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 April 2, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-12942 PARLEX CORPORATION (Exact Name of Registrant As Specified in its Charter) Massachusetts 04-2464749 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 145 Milk Street, Methuen, Massachusetts 01844 (Address of principal executive offices) (Zip Code) 508-685-4341 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of the Registrant's Common Stock, par value $.10 per share, outstanding at May 1, 1995 was 2,368,284 shares. PARLEX CORPORATION INDEX Financial Statements: Consolidated Balance Sheets - April 2, 1995 and June 30, 1994.............. 3 Consolidated Statements of Income - For the Three Months and Nine Months Ended April 2, 1995 and April 3, 1994..................... 4 Consolidated Statements of Cash Flows - For the Nine Months ended April 2, 1995 and April 3, 1994..................................... 5 Notes to Unaudited Consolidated Financial Statements......................... 6 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 7 Part II - Other Information.................................................. 9 Signatures................................................................... 10 PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 2, 1995 AND JUNE 30, 1994 (Unaudited) April 2, 1995 June 30, 1994 ASSETS Current assets: Cash and cash equivalents $ 116,235 $ 194,048 Accounts receivable - net 6,688,460 6,161,716 Inventories: Raw material 1,567,614 1,540,134 Work in process 4,237,815 3,646,232 Deferred income taxes 316,026 316,026 Other current assets 555,271 260,233 Total current assets 13,481,421 12,118,389 Property, plant and equipment: Land 468,864 468,864 Buildings 6,499,202 6,123,264 Machinery and equipment 20,680,188 19,352,888 Leasehold improvements and other 759,542 694,650 Total 28,407,796 26,639,666 Less accumulated depreciation and amortization (19,011,589) (18,082,029) Property, plant and equipment - net 9,396,207 8,557,637 Other assets 228,610 169,269 Total $23,106,238 $20,845,295 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 200,000 $ 200,000 Accounts payable 3,316,263 2,794,821 Accrued liabilities 2,102,159 2,056,743 Income taxes payable - 362,940 Total current liabilities 5,618,422 5,414,504 Long-term debt 1,650,000 950,000 Other non-current liabilities 1,647,046 1,600,671 Stockholders' equity						 Preferred stock -0- -0- Common stock 257,828 252,186 Additional paid-in capital 3,149,741 2,930,620 Retained earnings 11,820,826 10,734,939 Less treasury stock at cost (1,037,625) (1,037,625) Total Stockholders' equity 14,190,770 12,880,120 Total $23,106,238 $20,845,295 See Notes to Unaudited Consolidated Financial Statements PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months and Nine Months Ended April 2, 1995 and April 3,1994 (Unaudited) Three Months Ended Nine Months Ended Apr. 2, 1995 Apr. 3, 1994 Apr. 2, 1995 Apr. 3, 1994 Net Sales $9,946,585 $8,885,214 $29,246,220 $25,405,528 Costs and Expenses: Cost of products sold 8,285,192 7,497,918 23,884,405 21,287,853 Selling, general and administrative expenses 1,380,592 1,177,410 3,731,173 3,433,713 Operating costs and expenses 9,665,784 8,675,328 27,615,578 24,721,566 Operating income 280,801 209,886 1,630,642 683,962 Other income - (Note 4) 160,017 2,403 273,318 42,097 Interest expense (38,151) (29,395) (95,923) (81,014) Income before income taxes 402,667 182,894 1,808,037 645,045 Credit (provision) for income taxes (Note 3) (161,600) 19,938 (722,150) 19,938 Net income $241,067 $202,832 $1,085,887 $664,983 Net income per common share $.10 $.09 $.45 $.29 Weighted average number of common and common stock equivalent shares outstanding 2,482,733 2,311,359 2,424,835 2,310,503 See Notes to Unaudited Consolidated Financial Statements PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended April 2, 1995 and April 3, 1994 (Unaudited) Nine Months Ended April 2, 1995 April 3, 1994 Cash Flows Provided by Operating Activities: Net income $1,085,887 $ 664,983 Adjustments to reconcile net income to net cash provided by (used for)operating activities: Depreciation and amortization 1,146,184 1,116,839 Gain on sale of equipment (500) (13,957) Deferred income taxes - 6,000 Deferred compensation 46,375 60,673 Increase (decrease) in cash from: Accounts receivable - net (526,744) (617,837) Other current assets (233,353) (304,708) Inventories (619,063) (313,720) Accounts payable 521,442 454,615 Accrued liabilities 45,416 331,116 Income taxes payable (424,625) - Total adjustments (44,868) 719,021 Net cash provided by operating activities 1,014,019 1,384,004 Investment Activities: Additions to property, plant and equipment (1,984,754) (1,144,254) Increase in other assets (59,341) (22,948) Proceeds from the sale of equipment 500 20,406 Net cash used for investment activities (2,043,595) (1,146,796) Financing Activities: Increase (decrease) of long-term debt 700,000 (375,000) Exercise of stock options 224,763 16,000 Net cash from (used for) financing activities 924,763 (359,000) Net Decrease in Cash and Cash Equivalents (77,813) (121,792) Cash and Cash Equivalents at Beginning of Period 194,048 313,835 Cash and Cash Equivalents at End of Period $116,235 $192,043 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 April 2, 1995 and the results of operations and cash flows for the three and nine months ended April 2, 1995 and April 3, 1994. 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, 1994, and this filing should be read in conjunction with that annual report. 2. Income Per Share In the third quarter and first nine months of this year, the income per share computations are based on the weighted average number of common and common stock equivalent shares outstanding during the respective periods. Last year, common stock equivalents were not used as they were deemed to be immaterial. 3. Income Taxes In the current year, the Company has provided for taxes at an effective rate of 40%. Last year, the Company had an effective tax rate of zero resulting from the recognition of federal and state net operating loss (NOL) carryforwards. At April 2, 1995, the Company had available, for state income tax purposes, net operating loss carryforwards of approximately $463,000 which expire in 1996 and 1997. 4. Other Income This year, other income is comprised of fees associated with licensing agreements, as well as items of a miscellaneous nature. Last year, no monies were earned regarding any licensing arrangements. Management's Discussion and Analysis of Financial Condition and Results of Operations Operations Net sales in the third quarter of the current fiscal year were $9,946,585, an increase of approximately 12% from the sales of $8,885,214 reported for the same quarter last year. For the first nine months of the year, sales totalled $29,246,220 versus $25,405,528 for the comparable period last year, an increase of about 15%. These results reflect increased shipments in both the Laminated Cable and the Flexible Circuit Products Division. The introduction of several new technologies and a continuing focus in making further penetration into the various commercial markets are the primary factors contributing to the increase. As further evidence of the Company's success in expanding upon its non-military business, commercial sales constituted 68% of the overall shipments through the first nine months this year versus 62% last year. Sales are recognized upon shipment. The cost of products sold as a percentage of sales this year was 83% and 82% for the third quarter and first nine months, respectively. This compares to 84% in the respective periods last year. The reduction in the cost of sales percentage resulted from enhanced operational efficiency, improved absorption of manufacturing overhead, and the Company's ongoing efforts to reduce costs. These reductions were offset, in part, by some training and start-up costs associated wtih a major multiyear contract that commenced in the current quarter. Selling, general, and administrative expenses as a percentage of sales was 14% in the current quarter and 13% for the nine months to date. Last year, the selling, general, and administrative expenses was 13% for both time periods. Some additional sales and marketing costs were incurred in the current quarter resulting in a slight increase in the percentage. Interest expense in the third quarter was $38,151 as compared to $29,395 last year. For the first nine months, interest expense was $95,923 versus $81,014 last year. The increase in expense is primarily due to the increase in the average level of borrowings and the increase in the prime lending rate. Other income this quarter was $160,017 versus $2,403 last year. For the first nine months, other income totalled $273,318 as compared to $42,097 last year. This year, other income is comprised of fees associated with some licensing agreements, as well as items of a miscellaneous nature. Last year, no monies were earned regarding any licensing arrangements. The above factors resulted in income before income taxes of $402,667 and $1,808,037 for the third quarter and first nine months this year, respectively. This compares to income before income taxes of $182,894 in the third quarter and $645,045 for the first nine months last year . The Company's effective tax rate was 40% for both the current quarter and first nine months this year. Last year, the Company recognized a tax credit of approximately $20,000. During fiscal 1993, the Company adopted FASB-109 - Accounting for Income Taxes. In accordance with that standard, the Company provided for a valuation allowance approximating $650,000 at June 30, 1993 for possible expiration of federal and state net operating loss (NOL) carryovers prior to realization. During last fiscal year, because of the Company's sustained profitability, it became apparent that the Company would be able to utilize a portion of those previously reserved NOLs and adjusted its effective tax rate accordingly. The net income for the quarter, as a result of the above factors, was $241,067 versus $202,832 last year. For the first nine months this year, the net income was $1,085,887 as compared to $664,983 last year. Liquidity and Capital Resources The Company's borrowings under its $3,000,000 revolving credit facility were $1,500,000 at April 2, 1995, an increase of $850,000 since the end of the preceding fiscal year ended June 30, 1994. These additional borrowings were fully anticipated since the Company had major commitments relating to expenditures for equipment and building improvements that will increase capacity, provide for more cost effective processing, and enhance the technology capabilities of the Company. Furthermore, the Company had to increase its working capital to satisfy the anticipated increases in shipments. The Company expects to expend a considerable amount in additional equipment next quarter as well. Most of the Company's needs will be satisfied through internally generated funds, while the remainder will come from its revolving credit facility. PART II - OTHER INFORMATION Items 1-4 THESE ITEMS ARE INAPPLICABLE Item 5 Other Events On May 4, 1995, the Board of Directors of Parlex Corporation elected Peter J. Murphy president and chief operating officer effective July 1, 1995. He succeeds Herbert W. Pollack who will remain as chief executive officer and chairman of the board. Item 6 Exhibits and Reports on Form 8-K (a) Exhibits - None (b) The Company filed a Form 8-K on March 21, 1995 which reported that on February 16, 1995, the Board of Directors of Parlex Corporation appointed Richard Hale to serve as a Class I Director until the Company's annual meeting in 1995 and until his successor is elected and qualified, and appointed Sheldon Buckler to serve as a Class III Director until the Company's annual meeting in 1997 and until his successor is elected and qualified. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARLEX CORPORATION /s/ HERBERT W. POLLACK Herbert W. Pollack President /s/ STEVEN M. MILLSTEIN Steven M. Millstein Vice President of Finance May 12, 1995 Date