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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
__________________________________
Commission File No. 0-12942
PARLEX CORPORATION
Massachusetts 04-2464749
(State of incorporation) (I.R.S. ID)
One Parlex Place, Methuen, Massachusetts 01844
978-685-4341
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
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Common Stock ($.10 par value) Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act:
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 [ ]
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 common stock held by non-affiliates of the
registrant as of September 18, 2001 was $72,486,984.
The number of shares outstanding of the registrant's common stock as of
September 18, 2001 was 6,303,216 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in response to Part III of Form 10-K is hereby
incorporated by reference to the specified portions of the definitive proxy
statement to be filed with the Commission within 120 days after the close
of the fiscal year.
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FORWARD-LOOKING STATEMENTS
This document includes and incorporates forward-looking statements that
are subject to a number of risks and uncertainties. All statements, other
than statements of historical facts included or incorporated in this
document, regarding our strategy, future operations, financial position and
estimated revenues, projected costs, prospects, plans and objectives of
management are forward-looking statements. When used in this document, the
words "will," "believe," "anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. We cannot guarantee future results, levels of activity,
performance or achievements and you should not place undue reliance on our
forward-looking statements. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint
ventures or strategic investments. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including the risks described in the section of this report
entitled "Factors that May Affect Future Results" and elsewhere in this
document.
PART I
Item 1. Business
----------------
Overview
We are a leading provider of flexible interconnect solutions to the
automotive, telecommunications and networking, diversified electronics,
aerospace, home appliance, computer markets and radio frequency
identification (RFID) and smart cards. Our product offerings, which we
believe are the broadest of any company in the flexible interconnect
industry, include flexible circuits, laminated cable, flexible interconnect
hybrid circuits, and flexible interconnect assemblies.
Our objective is to be the supplier of choice for key customers in
markets where cost-effective flexible interconnects provide added value to
our customers' products. We believe that our creative engineering expertise,
our ability to advance the technology of manufacturing processes and
materials and our broad product portfolio allow us to provide the lowest cost
solution that meets the performance requirements of our customers.
We have a long history of providing flexible interconnect solutions to
some of the leading original equipment manufacturers, or OEMs, in our target
markets, including Hewlett-Packard, Honeywell, Motorola, Nortel Networks,
Siemens, and Whirlpool. We have a global presence and operate seven
manufacturing facilities, which are located in China, Mexico, the United
Kingdom and the United States. Certain information related to revenues
derived by geographic location, major customers and product lines is included
in Note 12 of our financial statements and is incorporated herewith by
reference.
On March 1, 2000, we acquired the businesses of Poly-Flex Circuits,
Inc. and Poly-Flex Circuits Limited (collectively "Poly-Flex"), wholly-owned
subsidiaries of Cookson Group plc. This acquisition further diversified our
product offerings by providing us with polymer thick film and surface mount
assembly capabilities. Poly-Flex has manufacturing facilities in Cranston,
Rhode Island and the United Kingdom.
Industry Background
Over the past two decades, electronic systems have become smaller,
lighter and more complex, while demands for increased performance at lower
costs have increased dramatically. The demand for more portable electronic
packaging has also increased. As two-dimensional rigid printed circuit
boards, a conventional form of electronic interconnect packaging, limit the
options available to design engineers, the demand for three-dimensional,
flexible interconnect solutions has increased. In addition to their improved
packaging and performance characteristics, they offer superior heat
dissipation characteristics compared to
2
rigid circuits, making flexible interconnects attractive for use in advanced,
high-speed electronics. The IPC, an international trade organization,
estimates that worldwide sales of flexible circuits alone in 2000 were
approximately $3.9 billion.
Flexible interconnects provide electrical connection between components
in electronic systems and are increasingly used as a platform to support the
attachment of electronic devices. Flexible interconnects offer several
advantages over rigid printed circuit boards and ceramic hybrid circuits,
particularly for small, complex electronic systems:
* Their ability to physically bend or flex and their three-dimensional
shape permit them to accommodate packaging contours and motion in a
manner that traditional two-dimensional rigid printed circuit boards
cannot;
* They provide improved heat dissipation and signal integrity as compared
to printed circuit boards; and
* They permit the use of substrates for component attachment, as well as
connectors, cables and other interconnection devices, with reduced size,
weight and expense.
We consider the following trends important in understanding the
flexible interconnect industry:
Miniaturization, Portability and Complexity of Electronic Products
High-performance electronic products, such as cellular phones and
personal digital assistants, continue to become more compact, portable and
contain greater functionality. The complexity of these new products requires
flexible interconnects with smaller size, lighter weight, greater circuit and
component density, better heat dissipation properties, higher frequencies and
increased reliability. As electronic products become increasingly
sophisticated, electronic interconnect suppliers will require greater
engineering expertise and investment in manufacturing and process technology
to produce high-quality electronic interconnect products on time, in volume
and at acceptable cost.
Shorter Product Life Cycles and Time-to-Market Pressure
Rapid technological advances have significantly shortened the life
cycle of complex electronic products and increased pressure to develop and
introduce new products quickly. These time-to-market challenges have in turn
increased OEMs' emphasis on the development, design, engineering, prototype
development and ramp-to-volume capabilities of their suppliers.
Globalization and Reduction of Manufacturing Costs
Customers continue to demand increased electronic performance at lower
prices. Leading OEMs who often manufacture products in multiple geographic
regions are relying more on suppliers with global sourcing capabilities.
Local sourcing can help to shorten the manufacturer's supply chain and
provide regionally competitive pricing. OEMs also increasingly demand that
their suppliers provide infrastructure for local delivery of engineering,
manufacturing and sales support.
Increased Outsourcing
To avoid delays in new product introductions, reduce manufacturing
costs and avoid logistical complexities, OEMs are increasingly turning to
suppliers capable of producing electronic interconnect products from
development, design, quick-turn prototype and pre-production through volume
production and assembly. The accelerated time-to-market and ramp-to-volume
needs of manufacturers have resulted in increased collaboration with
qualified suppliers capable of providing a broad and integrated offering.
Many OEMs now seek to use a small number of technically qualified,
strategically located suppliers capable of
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providing both quick-turn prototype and pre-production quantities as well as
cost-competitive volume production quantities.
Proliferation of Electronics and Creation of New Product Applications
The markets for electronic products are growing as a result of
technological change, increasing demands for a wider variety of electronic
product features and more powerful and less expensive electronic components.
Because of this growth, new markets for flexible interconnects are being
created and new applications for flexible interconnects are emerging within
existing markets.
Our Solution
We combine creative engineering design capabilities with innovative
manufacturing processes and materials to provide our customers with a
complete and cost-effective flexible interconnect solution. We believe that
our processes and technologies allow us to produce superior flexible
interconnect solutions at a lower cost than our competitors. In addition,
because we are able to produce a broad range of flexible interconnects
ranging from low-cost laminated cable to more expensive high-performance
multilayer and rigid-flexible interconnects, we are able to provide our
customers with a product that most efficiently meets their demands for
functionality.
Our solution begins with the product design phase, in which our
engineers typically work closely with customers to develop a technically
advanced flexible interconnect design. Although our customers generally
provide the initial engineering guidelines for a particular interconnect, our
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 at an early stage, before time and money are spent on
manufacturing, that the design can be produced efficiently and cost-
effectively.
Once the design is completed, we apply our experience with innovative
materials and manufacturing processes to produce a flexible interconnect
solution that meets our customer's functionality and cost objectives. We have
developed materials and processes that provide customers improved performance
at a lower production cost. In addition, we provide a dedicated quick-turn
capability for producing prototype flexible interconnects and supporting our
customers' needs for limited quantities of flexible interconnects on short
notice. We believe that we are one of the few volume manufacturers of
flexible interconnects to offer this valuable service in a dedicated
facility. When customers come to us for prototype development of a flexible
interconnect, we believe that we enjoy a competitive advantage in pursuing
the subsequent volume production of that flexible interconnect. Over the past
several years we have gained substantial experience in producing products in
high volume, and we believe this expertise is a key factor in our ability to
provide customers with cost-effective, flexible interconnect solutions.
We believe that our capability to supply worldwide a broad range of
products with a diverse mix of performance characteristics will enable us to
capture additional market share in the flexible interconnect industry. We are
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 a variety of products and services, we can provide
design and manufacturing solutions for our customers while reducing their
time-to-market and product development costs.
Our Strategy
Our objective is to be the flexible interconnect supplier of choice for
customers in our target markets. Our strategy to achieve this objective
includes the following key elements:
4
Develop Innovative Processes and Materials
We believe that our ability to develop innovative processes and
materials enhances our opportunity for growth within our target markets. We
intend to continue to focus our development efforts on proprietary flexible
materials and processes that have a broad range of applications. These
materials and processes enable us to produce, at reduced cycle times, cost-
effective flexible interconnects that are reliable and improve product
performance. Our PALFlex(R), PALCoat(R), U-Flex(R), PALCore(R) HP,
Polysolder(R) and AutoNet(TM) technologies are examples of some of our
innovative materials and manufacturing processes.
Offer the Broadest Range of Products and Services in the Flexible
Interconnect Industry
We offer product lines that service virtually all of our customers'
flexible interconnect needs. We are not aware of another company in the
flexible interconnect industry that provides a broader range of products and
services. Our product line includes flexible and rigid-flexible circuits from
one to 24 layers, laminated cable, flexible interconnect hybrid circuits,
flexible interconnect assemblies and, with our recent Poly-Flex acquisition,
surface mount assembly capabilities. We offer products using a variety of
materials, including adhesiveless and adhesive-based polyimide, polyester,
and polymer thick film technologies. This wide product range enables us to
remain the flexible interconnect supplier of choice to our customers even
when their functional requirements change. For example, when a major
automotive customer increased the number of electronic signals required for
performance beyond the capability of a double-sided circuit, our four layer
PALCore(R) HP product met the customer's enhanced functionality and cost
objectives. Conversely, another customer's design had the desired performance
but was too costly in a highly competitive market. We redesigned this
customer's flexible circuit to eliminate expensive shield layers by using
HSI+(C), our patented high-speed screening process.
Develop Strategic Relationships with Key Customers
We seek to develop strategic relationships with key customers in
targeted industries. As a value-added strategic partner with our customers,
we work with a customer's technology roadmap to design and develop cost-
effective flexible interconnect solutions. We believe that these
relationships are most effective when we provide a significant portion of a
customer's flexible interconnect needs. Through these strategic
relationships, we achieve greater visibility into our customers' entire range
of flexible interconnect requirements. As a result of our relationships with
key customers, we developed PALFlex(R), PALCore(R), PALCore(R) HP,
PALCoat(R), and HSI+(C) with the knowledge that successful development would
result in immediate market acceptance.
Diversify Customer Base across Specific Markets
We seek to serve a variety of markets to help mitigate the effects of
economic cycles in any one industry. Our business units are aligned to
specific market segments to better understand and service customers within
particular industries. In addition, we believe our diversification among the
major segments provides greater insight into emerging technological
requirements. For example, we applied our proprietary knowledge of shielding
and impedance control to gain a competitive advantage in the
telecommunications and networking market.
Expand Global Presence
We believe that our customers will increasingly require service and
support on a global basis. To address these requirements, we have continued
to expand our global presence in emerging markets and throughout the world.
We now have facilities in Asia, Europe, and the east and west coasts of North
America. In 1995 we established a joint venture in China, Parlex Shanghai, to
serve the emerging flexible circuit market throughout Asia and to produce
specific products more cost-effectively for North America's
5
customers. In May 1998, we leased a facility in Mexico that performs the
finishing and, in some instances, assembly operations for flexible
interconnects manufactured at our other facilities. In April 1999, we
purchased a facility in San Jose, California to produce low to medium volumes
of flexible circuits and provide our customers with quick-turn and
prototyping services. This facility also supports several customers who use
Parlex Shanghai for high volume production. In addition, we have developed,
and plan to continue to develop, strategic relationships and alliances that
we believe are necessary for the success of our international business. We
have increased our distribution capabilities by establishing a presence in
Singapore and France to serve key customers in Asia and Europe. In March
2000, we acquired Poly-Flex which has manufacturing facilities in Rhode
Island and the United Kingdom. This acquisition positions us to further
expand our sales presence in Europe. We will continue to explore appropriate
expansion opportunities as demand for our solutions increases.
Our Markets
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 cable 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 and Networking
The telecommunications and networking market includes infrastructure
equipment and subscriber equipment submarkets. 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 such as
handsets and battery assemblies. Tight packaging and the need to reduce
weight have driven the demand for flexible interconnects in this submarket.
Laminated cable and single and double-sided flexible circuits are generally
used in subscriber equipment.
Diversified Electronics
The diversified electronics market, which we define to include medical
electronics, encompasses many applications. Virtually any electronic device
which requires tight packaging, light weight or high reliability is a product
that could incorporate flexible interconnects. Typical applications include
electronic scales, industrial controls, metering devices, scanners, sensors
and medical monitoring equipment.
Aerospace
Aerospace electronics were at one time the primary applications for
flexible circuitry. Because of product complexity and space restrictions,
aerospace applications often require multilayer rigid-flexible circuits.
Typical applications are navigation systems, flight controls, displays,
communications equipment and munitions. Although overall spending in this
segment has decreased, we believe that procurement of
6
flexible interconnects will continue to experience modest growth. We believe
that the trend toward "smart" military systems will continue to drive demand
for flexible interconnects in this segment.
Home Appliance
The home appliance market is beginning to make the transition from
electro-mechanical controls to electronic controls containing intelligence
and display. Over time, appliances are expected to become more
technologically advanced. The utility and ease of use and repair associated
with flexible interconnects make them especially suitable for these
applications.
Computer
Demand for flexible circuits and laminated cable in the computer 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, personal digital assistants, mass
storage devices and peripheral equipment such as scanners, printers and
docking stations.
Radio Frequency Identification (RFID) and Smart Cards
The emerging identification and tracking market is based upon next
generation identification tags generating radio frequency signals which in
some cases are attached to an antenna. Advancing technology at lower prices,
increasing cooperation among industry participants and high volume
applications such as automated fuel payment, ATM and credit cards, electronic
ticketing, baggage handling and parcel tracking are expected to be the growth
drivers for this market. Market researchers have estimated that the compound
annual growth rate for the shipments of RFID systems will be approximately
27% between 2000 and 2005. The size, cost and performance requirements
demanded by this market are expected to drive the use of flexible circuits
and assemblies in these applications.
Our Products
Our current flexible interconnect products include flexible circuits,
laminated cable, flexible interconnect hybrid circuits and flexible
interconnect assemblies. We manufacture our products, which are designed by
us, our customers or jointly, to our customers' application-specific
requirements. Lead times for the design and manufacture of our products
generally range from one week for some products to three months for more
sophisticated products.
Flexible Circuits
Flexible circuits, which consist of conductive patterns that are etched
or printed onto 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,
screening, photo imaging, etching, plating and finishing. Flexible circuits
can be produced in single or multiple layers. We produce a wide range of
flexible circuits including:
* Single-Sided Flexible Circuits, which have a conductive pattern only on
one side. Single-sided flexible circuits are usually less costly and more
flexible than double-sided flexible circuits. Through our proprietary
high-speed interconnect screening technology, HSI+(C), which eliminates
the need for a separate shield layer, we can produce single-sided
flexible circuits that provide the same functionality as
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double-sided flexible circuits at a lower cost. We manufacture single-
sided circuitry in both the United States and at Parlex Shanghai, where
substantially all of our production to date has been single-sided.
* Double-Sided Flexible Circuits, which have conductive patterns or
materials on both sides that are interconnected by a drilled and copper-
plated hole. Double-sided flexible circuits can provide either more
functionality than a single-sided flexible circuit by containing
conductive patterns on both sides, or can provide greater shielding than
a single-sided flexible circuit by having a conductive pattern on one
side and a layer of shielding material on the other.
* Multilayer and Rigid-Flexible Circuits, which consist of layers of
circuitry that are stacked and then 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 printed circuit board
material, the product becomes a rigid-flexible circuit. We have
manufactured these circuits with up to 40 layers in prototype programs
and 24 layers in production.
* Polymer Thick Film Flexible Circuits, which are flexible circuits
manufactured using a technology that uses a low-cost thick film polyester
dielectric substrate and a silver screen-printed conductive pattern.
These circuits are made with an additive process involving the high-speed
screen printing of conductive traces utilizing internally developed ink
systems. We are able to produce multilayer circuits using proprietary
dielectric materials and double-sided circuits using proprietary printed
through-hole technologies. Polymer thick film flexible circuits are used
in low-cost, low-temperature, low-power interconnect applications.
Laminated Cable
Laminated cable, which consist of flat or round wire laminated to a
flexible substrate material, provide connections between electronic sub-
systems and replace conventional wire harnesses. We manufacture laminated
cable in an efficient, proprietary roll process. Substantially all of the
laminated cable that we produce uses flat wire. Approximately 95% of the
laminated cable that we produce is insulated with polyester material,
allowing for maximum flexibility, while the remainder is insulated with
polyimide material for its enhanced performance at elevated temperatures. Our
laminated cable is capable of handling both power (high current) and signal
(low current).
Improving the process by which laminated cable is manufactured can
increase functionality and lower the cost of production. To this end, we have
developed U-Flex(R), a proprietary technique that forms flat wire into a u-
shape, followed by an injection molding process that enables the u-shaped end
to function as a connector. This technique improves electrical performance
and eliminates the need for a separate costly connector. We have also
developed Pemacs(R) shielding, which adds a specially designed silver ink to
laminated cable to meet stringent electronic shielding requirements without
compromising flexibility.
Flexible Interconnect 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 we manufacture flexible interconnect hybrid circuits, which take
advantage of the lower cost of laminated cable and the technology of flexible
circuits by combining them into a single interconnect. On some products, we
apply our HSI+(C) process to the flexible interconnect hybrid circuit in
order to provide signal clarity and shielding.
Flexible Interconnect Assemblies
Both flexible circuits and laminated cable 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 attaching components such as
capacitors, resistors or integrated circuits onto a flexible circuit using
surface mount
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assembly. We attach surface mount components to both copper and polymer thick
film circuits with either solder paste or our patented Polysolder(R)
conductive adhesive. We can place a full range of electronic devices, from
passive components to computing devices, on our flexible interconnects.
The following table sets forth representative applications in which our
products are used:
Flexible Circuits
-----------------
Single-Sided Automotive Displays
Batteries for Cell Phones
Printers
Personal Digital Assistants
Data Storage
Double-Sided Engine Control Units
Laptop Computers
Cellular Phones (Including Batteries)
Engine Sensors
Smart Cards
Multilayer and Rigid-Flexible Engine Control Units
Computer Networks
Network Switching Systems
Aircraft Displays
Automotive Transmission Systems
Polymer Thick Film Business Phones
Disposable Medical Devices
Appliances
Radio Frequency Identification
Laminated Cable Postage Meters
--------------- Automotive Sound Systems
Notebook Computers
Industrial Controls
Electronic Scales
Flexible Interconnect Hybrid Circuits Total Vehicle Interconnection
Printers
Sensors
Scanning Devices
Night Vision Systems
Flexible Interconnect Assemblies Aircraft Identification Systems
Sensors
Scanning Devices
Batteries for Portable Products
Disk Drives
Night Vision Systems
Personal Computers
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New Process and Material Technologies
An important part of our strategy is development of new processes and
materials for use in our products. Our proprietary processes and materials
include:
PALFlex(R) - PALFlex(R) is both an adhesiveless polyimide-based
material and a manufacturing process that we believe provides superior
performance at a lower cost than traditional copper-clad materials.
PALFlex(R) provides additional cost benefits by allowing us to combine
several material manufacturing steps with circuit manufacturing and
eliminating several major process steps. We developed PALFlex(R) for high
volume automotive applications and are now adapting it for use across a
number of other product lines. Because PALFlex(R) is produced in roll form
and the copper thickness can be controlled to tight tolerances, we believe
that it may serve as the foundation for products in the emerging high density
substrate market. We shipped our first product incorporating the current
version of PALFlex(R) in fiscal 1998.
PALCoat(R) - Working closely with a materials manufacturer and an
equipment manufacturer we developed PALCoat(R), a new material for coating
the outside of flexible circuits. 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 now commercially
available. PALCoat(R) entered volume production in fiscal 1999.
PALCore(R) HP - PALCore(R) HP is a low-cost multilayer flexible
material that is designed to minimize the difference between the cost of
materials used in flexible circuits and those used in conventional rigid
circuits. We have received patents on our latest, more flexible version of
PALCore(R)HP, which entered production in January 2000.
Polysolder(R) - Polysolder(R) is both a patented lead-free, conductive
adhesive used to attach electronic components onto flexible interconnects and
a patented manufacturing process that enables the attachment of electronic
devices onto substrates at low temperatures. Polysolder(R) has been used in
the production of polymer thick film flexible circuit assemblies for several
years. We plan to apply the Polysolder(R) process to etched flexible circuits
and laminated cable. This technology will enable us to use polyester, instead
of the more expensive polyimide, as a substrate in the production of these
flexible interconnect assemblies.
RFID Flip Chip Attachment Process - We have developed a low-cost
process that we believe will be an enabling technology in the RFID market.
Our high-speed flip chip attachment process is up to ten times faster at
placing semiconductors on low-cost materials than conventional process
alternatives. This process allows us to meet our customer's goals for cost
and reliability. This process entered production in September 1999.
AutoNet(TM) - AutoNet(TM) is a proprietary flexible interconnect
designed specifically to meet the emerging needs of the automotive industry.
As each generation of vehicles incorporates greater electronic content,
interconnection becomes both more important and more difficult. AutoNet(TM)
draws upon our flexible interconnect process and materials technology to
provide a cost-effective interconnect for placement in the headliners, trunks
and doors of automobiles. AutoNet(TM) is designed to replace traditional wire
harnesses and is lighter, smaller, more reliable and provides shielding
necessary to control the emission of electronic signals. We believe that the
potential market for AutoNet(TM) is substantial and will develop over the
next few years.
Our Customers
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Our customers are a diverse group of OEMs that serve a variety of
industries. Our largest 20 customers based on sales accounted for
approximately 63% of total revenues in fiscal 1999, 60% in fiscal 2000, and
55% in fiscal 2001. Our major end-customers include: Dell Computer, Delphi,
General Dynamics, Hewlett-Packard, Honeywell, Lexmark, Motorola, Nortel
Networks, Pitney Bowes, Siemens, Symbol Technologies, Visteon, and Whirlpool.
Sales and Customer Service
Our sales and customer service organizations are structured to take
advantage of the following markets: automotive, telecommunications and
networking, diversified electronics, aerospace and computer. Our sales
managers focus on a specific industry and develop targeted customers within
that industry. Our sales managers draw upon the expertise of our engineering
staff as an integral part of the sales process, and upon customer service
representatives to support their customers' day-to-day requirements. Sales
managers coordinate the efforts of a network of 23 independent manufacturers'
representative organizations worldwide. In fiscal 2001, manufacturers'
representative organizations accounted for approximately 44% of total
revenues.
The sales process involves extensive coordination between a customer's
design engineers and our design and engineering staff. Our sales managers
then work closely with our applications engineers to prepare a feasibility
study to assess the cost of producing the interconnect solution to the
customer's specifications. This process often involves multiple design and
manufacturing iterations to identify the lowest cost solution that meets the
customer's specifications.
Sales managers lead our efforts to become the preferred supplier to
target customers. The managers' ability to understand the quality, cost,
delivery, technology and service objectives of target customers is critical
to our goal of achieving the highest level of customer satisfaction. To
develop strategic relationships with target customers, our employees
participate in joint training, engineering seminars, manufacturing intern
programs and as members of customers' problem solving teams. We often have
access to a customer's materials resource planning schedule, which allows us
to better forecast that customer's near and mid-term requirements.
To complement the independent manufacturers' representative
organizations with which we work, we have a direct sales and customer support
office in the Detroit, Michigan area. Through this office we provide
applications engineering, logistical support and coordination of activities
with our customers. We expect to open additional sales and customer support
offices, as necessary, in the U.S. and Europe. We have agreements with
distribution companies in Singapore and France to provide forward stocking
and inventory coordination for regional customers. These relationships enable
us to provide customers with service comparable to that of a local provider.
Under the terms of our Chinese joint venture agreement, Parlex Shanghai
has agreed that it will sell its products outside China only through our
subsidiary, Parlex Asia Pacific Ltd. In turn, we have agreed that we will
sell flexible circuits in China only through the joint venture, Parlex
Shanghai.
Manufacturing
We believe that our manufacturing expertise in a number of specialized
areas, together with our investment in process research and development and
equipment, have contributed to our position as an industry leader. A
significant amount of our production equipment is proprietary, including
cable laminators, precision cable slitters and roll plating, roll etching and
automatic punching equipment.
Our computer-aided manufacturing system takes the customer's design and
programs the various steps that will be required to manufacture the
particular product. The manufacturing process varies a great
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deal from product to product. Although there is no standard process,
significant elements of production are highlighted below:
Polymer Thick Film
Etched Flexible Circuit Flexible Circuit Laminated Cable
----------------------- ------------------ ---------------
Drilling Convert/Condition Substrate Lamination
Plating Screen Print Slitting
Developing Diecut Conductor Forming
Etching Conductive Adhesive Injection Molding
Lamination Surface Mount/Flip Chip Assembly Shielding
Electrical Testing Electrical Testing Laser Skiving
Assembly Assembly
In fiscal 1999, we added 60,000 square feet to our Methuen,
Massachusetts facility, 12,000 square feet to our Salem, New Hampshire
facility and 10,000 square feet to our Shanghai, China facility.
Additionally, we purchased over $7 million of new equipment in fiscal 2001.
Our acquisitions of Dynaflex in fiscal 1999 and Poly-Flex in fiscal 2000 gave
us a full complement of flexible circuit manufacturing equipment and an
additional 19,000 and 95,500 square feet of facility capacity, respectively.
In fiscal 2001, we added capacity in Shanghai of 52,000 square feet and
relocated our Dynaflex operations to a more efficient 16,800 square foot
facility. We believe that we now have sufficient capacity to meet forecast
demand in the U.S. operations for the next several years.
Six of our manufacturing facilities are certified to the international
standard ISO 9001 or ISO 9002 and to the automotive standard QS 9000.
Materials and Materials Management
We aggressively attempt to control our cost of purchased materials and
our level of inventories through long-term relationships with our suppliers.
Our goal is to attain a competitive price from suppliers and foster a shared
vision towards advancing technology.
We purchase raw materials, process chemicals and various components
from multiple outside sources. We often make 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 to provide shorter lead times and reduced inventory levels.
In many cases our customers approve, and often specify, sources of supply.
We qualify our suppliers through a vendor rating system that limits the
number of suppliers to those that can provide the best total value and
quality. We monitor each supplier's quality, delivery, service and technology
so that the materials we receive meet our objectives.
Competition
Our business is highly competitive. We compete 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. We believe that we compete favorably on all of these
competitive factors, but believe that our competitive strength is in our
ability to apply technology to reduce cost. We compete 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.
12
Intellectual Property
We have acquired patents and we seek patents on new products and
processes where we believe patents would be appropriate to protect our
interests. Although patents are an important part of our competitive
position, we do not believe that any single patent or group of patents is
critical to our success. We believe that, due to the rapid technological
change in the flexible interconnect business, our success depends more on
design creativity and manufacturing expertise than on patents and other
intellectual property. We own 22 patents issued, and have 21 patent
applications pending, in the United States and have several corresponding
foreign patent applications pending. We have obtained federal trademark
registrations for PALFlex(R), PALCore(R), U-Flex(R), PALCoat(R) and
Polysolder(R), and have one trademark application pending. We also rely on
internal security measures and on confidentiality agreements for protection
of trade secrets and proprietary know-how. We cannot be sure that our efforts
to protect our intellectual property will be effective to prevent
misappropriation or that others may not independently develop similar
technology.
Under the terms of our Chinese joint venture agreement, we transferred
specified technology to Parlex Shanghai and have agreed to provide it with
additional technology and expertise as the joint venture's capabilities and
markets develop. PALFlex(R) is excluded from the arrangement.
In January 2000, we sold two U.S. patents for PALCore(R), a low-cost
multilayer material, to Polyclad Laminates, Inc., a subsidiary of Cookson
Electronics, for approximately $1.3 million. We had previously licensed
PALCore(R) to Isola Laminate Systems Corp. (f/k/a Allied Signal Laminate
Systems) and will transfer royalties received in connection with the license
to Polyclad Laminates, Inc. as part of the sale. We have retained a
perpetual, royalty-free, non-exclusive license to use the PALCore(R) material
in our products. We also hold a patent, which we have not licensed to anyone,
which covers the process of using PALCore(R) in the production of flexible
interconnects.
Environmental Regulations
Flexible interconnect 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. We operate and maintain water effluent
treatment systems and use approved laboratory testing procedures to monitor
the effectiveness of these systems at our San Jose, California and Methuen,
Massachusetts facilities. We operate these treatment systems under an
effluent discharge permit issued by the local governmental authority. Air
emissions resulting from our manufacturing processes are regulated by permits
issued by government authorities. These permits must be renewed periodically
and are subject to revocation in the event of violations of environmental
laws. We believe that the waste treatment equipment at our facilities is
currently in compliance with the requirements of environmental laws in all
material respects and that our air emissions are within the limits
established in the relevant permit. However, violations may occur in the
future. We are 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 our operations over time,
and the costs of complying with such laws could be substantial. Compliance
with local, state and federal laws did not have a material impact on our
capital expenditures, earnings or competitive position in fiscal 2001. We
estimate that capital expenditures in fiscal 2001 and 2002 associated with
environmental compliance will be $444,000.
13
Employees
As of June 30, 2001, we employed approximately 767 people in the United
States. Of these employees, 720 were direct employees of Parlex and 47 worked
for interim staffing agencies. In addition, we employed approximately 153
people in Mexico, approximately 124 people in the United Kingdom and Parlex
Shanghai employed approximately 696 people in China. We are not party to any
collective bargaining agreement and we believe our relations with our
employees are good.
Item 2. Properties
------------------
Facilities
Our facilities at June 30, 2001 are:
Approximate
Location Square Feet Leased/Owned Description
-------- ----------- ------------ -----------
Methuen, Massachusetts 185,000 Owned Corporate headquarters, product
and process development and
flexible circuit manufacturing
Cranston, Rhode Island 55,500 Owned Polymer thick film and surface
mount assembly operations
Salem, New Hampshire 46,000 Leased (lease expires Laminated cable manufacturing
in June 2007)
Newport, Isle of Wight, 40,000 Leased (lease expires Polymer thick film and surface
United Kingdom in November 2009) mount assembly operations
Shanghai, China 55,000 Leased (lease expires Single- and double-sided
in August 2004) flexible circuit manufacturing
Shanghai, China 34,000 Leased (month-to-month) Single- and double-sided
flexible circuit manufacturing
Empalme, Sonora, Mexico 38,000 Leased (lease expires Finishing and assembly operations
in January 2005)
San Jose, California 16,800 Leased (lease expires Prototype and quick-turn operations
in December 2008)
Item 3. Legal Proceedings
-------------------------
From time to time we are involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not
currently involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
No matter was submitted to a vote of our 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
-----------------------------------------------------------------------------
14
(a) PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the
symbol "PRLX." The following table sets forth, for the periods indicated, the
high and low closing prices for our common stock as reported on the Nasdaq
National Market.
High Low
---- ---
Fiscal Year Ended June 30, 2001
First Quarter $44.75 $15.00
Second Quarter $17.19 $11.75
Third Quarter $13.38 $ 9.50
Fourth Quarter $13.61 $ 8.91
Fiscal Year Ended June 30, 2000
First Quarter $19.50 $12.88
Second Quarter $28.69 $14.13
Third Quarter $38.81 $20.88
Fourth Quarter $46.13 $19.00
On June 30, 2001, the closing sale price of our common stock as
reported on the Nasdaq National Market was $9.87 per share and there were 98
holders of record of our common stock.
(b) DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We presently intend to retain future earnings, if any, to finance the
expansion of our business and do not expect to pay any cash dividends. Future
cash dividends, if any, will be determined by our Board of Directors and will
be based on our earnings, capital, financial condition and other factors that
the Board deems relevant. Our credit agreement permits us to pay cash
dividends to the extent such payment would not cause us to violate financial
covenants contained in the credit agreement.
15
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
--------------------------------------------
Fiscal Year Ended June 30,
-------------------------------------------------------------
2001 2000(a) 1999(b) 1998 1997
---- ------- ------- ---- ----
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Total revenues $103,620 $101,839 $67,047 $60,275 $55,087
Cost of products sold 97,460 76,614 52,785 47,304 44,137
-------- -------- ------- ------- -------
Gross profit 6,160 25,225 14,262 12,971 10,950
Selling, general and administrative expenses 17,706 14,097 9,715 8,272 7,288
-------- -------- ------- ------- -------
Operating (loss) income (11,546) 11,128 4,547 4,699 3,662
(Loss) income from operations before income
taxes and minority interest (11,517) 10,473 4,681 5,130 3,381
Net (loss) income $ (6,199) $ 6,335 $ 3,020 $ 3,157 $ 2,120
======== ======== ======= ======= =======
Net (loss) income per share:
Basic $ (0.99) $ 1.31 $ 0.65 $ 0.73 $ 0.59
======== ======== ======= ======= =======
Diluted $ (0.99) $ 1.28 $ 0.63 $ 0.71 $ 0.57
======== ======== ======= ======= =======
Weighted average shares outstanding:
Basic 6,289 4,842 4,662 4,296 3,569
Diluted 6,289 4,940 4,771 4,466 3,715
Fiscal Year Ended June 30,
-------------------------------------------------------------
2001 2000(a) 1999(b) 1998 1997
---- ------- ------- ---- ----
(in thousands, except per share data)
Consolidated Balance Sheet Data:
Working capital $ 31,016 $ 38,752 $18,762 $26,286 $ 9,592
Total assets 110,864 115,341 63,521 56,181 32,234
Current portion of long-term debt 10,710 1,483 619 432 1,000
Long-term debt, less current portion 119 360 1,632 1,166 2,500
Stockholders' equity 81,351 87,790 45,333 41,591 17,788
(a) Includes Poly-Flex beginning March 1, 2000
(b) Includes Dynaflex beginning April 30, 1999.
16
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINACIAL CONDITION AND
--------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
We are a leading supplier of flexible interconnects principally for
sale to the automotive, telecommunications and networking, diversified
electronics, aerospace, home appliance, and computer markets. We believe that
our development of innovative materials and processes provides us with a
competitive advantage in the markets in which we compete. During the past
three years, we have invested approximately $31.9 million in property, plant
and equipment and approximately $14.9 million in research and development to
develop materials and enhance our manufacturing processes. We believe that
these expenditures will help us to meet increased customer demand for our
products, and enable us to continue to be a technological leader in the
flexible interconnect industry. Our research and development expenses are
included in our cost of products sold.
We formed a Chinese joint venture, Parlex Shanghai, in 1995 to better
serve customers that have production facilities in Asia and to more cost
effectively manufacture products for worldwide distribution. We own 50.1% of
the equity interest in Parlex Shanghai. Accordingly, Parlex Shanghai's
results of operations, cash flows and financial position are included in our
consolidated financial statements. We are in the process of transferring the
production of the automotive related products utilizing our PalFlex(r)
technology from our Methuen, Massachusetts operations to Parlex (Shanghai)
Interconnect Products Co., Ltd. ("PSIP"), a wholly owned subsidiary of PAPL.
We are currently negotiating an agreement to purchase the interests in our
Chinese joint venture, Parlex Shanghai, owned by the two partners who hold
minority interests. We are also engaged in discussions with a potential
strategic partner to enter into a joint venture with us relative to our
Asian operations.
Recent Acquisitions
On April 30, 1999, we acquired the Dynaflex division of CCIR of
California Corp., an indirect wholly-owned subsidiary of Hadco Corporation,
for approximately $2.7 million. Dynaflex, located in San Jose, California, is
a prototype and quick-turn facility. This acquisition gives us a West Coast
presence and a greatly improved rapid prototype and quick-turnaround
capability. Quick-turnaround capability permits production of a small number
of flexible interconnects upon short notice. This service often leads to
large volume orders at our other manufacturing facilities.
On March 1, 2000, we acquired the businesses of Poly-Flex Circuits,
Inc. and Poly-Flex Circuits Limited (collectively "Poly-Flex"), wholly-owned
subsidiaries of Cookson Group plc, for a purchase price, including
acquisition costs, of approximately $19.7 million. This acquisition further
diversified our product offerings by providing us with polymer thick film and
surface mount assembly capabilities. Poly-Flex has manufacturing facilities
in Cranston, Rhode Island and the United Kingdom.
Results of Operations
The following table sets forth, for the periods indicated, selected
items in our statements of income as a percentage of total revenue. You
should read the table and the discussion below in conjunction with our
Consolidated Financial Statements and the Notes thereto.
Fiscal Year Ended June 30,
------------------------------
2001 2000 1999
---- ---- ----
Total revenues 100.0% 100.0% 100.0%
Cost of products sold 94.1% 75.2% 78.7%
Gross profit 5.9% 24.8% 21.3%
Selling, general and administrative expenses 17.1% 13.8% 14.5%
Operating (loss) income (11.1%) 10.9% 6.8%
(Loss) income from operations before income
taxes and minority interest (11.1%) 10.3% 7.0%
Net (loss) income (6.0%) 6.2% 4.5%
17
Comparison of years ended June 30, 2001, 2000, and 1999
Total Revenues. Total revenues for fiscal 2001 were $103.6 million, an
increase of 2% from $101.8 million reported in fiscal 2000. Revenues were
generated primarily from product sales, which grew in each of our principal
product lines, flexible circuits and laminated cable.
Our Methuen operation experienced a reduction in product sales of $16.8
million or 31% for fiscal 2001 compared to the same period in fiscal 2000.
The decrease in product sales at the Methuen facility was due primarily to
a decrease in purchases from customers in the telecommunications industry
as a result of excess inventory held by these customers. While sales to
these customers are expected to improve, there is no assurance that sales
will not fluctuate in the future nor are we able to predict the time frame
within which there will be renewed sales due to the economic uncertainty in
the telecommunications industry. The decline in product sales from our
Methuen operation was offset by the inclusion of additional revenues of
$15.6 million from our Poly-Flex operation, acquired in March 2000, and
increased sales from our other operations of $4.7 million.
In fiscal 2000, total revenues were $101.8 million, an increase of 52%
from $67.0 million reported in fiscal 1999. Revenues were generated primarily
from product sales. Revenues grew in each of our principal product lines-
flexible circuits and laminated cable. Sales were strong in all markets,
with the largest growth coming from the telecommunications and networking
sector. Our revenues for fiscal 2000 also included Poly-Flex's shipments,
following our acquisition of Poly-Flex on March 1, 2000.
Total revenues included licensing and royalty fees of approximately
$194,000 for fiscal 2001, $1,887,000 for fiscal 2000 and $674,000 in fiscal
1999. Licensing and royalty fees for fiscal 2000 included amounts related
to our $1.3 million patent assignment agreement with Polyclad Laminates,
Inc. The final installment of the Polyclad agreement was recognized in
fiscal 2001. Although we intend to continue developing materials and
processes that we can license to third parties, we do not expect that
licensing and royalty revenues will represent a significant portion of
total revenues in the near term.
Costs of Products Sold. Cost of products sold was $97.5 million, or
94.1% of total revenues, for fiscal 2001, versus $76.6 million, or 75.2% in
fiscal 2000. The increase includes a $2.7 million charge for severance and
inventory reserves associated with the slowdown in the technology markets.
In addition, the Methuen operation experienced unfavorable manufacturing
variances of approximately $12 million or 32% of its total revenues. The
manufacturing variances are due to excess manufacturing capacity associated
with a 31% decrease in product sales for fiscal 2001. To counteract the
excess manufacturing capacity, we initiated measures to reduce personnel
and other manufacturing expenses and we will continue this effort. Although
these cost reduction measures are expected to reduce the percentage of
costs of products sold for the Methuen operation, a return to profitability
is predicated upon operational performance, a favorable product mix and
increased shipments. The increase in the cost of products sold in 2001 also
includes costs associated with our Poly-Flex operation which was acquired
in March 2000.
In fiscal 2000, cost of products sold was $76.6 million, or 75.2% of
total revenues versus $52.8 million, or 78.7% in fiscal 1999. Our gross
margins improved as a result of various factors, including the shift of more
automotive products to our proprietary PALFlex(R) technology, which can
produce a higher performance flexible circuit at a lower cost than using
conventional materials. We also sent more product to our facility in Mexico
for its cost-effective finishing and assembly processes. Dynaflex satisfied
our customer's prototype demands, allowing other facilities to concentrate
on larger production orders, which contributed to enhanced operating
efficiency. Dynaflex did not operate at a profitable level, but we do not
consider its losses for fiscal 2000 material to our overall results.
18
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $17.7 million, or 17.1% of total revenues in
fiscal 2001 and $14.1 million or 13.8% of total revenues for the comparable
period in the prior year. The increase in selling, general and
administrative expenses was primarily due to the inclusion of the Poly-Flex
operation, which was $3.3 million for fiscal 2001 versus $1.9 million in
fiscal 2000, and a charge of $1.4 million for severance and bad debt
allowance associated with the slowdown in our technology markets.
In fiscal 2000, selling, general and administrative expenses were $14.1
million, or 13.8% of total revenues and $9.7 million for the comparable
period in the prior year, or 14.5% of total revenues for that period. The
increase in expenses resulted primarily from the inclusion of the Dynaflex
operations, which we purchased in April 1999, an increase in the sales
commissions associated with increased sales and the expenses of Poly-Flex,
which we purchased in March 2000.
Other Income and Interest Expense and Provision for Income Taxes. Other
income of $501,000 for fiscal 2001 was comprised of interest income from
our short-term investments and $110,000 received relative to the settlement
of legal claims associated with our Methuen building addition. As of June
30, 2001, we had short-term investments of $5.5 million. In fiscal 2000
other income was $237,000, compared to $360,000 in fiscal 1999.
Interest expense was $472,000 for fiscal 2001, $892,000 for fiscal 2000
and $226,000 for fiscal 1999. The interest expense represents interest
incurred on our short and long-term borrowings for working capital needs and
interest expense associated with deferred compensation. The increase in
fiscal 2000 represents the interest on our borrowings required to finance
our Poly-Flex acquisition.
Our loss before income taxes and the minority interest in our Chinese
joint venture, Parlex Shanghai, was $11.5 million for fiscal 2001, and we
earned income of $10.5 million for fiscal 2000 and $4.7 million for fiscal
1999. We own 50.1% of the equity interest in Parlex Shanghai and,
accordingly, include Parlex Shanghai's results of operations, cash flows and
financial position in our consolidated financial statements.
Our effective tax rate was approximately (47%) for fiscal 2001, 28% for
fiscal 2000 and 21% for fiscal 1999. The increase in the effective tax rate
resulted from net operating losses generated in higher tax jurisdictions
and an increased amount of available tax credits.
Liquidity and Capital Resources
As of June 30, 2001, we had approximately $8.7 million in cash and
short-term investments.
Net cash used in operations during fiscal 2001 was $5.5 million. The
decrease in operating cash resulted from an increase in working capital
including $4.2 million in payments to our suppliers. Cash used in investing
activities was $12.3 million for fiscal 2001. These funds were used to
purchase $5.5 million of higher yielding investment grade corporate and
United States Government debt securities and $7.3 million of capital
equipment expenditures net of $525,000 received from Cookson Group plc as
partial settlement of certain purchase price adjustments related to the
Poly-Flex acquisition. Cash provided by financing activities was $9.1 million
for fiscal 2001 and represented the net borrowings and repayments of our bank
debt and cash received through the exercise of stock options.
In fiscal 2000, net cash provided by operations was $4.7 million. Our
operations generated cash of $12.5 million but was offset by $7.8 million
used for working capital requirements including the purchase of inventory
and receivables associated with our 52% growth in sales from fiscal 1999.
Cash used in investing activities was $29.5 million. These funds were used to
purchase Poly-Flex for approximately $20.7 million and $10.4 million for
capital equipment purchases and facility expansion at Methuen,
19
Massachusetts and reduced by $1.6 million provided by the sale of
investment grade corporate and United States Government debt securities.
Cash provided by financing activities was $35.7 million. These funds were
generated from the issuance of our common stock and cash received through
the exercise of stock options of $36.1 million reduced by $400,000 from the
net repayments and borrowings of our bank debt.
On March 1, 2000, we renegotiated our unsecured Revolving Credit
Agreement (the "Agreement") which provided available credit of up to a total
of $15,000,000 through December 31, 2001. On January 1, 2002, the Agreement
converts to a term loan with principal and interest payments due monthly over
a forty-five-month period to September 30, 2005. At the Company's discretion,
borrowings under the Agreement are either a variable rate equal to the bank's
prime rate (6.75% at June 30, 2001) or a fixed rate equal to the LIBOR rate
plus a margin that varies from 1.5% to 2.0%. The Agreement carries an annual
commitment fee of .25% on the average daily unused portion of the bank's
commitment. Interest is payable monthly. In addition, we have a $100,000
stand-by letter of credit which reduces the availability for borrowings
under the Agreement. At June 30, 2001, the unused commitment under the
Agreement was $5,925,000. 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 Agreement permits us to pay
cash dividends to the extent such payment would not cause us to violate the
aforementioned covenants. Due to the year end loss, we were not in compliance
with certain financial covenants as of June 30, 2001 and have subsequently
received a waiver of such non-compliance for June 30, 2001. Under the
existing Agreement, we would be out of compliance with certain financial
covenants at September 30, 2001. However, the bank has continued to allow
us to borrow against the Agreement. At September 27, 2001 the outstanding
balance was reduced to $7,955,000. In September 2001, we have renegotiated
the terms of the Agreement, including the financial covenants, and expect to
execute the renegotiated Agreement in the beginning of the second fiscal
quarter 2002. All debt associated with this Agreement is classified as
current as of June 30, 2001.
On May 4, 2001, we elected, as provided for under our Revolving Credit
Agreement, to convert $7 million of our borrowings into three LIBOR contracts
with maturities of two, three and six months. The LIBOR interest rate plus
margin for these contracts varies between 5.75% and 5.867%. Interest on the
LIBOR contracts is payable at the end of the LIBOR term.
In June 2000, we sold 1,452,500 shares of our common stock in a public
offering. Our proceeds were approximately $35.9 million, net of expenses
associated with the offering. We used a portion of the proceeds to repay the
outstanding indebtedness under our revolving credit agreement and to retire a
$15 million term loan associated with the acquisition of Poly-Flex. The
remaining balance is being used for general corporate purposes, including
working capital.
We believe that our cash on hand, our anticipated cash flow from
operations, and the amount available under the Agreement, as amended,
should be sufficient to meet our anticipated needs for at least the next 12
months.
Recent Adoption of Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("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. The adoption of
SFAS No. 133, on July 1, 2000, did not have a material impact on the
consolidated financial statements.
On December 3, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenues in financial statements filed with
the SEC. The adoption of SAB No. 101 on April 2, 2001 did not have a
material impact on the consolidated financial statements.
20
Future Adoption of Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 will require that the purchase method of
accounting be used for all business combinations initiated after June 30,
2001 and that the use of the pooling-of-interest method is no longer
allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill
will cease and instead, the carrying value of goodwill will be evaluated
for impairment on an annual basis.
Prior to adopting SFAS No. 142, we will perform a transitional
assessment to determine if there is an indication that goodwill is impaired
as of the date of adoption. Any goodwill impairment loss will be recognized
as a cumulative effect of a change in accounting principle no later than
the end of the fiscal year of adoption. Identifiable intangible assets will
continue to be amortized over their useful lives and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." We are
evaluating the impact of the adoption of these standards and have not yet
determined the effect of adoption on our financial position and results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our 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. Our future results may
differ materially from the current results and actual results could differ
materially from those projected in the forward-looking statements as a result
of certain risk factors, including but not limited to those set forth below,
other one-time events and other important factors disclosed previously and
from time to time in our other filings with the Securities and Exchange
Commission.
Our operating results fluctuate and may fail to satisfy the expectations
of public market analysts and investors, causing our stock price to decline.
Our operating results have fluctuated significantly in the past and we
expect our results to continue to fluctuate in the future. Our results may
fluctuate due to a variety of factors, including the timing and volume of
orders from customers, the timing of introductions of and market acceptance
of new products, changes in prices of raw materials, variations in production
yields and general economic trends. It is possible that in some future
periods our results of operations may not meet or exceed the expectations of
public market analysts and investors. If this occurs, the price of our common
stock is likely to decline.
Our quarterly results depend upon a small number of large orders received in
each quarter, so the loss of any single large order could harm quarterly
results and cause our stock price to drop.
A substantial portion of our sales in any given quarter depends on
obtaining a small number of large orders for products to be manufactured and
shipped in the same quarter in which the orders are received. Although we
attempt to monitor our customers' needs, we often have limited knowledge of
the magnitude or timing of future orders. It is difficult for us to reduce
spending on short notice on operating expenses such as fixed manufacturing
costs, development costs and ongoing customer service. As a result, a
reduction in orders, or even the loss of a single large order, for products
to be shipped in any given quarter could have a material adverse effect on
our quarterly operating results. This, in turn, could cause our stock price
to decline.
Because we sell a substantial portion of our products to a limited number of
customers, the loss of a significant customer or a substantial reduction in
orders by any significant customer would harm our operating results.
21
Historically we have sold a substantial portion of our products to a
limited number of customers. Our 20 largest customers based on sales
accounted for approximately 63% of our total revenue in fiscal 1999, 60% in
fiscal 2000, and 55% in fiscal 2001.
We expect that a limited number of customers will continue to account
for a high percentage of our total revenues in the foreseeable future. As a
result, the loss of a significant customer or a substantial reduction in
orders by any significant customer would cause our revenues to decline and
have an adverse effect on our operating results.
If we are unable to respond effectively to the evolving technological
requirements of customers, our products may not be able to satisfy the
demands of existing and prospective customers and we may lose revenues and
market share.
The market for our products is characterized by rapidly changing
technology and continuing process development. The future success of our
business will depend in large part upon our ability to maintain and enhance
our technological capabilities. We will need to develop and market products
that meet changing customer needs, and successfully anticipate or respond to
technological changes on a cost-effective and timely basis. There can be no
assurance that the materials and processes that we are currently developing
will result in commercially viable technological processes, or that there
will be commercial applications for these technologies. In addition, we may
not be able to make the capital investments required to develop, acquire or
implement new technologies and equipment that are necessary to remain
competitive. It is also possible that the flexible interconnect industry
could encounter competition from new technologies in the future that render
flexible interconnect technology less competitive or obsolete. If we fail to
keep pace with technological change, our products may become less competitive
or obsolete and we may lose customers and revenues.
A significant downturn in any of the sectors in which we sell products could
result in a revenue shortfall.
We sell our flexible interconnect products principally to the
automotive, telecommunications and networking, diversified electronics,
aerospace, home appliance and computer markets. Although we serve a variety
of markets to avoid a dependency on any one sector, a significant downturn in
any of these market sectors could cause a material reduction in our revenues,
which could be difficult to replace.
If we fail to expand our manufacturing capacity, we could lose existing and
potential customers and damage our competitive position.
Our long-term competitive position depends in part on our ability to
increase and adapt our manufacturing capacity. During fiscal 2000, we
completed our expansion of the Methuen, Massachusetts and Empalme, Mexico
facilities. Additionally, we acquired 95,500 square feet of manufacturing
space in Cranston, Rhode Island and Newport, Isle of Wight, United Kingdom
with the Poly-Flex acquisition. We must continue to expand our manufacturing
capacity to accommodate additional customer demand, increased sales volumes
and changing customer needs. In addition to expanding our existing
facilities, we may open new facilities to expand our manufacturing capacity
and increase our global presence. Such an expansion would likely require
significant capital expenditures and other expenses and any new facilities
may not operate profitability in the short term or at all. Any failure to
complete our expansions on schedule and within budget could have a material
adverse effect on our revenues and our competitive position.
We rely on a limited number of suppliers, and any interruption in our primary
sources of supply, or any significant increase in the prices of materials,
chemicals or components, would have an adverse effect on our short-term
operating results.
22
We purchase the bulk of our raw materials, process chemicals and
components from a limited number of outside sources. In fiscal 2001, we
purchased approximately 32% of our materials from DuPont and Sheldahl, our
two largest suppliers. We operate under tight manufacturing cycles with a
limited inventory of raw materials. As a result, although there are
alternative sources of the materials that we purchase from our existing
suppliers, any unanticipated interruption in supply from DuPont or Sheldahl,
or any significant increase in the prices of materials, chemicals or
components, would have an adverse effect on our short-term operating results.
If our recently acquired business does not generate the revenues we expect,
has unexpected significant liabilities, or is not successfully integrated
into our existing operations, we may not reap the anticipated benefits of the
acquisition and our operating results may suffer.
We recently acquired Poly-Flex Circuits, Inc. and Poly-Flex Circuits
Limited in order to further diversify our product offerings and target
markets, to help support our existing customer base and to help attract and
retain new customers. We may have difficulties in assimilating the
operations, technologies, products and personnel of the Poly-Flex business
into our existing business. Integration could require capital expenditures
which exceed our expectations. In addition, efforts to integrate the business
could divert our attention from other aspects of our operations. If we fail
to integrate the Poly-Flex business effectively in a timely and non-
disruptive manner, key employees of that business may leave, which could
further complicate our integration efforts and jeopardize the anticipated
benefits of the acquisition.
If we acquire additional businesses, these acquisitions will involve
financial uncertainties as well as personnel contingencies, and may be risky
and difficult to integrate.
We have completed two acquisitions in the past three years and we may
acquire additional businesses that could complement or expand our business.
Acquired businesses may not generate the revenues or profits that we expect
and we may find that they have unknown or undisclosed liabilities. In
addition, if we do make acquisitions, we will face a number of other risks
and challenges, including: the difficulty of integrating dissimilar
operations or assets; potential loss of key employees of the acquired
business; assimilation of new employees who may not contribute or perform at
the levels we expect; diversion of management time and resources; and
additional costs associated with obtaining any necessary financing.
These factors could hamper our ability to receive the anticipated
benefits from any acquisitions we may pursue, and could adversely affect our
financial condition and our stock price.
If we cannot obtain additional financing when needed, we may not be able to
expand our operations and invest adequately in research and development,
which could cause us to lose customers and market share.
The development and manufacturing of flexible interconnects is capital
intensive. To remain competitive, we must continue to make significant
expenditures for capital equipment, expansion of operations and research and
development. We expect that substantial capital will be required to expand
our manufacturing capacity and fund working capital for anticipated growth.
We may need to raise additional funds either through borrowings or further
equity financings. We may not be able to raise additional capital on
reasonable terms, or at all. If we cannot raise the required funds when
needed, we may not be able to satisfy the demands of existing and prospective
customers and may lose revenue and market share.
The additional expenses and risks related to our existing international
operations, as well as any expansion of our global operations, could
adversely affect our business.
We own a 50.1% equity interest in a joint venture in China, which
manufactures and sells flexible circuits. We are negotiating to acquire the
remaining interest in our joint venture, Parlex Shanghai. We also operate a
facility in Mexico for use in the finishing, assembly and testing of flexible
circuit
23
and laminated cable products. We have a facility in the United Kingdom where
we manufacture polymer thick film flexible circuits and polymer thick film
flexible circuits with surface mounted components and intend to introduce
production of laminated cable within the next year. We will continue to
explore appropriate expansion opportunities as demand for our products
increases.
Manufacturing and sales operations outside the United States carry a
number of risks inherent in international operations, including: imposition
of governmental controls, regulatory standards and compulsory licensure
requirements; compliance with a wide variety of foreign and U.S. import and
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.
International expansion may require significant management attention,
which could negatively affect our business. We may also incur significant
costs to expand our existing international operations or enter new
international markets, which could increase operating costs and reduce our
profitability.
We face significant competition, which could make it difficult for us to
acquire and retain customers.
We face 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 our competitors are
larger than we are and have greater financial resources. New competitors
could also enter our markets. Our competitors may be able to duplicate our
strategies, or they may develop enhancements to, or future generations of,
products that could offer price or performance features that are superior to
our products. Competitive pressures could also necessitate price reductions,
which could adversely affect our operating results. In addition, some of our
competitors are based in foreign countries and have cost structures and
prices based on foreign currencies. Accordingly, currency fluctuations could
cause our dollar-priced products to be less competitive than our competitors'
products priced in other currencies.
We will need to make a continued high level of investment in product
research and development and research, sales and marketing and ongoing
customer service and support in order to remain competitive. We may not have
sufficient resources to be able to make these investments. Moreover, we may
not be able to make the technological advances necessary to maintain our
competitive position in the flexible interconnect market.
If we are unable to attract, retain and motivate key personnel, we may not be
able to develop, sell and support our products and our business may lack
strategic direction.
We are dependent upon key members of our management team. In addition,
our future success will depend in large part upon our continuing ability to
attract, retain and motivate highly qualified managerial, technical and sales
personnel. Competition for such personnel is intense, and there can be no
assurance that we will be successful in hiring or retaining such personnel.
We currently maintain a key person life insurance policy in the amount of
$1.0 million on each of Herbert W. Pollack and Peter J. Murphy. If we lose
the service of Messrs. Pollack or Murphy or one or more other key
individuals, or are unable to attract additional qualified members of the
management team, our ability to implement our business strategy may be
impaired. If we are unable to attract, retain and motivate qualified
technical and sales personnel, we may not able to develop, sell and support
our products.
If we are unable to protect our intellectual property, our competitive
position could be harmed and our revenues could be adversely affected.
We rely on a combination of patent and trade secret laws and non-
disclosure and other contractual agreements to protect our proprietary
rights. We own 22 patents issued and have 21 patent applications pending in
the United States and have several corresponding foreign patent applications
pending. Our
24
existing patents may not effectively protect our intellectual property and
could be challenged by third parties, and our future patent applications, if
any, may not be approved. In addition, other parties may independently
develop similar or competing technologies. Competitors may attempt to copy
aspects of our products or to obtain and use information that we regard as
proprietary. If we fail to adequately protect our proprietary rights, our
competitors could offer similar products using materials, processes or
technologies developed by us, potentially harming our competitive position
and our revenues.
If we become involved in a protracted intellectual property dispute, or one
with a significant damages award or which requires us to cease selling some
of our products, we could be subject to significant liability and the time
and attention of our management could be diverted.
Although no claims have been asserted against us for infringement of
the proprietary rights of others, we may be subject to a claim of
infringement in the future. An intellectual property lawsuit against us, if
successful, could subject us to significant liability for damages and could
invalidate our proprietary rights. A successful lawsuit against us could also
force us to cease selling, or redesign, products that incorporate the
infringed intellectual property. We could also be required to obtain a
license from the holder of the intellectual property to use the infringed
technology. We might not be able to obtain a license on reasonable terms, or
at all. If we fail to develop a non-infringing technology on a timely basis
or to license the infringed technology on acceptable terms, our revenues
could decline and our expenses could increase.
We may in the future be required to initiate claims or litigation
against third parties for infringement of our proprietary rights or to
determine the scope and validity of our proprietary rights or the proprietary
rights of competitors. Litigation with respect to patents and other
intellectual property matters could result in substantial costs and divert
our management's attention from other aspects of our business.
Market prices of technology companies have been highly volatile, and our
stock price may be volatile as well.
From time to time the U.S. stock market has experienced significant
price and trading volume fluctuations, and the market prices for the common
stock of technology companies in particular have been extremely volatile. In
the past, broad market fluctuations that have affected the stock price of
technology companies have at times been unrelated or disproportionate to the
operating performance of these companies. Any significant fluctuations in the
future might result in a material decline in the market price of our common
stock.
Following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been
brought against that company. If we were to become involved in this type of
litigation, we could incur substantial costs and diversion of management's
attention, which could harm our business, financial condition and operating
results.
The costs of complying with existing or future environmental regulations, and
of curing any violations of these regulations, could increase our operating
expenses and reduce our profitability.
We are 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, our products. We cannot predict the nature, scope or effect of
future regulatory requirements to which our operations might be subject or
the manner in which existing or future laws will be administered or
interpreted. Future regulations could be applied to materials, product or
activities that have not been subject to regulation previously. The costs of
complying with new or more stringent regulations, or with more vigorous
enforcement of these regulations, could be significant.
25
Environmental laws require us 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 our processes.
Violations of these requirements could result in financial penalties and
other enforcement actions. We could also be required to halt one or more
portions of our operations until a violation is cured. Although we attempt to
operate in compliance with these environmental laws, we may not succeed in
this effort at all times. The costs of curing violations or resolving
enforcement actions that might be initiated by government authorities could
be substantial.
Our business could be materially adversely affected by the recent terrorist
attacks.
Since we sell our flexible interconnect products principally to the
automotive, telecommunications and networking, diversified electronics,
aerospace and computer markets, our future success depends upon the viability
of both the United States and global economy. As a result of the recent
terrorist attacks and the economic uncertainty created by these events, there
exist a significant number of risks which may cause a downturn in any of our
market sectors thereby creating a material reduction in our revenues which
could be difficult to replace. There can be no assurance that a continuation
of the terrorist attacks will not have a material adverse effect upon the
Company's business, results of operations or financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in U.S. and foreign interest rates and fluctuations in
exchange rates. We do not use derivative financial instruments for
speculative or trading purposes.
As of June 30, 2001, we maintained a portion of our cash and cash
equivalents in financial instruments that will mature in four 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 our financial position.
We also have a $15,000,000 revolving credit line that bears interest,
at our choice, at our lender's prime rate or LIBOR plus a margin that varies
from 1.5% to 2.0%. Both the prime and LIBOR rates are affected by changes in
market interest rates. As of June 30, 2001, we have an outstanding balance of
$8,975,000. We have the option to repay borrowings at anytime without
penalty, other than breakage fees in the case of prepayment of LIBOR rate
borrowings, and therefore believe that our market risk is not material. A 10%
change in interest rates would impact interest expense by approximately
$65,000. We do not consider this to be material or significant. A change in
interest rates would have a corresponding change in the fair value of our
debt instruments.
The remainder of our long-term debt bears interest at fixed rates and
is therefore not subject to market risk.
Sales of Parlex Shanghai and Poly-Flex Circuits Limited are typically
denominated in the local currency, which is also each company's functional
currency. This creates exposure to changes in exchange rates. The changes in
the Chinese/U.S. and U.K./U.S. exchange rates may positively or negatively
impact our sales, gross margins and retained earnings. Based upon the current
volume of transactions in China and the United Kingdom and the stable nature
of the exchange rate between China and the U.S. and the United Kingdom and
the U.S., we do not believe the market risk is material. We do not engage in
regular hedging activities to minimize the impact of foreign currency
fluctuations. Parlex Shanghai had net assets as of June 30, 2001, of
approximately $8.1 million. Poly-Flex Circuits Limited had net assets as of
June 30, 2001 of approximately $5.7 million. We believe that a 10% change in
exchange rates would not have a significant
26
impact upon Parlex Shanghai's or Poly-Flex Circuits Limited's financial
position, results of operation or outstanding debt. As of June 30, 2001,
Parlex Shanghai had outstanding debt of $1.5 million. As of June 30, 2001,
Poly-Flex Circuits Limited had no outstanding debt.
Item 8. Financial Statements and Supplementary Data
---------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Parlex Corporation
Methuen, Massachusetts
We have audited the accompanying consolidated balance sheets of Parlex
Corporation and its subsidiaries (the "Company") as of June 30, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June
30, 2001. Our audits also included the financial statement schedule listed in
the Index at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2001 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
September 27, 2001
F-1
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
-------------------------------------------------------------------------------
ASSETS 2001 2000
CURRENT ASSETS:
Cash and cash equivalents $ 3,203,990 $ 11,949,858
Short-term investments 5,533,703 -
Accounts receivable - less allowance
for doubtful accounts of $1,896,100
in 2001 and $404,000 in 2000 17,434,115 19,167,016
Inventories, net 19,318,522 21,148,660
Refundable income taxes 2,921,145 -
Deferred income taxes 2,901,201 1,079,073
Other current assets 2,634,085 2,781,661
------------ ------------
Total current assets 53,946,761 56,126,268
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 1,018,822 893,865
Buildings 22,109,721 20,240,949
Machinery and equipment 56,174,718 50,457,494
Leasehold improvements and other 6,806,493 5,746,720
Construction in progress 3,843,792 5,003,002
------------ ------------
Total 89,953,546 82,342,030
Less accumulated depreciation and
amortization (34,379,848) (28,114,968)
------------ ------------
Property, plant and equipment - net 55,573,698 54,227,062
------------ ------------
GOODWILL 906,708 4,447,358
OTHER ASSETS 436,785 539,950
------------ ------------
TOTAL $110,863,952 $115,340,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,710,299 $ 1,482,524
Accounts payable 8,330,461 11,292,256
Accrued liabilities 3,889,540 4,599,549
------------ ------------
Total current liabilities 22,930,300 17,374,329
------------ ------------
LONG-TERM DEBT 118,762 360,386
------------ ------------
OTHER NONCURRENT LIABILITIES 2,442,274 5,932,931
------------ ------------
MINORITY INTEREST IN PARLEX SHANGHAI 4,021,485 3,883,416
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value -
authorized, 1,000,000 shares; none issued
Common stock, $.10 par value - authorized,
30,000,000 shares in 2001 and 10,000,000
shares in 2000; issued 6,513,216 and
6,485,884 shares in 2001 and 2000,
respectively 651,321 648,588
Additional paid-in capital 60,897,275 60,678,009
Retained earnings 21,467,585 27,623,632
Accumulated other comprehensive income (loss) (627,425) (123,028)
Less treasury stock, at cost - 210,000
shares in 2001 and 2000 (1,037,625) (1,037,625)
------------ ------------
Total stockholders' equity 81,351,131 87,789,576
------------ ------------
TOTAL $110,863,952 $115,340,638
============ ============
See notes to consolidated financial statements.
F-2
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
-------------------------------------------------------------------------------
2001 2000 1999
REVENUES:
Product sales $103,426,642 $ 99,952,142 $66,372,800
License fees and royalty income 193,547 1,886,602 674,483
------------ ------------ -----------
Total revenues 103,620,189 101,838,744 67,047,283
------------ ------------ -----------
COSTS AND EXPENSES:
Cost of products sold 97,460,179 76,613,787 52,784,488
Selling, general and administrative expenses 17,706,049 14,096,704 9,715,341
------------ ------------ -----------
Total costs and expenses 115,166,228 90,710,491 62,499,829
------------ ------------ -----------
OPERATING (LOSS) INCOME (11,546,039) 11,128,253 4,547,454
OTHER INCOME, Net 501,036 236,812 359,748
INTEREST EXPENSE (471,882) (891,805) (226,378)
------------ ------------ -----------
(LOSS) INCOME FROM OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST (11,516,885) 10,473,260 4,680,824
BENEFIT (PROVISION) FOR INCOME TAXES 5,453,245 (2,906,219) (964,032)
------------ ------------ -----------
(LOSS) INCOME BEFORE MINORITY INTEREST (6,063,640) 7,567,041 3,716,792
MINORITY INTEREST (135,845) (1,231,705) (697,239)
------------ ------------ -----------
NET (LOSS) INCOME $ (6,199,485) $ 6,335,336 $ 3,019,553
============ ============ ===========
BASIC (LOSS) INCOME PER SHARE $ (0.99) $ 1.31 $ .65
============ ============ ===========
DILUTED (LOSS) INCOME PER SHARE $ (0.99) $ 1.28 $ .63
============ ============ ===========
See notes to consolidated financial statements.
F-3
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
-------------------------------------------------------------------------------
Accumulated Compre-
Common Additional Other hensive
Stock Paid-in Retained Treasury Comprehensive Income
Shares Amount Capital Earnings Stock Income (Loss) (Loss) Total
BALANCE, JULY 1, 1998 4,850,649 $485,065 $23,872,745 $18,268,743 $(1,037,625) $ 2,185 $41,591,113
Comprehensive income:
Net income - - - 3,019,553 - - $ 3,019,553 3,019,553
-----------
Other comprehensive
income (loss), net
of tax:
Foreign currency
translation adjustment - - - - - - 20,999 20,999
Unrealized loss on
short-term investments - - - - - - (8,306) (8,306)
-----------
Other comprehensive
income (loss) 12,693 12,693
-----------
Comprehensive income
(loss) $ 3,032,246
===========
Exercise of stock options 140,500 14,050 604,853 - - - 618,903
Tax benefit arising from
the exercise of stock
options - - 90,968 - - - 90,968
-------------------------------------------------------------------------- ------------
BALANCE, JUNE 30, 1999 4,991,149 499,115 24,568,566 21,288,296 (1,037,625) 14,878 45,333,230
Comprehensive income
(loss):
Net income - - - 6,335,336 - - $ 6,335,336 6,335,336
-----------
Other comprehensive
income (loss), net
of tax:
Foreign currency
translation adjustment - - - - - - (136,020) (136,020)
Unrealized gain on
short-term investments - - - - - - (1,886) (1,886)
-----------
Other comprehensive
income (loss) (137,906) (137,906)
-----------
Comprehensive income
(loss) $ 6,197,430
===========
Exercise of stock options 42,235 4,223 256,921 - - - 261,144
Tax benefit arising from
the exercise of stock
options - - 132,735 - - - 132,735
Stock offering, net of
expenses 1,452,500 145,250 35,719,787 - - - 35,865,037
-------------------------------------------------------------------------- ------------
BALANCE, JUNE 30, 2000 6,485,884 648,588 60,678,009 27,623,632 (1,037,625) (123,028) 87,789,576
Comprehensive income
(loss):
Net loss - - - (6,199,485) - - $(6,199,485) (6,199,485)
-----------
Other comprehensive income
(loss), net of tax:
Foreign currency
translation adjustment - - - - - - (539,149) (539,149)
Unrealized gain on
short-term investments - - - - - - 34,752 34,752
-----------
Other comprehensive
income (loss) (504,397) (504,397)
-----------
Comprehensive income
(loss) $(6,703,882)
===========
Effect of subsidiary
accounting period change - - - 43,438 - - 43,438
Tax benefit arising from
the exercise of stock
options - - 71,773 - - - 71,773
Exercise of stock options
and other 27,332 2,733 147,493 - - - 150,226
-------------------------------------------------------------------------- ------------
BALANCE, JUNE 30, 2001 6,513,216 $651,321 $60,897,275 $21,467,585 $(1,037,625) $(627,425) $81,351,131
========================================================================== ===========
F-4
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
-------------------------------------------------------------------------------
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (6,199,485) $ 6,335,336 $ 3,019,553
------------ ------------ ------------
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization of property, plant and
equipment and other assets 6,260,344 4,757,235 2,943,092
Realized loss on sale of equipment 74,369 - -
Deferred income taxes (2,826,730) 71,943 93,580
Refundable income taxes (2,921,145) - -
Tax benefit arising from the exercise of stock options 71,773 132,735 90,968
Minority interest 135,845 1,231,705 697,239
Changes in current assets and liabilities:
Accounts receivable - net 1,664,805 (1,905,970) (2,529,600)
Inventories 1,729,045 (7,758,203) (1,612,413)
Other assets 694,530 (753,118) 399,600
Accounts payable and accrued liabilities (4,215,370) 2,593,122 1,966,291
------------ ------------ ------------
Net cash (used in) provided by operating activities (5,532,019) 4,704,785 5,068,310
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Parlex-Dynaflex subsidiary - - (2,620,000)
Purchase of Poly-Flex subsidiary 525,000 (20,682,061) -
(Purchases) maturities of investments available for
sale, net (5,498,951) 1,605,067 5,174,211
Additions to property, plant and equipment (7,311,625) (10,386,405) (12,834,228)
------------ ------------ ------------
Net cash used for investing activities (12,285,576) (29,463,399) (10,280,017)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common shares - net - 35,865,037 -
Proceeds from bank loans 23,580,184 30,584,673 600,000
Payment of bank loans (14,594,033) (31,042,251) (676,578)
Exercise of stock options and other 150,226 261,144 618,903
------------ ------------ ------------
Net cash provided by financing activities 9,136,377 35,668,603 542,325
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (64,650) (136,020) 21,038
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,745,868) 10,773,969 (4,648,344)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,949,858 1,175,889 5,824,233
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,203,990 $ 11,949,858 $ 1,175,889
============ ============ ============
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS:
Liabilities assumed in acquisitions $ - $ 5,506,000 $ 140,000
============ ============ ============
Property, plant and equipment acquired in exchange for
accounts receivable and inventory $ - $ - $ 344,000
============ ============ ============
Property and equipment financed under capital lease,
long-term debt, and accounts payable $ 293,530 $ 49,500 $ 730,080
============ ============ ============
See notes to consolidated financial statements.
F-5
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
-------------------------------------------------------------------------------
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, telecommunications and networking, diversified
electronics, aerospace and computer.
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. ("Parlex Shanghai") (see Note 3).
The Company previously consolidated Parlex Shanghai and its wholly owned
subsidiary, Parlex Asia Pacific Limited ("PAPL") on a three-month time lag.
Beginning with the quarter ending December 31, 2000, the Company conformed
the reporting of Parlex Shanghai and PAPL with its December quarter
financial results. Accordingly, the Parlex Shanghai and PAPL net income for
the quarter ended September 26, 2000 is reported as an adjustment to
retained earnings in the amount of $43,000. Intercompany transactions have
been eliminated.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with accounting principles generally accepted in
the United States of America 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
and inventory, 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.
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. Gains or losses on translation are
accumulated as a component of other comprehensive income or loss.
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, 2001, 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 the specific-identification method. 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.
F-6
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories - Inventories of raw materials are stated at the lower of cost,
first-in, first-out or market. Work in process and finished goods are
valued as a percentage of completed cost, not in excess of net realizable
value. At June 30, inventories consisted of:
2001 2000
Raw materials $ 6,766,359 $ 7,810,642
Work in process 8,861,718 9,693,854
Finished goods 3,690,445 3,644,164
----------- -----------
Total $19,318,522 $21,148,660
=========== ===========
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 - 30-40 years; machinery and equipment -
2-15 years; and leasehold improvements over the terms of the lease. The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Assets to be disposed of are reported at the
lower of the carrying amount or fair value, less cost to sell. The Company
has not recorded any impairment losses during 2001, 2000, or 1999.
Revenue Recognition - Revenue on product sales is recognized when
persuasive evidence of an arrangement exists, the price is fixed and
determinable, delivery has occurred and there is reasonable assurance of
collection of the sales proceeds. The Company generally obtains written
purchase authorizations from its customers for a specified amount of
product, at a specified price and considers delivery to have occurred at
the time of shipment. License fees and royalty income are recognized when
earned.
Research and Development - Research and development costs are expensed as
incurred and amounted to $6,906,000, $4,237,000 and $3,760,000 for the
years ended June 30, 2001, 2000 and 1999, 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 basis differences between assets and liabilities for
financial reporting and tax purposes.
(Loss) Income Per Share - Basic (loss) 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.
F-7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Loss) Income Per Share (Continued)
A reconciliation between shares used for computation of basic and dilutive
income per share is as follows:
2001 2000 1999
Shares for basic computation 6,289,117 4,842,055 4,661,790
Effect of dilutive stock options - 98,429 109,084
--------- --------- ---------
Shares for dilutive computation 6,289,117 4,940,484 4,770,874
========= ========= =========
Antidilutive potential shares not included in per-share calculations for
2001, 2000 and 1999 were approximately 42,862, 65,000 and 87,250,
respectively.
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, short-term
investments, 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 since the
majority of long-term debt bears interest at a rate similar to the
prevailing market rate.
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 Poly-Flex and Parlex-Dynaflex business acquisitions is
being amortized on a straight-line basis over their expected lives 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. The accumulated amortization of goodwill totaled $234,477, $220,100
and $16,800 at June 30, 2001, 2000 and 1999, respectively.
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 9.
Reclassifications - Certain prior period amounts have been reclassified to
conform to the current year presentation.
Recent Adoption of Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board ("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. The adoption of SFAS No. 133, on July 1, 2000, did not have a
material impact on the consolidated financial statements.
F-8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Adoption of Accounting Pronouncements (Continued)
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenues in financial statements filed with
the SEC. The adoption of SAB No. 101 on April 2, 2001 did not have a
material impact on the consolidated financial statements.
Future Adoption of Accounting Pronouncements - In July 2001, the FASB
issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 will require that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001 and that the use of the pooling-of-interest method is no
longer allowed. SFAS No. 142 requires that upon adoption, amortization of
goodwill will cease and instead, the carrying value of goodwill will be
evaluated for impairment on an annual basis.
Prior to adopting SFAS No. 142, the Company will perform a transitional
assessment to determine if there is an indication that goodwill is impaired
as of the date of adoption. Any goodwill impairment loss will be
recognized as a cumulative effect of a change in accounting principle no
later than the end of the fiscal year of adoption. Identifiable intangible
assets will continue to be amortized over their useful lives and reviewed
for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company is evaluating the impact of the adoption of these
standards and has not yet determined the effect of adoption on its
financial position and results of operations.
2. ACQUISITIONS
Poly-Flex - On March 1, 2000, pursuant to a Stock Purchase Agreement (the
"Agreement") dated as of January 21, 2000, by and among the Company and
Cookson Group plc and Cookson Investment, Inc. (together, "Cookson"), the
Company completed its acquisition of the stock of two Cookson wholly-owned
subsidiaries, Poly-Flex Circuits Limited and Poly-Flex Circuits, Inc.
(collectively, "Poly-Flex"), for $19,650,000 in cash. Costs associated
with the transaction approximated $1,000,000. The acquisition was recorded
under the purchase method of accounting. On December 15, 2000, the Company
jointly filed with Cookson a tax election with the Internal Revenue Service
to account for the transaction as an asset acquisition for tax purposes
whereby the assets acquired would be recorded, for tax purposes, at fair
value versus their carryover tax basis. Accordingly, the Company adjusted
purchase price related to deferred tax liabilities and goodwill in the
amount of $2,495,000. In addition, on June 28, 2001, the Company entered
into a settlement agreement with Cookson resolving any purchase price or
contingent purchase price adjustment between the two companies. The terms
of the settlement agreement provide that Cookson pay Parlex $1,050,000 in
full settlement of all outstanding claims by both companies relative to any
purchase price adjustment. The Company received $525,000 in cash prior to
June 30, 2001 and has recorded a receivable for an additional $525,000
within other current assets in the consolidated balance sheet. The final
purchase price after this settlement and the tax election is $19,765,000
including acquisition costs of approximately $1,165,000. Accordingly, in
fiscal 2001, the Company reallocated the purchase price as follows:
F-9
2. ACQUISITIONS (CONTINUED)
Poly-Flex (Continued)
Accounts receivable $ 3,208,000
Inventories 2,447,000
Other current assets 436,623
Property, plant and equipment 16,533,681
Accounts payable and accrued liabilities (2,551,000)
Deferred tax liabilities (309,000)
-----------
Net assets of Poly-Flex $19,765,304
===========
The results of operations of Poly-Flex are included in the consolidated
results of the Company from the acquisition date.
The following unaudited pro forma summary presents information as if Poly-
Flex had been acquired as of the beginning of the Company's fiscal years
2000 and 1999. The pro forma amounts include certain adjustments, primarily
to recognize depreciation and amortization based on the preliminary
allocation of the purchase price of Poly-Flex's net assets, interest
expense associated with the debt used to acquire Poly-Flex and adjustments
for various allocated charges from Poly-Flex's previous parent. The
adjustments do not reflect any benefits from economies which might be
achieved from combining operations. The pro forma information does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
companies:
Unaudited
2000 1999
Revenue $116,908,000 $92,842,000
Income from operations 10,525,000 6,312,000
Net income 5,680,000 3,205,000
Net income per share:
Basic $ 1.17 $ 0.69
Diluted 1.15 0.67
Shares used to compute net income per share
Basic 4,842,000 4,662,000
Diluted 4,940,000 4,771,000
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, inventories, 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 10 years. The results of operations of Dynaflex were not
significant to the Company in 1999.
F-10
3. 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, Parlex Shanghai.
Parlex Shanghai manufactures flexible printed circuits and commenced
operations in September 1995. Minority interest in the consolidated
statements of operations represents the minority shareholder's share of the
income or loss of Parlex Shanghai. The minority interest in the
consolidated balance sheets reflect the original investment by these
minority shareholders in Parlex Shanghai, along with their proportional
share of the earnings or losses of Parlex Shanghai.
4. CASH AND SHORT-TERM INVESTMENTS
A summary of the Company's investments available for sale by major security
type at June 30, 2001 is as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Security Type Cost Gains Losses Value
Cash management fund $ 204,596 $ - $ - $ 204,596
Corporate debt securities 5,294,355 34,752 - 5,329,107
---------- ------- ---- ----------
Total $5,498,951 $34,752 $ - $5,533,703
========== ======= ==== ==========
All corporate debt securities at June 30, 2001 have contractual maturities
of less than one year. The Company had no short-term investments at June
30, 2000.
5. ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of:
2001 2000
Payroll and related expenses $1,369,057 $2,282,970
Accrued health insurance 350,008 278,194
Commissions 983,181 1,237,371
Other 1,187,294 801,014
---------- ----------
Total $3,889,540 $4,599,549
========== ==========
F-11
6. INDEBTEDNESS
Long-term debt at June 30 consisted of:
2001 2000
Parlex Shanghai term notes $ 1,495,717 $ 1,205,533
Capital lease obligations 358,344 637,377
Revolving credit agreement 8,975,000 -
----------- -----------
Total long-term debt 10,829,061 1,842,910
Less current portion 10,710,299 1,482,524
----------- -----------
Long-term debt - net $ 118,762 $ 360,386
=========== ===========
Revolving Credit Agreement - On March 1, 2000, the Company renegotiated its
unsecured Revolving Credit Agreement (the "Agreement") (originally dated
June 22, 1994) making available up to a total of $15,000,000 through
December 31, 2001. On January 1, 2002, the Agreement converts to a term
loan with principal and interest payments due monthly over a forty-five
month period to September 30, 2005. At the Company's discretion,
borrowings under the Agreement are either a variable rate equal to the
prime rate (6.75% at June 30, 2001) or a fixed rate equal to the LIBOR rate
plus a margin that varies from 1.5% to 2.0%. The Agreement carries an
annual commitment fee of .25% on the average daily unused portion of the
bank's commitment. Interest is payable monthly. In addition, the Company
has available a $100,000 stand-by letter of credit which reduces the
Company's availability for borrowings under the Agreement. At June 30,
2001, the unused commitment under the Agreement was $5,925,000.
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 Agreement permits the Company to pay cash
dividends to the extent such payment would not cause the Company to violate
the aforementioned covenants. The Company was not in compliance with
certain financial covenants as of June 30, 2001 and has subsequently
received a waiver of such non-compliance for June 30, 2001. Under the existing
Agreement, the Company would be out of compliance with certain financial
covenants at September 30, 2001. However, the bank has continued to allow the
Company to borrow against the Agreement. In September 2001, the Company has
renegotiated the terms of the Agreement, including the financial covenants,
and expects to execute the renegotiated Agreement in the beginning of the
second fiscal quarter 2002.
On March 1, 2000, the Company entered into a term loan (the "Term Loan")
agreement with a bank. The Term Loan agreement consisted of a $15,000,000
credit facility, bearing interest at LIBOR base rate plus a margin of 1.5%
to 2.0%. The Term Loan was repaid using the proceeds from a common stock
offering (see Note 9).
Parlex Shanghai Term Notes - Parlex Shanghai entered into two short-term
notes in May and March 2001 bearing interest at 6.2865% and 7.6875%,
respectively. A minority interest partner in Parlex Shanghai guarantees the
short-term notes. Amounts outstanding under these short-term notes total
$1,495,717 and are included within the current portion of long-term debt on
the consolidated balance sheet for the year ended June 30, 2001. The
Company and an additional Parlex-Shanghai minority interest holder provide
cross guarantees for the term note in direct proportion to their respective
interests in the Company.
F-12
6. INDEBTEDNESS (CONTINUED)
The maturities for long-term debt at June 30, 2001 are as follows:
2002 $10,710,299
2003 118,762
-----------
$10,829,061
===========
Interest paid during the years ended June 30, 2001, 2000 and 1999 was
approximately $454,000, $887,000 and $236,000, respectively.
Approximately $1,114,500 of equipment is recorded under capital leases at
June 30, 2001 and 2000. Accumulated amortization on the capital lease
equipment approximated $749,000 and $296,000 at June 30, 2001 and 2000,
respectively.
7. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at June 30 consisted of:
2001 2000
Deferred income taxes (Note 8) $1,390,390 $4,898,992
Deferred compensation 1,051,884 1,033,939
---------- ----------
$2,442,274 $5,932,931
========== ==========
Deferred compensation of $171,500 is to be paid within one year and is
included within accrued liabilities in the consolidated balance sheet at
June 30, 2001.
8. INCOME TAXES
Income (loss) before income taxes consisted of:
2001 2000 1999
Domestic $(13,537,847) $ 9,327,873 $3,150,969
Foreign 2,020,962 1,145,387 1,529,855
------------ ----------- ----------
Total $(11,516,885) $10,473,260 $4,680,824
============ =========== ==========
F-13
8. INCOME TAXES (CONTINUED)
The benefit (provision) for income taxes consisted of:
2001 2000 1999
Current:
State $ - $ (201,720) $(118,626)
Federal 2,821,486 (2,102,868) (620,267)
Foreign (194,971) (396,953) (40,591)
---------- ----------- ---------
2,626,515 (2,701,541) (779,484)
Deferred Tax:
State 7,442 (28,452) (31,062)
Federal 129,358 (445,741) (176,020)
Foreign - - -
---------- ----------- ---------
136,800 (474,193) (207,082)
Tax Credits:
State 141,841 235,560 113,502
Federal 616,303 166,690 -
---------- ----------- ---------
758,144 402,250 113,502
Effect on Tax Benefit (Expense)
from Exercise of Stock Options:
State 7,555 (13,972) (13,645)
Federal 64,218 (118,763) (77,323)
---------- ----------- ---------
71,773 (132,735) (90,968)
Tax Benefit from Operating
Losses Carryforwards:
State 733,865 - -
Federal 1,326,148 - -
Valuation Allowance (200,000) - -
---------- ----------- ---------
1,860,013 - -
---------- ----------- ---------
Total $5,453,245 $(2,906,219) $(964,032)
========== =========== =========
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
2001 2000 1999
Statutory federal income tax rate (34)% 34 % 34 %
State income taxes, net of federal tax benefit (4) 2 1
Foreign income - not subject to taxation - (7) (9)
Foreign sales corporation (1) (2) (3)
Tax credits (7) (1) (1)
Valuation allowance on net operating loss
carryforwards 2 - -
Other (3) 2 (1)
--- -- --
Effective income tax rate (47)% 28 % 21 %
=== == ==
The Company's China joint venture, Parlex Shanghai, 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 years ended June 30, 2001.
No provision for U.S. income taxes has been recorded on undistributed
earnings of Parlex Shanghai (approximately $2,536,000 at June 30, 2001)
or Poly-Flex Circuits Limited (approximately $100,000 at June 30, 2001)
because such amounts are considered permanently invested.
F-14
8. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities at June 30 are attributable to
the following:
2001 2000
Deferred tax liabilities:
Depreciation $ 4,121,057 $5,327,941
Accruals 272,325 -
Prepaid expenses 207,650 62,545
----------- ----------
4,601,032 5,390,486
----------- ----------
Deferred tax assets:
Inventories 1,284,907 253,998
Allowance for doubtful accounts 689,688 85,910
Goodwill 59,470 9,993
Accruals 475,777 253,594
Self-insurance 69,020 100,000
Deferred compensation 512,574 464,822
Net operating loss carryforwards 2,060,013 -
Tax credit carryforwards 1,160,394 402,250
----------- ----------
6,311,843 1,570,567
----------- ----------
Less valuation allowance (200,000) -
----------- ----------
6,111,843 1,570,567
----------- ----------
Net deferred tax (asset) liability $(1,510,811) $3,819,919
=========== ==========
Tax credit carryforwards consist of research and development, alternative
minimum, and investment tax credits available for state and federal purposes.
To the extent the credits are not currently utilized on the Company's tax
returns, deferred tax assets, subject to the considerations about the need
for a valuation allowance, are recognized for the carryforward amounts.
Research and development tax credits, if not utilized, will expire in the
years 2003 through 2021. The Company's alternative minimum tax and
investment credits do not expire and can be carried forward indefinitely.
The Company has available at June 30, 2001, federal and state net operating
loss carryforwards of approximately $3,900,000 and $733,000, respectively,
expiring in 2021 and 2006, respectively. A valuation allowance has been
established to reduce the deferred tax asset recorded for certain state net
operating loss carryforwards that may expire unutilized through 2006.
Income tax payments of approximately $600,000, $2,469,000 and $605,000 were
made in 2001, 2000 and 1999, respectively.
9. STOCKHOLDERS' EQUITY
Preferred Stock - 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,
2001, the Board of Directors has not authorized any series of preferred
stock.
Common Stock - On August 30, 2000, a special meeting of the Company's
stockholders approved an amendment to the Company's Restated Articles of
Organization increasing the number of authorized shares of common stock,
par value $.10 per share, from 10,000,000 shares to 30,000,000 shares.
Common Stock Offering - In June 2000, the Company sold 1,452,500 shares of
its common stock in an underwritten public offering of which 202,500 shares
were sold pursuant to an underwriters' over-allotment provision. Proceeds
to the Company approximated $35,865,000, net of expenses associated with
the offering. A portion of the proceeds was used by the Company to repay
all the outstanding indebtedness under the Company's Revolving Credit
Agreement and $15.0 million Term Loan (see Note 6). The remaining balance
of the net proceeds is being used by the Company for general corporate
purposes, including working capital.
F-15
9. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans - The Company has incentive and nonqualified stock
option plans covering officers, key employees and non-employee directors.
The options are generally exercisable commencing one year from the date of
grant and typically expire in either five or ten years, depending on the
plan. The option price for the incentive stock options and for the
directors' plan is fair market value at the date of grant. Non-employee
directors receive an automatic grant of 1,500 options annually.
Additionally, grants of up to 2,250 options annually, per director, may
also be made at the discretion of the Board of Directors. Nonqualified
stock options are granted at fair market value or at a price determined by
the Board of Directors, depending on the plan.
On November 28, 2000, the Board of Directors approved a proposal to offer
certain employees a choice to cancel approximately 45,000 stock options
granted to them in February and March 2000 in exchange for new options to
purchase 75% of the original number of shares of stock. The new options
will be granted six months and one day from the date the old options were
cancelled. The exercise price of the new options will be the market price
on the grant date. The exchange offer was not available to members of the
Board of Directors or executive officers.
At June 30, 2001, there were 389,193 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:
Weighted-
Average
Shares Exercise
Under Price Per Shares
Option Share Exercisable
July 1, 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
Granted 167,000 23.79
Surrendered (5,438) 15.12
Exercised (42,235) 6.18
-------- ------
June 30, 2000 362,957 11.97 118,832
Granted 59,250 11.81
Surrendered (66,875) 29.71
Exercised (27,332) 6.81
-------- ------
June 30, 2001 328,000 $15.76 154,562
======= ====== =======
F-16
9. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The following table sets forth information regarding options outstanding at
June 30, 2001:
Options Outstanding Options Exercisable
--------------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Exercise
Prices Outstanding Life (Years) Price Number Price
$ 5.67 - $ 6.67 21,000 3.7 $ 5.96 21,000 $ 5.96
10.00 - 10.45 17,500 8.8 10.26 7,500 10.00
12.06 - 13.38 101,750 7.9 12.57 33,250 12.84
15.50 - 16.25 86,125 8.0 16.17 26,875 16.03
18.75 - 19.13 79,625 6.4 18.79 60,437 18.80
22.00 2,000 8.9 22.00 500 22.00
32.75 20,000 8.7 32.75 5,000 32.75
------- --- ------ ------- ------
$ 5.67 - $32.75 328,000 7.4 $15.76 154,562 $15.33
======= === ====== ======= ======
As described in Note 1, the Company uses the intrinsic-value method in
accordance with APB Opinion 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 (loss)
income and diluted income per share would have been ($7,108,000) or ($1.13)
per share in 2001, $5,439,000 or $1.10 per share in 2000 and $2,606,000 or
$.55 per share in 1999.
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
option-pricing model are as follows:
2001 2000 1999
Average risk-free interest rate 5.6 % 5.6 % 5.5%
Expected life of option grants 2.5 years 2.5 years 2.5 years
Expected volatility of underlying stock 88% 74% 69%
Expected dividend rate None None None
The weighted-average fair value of options granted in 2001, 2000 and 1999
was $6.46, $11.57, and $5.76, 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 10 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.
Accumulated Other Comprehensive Income (Loss) - The Company reports
comprehensive income (loss) in accordance with the provisions of SFAS No.
130, "Reporting Comprehensive Income." 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 (loss) are as follows:
F-17
9. STOCKHOLDERS' EQUITY (CONTINUED)
Accumulated Other Comprehensive Income (Loss) (Continued)
Foreign Accumulated
Currency Unrealized Other
Translation Gains (Losses) Comprehensive
Adjustments on Investments Income (Loss)
Balance, July 1, 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
Change in balance (136,020) (1,886) (137,906)
--------- ------- ---------
Balance, June 30, 2000 (123,028) - (123,028)
Change in balance (539,149) 34,752 (504,397)
--------- ------- ---------
Balance, June 30, 2001 $(662,177) $34,752 $(627,425)
========= ======= =========
A summary of the changes in unrealized gains (loss) in short-term
investments is as follows for the years ended June 30:
2001 2000 1999
Unrealized gains on short-term investments:
Unrealized holding gains arising during the year $34,752 $ - $ -
Less reclassification adjustment for (loss)
gains realized in net income - (1,886) (8,306)
------- ------- -------
Net unrealized gains (losses) on short-term investments $34,752 $(1,886) $(8,306)
======= ======= =======
10. BENEFIT PLANS
The Company sponsors a 401(k) Savings Plan (the "Plan") covering all
domestic employees of the Company who have three consecutive months of
service and have attained the age of 21. Matching employer contributions
equal 50% of the first 8% of employee contributions and vest 100% after
three complete years of service. Effective September 1, 2001, the Company
has suspended the matching employer contributions. The Company contributed
approximately $492,000, $26,000 and $172,000 to the Plan for the years
ended June 30, 2001, 2000 and 1999, respectively.
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, 2001, 2000
and 1999. During 2001, this plan was terminated and the assets were
transferred into the Company's Plan.
F-18
11. 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, 2001, 2000 and 1999
approximated $1,378,000, $798,000 and $869,000, respectively. Future
payments under noncancelable capital and operating leases are:
Capital Operating
Leases Leases
2002 $358,959 $ 989,000
2003 - 839,000
2004 - 838,000
2005 - 789,000
2006 - 403,000
Thereafter - 1,403,000
-------- ----------
Total minimum lease payments 358,959 5,261,000
==========
Less amounts representing interest (615)
--------
Present value of net minimum lease payments 358,344
Current maturities of capitalized lease
obligations 358,344
--------
Portion of capitalized lease obligations due
after one year $ -
========
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 would
have a material adverse effect on the Company's consolidated financial
position, results of operations, or cash flows.
12. 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, the Chief Executive Officer.
Revenue consists of product sales, license fees, and royalty income.
Revenues from one customer accounted for 10% and 15% of the Company's
revenues in 2000 and 1999, respectively. Revenues from another customer
accounted for 10% of the Company's revenues in 2000. No other revenues
from a single customer exceeded 10% of the Company's revenues in
2001, 2000, or 1999.
F-19
12. BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL OPERATIONS
(CONTINUED)
Summarized information relating to international operations is as follows:
2001 2000 1999
Revenues:
United States $ 62,803,825 $ 59,001,502 $ 46,785,650
Canada 5,888,696 17,262,614 10,671,000
China 6,576,148 5,434,875 1,929,250
Europe 19,585,733 13,186,932 5,016,674
Other 8,765,787 6,952,821 2,644,709
------------ ------------ ------------
Total revenues $103,620,189 $101,838,744 $ 67,047,283
============ ============ ============
The principal product group sales were:
Flexible circuits $ 81,288,991 $ 80,047,383 $ 49,625,163
Laminated cables 22,137,651 19,904,759 16,747,637
------------ ------------ ------------
Product sales $103,426,642 $ 99,952,142 $ 66,372,800
============ ============ ============
Long-lived assets:
United States $ 47,938,826 $ 51,652,326 $ 31,110,693
============ ============ ============
China $ 5,623,713 $ 3,427,673 $ 2,356,264
============ ============ ============
United Kingdom $ 3,354,652 $ 4,134,371 $ -
============ ============ ============
F-20
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands except per
share amounts):
First Second Third Fourth (A)
2001 Quarters
Revenues $29,689 $27,001 $24,889 $22,041
Gross profit (loss) 5,555 1,615 (15) (995)
Net (loss) income 872 (2,274) (3,550) (1,247)
Net (loss) income per share:
Basic .14 (0.36) (0.56) (0.21)
Diluted .14 (0.36) (0.56) (0.21)
2000 Quarters
Revenues $20,366 $24,384 $25,271 $31,818
Gross profit 4,702 5,782 6,366 8,375
Net income 1,340 1,556 1,704 1,735
Net income per share:
Basic .28 .32 .35 .36
Diluted .28 .32 .34 .34
(A) Fourth quarter 2001 net income includes a non-recurring pretax charge
of $2,201,000 related to severance, and increases in reserves for
inventory and the allowance for bad debts. In addition, the Company
recorded a $4,746,000 change in its income tax benefit reflecting net
operating loss carryforwards and additional tax credits.
F-21
Part III
Item 9. Changes In and Disagreements With Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
The information required by this 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 our
definitive proxy statement to be filed with the Commission within 120 days
of June 30, 2001.
Item 11. Executive Compensation
-------------------------------
The information required by this 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
our definitive proxy statement to be filed with the Commission within 120
days of June 30, 2001.
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 our definitive proxy statement to be
filed with the Commission within 120 days of June 30, 2001.
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
We retain as our general counsel the law firm of Kutchin & Rufo, P.C.
to perform legal services on our behalf. Payments made by us to Kutchin &
Rufo, P.C. in fiscal 2001 were approximately $180,000. Edward D. Kutchin is
a shareholder in the professional corporation of Kutchin & Rufo, P.C. and
is the son-in-law of Herbert W. Pollack, the Chairman of the Board of
Directors.
Part IV
Item 14. Exhibits, Financial Statement Schedule And Reports on Form 8-K
-----------------------------------------------------------------------
(a)
1. Consolidated Financial Statements
The Consolidated Financial Statements are filed as part of this
report.
2. Consolidated Financial Statement Schedules
The schedule is filed as part of this report and is set forth below:
27
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2001, 2000 and 1999
Additions
Balance at Charges to Charges to Balance at
Beginning Cost and Other End of
of Year Expenses Accounts Deductions Year
------------------------------------------------------------------------------------------------------
Allowance for Bad Debts
June 30, 2001 $ 404,000 $1,877,743 $ 249 $ (385,377) $1,896,615
June 30, 2000 255,000 649,000 - (500,000) 404,000
June 30, 1999 252,000 557,000 - (554,000) 255,000
------------------------------------------------------------------------------------------------------
Accumulated Amortization of Goodwill
June 30, 2001 220,100 250,284 - (235,907) 234,477
June 30, 2000 16,800 219,162 - (15,862) 220,100
June 30, 1999 - 16,800 - - 16,800
------------------------------------------------------------------------------------------------------
Accumulated Depreciation
June 30, 2001 28,114,968 5,919,839 345,041 - 34,379,848
June 30, 2000 23,915,018 4,491,855 - (291,905) 28,114,968
June 30, 1999 22,031,645 2,905,193 - (1,021,820) 23,915,018
------------------------------------------------------------------------------------------------------
Inventory Obsolescence
June 30, 2001 711,709 2,782,385 - - 3,494,094
June 30, 2000 - 711,709 - - 711,709
June 30, 1999 - - - - -
------------------------------------------------------------------------------------------------------
All other 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
See Index to Exhibits on page 30 of this report.
The exhibits listed below are either filed herewith or incorporated by
reference in this report.
(b) Reports on Form 8-K
None
28
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, 2001.
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, 2001
----------------------------
Herbert W. Pollack
* /s/ Peter J. Murphy Director and Chief September 28, 2001
---------------------------- Executive Officer
Peter J. Murphy (Principal Executive
Officer)
* /s/ Robert A. Rieth Sr. Vice President and September 28, 2001
---------------------------- Chief Financial Officer
Robert A. Rieth (Principal Financial and
Accounting Officer)
* /s/ Sheldon A. Buckler Director September 28, 2001
----------------------------
Sheldon A. Buckler
* /s/ Richard W. Hale Director September 28, 2001
----------------------------
Richard W. Hale
* /s/ M. Joel Kosheff Director September 28, 2001
----------------------------
M. Joel Kosheff
* /s/ Lester Pollack Director September 28, 2001
----------------------------
Lester Pollack
* /s/ Benjamin M. Rabinovici Director September 28, 2001
----------------------------
Benjamin M. Rabinovici
* /s/ Robert A. Rieth Attorney-in-Fact September 28, 2001
----------------------------
Robert A. Rieth
29
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
3-A Restated Articles of Organization as amended (dated August 2,
1983); (filed as 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 dated 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-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.
30
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, 1999;(filed as
Exhibit 10-Q to Form 10-K for the fiscal year ended June 30,
1999).
10-R Employment Agreement between Parlex Corporation and Peter J.
Murphy, dated September 1, 1999;(filed as Exhibit 10-R to Form
10-K for the fiscal year ended June 30, 1999).
10-S Loan Agreement dated as of March 1, 2000 between Parlex
Corporation and Fleet National Bank (filed as Exhibit 10-S to
Form 8-K dated March 15, 2000 and filed with the Securities and
Exchange Commission on March 15, 2000).
10-T Patent Assignment Agreement between Parlex Corporation and
Polyclad Laminates, Inc., dated January 20, 2000; (filed as
Exhibit 10-T to Form 10-K for the fiscal year ended June 30,
2000).
21.1 Subsidiaries of the Registrant; filed herewith.
23.1 Consent of Independent Auditors; filed herewith.
24.1 Powers of Attorney; filed herewith.
* Denotes management contract or compensatory plan or arrangement.
31