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 28, 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 Number)
incorporation or organization)
145 Milk Street, Methuen, Massachusetts 01844
(Address of principal executive offices) (Zip Code)
978-685-4341
(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, 1997, was 4,594,059 shares.
PARLEX CORPORATION
------------------
INDEX
-----
Part I - Financial Statements:
Consolidated Balance Sheets - September 28, 1997 and June 30, 1997 3
Consolidated Statements of Income - For the Three Months
Ended September 28, 1997 and September 29, 1996 4
Consolidated Statements of Cash Flows - For the Three Months
Ended September 28, 1997 and September 29, 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
Exhibit 13
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 28, 1997 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 28, 1997 June 30, 1997
-----------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 99,843 $ 596,614
Accounts receivable - net 10,203,223 9,029,388
Inventories:
Raw material 2,970,825 2,706,302
Work in process 4,875,073 4,556,175
Deferred income taxes 294,033 294,033
Other current assets 649,102 850,956
------------------------------
Total current assets 19,092,099 18,033,468
------------------------------
Property, plant and equipment:
Land 468,864 468,864
Buildings 7,017,478 7,017,478
Machinery and equipment 23,409,452 22,823,785
Leasehold improvements and other 3,541,602 3,974,058
------------------------------
Total 34,437,396 34,284,185
Less accumulated depreciation and
amortization (20,447,974) (20,671,859)
-------------------------------
Property, plant and equipment - net 13,989,422 13,612,326
------------------------------
Other assets 583,862 588,098
------------------------------
Total $33,665,383 $32,233,892
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 500,000 $ 500,000
Bank loan 599,435 500,000
Accounts payable 5,548,300 5,047,284
Accrued liabilities 1,965,678 2,150,228
Income taxes payable 365,551 244,404
------------------------------
Total current liabilities 8,978,964 8,441,916
------------------------------
Long-term debt 2,550,000 2,500,000
------------------------------
Other non-current liabilities 2,007,065 1,986,924
------------------------------
Minority interest in Parlex (Shanghai) 1,611,669 1,521,363
------------------------------
Stockholders' equity
Preferred stock -0- -0-
Common stock 380,331 379,875
Additional paid-in capital 3,338,267 3,334,424
Retained earnings 15,840,049 15,111,769
Less treasury stock at cost (1,037,625) (1,037,625)
Cumulative translation adjustments (3,337) (4,754)
-----------------------------
Total Stockholders' equity 18,517,685 17,783,689
------------------------------
Total $33,665,383 $32,233,892
==============================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 28, 1997 and September 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 28, 1997 September 29, 1996
---------------------------------------
<S> <C> <C>
Product sales $13,672,226 $12,773,471
License fees and royalties 44,825 33,658
--------------------------------
Total Revenues 13,717,051 12,807,129
--------------------------------
Costs and Expenses:
Cost of products sold 10,538,912 10,912,043
Selling, general and administrative expenses 1,879,422 1,587,315
--------------------------------
Operating costs and expenses 12,418,334 12,499,358
--------------------------------
Operating income 1,298,717 307,771
Other income - (Note 2) 90,789 112,395
Interest expense (93,972) (104,930)
--------------------------------
Income before income taxes 1,295,534 315,236
Provision for income taxes (476,950) (120,000)
--------------------------------
Net income before minority interest 818,584 195,236
Minority interest (Note 3) (90,305) (6,824)
--------------------------------
Net income $ 728,279 $ 188,412
================================
Net income per common share $ .19 $ .05
================================
Weighted average number of common and
common stock equivalent shares outstanding(a) 3,802,747 3,682,101
================================
- --------------------
<Fa> Prior year shares outstanding restated to reflect 3:2 stock split
distributed in April 1997
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 28, 1997 and September 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 28, 1997 September 29, 1996
----------------------------------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $ 728,279 $ 188,412
-------------------------------
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 571,792 500,877
Gain on sale of equipment (67,572) (100)
Deferred compensation 20,141 17,987
Minority interest 90,305 6,824
Increase (decrease) in cash from:
Accounts receivable - net (1,173,835) (1,076,751)
Refundable income taxes -0- 17,794
Inventories (583,421) 1,828
Other current assets 201,854 (143,625)
Accounts payable 501,016 255,623
Accrued liabilities (184,549) (110,202)
Income taxes payable 121,147 189,784
-------------------------------
Total adjustments (503,122) (339,961)
-------------------------------
Net cash provided (used) by operating activities 225,157 (151,549)
Investment Activities:
Additions to property, plant and equipment (958,116) (513,588)
(Increase) decrease in other assets 4,236 (47,272)
Proceeds from the sale of equipment 76,800 100
-------------------------------
Net cash used for investment activities (877,080) (560,760)
-------------------------------
Financing Activities:
Loan payable - Joint Venture 99,435 99,458
Increase in long-term debt 50,000 325,000
Exercise of stock options 4,299 -0-
-------------------------------
Net cash from financing activities 153,734 424,458
-------------------------------
Effect of translation rate changes on cash 1,418 -0-
-------------------------------
Net Decrease in Cash and Cash Equivalents (496,771) (287,851)
Cash and Cash Equivalents at Beginning of Period 596,614 386,608
-------------------------------
Cash and Cash Equivalents at End of Period $ 99,843 $ 98,757
===============================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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 28, 1997 and the results of
operations and cash flows for the three months ended September 28, 1997, and
September 29, 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, 1997, and this filing should
be read in conjunction with that annual report.
2. Other Income
------------
Other income, both in the current and preceding year, was primarily
attributable to gains on the sales of 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.
5. Recent Accounting Pronouncements
--------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129, "Disclosure of
Information About Capital Structure." SFAS No. 128 establishes standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock or common stock equivalents. SFAS No. 129
establishes standards for disclosing information about an entity's capital
structure and applies to all entities. The Company will adopt both SFAS
Nos. 128 and 129 in the second quarter of fiscal 1998 as required by those
standards. The implementation of SFAS No. 128 will not have a material
effect on previously reported earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements.
SFAS No. 131 establishes standards for the manner in which public business
enterprises report selected information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Both standards will be adopted by the
Company during the first quarter of fiscal year 1999.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
- ---------------------
Total revenues in the first quarter of the current fiscal year were
$13,717,051, an increase of 7% over the revenues of $12,807,129 reported in
the comparable quarter last year. Revenues were generated primarily from
product sales, while some was derived from licensing and royalty fees.
Revenues grew in each of the Company's principal product lines - flexible
circuits, laminated cables, flexible/cable hybrid circuits and flexible
interconnect assemblies. The increase in total revenues was primarily
attributable to an increase in the volume of units shipped.
The cost of products sold was $10,538,912 or 77% of revenue versus
$10,912,043 this year or 85% of revenue last year. The decrease in the
percentage this quarter was primarily the result of manufacturing yield
improvements, while general productivity gains and increased absorption of
overhead also contributed to the reduction. These improvements were made
possible by enhancements to the manufacturing process, the acquisition of
additional production equipment and cost savings on materials and supplies.
Selling, general, and administrative expenses as a percentage of
revenue were 14% in the current quarter versus 12% in the comparable quarter
last year. The increase was associated principally with additional selling
expenses due to increased sales efforts.
Other income of $90,789 this quarter and $112,395 for the comparable
quarter last year was primarily associated with the gain on the sale of
equipment.
Interest expense was $93,972 this quarter as compared to $104,930 last
year. The slight reduction was due to a lower level of average borrowings.
Interest expense should decrease significantly as a result of the Company's
additional stock offering in the latter part of October 1997 (see Liquidity
and Capital Resources).
Income before income taxes increased 310% to $1,295,534 in the first
quarter this year as compared to $315,236 last year. This improvement was
due to the factors described above.
The Company's effective tax rate was 37% for the current quarter
versus 38% last year.
After providing for taxes and recognizing the minority interest in the
Chinese joint venture, the Company's net income was $728,279 this quarter
and $188,412 in the first quarter 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
material effect upon reported earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," SFAS No. 130 established standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements.
SFAS No. 131 establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. Both standards will be adopted by the Company
during the first quarter of fiscal year 1999.
Liquidity and Capital Resources
- -------------------------------
In October 1997, the Company completed a stock offering of 1,150,000
shares of its common stock, of which 1,000,000 shares were issued by the
Company and 150,000 were sold by selling shareholders. The shares were
priced at $22.00 per share. After deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, the net
proceeds exceeded $20,000,000.
Since the offering, the Company has paid off its revolver loan balance
of $3,200,000 ($3,050,000 at June 30, 1997) and plans to spend approximately
$12,000,000 over the next two years to expand its manufacturing facilities
and purchase capital equipment that will increase its manufacturing capacity
and accommodate various new technology processes. The remaining portion of
the proceeds will be used for general corporate purposes.
Additionally, the Company has received a commitment from the bank for
a $10,000,000 unsecured revolving line of credit to replace its existing
$5,000,000 revolving credit facility.
The monies that are expected to be generated from operating
activities, together with the proceeds from the offering and the amount
available under its revolving credit facility, should be sufficient to meet
the Company's foreseeable needs.
The Company has a deferred compensation obligation that is owed to an
employee. Under the current arrangement, monthly payments begin in June
1999, or the first month after the termination of employment, whichever
occurs first, and continues for no fewer than 60 months or, at the election
of the employee prior to his termination of employment, for up to 120
months. Amounts to be paid within one year are not expected to be material.
"Safe Harbor" Statement Under the Private Securities Litigation
- ---------------------------------------------------------------
Reform Act of 1995
- -------------------
This Report contains certain forward-looking statements that involve
risks and uncertainities. 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.
PART II - OTHER INFORMATION
---------------------------
Items 1-5 THESE ITEMS ARE INAPPLICABLE
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - See Exhibit Index
(b) The Company filed no reports on Form 8-K
during the quarter for which this report is filed.
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
------------------
---------------------------
Peter J. Murphy
President
/s/ Steven M. Millstein
---------------------------
Steven M. Millstein
Vice President of Finance
(Principal Accounting
and Financial Officer)
November 12, 1997
---------------------------
Date
EXHIBIT INDEX
Exhibit Description
- ------- -----------
11. Statement regarding computation of per share earnings; filed
herewith.
(In thousands, except per share data) EXHIBIT 11
PRIMARY
<TABLE>
<CAPTION>
Three Months Ended
September 28, 1997 September 29, 1996 (a)
-------------------------------------------
<S> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock 3,593 3,558
Common equivalent shares resulting from
stock options (treasury stock method) 210 124
-----------------------------
Total 3,803 3,682
=============================
Net income $ 728 $ 188
=============================
Net income per common share $ .19 $ .05
=============================
- --------------------
<Fa> Restated to reflect 3:2 stock split distributed in April 1997.
</TABLE>
<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-30-1998
<PERIOD-END> SEP-28-1997
<CASH> 99,843
<SECURITIES> 0
<RECEIVABLES> 10,335,417
<ALLOWANCES> 132,194
<INVENTORY> 7,845,898
<CURRENT-ASSETS> 19,092,099
<PP&E> 34,437,396
<DEPRECIATION> 20,447,974
<TOTAL-ASSETS> 33,665,383
<CURRENT-LIABILITIES> 8,978,964
<BONDS> 0
0
0
<COMMON> 380,331
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,665,383
<SALES> 13,672,226
<TOTAL-REVENUES> 13,717,051
<CGS> 10,538,912
<TOTAL-COSTS> 12,418,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,972
<INCOME-PRETAX> 1,295,534
<INCOME-TAX> 476,950
<INCOME-CONTINUING> 728,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 728,279
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
