SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant
to Section 13, or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 23, 2000
PARLEX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts
(State or Other Jurisdiction of Incorporation)
0-12942 04-2464749
(Commission File Number) (IRS Employer Identification No.)
One Parlex Place, Methuen, Massachusetts 01844
(Address of Principal Executive Offices) (Zip Code)
(978) 685-4341
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
This is page 1 of 4 pages.
Exhibit Index appears on page 4.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
On March 15, 2000, the Registrant filed a Current Report on Form 8-K
with the Securities and Exchange Commission (the "Commission") which
described the Registrant's acquisition (the "Poly-Flex Acquisition")of the
stock of two Cookson Group plc wholly-owned subsidiaries, Poly-Flex
Circuits Limited (a United Kingdom company) and Poly-Flex Circuits, Inc. (a
Rhode Island corporation)(together "Poly-Flex"). The report indicated
that the required financial statements and the pro forma financial
information required by Article 11 of Regulation S-X would be filed by an
amendment to such filing. This Report on Form 8-K/A files such
information.
Financial Statements of the Acquired Business
(a) The required financial statements for the one year ended
December 31, 1999 with respect to the acquired business are included
herewith.
(b) The required pro forma financial information with respect
to the acquired business is included herewith.
(c) Exhibits:
Exhibit
Number Exhibit
- ------- -------
2.1 Stock Purchase Agreement dated as of January 21, 2000, by
and among Parlex Corporation, Cookson Group, plc and Cookson
Investments, Inc.*
10.S Loan Agreement dated as of March 1, 2000, by and between
Parlex Corporation and Fleet National Bank.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Audit Plc.
___________________
* Previously filed as an identically numbered exhibit to the
Registrant's Current Report on Form 8-K, dated March 15, 2000 and
filed with the Securities and Exchange Commission on March 15, 2000.
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 hereunto duly authorized.
PARLEX CORPORATION
(Registrant)
By: /s/ Peter J. Murphy
--------------------------------
Peter J. Murphy
President and
Chief Executive Officer
Dated: May 23, 2000
INDEX TO FINANCIAL STATEMENTS
POLY-FLEX CIRCUITS, INC. and POLY-FLEX CIRCUITS LIMITED
Independent Auditors' Report
Report of the Independent Auditors for Poly-Flex Circuits Limited
Combined Balance Sheet - December 31, 1999
Combined Statement of Operations - Year Ended December 31, 1999
Combined Statement of Stockholders' Equity - Year Ended
December 31, 1999
Combined Statements of Cash Flows - Year Ended December 31, 1999
Notes to Combined Financial Statements - Year Ended
December 31, 1999
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Condensed
Financial Statements
Unaudited Pro Forma Combined Condensed Statement of Operations
for the Year Ended June 30, 1999
Unaudited Pro Forma Combined Condensed Statement of Operations -
Nine Months Ended March 26, 2000
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of
Poly-Flex Circuits, Inc. and Poly-Flex Circuits Limited:
We have audited the accompanying combined balance sheet of Poly-Flex
Circuits, Inc. and Poly-Flex Circuits Limited (wholly owned subsidiaries
of Cookson Group plc) ("Poly-Flex or the Companies") as of December 31,
1999, and the related combined statements of operations, stockholders'
equity, and cash flows for the year then ended. These Companies are under
common ownership and common management. These financial statements are the
responsibility of Poly-Flex's management. Our responsibility is to express
an opinion on these financial statements based on our audit. We did not
audit the financial statements of Poly-Flex Circuits Limited, which
statements reflect total assets constituting 34% of the combined total
assets at December 31, 1999, and total revenues constituting 37% of
combined total revenues for the year then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Poly-Flex
Circuits Limited, is based solely on the report of such other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
such combined financial statements present fairly, in all material
respects, the financial position of Poly-Flex at December 31, 1999, and the
results of their operations and their cash flows for the year then ended,
in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared from the separate
records maintained by the Companies and may not necessarily be indicative
of the conditions that would have existed or the results of operations if
the Companies had operated as separate companies from their parent. As
discussed in Note 1 to the financial statements, a portion of expenses
represents allocations from the Companies' parent applicable to the
operations of the Companies.
\S\ Deloitte & Touche LLP
Boston, Massachusetts
May 18, 2000
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors of Poly-Flex Circuits Limited
We have audited the accompanying balance sheet of Poly-Flex Circuits
Limited as of 31 December 1999, and the related profit and loss account and
cash flow statement for the year ended 31 December 1999, set out on pages 4
to 15. These financial statements are the responsibility of Poly-Flex
Circuits Limited's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which are substantially equivalent to United States generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material mis-statement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all respects, the financial position of Poly-Flex Circuits Limited as of
31 December 1999, and the results of its operations and cash flows for the
year ended 31 December 1999, in conformity with accounting principles in
the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles
in the United States. Application of generally accepted accounting
principles in the United States would have affected the result of
operations for the year ended 31 December 1999, and shareholders' funds as
of 31 December 1999, to the extent summarized in Note 23 of "Notes to the
financial statements".
/s/ KPMG Audit Plc
KPMG Audit Plc
Chartered Accountants
Registered Auditor
Southampton, England
18 May 2000
POLY-FLEX CIRCUITS, INC. AND POLY-FLEX CIRCUITS LIMITED
COMBINED BALANCE SHEET
DECEMBER 31, 1999 (Dollars in Thousands)
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 853
Accounts receivable - less allowance for doubtful accounts
of $50 3,557
Inventories 2,048
Other current assets 39
-------
Total current assets 6,497
-------
PROPERTY, PLANT AND EQUIPMENT:
Land 275
Buildings 5,248
Machinery and equipment 24,943
Leasehold improvements and other 809
-------
Total property, plant and equipment 31,275
Less accumulated depreciation and amortization 14,491
-------
Property, plant and equipment - net 16,784
-------
GOODWILL, Net 935
-------
TOTAL ASSETS $24,216
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,366
Accrued liabilities 1,234
-------
Total current liabilities 2,600
-------
DEFERRED INCOME TAXES 364
-------
OTHER NONCURRENT LIABILITIES 73
-------
DUE TO PARENT 7,778
-------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, Poly-Flex Circuits, Inc. $.01 par value -
authorized, 8,000 shares; issued and outstanding, 1,000 shares -
Common stock, Poly-Flex Circuits Limited. $1.61 par value -
authorized, 500,000 shares, issued and outstanding,
355,555 shares 573
Additional paid-in capital 46,306
Accumulated deficit (33,443)
Accumulated other comprehensive loss (35)
-------
Total stockholders' equity 13,401
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,216
=======
</TABLE>
See notes to combined financial statements.
POLY-FLEX CIRCUITS, INC. AND POLY-FLEX CIRCUITS LIMITED
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 (Dollars in Thousands)
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUES - Product sales $24,654
COSTS AND EXPENSES:
Cost of products sold 17,539
Selling, general and administrative expenses 4,885
Research and development 902
Management fee 950
-------
Total costs and expenses 24,276
-------
OPERATING INCOME 378
INTEREST EXPENSE 709
-------
LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES (331)
PROVISION FOR INCOME TAXES 76
-------
NET LOSS $ (407)
=======
</TABLE>
See notes to combined financial statements.
POLY-FLEX CIRCUITS, INC. AND POLY-FLEX CIRCUITS LIMITED
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 (Dollars in Thousands)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Additional Comprehensive Comprehensive Total
----------------- Paid-in Accumulated Income Income Stockholders'
Shares Amount Capital Deficit (Loss) (Loss) Equity
------ ------ ---------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 356,555 $573 $46,306 $(33,036) $(41) $13,802
Comprehensive income - net loss - - - (407) - $(407) (407)
Other comprehensive income -
foreign currency translation
adjustment - - - - 6 6 6
-----
Comprehensive income (loss) $(401)
------- ---- ------- -------- ---- ===== --------
BALANCE, DECEMBER 31, 1999 356,555 $573 $46,306 $(33,443) $(35) $13,401
======= ==== ======= ======== ==== =======
</TABLE>
See notes to combined financial statements.
POLY-FLEX CIRCUITS, INC. AND POLY-FLEX CIRCUITS LIMITED
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 (Dollars in Thousands)
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (407)
------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization expense 1,728
Deferred income taxes 71
Gain on sale of equipment 18
Changes in current assets and liabilities:
Accounts receivable - net 222
Inventories 279
Other current assets 8
Accounts payable and accrued liabilities (20)
------
Total adjustments 2,306
------
Net cash provided by operating activities 1,899
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (773)
Proceeds from sale of equipment 25
------
Net cash used in investing activities (748)
------
CASH FLOWS FROM FINANCING ACTIVITIES - Repayments to parent (983)
------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 110
------
NET INCREASE IN CASH AND CASH EQUIVALENTS 278
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 575
------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 853
======
</TABLE>
See notes to combined financial statements.
POLY-FLEX CIRCUITS, INC. AND POLY-FLEX CIRCUITS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 (Dollars in Thousands)
- ---------------------------------------------------------------------------
1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business - Poly-Flex Circuits, Inc. and Poly-Flex Circuits Limited ("Poly-
Flex" or the "Companies") design and manufacture polymer thick film
("PTF"), flexible circuits and flexible interconnect assemblies. Poly-Flex
produces custom flexible circuits and flexible interconnect assemblies
utilizing proprietary processes and patented technologies which are
designed to satisfy the unique requirements of a wide range of customers.
Poly-Flex provides its products and engineering services to a variety of
markets including automotive, computer, military-aerospace,
telecommunications, industrial control, medical and consumer.
On March 1, 2000, pursuant to a Stock Purchase Agreement dated January 21,
2000, by and among Parlex Corporation (the "Buyer") and Cookson Group plc
and Cookson Investment, Inc. (together "Cookson" or the "parent"), Cookson
sold all of the outstanding stock of the Companies to Parlex Corporation.
The accompanying combined financial statements include the historical basis
financial statements of the Companies. The Companies have been operating as
wholly owned subsidiaries of Cookson Group plc and participated in the
consolidated health insurance and other programs of the parent. The
financial statements have been prepared from the separate records
maintained for the Companies for the year presented and include the
historical assets, liabilities, revenue and expenses related to their
business. For the year ended December 31, 1999, selling, general and
administrative expenses include the Companies' share of expenses associated
with certain executive salaries of $469 and health and other group
insurance programs expense applicable to the Companies of $730 and pension
expense related to contributions for the Companies' employees of $222. The
Companies have also been allocated a management fee as determined annually
by the parent. Such fee is considered a corporate overhead charge for
rent, legal, interest and other corporate charges totaling $950 for the
year ended December 31, 1999. Management believes that such charge is
related solely to the Companies operating as part of a group of companies
of the parent and would not have been incurred had the Companies operated
on a stand-alone basis.
The financial information included herein does not reflect any adjustments
that may be made by the Buyer to record the allocation of purchase price to
the assets acquired and liabilities assumed in preparing an opening balance
sheet, nor does it reflect what the results of operations are expected to
be in the future or what the financial position and results of operations
would have been had the Companies been separate stand-alone entities,
independent of the parent, for the year ended December 31, 1999.
Basis of Combination - The combined financial statements include the
accounts of Poly-Flex Circuits, Inc. and its affiliate, through common
ownership, Poly-Flex Circuits Limited (a United Kingdom company). All
intercompany transactions and balances have been eliminated.
Foreign Currency Translation - The functional currency of foreign
operations is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet
date. Results of operations are translated at average exchange rates
prevailing during each period.
Cash and Cash Equivalents - The Companies were included in the centralized
cash management program of the parent, whereby excess operating cash of the
Companies was transferred to the parent. Cash balances at December 31, 1999
represent amounts associated with miscellaneous accounts and excess cash
not transferred to the Parent. Cash and cash equivalents include short-
term highly liquid investments purchased with remaining maturities of three
months or less.
Inventories - Inventories of raw materials are stated at the lower of
first-in, first-out cost or market. Work in process represents costs
accumulated under a job-cost accounting system, less the estimated cost of
shipments, in the aggregate not in excess of net realizable value. At
December 31, inventories consisted of:
<TABLE>
<S> <C>
Raw materials $1,300
Work in process 506
Finished goods 242
------
Total $2,048
======
</TABLE>
Property, Plant and Equipment - Property, plant and equipment are stated at
cost and are depreciated using the straight-line method over their
estimated useful lives: buildings, 30-50 years; machinery and equipment 3-
15 years; and leasehold improvements, over the shorter of estimated lives
and the terms of the leases.
Goodwill - Goodwill represents the excess of cost over acquired assets.
Goodwill is amortized on a straight-line basis over a 10-year period.
Accumulated amortization at December 31, 1999 was $355.
Revenue Recognition - Product sales are recognized upon shipment.
Research and Development - Research and development costs are expensed as
incurred and amounted to $902 for the year ended December 31, 1999. These
amounts are reflected in the Companies' cost of products sold.
Income Taxes -The Companies' income or loss is reported as part of the
consolidated tax return of their parent company. For financial statement
reporting purposes, the Companies have accounted for income taxes as if
they filed federal, state and local tax returns on a stand-alone basis. As
such, the Companies account for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach to
accounting for income taxes based upon the future expected values of the
related assets and liabilities. Deferred income taxes are provided for
items which are recognized in different years for tax and financial
reporting purposes.
Use of Estimates - The preparation of the Companies' combined financial
statements in conformity with generally accepted accounting principles in
the United States of America necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
balance sheet date. Estimates include reserves for accounts receivable,
useful lives of property, plant and equipment, accrued liabilities and
deferred income taxes. Actual results could differ from those estimates.
Fair Value of Financial Instruments - SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying amounts of cash, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of their short-term nature.
Stock-Based Compensation - The Companies account for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25 using the intrinsic value method as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require, the recognition of compensation expense for the fair
value of stock options and other equity instruments issued to employees and
nonemployee directors. The difference between accounting for stock-based
compensation under APB Opinion No. 25 and SFAS No. 123 is disclosed in Note
7.
Recently Adopted Accounting Pronouncements - The Companies have adopted the
disclosure provisions of 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 way that 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. The Companies organize themselves as one
segment reporting to the chief operating decision-maker. Revenue consists
largely of product sales.
Future Adoption of Accounting Pronouncements - In December 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133 will be adopted by the Companies during 2001.
The Companies have not completed an evaluation of the effects of adopting
SFAS No. 133 on its consolidated financial position, results of operations
and financial statement disclosures.
2. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 consisted of:
<TABLE>
<S> <C>
Payroll and related expenses $ 340
VAT 195
Interest 222
Other 477
------
Total $1,234
======
</TABLE>
3. INCOME TAXES
The provision for income taxes for the year ended December 31 consisted of:
<TABLE>
<S> <C>
Foreign:
Deferred $47
Current 29
---
Total $76
===
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<S> <C>
Statutory federal income tax rate 34 %
State income taxes, net of federal tax benefit 6
Foreign income subject to tax at 30.25% 9
Nontaxable grant income 11
Goodwill (16)
Meals and entertainment (4)
Other (1)
Valuation allowance (62)
---
Effective income tax rate (23)%
===
</TABLE>
Income before income taxes for the year ended December 31, 1999 consisted
of:
<TABLE>
<S> <C>
Domestic $(569)
Foreign 238
-----
Total $(331)
=====
</TABLE>
Deferred income tax assets and liabilities at December 31, 1999 are
attributable to the following:
<TABLE>
<S> <C>
Deferred tax liabilities - depreciation $ 2,433
-------
Deferred tax assets:
Net operating loss carryforward 7,607
Inventories 45
Allowance for doubtful accounts 10
Accruals 70
Intangible assets 8
Valuation allowance (5,671)
-------
2,069
-------
Net deferred tax liability $ 364
=======
</TABLE>
There were no income tax payments made in 1999.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $18 million related to U.S. federal, foreign and state
jurisdictions. Substantially all of these carryforwards will begin to
expire at various times starting in 2006.
4. BENEFIT PLANS
The Companies' employees are allowed to participate in the Cookson plc U.S.
Employee Stock Purchase Plan. Employees may contribute up to $5,000, via
payroll deductions throughout the year, and purchase shares in Cookson plc
for 85% of the market value as of the date of grant.
The Companies have a 401(k) Savings Plan (the "Plan") covering all
employees of the Companies who have six consecutive months of service and
have attained the age of 21. Matching employer contributions are made to
the Plan at an amount equal to 2 to 1 for every dollar of employee
contribution up to a maximum of 4% of the employee's salary/wages. The
Companies contributed $148 to the Plan for the year ended December 31, 1999.
Poly-Flex Circuits Limited participates in a multiemployer, defined
benefit plan, administered by Cookson, covering all qualified employees
aged 18 years or older. Total pension expense approximated $222 for 1999.
5. COMMITMENTS AND CONTINGENCIES
The Companies lease certain property and equipment under agreements
generally with initial terms from three to five years with renewal options.
Rental expense for the year ended December 31, 1999 approximated $211.
Future payments under noncancelable operating leases are:
<TABLE>
<S> <C>
2000 $225
2001 224
2002 171
2003 142
2004 142
Thereafter 709
</TABLE>
From time to time, the Companies are subject to various legal proceedings
and claims, either asserted or unasserted, which arise in the ordinary
course of business. While the outcome of these claims cannot be predicted
with certainty, management is not aware of any current legal matters that
will have a material adverse effect on the Companies' combined financial
position, results of operations or cash flows.
6. BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL OPERATIONS
The Companies operate within a single segment of the electronics industry
as a specialist in the interconnection and packaging of electronic
equipment with its product lines of flexible printed circuits and related
assemblies. The Companies organize themselves as one segment reporting to
the chief operating decision-maker. Revenue consists of product sales and
royalty income.
Customers exceeding 10% of the Company's sales during fiscal 1999 are as
follows:
<TABLE>
<CAPTION>
Percentage of
Percentage Gross Accounts
of Revenue Receivable at
Customer 1999 December 31, 1999
-------- ---------- -----------------
<S> <C> <C>
A 18% 10%
B 11 -
C 9 -
D 10 11
-- --
48% 21%
== ==
</TABLE>
Summarized information relating to international operations is as follows
for the year ended December 31, 1999:
<TABLE>
<S> <C>
Revenues:
United States $13,381
Europe 8,587
Asia/Pacific 2,026
Canada 575
Other 85
-------
Total revenues from unaffiliated customers $24,654
=======
The principal product group sales were:
Flexible circuits $21,388
Control panels 3,266
-------
Product sales $24,654
=======
Long-lived assets:
United States $23,531
United Kingdom 8,679
-------
Total $32,210
=======
</TABLE>
7. STOCKHOLDERS' EQUITY
Certain employees of the Companies participate in various stock option
plans (the "Plans") established by Cookson. Stock options granted under
the Plans are exercisable after three years and expire in ten years. At
January 1, 1999, 35,359 options were outstanding under the Plans. During
1999, 23,805 options were granted at a weighted-average exercise price of
$3.65 and no options were exercised or expired. At December 31, 1999,
59,164 options were outstanding at a weighted-average exercise price of
$3.54.
The Companies account for stock options under APB No. 25 as permitted by
SFAS No. 123. The stock options granted under the Plans contain provisions
whereby the options are exercisable only if certain performance
measurements are attained. Such provisions require variable plan
accounting.
For the purposes of determining compensation expense under APB No. 25 and
for the purposes of determining the pro forma effects as if the Companies
were accounting for stock options using the fair value method prescribed
under SFAS No. 123, a measurement date for determining compensation is
required. As it is more likely than not that the performance measurements
will not be attained, no measurement date has been established at the date
of the stock option grant or at December 31, 1999.
8. SUBSEQUENT EVENT
On March 1, 2000, Parlex Corporation purchased all the outstanding stock of
the Companies through a stock purchase agreement (the "Agreement"). The
purchase price consisted of cash of $19,650 and is subject to adjustment
based upon the March 1, 2000 book value, as defined, of the Companies'
assets and liabilities. The Agreement also provides for an adjustment to
the purchase price based on the earnings, as defined, of Poly-Flex for the
10-month period following the acquisition.
* * * * * *
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
Pursuant to a Stock Purchase Agreement dated as of January 21, 2000
(the "Purchase Agreement"), by and among Parlex Corporation (the
"Company"), and Cookson Group plc and Cookson Investments, Inc.
(collectively "Cookson"), Parlex Acquisition Corporation (the "Acquisition
Company"), a wholly-owned subsidiary of the Company, completed the
acquisition (the "Poly-Flex Acquisition") of the stock of two Cookson Group
plc wholly-owned subsidiaries, Poly-Flex Circuits Limited (a United Kingdom
company) and Poly-Flex Circuits, Inc. (a Rhode Island corporation)
(together "Poly-Flex"). The Poly-Flex Acquisition was completed on March
1, 2000. Pursuant to the Purchase Agreement, the Acquisition Company paid
Cookson $19,650,000 in cash.
The Purchase Agreement provides for adjustments to purchase price
based upon the March 1, 2000 book value, as defined, of the Companies' assets
and liabilities. The Agreement also provides for an adjustment to the
purchase price based on the earnings, as defined, of Poly-Flex for the
10-month period following the acquisition.
The Poly-Flex Acquisition has been accounted for under the purchase
method of accounting. The following unaudited pro forma combined condensed
financial statements give effect to the Poly-Flex Acquisition. A pro forma
balance sheet is not included as of March 26, 2000 since the acquisition
occurred on March 1, 2000, and as such is reflected in the Company's
historical balance sheet appearing in the Company's Quarterly Report on Form
10-Q for the Quarter ended March 26, 2000. The unaudited pro forma combined
condensed statement of operations give effect to the Poly-Flex Acquisition as
if it had occurred on July 1, 1998. Such pro forma statement of operations
does not include adjustments, if any, relating to any contingent consideration
or purchase price adjustments. These unaudited pro forma combined condensed
financial statements should be read in conjunction with the historical
consolidated financial statements and notes thereto of the Company. The pro
forma financial information is for informational purposes only and does not
purport to represent what the Company's results of operations would have
actually been had the transactions to which pro forma effect is given been
consummated as of the dates or for the periods indicated.
PARLEX CORPORATION AND POLY-FLEX
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Parlex Corp. Poly-Flex Pro Forma
06/30/1999 06/30/1999 Adjustments Combined
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
TOTAL REVENUES 67,047,000 25,795,000 92,842,000
COST OF GOODS SOLD 52,785,000 18,869,000(a) 427,000 72,081,000
---------- ---------- ----------
GROSS PROFIT 14,262,000 6,926,000 20,761,000
SELLING, GENERAL AND ADMINISTRATIVE EXP. 9,715,000 4,760,000(a) 42,000 14,517,000
MANAGEMENT FEES 1,031,000(c) (1,031,000)
---------- ---------- ----------
OPERATING INCOME (LOSS) 4,547,000 1,135,000 6,244,000
Interest expense 226,000 653,000(b) 797,000 1,676,000
Other (income) expense (360,000) (8,000) (368,000)
INCOME BEFORE TAX AND MINORITY INTEREST 4,681,000 490,000 4,936,000
---------- ---------- ----------
Tax 964,000 196,000(d) (94,000) 1,066,000
Minority interest 697,000 0 697,000
---------- ---------- ----------
NET INCOME 3,020,000 294,000 3,173,000
========== ========== ==========
NET INCOME PER SHARE
Basic 0.65 0.68
Diluted 0.63 0.67
WEIGHTED AVERAGE SHARES
Basic 4,661,790
Diluted 4,770,874
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
PARLEX CORPORATION AND POLY-FLEX
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 26, 2000
<TABLE>
<CAPTION>
Poly-Flex
Parlex Corp. through date Pro Forma
03/26/2000 of acquisition Adjustments Combined
------------ -------------- ----------- --------
<S> <C> <C> <C> <C>
TOTAL REVENUES 70,021,000 15,069,000 85,090,000
COST OF GOODS SOLD 53,171,000 11,896,000 (a) 320,000 65,387,000
---------- ---------- ----------
GROSS PROFIT 16,850,000 3,173,000 19,703,000
SELLING, GENERAL AND ADMINISTRATIVE EXP. 8,762,000 3,509,000 (a) 32,000 12,303,000
MANAGEMENT FEES 773,000 (c) (773,000)
---------- ---------- ----------
OPERATING INCOME (LOSS) 8,088,000 (1,109,000) 7,400,000
Interest expense 368,000 437,000 (b) 651,000 1,456,000
Other (income) expense (4,000) (66,000) (70,000)
INCOME BEFORE TAX AND MINORITY INTEREST 7,724,000 (1,480,000) 6,014,000
---------- ---------- ----------
Tax 2,175,000 (586,000)(d) (92,000) 1,497,000
Minority interest 949,000 0 949,000
---------- ---------- ----------
NET INCOME 4,600,000 (894,000) 3,568,000
========== ========== ==========
NET INCOME PER SHARE
Basic 0.96 0.74
Diluted 0.94 0.73
WEIGHTED AVERAGE SHARES
Basic 4,805,473
Diluted 4,883,645
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for
the Year Ended June 30, 1999
The unaudited pro forma combined condensed statement of operations for the
year ended June 30, 1999 gives effect to the Poly-Flex Acquisition as if it
had occurred on July 1, 1998.
(a) The results of operations have been adjusted to reverse historical
depreciation and amortization of $1,590,000 and record depreciation
and amortization expense of $2,059,000 for the year ended June 30,
1999 based on a preliminary allocation of purchase price. The useful
life of assets and goodwill to calculate depreciation and
amortization is approximately 7 years and 10 years, respectively.
(b) Interest expense has been adjusted to reverse historical interest
expense of $653,000 representing allocated interest from the prior
parent, and to record $1,450,000 of additional interest related to
the approximately $20,000,000 increase in debt to finance the Poly-
Flex Acquisition. Interest expense was calculated using a current
interest rate of 7.25%.
(c) The historical Poly-Flex financial statements include certain
allocations from the prior parent for executive salaries, health and
group insurance and pension costs applicable to the Poly-Flex business,
and an allocated management fee for corporate overhead expenses.
The allocated management fee of $1,031,000 has been eliminated.
Management believes that such charge is related solely to the Companies
operating as part of a group of companies of the parent and would not
have been incurred had the Companies operated on a stand-alone basis.
(d) The income tax effects of the pro forma adjustments for deprecation
and amortization, interest, and the allocated management fee have
been calculated assuming a 40% statutory tax rate.
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for
the Nine-Months Ended March 26, 2000
The unaudited pro forma combined condensed statement of operations for the
nine-months ended March 26, 2000 gives effect to the Poly-Flex Acquisition as
if it had occurred on July 1, 1999.
(a) The results of operations have been adjusted to reverse historical
depreciation and amortization of $1,193,000 and record depreciation
and amortization expense of $1,545,000 for the nine-months ended
March 26, 2000 based on a preliminary allocation of purchase price. The
useful life of assets and goodwill to calculate depreciation and
amortization is approximately 7 years and 10 years, respectively.
(b) Interest expense has been adjusted to reverse historical interest
expense of $437,000 representing allocated interest from the prior
parent, and to record $1,088,000 of additional interest related to
the $20,000,000 increase in debt to finance the Poly-Flex
Acquisition. Interest expense was calculated using a current
interest rate of 7.25%.
(c) The historical Poly-Flex financial statements include certain
allocations from the prior parent for executive salaries, health and
group insurance and pension costs applicable to the Poly-Flex business,
and an allocated management fee for corporate overhead expenses.
The allocated management fee of $773,000 has been eliminated.
Management believes that such charge is related solely to the Companies
operating as part of a group of companies of the parent and would not
have been incurred had the Companies operated on a stand-alone basis.
(d) The income tax effects of the pro forma adjustments for deprecation
and amortization, interest, and the allocated management fee have
been calculated assuming a 40% statutory tax rate.
Allocation of Purchase Price
For the purposes of allocating purchase price to the assets acquired and
the liabilities assumed, the Company has preliminarily allocated the purchase
price as follows:
<TABLE>
<S> <C>
Accounts Receivable $ 3,285
Inventory, principally raw materials 2,283
Prepaid Expenses 180
Property, Plant and Equipment 16,867
Goodwill 186
-------
Total Assets 22,801
Accounts Payable and Accrued Expenses 2,551
-------
Total Purchase Price 20,250
=======
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-39646, 33-39648, 33-88470, 33-88472, 333-18869, 333-70561 of Parlex
Corporation on Form S-8 of our report dated May 18, 2000 (which report
expresses an unqualified opinion, refers to the report of other auditors
and includes an explanatory paragraph related to the basis of presentation),
related to the combined financial statements of Poly-Flex Circuits, Inc.
and Poly-Flex Circuits Limited, appearing in this Form 8-K/A of Parlex
Corporation.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
May 18, 2000
[Form of KPMG Letterhead]
The Board of Directors
Parlex Corporation
One Parlex Place Our ref Consent 8-KA
Methuen
Massachusetts 01844 Contact Tony Cottam
023 80202050
23 May 2000
Dear Sirs
We consent to the incorporation by reference in the registration statements
(Nos. 33-39646, 33-39648, 33-88470, 33-88472, 333-18869 and 333-70561) on
Form S-8 of Parlex Corporation of our report dated 18 May 2000 with respect
to the balance sheet of Poly-Flex Circuits Limited as of 31 December 1999 and
the related profit and loss account and statement of cash flow for the year
ended 31 December 1999, which report appears in this Form 8-K/A of Parlex
Corporation dated 23 May 2000.
Your faithfully
/s/ KPMG Audit Plc
KPMG Audit Plc
