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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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, 1999 Commission File No. 0-12942
- --------------------------------------- ---------------------------
PARLEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-2464749
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
One Parlex Place
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Methuen, Massachusetts 01844
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(Address of principal executive offices, including zip code)
978-685-4341
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of exchange on which registered
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Common Stock ($.10 par value) National Market
Securities registered pursuant to Section 12(g) of the Act:
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None
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 [ ]
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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 7, 1999 as computed by reference to the closing price of such
stock was approximately $62,885,996.
The number of shares of the Registrant's Common Stock, par value $.10
per share, outstanding at September 7, 1999 was 4,805,148 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.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's prospects are subject to certain uncertainties and
risks. This Annual Report on Form 10-K also contains certain forward-looking
statements within the meaning of the Federal Securities Laws. The Company's
future results may differ materially from its current results and actual
results could differ materially from those projected in the forward-looking
statements as a result of certain risk factors. Readers should pay
particular attention to the considerations described in the section of this
report entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Factors that May Affect Future Results." Readers
should also carefully review the risk factors described in the other
documents the Company files from time to time with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Part I
Item 1. Business
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Parlex is a leading supplier of flexible interconnects principally for
sale to the automotive, military/aerospace, computer, telecommunications and
industrial markets. The Company's product offering, which the Company
believes is the broadest of any company in the flexible interconnect
industry, includes flexible circuits, laminated cable, flexible/cable hybrid
circuits and flexible interconnect assemblies. The Company also has a
dedicated facility to provide our customers with quickturn/prototype
flexible circuits. Flexible circuits, which consist of conductive copper
patterns that are laminated to flexible substrate materials such as
polyimide or polyester, are used to provide connections between components
and electronic systems and as a substrate to support electronic devices.
Laminated cables, which consist of flat or round wire laminated to a
flexible substrate material, provide connections between electronic sub-
systems and replace conventional wire harnesses. Flexible/cable hybrid
circuits combine the lower cost of laminated cable with the technology of
flexible circuits into a single cost-effective interconnect. Flexible
interconnect assemblies are formed by adding components such as integrated
circuits, connectors, resistors and capacitors to flexible circuits or
laminated cables. The advantages of flexible interconnects over alternative
technologies such as rigid printed circuits include three-dimensional
packaging and superior thermal qualities as well as reduced size and weight.
The Institute for Interconnecting and Packaging of Electronic Circuits
("IPC"), an international trade organization, estimates that worldwide sales
of flexible circuits in 1999 exceeded $2.5 billion. The IPC has reported
that the flexible circuit industry in North American has grown at rates
between 12% and 19% in each of the past three years.
The Company believes that its creative engineering expertise and its
ability to advance the technology of manufacturing processes and materials
allow it to provide its customers with a comprehensive range of flexible
interconnect solutions. Beginning at the design phase, the Company's design
engineers work closely with its customers to ensure the produceabilty of a
design. Once a design has been completed, the Company utilizes its
innovative materials and processes, including PALFlex(r), PALCoat(r), U-
Flex(r), PALCon(r) and PALCore(r), to produce a flexible interconnect
product that meets its customers' performance needs and cost objectives.
The Company's objective is to be the supplier of choice for key
customers in markets where cost-effective flexible interconnects provide
added value to the customers' products. Within its targeted market segments,
the Company believes that its ability to develop strategic customer
relationships and provide a broad product offering serves as a competitive
advantage. These relationships have enabled the Company to work closely with
its customers from the design phase through production to ensure that its
customers' flexible interconnect requirements are met. In fiscal 1999, the
Company's top customers in terms of revenues were Nortel, Motorola, Amp,
Raytheon, and Allied Signal.
An important element of the Company's growth strategy has been
diversification among its targeted markets. Since 1992, the Company has
reduced revenues from military/aerospace applications from approximately 53%
to 15% of total revenues, while increasing overall revenues by over twofold
through June 30, 1999. As a result of the Company's growth in recent years,
the Company has expanded its manufacturing operations to better accommodate
its customers' geographic and cost requirements. In 1995, the Company
established Parlex (Shanghai) Circuit Co., Ltd. ("Parlex Shanghai"), a joint
venture in China designed to serve the Asian market with flexible circuits
as well as to produce certain products more cost-effectively for North
American customers. The Company has opened an interconnect finishing
facility in Empalme, Mexico which began to ship product in fiscal year 1999.
The Company has also established logistic support capabilities in Singapore
and France. In April of 1999 the Company purchased Dynaflex, a division of
Hadco Corporation. Dynaflex, strategically located in San Jose, California,
produces a full range of flexible circuits in limited quantities in order to
meet the requirement for short lead times usually associated with prototype
products.
Industry Overview
Over the past two decades, electronic systems have become smaller,
lighter and more reliable, while demands for performance at lower costs have
increased dramatically. Although rigid printed circuits are a conventional
form of electronic packaging, their two-dimensional form limit the options
available to the design engineer. As the demand for more portable electronic
packaging has increased, so too has the demand for flexible, three-
dimensional circuits. In addition to the improved packaging and performance
characteristics, flexible circuits offer superior thermal dissipation
characteristics compared to rigid circuits, making flexible circuits
attractive for use in advanced, high-speed electronics.
Flexible interconnects are used in most segments of the electronics
industry. The primary market segments that place high value on superior,
cost-effective flexible interconnect solutions include:
Automotive. Automobile manufacturers increasingly use electronics to
enhance vehicle performance and functionality, while at the same time
reducing electronic component size, weight and manufacturing and assembly
costs. Flexible circuits and laminated cables can provide cost-effective
interconnect solutions for such applications as dashboard instrumentation,
automotive entertainment systems, electronic engine control units, steering
wheel controls, power distribution, sensors and anti-lock brakes. Providers
of flexible interconnects typically work closely with the companies that
supply these electronic systems to the vehicle manufacturers. Because
automotive production cycles generally last three to five years and designs
are unlikely to change during that period, a flexible interconnect that is
designed into an automobile model or platform provides a relatively
predictable source of demand over an extended time period.
Telecommunications. The telecommunications market has two distinct
segments: infrastructure equipment and subscriber equipment. Infrastructure
equipment consists of support electronics for the distribution of voice and
data transmission. The growth of data transfer via the internet has
dramatically increased demand for this type of equipment. Infrastructure
equipment employs sophisticated electronics which usually require the use of
complex flexible interconnects. Subscriber equipment consists of cellular
devices including battery assemblies. Tight packaging and the need to reduce
weight have driven the demand for flexible interconnects in this segment.
Laminated cables and single and double-sided flexible circuits are generally
used in subscriber equipment.
Computer. The IPC has reported that the computer market represents
approximately 37% of the worldwide consumption of flexible interconnects.
Demand for flexible circuits and laminated cable in this market is driven by
short product life cycles as consumers demand increasingly powerful, less
expensive, smaller, faster and lighter equipment. Disk drives represent the
largest application for flexible circuits in this market. Other applications
include notebook displays, mass storage devices and interconnects for
peripheral equipment such as scanners, printers and docking stations.
Military/Aerospace. Military/Aerospace electronics were at one time
the primary applications for flexible circuitry. Because of product
complexity and space restrictions, aerospace requirements often demand
multilayer rigid-flexible circuits. Typical applications are navigation
systems, flight controls, displays, communications equipment and munitions.
Although overall spending in this segment has decreased, the Company
estimates procurement of flexible interconnects will continue to experience
modest growth. The Company believes that the trend toward "smart" military
systems will continue to drive demand for flexible interconnects in this
segment.
Industrial. The industrial market, which the Company defines to
include medical electronics, encompasses many applications. Virtually any
electronic device in which tight packaging, light weight or high reliability
is a priority is a candidate for flexible interconnects. Typical
applications include electronic scales, industrial controls, metering
devices, scanners, sensors and medical monitoring equipment.
The Parlex Solution
Parlex combines creative engineering design capabilities with
innovative manufacturing processes to provide its customers with a complete
and cost-effective flexible interconnect solution. The solution begins in
the design phase, where Parlex engineers typically work closely with
customers to develop a technically superior flexible interconnect design.
Although the Company's customers generally provide the initial engineering
guidelines for a particular interconnect, the Company's design engineers are
often called upon to work in tandem with a customer's design team to develop
a solution. An important part of the Parlex solution is ensuring the
produceability of a design at an early stage before time and money are spent
on manufacturing.
Once the design is completed, the Company applies its experience with
innovative materials and manufacturing processes to produce a flexible
interconnect solution that meets the customer's needs and cost objectives.
The Company has developed materials and processes that provide its customers
improved performance at a lower cost. Over the past several years, the
Company has gained substantial experience in introducing programs for high-
volume products, and it believes this expertise is a key factor in its
ability to provide its customers with cost-effective flexible interconnect
solutions.
The Company believes manufacturers with the capability to supply a
broad range of products with a diverse mix of performance characteristics
and with a global presence will capture additional market share in the
flexible interconnect industry. The Company is one of a limited number of
independent manufacturers that offers a range of flexible interconnect
solutions from design concept through high-volume production. By offering
its broad range of products and services, the Company can provide design and
manufacturing solutions for its customers while reducing its customers'
time-to-market and product development costs.
Strategy
The Company's objective is to be the flexible interconnect supplier of
choice for key customers in its target markets. The Company's strategy to
achieve this objective includes the following key elements:
* Develop Innovative Processes and Materials. The Company believes that
its ability to develop innovative materials and processes enhances
the opportunity for growth within its targeted markets. The Company
intends to continue to focus its development efforts on proprietary
flexible materials and processes that have a broad range of
applications. These materials and processes enable the Company to
produce cost-effective flexible interconnects, at reduced cycle time,
that are reliable and improve its customers' product performance. The
Company's PALFlex(r), PALCoat, U-Flex and PALCore technologies are
examples of materials and manufacturing processes that have resulted
from the Company's focus on innovation.
* Develop Strategic Relationships with Key Customers. The Company seeks
to develop strategic relationships with key customers in targeted
industries. As a value-added strategic partner with its customers,
the Company works with a customer's technology roadmap to design and
develop cost-effective flexible interconnect solutions. The Company
believes that these relationships are most effective where the
Company is providing a significant portion of a customer's flexible
interconnect requirements. Through these strategic relationships, the
Company achieves greater visibility into the customer's entire range
of flexible interconnect requirements.
* Diversify Customer Base across Specific Markets. The Company seeks to
serve a variety of markets to help mitigate the effects of economic
cycles in any one industry. The Company's business units are aligned
to specific market segments in order to better understand and service
customers within particular industries. In addition, the Company
believes its diversification among the major segments provides
greater insight into emerging technological requirements. For
example, the Company has applied its knowledge of shielding
requirements in the computer industry to gain a competitive advantage
in the telecommunications market.
* Offer the Broadest Range of Products in the Flexible Interconnect
Industry. The Company intends to continue to provide a broad product
offering that allows it to service virtually all of its customers'
flexible interconnect requirements. Parlex is not aware of any other
company in the flexible interconnect industry that offers a broader
range of products. The Company's product line includes flexible and
rigid-flexible circuits from 1 to 24 layers, laminated cables,
flexible/cable hybrid circuits and flexible interconnect assemblies.
The Company uses a variety of materials in its products, including
adhesiveless and adhesive-based polyimide as well as polyester.
* Expand Global Presence. The Company believes that flexible
interconnect customers will increasingly require service on a global
basis. To address these requirements, the Company has continued to
expand its global presence in emerging markets and throughout the
world. For example, the Company established a joint venture company
in China as a base for its operations in that region and to serve the
emerging market in China. The Company has also developed, and plans
to continue to develop, strategic relationships and alliances that it
believes are necessary for the success of its international business.
In May 1998, the Company leased a facility in Mexico. This branch
performs the finishing, and, in some instances, assembly operations
to parts being manufactured at the Company's flexible circuit and
laminated cable facilities. The Company purchased a facility located
in San Jose, California, to produce low to medium volumes of flexible
circuits. This facility provides a presence in the western United
States and supports several customers who use Parlex Shanghai for
high volume production. The Company has distribution arrangements in
Singapore and France.
Current Products
The Company's current flexible interconnect products include flexible
circuits, laminated cables, flexible/cable hybrid circuits and flexible
interconnect assemblies. The products are produced to customers'
application-specific requirements and are designed by the Company, the
customer or jointly. Lead times for the design and manufacture of the
Company's products generally range from one week for some products to three
months for more sophisticated products.
Flexible Circuits
Flexible circuits, which consist of conductive copper patterns that
are laminated to flexible substrate materials such as polyimide or
polyester, are used to provide connections between electronic components and
as a substrate to support these electronic devices. The circuits are
manufactured by passing base materials through multiple processes such as
drilling, photo imaging, etching, copper plating and finishing. Flexible
circuits can be produced in single or multiple layers. The Company produces
a wide range of flexible circuits including:
* Single-Sided Flexible Circuits have a conductive pattern only on one
side and are commonly used for cellular phones, batteries for
portable electronics and dashboard displays. Parlex has converted
many double-sided flexible circuits to single-sided by incorporating
its HSI+ (high speed interconnect) screening technology that
incorporates superior shielding qualities and eliminates a separate
shield layer. The Company manufactures single-sided circuitry in both
the United States and at Parlex Shanghai, where substantially all of
the production to date has been single-sided.
* Double-Sided Flexible Circuits have conductive patterns on both sides
which are interconnected by a drilled and copper-plated hole. The
Company's double-sided circuits are used primarily in the automotive
market. Other applications include high definition displays,
instrumentation products and digital data converters.
* Multilayer and Rigid-Flexible Circuits consist of layers of circuitry
that are stacked and laminated. These circuits are used where the
complexity of the electronic design demands multiple layers of
flexible circuitry. If some of the layers are rigid board material,
the product becomes a rigid-flexible circuit. Multilayer and rigid-
flexible circuits are common in military applications for flight
computers, multipurpose displays and flight control systems. In
commercial applications, these products are used on high-speed
telephone distribution equipment, computer networking electronics and
patient monitoring devices. The Company has manufactured these
circuits with up to 40 layers in prototype programs and 24 layers in
production.
Laminated Cables
The Company manufactures laminated cables in an efficient roll process
proprietary to Parlex. Substantially all of the laminated cable that the
Company produces uses flat wire. Approximately 70% of the laminated cable
that the Company produces is insulated with polyester material allowing for
maximum flexibility while the remainder is insulated with polyimide material
for its enhanced performance at elevated temperatures. The Company's
laminated cables are capable of handling both power (high current) and
signal (low current) levels.
Improving the process by which laminated cable is manufactured can
increase functionality and lower the cost of production. To this end, the
Company has developed U-Flex(r), a technique that forms conductors into a u-
shape, followed by an injection molding process which provides the function
of a connector. This technique improves electrical performance and
eliminates the need for a separate costly connector. The Company has also
developed Pemacs(r) shielding, which adds a specially designed silver ink to
laminated cable to meet stringent electronic shielding requirements without
compromising flexibility. The Company's auto line cable process incorporates
pushpins into the laminated cable to provide for automatic alignment to a
printed circuit board for subsequent soldering.
Flexible/Cable Hybrid Circuits
In many cases, although a laminated cable is capable of carrying the
necessary signals, etched circuitry is required for termination. For these
applications the Company manufactures flexible/cable hybrid circuits, which
take advantage of the lower cost of laminated cables and the technology of
flexible circuits by combining them into a single interconnect.
Flexible/cable hybrid circuits are currently used in switching stations,
postage metering devices and electronic scales. On some products, Parlex
adds its HSI+ process to the flexible/cable hybrid circuit to provide signal
clarity and shielding to the cable and the flexible circuit.
Flexible Interconnect Assemblies
Both flexible circuits and laminated cables can be converted into an
electronic assembly by adding electronic components. This process can be as
simple as adding a connector or as complex as assembling and soldering many
components such as capacitors, resistors and integrated circuits. In some
cases, the Company subcontracts with electronic manufacturing service
companies for component placement and attachment.
The following describes applications in which the Company's products
are used:
<TABLE>
<CAPTION>
Product Applications
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<S> <C>
Flexible Circuits: Automotive Displays
Single-Sided Batteries for Cell Phones
Printers
Computer Networks
Double-Sided Engine Controls
Laptop Computers
Cellular Phones
Engine Sensors
Multilayer & Rigid-Flexible Computer Networks
Telecom Switching Systems
Aircraft Displays
Automotive Transmission Systems
Laminated Cables Postage Meters
Automotive Sound Systems
Laptop Computers
Industrial Controls
Electronic Scales
Flexible/Cable Hybrid Circuits Printers
Sensors
Scanning Devices
Night Vision Systems
</TABLE>
New Product Development
An important part of the Company's strategy is development of new
materials, processes and products. During the past three fiscal years, the
Company has invested an aggregate of $9.6 million in research and
development. The Company believes that its commitment to innovation is
evidenced by the fact that it has developed new materials for use in its
products even though it is not considered a materials supplier. The Company
has developed the following new products:
PALFlex(r). The Company has developed an adhesiveless polyimide-based
material, PALFlex(r) (Parlex Adhesiveless Laminate for Flex). PALFlex(r) is
both a material and a manufacturing process that the Company believes is an
enabling technology that provides superior performance at a lower cost than
with traditional copper-clad materials. PALFlex(r) provides additional cost
benefits by allowing the Company to combine certain material manufacturing
steps with circuit manufacturing, eliminating several major process steps
including conventional drilling, plasma, etching, copper deposition and
copper plating. PALFlex(r) has been developed for high volume automotive
applications but could potentially be used across a number of product lines.
Because PALFlex(r) is produced in roll form and the copper thickness can be
controlled to tight tolerances, the Company believes that PALFlex(r) may
serve as the foundation for its development of products to serve the
emerging high density substrate market. The Company shipped its first
product incorporating the current version of PALFlex(r) in fiscal year 1998.
PALCoat(r). Working closely with a materials manufacturer, and
Teledyne HALCO, an equipment manufacturer, the Company developed PALCoat(r),
a new material for coating the outside of the circuit. PALCoat(r) has been
designed to provide the electrical and physical characteristics required for
a new generation of products but at a substantially lower cost than what is
commercially available. PALCoat(r) entered volume production in fiscal year
1999.
PALCore HP. The Company developed PALCore HP as a low-cost multilayer
flexible material to minimize the difference between the cost of materials
used in flexible circuits and those used in conventional rigid circuits. The
Company has licensed PALCore HP to Allied-Signal and Polyclad Laminates for
thin core rigid board applications, which are products that the Company does
not produce. Parlex receives a royalty in connection with sales by the
licensees. The Company has applied for patents for a new cost reduced
version of PALCore HP which will enter volume production in calendar year
1999.
Joint Venture, Mexico Operations, and Strategic Relationships
Parlex Shanghai Joint Venture. In 1995, the Company established a
joint venture company in China, Parlex Shanghai, to manufacture and sell
flexible circuits. The participants in Parlex Shanghai are the Company
(50.1% equity), Jin Ling, Inc., a Chinese company (40.0% equity), and
Mascon, Inc., a Massachusetts-based international marketing and
manufacturing company (9.9% equity). The Company established Parlex Shanghai
to better serve customers and potential customers that have manufacturing
facilities in Asia and to more cost effectively manufacture certain products
for worldwide distribution. In fiscal year 1999, 34% of Parlex Shanghai's
products were sold to Chinese customers, 33% to other Asian customers, and
33% to North American customers.
Parlex Mexico. Parlex established a Mexican operation for use in the
finishing, assembly and testing for its flexible circuit and laminated cable
products. The leased facility is in the Maquilas Teta-Kawi Industrial Park
located in Empalme(, Sonora, Mexico. This facility allows Parlex to perform
labor intensive operations in a competitive and highly skilled labor market.
Pucka Agreements. In 1996 the Company granted Pucka Industrial Co.,
Ltd. of Taiwan ("Pucka") a five-year exclusive, area specific license to
design, manufacture and sell flexible circuits using the Parlex HIS+
shielding process in Taiwan and, with the prior approval of the Company,
other territories. During the term of the agreement and for a period of
three years thereafter, Pucka may not sell, manufacture or distribute any
flexible circuit technology product which competes with the Company's
products using the Company's HSI+ shielding processes. This was noteworthy
on September 7, 1999 effective 90 days thereafter. Under a separate
agreement, the Company appointed Pucka as its sole and exclusive distributor
and independent sales representative for laminated cable in Taiwan and, with
prior approval of the Company, other territories.
Customers
The Company's customers are a diverse group of original equipment
manufacturers that serve a variety of industries. A list of representative
customers appears below:
<TABLE>
<CAPTION>
Automotive Computer Industrial
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<S> <C> <C>
Delphi Iomega AMP
Kemsco Dell Hewlett Packard
Motorola EMC Kulicke & Soffa
Siebe Read Rite Pitney Bowes
Siemens Thomas Betts Texas Instruments
<CAPTION>
Military/Aerospace Telecommunications
------------------ ------------------
<S> <C>
Allied-Signal CMAC
Lockheed-Martin Motorola
Textron Nortel
General Dynamics Sanmina
Raytheon TAT
</TABLE>
In fiscal year 1999, the Company sold products to approximately 700
customers, counting divisions within certain major companies as separate
customers. In fiscal years 1997, 1998 and 1999, sales to several divisions
of Motorola comprised approximately 20%, 23% and 15%, respectively, of the
Company's total revenues. The Company's top 20 customers accounted for
approximately 69%, 66% and 58% of total revenues in fiscal years 1997, 1998
and 1999, respectively.
Sales and Customer Service
The Company has organized its sales and customer service into business
units that are tied to the following specific industry segments: automotive,
military/aerospace, telecommunications, computer and industrial. The Company
believes that this organizational structure allows its business unit
managers to increase their focus on a specific industry and develop targeted
customers within those industries. Business unit managers are assigned
customer service representatives to support their customers' day-to-day
requirements. The business unit managers draw upon the expertise of the
Company's engineering staff as an integral part of the sales process. In the
United States, business unit managers coordinate the efforts of a network of
19 independent manufacturers' representative organizations. In fiscal year
1999, manufacturers' representative organizations accounted for
approximately 63% of total revenues.
The sales process involves extensive work with the customer's design
engineers and the Company's design and engineering staff. The business unit
manager then works closely with the Company's applications engineers to
prepare a feasibility study to assess the cost of producing the interconnect
solution to the customer's specifications. The process can often involve
multiple design and manufacturing iterations to assure that the product can
be produced to specifications at the lowest possible cost.
The business unit manager leads the Company's effort to become the
preferred supplier with target customers. The manager's ability to
understand the quality, cost, delivery, technology and service objectives of
target customers is critical to the Company's goal of achieving the highest
level of customer satisfaction. In order to develop strategic relationships
with target customers, the Company has participated in joint training,
engineering seminars, manufacturing intern programs and as members of
customers' problem solving teams. The Company often has access to a
customer's materials resource planning schedule, which allows the Company to
better forecast the customer's near and mid-term requirements.
The Company has direct sales and customer support offices in Austin,
Texas, Raleigh-Durham, North Carolina, and San Diego, California. The
Company uses these offices to provide applications engineering, logistical
support and coordination of activities between the customer and the Company.
The Company has entered into agreements with distribution companies in
Singapore and in France to provide forward stocking and inventory
coordination for regional customers. These relationships obviate the
requirement to establish a local presence, while providing the customer with
service comparable to that of a local provider.
Under the terms of the Chinese joint venture agreement, Parlex
Shanghai has agreed that it will sell its products outside China only
through the Company and Mascon. In turn, the Company has agreed that it will
sell flexible circuits in China only through the joint venture.
Manufacturing Processes
The Company's manufacturing processes are designed to accommodate high
throughput, as well as to minimize cost and cycle time and maximize yield.
Four of the Company's manufacturing facilities are certified to the
international standard ISO 9002. Three of the Company's facilities are
certified to the automotive standard QS 9002.
The manufacturing process varies a great deal from product to product.
While the production of laminated cable is a "dry" process incorporating
virtually no chemical treatment, a multilayer flexible circuit is processed
through a dozen or more chemical operations. Although there is a no standard
process, significant elements of production are highlighted below:
<TABLE>
<CAPTION>
"Dry" "Wet" Laminated
Flexible Circuit Flexible Circuit Cable
Processes Processes Processes
---------------- ---------------- ---------
<S> <C> <C>
Drilling Copper deposition Lamination
Automated optical inspection Carbon coating Slitting
Lamination Chemical cleaning Conductor forming
Electrical testing Developing Injection molding
Routing Etching Shielding
Die cutting Solder leveling Laser skiving
Assembly Gold plating Assembly
</TABLE>
The Company's computer aided manufacturing system takes the customer's
design and programs the various steps that will be required to manufacture
the particular product. The product then follows the appropriate production
flow until finally released for shipment by the quality organization.
The Company believes that its substantial capital investment and its
manufacturing expertise in a number of specialized areas have contributed to
its position as an industry leader. A substantial amount of the Company's
production equipment is unique to its processes and technologies. Examples
include cable laminators, roll plating, roll etching, precision cable
slitters and automatic punching equipment.
The Company has recently completed a major expansion of its capacity.
In fiscal year 1999 the Methuen, Massachusetts, facility was increased by
60,000 sq. ft., the Salem, New Hampshire facility by 12,000 sq. ft., and the
Shanghai, China facility by 10,000 sq. ft. Additionally, the Company
purchased over $7.5 million of new equipment and purchased Dynaflex with a
full complement of equipment and a 19,000 sq. ft. facility. In fiscal year
2000, the Company plans a further expansion of Shanghai and to expand the
Mexican operation. While the Company was capacity constrained on some
operations in fiscal year 1999, it now believes that it has sufficient
capacity to meet all demand in the foreseeable future with the exception of
Shanghai and Mexico.
Materials and Materials Management
The Company aggressively attempts to control the cost of purchased
materials and the level of inventories. The Company believes it benefits
from long-term relationships with its suppliers. The Company's goal is to
attain a competitive price from suppliers and foster a shared vision towards
advancing technology.
The Company purchases raw circuit materials, process chemicals and
various components from multiple outside sources. The Company often makes
long-term purchasing commitments with key suppliers for specific customer
programs. These suppliers commit to provide cooperative engineering as
required and in some cases to maintain a local inventory in order to provide
shorter lead times and reduced inventory levels for the Company. In many
cases the Company's customers approve, and often specify, sources of supply.
The Company relies on key suppliers for certain raw materials.
Top Five Suppliers in Fiscal 1999
<TABLE>
<CAPTION>
Supplier Items Supplied
-------- --------------
<S> <C>
Dupont Flexible Laminates
Coverlay Film
AMP Connectors
Sheldahl Flexible Laminates
Cable Insulation
Steel Heddle Copper Wire
Morton Dry Film
</TABLE>
The Company qualifies its suppliers through a vendor rating system
which limits the number of suppliers to those that can provide the Company
with the best total value and quality. The Company monitors each supplier's
quality, delivery, service and technology to insure that the Company will
receive materials that meet its objectives.
Management Information Systems
The Company has replaced its legacy computer system with a client
server system for which both the hardware and software have been certified
as Year 2000 compliant. The Company has completed an inventory of all its
critical manufacturing systems in order to determine any Year 2000 issues.
All identified issues have been remediated, and as a result, the Company
does not believe that any issues exist which will prevent these systems from
operating as expected after January 1, 2000.
Competition
The Company's business is highly competitive. The Company competes
against other manufacturers of flexible interconnects as well as against
manufacturers of rigid-printed circuits. Competitive factors among flexible
circuit and laminated cable suppliers are price, product quality,
technological capability and service. The Company believes that it competes
favorably with respect to these competitive factors, but believes that its
competitive strength is in its ability to apply technology to reduce cost.
The Company competes against rigid board products on the basis of product
versatility, although price can also be a competitive factor if the
difference between the cost of a rigid circuit and a flexible circuit
becomes too great. The principal competitors for flexible circuits are
Sheldahl (automotive), AdFlex (telecommunications), M-Flex (computer) and
Flex Circuits, Inc. (aerospace). For laminated cable, the principal
competitors are Axon (a French company) and Fujikura Ltd. (a Japanese
company).
Backlog
The Company's backlog consists of orders for which a written purchase
order has been received. In situations where the order requires an
engineering effort, it will be included in backlog even though a delivery
schedule will not be finalized until this phase is completed. On some major
multi-year contracts, such as with Motorola, the customer's forecast for a
13-week period is added to backlog at the end of each quarter. The Company's
standard purchase orders are cancelable, but require the payment of certain
costs upon cancellation. A certain portion of the Company's backlog may be
subject to cancellation without significant penalty. The Company's backlog
as of June 30, 1999, increased to $28 million from $26 million in the
immediately preceding year ended June 30, 1998. Due to the timing of orders,
delivery intervals, product mix and the possibility of customer changes in
delivery schedules, the Company's backlog at any particular date may not be
indicative of actual sales for any succeeding period.
Intellectual Property
The Company has acquired patents and it seeks patents on new products
and processes where it believes patents would be appropriate to protect the
Company's interests. Although the Company believes that patents are an
important part of its competitive position, it does not believe that any
single patent or group of patents is critical to its success. Due to the
rapid technological change in its business, the success of its business
depends more on its design creativity and manufacturing expertise than on
patents and other intellectual property. The Company owns 17 patents issued
in the United States and has applied for corresponding patents with certain
relevant foreign patent offices. Federal trademark registrations have been
obtained for PALFlex(r), PALCore(r), U-Flex(r) and PALCoat(r). The Company
also relies on internal security measures and on confidentiality agreements
for protection of trade secrets and proprietary know-how. There can be no
assurance the Company's efforts to protect its intellectual property will be
effective to prevent misappropriation or that others may not independently
develop similar technology.
Under the terms of the Chinese joint venture agreement, the Company
transferred certain technology to Parlex Shanghai and has agreed to provide
it with additional technology and expertise as the joint venture's
capabilities and markets develop. Certain technology, including PALFlex(r),
is excluded from the arrangement.
Environmental Regulations
Flexible circuit manufacturing requires the use of metals and
chemicals. Water used in the manufacturing process must be treated to remove
metal particles and other contaminants before it can be discharged into the
municipal sanitary sewer system. The Company operates and maintains water
effluent treatment systems and uses approved laboratory testing procedures
to monitor the effectiveness of those systems at its Methuen, Massachusetts
facility. The Company operates those treatment systems under effluent
discharge permits issued by a number of governmental authorities. Air
emissions resulting from the Company's manufacturing processes are regulated
by permits issued to the Company by government authorities. These permits
must be renewed periodically and are subject to revocation in the event of
violations of environmental laws. The Company believes that the waste
treatment equipment at its facility is currently in compliance with the
requirements of environmental laws in all material respects and that its air
emissions are within the limits established in the relevant permit. However,
there can be no assurance that violations will not occur in the future. The
Company is also subject to other environmental laws including those relating
to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as to work place health and safety and indoor
air quality emissions. Furthermore, environmental laws could become more
stringent or might apply to additional aspects of the Company's operations
over time, and the costs of complying with such laws could be substantial.
Compliance with state and federal laws did not have a material impact on the
Company's capital expenditures, earnings or competitive position in fiscal
year 1999. In fiscal year 2000, capital expenditures associated with
environmental compliance are estimated to be $550,000.
Employees
As of September 1, 1999, the Company employed 685 people in the United
States, including 583 in production, 60 in marketing, sales, engineering,
and customer support and 42 in administration. Of the 685 employees, 583
were direct employees of Parlex and 102 worked for interim staffing
agencies. Parlex Shanghai employs approximately 430 people. The United
States employees of Parlex are not represented by a collective bargaining
unit and the Company believes its relations with its workforce are good.
Item 2. Properties
- -------------------
The Company's executive offices and its product and process
development and primary flexible circuit manufacturing facilities are
located in a single 185,000 square feet facility, including an additional
60,000 square feet that was added during this past fiscal year, in Methuen,
Massachusetts. The Company owns this facility subject to no encumbrances.
The facility currently operates three shifts, six days a week. See "Item 1-
Business-Manufacturing Processes."
The Company's laminated cable operations are housed in a single 46,000
square feet facility in Salem, New Hampshire, which is leased through 2007.
The Salem, New Hampshire facility is approximately nine miles from the
Methuen facility.
Parlex Shanghai has a leased facility in Shanghai, China consisting of
approximately 37,000 square feet.
The Company leases a 19,000 square foot finishing facility in Empalme,
Sonora, Mexico.
Item 3. Legal Proceedings
- --------------------------
The Company is, from time to time, a party to routine litigation
arising in the normal course of its business. At the present time, the
Company is not involved in any such litigation.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matter was submitted to a vote of the company's stockholders during
the fourth quarter of the fiscal year covered by this report.
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 has been traded on the Nasdaq National
Market, under the symbol "PRLX" since October 1983. The following
table sets forth reported high and low sale prices for the Common
Stock for the periods indicated:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1999
-----------
First Quarter $16.50 $8.19
Second Quarter 12.25 8.00
Third Quarter 13.50 9.38
Fourth Quarter 15.75 9.25
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1998
-----------
First Quarter 24.00 13.88
Second Quarter 31.25 11.25
Third Quarter 19.50 14.00
Fourth Quarter 21.50 12.75
</TABLE>
As of September 1, 1999, there were approximately 101 holders of
record of the Common Stock.
(b) Dividends
The Company has never declared or paid cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business and does not
anticipate paying any cash dividends in the foreseeable future. Future
cash dividends, if any, will be determined by the Board of Directors
and will be based on the Company's earnings, capital, financial
condition and other factors deemed relevant by the Board of Directors.
Item 6. Selected Consolidated Financial Data
- --------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues $67,047 $60,275 $55,087 $47,257 $40,251
Cost of products sold 52,785 47,304 44,137 40,308 32,946
------- ------- ------- ------- -------
Gross profit 14,262 12,971 10,950 6,949 7,305
Selling, general and
administrative expenses 9,715 8,272 7,288 5,518 4,998
------- ------- ------- ------- -------
Operating income 4,547 4,699 3,662 1,431 2,307
Income from operations before income
taxes and minority interest 4,681 5,130 3,381 1,170 2,240
Net income 3,020 3,157 2,120 770 1,486
Basic income per share $ 0.65 $ 0.73 $ 0.59 $ 0.22 $ 0.41
======= ======= ======= ======= =======
Diluted income per share $ 0.63 $ 0.71 $ 0.57 $ 0.21 $ 0.40
======= ======= ======= ======= =======
Weighted average shares - basic 4,662 4,296 3,569 3,556 3,651
======= ======= ======= ======= =======
Weighted average shares - diluted 4,771 4,466 3,715 3,675 3,762
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $18,762 $26,286 $ 9,592 $ 9,148 $ 8,466
Total assets 63,521 56,181 32,234 29,662 24,517
Short-term debt, including current
portion of long-term debt 619 432 1,000 501 200
Long-term debt, less current portion 1,632 1,166 2,500 3,650 2,300
Stockholders' equity 45,333 41,591 17,788 15,455 14,667
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ----------------------------------------------------------------------------
Overview
Parlex completed fiscal year 1999 with record revenues of $67.047
million. Despite some first quarter difficulties primarily associated with
the establishment of its Mexican Operation, the Company recovered quickly
and improved the earnings in each sequential quarter. The fourth quarter
resulted in record sales and earnings. In our Methuen, Massachusetts
flexible circuit manufacturing site, capacity was increased 50%. Shipments
of the patented PALFlex(r) product were at greatly improved yields and
orders for this product continue to increase. The Salem, New Hampshire
operation produced laminated cable for hundreds of new applications and
increased its capacity by 33%. Parlex Shanghai, a Chinese joint venture,
experienced a 50% increase in revenues and the Mexican facility is now fully
operational and contributing to the financial plan.
On April 30, 1999, the Company acquired the assets of Dynaflex from
Hadco Corporation for approximately $2.7 million. Dynaflex is situated in
San Jose, California and is a prototype quickturn facility. Although this
purchase had a minimum impact in the current year, management believes that
this acquisition gives the Company a West Coast presence and a greatly
improved quick turnaround capability. This capability is significant, since
large volume orders often evolve and could lead to additional business at
the Company's other flexible circuit locations.
The Company expended in excess of $13 million in property and
equipment and $3.7 million in research and development. These expenditures
will allow the Company to meet increased customer demand for its products,
and enable the Company to remain at the forefront as a technological leader
in the flexible interconnect arena.
Results of Operations
The following table sets forth, for the periods indicated, selected
items in the Company's Statement of Operations as a percentage of total
revenues. The table and the discussion below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total revenues 100% 100% 100%
Cost of products sold 78.7 78.5 80.1
Gross profit 21.3 21.5 19.9
Selling, general, and administrative
expenses 14.5 13.7 13.2
Operating income 6.8 7.8 6.6
Income from operations before income
Taxes and minority interest 7.0 8.5 6.1
Net income 4.5 5.2 3.8
</TABLE>
Total Revenues
Total revenues rose to $67,047,283 in fiscal year 1999, an increase of
11% from the $60,275,171 reported in fiscal year 1998, while revenues rose
9% in fiscal year 1998 from the $55,086,853 reported in fiscal year 1997. In
each of the respective time periods, revenues grew in each of the Company's
principal product lines - flexible circuits, laminated cables,
flexible/cable hybrid circuits and flexible interconnect assemblies. The
Company has been developing new, innovative products that continue to gain
acceptance in the marketplace and have been a prime factor in the Company's
continued growth. The increase in total revenues in each year was primarily
attributable to an increase in the volume of units shipped.
Total revenues included licensing and royalty fees of $674,483,
$226,835, and $109,710 in fiscal years 1999, 1998, and 1997, respectively.
Although the Company intends to continue its practice of developing
materials and processes that it can license to third parties, it does not
expect that royalty revenues will represent a significant portion of total
revenues in the near term.
Cost of Products Sold
Cost of products sold in fiscal years 1999, 1998, and 1997 was $52.8
million, $47.3 million, and $44.1 million, respectively. As a percentage of
revenue, cost of products sold was 78.7%, 78.5%, and 80.1% in fiscal years
1999, 1998, and 1997, respectively. The slight increase in 1999 is the
result of the non recurring events in the first quarter of fiscal year 1999
As discussed in the Form 10-q filing dated September 27,1998, the Company, in
the first quarter of the fiscal year, incurred some unanticipated losses in
the manufacturing of flexible circuits associated with automotive applications.
Product shipped to the company's Mexican facility was returned because of an
unexpected delay by our customer to qualify the site for finishing operations.
As a result, the material was contaminated during unplanned storage and
shipment back to our Methuen, Massachusetts facility. These circuits required
extensive rework with a significant quantity being scrapped. The cost of
products sold for the remainder of the year was 77.1%.
In fiscal year 1998, the Company benefited from assigning production
to the facility most economically suited to manufacture a particular type of
product, which resulted in lower costs as a percentage of sales. This
strategy was expanded in 1999 with the purchase of Dyanflex for the
production of prototypes and quickturn production requirements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal years 1999,
1998, and 1997 were $9.7 million, $8.3 million, and $7.3 million,
respectively. As a percentage of total revenues, selling, general and
administrative expenses were 14.5%, 13.7%, and 13.2% in fiscal years 1999,
1998, and 1997, respectively.
The Company is presently in an expansion mode, increasing its internal
sales personnel, adding new field offices, etc. Once the full complement of
selling and administrative personnel is in place, the Company anticipates
that selling, general, and administrative expenses as a percentage of
revenues will decrease as revenues increase.
Other Income
Other income of $360,000 and $684,000 in fiscal years 1999 and 1998,
respectively, was comprised, for the most part, of interest income. In
fiscal year 1997, other income of $156,000 was principally the result of a
gain on the sale of equipment.
Interest Expense
Interest expense was $226,000 in fiscal year 1999 versus $254,000 in
fiscal year 1998 and $436,000 in fiscal year 1997. The reduction in expense
over the past two years is attributable to a lower level of average
borrowings under the Company's revolving credit facility. Interest rates
during the period remained relatively constant.
Provision for Taxes
The Company's effective tax rate in fiscal year 1999 was 21% versus
30% and 37% in fiscal years 1998 and 1997, respectively. This fiscal year,
the Company benefited from the income generated by the Chinese joint
venture, which, for most of the year, was not subject to tax. The Company
also benefited from an increase in foreign sales, which income is subject to
a lower rate of tax.
Liquidity and Capital Resources
In fiscal year 1999, the Company had net income of $3.0 million, as
well as depreciation and amortization of $2.9 million and other non cash
charges of $1.0 million, thus adding $6.9 million to cash flow. Cash flow
was reduced by $1.9 million relating to increased working capital, resulting
in a positive cash flow from operations of $5 million. These monies,
together with $5.2 million from maturing investments and available cash from
the beginning of the year, were used to purchase approximately $13 million
in property and equipment and to pay for an acquisition costing
approximately $2.6 million.
The Company has a $10,000,000 unsecured revolving line of credit. As
of June 30, 1999, $600,000 was borrowed against this line.
The Company believes that its cash on hand, its anticipated cash flow
from operations, and the amount available under its revolving credit
facility, should be sufficient to meet its foreseeable needs.
The Company has a deferred compensation obligation that is owed to a
key executive of the Board of Directors. Under the current arrangement,
monthly payments were to have begun in June 1999, or the first month after
the termination of employment, whichever occurs first, and continues for no
fewer than 60 months or, at the election of the employee prior to his
termination of employment, for up to 120 months. Subsequent to year end, the
executive has elected to have the monies distributed over 120 months, and
the disbursements have been appropriately made.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 130 was adopted by the
Company during the first quarter of fiscal year 1999 and SFAS NO. 131 was
adopted by the Company during the fourth quarter of fiscal year 1999. These
standards will not have a material effect on its consolidated financial
position and results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No.
133 will be adopted by the Company during fiscal year 2001. The company has
not completed an evaluation of the effects of adopting SFAS NO. 133 on its
consolidated financial position, results of operations and financial
statement disclosures.
Year 2000 Disclosure Statement
The Year 2000 will affect not only the Company's internal computer
systems, but also those external systems with which the Company exchanges
any date related information, its customers, suppliers, banks, insurance
companies, stockholders, etc. In order to properly assess the extent this
problem may have on its operations, the Company has and is continuing to
survey its key suppliers, service providers, and trading partners as to
their level of preparedness and the effect it will have on the Company's
operations.
The Company is confident that its enterprise system will be fully Year
2000 compliant in the first quarter of fiscal year 2000. Quite apart from
the Year 2000 problem, the Company has replaced its legacy computer system
with a client server system for which both the hardware and software has
been certified as Year 2000 compliant. The total external cost of this
project is approximately $850,000, of which $700,000 has been spent through
June 30, 1999.
The Company has completed an inventory of all its mission critical
manufacturing systems in order to determine any Year 2000 issues. All
identified issues have been remediated and as a result the Company does not
believe that any issues exist which will prevent these systems from
operating as expected after January 1, 2000. The testing necessary to
validate being Year 2000 ready is scheduled to be completed by October 1999.
The Year 2000 issue does present some risk that the Company's
operation may suffer disruption as a result of either a computer malfunction
or a corruption of date sensitive data. If in the event this does occur, the
Company believes that it will most likely be due to factors external to the
Company, and contingency plans have been prepared to deal with any such
occurrence. These include provisions for extra raw materials above that
needed for normal operations, staffing the plant with critical personnel on
January 1st, scheduling the New Year's holiday to provide extra time for
recovery in the event it is needed, and duplication of production capability
at its various facilities. These contingency plans apply to all Company
facilities as appropriate. Because of the Company's internal Year 2000
program, the Company does not believe there is a significant risk of
disruption of operations due to malfunction of its internal systems or
equipment.
CERTAIN FACTORS THAT MAY AFFECT
FUTURE OPERATING RESULTS
Fluctuations in Operating Results; Variability of Orders. The
Company's operating results have historically been subject to fluctuations,
and the Company expects that they will continue to fluctuate due to a
variety of factors, including the timing and volume of orders from, and
shipments to, customers, the timing of introductions of and market
acceptance of new products and general economic trends. Typically, in the
flexible interconnect industry, a substantial portion of sales in a given
quarter depends on obtaining orders for products to be manufactured and
shipped in the same quarter in which those orders are received. Although the
Company monitors its customers' needs, it often has limited knowledge of the
magnitude or timing of future orders. As a result, the timing of revenues
may be affected by the need to ramp up to or down from volume production in
response to fluctuations in customer demand, the introduction of replacement
products or the balancing of inventory. A significant decrease in the
number, magnitude or timing of orders in any given quarter could have a
material adverse effect on the Company's business, financial condition and
operating results. Because it is difficult for the Company to readily reduce
spending on certain operating expenses, such as fixed manufacturing costs,
development costs and ongoing customer service, a reduction in sales could
have a material adverse effect on near-term profit margins. Results of
operations in any given period are therefore not necessarily indicative of
the results to be expected for any future period. Due to all of the
foregoing factors, it is possible that in some future quarter the Company's
operating results may be below the expectations of public market analysts
and investors.
Expansion of Manufacturing. The Company believes its long-term
competitive position depends in part on its ability to increase its
manufacturing capacity. The Company's business, financial condition and
operating results could be materially and adversely affected if the Company
is not able to obtain sufficient manufacturing capacity to meet increases in
demand for its products. The Company intends in the future to expand its
manufacturing capacity. The failure of the Company to complete the
expansion on schedule and within budget could have a material adverse effect
on its business, financial condition and operating results. In addition, the
Company is in the process of implementing new operations control and
accounting information systems, which may temporarily impact the Company's
operations.
Market and Customer Concentration. Applications for flexible
interconnects include automotive electronics, military/aerospace products,
computers and computer peripherals, telecommunications subscriber and
infrastructure equipment, as well as circuits and cables for medical and
industrial applications. Although the Company markets products for each of
these applications in order to avoid a dependency on any one sector, a
significant downturn in any of these market sectors could have a material
adverse effect on the Company's business, financial condition and operating
results. Historically, the Company has sold a substantial portion of its
flexible interconnects to a limited number of customers. In fiscal years
1997, 1998, and 1999, respectively, sales to Motorola accounted for
approximately 20%, 23% and 15%, respectively, of the Company's total
revenues and the Company's top 20 customers accounted for approximately 69%,
66% and 58% of the Company's total revenues, respectively. The Company
expects that a limited number of customers will continue to account for a
high percentage of its total revenues in the foreseeable future. The loss of
a significant customer or a substantial reduction in orders by any
significant customer could reduce the Company's cash flow and have a
material adverse effect on the Company's business, financial condition and
operating results.
Current and Future Capital Needs. The development and manufacture of
flexible interconnects is highly capital intensive. In order to remain
competitive, the Company must continue to make significant expenditures for
capital equipment, expansion of operations and research and development. The
Company expects that substantial capital will be required to expand its
manufacturing capacity and fund working capital for anticipated growth. To
the extent the Company's financial resources are insufficient to fund these
activities, the Company will need to raise additional funds either through
borrowings or further equity financings. There can be no assurance that such
additional capital will be available on reasonable terms or at all. The
inability of the Company to obtain adequate additional financing on
reasonable terms when needed would have a material adverse effect on the
Company's business, financial condition and operating results. Furthermore,
the Company's credit facility contains various financial covenants
predicated on the Company's present and future financial condition. In the
event the Company is no longer able to meet the covenants contained in the
credit facility, it may be required to repay the debt incurred thereunder.
Foreign Operations. The Company is currently expanding its operations
globally. The Company owns a 50.1% equity interest in a joint venture in
China. Manufacturing and sales operations outside the United States are
accompanied by a number of risks inherent in international operations,
including imposition of governmental controls, compulsory licensure
requirements, compliance with a wide variety of foreign and United States
export laws, currency fluctuations, unexpected changes in trade restrictions
, tariffs and barriers, political and economic instability, longer payment
cycles typically associated with foreign sales, difficulties in
administering business overseas, labor union issues and potentially adverse
tax consequences. Although the Company's current products are designed to
meet the regulatory standards of certain foreign countries, any inability to
meet foreign regulatory approvals on a timely basis could have an adverse
effect on the Company's business, financial condition and operating results.
Competition. The Company's business is highly competitive. The
flexible interconnect industry is differentiated by customers, markets and
geography, with each niche having its own combination of complex packaging
and interconnect requirements. The Company experiences competition worldwide
in the flexible interconnect market from a number of foreign and domestic
providers as well as from alternative technologies such as rigid printed
circuits. Many of the Company's competitors are larger and have greater
financial resources than the Company. There can be no assurance that
existing or future competitors will not be able to duplicate the Company's
strategies or that the Company will continue to be able to compete
successfully.
Limited Sources of Supply. The Company purchases raw materials,
process chemicals and various components from multiple outside sources. In
fiscal year 1999, the Company's largest supplier of raw materials was
Dupont, from which it purchased in excess of 40% of its materials and
supplies. Any unanticipated disruption in shipments from Dupont would have a
material adverse effect on the Company's business, financial condition and
operating results. Although there are alternative suppliers for raw
materials, process chemicals and various components that the Company
currently purchases from its suppliers, because of the Company's limited
inventory of raw materials and tight manufacturing cycles, any unanticipated
interruption of supply could have a short-term material adverse effect on
the Company's business, financial condition and operation results.
Intellectual Property. The Company relies on a combination of patent
and trade secret laws and non-disclosure and other contractual agreements to
protect its proprietary rights. There can be no assurance that the Company's
efforts to protect its intellectual property will be effective in preventing
misappropriation or that others may not independently develop similar
technology. In addition, litigation may be necessary to protect the
Company's proprietary rights or to defend against claims of infringement.
Although no claims have been asserted against the Company for infringement
of the proprietary rights of others, there can be no assurance that third
parties will not assert such claims in the future. If any infringement claim
is asserted, the Company may be required to obtain a license of such rights.
There can be no assurance that any such license would be available on
reasonable terms, if at all. Litigation with respect to patents and other
intellectual property matters could result in substantial costs and
diversion of management and other resources and could have a material
adverse effect on the Company's business, financial and operating results.
Technological Change. The market for the Company's products and
services is characterized by rapidly changing technology and continuing
process development. The future success of the Company's business will
depend in large part upon its ability to maintain and enhance its
technological capabilities, develop and market products and services that
meet changing customer needs and successfully anticipate or respond to
technological changes on a cost-effective and timely basis. In addition, the
flexible interconnect industry could in the future encounter competition
from new technologies that render interconnect technology less competitive
or obsolete. There can be no assurance that the Company will effectively
respond to the technological requirements of the changing market. Moreover,
there can be no assurance that the materials and processes that the Company
is currently developing will result in commercially viable technological
processes or that there will be commercial applications for these
technologies. To the extent that the Company determines that new
technologies and equipment are required to remain competitive, the
development, acquisition and subsequent implementation of such technologies
and equipment are likely to continue to require significant capital
investment. The Company's failure to keep pace with technological change
could have a material adverse effect on its business, financial condition
and operating results.
Dependence on Key Personnel. The Company is dependent upon a number of
its key management personnel. In addition, the future success of the Company
depends on its continuing ability to attract and retain highly-qualified
technical and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful
in attracting and retaining such personnel. The loss of service of one or
more key individuals, or the inability to attract additional qualified
personnel, could have a material adverse effect on the Company's business,
financial condition and operating results. The Company maintains a key
person life insurance policy in the amount of $1.0 million on both Herbert
W. Pollack and Peter J. Murphy.
Environmental Regulations. The Company is subject to a variety of
environmental laws relating to the storage, discharge, handling, emission,
generation, manufacture, use and disposal of chemicals, solid and hazardous
waste and other toxic and hazardous materials used to manufacture, or
resulting from the process of manufacturing, the Company's products. The
Company cannot predict the nature, scope or effect of future legislation or
regulatory requirements to which its operations might be subject or the
manner in which existing or future laws or regulations will be administered
or interpreted, including whether they will be applied in the future to
materials, product or activities to which they have not been applied
previously. Complying with new or more stringent laws or regulations, or to
more vigorous enforcement of the current or future policies of regulatory
agencies, could require substantial expenditures by the Company and could
have a material adverse effect on its business, financial condition and
operating results. Environmental laws and regulations require the Company to
maintain and comply with a number of permits, authorizations and approvals
and to maintain and update training programs and safety data regarding
materials used in its processes. Violations of those requirements could
result in financial penalties and other enforcement actions, and could
require the Company to halt one or more portions of its operations until a
violation is cured. Although the Company works to operate in compliance with
these environmental laws, there can be no assurance that the Company will
succeed in that effort at all times. The combined costs of curing incidents
of non-compliance, resolving enforcement actions that might be initiated by
government authorities or satisfying business requirements following any
period affected by the need to take such actions could have a material
adverse effect on the Company's business, financial condition and operating
results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company is exposed to market risks which include changes in U.S.
and foreign interest rates and fluctuations in exchange rates.
The Company maintains a portion of its cash and cash equivalents in
financial instruments with purchased maturities of three months or less.
These financial instruments are subject to interest rate risk and will
decline in value if interest rates decrease. Due to the short duration of
these financial instruments, an immediate decrease in interest rates would
not have a material adverse effect upon the Company's financial position.
The Company also has a revolving credit agreement which bears interest
at the bank's corporate base rate which is also affected by changes in
market interest rates. The Company owes $600,000 as of June 30, 1999, and
has the option to repay borrowings at anytime without penalty and therefore
believes that the market risk is not material.
The remainder of the Company's long-term debt bears interest at fixed
rates and are therefore not subject to market risk.
The Company has a subsidiary located in Shanghai, China. Sales are
typically denominated in the local currency (functional currency), thereby
creating exposure to changes in exchange rates. The changes in the
Chinese/U.S. exchange rate may positively or negatively impact the Company's
sales, gross margins and retained earnings. Based upon the current volume of
transactions in China and the stable nature of the exchange rate between
China and the U.S., the Company does not believe the market risk is
material. The Company does not engage in regular hedging activities to
minimize the impact of foreign currency fluctuations. Net assets (as of
March 31, 1999) in China totaled about $8.3 million. The Company believes
that a 10% change in rates would not have a significant impact upon the
Company's financial position, results of operation, or upon its current
outstanding debt of $360,000.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See the table of contents to the Consolidated Financial Statements
included in this report; also see Note 12 to Consolidated Financial
Statements.
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 (the "Company") as of June 30, 1999 and
1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended June
30, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June
30, 1999, in conformity with generally accepted accounting principles.
August 24, 1999
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
---------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,175,889 $ 5,824,233
Short-term investments 1,606,953 6,789,469
Accounts receivable - less
allowance for doubtful
accounts of $255,000 in 1999
and $252,000 in 1998 14,053,046 11,145,750
Inventories 10,943,457 9,346,657
Refundable income taxes 129,790 323,626
Deferred income taxes 559,084 372,725
Other current assets 1,585,435 1,706,367
----------- -----------
Total current assets 30,053,654 35,508,827
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 468,864 468,864
Buildings 7,796,488 7,724,022
Machinery and equipment 30,756,650 27,200,755
Leasehold improvements and other 2,929,101 2,270,658
Construction in progress 13,844,489 4,390,805
----------- -----------
Total 55,795,592 42,055,104
Less accumulated depreciation
and amortization (23,915,018) (22,031,645)
----------- -----------
Property, plant and
equipment - net 31,880,574 20,023,459
----------- -----------
OTHER ASSETS 1,586,383 649,198
----------- -----------
TOTAL $63,520,611 $56,181,484
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 619,206 $ 121,158
Bank loan - 310,577
Accounts payable 8,080,085 6,437,169
Accrued liabilities 2,592,655 2,353,800
----------- -----------
Total current liabilities 11,291,946 9,222,704
----------- -----------
LONG-TERM DEBT 1,631,782 1,165,751
----------- -----------
OTHER NONCURRENT LIABILITIES 2,611,942 2,247,444
----------- -----------
MINORITY INTEREST IN PARLEX SHANGHAI 2,651,711 1,954,472
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par
value - authorized, 1,000,000
shares; none issued
Common stock, $.10 par
value - authorized, 10,000,000
shares; issued, 4,991,149 and
4,850,649
shares in 1999 and 1998,
respectively 499,115 485,065
Additional paid-in capital 24,568,566 23,872,745
Retained earnings 21,288,296 18,268,743
Accumulated other comprehensive
income 14,878 2,185
Less treasury stock, at cost -
210,000 shares in 1999 and 1998 (1,037,625) (1,037,625)
----------- -----------
Total stockholders' equity 45,333,230 41,591,113
----------- -----------
</TABLE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
----------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES:
Product sales $66,372,800 $60,048,336 $54,977,143
License fees and royalty income 674,483 226,835 109,710
----------- ----------- -----------
Total revenues 67,047,283 60,275,171 55,086,853
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 52,784,488 47,304,136 44,136,738
Selling, general and administrative expenses 9,715,341 8,271,704 7,288,544
----------- ----------- -----------
Total costs and expenses 62,499,829 55,575,840 51,425,282
----------- ----------- -----------
OPERATING INCOME 4,547,454 4,699,331 3,661,571
OTHER INCOME, Net 359,748 683,776 155,604
INTEREST EXPENSE (226,378) (253,509) (436,008)
----------- ----------- -----------
INCOME FROM OPERATIONS BEFORE
INCOME TAXES 4,680,824 5,129,598 3,381,167
PROVISION FOR INCOME TAXES (964,032) (1,539,514) (1,249,202)
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 3,716,792 3,590,084 2,131,965
MINORITY INTEREST (697,239) (433,110) (11,509)
----------- ----------- -----------
NET INCOME $ 3,019,553 $ 3,156,974 $ 2,120,456
=========== =========== ===========
BASIC INCOME PER SHARE $ .65 $ .73 $ .59
=========== =========== ===========
DILUTED INCOME PER SHARE $ .63 $ .71 $ .57
=========== =========== ===========
</TABLE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
-----------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other Comprehensive
Common Stock Paid-in Retained Treasury Comprehensive Income
Shares Amount Capital Earnings Stock Income (Loss)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996 2,582,659 $258,266 $ 3,243,491 $12,991,313 $(1,037,625) $ (162)
Comprehensive income:
Net income - - - 2,120,456 - - $2,120,456
Foreign currency
translation adjustment - - - - - (4,591) (4,591)
----------
Comprehensive income $2,115,865
==========
Stock dividend 1,186,311 118,631 (118,631) - - -
Tax benefit arising from
the exercise of stock
options - - 114,309 - - -
Exercise of stock options 29,780 2,978 95,255 - - -
--------- ------- ----------- ----------- ----------- -------
BALANCE, JUNE 30, 1997 3,798,750 379,875 3,334,424 15,111,769 (1,037,625) (4,753)
Comprehensive income:
Net income - - - 3,156,974 - - $3,156,974
----------
Other comprehensive income:
Foreign currency
translation adjustment - - - - - - (3,254)
----------
Unrealized gain on short-term
investments - - - - - - 10,192
----------
Other comprehensive income - - - - - 6,938 6,938
----------
Comprehensive income $3,163,912
==========
Tax benefit arising from
the exercise of stock options - - 97,702 - - -
Stock offering, net of
expenses 1,000,000 100,000 20,281,799 - - -
Exercise of stock options 51,899 5,190 158,820 - - -
--------- ------- ----------- ----------- ----------- -------
BALANCE, JUNE 30, 1998 4,850,649 485,065 23,872,745 18,268,743 (1,037,625) 2,185
Comprehensive income:
Net income - - - 3,019,553 - - $3,019,553
----------
Other comprehensive income:
Foreign currency
translation adjusment - - - - - - 20,999
Unrealized gain on short-term
investments - - - - - - (8,306)
----------
Other comprehensive income 12,693 12,693
----------
Comprehensive income $3,032,246
==========
Exercise of stock options 140,500 14,050 604,853 - - -
Tax benefit arising from
the exercise of stock options - - 90,968 - - -
--------- ------- ----------- ----------- ----------- -------
BALANCE, JUNE 30, 1999 4,991,149 $499,115 $24,568,566 $21,288,296 $(1,037,625) $14,878
========= ======== =========== =========== =========== =======
</TABLE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
----------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,019,553 $ 3,156,974 $ 2,120,456
------------ ------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant and
equipment and other assets 2,943,092 2,426,831 1,899,325
Gain on sale of equipment - (68,573) (129,269)
Amortization on investments available for sale - 49,761 -
Gain on sale of investments available for sale (8,306) (8,133) -
Deferred income taxes 93,580 98,640 86,375
Deferred compensation 84,559 83,188 74,999
Tax benefit arising from the exercise of stock options 90,968 97,702 114,309
Minority interest 697,239 433,110 11,509
Changes in current assets and liabilities:
Accounts receivable - net (2,529,600) (2,116,362) (1,576,055)
Inventories (1,612,413) (2,084,180) 490,947
Refundable income taxes 193,836 (323,626) 17,794
Other current assets 120,931 (855,411) (151,570)
Accounts payable and accrued liabilities 1,881,732 1,593,457 220,520
Income taxes payable - (244,404) 244,404
------------ ------------ -----------
Total adjustments 1,955,618 (918,000) 1,303,288
------------ ------------ -----------
Net cash provided by operating activities 4,975,171 2,238,974 3,423,744
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Parlex-Dynaflex subsidiary (2,620,000) - -
Maturities (purchases) of investments available for sale, net 5,182,517 (6,820,905) -
Additions to property, plant and equipment (12,834,228) (8,462,521) (2,619,074)
Decrease (increase) in other assets 84,833 (86,841) (206,449)
Proceeds from sale of equipment - 77,800 164,220
------------ ------------ -----------
Net cash used for investing activities (10,186,878) (15,292,467) (2,661,303)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common shares - net - 20,381,799 -
Proceeds from bank loan - - 99,332
Payment of bank loan (310,577) (189,423) -
Issuance of long-term debt - 1,000,000 -
Borrowings (payments) under revolving-credit agreement 600,000 (3,000,000) (650,000)
Payments of other long-term debt (366,001) (72,020) (100,000)
Exercise of stock options 618,903 164,010 98,233
------------ ------------ -----------
Net cash provided by (used for) financing activities 542,325 18,284,366 (552,435)
------------ ------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 21,038 (3,254) -
------------ ------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,648,344) 5,227,619 210,006
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,824,233 596,614 386,608
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,175,889 $ 5,824,233 $ 596,614
------------ ------------ -----------
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS:
Property and equipment contributed as capital by
joint venture partner $ - $ - $ 277,000
============ ============ ===========
Property, plant and equipment acquired in exchange
for accounts receivable and inventory $ 344,000 $ - $ -
============ ============ ===========
Property and equipment purchased under capital
lease and long-term debt $ 730,080 $ 358,930 $ -
============ ============ ===========
Liabilities assumed in Parlex-Dynaflex acquisition $ 140,000 $ - $ -
============ ============ ===========
</TABLE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Parlex Corporation ("Parlex" or the "Company") is a world leader
in the design and manufacture of flexible interconnect products. Parlex
produces custom flexible circuits and laminated cables utilizing
proprietary processes and patented technologies which are designed to
satisfy the unique requirements of a wide range of customers. Parlex
provides its products and engineering services to a variety of markets
including automotive, computer, military-aerospace, telecommunications,
industrial control, medical and consumer.
Basis of Consolidation - The consolidated financial statements include the
accounts of Parlex, 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. This entity is consolidated on a three-month time lag.
Intercompany transactions have been
eliminated.
Foreign Currency Translation - The functional currency of foreign
operations is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet
date. Results of operations are translated at average exchange rates
prevailing during each period.
Cash and Cash Equivalents - Cash and cash equivalents include short-term
highly liquid investments purchased with remaining maturities of three
months or less.
Short-Term Investments - The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." At June 30, 1999 and 1998, the Company had
categorized all securities as "available-for-sale," since the Company may
liquidate these investments currently. In calculating realized gains and
losses, cost is determined using specific identification. SFAS No. 115
requires that unrealized gains and losses on available-for-sale securities
be excluded from earnings and reported in a separate component of
stockholders' equity.
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:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials $ 3,746,245 $3,413,657
Work in process 7,197,212 5,933,000
----------- ----------
Total $10,943,457 $9,346,657
=========== ==========
</TABLE>
Property, Plant and Equipment - Property, plant and equipment are stated at
cost and are depreciated using the straight-line method over their
estimated useful lives: buildings - 40 years; machinery and equipment - 5-
15 years; and leasehold improvements over the terms of the lease.
Revenue Recognition - Product sales are recognized upon shipment. License
fees and royalty income are recognized when earned.
Research and Development - Research and development costs are expensed as
incurred and amounted to $3,760,000, $3,123,000 and $2,717,000 for the
years ended June 30, 1999, 1998 and 1997, respectively. These amounts are
reflected in the Company's cost of products sold.
Income Taxes -The Company accounts for income taxes in accordance with 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.
Income Per Share - Basic income per share is calculated on the weighted-
average number of common shares outstanding during the year. Diluted
income per share is calculated on the weighted-average number of common
shares and common share equivalents resulting from options outstanding
except where such items would be antidilutive.
A reconciliation between shares used for computation of basic and dilutive
income per share is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Shares of basic computation 4,661,790 4,295,706 3,569,052
Effect of dilutive stock options 109,084 169,821 145,987
--------- --------- ---------
Shares for dilutive computation 4,770,874 4,465,527 3,715,039
========= ========= =========
</TABLE>
For the years ended June 30, 1999 and 1998 potential common shares are not
included in the per-share calculations for those shares that are
antidilutive. Antidilutive potential shares not included in per-share
calculations for 1999 and 1998 were approximately 87,250 and 73,542,
respectively. There were no antidilutive shares for the year ended June
30, 1997.
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 property, plant,
and equipment, goodwill, 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
receivable, 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 because of the relative consistency
of interest rates since its issuance.
Goodwill - Goodwill associated with the allocation of the purchase price
over the fair value of the assets received and liabilities assumed in
connection with the business acquisition is being amortized on a straight-
line basis over its expected life of 10 years. The Company evaluates the
carrying value of goodwill based upon current and anticipated undiscounted
cash flows attributable to discrete operations, and recognizes an
impairment when it is probable that such estimated future net income and/or
cash flows will be less than the carrying value of goodwill. Measurement
of the amount of impairment, if any, is based upon the difference between
carrying value and estimated fair value.
Reclassifications - Certain prior period amounts have been reclassified to
conform to the current year presentation.
Stock-Based Compensation -The Company accounts for stock-based compensation
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
using the intrinsic value method as permitted by SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 encourages, but does not
require, the recognition of compensation expense for the fair value of
stock options and other equity instruments issued to employees and
nonemployee directors. The difference between accounting for stock-based
compensation under APB Opinion No. 25 and SFAS No. 123 is disclosed in Note
8.
Recently Adopted Accounting Pronouncements - During 1999, the Company
adopted the disclosure provisions of SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
The following components and changes in balances of accumulated other
comprehensive income are as follows:
<TABLE>
<CAPTION>
Foreign Accumulated
Currency Unrealized Other
Translation Gains on Comprehensive
Adjustments Investments Income
<S> <C> <C> <C>
Balance, July 1, 1996 $ (162) $ - $ (162)
Change in balance (4,591) - (4,591)
------- ------- -------
Balance, June 30, 1997 (4,753) - (4,753)
Change in balance (3,254) 10,192 6,938
------- ------- -------
Balance, June 30, 1998 (8,007) 10,192 2,185
Change in balance 20,999 (8,306) 12,693
------- ------- -------
Balance, June 30, 1999 $12,992 $ 1,886 $14,878
======= ======= =======
</TABLE>
A summary of the changes in unrealized gains in short-term investments is
as follows for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Unrealized gains on short-term investments:
Unrealized holding gains arising during
the year $ - $ 18,325 $ -
Less reclassification adjustment for gains realized
in net income (8,306) (8,133) -
-------- --------- --------
Net unrealized gains on short-term investments $ (8,306) $ 10,192 $ -
======== ========= ========
</TABLE>
Recently Adopted Accounting Pronouncements (Continued) - SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company organizes itself as one segment reporting to the
chief operating decision-maker. Revenue consists of product sales, license
fees and royalty income.
Future Adoption of Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133 will be adopted by the Company during fiscal year
2001. The Company has not completed an evaluation of the effects of
adopting SFAS No. 133 on its consolidated financial position, results of
operations and financial statement disclosures.
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.
CASH AND SHORT-TERM INVESTMENTS
A summary of the Company's investments available for sale by major security
type at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Security Type Cost Gains Losses Value
<S> <C> <C> <C> <C>
Corporate debt securities $1,605,067 $1,886 $ - $1,606,953
========== ====== ========= ==========
</TABLE>
All corporate debt securities at June 30, 1999 have contractual maturities
of less than one year.
A summary of the Company's investments available for sale by major security
type at June 30, 1998 was as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Security Type Cost Gains Losses Value
<S> <C> <C> <C> <C>
Corporate debt securities $12,150,064 $23,588 $(12,892) $12,160,760
U.S. Government obligations 500,034 - (504) 499,530
----------- ------- -------- -----------
$12,650,098 $23,588 $(13,396) $12,660,290
=========== ======= ======== ===========
</TABLE>
The fair value of debt securities at June 30, 1998, by contractual
maturity, was as follows:
<TABLE>
<S> <C>
Due in one year or less (including approximately $ 5,800,000
classified as cash equivalents) $10,943,337
Due in one to five years 1,716,953
-----------
$12,660,290
===========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Payroll and related expenses $1,828,682 $1,489,205
Accrued health insurance 182,479 202,353
Other 581,494 662,242
---------- ----------
Total $2,592,655 $2,353,800
========== ==========
</TABLE>
5. INDEBTEDNESS
The Company's China joint venture had a short-term bank loan bearing
interest at 1.25% over the Singapore Interbank Offer Rate ("SIBOR").
During 1999, this loan was paid in full.
Long-term debt at June 30 consisted of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revolving credit agreement $ 600,000 $ -
Capital lease obligations 930,988 286,909
China joint venture bank note 720,000 1,000,000
---------- ----------
Total long-term debt 2,250,988 1,286,909
Less current portion 619,206 121,158
---------- ----------
Long-term debt - net $1,631,782 $1,165,751
========== ==========
</TABLE>
On November 12, 1997, the Company renegotiated its unsecured Revolving
Credit Agreement (the "Agreement") (originally dated June 22, 1994) making
available up to a total of $10,000,000 through September 30, 2000. On
October 1, 2000, the Agreement converts to a term loan with principal and
interest payments due monthly over a sixty-month period to September 30,
2005. Borrowings under the Agreement are at the bank's corporate base rate
(7.75% at June 30, 1999), and carry an annual commitment fee of 1/4% on the
average daily unused portion of the bank's commitment. Interest is payable
monthly. At June 30, 1999, $600,000 was outstanding and the unused
commitment amounted to $9,400,000.
The Agreement has restrictive covenants related to tangible net worth,
current ratio, working capital, debt service ratio, and the ratio of total
liabilities to equity.
The Company's China joint venture bank note bears interest at 6.5% and is
payable in installments through 2001.
The maturities for long-term debt at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
<C> <C>
2000 $619,206
2001 709,845
2002 365,616
2003 286,321
2004 120,000
Thereafter 150,000
----------
$2,250,988
==========
</TABLE>
Interest paid during the years ended June 30, 1999, 1998 and 1997 was
approximately $236,000, $115,000 and, $394,000, respectively.
Approximately $1,065,000 and $335,000 of equipment is recorded under
capital leases at June 30, 1999 and 1998, respectively. Accumulated
amortization on the capital lease equipment approximated $118,000 and
$63,000 at June 30, 1999 and 1998, respectively.
6. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at June 30 consisted of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred income taxes (Note 7) $1,503,060 $1,223,121
Deferred compensation 1,108,882 1,024,323
---------- ----------
$2,611,942 $2,247,444
========== ==========
</TABLE>
The timing of deferred compensation payments cannot presently be
determined. Amounts, if any, which may be paid within one year are not
material.
7. INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
State $(132,271) $ (172,771) $ (157,115)
Federal (697,590) (1,268,103) (1,005,712)
Foreign (40,591) - -
Deferred (93,580) (98,640) (86,375)
--------- ----------- -----------
Total $(964,032) $(1,539,514) $(1,249,202)
========= =========== ===========
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory federal income tax rate 34 % 34 % 34 %
State income taxes, net of federal
tax benefit 1 2 3
Foreign income - not subject to taxation (9) (5) -
Foreign sales corporation (3) (1) (1)
Tax credits (1) (1) (1)
Other (1) 1 2
---- ---- ----
Effective income tax rate 21 % 30 % 37 %
==== ==== ====
</TABLE>
Income before income taxes consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Domestic $3,150,969 $4,169,556 $3,294,622
Foreign 1,529,855 960,042 86,545
---------- ---------- ----------
Total $4,680,824 $5,129,598 $3,381,167
========== ========== ==========
</TABLE>
The Company's China joint venture was exempt from income taxes for the two
years ended December 31, 1998. For the next three years, the China joint
venture is eligible for a 50% reduction in the statutory income tax rate of
15%. Accordingly, income tax of 7.5% was recorded for the three months
ended March 31, 1999, which, as disclosed in Note 1, is the fiscal year end
for the China joint venture.
Deferred income tax assets and liabilities at June 30 are attributable to
the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax liabilities:
Depreciation $1,919,950 $1,597,409
Prepaid expenses 29,394 29,918
---------- ----------
1,949,344 1,627,327
---------- ----------
Deferred tax assets:
Inventories 80,621 63,730
Allowance for doubtful accounts 76,849 63,341
Accruals 168,643 110,148
Self-insurance 72,054 79,836
Deferred compensation 443,227 409,404
Tax credit carryforwards 163,974 50,472
---------- ----------
1,005,368 776,931
---------- ----------
Net deferred tax liability $ 943,976 $ 850,396
========== ==========
</TABLE>
Deferred taxes have not been recorded on undistributed earnings of the
China joint venture (approximately $1,161,000) because such amounts are
considered permanently invested.
Income tax payments of approximately $605,000, $1,557,000 and $751,500 were
made in 1999, 1998 and 1997, respectively.
8. STOCKHOLDERS' EQUITY
The Board of Directors is authorized to establish one or more series of
preferred stock and to fix and determine the number and conditions of
preferred shares, including dividend rates, redemption and/or conversion
provisions, if any, preference and voting rights. At June 30, 1999, the
Board of Directors has not authorized any series of preferred stock.
In October 1997, the Company sold 1,000,000 shares of its common stock in
an underwritten public offering. Proceeds to the Company totaled $20.4
million, net of expenses associated with the offering. The proceeds are
being used to expand manufacturing facilities and purchase capital
equipment. A portion of the proceeds was also used to repay all the
outstanding indebtedness under the Company's Revolving Credit Agreement.
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.
During 1997, the Company established the 1996 Outside Directors' Stock
Option Plan (the "1996 Plan"). The 1996 Plan provides for the automatic
grant of 1,500 options annually to each member of the Board of Directors
who is not an employee of the Company. Discretionary grants of up to 2,250
options annually per director may also be made at the discretion of the
Board of Directors. All grants are made at the market value of the stock
on the date of the grant. There are 150,000 shares available for grant
under the 1996 Plan, of which 7,500 were granted during the year for a
total of 22,500 shares granted under the 1996 Plan at June 30, 1999.
At June 30, 1999, there were 243,133 shares reserved for future grants for
all of the above-mentioned plans.
The following is a summary of activity for all of the Company's stock
option plans:
<TABLE>
<CAPTION>
Weighted-
Average
Shares Exercise
Under Price Per Shares
Option Share Exercisable
<S> <C> <C> <C>
July 1, 1996 316,314 $ 4.56 148,778
Granted 10,500 6.67
Surrendered (6,000) 3.30
Exercised (29,780) 4.70
-------
June 30, 1997 291,034 4.77 191,085
Granted 95,750 18.50
Surrendered (1,315) 5.13
Exercised (51,899) 3.16
-------
June 30, 1998 333,570 8.96 199,375
Granted 52,500 12.79
Surrendered (1,940) 12.49
Exercised (140,500) 4.41
-------
June 30, 1999 243,630 $12.38 105,244
-------
</TABLE>
The following table sets forth information regarding options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
Weighted- Options Exercisable
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Exercise
Prices Outstanding Life (Years) Price Number Price
<S> <C> <C> <C> <C> <C>
$ 2.67 22,500 0.15 $ 2.67 22,500 $ 2.67
4.17 750 0.15 4.17 750 4.17
5.67 22,500 5.15 5.67 18,000 5.67
5.84 25,880 1.7 5.84 17,432 5.84
6.67 9,750 5.99 6.67 8,250 6.67
10.00 7,500 9.43 10.00 - -
12.35 15,000 6.64 12.35 9,000 12.35
13.25 45,000 4.16 13.25 - -
15.50 7,500 8.43 15.50 7,500 15.50
18.75 87,250 3.14 18.75 21,812 18.75
------ ------
$2.67-$18.75 243,630 $12.38 105,244 $ 9.11
======= =======
</TABLE>
As described in Note 1, the Company uses the intrinsic value method in
accordance with APB No. 25 to measure compensation expense associated with
grants of stock options to employees. Had the Company used the fair value
method to measure compensation, the Company's net income and diluted income
per share would have been $2,606,350 or $.55 per share in 1999, $2,944,591
or $.66 per share in 1998 and $2,029,904 or $.55 per share in 1997.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model. Key assumptions used to apply this
pricing model are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Average risk-free interest rate 5.5% 5.2% 6.2%
Expected life of option grants 2.5 years 2.5 years 2.5 years
Expected volatility of underlying
stock 69% 72% 143%
Expected dividend rate None None None
</TABLE>
The weighted-average fair value of options granted in 1999, 1998 and 1997
was $5.76, $8.34 and $5.71, respectively.
The option pricing model was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are
not tradable and have contractual lives of ten years. However, management
believes that the assumptions used and the model applied to value the
awards yield a reasonable estimate of the fair value of the grants made
under the circumstances.
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 amounts.
No contributions were made to the plan for the years ended June 30, 1999,
1998 and 1997.
The Company has a 401(k) Savings Plan (the "Plan") covering all employees
of the Company who 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. The Company contributed
$172,000 and $90,000 to the Plan for the years ended June 30, 1999 and
1998, respectively. No matching contributions were made to the Plan for
the year ended June 30, 1997.
10. COMMITMENTS AND CONTINGENCIES
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, 1999, 1998 and 1997
approximated $869,000, $742,000 and $576,000, respectively. Future
payments under noncancelable operating leases are:
<TABLE>
<S> <C>
2000 $725,000
2001 693,000
2002 387,000
2003 260,000
2004 260,000
</TABLE>
From time to time, the Company is subject to various legal proceedings and
claims, either asserted or unasserted, which arise in the ordinary course
of business. While the outcome of these claims cannot be predicted with
certainty, management is not aware of any current legal matters that will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
11. BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL OPERATIONS
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. The Company organizes itself as one segment reporting
to the chief operating decision-maker. Revenue consists of product sales,
license fees, and royalty income.
Sales to several divisions of one customer represented 15%, 23% and 20% of
total revenues in 1999, 1998 and 1997, respectively.
Summarized information relating to international operations is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Revenues:
United States $46,785,650 $48,521,029 $48,434,514
Canada 10,671,000 6,311,000 2,443,000
China 1,929,250 1,793,030 1,037,298
Other 7,661,383 3,650,112 3,172,041
----------- ----------- -----------
Total revenues from
unaffiliated customers $67,047,283 $60,275,171 $55,086,853
=========== =========== ===========
The principal product
group sales were:
Flexible circuits $49,625,163 $44,378,680 $41,492,550
Laminated cables 16,747,637 15,669,656 13,484,593
----------- ----------- -----------
Product sales $66,372,800 $60,048,336 $54,977,143
=========== =========== ===========
Long-lived assets:
United States $31,110,693 $18,843,351 $12,476,319
=========== =========== ===========
China $ 2,356,264 $ 1,829,306 $ 1,724,105
=========== =========== ===========
</TABLE>
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
1999 Quarters
Revenues $15,492 $15,354 $16,099 $20,102
Gross profit 2,441 2,834 3,987 5,001
Net income 199 540 944 1,337
Net income per share:
Basic .04 .12 .20 .28
Diluted .04 .11 .20 .28
1998 Quarters
Revenues $13,717 $14,184 $14,296 $18,078
Gross profit 3,178 2,869 3,027 3,897
Net income 728 587 823 1,019
Net income per share:
Basic .19 .14 .18 .22
Diluted .18 .13 .17 .21
</TABLE>
13. PURCHASE OF PARLEX-DYNAFLEX
On April 30, 1999, the Company established a wholly owned subsidiary and
purchased the assets of Dynaflex, a business which produces custom flexible
circuits. The acquisition has been accounted for as a purchase business
combination and the results of Parlex-Dynaflex are included in the
consolidated results of the Company since the purchase date, April 30,
1999. The cost of acquisition was $2,620,000, plus $140,000 of liabilities
assumed, and the purchase price has been allocated to acquired accounts
receivable, inventory, property, plant and equipment and accounts payable.
Approximately $1,200,000 has been recorded as goodwill which reflects the
excess of purchase price over the fair value of assets and liabilities
acquired. Goodwill is reported within other assets on the consolidated
balance sheets and is being amortized on a straight-line basis over ten
years. The results of operations of Dynaflex were not significant to the
Company in either 1999 or 1998. Accordingly, proforma information has not
been presented.
* * * * * *
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
- -------------------------------------------------------------------
This item is inapplicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The information required by the Item is incorporated by reference from
the information under the captions "Election of Directors", "Board of
Directors Meetings and Committees of the Board", "Executive Officers" and
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive proxy statement to be filed with the Commission within
120 days of June 30, 1999.
Item 11. Executive Compensation
- -------------------------------
The information required by the Item is incorporated by reference from
the information under the captions "Compensation of Executive Officers" and
"Board of Directors Meetings and Committees of the Board", in the Company's
definitive proxy statement to be filed with the Commission within 120 days
of June 30, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The information required by this Item is incorporated by reference
from the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy
statement to be filed with the Commission within 120 days of June 30, 1999.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
This Item is not applicable.
Part IV
Item 14. Exhibits, Financial (a) Documents filed as a part of this
Statement Schedules Form 10-K.
And Reports on 1. Financial Statements.
Form 8-K. ---------------------
The Financial Statements 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 herewith or, if not
filed, are incorporated by
reference from the filings noted
in parathenses.
(3)(A) Restarted Articles of Organization
as amended, (dated August 2, 1983);
(filed a Exhibits 3-A and 3-B to
the Company's Registration
Statement on Form S-1, file No.
2-85588, and incorporated herein by
reference).
(3)(B) Articles of Amendment to 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).
(3)(C) Bylaws; (filed as Exhibit 3-C to
the Company's Registration
Statement on Form S-1, file No.
2-85588, and incorporated herein by
reference).
(3)(D) Articles of Amendment to Restated
Articles of Organization, dated
October 21, 1997; (filed as Exhibit
3-D to Form 10-Q for the quarter
ended December 28, 1997).
(10)(A) 1985 Employees' 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)(B) 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)(C) 1989 Outside Directors' Stock
Option Plan*; (filed as Exhibit
10-Z to Form 10-K for the fiscal
year ended June 30, 1991).
(10)(D) 1989 Employees' Stock Option Plan*;
(filed as Exhibit 10-AA to Form
10-K for the fiscal year ended
June 30, 1991).
(10)(E) Chinese Joint Venture Contract,
Articles of Association, and
Agreement of Technology License
and Technical Service May 29,
1995; (filed as Exhibit 10-AH to
Form 10-K for the fiscal year ended
June 30, 1995). Confidential
treatment has been granted for
portions of this exhibit.
(10)(F) Manufacturing and Sales 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).
Confidential treatment has been
granted for portions of this
exhibit.
(10)(G) Employment Agreement between Parlex
Corporation and Peter J. Murphy
dated June 26, 1996*; (filed as
Exhibit 10-AM to Form 10-K for the
fiscal year ended June 30, 1996).
(10)(H) License Agreement between Parlex
Corporation and Polyclad Laminates,
Inc., effective June 1, 1996;
(filed as Exhibit 10-AN to Form
10-K for the fiscal year ended June
30, 1996). Confidential treatment
has been granted for portions of
this exhibit.
(10)(I) Agreement between Parlex
Corporation and Allied Signal
Laminate Systems, Inc., effective
May 5, 1995; (filed as Exhibit
10-AO to Form 10-K for the fiscal
year ended June 30, 1996).
Confidential treatment has been
granted for portions of this
exhibit.
(10)(J) License Agreement between Parlex
Corporation and Pucka Industrial
Co., Ltd., effective July 1, 1996;
(filed as Exhibit 10-AP to Form
10-K for the fiscal year ended June
30, 1996). Confidential treatment
has been granted for portions of
this exhibit.
(10)(K) Agreement of Lease between
PVP-Salem Associates, L.P. and
Parlex Corporation dated August 12,
1997; (filed as Exhibit 10-L to
Form 10-K for the fiscal year ended
June 30, 1997).
(10)(L) Employment Agreement between Parlex
Corporation and Herbert W. Pollack
dated July 1, 1997*; (filed as
Exhibit 10-M to Form 10-K for the
fiscal year ended June 30, 1997).
(10)(M) Patent Assignment Agreement between
Parlex Corporation and Polyonics,
Inc. dated June 16, 1997; (filed as
Exhibit 10-N to Form 10-K for the
fiscal year ended June 30, 1997).
(10)(N) 1996 Outside Directors' Stock
Option Plan*; (filed as Exhibit
10-O to Form 10-K for the fiscal
year ended June 30, 1997).
(10)(O) Shelter Service Agreement between
Parlex Corporation and Offshore
International Inc. dated March 6,
1998; (filed as Exhibit 10-O to
Form 10-K for the fiscal year ended
June 30, 1998).
(10)(P) Commercial Loan Agreement dated
November 12, 1997; (filed as
Exhibit 10-P to Form 10-K for the
fiscal year ended June 30, 1998).
(10)(Q) Amendment to agreement between
Parlex Corporation and Allied
Signal Laminate Systems, Inc.,
effective May 5, 1995; filed
herewith.
(10)(R) Employment Agreement between Parlex
Corporation and Peter J. Murphy,
dated September 1, 1999; filed
herewith.
(21) Subsidiaries of the Registrant;
filed herewith.Independent
(23) Auditors' Consent;Filed herewith.
(24) Powers of Attorney; filed herewith.
(27) Financial Data Schedule; filed
herewith.
- --------------------
* Denotes management contract or compensatory plan or arrangement.
(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, 1999.
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, on
September 28, 1999.
Parlex Corporation
By:* /s/ Herbert W. Pollack
---------------------------------
Herbert W. Pollack, Chairman
Pursuant to the requirements of the Securities Exchange 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.
Signature Title Date
--------- ----- ----
/s/ Herbert W. Pollack Chairman of the Board September 28, 1999
- ------------------------- (Principal Executive
Officer)
/s/ Steven M. Millstein Vice President of Finance September 28, 1999
- -------------------------- and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Peter J. Murphy Director and Chief September 28, 1999
- -------------------------- Executive Officer
/s/ Sheldon A. Buckler Director September 28, 1999
- --------------------------
/s/ Richard W. Hale Director September 28, 1999
- --------------------------
/s/ M. Joel Kosheff Director September 28, 1999
- --------------------------
/s/ Lester Pollack Director September 28, 1999
- --------------------------
/s/ Benjamin M. Rabinovici Director September 28, 1999
- --------------------------
/s/ Steven M. Millstein Attorney-in-Fact September 28, 1999
- --------------------------
As of the date of submission of this filing, no annual report or proxy
material with respect to the fiscal year ended June 30, 1999 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
<TABLE>
<CAPTION>
Exhibit Description Page
<S> <C>
10-O Shelter Plan Service Agreement between Parlex Corporation and
Offshore International, Inc. dated March 6, 1998.
10-P Commercial Loan Agreement dated November 12, 1997.
10-Q Amendment to Agreement between Parlex corporation and Allied Signal
Laminate Systems, Inc. effective May 5 1999.
10-R Employment Agreement between Parlex Corporation and Peter J. Murphy,
dated September 1, 1999.
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
AGREEMENT AMENTMENT
This is an Amendment effective May 5, 1999, to the Agreement dated May
5, 1995, between Parlex Corporation and AlliedSignal Laminate System Inc.
(hereinafter the "Agreement").
Section 3.3 of the Agreement is amended by deletion of the last
sentence thereof, such that the amended section 3.3 shall read as follows:
3.3 (Amended) In the event that Samsung or another licensee of
Parlex requires a second source or alternative supplier of Cap
Material for other than Permitted Products, Parlex shall have
the right to license such supplier at a royalty of at least ten
(10) percent.
Section 3.5 of the Agreement is amended by deletion of the last
sentence thereof, such that the amended section 3.5 shall read as follows:
3.5 (Amended) In the event that a Parlex customer requires a
supplier of Cap Material other than ASLS, Parlex shall have the
right to license such supplier at a royalty of at least ten (10)
percent.
Section 3.6 of the Agreement is amended to clarify its meaning such
that the amended section 3.6 shall read as follows:
3.6 (Amended) In the event a licensee, sublicensee, or customer
of either party shall require a second source or alternative
supplier of Cap Material other than ASLS, and an alternate
supplier of Cap Materials is licensed by either party under this
Agreement, that alternate supplier shall supply Cap Materials
for other than Permitted Products only to customers licensed by
Parlex but shall not supply Cap Material for other than
Permitted Products to others nor license others to supply Cap
Materials for other than Permitted Products.
Section 4.1 of the Agreement is amended to change ASLS' royalty rate
to 3%, such that the amended section 4.1 shall read as follows:
4.1 (Amended) ASLS shall pay to Parlex a royalty of 3% of the
Net Sales of Cap Materials sold by ASLS for use in Permitted
Products. Unless otherwise stipulated in a Purchase Order, no
royalties are payable on sales of Cap Materials by ASLS to
Parlex.
Section 8.1 of the Agreement is revised as set forth below to extend
the term to
May 5, 2004:
8.1 (Amended) This Agreement shall remain in force and effect
until May 5, 2004, and, after May 5, 2004, either party may
terminate on not less than ninety (90) days prior notice.
Section 10.10 of the Agreement is amended to allow assignment in
connection with the sale of a party's business, such that the amended
section 10.10 shall read as follows:
10.10 (Amended) This Agreement shall not be assignable by either
party without the prior written permission of the other party,
except that either party may assign this Agreement in connection
with the sale of all or substantially all of the assets
constituting its business to which this Agreement pertains,
except that ASLS may not assign to a current Parlex licensee
without Parlex's consent.
The Agreement shall remain in full force and effect on the terms as
set forth therein except for the foregoing amendments.
PARLEX CORPORATION ALLIEDSIGNAL LAMINATE
SYSTEMS INC.
By: */s/ Peter J. Murphy By: */s/ Richard J. Widden
Peter J. Murphy Richard J. Widden
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") made as of the 1st day of
September, 1999, by and between Parlex Corporation, a Massachusetts
corporation (the "Company"), and Peter J. Murphy of Bedford, New Hampshire
(the "Employee").
In consideration of the mutual promises herein contained, the Company
and the Employee hereby agree as follows:
1. Employment
----------
The Company hereby employs the Employee, and the Employee hereby
accepts employment by the Company to render such services in connection with
the business of the Company as the Company may from time to time request.
The term of the Employee's employment hereunder shall begin on September 1,
1999, and shall end on August 31, 2002.
2. Compensation
------------
2.1 In consideration of all services to be rendered by the Employee
during the term of this Agreement, the Company shall pay to the Employee
during the term of his employment hereunder compensation at the rate of ten
thousand and zero dollars ($10,000.00) twice a month, payable in accordance
with Company's current policy for senior management.
2.2 The amount of compensation provided in subsection 2.1 above may
be reviewed from time to time by the Compensation Committee of the Board of
Directors of the Company in its sole discretion.
2.3 If, during the term of the Agreement, a Change of Control (as
defined below) shall occur, then Employee shall have the option, beginning
six (6) months after the effective date of the Change of Control,
exercisable by him at any time during the remainder of the term of the
Agreement, upon giving written notice to the Company, to terminate this
Agreement. In the event the Employee elects to terminate the Agreement as
provided for herein, then Company shall pay to Employee, beginning 15 days
after receipt of written notice from Employee exercising his rights under
this provision, an amount, payable on a monthly basis, for a period of
twelve months from the date of termination, equal to one hundred percent
(100%) of the rate of compensation payable per month to Employee, at the
time of Employee's termination, pursuant to subsection 2.1 above, plus an
amount equal to the monthly COBRA payment for the health insurance plan the
Employee participates in, at the time of Employee's termination but shall
not be required to pay to Employee the compensation described in Section 7.3
below. Upon Employee's termination of this Agreement, he shall also be
entitled to exercise, to the extent they are then exercisable, any stock
options within a period of ninety (90) days following such date of
termination, but in no event later than the expiration date of any stock
option.
2.4 If, in the event of a Change of Control, the Company terminates
the Employee's employment hereunder, and said decision was made without
Cause, the Company shall pay to the Employee in a lump sum, an amount equal
to 24 months of the rate of compensation payable per month to Employee, at
the time of Employee's termination, pursuant to subsection 2.1 above plus an
amount equal to 24 months of the monthly COBRA payment for the health
insurance plan the Employee participates in, at the time of Employee's
termination. The Employee shall also receive, at the expense of the
Company, professional outplacement services, provided that the Company shall
only be required to bear up to Fifty Thousand Dollars ($50,000) for said
services. Additionally, all stock options granted to the Employee shall be
immediately and automatically accelerated and become fully vested and all
unexercised stock options shall be exercisable by the Employee during the
period ending ninety (90) days after the date of termination by the Company,
but in no event later than the expiration date of any stock option.
2.5 As used in this Agreement, the term "Change of Control" means
the happening of any of the following:
(i) the Company shall reorganize, merge or consolidate with any
corporation and the Company shall not be the "surviving
corporation" (as defined below); or
(ii) the Company shall sell or exchange all or substantially all of
its assets to a corporation which is not a wholly owned
subsidiary of the Company; or
(iii) any "person", as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Act") (other than
the Company or a subsidiary or any employee benefit plan
(including its trustee) of either the Company or a subsidiary)
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly of securities of the Company
representing 30 percent or more of the combined voting power of
the Company's then outstanding securities and the effect of
which (as determined by the Board of Directors) is to take over
control or participate in the affairs of the Company. For
purposes of this Section, the term "person" shall exclude all
persons who are then officers or directors of the Company, or
spouses, or spouses, blood relatives or stepchildren of such
officers or directors, and trusts for the benefit of any such
persons, and the estates of any such persons; or
(iv) during any period of two consecutive years, the individuals who,
at the beginning of such period, constituted the Board of
Directors of the Company cease, for any reason, to constitute at
least a majority thereof, unless the election or nomination for
election of each new director was approved by the vote of a
least a majority of the directors then still in office who were
directors at the beginning of the period.
As used herein, the Company shall be deemed to be the "surviving
corporation" following a reorganization, merger or consolidation if,
following such transaction, the persons who were the beneficial owners of
the Company's voting securities prior to the transaction beneficially own
securities having a majority of the aggregate voting power represented by
all outstanding securities of the Company or other entity resulting from
such reorganization, merger or consolidation.
3. Death Benefit
-------------
If the Employee dies during the term of employment hereunder, this
Agreement shall terminate and all obligations of Company to Employee shall
terminate except that Company agrees to pay to the Designated Beneficiary
(as hereinafter defined) on a monthly basis for a period of twenty-four (24)
months beginning with the first month after Employee's death, an amount
equal to seventy-five percent (75%) of the rate of compensation payable per
month to Employee, at the time of Employee's death, pursuant to subsection
2.1 above.
For purposes of this Agreement, the term "Designated Beneficiary"
shall be the person or persons designated in a writing filed by the Employee
with the Company or, upon the death of the Employee without having made such
a designation, the Employee's estate.
4. Fringe Benefits
---------------
In addition to the compensation provided for in section 2 above, while
this Agreement is in effect Employee shall be entitled to receive all fringe
benefits and perquisites customarily extended to officers and key employees
of the Company, including but not limited to, profit sharing, bonus, stock
option, health and life insurance.
5. Further Covenants
-----------------
5.1 The Employee agrees that all knowledge and information of a
secret or confidential nature with respect to the business of the Company
possessed or acquired by him will be held in confidence and will not, either
during or after his employment by the Company, be disclosed, published, or
made use of except when in the ordinary course of business the disclosure is
in the best interest of the Company or unless and until such knowledge and
information shall have ceased to be secret or confidential as evidenced by
general public knowledge.
5.2 The Employee agrees that all inventions, developments, patents,
and patent applications relating to the business of the Company made,
conceived, or obtained by him either alone or in conjunction with others
during the term of his employment by the Company shall be the sole property
of the Company. The Employee agrees to promptly disclose and assign to the
Company all such inventions, developments, patents, and patent applications,
and, at the request of the Company to promptly execute and deliver any
documents and take any other action which the Company deems necessary or
advisable in order to vest in it all rights to such inventions,
developments, patents, and patent applications.
5.3 The Employee agrees that at the termination of his employment by
the Company he will promptly deliver to the Company all technical data,
drawings, memoranda, customer lists, and other documents in his possession
or control which relate to the business of the Company.
5.4 The Employee agrees that so long as he is employed by the
Company hereunder, and for a period of twelve (12) months after he ceases
for any reason to be employed by the Company, he will not, directly or
indirectly, own, operate, manage or participate in the ownership, operation,
or management of, or be connected or employed in any way (whether as owner,
employee, officer, director, partner, shareholder, consultant, joint
venturer, investor, lender or in any other capacity) with, or engage, enter
into or participate in any business in competition with the business of the
Company, including, but not limited to, the business of the design,
manufacture, and sale of flexible circuits, laminated cable and related
products, operating units of flexible circuit competitors, laminated cable
competitors, material or service suppliers to competitors or customer owned
printed circuit facilities, anywhere in the United States; provided,
however, the Employee shall not be deemed to be in violation of this
subsection 5.4 solely by reason of his ownership of not more than two
percent (2%) of the equity of any corporation whose stock is regularly
traded on a national securities exchange or in the over-the-counter market.
5.5 The Employee agrees that so long as he is employed by the
Company hereunder, and for a period of twelve (12) months after he ceases
for any reason to be employed by the Company, he will not, directly or
indirectly, through one or more persons, offer employment to any employee of
the Company, assist in the hiring of any employee of the Company by any
other person, or encourage any employee of the Company to terminate his or
her employment with the Company.
5.6 The Employee agrees that so long as he is employed by the
Company hereunder, and for a period of twelve (12) months after he ceases
for any reason to be employed by Company, Employee shall not, directly or
indirectly, solicit, divert or take away, or attempt to divert or take away,
the business of any client, account or customer, or prospective client,
customer or account of Company or with whom Employee has had any contact as
a result of his employment by Company hereunder nor shall he divulge,
disclose or communicate the list of customers (present or potential) of the
Company's business to any person, firm, corporation, association or other
entity.
5.7 In consideration of and as an inducement to both parties to
enter into this Agreement, Employee and Company represent and agree that the
provisions of this covenant not to compete are proper and customary for
Employee's level of responsibility and there is mutual advantage to both
parties for execution of this Agreement. The Employee represents and agrees
that he has received fair and reasonable compensation for his employment and
further represents and warrants that although a disadvantage, his education,
training and experience are such that the provisions of this Covenant will
not prevent him from earning a living. The Company acknowledges that the
employment restriction could significantly damage the Employee's ability to
quickly retain suitable employment but will not prevent him from earning a
living. Employee agrees and acknowledges that Company will suffer
irreparable injury and damage and cannot be reasonably or adequately
compensated in monetary damages for the loss by the Company of its benefits
or rights under this Agreement as a result of a breach, default or violation
by the Employee of his obligations hereunder. Accordingly, the Company
shall be entitled, in addition to all other remedies which may be available
to it (including monetary damage), to injunctive and other available
equitable relief in any court of competent jurisdiction to prevent or
otherwise restrain or terminate any actual or threatened breach, default or
violation by the Employee of any provision hereunder or to enforce any such
provision. Any legal action or other proceeding for any purpose with
respect to this Section 5 shall be brought exclusively in any court of
competent jurisdiction sitting in the Commonwealth of Massachusetts, and the
parties hereto agree to submit to the jurisdiction of such court and to
comply with all requirements necessary to give such court exclusive
jurisdiction thereof. The losing party to any such proceeding shall pay all
costs (including reasonable attorney's fees) of all parties with respect to
the proceeding.
It is acknowledged further by Employee that the provisions of Section
5 are restrictive and intended to prevent Employee from competing with
Company, soliciting its customers or influencing Company's employees in any
way to discontinue their employment relationship with Company.
If at any time the provisions relating to the agreement of the
Employee not to compete with the Company or raid or entice away its
employees shall be deemed invalid or unenforceable by the laws of the
jurisdiction wherein it is to be enforced, by reason of being vague or
unreasonable as to duration or geographic scope or scope of activities
restricted, or for any other reason, the remaining provisions thereof shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein and the covenant shall be
considered divisible as to such invalid or unenforceable portion, and it
shall be construed to include only such restrictions and to such extent as
shall be deemed to be reasonable and enforceable by the court or other body
of such jurisdiction charged with interpreting and/or enforcing this
Agreement, and the Company, and Employee agree that the restrictions of such
covenant as so construed shall be valid and binding as though the invalid or
unenforceable portion had not been included herein.
5.8 For purposes of this Agreement, the words "so long as he is
employed by the Company hereunder" as used herein shall refer to the time
period when the Company shall have terminated Employee's employment without
cause pursuant to Section 6.3 below and Employee continues to be paid
compensation in accordance with the provisions of Section 2 above.
6. Employment Termination
----------------------
Section 1 of this Agreement notwithstanding, the employment of the
Employee by the Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
6.1 At the election of the Company, for cause, immediately upon
written notice by the Company to the Employee. For the purposes of this
Agreement the term "Cause" shall mean that the Employee shall have breached
or failed to perform his obligations and job responsibilities in accordance
with the terms and conditions of this Agreement or his job description,
shall demonstrate negligence, inefficiency, gross misconduct, dishonesty, or
insubordination in the execution of his duties as an employee of the
Company, or upon conviction of a felony or any crime involving moral
turpitude;
6.2 Upon the death or total disability of the Employee. As used in
this Agreement, the term "total disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of 90
consecutive days during any 360-day period, to perform the services
contemplated under this Agreement. A determination of total disability
shall be made by a physician satisfactory to both the Employee and the
Company, provided that if the Employee and the Company do not agree on a
physician, the Employee and the Company shall each select a physician and
these two together shall select a third physician, whose determination as to
disability shall be binding on all parties. Notwithstanding the foregoing,
the Company may, in its sole discretion, enlarge the time period definition
provided herein; or
6.3 Upon notice of termination given at the election of the Company
by action of its board of directors without Cause provided that the Employee
shall be entitled to receive the compensation described in Section 7.3
below.
7. Effect of Termination
---------------------
7.1 In the event the Employee's employment is terminated for Cause
pursuant to Section 6.1, the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 2 through
the last day of his actual employment by the Company.
7.2 If the Employee's employment is terminated because of disability
pursuant to Section 6.2 above, the Company shall pay to the Employee both
the compensation which would otherwise be payable to the Employee up to the
end of the month in which the termination of his employment because of
disability occurs and an amount, payable on a monthly basis, for a period of
six (6) months beginning with the first month after termination of his
employment because of disability occurs, equal to one hundred percent (100%)
of the rate of compensation payable per month to Employee, at the time of
Employee's termination, pursuant to subsection 2.1 above. Notwithstanding
the foregoing, Company's obligation to pay compensation to Employee for six
months after termination of his employment shall be reduced dollar for
dollar by the amount of any long term disability payments received by or
payable to Employee for this same time period.
7.3 If the Employee's employment is terminated without Cause
pursuant to Section 6.3, the Company shall pay to Employee both (i) the
compensation and benefits otherwise payable to him under Section 2 through
the last day of his actual employment by the Company and (ii) an amount,
payable on a monthly basis, through August 31, 2002 equal to one hundred
percent (100%) of the rate of compensation payable per month to Employee, at
the time of Employee's termination, pursuant to subsection 2.1 above.
Additionally, Company shall pay to Employee a monthly sum equivalent to
fifty percent (50%) of the rate of compensation payable per month to
Employee, at the time of Employee's termination, pursuant to subsection 2.1
above ("Termination Pay"), for each month or pro rata portion of each month,
from September 1, 2002 to the earlier to occur of the following dates: (a)
August 31, 2003; (b) Employee's reemployment; or (c) Company determining, in
its sole discretion, that it will waive compliance by the Employee with the
provisions of section 5.4 herein. Notwithstanding the foregoing, Company
shall not be obligated to pay Employee in total for a period of more than
one year from the date of Employee's termination without Cause pursuant to
Section 6.3.
7.4 In the event the Company decides after expiration of this
Agreement not to renew Employee's employment with the Company and said
decision was made without Cause, the Company shall pay to Employee a monthly
sum equivalent to fifty percent (50%) of the rate of compensation payable
per month to Employee, at the time of expiration of this Agreement, pursuant
to subsection 2.1 above ("Termination Pay"), for each month or pro rata
portion of each month, from September 1, 2002 to the earlier to occur of the
following dates: (a) August 31, 2003; (b) Employee's reemployment; or (c)
Company determining, in its sole discretion, that it will waive compliance
by the Employee with the provisions of section 5.4 herein.
8. Attachment; assignability
-------------------------
The right of the Employee or his Designated Beneficiary to any payment
hereunder shall not be subject in any manner to attachment or other legal
process for the debts of the Employee or such Designated Beneficiary, and
the right to any such payment shall not be subject to anticipation,
alienation, sale, transfer, assignment, or encumbrance.
9. Severability
------------
The provisions of this Agreement shall be severable, and the
invalidity of any portion of this Agreement shall not affect the validity of
any other portion hereof.
10. Successors
----------
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns, and the Employee, his executors,
administrators, and personal representatives. The parties further agree
that this Agreement contains the entire understanding of the parties and is
the complete and exclusive statement of the Agreement between them, and that
they understand and agree to be bound by its terms and conditions.
11. Governing Law
-------------
This Agreement shall be construed and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its behalf by an officer thereof thereunto duly authorized and
has caused its seal to be hereunto affixed and duly attested, and the
Employee has hereunto set his hand and seal, as of the day and year first
above written.
ATTEST: PARLEX CORPORATION:
By: /s/_____________________
Herbert W. Pollack,
Chairman of the Board
EMPLOYEE:
/s/_____________________
Peter J. Murphy
EXHIBIT 21
PARLEX CORPORATION
Listing of Subsidiaries
Parlex International Corp.
Incorporated - St. Thomas, U.S. Virgin Islands
Organized as a Foreign Sales Corporation
January 8, 1985
Parlex (Shanghai) Circuit Co., Ltd.
Incorporated in Shanghai, China
Date of Incorporation - May 29, 1995
Parlex Dynaflex Corporation
Date of Incorporation in California - April 22, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
Nos. 33-10250, 33-39648, 33-88470, 33-88472, 333-18869, 333-70561 of Parlex
Corporation on Form S-8 of our report dated August 24, 1999, appearing in
this Annual Report on Form 10-K of Parlex Corporation for the year ended
June 30, 1999.
Boston, Massachusetts
September 27, 1999
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Parlex Corporation,
hereby severally constitute and appoint Herbert W. Pollack and Steven M.
Millstein, and each of them singly, our true and lawful attorneys, with full
power indicated below, to sign for us the Report on Form 10-K of Parlex
Corporation for the fiscal year ended June 30, 1999 and any required
amendments thereto, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys to said Report and any and all such
amendments.
Witness our hands on the dates set forth below:
Dated: August 24, 1999
* /s/ Sheldon A. Buckler Director
-----------------------------
Sheldon A. Buckler
* /s/ Richard W. Hale Director
-----------------------------
Richard W. Hale
* /s/ M. Joel Kosheff Director
-----------------------------
M. Joel Kosheff
* /s/ Peter J. Murphy Director
-----------------------------
Peter J. Murphy
* /s/ Lester Pollack Director
-----------------------------
Lester Pollack
* /s/ Benjamin Rabinovici Director
-----------------------------
Benjamin Rabinovici
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,175,889
<SECURITIES> 1,606,953
<RECEIVABLES> 14,308,046
<ALLOWANCES> 255,000
<INVENTORY> 10,943,457
<CURRENT-ASSETS> 30,053,654
<PP&E> 55,795,592
<DEPRECIATION> 23,915,018
<TOTAL-ASSETS> 63,520,611
<CURRENT-LIABILITIES> 11,291,946
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0
0
<COMMON> 499,115
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<TOTAL-LIABILITY-AND-EQUITY> 63,520,611
<SALES> 66,372,800
<TOTAL-REVENUES> 67,047,283
<CGS> 52,784,488
<TOTAL-COSTS> 62,499,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226,378
<INCOME-PRETAX> 4,680,824
<INCOME-TAX> 964,032
<INCOME-CONTINUING> 3,019,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,019,553
<EPS-BASIC> .65
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