227,391) 1,505,202
Other liabilities 2,053,855 (124,133)
Income taxes payable (4,465,581) 2,391,071
------------ ------------
Net cash provided by (used in) operating activities 7,142,987 16,262,985
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,378,846) (13,809,747)
Business acquisition (3,750,000) --
Proceeds from sale of assets 595,310 610,773
Purchase of held-to-maturity securities -- (28,120,000)
Maturities of held-to-maturity securities 19,305,000 34,069,000
------------ ------------
Net cash provided by (used in) investing activities (5,228,536) (7,249,974)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (398,048) (167,116)
Net activity on line of credit (663,931) --
Issuance of long-term debt 785,767 --
Proceeds from exercise of stock options 101,437 296,813
Dividends paid (592,948) (1,700,958)
------------ ------------
Net cash provided by (used in) financing activities (767,723) (1,571,261)
Increase (decrease) in cash and equivalents 1,146,728 7,441,750
Cash and equivalents at beginning of year 6,231,430 17,021,264
------------ ------------
Cash and equivalents at end of period $ 7,378,158 $ 24,463,014
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest was $2,258,000 and $54,000 in 2000 and 1999,
respectively.
Income tax payments were $236,000 and $1,875,000 in 2000 and 1999, respectively.
</TABLE>
See accompanying notes to condensed consolidating financial statements.
Page 4 of 14
<PAGE>
INNOVEX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL INFORMATION
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 that may be expected for the year as a
whole. The Company utilizes a fiscal year that ends on the Saturday nearest to
September 30. For clarity of presentation, the Company has described all periods
as if they end at the end of the calendar quarter. 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, 1999.
Preparation of the Company's condensed 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.
NOTE 2 - RESTRUCTURING CHARGES
LEAD WIRE ASSEMBLY PRODUCT LINE DISPOSITION-
During the fourth quarter of fiscal 1999, the Company recorded a charge of
approximately $2,765,000 related to the discontinuation of the lead wire
assembly product line. The charge included approximately $871,000 related to
asset impairment, $1,403,000 for the write off of inventory and supplies,
$197,000 in employee severance, $156,000 in facility abandonment costs and
$138,000 to increase the accounts receivable reserve. The disposition was
substantially completed by June 30, 2000. The restructuring charge was reduced
by $184,000 in the third quarter of fiscal 2000 as a result of a change in the
estimated liability.
MANUFACTURING OPERATIONS RESTRUCTURING-
The fiscal 2000 first quarter includes a $13,785,085 restructuring charge
related to restructuring the Company's manufacturing operations. The
restructuring is primarily related to moving operations from the Company's Agua
Prieta, Mexico facility to its new facility in Lamphun, Thailand. The charge was
recorded pursuant to a plan announced in November 1999. The charge included
approximately $6,581,000 related to asset impairment of property and equipment,
$380,000 for the write off of inventory and supplies, $176,000 for increasing
the accounts receivable reserve, and accrued liabilities of $2,101,000 for
facility abandonment costs and $4,547,000 in employee severance and benefits.
The company expects approximately 2,100 employees to be terminated as a result
of the restructuring, primarily in the Agua Prieta, Mexico facility. This
restructuring will be substantially complete by September 2000.
The remaining restructuring accrual as of June 30, 2000 totaled $4,521,000.
Selected information regarding the restructuring follows (in thousands):
Page 5 of 14
<PAGE>
<TABLE>
<CAPTION>
Lead Wire Assembly Product Manufacturing Operations
Line Disposition Restructuring
Facility Employee Facility Employee
Abandonment Termination Abandonment Termination
Charges Benefits Charges Benefits Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accrual at September 30,
1999 $ 156 $ 197 $ -- $ -- $ 353
Establishment of accrual 2,101 4,547 6,648
Payments (26) (361) (387)
----------------------------------------------------------------------------
Accrual remaining at
December 31, 1999 156 171 1,740 4,547 6,614
Payments (49) (177) (611) (837)
----------------------------------------------------------------------------
Accrual remaining at
March 31, 2000 156 122 1,563 3,936 5,777
Payments (3) (50) (208) (811) (1,072)
Change in estimate (153) 19 (50) (184)
----------------------------------------------------------------------------
Accrual remaining at June
30, 2000 $ -- $ 91 $ 1,305 $ 3,125 $ 4,521
============================================================================
</TABLE>
NOTE 3 - EARNINGS PER SHARE
The Company's basic net income per share is computed by dividing net income by
the weighted average number of outstanding common shares. The Company's diluted
net income per share is computed by dividing net income by the weighted average
number of outstanding common shares and common share equivalents relating to
stock options when dilutive. Options to purchase 809,350 and 770,823 shares of
common stock with weighted average exercise prices of $13.96 and $14.45 were
outstanding during the three and nine month periods ending June 30, 2000, but
were excluded from the computation of common share equivalents because they were
not dilutive. Options to purchase 209,550 and 185,150 shares of common stock
with weighted average exercise prices of $24.83 and $26.32, respectively, were
outstanding during the three and nine month periods ending June 30, 1999, but
were excluded from the computation of common share equivalents because they were
not dilutive.
NOTE 4 - INVENTORIES
Inventories are comprised of the following:
June 30, September 30,
2000 1999
--------------------------------
Raw materials and purchased parts $ 8,492,535 $ 8,753,336
Work-in-process and finished goods 10,049,918 7,138,609
--------------------------------
$18,542,453 $15,891,945
================================
PART I: ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
On July 7, 1999, Innovex, Inc. and its subsidiaries (the "Company") commenced a
tender offer to purchase all of the issued and outstanding stock of ADFlex
Solutions, Inc. ("ADFlex") at a purchase price of $3.80 per share. The tender
offer closed on August 3, 1999. Approximately 76% of the outstanding shares of
ADFlex were tendered in response to the offer. On August 9, 1999, the Company
consummated the purchase of the tendered shares. The remaining approximately 24%
of ADFlex issued and outstanding common stock not tendered in response to the
tender offer was acquired by the Company through a merger transaction completed
on September 14, 1999. The total ADFlex purchase
Page 6 of 14
<PAGE>
price, including transaction costs, change in control payments and all of the
issued and outstanding common stock was approximately $37 million. The Company
also obtained credit facilities totaling in principal amount $40 million, which
were utilized to refinance ADFlex's outstanding debt, pay down current
liabilities and pay related transaction costs. Prior to the acquisition, ADFlex
was a leading supplier of flexible circuit based solutions to the computer,
computer peripheral, communications and consumer electronics industries.
Applications for these flex-based interconnects include cellular phones, hard
disk drives, other storage systems, high-end consumer products, notebook
computers, pagers and personal communication systems. ADFlex's diverse customer
and industry base has reduced Innovex's reliance on the disk drive industry.
Prior to the ADFlex acquisition, the Company had one primary operating group,
Innovex Precision Components. The Company is combining the newly acquired ADFlex
operation into its existing operations of designing and manufacturing flexible
circuits.
Prior to fiscal 1999, the Company operated through three divisions, Precision
Products (Precision), Litchfield Precision Components (LPC) and Iconovex. Each
division had its own administrative, engineering, manufacturing and marketing
organizations. During the quarter ending September 30, 1998, the Company
combined the operations of its two core operating divisions, Precision and LPC
into one operating division, Innovex Precision Components. The combination
merged the rapidly growing LPC flexible circuit fabrication and chemical etching
operations with Precision's high volume fine wire manufacturing expertise. The
combination also allowed Innovex to leverage Precision's disk drive industry
market and trade knowledge to disk drive industry flexible circuit applications
as the industry transitioned from wire interconnects.
Prior to the divisional combination, the largest division, Precision, developed,
engineered and manufactured specialty precision electromagnetic products for
original equipment manufacturers ("OEM's"). Lead wire assemblies for the thin
film disk drive market were 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 disk drive heads that read and write information on the disk.
Since the divisional combination, the lead wire assembly revenue phased out as
anticipated. As a result, during the fiscal 1999 fourth quarter, charges of $2.8
million were recorded to account for the discontinuance of this product line.
LPC, prior to the fiscal 1998 divisional combination, designed and manufactured
highly complex flexible circuitry and chemically machined components for
computer, computer peripheral, medical and other applications. The Company
purchased Litchfield Precision Components, Inc. on May 16, 1996. This
acquisition reduced the Company's reliance on the disk drive industry while
providing an entry into the large and rapidly growing flexible circuit market.
Innovex's flexible circuit operation 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 mils for the high-end portion of the flexible circuit market.
The Iconovex subsidiary was established in fiscal 1994 to market and further
develop a technologically advanced software product purchased in November 1993.
In October 1997, Iconovex became the 51% owner of a joint venture with Solutions
Corporation of America. The operations of Iconovex and its joint venture, Smart
Solution, were discontinued in June 1999 as a result of revenue not developing
as expected and the Company recorded a $1.7 million charge related to this
disposition.
Innovex, Inc. was incorporated under the laws of the State of Minnesota in 1972.
Its principal executive offices are located at 5540 Pioneer Creek Drive, Maple
Plain, Minnesota 55359-9003 and its telephone number is (763) 479-5300. Products
are developed and manufactured through the Company's wholly owned subsidiaries,
Innovex Precision Components, Inc., Innovex Southwest, Inc., Innovex (Thailand)
Ltd. and Innovex Limited. Innovex Precision Components, Inc. and Innovex Ltd.
are Minnesota corporations. Innovex Southwest, Inc. is a Delaware corporation
and Innovex (Thailand) Ltd. is a Thailand corporation.
Page 7 of 14
<PAGE>
RESULTS OF OPERATIONS
NET SALES
The Company's net sales from operations totaled $38,433,000 for the quarter, up
86% from $20,636,000 reported in fiscal 1999. Sales of $124,546,000 for the nine
months ended June 30, 2000 increased 97% from the prior year period. The
increase in net sales for the third quarter and nine months of fiscal 2000 was
due, in part to the increase in flexible circuit revenue from the disk drive
industry. In addition, a large portion of the increase was due to revenue
generated from the telecommunication, network system, consumer and other
industries related to the August 1999 acquisition of ADFlex. These increases
offset a reduction in revenue generated from lead wire interconnects as the disk
drive industry completes its transition to integrated interconnects including
the Company's Head Interconnect Flex (HIF) and Flex Suspension Assembly (FSA).
None of the revenue for the quarter and 1% of revenue for the first nine months
was generated by lead wire assemblies as compared to 20% and 38% for the same
periods last year.
Revenue from the disk drive industry generated 59% and 58% of the Company's
revenue for the quarter and nine months, respectively. In addition, during the
third fiscal quarter, 7% of the revenue was generated by flexible circuits for
telecommunication applications, 19% from consumer applications, 9% from network
system applications and 6% from applications from other industries. The
acquisition of ADFlex has reduced the Company's dependence on the disk drive
industry significantly from its historical levels of 85-90% of revenue. Fiscal
2000 should benefit from continued growth in the demand for high technology
flexible circuit products including the Company's HIF, FSA and Bridge Flex.
Reductions in lead wire assembly revenue should not have a significant impact on
fiscal 2000 revenue as the transition away from lead wire assembly interconnects
to integrated interconnects was nearly complete at the end of fiscal 1999.
Significant progress has been made in gaining customer acceptance of the
Company's FSA product which will be integral to increasing revenue in the fourth
quarter of fiscal 2000 and fiscal 2001.
GROSS MARGINS
The Company's gross profit as a percent of sales for the quarter decreased to
18%, from the 31% reported for the fiscal 1999 third quarter. The gross profit
as a percent of sales for the first nine months decreased to 13% from the 32%
reported for the same period last year. The decreases were due to fiscal 2000
including lower margin revenue related to the acquired ADFlex operation. The
acquisition related revenue generates a lower gross margin percent than the
high-end Innovex flexible circuit revenue due to the higher material content of
the assembly portion of the business and lower level of technical tolerances
required. Gross margins for the high-end flexible circuit revenue for the nine
month period were lower as compared to the prior year due to reduced yields and
costs related to new capacity installation. Fiscal 2000 third quarter gross
margins for the high-end flexible circuit revenue continued to improve over the
prior quarters as a result of improving yields and higher unit volumes.
An increase in sales volume related to the ADFlex acquisition should result in
an increase in gross margin dollars while causing a decrease in the overall
gross margin percent. The Company anticipates stable to growing gross margin
percents on the pre-acquisition Innovex revenue during fiscal 2000 through
improved yield performance and increased utilization of the high volume
manufacturing facility. Gross margins on the revenue generated by the acquired
operations are expected to improve as the transfer of manufacturing operations
from Mexico to Thailand is completed and other cost saving initiatives are
implemented.
OPERATING EXPENSES
Operating expenses were 15.3% of sales for the current quarter, as compared to
14.2% in the prior year's third quarter. Operating expenses for the nine months
of fiscal 2000 were 14.3%, down from 14.8% for the prior years first nine
months. The increase in operating expenses as a percent of sales for the current
quarter is due to an increase in engineering expense related to the development
of base
Page 8 of 14
<PAGE>
material manufacturing process in the new Maple Plain Minnesota facility. In
addition, the current quarter was impacted by a temporary reduction in revenue
during the transition of operations from the Mexican facility to the new
facility in Thailand. The decrease in operating expenses as a percent of sales
for the nine month period is primarily due to increased revenue as a result of
the ADFlex acquisition. Total operating expenditures increased by approximately
$3.0 and $8.4 million for the third quarter and first nine months, respectively,
primarily as a result of the ADFlex acquisition. Fiscal 2000 operating expenses
are expected to decrease as a percent of sales and increase in total as a result
of the ADFlex acquisition.
RESTRUCTURING CHARGES
A restructuring charge of $13,785,000 was recorded during the first quarter of
fiscal 2000 related to the restructuring of the Company's manufacturing
operations. The restructuring is primarily related to moving operations from the
Company's Agua Prieta, Mexico facility to its new facility in Lamphun, Thailand.
The majority of this charge includes employee severance, asset impairment of
property and equipment and facility abandonment costs. The restructuring is
expected to significantly reduce operating costs by the end of the fiscal year
as a result of consolidating facilities and the lower Thailand cost structure. A
$184,000 reduction in estimated restructuring charges was recorded in the third
quarter primarily related to the lead wire product line disposition.
OPERATING PROFIT (LOSS)
The consolidated operating income of $1,062,000 in the current quarter was down
from the $1,699,000 profit for the prior year third quarter. Consolidated
operating loss for the first nine months was $(15,311,000) versus profit of
$9,082,000 for the same period last year. The reduction for the quarter is
primarily due to the loss being incurred by the acquired ADFlex operation. The
reduction for the nine month period is primarily due to the restructuring charge
recorded during the first quarter in addition to the loss being incurred by the
acquired ADFlex operation and the discontinuation of the lead wire assembly
operation. Improvements in the cost structure of the acquired ADFlex operation
as a result of the manufacturing restructuring move from Mexico to Thailand will
begin having a favorable impact on operating profit in the first quarter of
fiscal 2001.
NET INCOME (LOSS)
Consolidated net income for the fiscal 2000 third quarter was $393,000 as
compared to net income of $1,510,000 for the prior year. Basic and diluted net
income per share were $0.03 as compared to $0.10 for the prior year third
quarter. Consolidated net loss for the first nine months of fiscal 2000 was
$(11,933,000) as compared to net income of $7,044,000 for the prior year. Basic
and diluted net loss per share were ($0.80) as compared to basic and diluted net
income per share of $0.48 and $0.47 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments decreased to $7.4 million at June 30, 2000 from
$25.5 million at September 30, 1999. This decrease was primarily due to the
acquisition of the Company's Thailand subcontractor for $3.8 million and capital
expenditures of $21.4 million.
Accounts receivable at June 30, 2000 decreased by $6.1 million from September
30, 1999 due to the decreased level of revenue related to the acquired ADFlex
operation in June as compared to September and the favorable timing of
collections at quarter end. Inventory increased by $3.0 million from September
30, 1999 due to inventory built to facilitate the move from Mexico to Thailand
and to reflect the increase in inventory held for customers in intermediate
warehouses as more customers move to a just-in-time inventory environment.
Accounts payable at June 30, 2000 decreased by $1.2 million as compared to
September 30, 1999 primarily due to the payment of older payables obtained with
the ADFlex acquisition.
Page 9 of 14
<PAGE>
Working capital totaled $4.3 million and $31.0 million at June 30, 2000 and
September 30, 1999. The decrease was primarily due to the acquisition of the
Company's subcontractor and capital expenditures made during the nine month
period.
Since September 30, 1999, the Company has invested $21.4 million in capital
expenditures and $3.8 million to acquire the Company's Thailand subcontractor.
Capital expenditures include FSA attachment equipment, equipment to expand the
high volume flexible circuit manufacturing facility capacity, metalizing and
plating equipment required to produce base material for the flexible circuit
manufacturing process, the building expansion in Thailand related to the
manufacturing move from Mexico to Thailand and the construction of a material
manufacturing facility in Maple Plain, Minnesota. Capital expenditures of
approximately $3 million are expected during the remainder of fiscal 2000. These
expenditures will increase the Company's high volume flexible circuit
manufacturing and FSA production capacities, complete the move of the Mexican
operation to Thailand and equip and complete construction of the Maple Plain
facility to produce material for use in flexible circuit manufacturing.
During the quarter, the Company entered into a $5.7 million operating lease
facility. Approximately $4.8 million of the facility was funded as of June 30,
2000. Existing and committed credit facilities, cash and investments and cash
generated from operations are believed to be sufficient to support Company
operations at current levels and capital expenditures in fiscal 2000. Additional
funding may be required to fund anticipated growth. Management believes the
Company's resources are sufficient to secure any growth related funding
requirements.
YEAR 2000 UPDATE
Prior to December 31, 1999, the Company prepared a plan of action to ensure that
it was not adversely affected by the year 2000 equipment and software failures
that may arise in software applications and equipment with embedded logic where
two-year digits are used to define the applicable year. The Company incurred
costs of less than $100,000 to prepare for year 2000 issues.
Based on currently available information, the Company has not experienced any
material adverse impact from year 2000 issues. The Company will continue to
monitor its internal systems, products, supplies and customers on an on going
basis.
FORWARD LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, elsewhere in the Company's Form 10-Q and in
future filings by the Company with the SEC, except for the historical
information contained herein and therein, are "forward-looking statements" that
involve risks and uncertainties. These risks and uncertainties include the
timely availability and acceptance of new products, the impact of competitive
products and pricing, interruptions in the Company's operations or those of its
suppliers or major customers as may be caused by problems arising from the year
2000, the successful move of the Mexican operation to Thailand and the
successful integration of the ADFlex acquisition. In addition, a significant
portion of the Company's revenue is generated from the disk drive, consumer,
network systems and telecommunication industries and any changes in the
structure, technology or outlook of these industries could have a significant
impact on the Company's operations. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect subsequent
events or circumstances or the occurrence of unanticipated events.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's market risk during the
three-month period ended June 30, 2000.
Page 10 of 14
<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
27 Financial Data Schedule
b) Reports on Form 8-K
None.
Page 11 of 14
<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: August 14, 2000
By /s/ William P. Murnane
William P. Murnane
President and Chief Executive Officer
By /s/ Douglas W. Keller
Douglas W. Keller
Vice President, Finance
Page 12 of 14
<PAGE>
INDEX TO EXHIBIT
Exhibit Page
27 Financial Data Schedule 14
Page 13 of 14
