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SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13143
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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 Fifth Street South, Hopkins, Minnesota 55343-9904
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (612) 938-4155
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock ($.04 par value)
------------------------------
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No__
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $116,182,000 at November 14, 1995 when the
closing sale price of such stock, as reported in the NASDAQ National Market
System, was $18.75.
The number of shares outstanding of the Registrant's Common Stock, $.04
par value, as of November 15, 1995 was 7,074,127 shares.
Documents Incorporated by Reference:
1. Portions of the Company's Proxy Statement to be filed with the Commission
within 120 days after the end of the Registrants fiscal year are incorporated by
reference into Part III of the Form 10-K.
This Form 10-K consists of 35 Pages (including exhibits). The index to exhibits
is set forth on page 24.
INNOVEX, INC.
1995 FORM 10-K
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Innovex, Inc. (The "Company"), through its largest division during
fiscal 1995, the Precision Products Division, develops and manufactures
components, primarily lead wire assemblies, for the disk drive industry. The
Company also develops and manufactures pacemaker lead wires and other medical
devices and software for document storage retrieval and management.
The Company was founded in 1972 to acquire the assets of a manufacturer
of needle and wire assemblies used in computer core memories. With the
introduction of solid state memory devices, needle wire assemblies became
obsolete and, in late 1973, the Company moved into related areas of
manufacturing utilizing and expanding its micro-welding and miniature assembly
expertise. This expertise is currently used to manufacture small electromagnetic
products which cannot be economically produced by its customers. These products
include fine wire lead assemblies.
In 1984, the Company expanded its scope to the photo equipment market
by acquiring Lucht Engineering. This made Innovex the nation's largest supplier
of multi-image printers to the professional photo market. The Company
discontinued its photo business in two stages. Effective November 29, 1992, the
operating assets and liabilities, with the exception of the receivables, were
sold to Lucht Acquisition Corporation (LAC), an unrelated third party, for
approximately $4,000,000 cash and a 40 percent interest in LAC. On November 1,
1993, the Company sold the remaining 40 percent interest in LAC to LAC's
majority shareholder for $2,850,000 in cash.
In 1986, the Company expanded its disk drive focus by purchasing Mar
Engineering, Inc. to acquire its high precision control technology for use on
grinders used by disk drive manufacturers. In September 1992, the Company sold
all the assets related to the head gimbal locating technology developed by Mar
Engineering to a former employee. The remaining assets have been sold or written
off.
The InnoMedica Division was formed in late fiscal 1993 to impart a
greater degree of strategic direction and business discipline to the Company's
emerging medical business. In line with this strategy, the Company acquired the
production equipment, patents, trademarks and related assets of Daig
Corporation's permanent pacemaker lead wire and adapter product lines in
September 1993 and Possis Medical, Inc.'s pacemaker lead wire product line in
March 1994.
To further promote the Company's long-term growth, the Iconovex
Division was formed in fiscal 1994 through the purchase of a technologically
advanced software product line in November 1993. This product prepares indexes
and abstracts of electronically stored documents. As the first software of its
type, this high speed system utilizes syntactical analysis to recognize meanings
and relationships among words and phrases in general business, legal, medical
and other documents. Syntactical analysis is more accurate than conventional
Boolean search systems that only recognize specific words. Initial releases of
products derived from this technology began generating revenue in fiscal 1994.
Different variations of the software are being developed for use by Internet
World Wide Web sites, personal computer users, electronic media publishers, and
other on-line system providers and users.
Innovex, Inc. was incorporated under the laws of the State of Minnesota
in 1972. Its principal executive offices are located at 1313 Fifth Street South,
Hopkins, Minnesota 55343-9904 and its telephone number is (612) 938-4155.
Products of the Company's Precision Products Division are manufactured through
the Company's wholly owned subsidiary, Innovex Precision Products Corporation, a
Minnesota corporation formed in 1971.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Prior to the disposition of the Photo Equipment Market Group in
December 1992, the Company operated through two distinct and unrelated groups: a
Disk Drive Market Group - Precision Products Division, and a Photo Equipment
Market Group. Each group had its own administrative, engineering, manufacturing
and marketing organizations. During fiscal 1993 and 1994, the Company began
operations in two new divisions, InnoMedica, a medical device manufacturer, and
Iconovex, the developer of an indexing and abstracting software technology.
Although these divisions have not been a material portion of the Company's
operations in the past, the Company's intention is to grow these divisions to a
significant level in the future. Topics covered throughout this document are
discussed by divisions where helpful to the reader's understanding.
Financial information shown on the financial statements includes the
results of the Precision Products Division combined with the two new divisions.
InnoMedica and Iconovex are not reported separately as they do not constitute
reportable segments as defined by SFAS 14. Operating results from the photo
group and Mar Engineering are shown separately as discontinued operations in
fiscal 1993.
(c) NARRATIVE DESCRIPTION OF BUSINESS
PRECISION PRODUCTS DIVISION
General
The Precision Products Division produces a variety of small, thin wire
computer subassemblies which cannot be economically produced by its customers.
Manufacture of these products often involves use of such specialized tasks as
miniature wire processing, insulation removal, precision miniature welding,
metal-to-metal bonding, chemical bonding, epoxy encapsulation and
high-resolution optical inspection. These products are manufactured pursuant to
individual customer orders and specifications.
Existing Products
The principal product of the Precision Products Division is a fine wire
lead assembly. Lead assembly sales constituted approximately 90% of the
consolidated revenues from continuing operations during the past three fiscal
years. No other product constituted more than 5% of the Company's consolidated
revenues.
Lead assemblies are fine twisted magnet wires that are attached to thin
film heads which read or write the information on the disk in a computer disk
drive assembly. In order to produce a lead assembly, a portion of the fine
magnet wire must be stripped of its insulation. Precision Products developed
technology and processes which enables it to strip extremely fine magnet wire
without damaging the wire's gold plating. This process utilizes a laser to strip
the insulation. The Division also began shipping production levels of lead wire
assemblies for Magneto Resistive(MR) disk drive heads. These leads are similar
to thin film head leads except for the smaller size and the use of four wires
instead of two.
INNOMEDICA
General
InnoMedica provides pacing/defibrillation leads and adapters for the
implantable bradycardia and tachacardia industry. The division also manufactures
other customized medical products and customized development work for OEM
manufacturers. 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.
Existing Products
The Division's primary products are proprietary leads and adapters for
implantable bradycardia pacing systems and catheters for OEM manufacturers.
ICONOVEX
General
Iconovex was established to market and further develop a
technologically advanced software product line which prepares indexes and
abstracts of electronically stored information. The core software utilizes
syntactical analysis to recognize meanings and relationships among words and
phrases in order to prepare indexes and abstracts of documents. Syntactical
analysis is more accurate than conventional Boolean search systems that only
recognize specific words. This core software may be adapted for use in a large
number of applications through the development of appropriate interfaces.
Existing Products
AnchorPage, the division's primary product to date, is a hypertext
indexing and abstracting program for use on the Internet World Wide Web. This
product, which was released in July 1995, prepares automatic abstracts from
complex electronic data and facilitates the user's ability to locate information
through the use of hypertext links. Another product, Indexicon, is an automated
indexing program for word-processing applications. Other variations of the
software are being developed for use by personal computer users, electronic
media publishers, and on-line system providers and users.
RESEARCH AND DEVELOPMENT
The Company continually engages in research, development and
engineering activities. The Company's goals are to utilize these activities to
improve and enhance existing products and to develop new products in order to
expand its market share. During fiscal years 1995, 1994 and 1993, the Company
spent approximately $699,000, $462,000 and $316,000, respectively, on research
and development. The engineering effort is being focused on automating more of
the lead wire assembly manufacturing process, developing products and processes
for medical device customers and developing software products to utilize the
purchased document storage retrieval and management technology.
The Company expects to continue its past practice of acquiring new
technology from outside sources through the payment of cash, Company stock and
royalties.
MARKETING AND CUSTOMERS
The Company markets a line of products directly to the magnetic head
industry worldwide. With the proliferation of high end personal computers and
the associated requirement for increased storage capacity, the market for disk
drive heads has grown dramatically in recent years. Innovex has benefited from
early entry into this market. This, coupled with the Company's reputation for
high standards of quality and innovative manufacturing processes, has
established Innovex, Inc. as the predominant supplier of lead wire assemblies
for the industry.
A significant percentage of the products offered by the Company are
utilized as a component of a thin film disk drive head. Thin film heads continue
to be a mainstay of magnetic head technology. Significant growth has been
witnessed in the thin film segment of this market in the past six years and
continued growth is forecasted for 1996. The Company has established sales with
virtually every manufacturer of thin film heads in the world. The next
generation of disk drive technology is expected to use magneto restrictive (MR)
technology. The Company is positioning itself for the emergence of MR technology
by making prototypes and initial production runs for the manufacturers
developing MR technology. The Company's principal customers for lead assemblies,
each accounting for over 10 percent of the Company's consolidated net sales in
at least one of the last three years are Applied Magnetics, Lafe/Quantum,
Read-Rite, Seagate and Yamaha. See Note J of Notes to Consolidated Financial
Statements for additional information.
BACKLOG
The backlog for the Company's continuing operations was $10,950,000,
$5,302,000 and $2,980,000 at September 30, 1995, 1994 and 1993, respectively.
Any backlog for portions of the Company which are treated as discontinued
operations are not included in these amounts.
Backlog is defined by the Company as firm orders which are scheduled to
be delivered within 12 months from the date of the order. While the Company
currently believes substantially all of its September 30, 1995 backlog will be
delivered within 12 months, customers may determine not to release orders into
production, may extend requested delivery dates or cancel orders. In such cases,
the Company may not realize the revenue indicated by the backlog.
COMPETITION
Although there are a large number of companies engaged in the
production of components for the disk drive industry, the products offered by
the Company are relatively unique and currently are produced by a limited number
of competitors. The Company believes that it has the technical capability and
the manufacturing capacity to retain market leadership. In response to the
expected growth in the disk drive market, current manufacturers are expanding
capacity and additional manufacturers may enter the market. The purchasing
decision for the components produced by the Company are based on quality,
on-time delivery and price. Although the barriers to market entry by new
competitors are not insurmountable, the Company believes that it is well
positioned to compete due to its efficient production process, capital
investment in automation equipment and access to low cost labor.
EMPLOYEES
At September 30, 1995, the Company had 487 employees as compared to 405
at September 30, 1994. The Company considers its employee relations to be good.
PATENTS
Certain equipment, processes, information and knowledge generated by
the Company and utilized in its products and their manufacturing processes, are
regarded as proprietary by the Company and are believed to be prosecutable by
applicable trade secret and unfair competition laws rather than through patents.
However, the Company believes it could derive a competitive advantage from
patents which may be granted on products currently under development. The
Company also holds several medical device patents acquired with the purchases of
the Daig Corporation and Possis Medical Inc. pacemaker lead wire product lines.
The Company files patent applications on its products as deemed necessary.
MANUFACTURING AND SOURCES OF SUPPLY
Although each of the Company's Precision Product Division products are
manufactured in a different fashion, they all require several processes to
ensure the high degree of precision and process control necessary to meet
customer tolerance and other requirements. The Company has devoted a significant
amount of time and expense to the development of certain sophisticated
manufacturing processes and controls, and related equipment, which are essential
to the precision and reliability of its products. To further enhance its
capabilities, the Company has developed and is continuing to improve an
automated lead-wire forming laser-based process for the production of lead-wire
assemblies. This process, which produces a superior product and has reduced
manufacturing costs over traditional processes, may also be utilized to
manufacture the next generation MR lead wire assemblies. A complete quality
control program has been established for production procedures to ensure product
specifications are met. As part of this program, the Company has implemented
computerized statistical process control ("SPC") which enables machine operators
to continually monitor and control production processes.
Raw material used by the Company is generally available from several
suppliers. Although the Company does not anticipate any supply shortages or
interruptions, it is seeking to lessen its dependence on existing suppliers by
expanding alternative supply sources. The Company has not experienced any
significant problem in obtaining its required supplies.
The Company's manufacturing operations are conducted at plants in
Hopkins, Montevideo and Bloomington, Minnesota. See "Properties." The Company
also utilizes subcontractors in Thailand for some fine wire assembly.
ITEM 2. PROPERTIES
The Company's executive offices and certain of the Precision Products
Division production facilities and laboratories are located in a 30,000 square
foot facility in Hopkins, Minnesota. The building was purchased in 1993 and
collateralizes a note used to finance the building. The note has a remaining
principal balance of $630,000 at September 30, 1995.
The Company also owns adjacent 30,000 and 20,000 square foot
manufacturing facilities in Montevideo, Minnesota which are utilized by the
Precision Products Division. A portion of the costs to construct and expand
these facilities was financed through bank financing and public development
funds. The financing notes, which are collateralized by the buildings and
manufacturing equipment, have a remaining principal balance of $651,000 at
September 30, 1995.
Effective December 1993, the Company leased a 10,500 square foot office
and manufacturing facility in Bloomington, Minnesota to be utilized by the
Company's InnoMedica operation. The Company pays annual rent of approximately
$72,000 under the lease which expires in December 1996.
In March 1995, the Company leased a 7,300 square foot office in
Bloomington, Minnesota for its Iconovex operation. The Company pays $92,000
annually under the lease which expires on April 7, 1997.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, and none
of its property is the subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant did not submit any matter to a vote of its security
holders during the fourth quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
Name Age Position
Thomas W. Haley 59 Chairman, Chief Executive Officer and Director of the Company
Dale R. Johnson 60 Executive Vice President and Chief Operating Officer
William P. Murnane 33 Vice President for Corporate Development
Allan J. Chan 45 Vice President and General Manager of Precision Products Division
Douglas W. Keller 37 Corporate Controller
Mr. Haley served as President of the Company from 1972 to 1988. Since
October 1988, Mr. Haley has held the position of Chief Executive Officer. He has
been a Director and Chairman of the Company since its inception in 1972.
Mr. Johnson was named Executive Vice President and Chief Operating
Officer in April 1995. Prior to that he has served as Vice President and General
Manager of Innovex Precision Products Corporation since June 1985. In February
1989 Mr. Johnson's title was changed to Vice President and General Manager of
the Disk Drive Market Group. From June 1984 to June 1985, he was self-employed.
From July 1982 to June 1984, he was Manager of Product Consultants for Comserv
Corporation, Eagan, Minnesota where he was involved in the design of
computerized manufacturing information systems. For the three years prior to
that time he was Operations Manager for a division of Dana Corporation which
manufactured electric motors in Osseo, Minnesota.
Mr. Murnane joined the Company in July 1995 as Vice President for
Corporate Development. From June 1993 to June 1995, Mr. Murnane was Chief
Operating Officer of Boutwell, Owens & Co., a private manufacturer of packaging,
in Fitchburg, Massachusetts. From June 1992 to June 1993, Mr. Murnane was
Director of Operations for Uniform Printing & Supply, Inc. in Acton,
Massachusetts. Prior to that, he held various operating and corporate planning
positions during a ten year career at United Parcel Service.
Mr. Chan joined the Company in June 1988 as Director of Sales and
Marketing for the Precision Products Division. In October 1990 Mr. Chan was
promoted to Vice President of Sales and Marketing of the Precision Products
Division. In 1991 his responsibilities were expanded to include manufacturing.
In May 1995, he was promoted to Vice President and General Manager of Precision
Products Division. Prior to joining Innovex, Mr. Chan was the Director of Sales
and Marketing for Braemar Computer Corporation a division of Carlysle
Corporation.
Mr. Keller joined the Company in January 1990 as Corporate Controller.
In May 1992, Mr. Keller was made an officer of the corporation. From July 1988
to January 1990, Mr. Keller was Manager of Financial Accounting and Tax for UFE,
Inc., a manufacturer of injection molded plastic components. From 1983 to 1988,
Mr. Keller was a Senior Auditor for the Pillsbury Company. From 1980 to 1983, he
was a Senior Accountant with Deloitte Haskins & Sells, a CPA firm.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
COMMON STOCK INFORMATION
The Company's common stock is traded in the over-the-counter market under the
symbol "INVX." The table below sets forth the high and low closing sale prices
as reported by NASDAQ. As of November 13, 1995, the Company had 490 shareholders
of record. The Company paid an initial dividend of $.033 per share in February
1993 and has paid quarterly dividends since that time. Dividends of $.04 have
been paid for the most recent three quarters. The Company's intention is to
continue this policy.
Price Range of Common Stock 1995 1994
Fiscal Years High Low High Low
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First Quarter $11-1/8 $6 $8-7/8 $6
Second Quarter 12-7/8 9-5/8 8-5/8 6-3/8
Third Quarter 19-3/8 11-1/2 7-7/8 5-1/2
Fourth Quarter 24-3/4 13-1/2 7-5/8 5
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data has been derived
from the consolidated financial statements of the Company for each of the years
in the five year period ended September 30, 1995. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and related notes thereto included elsewhere in this
report.
FIVE-YEAR FINANCIAL HIGHLIGHTS
Years ended September 30, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Net sales $50,193,952 $30,564,009 $26,596,997 $17,717,556 $15,803,197
Income from continuing
operations 10,029,387 3,515,283 3,657,066 1,108,187 266,434
Net income 10,029,387 3,515,283 3,668,114 112,963 662,386
Income per share from
continuing operations
Primary $1.40 $0.52 $0.55 $0.17 $0.04
Fully diluted $1.39 $0.52 $0.55 $0.17 $0.04
Net income per share
Primary $1.40 $0.52 $0.55 $0.02 $0.10
Fully diluted $1.39 $0.52 $0.55 $0.02 $0.10
Cash dividends per share $0.157 $0.143 $0.10 -- --
Total assets 41,283,483 29,934,424 26,585,276 22,602,307 21,918,047
Long-term debt 1,172,798 1,532,140 1,882,817 890,646 1,026,589
Stockholders' equity 36,029,173 24,716,307 22,247,931 18,722,208 18,600,480
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS SUMMARY
The Company reported income from continuing operations of $10,029,000, primary
net income per share of $1.40 and fully diluted income per share of $1.39 for
the fiscal year ended September 30, 1995. This compares to net income of
$3,515,000, and income per share of $0.52 in fiscal 1994 and $3,657,000, or $.55
per share in 1993. Fiscal 1995 benefited from an increase in net sales due to
strong demand for disk drive lead wire assemblies as compared to both fiscal
1994 and 1993. The increase in sales volume in fiscal 1995 allowed the Company
to utilize its equipment and facilities more efficiently and did not require a
pro rata increase in other costs. The level of operating expenses incurred to
develop the Iconovex and InnoMedica divisions continued to increase in fiscal
1995 as compared to 1994. Initial spending on these two divisions began in 1994.
Although the revenue generated by these two divisions in 1995 increased over
200% from 1994, it continued to make up less than 10% of the Company's total
revenue. These two new divisions did not generate revenue prior to 1994. These
two divisions are expected to continue to grow and to become a more significant
portion of the Company's operations in the future.
RESULTS OF OPERATIONS
NET SALES. Net sales for fiscal 1995 were $50,194,000, an increase of 64% from
$30,564,000 in 1994 and also up from $26,597,000 in 1993. Sales growth in 1995
and 1994 was generated primarily by increased shipments of lead wire assemblies
for the disk drive industry as has been the trend for the past five years. Disk
drive industry demand for lead wire assemblies increased significantly
throughout the fiscal year and is expected to remain strong in fiscal 1996. The
Company expects to post record sales in fiscal 1996 based on disk drive industry
projections. A growing portion of these sales should be from lead wire
assemblies for magneto resistive(MR) disk drive heads. MR disk drives are deemed
to be the next level of technological advancement for the disk drive industry.
Net sales from Iconovex and InnoMedica, while they increased over 200% in 1995
over 1994, made up less than 10% of the Company's total revenue. These sales are
expected to continue to grow in fiscal 1996 and to represent a larger portion of
the Company's total revenue in the future. Export sales accounted for 79% of the
Company's revenue as compared to 78% for 1994 and 70% for 1993, reflecting the
high level of lead wire assembly shipments to disk drive manufacturers in Japan
and other pacific rim countries.
GROSS MARGIN. The Company's gross profit margin rose to 43.0% in fiscal 1995
from 33.0% in 1994 and 32.8% in 1993. The gross margin increase during 1995
reflected the strong sales growth which resulted in more efficient use of the
Company's investment in equipment and manufacturing automation technology and
the increased utilization of Thailand subcontractors for labor intensive
processes. The high sales volume and increased efficiency of the manufacturing
process allowed the Company to maintain strong margins even while responding to
pricing pressures in the market. This gross margin increase continued the trend
which began in fiscal 1994 where the gross margins rose steadily throughout the
year reflecting increasing sales volume and strengthened manufacturing
efficiencies after the margins had dropped in the fiscal 1993 fourth quarter and
the first quarter of 1994 due to a temporary sales slow down. Although there
will be continued pricing pressure, gross margins are expected to remain strong
due to increases in volume and continued cost reductions resulting from
manufacturing efficiencies and engineering innovation.
OPERATING EXPENSES. Selling, general and administrative expenses decreased to
9.4% as a percent of net sales in 1995 as compared to 12.1% in 1994 and 9.6% in
1993. The decrease in 1995 is primarily due to the increased level of disk drive
lead wire sales which more than offset the increase in operating expenses
related to growing Iconovex and InnoMedica, the two new divisions which began
operations in fiscal 1994. The increase in selling, general and administrative
expenses in 1994 over 1993 was also due to spending at Iconovex and InnoMedica
as these divisions were new in fiscal 1994. These operations made only modest
contributions to revenue in 1995 and 1994 but are expected to generate
significantly improved revenues during 1996.
Engineering expense increased to 4.9% of net sales in fiscal 1995 from 4.7% in
1994 and 2.8% in 1993. The increase in engineering spending in fiscal 1995
corresponded to the increase in sales over 1994. The spending increase
encompassed all divisions. Precision Products increased spending with continued
efforts to develop new products, further automate the manufacturing process and
develop material alternatives. Iconovex increased its product development
spending and InnoMedica increased spending on product development and
manufacturing process improvements. Increases in engineering expenses in 1994
over 1993 were related to the same objectives.
Interest income increased significantly to $789,000 in fiscal 1995 from $453,000
and $241,000 in 1994 and 1993, respectively. These increases in the last two
years correspond to the increases in cash and short-term investments in both
1995 and 1994. Interest expense decreased to $125,000 in 1995, from $139,000 in
1994 and increased from $107,000 in 1993.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES. Income from continuing
operations before income taxes was $14,818,000 for fiscal 1995 as compared to
$5,157,000 for 1994 and $5,553,000 for 1993. As a percent of net sales, income
from continuing operations before income taxes was 29.5% for 1995 as compared to
16.9% and 20.9% for 1994 and 1993, respectively. The increase in 1995 over both
1994 and 1993 was due to the large increase in lead wire assembly sales and the
corresponding strong gross margins. The decrease in 1994 from 1993 was due to
the costs incurred at the two new divisions which made only modest contributions
to revenue during 1994. Operating income from all divisions should improve in
fiscal 1996. Precision Products is expected to have increased sales due to disk
drive industry projected demand increases. Iconovex and InnoMedica should show
improvements as their products become more established.
PROVISION FOR INCOME TAXES. The Company's effective tax rate of 32.3% in fiscal
1995 increased from 31.8% in 1994 and decreased from 34.1% in 1993. The decrease
in tax rates in 1995 and 1994 from the 1993 rate is primarily attributable to an
increase in the Company's Foreign Sales Corporation tax benefit as a result of
the increased level of foreign sales.
INCOME FROM DISCONTINUED OPERATIONS. The Company realized income from
discontinued operations (Photo Equipment Market Group and Mar Engineering) of
$11,000 in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased by $9,398,000 to $22,514,000 at
September 30, 1995. Net cash provided by operating activities increased in 1995
to $12,425,000 from $6,027,000 in 1994 and $5,058,000 in 1993. The increase in
the Company's September 30, 1995 cash and short-term investments and fiscal 1995
cash flow from operating activities was primarily due to the Company's improved
operating results related to the increased demand for lead wire assemblies. The
increase in cash flow from operations from 1993 to 1994 was primarily due to a
higher level of non-cash expenses in 1994 as compared to 1993.
Accounts receivable at September 30, 1995 increased by $1,065,000 from the prior
year due to the increased level of sales in 1995 as compared to 1994.
Working capital rose by $10,735,000 to $28,362,000 at September 30, 1995. The
Company's current ratio was 8.33 to 1 at fiscal 1995 year-end, compared to 6.24
to 1 at the end of fiscal 1994.
Net property, plant and equipment increased by $337,000 to $7,068,000 at
September 30, 1995 as fixed asset purchases were primarily offset by
depreciation expenses for the year. Intangible and other assets decreased
$228,000 to $1,984,000 at September 30, 1995. Amortization expenses were
partially offset by payments made in 1995 related to the Company's purchase of
the Possis Medical, Inc. pacemaker lead wire product line in fiscal 1994.
Software development costs related to the Iconovex software products were also
capitalized during fiscal 1995.
Long-term debt, net of current maturities, decreased by $359,000 to $1,173.000
at September 30, 1995. The ratio of long-term debt to stockholders' equity was
.03 at September 30, 1995, compared to .06 at the end of fiscal 1994.
Management believes that internally generated funds will provide adequate
sources of capital for supporting projected growth in fiscal 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL DATA
Page
Report of Independent Certified Public Accountants 11
Consolidated Balance Sheets at September 30, 1995 and 1994 12
Consolidated Statements of Operations for each of the three years
in the period ended September 30, 1995 13
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended September 30, 1995 14
Consolidated Statements of Cash Flows for each of the three years
in the period ended September 30, 1995 15
Notes to Consolidated Financial Statements 16-22
Quarterly Financial Data (unaudited) 23
Report of Grant Thornton LLP
Independent Certified Public Accountants
Board of Directors and Stockholders
Innovex, Inc.
We have audited the accompanying consolidated balance sheets of Innovex, Inc. (a
Minnesota Corporation) and subsidiaries as of September 30, 1995 and 1994, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Innovex, Inc. and
subsidiaries as of September 30, 1995 and 1994, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes A2 and A7 to the consolidated financial statements,
effective October 1, 1993, the Company changed its method of accounting for
certain investments in debt and equity securities and for income taxes.
\s\ Grant Thornton LLP
Minneapolis, Minnesota
October 26, 1995
CONSOLIDATED BALANCE SHEETS
INNOVEX, INC. AND SUBSIDIARIES
September 30
ASSETS 1995 1994
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 7,384,298 $ 1,719,587
Short-term investments 15,130,000 11,396,797
Accounts receivable, less allowance for
doubtful accounts of
$265,000 (1994 - $220,000) 5,787,282 4,722,091
Inventories 2,191,345 1,782,156
Other 1,738,438 1,370,981
----------- -----------
Total current assets 32,231,363 20,991,612
Property, plant and equipment - at cost:
Land and land improvements 456,851 458,166
Buildings and leasehold improvements 3,144,669 2,868,171
Machinery and equipment 8,484,536 6,857,189
Office furniture and fixtures 1,338,727 968,525
----------- -----------
13,424,783 11,152,051
Less accumulated depreciation 6,356,907 4,421,439
----------- -----------
Net property, plant and equipment 7,067,876 6,730,612
Intangible and other assets, net of accumulated
amortization of $1,008,000 (1994 - $186,000) 1,984,244 2,212,200
----------- -----------
$41,283,483 $29,934,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 358,000 $ 350,300
Accounts payable 1,486,154 1,019,896
Accrued compensation 1,570,983 1,190,558
Income taxes payable 60,360 107,187
Other accrued liabilities 393,870 697,019
----------- -----------
Total current liabilities 3,869,367 3,364,960
Long-term debt 1,172,798 1,532,140
Other long term liabilities 212,145 321,017
Stockholders' equity:
Common stock, $.04 par value;
15,000,000 shares
authorized, 7,062,127 shares
issued and outstanding
(1994 - 6,785,202) 282,485 180,939
Capital in excess of par value 8,930,301 6,865,574
Retained earnings 26,816,387 17,669,794
----------- -----------
Total stockholders' equity 36,029,173 24,716,307
----------- -----------
$41,283,483 $29,934,424
=========== ===========
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
INNOVEX, INC. AND SUBSIDIARIES
For the years ended September 30,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
NET SALES $ 50,193,952 $ 30,564,009 $ 26,596,997
COST AND EXPENSES:
Cost of sales 28,630,985 20,472,507 17,873,464
Selling, general and administrative 4,726,920 3,695,091 2,550,833
Engineering 2,464,242 1,428,442 740,546
Interest expense 124,673 138,874 107,203
Interest income (789,392) (453,152) (241,242)
Other expense 218,137 124,964 13,127
------------ ------------ ------------
35,375,565 25,406,726 21,043,931
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 14,818,387 5,157,283 5,553,066
Provision for income taxes (4,789,000) (1,642,000) (1,896,000)
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 10,029,387 3,515,283 3,657,066
------------ ------------ ------------
INCOME FROM DISCONTINUED OPERATIONS
net of applicable income tax provision
of $186,000 -- -- 11,048
------------ ------------ ------------
NET INCOME $ 10,029,387 $ 3,515,283 $ 3,668,114
============ ============ ============
PRIMARY INCOME PER SHARE:
Continuing operations $ 1.40 $ 0.52 $ 0.55
Discontinued operations -- -- --
------------ ------------ ------------
Net $ 1.40 $ 0.52 $ 0.55
============ ============ ============
FULLY DILUTED INCOME PER SHARE:
Continuing operations $ 1.39 $ 0.52 $ 0.55
Discontinued operations -- -- --
------------ ------------ ------------
Net $ 1.39 $ 0.52 $ 0.55
============ ============ ============
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 7,160,753 6,779,394 6,682,887
============ ============ ============
Assuming full dilution 7,227,684 6,779,394 6,682,887
============ ============ ============
The accompanying notes are an integral part of these statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INNOVEX, INC. AND SUBSIDIARIES
Capital in Total
Common Excess of Retained Stockholders'
For the years ended September 30, 1995, 1994 and 1993 Stock Par Value Earnings Equity
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 1, 1992 $ 176,313 $ 6,216,700 $ 12,329,195 $ 18,722,208
Shares issued through exercise of stock options 3,890 391,576 395,466
Tax benefits derived from stock option plans 133,000 133,000
Dividends paid ($0.10 per share) (670,857) (670,857)
Net income 3,668,114 3,668,114
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1993 180,203 6,741,276 15,326,452 22,247,931
Shares issued through exercise of stock options 736 80,298 81,034
Tax benefits derived from stock option plans 44,000 44,000
Dividends paid ($0.143 per share) (971,941) (971,941)
Unrealized loss on available for sale securities (200,000) (200,000)
Net income 3,515,283 3,515,283
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 180,939 6,865,574 17,669,794 24,716,307
Shares issued through exercise of stock options 8,460 1,082,351 1,090,811
Tax benefits derived from stock option plans 1,076,000 1,076,000
Dividends paid ($0.157 per share) (1,082,794) (1,082,794)
Change in unrealized loss on available-for-sale securities 200,000 200,000
Three-for-two stock split including $538 paid for
fractional shares 93,086 (93,624) (538)
Net income 10,029,387 10,029,387
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 $ 282,485 $ 8,930,301 $ 26,816,387 $ 36,029,173
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INNOVEX, INC. AND SUBSIDIARIES
For the years ended September 30,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 10,029,387 $ 3,515,283 $ 3,668,114
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,077,366 1,962,057 1,282,611
Deferred income taxes (190,050) (67,447) 46,000
Discontinued operations -- -- (899,200)
Other non-cash items (188,547) 248,834 9,153
Changes in operating assets and liabilities:
Accounts receivable (1,065,191) (1,271,206) 2,002,975
Inventories (409,189) 614,604 (630,784)
Other current assets (527,940) 77,302 (77,801)
Accounts payable 466,258 483,048 (603,673)
Other liabilities 203,937 467,348 465,701
Income taxes payable 1,029,173 (3,255) (205,149)
------------ ------------ ------------
Net cash provided by operating activities 12,425,204 6,026,568 5,057,947
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,964,212) (1,838,469) (3,703,013)
Product line acquisitions (310,698) (1,985,703) (300,000)
Proceeds from sale of assets 2,875 2,850,850 4,029,599
Purchase of held-to-maturity securities (16,700,000) (6,513,661) (4,705,000)
Purchase of available-for-sale securities -- (2,783,125) (2,465,011)
Maturities of held-to-maturity securities 7,820,000 4,755,000 950,000
Sale of available-for-sale securities 5,735,705 -- --
------------ ------------ ------------
Net cash (used in) investing activities (6,416,330) (5,515,108) (6,193,425)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (351,642) (193,577) (250,061)
Proceeds from exercise of stock options 1,090,811 81,034 395,466
Proceeds from borrowings -- -- 700,000
Dividends and stock split fractional shares paid (1,083,332) (971,941) (670,857)
------------ ------------ ------------
Net cash provided by (used in) financing activities (344,163) (1,084,484) 174,548
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 5,664,711 (573,024) (960,930)
Cash and cash equivalents at beginning of year 1,719,587 2,292,611 3,253,541
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,384,298 $ 1,719,587 $ 2,292,611
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest was $118,000, $139,000 and $107,000 in 1995, 1994 and
1993, respectively.
Income tax payments were $3,947,000, $1,719,000 and $1,741,000 in 1995, 1994 and
1993, respectively.
Tax benefits derived from stock option plans totaling $1,076,000, $44,000 and
$133,000 in 1995, 1994 and 1993, respectively, were recorded as a reduction of
current income taxes payable and an increase in capital in excess of par value.
During 1993, the Company financed the $750,000 acquisition of a permanent
pacemaker lead product line through a $150,000 cash payment and future payments
of $600,000.
During 1994, the Company reduced the carrying value of short-term investments,
of which $315,000, less $115,000 of deferred income taxes, was reflected as a
reduction of stockholders' equity. This reduction was reversed in 1995.
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INNOVEX, INC. AND SUBSIDIARIES
September 30, 1995, 1994 and 1993
NOTE A. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a manufacturer of lead wire assemblies for disk drive heads. The
Company also manufactures medical device components and software for document
storage retrieval and management. Company customers are located throughout the
United States and the pacific rim.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company considers all
highly liquid temporary investments with an original maturity of three months or
less to be cash equivalents. At September 30, 1995, cash equivalents of
approximately $5,000,000 were invested in one money market fund.
The Company adopted Statement of Financial Accounting Standards No. 115 (SFAS
#115) "Accounting for Certain Investments in Debt and Equity Securities" during
fiscal 1994. Under SFAS #115, debt and equity securities are classified in three
categories: trading securities, available-for-sale securities, and
held-to-maturity securities. Trading securities are measured at fair value, with
unrealized holding gains and losses included in income. Available-for-sale
securities are measured at fair value, with net unrealized gains and losses
reported in stockholders' equity. Held-to-maturity securities are carried at
amortized cost. The Company uses the specific identification method in
determining realized gains and losses.
3. ACCOUNTS RECEIVABLE - The Company grants credit to customers in the normal
course of business, but generally does not require collateral or any other
security to support amounts due. Management performs ongoing credit evaluations
of customers. The Company maintains allowances for potential credit losses.
4. INVENTORIES - Inventories are stated at the lower of cost or market, with
cost determined by the first-in, first-out method.
5. PROPERTY, PLANT AND EQUIPMENT - Depreciation is provided using the
straight-line method over the estimated useful lives of the assets for financial
reporting and accelerated methods for tax purposes. Estimated service lives
ranged from 2 to 30 years for buildings and leasehold improvements, from 2 to 7
years for machinery and equipment and from 3 to 7 years for office furniture and
fixtures.
6. INTANGIBLE AND OTHER ASSETS - Intangible assets include goodwill, patents,
licenses, technology and trademarks, which are capitalized at cost and amortized
on the straight-line basis over their estimated useful lives which range from
three to fifteen years. Management reviews the valuation and amortization of
goodwill on an ongoing basis. As part of this review, management estimates the
value and future benefits of the net income to be generated by the product lines
acquired to determine that no impairment of goodwill has occurred.
Computer software development costs are capitalized, when applicable, to the
extent they are incurred after the technological feasibility of the software has
been determined and until the software is available for general release to
customers. These costs are then amortized on a per unit sold basis or the
straight-line method over the remaining estimated economic life of the product,
whichever amount is greater. Unamortized capitalized software costs were
$1,089,000 and $1,120,000 as of September 30, 1995 and 1994, respectively.
Capitalized software costs of $314,000 and $42,000 were amortized during the
fiscal years ending September 30, 1995 and 1994, respectively.
7. INCOME TAXES - Effective October 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The impact
on the Company's operating results was not significant. Under the new standard,
deferred tax assets and liabilities represent the tax effects, based on current
tax law, of future deductible or taxable amounts attributable to events that
have been recognized in the financial statements. The deferred income tax
expense or benefit results from a change in the deferred tax assets and
liabilities recorded. Prior to 1994, the Company recognized deferred income
taxes based on the timing differences between financial and income tax
reporting.
8. INCOME PER SHARE - Income per share is computed based on the weighted average
number of shares of common stock and common stock equivalents, when dilutive,
outstanding during the year. All share and per share information throughout the
financial statements have been restated to reflect the three-for-two stock split
distributed on May 31, 1995.
9. RECLASSIFICATIONS - Certain of the 1994 and 1993 amounts have been
reclassified to conform with the 1995 presentation.
10. REVENUE RECOGNITION - Sales are recorded at the time of shipment and
provision for anticipated returns, net of exchanges, is recorded based on
historical experience.
11. RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (SFAS 121) in March 1995. SFAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Management has not determined
when the Company will adopt this new standard nor have they determined what
impact, if any, this standard will have on the Company's consolidated financial
statements.
NOTE B. - DISCONTINUED OPERATIONS
The financial statements are presented to segregate the effects of the photo
equipment group and Mar Engineering which were treated as discontinued
operations.
Photo Equipment Group-
Effective November 29, 1992, the Company sold the operating assets and
liabilities of the photo equipment group, excluding trade accounts receivable,
to Lucht Acquisition Corp. (LAC), an unrelated third party. The Company received
approximately $4,000,000 in cash and a 40 percent ownership interest in LAC. The
Company sold its equity interest in LAC on November 1, 1993 for $2,850,000 in
cash. From November 29, 1992 through September 30, 1993, the Company accounted
for its investment in LAC under the equity method of accounting by recording its
proportionate share of LAC's income subject to the total investment not
exceeding its net realizable value of $2,850,000. Net sales of the photo group
were $1.4 million for the two months ended November 29, 1992.
Mar Engineering-
In Fiscal 1992, the Company discontinued its Mar Engineering operation. A
portion of the Mar assets was sold to a former employee of the Company on
September 18, 1992 for proceeds aggregating $600,000. Most of the remaining
assets were sold in fiscal 1993.
Net sales of the Mar Engineering discontinued operations were $339,000 in 1993.
The income from discontinued operations consists of the following for the year
ended September 30, 1993:
Income (loss) from discontinued operations:
Photo Equipment Group Operations $ 260,000
Mar Engineering Operations (62,952)
Tax Provision (186,000)
---------
Income from discontinued operations $ 11,048
=========
NOTE C. - SHORT-TERM INVESTMENTS
The amortized cost, adjusted for recognized permanent impairment losses,
unrealized gains and losses, and fair values of the Company's available-for-sale
and held-to-maturity securities at September 30, 1995 and 1994 are summarized as
follows (thousands of dollars):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
September 30, 1995
Held-to-maturity securities:
Municipal obligation bonds $15,130 -- $ 11 $15,119
======= ======= ======= =======
September 30, 1994
Available-for-sale securities:
Adjustable rate term trusts $ 1,849 -- $ 183 $ 1,666
Adjustable rate bond mutual fund 2,076 -- 132 1,944
Bond mutual funds 1,537 -- -- 1,537
------- ------- ------- -------
$ 5,462 -- $ 315 $ 5,147
======= ======= ======= =======
Held-to-maturity securities:
Municipal obligation bonds $ 4,500 $ 13 -- $ 4,513
Auction rate municipal preferred stock 1,750 -- -- 1,750
------- ------- ------- -------
$ 6,250 $ 13 -- $ 6,263
======= ======= ======= =======
As of September 30, 1995, all of the short-term investments held by the Company
were classified as held-to-maturity securities, substantially all of which had
maturities within one year. Sales of available-for-sale securities during fiscal
1995 of $5,736,000 resulted in the realization of a $278,000 loss. Of this loss,
$218,000 was recognized in fiscal 1995. The Company's unrealized holding loss on
available-for-sales securities at September 30, 1994, was $375,000, of which
$315,000 was reported in equity, less $115,000 of deferred taxes. The remaining
$60,000 of the loss was considered a permanent impairment of the
available-for-sale securities and recorded as a loss in fiscal 1994. The Company
did not hold any available-for-sale securities at September 30, 1995 and did not
hold any trading securities during fiscal 1995 and 1994.
NOTE D. - INVENTORIES
Inventories are comprised of the following at September 30:
1995 1994
- -----------------------------------------------------------------------------
Raw materials and purchased parts $ 938,741 $ 856,927
Work-in-process and finished goods 1,252,604 925,229
--------- ----------
$2,191,345 $1,782,156
========== ==========
NOTE E. - LONG-TERM DEBT
Long-term debt consists of the following at September 30:
1995 1994
- -----------------------------------------------------------------------------------
Industrial development revenue note (a) $ 49,802 $ 70,447
Mortgage obligation (b) 172,195 189,726
Installment promissory notes (c) 162,872 178,040
Industrial development revenue note (d) 265,945 285,091
Mortgage obligation (e) 629,984 659,136
Purchase agreement installments (f) 250,000 500,000
------------ ------------
1,530,798 1,882,440
Less current maturities 358,000 350,300
------------ ------------
$1,172,798 $1,532,140
============ ============
Long-term debt obligations (a) through (e) were used to finance expansions of
the Montevideo manufacturing facilities and the purchase of the Hopkins facility
and are collateralized by those facilities and certain assets at those
facilities.
a. The note, due December 1997, is payable over fifteen years in monthly
installments with interest adjusted quarterly to 75 percent of the Federal
National Mortgage Association rate. The effective interest rates at September
30, 1995 and 1994, were 6.62% and 7.02%, respectively.
b. The note, due January 2003, is payable in monthly installments with interest
at a fixed rate of 7% until January 1998 when the outstanding balance will be
renewed at a rate of 1% over the prime rate.
c. The notes, due October 2003 and May 2004, are payable over fifteen years in
monthly installments, with interest at a fixed rate of 5%.
d. The note is payable in monthly installments and matures in January 2005. The
interest rate is currently fixed at 6.75% and will be adjusted to 1.75% below
the reference interest rate in December 1999.
e. The note is payable in monthly installments and matures in March 2008. The
interest rate is currently fixed at 7.5% and will be adjusted to 1.5% over the
prime rate in February 1998 and 2003.
f. The purchase agreement installments relate to the purchase of a pacemaker
lead and adapter product line. The balance of $250,000 is payable in March 1996
with interest at a fixed rate of 6%.
Aggregate maturities of long-term debt for the next five years are as follows:
1996 - $358,000; 1997 - $118,300; 1998 - $103,700; 1999 - $107,500; 2000 -
$117,200; thereafter - $726,098.
NOTE F. - STOCKHOLDERS' EQUITY
Stock Split -
On May 3, 1995, the Company's Board of Directors declared a three-for-two split
of the Company's common stock and increased the authorized shares from
10,000,000 to 15,000,000. The additional shares were distributed on May 31, 1995
to stockholders of record on May 16, 1995. All share and per share information
throughout the financial statements have been restated to reflect this split.
Stock Option Plans -
The Company's 1983 Incentive Stock Option Plan provided for the issuance of
540,000 shares of common stock. As of September 30, 1995, no more options may be
granted under this plan. Exercise of options granted under this plan is
conditioned upon the grantee's continued employment by the Company. The
Company's 1987 Employee Stock Option Plan provides for the issuance of 375,000
shares of common stock. Options granted under this plan may be qualified
incentive or non-qualified stock options. The shareholders approved the
Company's 1994 Stock Option Plan on March 7, 1995. This plan provides for the
issuance of 300,000 shares of common stock. Options granted under this plan may
be qualified incentive or non-qualified stock options. The exercise price of the
incentive stock options must be equal to the stock's fair market value on the
date of grant. The exercise price of the non-qualified stock options may be less
than the fair market value on the date of grant at the discretion of the plan's
administrative committee. No significant amount of compensation expense has been
recorded in 1995, 1994 or 1993 under the above noted plans.
A summary of stock option transactions is as follows:
Option price Options
range Options available
per share outstanding for grant
------------ ----------- ---------
Balance at October 1, 1992 400,640 452,589
Granted $0.667-$ 4.50 93,027 (93,027)
Exercised 0.667- 2.91 (145,862)
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 1993 347,805 359,562
Granted 0.667- 6.917 176,139 (176,139)
Exercised 2.08- 4.50 (27,600)
Expiration of the 1983 Incentive Stock Option Plan (60,750)
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 496,344 122,673
Approval of 1994 Stock Option Plan 300,000
Granted 0.667- 17.4375 306,871 (306,871)
Forfeited 2.417- 6.917 (79,800) 19,800
Exercised 0.667- 6.917 (276,960) -
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 446,455 135,602
========= =========
Options exercisable at September 30, 1995 $0.667-$ 13.6975 71,155
=========
The fiscal 1995 options granted include 120,000 options granted in fiscal 1994
which were subject to the shareholder approval of the 1994 Stock Option Plan on
March 7, 1995.
NOTE G. - INCOME TAXES
The effective income tax rates on income from continuing operations differed
from the federal statutory income tax rate as follows for the years ended
September 30:
1995 1994 1993
- --------------------------------------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal
income tax benefit 2.3 2.4 2.1
FSC benefit (5.6) (6.8) (1.5)
Other 1.6 2.2 (0.5)
------ ------ ------
32.3% 31.8% 34.1%
====== ====== ======
Components of the provision for income taxes from continuing operations are as
follows for the years ended September 30 (thousands of dollars):
1995 1994 1993
- -----------------------------------------------------------------------
Current:
Federal $ 4,451 $ 1,523 $ 1,674
State 528 186 176
------ ------ ------
4,979 1,709 1,850
Deferred (190) (67) 46
------ ------ ------
$ 4,789 $ 1,642 $ 1,896
====== ====== ======
Components of deferred tax expense from continuing operations are as follows for
the year ended September 30, 1993 (thousands of dollars):
Accelerated depreciation $ 16
Inventories 8
Receivables (4)
Compensation and benefits 27
Other (1)
=====
$ 46
Deferred tax assets (liabilities) are comprised of the following at September 30
(thousands of dollars):
1995 1994
- -----------------------------------------------------------
Current deferred tax assets:
Inventories $ 153 $ 214
Receivables 126 102
Compensation and benefits 100 81
Investments -- 137
Other -- 5
------ ------
$ 379 $ 539
====== ======
Long term deferred tax
liabilities - net:
Accelerated depreciation $ (172) $ (246)
Intangibles 40 (75)
Compensation 46 --
------ ------
$ (86) $ (321)
====== ======
The deferred tax asset and liability are included in the financial statements as
other current assets and other long-term liabilities. No valuation allowance was
considered necessary for deferred tax assets at September 30, 1995 or 1994.
NOTE H. - RETIREMENT AND PROFIT-SHARING PLANS
The Company sponsors a retirement plan for all of its employees meeting minimum
eligibility requirements. The plan is a 401(k) plan with Company matching
contributions of 50% of the first 6% of employee contributions to the plan.
Company contributions were approximately $198,000, $167,000 and $176,000 for the
years ending September 30, 1995, 1994 and 1993, respectively.
NOTE I. - RESEARCH AND DEVELOPMENT COSTS
The Company incurred research and development costs of $699,000, $462,000 and
$316,000 for the years ending September 30, 1995, 1994 and 1993, respectively.
NOTE J. - EXPORT SALES AND SIGNIFICANT CUSTOMERS
The Company has no foreign based operations; however, the Company utilizes
subcontractors in Thailand for a portion of the fine wire assembly. The Company
had aggregate export sales of $39,718,000, $23,766,000 and $18,488,000 for the
years ending September 30, 1995, 1994 and 1993, respectively, principally to
pacific rim customers.
Revenues from five customers made up a significant portion of the Company's
sales from continuing operations during the years ending September 30:
1995 1994 1993
- -----------------------------------------------------------------------
Customer A 29% 31% 20%
Customer B 21% 24% 24%
Customer C 11% 9% 9%
Customer D 11% 8% 6%
Customer E 10% 10% 8%
NOTE K. - PRODUCT LINE ACQUISITIONS
During 1994, the Company purchased a software product line which prepares
indexes and abstracts of documents stored in computer hard drives and CD/ROM
systems for $835,600. The purchase agreement also requires the Company to pay a
15% royalty on product receipts up to a maximum of $4,500,000 and 7.5% of
product receipts thereafter for a period of 5 years, subject to certain minimum
royalty payment requirements necessary to maintain the exclusive rights to sell
the product. The guaranteed minimum royalty payments for the calendar years
ended December 31, 1995 through 1998 are as follows: $500,000 in 1995 and
$715,000 in each of the years 1996 through 1998.
During 1994, the Company purchased a pacemaker lead wire product line consisting
of inventory, equipment and certain technology for $1,100,000. The purchase
agreement also required the Company to pay 75% of the product line gross
revenues for one year. The Company capitalized these payments totaling $586,000
as goodwill when the amounts became payable.
QUARTERLY FINANCIAL DATA
(Unaudited)
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------
Net sales $9,975,859 $11,692,830 $14,025,617 $14,499,646 $50,193,952
Gross profit 3,886,818 4,903,343 6,265,596 6,507,210 21,562,967
Net income 1,556,513 2,182,826 2,954,692 3,335,356 10,029,387
Net income per share*
Primary $0.23 $0.31 $0.41 $0.46 $1.40
Fully diluted $0.22 $0.31 $0.41 $0.46 $1.39
1st 2nd 3rd 4th
1994 Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------
Net sales $5,662,215 $6,451,230 $8,439,117 $10,011,447 $30,564,009
Gross profit 1,533,933 1,842,339 2,615,269 4,099,961 10,091,502
Net income 536,837 559,529 907,077 1,511,840 3,515,283
Net income per share*
Primary $0.08 $0.08 $0.13 $0.22 $0.52
Fully diluted $0.08 $0.08 $0.13 $0.22 $0.52
* Net income per share amounts have been restated to reflect a three for two
stock split distributed May 31, 1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the section entitled "Election of Directors" in
the Registrant's definitive proxy statement to be mailed to shareholders on or
about December 19, 1995, and filed with the Securities and Exchange Commission.
Information on executive officers is set forth in Part I, Item 4A hereto.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the section entitled "Executive Compensation" and
"Election of Directors" in the Registrant's definitive proxy statement to be
mailed to the Shareholders on or about December 19, 1995, and filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" and "Election of Directors" in the
Registrant's definitive proxy statement to be mailed to Shareholders on or about
December 19, 1995, and filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the section entitled "Certain Transactions" in the
Registrant's definitive proxy statement to be mailed to Shareholders on or about
December 19, 1995, and filed with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements Page Numbers
-------------------- ------------
The following Consolidated Financial Statements of the Registrant, Innovex Inc. and subsidiaries,
are included in Item 8.
Consolidated Balance Sheets at September 30, 1995 and 1994 12
Consolidated Statements of Operations for each of the three years in the period ended
September 30, 1995 13
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended
September 30, 1995 14
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1995 15
Notes to Consolidated Financial Statements 16-22
(2) Financial Statement Schedules
-----------------------------
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission have been omitted because
they are not required, are inapplicable or the information is included in the
Consolidated Financial Statements or Notes thereto.
(3) Exhibits Page Numbers
3 (a) Articles of Incorporation, as amended are incorporated by reference to Exhibit 3
of the Registrant's Form 10Q for the Quarter Ended March 31, 1988.
3 (b) Bylaws, as amended are incorporated by reference to
Exhibit 3(b) of the Registrant's Form S-1 Registration
Statement dated June 19, 1986, (Commission File No. 33-6594).
10 (a) 1983 Employee Incentive Stock Option Plan is incorporated
by reference to Exhibit 4(a) of the Registrant's Form S-8
dated June 3, 1987 (Commission File No. 33-14776).
10 (b) 1987 Employee Stock Option Plan, as amended, is
incorporated by reference to Exhibit 4(a) of the Registrant's
Form S-8 dated March 17, 1989 (Commission File No. 33-27530).
10 (c) Innovex, Inc. & Subsidiaries Employees' Retirement Plan is
incorporated by reference to Exhibit 10(i) of the Registrant's
Form 10-K for the Year Ended September 30, 1992.
10 (d) Office/Warehouse Lease dated November 2, 1993 for
Bloomington building between the Northwestern Mutual Life
Insurance Company as lessor and Innovex, Inc. is incorporated
by reference to Exhibit 10(g) of the Registrant's Form 10-K
for the Year Ended September 30, 1993.
10 (e) 1994 Stock Option Plan is incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q
for the Quarter Ended March 31, 1995.
10 (f) Sublease dated March 29, 1995 for Bloomington office space between John Alden
Life Insurance Company and Innovex, Inc. 27-31
11 Computation of per share income. 32
22 Subsidiaries of Registrant. 33
23 Consent of Grant Thornton LLP. 34
27 Financial Data Schedule. 35
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
Reference is made to Item 14 (a) 3.
(d) SCHEDULES
Reference is made to Item 14 (a) 2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
By \s\ Thomas W. Haley
Thomas W. Haley
Chairman and Chief Executive Officer
Date December 7, 1995 By \s\ Douglas W. Keller
Douglas W. Keller
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 7th day of December, 1995.
\s\ Thomas W. Haley Chairman and Chief Executive Officer
Thomas W. Haley and Director
(principal executive officer)
\s\ Douglas W. Keller Corporate Controller
Douglas W. Keller (principal accounting officer)
_______________ Director
Gerald M. Bestler
\s\ Willis K. Drake Director
Willis K. Drake
________________ Director
Michael C. Slagle
\s\ Bernt M. Tessem Director
Bernt M. Tessem
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
INNOVEX, INC.
FOR
FISCAL YEAR ENDED SEPTEMBER 30, 1995
-------------------------------------------------------------
EXHIBITS