SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 26, 2000 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) One Parlex Place, Methuen, Massachusetts 01844 (Address of principal executive offices) (Zip Code) 978-685-4341 (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 30, 2000 was 4,819,284 shares. On May 10, 2000, we filed a Quarterly Report on Form 10-Q with the Securities and Exchange Commission (the "Commission"). We have filed this amendment on Form 10-Q/A to correct financial information presented in the pro-forma summary of financial data reported in Item 2 and other typographical errors. The accumulated other comprehensive income balance is as follows: Unrealized gains (losses) on Cumulative Trans- SHORT TERM INVESTMENTS LATION ADJUSTMENTS TOTAL Beginning Balance ................. $ 1,886 $ 12,992 $ 14,878 Current Period Change ............. (1,886) (18,677) (20,563) -------- -------- -------- Ending Balance .................... -0- ($ 5,685) ($ 5,685) ======== ======== ======== 4. POLY-FLEX ACQUISITION On March 1, 2000, the Company acquired the businesses of Poly-Flex Circuits, Inc. and Poly-Flex Circuits, Limited (collectively "Poly-Flex"). Poly-Flex is engaged in the manufacture of polymer thick film, flexible circuits and flexible interconnect assemblies. The acquisition was accounted for using the purchase method of accounting. A preliminary allocation of purchase price has been made to the assets acquired, principally inventory, accounts receivable and property, plant and equipment, and the liabilities assumed based on their estimated fair values at the date of acquisition. Approximately $120,000 representing a preliminary allocation of purchase price over the estimated fair value of net assets acquired has been recorded as goodwill and will be amortized over a 10 year period. The Company is in the process of obtaining appraisals on certain of the assets acquired. The excess of purchase price over estimated fair value may be adjusted based on the results of such appraisals. The Company paid in cash at closing $19,650,000 and, as of March 26, 2000, has incurred approximately $430,000 of an estimated $600,000 of transaction related costs for the acquisition. The purchase was financed through borrowings from two new credit facilities, which consist of a $15.0 million revolving line of credit and a $15.0 million term loan. The results of operations of the Poly-Flex business from March 1, 2000 through March 26, 2000 are included in the consolidated financial statements for the quarter and nine months ended March 26, 2000. Net sales for this period totaled $1,821,000 representing 7% and 3% of the quarter and nine months ended March 26, 2000 sales, respectively. This acquisition further diversified our product offerings by providing us with polymer thick film and surface mount assembly capabilities. Poly-Flex has manufacturing facilities in Cranston, Rhode Island and the United Kingdom. PRO-FORMA CONDENSED CONSOLIDATED RESULTS OF OPERATIONS. The following unaudited pro forma summary presents the condensed consolidated results of operations as if the Poly-Flex acquisition had occurred at the beginning of the periods presented after giving effect to certain adjustments, including changes in depreciation and interest expense on the acquisition debt. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of July 1, 1998 or of results, which may occur in the future. Nine Months Ended March 26, 2000 March 28, 1999 (Unaudited)(1,2) (Unaudited)(1,3) -------------- ----------------- Revenue $85,090 $66,123 Net Income 3,568 1,824 Earnings per share - basic .74 .39 Earnings per share - diluted .73 .38 Weighted average shares - basic 4,805 4,645 Weighted average shares - diluted 4,884 4,772 1) Pro forma to give effect to the Poly-Flex acquisition and related debt as if it had occurred at the beginning of Parlex's fiscal year. 2) Includes additional interest expense of $651,000 and depreciation of $352,000, net of an income tax benefit of $401,000. This results in a net income per share decrease of $0.16 basic and $0.15 diluted. Independently, Poly-Flex reported net loss of ($379,000) for the nine months ended March 26, 2000 resulting in a net income per share decrease of $0.06 and $0.06 for basic and diluted shares, respectively. These two factors, combined, result in an overall decrease of $.22 and $.21 earnings per share. 3) Includes additional interest expense of $638,000 and depreciation of $352,000, net of an income tax benefit of $396,000. This results in a net income per share decrease of $0.17 basic and $0.17 diluted. Independently, Poly-Flex reported net income of $736,000 for the nine months ended March 28, 1999 resulting in a net income per share increase of $0.20 and $0.20 for basic and diluted shares, respectively. These two factors, combined, result in an overall increase of $.03 earnings per share. Our income after provision for income taxes and our minority interest in Parlex Shanghai was $4.6 million for the nine months ended March 26, 2000, an increase of 173% from $1.7 million for the nine months ended March 28, 1999. PRO-FORMA CONDENSED CONSOLIDATED RESULTS OF OPERATIONS. The following unaudited pro forma summary presents the condensed consolidated results of operations as if the Poly-Flex acquisition had occurred at the beginning of the periods presented after giving effect to certain adjustments, including changes in depreciation and interest expense on the acquisition debt. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of July 1, 1998 or of results which may occur in the future. Nine Months Ended March 26, 2000 March 28, 1999 (000'S except per share data) Revenue .............................. $85,090 $66,123 Net Income ........................... 3,568 1,824 Earnings per share - basic ........... .74 .39 Earnings per share - diluted ......... .73 .38 Weighted average shares - basic ...... 4,805 4,645 Weighted average shares - diluted .... 4,884 4,772 LIQUIDITY AND CAPITAL RESOURCES As of March 26, 2000, the Company has cash on hand of approximately $2,210,000. For the first nine months, the Company had net income of $4,600,000, and non-cash items totalling $4,105,000, which, in the aggregate amounted to $8,705,000. These monies, together with $1,606,000 from maturity of investments and $209,000 from the exercise of stock options, accounted for approximately $10,520,000 in receipts. In addition, the Company, for the first nine months, borrowed approximately $25,101,000 to meet its obligations and increase its cash position by approximately $1,000,000. These funds were used to purchase Poly-Flex for $19,650,000 plus approximately $430,000 of transaction related costs for the acquisition, additional working capital requirements of $4,350,000, finance capital expenditures of $7,094,000, and pay debt of $2,921,000. On March 1, 2000 we entered into two new credit facilities consisting of a $15.0 million revolving line of credit and a $15.0 million term loan, each subject to a right of setoff that our lender has against our deposits or other property in its possession or control. We borrowed approximately $20 million in connection with our Poly-Flex acquisition. Borrowings under both the revolving line of credit and the term loan bear interest at either our lender's prime rate (9.0% at March 26, 2000) or LIBOR (6.18% at March 26, 2000) plus a margin that varies from 1.5% to 2.0%. As of March 26, 2000, we had borrowed $15.0 million under the term loan and $7.4 million under our revolving line of credit facility. No further advances of principal will be made under the revolving credit facility after December 31, 2001. We are required to pay our revolving line of -11- credit borrowing in forty-five equal monthly installments, the first being due on January 1, 2002, and our term loan in twenty quarterly installments of $750,000, the first being due on June 1, 2000. We must also pay quarterly in arrears and commencing on June 1, 2000, a fee of one-quarter of one percent per annum on the unused portion of our revolving line of credit. Our credit facility requires compliance with a number of covenants, including restrictions on payment of dividends, making of loans, investment in securities and changes in control, and financial covenants. We have filed a registration statement with the Securities and Exchange Commission for a common stock offering of 1,250,000 shares by us and 150,000 shares by selling stockholders. Our underwriters have an option to purchase up to an additional 210,000 shares from us to cover overallotments. We intend to use the proceeds from this offering to pay off approximately $22.4 million of debt, including approximately $20 million that we borrowed in connection with our acquisition of Poly-Flex. We can, however, give no assurance that we will complete this offering. If we do not complete this offering, we expect our interest expenses to increase due to the increased amount of our long-term debt. We believe that our cash on hand, our anticipated cash flow from operations, and the amount available under our revolving credit facility should be sufficient to meet our anticipated needs for at least the next 12 months. RECENT ACCOUNTING PRONOUNCEMENTS In June, 1998, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts and for hedging activities. We will adopt SFAS No. 133 during fiscal 2001. We have not completed an evaluation of the effects of adopting SFAS No. 133 on our consolidated financial position, results of operations and financial statement disclosures. 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. We are exposed to market risks, which include changes in U.S. and foreign interest rates and fluctuations in exchange rates. We also have a revolving credit line and a term loan that bears interest, at our choice, at our lender's prime rate or LIBOR plus a margin that varies from 1.5% to 2.0%. Both the prime and LIBOR rates are affected by changes in market interest rates. We owed approximately $22.4 million as of March 26, 2000. 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. -12- 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 By: /s/ Robert A. Rieth ----------------------------------------- Robert A. Rieth Vice President and CFO (Principal Accounting and Financial Officer) 5/19/2000 -------------------------------------------- Date