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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
Registrant's telephone number, including area code: 508-685-4341
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of exchange on
Title of each Class which registered
------------------- ------------------
Common Stock, ($.10 par value) NASDAQ
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of shares of the Registrant's Common Stock,
par value $.10 per share, held by non-affiliates of the Registrant at
September 1, 1995 as computed by reference to the closing price of such stock
was approximately $15,926,659.
The number of shares of the Registrant's Common Stock, par value $.10 per
share, outstanding at September 1, 1995 was 2,370,159 shares.
Documents Incorporated By Reference
Portions of the definitive proxy statement to be filed with the
Commission within 120 days after the close of the fiscal year are incorporated
by reference into Part III of this report.
Part I
Item 1. Business
- - -----------------
Parlex Corporation ("Parlex" or the "Company") designs and fabricates
products for use in the interconnection of components in electronic equipment.
The product line includes a wide range of flexible circuits and laminated
cable including circuit and cable assemblies incorporating a variety of
components. Flexible circuits consist of copper conductive patterns on
flexible substrate materials while laminated cables are a series of
interconnect wires laminated in parallel between flexible material. The
interconnects may incorporate any number of components (integrated circuits,
connectors, stiffners, resistors, capacitors, etc.) and may be a single layer
or up to 24 layers of circuitry.
These products are designed into a wide variety of electronic markets;
automotive, computer, telecommunication, medical, aerospace and consumer
applications. Specific products that include flexible circuits and laminated
cable include notebook computers, disk drives, automotive engine controllers,
automotive audio systems, cellular telephones, printers, postage meters,
electronic scales, pagers, and a variety of military electronics.
The Company is a recognized industry leader and utilizes proprietary
technology in order to market its product. Parlex holds a variety of patents
and will continue to protect its intellectual property in order to enhance its
market position worldwide. The thrust of Parlex's technology is to allow
customers to achieve smaller, lighter, more technologically advanced products
at lower overall costs. This is achieved through three dimensional packaging,
which eliminates costly connectors and jumpers between more traditional rigid
circuits.
The flexible circuit and laminated cable industry is estimated to be
over $2 billion worldwide. Parlex supports the North American market
directly while the Asian and European markets are addressed through strategic
alliances. In June 1995, Parlex announced the formation of a joint venture
company in China, Parlex (Shanghai) Circuits Co., Ltd. The joint venture,
which began operations in September 1995, will eventually become the main
avenue for pursuing the market in Asia.
Parlex has adopted a strategy of growth through partnerships with
a number of major customers. The Company's goal is to provide total customer
satisfaction to these companies and the Company expects to receive the
dominant share of their flexible circuit and laminated cable business. These
customers are spread throughout all of the previously mentioned markets thus
providing some insulation from fluctuating demand cycles in any one segment.
Flexible Printed Circuits
- - --------------------------
Printed circuits are metallic patterns made on or bonded within
insulating material, which conduct electrical current between electronic
components. Flexible circuits can bend or fold, without damage to the metallic
pattern or the insulating material, thus permitting interconnection and
assembly of components and subsystems in almost any geometric arrangement. The
Company attempts to focus upon those applications requiring state-of-the-art
technology. Therefore, the Company depends on technical innovation and
engineering expertise in order to obtain business. A major initiative is to
protect intellectual property in order to assure the Company maintains its
leadership position in the industry. To this end, the Company has been awarded
5 patents over the past two years. These patents are summarized below:
U.S. Patent # 5,362,534-2 - PALCore multilayer flexible and multilayer
rigid flex circuits for low cost, high volume
application.
U.S. Patent # 5,362,534-1 - Double treated epoxy coated copper foil for low
cost, high volume multilayer flexible circuits,
rigid flex circuits and rigid circuit boards.
U.S. Patent # 5,334,800 - A low cost, impedance matched shielding process
for high speed circuits which provides maximum
clarity of electronic signals while meeting FCC
and customer shielding requirements for
commercial applications.
U.S. Patent # 5,450,286 - A low cost process for attaching flexible circuits
to a metalized plate used to dissipate heat
generated by components assembled on flexible
circuits and to facilitate customer
manufacturing requirements.
U.S. Patent # 5,376,232 - A process to manufacture flexible and rigid
circuits that would substantially reduce the
amount of waste which must be environmentally
treated.
Custom Laminated Cable
- - ----------------------
These products consist of multiple conductive metallic round wires or
flat strips laminated in parallel between layers of insulation material.
Custom laminated cable is sold in rolls, usually of 100 feet or more, as well
as in assemblies. Technology plays a vital role since this product line
utilizes proprietary manufacturing processes, which reduce cost and provide
technical advantages to the customer. Examples are listed below:
U Flex(R) is a technique of injection molding plastic to the exposed end of a
laminated cable thus eliminating the requirement for connectors.
Pemacs - A low cost laminated cable process which meets all FCC and customer
shielding requirements without compromising flexibility.
In all of its product lines, Parlex continues to jointly develop
advanced technologies by working closely with its core customers and key
suppliers. These relationships, combined with an aggressive approach to
removing cost from the production process, have enabled the Company to become
more competitive in all segments of its available market.
Raw Materials
- - --------------
The Company has multiple sources for most materials used in its
production processes. The Company believes that alternate sources are
available for all materials used by it.
Sales and Marketing
- - -------------------
The Company's products are sold to electronic equipment manufacturers
both in the United States and in certain foreign countries. Sales in most
parts of the United States are made through a network of independent
manufacturers' representative organizations, complemented by the efforts of
sales, engineering, and management employees of the Company. In addition,
certain customers are handled directly as "house accounts". In fiscal 1995,
sales through manufacturers' representative organizations accounted for
approximately 55% of sales, and sales to "house accounts" were approximately
45% of sales. Approximately 7%, 4%, and 5% of sales in fiscal years 1995,
1994, and 1993, respectively, consisted of foreign sales to Canada, parts of
Europe, and the Middle East.
As part of its marketing efforts, the Company conducts technical
seminars at major customer or potential customer locations, at industry trade
meetings, and its own offices. The Company also publishes technical papers in
addition to utilizing conventional advertising and promotional methods.
The Company's products are custom-made to a user's specifications. These
specifications are developed either solely by the customer or through the
design efforts of the customer working together with the Company's design and
engineering staff. The Company's application engineers do a feasibility study
and provide cost estimates to prepare a quotation in response to a customer's
request. Sales are made pursuant to purchase orders.
Customers
- - ----------
In fiscal 1995, the Company's products were sold to approximately 600
customers, including as separate customers different divisions of certain
major companies. In 1995, sales to several divisions of Motorola comprised 12%
of the Company's overall shipments. In 1994, sales to various divisions of
Motorola constituted 11% of the Company's sales, while AST Research Inc.
accounted for 10%. In 1993, sales to AST Research Inc. approximated 12% of the
Company's overall sales. The top twenty (20) customers (including AST, Pitney
Bowes, Motorola, Hughes, IBM, and Loral) accounted for approximately 63% of
sales in fiscal year 1995.
In fiscal 1995, the Company's sales for military and aerospace
applications accounted for approximately 32% of sales, while sales for
industrial applications, primarily for computer, computer peripheral,
automotive and communications applications, accounted for 68% of sales. This
compares to 39% and 61% of sales in fiscal 1994 for military/aerospace and
industrial applications, respectively. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Backlog of Orders
- - -----------------
The backlog at June 30, 1995 was $22 million, as compared to $21 million
at June 30, 1994. The current backlog is scheduled for shipment during fiscal
year 1996. Customers may cancel unfilled orders, subject to cancellation
charges (unless waived by the Company).
Competition
- - ------------
The fields in which the Company operates are highly competitive and are
characterized by rapid change due to technological developments. The Company
competes with a number of other companies in each of its product areas. Some
of these competitors are larger, more established companies with greater
financial resources than the Company.
The principal elements of competition are price, quality, engineering
capability, service, and timeliness of delivery. The Company believes that it
is reasonably competitive in each of these areas.
Research and Development
- - ------------------------
Virtually all the Company's products are designed and manufactured to
customers' specifications. The Company's research and development activities
are related to advancing its design and manufacturing technology.
Historically, the Company has supported such activities, in part, by
selectively accepting orders which require the Company to advance its design
or manufacturing expertise. The Company finances on its own the development
and implementation of new process techniques that allow for the undertaking of
more complex, state-of-the-art product applications, or processes that will
reduce cost. The total cost of research and development activities in fiscal
1995, 1994, and 1993 was approximately $2,215,000, $1,767,000, and $1,217,000,
respectively. These amounts are reflected in the Company's gross margin and
not as separate research and development expenses. The Company anticipates
that it will continue to support research and development activities at
current levels.
Employees
- - ----------
As of June 30, 1995 the Company had approximately 450 employees. The
Company considers its employee relations to be good. None of the Company's
employees is covered by a collective bargaining agreement.
Environmental Quality
- - ---------------------
The Company believes that it is in compliance with all federal, state
and local laws relating to the protection of the environment.
Item 2. Properties
- - ------------------
The Company's offices and principal manufacturing facilities are located
in a 120,000 square foot building in Methuen, Massachusetts. The first portion
of the building was constructed in 1970; the most recent addition (70,000
square feet) was built in 1982. The building is owned by the Company.
Approximately 105,000 square feet are used for manufacturing, and
approximately 15,000 square feet are used for engineering, sales, executive
and other administrative activities. The Company leases approximately 34,000
square feet of additional space in Salem, New Hampshire which is being used
primarily for manufacturing by the Laminated Cable Division.
The Company believes that its property and equipment are in good
operating condition and are adequate for existing and immediately foreseeable
needs.
Item 3. Legal Proceedings
- - -------------------------
The Company has no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
This item is inapplicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- - -----------------------------------------------------------------------------
(a) Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter market and
is quoted on NASDAQ-NMS (National Market System), which provides transactional
price quotations on the same basis as a stock exchange.
1995
----
Quarter High Low
------- ---- ---
First 9 1/4 5 1/2
Second 15 1/2 8 1/4
Third 18 3/4 11 1/4
Fourth 16 1/4 9 1/2
1994
----
Quarter High Low
------- ---- ---
First 9 1/4 5 3/4
Second 9 1/2 5 1/4
Third 7 1/4 5 1/4
Fourth 6 1/2 5 3/4
(b) Approximate Number of Holders of Common Stock
Approximate Number of Record Holders
Title Of Class (as of June 30, 1995)
- - -------------- ------------------------------------
Common Stock, $.10 par value 109 *
______________________
* Beneficial holders approximate 900
(c) Dividends
The Company has never paid cash dividends on its Common Stock. Payment
of dividends is solely within the discretion of the Company's Board of
Directors. Under the terms of the Industrial Revenue Bond and the Revolving
Credit Agreement, there are covenants regarding the amount available for
dividends; the amount at June 30, 1995 was limited to $2,360,000. The Company
does not intend to pay any cash dividends in the foreseeable future.
Item 6. Selected Consolidated Financial Data
- - --------------------------------------------
Years Ended June 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per share date)
Income Statement Data:
Total Revenues $40,251 $34,926 $31,392 $28,703 $32,723
------- ------- ------- ------- -------
Cost and Expenses:
Costs of Sales 32,946 29,150 26,636 24,980 28,391
Selling, General and
Administrative Expenses 4,998 4,637 4,432 4,376 4,447
Provision for Plant Closing 2,100
Interest Expense 155 110 134 124 165
Other (Income) Expense (88) 22 (62) (208) -
------- ------- ------- ------- -------
38,011 33,919 31,140 29,272 35,103
------- ------- ------- ------- -------
Income (Loss) before Income Taxes 2,240 1,007 252 (569) (2,380)
Credit (Provision) for Income Taxes (754) - 50 184 800
------- ------- ------- ------- -------
Net Income (Loss) $ 1,486 $ 1,007 $ 302 $ (385) $(1,580)
======= ======= ======= ======= =======
Net Income (Loss)per share of Common
Stock (based on weighted average
number of common and common stock
equivalent shares outstanding) $ .61 $ .44 $ .13 $ (.17) $ (.68)
------- ------- ------- ------- -------
Balance Sheet Data:
Working Capital $ 8,466 $ 6,704 $ 5,257 $ 5,148 $ 5,021
Total Assets 24,517 20,845 18,906 18,370 19,316
Long-Term Debt 2,300 950 500 1,250 900
Stockholder's Equity 14,667 12,880 11,848 11,586 11,971
Item 7. Management's Discussion and Analysis of
- - ------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations for the Past Three Fiscal Years
- - -----------------------------------------------------
Total revenue in fiscal year 1995 was $40,251,299, or 15% higher than
the $34,926,468 reported in the prior year. Revenues were generated
principally from product sales, while some was derived from licensing and
royalty fees. The increase in revenue resulted from the Company's further
penetration into the various commercial markets, as evidenced by the fact that
commercial sales constituted 68% of the Company's overall sales in fiscal year
1995, as compared to 61% and 58% in fiscal years 1994 and 1993, respectively.
Several years ago, the Company, by design, altered its sales and marketing
strategies for the express purpose of broadening its commercial customer base,
and becoming less dependent on the vagaries and pricing pressures of the
military-aerospace sector. In concert with this objective, the Company began
developing products that would be more conducive to the markets it is
attempting to serve.
In fiscal year 1994, sales were $34,926,468, 12% greater than the
$31,232,472 reported in fiscal year 1993. Again, the improvement resulted from
additional commercial sales, which more than offset the softness in demand in
the military-aerospace sector.
The current year's revenue included income of $494,500 that was earned
through licensing and royalty fees; these monies were associated with the
transfer of technology for limited variations of the Company's flexible
circuit product line with two firms situated in Asia. The agreements are
structured in a manner whereby the Company is adequately protected from
either licensee competing in the markets or for customers which Parlex wishes
to serve. The fees also included a payment from a prior agreement with a firm
located in Israel. In 1994, there were no funds generated from these sources,
while $160,000 was reported in 1993 from two firms located in Israel.
The Company's products are manufactured on a job order basis to customer
specifications. Customers submit requests for quotations on each job, and the
Company prepares bids based on its own cost estimates. The Company attempts to
reflect the impact on changing costs when establishing prices. Management has
put an emphasis on improving operational efficiency and further reducing
costs. Consequently, as a result of this focus, the Company was able to reduce
the cost of sales as a percentage of revenue to 82% this year versus 83% and
85% in fiscal years 1994 and 1993, respectively.
During the fourth quarter, the Company undertook a major contract that
necessitated the hiring of a third shift. Additionally, this contract involves
the introduction of new technology, which utilizes totally unique material, a
different manufacturing process, and special handling because of the thinness
of the material.As anticipated, the Company incurred some training and start-
up costs that impacted the cost of sales in the fourth quarter. In June 1995,
the Company commenced shipping in volume. However, because the Company is
still in a learning curve phase, lower than desired yields are being achieved
creating excessive costs; although the yields are expected to improve, this
contract may continue to have an impact upon the margins through the first
half of fiscal year 1996.
The ratio of selling, general and administrative expenses to revenue was
12%, 13%, and 14% for fiscal years 1995, 1994, and 1993, respectively. The
continuous increase in revenue without a commensurate increase in costs is the
contributing factor to the decrease as a percentage of revenue.
Interest expense for 1995, 1994, and 1993 was $154,974, $109,621, and
$133,885, respectively. The increase in expense this year from 1994 was
primarily to finance capital expenditures that aggregated $2,851,360, and
additional working capital needs associated with increased sales. The decrease
in 1994 from the preceding year was due to a lower level of borrowings against
the Company's revolver loan.
Other income of $88,288 this year and $62,052 in 1993 was comprised
entirely of items of a miscellaneous nature. In 1994, other expenses of
$21,870 was due to an incurred loss on the disposition of various pieces of
equipment, as well as some other miscellaneous expenses.
In 1995, the effective tax rate was 34%, lower than expected federal and
state statutory rates, due to various federal and state tax credits. In 1994,
the effective tax rate was zero, while the Company's effective income tax
benefit was 20% in 1993. See Note 5 to the Consolidated Financial Statements.
In 1993, the Company adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). In 1993, the Company established a
valuation allowance of $650,000 principally for federal and state net
operating loss carry forwards for which realization was not assured. In 1994,
the Company made use of the NOL's; consequently there was no need to retain
the allowance. As a result of realizing the benefit of the net operating loss
carry forwards, the Company had an effective tax rate of 0% in 1994.
Liquidity and Capital Resources
- - -------------------------------
Although the Company was successful in generating over $1,300,000 in
positive cash flow from operating activities, the Company, during 1995,
borrowed an additional $1,550,000 primarily to satisfy obligations associated
with the capital expenditures of $2,851,360.
Since the Company envisions continued growth and further capital
expenditure needs approximating $2,000,000, the Company is currently in the
process of renegotiating its current revolver loan agreement for the purpose
of increasing its credit line. The Company presently has an unsecured
revolving credit agreement of $3,000,000 that became effective June 1994, and
expires December 1996.
Item 8. Financial Statements and Supplementary Data
- - ---------------------------------------------------
See table of contents to Consolidated Financial Statements included in this
report; also see Note 10 to Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting
- - -------------------------------------------------------------------
and Financial Disclosure
------------------------
This item is inapplicable.
Part III
Item 10. thru Item 13.
- - ----------------------
To be incorporated by reference to Registrant's definitive proxy statement
which will be filed with the Commission within 120 days after the end of the
Registrant's fiscal year ended June 30, 1995
Part IV
Item 14. Exhibits, Financial (a) Documents filed as a part
- - ----------------------------
Statements Schedules of this Form 10-K.
--------------------
And Reports on 1. Financial Statements.
-------------- ---------------------
Form 8-K. The Financial Statements listed in the
---------
accompanying table of contents to
Consolidated Financial Statements are
filed as a part of this Form 10-K.
2. Financial Statement Schedules.
------------------------------
Schedules are omitted because of the
absence of conditions under which they
are required or because the required
information is included in the
Consolidated Financial Statements or
notes thereto.
3. Exhibits.
---------
The exhibits listed below are either
filed or are deemed to be filed as part
of this annual report.
(3) Restated Articles of Organization
(dated August 2, 1983), Articles of
Amendment, and by-laws (filed as
exhibits 3-A, 3-B, and 3-C to the
Company's Registration Statement on
Form S-1, file No. 2-85588, and
incorporated herein by reference).
(10)(A) Previously filed, but no longer
applicable - See exhibit 10-M below.
(10)(B) Previously filed, but no longer
applicable.
(10)(C) Previously filed, but no longer
applicable - See exhibit 10-AA below.
(10)(D) Previously filed, but no longer
applicable - see exhibit 10-AA below.
(10)(E) Previously filed, but no longer
applicable - see exhibit 10-AA below.
(10)(F) Employees' Profit Sharing Retirement
Plan (filed as exhibit 10-F to the
Company's Registration Statement on
Form S-1, file No. 2-85588, and
incorporated herein by reference).
(10)(G) Material Contracts in connection with
industrial revenue development bond
financing, including Bond Purchase and
Guaranty Agreement, Loan and Security
Agreement and Mortgage, Indenture of
Trust, and Series A Bond Supplemental
Agreement (all filed as exhibit 10-G to
the Company's Registration Statement on
Form S-1, file No. 2-85588, and
incorporated herein by reference).
(10)(H) Previously filed, but no longer
applicable - see exhibit 10-AA below.
(10)(I) Amendment to Employees' Profit Sharing
Retirement Plan, dated March 1985;
(filed as exhibit 10-I to Form 10-K for
the fiscal year ended June 30, 1985).
(10)(J) Previously filed, but no longer
applicable - see exhibit 10-AF below.
(10)(K) Previously filed, but no longer
applicable.
(10)(L) Nonqualified Stock Option Plan, dated
December 2, 1985 (filed as exhibit 10-L
to Form 10-K for the fiscal year ended
June 30, 1986).
(10)(M) Employment Agreement between Parlex
Corporation and Mr. Herbert W. Pollack,
dated May 1, 1986; (filed as exhibit
10-M to Form 10-K for the fiscal year
ended June 30, 1986).
(10)(N) Amendment and Restatement to Employees'
Profit Sharing Retirement Plan, dated
December 1, 1986; (filed as exhibit
10-N to Form 10-K for the fiscal year
ended June 30, 1987).
(10)(O) Previously filed, but no longer
applicable - see exhibit 10-AF below.
(10)(P) Previously filed, but no longer
applicable.
(10)(Q) Restated Articles of Organization,
dated December 1, 1987; (filed as
exhibit 10-Q to Form 10-K for the
fiscal year ended June 30, 1988).
(10)(R) Amendment to Employees' Profit Sharing
Retirement Plan, dated August 27, 1987;
(filed as exhibit 10-R to Form 10-K for
the fiscal year ended June 30, 1988).
(10)(S) Previously filed, but no longer
applicable.
(10)(T) Previously filed, but no longer
applicable - see exhibit 10-AF below.
(10)(U) Amendments to Parlex Corporation Profit
Sharing Retirement Plan; (filed as
exhibit 10-U to Form 10-K for the
fiscal year ended June 30, 1990).
(10)(V) Amendments to Parlex Corporation Profit
Sharing Retirement Plan; (filed as
exhibit 10-U to Form 10-K for the
fiscal year ended June 30, 1990).
(10)(W) Previously filed, but no longer
applicable - see exhibit 10-AF below.
(10)(X) Previously filed, but no longer
applicable.
(10)(Y) Previously filed, but no longer
applicable - see exhibit 10-AA below.
(10)(Z) 1989 Outside Directors' Stock Option
Plan; (filed as exhibit 10-Z to Form
10-K for the fiscal year ended June 30,
1991).
(10)(AA) 1989 Employees' Stock Option Plan;
(filed as exhibit 10-AA to Form 10-K
for the fiscal year ended June 30,
1991).
(10)(AB) Previously filed, but no longer
applicable.
(10)(AC) Previously filed, but no longer
applicable - see exhibit 10-AF below.
(10)(AD) Lease agreement - Parlex Corporation
dated July 8, 1992; (filed as exhibit
10-AD to Form 10-K for the fiscal year
ended June 30, 1993).
(10)(AE) Amendment to Parlex Corporation Profit
Sharing Retirement Plan dated May 26,
1993; (filed as exhibit 10-AE to Form
10-K for the fiscal year ended June 30,
1993).
(10)(AF) Revolving Credit and Loan Agreement
dated June 22, 1994; (filed as Exhibit
10-AF to Form 10-K for the fiscal year
ended June 30, 1994).
(10)(AG) Employment Agreement between Parlex
Corporation and Mr. Peter J. Murphy
dated May 24, 1994; (filed as Exhibit
10-AG to Form 10-K for the fiscal year
ended June 30, 1994).
(10)(AH) Chinese Joint Venture Contract,
Articles of Association, and Transfer
of Technology Agreement dated May 29,
1995; see exhibit index. Confidential
treatment has been requested for
portions of this exhibit.
(10)(AI) Development and Supply Agreement
between Motorola Inc. and Parlex
Corporation dated April 13, 1993; see
exhibit index. Confidential treatment
has been requested for portions of this
exhibit.
(10)(AJ) Central Trust of China Agreement dated
June 5, 1995; see exhibit index.
Confidential treatment has been
requested for portions of this exhibit.
(10)(AK) Employment Agreement between Parlex
Corporation and Mr. Herbert W.
Pollack dated July 1, 1994; see exhibit
index.
(21) Subsidiaries of the Registrant; see
exhibit index.
(23) Independent Auditors' Consent; see
exhibit index.
(24) Powers of Attorney; see exhibit index.
(B) Reports on Form 8-K
- - -----------------------
The Company filed no reports
on Form 8-K with the Securities
and Exchange Commission
during the quarter ended
June 30, 1995.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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/ Herbert W. Pollack
_______________________________
Herbert W. Pollack, Chairman and Chief Executive Officer
Date: Sept. 27, 1995
----------------------
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Steven M. Millstein
________________________________
Steven M. Millstein, Principal Accounting
and Financial Officer
Date: Sept. 27, 1995
--------------------
*/s/ Sheldon A. Buckler
- - ------------------------
Sheldon A. Buckler, Director
*/s/ Richard W. Hale
- - ---------------------
Richard W. Hale, Director
*/s/ M. Joel Kosheff
- - ---------------------
M. Joel Kosheff, Director
*/s/ Peter J. Murphy
- - ---------------------
Peter J. Murphy, President and Director
*/s/ Lester Pollack
- - --------------------
Lester Pollack, Director
*/s/ Benjamin M. Rabinovici
- - ----------------------------
Benjamin M. Rabinovici, Director
/s/ Steven M. Millstein
______________________________
* by Steven M. Millstein, attorney-in-fact
Date: Sept. 27, 1995
------------------------
As of the date of submission of this filing, no annual report or proxy
material with respect to the fiscal year ended June 30, 1995 has been sent to
the security holders. Such annual report and proxy material will be submitted
to the Commission at the time it is furnished to the security holders.
EXHIBIT INDEX
Exhibit Description
- - ------- -----------
Page
- - ----
10-AH Chinese Joint Venture Contract, Articles of Association, and
Transfer of Technology Agreement dated May 29, 1995.
10-AI Development and Supply Agreement between Motorola Inc. and Parlex
Corporation dated April 13, 1993.
10-AJ Central Trust of China Agreement dated June 5, 1995.
10-AK Employment Agreement between Parlex Corporation and Mr. Herbert W.
Pollack dated July 1, 1994.
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
24 Powers of Attorney
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors
of Parlex Corporation:
We have audited the accompanying consolidated balance sheets of Parlex
Corporation and its Subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Parlex Corporation
and its Subsidiaries at June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the
period ended June 30, 1995, in conformity with generally accepted
accounting principles.
August 4, 1995
PARLEX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of
June 30, 1995 and 1994 and Consolidated
Statements of Income, Stockholders'
Equity, and Cash Flows for the Years
Ended June 30, 1995, 1994 and 1993
and Independent Auditors' Report
PARLEX CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
- ANNUAL REPORT (FORM 10-K) YEAR ENDED JUNE 30, 1995
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets, June 30, 1995 and 1994
For Each of the Years Ended June 30, 1995, 1994 and 1993:
Statements of Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Schedules are omitted because of the absence of conditions under which
they are required or because the required information is included in the
consolidated financial statements or notes thereto.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
ASSETS 1995 1994
CURRENT ASSETS:
Cash $ 161,392 $ 194,048
Accounts receivable - less allowance for doubtful
accounts of $73,000 in 1995 and $88,000 in 1994 7,171,553 6,161,716 --
Inventories 6,084,076 5,186,366
Refundable income taxes 206,669 --
Deferred income taxes 263,150 316,026
Other current assets 441,866 260,233
----------- -----------
Total current assets 14,328,706 12,118,389
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 468,864 468,864
Buildings 6,629,301 6,123,264
Machinery and equipment 21,140,403 19,352,888
Leasehold improvements and other 737,863 694,650
----------- -----------
Total 28,976,431 26,639,666
Less accumulated depreciation and amortization (19,047,539) (18,082,029)
----------- -----------
Property, plant and equipment - net 9,928,892 8,557,637
----------- -----------
OTHER ASSETS 259,503 169,269
----------- -----------
TOTAL $24,517,101 $20,845,295
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 200,000 $ 200,000
Accounts payable 3,405,642 3,118,810
Accrued liabilities 2,257,184 1,732,754
Income taxes payable - 362,940
----------- -----------
Total current liabilities 5,862,826 5,414,504
----------- -----------
LONG-TERM DEBT 2,300,000 950,000
----------- -----------
OTHER NONCURRENT LIABILITIES 1,686,816 1,600,671
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized - 5,000,000
shares; issued - 2,579,409 and 2,521,859 shares in
1995 and 1994, respectively 257,941 252,186
Additional paid-in capital 3,226,316 2,930,620
Retained earnings 12,220,827 10,734,939
Less treasury stock, at cost; 210,000 shares in 1995
and 1994 (1,037,625) (1,037,625)
----------- -----------
Total stockholders' equity 14,667,459 12,880,120
----------- -----------
TOTAL $24,517,101 $20,845,295
=========== ===========
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
REVENUES:
Product sales $39,756,799 $34,926,468 $31,232,472
License fees and royalty income 494,500 - 160,000
----------- ----------- -----------
Total revenues 40,251,299 34,926,468 31,392,472
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 32,946,050 29,150,173 26,636,358
Selling, general and administrative
expenses 4,998,262 4,637,556 4,432,190
----------- ----------- -----------
Total costs and expenses 37,944,312 33,787,729 31,068,548
----------- ----------- -----------
OPERATING INCOME 2,306,987 1,138,739 323,924
OTHER INCOME (EXPENSE) 88,288 (21,870) 62,052
INTEREST EXPENSE (154,974) (109,621) (133,885)
----------- ----------- -----------
INCOME FROM OPERATIONS BEFORE
INCOME TAXES 2,240,301 1,007,248 252,091
CREDIT (PROVISION) FOR INCOME TAXES (754,413) - 49,652
----------- ----------- -----------
NET INCOME $ 1,485,888 $ 1,007,248 $ 301,743
=========== =========== ===========
NET INCOME PER SHARE $ .61 $ .44 $ .13
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 2,434,035 2,310,788 2,310,564
=========== =========== ===========
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
BALANCE, JULY 1, 1992 2,517,359 $251,736 $2,906,575 $ 9,425,948 $ (998,250)
Purchase of treasury stock -
15,000 shares - - - - (39,375)
Net income - - - 301,743 -
--------- -------- ---------- ----------- -----------
BALANCE, JUNE 30, 1993 2,517,359 251,736 2,906,575 9,727,691 (1,037,625)
Tax benefit arising from the exercise
of nonqualified stock options - - 6,776 - -
Issuance of stock 4,500 450 17,269 - -
Net income - - - 1,007,248 -
--------- -------- ---------- ----------- -----------
BALANCE, JUNE 30, 1994 2,521,859 252,186 2,930,620 10,734,939 (1,037,625)
Tax benefit arising from the exercise
of nonqualified stock options - - 70,220 - -
Issuance of stock 57,550 5,755 225,476 - -
Net income - - - 1,485,888 -
--------- -------- ---------- ----------- -----------
BALANCE, JUNE 30, 1995 2,579,409 $257,941 $3,226,316 $12,220,827 $(1,037,625)
========= ======== ========== =========== ===========
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,485,888 $1,007,248 $ 301,743
---------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,438,974 1,422,162 1,495,216
(Gain) loss on sale of equipment (500) 31,480 (3,293)
Deferred income taxes 75,006 (365,423) (93,000)
Deferred compensation 64,015 83,414 77,256
Changes in current assets and liabilities:
Accounts receivable - net (1,009,837) (1,494,103) (549,469)
Inventories (897,710) (163,677) (389,737)
Refundable income taxes (206,669) - -
Other current assets (140,501) (10,882) (136,287)
Accounts payable and accrued liabilities 811,262 735,954 386,803
Accrual for plant closing - - (22,792)
Income taxes payable (292,721) 369,716 -
---------- ---------- ----------
Total adjustments (158,681) 608,641 764,697
---------- ---------- ----------
Net cash provided by operating
activities 1,327,207 1,615,889 1,066,440
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,851,360) (1,521,490) (866,684)
Increase in other assets (90,234) (10,755) (22,128)
Proceeds from sale of equipment 500 3,850 9,175
---------- ---------- ----------
Net cash used for investing activities (2,941,094) (1,528,395) (879,637)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under revolving
credit agreement 1,550,000 (25,000) 125,000
Payments of other long-term debt (200,000) (200,000) (200,000)
Exercise of stock options 231,231 17,719 -
Purchase of treasury stock - - (39,375)
---------- ---------- ----------
Net cash provided by (used for)
financing activities 1,581,231 (207,281) (114,375)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (32,656) (119,787) 72,428
CASH, BEGINNING OF YEAR 194,048 313,835 241,407
---------- ---------- ----------
CASH, END OF YEAR $ 161,392 $ 194,048 $ 313,835
========== ========== ==========
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation - The consolidated financial statements include
the accounts of Parlex Corporation (the "Company" ) and its wholly owned
subsidiaries. Intercompany transactions have been eliminated.
Inventories - Inventories of raw materials are stated at the lower of
first-in, first-out cost or market. Work in process represents costs
accumulated under a job-cost accounting system less the estimated cost
of shipments to date, in the aggregate not in excess of net realizable
value. At June 30, inventories consisted of:
1995 1994
Raw materials $1,867,370 $1,540,134
Work in process 4,216,706 3,646,232
---------- ----------
Total $6,084,076 $5,186,366
========== ==========
Property, Plant and Equipment - Property, plant and equipment are stated
at cost and are depreciated over their estimated useful lives using the
straight-line method.
Preferred Stock - The Company has 1,000,000 shares of $1.00 par value
preferred stock authorized. No shares were issued at June 30, 1995 or
1994.
Revenue Recognition - Product sales are recognized upon shipment.
License fees and royalty income are recognized when earned and as
related costs are incurred.
Research and Development - Research and development costs are expensed
as incurred and amounted to $2,215,000, $1,767,000 and $1,217,000 for
the years ended June 30, 1995, 1994 and 1993, respectively. These
amounts are reflected in the Company's cost of products sold.
Income Taxes -The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This statement requires an asset and liability approach
to accounting for income taxes based upon the future expected values of
the related assets and liabilities. Deferred income taxes are provided
for items which are recognized in different years for tax and financial
reporting purposes.
Net Income Per Share - Net income per share has been computed based on
the weighted average number of common shares and common share
equivalents outstanding during the year.
Reclassifications - Certain reclassifications have been made to the 1994
and 1993 financial statements to conform to 1995 presentation.
2. ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of:
1995 1994
Payroll and related expenses $ 999,954 $ 920,522
Accrued health insurance 213,798 235,026
Customer deposit 545,295 -
Other 498,137 577,206
---------- ----------
Total $2,257,184 $1,732,754
========== ==========
3. LONG-TERM DEBT
Long-term debt at June 30 consisted of:
1995 1994
Revolving Credit Agreement $2,200,000 $ 650,000
Industrial Revenue Development Bond 300,000 500,000
---------- ----------
Total long-term debt 2,500,000 1,150,000
Less current portion 200,000 200,000
---------- ----------
Long-term debt - net $2,300,000 $ 950,000
========== ==========
The Company has an Industrial Revenue Development Bond with a bank, at a
varying interest rate, which annually approximates 65% of prime (9% at
June 30, 1995). Interest and principal are payable quarterly.
Buildings owned by the Company are pledged as collateral. The net book
value of such buildings is approximately $3,650,000 at June 30, 1995.
On June 22, 1994, the Company entered into an unsecured Revolving Credit
Agreement which makes available up to a total of $3,000,000 through
December 31, 1996. On December 31, 1996, at the Company's option, the
Company may convert the agreement to a term loan with principal and
interest payments due monthly over a thirty-six-month period to December
31, 1999. Borrowings under this Agreement are at the bank's corporate
base rate (9% at June 30, 1995), and carry an annual commitment fee of
1/2% on the average daily unused portion of the bank's commitment.
Interest is payable monthly. At June 30, 1995, the unused commitment
amounted to $800,000.
The Industrial Revenue Development Bond and the Revolving Credit
Agreement have restrictive covenants, which include restrictions on
payment of cash dividends and requirements as to tangible net worth,
current ratio, working capital, and the ratio of total liabilities to
equity. Under the most restrictive covenants, amounts available for
dividends or other distributions and capital expenditures at June 30,
1995 approximated $2,360,000 and $3,493,000, respectively.
Interest paid during the years ended June 30, 1995, 1994 and 1993 was
approximately $97,000, $63,000 and $99,000, respectively.
Long-term debt due during the years ending June 30, 1996 and 1997 is
$200,000 and $2,300,000, respectively.
4. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at June 30 consisted of:
1995 1994
Deferred income taxes (Note 5) $ 891,021 $ 868,891
Deferred compensation 795,795 731,780
---------- ----------
$1,686,816 $1,600,671
========== ==========
The timing of deferred compensation payments cannot presently be
determined. Amounts, if any, which may be paid within one year are not
material.
5. INCOME TAXES
The credit (provision) for income taxes consisted of:
1995 1994 1993
Current:
State $ (78,567) $ (9,000) $ (43,348)
Federal (600,840) (126,000) -
Deferred (75,006) (285,000) 93,000
Benefit of net operating loss carryforwards - 420,000 -
--------- --------- ---------
Total $(754,413) $ - $ 49,652
========= ========= =========
A reconciliation of the statutory federal income tax rate to the
effective income tax rate is as follows:
1995 1994 1993
Statutory federal income tax rate 34 % 34 % 34 %
State income taxes, net of federal tax benefit 4 4 5
Tax credits (4) - -
Utilization of net operating loss carryforwards - (42) (60)
Other - 4 1
--- --- ---
Effective income tax (benefit) rate 34 % 0 % (20)%
=== === ===
Deferred income tax assets and liabilities at June 30 are attributable
to the following:
1995 1994
Deferred tax liabilities:
Depreciation $1,209,013 $1,161,865
Prepaid expenses 27,988 -
---------- ----------
1,237,001 1,161,865
---------- ----------
Deferred tax assets:
Inventories 40,912 31,000
Allowance for doubtful accounts 29,157 35,000
Accruals 110,893 125,000
Self-insurance 85,519 94,000
Deferred compensation 317,992 292,000
State net operating loss and credit carryforwards 24,657 32,000
---------- ----------
609,130 609,000
---------- ----------
Net deferred tax liability $ 627,871 $ 552,865
========== ==========
Income tax payments of approximately $1,162,000, $12,300 and $8,000 were
made in 1995, 1994 and 1993, respectively.
6. STOCK OPTIONS
The Company has incentive and nonqualified stock option plans covering
officers, key employees and nonemployee directors. The options are
generally exercisable commencing one year from the date of grant and
typically expire in either five or ten years, depending on the plan.
The option price for the incentive stock options and for the nonemployee
directors plan is fair market value at the date of grant. Nonqualified
stock options are granted at fair market value or at a price determined
by the Board of Directors, depending on the plan. In certain cases, the
Company may, at the option of the Board of Directors, reimburse the
employees for the tax cost associated with their options.
At June 30, 1995, there were 242,000 shares reserved for future grants.
Information concerning the Company's stock option plans is as follows:
Shares
Under Option
Option Prices Exercisable
July 1, 1992 137,575 $ 3.25 - $ 4.00 32,784
======
Granted 61,000 3.25 - 4.00
Surrendered (55,800) 3.25
-------
June 30, 1993 142,775 3.25 - 4.00 49,263
======
Granted 110,000 6.00 - 6.88
Surrendered (9,850) 3.25 - 4.00
Exercised (4,500) 3.25 - 4.00
-------
June 30, 1994 238,425 3.25 - 6.88 73,299
======
Granted 25,500 6.25 - 18.50
Surrendered (12,500) 3.25 - 6.25
Exercised (57,550) 3.25 - 6.25
-------
June 30, 1995 193,875 3.25 - 18.50 63,248
======= ======
7. SEGMENT, MAJOR CUSTOMER AND FOREIGN SALES INFORMATION
The Company operates within a single segment of the electronics industry
as a specialist in the interconnection and packaging of electronic
equipment with its product lines of flexible printed circuits, laminated
cable, and related assemblies.
In 1995, sales to one customer represented 12% of total revenues. In
1994, sales to two customers represented 11% and 10% of total revenues.
In 1993, sales to one customer represented 12% of total revenues.
8. RENTAL COMMITMENTS
The Company leases certain property and equipment under agreements
generally with initial terms from three to five years with renewal
options. Rental expense for the years ended June 30, 1995, 1994 and
1993 was approximately $153,000, $153,000 and $154,000, respectively.
Minimum annual rental commitments under a noncancelable operating lease,
which is subject to termination by the Company in 1996, approximate
$77,000 in 1996.
9. BENEFIT PLANS
The Company has a qualified profit-sharing retirement plan to provide
benefits to eligible employees. Annual contributions to the plan are at
the discretion of the Board of Directors and are discretionary in
amount. No contributions were made to the plan for the years ended June
30, 1995, 1994 or 1993.
During fiscal 1995 the Company adopted a 401(k) Savings Plan covering
all employees of the Company that have six consecutive months of service
and have attained the age of twenty-one. Matching employer
contributions can be made to the Plan at the discretion of the Board of
Directors. No matching contribution was made to the Plan for the year
ended June 30, 1995.
10. 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 will own 50.1% of the joint venture. The
Company's investment, valued at approximately $1,500,000, will include
certain technology, equipment, training, technical support and cash (of
approximately $200,000) during fiscal 1996. The joint venture will
manufacture flexible printed circuits and is expected to commence
operations in September 1995.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands except
per share amounts):
1995 Quarters
First Second Third Fourth
Revenues $9,417 $9,982 $10,031 $10,821
Gross profit 1,801 1,999 1,745 1,760
Net income 373 472 241 400
Net income per share .16 .19 .10 .16
1994 Quarters
First Second Third Fourth
Revenues $8,167 $8,354 $ 8,885 $ 9,520
Gross profit 1,364 1,366 1,387 1,659
Net income 109 353 203 342
Net income per share .05 .15 .09 .15
Gross profit in the fourth quarter of 1995 includes the effects of
previously anticipated start-up costs of approximately $400,000
associated with a major contract. Also during this quarter, the Company
adjusted its annual effective tax rate to 34% from 40% which it had
previously provided during the first three quarters of the year. This
reduction resulted principally from changes in the estimation of tax
credits earned during the year. The adjustment had the effect of
increasing fourth quarter net income by approximately $107,000 (4 cents
per share).
The 1994 quarterly results reflect an effective tax rate of zero (0%).
* * * * * *
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Parlex Corporation
145 Milk Street
Methuen, Massachusetts 01844
We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Parlex Corporation as of
June 30, 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended, and have
issued our report thereon dated August 4, 1995.
In connection with our audit, nothing came to our attention that caused
us to believe that the Company failed to comply with the terms,
covenants, provisions or conditions of Section 6.1 through 6.9,
inclusive, 6.11 and 7.1 through 7.6, inclusive, of the Revolving Credit
and Term Loan Agreement dated as of June 22, 1994, with Shawmut Bank,
N.A. insofar as they relate to financial and accounting matters.
However, our audit was not directed primarily toward obtaining knowledge
of noncompliance with such Sections.
This report is intended solely for the information and use of the Boards
of Directors and management of Parlex Corporation and Shawmut Bank, N.A.
and should not be used for any other purpose.
August 4, 1995