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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, 1996
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, 1996 as computed by reference to the closing price of such
stock was approximately $13,910,530.
The number of shares of the Registrant's Common Stock, par value $.10 per
share, outstanding at September 1, 1996 was 2,372,034 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.
Page 1 of
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 between flexible
material. The interconnects may incorporate any number of components
(integrated circuits, connectors, stiffeners, 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,
telephone switching equipment, 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 September 1995, Parlex commenced operations of a
joint venture company in China, Parlex (Shanghai) Circuits Co., Ltd. The
joint venture will eventually become the main avenue for pursuing the
market in Asia.
The Company has adopted a strategy of growth through partnerships
with a number of major customers. Parlex'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 enjoy leadership positions 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 etched copper 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 ensure the Company maintains its leadership position in the
industry. To this end, the Company has been awarded 5 patents over the
past several 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.
Additionally, a number of these patents have
been awarded recognition in Asia and Europe.
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[REGISTERED TRADEMARK] 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, has 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 1996,
sales through manufacturers' representative organizations accounted for
approximately 42% of sales, and sales to "house accounts" were approximately
58% of sales. Approximately 5%, 7%, and 4% of product sales in fiscal years
1996, 1995, and 1994, 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 1996, the Company's products were sold to approximately 350
customers, including as separate customers different divisions of certain
major companies. In 1996, 1995, and 1994, sales to several divisions of
Motorola comprised 29%, 12%, and 11% of the Company's overall shipments,
respectively. In 1994, AST Research Inc. also accounted for 10% of the
overall sales of the Company's overall shipments. The top twenty (20)
customers (including Alliant Tech Systems, Lockheed Sanders, Motorola, Texas
Instruments, and Pitney Bowes) accounted for approximately 66% of sales in
fiscal year 1996.
In fiscal 1996, the Company's sales for military and aerospace
applications accounted for approximately 26% of sales, while sales for
industrial applications, primarily for computer, computer peripheral,
automotive and communications applications, accounted for 74% of sales.
This compares to 32% and 68% of sales in fiscal 1995 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, 1996 was $23 million, as compared to $22
million at June 30, 1995. The current backlog is scheduled for shipment during
fiscal year 1997. 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
as well as developing new materials to be used. 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 1996, 1995,
and 1994 was approximately $2,380,000, $2,215,000, and $1,767,000,
respectively. These amounts are reflected in the Company's cost of sales
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, 1996 the Company had approximately 500 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 joint venture company leases a 28,000 square foot facility in
Shanghai which is used for all manufacturing and administrative functions.
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.
1996
----
Quarter High Low
-------
First 13 1/2 9 1/4
Second 11 1/4 7 1/4
Third 10 7 1/2
Fourth 15 1/4 8 1/4
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
(b) Approximate Number of Holders of Common Stock
Approximate Number of Holders of Record
Title Of Class (as of June 30, 1996)
- -------------- ---------------------------------------
Common Stock, $.10 par value 102 *
* Beneficial holders approximate 800
(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, 1996 was limited to $2,745,000. The
Company does not intend to pay any cash dividends in the foreseeable future.
Item 6. Selected Consolidated Financial Data
- --------------------------------------------
Years Ended June 30,
1996 1995 1994 1993 1992
(In thousands, except per share date)
Income Statement Data:
Total Revenues $47,257 $40,251 $34,926 $31,392 $28,703
------- ------- ------- ------- -------
Costs and Expenses:
Costs of Sales 40,308 32,946 29,150 26,636 24,980
Selling, General and
Administrative Expenses 5,518 4,998 4,637 4,432 4,376
Interest Expense 351 155 110 134 124
Other (Income) Expense (90) (88) 22 (62) (208)
------- ------- ------- ------- -------
46,087 38,011 33,919 31,140 29,272
------- ------- ------- ------- -------
Income (Loss) before
Income Taxes 1,170 2,240 1,007 252 (569)
Credit (Provision) for
Income Taxes (387) (754) - 50 184
------- ------- ------- ------- -------
Income (Loss) before
Minority Interest 783 1,486 1,007 302 (385)
Minority Interest 13 - - - -
------- ------- ------- ------- -------
Net Income (Loss) $ 770 $ 1,486 $ 1,007 $ 302 $ (385)
======= ======= ======= ======= =======
Net Income (Loss)per share
of Common Stock (based
on weighted average
number of common and
common equivalent shares
outstanding) $ .31 $ .61 $ .44 $ .13 $ (.17)
------- ------- ------- ------- -------
Balance Sheet Data:
Working Capital $ 9,148 $ 8,466 $ 6,704 $5,257 $ 5,148
Total Assets 29,662 24,517 20,845 18,906 18,370
Long-Term Debt 3,650 2,300 950 500 1,250
Stockholders' Equity 15,455 14,667 12,880 11,848 11,586
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 1996 was $47,257,025, or 17% higher than
the $40,251,299 reported in the prior year. Revenues were generated
principally from product sales, while some were derived from licensing and
royalty fees. The increase in revenue resulted principally from the
Company's further penetration into the various commercial markets, as
evidenced by the fact that commercial sales constituted 74% of the Company's
overall sales in fiscal year 1996, as compared to 68% and 61% in fiscal
years 1995 and 1994, 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 compatible with the requirements of the markets it is
attempting to serve.
In September 1995, Parlex (Shanghai) Circuit Co., Ltd., the Chinese
joint venture, commenced operations (see Notes 1 and 2 to Consolidated
Financial Statements). The sales from this venture, while not significant,
also contributed to the increase over the previous year.
In fiscal year 1995, sales were $40,251,299, or 15% greater than the
$34,926,468 reported in fiscal year 1994. Again, the improvement resulted
from additional commercial sales, which more than offset the softness in
demand in the military-aerospace sector.
The revenue in 1996 included income of $155,000 that was earned
through licensing and royalty fees; these monies were associated with the
transfer of technical know-how for a limited variation of the Company's
flexible circuit product line with a firm situated in Taiwan. All
agreements are structured in a manner whereby the Company is adequately
protected from the licensee competing in the markets or for customers which
Parlex wishes to serve. In 1995, $494,500 of income was derived through
these sources. The monies were associated with the transfer of technology
with two firms in Asia and a payment from a prior agreement with a firm
located in Israel. In 1994, no funds were generated from these sources.
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. The cost of sales as a percentage of revenue was 85% in 1996 versus
82% and 83% in fiscal years 1995 and 1994, respectively.
The increase in the cost of sales percentage was substantially
attributable to a previously reported major contract for a flexible circuit
utilized in the automotive market. This contract, which commenced
manufacturing in the fourth quarter of fiscal year 1995, also represented
the largest production order in the Company's history. Although the Company
was making consistent progress in reducing costs throughout most of last
year, it wasn't until the month of March 1996 when the Company overcame a
number of the technical issues that were impacting upon the yields and costs
in this program, thus enabling the Company to realize a nominal profit from
this contract during the last four months of the year.
It is believed, with the introduction of new equipment and production
processes scheduled to be completed near the end of the first half of fiscal
year 1997, that improved margins should follow.
The ratio of selling, general and administrative expenses to revenue
was 12% for fiscal years 1996 and 1995, and 13% in fiscal year 1994.
Interest expense for 1996, 1995, and 1994 was $351,125, $154,974, and
$109,621, respectively. The increase in expense the past two years was due
primarily to finance capital expenditures that aggregated nearly $3,000,000
in 1996 and $2,900,000 in 1995. In 1996, the Company also expended over
$700,000 in the Chinese joint venture that commenced operations in September
1995. In 1996 and 1995, the working capital needs of the Company also
increased due to the additional sales being achieved.
Other income of $90,588 this year and $88,288 last year was comprised
entirely of items of a miscellaneous nature. In 1994, the Company incurred
$21,870 in miscellaneous expenses that resulted primarily from incurred
losses on the disposition of various pieces of equipment.
In 1996, the effective tax rate was 33% versus 34% in 1995. In 1994,
the effective tax rate was 0% since the Company was able to recognize the
benefit of available net operating loss carryforwards.
Liquidity and Capital Resources
- -------------------------------
Although the Company was successful in generating nearly $1,500,000 in
positive cash flow from operating activities, the Company, during 1996,
borrowed an additional $1,450,000, and guaranteed an additional $400,000 in
borrowings by the Chinese joint venture, to satisfy obligations associated
with the capital expenditures of $2,968,713, the commencement of operations
of the Chinese joint venture, Parlex (Shanghai) Circuit Co., Ltd., and the
need for additional working capital requirements.
In December 1995, the Company negotiated a $5,000,000 unsecured line
of credit under its revolving credit facility that expires December 31,
1997. At June 30, 1996, the unused commitment amounted to $1,350,000.
The Company is presently in the process of negotiating a $2,000,000
line of credit that will be used to finance additional capital equipment
requirements.
The two lines of credit, together with the anticipated positive cash
flow from operations, should be adequate to satisfy the Company's
foreseeable needs.
Deferred compensation payments cannot presently be determined.
Amounts, if any, which may be paid within one year are not material and
should have little impact upon the Company's cash position.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act
- --------------------------------------------------------------------------
of 1995
-------
This report contains certain forward-looking statements. The
Company's actual results of operations may differ significantly from those
contemplated by such forward-looking statements as a result of various
factors beyond its control, including, but not limited to, economic
conditions in the electronics industry, particularly in the principal
industry sectors served by the Company, changes in customer requirements and
in the volume of sales to principal customers, competition and technological
change.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See the table of contents to the Consolidated Financial Statements included
in this report; also see Note 11 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, 1996.
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; (filed as Exhibit 10-AH to Form
10-K fiscal year ended June 30,
1995). 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;
(filed as Exhibit 10-AI to Form 10-K
fiscal year ended June 30, 1995).
Confidential treatment has been
requested for portions of this
exhibit.
(10)(AJ) Central Trust of China Agreement
dated June 5, 1995; (filed as Exhibit
10-AJ to Form 10-K for the fiscal
year ended June 30, 1995).
Confidential treatment has been
requested for portions of this
exhibit.
(10)(AK) License Agreement between Samsung
Electro-Mechanics Co., Ltd. and
Parlex Corporation dated September
29, 1994; (filed as Exhibit 10-AK to
Form 10-K for the fiscal year ended
June 30, 1995).
(10)(AL) Employment Agreement between Parlex
Corporation and Mr. Herbert W.
Pollack dated July 1, 1994; (filed as
Exhibit 10-AL to Form 10-K for the
fiscal year ended June 30, 1995).
(10)(AM) Employment Agreement between Parlex
Corporation and Peter J. Murphy dated
June 26, 1996; see Exhibit Index.
(10)(AN) License Agreement between Parlex
Corporation and Polyclad Laminates,
Inc., effective June 1, 1996; see
Exhibit Index. Confidential treatment
has been requested for portions of
this exhibit.
(10)(AO) License grant between Parlex
Corporation and Allied Signal
Laminate Systems, Inc., effective May
5, 1995; see Exhibit Index.
Confidential treatment has been
requested for portions of this
exhibit.
(10)(AP) License Agreement between Parlex
Corporation and Pucka Industrial Co.,
Ltd., effective July 1, 1996; see
Exhibit Index. Confidential
treatment has been requested for
portions of this exhibit.
(10)(AQ) Revolving Credit and Loan Agreement
dated December 18, 1995; 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, 1996.
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: September 27, 1996
- -----------------------------------------------------------
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: September 27, 1996
-----------------------------------------------------
*/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, 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: September 27, 1996
-----------------------------------------------------
As of the date of submission of this filing, no annual report or proxy
material with respect to the fiscal year ended June 30, 1996 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-AM Employment Agreement between Parlex 30
Corporation and Peter J. Murphy dated
June 26, 1996.
10-AN License Agreement between Parlex Corporation 37
and Polyclad Laminates, Inc., effective
June 1, 1996.
10-AO License grant between Parlex Corporation 45
and Allied Signal Laminate Systems, Inc.,
effective May 5, 1995.
10-AP License Agreement between Parlex Corporation 60
and Pucka Industrial Co., Ltd., effective
July 1, 1996.
10-AQ Revolving Credit and Loan Agreement dated 72
December 18, 1995.
21 Subsidiaries of the Registrant 95
23 Independent Auditors' Consent 96
24 Powers of Attorney 97
27 Financial Data Schedule 98
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, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1996.
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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
August 2, 1996
PARLEX CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS --
ANNUAL REPORT (FORM 10-K)
YEAR ENDED JUNE 30, 1996
- ------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1996 and 1995
For Each of the Years Ended June 30, 1996, 1995 and 1994:
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated 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, 1996 AND 1995
- ------------------------------------------------------------------------------
ASSETS 1996 1995
----------- -----------
CURRENT ASSETS:
Cash $ 386,608 $ 161,392
Accounts receivable -- less allowance for doubtful
accounts of $80,000 in 1996 and $73,000 in 1995 7,453,333 7,171,553
Inventories 7,753,424 6,084,076
Refundable income taxes 17,794 206,669
Deferred income taxes 314,743 263,150
Other current assets 699,386 441,866
---------------------------
Total current assets 16,625,288 14,328,706
---------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 468,864 468,864
Buildings 6,838,391 6,629,301
Machinery and equipment 22,321,826 21,140,403
Leasehold improvements and other 2,422,084 737,863
---------------------------
Total 32,051,165 28,976,431
Less accumulated depreciation and amortization (19,396,046) (19,047,539)
---------------------------
Property, plant and equipment -- net 12,655,119 9,928,892
---------------------------
OTHER ASSETS 381,649 259,503
---------------------------
TOTAL $29,662,056 $24,517,101
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 100,000 $ 200,000
Bank loan 400,668 --
Accounts payable 5,179,769 3,405,642
Accrued liabilities 1,797,223 2,257,184
---------------------------
Total current liabilities 7,477,660 5,862,826
---------------------------
LONG-TERM DEBT 3,650,000 2,300,000
---------------------------
OTHER NONCURRENT LIABILITIES 1,846,260 1,686,816
---------------------------
MINORITY INTEREST IN PARLEX SHANGHAI 1,232,691 --
---------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value -- authorized, 5,000,000
shares; issued, 2,582,659 and 2,579,409 shares in
1996 and 1995, respectively 258,266 257,941
Additional paid-in capital 3,243,491 3,226,316
Retained earnings 12,991,313 12,220,827
Less treasury stock, at cost -- 210,000 shares in
1996 and 1995 (1,037,625) (1,037,625)
---------------------------
Total stockholders' equity 15,455,445 14,667,459
---------------------------
TOTAL $29,662,056 $24,517,101
===========================
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
1996 1995 1994
REVENUES:
Product sales $47,102,025 $39,756,799 $34,926,468
License fees and royalty income 155,000 494,500 --
-------------------------------------------
Total revenues 47,257,025 40,251,299 34,926,468
-------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 40,307,894 32,946,050 29,150,173
Selling, general and administrative expenses 5,518,292 4,998,262 4,637,556
-------------------------------------------
Total costs and expenses 45,826,186 37,944,312 33,787,729
OPERATING INCOME 1,430,839 2,306,987 1,138,739
OTHER INCOME (EXPENSE) 90,588 88,288 (21,870)
INTEREST EXPENSE (351,125) (154,974) (109,621)
-------------------------------------------
INCOME FROM OPERATIONS BEFORE INCOME TAXES 1,170,302 2,240,301 1,007,248
PROVISION FOR INCOME TAXES (386,961) (754,413) --
-------------------------------------------
INCOME BEFORE MINORITY INTEREST 783,341 1,485,888 1,007,248
MINORITY INTEREST 12,855 -- --
-------------------------------------------
NET INCOME $ 770,486 $ 1,485,888 $ 1,007,248
===========================================
NET INCOME PER SHARE $ .31 $ .61 $ .44
===========================================
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,449,820 2,434,035 2,310,788
===========================================
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
BALANCE, JULY 1, 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)
Issuance of stock 3,250 325 17,175 -- --
Net income -- -- -- 770,486 --
-------------------------------------------------------------
BALANCE, JUNE 30, 1996 2,582,659 $258,266 $3,243,491 $12,991,313 $(1,037,625)
=============================================================
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 770,486 $ 1,485,888 $ 1,007,248
-----------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,678,150 1,438,974 1,422,162
(Gain) loss on sale of equipment 13,652 (500) 31,480
Deferred income taxes 37,510 75,006 (365,423)
Deferred compensation 70,341 64,015 83,414
Minority interest 12,855 -- --
Changes in current assets and liabilities:
Accounts receivable--net (681,780) (1,009,837) (1,494,103)
Inventories (1,669,348) (897,710) (163,677)
Refundable income taxes 188,875 (206,669) --
Other current assets (257,520) (140,501) (10,882)
Accounts payable and accrued liabilities 1,314,166 811,262 735,954
Income taxes payable -- (292,721) 369,716
-----------------------------------------
Total adjustments 706,901 (158,681) 608,641
-----------------------------------------
Net cash provided by operating activities 1,477,387 1,327,207 1,615,889
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,968,713) (2,851,360) (1,521,490)
Increase in other assets (122,146) (90,234) (10,755)
Proceeds from sale of equipment 10,198 500 3,850
-----------------------------------------
Net cash used for investing activities (3,080,661) (2,941,094) (1,528,395)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan 400,668 -- --
Capital contributions to joint venture--minority
interest 160,322 -- --
Borrowings (payments) under revolving credit
agreement 1,450,000 1,550,000 (25,000)
Payments of other long-term debt (200,000) (200,000) (200,000)
Exercise of stock options 17,500 231,231 17,719
-----------------------------------------
Net cash provided by (used for) financing
activities 1,828,490 1,581,231 (207,281)
-----------------------------------------
NET INCREASE (DECREASE) IN CASH 225,216 (32,656) (119,787)
CASH, BEGINNING OF YEAR 161,392 194,048 313,835
-----------------------------------------
CASH, END OF YEAR $ 386,608 $ 161,392 $ 194,048
=========================================
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS:
Property and equipment contributed as capital
by joint venture partner $ 1,060,000 $ -- $ --
=========================================
Property, plant and equipment acquired in
exchange for accounts receivable $ 400,000 $ -- $ --
=========================================
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation -- The consolidated financial statements
include the accounts of Parlex Corporation (the "Company"), its
wholly owned subsidiaries and its 50.1% investment in Parlex
(Shanghai) Circuit Co., Ltd. (see Note 2) whose fiscal year end is
March 31. 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:
1996 1995
Raw materials $2,419,744 $1,867,370
Work in process 5,333,680 4,216,706
-------------------------
Total $7,753,424 $6,084,076
=========================
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, 1996 or 1995.
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 $2,380,000, $2,215,000 and $1,767,000 for the
years ended June 30, 1996, 1995 and 1994, 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 ("SFAS") 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.
Use of Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the balance sheet dates. Estimates
include reserves for accounts receivable, useful lives of properties,
accrued liabilities including health insurance claims and deferred income
taxes. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. The carrying amounts of cash, accounts
payable and accrued expenses approximate fair value because of their
short-term nature. The carrying amounts of the Company's debt instruments
approximate fair value.
New Accounting Standards -- In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill when
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. The Company intends to adopt SFAS No. 121 in
1997. The Company is presently evaluating the impact, if any, that this
statement will have on its consolidated financial position and results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning July 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue
to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and directors, and will disclose the required pro forma effect on
net income and net income per share in its June 30, 1997 consolidated
financial statements.
2. JOINT VENTURE
In May 1995, the Company entered into an agreement to establish a limited
liability company in the form of a joint venture in the People's Republic
of China. The Company owns 50.1% of the joint venture. The joint venture
manufactures flexible printed circuits and commenced operations in
September 1995.
3. ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of:
1996 1995
Payroll and related expenses $ 993,947 $ 999,954
Accrued health insurance 222,170 213,798
Customer deposit -- 545,295
Other 581,106 498,137
------------------------
Total $1,797,223 $2,257,184
========================
4. INDEBTEDNESS
The Company's China joint venture has a short-term bank loan bearing
interest at 1.25% over Singapore Interbank Offer Rate ("SIBOR").
Long-term debt at June 30 consisted of:
1996 1995
Revolving Credit Agreement $3,650,000 $2,200,000
Industrial Revenue Development Bond 100,000 300,000
------------------------
Total long-term debt 3,750,000 2,500,000
Less current portion 100,000 200,000
------------------------
Long-term debt -- net $3,650,000 $2,300,000
========================
The Company has an Industrial Revenue Development Bond with a bank, at a
varying interest rate, which annually approximates 65% of prime (8.25% at
June 30, 1996). Interest and principal are payable quarterly. Buildings
owned by the Company are pledged as collateral. The net book value of such
buildings is approximately $3,560,000 at June 30, 1996.
On December 12, 1995, the Company renegotiated its unsecured Revolving
Credit Agreement (the "Agreement") (dated June 22, 1994) making available
up to a total of $5,000,000 through December 31, 1997. On January 1, 1998,
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, 2000. Borrowings under the
Agreement are at the bank's corporate base rate (8.25% at June 30, 1996),
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,
1996, the unused commitment amounted to $1,350,000.
The Industrial Revenue Development Bond and the 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, 1996 approximated $2,745,000 and
$4,710,000, respectively.
Interest paid during the years ended June 30, 1996, 1995 and 1994 was
approximately $251,000, $97,000 and $63,000, respectively.
Long-term debt due during the years ending June 30, 1997 and 1998 is
$100,000 and $3,650,000, respectively.
5. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at June 30 consisted of:
1996 1995
Deferred income taxes (Note 6) $ 980,124 $ 891,021
Deferred compensation 866,136 795,795
-----------------------
$1,846,260 $1,686,816
=======================
The timing of deferred compensation payments cannot presently be
determined. Amounts, if any, which may be paid within one year are not
material.
6. INCOME TAXES
The provision for income taxes consisted of:
1996 1995 1994
Current:
State $ (57,943) $ (78,567) $ (9,000)
Federal (291,508) (600,840) (126,000)
Deferred (37,510) (75,006) (285,000)
Benefit of net operating loss carryforwards -- -- 420,000
-------------------------------------
Total $(386,961) $(754,413) $ --
=====================================
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
1996 1995 1994
Statutory federal income tax rate 34 % 34 % 34 %
State income taxes, net of federal tax benefit 3 4 4
Tax credits -- (4) --
Utilization of net operating loss carryforwards -- -- (42)
Other (4) -- 4
-----------------------
Effective income tax rate 33 % 34 % -- %
=======================
Deferred income tax assets and liabilities at June 30 are attributable to
the following:
1996 1995
Deferred tax liabilities:
Depreciation $1,326,252 $1,209,013
Prepaid expenses -- 27,988
-------------------------
1,326,252 1,237,001
-------------------------
Deferred tax assets:
Inventories 36,281 40,912
Allowance for doubtful accounts 31,991 29,157
Accruals 114,584 110,893
Self-insurance 87,920 85,519
Deferred compensation 346,128 317,992
State net operating loss and credit carryforwards 43,967 24,657
-------------------------
660,871 609,130
-------------------------
Net deferred tax liability $ 665,381 $ 627,871
=========================
Income tax payments of approximately $445,000, $1,162,000 and $12,300 were
made in 1996, 1995 and 1994, respectively.
7. STOCK OPTIONS
The Company has incentive and nonqualified stock option plans covering
officers, key employees and directors who are not otherwise employees. 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
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, 1996, there were 221,750 shares reserved for future grants.
Information concerning the Company's stock option plans is as follows:
Shares
Under Option
Option Prices Exercisable
July 1, 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
======
Granted 26,500 8.75
Surrendered (6,250) 3.25 -- 6.25
Exercised (3,250) 3.25 -- 6.25
-------
June 30, 1996 210,875 99,185
======= ======
8. 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.
Sales to several divisions of one customer represented 29% and 12% of total
revenues, in 1996 and 1995, respectively. In 1994, sales to two customers
represented 11% and 10% of total revenues.
9. 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 each of the years ended June 30, 1996, 1995 and 1994 was
approximately $153,000. Future payments under noncancelable operating
leases are:
1997 $285,708
1998 132,708
1999 132,708
2000 73,763
2001 20,670
Thereafter --
--------
$645,557
========
10. 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, 1996, 1995
or 1994.
During fiscal 1995, the Company adopted a 401(k) Savings Plan (the "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 years
ended June 30, 1996 and 1995.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands except per
share amounts):
1996 Quarters
First Second Third Fourth
Revenues $11,611 $11,685 $11,703 $12,258
Gross profit 1,316 1,539 1,820 2,274
Net income 24 91 196 459
Net income per share .01 .04 .08 .18
1995 Quarters
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
Gross profit in the fourth quarter of 1995 includes the effects of 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).
* * * * * *