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 October 1, 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 October 31, 1995 was 2,370,659 shares. PARLEX CORPORATION INDEX Financial Statements: Consolidated Balance Sheets - October 1, 1995 and June 30, 1995 3 Consolidated Statements of Income - For the Three Months ended October 1, 1995 and October 2, 1994 4 Consolidated Statements of Cash Flows - For the Three Months ended October 1, 1995 and October 2, 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 OCTOBER 1, 1995 AND JUNE 30, 1995 (Unaudited) October 1, 1995 June 30, 1995 --------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 119,358 $ 161,392 Accounts receivable - net 7,830,135 7,171,553 Inventories: Raw material 2,260,539 1,867,370 Work in process 3,527,335 4,216,706 Refundable income taxes 202,511 206,669 Deferred income taxes 263,150 263,150 Other current assets 635,925 441,866 ----------- ----------- Total current assets 14,838,953 14,328,706 ----------- ----------- Property, plant and equipment: Land 468,864 468,864 Buildings 6,811,157 6,629,301 Machinery and equipment 21,765,946 21,140,403 Leasehold improvements and other 776,620 737,863 ----------- ----------- Total 29,822,587 28,976,431 Less accumulated depreciation and amortization (19,451,336) (19,047,539) ----------- ----------- Property, plant and equipment - net 10,371,251 9,928,892 ----------- ----------- Other assets 376,244 259,503 ----------- ----------- Total $25,586,448 $24,517,101 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 200,000 $ 200,000 Accounts payable 4,742,609 3,405,642 Accrued liabilities 1,590,894 2,257,184 ----------- ----------- Total current liabilities 6,533,503 5,862,826 ----------- ----------- Long-term debt 2,650,000 2,300,000 ----------- ----------- Other non-current liabilities 1,704,351 1,686,816 ----------- ----------- Stockholders' equity: Preferred stock -0- -0- Common stock 258,065 257,941 Additional paid-in capital 3,233,254 3,226,316 Retained earnings 12,244,900 12,220,827 Less treasury stock at cost (1,037,625) (1,037,625) ----------- ----------- Total Stockholders' equity 14,698,594 14,667,459 ----------- ----------- Total $25,586,448 $24,517,101 =========== =========== See Notes to Unaudited Consolidated Financial Statments PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended October 1, 1995 and October 2, 1994 (Unaudited) October 1, 1995 October 2, 1994 --------------- --------------- Product Sales $11,611,410 $9,417,346 ----------- ---------- Costs and Expenses: Cost of products sold 10,295,136 7,615,948 Selling, general and administrative expenses 1,252,331 1,176,961 ----------- ---------- Operating costs and expenses 11,547,467 8,792,909 ----------- ---------- Operating income 63,943 624,437 Other income - (Note 3) 44,452 16,451 Interest expense (69,622) (22,246) ----------- ---------- Income before income taxes 38,773 618,642 Provision for income taxes (14,700) (245,800) ----------- ---------- Net income $ 24,073 $ 372,842 =========== ========== Net income per common share $.01 $.16 ==== ==== Weighted average number of common and common stock equivalent shares outstanding 2,447,328 2,339,695 =========== ========== See Notes to Unaudited Consolidated Financial Statements PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended October 1, 1995 and October 2, 1994 (Unaudited) October 1, 1995 October 2, 1994 --------------- --------------- Cash Flows Provided by Operating Activities: Net income $ 24,073 $ 372,842 ---------- --------- Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 403,797 386,812 Deferred compensation 17,535 13,961 Increase (decrease) in cash from: Accounts receivable - net (658,582) (472,872) Refundable income taxes 4,158 - Inventories 296,202 (64,793) Other current assets (194,059) (108,249) Accounts payable 1,336,967 110,439 Accrued liabilities (666,290) (195,269) Income taxes payable - 69,025 ---------- --------- Total adjustments 539,728 (260,946) ---------- --------- Net cash provided by operating activities 563,801 111,896 ---------- --------- Investment Activities: Additions to property, plant and equipment (846,157) (471,131) (Increase) decrease in other assets (116,741) 219 ---------- --------- Net cash used for investment activities (962,898) (470,912) ---------- --------- Financing Activities: Increase in long-term debt 350,000 100,000 Exercise of stock options 7,063 215,325 ---------- --------- Net cash from financing activities 357,063 315,325 ---------- --------- Net Decrease in Cash and Cash Equivalents (42,034) (43,691) Cash and Cash Equivalents at Beginning of Period 161,392 194,048 ---------- --------- Cash and Cash Equivalents at End of Period $ 119,358 $ 150,357 ========== ========= 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 October 1, 1995 and the results of operations and cash flows for the three months ended October 1, 1995 and October 2, 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, 1995, and this filing should be read in conjunction with that annual report. 2. Income Per Share - ---------------------- The income per share computations in the current period are based on the weighted average number of common and common stock equivalent shares outstanding. Last year, common stock equivalents were not used as they were deemed to be immaterial. 3. Other Income - ------------------ Other income in the current and preceding year was comprised of items of miscellaneous nature. 4. 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 commenced operations September 1, 1995. Due to its relative insignificance, as well as time concerns regarding the availability of all necessary financial data, the Company intends to report the financial results of this venture on a three month time lag. Management's Discussion and Analysis of Financial Condition and Results of Operations Operations - ---------- Net sales in the first quarter of the current fiscal year were $11,611,410, an increase of 23% over the sales of $9,417,346 reported in the comparable quarter last year. The primary factors contributing to the increase in shipments involved a major program in the Flexible Circuit Products Division and an increase in sales in the Laminated Cable Division. Sales are recognized upon shipment. The cost of products sold as a percentage of sales was 89% and 81% for the first quarter this year and last year, respectively. The increase in the cost of sales percentage was attributed entirely to the rapid buildup in shipments of a large multi-year contract in the Flexible Circuit Products Division, involving new technology, new equipment, the use of very thin materials with special handling requirements, and some incurred costs associated with learning curve issues. The Company now anticipates improvements in yields and other production cost factors, which should reduce the cost of sales percentage in subsequent quarters. Selling, general, and administrative expenses as a percentage of sales was 11% in the current quarter versus 12% last year. The improvement was a result of the Company's ability to generate additional sales without incurring a commensurate increase in expenses. Interest expense was $69,622 this quarter as compared to $22,246 last year. Although the Company was able to generate positive cash flow from operating activities during the past fiscal year, the Company still had to borrow money to facilitate its growth through the purchase of equipment and to satisfy its additional working capital needs. These additional borrowings are responsible for the increase in expenses. Other income, both this year as well as last year, is comprised of items of a miscellaneous nature. The above factors resulted in income before income taxes of $38,773 in the first quarter this year versus $618,642 for the comparable period last year. The Company's effective tax rate was 38% and 40% for the current quarter this year and last year, respectively. After providing for taxes, the Company's net income was $24,073 this quarter versus $372,842 for the comparable quarter last year. Liquidity and Capital Resources - ------------------------------- Since the Company is anticipating continuous growth, additional borrowings to finance further working capital needs and capital expenditures will be necessary. Additionally, monies will also be needed to finance some of the requirements associated with Parlex (Shanghai) Circuit Company, Ltd., the Chinese Joint Venture (of which Parlex Corporation owns 50.1%) that commenced operations September 1, 1995. The Company's investment, valued at approximately $1,500,000, will include technology, equipment, training, technical support, and cash (of approximately $600,000) during fiscal year 1996. The Company is currently in the process of renegotiating its current revolving loan agreement for the purpose of increasing its credit line. The Company presently has an unsecured revolving credit agreement of $3,000,000 that became effective June 1994, and expires December 1996. With the positive cash flow expected to be generated internally, together with the increased line that should be in place shortly, the Company believes it will be in a secure financial position to accommodate its future requirements. PART II - OTHER INFORMATION Items 1-5 THESE ITEMS ARE INAPPLICABLE Item 6 Exhibits and Reports on Form 8-K (a) Exhibits - None (b) The Company filed no reports on Form 8-K during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARLEX CORPORATION ------------------------------- /s/ HERBERT W. POLLACK ------------------------------- Herbert W. Pollack Chairman /s/ PETER J. MURPHY ------------------------------- Peter J. Murphy President /s/ STEVEN M. MILLSTEIN ------------------------------- Steven M. Millstein Vice President of Finance November 13, 1995 ------------------------------- Date