-----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, CxF0XML6+j0aKEGFtyMDPKxc2CtIZux+G3yr8xLBxLZRaY0hQs8JLdJsUszYPvsw ePPCDR8YQx56KdIi534YQw== 0000910647-98-000287.txt : 19981116 0000910647-98-000287.hdr.sgml : 19981116 ACCESSION NUMBER: 0000910647-98-000287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981112 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: 98746091 BUSINESS ADDRESS: STREET 1: 145 MILK ST CITY: METHUEN STATE: MA ZIP: 01844 BUSINESS PHONE: 5086854341 10-Q 1 BODY OF 10Q 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 September 27, 1998 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 October 31, 1998 was 4,640,836 shares. -1- PARLEX CORPORATION INDEX Part I - Financial Statements: Consolidated Balance Sheets - September 27, 1998 and June 30, 1998 3 Consolidated Statements of Income - For the Three Months Ended September 27, 1998 and September 28, 1997 4 Consolidated Statements of Cash Flows - For the Three Months Ended September 27, 1998 and September 28, 1997 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 11 Exhibit Index 12 Signatures 15 -2- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 27, 1998 and June 30, 1998 (Unaudited)
Sept 27, 1998 June 30, 1998 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 5,554,783 $ 5,824,233 Short-term Investments 5,234,790 6,789,469 Accounts receivable - net 10,907,369 11,145,750 Inventories: Raw material 3,544,714 3,413,657 Work in process 6,088,973 5,933,000 Refundable income taxes 126,933 323,626 Deferred income taxes 372,725 372,725 Other current assets 927,363 1,706,367 ----------------------------- Total current assets 32,757,650 35,508,827 ============================= Property, plant and equipment: Land 468,864 468,864 Buildings 7,724,022 7,724,022 Machinery and equipment 27,370,499 27,200,755 Leasehold improvements and other 2,302,337 2,270,658 Construction in progress 7,069,851 4,390,805 ----------------------------- Total 44,935,573 42,055,104 Less accumulated depreciation and Amortization (22,815,377) (22,031,645) ----------------------------- Property, plant and equipment - net 22,120,196 20,023,459 ----------------------------- Other assets 1,166,789 649,198 ----------------------------- Total $56,044,635 $56,181,484 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 307,300 $ 121,158 Bank loan 360,577 310,577 Accounts payable 5,298,107 6,437,169 Accrued liabilities 1,706,695 2,353,800 ----------------------------- Total current liabilities 7,672,679 9,222,704 ----------------------------- Long-term debt 2,062,757 1,165,751 ----------------------------- Other non-current liabilities 2,269,365 2,247,444 ----------------------------- Minority interest in Parlex (Shanghai) 2,244,958 1,954,472 ----------------------------- Stockholders' equity Preferred stock -0- -0- Common stock 485,083 485,065 Additional paid-in capital 23,873,819 23,872,745 Retained earnings 18,467,813 18,268,743 Unrealized gain on short-term investments 13,472 10,192 Cumulative translation adjustments (7,686) (8,007) Less treasury stock at cost (1,037,625) (1,037,625) ----------------------------- Total Stockholders' equity 41,794,876 41,591,113 ----------------------------- Total $56,044,635 $56,181,484 =============================
See Notes to Unaudited Consolidated Financial Statements -3- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended September 27, 1998 and September 28, 1997 (Unaudited)
September 27, 1998 September 28, 1997 ------------------ ------------------ Product sales $15,419,212 $13,672,226 License fees and royalties 72,544 44,825 -------------------------------- Total Revenues $15,491,756 $13,717,051 ================================ Costs and Expenses: Cost of products sold 13,051,471 10,538,912 Selling, general and administrative expenses 2,114,422 1,879,422 -------------------------------- Operating costs and expenses 15,165,893 12,418,334 -------------------------------- Operating income 325,863 1,298,717 Other income 169,283 90,789 Interest expense (76,440) (93,972) -------------------------------- Income before income taxes 418,706 1,295,534 Credit (provision) for income taxes 70,850 (476,950) -------------------------------- Net income before minority interest 489,556 818,584 Minority interest (Note 2) (290,486) (90,305) -------------------------------- Net income $ 199,070 $ 728,279 ================================ Basic income per share $ .04 $ .20 ================================ Diluted income per share $ .04 $ .19 ================================ Weighted average shares - basic 4,640,795 3,591,353 ================================ Weighted average shares - diluted 4,788,893 3,802,747 ================================
See Notes to Unaudited Consolidated Financial Statements -4- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended September 27, 1998 and September 28, 1997 (Unaudited)
September 27, 1998 September 28, 1997 ------------------ ------------------ CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net Income $ 199,077 $ 728,279 ------------------------------- ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and Amortization 796,526 571,792 (Gain)Loss on sale of equipment 0 (67,872) Deferred compensation 21,921 20,141 Minority Interest 290,486 90,305 Increase(Decrease) in cash from: Accounts Receivable - Net 238,381 (1,173,835) Other Current Assets 766,210 201,854 Refundable Income Taxes 196,693 0 Inventories (287,030) (583,421) Accounts Payable (1,139,062) 501,616 Accrued Liabilities (647,105) (184,549) Income Taxes Payable 0 121,187 ------------------------------- Total Adjustments: 237,020 (503,122) ------------------------------- Net cash provided by operating activities: 436,090 235,157 ------------------------------- INVESTING ACTIVITIES: Additions to property, plant and equipment (2,880,469) (958,116) (Increase)Decrease in Other assets (517,591) 4,236 Proceeds from sale of equipment 0 76,800 Maturities of investments available for sale 1,557,959 0 ------------------------------- Net cash used for investing activities: (1,840,101) (877,080) ------------------------------- FINANCING ACTIVITIES: Payments - Long-term debt (116,852) 0 Loan Payable - JV 50,000 99,435 Borrowings under revolving credit agreement 1,200,000 50,000 Exercise of stock options 1,092 4,299 ------------------------------- Net cash provided by financing activities: 1,134,240 153,734 ------------------------------- EFFECT OF EXCHANGE RATE CHARGES ON CASH: 321 1,418 ------------------------------- NET DECREASE IN CASH & CASH EQUIVALENTS: (269,450) (496,771) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD: 5,824,233 596,614 ------------------------------- CASH & CASH EQUIVALENTS AT END OF PERIOD: $5,554,783 $ 99,843 ===============================
-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 September 27, 1998 and the results of operations and cash flows for the three months ended September 27, 1998 and September 28, 19976. All adjustments made to the interim financial statements were of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the entire fiscal year. 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, 1998, and this filing should be read in conjunction with that annual report. 2. Comprehensive Income During the first quarter of 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income for the three months ended September 27, 1998 and September 28, 1997 are as follows:
1999 1998 ---- ---- Other Comprehensive Income: Unrealized gain on short term Investments $3,280 $ -0- Cumulative translation adjustments 321 1,417 ------------------ $3,601 $1,417 ==================
The accumulated other comprehensive income balance is as follows:
Unrealized gains Cummulative on Short term Translation Investments Adjustments Total ---------------- ----------- ----- Beginning Balance $10,192 $(8,007) $2,185 Current Period Change 3,280 321 3,601 --------------------------------------- Ending Balance $13,472 $(7,686) $5,786 =======================================
-6- Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total revenues in the first quarter of the current fiscal year were $15,491,756 versus $13,717,051 for the comparable quarter last year. Revenues were generated primarily from product sales, while some was derived from licensing and royalty fees. The increase in total revenues was primarily attributable to an increase in the volume of units shipped. The cost of products sold was $13,051,471 or 84% of sales in the current quarter versus $10,538,912 or 77% of revenues in the first quarter last year. While the laminated cable and Chinese operations performed well, some unanticipated losses were incurred in the manufacturing of flexible circuits associated with automotive applications. Product shipped to the Company's Mexican facility was returned because of an unexpected delay by our customer to qualify the site for finishing operations. As a result, the material was contaminated during unplanned storage and shipment back to our Methuen, Massachusetts facility. These circuits required extensive rework with a significant quantity being scrapped. The Company also failed to achieve desired yields on its recently introduced PALFlex (process for automotive applications. Selling, general, and administrative expenses as a percentage of revenue were 14% in the first quarter, both this year as well as last year. Other income of $169,283 this quarter was primarily associated with interest income on short-term investments; last year, other income of $90,789 related primarily to the gain on the sale of equipment. Interest expense was $76,440 this quarter as compared to $93,972 last year. The decrease was due to a lower level of average borrowings. The interest rate in the first quarter remained essentially unchanged from the same period last year. Income before income taxes was $418,706 in the first quarter this year versus $1,295,534 last year. The decrease was due to the losses on automotive programs described above. The Company reflected a tax credit of $70,850 this year versus a provision of $476,950 (or 37% effective tax rate) last year. The credit relates to the loss incurred in the Company's U.S. operations, while the Company continues to benefit from the income generated by the Chinese joint venture, which currently is not subject to tax. The Company's net income, after recognizing the minority interest in the Chinese joint venture, was $199,070 in the first quarter this year versus $728,279 last year. -7- Liquidity and Capital Resources As of September 27, 1998, the Company had cash, marketable securities, and short term investment of approximately $10,800,000, after having expended over $2,800,000 in the first quarter to pay for its planned expansion. In addition, the Company has a $10,000,000 unsecured revolving line of credit, of which $9,800,000 was available as of November 2, 1998. For the remainder of the year, the Company anticipates spending an additional $6,000,000 to expand its manufacturing facilities and purchase capital equipment that will increase its manufacturing capacity and accommodate various new technological processes. The Company believes that its cash on hand, its anticipated cash flow from operations, and the amount available under its revolving credit facility, should be sufficient to meet its foreseeable needs. The Company has a deferred compensation obligation that is owed to the Chairman of the Board of Directors. Amounts to be paid within one year are not deemed to be significant. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that these 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. SFAS No. 131 will be adopted by the Company during the fourth quarter of fiscal 1999. This standard is not expected to have a material effect on its consolidated financial position, results of operations, and financial statement disclosures. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 will be adopted by the Company during fiscal year 2000. This standard is not expected to have a material effect on its consolidated financial position, results of operations and financial statement disclosures. Year 2000 Disclosure Statement The Year 2000 will effect not only the Company's internal computer systems, but also those external systems with which the Company exchanges any date related information, its customers, suppliers, banks, insurance companies, stockholders, etc. In order to properly assess the extent this problem may have on its operations, the Company has and is continuing to survey its key suppliers, service providers, and trading partners as to their level of preparedness and the effect it will have on the Company's operations. The Company has scheduled its enterprise system to be fully Year 2000 compliant by the second quarter of 1999. Quite apart from the Year 2000 problem, the Company is in the process of replacing its legacy computer system with a client server system for which both the hardware and software has been certified as Year 2000 compliant. The total cost of this project is approximately $1,050,000 of which approximately $300,000 was expended during fiscal 1998. The Company is in the process of inventorying all its mission critical manufacturing systems in order to determine any Year 2000 issues that may exist. While the Company anticipates that some software upgrades will be required, it does not believe that any issues exist which will prevent these systems from operating as expected after January 1, 2000. -8- This inventory is scheduled to be completed by the fourth quarter of 1998 and testing to identify needed remediation will be completed by the end of that quarter. Any required remediation of all mission critical systems will be completed by the end of the first quarter of 1999 and the testing necessary to validate compliance is scheduled to be completed by mid 1999. The Year 2000 issue does present some risk that the company's operation may suffer disruption as a result of either a computer malfunction or a corruption of date sensitive data. If this does occur, the Company believes that it most likely will be due to factors external to the company. Because of the Company's internal Year 2000 program, the Company does not believe there is a significant risk of disruption of operations due to malfunction of its internal systems or equipment. There can be no assurance that the conversion of the Company's systems will be successful or that the Company's key contractors will have successful conversion programs, and that any such "Year 2000" compliance failures will not have a material effect on the Company's business, results of operations or financial conditions. Quantitative and Quality Disclosures About Market Risk As of September 27, 1998, the Company is exposed to market risks which include changes in U.S. and foreign interest rates and fluctuations in exchange rates. The Company maintains a portion of its cash and cash equivalents in financial instruments with purchased maturities of three months or less. These financial instruments are subject to interest rate risk and will decline in value if interest rates decrease. Due to the short duration of these financial instruments, an immediate decrease in interest rates would not have a material effect upon the Company's financial position. The Company's outstanding bank loan bears interest at a rate of 125 basis points over the Singapore Interbank Offer Rate ("SIBOR") and is therefore affected by changes in market interest rates. However, the Company has the option to pay the balance in full at any time without penalty. As a result, the Company believes that the market risk is not material. The Company also has a revolving credit agreement which bears interest at the bank's corporate base rate which is also affected by changes in market interest rates. As of November 2, 1998, the Company owed $200,000 under this arrangement and has the option to repay borrowings at anytime without penalty and therefore believes that the market risk is not material. The remainder of the Company's long term debt bears interest at fixed rates and are therefore not subject to market risk. The Company has a subsidiary located in Shanghai, China. Sales are typically denominated in the local currency (functional currency), thereby creating exposure to changes in exchange rates. The changes in the Chinese/ U.S. exchange rate may positively or negatively impace the Company's sales, gross margins and retained earnings. Based upon the current volume of transactions in China and the stable nature of the exchange rate between China and the U.S., the Company does not believe the market risk is material. -9- "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995 This quarterly Report on Form 10-Q contains certain forward-looking statements as defined under the Federal Securities Laws. The Company's actual results of operations may differ significantly from those contemplated by such forward-looking statements as a result of various risk 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 Items 1-5 THESE ITEMS ARE INAPPLICABLE Item 6 Exhibits and Reports on Form 8-K. (a) Exhibits - See Exhibit Index (b) Reports on Form 8-K - No reports on Form 8-K were filed by the Company for the quarter ended September 27, 1998. -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 By: /s/ Peter J. Murphy Peter J. Murphy President By: /s/ Steven M. Millstein Steven M. Millstein Vice President of Finance (Principal Accounting and Financial Officer) November 12, 1998 Date -15- EXHIBIT INDEX EXHIBIT DESCRIPTION OF EXHIBIT PAGE - ------- ---------------------- ---- 11 Statement Regarding Computation of Per Share Earnings 13 27 Financial Data Schedule 14 EX-11 2 EXHIBIT 11 EXHIBIT 11 PARLEX CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE
Three Months Ended ---------------------------------- Sept. 27, 1998 Sept. 28, 1997 -------------- -------------- Net Income Per Share - Basic $.04 $.20 Weighted Average Number of Shares Outstanding 4,640,795 3,591,353 Net Income Per Share - Diluted $.04 $.19 Weighted Average Number of Shares Outstanding 4,640,795 3,591,353 Effect of Dilutive Stock Option 148,098 211,394 Adjusted Weighted Average Number of Shares Outstanding 4,788,893 3,802,747
EX-27 3 EXHIBIT 27
5 This schedule contains a summary of financial information extracted from the Consolidated Balance Sheet and Consolidated Statement of Operations and is qualified in its entirety by reference to such financial statements. 3-MOS JUN-30-1999 SEP-27-1998 5,554,783 5,234,790 11,203,730 296,361 9,633,687 32,757,650 44,935,573 22,815,377 56,044,635 7,672,679 0 0 0 485,083 0 56,044,635 15,419,212 15,491,756 13,051,471 15,165,893 0 0 76,440 418,706 70,850 199,070 0 0 0 199,070 .04 .04
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