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 March 30, 1997
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
incorporation or organization) Number)
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 April 20, 1997 was 2,387,345 shares.
<PAGE> -1-
PARLEX CORPORATION
INDEX
Financial Statements:
Consolidated Balance Sheets - March 30, 1997 and June 30, 1996..... 3
Consolidated Statements of Income - For the Three Months
and Nine Months Ended March 30, 1997 and March 31, 1996........... 4
Consolidated Statements of Cash Flows - For the Nine Months
Ended March 30, 1997 and March 31, 1996........................... 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
Signatures........................................................... 11
<PAGE> -2-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1997 AND JUNE 30, 1996
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 30, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 663,475 $ 386,608
Accounts receivable - net 9,184,957 7,453,333
Inventories:
Raw material 2,550,555 2,419,744
Work in process 5,017,628 5,333,680
Refundable income taxes - 17,794
Deferred income taxes 314,743 314,743
Other current assets 761,316 699,386
-------------------------------
Total current assets 18,492,674 16,625,288
-------------------------------
Property, plant and equipment:
Land 468,864 468,864
Buildings 6,968,195 6,838,391
Machinery and equipment 23,643,249 22,321,826
Leasehold improvements and other 2,796,595 2,422,084
-------------------------------
Total 33,876,903 32,051,165
Less accumulated depreciation and
amortization (20,295,245) (19,396,046)
-------------------------------
Property, plant and equipment - net 13,581,658 12,655,119
-------------------------------
Other assets 410,334 381,649
-------------------------------
Total $32,484,666 $29,662,056
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -0- $ 100,000
Loan payable - current 500,000 400,668
Accounts payable 5,146,552 5,179,769
Accrued liabilities 2,562,761 1,797,223
Income taxes payable 476,134 -
-------------------------------
Total current liabilities 8,685,447 7,477,660
-------------------------------
Long-term debt 3,525,000 3,650,000
-------------------------------
Other non-current liabilities 1,901,540 1,846,260
-------------------------------
Minority interest 1,459,214 1,232,691
-------------------------------
Stockholders' equity:
Preferred stock -0- -0-
Common stock 259,734 258,266
Additional paid-in capital 3,310,986 3,243,491
Retained earnings 14,380,370 12,991,313
Less treasury stock at cost (1,037,625) (1,037,625)
-------------------------------
Total Stockholders' equity 16,913,465 15,455,445
-------------------------------
Total $32,484,666 $29,662,056
===============================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -3-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended March 30, 1997 and March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
March 30, 1997 March 31, 1996 March 30, 1997 March 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Product sales $13,202,672 $11,580,017 $40,007,384 $34,745,995
License fees and royalty income 22,046 123,000 92,803 253,000
-----------------------------------------------------------------
Total Revenue 13,224,718 11,703,017 40,100,187 34,998,995
-----------------------------------------------------------------
Cost and Expenses:
Cost of products sold 10,239,384 9,883,495 32,624,343 30,323,791
Selling, general and administrative expenses 1,753,584 1,470,281 5,078,073 4,053,149
-----------------------------------------------------------------
Operating costs and expenses 11,992,968 11,353,776 37,702,416 34,376,940
-----------------------------------------------------------------
Operating income 1,231,750 349,241 2,397,771 622,055
Other income - (Note 2) 2,007 22,482 125,115 89,022
Interest expense (114,790) (90,149) (335,323) (243,367)
-----------------------------------------------------------------
Income before income taxes 1,118,967 281,574 2,187,563 467,710
Provision for income taxes (437,600) (96,700) (844,500) (171,900)
-----------------------------------------------------------------
Net income - before minority interest 681,367 184,874 1,343,063 295,810
Minority interest - loss (income) (38,587) 10,710 45,994 14,400
-----------------------------------------------------------------
Net income $ 642,780 $ 195,584 $ 1,389,057 $ 310,210
=================================================================
Net income per share (Note 4) $ .26 $ .08 $ .56 $ .13
=================================================================
Weighted average number of common
and common stock equivalent shares
outstanding (Note 4) 2,492,515 2,437,640 2,464,540 2,445,256
=================================================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -4-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 30, 1997 and March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
March 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $1,389,057 $ 310,210
---------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,429,288 1,273,575
Loss (gain) on sale of equipment (250) 13,652
Deferred compensation 55,280 52,720
Minority Interest (50,477) (14,400)
Increase (decrease) in cash from:
Accounts receivable - net (1,731,624) (350,970)
Inventories 185,241 (625,766)
Other current assets (61,930) (59,607)
Accounts payable (33,217) 1,162,729
Accrued liabilities 765,538 (644,414)
Income taxes payable 493,928 173,858
---------------------------
Total adjustments 1,051,777 981,377
---------------------------
Net cash provided by operating activities 2,440,834 1,291,587
---------------------------
Investment Activities:
Additions to property, plant and equipment (2,078,826) (1,977,081)
Increase in other assets (28,685) (576,869)
Proceeds from the sale of equipment 250 32,295
---------------------------
Net cash used for investment activities (2,107,261) (2,521,655)
---------------------------
Financing Activities:
Borrowings (repayments) under revolving credit
agreement (125,000) 1,150,000
Payments of long term debt (100,000) (150,000)
Loan payable - Joint Venture 99,332 383,919
Capital contributions to Joint Venture
- minority interests - 39,915
Exercise of stock options 68,962 10,469
---------------------------
Net cash from financing activities (56,706) 1,434,303
---------------------------
Net Increase in Cash and Cash Equivalents 276,867 204,235
Cash and Cash Equivalents at Beginning of
Period 386,608 161,392
---------------------------
Cash and Cash Equivalents at End of Period $ 663,475 $ 365,627
===========================
</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 March 30, 1997 and the results of
operations and cash flows for the nine months ended March 30, 1997 and March
31, 1996. 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
Other income of $2,007 and $22,482 in the third quarter this year and
last year, respectively, was comprised of items of a miscellaneous nature.
For the first nine months this year, other income was $125,115; last year,
other income totaled $89,022. Other income this year included the gain on
sale of some equipment.
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. Net Income Per Share
Net income per share is based on the weighted average number of common
and dilutive common equivalent shares outstanding.
In accordance with the provisions of Statement of Financial Accounting
Standard No. 128, "Earnings per Share," the Company was not permitted to
early adopt SFAS No. 128 for the quarter ended March 30, 1997. The Company
will be required to adopt SFAS 128 in its second quarter of fiscal year 1998
and restate its first quarter results. The adoption of SFAS 128 will not
have a dilutive effect upon reported earnings per share.
5. Stock Split
The Board of Directors declared a 3 for 2 stock split effected as a
50% stock dividend payable on April 21st to shareholders of record as of
March 18, 1997. This split will be reflected in the EPS calculation in the
fourth quarter and the previously reported EPS figures will be adjusted for
all appropriate periods.
<PAGE> -6-
6. 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> -7-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operations
Total revenues in the third quarter of the current fiscal year were
$13,224,718, an increase of approximately 13% over the $11,703,017 reported
in the same quarter last year. The revenues from both divisions, Flexible
Circuit Products and Laminated Cable, as well as Parlex (Shanghai), the
Chinese joint venture, exceeded those of last year. The Company continues
to benefit from the introduction of new technologies to the market, which is
the primary factor contributing to the increase in revenues for the quarter
and first nine months. For the first nine months, revenues were $40,100,187
versus $34,998,995 for the corresponding period last year, an increase of
about 15%. The revenues were generated essentially from product sales,
while the remainder was derived from licensing and royalty fees.
The cost of products sold as a percentage of revenue was 77%, a
reduction from the 84% reported in the third quarter last year. The Company
has focused its efforts toward improving operating income while growing the
Company in a controlled fashion. The reduction in cost is a result of those
efforts. For the first nine months, the cost of products sold was 81% as
compared to 87% last year. Last year, the Flexible Circuit Products
Division was involved in a major contract involving new technology and
equipment that had an impact on the cost of products sold. The technical
issues involving this contract have since been overcome and this program now
contributes to income.
Selling, general, and administrative expenses as a percentage of
revenue were 13% in both the third quarter this year as well as last year.
For the first nine months, the percentage relative to revenues was 13% this
year versus 12% last year. The slight increase is associated primarily with
additional expenses due to expanded sales efforts.
Other income of $2,007 and $22,482 in the third quarter this year and
last year, respectively, was comprised of items of a miscellaneous nature.
For the first nine months this year, other income was $125,115; last year,
other income totalled $89,022. Other income this year included the gain on
sale of some equipment.
Interest expense was $114,790 this quarter as compared to $90,149 last
year. For the first nine months, interest expense was $335,323 versus
$243,367 last year. Additional borrowings were required to facilitate the
Company's growth. These monies were used to purchase equipment, to finance
additional working capital requirements, and to partially finance its
investment in Parlex (Shanghai).
The above factors resulted in third quarter income before income taxes
of $1,118,967 versus $281,574 for the third quarter last year. For the
first nine months, income before income taxes was $2,187,563 this year as
compared to $467,710 last year.
The Company's effective tax rate was 39% for both the third quarter
and first nine months this year. Last year, the effective tax rate was 34%
for the quarter and 37% for the year to date.
<PAGE> -8-
After providing for taxes and recognizing the minority interest in the
Chinese joint venture, the Company's net income was $642,780 for the quarter
and $1,389,057 for the first nine months this year. This compares to
$195,584 and $310,210 for the quarter and first nine months, respectively,
last year.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which will be effective during the Company's second quarter of
fiscal 1998. SFAS No. 128 will require the Company to restate all
previously reported earnings per share information to conform with the new
pronouncement's requirements. The adoption of SFAS 128 will not have a
dilutive effect upon reported earnings per share.
Liquidity and Capital Resources
The Company is expecting further growth. The anticipated internally
generated cash flow, together with the lines of credit described below,
should be sufficient to accommodate the Company's immediate needs.
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 March 30, 1997, the unused commitment amounted to $975,000
inclusive of the Company's guarantee of $500,000 borrowed by the Chinese
joint venture. Since the end of this quarter, the Company has reduced the
loan by an additional $300,000 thus increasing the unused commitment to
$1,275,000.
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 November 1997, the line converts
to a term loan arrangement. As of March 30, 1997, no monies were used under
this line.
Deferred compensation payments cannot presently be determined.
Amounts, if any, which may be paid within one year should not be 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 - None
(b) The Company filed no reports on Form 8-K
during the quarter for which this report is filed.
<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/ PETER J. MURPHY
_________________________
Peter J. Murphy
President
/s/ STEVEN M. MILLSTEIN
_________________________
Steven M. Millstein
Vice President of Finance
May 14, 1997
_________________________
Date
<PAGE> -11-
<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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 663,475
<SECURITIES> 0
<RECEIVABLES> 9,463,336
<ALLOWANCES> 278,379
<INVENTORY> 7,568,183
<CURRENT-ASSETS> 18,492,674
<PP&E> 33,876,903
<DEPRECIATION> 20,295,245
<TOTAL-ASSETS> 32,484,666
<CURRENT-LIABILITIES> 8,685,447
<BONDS> 0
0
0
<COMMON> 259,734
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,484,666
<SALES> 40,007,384
<TOTAL-REVENUES> 40,100,187
<CGS> 32,624,343
<TOTAL-COSTS> 37,702,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335,323
<INCOME-PRETAX> 2,187,563
<INCOME-TAX> 844,500
<INCOME-CONTINUING> 1,389,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,389,057
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
