SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the Period ended June 30, 2001.
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-13143
INNOVEX, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1223933
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5540 Pioneer Creek Drive, Maple Plain, Minnesota 55359-9003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 479-5300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes - X No
As of August 1, 2001, 15,002,689 shares of the registrant's common stock, $.04
par value per share, were outstanding.
Exhibit Index, page 12
PART 1: ITEM 1 FINANCIAL INFORMATION
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, September 30,
ASSETS 2001 2000
-----------------------------------------------------------------------------------------------
Current assets:
Cash and equivalents $ 2,172,773 $ 1,673,486
Short-term investments 5,000 5,000
Accounts receivable, net 23,097,533 23,834,538
Inventories 16,104,679 21,570,553
Income taxes receivable 633,752 2,182,924
Other current assets 7,010,493 7,311,184
------------ ------------
Total current assets 49,024,230 56,577,685
Property, plant and equipment, net of accumulated depreciation
of $24,291,000 and $17,955,000 87,998,428 94,519,926
Intangible and other assets, net of accumulated amortization of
$1,288,000 and $1,326,000 3,345,979 7,089,649
Deferred income taxes 9,445,162 9,445,162
Other assets 50,863 47,470
------------ ------------
$149,864,662 $167,679,892
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 7,357,457 $ 7,198,411
Line of credit 12,441,163 9,700,000
Accounts payable 15,463,775 24,872,142
Accrued compensation 2,424,516 2,173,881
Other accrued liabilities 11,492,169 6,336,127
------------ ------------
Total current liabilities 49,179,080 50,280,561
Long-term debt, less current maturities 30,611,652 21,003,284
Stockholders' equity:
Common stock, $.04 par value; 30,000,000 shares authorized,
15,002,689 and 14,930,286 shares issued and outstanding 600,108 597,211
Capital in excess of par value 17,546,030 17,086,609
Retained earnings 51,927,792 78,712,227
------------ ------------
Total stockholders' equity 70,073,930 96,396,047
------------ ------------
$149,864,662 $167,679,892
============ ============
See accompanying notes to condensed consolidated financial statements.
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INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
2001 2000
---- ----
Net sales $ 36,250,675 $ 38,433,243
Costs and expenses:
Cost of sales 33,193,187 31,660,185
Selling, general and administrative 4,876,602 4,011,065
Engineering 1,381,214 1,883,599
Restructuring charges -- (183,928)
Net interest (income) expense 849,846 745,726
Net other (income) expense 22,312 (234,948)
------------- -------------
Income (loss) before taxes (4,072,486) 551,544
Provision for income taxes (1,181,021) 159,000
------------- -------------
Net income (loss) $ (2,891,465) $ 392,544
============= =============
Net income (loss) per share:
Basic $ (0.19) $ 0.03
============= =============
Diluted $ (0.19) $ 0.03
============= =============
Weighted average shares outstanding:
Basic 15,001,300 14,837,671
============= =============
Diluted 15,001,300 14,941,741
============= =============
Nine Months Ended June 30,
2001 2000
---- ----
Net sales $ 109,763,830 $ 124,546,000
Costs and expenses:
Cost of sales 97,581,849 108,411,008
Selling, general and administrative 13,561,715 12,389,832
Engineering 4,966,378 5,455,105
Asset impairment 9,754,043 6,605,357
Restructuring charges 10,618,896 6,995,800
Net interest (income) expense 2,607,076 1,860,098
Net other (income) expense 77,088 (361,680)
------------- -------------
Income (loss) before taxes (29,403,215) (16,809,520)
Provision for income taxes (2,618,780) (4,876,164)
------------- -------------
Net income (loss) $ (26,784,435) $ (11,933,356)
============= =============
Net income (loss) per share:
Basic $ (1.79) $ (0.80)
============= =============
Diluted $ (1.79) $ (0.80)
============= =============
Weighted average shares outstanding:
Basic 14,982,145 14,826,952
============= =============
Diluted 14,982,145 14,826,952
============= =============
See accompanying notes to condensed consolidated financial statements.
-3-
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(26,784,435) $(11,933,356)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,950,692 8,647,705
Restructuring and asset impairment charges 20,372,939 13,601,157
Other non-cash items 760,730 149,295
Changes in operating assets and liabilities net of business
acquisitions and restructurings:
Accounts receivable 737,005 6,093,317
Inventories 3,830,445 (2,980,455)
Other current assets 203,011 (2,795,559)
Accounts payable (9,408,367) (1,227,391)
Other liabilities (3,576,791) 2,053,855
Income taxes payable 1,549,172 (4,465,581)
------------ ------------
Net cash provided by (used in) operating activities (2,365,599) 7,142,987
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,200,172) (21,378,846)
Business acquisition -- (3,750,000)
Proceeds from sale of assets 94,163 595,310
Maturities of held-to-maturity securities -- 19,305,000
------------ ------------
Net cash provided by (used in) investing activities (10,106,009) (5,228,536)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (5,812,828) (398,048)
Issuance of long-term debt 27,421,405 785,767
Net activity on line of credit (9,100,000) (663,931)
Proceeds from exercise of stock options and employee stock
purchase plan 462,318 101,437
Dividends paid -- (592,948)
------------ ------------
Net cash provided by (used in) financing activities 12,970,895 (767,723)
Increase (decrease) in cash and equivalents 499,287 1,146,728
Cash and equivalents at beginning of year 1,673,486 6,231,430
------------ ------------
Cash and equivalents at end of period $ 2,172,773 $ 7,378,158
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest was $2,544,000 and $2,258,000 in fiscal 2001 and 2000,
respectively.
Income tax payments were $-0- and $236,000 in fiscal 2001 and 2000,
respectively.
See accompanying notes to condensed consolidated financial statements.
-4-
INNOVEX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions on Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The unaudited condensed
consolidated financial statements include the accounts of Innovex, Inc. and its
subsidiaries (the "Company") after elimination of all significant intercompany
transactions and accounts. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of operating results have been made. Operating results for interim periods are
not necessarily indicative of results that may be expected for the year as a
whole. The Company utilizes a fiscal year that ends on the Saturday nearest to
September 30. For clarity of presentation, the Company has described all periods
as if they end at the end of the calendar quarter. For further information,
refer to the consolidated financial statements and footnotes included in the
registrant's annual report on Form 10-K for the year ended September 30, 2000.
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
2001 MANUFACTURING OPERATIONS RESTRUCTURING-
The fiscal 2001 second quarter includes asset impairment and restructuring
charges of $9,754,000 and $10,124,000 related to the restructuring of the
Company's manufacturing operations. The restructuring is primarily related to
moving manufacturing operations from the Company's Chandler, Arizona facility to
the Company's Minnesota locations. The charges were recorded pursuant to a plan
announced in January 2001. The charge included approximately $6,380,000 related
to asset impairment of property and equipment and $3,374,000 for the impairment
of the remaining unamortized balance of the goodwill recorded at the time of the
Company's September 1999 acquisition of ADFlex Solutions, Inc. The charge also
includes $1,636,000 of inventory written off related to discontinued product
lines and accrued liabilities of $2,156,000 for employee severance and benefits
and $6,332,000 for facility abandonment costs. The restructuring is expected to
be substantially complete by the end of the fiscal year with the exception of
the costs accrued to maintain the leased Chandler facility through the June 2003
lease termination.
2000 MANUFACTURING OPERATIONS RESTRUCTURING-
The fiscal 2000 first quarter includes a $13,785,000 restructuring charge
related to restructuring the Company's manufacturing operations. The
restructuring is primarily related to moving operations from the Company's Agua
Prieta, Mexico facility to its new facility in Lamphun, Thailand. The charge was
recorded pursuant to a plan announced in November 1999. The charge included
approximately $6,605,000 related to asset impairment of property and equipment,
$356,000 for the write off of inventory and supplies, $176,000 for increasing
the accounts receivable reserve, and accrued liabilities of $2,101,000 for
facility abandonment costs and $4,547,000 in employee severance and benefits. A
change in estimate was recorded in the quarter ending September 2000 increasing
the facility abandonment accrual by $1,435,000 and decreasing the accrued
employee severance by $1,485,000. The estimate changes were due to higher costs
than expected to discontinue the operation of the Mexican facility and higher
turnover than expected prior to the payment of severance. The restructuring was
substantially complete as of September 2000 with the exception of completing the
disposition of the Mexican facility. During the quarter ending March 31, 2001,
the Company had a $495,000 increase in the estimate of the facility abandonment
charges relating to the length of time required to complete the disposition of
the facility located in Agua Prieta, Mexico.
The remaining restructuring accrual as of June 30, 2001 totaled $6,781,000.
Selected information regarding the restructuring follows (in thousands):
-5-
Manufacturing Operations Manufacturing Operations
Restructuring - 2001 Restructuring - 2000
--------------------------------------------------------------
Facility Employee Facility Employee
Abandonment Termination Abandonment Termination
Charges Benefits Charges Benefits Total
-----------------------------------------------------------------------------
Accrual at March 31,
2001 $ 5,893 $ 2,024 $ 821 $ 136 $ 8,874
Payments (1,172) (643) (267) (11) (2,093)
-----------------------------------------------------------------------------
Accrual remaining at
June 30, 2001 $ 4,721 $ 1,381 $ 554 $ 125 $ 6,781
=============================================================================
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
1,485,557 and 1,112,538 shares of common stock with a weighted average exercise
price of $11.64 and $13.15 were outstanding during the three and nine month
periods ending June 30, 2001, but were excluded from the computation of common
share equivalents because they were not dilutive. Options to purchase 809,350
and 770,823 shares of common stock with a weighted average exercise price of
$13.96 and $14.45 were outstanding during the three month and nine month periods
ending June 30, 2000, but were excluded from the computation of common share
equivalents because they were not dilutive.
NOTE 4 - INVENTORIES
Inventories are comprised of the following (in thousands):
June 30, September 30,
2001 2000
----------------------------------
Raw materials and purchased parts $ 7,009 $ 11,804
Work-in-process and finished goods 9,095 9,767
----------------------------------
$ 16,104 $ 21,571
==================================
NOTE 5 - DERIVATIVE INSTRUMENTS AND HEDGING
The Company adopted SFAS No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, and No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS
AND CERTAIN HEDGING ACTIVITIES, on November 1, 2000. These Standards require
entities to recognize derivatives in their financial statements as either assets
or liabilities measured at fair value. The accounting for changes in the fair
value of a derivative is recognized in earnings unless certain criteria are met.
These Standards also require formal documentation, designation and effectiveness
assessment of transactions receiving hedge accounting. The Company formally
documents all relations between hedging instruments and the hedged items, as
well as its risk-management objectives and strategy for undertaking various
hedge transactions. The Company assesses, both at the hedge's inception and on
an ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of the hedged items.
The Company enters into forward exchange contracts, to hedge foreign currency
denominated assets or liabilities, that are recorded at fair value with related
fair value hedge gains or losses recorded in earnings within the caption other
income / expense. Generally, the Company purchases these contracts near the
beginning of each quarter while the expiration is near the end of each quarter.
The Company does not enter into forward exchange contracts for trading purposes.
As of June 30, 2001, the Company had open forward contracts to buy Thai Baht,
maturing in September 30, 2001, with notional amounts totaling 425,000,000
Thailand Baht.
-6-
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, BUSINESS COMBINATIONS,
and SFAS 142, GOODWILL AND INTANGIBLE ASSETS. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
* All business combinations initiated after June 30, 2001 must use the purchase
method of accounting. The pooling of interest method of accounting is prohibited
except for transactions initiated before July 1, 2001.
* Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal rights or
are separable from the acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a related contract, asset
or liability.
* Goodwill, as well as intangible assets with indefinite lives, acquired after
June 30, 2001, will not be amortized. Effective October 1, 2003, all previously
recognized goodwill and intangible assets with indefinite lives will no longer
be subject to amortization.
* Effective October 1, 2003, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an impairment
indicator.
The Company is currently analyzing the effects of these Statements to its
financial statements.
PART I: ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
In the fiscal 1999 fourth quarter, Innovex, Inc. and its subsidiaries (the
"Company") acquired ADFlex Solutions, Inc. ("ADFlex") for approximately $37
million. At that time, the Company also obtained credit facilities totaling in
principal amount $40 million, which were utilized to refinance ADFlex's
outstanding debt, pay down current liabilities and pay related transaction
costs. Prior to the acquisition, ADFlex was a leading supplier of flexible
circuit based solutions to the computer, computer peripheral, communications and
consumer electronics industries. Applications for these flex-based interconnects
include cellular phones, hard disk drives, other storage systems, high-end
consumer products, notebook computers, pagers and personal communication
systems. ADFlex's diverse customer and industry base has reduced Innovex's
reliance on the disk drive industry.
Prior to the ADFlex acquisition, the Company had one primary operating group,
Innovex Precision Components. The Company has combined the ADFlex operation into
its existing operations as both operations design and manufacture flexible
circuits.
Prior to fiscal 1999, the Company operated through three divisions, Precision
Products (Precision), Litchfield Precision Components (LPC) and Iconovex. Each
division had its own administrative, engineering, manufacturing and marketing
organizations. During the quarter ending September 30, 1998, the Company
combined the operations of its two core operating divisions, Precision and LPC
into one operating division, Innovex Precision Components. The combination
merged the rapidly growing LPC flexible circuit fabrication and chemical etching
operations with Precision's high volume fine wire manufacturing expertise. The
combination also allowed Innovex to leverage Precision's disk drive industry
market and trade knowledge to disk drive industry flexible circuit applications
as the industry transitioned from wire interconnects.
Prior to the divisional combination, the largest division, Precision, developed,
engineered and manufactured specialty precision electromagnetic products for
original equipment manufacturers ("OEM's"). Lead wire assemblies for the thin
film disk drive market were the division's primary product. Lead wire assemblies
are fine twisted magnet wires that connect the back end electronics of a disk
drive with the inductive or magneto resistive thin film heads that read and
write information on the disk. Since the divisional combination, the lead wire
assembly revenue declined as anticipated.
LPC, prior to the fiscal 1998 divisional combination, designed and manufactured
highly complex flexible circuitry and chemically machined components for
computer, computer peripheral, medical and other applications. The
-7-
Company purchased Litchfield Precision Components, Inc. on May 16, 1996. This
acquisition reduced the Company's reliance on the disk drive industry while
providing an entry into the large and rapidly growing flexible circuit market.
Innovex's flexible circuit operation is one of a limited number of operations in
the world able to produce flexible circuits with line and spacing tolerances of
less than 2 mils for the high-end portion of the flexible circuit market.
Innovex, Inc. was incorporated under the laws of the State of Minnesota in 1972.
Its principal executive offices are located at 5540 Pioneer Creek Drive, Maple
Plain, Minnesota 55359-9003 and its telephone number is (763) 479-5300. Products
are developed and manufactured through the Company's wholly owned subsidiaries,
Innovex Precision Components, Inc., Innovex Southwest, Inc., Innovex (Thailand)
Ltd. and Innovex Ltd. Innovex Precision Components, Inc. and Innovex Ltd. are
Minnesota corporations. Innovex Southwest, Inc. is a Delaware corporation and
Innovex (Thailand) Ltd. is a Thailand corporation.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales from operations totaled $36,251,000 for the quarter,
down 6% from $38,433,000 reported in the same quarter in fiscal 2000. Sales of
$109,764,000 for the nine months ended June 30, 2001 decreased 12% from the
prior year period. The decrease in net sales for the third quarter and nine
months ended June 30, 2001 was due to lower revenue generated by standard
flexible circuit product lines associated with the ADFlex Solutions acquisition
in late 1999. Revenue generated by the acquired ADFlex Solutions operation
declined throughout fiscal 2000 as a result of quality, cost and customer
service issues existing at the time of purchase. In addition, revenue from the
acquired consumer and telecommunication product lines was significantly impacted
by the current economic downturn during the second and third quarters of fiscal
2001. The quality, cost and customer service issues have been addressed and
revenue from the acquired product lines has stabilized. Revenue from the core
high-end flexible circuits continues to increase. Revenue is expected to show
modest sequential increases for the remainder of the year.
Revenue from the disk drive industry generated 70% of the Company's revenue for
the quarter. In addition, 11% of the revenue was generated by flexible circuits
for network system applications, 10% from consumer applications and 9% from
applications for other industries. The acquisition of ADFlex has reduced the
Company's dependence on the disk drive industry significantly from its
historical levels of 85-90% of revenue. Although revenue growth for the next
quarter will be limited as a result of the current economic conditions, the last
half of calendar 2001 should benefit from continued growth in demand for high
technology flexible circuit products including the Company's Flex Suspension
Assembly (FSA).
GROSS MARGINS
The Company's gross profit as a percent of sales for the quarter decreased to 8%
from the 18% reported for the fiscal 2000 third quarter. The gross profit as a
percent of sales for the first nine months decreased to 11%, from the 13%
reported for the same period last year. The decrease for the quarter and nine
month period was primarily due to duplicate costs related to the transfer of
manufacturing operations from Chandler Arizona to the Company's Minnesota
facilities and the reduced fixed cost leverage resulting from lower revenue
level of the standard flexible circuits.
The Company anticipates that gross margins in the last half of calendar 2001
will improve as a result of the cost reductions and improved efficiencies
related to closing the Chandler manufacturing facility and other cost reduction
initiatives.
OPERATING EXPENSES
Operating expenses, which includes engineering and selling, general and
administrative expenses, were 17.3% of sales for the current quarter, as
compared to 15.3% in the prior year's third quarter. Operating expenses for the
first nine months of fiscal 2001 were 16.9%, up from 14.3% from the prior year
first nine months. The increase in operating expenses as a percent of sales for
the current year is primarily due to decreased revenue generated by the standard
flexible circuit product lines. Total operating expenditures increased slightly
for the same periods last year
-8-
primarily due to hiring and relocation costs related to the Chandler to
Minnesota move and increased research and development spending related to the
development of a materials manufacturing process. Operating expenses for the
fiscal 2001 fourth quarter are expected to decrease slightly from the third
quarter levels as the Chandler to Minnesota move is completed.
RESTRUCTURING CHARGES
Asset impairment and restructuring charges of $20,373,000 were recorded during
the second quarter of fiscal 2001 related to the restructuring of the Company's
manufacturing operations. The restructuring is primarily related to closing the
Company's manufacturing facility in Chandler, Arizona. The majority of this
charge included the accrual of employee severance and facility abandonment
costs, the asset impairment of property, equipment and goodwill and the
write-off of inventory related to discontinued product lines. The restructuring
is expected to significantly reduce operating costs by the end of the fiscal
year as a result of consolidating facilities and the higher level of efficiency
of the Minnesota operations.
Asset impairment and restructuring charges of $13,785,000 were recorded during
the first quarter of fiscal 2000 related to the restructuring of the Company's
manufacturing operations. During the third quarter ending June 30, 2000, the
Company recorded a change in estimate of $183,000 that reduced the initial
charge of $13,785,000. The restructuring was primarily related to moving
operations from the Company's Agua Prieta, Mexico facility to its facility in
Lamphun, Thailand. The majority of this charge included employee severance,
asset impairment of property and equipment and facility abandonment costs.
OPERATING PROFIT (LOSS)
The consolidated operating loss of $(3,200,000) in the current quarter compares
to the operating profit of $1,062,000 for the prior year third quarter.
Consolidated operating loss for the first nine months was $(26,719,000) versus
$(15,311,000) for the same period last year. The decrease for the quarter was
primarily driven by the lower gross margin resulting from the lower revenue
level and duplicate costs related to the Chandler to Minnesota move. The
nine-month decrease is primarily due to the restructuring charge recorded during
the current year second quarter.
NET INCOME (LOSS)
Consolidated net loss for the fiscal 2001 third quarter was $(2,891,000) as
compared to net income of $393,000 for the prior year. Basic and diluted net
loss per share were ($0.19) as compared to net income per share of $0.03 for the
prior year third quarter. Consolidated net loss for the first nine months of
fiscal 2001 was $(26,784,000) as compared to $(11,933,000) for the prior year.
Basic and diluted net loss per share were ($1.79) as compared to ($0.80) for the
same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased to $2.2 million at June 30, 2001 from
$1.7 million at September 30, 2000.
Accounts receivable at June 30, 2001 decreased by $0.7 million from September
30, 2000 due to a lower level of revenue. Inventories at June 30, 2001 decreased
by $3.8 million from September 30, 2000 due to the lower level of sales activity
and the write off of inventory related to discontinued product lines resulting
from the manufacturing restructuring.
Accounts payable at June 30, 2001 decreased by $9.4 million primarily due the
reduced level of capital expenditures during the quarter and the lower level of
purchasing required to support sales activity.
Working capital totaled $(0.1) million and $6.3 million at June 30, 2001 and
September 30, 2000.
Since September 30, 2000, the Company has invested $10.2 million in capital
expenditures primarily for FSA attachment equipment and to complete the move of
Chandler operations to Minnesota. Capital expenditures of approximately $1
million are expected during the remainder of fiscal 2001. These expenditures
will increase the Company's FSA production capacities and complete the move of
the Chandler operation to Minnesota.
-9-
On April 23, 2001 the Company entered into a 1.2 billion Thailand baht credit
facility agreement with Bank of Ayudhya Public Company Limited and The
Industrial Finance Corporation of Thailand. The facility is comprised of a 590
million baht long-term facility, a 530 million baht packing credit facility, a
70 million baht short term working capital facility and a 10 million baht
overdraft facility. The new Thailand based facility is secured by certain
receivables, inventory and assets held by the Company in Thailand. The Company
has not utilized the Thailand based receivables from its largest customer as
security for the existing credit facilities. Therefore, the Company will
continue to pursue additional financing opportunities in Thailand to be secured
by these receivables. Management believes that the new Thailand credit facility,
the existing US credit facility, potential new Thailand based borrowings, cash,
investments and cash generated from operations will provide an adequate source
of funds to support projected working capital needs and capital expenditures.
The Company is in compliance with the debt covenants of its U.S. credit facility
as amended by the Fourth Amendment to Credit Agreement attached to this document
as an exhibit. The Company has reduced its cost structure during the past year
as evidenced by the restructuring of its manufacturing operation including the
closing of its Chandler manufacturing facility. The Company will continue to
pursue other means of cost reduction to improve its long-term cash flow.
FORWARD LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, elsewhere in the Company's Form 10-Q and in
future filings by the Company with the SEC, except for the historical
information contained herein and therein, are "forward-looking statements" that
involve risks and uncertainties. These risks and uncertainties include the
timely availability and acceptance of new products including the FSA and
semiconductor packaging substrates, the impact of competitive products and
pricing, the development and implementation of a materials manufacturing
process, the transfer of Chandler AZ operations to Minnesota, interruptions in
the operations of the Company's single source suppliers, changes in
manufacturing efficiencies and other risks detailed from time to time in the
Company's reports filed with the Securities and Exchange Commission. In
addition, a significant portion of the Company's revenue is generated from the
disk drive, consumer electronics and network system industries and the global
economic downturn has and a continued economic downturn will continue to have an
adverse impact on the Company's operations. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect subsequent
events or circumstances or the occurrence of unanticipated events.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's market risk during the
three-month period ended June 30, 2001.
PART II - OTHER INFORMATION
Responses to Items 1 through 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10(a) Fourth Amendment to Credit Agreement.
b) Reports on Form 8-K
None.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INNOVEX, INC.
Registrant
Date: August 14, 2001
By \s\ William P. Murnane
William P. Murnane
President and Chief Executive Officer
By \s\ Thomas Paulson
Thomas Paulson
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibits Page
10(a) Fourth Amendment to Credit Agreement 13-15
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