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 29, 1998
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 April 23, 1998, was 4,638,399 shares.
<PAGE> -1-
PARLEX CORPORATION
INDEX
Part I - Financial Statements:
Consolidated Balance Sheets - March 29, 1998 and June 30, 1997 3
Consolidated Statements of Income - For the Three Months
and Nine Months Ended March 29, 1998 and March 30, 1997 4
Consolidated Statements of Cash Flows - For the Nine Months
Ended March 29, 1998 and March 30, 1997 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 11
Signatures 12
Exhibit Index 13
Exhibit 11 14
<PAGE> -2-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, 1998 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 29, 1998 June 30, 1997
-------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $14,253,495 $ 596,614
Accounts receivable - net 10,504,059 9,029,388
Inventories:
Raw material 3,458,745 2,706,302
Work in process 5,738,612 4,556,175
Deferred income taxes 294,033 294,033
Other current assets 1,469,419 850,956
------------------------------
Total current assets 35,718,363 18,033,468
------------------------------
Property, plant and equipment:
Land 468,864 468,864
Buildings 7,017,618 7,017,478
Machinery and equipment 24,764,774 22,823,785
Leasehold improvements, construction
in progress and other 6,741,350 3,974,058
------------------------------
Total 38,992,606 34,284,185
Less accumulated depreciation
and amortization (21,488,629) (20,671,859)
------------------------------
Property, plant and
equipment - net 17,503,977 13,612,326
------------------------------
Other assets 604,158 588,098
------------------------------
Total $53,826,498 $32,233,892
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt - $ 500,000
Bank loan $ 1,300,482 500,000
Accounts payable 5,338,760 5,047,284
Accrued liabilities 2,099,011 2,150,228
Income taxes payable (154,158) 244,404
------------------------------
Total current liabilities 8,584,095 8,441,916
------------------------------
Long-term debt 650,000 2,500,000
------------------------------
Other non-current liabilities 2,351,997 1,986,924
------------------------------
Minority interest in Parlex (Shanghai) 1,795,991 1,521,363
------------------------------
Stockholders' equity
Preferred stock -0- -0-
Common stock 484,729 379,875
Additional paid-in capital 23,755,542 3,334,424
Retained earnings 17,249,938 15,111,769
Less treasury stock at cost (1,037,625) (1,037,625)
Cumulative translation adjustments (8,169) (4,754)
------------------------------
Total Stockholders' equity 40,444,415 17,783,689
------------------------------
Total $53,826,498 $32,233,892
==============================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> -3-
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months Ended March 29, 1998 and March 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
March 29, 1998 March 30, 1997 March 29, 1998 March 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Product sales $14,210,541 $13,202,672 $42,013,580 $40,007,384
License fees and royalties 85,411 22,046 183,007 92,803
--------------------------------------------------------------
Total Revenues 14,295,952 13,224,718 42,196,587 40,100,187
--------------------------------------------------------------
Costs and Expenses:
Cost of products sold 11,268,857 10,239,384 33,123,743 32,624,343
Selling, general and
administrative expenses 1,996,916 1,753,584 5,808,759 5,078,073
--------------------------------------------------------------
Operating costs and
expenses 13,265,773 11,992,968 38,932,502 37,702,416
--------------------------------------------------------------
Operating income 1,030,179 1,231,750 3,264,085 2,397,771
Other income - (Note 2) 263,019 2,007 494,085 125,115
Interest expense (32,985) (114,790) (191,222) (335,323)
--------------------------------------------------------------
Income before income taxes 1,260,213 1,118,967 3,566,948 2,187,563
Provision for income taxes (399,800) (437,600) (1,154,150) (844,500)
--------------------------------------------------------------
Net income before minority
interest 860,413 681,367 2,412,798 1,343,063
Minority interest (Note 3) (37,463) (38,587) (274,630) 45,994
--------------------------------------------------------------
Net income (Notes 4, 5) $ 822,950 $ 642,780 $ 2,138,168 $ 1,389,057
==============================================================
Basic EPS $ .18 $ .18 $ .51 $ .39
--------------------------------------------------------------
Diluted EPS $ .17 $ .17 $ .49 $ .38
--------------------------------------------------------------
Weighted average shares -
Basic 4,620,229 3,574,541 4,180,671 3,563,625
==============================================================
Weighted average shares -
Diluted 4,788,906 3,738,773 4,376,368 3,696,810
==============================================================
</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 29, 1998 and March 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $ 2,138,168 $ 1,389,057
-----------------------------
Adjustments to reconcile net income to net
cash provided by (used for)operating activities:
Depreciation and amortization 1,761,352 1,429,288
Gain on sale of equipment (68,572) (250)
Deferred compensation 61,726 55,280
Minority Interest 274,627 (50,477)
Increase (decrease) in cash from:
Accounts receivable - net (1,474,671) (1,731,624)
Inventories (1,934,880) 185,241
Other current assets (618,463) (61,930)
Accounts payable 291,476 (33,217)
Accrued liabilities (51,216) 765,538
Income taxes payable (398,562) 493,928
-----------------------------
Total adjustments (2,157,183) 1,051,777
-----------------------------
Net cash provided by (used for) operating activities (19,015) 2,440,834
-----------------------------
Investment Activities:
Additions to property, plant and equipment (5,359,472) (2,078,826)
Increase in other assets (16,060) (28,685)
Proceeds from the sale of equipment 77,800 250
-----------------------------
Net cash used for investment activities (5,297,732) (2,107,261)
-----------------------------
Financing Activities:
Repayments under revolving credit agreement (2,350,000) (125,000)
Payments of long term debt (100,000)
Loan payable - Joint Venture 800,482 99,332
Exercise of stock options and stock offering 20,525,972 68,962
-----------------------------
Net cash (used for) from financing activities 18,976,454 (56,706)
-----------------------------
Effect of exchange rate changes with cash (2,826) -
-----------------------------
Net Increase in Cash and Cash Equivalents 13,656,881 276,867
Cash and Cash Equivalents at Beginning of Period 596,614 386,608
-----------------------------
Cash and Cash Equivalents at End of Period $14,253,495 $ 663,475
=============================
</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 29, 1998 and the results of
operations and cash flows for the three months and nine months ended March
29, 1998, and March 30, 1997. 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 these interim financial statements 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
In the current quarter this year, other income was comprised
principally of interest income, and to a lesser extent, items of a
miscellaneous nature, while last year other income contained no interest
income. For the first nine months, both this year and last, other income
also included the gain on the sale 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. Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." The Company adopted this standard in the quarter ended December 28,
1997, and restated all previously reported earnings per share information to
conform with the new pronouncement's requirements.
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
<PAGE> -6-
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.
5. Common Stock
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. After deducting
underwriting discounts and commissions and offering expenses, the net
proceeds to the Company approximated $20,000,000.
<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
$14,295,952, an increase of 8% from the $13,224,718 reported in the
corresponding period a year ago. Revenues were generated primarily from
product sales, while the remainder was derived from licensing and royalty
fees.
For the first nine months, revenues were $42,196,587, or 5% higher
than the $40,100,187 reported last year. For most of the current fiscal
year, revenue has been constrained by equipment capacity which will be
resolved substantially during the next quarter based upon the current
equipment and facility expansion program.
The cost of products sold as a percentage of revenue was 79%, a slight
increase from the 77% reported in the third quarter last year. For the first
nine months, the cost was 78% versus 81% for the same period last year. The
primary reason for the increase in the quarter was a change in product mix.
The reduction over nine months is attributed to manufacturing efficiencies.
The Company continues to focus on margin improvement. Learning curves
associated with the introduction of PALFlex(R), one of the Company's
proprietary products, and the movement of certain finishing operations to a
new manufacturing facility in Empalme, Mexico should have a positive
influence on margins in the ensuing quarters.
Selling, general, and administrative expenses as a percentage of
revenue was 14% in the current quarter and for the first nine months this
year versus 13% for the same periods last year. The significant growth
being experienced by Parlex (Shanghai), the Chinese joint venture, and the
additional expenses associated with increasing the sales force in order to
accommodate its future growth were the primary factors contributing to the
increase.
Other income in the current quarter was $263,019 as compared to $2,007
in the third quarter last year. For the first nine months, other income
totaled $494,085 versus $125,115 last year. In the current quarter, the
principal portion of other income resulted from interest income, with the
remainder comprised of items of a miscellaneous nature. For the first nine
months this year, other income also included the gain on the sale of
equipment. In the third quarter and first nine months of the prior year,
other income was comprised of miscellaneous items and the sale of equipment.
Interest expense was $32,985 this quarter as compared to $114,790 in
the third quarter last year. For the first nine months, interest expense
was $191,222 versus $335,323 for the same period last year. A portion of
the proceeds from the secondary offering (refer to "Liquidity and Capital
Revenues") were used to reduce the Company's long-term debt of $3,200,000
(in October, 1997), which resulted in the reduction of interest expense.
<PAGE> -8-
The above factors resulted in income before income taxes of $1,260,213
and $3,566,948 for the third quarter and first nine months, respectively.
This compares to $1,118,967 in the third quarter and $2,187,563 for the
first nine months last year.
The Company's effective tax rate this year is anticipated to
approximate 32%, which is reflected in both the current quarter and year to
date. Last year, the Company's presumed tax rate was estimated at 39%. The
reduction in rate relates primarily to the Parlex (Shanghai) earnings
generated thus far, which are not subject to income taxes in China. The
Company considers these earnings as being permanently reinvested in the
Chinese venture.
After providing for taxes and recognizing the minority interest in the
Chinese joint venture, the Company's net income was $822,950 and $2,138,168
for the current quarter and first nine months, respectively. This compares
to $642,780 and $1,389,057 for the respective time periods last year.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". The Company adopted this standard in the quarter
ended December 28, 1997, and restated all previously reported earnings per
share information to conform with the new pronouncement's requirements.
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 established 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 1,000,000
shares of its common stock, and these shares were priced at $22.00 per
share. After deducting underwriting discounts and commissions and offering
expenses paid by the Company, the net proceeds to the Company approximated
$20,000,000.
<PAGE> -9-
Since the offering, the Company has paid off its revolver loan balance
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
technological processes. The remaining portion of the proceeds will be used
for general corporate purposes. Additionally, the Company has a $10,000,000
unsecured revolving line of credit. No monies have been borrowed against
this line.
The Company believes that its cash flow from operations, 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 the
Chairman of the Board of Directors. 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 quarterly Report on Form 10-Q contains certain forward-looking
statements as defined under the Federal Securities Laws. 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> -10-
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.
<PAGE> -11-
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
By: /s/ Peter J. Murphy
Peter J. Murphy
President
By: /s/ Steven M. Millstein
Steven M. Millstein
Vice President of Finance
(Principal Accounting and
Financial Officer)
May 13, 1998
Date
PAGE> -12-
EXHIBIT INDEX
Exhibit Description of Exhibit Page
- ------- ---------------------- ----
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE> -13-
EXHIBIT 11
PARLEX CORPORATION AND SUBSIDIARIES
Computation of Net Income Per Common Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
March 29, 1998 March 30, 1997 March 29, 1998 March 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Basic Earnings Per Share $0.18 $0.18 $0.51 $0.39
Weighted Average
Number of Shares
Outstanding 4,620,229 3,574,541 4,180,671 3,563,625
Diluted Earnings Per Share $ .17 $ .17 $ .49 $ .38
Weighted Average
Number of Shares
Outstanding 4,620,229 3,574,541 4,180,671 3,563,625
Effective of Dilutive
Stock Options 168,677 164,232 195,697 133,185
Adjusted Weighted
Average Number of
Shares Outstanding 4,788,906 3,738,773 4,376,368 3,696,810
</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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-29-1998
<CASH> 14,253,495
<SECURITIES> 0
<RECEIVABLES> 10,655,448
<ALLOWANCES> 151,389
<INVENTORY> 9,197,357
<CURRENT-ASSETS> 35,718,363
<PP&E> 38,992,606
<DEPRECIATION> 21,488,629
<TOTAL-ASSETS> 52,826,498
<CURRENT-LIABILITIES> 8,584,095
<BONDS> 0
0
0
<COMMON> 484,729
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53,826,498
<SALES> 42,013,580
<TOTAL-REVENUES> 42,196,587
<CGS> 33,123,743
<TOTAL-COSTS> 38,932,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,222
<INCOME-PRETAX> 3,566,948
<INCOME-TAX> 1,154,150
<INCOME-CONTINUING> 2,138,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,138,168
<EPS-PRIMARY> .51
<EPS-DILUTED> .49
</TABLE>
