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 December 31, 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 January 31, 1996 was 2,371,159 shares.
PARLEX CORPORATION
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INDEX
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Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and June 30, 1995....... 3
Consolidated Statements of Income - For the Three Months
and Six Months Ended December 31, 1995 and January 1, 1995............. 4
Consolidated Statements of Cash Flows - For the Six Months
ended December 31, 1995 and January 1, 1995............................ 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
DECEMBER 31, 1995 AND JUNE 30, 1995
(Unaudited)
December 31, 1995 June 30, 1995
----------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 321,824 $ 161,392
Accounts receivable - net 7,127,359 7,171,553
Inventories:
Raw material 2,188,969 1,867,370
Work in process 3,402,116 4,216,706
Refundable income taxes 137,011 206,669
Deferred income taxes 263,150 263,150
Other current assets 622,736 441,866
------------ ------------
Total current assets 14,063,165 14,328,706
------------ ------------
Property, plant and equipment:
Land 468,864 468,864
Buildings 6,860,535 6,629,301
Machinery and equipment 22,829,427 21,140,403
Leasehold improvements and other 779,529 737,863
------------ ------------
Total 30,938,355 28,976,431
Less accumulated depreciation and
amortization (19,364,064) (19,047,539)
------------ ------------
Property, plant and equipment - net 11,574,291 9,928,892
------------ ------------
Other assets 779,394 259,503
------------ ------------
Total $ 26,416,850 $ 24,517,101
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 200,000 $ 200,000
Loan payable - current 208,020 -
Accounts payable 4,071,170 3,405,642
Accrued liabilities 1,439,867 2,257,184
------------ ------------
Total current liabilities 5,919,057 5,862,826
------------ ------------
Long-term debt 2,900,000 2,300,000
------------ ------------
Other non-current liabilities 1,722,101 1,686,816
------------ ------------
Minority interest 1,084,544 -
------------ ------------
Stockholders' equity
Preferred stock -0- -0-
Common stock 258,116 257,941
Additional paid-in capital 3,235,204 3,226,316
Retained earnings 12,335,453 12,220,827
Less treasury stock at cost (1,037,625) (1,037,625)
------------ ------------
Total Stockholders' equity 14,791,148 14,667,459
------------ ------------
Total $ 26,416,850 $ 24,517,101
============ ============
See Notes to Unaudited Consolidated Financial Statments
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Six Months Ended December 31, 1995 and January 1, 1995
(Unaudited)
Three Months Ended Six Months Ended
Dec. 31, 1995 Jan. 1, 1995 Dec. 31, 1995 Jan. 1, 1995
------------- ------------ ------------- ------------
Product Sales $11,684,568 $9,882,289 $23,295,978 $19,299,635
----------- ---------- ----------- -----------
Costs and Expenses:
Cost of products sold 10,145,160 7,983,265 20,440,296 15,599,213
Selling, general and administrative expenses 1,330,537 1,173,620 2,582,868 2,350,581
----------- ---------- ----------- -----------
Operating costs and expenses 11,475,697 9,156,885 23,023,164 17,949,794
----------- ---------- ----------- -----------
Operating income 208,871 725,404 272,814 1,349,841
Other income - (Note 3) 22,088 96,850 66,540 113,301
Interest expense (83,596) (35,526) (153,218) (57,772)
----------- ---------- ----------- -----------
Income before income taxes 147,363 786,728 186,136 1,405,370
Provision for income taxes (60,500) (314,750) (75,200) (560,550)
----------- ---------- ----------- -----------
Net income - before minority interest (Note 4) 86,863 471,978 110,936 844,820
Minority interest - loss 3,690 - 3,690 -
----------- ---------- ----------- -----------
Net income $ 90,553 $ 471,978 $ 114,626 $ 844,820
=========== ========== =========== ===========
Net income per common share $ .04 $ .19 $ .05 $ .35
=========== ========== =========== ===========
Weighted average number of common and
common stock equivalent shares outstanding 2,450,799 2,452,077 2,449,064 2,395,886
=========== ========== =========== ===========
See Notes to Unaudited Consolidated Financial Statements
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1995 and January 1, 1995
(Unaudited)
Dec. 31, 1995 Jan. 1, 1995
------------- ------------
Cash Flows Provided by Operating Activities:
Net income $ 110,936 $ 844,820
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used for)operating activities:
Depreciation and amortization 836,232 773,623
Deferred income taxes - -
Deferred compensation 35,285 29,448
Loss (gain) on sale of equipment 13,652 (500)
Increase (decrease) in cash from:
Accounts receivable - net 44,194 446,964
Inventories 492,991 225,179
Other current assets (180,870) (215,762)
Accounts payable 665,528 (562,395)
Accrued liabilities (817,317) (161,079)
Income taxes payable 69,658 (234,629)
----------- -----------
Total adjustments 1,159,353 300,849
----------- -----------
Net cash provided by operating activities 1,270,289 1,145,669
----------- -----------
Investment Activities:
Additions to property, plant and equipment (1,467,674) (1,229,584)
Increase in other assets (519,891) (22,280)
Proceeds from the sale of equipment 32,295 500
----------- -----------
Net cash used for investment activities (1,955,270) (1,251,364)
----------- -----------
Financing Activities:
Borrowings under revolving credit agreement 700,000 -
Loan payable - joint venture 208,020 -
Capital contributions to joint venture - minority interests 28,330 -
Decrease in long-term debt (100,000) (100,000)
Exercise of stock options 9,063 218,450
----------- -----------
Net cash from financing activities 845,413 118,450
----------- -----------
Net Increase in Cash and Cash Equivalents 160,432 12,755
Cash and Cash Equivalents at Beginning of Period 161,392 194,048
----------- -----------
Cash and Cash Equivalents at End of Period $ 321,824 $ 206,803
=========== ===========
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 December 31, 1995 and the results of
operations and cash flows for the six months ended December 31, 1995 and
January 1, 1995. 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
----------------
In the second quarter and first six 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.
3. Other Income
------------
Other income in the current year is comprised entirely of items of
miscellaneous nature, while last year's figures included fees associated with
licensing agreements.
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. Therefore, only the results for
the month of September 1995 are included within this filing.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operations
- ----------
Net sales in the second quarter of the current fiscal year were
$11,684,568, an increase of approximately 18% from the sales of $9,882,289
reported for the same quarter last year. For the first six months of the
year, sales totaled $23,295,978 versus $19,299,635 for the comparable period
last year, an increase of about 21%. The primary factors contributing to the
increase in shipments involved a major multiyear 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 87% in the
current quarter versus 81% for the comparable quarter last year. The increase
in the cost of sales percentage is related entirely to a major contract in the
Flexible Circuit Products Division. This contract involves the use of very
thin materials involving new technology, new equipment, and special handling
requirements. Although the Company has overcome a number of technical issues,
some still remain. Because of these technical issues, yields, although
significantly improved, are still not at a satisfactory level. Management and
technical personnel continue to focus on improving these yields. Additionally,
we are working closely with our customer in an effort to correct the
situation. For the first six months, the cost of sales percentage was 88%
versus 81% last year. Other than the fact that the first quarter included
additional costs associated with the rapid buildup in shipments of the large
multiyear contract, all other factors contributing to the increase were the
same as previously noted above.
Selling, general, and administrative expenses as a percentage of sales
was 11% in both the second quarter and first six months this year. This
compares to 12% in both the second quarter and first six months 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 $83,596 this quarter as compared to $35,526 last
year. For the first six months, interest expense was $153,218 as compared to
$57,772 last year. Although the Company was able to generate positive cash
flow from operating activities, the Company borrowed money to facilitate its
growth through the purchase of equipment, as well as to finance a portion of
its investment in a Chinese Joint Venture (of which the Company owns 50.1%)
that commenced operations September 1, 1995. These additional borrowings are
responsible for the increase in interest expense.
Other income this quarter was $22,088 versus $96,850 last year. For the
first six months, other income totaled $66,540 versus $113,301 for the same
period last year. Other income this year is comprised entirely of items of a
miscellaneous nature, while last year's totals included fees associated with a
licensing agreement.
The above factors resulted in income before income taxes of $147,363 and
$186,136 for the second quarter and first six months this year, respectively.
This compares to income before income taxes of $786,728 in the second quarter
and $1,405,370 for the first six months last year.
The Company's effective tax rate was 41% in the second quarter and 40%
for the first six months this year. This compares to 40% for both the second
quarter and first six months last year.
The net income for the quarter, as a result of the above factors, was
$90,553 versus $471,978 last year. For the first six months this year, the
net income was $114,626 as compared to $844,820 last year.
Liquidity and Capital Resources
- -------------------------------
In December 1995, the Company negotiated a new revolver loan agreement
whereby the Company increased its unsecured line of credit from $3,000,000 to
$5,000,000. The Company increased its line in anticipation of continued
growth. These monies will be used primarily to finance its additional working
capital needs, additional 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, and additional
capital expenditure needs. The agreement extends to December 1997, at which
time the loan would either convert to a three year term or the revolver loan
agreement would be renegotiated.
With the positive cash flow expected to be generated internally,
together with the increased line of credit, the Company believes it is now in
a secure financial position to accommodate its future cash requirements.
PART II-OTHER INFORMATION
-------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) The registrant's Annual Meeting of Shareholders was held December 5, 1995
(b) At the Annual Meeting, shareholders elected the following Class I
directors whose terms expire in 1998:
Withheld
For Authority
--- ---------
Richard W. Hale 2,121,424 2,450
Lester Pollack 2,121,424 2,450
Benjamin M. Rabinovici 2,121,424 2,450
The following other directors' respective terms of office continued in effect
after the meeting:
Continuing Class II Directors
Continuing in Office until 1996
M. Joel Kosheff
Peter J. Murphy
Continuing Class III Directors
Continuing in Office until 1997
Herbert W. Pollack
Sheldon A. Buckler
(c) No other votes were submitted to the security holders.
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/ Peter J. Murphy
----------------
Peter J. Murphy
President
/s/ Steven M. Millstein
-------------------
Steven M. Millstein
Vice President of Finance
____________________________
Date