UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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for the quarterly period ended December 31, 2004 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from ___________________ to _________________
Commission File Number 0-13143
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Innovex, Inc. |
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(Exact name of registrant as specified in its charter) |
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Minnesota |
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41-1223933 |
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(State or other jurisdiction of |
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(IRS Employer |
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5540 Pioneer Creek Drive, Maple Plain, MN 55359 |
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(Address of principal executive offices) |
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(763) 479-5300 |
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(Registrant’s telephone number, including area code) |
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(Former name, former address and former fiscal year if changed since last report) |
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. x Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes o No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: As of January 21, 2005, 19,148,824 shares of the registrant’s common stock, $.04 par value per share, were outstanding.
Index
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Page |
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PART I. |
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Item 1. |
3-8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
8-15 |
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Item 3. |
15 |
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Item 4 |
15 |
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PART II. |
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Item 6. |
16 |
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17 |
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Page 2
PART 1: ITEM 1 FINANCIAL STATEMENTS
INNOVEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
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December 31, |
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September 30, |
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ASSETS |
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Current assets: |
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Cash and equivalents |
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$ |
17,082,145 |
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$ |
14,422,060 |
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Accounts receivable, net |
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25,347,932 |
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27,247,622 |
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Inventories |
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17,223,923 |
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12,222,703 |
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Deferred income taxes – current |
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915,559 |
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915,559 |
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Other current assets |
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3,890,035 |
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2,696,645 |
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Total current assets |
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64,459,594 |
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57,504,589 |
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Property, plant and equipment, net of accumulated depreciation of $51,898,000 and $49,396,000 |
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59,909,993 |
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53,538,016 |
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Goodwill |
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3,000,971 |
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3,000,971 |
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Deferred income taxes – long-term |
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12,974,692 |
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12,974,692 |
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Other assets |
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3,108,012 |
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2,728,563 |
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$ |
143,453,262 |
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$ |
129,746,831 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
6,420,517 |
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$ |
6,251,784 |
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Line of credit |
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4,729,105 |
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— |
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Accounts payable |
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24,608,943 |
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20,540,924 |
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Accrued compensation |
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2,566,245 |
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2,702,072 |
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Other accrued liabilities |
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5,307,043 |
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2,148,328 |
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Total current liabilities |
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43,631,853 |
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31,643,108 |
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Long-term debt, less current maturities |
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13,666,855 |
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11,021,678 |
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Stockholders’ equity: |
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Common stock, $.04 par value; 30,000,000 shares authorized, 19,143,844 and 19,108,469 shares issued and outstanding |
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765,754 |
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764,339 |
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Capital in excess of par value |
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60,850,318 |
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60,771,551 |
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Retained earnings |
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24,538,482 |
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25,546,155 |
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Total stockholders’ equity |
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86,154,554 |
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87,082,045 |
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$ |
143,453,262 |
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$ |
129,746,831 |
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See accompanying notes to condensed consolidated financial statements.
Page 3
INNOVEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended December 31, |
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2004 |
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2003 |
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Net sales |
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$ |
40,041,490 |
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$ |
44,343,523 |
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Costs and expenses: |
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Cost of sales |
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36,141,828 |
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35,618,774 |
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Selling, general and administrative |
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3,870,849 |
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4,957,045 |
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Engineering |
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1,709,125 |
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1,750,980 |
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Restructuring charges |
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343,116 |
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— |
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Net interest (income) expense |
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209,889 |
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159,086 |
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Net other (income) expense |
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(582,836 |
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(46,376 |
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Income (loss) before taxes |
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(1,650,481 |
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1,904,014 |
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Income taxes |
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(642,808 |
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310,262 |
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Net income (loss) |
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$ |
(1,007,673 |
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$ |
1,593,752 |
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Net income (loss) per share: |
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Basic |
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$ |
(0.05 |
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$ |
0.08 |
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Diluted |
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$ |
(0.05 |
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$ |
0.08 |
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Weighted average shares outstanding: |
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Basic |
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19,127,621 |
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18,937,336 |
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Diluted |
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19,127,621 |
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19,762,048 |
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See accompanying notes to condensed consolidated financial statements.
Page 4
INNOVEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended December 31, |
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2004 |
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2003 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
(1,007,673 |
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$ |
1,593,752 |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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2,720,732 |
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2,871,151 |
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Restructuring and asset impairment charges |
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343,116 |
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— |
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Other non-cash items |
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(175,842 |
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(9,624 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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1,899,690 |
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(3,501,127 |
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Inventories |
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(5,001,220 |
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(2,778,270 |
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Deferred income taxes |
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— |
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284,916 |
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Other current assets |
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(1,435,368 |
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(225,531 |
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Accounts payable |
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4,068,019 |
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3,489,741 |
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Accrued compensation and other accrued liabilities |
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2,717,413 |
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(72,888 |
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Net cash provided by (used in) operating activities |
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4,128,867 |
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1,652,120 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
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(9,091,979 |
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(2,086,438 |
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Other |
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— |
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38,000 |
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Net cash provided by (used in) investing activities |
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(9,091,979 |
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(2,048,438 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Principal payments on long-term debt |
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(1,472,339 |
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(1,977,837 |
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Issuance of long-term debt |
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4,286,249 |
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— |
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Net activity on line of credit |
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4,729,105 |
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— |
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Proceeds from exercise of stock options |
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80,182 |
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433,073 |
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Net cash provided by (used in) financing activities |
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7,623,197 |
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(1,544,764 |
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Increase (decrease) in cash and equivalents |
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2,660,085 |
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(1,941,082 |
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Cash and equivalents at beginning of period |
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14,422,060 |
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21,606,761 |
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Cash and equivalents at end of period |
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$ |
17,082,145 |
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$ |
19,665,679 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest was $226,000 and $278,000 in the three months ended December 31, 2004 and 2003.
Cash paid for income taxes was $-0- and $6,000 in the three months ended December 31, 2004 and 2003.
See accompanying notes to condensed consolidated financial statements.
Page 5
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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2004.
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
During fiscal 2004, the Company recorded asset impairment and restructuring charges of $13.1 million and $1.7 million related to the planned closure of the Maple Plain facility and the plan to discontinue support of the FSA attachment process. The assets that were impaired included the Maple Plain facility and related equipment and equipment used in the FSA attachment process. The fair value of these assets was determined using quoted market prices where available, appraised values or estimated future cash flows where more definitive values were not available.
In order to reduce its cost structure, the Company plans to close its Maple Plain facility and consolidate its operations with its Lamphun, Thailand and Litchfield, Minnesota facilities. In addition, the Company plans to discontinue supporting the FSA attachment process in order to utilize its resources in other growth areas where the Company believes it has an advantage. Excluding asset impairment charges, restructuring charges are expected to be approximately $7 million. The $7 million is expected to be comprised of $1.6 million for one-time termination benefits, $0.4 million for contract termination costs and $5 million for other moving and closing costs associated with the consolidation of the Maple Plain location with the Company’s other locations. Restructuring charges of $343,000 were recorded in the first quarter of fiscal 2005. These charges were comprised of $152,000 for one-time termination benefits and $191,000 related to moving and closing costs. Charges of $2.1 million related to this restructuring have been recorded through December 31, 2004. The remaining expected charges of $4.9 million are expected to be incurred during the last three quarters of fiscal 2005.
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Manufacturing Operations |
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(in thousands) |
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Other |
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Employee |
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Total |
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Accrual at October 1, 2004 |
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$ |
— |
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$ |
187 |
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$ |
187 |
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Restructuring charges |
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191 |
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152 |
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343 |
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Payments |
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(191 |
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(45 |
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(236 |
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Accrual at December 31, 2004 |
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$ |
— |
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$ |
294 |
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$ |
294 |
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Page 6
NOTE 3 – NET INCOME (LOSS) PER SHARE
The Company’s basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common shares. The Company’s diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common shares and common share equivalents relating to stock options when dilutive. Options to purchase 1,090,155 shares of common stock with a weighted average exercise price of $10.61 were outstanding during the three month period ending December 31, 2004, but were excluded from the computation of common share equivalents because they were not dilutive. Options to purchase 576,700 shares of common stock with a weighted average exercise price of $14.21 were outstanding during the three month period ending December 31, 2003, but were excluded from the computation of common share equivalents because
they were not dilutive.
The Company uses the intrinsic value method for valuing stock options granted. Had the fair value method been applied, the Company’s compensation expense would have been different. The following table illustrates the effect on the net loss and net loss per share if the Company had applied the fair value method to stock-based compensation for the following three months ended:
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Three months ended December 31, |
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(in thousands except for per share amounts) |
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2004 |
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2003 |
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Net income (loss) as reported |
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$ |
(1,008 |
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$ |
1,594 |
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Less total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax effects |
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(157 |
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(104 |
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Net income (loss)- pro forma |
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$ |
(1,165 |
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$ |
1,490 |
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Basic and diluted net income (loss) per common share - as reported |
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$ |
(0.05 |
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$ |
0.08 |
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Basic and diluted net income (loss) per common share – pro forma |
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$ |
(0.06 |
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$ |
0.08 |
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The weighted average fair value of options granted in fiscal 2005 and 2004 was $1.56 and $4.80, respectively. The weighted average fair value was computed by applying the following weighted average assumptions to the Black-Scholes options pricing model: average volatility of 49% and 64%; dividends yield