PARK AEROSPACE CORP - Quarter Report: 2009 November (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended November 29,
2009
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ________ to__________
Commission
file number 1-4415
PARK
ELECTROCHEMICAL CORP.
(Exact
Name of Registrant as Specified in Its Charter)
|
New
York
|
11-1734643
|
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
| 48 South Service Road, Melville, N.Y. |
11747
|
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(631) 465-3600
(Registrant's
Telephone Number, Including Area Code)
Not Applicable
(Former
Name, Former Address and Former Fiscal Year,
if
Changed Since Last Report)
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes [ ] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated file, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
Accelerated Filer
|
[ ] |
Accelerated
Filer
|
[X] | |
|
Non-Accelerated
File
|
[ ] |
Smaller
Reporting Company
|
[ ] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No
[X]
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 20,540,690 as of January 5,
2010.
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
TABLE OF
CONTENTS
|
PART
I.
|
FINANCIAL
INFORMATION:
|
Page
Number
|
|
Item
1.
|
Financial
Statements
|
|
|
Condensed
Consolidated Balance Sheets
November
29, 2009 (Unaudited) and March 1, 2009
|
3
|
|
|
Consolidated
Statements of Operations
13
weeks and 39 weeks ended November 29, 2009 and November 30, 2008
(Unaudited)
|
4
|
|
|
Consolidated
Statements of Stockholders’ Equity
13
weeks and 39 weeks ended November 29, 2009 and November 30, 2008
(Unaudited)
|
5
|
|
|
Condensed
Consolidated Statements of Cash Flows
39
weeks ended November 29, 2009 and November 30, 2008
(Unaudited)
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
Factors
That May Affect Future Results
|
25
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
|
Item
4.
|
Controls
and Procedures
|
26
|
|
PART
II.
|
OTHER
INFORMATION:
|
|
|
Item
1.
|
Legal
Proceedings
|
27
|
|
Item
1A.
|
Risk
Factors
|
27
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
|
|
||
|
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
|
|
||
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
27
|
|
Item
5.
|
Other
Information
|
28
|
|
Item
6.
|
Exhibits
|
28
|
|
SIGNATURES
|
29
|
|
|
EXHIBIT
INDEX
|
30
|
|
2
PART
I. FINANCIAL INFORMATION
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands)
|
November
29,
2009
(Unaudited)
|
March
1,
2009*
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 157,990 | $ | 40,790 | ||||
|
Marketable
securities (Note 2)
|
76,411 | 184,504 | ||||||
|
Accounts
receivable, net
|
27,291 | 22,433 | ||||||
|
Inventories
(Note 3)
|
10,717 | 10,677 | ||||||
|
Prepaid
expenses and other current assets
|
3,421 | 5,527 | ||||||
|
Total
current assets
|
275,830 | 263,931 | ||||||
|
Property,
plant and equipment, net
|
45,156 | 48,777 | ||||||
|
Other
assets
|
15,863 | 14,871 | ||||||
|
Total
assets
|
$ | 336,849 | $ | 327,579 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 9,670 | $ | 8,480 | ||||
|
Accrued
liabilities
|
8,852 | 11,425 | ||||||
|
Income
taxes payable
|
3,866 | 4,381 | ||||||
|
Total
current liabilities
|
22,388 | 24,286 | ||||||
|
Deferred
income taxes
|
3,722 | 3,927 | ||||||
|
Restructuring
accruals and other liabilities (Note 5)
|
2,758 | 3,657 | ||||||
|
Total
liabilities
|
28,868 | 31,870 | ||||||
|
Stockholders'
equity:
|
||||||||
|
Common
stock
|
2,054 | 2,047 | ||||||
|
Additional
paid-in capital
|
149,088 | 146,934 | ||||||
|
Retained
earnings
|
154,770 | 145,107 | ||||||
|
Treasury
stock, at cost
|
(1 | ) | (1 | ) | ||||
|
Accumulated
other comprehensive income
|
2,070 | 1,622 | ||||||
|
Total
stockholders' equity
|
307,981 | 295,709 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 336,849 | $ | 327,579 | ||||
*The
balance sheet at March 1, 2009 has been derived from the audited financial
statements at that date.
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
3
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Amounts
in thousands, except per share amounts)
|
13
weeks ended
|
39
weeks ended
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
November
29,
2009
|
November
30,
2008
|
November
29,
2009
|
November
30,
2008
|
|||||||||||||
|
Net
sales
|
$ | 46,088 | $ | 49,166 | $ | 125,303 | $ | 164,565 | ||||||||
|
Cost
of sales
|
32,327 | 39,380 | 91,386 | 129,253 | ||||||||||||
|
Gross
profit
|
13,761 | 9,786 | 33,917 | 35,312 | ||||||||||||
|
Selling,
general and administrative
expenses
|
6,128 | 6,211 | 17,248 | 18,715 | ||||||||||||
|
Restructuring
charges (Note 5)
|
- | 570 | - | 570 | ||||||||||||
|
Earnings
from operations
|
7,633 | 3,005 | 16,669 | 16,027 | ||||||||||||
|
Interest
income and other income
|
112 | 1,651 | 1,005 | 5,015 | ||||||||||||
|
Earnings
from operations before income taxes
|
7,745 | 4,656 | 17,674 | 21,042 | ||||||||||||
|
Income
tax provision (Note 8)
|
576 | 1,722 |
2,676
|
5,614
|
||||||||||||
|
Net
earnings
|
$ | 7,169 | $ | 2,934 | $ | 14,998 | $ | 15,428 | ||||||||
|
Earnings
per share (Note 6)
|
||||||||||||||||
|
Basic
|
$ | 0.35 | $ | 0.14 | $ | 0.73 | $ | 0.76 | ||||||||
|
Diluted
|
$ | 0.35 | $ | 0.14 | $ | 0.73 | $ | 0.75 | ||||||||
|
Weighted
average number of common and common equivalent shares
outstanding:
|
||||||||||||||||
|
Basic
shares
|
20,541 | 20,471 | 20,515 | 20,432 | ||||||||||||
|
Diluted
shares
|
20,573 | 20,512 | 20,536 | 20,487 | ||||||||||||
|
Dividends
declared per share (Note
7)
|
$ | - | $ | 0.08 | $ | 0.26 | $ | 0.24 | ||||||||
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
4
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts
in thousands)
|
13
weeks ended
|
39
weeks ended
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
November
29,
2009
|
November
30,
2008 |
November
29,
2009 |
November
30,
2008 |
|||||||||||||
|
Common
stock and paid-in capital:
|
||||||||||||||||
|
Balance,
beginning of period
|
$ | 150,730 | $ | 148,468 | $ | 148,981 | $ | 145,304 | ||||||||
|
Stock-based
compensation
|
257 | 288 | 828 | 943 | ||||||||||||
|
Stock
option activity
|
0 | 0 | 1,178 | 2,066 | ||||||||||||
|
Tax
benefit on exercise of options
|
155 | 0 | 155 | 443 | ||||||||||||
|
Balance,
end of period
|
151,142 | 148,756 | 151,142 | 148,756 | ||||||||||||
|
Retained
earnings:
|
||||||||||||||||
|
Balance,
beginning of period
|
147,601 | 125,876 | 145,107 | 116,646 | ||||||||||||
|
Net
earnings
|
7,169 | 2,934 | 14,998 | 15,428 | ||||||||||||
|
Dividends
|
- | (1,637 | ) | (5,335 | ) | (4,901 | ) | |||||||||
|
Balance,
end of period
|
154,770 | 127,173 | 154,770 | 127,173 | ||||||||||||
|
Treasury
stock:
|
||||||||||||||||
|
Balance,
beginning of period
|
(1 | ) | (2 | ) | (1 | ) | (214 | ) | ||||||||
|
Stock
option activity
|
- | 1 | - | 213 | ||||||||||||
|
Balance,
end of period
|
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
|
Accumulated
other comprehensive income:
|
||||||||||||||||
|
Balance,
beginning of period
|
1,886 | 5,462 | 1,622 | 7,436 | ||||||||||||
|
Net
unrealized investment gains (losses)
|
86 | (1,235 | ) | 94 | (2,710 | ) | ||||||||||
|
Translation
adjustments
|
98 | (302 | ) | 354 | (801 | ) | ||||||||||
|
Balance,
end of period
|
2,070 | 3,925 | 2,070 | 3,925 | ||||||||||||
|
Total
stockholders' equity
|
$ | 307,981 | $ | 279,853 | $ | 307,981 | $ | 279,853 | ||||||||
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
5
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
|
39
Weeks Ended
|
||||||||
|
(Unaudited)
|
||||||||
|
November
29,
2009
|
November
30,
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
earnings
|
$ | 14,998 | $ | 15,428 | ||||
|
Depreciation
and amortization
|
5,221 | 5,889 | ||||||
|
Stock-based
compensation
|
828 | 943 | ||||||
|
Loss
on sale of fixed assets
|
- | 2 | ||||||
|
Change
in operating assets and liabilities
|
(5,499 | ) | 4 | |||||
|
Net
cash provided by operating activities
|
15,548 | 22,266 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of property, plant and equipment, net
|
(1,675 | ) | (11,734 | ) | ||||
|
Proceeds
from sales of fixed assets
|
130 | 2 | ||||||
|
Purchases
of marketable securities
|
(91,732 | ) | (187,323 | ) | ||||
|
Proceeds
from sales and maturities of marketable
securities
|
199,565 | 119,316 | ||||||
|
Business
acquisition
|
(1,025 | ) | (4,726 | ) | ||||
|
Net
cash provided by (used in) investing activities
|
105,263 | (84,465 | ) | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Dividends
paid
|
(5,335 | ) | (4,901 | ) | ||||
|
Proceeds
from exercise of stock options
|
1,178 | 2,236 | ||||||
|
Tax
benefits from stock based compensation
|
155 | 443 | ||||||
|
Net cash used in financing activities
|
(4,002 | ) | (2,222 | ) | ||||
|
Change
in cash and cash equivalents before exchange
rate changes
|
116,809 | (64,421 | ) | |||||
|
Effect
of exchange rate changes on cash and
cash equivalents
|
391 | (740 | ) | |||||
|
Change
in cash and cash equivalents
|
117,200 | (65,161 | ) | |||||
|
Cash
and cash equivalents, beginning of period
|
40,790 | 100,159 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 157,990 | $ | 34,998 | ||||
|
Supplemental
cash flow information:
|
||||||||
|
Cash
paid during the period for income taxes
|
$ | 3,941 | $ | 7,496 | ||||
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
6
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except per share and option amounts)
|
1.
|
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
|
The
condensed consolidated balance sheet as of November 29, 2009, the consolidated
statements of operations and stockholders’ equity for the 13 weeks and 39 weeks
ended November 29, 2009 and the condensed consolidated statements of cash flows
for the 39 weeks then ended have been prepared by Park Electrochemical Corp.
(the “Company”), without audit. In the opinion of management, these unaudited
consolidated financial statements contain all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
at November 29, 2009 and the results of operations, stockholders’ equity and
cash flows for all periods presented. The Company has evaluated events or
transactions which occurred subsequent to the balance sheet date, but prior to
January 7, 2010, for recognition or disclosure.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the fiscal year ended March 1, 2009.
|
2.
|
MARKETABLE
SECURITIES
|
The fair
value of investments was determined based on observable
inputs, which
were quoted market prices for identical assets in active markets.
|
3.
|
INVENTORIES
|
Inventories
consisted of the following:
|
November
29,
2009
|
March
1,
2009
|
|||||||
|
Raw
materials
|
$ | 5,609 | $ | 5,711 | ||||
|
Work-in-progress
|
2,074 | 2,110 | ||||||
|
Finished
goods
|
2,714 | 2,561 | ||||||
|
Manufacturing
supplies
|
320 | 295 | ||||||
| $ | 10,717 | $ | 10,677 | |||||
|
4.
|
STOCK-BASED
COMPENSATION
|
As of
November 29, 2009, the Company had a 1992 Stock Option Plan and a 2002 Stock
Option Plan, and no other stock-based compensation plan. Both Stock Option Plans
have been approved by the Company’s stockholders and provide for the grant of
stock options to directors and key employees of the Company. All options granted
under such Plans have exercise prices equal to the fair market value of the
underlying common stock of the Company at the time of grant, which pursuant to
the terms of the Plans, is the reported closing price of the common stock on the
New York Stock Exchange on the date preceding the date the option is granted.
Options granted under the Plans become exercisable 25% one year from the date
of
7
grant,
with an additional 25% exercisable each succeeding anniversary of the date of
grant, and expire 10 years from the date of grant. The authority to grant
additional options under the 1992 Stock Option Plan expired on March 24, 2002,
and options to purchase a total of 1,800,000 shares of common stock were
authorized for grant under the 2002 Stock Option Plan. At November
29, 2009, 1,951,126 shares of common stock of the Company were reserved for
issuance upon exercise of stock options under the 1992 Stock Option Plan and the
2002 Stock Option Plan and 933,031 options were available for future grant under
the 2002 Stock Option Plan. Options to purchase 146,450 shares and 150,450
shares of common stock were granted during the 13 weeks and 39 weeks,
respectively, ended November 29, 2009. Options to purchase 142,850 shares of
common stock were granted during the 13 weeks and 39 weeks, respectively, ended
November 30, 2008.
The
Company records its stock-based compensation at fair value. The weighted average
fair value for options was estimated at the date of grant using the
Black-Scholes option-pricing model to be $8.05 for the first 39 weeks of fiscal
year 2010, with the following assumptions: risk free interest rates of
2.75%-3.42%; expected volatility factors of 32.1%-35.7%; expected dividend
yields of 1.60%-1.98%; and estimated option terms of 5.1-5.7 years.
The risk
free interest rate is based on U.S. Treasury rates at the date of grant with
maturity dates approximately equal to the estimated term of the options at the
date of the grant. Volatility is based on historical volatility of the Company’s
common stock. The expected dividend yield is based on the regular cash dividends
per share paid by the Company in the 2009 fiscal year and on the exercise price
of the options granted during the 13 weeks and 39 weeks ended November 29, 2009.
The estimated term of the options is based on evaluations of historical and
expected future employee exercise behavior.
The
future compensation expense affecting earnings from operations before income
taxes for options outstanding at November 29, 2009 will be $2,330 and will be
recognized over the next four fiscal years.
The
following is a summary of options for the 39 weeks ended November 29,
2009:
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contract
Life
in
Months
|
Aggregated
Intrinsic
Value |
|||||||||||||
|
Outstanding
at March 1, 2009
|
982,727 | $ | 24.35 | 66.38 | $ | - | ||||||||||
|
Granted
|
150,450 | 24.71 | ||||||||||||||
|
Exercised
|
(70,175 | ) | 16.78 | |||||||||||||
|
Terminated
or expired
|
(44,907 | ) | 26.32 | |||||||||||||
|
Outstanding
at November 29, 2009
|
1,018,095 | $ | 24.89 | 69.64 | $ | 915 | ||||||||||
|
Exercisable
at November 29, 2009
|
674,029 | $ | 24.12 | 50.83 | $ | 864 | ||||||||||
The total
intrinsic value of options exercised during the 13 weeks ended November 29, 2009
and November 30, 2008 was $0 and $0, respectively. The total intrinsic value of
options exercised during the 39 weeks ended November 29, 2009 and November 30,
2008 was $352 and $1,259, respectively.
8
A summary
of the status of the Company’s nonvested options at November 29, 2009, and
changes during the 39 week-period then ended, is presented below:
|
Shares
Subject
to
Options
|
Weighted
Average
Grant Date Fair Value |
|||||||
|
Nonvested,
beginning of period
|
337,985 | $ | 7.16 | |||||
|
Granted
|
150,450 | 8.05 | ||||||
|
Vested
|
(110,094 | ) | 7.80 | |||||
|
Terminated
|
(34,275 | ) | 7.70 | |||||
|
Nonvested,
end of period
|
344,066 | $ | 7.43 | |||||
|
5.
|
RESTRUCTURINGS
AND SEVERANCE CHARGES
|
In the
2009 fiscal year fourth quarter, the Company recorded one-time pre-tax charges
of $5,688 related to the closure of the Company’s New England Laminates Co.,
Inc. electronic materials business unit located in Newburgh, New York and the
closure of the Company’s Neltec Europe SAS electronic materials business unit
located in Mirebeau, France and related to an asset impairment and workforce
reduction at the Company’s Nelco Products Pte. Ltd. electronic materials and
advanced composite materials business unit in Singapore. Such charges included
non-cash asset impairment charges of $4,617 and were net of the recapture of
non-cash cumulative currency translation adjustments of $3,957. In
the 2009 fiscal year third quarter, the Company recorded a pre-tax charge of
$570 related to restructurings at certain of its North American and European
business units. The Company paid $3,045 of these charges during the 2009 fiscal
year and $92 and $2,518, respectively, during the 13 weeks and 39 weeks ended
November 29, 2009.
During
the 2004 fiscal year, the Company recorded charges related to the realignment of
its North America volume printed circuit materials operations. The charges were
for employment termination benefits of $1,258, which were fully paid in fiscal
year 2004, and lease and other obligations of $7,292. All costs other than the
lease obligations were settled prior to fiscal year 2007. The future lease
obligations are payable through September 2013. The remaining balances on the
lease obligations relating to the realignment were $2,273 and $3,209 as of
November 29, 2009 and March 1, 2009, respectively. For the 13 weeks and 39 weeks
ended November 29, 2009, the Company applied $440 and $936, respectively, of
lease payments against such lease obligations.
|
6.
|
EARNINGS
PER SHARE
|
Basic
earnings per share are computed by dividing net earnings by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share are computed by dividing net earnings by the sum of (a) the weighted
average number of shares of common stock outstanding during the period and (b)
the potential common stock equivalents outstanding during the period. Stock
options are the only common stock equivalents, and the number of dilutive
options is computed using the treasury stock method.
9
The
following table sets forth the calculation of basic and diluted earnings per
share for the 13 weeks and 39 weeks ended November 29, 2009 and November 30,
2008.
|
13
weeks ended
|
39
weeks ended
|
|||||||||||||||
|
November
29,
2009
|
November
30,
2008
|
November
29,
2009
|
November
30,
2008
|
|||||||||||||
|
Net
Earnings
|
$ | 7,169 | $ | 2,934 | $ | 14,998 | $ | 15,428 | ||||||||
|
Weighted
average common shares outstanding for basic EPS
|
20,541 | 20,471 | 20,515 | 20,432 | ||||||||||||
|
Net
effect of dilutive options
|
32 | 41 | 21 | 55 | ||||||||||||
|
Weighted
average shares outstanding for diluted EPS
|
20,573 | 20,512 | 20,536 | 20,487 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.35 | $ | 0.14 | $ | 0.73 | $ | 0.76 | ||||||||
|
Diluted
earnings per share
|
$ | 0.35 | $ | 0.14 | $ | 0.73 | $ | 0.75 | ||||||||
Common
stock equivalents, which were not included in the computation of diluted
earnings per share because the effect would have been antidilutive as the
options’ exercise prices were greater than the average market price of the
common stock, were 707 and 764 for the 13 weeks ended November 29, 2009 and
November 30, 2008, respectively, and 758 and 452 for the 39 weeks ended November
29, 2009 and November 30, 2008, respectively.
|
7.
|
DIVIDENDS
DECLARED
|
On July
22, 2009, the Company announced that its Board of Directors had approved an
increase in the Company’s regular quarterly cash dividend to $0.10 per share and
declared a regular quarterly cash dividend of $0.10 per share payable November
5, 2009 to stockholders of record on October 7, 2009. The $0.10 per share
dividend was paid November 5, 2009.
|
8.
|
INCOME
TAXES
|
The
Company’s effective tax rate for the 13-week and 39-week periods ended November
29, 2009 were 7.4% and 15.1%, respectively, compared to 37.0% and 26.7%,
respectively, for both the 13-week and 39-week periods ended November 30, 2008.
The effective rates varied from the U.S. Federal statutory rate primarily due to
foreign income taxed at lower rates. During the 13 weeks ended November 29,
2009, the Company received a retroactive extension and amendment of a
development and expansion tax incentive in Singapore for the period July 1, 2007
through June 30, 2011. The extension and amendment provides for reduced tax
rates for taxable income in excess of a stipulated base level of taxable income.
Primarily as a result of the retroactive portion of the extension and amendment,
the Company recognized a discrete tax benefit of $945 as a reduction of income
tax expense in the 13 weeks ended November 29, 2009. The Company’s policy is to
include applicable interest and penalties related to unrecognized tax benefits
as a component of income tax expense.
10
|
9.
|
GEOGRAPHIC
REGIONS
|
The
Company is a global advanced materials company which develops, manufactures,
markets and sells high technology digital and RF/microwave printed circuit
materials principally for the telecommunications and internet infrastructure and
high-end computing markets and advanced composite materials, parts and
assemblies principally for the aerospace markets. The Company's printed circuit
materials (the Nelco® product line), the Company’s advanced composite materials
(the Nelcote™ product line) and the Company’s composite parts and assemblies
(the Nova™ product line) are sold to customers in North America, Europe and
Asia.
Sales are
attributed to geographic region based upon the region in which the materials
were delivered to the customer. Sales between geographic regions were not
significant.
Financial
information concerning the Company's operations by geographic region
follows:
|
13
weeks ended
|
39
weeks ended
|
|||||||||||||||
|
November
29,
2009
|
November
30,
2008
|
November
29,
2009
|
November
30,
2008
|
|||||||||||||
|
Sales:
|
|
|||||||||||||||
|
North
America
|
$ | 22,092 | $ | 26,231 | $ | 63,834 | $ | 84,428 | ||||||||
|
Europe
|
4,240 | 5,147 | 11,967 | 19,332 | ||||||||||||
|
Asia
|
19,756 | 17,788 | 49,502 | 60,805 | ||||||||||||
|
Total
sales
|
$ | 46,088 | $ | 49,166 | $ | 125,303 | $ | 164,565 | ||||||||
|
November
29,
2009
|
March
1,
2009
|
|||||||
|
Long-lived
assets:
|
||||||||
|
North
America
|
$ | 39,764 | $ | 41,423 | ||||
|
Europe
|
1,259 | 1,112 | ||||||
|
Asia
|
19,996 | 21,113 | ||||||
|
Total
long-lived assets
|
$ | 61,019 | $ | 63,648 | ||||
|
10.
|
CONTINGENCIES
|
|
a.
|
Litigation – The
Company is subject to a small number of proceedings, lawsuits and other
claims related to environmental, employment, product and other matters.
The Company is required to assess the likelihood of any adverse judgments
or outcomes in these matters as well as potential ranges of probable
losses. A determination of the amount of reserves required, if any, for
these contingencies is made after careful analysis of each individual
issue. The required reserves may change in the future due to new
developments in each matter or changes in approach, such as a change in
settlement strategy in dealing with these
matters.
|
|
b.
|
Environmental Contingencies
– The Company and certain of its subsidiaries have been named by
the Environmental Protection Agency (the "EPA") or a comparable state
agency under the Comprehensive Environmental Response, Compensation and
Liability Act (the "Superfund Act") or similar state law as potentially
responsible parties in connection with alleged releases of hazardous
substances at eight sites.
|
11
In
addition, two subsidiaries of the Company have received cost recovery claims
under the Superfund Act or a similar state law from other private parties
involving two other sites, and a subsidiary of the Company has received requests
from the EPA under the Superfund Act for information with respect to its
involvement at three other sites.
|
|
Under
the Superfund Act and similar state laws, all parties who may have
contributed any waste to a hazardous waste disposal site or contaminated
area identified by the EPA or comparable state agency may be jointly and
severally liable for the cost of cleanup. Generally, these sites are
locations at which numerous persons disposed of hazardous waste. In the
case of the Company's subsidiaries, generally the waste was removed
from their manufacturing facilities and disposed at waste sites by various
companies which contracted with the subsidiaries to provide waste disposal
services. Neither the Company nor any of its subsidiaries have been
accused of or charged with any wrongdoing or illegal acts in connection
with any such sites. The Company believes it maintains an effective and
comprehensive environmental compliance
program.
|
|
|
The
insurance carriers who provided general liability insurance coverage to
the Company and its subsidiaries for the years during which the
Company's subsidiaries' waste was disposed at these sites have agreed to
pay, or reimburse the Company and its subsidiaries for, 100% of their
legal defense and remediation costs associated with three of these sites
and 25% of such costs associated with another one of these
sites.
|
The total
costs incurred by the Company and its subsidiaries in connection with these
sites, including legal fees incurred by the Company and its subsidiaries and
their assessed share of remediation costs and excluding amounts paid or
reimbursed by insurance carriers, were approximately $1 and $3, respectively, in
the 13 weeks and 39 weeks ended November 29, 2009 and approximately $110 in the
13 weeks and 39 weeks ended November 30, 2008, respectively. In the nine-month
periods ended November 29, 2009 and November 30, 2008, the Company reversed
accruals of approximately $835 and $638, respectively, for environmental
remedial response and clean-up costs, which were recorded as reductions to
selling, general and administrative expenses for such periods, as a result of
the Company’s conclusion that the likelihood of any liability in connection with
such accruals was remote. The recorded liabilities included in accrued
liabilities for environmental matters were $9 at November 29, 2009 and $844 at
March 1, 2009.
|
|
Such
recorded liabilities do not include environmental liabilities and related
legal expenses for which the Company has concluded indemnification
agreements with the insurance carriers who provided general liability
insurance coverage to the Company and its subsidiaries for the years
during which the Company's subsidiaries' waste was disposed at three sites
for which certain subsidiaries of the Company have been named as
potentially responsible parties, pursuant to which agreements such
insurance carriers have been paying 100% of the legal defense and
remediation costs associated with such three sites since
1985.
|
|
|
Included
in selling, general and administrative expenses are charges for actual
expenditures and accruals, based on estimates, for certain environmental
matters described above. The Company accrues estimated costs
associated with known environmental matters, when such costs can be
reasonably estimated and when the outcome appears probable. The Company
believes that the ultimate disposition of known environmental matters will
not have a material adverse effect on the liquidity, capital resources,
business or consolidated results of operations or
|
12
financial
position of the Company. However, one or more of such environmental matters
could have a significant negative impact on the Company's consolidated results
of operations or financial position for a particular reporting period.
|
c.
|
Acquisition – The
Company is obligated to pay up to an additional $4,400 over four years
depending on the achievement of specified earn-out objectives in
connection with the acquisition by the Company’s wholly owned subsidiary,
Park Aerospace Structures Corp., of substantially all the assets and
business of Nova Composites, Inc., a manufacturer of composite parts and
assemblies and the tooling for such parts and assemblies, located in
Lynnwood, Washington, in addition to a cash purchase price of $4,500 paid
at the closing of the acquisition on April 1, 2008 and an additional
$1,025, recorded as additional goodwill, paid during the three months
ended August 30, 2009. Any additional amount paid will be recorded as
goodwill.
|
|
11.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Effective
March 2, 2009, the Company adopted new authoritative guidance on Business
Combinations. The new guidance requires an acquirer, upon initially obtaining
control of another entity, to recognize the assets, liabilities and any
non-controlling interest in the acquiree at fair value as of the acquisition
date. The new guidance requires acquisition-related costs to be expensed as
incurred rather than allocating such costs to the assets acquired and
liabilities assumed. The adoption of this new guidance did not have an impact on
the Company’s Consolidated Financial Statements.
Effective
August 30, 2009, the Company adopted new authoritative guidance on Interim
Disclosures about Fair Value of Financial Instruments, which requires fair value
disclosures for all financial instruments whether recognized or not in the
statement of financial position. With the adoption of this new guidance, on a
quarterly basis, quantitative and qualitative information will be required to be
disclosed about the fair value estimates for all financial instruments. The
adoption of this new guidance did not have an impact on the Company’s
Consolidated Financial Statements.
Effective
August 30, 2009, the Company adopted new authoritative guidance
on Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly. This new guidance clarifies the methodology used to
determine fair value when there is no active market or when the price inputs
being used represent distressed sales. This new guidance also reaffirms the
objective of fair value measurement, which is to reflect how much an asset would
be sold for in an orderly transaction. It also reaffirms the need to use
judgment to determine if a formerly active market has become inactive, as well
as to determine fair values when markets have become inactive. The adoption of
this new guidance did not have an impact on the Company’s Consolidated Financial
Statements.
Effective
June 1, 2009, the Company adopted new authoritative guidance on accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This
new guidance establishes (1) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, (2) the circumstances under which an entity should recognize events
or transactions occurring after
13
the
balance sheet date in its financial statements, and (3) the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. This new guidance also requires disclosure of the date
through which an entity has evaluated subsequent events. In connection with the
adoption, the Company has included a disclosure in Note 1 of these Notes to
Condensed Consolidated Financial Statements to address the date through which
the Company evaluated subsequent events.
In June
2009, the FASB issued “The FASB Accounting Standards Codification™ and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162”, which establishes the FASB Accounting Standards
Codification™ (the “Codification”) as the source of authoritative U.S. Generally
Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (the “SEC”) under authority of Federal securities laws are
also sources of authoritative GAAP for SEC registrants. The Company implemented
the Codification for the three-month period ended November 29, 2009, and such
implementation did not have any impact on the Company’s Consolidated Financial
Statements.
14
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
General:
Park
Electrochemical Corp. (“Park” or the “Company”) is a global advanced materials
company which develops, manufactures, markets and sells high technology digital
and RF/microwave printed circuit materials principally for the
telecommunications and internet infrastructure and high-end computing markets
and advanced composite materials, parts and assemblies principally for the
aerospace markets. The Company’s core capabilities are in the areas of polymer
chemistry formulation and coating technology. The Company also specializes in
the design and manufacture of complex composite aircraft and space vehicle
parts. The Company’s manufacturing facilities are located in Singapore, China,
France, Connecticut, New York, Kansas, Arizona, California and Washington. The
Company’s products are marketed and sold under the Nelco®, Nelcote® and Nova™
names.
The Company's total net sales
decreased in both the three-month period and nine-month period ended November
29, 2009 compared with last year's comparable periods primarily as a result of
declines in sales of the Company’s printed circuit materials products in North
America and Europe in the three-month period and declines in sales of such
products in all three regions in the nine-month period. The Company’s sales of
advanced composite materials, parts and assemblies also declined in both the
three-month and nine-month periods ended November 29, 2009. However, the
Company’s total net sales in the three month period ended November 29, 2009 were
higher than its total net sales in the three month period ended August 30, 2009,
and the Company’s total net sales in the three month period ended August 30,
2009 were higher than its total net sales in the three month period ended May
31, 2009.
Despite
the declines in the Company’s total net sales in the three-month and nine-month
periods ended November 29, 2009 compared with last years comparable periods, the
Company’s earnings from operations in the 2010 fiscal year periods were higher
than in the 2009 fiscal year periods as the Company’s gross profit margins,
measured as percentages of sales, improved to 29.9% in the 2010 fiscal year
third quarter and to 27.1% in the 2010 fiscal year first nine months compared to
19.9% and 21.5%, respectively, in the 2009 fiscal year third quarter and first
nine months and 25.7% in the 2010 fiscal year second quarter and 25.1% in the
2010 fiscal year first quarter. The Company’s operating and earnings
performances during the 2010 fiscal year third quarter and first nine months
benefited from higher percentages of sales of higher margin, high performance
printed circuit materials during the 2010 fiscal year third quarter and first
nine months and lower costs resulting from the workforce reductions at the Nelco
Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the
closures of the New England Laminates Co., Inc. and Neltec Europe SAS business
units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross
profit margin improvements during the three-month and nine-month periods ended
November 29, 2009 were partially offset by costs incurred at the Company’s Park
Aircraft Technologies Corp. business unit in Newton, Kansas in connection with
the start-up of its operation.
The
Company’s net earnings in the three months ended November 29, 2009 were
substantially higher than its net earnings in the three months ended November
30, 2008 primarily as a result of the Company’s strong operating performance in
the 2010 fiscal year period. Notwithstanding significantly lower sales in the
nine months ended November 29, 2009 than in the nine months ended November 30,
2008, the Company’s net earnings in the 2010 fiscal year first nine months were
only slightly lower than its net earnings in the 2009 fiscal year first nine
months as a result of the Company’s strong operating
15
performance
in the 2010 fiscal year period. Net earnings in the 2010 fiscal year periods
also benefited from lower income tax provisions than in the comparable 2009
fiscal year periods but were adversely affected by significantly lower interest
income in the 2010 fiscal year periods than in the comparable 2009 fiscal year
periods.
The
markets in North America, Asia and Europe for the Company’s printed circuit
materials products strengthened in the 2010 fiscal year third quarter after
prevailing weakness in the 2010 fiscal year first and second quarters. The
markets for the Company’s advanced composite materials, parts and assemblies
products weakened during the 2009 fiscal year third and fourth quarters, and
such weakness continued during the 2010 fiscal year first, second and third
quarters.
The
global markets for the Company’s printed circuit materials products continue to
be very difficult to forecast, and it is not clear to the Company what the
condition of the global markets for the Company’s printed circuit materials
products will be in the 2010 fiscal year fourth quarter. Further, the Company is
not able to predict the impact the current global economic and financial
conditions will have on the markets for its advanced composite materials, parts
and assemblies in the 2010 fiscal year fourth quarter or beyond.
As
previously reported, in the first quarter of the Company’s 2009 fiscal year, the
Company’s wholly owned subsidiary, Park Aerospace Structures Corp., acquired
substantially all the assets and business of Nova Composites, Inc., a
manufacturer of aircraft composite parts and assemblies and the tooling for such
parts and assemblies, located in Lynnwood, Washington, for a cash purchase price
of $4.5 million paid at the closing of the acquisition and up to an additional
$5.5 million payable over five years depending on the achievement of specified
earn-out objectives. The Company paid an additional $1.0 million in the 2010
fiscal year second quarter, leaving up to an additional $4.4 million payable
over four years depending on the achievement of the earn-out
objectives.
In
addition, in the fourth quarter of the Company’s 2009 fiscal year, the Company
completed the construction of a new development and manufacturing facility in
Newton, Kansas to produce advanced composite materials principally for the
aircraft and space vehicle industries. The Company spent approximately $15
million on the facility and equipment in Kansas. In the second quarter of the
Company’s 2010 fiscal year, the Company announced plans for the major expansion
of its facility in Kansas in order to manufacture composite parts and assemblies
for the aircraft and space vehicle industries. The expansion includes
approximately 44,000 square feet of manufacturing, office and storage space, and
the Company plans to spend approximately $5 million on the
expansion.
While the
Company continues to invest in its business, it also has recently made
adjustments to certain of its operations, which resulted in workforce reductions
and plant closures.
In the
2009 fiscal year fourth quarter, the Company’s Neltec Europe SAS electronic
materials business unit located in Mirebeau, France and its Neltec SA electronic
materials business unit located in Lannemezan, France completed restructurings
of their operations in response to the continuing serious erosion of the markets
for electronic materials in Europe and the continuing migration of such markets
to Asia. The market for such products in Europe had eroded to the point where
the Company believed it was not possible for the Neltec Europe SAS business to
be viable, and as a major component of such restructurings, Neltec Europe SAS
closed completely its operations. Although the Company is continuing the
operations of its Neltec SA RF/microwave
16
electronic
materials business unit, the restructuring included a reorganization of certain
of the activities of Neltec SA.
In
addition to the restructurings of its Neltec Europe SAS and Neltec SA business
units in France, the Company implemented workforce reductions at its Nelco
Products, Inc. electronic materials business unit located in Fullerton,
California and its Neltec, Inc. electronics circuitry materials business unit
located in Tempe, Arizona in the third quarter of its 2009 fiscal year and
recorded a charge of $570,000 in such quarter for such workforce reductions and
for the restructuring at its Neltec SA business unit in Lannemezan,
France.
In
addition, in the 2009 fiscal year fourth quarter, the Company implemented a
workforce reduction at its Nelco Products Pte. Ltd. electronics circuitry
materials and advanced composite materials business unit located in Singapore
and recorded a charge of $201,000 in such quarter for such workforce
reduction.
Also, in
the 2009 fiscal year fourth quarter, the Company’s New England Laminates Co.,
Inc. electronic materials business unit located in Newburgh, New York closed its
operations in response to the very serious erosion of the markets for electronic
materials in North America.
Since the
closures of the Neltec Europe SAS and New England Laminates Co., Inc. business
units, the Company has been supplying and supporting customers of such business
units from the Company’s electronic materials operations in Fullerton,
California, Tempe, Arizona and Lannemezan, France.
Three and
Nine Months Ended November 29, 2009 Compared with Three and Nine Months Ended
November 30, 2008:
The
Company’s total net sales and its net sales of printed circuit materials
products and of advanced composite materials, parts and assemblies decreased
during the three-month and nine-month periods ended November 29, 2009 compared
to the three-month and nine-month periods ended November 30, 2008 as a result of
declines in such sales in North America and Europe in the three-month period and
declines in sales of such products in all three regions in the nine-month
period. The Company’s sales of advanced composite materials, parts and
assemblies also declined in both the three-month and nine-month periods ended
November 29, 2009. Net sales of the Company’s advanced composite materials,
parts and assemblies were 11% and 14% of the Company’s total net sales worldwide
in the three-month and nine-month periods, respectively, ended November 29, 2009
compared to 14% and 12%, respectively, of the Company’s total net sales
worldwide in each of the 2009 fiscal year comparable periods.
The
Company’s gross profit and its gross profit margin improved in the three months
ended November 29, 2009 compared to the prior year’s comparable period and,
while the gross profit in the nine months ended November 29, 2009 was slightly
lower than in the prior year’s comparable period, the gross profit margin in the
2010 fiscal year first nine months also improved compared to the gross profit
margin in the prior year’s comparable period. The gross profit
margins improved to 29.9% and 27.1% in the three months and nine months,
respectively, ended November 29, 2009 compared to 19.9% and 21.5%, respectively,
in the prior year’s comparable periods principally as a result of higher
percentages of sales of higher margin, high performance printed circuit
materials products in the 2010 fiscal year periods and the benefits resulting
from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and
Nelco Products Pte. Ltd. business units and the closures of the New England
Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal
year, all described elsewhere in this Discussion. Gross profit margin
improvements during the three-month and nine-month periods ended November 29,
17
2009 were
partially offset by costs incurred at the Company’s Park Aircraft Technologies
Corp. business unit in Newton, Kansas in connection with the start-up of its
operations.
The
Company’s operating performances in the three months and nine months ended
November 29, 2009 resulted in higher net earnings in such three months than in
the prior year’s comparable period and net earnings in the nine months that were
only slightly lower than the Company’s net earnings in the prior year’s
comparable period.
Results
of Operations
The
Company’s total net sales in the three-month period ended November 29, 2009
decreased 6% to $46.1 million from $49.2 million for last fiscal year’s
comparable period. The Company’s total net sales for the nine-month period ended
November 29, 2009 decreased 24% to $125.3 million from $164.6 million for last
fiscal year’s comparable period. The decreases in net sales were the result of
lower unit volumes of printed circuit materials products shipped by the
Company’s operations in North America in the 2010 fiscal year third quarter and
lower unit volumes of printed circuit materials products shipped by the
Company’s operations in all three regions in the 2010 fiscal year first nine
months. The decreases in net sales were
also the result of lower sales of the Company’s advanced composite materials,
parts and assemblies in both the three-month and nine-month periods ended
November 29, 2009.
The
Company’s foreign sales were $24.0 million and $61.5 million, respectively, or
52% and 49%, respectively, of the Company’s total net sales worldwide, during
the three-month and nine-month periods ended November 29, 2009, compared with
$22.9 million and $80.1 million, respectively, of foreign sales, or 47% and 49%,
respectively, of total net sales worldwide, during last year’s comparable
periods. The Company’s foreign sales increased 5% during the three months ended
November 29, 2009 from last year’s comparable period primarily as a result of an
increase in sales in Asia and decreased 23% during the nine months ended
November 29, 2009 from last year’s comparable period primarily as a result of
decreases in sales in Europe and Asia.
For the
three-month period ended November 29, 2009, the Company’s sales in North
America, Asia and Europe were 48%, 43% and 9%, respectively, of the Company’s
total net sales worldwide compared with 54%, 36% and 10%, respectively, for the
three-month period ended November 30, 2008; and for the nine-month period ended
November 29, 2009, the Company’s sales in North America, Asia and Europe were
51%, 39% and 10% of the Company’s total net sales worldwide compared with 51%,
37% and 12%, respectively, for the nine-month period ended November 30,
2008. The Company’s sales in North America decreased 16%, its sales
in Europe decreased 18% and its sales in Asia increased 11% in the three-month
period ended November 29, 2009 compared with the three-month period ended
November 30, 2008, and its sales in North America decreased 24%, its sales in
Asia decreased 19% and its sales in Europe decreased 38% in the nine-month
period ended November 29, 2009 compared with the nine-month period ended
November 30, 2008.
The gross
profits as percentages of net sales for the Company’s worldwide operations
improved to 29.9% and 27.1%, respectively, for the three months and nine months
ended November 29, 2009 compared with 19.9% and 21.5% for last fiscal year’s
comparable periods. The increases in the gross profit margins were attributable
mainly to higher percentages of sales of higher margin, high performance printed
circuit materials products in the 2010 fiscal year periods and the benefits
resulting from the workforce reductions at the Nelco Products, Inc., Neltec,
Inc. and Nelco Products Pte. Ltd. business units and the closures of the New
England Laminates Co., Inc. and Neltec Europe SAS
18
business
units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross
profit margin improvements during the three-month and nine-month periods ended
November 29, 2009 were partially offset by costs incurred at the Company’s Park
Aircraft Technologies Corp. business unit in Newton, Kansas in connection with
the start-up of its operations.
During
both the three-month and nine-month periods ended November 29, 2009, the
Company’s total net sales worldwide of high temperature printed circuit
materials, which include high performance materials (non-FR4 printed circuit
materials), were 100% of the Company’s total net sales worldwide of printed
circuit materials; and during both the three-month and nine-month periods ended
November 30, 2008, the Company’s total net sales worldwide of such high
temperature printed circuit materials were 99% of the Company’s total net sales
worldwide of printed circuit materials.
The
Company’s high temperature printed circuit materials include its high
performance materials (non-FR4 printed circuit materials), which consist of
high-speed, low-loss materials for digital and RF/microwave applications
requiring lead-free compatibility and high bandwidth signal integrity,
bismalimide triazine (“BT”) materials, polyimides for applications that demand
extremely high thermal performance, cyanate esters, and polytetrafluoroethylene
(“PTFE”) materials for RF/Microwave systems that operate at frequencies up to
77GHz.
During
the three-month and nine-month periods ended November 29, 2009, the Company’s
total net sales worldwide of high performance printed circuit materials (non-FR4
printed circuit materials) were 68% and 66%, respectively, of the Company’s
total net sales worldwide of printed circuit materials, compared with 61% and
59% for last fiscal year’s comparable periods.
The
Company’s cost of sales as a percentage of net sales decreased to 70.1% in the
three-month period ended November 29, 2009 from 80.1% in the three-month period
ended November 30, 2008 and to 72.9% in the nine-month period ended
November 29, 2009 from 78.5% in the nine-month period ended November 30, 2008
resulting in gross profit margin increases, which were attributable to higher
percentages of sales of higher margin, high performance printed circuit
materials products in the 2010 fiscal year periods and the benefits resulting
from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and
Nelco Products Pte. Ltd. business units and the closures of the New England
Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal
year, all described elsewhere in this Discussion. Gross profit margin
improvements during the three-month and nine-month periods ended November 29,
2009 were partially offset by costs incurred at the Company’s Park Aircraft
Technologies Corp. business unit in Newton, Kansas in connection with the
start-up of its operations.
Selling,
general and administrative expenses decreased by $0.1 million and $1.5 million,
respectively, or by 1% and 8%, respectively, during the three-month period and
nine-month period, respectively, ended November 29, 2009 compared with last
fiscal year’s comparable periods. The decreases were attributable primarily to
reduced costs for the three-month and nine-month periods ended November 29, 2009
compared to the comparable periods in the prior fiscal year resulting from the
closures of the Neltec Europe SAS and New England Laminates Co., Inc. business
units and the reduction in a reserve in the three-month period ended August 30,
2009. These expenses, measured as percentages of sales, were 13.3% and 13.8%,
respectively, during the three-month and nine-month periods ended November 29,
2009 compared with 12.6% and 11.4%, respectively, during the last fiscal year’s
comparable periods. The higher percentages in the 2010 fiscal year periods were
the result of lower sales in such periods. Stock option expenses were $257,000
and $828,000, respectively, for the three-month and nine-month periods ended
November 29,
19
2009
compared with $288,000 and $943,000 for last fiscal year’s comparable
periods.
During the three-month period ended
November 30, 2008, the Company recorded a pre-tax charge of $570,000 related to
the restructurings at its North American and European business
units.
For the
reasons set forth above, the Company’s earnings from operations were $7.6
million for the three months ended November 29, 2009 compared to $3.0 million
for the three months ended November 30, 2008, including the $570,000 charge for
restructurings described above, and its earnings from operations were $16.7
million for the nine months ended November 29, 2009 compared to $16.0 million
for the nine months ended November 30, 2008, including the afore-mentioned
restructuring charge.
Interest
and other income, net, principally investment income, was $0.1 million and $1.0
million, respectively, for the three-month and nine-month periods ended November
29, 2009 compared with $1.7 million and $5.0 million, respectively, for last
fiscal year’s comparable periods. The decreases in investment income were
attributable to lower prevailing interest rates, partially offset by higher
levels of cash available for investment, during the 2010 fiscal year first,
second and third quarters than during the 2009 fiscal year first, second and
third quarters. The Company’s investments were primarily in short-term
instruments and money market funds.
The
Company’s effective income tax rates for the three-month and nine-month periods
ended November 29, 2009 were 7.4% and 15.1%, respectively, compared
to effective income tax rates for the three-month and nine-month
periods ended November 30, 2008 of 33.0% and 26.0%, respectively, before the
$570,000 charge for restructurings described above. The Company’s effective
income tax rates for the three-month and nine-month periods ended November 29,
2009 were favorably impacted by an adjustment of $945,000 in the three-month
period primarily for a retroactive extension of a development and expansion tax
incentive in Singapore.
The
Company’s net earnings for the three months and nine months ended November 29,
2009 were $7.2 million and $15.0 million, respectively, compared to net earnings
for the three months and nine months ended November 30, 2008 of $2.9 million and
$15.4 million, respectively, including the $570,000 employment termination
benefits charge described above.
Basic and
diluted earnings per share were $0.35 and $0.73 for the three months and nine
months ended November 29, 2009 compared to basic and diluted earnings per share
of $0.14 for the three months and $0.76 and $0.75, respectively, for the nine
months ended November 30, 2008, including the employment termination benefits
charge described above. The net impact of the charge described above
was to reduce basic and diluted earnings per share by $0.03 in the three months
ended November 30, 2008 and to reduce basic and diluted earnings per share by
$0.02 and $0.03, respectively, in the nine months ended November 30,
2008.
Liquidity
and Capital Resources:
At
November 29, 2009, the Company's cash and marketable securities were $234.4
million compared to $225.3 million at March 1, 2009, the end of the Company's
2009 fiscal year. The Company's working capital (which includes cash and
marketable securities) was $253.4 million at November 29, 2009 compared with
$239.6 million at March 1, 2009. The increase in working capital at November 29,
2009 compared with March 1, 2009 was due principally to the increase in cash and
temporary investments and an increase in accounts receivable and decreases in
accrued liabilities and income taxes payable
20
partially
offset by a decrease in other current assets and an increase in accounts
payable. The 22% increase in accounts receivable at November 29, 2009 compared
to March 1, 2009 was primarily the result of higher sales volumes in the 2010
fiscal year third quarter than in the 2009 fiscal year fourth
quarter. Accrued liabilities declined by 23% at November 29, 2009
compared to March 1, 2009 primarily as a result of a reduction of $835,000 in a
reserve in the second quarter. Income taxes payable declined 12% at November 29,
2009 compared to March 1, 2009 primarily as a result of payments made during the
nine-month period. The 38% decrease in other current assets at
November 29, 2009 compared to March 1, 2009 was attributable primarily to the
Company’s receipt of an amount due from a foreign taxing authority and lower
interest receivable at November 29, 2009. Accounts payable increased by 14% at
November 29, 2009 compared to March 1, 2009 primarily due to the timing of raw
material purchases.
The
Company's current ratio (the ratio of current assets to current liabilities) was
12.3 to 1 at November 29, 2009 compared to 10.9 to 1 at March 1,
2009.
During
the nine months ended November 29, 2009, net earnings from the Company's
operations, before depreciation and amortization and stock-based compensation,
reduced by a net increase in working capital items, resulted in $15.5 million of
cash provided by operating activities. During the same nine-month period, the
Company expended a net amount of $1.5 million for the purchase of property,
plant and equipment, primarily for the Company’s new development and
manufacturing facility in Newton, Kansas, and expended $1.0 million as
additional payment for the acquisition of substantially all the assets and
business of Nova Composites, Inc., compared to a net amount of $11.7 million
during the nine-month period ended November 30, 2008 for the purchase of
property, plant and equipment, primarily for the Company’s new facility in
Newton, Kansas, and a total of $4.7 million for the acquisition of substantially
all the assets and business of Nova Composites, Inc. In addition, the Company
paid $5.3 million in dividends on its common stock in the nine-month period
ended November 29, 2009 as a result of the Company’s increase in its quarterly
cash dividend from $0.08 per share to $0.10 per share payable November 5, 2009
compared to $4.9 million in the nine-month period ended November 30, 2008. Net
expenditures for property, plant and equipment were $12.2 million in the 2009
fiscal year and $4.4 million in the 2008 fiscal year.
In the
first quarter of the Company’s 2009 fiscal year, the Company’s wholly owned
subsidiary, Park Aerospace Structures Corp., acquired substantially all the
assets and business of Nova Composites, Inc., a manufacturer of aircraft
composite parts and assemblies and the tooling for such parts and assemblies,
located in Lynnwood, Washington, for a cash purchase price of $4.5 million paid
at the closing of the acquisition and up to an additional $5.5 million payable
over five years depending on the achievement of specified earn-out objectives.
In the second quarter of the 2010 fiscal year, the Company paid an additional
$1.0 million for such acquisition, leaving an additional $4.4 million payable
over four years depending on the achievement of the earn-out
objectives.
During
the 2009 fiscal year, the Company expended approximately $10.2 million for the
construction of its new development and manufacturing facility in Newton, Kansas
to produce advanced composite materials and for equipment for such
facility.
At
November 29, 2009 and at March 1, 2009, the Company had no long-term
debt.
21
The
Company believes its financial resources will be sufficient, for the foreseeable
future, to provide for continued investment in working capital and property,
plant and equipment and for general corporate purposes. Such resources would
also be available for purchases of the Company's common stock, appropriate
acquisitions and other expansions of the Company's business.
The
Company is not aware of any circumstances or events that are reasonably likely
to occur that could materially affect its liquidity.
The
Company's contractual obligations and other commercial commitments to make
future payments under contracts, such as lease agreements, consist only of
operating lease commitments, commitments to purchase equipment for the Company’s
new development and manufacturing facility in Newton, Kansas and the Company’s
obligation to pay up to an additional $4.4 million over four years in connection
with the acquisition of the assets and business of Nova Composites, Inc.
described above. The Company has no long-term debt, capital lease obligations,
unconditional purchase obligations or other long-term obligations, standby
letters of credit, guarantees, standby repurchase obligations or other
commercial commitments or contingent commitments, other than two standby letters
of credit in the total amount of $1.38 million to secure the Company's
obligations under its workers' compensation insurance program.
As of
November 29, 2009, there were no material changes outside the ordinary course of
the Company's business in the Company's contractual obligations disclosed in
Item 7 of Part II of its Form 10-K Annual Report for the fiscal year ended March
1, 2009.
Off-Balance
Sheet Arrangements:
The
Company's liquidity is not dependent on the use of, and the Company is not
engaged in, any off-balance sheet financing arrangements, such as securitization
of receivables or obtaining access to assets through special purpose
entities.
Environmental
Matters:
In the
nine-month periods ended November 29, 2009 and November 30, 2008, the Company
reversed accruals of $835,000 and $638,000, respectively, for environmental
remedial response and voluntary cleanup costs, which were recorded as reductions
to selling, general and administrative expenses for such periods, as a result of
the Company’s conclusion that the likelihood of any liability in connection with
such accruals was remote. While annual expenditures have generally been constant
from year to year and may increase over time, the Company expects it will be
able to fund such expenditures from cash flow from operations. The timing of
expenditures depends on a number of factors, including regulatory approval of
cleanup projects, remedial techniques to be utilized and agreements with other
parties. At November 29, 2009 and March 1, 2009, the amounts recorded in accrued
liabilities for environmental matters were nil and $844,000,
respectively.
Management
does not expect that environmental matters will have a material adverse effect
on the liquidity, capital resources, business, consolidated results of
operations or consolidated financial position of the Company.
Critical
Accounting Policies and Estimates:
In
response to financial reporting release, FR-60, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies", issued by the
22
Securities
and Exchange Commission in December 2001, the following information is provided
regarding critical accounting policies that are important to the Consolidated
Financial Statements and that entail, to a significant extent, the use of
estimates, assumptions and the application of management's
judgment.
General
The
Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates, assumptions and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and the related disclosure
of contingent liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to sales allowances, allowances for doubtful
accounts, inventories, valuation of long-lived assets, income taxes,
restructurings, contingencies and litigation, and pensions and other employee
benefit programs. The Company bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition
Sales
revenue is recognized at the time title to product is transferred to a customer.
All material sales transactions are for the shipment of manufactured prepreg and
laminate products and advanced composite materials, parts and assemblies. The
Company ships its products to customers based upon firm orders, with fixed
selling prices, when collection is reasonably assured.
Sales Allowances
The
Company provides for the estimated costs of sales allowances at the time such
costs can be reasonably estimated. The Company’s products are made to customer
specifications and tested for adherence to such specifications before shipment
to customers. There are no future performance requirements other than the
products’ meeting the agreed specifications. The Company’s bases for providing
sales allowances for returns are known situations in which products may have
failed due to manufacturing defects in the products supplied by the Company. The
Company is focused on manufacturing the highest quality printed circuit
materials and advanced composite materials, parts and assemblies possible and
employs stringent manufacturing process controls and works with raw material
suppliers who have dedicated themselves to complying with the Company’s
specifications and technical requirements. The amounts of returns and allowances
resulting from defective or damaged products have been approximately 1.0% of
sales for each of the Company’s last three fiscal years.
Allowances
for Doubtful Accounts
Accounts
receivable are due within established payment terms and are stated at amounts
due from customers net of an allowance for doubtful accounts. Accounts
outstanding longer than established payment terms are considered past due. The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make
23
required
payments. The Company determines its allowance by considering a number of
factors, including the length of time accounts receivable are past due, the
Company’s previous loss history, the customer’s current ability to pay its
obligation to the Company, and the condition of the general economy and the
industry as a whole. If the financial condition of the Company's customers were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The Company writes off accounts
receivable when they become uncollectible, and payments subsequently received on
such receivables are credited to the allowance for doubtful
accounts.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out method) or market. The
Company writes down its inventory for estimated obsolescence or unmarketability
based upon the age of the inventory and assumptions about future demand for the
Company's products and market conditions.
Valuation
of Long-lived Assets
The
Company assesses the impairment of long-lived assets whenever events or changes
in circumstances indicate that the carrying value of such assets may not be
recoverable. In addition, the Company assesses the impairment of goodwill at
least annually. Important factors that could trigger an impairment review
include, but are not limited to, significant negative industry or economic
trends and significant changes in the use of the Company’s assets or strategy of
the overall business.
Income
Taxes
Carrying
value of the Company's net deferred tax assets assumes that the Company will be
able to generate sufficient future taxable income in certain tax jurisdictions,
based on estimates and assumptions. If these estimates and assumptions change in
the future, the Company may be required to record additional valuation
allowances against its deferred tax assets resulting in additional income tax
expense in the Company's consolidated statement of operations, or conversely to
further reduce the existing valuation allowance resulting in less income tax
expense. Management evaluates the realizability of the deferred tax assets
quarterly and assesses the need for additional valuation allowances
quarterly.
Restructurings
The
Company recorded one-time pre-tax charges of $5.7 million in the fourth quarter
of the fiscal year ended March 1, 2009 related to the closure of the Company’s
New England Laminates Co., Inc. electronic materials business unit located in
Newburgh, New York and the closure of the Company’s Neltec Europe SAS electronic
materials business unit located in Mirebeau, France and related to a workforce
reduction and an asset impairment at the Company’s Nelco Products Pte. Ltd.
electronic materials and advanced composite materials business unit in
Singapore. In the 2009 fiscal year third quarter, the Company recorded a
one-time pre-tax charge of $570,000 related to restructurings at certain of its
North American and European business units. In addition, the Company recorded a
one-time charge of $1.4 million in the fourth quarter of the fiscal year ended
March 2, 2008 in connection with a restructuring and workforce reduction at its
Neltec Europe SAS business unit. Such restructuring and workforce reductions are
described in Note 5 of the Notes to Condensed Consolidated Financial Statements
in Item 1 of Part I of this Report and in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in Item 2 of Part I of this
Report.
24
Contingencies
The
Company is subject to a small number of proceedings, lawsuits and other claims
related to environmental, employment, product and other matters. The Company is
required to assess the likelihood of any adverse judgments or outcomes in these
matters as well as potential ranges of probable losses. A determination of the
amount of reserves required, if any, for these contingencies is made after
careful analysis of each individual issue. The required reserves may change in
the future due to new developments in each matter or changes in approach, such
as a change in settlement strategy in dealing with these matters.
The
Company is obligated to pay up to an additional $4.4 million over four years
depending on the achievement of specified earn-out objectives in connection with
the acquisition by the Company’s wholly owned subsidiary, Park Aerospace
Structures Corp., of substantially all the assets and business of Nova
Composites, Inc., a manufacturer of composite parts and assemblies and the
tooling for such parts and assemblies, located in Lynnwood, Washington, in
addition to a cash purchase price of $4.5 million paid at the closing of the
acquisition on April 1, 2008 and a payment of $1.0 million paid in the 2010
fiscal year second quarter.
Pension
and Other Employee Benefit Programs
The
Company's obligations for workers' compensation claims are effectively
self-insured, although the Company maintains individual and aggregate stop-loss
insurance coverage for such claims. The Company accrues its workers'
compensation liability based on estimates of the total exposure of known claims
using historical experience and projected loss development factors less amounts
previously paid.
The
Company and certain of its subsidiaries have a non-contributory profit sharing
retirement plan covering their regular full-time employees. In addition, the
Company's subsidiaries have various bonus and incentive compensation programs,
most of which are determined at management's discretion.
The
Company's reserves associated with these self-insured liabilities and benefit
programs are reviewed by management for adequacy at the end of each reporting
period.
Factors That May Affect
Future Results.
Certain
portions of this Report which do not relate to historical financial information
may be deemed to constitute forward-looking statements that are subject to
various factors which could cause actual results to differ materially
from Park's expectations or from results which might be projected, forecast,
estimated or budgeted by the Company in forward-looking statements. Such factors
include, but are not limited to, general conditions in the electronics and
aerospace industries, the Company's competitive position, the status of the
Company's relationships with its customers, economic conditions in international
markets, the cost and availability of raw materials, transportation and
utilities, and the various factors set forth in Item 1A “Risk Factors” and under
the caption "Factors That May Affect Future Results" after Item 7 of Park's
Annual Report on Form 10-K for the fiscal year ended March 1, 2009.
25
|
Item 3.
|
Quantitative and
Qualitative Disclosure About Market
Risk.
|
The
Company's market risk exposure at November 29, 2009 is consistent with, and not
greater than, the types of market risk and amount of exposures presented in the
Annual Report on Form 10-K for the fiscal year ended March 1, 2009.
|
Item
4.
|
Controls and
Procedures.
|
(a) Disclosure
Controls and Procedures.
The
Company's management, with the participation of the Company's Chief Executive
Officer and Vice President and Controller (the person currently performing the
functions similar to those performed by a principal financial officer), has
evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-15(e)and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of November 29, 2009,
the end of the quarterly fiscal period covered by this quarterly report. Based
on such evaluation, the Company's Chief Executive Officer and Vice President and
Controller have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act and are effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including the Company’s Chief Executive Officer and Vice President and
Controller, as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes
in Internal Control Over Financial Reporting.
There has
not been any change in the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
26
PART
II. OTHER INFORMATION
|
Item
1.
|
Legal
Proceedings.
|
None.
|
Item
1A.
|
Risk
Factors.
|
There have been no material changes
from the risk factors as previously disclosed in the Company’s Form 10-K Annual
Report for the fiscal year ended March 1, 2009.
|
Item 2.
|
Unregistered Sales of
Equity Securities and Use of
Proceeds.
|
The
following table provides information with respect to shares of the Company's
Common Stock acquired by the Company during each month included in the Company’s
2010 fiscal year third quarter ended November 29, 2009.
|
Period
|
Total
Number of Shares (or Units) Purchased
|
Average
Price Paid per Share (or Unit)
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
or Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be
Purchased Under the Plans or Programs
|
|||||||||
|
August
31 – September 29
|
0 | – | 0 | ||||||||||
|
September
30 – October 29
|
0 | − | 0 | ||||||||||
|
October
30 – November 29
|
0 | − | 0 | ||||||||||
|
Total
|
0 | – | 0 |
2,000,000(a)
|
|||||||||
(a) Aggregate
number of shares available to be purchased by the Company pursuant to a previous
share purchase authorization announced on October 20, 2004. Pursuant to such
authorization, the Company is authorized to purchase its shares from time to
time on the open market or in privately negotiated transactions.
|
Item
3.
|
Defaults Upon Senior
Securities.
|
None.
|
Item
4.
|
Submission of Matters
to a Vote of Security
Holders.
|
None.
27
|
Item
5.
|
Other
Information.
|
None.
|
Item
6.
|
Exhibits.
|
|
|
31.1
|
Certification
of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a).
|
|
|
31.2
|
Certification
of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a).
|
|
|
32.1
|
Certification
of principal executive officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2
|
Certification
of principal financial officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
28
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Park
Electrochemical Corp.
|
|||
|
(Registrant)
|
|||
|
Date:
January 7, 2010
|
/s/ Brian
E. Shore
|
||
|
Brian
E. Shore
|
|||
|
President
and
|
|||
|
Chief
Executive Officer
|
|||
|
(principal
executive officer)
|
|||
|
Date:
January 7, 2010
|
/s/ P.
Matthew Farabaugh
|
||
|
P.
Matthew Farabaugh
|
|||
|
Vice
President and Controller
|
|||
|
(principal
accounting officer)
|
29
EXHIBIT
INDEX
|
Exhibit
No.
|
Name
|
Page
|
|
31.1
|
Certification
of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a)
|
31
|
|
31.2
|
Certification
of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a)
|
33
|
|
32.1
|
Certification
of principal executive officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
35
|
|
32.2
|
Certification
of principal financial officer pursuant to 18 U.S.C. Section 1350,
as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
36
|
30