-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HekcE3e46yVYLomJEYB27Wjbz/iUF+iXrJpnxzJgDeiq+e0OJWQQKb8ANHNei6wX o1pvcnFhyqYDmhd+QFPxHw== 0000910647-98-000024.txt : 19980212 0000910647-98-000024.hdr.sgml : 19980212 ACCESSION NUMBER: 0000910647-98-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARLEX CORP CENTRAL INDEX KEY: 0000724988 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 042464749 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12942 FILM NUMBER: 98532294 BUSINESS ADDRESS: STREET 1: 145 MILK ST CITY: METHUEN STATE: MA ZIP: 01844 BUSINESS PHONE: 5086854341 10-Q 1 FORM 10-Q FOR THE 2ND QUARTER 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 28, 1997 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 incorporation or organization) Number) 145 Milk Street, 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 January 31, 1998, was 4,627,717 shares. -1- PARLEX CORPORATION INDEX Part I - Financial Statements: Consolidated Balance Sheets - December 28, 1997 and June 30, 1997 3 Consolidated Statements of Income - For the Three Months and Six Months Ended December 28, 1997 and December 29, 1996 4 Consolidated Statements of Cash Flows - For the Six Months Ended December 28, 1997 and December 29, 1996 5 Notes to Unaudited Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II - Other Information 11 Index 12 Signatures 13 Exhibit 14 -2- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 28, 1997 and June 30, 1997 (Unaudited)
December 28, June 30, 1997 1997 ------------ ----------- ASSETS Current assets: Cash and cash equivalents $14,611,944 $ 596,614 Accounts receivable - net 10,138,354 9,029,388 Inventories: Raw material 3,004,529 2,706,302 Work in process 4,911,041 4,556,175 Deferred income taxes 294,033 294,033 Other current assets 1,427,282 850,956 ---------------------------- Total current assets 34,387,183 18,033,468 ---------------------------- Property, plant and equipment: Land 468,864 468,864 Buildings 7,017,478 7,017,478 Machinery and equipment 24,020,344 22,823,785 Leasehold improvements, construction in progress and other 5,069,722 3,974,058 ---------------------------- Total 36,576,408 34,284,185 Less accumulated depreciation and amortization (20,948,684) (20,671,859) ---------------------------- Property, plant and equipment - net 15,627,724 13,612,326 ---------------------------- Other assets 550,066 588,098 ---------------------------- Total $50,564,973 $32,233,892 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt - $ 500,000 Bank loan $ 701,743 500,000 Accounts payable 4,412,683 5,047,284 Accrued liabilities 1,574,346 2,150,228 Income taxes payable (46,149) 244,404 ---------------------------- Total current liabilities 6,642,623 8,441,916 ---------------------------- Long-term debt 300,000 2,500,000 ---------------------------- Other non-current liabilities 2,348,087 1,986,924 ---------------------------- Minority interest in Parlex (Shanghai) 1,758,530 1,521,363 ---------------------------- Stockholders' equity Preferred stock -0- -0- Common stock 480,444 379,875 Additional paid-in capital 23,636,676 3,334,424 Retained earnings 16,426,988 15,111,769 Less treasury stock at cost (1,037,625) (1,037,625) Cumulative translation adjustments 9,250 (4,754) ---------------------------- Total Stockholders' equity 39,515,733 17,783,689 ---------------------------- Total $50,564,973 $32,233,892 ============================
See Notes to Unaudited Consolidated Financial Statements -3- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months and Six Months Ended December 28, 1997 and December 29, 1996 (Unaudited)
Three Months Ended Six Months Ended ------------------------------ ------------------------------ Dec. 28, 1997 Dec. 29, 1996 Dec. 28, 1997 Dec. 29, 1996 ------------- ------------- ------------- ------------- Product sales $14,130,813 $14,031,241 $27,803,039 $26,804,712 License fees and royalties 52,771 37,099 97,596 70,575 -------------------------------------------------------------- Total Revenues 14,183,584 14,068,340 27,900,635 26,875,469 -------------------------------------------------------------- Costs and Expenses: Cost of products sold 11,315,973 11,472,916 21,854,885 22,384,959 Selling, general and administrative expenses 1,932,421 1,737,174 3,811,843 3,324,489 -------------------------------------------------------------- Operating costs and expenses 13,248,394 13,210,090 25,666,728 25,709,448 -------------------------------------------------------------- Operating income 935,190 858,250 2,233,907 1,166,021 Other income - (Note 2) 140,276 10,713 231,065 123,108 Interest expense (64,265) (115,603) (158,237) (220,533) -------------------------------------------------------------- Income before income taxes 1,011,201 753,360 2,306,735 1,068,596 Provision for income taxes (277,400) (286,900) (754,350) (406,900) -------------------------------------------------------------- Net income before minority interest 733,801 466,460 1,552,385 661,696 Minority interest (Note 3) (146,862) 91,405 (237,167) 84,581 -------------------------------------------------------------- Net income (Notes 4, 5) $ 586,939 $ 557,865 $ 1,315,218 $ 746,277 ============================================================== Basic EPS $.14 $.16 $.33 $.21 Diluted EPS $.13 $.15 $.32 $.20 ============================================================== Weighted average shares - Basic 4,330,431 3,558,285 3,960,892 3,558,168 ============================================================== Weighted average shares - Diluted 4,537,906 3,669,556 4,170,327 3,675,830 ==============================================================
See Notes to Unaudited Consolidated Financial Statements -4- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended December 28, 1997 and December 29, 1996 (Unaudited)
December 28, 1997 December 29, 1996 ----------------- ----------------- Cash Flows Provided by Operating Activities: Net income $ 1,315,218 $ 746,277 --------------------------------- Adjustments to reconcile net income to net cash provided by (used for)operating activities: Depreciation and amortization 1,160,993 1,001,954 Refundable income taxes - 17,794 Deferred compensation 40,713 36,348 Gain on sale of equipment (67,572) (250) Minority interest 237,167 (85,681) Increase (decrease) in cash from: Accounts receivable - net (1,108,966) (1,962,363) Inventories (653,093) 809,616 Other current assets (576,326) (118,277) Accounts payable (634,601) (481,850) Accrued liabilities (575,881) 156,772 Income taxes payable (290,553) 331,934 --------------------------------- Total adjustments (2,468,119) (294,003) --------------------------------- Net cash provided (used) by operating activities (1,152,901) 452,274 --------------------------------- Investment Activities: Additions to property, plant and equipment (2,865,170) (1,039,600) (Increase) decrease in other assets 38,032 (67,648) Proceeds from the sale of equipment 76,800 250 --------------------------------- Net cash used for investment activities (2,750,338) (1,106,998) --------------------------------- Financing Activities: Borrowings (repayments) under revolving credit agreement (2,200,000) 375,000 Loan payable - Joint Venture (298,257) 99,332 Decrease in long-term debt - (100,000) Exercise of stock options and stock offering 20,402,821 1,781 --------------------------------- Net cash from financing activities 17,904,564 376,113 --------------------------------- Effect of exchange rate changes on cash 14,005 - --------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 14,015,330 (287,611) Cash and Cash Equivalents at Beginning of Period 596,614 386,608 --------------------------------- Cash and Cash Equivalents at End of Period $14,611,944 $ 107,997 ================================= Supplementary Disclosure of Non Cash Transactions: Equipment acquired via capital lease 320,450 ===========
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 December 28, 1997 and the results of operations and cash flows for the three months and six months ended December 28, 1997, and December 29, 1996. 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 these interim financial statements as described in the Company's annual filing on Form 10-K for the year ended June 30, 1997, and this filing should be read in conjunction with that annual report. 2. Other Income In the current quarter this year, other income was comprised principally of interest income, and to a lesser extent, items of a miscellaneous nature, while last year other income contained no interest income. For the first six months, both this year and last, other income also included the gain on the sale of equipment. 3. 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 manufactures flexible printed circuits and commenced operations in September 1995. The Company reports the financial results of this venture on a three month time lag. 4. Recent Accounting Pronouncements In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The Company adopted this standard in the quarter ended December 28, 1997, and restated earnings per share information to conform with the new pronouncement's requirements. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. SFAS No. 131 establishes standards for the manner in which public business enterprises report selected information about operating segments in annual financial statements and -6- requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Both standards will be adopted by the Company during the first quarter of fiscal year 1999. 5. Common Stock In October 1997, the Company completed a stock offering of 1,150,000 shares of its common stock, of which 1,000,000 shares were issued by the Company and 150,000 were sold by selling shareholders. After deducting underwriting discounts and commissions and offering expenses, the net proceeds to the Company approximated $20,000,000. -7- Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company made an announcement during the quarter that there was an issue with the quality of some incoming raw materials associated with the Flexible Circuit Product line. This situation resulted in reduced levels of shipments, as well as increases in the cost of products sold as a percentage of sales. Most of the effects of this problem were resolved in the month of December 1997. In October 1997, the Company completed a secondary offering of its common stock, resulting in proceeds approximating $20,000,000 after expenses. Operations Total revenues in the second quarter of the current fiscal year were $14,183,584, a slight increase from the $14,068,340 reported in the corresponding period a year ago. Revenues were generated primarily from product sales, while the remainder was derived from licensing and royalty fees. For the first six months, revenues were $27,900,635, or 4% higher than the $26,875,469 reported last year. The cost of products sold as a percentage of revenue was 80%, a reduction from the 82% reported in the second quarter last year. An improvement in operational efficiency was the primary factor contributing to the reduction. A further improvement would otherwise have been realized had it not been for the quality issue associated with incoming raw materials mentioned previously. For the first six months, the cost of sales percentage was 78% versus 83% for the same period a year ago. Selling, general, and administrative expenses as a percentage of revenue was 14% in the current quarter and first six months this year versus 12% for the same periods last year. The significant growth being experienced by Parlex (Shanghai), the Chinese joint venture and the additional selling expenses being incurred by the Company's domestic operations in anticipation of accommodating its future growth were the primary factors contributing to the increase. Other income this year was $140,276 as compared to $10,713 in the second quarter last year. This year, the principal portion of "other income" related to interest income, with the remainder comprised of items of a miscellaneous nature. Last year, "other income" was comprised only of items of a miscellaneous nature. For the first six months, both this year and last, other income also included the gain on the sale of equipment. -8- Interest expense was $64,265 this quarter as compared to $115,603 last year. For the first six months, interest expense was $158,237 versus $220,533 last year. Some of the proceeds from the secondary offering (refer to "Liquidity and Capital Resources") were used to reduce the Company's long-term debt of $3,200,000, which resulted in a reduction of interest expense. The above factors resulted in income before income taxes of $1,011,201 and $2,306,735 for the second quarter and first six months, respectively. This compares to $753,360 in the second quarter and $1,068,596 for the first six months last year. The Company's effective tax rate was approximately 27% in the second quarter this year, and 33% for the first six months. The latter rate is the effective tax rate anticipated for the year. The reduction in rate relates primarily to the earnings generated from the Chinese joint venture. No provision has been made for the earnings generated thus far since they are being permanently reinvested in the Chinese venture and no taxes will become due. After providing for taxes and recognizing the minority interest in the Chinese joint venture, the Company's net income was $586,939 and $1,315,218 for the current quarter and first six months, respectively. This compares to $557,865 and $746,277 for the respective time periods last year. Recent Accounting Pronouncements In March 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". The Company adopted this standard in the quarter ended December 28, 1997, and restated all previously reported earnings per share information to conform with the new pronouncement's requirements. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 130 established standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. SFAS No. 131 establishes standards for the manner in which public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Both standards will be adopted by the Company during the first quarter of fiscal year 1999. -9- Liquidity and Capital Resources In October 1997, the Company completed a stock offering of 1,150,000 shares of its common stock, of which 1,000,000 shares were issued by the Company and 150,000 were sold by selling shareholders. The shares were priced at $22.00 per share. After deducting underwriting discounts and commissions and offering expenses paid by the Company, the net proceeds to the Company approximated $20,000,000. Since the offering, the Company has paid off its revolver loan balance and plans to spend approximately $12,000,000 over the next two years to expand its manufacturing facilities and purchase capital equipment that will increase its manufacturing capacity and accommodate various new technological processes. The remaining portion of the proceeds will be used for general corporate purposes. Additionally, the Company has a $10,000,000 unsecured revolving line of credit to replace the $5,000,000 revolving credit facility that previously existed. The Company believes that its cash flow from operations, together with the proceeds from the offering and the amount available under its revolving credit facility, should be sufficient to meet the Company's foreseeable needs. The Company has a deferred compensation obligation that is owed to an employee. Under the current arrangement, monthly payments begin in June 1999, or the first month after the termination of employment, whichever occurs first, and continues for no fewer than 60 months or, at the election of the employee prior to his termination of employment, for up to 120 months. Amounts to be paid within one year are not expected to be material. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995 This Report contains certain forward-looking statements. The Company's actual results of operations may differ significantly from those contemplated by such forward-looking statements as a result of various factors beyond its control, including, but not limited to, economic conditions in the electronics industry, particularly in the principal industry sectors served by the Company, changes in customer requirements and in the volume of sales to principal customers, competition and technological change. -10- PART II - OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders (a) The Registrant's Annual Meeting of Stockholders was held on December 2, 1997. (b) At the Annual Meeting, stockholders elected the following Class III directors whose terms expire in 2000:
Withheld For Authority --- --------- Herbert W. Pollack 3,375,099 3,295 Sheldon A. Buckler 3,373,599 4,795
The following other directors' respective terms of office continued in effect after the meeting: Continuing Class I Directors Continuing in Office until 1998 ------------------------------- Richard W. Hale Lester Pollack Benjamin M. Rabinovici Continuing Class II Directors Continuing in Office until 1999 ------------------------------- M. Joel Kosheff Peter J. Murphy (c) No other votes were submitted to the security holders. Item 6 Exhibits and Reports on Form 8-K. (a) Exhibits; see Exhibit Index (b) No reports on Form 8-K were filed during the quarter ended December 28, 1997. -11- 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 (Principal Accounting and Financial Officer) February 9, 1998 Date -12- Exhibit Index Exhibit Description of Exhibit Page 3-D Articles of Amendment dated October 21, 1997 14 EX-3 2 ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION NO. 04-2464749 BAHG THE COMMONWEALTH OF MASSACHUSETTS Examiner William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 N/A ARTICLES OF AMENDMENT Name (General Laws, Chapter 156B, Section 72) Approved We, Peter J. Murphy, President and Jill Pollack Kutchin, Clerk of Parlex Corporation (Exact name of corporation) located at 145 Milk Street, Methuen, Massachusetts (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: 3 (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on October 20, 1997, by vote of 2,681,606 shares of Common Stock of 3,593,310 shares outstanding. C [ ] P [ ] M [ ] R.A. [ ] (1) being at least a majority of each type, class or series outstanding and entitled to vote thereon * Delete the inapplicable words. ** Delete the inapplicable clause. 1 For amendments adopted pursuant to Chapter 156B, Section 70. 2 For amendments adopted pursuant to Chapter 156B, Section 71. Note: if the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. 3/20/70 C To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: - ---------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - ---------------------------- ------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ---------------------------- ------------------------------------------- Common: Common: 5,000,000 $.10 Preferred: Preferred: 1,000,000 $1.00 - ---------------------------------------------------------------------------- Change the total authorized to: - ---------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - ---------------------------- ------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ---------------------------- ------------------------------------------- Common: Common: 10,000,000 $.10 Preferred: Preferred: 1,000,000 $1.00 - ---------------------------------------------------------------------------- The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: ______________________ SIGNED UNDER THE PENALTIES OF PERJURY, this 21st day of October, 1997. /s/ Peter J. Murphy, President Peter J. Murphy /s/ Jill Pollack Kutchin, Clerk Jill Pollack Kutchin *Delete the inapplicable words. 592325 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) ============================= I hereby approve the within Articles of Amendment and, the filing fee in the amount of $5,000 having been paid, said articles are deemed to have been filed with me this 21st day of October 1997. Effective date: __________________________ /s/ William Francis Galvin WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: Edward D. Kutchin, Esq. Kutchin & Rufo, P.C. One Liberty Square Boston, MA 02109 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains a summary of financial information extracted from the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations and is qualified in its entirety by reference to such financial statements. 6-MOS JUN-30-1998 DEC-28-1997 14,611,944 0 10,292,835 154,481 7,915,557 34,387,183 36,576,408 20,948,684 50,564,973 6,642,623 0 0 0 480,444 0 50,564,973 27,803,039 27,900,635 21,854,885 25,666,728 0 0 158,237 2,306,735 754,350 1,315,218 0 0 0 1,315,218 .33 .32
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