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 March 31, 1996
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 April 29, 1996 was 2,371,534 shares.
1
PARLEX CORPORATION
INDEX
Financial Statements:
Consolidated Balance Sheets - March 31, 1996 and June 30, 1995 .......... 3
Consolidated Statements of Income - For the Three Months
and Nine Months Ended March 31, 1996 and April 2, 1995 .................. 4
Consolidated Statements of Cash Flows - For the Nine Months
ended March 31, 1996 and April 2, 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
2
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
(Unaudited)
March 31, 1996 June 30, 1995
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 365,627 $ 161,392
Accounts receivable - net .............................................. 7,522,523 7,171,553
Inventories:
Raw material ........................................................ 2,509,851 1,867,370
Work in process ..................................................... 4,199,991 4,216,706
Refundable income taxes ................................................ 32,811 206,669
Deferred income taxes .................................................. 263,150 263,150
Other current assets ................................................... 501,473 441,866
------------ ------------
Total current assets ................................................. 15,395,426 14,328,706
------------ ------------
Property, plant and equipment:
Land ................................................................... 468,864 468,864
Buildings .............................................................. 6,869,220 6,629,301
Machinery and equipment ................................................ 23,283,944 21,140,403
Leasehold improvements and other ....................................... 825,732 737,863
------------ ------------
Total ................................................................ 31,447,760 28,976,431
Less accumulated depreciation and
amortization ........................................................... (19,801,408) (19,047,539)
------------ ------------
Property, plant and equipment - net ................................. 11,646,352 9,928,892
------------ ------------
Other assets .............................................................. 836,372 259,503
------------ ------------
Total ................................................................ $ 27,878,150 $ 24,517,101
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ...................................... $ 150,000 $ 200,000
Loan payable - current ................................................. 383,919 --
Accounts payable ....................................................... 4,568,371 3,405,642
Accrued liabilities .................................................... 1,612,770 2,257,184
------------ ------------
Total current liabilities ........................................... 6,715,060 5,862,826
------------ ------------
Long-term debt ............................................................ 3,350,000 2,300,000
------------ ------------
Other non-current liabilities ............................................. 1,739,536 1,686,816
------------ ------------
Minority interest ......................................................... 1,085,417 --
------------ ------------
Stockholders' equity
Preferred stock ........................................................ -0- -0-
Common stock ........................................................... 258,153 257,941
Additional paid-in capital ............................................. 3,236,572 3,226,316
Retained earnings ...................................................... 12,531,037 12,220,827
Less treasury stock at cost ............................................ (1,037,625) (1,037,625)
------------ ------------
Total Stockholders' equity .......................................... 14,988,137 14,667,459
------------ ------------
Total ............................................................... $ 27,878,150 $ 24,517,101
============ ============
See Notes to Unaudited Consolidated Financial Statements
3
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months Ended March 31, 1996 and April 2, 1995
(Unaudited)
Three Months Ended Nine Months Ended
March 31, 1996 April 2, 1995 March 31, 1996 April 2, 1995
-------------- ------------- -------------- -------------
Product sales ....................... $11,580,017 $ 9,946,585 $34,745,995 $29,246,220
License fees and royalty income ..... 123,000 84,500 253,000 184,500
----------- ----------- ----------- -----------
Total Revenue ....................... 11,703,017 10,031,085 34,998,995 29,430,720
----------- ----------- ----------- -----------
Cost and Expenses:
Cost of products sold ............. 9,883,495 8,285,192 30,323,791 23,884,405
Selling, general and administrative
expenses 1,470,281 1,380,592 4,053,149 3,731,173
----------- ----------- ----------- -----------
Operating costs and expenses ...... 11,353,776 9,665,784 34,376,940 27,615,578
----------- ----------- ----------- -----------
Operating income .................... 349,241 365,301 622,055 1,815,142
Other income - (Note 3) 22,482 75,517 89,022 88,818
Interest expense .................... (90,149) (38,151) (243,367) (95,923)
----------- ----------- ----------- -----------
Income before income taxes .......... 281,574 402,667 467,710 1,808,037
Provision for income taxes .......... (96,700) (161,600) (171,900) (722,150)
----------- ----------- ----------- -----------
Net income - before minority interest 184,874 241,067 295,810 1,085,887
Minority interest - loss 10,710 -- 14,400 --
----------- ----------- ----------- -----------
Net income .......................... $ 195,584 $ 241,067 $ 310,210 $ 1,085,887
=========== =========== =========== ===========
Net income per share $ .08 $ .10 $ .13 $ .45
=========== =========== =========== ===========
Weighted average number of common and
common stock equivalent shares
outstanding 2,437,640 2,482,733 2,445,256 2,424,835
=========== =========== =========== ===========
See Notes to Unaudited Consolidated Financial Statements
4
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 1996 and April 2, 1995
(Unaudited)
Nine Months Ended
March 31, 1996 April 2, 1995
-------------- -------------
Cash Flows Provided by Operating Activities:
Net income ................................................ $ 295,810 $ 1,085,887
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used for)operating activities:
Depreciation and amortization ........................... 1,273,575 1,146,184
Loss (gain) on sale of equipment ........................ 13,652 (500)
Deferred compensation ................................... 52,720 46,375
Increase (decrease) in cash from:
Accounts receivable - net ............................ (350,970) (526,744)
Inventories .......................................... (625,766) (619,063)
Other current assets ................................. (59,607) (233,353)
Accounts payable ..................................... 1,162,729 521,442
Accrued liabilities .................................. (644,414) 45,416
Income taxes payable ................................. 173,858 (424,625)
----------- -----------
Total adjustments ......................................... 995,777 (44,868)
----------- -----------
Net cash provided by operating activities ................. 1,291,587 1,014,019
----------- -----------
Investment Activities:
Additions to property, plant and equipment ................ (1,977,081) (1,984,754)
Increase in other assets .................................. (576,869) (59,341)
Proceeds from the sale of equipment ....................... 32,295 500
----------- -----------
Net cash used for investment activities ................... (2,521,655) (2,043,595)
----------- -----------
Financing Activities:
Borrowings under revolving credit agreement ............... 1,150,000 850,000
Payments of long term debt ................................ (150,000) (150,000)
Loan payable - Joint Venture .............................. 383,919 --
Capital contributions to Joint Venture - minority interests 39,915 --
Exercise of stock options ................................. 10,469 224,763
----------- -----------
Net cash from financing activities ........................ 1,434,303 924,763
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ...... 204,235 (77,813)
Cash and Cash Equivalents at Beginning of Period .......... 161,392 194,048
----------- -----------
Cash and Cash Equivalents at End of Period ................ $ 365,627 $ 116,235
=========== ===========
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 March 31,1996 and the results of operations and cash
flows for the three and nine months ended March 31, 1996 and April 2, 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 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.
3. Other Income
------------
Other income, in both the current and preceding year's results, is
comprised entirely 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. The Company reports the financial results of this
venture on a three month time lag.
6
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operations
- ----------
Total revenue in the third quarter of the current fiscal year was
$11,703,017, an increase of approximately 17% from $10,031,085 reported for the
same quarter last year. For the first nine months of the year, revenue totalled
$34,998,995 versus $29,430,720 for the comparable period last year, an increase
of about 19%. Revenues were generated principally from product sales, while some
was derived from licensing and royalty fees. These results reflect increased
shipments in both the Laminated Cable and the Flexible Circuit Products
Divisions.
The cost of products sold as a percentage of sales was 84% and 87% for the
third quarter and first nine months, respectively. This compares to 83% and 81%
in the respective periods last year. The increase in the cost of sales
percentage related to a major contract in the Flexible Circuit Products
Division. Although the Company was making consistent progress over the past six
months, it wasn't until the month of March 1996 when the Company overcame
virtually all of the technical issues that were impacting upon the yields and
profitability on this large contract. These issues encompassed the use of very
thin materials involving new technology, new equipment, and special handling
requirements. The Company anticipates a reduction in the cost of sales
percentage as a result of resolving these issues on this major program.
Selling, general, and administrative expenses as a percentage of revenue
was 13% in the current quarter versus 14% for the comparable quarter last year.
For the first nine months, selling, general and administrative expenses were 12%
and 13% in the current quarter and preceding year, respectively. The improvement
was a result of the Company's ability to generate additional revenue without
incurring a commensurate increase in expenses.
Interest expense was $90,149 this quarter as compared to $38,151 last
year. For the first nine months, interest expense was $243,367 versus $95,923
last year. Although the Company generated nearly $1,300,000 in 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 (see Note 4 to Consolidated Financial
Statements) that commenced operations September 1, 1995. These additional
borrowings are responsible for the increase in interest expense.
Other income this quarter was $22,482 and $89,022 for the first nine
months. Last year, other income totalled $75,517 and $88,818 for the third
quarter and first nine months, respectively. Other income was comprised entirely
of items of a miscellaneous nature for all time periods.
7
The above factors resulted in income before income taxes of $281,574 and
$467,710 for the third quarter and first nine months, respectively. This
compares to income before income taxes of $402,667 in the third quarter and
$1,808,037 for the first nine months last year.
The Company's effective tax rate was 34% in the third quarter and 37% for
the first nine months this year. This compares to 40% for both the third quarter
and first nine months last year.
The net income for the quarter, as a result of the above factors, was
$195,584 versus $241,067 last year. For the first nine months, net income was
$310,210 as compared to $1,085,887 last year.
Liquidity and Capital Revenues
- ------------------------------
The Company is envisioning additional working capital requirements, as
well as additional capital expenditures to accommodate its future growth. The
recently negotiated $5,000,000 unsecured line of credit that was made available
in December 1995 under its Revolving Credit Facility, together with the
Company's internally generated cash flow from operations, should be adequate to
provide for the Company's future needs.
8
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.
9
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
May 13, 1996
_________________________
Date
10