-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AyN798+2Asqm+Ui30i10p+7pNEnG7HzKRlUnIpccAyDOGpz+2Bi8cn+ebMRN5oNR tJJWpDRYepdyO1t0AZjuBw== 0000897101-96-001077.txt : 19961217 0000897101-96-001077.hdr.sgml : 19961217 ACCESSION NUMBER: 0000897101-96-001077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961216 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVEX INC CENTRAL INDEX KEY: 0000050601 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 411223933 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13143 FILM NUMBER: 96681005 BUSINESS ADDRESS: STREET 1: 1313 S FIFTH ST CITY: HOPKINS STATE: MN ZIP: 55343-9904 BUSINESS PHONE: 6129384155 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC ------------------------------------- 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, 1996 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-13143 ------------------------------------- INNOVEX, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1223933 (state or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1313 Fifth Street South, Hopkins, Minnesota 55343-9904 (Address of principal executive offices (Zip Code) Registrant's telephone number, including area code: (612) 938-4155 --------------------------------------- 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. (X) The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $306,873,000 at December 9, 1996 when the closing sale price of such stock, as reported in the NASDAQ National Market System, was $47.50. The number of shares outstanding of the Registrant's Common Stock, $.04 par value, as of December 9, 1996 was 7,146,777 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 34 Pages (including exhibits). The index to exhibits is set forth on page 25. INNOVEX, INC. 1996 FORM 10-K PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Innovex, Inc. (the "Company"), through its largest division during fiscal 1996, the Precision Products Division, develops and manufactures components, primarily lead wire assemblies, for the disk drive industry. A new division purchased May 16, 1996, Litchfield Precision Components, develops and manufactures flexible circuits and chemically etched parts for the medical, computer and communications industries. 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. On May 16, 1996, the Company purchased substantially all of the assets of Litchfield Precision Components, Inc., a designer and manufacturer of highly complex and intricate flexible circuits and chemically machined electrical components. This acquisition reduces the Company's reliance on the disk drive industry while providing an entry into the large and rapidly growing flexible circuit market. The acquisition also allows the Company to leverage its existing manufacturing expertise and customer base and provides new markets for the Company's existing technology. 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 The Company and its subsidiaries operate through four divisions, Precision Products, Litchfield Precision Components, InnoMedica and Iconovex. Each division has its own administrative, engineering, manufacturing and marketing organizations. Precision Products and Litchfield Precision Components are considered core business segments with financial detail related to their operations shown in the segment reporting footnote to the Company's financial statements. Operations of the remaining two divisions, InnoMedica and Iconovex are not considered core segments as they each comprise less than ten percent of the Company's net sales, operating profit and identifiable assets. Financial results for these divisions are included in the Corporate and Other segment in the financial statements. Topics covered throughout this document are discussed by divisions where helpful to the reader's understanding. (c) NARRATIVE DESCRIPTION OF BUSINESS PRECISION PRODUCTS DIVISION General The Precision Products Division produces a variety of small lead wire assemblies primarily for computer disk drives 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. Products The principal product of the Precision Products Division is a fine wire lead assembly. Lead assembly sales constituted over 80% of the consolidated revenues from continuing operations during the past three fiscal years. No other product constituted more than 10% of the Company's consolidated revenues. Lead wire 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 is 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 is also shipping increasing levels of lead wire assemblies for Magneto Resistive(MR) disk drive heads. These leads are similar to inductive thin film head leads except for the smaller size and the use of four wires instead of two. During fiscal 1996, the Company introduced a new version of lead wire assembly for MR disk drive heads called the wire alignment tab (WAT). The WAT is a lead wire assembly attached to a flexible circuit which reduces the assembly time required by disk drive manufacturers. LITCHFIELD PRECISION COMPONENTS General Litchfield Precision Components, Inc. is a designer and manufacturer of highly complex and intricate flexible circuits and chemically machined electrical components for the medical, computer and communications industries. The Division focuses on the high end of its markets utilizing its leading edge imaging technology. The products manufactured by the Division are made to individual customer orders and specifications. Products The Division operates in three primary product areas: Flexible circuitry - The Division is able to build highly precise flexible circuits with copper traces as small as .001 inches over long lengths on flexible base materials. The base materials can also be selectively removed to expose the circuitry from the front and back to facilitate new assembly techniques. These products include hard disk drive components and test circuits, integrated circuit testing probes, paging system components and ultrasound connections. Chemical machining - Using metals such as stainless steel, titanium, tungsten and copper, the Division can resolve down to .001 inch features using advanced imaging techniques. These products include high precision surface mount fuses, printer components and components for medical implantable devices. Film and optical components - Through the application of high resolution images to glass substrates, the Division can generate sub-micron features in chrome or other deposited metals on a variety of glass and film substrates. 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. 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. Products EchoSearch, the Division's most recently introduced product, is an intelligent desktop based search engine tool for browsers of the Internet World Wide Web which improves the speed and accuracy of Web searches. EchoSearch enables users to simultaneously query multiple search engines and index and summarize documents that are gathered in response to the query. Another product, AnchorPage, is a hypertext indexing and abstracting program for use on the Internet World Wide Web. This product, 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 1996, 1995 and 1994, the Company spent approximately $813,000, $699,000 and $462,000, respectively, on research and development. The engineering effort is being focused on further automating the lead wire assembly manufacturing processes including the new wire alignment tab process, increasing the long run flexible circuit manufacturing capabilities, 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 Precision Products 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 Division's reputation for high standards of quality and innovative manufacturing processes, has established Innovex Precision Products as the predominant supplier of lead wire assemblies for the industry. A significant percentage of the products offered by the Division are utilized as components of thin film or magneto resistive (MR) disk drive heads. While thin film heads continue to be a mainstay of magnetic head technology, the magneto resistive segment of the disk drive market has grown rapidly. The growth of the magneto resistive segment of the market is expected to increase dramatically during 1997 while the thin film inductive segment of the market is also expected to continue to grow during 1997. The Division has established sales with virtually every manufacturer of disk drive heads in the world. The Division has positioned itself for the emergence of MR technology and is supplying a large portion of the lead wire assemblies for MR disk drive heads. The Division continues to work closely with virtually all of the world wide disk drive head manufacturers on new generations of disk drive products. The Division's principal customers for lead wire 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. Litchfield Precision Components markets its products to technology companies in the medical, computer and communications industries through the use of an internal sales staff. Because of the Division's focus on leading edge imaging technology, its customers include a number of the leading technology companies in the world including General Electric, Hewlett Packard, Littelfuse, Medtronic, Seagate and Siemens. BACKLOG The backlog for the Company's continuing operations was $24,098,000, $10,950,000 and $5,302,000 at September 30, 1996, 1995 and 1994, respectively. The Company's backlog fluctuates based on the timing of the receipt of orders from customers. 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, 1996 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. There are over 200 flexible circuit manufacturers world wide competing for a share of the flexible circuit market. Most of these companies do not focus on the highly complex and intricate portions of the medical, computer and communications segments of the market which are served by Litchfield Precision Components. Some of the competitors remaining in this high end portion of the business include IBM and 3M. EMPLOYEES At September 30, 1996, the Company had 834 employees as compared to 487 at September 30, 1995. Precision Products had 524 versus 408 one year ago, InnoMedica had 38 employees versus 44 one year ago, Iconovex had 22 versus 24 one year ago, Corporate had 10 employees versus 8 one year ago and the newly acquired Litchfield Precision Components had 240 employees at September 30, 1996. 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 and has applied for several patents on its Iconovex software products. The Company files patent applications on its products as deemed necessary. MANUFACTURING AND SOURCES OF SUPPLY Although each of the Precision Product 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, is also utilized to manufacture the newer 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. Although the Litchfield Precision Components three main product types have dissimilar final forms, they have a common manufacturing process based on the Division's leading edge imaging technology. Images are applied to either glass, metal or flexible base substrate materials with unwanted material etched away using chemicals to produce the actual products. 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, Litchfield and Bloomington, Minnesota. See "Properties." The Company also utilizes subcontractors in Thailand for fine wire assembly and in October 1996 began using a subcontractor in China. 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 $599,000 at September 30, 1996. 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 $545,000 at September 30, 1996. The Company acquired an 88,000 square foot building in Litchfield , Minnesota as part of the Litchfield Precision Components acquisition in May 1996. The building is used for the operation of the Litchfield Precision Components Division. Effective December 1993, the Company leased a 10,500 square foot office and manufacturing facility in Bloomington, Minnesota 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 60 Chairman, Chief Executive Officer and Director of the Company Allan J. Chan 46 Vice President and General Manager of Precision Products Division Mary E. Curtin 49 Vice President, General Counsel, Secretary and Director of the Company Douglas W. Keller 38 Vice President of Finance William P. Murnane 34 Vice President 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. 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. Ms. Curtin was named Vice President, General Counsel and Secretary in January 1996 and has been a director of the Company since December 1995. Prior to joining the Company, Ms. Curtin practiced law for 23 years as an attorney with the United States Department of Justice, the Board of Governors of the Federal Reserve System, as a partner at Lindquist & Vennum, and for the last eight years as a partner at Curtin and Barnes. Mr. Keller joined the Company in January 1990 as Corporate Controller. In May 1992, Mr. Keller was made an officer of the corporation and in October 1996 he was promoted to Vice President of Finance. 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. Mr. Murnane joined the Company in July 1995 as Vice President. 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. Haley and Ms. Curtin are spouses and Ms. Curtin and Mr. Murnane are first cousins. 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 October 24, 1996, the Company had 474 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 $.045 have been paid for the most recent four quarters. The Company's intention is to continue this policy. Price Range of Common Stock 1996 1995 Fiscal Years High Low High Low - -------------------------------------------------------------------------------- First Quarter $22-5/8 $15-1/4 $11-1/8 $6 Second Quarter 16-5/8 11-3/4 12-7/8 9-5/8 Third Quarter 24-1/4 13-1/8 19-3/8 11-1/2 Fourth Quarter 19-3/8 13-1/2 24-3/4 13-1/2 On November 23, 1996, the Company declared a two-for-one stock split, payable in the form of a 100 percent stock dividend to shareholders of record on December 16, 1996 payable on December 23, 1996. 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, 1996. 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.
Years Ended September 30, 1996 1995 1994 1993 1992 - ------------------------------------------ ---------------- --------------- -------------- -------------- -------------- Net sales $69,570,222 $50,193,952 $30,564,009 $26,596,997 $17,717,556 Income from continuing operations 13,121,006 10,029,387 3,515,283 3,657,066 1,108,187 Net income 13,121,006 10,029,387 3,515,283 3,668,114 112,963 Income per share from continuing operations: Primary $1.81 $1.40 $0.52 $0.55 $0.17 Assuming full dilution $1.81 $1.39 $0.52 $0.55 $0.17 Net income per share: Primary $1.81 $1.40 $0.52 $0.55 $0.02 Assuming full dilution $1.81 $1.39 $0.52 $0.55 $0.02 Cash dividends per share $0.175 $0.157 $0.143 $0.10 - Total assets 58,244,346 41,283,483 29,934,424 26,585,276 22,602,307 Long-term debt, less current maturities 1,063,253 1,172,798 1,532,140 1,882,817 890,646 Stockholders' equity 48,400,116 36,029,173 24,716,307 22,247,931 18,722,208
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS SUMMARY The Company reported net income of $13,121,000, or $1.81 primary and fully diluted net income per share for the fiscal year ended September 30, 1996. This compares to net income of $10,029,000, primary net income per share of $1.40 and fully diluted net income per share of $1.39 in fiscal 1995 and $3,515,000, or $.52 primary and fully diluted net income per share in 1994. Fiscal 1996 results benefited from an increase in net sales due to strong demand for disk drive lead wire assemblies as compared to both fiscal 1995 and 1994 and from better than expected operating results related to Litchfield Precision Components (LPC) which was acquired in May 1996. The fiscal 1996 increased sales volume as compared to 1995 more than offset the reduction of the gross margin percent for the same period. The fiscal 1996 gross margins were effected by volume related selling price reductions and initial costs related to the production ramp up of the new Wire Alignment Tab (WAT) product within the Precision Products Division. The gross margin percent was also effected by the inclusion of sales from the newly acquired Litchfield Precision Components, which currently generate a lower gross margin than the Company's overall gross margin percent. The increase in sales for fiscal 1996 also more than offset increases in operating expenses for the year as operating expenses were 12% of sales in fiscal 1996 as compared to 14% and 17% of sales in fiscal years 1995 and 1994, respectively. Revenue generated by the Iconovex and InnoMedica Divisions continue to make up less than 5% of the Company's total revenue. Although these two divisions continued to operate at a loss during fiscal 1996, alternatives are being reviewed to improve their performance during fiscal 1997 with the intent of maximizing their long term contribution to the Company. RESULTS OF OPERATIONS/NET SALES. NET SALES. for fiscal 1996 were $69,570,000, an increase of 39% from $50,194,000 in 1995 and up substantially from sales of $30,564,000 in 1994. Sales growth in 1996 was generated primarily by increased shipments of lead wire assemblies for the disk drive industry as has been the trend for the past six years. The rapidly increasing shipments of lead wire assemblies for magneto resistive (MR) disk drives, which include the new wire alignment tab (WAT) product introduced late in the third quarter, also contributed to the increased sales revenue. Disk drive industry projections indicate that lead wire assembly demand will remain strong in fiscal 1997 and the Company expects to post record fiscal 1997 sales based on these projections. The Company should benefit from its ability to manufacture the smaller and more technically precise four wire lead assemblies required by the new generation MR disk drives. MR disk drives are the fastest growing segment of the disk drive industry while demand for the previous generation inductive disk drives remains strong. A significant portion of the sales increase in fiscal 1996 is due to sales of high end flexible circuits and chemically etched parts generated by the newly acquired Litchfield Precision Components. These products were sold primarily to the medical, computer and communication industries. Fiscal 1997 should benefit from a full year of Litchfield Precision Component sales. Sales from Iconovex and InnoMedica made up less than 5% of the Company's total revenue in fiscal 1996. These sales are expected to grow in fiscal 1997 as their products and markets continue to develop. Export sales accounted for 74% of the Company's revenue in fiscal 1996 as compared to 79% for 1995 and 78% for 1994, reflecting the high level of lead wire assembly shipments to disk drive manufacturers in Japan and other pacific rim countries. A significant portion of the remaining domestic sales are subsequently shipped internationally by the Company's customers. GROSS MARGIN. The Company's gross profit margin decreased to 38.8% of sales in fiscal 1996 from 43.0% in 1995 but was up from 33.0% in 1994. The fiscal 1996 gross margin dollars increased 25% over 1995 and 167% over 1994 due to the increase in sales volume which more than offset the reduction of the gross margin percent for the same period. The Precision Products Division fiscal 1996 gross margin percent was effected by volume related selling price reductions and initial costs related to the production ramp up of the new Wire Alignment Tab (WAT) product. The fiscal 1996 and 1995 gross margin percentages benefited from volume related efficiencies 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. 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. The Company also intends to begin using a subcontractor in China to expand its practice of outsourcing labor intensive processes. While Litchfield Precision Components' sales made a significant contribution to the Company's gross margin, the Division's gross margin percent caused a slight reduction in the Company's overall gross margin percent. In addition, the 2% reduction of the fiscal 1996 gross margin percent generated by the Iconovex and InnoMedica Divisions improved slightly from the 3% reduction in fiscal 1995. OPERATING EXPENSES. Selling, general and administrative expenses decreased to 8.7% of net sales in 1996 as compared to 9.4% in 1995 and 12.1% in 1994. The decrease in 1996 is primarily due to the increased Precision Product Division lead wire assembly sales which more than offset the increase in operating expenses from other divisions. Total selling, general and administrative expenses for fiscal 1996 increased over 1995 primarily due to the addition of the newly acquired Litchfield Precision Components and to an increase in corporate level expenses. The increase in fiscal 1995 expenses over 1994, related to costs of growing InnoMedica and Iconovex, the two divisions which were started in fiscal 1994. Engineering expense decreased to 3.6% of net sales in fiscal 1996 from 4.9% in 1995 and 4.7% in 1994. The decrease in 1996 is primarily due to the increased level of lead wire assembly sales. The actual spending was virtually unchanged in 1996 from 1995. Similar to 1995, the spending at Precision Products continued to relate to efforts to develop new products, further automate the manufacturing process and develop material alternatives. Iconovex and InnoMedica continued to concentrate on new product development. The increase in engineering spending in fiscal 1995 over 1994 corresponded to the increase in sales over 1994. Increases in fiscal 1997 engineering spending are expected primarily at Precision Products to further automate their manufacturing processes including the new Wire Alignment Tab process and at Litchfield Precision Components to increase their long run capabilities. Interest income increased to $936,000 in fiscal 1996 from $789,000 and $453,000 in 1995 and 1994, respectively. These increases in the last two years correspond to the increases in average cash and short-term investments. Interest expense decreased to $113,000 in 1996, from $125,000 in 1995 and from $139,000 in 1994. Other expense increased in 1996 over 1995 due to the $500,000 write off of intangible assets at InnoMedica. These intangible assets related to purchased proprietary technology which is not expected to be supported by revenue from the associated products. INCOME BEFORE PROVISION FOR INCOME TAXES. Income before provision for income taxes was $18,742,000 for fiscal 1996 as compared to $14,818,000 for 1995 and $5,157,000 for 1994. As a percent of net sales, income before provision for income taxes was 26.9% for 1996 as compared to 29.5% and 16.9% for 1995 and 1994, respectively. The dollar increase in 1996 over both 1995 and 1994 was due to the large increase in Precision Product lead wire sales and the inclusion of Litchfield Precision Components' operating results. The reduction in income before provision for income taxes as a percent of sales in 1996 is the result of the lower gross margin percent on the increased level of sales. Operating income from all divisions should improve in fiscal 1997. Precision Products is expected to have increased revenues due to projected increases in disk drive industry demand particularly in the rapidly growing magneto resistive segment of the market. Litchfield Precision Components should benefit from an increase in sales and improvements in their cost structure. Iconovex and InnoMedica should show improvements as their products become more established. PROVISION FOR INCOME TAXES The Company's effective tax rate of 30.0% in fiscal 1996 decreased from 32.3% in 1995 and from 31.8% in 1994. The decrease in tax rates in 1996 from 1995 is due in part to an increase in the Company's Foreign Sales Corporation tax benefit as a result of the increased level of foreign sales. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments decreased by $739,000 to $21,776,000 at September 30, 1996. Net cash provided by operating activities increased in 1996 to $13,108,000 from $12,425,000 in 1995 and $6,027,000 in 1994. The decrease in the Company's September 30, 1996 cash and short-term investments was primarily due to the acquisition of Litchfield Precision Components and capital equipment for the Precision Products Division. The increase in fiscal 1996 cash provided by operating activities over 1995 and 1994 was primarily due to improved operating results related to the increase in demand for lead wire assemblies. This increase was reduced by the large increase in operating assets required to support the higher level of sales. Accounts receivable at September 30, 1996 increased by $6,247,000 from the prior year due to the increased level of sales in 1996 as compared to 1995 and to the acquisition of Litchfield Precision Components. Working capital rose by $5,180,000 to $33,542,000 at September 30, 1996. The Company's current ratio was 4.95 to 1 at fiscal 1996 year-end, compared to 8.33 to 1 at the end of fiscal 1995. Excluding assets from the Litchfield Precision Components acquisition, net property, plant and equipment increased by $891,000 to $12,732,000 at September 30,1996 as fixed asset purchases were primarily offset by depreciation expenses for the year. Excluding intangible assets recorded as a result of the Litchfield Precision Components acquisition, intangible assets decreased $994,000 to $2,309,000 at September 30, 1996. The decrease was primarily due to the amortization and write off of InnoMedica intangibles. Long-term debt, net of current maturities, decreased by $146,000 to $1,063,000 at September 30, 1996. The ratio of long-term debt to stockholders' equity was .02 at September 30, 1996, compared to .03 at the end of fiscal 1995. Management believes that internally generated funds will provide adequate sources of funds to support projected working capital, capital expenditures and dividends in fiscal 1997. FORWORD LOOKING STATEMENTS Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, in the letter to shareholders, elsewhere in the Annual Report and in the Company's Form 10-K and in future filings by the Company with the SEC, except for the historical information contained herein and therein, are "forword-looking statements" that involve risks and uncertainties, including the timely availability and acceptance of new products, the impact of competitive products and pricing and a general downturn in the Company's principal market. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect subsequent events or circumstances or the occurrence of unanticipated events. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL DATA Page Report of Independent Certified Public Accountants 12 Consolidated Balance Sheets at September 30, 1996 and 1995 13 Consolidated Statements of Operations for each of the three years in the period ended September 30, 1996 14 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30, 1996 15 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1996 16 Notes to Consolidated Financial Statements 17-22 Quarterly Financial Data (unaudited) 23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Innovex, Inc. We have audited the accompanying consolidated balance sheets of Innovex, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1996. 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 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. \s\ Grant Thornton LLP Minneapolis, Minnesota October 31, 1996 CONSOLIDATED BALANCE SHEETS INNOVEX, INC. AND SUBSIDIARIES September 30, Assets 1996 1995 - -------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 5,635,534 $ 7,384,298 Short-term investments 16,140,000 15,130,000 Accounts receivable, less allowance for doubtful accounts of $317,000 (1995 - $265,000) 12,034,349 5,787,282 Inventories 5,570,582 2,191,345 Other 2,648,112 1,738,438 ----------- ----------- Total current assets 42,028,577 32,231,363 Property, plant and equipment - at cost: Land and land improvements 556,851 456,851 Buildings and leasehold improvements 6,556,840 3,144,669 Machinery and equipment 12,614,217 8,484,536 Office furniture and fixtures 1,746,811 1,338,727 ----------- ----------- 21,474,719 13,424,783 Less accumulated depreciation and amortization 8,742,739 6,356,907 ----------- ----------- Net property, plant and equipment 12,731,980 7,067,876 Intangible assets, net of accumulated amortization of $2,317,000 (1995 - $1,008,000) 2,308,737 1,979,244 Other assets 1,175,052 5,000 ----------- ----------- $58,244,346 $41,283,483 =========== =========== Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt $ 96,000 $ 358,000 Accounts payable 3,581,628 1,486,154 Accrued compensation 2,158,834 1,570,983 Income taxes payable 1,809,038 60,360 Other accrued liabilities 841,150 393,870 ----------- ----------- Total current liabilities 8,486,650 3,869,367 Long-term debt, less current maturities 1,063,253 1,172,798 Other long-term liabilities 294,327 212,145 Stockholders' equity: Common stock, $.04 par value; 15,000,000 shares authorized, 7,110,627 shares issued and outstanding (1995 - 7,062,127) 284,425 282,485 Capital in excess of par value 9,418,376 8,930,301 Retained earnings 38,697,315 26,816,387 ----------- ----------- Total stockholders' equity 48,400,116 36,029,173 ----------- ----------- $58,244,346 $41,283,483 =========== =========== The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS INNOVEX, INC. AND SUBSIDIARIES For the years ended September 30, 1996 1995 1994 - --------------------------------------------------------------------------------------------------- Net Sales $ 69,570,222 $ 50,193,952 $ 30,564,009 Costs and Expenses: Cost of sales 42,592,404 28,630,985 20,472,507 Selling, general and administrative 6,066,278 4,726,920 3,695,091 Engineering 2,508,277 2,464,242 1,428,442 Interest expense 112,531 124,673 138,874 Interest income (935,809) (789,392) (453,152) Other expense 484,535 218,137 124,964 ------------ ------------ ------------ 50,828,216 35,375,565 25,406,726 ------------ ------------ ------------ Income Before Provision For Income Taxes 18,742,006 14,818,387 5,157,283 Provision For Income Taxes (5,621,000) (4,789,000) (1,642,000) ============ ============ ============ Net Income $ 13,121,006 $ 10,029,387 $ 3,515,283 ============ ============ ============ Net Income Per Share: Primary $ 1.81 $ 1.40 $ 0.52 ============ ============ ============ Assuming full dilution $ 1.81 $ 1.39 $ 0.52 ============ ============ ============ Common and Common Equivalent Shares Outstanding: Primary 7,237,890 7,160,753 6,779,394 Assuming full dilution 7,263,268 7,227,684 6,779,394 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, 1996, 1995, and 1994 Stock Par Value Earnings Equity - ------------------------------------------------------------------------------------------------------------------- Balance at October 1, 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 Shares issued through exercise of stock options 1,940 283,075 285,015 Tax benefits derived from stock option plans 205,000 205,000 Dividends paid ($0.175 per share) (1,240,078) (1,240,078) Net income 13,121,006 13,121,006 ------------ ------------ ------------ ------------ Balance at September 30, 1996 $ 284,425 $ 9,418,376 $ 38,697,315 $ 48,400,116 ============ ============ ============ ============ 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, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,121,006 $ 10,029,387 $ 3,515,283 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,636,327 3,077,366 1,962,057 Deferred income taxes (557,816) (190,050) (67,447) Other non-cash items 676,784 (188,547) 248,834 Changes in operating assets and liabilities, net of business acquisition: Accounts receivable (4,595,197) (1,065,191) (1,271,206) Inventories (2,030,030) (409,189) 614,604 Other current assets (617,547) (527,940) 77,302 Accounts payable 1,089,475 466,258 483,048 Other current liabilities 431,229 203,937 467,348 Income taxes payable 1,953,678 1,029,173 (3,255) ------------ ------------ ------------ Net cash provided by operating activities 13,107,909 12,425,204 6,026,568 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,226,053) (2,964,212) (1,838,469) Business or product line acquisitions (7,389,990) (310,698) (1,985,703) Proceeds from sale of assets 16,183 2,875 2,850,850 Purchase of held-to-maturity securities (15,360,000) (16,700,000) (6,513,661) Purchase of available-for-sale securities -- -- (2,783,125) Maturities of held-to-maturity securities 14,350,000 7,820,000 4,755,000 Sale of available-for-sale securities -- 5,735,705 -- Other assets (884,000) -- -- ------------ ------------ ------------ Net cash used in investing activities (13,493,860) (6,416,330) (5,515,108) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (407,750) (351,642) (193,577) Proceeds from exercise of stock options 285,015 1,090,811 81,034 Dividends and stock split fractional shares paid (1,240,078) (1,083,332) (971,941) ------------ ------------ ------------ Net cash used in financing activities (1,362,813) (344,163) (1,084,484) ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents (1,748,764) 5,664,711 (573,024) Cash and cash equivalents at beginning of year 7,384,298 1,719,587 2,292,611 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 5,635,534 $ 7,384,298 $ 1,719,587 ============ ============ ============ SUPPLEMENTAL DISCLOSURES: Cash paid for interest was $125,000, $118,000 and $139,000 in 1996, 1995 and 1994, respectively. Income tax payments were $4,225,000, $3,947,000 and $1,719,000 in 1996, 1995 and 1994, respectively. Tax benefits derived from stock option plans totaling $205,000, $1,076,000 and $44,000 in 1996, 1995 and 1994, respectively, were recorded as a reduction of current income taxes payable and an increase in capital in excess of par value. 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. Liabilities of $1,814,000 were assumed as part of the May 1996 acquisition of Litchfield Precision Components. The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INNOVEX, INC. AND SUBSIDIARIES September 30, 1996, 1995 and 1994 NOTE A. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company, through its Innovex Precision Products subsidiary, manufactures lead wire assemblies for disk drive heads. Its Litchfield Precision Components subsidiary manufactures flex circuits and chemically etched components for the medical, computer and communications industries. 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. The Company has manufacturing facilities in Bloomington, Hopkins, Litchfield and Montevideo, Minnesota. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: 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. 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. Cash equivalents totaled $4,124,000 and $2,984,000 at September 30, 1996 and 1995 and are recorded at cost which approximates market value. Debt and equity securities are classified as available-for-sale securities and held-to-maturity securities. The Company uses the specific identification method in determining realized gains and losses. 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. INVENTORIES - Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method. 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 range 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. 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 whether an 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 $1,005,000 and $1,089,000 as of September 30, 1996 and 1995, respectively. Capitalized software costs of $398,000 and $314,000 were amortized during the fiscal years ending September 30, 1996 and 1995, respectively. INCOME TAXES - 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. NET INCOME PER SHARE - Net 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. RECLASSIFICATIONS - Certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation. REVENUE RECOGNITION - Sales are recorded at the time of shipment and provision for anticipated returns, net of exchanges, is recorded based on historical experience. USE OF ESTIMATES - Preparation of the Company's 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. RECENTLY ISSUED ACCOUNTING STANDARDS - The Company is required to adopt two new accounting standards as of October 1, 1996. The first standard establishes guidance on when and how to measure impairment of long-lived assets and how to value long-lived assets to be disposed of. The second establishes accounting and reporting for stock-based compensation plans. The Company intends to continue to use the intrinsic value method, as permitted by the standard, while adding additional disclosures concerning its stock-based compensation plans. Management believes the adoption of these new standards will not have a material effect on the Company's financial statements. NOTE B. - BUSINESS AND PRODUCT LINE ACQUISITIONS On May 16, 1996, the Company purchased substantially all of the assets of Litchfield Precision Components, Inc. The purchase price of approximately $9,178,000 was in the form of $3,500,000 in cash and the assumption of specified liabilities amounting to $5,678,000. Approximately $4,000,000 of the assumed debt was paid off at the time of close. The acquisition has been accounted for as a purchase and, accordingly, the results of operations since acquisition are included in the accompanying financial statements. The purchase price and fair value of the assets acquired were as follows (in thousands of dollars): Current assets $3,081 Property, plant and equipment 4,773 Intangible assets 1,324 ------ $9,178 The following unaudited pro forma results of operations for the years ended September 30, 1996 and 1995, assume the acquisition occurred as of October 1 of each year. The pro forma information includes adjustments for depreciation based on the fair market value of the property, plant and equipment acquired, amortization of intangibles arising from the transaction, the elimination of interest expense on debt paid off at the transaction close, the reduction of interest income on cash used to complete the acquisition and related changes in the provision for income tax expense (in thousands of dollars except per share amounts): 1996 1995 - ------------------------------------------------------------------------- Net sales $77,617 $61,706 Net income 13,190 10,292 Net income per share: Primary 1.82 1.44 Assuming full dilution 1.82 1.42 The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated on the assumed dates, nor are they necessarily indicative of future operating results. During 1994, the Company purchased a software product line for $835,600 which prepares indexes and abstracts of documents stored in computer hard drives and CD/ROM systems. 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. Guaranteed minimum royalty payments of $715,000 are payable for each of the calendar years ended December 31, 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. NOTE C. -SHORT TERM INVESTMENTS The amortized cost, unrealized gains and losses and fair values of the Company's short term investments at September 30, 1996 and 1995 are summarized as follows (thousands of dollars): Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- September 30, 1996 Held-to-maturity securities: Municipal obligation bonds $16,140 $ 63 -- $16,203 ======= ======= ======= ======= September 30, 1995 Held-to-maturity securities: Municipal obligation bonds $15,130 -- $ 11 $15,119 ======= ======= ======= ======= As of September 30, 1996 and 1995, substantially all of the short term investments 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 while the remaining $60,000 was recorded as a loss in fiscal 1994. NOTE D. - INVENTORIES Inventories are comprised of the following at September 30: 1996 1995 Raw materials and purchased parts $2,607,488 $ 938,741 Work-in-process and finished goods 2,963,094 1,252,604 ---------- ---------- $5,570,582 $2,191,345 ========== ========== NOTE E. - LONG-TERM DEBT Long-term debt consists of the following at September 30: 1996 1995 - ------------------------------------------------------------------------- Mortgage obligation (a) $ 153,413 $ 172,195 Installment promissory notes (b) 146,949 162,872 Industrial development revenue note (c) 244,701 265,945 Mortgage obligation (d) 598,534 629,984 Other 15,656 299,802 ---------- ---------- 1,159,253 1,530,798 Less current maturities 96,000 358,000 ---------- ---------- $1,063,253 $1,172,798 Long-term debt obligations (a) through (d) 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 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. b. The notes, due October 2003 and May 2004, are payable over fifteen years in monthly installments, with interest at a fixed rate of 5%. c. 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. d. 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. Aggregate maturities of long-term debt for the next five years are as follows: 1997 - $96,000; 1998 - $118,000; 1999 - $108,300; 2000 - $117,200; 2001 - $125,600; thereafter - $594,153. The recorded value of long-term debt approximates fair market value. 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 has 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 providing for the issuance of 300,000 shares of common stock. On January 23, 1996, the shareholders approved an amendment to the plan providing for the issuance of an additional 300,000 shares of common stock. Options granted under this plan may be qualified incentive or non-qualified stock options. On April 18, 1996, the Board of Directors approved the 1996 Non-qualified Stock Option Plan which provides for the issuance of 135,000 shares of common stock. Options under this plan were issued to key employees of Litchfield Precision Components to ensure their continued employment after the acquisition of Litchfield Precision Components was completed. 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 1996, 1995 or 1994 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, 1993 347,805 359,562 Granted $0.667 - $6.917 176,139 (176,139) Exercised 2.08 - 4.5 (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 Amendment of 1994 Stock Option Plan -- 300,000 Approval of 1996 Non-qualified Stock Option Plan -- 135,000 Granted 13.625 - 17.625 174,000 (174,000) Forfeited 4.5 - 17.4375 (38,200) 35,800 Exercised 2.5 - 17.4375 (48,500) -- ---------------- -------------- --------- Balance at September 30, 1996 533,755 432,402 =========================== Options exercisable at September 30, 1996 $0.667 -$17.4375 123,655 ==============
NOTE G. - INCOME TAXES The effective income tax rates differed from the federal statutory income tax rate as follows for the years ended September 30, 1996 1995 1994 - -------------------------------------------------------------------------- Federal statutory rate 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit 2.4 2.3 2.4 FSC benefit (6.0) (5.6) (6.8) Other (0.4) 1.6 2.2 ----- ----- ----- 30.0% 32.3% 31.8% ===== ===== ===== Components of the provision for income taxes are as follows for the years ended September 30 (thousands of dollars): 1996 1995 1994 - --------------------------------------------------------------------------- Current: Federal $ 5,509 $ 4,451 $ 1,523 State 670 528 186 ------- ------- -------- 6,179 4,979 1,709 Deferred (558) (190) (67) ------- ------- -------- $ 5,621 $ 4,789 $ 1,642 ======= ======= ======== Deferred tax assets (liabilities) are comprised of the following at September 30 (thousands of dollars): 1996 1995 - --------------------------------------------------------------------------- Current deferred tax assets: Inventories $ 272 $ 153 Receivables 129 126 Compensation and benefits 164 100 ------- -------- $ 565 $ 379 ======= ======== Long term deferred tax assets (liabilities) - net: Accelerated depreciation $ (136) $ (172) Intangibles 315 40 Compensation 107 46 ------- -------- $ 286 $ (86) ======= ======== No valuation allowance was considered necessary for deferred tax assets at September 30, 1996 or 1995. NOTE H. - RETIREMENT AND PROFIT-SHARING PLANS The Company sponsors a 401K retirement plan for all of its employees meeting minimum eligibility requirements. The plan provides Company matching contributions of 50% of the first 6% of employee contributions to the plan. Company contributions were approximately $286,000, $198,000 and $167,000 for the years ended September 30, 1996, 1995 and 1994, respectively. NOTE I. - RESEARCH AND DEVELOPMENT COSTS The Company incurred research and development costs of $813,000, $699,000 and $462,000 for the years ended September 30, 1996, 1995 and 1994, respectively. NOTE J. - BUSINESS SEGMENT INFORMATION The Company currently classifies its manufactured products into two core business segments: (i) Precision Products manufactures and markets lead wire assemblies and other related products primarily for the computer disk drive market and (ii) Litchfield Precision Components manufactures and markets flex circuits and chemically etched parts for the medical, computer and communications industries. The remainder of the Company's business includes the operations of its InnoMedica Division which manufactures medical device components and its Iconovex Division which develops and markets software for document storage retrieval and management. The identification of the Company's segments was determined principally by the nature of the products produced and technology utilized. Net sales represent sales to unaffiliated customers and intersegment sales. Operating profit is total revenue less operating expenses. Non-operating income includes interest income and expense and miscellaneous income and expense. Identifiable assets are those that are used in the Company's operations in each segment, net of intercompany balances. Capital expenditures include additions to property, plant, and equipment and capitalized software.
For the years ended September 30, 1996 1995 1994 - ---------------------------------------------------------------------------------------------- Net Sales: Precision Products $ 62,028,814 $ 48,201,301 $ 29,944,818 Litchfield Precision Components 5,903,704 -- -- Corporate and Other 2,053,669 1,992,651 619,191 less intersegment sales elimination (415,965) -- -- ------------ ------------ ------------ Total net sales $ 69,570,222 $ 50,193,952 $ 30,564,009 ============ ============ ============ Operating Profit and Income Before Provision For Income Taxes: Precision Products $ 22,876,426 $ 19,043,182 $ 7,515,129 Litchfield Precision Components 1,185,858 -- -- Corporate and Other (5,652,021) (4,671,377) (2,547,160) less intersegment elimination (7,000) -- -- ------------ ------------ ------------ Operating profit 18,403,263 14,371,805 4,967,969 Non-operating income, net 338,743 446,582 189,314 ------------ ------------ ------------ Total income before provision for income taxes $ 18,742,006 $ 14,818,387 $ 5,157,283 ============ ============ ============ Identifiable Assets: Precision Products $ 21,011,764 $ 13,085,777 $ 11,657,401 Litchfield Precision Components 9,405,888 -- -- Corporate and Other 27,826,694 28,197,706 18,277,023 ------------ ------------ ------------ Total identifiable assets $ 58,244,346 $ 41,283,483 $ 29,934,424 ============ ============ ============ Capital Expenditures: Precision Products $ 3,515,282 $ 2,366,196 $ 757,136 Litchfield Precision Components 214,730 -- -- Corporate and Other 496,041 598,016 1,081,333 ------------ ------------ ------------ Total capital expenditures $ 4,226,053 $ 2,964,212 $ 1,838,469 ============ ============ ============ Depreciation and Amortization: Precision Products $ 2,181,315 $ 1,835,671 $ 1,551,211 Litchfield Precision Components 237,802 -- -- Corporate and Other 1,217,210 1,241,695 410,846 ------------ ------------ ------------ Total depreciation and amortization $ 3,636,327 $ 3,077,366 $ 1,962,057 ============ ============ ============
The Company has no foreign-based operations; however, the Company utilizes subcontractors in Thailand and China for a portion of the fine wire assembly. The Company had aggregate export sales of $51,467,000, $39,718,000 and $23,766,000 for the years ending September 30, 1996, 1995 and 1994, respectively, principally to pacific rim customers. Revenues from five customers made up a significant portion of the Company's total net sales during the years ending September 30: 1996 1995 1994 - ---------------------------------------------------- Customer A 31% 29% 31% Customer B 18 21 24 Customer C 16 11 8 Customer D 9 11 9 Customer E 8 10 10 Accounts receivable from the above five customers also make up a significant portion of the Company's accounts receivable at September 30, 1996 and 1995.
QUARTERLY FINANCIAL DATA (Unaudited) 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year - -------------------------------------------------------------------------------------------------------------------- Net sales $13,111,707 $14,674,457 $19,254,632 $22,529,426 $69,570,222 Gross profit 5,516,232 6,014,066 7,294,617 8,152,903 26,977,818 Net income 2,751,191 2,956,264 3,562,134 3,851,417 13,121,006 Net income per share: Primary $0.38 $0.41 $0.49 $0.53 $1.81 Assuming full dilution $0.38 $0.41 $0.49 $0.53 $1.81 1995 1st Quarter 2nd Quarter 3rd Quarter 4th 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 Assuming full dilution $0.22 $0.31 $0.41 $0.46 $1.39 * 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 17, 1996, 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 17, 1996, 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 17, 1996, 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 17, 1996, 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, 1996 and 1995 13 Consolidated Statements of Operations for each of the three years in the period ended September 30, 1996 14 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30, 1996 15 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1996 16 Notes to Consolidated Financial Statements 17-22 (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. is incorporated by reference to Exhibit 10(f) of the Registrant's Form 10-K for the Year Ended September 30, 1995. 10(g) Form of Employment Agreement between certain executive officers and the Company. 28-30 11 Computation of per share income. 31 22 Subsidiaries of Registrant. 32 23 Consent of Grant Thornton LLP. 33 27 Financial Data Schedule. 34
(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 13, 1996 By \s\ Douglas W. Keller ------------------------------------ Douglas W. Keller Vice President, Finance 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 13th day of December, 1996. \s\ Thomas W. Haley Chairman and Chief Executive Officer Thomas W. Haley and Director (principal executive officer) \s\ Douglas W. Keller Vice President, Finance Douglas W. Keller (principal financial officer) _________________ Director Gerald M. Bestler \s\ Mary E. Curtin Vice President, General Counsel, Secretary and Director Mary E. Curtin \s\ Willis K. Drake Director Willis K. Drake _________________ Director William J. Miller _________________ Director Michael C. Slagle \s\ Bernt M. Tessem Director Bernt M. Tessem EX-10 2 EMPLOYMENT AGREEMENT Exhibit 10(g) EMPLOYMENT AGREEMENT The growth of Innovex, Inc. ("Innovex") has been due in part to the development of proprietary information. Innovex's possession of proprietary information that is generally not known to others, and its confidential information about research, development, marketing and management contribute to career opportunities and security for employees throughout Innovex. To help protect the Employee, all other employees and Innovex against the loss of its proprietary information, this Agreement has been prepared for the signature of the Employee and Innovex so that there will be a common understanding concerning their mutual responsibilities in this regard. As a condition of the Employee's employment by Innovex and further in consideration of that employment, continued employment, compensation, access to confidential information and additional benefits, Employee hereby agrees as follows: I. CONFIDENTIALITY. During the term of employment with Innovex, Employee will have access to and become acquainted with various trade secrets and other proprietary and confidential information which are owned by Innovex and which are used in the operation of Innovex's business. "Trade secrets and other proprietary and confidential information" shall be understood to mean any information or knowledge possessed by Innovex which is not generally known to or readily ascertainable by outside parties who can obtain economic value from its use or disclosure. This shall include, without limitation, designs, specifications, formulas, patterns, production characteristics, testing procedures and results thereof, manufacturing methods, plant layouts, tooling dies, molds, engineering evaluations and reports, business plans, financial projections, payroll and personnel records, compilations, computer programs, devices, methods, techniques, processes, data, improvements, ideas, algorithms, computer processing systems, drawings, proposals, job notes, reports, records, specifications, information concerning any matters relating to the business of Innovex and any of its customers, customer contacts, licenses, the prices it obtains or has obtained for the licensing of its products and services, or any other information concerning the existing or reasonably foreseeable business of Innovex and Innovex's good will. A. NONDISCLOSURE. Employee shall not disclose or use in any manner, directly or indirectly, any such trade secrets or other proprietary and confidential information either during the term of his employment or at any time thereafter, except as required in the course of employment with Innovex. B. INFORMATION DISCLOSED REMAINS PROPERTY OF INNOVEX. All ideas, concepts, information, and written material disclosed to Employee by Innovex, or acquired from a customer or prospective customer of Innovex, are and shall remain the sole and exclusive property and proprietary information of Innovex or such customers, and are disclosed in confidence by Innovex or permitted to be acquired from such customers in reliance on Employee's agreement to maintain them in confidence and not to use or disclose them to any other person except in furtherance of Innovex's business. C. RETURN OF MATERIAL. Employee agrees that, upon request of Innovex or upon termination of employment, Employee shall turn over to Innovex originals and any copies of all documents, files, disks or other computer media, or other material in his possession or under his control that (a) may contain or be derived from ideas, concepts, creations, or trade secrets and other proprietary and confidential information as set forth in paragraphs 1, 1.1, and 1.2 above, or (b) are connected with or derived from Employee's services to Innovex. II. INVENTIONS AND CREATIONS. Any and all inventions, discoveries, improvements, or creations (collectively "Inventions") made or conceived by Employee during the period of his employment by Innovex shall be the property of Innovex. Employee hereby assigns to Innovex all of his rights to any such Inventions and agrees to promptly disclose any such Inventions in writing to Innovex. Employee further agrees to execute and assign any and all proper applications, assignments and other documents and to render all assistance reasonably necessary to apply for patent, copyright or trademark protection in all countries. A. EXCEPTIONS. Paragraph 2 of this Agreement does not apply to an Invention for which no equipment, supplies, facility or trade secret information of Innovex was used and which was developed entirely on Employee's own time and (a) which does not relate (i) directly to the business of Innovex or (ii) to Innovex's actual or demonstrably anticipated research or development, or (b) which does not result from any work performed by Employee for Innovex. Exhibit A hereto constitutes a complete list of the inventions made by Employee prior to employment by Innovex as to which he has at least partial ownership. Innovex shall have no claim of right or title to the inventions listed on Exhibit A. B. DEFINITION OF INVENTIONS. For purposes of this Agreement, the term "Inventions" shall mean discoveries, improvements, writings, formulae and ideas (whether or not shown or described in writing or reduced to practice) and works of authorship, whether or not patentable or copyrightable, which (a) relate directly to the existing or reasonably foreseeable business of Innovex, or (b) which relate to Innovex's actual or demonstrably anticipated research or development, or (c) which result from any work performed by Employee for Innovex, or (d) for which equipment, supplies, facilities or trade secret information of Innovex is used, or (e) which is developed on Innovex time. C. NON-COVERED INVENTIONS. Should the Employee make a discovery, improvement or Invention that is not covered by the provisions of this Agreement ("a Non-Covered Invention"), the Employee may, at his sole option, disclose the Non-Covered Invention to Innovex and Innovex shall then have a right of first refusal to enter into a license agreement with Employee to acquire rights thereunder. If negotiations extend for more than six (6) months from the date of disclosure to Innovex, Employee shall be free to submit the Non-Covered Invention to others without obligation to Innovex and with respect to such Non-Covered Invention. III. COVENANT NOT TO COMPETE. Employee agrees that he will not, during the course of employment, or for a period of 1 year commencing upon expiration of employment, voluntarily or involuntarily, directly or indirectly, anywhere in the United States, develop, or assist others to be developed, any product functionality similar to the product(s) developed or under development by Innovex. The term "develop" shall mean design, create general or detailed functional or technical specifications for, enhance, or, with respect to software, create or write code for, debug or otherwise modify code for, or otherwise participate in the creation or modification of software product(s). Employee further agrees that he will not, during the course of employment or for a period of 1 year commencing upon the expiration of employment, voluntarily or involuntarily, directly or indirectly, anywhere in the United States, perform services for any Competing Business in the same field of commercial activities or engage or assist (a) in the organization of any Competing Business or (b) in any preparations for the manufacture, assembly, production, or design of any Competitive Product. A. If Employee has been or is employed by Innovex in a sales capacity, he will not render services, directly or indirectly, to any Competing Business in connection with the marketing, sales, merchandising, leasing or promotion of any Competing Product to any person or organization upon whom he called, or whose account he supervised on behalf of Innovex, at anytime during the last 3 years of his employment with Innovex. B. As used herein, the term "Competing Business" shall mean any person or organization which is engaged in or about to become engaged in, research on or development, production, marketing, leasing, licensing, selling or servicing of a Competitive Product. C. As used herein, the term "Competitive Product" shall mean any product, process, system or service (including, without limitation, software) of any person or organization other than Innovex, in existence or under development, which is the same as or similar to or competes with a product, process, system, or service upon which the Employee worked (either in a sales or non-sales capacity) during the last 3 years of his employment with Innovex or about which he acquires Confidential Information. D. EMPLOYEE'S ACKNOWLEDGMENTS AND AGREEMENTS. Employee acknowledges and agrees that the products developed by Innovex, including, without limitation, software developed by Innovex's Iconovex Division, is or is intended to be marketed and licensed to customers nationally throughout the United States. Employee further acknowledges and agrees to the reasonableness of this covenant not to compete and the reasonableness of the geographic area and duration of time which are a part of said covenant. Employee also acknowledges and agrees that this covenant will not preclude Employee from becoming gainfully employed following termination of employment with Innovex. E. INDUCING EMPLOYEES TO LEAVE INNOVEX; EMPLOYMENT OF EMPLOYEES. Any attempt on the part of Employee to induce to leave Innovex's employ, or any effort by Employee to interfere with Innovex's relationship with its other employees would be harmful and damaging to Innovex. Employee agrees that during the term of employment and for a period of one year thereafter, Employee will not in any way, directly or indirectly (a) induce or attempt to induce any employee of Innovex to quit employment with Innovex; (b) otherwise interfere with or disrupt Innovex's relationship with its employees; (c) solicit, entice, or hire away any Employee of Innovex; or (d) hire or engage any employee of Innovex or any former employee of Innovex whose employment with Innovex ceased less than one year before the date of such hiring or engagement. F. NONSOLICITATION OF BUSINESS. For a period of two years from the date of termination of employment, Employee will not divert or attempt to divert from Innovex any business Innovex had enjoyed or solicited from its customers during the year prior to termination of his employment. IV. MISCELLANEOUS PROVISIONS. A. REMEDIES - INJUNCTION. In the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, Employee agrees that Innovex, in addition to and not in limitation of any other rights, remedies, or damages available to Innovex at law or in equity, shall be entitled to a permanent injunction in order to prevent or restrain any such breach by Employee or by Employee's partners, agents, representatives, servants, employees, and/or any and all persons directly or indirectly acting for or with Employee. B. SEVERABILITY. In the event that any of the provisions of this Agreement shall be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement. In the event that any provision relating to the time period or scope of a restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period or scope such court deems reasonable and enforceable, then the time period or scope of the restriction deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum time period or the applicable scope of the restriction. C. GOVERNING LAW. This Agreement shall be construed and enforced according to the laws of the State of Minnesota. All legal actions arising under this Agreement shall be instituted in, and both Innovex and Employee consent to the jurisdiction of the court of Hennepin County, Minnesota. D. "Innovex" shall mean Innovex, Inc., Litchfield Precision Components, Iconovex and Innomedica and any of their existing or future affiliates, including parent companies, divisions, joint ventures and partnerships. E. This Agreement replaces and supercedes all prior agreements between Innovex and Employee relating to the same subject matter. This Agreement may not be terminated, amended or modified in any way, except in writing signed by both Innovex and Employee. F. The obligations of the parties under this Agreement do not depend on conditions outside this Agreement and shall survive Employee's termination of employment with Innovex, regardless of the reason for termination. V. AGREEMENT READ, UNDERSTOOD, AND FAIR. Employee has carefully read and considered all provisions of this Agreement and agrees that all of the restrictions set forth are fair and reasonable and are reasonably required for the protection of the interests of Innovex. Employee hereby acknowledges receipt of a copy of this Agreement. EMPLOYEE Dated: ________________________________ __________________________________ Dated: ________________________________ INNOVEX, INC. By _______________________________ Its _________________________ EX-11 3 COMPUTATION OF PER SHARE INCOME EXHIBIT 11 - COMPUTATION OF PER SHARE INCOME
1996 1995 1994 ----------------------------------------- Net income for the year used in determining income per share $13,121,006 $10,029,387 $ 3,515,283 Common and common equivalent shares used in determining income per share: Primary 7,237,890 7,160,753 6,779,394 Assuming full dilution 7,263,268 7,227,684 6,779,394 Net income per share Primary $ 1.81 $ 1.40 $ 0.52 Assuming full dilution $ 1.81 $ 1.39 $ 0.52
EX-22 4 SUBSIDIARIES OF INNOVEX, INC. EXHIBIT 22. SUBSIDIARIES OF INNOVEX, INC. State or other jurisdiction of Name Incorporation or Organization - ---- ------------------------------ Innovex Precision Products Corporation Minnesota Iconovex Corporation Minnesota Litchfield Precision Components, Inc. Minnesota Mar Engineering, Inc. Minnesota Iconovex Sales Limited Jamaica Innovex Prairie West, Inc. Minnesota EX-23 5 CONSENT OF INDEPENDENT CPA'S EXHIBIT 23 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated October 31, 1996, accompanying the consolidated financial statements included in the Annual Report of Innovex, Inc. on Form 10-K for the year ended September 30, 1996. We hereby consent to the incorporation by reference of said report in the Registration Statements of Innovex, Inc. on Form S-8 (File No. 33-14776, effective June 3, 1987, File No. 33-27530, effective March 17, 1989, File No. 33-59035, effective May 2, 1995, File No. 333-10045, effective August 12, 1996 and File No. 333-10047, effective August 12, 1996.) \s\ GRANT THORNTON LLP Minneapolis, Minnesota December 10, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THE 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS SEP-30-1996 SEP-30-1996 5,636 16,140 12,351 317 5,571 42,027 21,475 8,743 58,244 8,487 1,063 0 0 284 48,116 58,244 69,570 69,570 42,592 42,592 0 29 113 18,742 5,621 13,121 0 0 0 13,121 1.81 1.81
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