SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-12942
PARLEX CORPORATION
(Exact Name of Registrant As Specified in its Charter)
Massachusetts 04-2464749
(State or other jurisdiction of (IRS Employer Identification
Number)
incorporation or organization)
145 Milk Street, Methuen, Massachusetts 01844
(Address of principal executive offices) (Zip Code)
508-685-4341
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO ___
The number of shares of the Registrant's Common Stock, par value $.10
per share, outstanding at October 31, 1996 was 2,372,034 shares.
<PAGE> -1-
PARLEX CORPORATION
INDEX
Financial Statements:
Consolidated Balance Sheets - September 29, 1996
and June 30, 1996 3
Consolidated Statements of Income - For the Three Months
Ended September 29, 1996 and October 1, 1995 4
Consolidated Statements of Cash Flows - For the Three Months
Ended September 29, 1996 and October 1, 1995 5
Notes to Unaudited Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information 10
Index 11
Signatures 13
<PAGE> -2-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1996 AND JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 29, 1996 June 30, 1996
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98,757 $ 386,608
Accounts receivable - net 8,530,084 7,453,333
Inventories:
Raw material 3,025,208 2,419,744
Work in process 4,726,388 5,333,680
Refundable income taxes - 17,794
Deferred income taxes 314,743 314,743
Other current assets 843,011 699,386
----------------------------------
Total current assets 17,538,191 16,625,288
----------------------------------
Property, plant and equipment:
Land 468,864 468,864
Buildings 6,903,150 6,838,391
Machinery and equipment 22,608,406 22,321,826
Leasehold improvements and other 2,473,597 2,422,084
----------------------------------
Total 32,454,017 32,051,165
Less accumulated depreciation and
amortization 19,786,187 (19,396,046)
----------------------------------
Property, plant and equipment - net 12,667,830 12,655,119
----------------------------------
Other assets 383,816 381,649
----------------------------------
Total $30,634,942 $29,662,056
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 50,000 $ 100,000
Bank loan 500,126 400,668
Accounts payable 5,435,392 5,179,769
Income taxes payable 189,784 -
Accrued liabilities 1,687,021 1,797,223
----------------------------------
Total current liabilities 7,862,323 7,477,660
----------------------------------
Long-term debt 4,025,000 3,650,000
----------------------------------
Other non-current liabilities 1,864,247 1,846,260
----------------------------------
Minority interest in Parlex (Shanghai) 1,239,515 1,232,691
----------------------------------
Stockholders' equity
Preferred stock -0- -0-
Common stock 258,266 258,266
Additional paid-in capital 3,243,491 3,243,491
Retained earnings 13,179,725 12,991,313
Less treasury stock at cost (1,037,625) (1,037,625)
----------------------------------
Total Stockholders' equity 15,643,857 15,455,445
----------------------------------
Total $30,634,942 $29,662,056
==================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -3-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 29, 1996 and October 1, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 29, 1996 October 1, 1995
---------------------------------------
<S> <C> <C>
Product sales $12,773,471 $11,611,410
License fees and royalties 33,658 -
-----------------------------------
Total Revenues 12,807,129 11,611,410
-----------------------------------
Costs and Expenses:
Cost of products sold 10,912,043 10,295,136
Selling, general and administrative
expenses 1,587,315 1,252,331
-----------------------------------
Operating costs and expenses 12,499,358 11,547,467
Operating income 307,771 63,943
Other income - (Note 2) 112,395 44,452
Interest expense (104,930) (69,622)
-----------------------------------
Income before income taxes 315,236 38,773
Provision for income taxes (120,000) (14,700)
-----------------------------------
Income before minority interest 195,236 24,073
Minority interest (6,824) -
-----------------------------------
Net income $ 188,412 $ 24,073
===================================
Net income per common share $ .08 $ .01
===================================
Weighted average number of common and
common stock equivalent shares
outstanding 2,454,734 2,447,328
===================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -4-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 29, 1996 and October 1, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 29, 1996 October 1, 1995
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $ 188,412 $ 24,073
----------------------------------
Adjustments to reconcile net income to net
cash provided by (used for)operating activities:
Depreciation and amortization 500,877 403,797
Gain on sale of equipment (100) -0-
Deferred compensation 17,987 17,535
Minority interest 6,824 -0-
Increase (decrease) in cash from:
Accounts receivable - net (1,076,751) (658,582)
Refundable income taxes 17,794 4,158
Inventories 1,828 296,202
Other current assets (143,625) (194,059)
Accounts payable 255,623 1,336,967
Accrued liabilities (110,202) (666,290)
Income taxes payable 189,784 -
----------------------------------
Total adjustments (339,961) 539,728
----------------------------------
Net cash provided (used) by operating activities (151,549) 563,801
----------------------------------
Investment Activities:
Additions to property, plant and equipment 513,588 (846,157)
Increase in other assets (47,272) (116,741)
Proceeds from the sale of equipment 100 -
----------------------------------
Net cash used for investment activities (560,760) (962,898)
----------------------------------
Financing Activities:
Loan payable - Joint Venture 99,458 -
Increase in long-term debt 325,000 350,000
Exercise of stock options - 7,063
----------------------------------
Net cash from financing activities 424,458 357,063
----------------------------------
Net Decrease in Cash and Cash Equivalents (287,851) (42,034)
Cash and Cash Equivalents at Beginning of Period 386,608 161,392
----------------------------------
Cash and Cash Equivalents at End of Period $ 98,757 $ 119,358
==================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -5-
PARLEX CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. Management Statement
The financial statements as reported in Form 10-Q reflect all
adjustments which are, in the opinion of management, necessary to present
fairly the financial position as of September 29,1996 and the results of
operations and cash flows for the three months ended September 29, 1996 and
October 1, 1995. All adjustments made to the interim financial statements
were of a normal recurring nature.
The Company followed the same accounting policies in the preparation
of this interim financial statement as described in the Company's annual
filing on Form 10-K for the year ended June 30, 1996 and this filing should
be read in conjunction with that annual report.
2. Other Income
In the current quarter, other income is comprised of a gain on the
sale of equipment as well as items of miscellaneous nature. In the
preceding year, only items of a sundry nature were included under this
caption.
3. Joint Venture
In May 1995, the Company entered into an agreement to establish a
limited liability company in the form of a joint venture in the People's
Republic of China. The Company owns 50.1% of the joint venture. The joint
venture manufactures flexible printed circuits and commenced operations in
September 1995. The Company reports the financial results of this venture
on a three month time lag.
4. New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." This statement established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. The Company adopted SFAS No. 121 in the first quarter of 1997.
This statement had no effect on the consolidated financial position and
results of operations of the Company.
<PAGE> -6-
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation," which will be effective for the Company beginning July
1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognized compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue
to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and directors, and will disclose the required pro forma effect on
net income and net income per share in its June 30, 1997 consolidated
financial statements.
<PAGE> -7-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operations
Total revenues in the first quarter of the current fiscal year were
$12,807,129, an increase of 10% over the sales of $11,611,410 reported in
the comparable quarter last year. Revenues were generated primarily from
product sales, while some was derived from licensing and royalty fees. The
increase in sales is a result of the Company's continuing effort to broaden
its commercial base by developing products that provide unique solutions to
the requirements of the markets it is attempting to serve.
In September 1995, Parlex (Shanghai) Circuit Co., Ltd., the Chinese
joint venture, commenced operations (see Note 3 to Consolidated Financial
Statements). The sales from this venture, while not significant, also
contributed to the increase over the previous year.
The cost of sales as a percentage of revenue was 85% and 89% for the
first quarter this year and last year, respectively. Last year, the cost of
sales was impacted by a large multi-year contract in the Flexible Circuit
Products Division, involving new technology, new equipment, the use of very
thin materials with special handling requirements, and some incurred costs
associated with learning curve issues. These technical problems have since
been resolved.
Selling, general, and administrative expenses as a percentage of
revenue was 12% in the current quarter versus 11% last year. The slight
increase was associated with additional selling expenses due to increased
sales efforts.
Interest expense was $104,930 this quarter as compared to $69,622 last
year. To facilitate its growth, the Company borrowed monies for the
purchase of equipment, its investment in the Chinese joint venture, and to
finance its additional working capital requirements.
Other income this quarter of $112,395 included the gain on the sale of
some equipment as well as items of miscellaneous nature. In the preceding
year, only items of a sundry nature comprised the total of $44,452.
The above factors resulted in income before income taxes of $315,236
in the first quarter this year versus $38,773 for the comparable period last
year.
The Company's effective tax rate was 38% for the current quarter this
year as well as last year.
After providing for taxes and recognizing the minority interest in the
Chinese joint venture, the Company's net income was $188,412 this quarter
versus $24,073 last year.
<PAGE> -8-
Liquidity and Capital Resources
Since the Company is anticipating continuous growth, additional
borrowings may be necessary to finance further working capital needs as well
as additional capital expenditures.
In December 1995, the Company negotiated a $5,000,000 unsecured line
of credit under its revolving credit facility that expires December 31,
1997. At September 29, 1996, the unused commitment amounted to $975,000.
In October 1996, the Company received an additional unsecured line of
credit of $2,000,000 to be used exclusively for the purchase of capital
equipment. The Company may borrow monies up to $2,000,000 under a revolving
credit facility through October 1997. In October 1997, the line converts to
a term loan arrangement.
The two lines of credit, together with anticipated positive cash flow
from operations, should be adequate to satisfy the Company's foreseeable
needs.
Deferred compensation payments cannot presently be determined.
Amounts, if any, which may be paid within one year are not material and
should have little impact upon the Company's cash position.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act
of 1995
This report contains certain forward-looking statements. The
Company's actual results of operations may differ significantly from those
contemplated by such forward-looking statements as a result of various
factors beyond its control, including, but not limited to, economic
conditions in the electronics industry, particularly in the principal
industry sectors served by the Company, changes in customer requirements and
in the volume of sales to principal customers, competition and technological
change.
<PAGE> -9-
PART II - OTHER INFORMATION
Items 1-5 THESE ITEMS ARE INAPPLICABLE
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement regarding computation of per
share earnings.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended September 29, 1996.
<PAGE> -10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARLEX CORPORATION
/s/ HERBERT W. POLLACK
Herbert W. Pollack
Chairman of the Board
/s/ STEVEN M. MILLSTEIN
Steven M. Millstein
Vice President of Finance
November 14, 1996
Date
<PAGE> -11-
EXHIBIT INDEX
PAGE
11. Statement regarding computation of per share earnings 13
<PAGE> -12-
EXHIBIT 11
(In thousands, except per share data)
PRIMARY
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
September 29, 1996 October 1, 1995
---------------------------------------
<S> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock 2,372 2,370
Common equivalent shares resulting from
stock options (treasury stock method) 83 77
-------------------------------
Total 2,455 2,447
===============================
Net income $ 188 $ 24
===============================
Net income per common share $ .08 $ .01
===============================
</TABLE>
<PAGE> -13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-29-1996
<CASH> 98,757
<SECURITIES> 0
<RECEIVABLES> 8,635,305
<ALLOWANCES> 105,221
<INVENTORY> 7,751,596
<CURRENT-ASSETS> 17,538,191
<PP&E> 32,454,017
<DEPRECIATION> 19,786,187
<TOTAL-ASSETS> 30,634,942
<CURRENT-LIABILITIES> 7,862,323
<BONDS> 50,000
0
0
<COMMON> 258,266
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30,634,942
<SALES> 12,773,471
<TOTAL-REVENUES> 12,807,129
<CGS> 10,912,043
<TOTAL-COSTS> 12,499,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,930
<INCOME-PRETAX> 315,236
<INCOME-TAX> 120,000
<INCOME-CONTINUING> 188,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,412
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
