-----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, P4/7fX+AxxNdYSrRVzTlZ9S2BhDJWkQKtK7kVHvlWUY0OGFaT964QvV4dtbTK4nc VaEFhAdwzqsst0aEdqv9Aw== 0000910647-00-000034.txt : 20000210 0000910647-00-000034.hdr.sgml : 20000210 ACCESSION NUMBER: 0000910647-00-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991226 FILED AS OF DATE: 20000209 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: 529041 BUSINESS ADDRESS: STREET 1: 145 MILK ST CITY: METHUEN STATE: MA ZIP: 01844 BUSINESS PHONE: 5086854341 10-Q 1 BODY OF 10-Q 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 Quarter Ended December 26, 1999 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 January 31, 2000 was 4,812,658. -1- PARLEX CORPORATION ------------------ INDEX ----- Part I - Financial Information Page ---- Item 1. Consolidated Financial Statements: Consolidated Balance Sheets - December 26, 1999 and June 30, 1999 3 Consolidated Statements of Income - For the Three Months And Six Months Ended December 26, 1999 and December 27, 1998 4 Consolidated Statements of Cash Flows - For the Six Months Ended December 26, 1999 and December 27, 1998 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 12 Signatures 13 Exhibit Index 14 -2- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 26, 1999 and June 30, 1999 (Unaudited)
December 26, 1999 June 30, 1999 ----------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 329,924 $ 1,175,889 Short-term Investments 602 1,606,953 Accounts receivable - net 18,836,598 14,053,046 Inventories: Raw material 6,564,575 3,746,245 Work in process 7,577,882 7,197,212 Refundable income taxes -0- 129,790 Deferred income taxes 559,084 559,084 Other current assets 2,229,792 1,585,435 ------------------------------ Total current assets 36,098,457 30,053,654 ------------------------------ Property, plant and equipment: Land 468,864 468,864 Buildings 7,796,488 7,796,488 Machinery and equipment 32,305,057 30,756,650 Leasehold improvements and other 3,084,215 2,929,101 Construction in progress 16,561,112 13,844,489 ------------------------------ Total 60,215,736 55,795,592 Less accumulated depreciation and Amortization (25,888,289) (23,915,018) ------------------------------ Property, plant and equipment - net 34,327,447 31,880,574 ------------------------------ Other assets 1,546,616 1,586,383 ------------------------------ Total $71,972,520 $63,520,611 ============================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 619,206 $ 619,206 Accounts payable 10,885,458 8,080,085 Accrued liabilities 3,563,282 2,592,655 ------------------------------ Total current liabilities 15,067,946 11,291,946 ------------------------------ Long-term debt 2,777,453 1,631,782 ------------------------------ Other non-current liabilities 2,591,077 2,611,942 ------------------------------ Minority interest in Parlex (Shanghai) 3,216,024 2,651,711 ------------------------------ Stockholders' equity: Preferred stock -0- -0- Common stock 502,153 499,115 Additional paid-in capital 24,677,234 24,568,566 Retained earnings 24,184,456 21,288,296 Accumulated other comprehensive income (6,198) 14,878 Less treasury stock at cost (1,037,625) (1,037,625) ------------------------------ Total Stockholders' equity 48,320,020 45,333,230 ------------------------------ Total $71,972,520 $63,520,611 ==============================
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 26, 1999 and December 27, 1998 (Unaudited)
Three Months Ended Six Months Ended ---------------------------- ---------------------------- Dec 26, 1999 Dec 27, 1998 Dec 26, 1999 Dec 27, 1998 ------------ ------------ ------------ ------------ Product sales $23,841,921 $15,337,148 $43,961,128 $30,756,360 License fees and royalties 542,156 16,842 788,508 89,386 ----------------------------------------------------------- Total Revenues 24,384,077 15,353,990 44,749,636 30,845,746 ----------------------------------------------------------- Costs and Expenses: Cost of products sold 18,601,930 12,520,118 34,265,961 25,571,589 Selling, general and administrative expenses 3,061,466 2,004,276 5,632,275 4,118,698 ----------------------------------------------------------- Operating costs and expenses 21,663,396 14,524,394 39,898,236 29,690,287 ----------------------------------------------------------- Operating income 2,720,681 829,596 4,851,400 1,155,459 Other income 143,464 85,267 155,753 254,550 Interest expense (95,533) (56,200) (153,669) (133,640) ----------------------------------------------------------- Income before provision for income taxes and minority interest 2,768,612 858,663 4,853,484 1,277,369 Provision for income taxes (886,152) (314,015) (1,393,013) (243,165) ----------------------------------------------------------- Income before minority interest 1,882,460 544,648 3,460,471 1,034,204 Minority interest (326,794) (5,108) (564,311) (295,594) ----------------------------------------------------------- Net income $ 1,555,666 $ 539,540 $ 2,896,160 $ 738,610 =========================================================== Basic earnings per share $ .32 $ .12 $ .60 $ .16 =========================================================== Diluted earnings per share $ .32 $ .11 $ .60 $ .15 =========================================================== Weighted average shares - basic 4,808,624 4,641,656 4,801,741 4,641,226 =========================================================== Weighted average shares - diluted 4,868,972 4,759,714 4,856,080 4,774,304 ===========================================================
See Notes to Unaudited Consolidated Financial Statements -4- PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended --------------------------------------- December 26, 1999 December 27, 1998 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,896,160 $ 738,610 --------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment and other assets 2,051,704 1,503,207 Deferred compensation (20,865) 42,545 Minority interest 564,313 295,594 Gain on sale of equipment - (300) Changes in current assets and liabilities: Accounts receivable - net (4,783,552) 295,966 Inventories (3,199,000) (378,905) Refundable income taxes 129,790 253,516 Other current assets (644,357) 826,170 Accounts payable and accrued liabilities 3,776,000 (2,690,201) --------------------------------- Total adjustments: (2,125,967) 147,592 --------------------------------- Net cash provided by operating activities: 770,193 886,202 --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturity of investments available for sale, net 1,606,351 3,526,219 Additions to property, plant and equipment (4,420,144) (6,406,096) Decrease (increase) in other assets (38,666) 98,970 Proceeds from sale of equipment - 300 --------------------------------- Net cash used for investment activities (2,852,459) (2,780,607) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of bank loan (160,000) (310,577) Borrowings under revolving credit agreement 1,500,000 - Payments of other long-term debt (194,329) (184,129) Exercise of stock options 111,706 7,610 --------------------------------- Net cash provided by (used for) financing activities 1,257,377 (487,096) --------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (21,076) 399 --------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (845,965) (2,381,102) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,175,889 5,824,233 --------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 329,924 $ 3,443,131 =================================
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 26, 1999 and the results of operations and cash flows for the three months and six months ended December 26, 1999 and December 27, 1998. 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, 1999, and this filing should be read in conjunction with that annual report. 2. Other significant Accounting Policies ------------------------------------- (a) Amortization on Investments Available for Sale: ----------------------------------------------- The Company, when investing in bonds purchased at a premium, amortizes the premium from the date of purchase to the maturity date. (b) Impairment of Long-Lived Assets: -------------------------------- The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less cost to sell. 3. Comprehensive Income -------------------- Comprehensive income for the three months and six months ended December 26, 1999 and December 27, 1998 is as follows:
Second Qtr Six Months ----------------------- ----------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net Income $1,555,666 $539,540 $2,896,160 $738,610 Other Comprehensive Income: Unrealized loss on short term Investments -0- (12,936) (1,886) (9,656) Cumulative translation adjustments 324 78 (19,190) 399 --------------------------------------------------- Total comprehensive income $1,555,990 $526,682 $2,875,084 $729,353 ===================================================
-6- 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) (19,190) (21,076) --------------------------------------------------- Ending Balance -0- $ (6,198) $ (6,198) ===================================================
-7- Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with "Factors that May Affect Future Results" set forth on Page 11 herein and in the Company's other filings with the U.S. Securities and Exchange Commission. Total revenues in the second quarter of the current fiscal year increased 59% to $24,384,077 from $15,353,990 in the comparable quarter last year. Revenues were generated primarily from product sales. Revenues grew in each of the Company's principal product lines - flexible circuits, laminated cables, flexible/cable hybrid circuits, and flexible interconnect assemblies. Sales were strong in all markets, with the largest gains continuing to come from the telecommunications sector. For the first six months of fiscal year 2000, total revenues were $44,749,636, or 45% greater than $30,845,746 reported last year. The cost of products sold was $18,601,930 or 76% of revenues in the current quarter versus $12,520,118 or 82% of revenues in the second quarter last year. Gross margins continue to improve as a result of more automotive products being shifted to the Company's proprietary PALFlex(R) technology, which provides for a lower cost and a higher performance flexible circuit as compared to the use of conventional materials. Operations in Mexico continue to improve sequentially, quarter to quarter, and additional product is being sent to that facility for its cost effective finishing and assembly processes. Dynaflex, the Company's quick turn/prototype facility in San Jose, California, is satisfying the customers' prototype demands, allowing other facilities to concentrate on the larger production orders, which contributes to enhanced operational efficiency. Dynaflex is not yet operating at a profitable level but losses for the quarter were not considered material to the overall results of the Company. For the first six months of fiscal 2000, the cost of products sold was $34,265,961 or 77% of total revenues versus $25,571,589 or 83% of total revenues for the comparable period last year. The improvement in the percentage resulted from the same factors described above. Additionally, during the same period a year ago, substantial costs associated with the start up of the Mexican facility were absorbed. Selling, general, and administrative expenses were $3,061,466 or approximately 13% of total revenues in the second quarter of this year versus $2,004,276 or 13% of total revenues in the corresponding quarter last year. The increase in actual expenses relates primarily to the inclusion of Dynaflex, which was not purchased by the Company until April 1999, an increase in sales commissions associated with increased sales, and an increase in the Company's 401(K) contributions. For the first six months, selling, general, and administrative expenses were $5,632,275 and $4,118,698 in the current and previous year, respectively, or 13% of total revenues in each year. -8- Other income was $143,464 in the second quarter of this year. Other income was comprised of items of a miscellaneous nature. For the same quarter last year, other income totaled $85,267, which was comprised almost entirely of interest income earned on investments. The invested monies were expended for the Company's working capital requirements and capital equipment needs, thus little interest income (approximately $10,000) was earned in the current quarter. For the first six months of fiscal 2000, other income was $155,753 compared to $254,550 for the same period last year. The composition of income is described above. Interest expense in the current quarter was $95,533 and was $56,200 for the same quarter last year. For the first six months of fiscal 2000, interest expense was $153,669 as compared to $133,640 for the same period last year. The increase is due to a larger amount of borrowings against the Company's revolving line of credit, which was necessitated by the Company's additional working capital requirements and capital expenditure needs. The above factors resulted in income before the provision for income taxes and minority interest of $2,768,612 and $4,853,484 for the second quarter and first six months, respectively, this year. This compares to $858,663 and $1,277,369 for the second quarter and first six months, respectively, last year. The increases in income before the provision for income taxes and minority interest this year equate to 222% and 280% for the second quarter and first six months, respectively. The Company provided for taxes of $886,152 including a tax rate of 7.5% on income derived from the Company's 50.1% interest in Parlex (Shanghai), the Chinese joint venture. For the first six months, the Company provided for taxes of $1,393,013 or an effective tax rate of nearly 29%, which, based on current information, the Company anticipates as being the effective rate for the year ending June 30, 2000. Last year, the Company provided for taxes of $314,015 or a 37% effective tax rate in the second quarter, and $243,165 or a 19% effective tax rate for the first six months (21% was the actual rate for the twelve months ended June 30, 1999). The increase in the anticipated effective tax rate this year results from a reduced effect in percentage from the amount of available tax credits and a greater proportion of income being earned in higher tax jurisdictions. After providing for taxes and recognizing the minority interest in the Chinese joint venture, the Company's net income was $1,555,666 and $2,896,160 for the current quarter and first six months, respectively. This compares to $539,540 and $738,610 for the respective time periods last year. The increases in net income this year equate to 188% and 292% for the second quarter and first six months, respectively. Liquidity and Capital Resources - ------------------------------- As of December 26, 1999, the Company had cash and short term investments approximating $330,000. The Company presently has an unsecured revolving line of credit of $10,000,000, of which $2,100,000 has been borrowed, thereby making $7,900,000 currently available under this line. -9- During the first six months of fiscal 2000, the Company generated $770,000 from operating activities. This amount, together with $1,600,000 received from investments that matured, was not sufficient to satisfy the $4,400,000 that was expended on additions to property, plant, and equipment. Consequently, the Company borrowed $1,500,000 from its revolving line of credit during the first six months of this year. The Company anticipates generating positive cash flow from operations in the ensuing six months as well. The amount generated, however, will not be sufficient to provide for the $19,000,000 proposed stock acquisition (announced January 24, 2000) of Poly-Flex Circuits Limited and Poly-Flex Circuits, Inc., two wholly-owned subsidiaries of Cookson Group PLC. On January 31, 2000, the Company deposited $2,000,000 with the seller as a credit towards the purchase price. One million dollars ($1,000,000) was derived from internally generated funds and $1,000,000 derived from additional borrowings under the Company's $10,000,000 unsecured line of credit. The Company also anticipates spending approximately $2,500,000 on additional capital equipment needs for the remainder of the fiscal year. Fleet Boston Financial has agreed to increase the Company's lines of credit on an unsecured basis to finance this acquisition and other needs that may arise. The Fleet Bank commitment is $30,000,000. The Company is also in the process of reviewing other financial alternatives that may be available to accommodate its financing needs. New Accounting Pronouncements - ----------------------------- Future Adoption of Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board 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, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 will be adopted by the Company during fiscal year 2001. The Company has not completed an evaluation of the effects of adopting SFAS No. 133 on its consolidated financial position, results of operations and financial statement disclosures. Year 2000 Disclosure Statement - ------------------------------ The Company has completed implementation of its Year 2000 remediation plan on a timely basis, and such remediation plan as implemented addresses all mission critical systems. Although the Company believes it has completed its Year 2000 project by upgrading its systems, it cannot make any assurances that the upgraded systems will be free of defects. If any such risks materialize, the Company could experience material adverse consequences to its business, financial condition and results of operations. As of the filing date of this Form 10-Q, the Company has neither experienced, nor does it anticipate experiencing any significant problems, internally or externally, regarding any Year 2000 issues to its business, financial condition or results of operations. Quantitative and Quality Disclosures About Market Risk - ------------------------------------------------------ As of December 26, 1999, the Company is exposed to market risks which include changes in U.S. and foreign interest rates and fluctuations in exchange rates. -10- The Company also has a revolving line of credit agreement which bears interest at the bank's corporate base rate which is also affected by changes in market interest rates. As of December 26, 1999, $2,100,000 was borrowed under this line of credit. The Company has the option to repay borrowings at anytime without penalty and therefore believes that the market risk is not material. Sales in Parlex Shanghai 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 impact the joint venture'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 U.S., the Company does not believe the market risk is material. Factors That May Affect Future Results - -------------------------------------- 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, and other one-time events and important factors disclosed previously and from time to time in the Company's other filings with the U.S. Securities and Exchange Commission. -11- PART II - OTHER INFORMATION --------------------------- Items 4 Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Registrant's Annual Meeting of Stockholders was held on November 30, 1999. (b) At the Annual Meeting, stockholders elected the following Class II directors whose terms expire in 2002: Withheld
Name For Authority ---- --- --------- M. Joel Kosheff 4,123,798 37,435 Peter J. Murphy 4,123,798 37,435
The following incumbent directors' respective terms of office continued in effect after the meeting: Incumbent Class III Directors Continuing in office until 2000 ------------------------------- Herbert W. Pollack Sheldon A. Buckler Incumbent Class I Directors Continuing in office until 2001 ------------------------------- Richard W. Hale Lester Pollack Benjamin M. Rabinovici 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 26, 1999 -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/ STEVEN M. MILLSTEIN ------------------------------- Steven M. Millstein Vice President, Treasurer (Principal Accounting and Financial Officer) February 9, 2000 ----------------------------------- Date -13- EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT PAGE - ------- ---------------------- ---- 11 Statement Regarding Computation of Per Share Earnings 14 27 Financial Data Schedule 15
-14- EX-11 2 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 PARLEX CORPORATION AND SUBSIDIARIES Computation of Net Income Per Common Share
Three Months Ended Six Months Ended ----------------------------- ----------------------------- Dec 26, 1999 Dec 27, 1998 Dec 26, 1999 Dec 27, 1998 Basic Earnings Per Share $.32 $.12 $.60 $.16 Weighted Average Number of Shares Outstanding 4,808,624 4,641,656 4,801,741 4,641,226 Diluted Earnings Per Share $.32 $.11 $.60 $.15 Weighted Average Number of Shares Outstanding 4,808,624 4,641,656 4,801,741 4,641,226 Effective of Dilutive Stock Options 60,348 118,058 54,339 133,078 Adjusted Weighted Average Number of Shares Outstanding 4,868,972 4,759,714 4,856,080 4,774,304
EX-27 3 ART. 5 FDS FOR SECOND QUARTER 10-Q
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. 1 6-MOS JUN-30-2000 DEC-26-1999 329,924 602 19,194,004 357,406 14,142,457 36,098,457 60,215,736 25,888,289 71,972,520 15,067,946 0 0 0 502,153 0 71,972,520 43,961,128 44,749,636 34,265,961 39,898,236 0 0 153,669 4,853,484 1,393,013 2,896,160 0 0 0 2,896,160 .60 .60
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