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 December 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 January 31, 1997 was 2,382,245 shares.
<PAGE> -1-
PARLEX CORPORATION
INDEX
Financial Statements:
Consolidated Balance Sheets - December 29, 1996 and June 30, 1996......3
Consolidated Statements of Income - For the Three Months
and Six Months Ended December 29, 1996 and December 31, 1995..........4
Consolidated Statements of Cash Flows - For the Six Months
Ended December 29, 1996 and December 31, 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
Signatures..............................................................11
<PAGE> -2-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1996 AND JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 29, 1996 June 30, 1996
----------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 107,997 $ 386,608
Accounts receivable - net 9,415,696 7,453,333
Inventories:
Raw material 2,553,377 2,419,744
Work in process 4,390,431 5,333,680
Refundable income taxes - 17,794
Deferred income taxes 314,743 314,743
Other current assets 817,663 699,386
--------------------------------
Total current assets 17,599,907 16,625,288
--------------------------------
Property, plant and equipment:
Land 468,864 468,864
Buildings 6,928,820 6,838,391
Machinery and equipment 22,972,277 22,321,826
Leasehold improvements and other 2,610,067 2,422,084
--------------------------------
Total 32,980,028 32,051,165
Less accumulated depreciation and
amortization (20,287,262) (19,396,046)
--------------------------------
Property, plant and equipment - net 12,692,766 12,655,119
--------------------------------
Other assets 449,297 381,649
--------------------------------
Total $30,741,970 $29,662,056
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 100,000
Bank loan 500,000 400,668
Accounts payable 4,697,919 5,179,769
Income taxes payable 331,934 -
Accrued liabilities 1,953,995 1,797,223
--------------------------------
Total current liabilities 7,483,848 7,477,660
--------------------------------
Long-term debt 4,025,000 3,650,000
--------------------------------
Other non-current liabilities 1,882,608 1,846,260
--------------------------------
Minority interest in Parlex (Shanghai) 1,147,010 1,232,691
--------------------------------
Stockholders' equity
Preferred stock -0- -0-
Common stock 258,303 258,266
Additional paid-in capital 3,245,235 3,243,491
Retained earnings 13,737,591 12,991,313
Less treasury stock at cost (1,037,625) (1,037,625)
--------------------------------
Total Stockholders' equity 16,203,504 15,455,445
--------------------------------
Total $30,741,970 $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 and Six Months Ended
December 29, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
Dec. 29, 1996 Dec. 31, 1995 Dec. 29, 1996 Dec. 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales $14,031,241 $11,684,568 $26,804,712 $23,295,978
License fees and royalties 37,099 - 70,757 -
-----------------------------------------------------------
Total Revenues 14,068,340 11,684,568 26,875,469 23,295,978
-----------------------------------------------------------
Costs and Expenses:
Cost of products sold 11,472,916 10,145,160 22,384,959 20,440,296
Selling, general and administrative
expenses 1,737,174 1,330,537 3,324,489 2,582,868
-----------------------------------------------------------
Operating costs and expenses 13,210,090 11,475,697 25,709,448 23,023,164
-----------------------------------------------------------
Operating income 858,250 208,871 1,166,021 272,814
Other income - (Note 2) 10,713 22,088 123,108 66,540
Interest expense (115,603) (83,596) (220,533) (153,218)
-----------------------------------------------------------
Income before income taxes 753,360 147,363 1,068,596 186,136
Provision for income taxes (286,900) (60,500) (406,900) (75,200)
-----------------------------------------------------------
Net income - before minority
interest (Note 3) 466,460 86,863 661,696 110,936
Minority interest 91,405 3,690 84,581 3,690
-----------------------------------------------------------
Net income $ 557,865 $ 90,553 $ 746,277 $ 114,626
===========================================================
Net income per common share $ .23 $ .04 $ .30 $ .05
===========================================================
Weighted average number of common and
common stock equivalent shares
outstanding 2,446,371 2,450,799 2,450,553 2,449,064
===========================================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -4-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 29, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
December 29, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $ 746,277 $ 114,626
----------------------------------
Adjustments to reconcile net income to net
cash provided by (used for)operating
activities:
Depreciation and amortization 1,001,954 836,232
Refundable income taxes 17,794 -0-
Deferred compensation 36,348 35,285
Loss (gain) on sale of equipment (250) 13,652
Increase (decrease) in cash from
minority interest (85,681) (3,690)
Accounts receivable - net (1,962,363) 44,194
Inventories 809,616 492,991
Other current assets (118,277) (180,870)
Accounts payable (481,850) 665,528
Accrued liabilities 156,772 (817,317)
Income taxes payable 331,934 69,658
----------------------------------
Total adjustments (294,003) 1,155,363
----------------------------------
Net cash provided (used) by operating
activities 452,274 1,270,289
----------------------------------
Investment Activities:
Additions to property, plant and equipment (1,039,600) (1,467,674)
Increase in other assets (67,648) (519,891)
Proceeds from the sale of equipment 250 32,295
----------------------------------
Net cash used for investment activities (1,106,998) (1,955,270)
----------------------------------
Financing Activities:
Borrowings under revolving credit agreement 375,000 700,000
Loan payable - joint venture 99,332 208,020
Capital contributions to joint venture
- minority interests - 28,330
Decrease in long-term debt (100,000) (100,000)
Exercise of stock options 1,781 9,063
----------------------------------
Net cash from financing activities 376,113 845,413
----------------------------------
Net Decrease (Increase) in Cash and Cash
Equivalents (278,611) 160,432
Cash and Cash Equivalents at Beginning
of Period 386,608 161,392
----------------------------------
Cash and Cash Equivalents at End of Period $ 107,997 $ 321,824
==================================
</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 December 29,1996 and the results of
operations and cash flows for the six months ended December 29, 1996 and
December 31, 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
Other income of $10,713 and $22,088 in the second quarter this year
and last year, respectively, was comprised of items of a miscellaneous
nature. For the first six months this year, other income was $123,108; last
year, other income totaled $66,540. 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. 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 second quarter of the current fiscal year were
$14,068,340, an increase of approximately 20% from the $11,684,568 reported
in the comparable period last year. Revenues were generated primarily from
product sales, while the remainder was derived from licensing and royalty
fees. The additional sales resulted from increased shipments across several
product lines in the Flexible Circuit Products and Laminated Cable
Divisions. These sales have been driven by the introduction of new
technologies to the market, as well as a ramp-up of production on a major
telecommunication project. For the first six months, revenues were
$26,875,469, or 15% higher than the $23,295,978 recorded last year. The
same factors, as just noted, were the primary reasons contributing to the
increase for the six month period.
The cost of products sold as a percentage of revenue was 82%, a
reduction from the 87% reported in the second quarter last year. During the
current quarter there was considerable improvement in operational
efficiency. Additionally, the Company was able to generate the additional
sales without incurring a commensurate increase in manufacturing overhead
costs. Last year, the Flexible Circuit Products Division was also 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. For the first six months, the cost of products sold as a percentage
of revenue was 83% versus 88% last year.
Selling, general, and administrative expenses as a percentage of
revenue were 12% in both the second quarter and first six months this year
as compared to 11% for the same periods last year. The slight increase is
associated primarily with additional expenses due to increased sales
efforts.
Other income of $10,713 and $22,088 in the second quarter this year
and last year, respectively, was comprised of items of a miscellaneous
nature. For the first six months this year, other income was $123,108; last
year, other income totaled $66,540. Other income this year included the
gain on sale of some equipment.
Interest expense was $115,603 this quarter as compared to $83,596 last
year. For the first six months, interest expense was $220,533 versus
$153,218 last year. Additional borrowings were required to facilitate the
Company's growth. These monies were used to purchase equipment, to
partially finance its investment in Parlex (Shanghai), a chinese joint
venture, and to finance its additional working capital requirements.
The above factors resulted in income before income taxes of $753,360
and $1,068,596 for the second quarter and first six months, respectively.
This compares to $147,363 in the second quarter and $186,136 for the first
six months last year.
<PAGE> -8-
The Company's effective tax rate was 38% for both the second quarter
and first six months. This compares to 41% and 40% for the second quarter
and first six months, respectively, last year.
After providing for taxes and recognizing the minority interest in the
chinese joint venture, the Company's net income was $557,865 and $746,277
for the current quarter and first six months, respectively. This compares
to $90,553 and $114,626 to the respective time periods last year.
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 December 29, 1996 the unused commitment amounted to $475,000,
inclusive of the Company's guarantee of $500,000 borrowed by the chinese
joint venture.
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 December 1997, the line converts
to a term loan arrangement. As of December 29, 1996, no monies were owed
under this line.
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 4 Submission of Matters to a Vote of Security Holders
(a) The registrant's Annual Meeting of Shareholders was held
December 3, 1996.
(b) At the Annual Meeting, shareholders elected the following
Class II directors whose terms expire in 1999:
<TABLE>
<CAPTION>
Withheld
For Authority
--- ---------
<S> <C> <C>
M. Joel Kosheff 2,042,450 8,900
Peter J. Murphy 2,042,515 8,835
</TABLE>
The following other directors' respective terms of office
continued in effect after the meeting:
Continuing Class I Directors
Continuing in Office until 1998
Richard W. Hale
Lester Pollack
Benjamin M. Rabinovici
Continuing Class III Directors
Continuing in Office until 1997
Herbert W. Pollack
Sheldon A. Buckler
(c) No other votes were submitted to the security holders.
<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
February 12, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-29-1996
<CASH> 107,997
<SECURITIES> 0
<RECEIVABLES> 9,648,051
<ALLOWANCES> 232,355
<INVENTORY> 6,943,808
<CURRENT-ASSETS> 17,599,907
<PP&E> 32,980,028
<DEPRECIATION> 20,287,262
<TOTAL-ASSETS> 30,741,970
<CURRENT-LIABILITIES> 7,483,848
<BONDS> 0
0
0
<COMMON> 258,303
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30,741,970
<SALES> 26,804,712
<TOTAL-REVENUES> 26,875,469
<CGS> 22,384,959
<TOTAL-COSTS> 25,709,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220,533
<INCOME-PRETAX> 1,068,596
<INCOME-TAX> 406,900
<INCOME-CONTINUING> 746,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746,277
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
