UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
[ ] 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
Massachusetts 04-2464749
------------- ----------
(State of incorporation) (I.R.S. ID)
One Parlex Place, Methuen, Massachusetts 01844
978-685-4341
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
------------------- ------------------------------------
Common Stock ($.10 par value) Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act:
None
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 outstanding of the registrant's common stock as of
October 30, 2001 was 6,303,216 shares.
PARLEX CORPORATION
INDEX
Part I - Financial Information Page
----
Item 1. Condensed Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets - September 30, 2001 and June 30, 2001 3
Consolidated Statements of Operations - For the Three Months
Ended September 30, 2001 and October 1, 2000 4
Consolidated Statements of Cash Flows - For the Three Months
Ended September 30, 2001 and October 1, 2000 5
Notes to Unaudited Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
And Results of Operations 9
Part II - Other Information 14
Signatures 15
Exhibit Index 16
2
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and June 30, 2001
- -------------------------------------------------------------------------------
ASSETS September 30, 2001 June 30, 2001
<s> <c> <c>
CURRENT ASSETS:
Cash and cash equivalents $ 3,587,674 $ 3,203,990
Short-term investments 3,330,267 5,533,703
Accounts receivable - net 18,373,357 17,434,115
Inventories, net 19,223,559 19,318,522
Refundable income taxes 2,921,145 2,921,145
Deferred income taxes 3,110,299 2,901,201
Other current assets 1,362,393 2,634,085
-------------------------------
Total current assets 51,908,694 53,946,761
-------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 1,018,822 1,018,822
Buildings 22,133,203 22,109,721
Machinery and equipment 55,886,804 56,174,718
Leasehold improvements and other 6,956,511 6,806,493
Construction in progress 5,609,501 3,843,792
-------------------------------
Total 91,604,841 89,953,546
Less accumulated depreciation and
amortization (35,997,309) (34,379,848)
-------------------------------
Property, plant and equipment - net 55,607,532 55,573,698
-------------------------------
GOODWILL 906,708 906,708
OTHER ASSETS 596,611 436,785
-------------------------------
TOTAL $109,019,545 $110,863,952
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,678,509 $ 10,710,299
Accounts payable 10,102,306 8,330,461
Accrued liabilities 4,002,990 3,889,540
-------------------------------
Total current liabilities 15,783,805 22,930,300
-------------------------------
LONG-TERM DEBT 8,150,450 118,762
-------------------------------
OTHER NONCURRENT LIABILITIES 1,091,462 2,442,274
-------------------------------
MINORITY INTEREST IN PARLEX SHANGHAI 3,624,664 4,021,485
-------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 651,321 651,321
Additional paid-in capital 60,897,275 60,897,275
Retained earnings 20,306,497 21,467,585
Accumulated other comprehensive income
(loss) (448,304) (627,425)
Less treasury stock, at cost (1,037,625) (1,037,625)
-------------------------------
Total stockholders' equity 80,369,164 81,351,131
-------------------------------
TOTAL $109,019,545 $110,863,952
===============================
See notes to unaudited consolidated financial statements.
3
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
Three Months Ended
September 30, 2001 October 1, 2000
<s> <c> <c>
REVENUES:
Product sales $21,622,652 $29,572,306
License fees and royalty income 12,848 116,496
--------------------------------
Total revenues 21,635,500 29,688,802
--------------------------------
COSTS AND EXPENSES:
Cost of products sold 21,066,131 24,134,225
Selling, general and administrative
expenses 3,502,335 4,145,919
--------------------------------
Total costs and expenses 24,568,466 28,280,144
--------------------------------
OPERATING (LOSS) INCOME (2,932,966) 1,408,658
OTHER INCOME, Net 102,137 129,368
INTEREST EXPENSE (194,287) (27,619)
--------------------------------
(LOSS) INCOME FROM OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST (3,025,116) 1,510,407
BENEFIT (PROVISION) FOR INCOME TAXES 1,467,207 (420,814)
--------------------------------
(LOSS) INCOME BEFORE MINORITY INTEREST (1,557,909) 1,089,593
MINORITY INTEREST 396,821 (217,349)
--------------------------------
NET (LOSS) INCOME $(1,161,088) $ 872,244
================================
BASIC (LOSS) INCOME PER SHARE $ (0.18) $ 0.14
================================
DILUTED (LOSS) INCOME PER SHARE $ (0.18) $ 0.14
================================
Weighted average shares - basic 6,303,216 6,277,751
================================
Weighted average shares - diluted 6,303,216 6,456,174
================================
See notes to unaudited consolidated financial statements
4
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
Three Months Ended
September 30, 2001 October 1, 2000
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $(1,161,088) $ 872,244
--------------------------------
Adjustments to reconcile net (loss)
income to net cash provided by
(used for) operating activities:
Depreciation and amortization of property,
plant and equipment and other assets 1,592,594 1,776,350
Minority interest (396,821) 217,349
Changes in current assets and liabilities:
Accounts receivable - net (383,974) (2,973,514)
Inventories 132,234 (3,051,349)
Deferred income taxes (1,459,996) -
Other assets 771,634 (601,574)
Accounts payable and accrued liabilities 1,374,508 1,855,848
--------------------------------
Net cash provided by (used for) operating
activities 469,091 (1,904,646)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increases in other assets - (166,154)
Maturities (purchases) of investments available
for sale, net 2,174,519 (6,396,175)
Additions to property, plant and equipment (1,321,323) (2,431,052)
--------------------------------
Net cash provided by (used for) investing
activities 853,196 (8,993,381)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans 7,965,000 1,550,000
Payment of bank loans (8,968,515) (924,279)
Exercise of stock options - 59,930
--------------------------------
Net cash (used for) provided by financing
activities (1,003,515) 685,651
--------------------------------
Effect of exchange rate changes on cash 64,912 (68,093)
--------------------------------
Net increase (decrease) in cash and cash
equivalents 383,684 (10,280,469)
Cash and cash equivalents, beginning of year 3,203,990 11,949,858
--------------------------------
Cash and cash equivalents, end of period $ 3,587,674 $ 1,669,389
================================
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS:
Property, plant and equipment financed under
capital lease, long-term debt and accounts
payable $ 169,958 $ -
================================
See notes to unaudited consolidated financial statements.
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 September 30, 2001 and the results of
operations and cash flows for the three months ended September 30, 2001 and
October 1, 2000. All adjustments made to the interim financial statements
included all those of a normal and recurring nature.
We followed the same accounting policies in the preparation of this
interim financial statement as described in our annual filing on Form 10-K
for the year ended June 30, 2001, this filing should be read in conjunction
with our annual report on Form 10-K for the year ended June 30, 2001.
2. Comprehensive (Loss) Income
Comprehensive (loss) income for the three months ended September 30,
2001 and October 1, 2000 is as follows:
Three Months Ended
-------------------------------------
September 30, 2001 October 1, 2000
------------------ ---------------
<s> <c> <c>
Net (loss) income $(1,161,088) $872,244
Other comprehensive (loss) income:
Unrealized gain (loss) on short
term investments (28,916) (7,556)
Foreign currency translation
adjustments 208,037 (60,537)
-------------------------------
Comprehensive (loss) income $ (981,967) $804,151
===============================
The accumulated other comprehensive (loss) income balance is as
follows:
Unrealized gains
(losses) on Foreign Currency
Short-term Translation
Investments Adjustments Total
---------------- ---------------- -----
<s> <c> <c> <c>
Beginning balance $ 34,751 $(662,176) $(627,425)
Current period change (28,916) 208,037 179,121
-------------------------------------------
Ending balance $ 5,835 $(454,139) $(448,304)
===========================================
6
3. Recent Accounting Pronouncements
Effective July 1, 2001, the Company adopted the provisions of
Statement on Financial Accounting Standards No.142, "Goodwill and Other
Intangible Assets"(SFAS 142). Under the provisions of SFAS 142, if an
intangible asset is determined to have an indefinite useful life, it shall
not be amortized until its useful life is determined to be no longer
indefinite. An intangible asset that is not subject to amortization shall
be tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. Goodwill is not
amortized but is tested for impairment, for each reporting unit, on an
annual basis and between annual tests in certain circumstances. In
accordance with the guidelines in SFAS 142, the Company determined it has
one reporting unit. Upon adoption of SFAS 142 the Company performed an
impairment review and concluded that there are no necessary adjustments.
Other intangible assets, which is a component of other assets on the
condensed consolidated balance sheets, as of September 30, 2001 follows:
Other
Intangible
Assets
---------
<s> <c>
Other intangible assets $651,358
Less: Accumulated amortization (356,568)
--------
Other intangible assets, net $294,790
========
The Company has reassessed the useful lives of other intangible
assets and determined the useful lives are appropriate in determining
amortization expense. Amortization expense for the quarter ended September
30, 2001 was $16,000. The estimated amortization expense for each of the
fiscal years subsequent to June 30, 2001 is as follows:
Amortization Expense
---------------------
<s> <c>
For year ended June 30, 2002 $ 62,208
For year ended June 30, 2003 62,208
For year ended June 30, 2004 62,208
For year ended June 30, 2005 62,208
For year ended June 30, 2006 30,573
Thereafter 30,938
--------
$310,343
========
The effect of adoption of SFAS 142 on net income and earnings per
share is as follows:
For the Three Months Ended
------------------------------
Sept. 30, 2001 Oct. 1, 2000
-------------- ------------
<s> <c> <c>
Reported net (loss) income $(1,161,088) $872,244
Goodwill amortization (net of tax) - 92,380
----------- --------
Adjusted net income $(1,161,088) $964,624
=========== ========
Adjusted basic earnings per share $ (0.18) $ 0.15
=========== ========
Adjusted diluted earnings per share $ (0.18) $ 0.15
=========== ========
7
4. Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
5. Stock Options
On October 11, 2001, the Board of Directors unanimously voted to
propose and recommend approval of the adoption of the 2001 Employees' Stock
Option Plan (the "2001 Plan"), subject to stockholder approval at the
Annual Meeting of Stockholders on November 27, 2001. A total of 600,000
shares of Common stock (subject to adjustment for capital changes) in the
aggregate may be issued under the 2001 Plan.
6. Long-Term Debt
We executed a renegotiated unsecured Revolving Credit Agreement (the
"Credit Agreement") (originally dated June 22, 1994) making available up to
a total of $15,000,000. No further advances of principal will be made
under this Credit Agreement after December 31, 2003. At our discretion,
borrowings under the Credit Agreement accrue interest at either a variable
rate equal to the bank's prime rate (6.0% at September 30, 2001) or a fixed
rate equal to LIBOR rate plus a margin that varies from 1.5% to 2.25%. The
Credit Agreement carries an annual commitment fee that varies from 1/4% to
1/2% on the average daily unused portion of the bank's commitment.
Interest is payable monthly. As of September 30, 2001, the unused
commitment amounted to $6.8 million. The Credit Agreement has certain
restrictive covenants related to current ratio, tangible net worth, total
liabilities to tangible net worth, interest coverage ratio, debt service
coverage ratio and income and capital expenditure targets. As of September
30, 2001, we were in compliance with the provisions of the Credit
Agreement. The Credit Agreement permits us to pay cash dividends to the
extent such payment would not cause us to violate the aforementioned
covenants.
7. Income Taxes
Income taxes are recorded for this interim period based upon an
estimated annual effective tax rate. Our effective tax rate is impacted by
the proportion of our estimated annual income being earned in domestic
versus foreign tax jurisdictions and the generation of tax credits.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the financial
information included in this Quarterly Report on Form 10-Q and with
"Factors That May Affect Future Results" set forth on page 13. The
following discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from the
results contemplated by these forward-looking statements as a result of
many factors, including those discussed below and elsewhere in this
Quarterly Report on Form 10-Q.
Overview
We are a leading supplier of flexible interconnect products
principally for sale to the automotive, telecommunications and networking,
diversified electronics, aerospace, home appliance and computer markets.
We believe that our development of innovative materials and processes
provides us with a competitive advantage in the markets in which we
compete. During the past three fiscal years, we have invested
approximately $31.9 million in property and equipment and approximately
$14.9 million in research and development to develop materials and enhance
our manufacturing processes. We believe that these expenditures will help
us to meet customer demand for our products, and enable us to continue to
be a technological leader in the flexible interconnect industry. Our
research and development expenses are included in our cost of products
sold.
We formed a Chinese joint venture, Parlex (Shanghai) Circuit Co.,
Ltd. ("Parlex Shanghai'), in 1995 to better serve customers that have
production facilities in Asia and to more cost effectively manufacture
products for worldwide distribution. We own 50.1% of the equity interest
in Parlex Shanghai. Accordingly, Parlex Shanghai's results of operations,
cash flows and financial position are included in our consolidated
financial statements. We are in the process of transferring the production
of the automotive related products utilizing our PalFlex(R) technology from
our Methuen, Massachusetts operations to Parlex (Shanghai) Interconnect
Products Co., Ltd., a wholly owned subsidiary of Parlex Asia Pacific
Limited. We recently signed a memorandum of understanding with Gul
Technologies Singapore Ltd to enter into a joint venture with us relative
to our Asian operations. In connection with this development, we are
currently negotiating an agreement to purchase the interests in our Chinese
joint venture, Parlex Shanghai, owned by the two partners who hold minority
interests.
9
Results of Operations
The following table sets forth, for the periods indicated, selected
items in our statement of operations as a percentage of total revenue. You
should read the table and the discussion below in conjunction with our
Consolidated Financial Statements and the Notes thereto.
Three Months Ended
-------------------------------------
September 30, 2001 October 1, 2000
------------------ ---------------
<s> <c> <c>
Total revenues 100.0 % 100.0 %
Cost of products sold 97.4 % 81.3 %
----------------------------
Gross profit 2.6 % 18.7 %
Selling, general and administrative
expenses 16.2 % 14.0 %
----------------------------
Operating (loss) income (13.6)% 4.7 %
Income (loss) from operations before
income taxes and minority interest (14.0)% 5.1 %
Net (loss) income (5.4)% 2.9 %
============================
Three Months Ended September 30, 2001 Compared to
Three Months Ended October 1, 2000
Total Revenues. Our total revenues were $21.6 million for the three
months ended September 30, 2001 compared to $29.7 million for the three
months ended October 1, 2000, representing a decrease of $8.1 million, or
27%.
Reductions in revenues are attributed to the general decline in
customer demand within the global electronics industry. We experienced
significant reductions in revenues from our customers in the
telecommunications and networking and computer peripheral markets, which
affected all of our manufacturing operations. While sales are expected to
increase, we are not able to predict the time frame within in which there
will be renewed sales due do the economic uncertainty in these markets, and
there is no assurance that sales will not fluctuate in the future.
Licensing and royalty fees, included to total revenue were $13,000
for the three months ended September 30, 2001 compared to $116,000 for the
same period in 2000. The quarter ending October 1, 2000 included the final
installment of our $1.3 million patent assignment agreement with Polyclad
Laminates, Inc. Although we intend to continue developing materials and
processes that we can license to third parties, we do not expect that
licensing and royalty revenues will represent a significant portion of
total revenues in the near future.
Cost of Products Sold. Cost of products sold were $21.1 million, or
97% of total revenues, for the three months ended September 30, 2001,
compared to $24.1 million, or 81% of total revenues for the comparable
period in the prior year.
We experienced unfavorable manufacturing variances of $3.5 million or
16% of total revenues for the three months ended September 30, 2001. This
was due to excess manufacturing capacity associated with a 27% decrease in
revenues for this period compared to the three months ended October 1,
2000. In addition, our quarter ending September 30, 2001 includes a
$63,000 charge for severance costs associated with a reduction in
workforce. To counteract the excess manufacturing capacity, we have
implemented a plan to further reduce manufacturing expenses. Although
these cost reduction measures are expected to reduce the percentage of
costs of products sold, a return to profitability is predicated upon
operational performance, a favorable product mix and increased shipments.
10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3.5 million, or 16% of total revenues, for
the three months ended September 30, 2001, compared to $4.1 million or 14%
of total revenues for the same period in the prior year representing a
decrease of $644,000, or 16%. The decrease in selling, general and
administrative expenses is attributed to costs associated with a reduction
in personnel and lower commission expense.
Other Income, Interest Expense, and Benefit from (Provision for)
Income Taxes. Other income was $102,000 for the three months ended
September 30, 2001, compared to $129,000 for the three months ending
October 1, 2000. Other income consists primarily of interest income earned
on our short-term investments, and the decrease is associated with lower
investment balances.
Interest expense was $194,000 for the three months ended September
30, 2001, compared to $28,000 for the comparable period in the prior year.
The increase in interest expense is due to the increased amount of
borrowings required to finance working capital and capital expenditure
needs. Borrowings on our revolving credit line were $8.1 million and
$700,000 at the quarter ending September 30,2001 and October 1, 2000,
respectively.
Our loss before income taxes and for the minority interest in our
Chinese joint venture, Parlex Shanghai, was $3.0 million for the three
months ended September 30, 2001, compared to income of $1.5 million for the
comparable period in the prior year. We own 50.1% of the equity interest
in Parlex Shanghai and, accordingly, include Parlex Shanghai's results of
operations, cash flows and financial position in our consolidated financial
statements.
Our effective tax rate was approximately (49%) in the three months
ended September 30, 2001, compared to a 28% effective tax rate for the
comparable period in the prior year. The increase in the effective tax
rate resulted from net operating losses in higher tax jurisdictions and an
increased amount of available tax credits.
Our net loss was $1.2 million for the three months ended September
30, 2001, compared to net income of $872,000 for the three months ended
October 1, 2000.
Liquidity and Capital Resources
As of September 30, 2001, we had approximately $6.9 million in cash
and short-term investments.
Net cash provided by operations during the nine months ended
September 30, 2001 was $469,000. Net income adjusted for depreciation and
amortization provided cash of $432,000, and cash used for working capital
needs were $37,000. Cash provided by investing activities was $853,000 for
the three months ended September 30, 2001. These funds were provided from
the sale of higher-yielding investment grade corporate and United States
Government debt securities of $2.2 million less $1.3 million used for
capital equipment purchases and other expenditures. Cash used for
financing activities was $1.0 million for the three months ended September
30, 2001 and represented the net borrowings and repayments of our bank
debt.
We executed a renegotiated unsecured Revolving Credit Agreement (the
"Credit Agreement") (originally dated June 22, 1994) making available up
to a total of $15,000,000. No further advances of principal will be made
under this Credit Agreement after December 31, 2003. At our discretion,
borrowings under the Credit Agreement accrue interest at either a variable
rate equal to the bank's prime rate (6.0% at September 30, 2001) or a fixed
rate equal to LIBOR rate plus a margin that varies from 1.5% to 2.25%. The
Credit Agreement carries an annual commitment fee that varies from 1/4% to
1/2% on the average daily unused portion of the bank's commitment.
Interest is payable monthly. As of September 30, 2001, the unused
commitment amounted to $6.8 million. The Credit Agreement has certain
restrictive covenants related to current ratio, tangible net worth, total
liabilities to tangible net worth, interest coverage ratio, debt service
coverage ratio and income and capital expenditure targets. As of September
30, 2001, we were in compliance with the provisions of the Credit
Agreement. The Credit
11
Agreement permits us to pay cash dividends to the extent such payment would
not cause us to violate the aforementioned covenants.
As of October 31, 2001, we have, as provided for under our Revolving
Credit Agreement, converted $5 million of our Credit Agreement borrowings
into five LIBOR contracts with maturities of between one and six months.
The LIBOR interest rate plus margin for these contracts varies between 4.5%
and 5.9%.
We believe that our cash on hand, our short term investments, our
anticipated cash flow from operations, and the amounts available under our
Credit Agreement should be sufficient to meet our anticipated needs for at
least the next 12 months.
Recent Accounting Pronouncements
Effective July 1, 2001, the Company adopted the provisions of
Statement on Financial Accounting Standards No.142, "Goodwill and Other
Intangible Assets"(SFAS 142). Under the provisions of SFAS 142, if an
intangible asset is determined to have an indefinite useful life, it shall
not be amortized until its useful life is determined to be no longer
indefinite. An intangible asset that is not subject to amortization shall
be tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. Goodwill is not
amortized but is tested for impairment, for each reporting unit, on an
annual basis and between annual tests in certain circumstances. In
accordance with the guidelines in SFAS 142, the Company determined it has
one reporting unit. Upon adoption of SFAS 142 the Company performed an
impairment review and concluded that there are no necessary adjustments for
the quarter ended September 30, 2001.
Market Risk
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. We are exposed to
market risk related to changes in interest rates and foreign currency
exchange rates. We do not use derivative financial instruments for
speculative or trading purposes.
As of September 30, 2001, we maintained a portion of our cash and
cash equivalents in financial instruments with maturities of one month.
These financial instruments are subject to interest rate risk and will
change in value if interest rates fluctuate. Due to the short duration of
these financial instruments, an immediate decrease in interest rates would
not have a material adverse effect upon our financial position.
We also have a revolving credit line, at our lender's prime rate or
LIBOR plus a margin that varies from 1.5% to 2.25%. Both the prime and
LIBOR rates are affected by changes in market interest rates. As of
September 30, 2001, we owe approximately $8.1 million. We have the option
to repay borrowings at anytime without penalty, other than breakage fees in
the case of prepayment of LIBOR rate borrowings, and therefore believe that
our market risk is not material.
The remainder of our long-term debt bears interest at fixed rates and
is therefore not subject to market risk.
Sales of Parlex Shanghai and Poly-Flex Circuits Limited are often
denominated in their local currency, which is each company's functional
currency. This creates exposure to changes in exchange rates. The changes
in the Chinese/U.S. and U.K./U.S. exchange rates may positively or
negatively impact our sales, gross margins and retained earnings. Based
upon the current volume of transactions in China and the United Kingdom and
the stable nature of the exchange rate between China and the U.S. and the
United Kingdom and the U.S., we do not believe the market risk is material.
We do not engage in regular hedging activities to minimize the impact of
foreign currency fluctuations. Parlex Shanghai had net assets as of
September 30, 2001 of approximately $5.2 million. Poly-Flex Circuits
Limited had net assets as of September 30, 2001 of approximately $5.1
million. We believe that a 10%
12
change in exchange rates would not have a significant impact upon Parlex
Shanghai's or Poly-Flex Circuits Limited's financial position, results of
operation or outstanding debt. As of September 30, 2001, Parlex Shanghai
had outstanding debt of $1.5 million and Poly-Flex Circuits Limited had no
outstanding debt.
Factors That May Affect Future Results
This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" as defined under the federal securities laws. Our actual
results of operations may differ significantly from those contemplated by
such forward-looking statements as a result of various risk factors beyond
our control, including, but not limited to, economic conditions in the
electronics industry, particularly in the principal industry sectors we
serve, changes in customer requirements and in the volume of sales to
principal customers, competition and technological change, and other one-
time events including, but not limited to, recent terrorist attacks and
other important factors disclosed previously and from time to time in
other filings we have made with the U.S. Securities and Exchange
Commission.
13
PART II - OTHER INFORMATION
Item 1 - 5. These items are not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index
(b) Reports on Form 8-K - We did not file a report on Form 8-K
during the quarter ended September 30, 2001.
14
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 and Chief Executive
Officer
By: /s/ Robert A. Rieth
--------------------------------
Robert A. Rieth
Senior Vice President & CFO
(Principal Accounting and
Financial Officer)
November 9, 2001
------------------------------------
Date
15
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
11 Statement Regarding Computation of Per Share Earnings
10-U First Amendment dated September 28, 2001 to Loan
Agreement dated as of March 1, 2000 between Parlex
Corporation and Fleet National Bank (filed as
Exhibit 10-S to Form 8-K dated March 15, 2000 and
filed with the Securities and Exchange Commission on
March 15, 2000).
16