PARK AEROSPACE CORP - Quarter Report: 2009 August (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 August
30, 2009
OR
¨ 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 filer, 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 October 6,
2009.
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
TABLE
OF CONTENTS
|
PART
I.
|
FINANCIAL
INFORMATION:
|
Page
Number
|
|
Item
1.
|
Financial
Statements
|
|
|
Condensed
Consolidated Balance Sheets August
30, 2009 (Unaudited) and March 1, 2009
|
3
|
|
|
Consolidated
Statements of Operations 13
weeks and 26 weeks ended August 30, 2009 and August 31, 2008
(Unaudited)
|
4
|
|
|
Consolidated
Statements of Stockholders’ Equity 13
weeks and 26 weeks ended August 30, 2009 and August 31, 2008
(Unaudited)
|
5
|
|
|
Condensed
Consolidated Statements of Cash Flows 26
weeks ended August 30, 2009 and August 31, 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
|
24
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
25
|
|
Item
4.
|
Controls
and Procedures
|
25
|
|
PART
II.
|
OTHER
INFORMATION:
|
|
|
Item
1.
|
Legal
Proceedings
|
26
|
|
Item
1A.
|
Risk
Factors
|
26
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
26
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
26
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
26
|
|
Item
5.
|
Other
Information
|
27
|
|
Item
6.
|
Exhibits
|
27
|
|
SIGNATURES
|
28
|
|
|
EXHIBIT
INDEX
|
29
|
|
2
PART
I. FINANCIAL INFORMATION
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands)
|
August
30,
2009
|
March
1,
2009*
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 175,741 | $ | 40,790 | ||||
|
Marketable securities (Note
2)
|
57,941 | 184,504 | ||||||
|
Accounts
receivable, net
|
23,136 | 22,433 | ||||||
|
Inventories
(Note 3)
|
11,008 | 10,677 | ||||||
|
Prepaid
expenses and other current assets
|
2,698 | 5,527 | ||||||
|
Total
current assets
|
270,524 | 263,931 | ||||||
|
Property,
plant and equipment, net
|
46,646 | 48,777 | ||||||
|
Other
assets
|
15,863 | 14,871 | ||||||
|
Total
assets
|
$ | 333,033 | $ | 327,579 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 10,231 | $ | 8,480 | ||||
|
Accrued
liabilities
|
9,122 | 11,425 | ||||||
|
Dividends
payable
|
2,054 | - | ||||||
|
Income
taxes payable
|
4,285 | 4,381 | ||||||
|
Total
current liabilities
|
25,692 | 24,286 | ||||||
|
Deferred
income taxes
|
3,926 | 3,927 | ||||||
|
Restructuring
accruals and other liabilities (Note 5)
|
3,199 | 3,657 | ||||||
|
Total
liabilities
|
32,817 | 31,870 | ||||||
|
Stockholders'
equity:
|
||||||||
|
Common
stock
|
2,054 | 2,047 | ||||||
|
Additional
paid-in capital
|
148,676 | 146,934 | ||||||
|
Retained
earnings
|
147,601 | 145,107 | ||||||
|
Treasury
stock, at cost
|
(1 | ) | (1 | ) | ||||
|
Accumulated
other comprehensive income
|
1,886 | 1,622 | ||||||
|
Total
stockholders' equity
|
300,216 | 295,709 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 333,033 | $ | 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
|
26
weeks ended
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
August 30,
2009
|
August
31,
2008
|
August
30,
2009
|
August
31,
2008
|
|||||||||||||
|
Net
sales
|
$ | 42,518 | $ | 55,599 | $ | 79,215 | $ | 115,399 | ||||||||
|
Cost
of sales
|
31,570 | 44,646 | 59,059 | 89,873 | ||||||||||||
|
Gross
profit
|
10,948 | 10,953 | 20,156 | 25,526 | ||||||||||||
|
Selling,
general and administrative expenses
|
5,203 | 6,170 | 11,120 | 12,504 | ||||||||||||
|
Earnings
from operations
|
5,745 | 4,783 | 9,036 | 13,022 | ||||||||||||
|
Interest
income and other income
|
205 | 1,692 | 893 | 3,364 | ||||||||||||
|
Earnings
from operations before income taxes
|
5,950 | 6,475 | 9,929 | 16,386 | ||||||||||||
|
|
||||||||||||||||
|
Income
tax provision
|
1,195 | 1,538 | 2,100 | 3,892 | ||||||||||||
|
Net
earnings
|
$ | 4,755 | $ | 4,937 | $ | 7,829 | $ | 12,494 | ||||||||
|
Earnings
per share (Note 6)
|
||||||||||||||||
|
Basic
|
$ | 0.23 | $ | 0.24 | $ | 0.38 | $ | 0.61 | ||||||||
|
Diluted
|
$ | 0.23 | $ | 0.24 | $ | 0.38 | $ | 0.61 | ||||||||
|
Weighted
average number of common and common equivalent shares
outstanding:
|
||||||||||||||||
|
Basic
shares
|
20,534 | 20,458 | 20,503 | 20,412 | ||||||||||||
|
Diluted
shares
|
20,554 | 20,520 | 20,518 | 20,475 | ||||||||||||
|
Dividends
declared per share (Note 7)
|
$ | 0.18 | $ | 0.08 | $ | 0.26 | $ | 0.16 | ||||||||
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
|
26 weeks ended
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
August 30,
2009
|
August 31,
2008
|
August 30,
2009
|
August 31,
2008
|
|||||||||||||
|
Common
stock and paid-in capital:
|
||||||||||||||||
|
Balance,
beginning of period
|
$ | 149,343 | $ | 147,614 | $ | 148,981 | $ | 145,304 | ||||||||
|
Stock-based
compensation
|
283 | 303 | 571 | 655 | ||||||||||||
|
Stock
option activity
|
1,104 | 465 | 1,178 | 2,066 | ||||||||||||
|
Tax
benefit on exercise of options
|
- | 86 | - | 443 | ||||||||||||
|
Balance,
end of period
|
150,730 | 148,468 | 150,730 | 148,468 | ||||||||||||
|
Retained
earnings:
|
||||||||||||||||
|
Balance,
beginning of period
|
146,543 | 122,575 | 145,107 | 116,646 | ||||||||||||
|
Net
earnings
|
4,755 | 4,937 | 7,829 | 12,494 | ||||||||||||
|
Dividends
|
(3,697 | ) | (1,636 | ) | (5,335 | ) | (3,264 | ) | ||||||||
|
Balance,
end of period
|
147,601 | 125,876 | 147,601 | 125,876 | ||||||||||||
|
Treasury
stock:
|
||||||||||||||||
|
Balance,
beginning of period
|
(1 | ) | (5 | ) | (1 | ) | (214 | ) | ||||||||
|
Stock
option activity
|
- | 3 | - | 212 | ||||||||||||
|
Balance,
end of period
|
(1 | ) | (2 | ) | (1 | ) | (2 | ) | ||||||||
|
Accumulated
other comprehensive income:
|
||||||||||||||||
|
Balance,
beginning of period
|
1,810 | 6,412 | 1,622 | 7,436 | ||||||||||||
|
Net
unrealized investment gains (losses)
|
8 | (176 | ) | 8 | (499 | ) | ||||||||||
|
Translation
adjustments
|
68 | (774 | ) | 256 | (1,475 | ) | ||||||||||
|
Balance,
end of period
|
1,886 | 5,462 | 1,886 | 5,462 | ||||||||||||
|
Total
stockholders' equity
|
$ | 300,216 | $ | 279,804 | $ | 300,216 | $ | 279,804 | ||||||||
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
5
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
|
26
Weeks Ended
|
||||||||
|
(Unaudited)
|
||||||||
|
August
30,
2009
|
August
31,
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
earnings
|
$ | 7,829 | $ | 12,494 | ||||
|
Depreciation
and amortization
|
3,432 | 3,885 | ||||||
|
Stock-based
compensation
|
571 | 655 | ||||||
|
Change
in operating assets and liabilities
|
559 | (18 | ) | |||||
|
Net
cash provided by operating activities
|
12,391
|
17,016 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of property, plant and equipment, net
|
(1,199 | ) | (8,093 | ) | ||||
|
Purchases
of marketable securities
|
(58,413 | ) | (130,074 | ) | ||||
|
Proceeds
from sales and maturities of marketable securities
|
185,037 | 80,946 | ||||||
|
Business
acquisition
|
(1,025 | ) | (4,726 | ) | ||||
|
Net
cash provided by (used in) investing activities
|
124,400 | (61,947 | ) | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Dividends
paid
|
(3,281 | ) | (3,264 | ) | ||||
|
Proceeds
from exercise of stock options
|
1,178 | 2,236 | ||||||
|
Tax
benefits from stock-based compensation
|
- | 443 | ||||||
|
Net
cash used in financing activities
|
(2,103 | ) | (585 | ) | ||||
|
Change
in cash and cash equivalents before exchange
rate changes
|
134,688
|
(45,516 | ) | |||||
|
Effect
of exchange rate changes on cash and
cash equivalents
|
263 | (430 | ) | |||||
|
Change
in cash and cash equivalents
|
134,951 | (45,946 | ) | |||||
|
Cash
and cash equivalents, beginning of period
|
40,790 | 100,159 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 175,741 | $ | 54,213 | ||||
|
Supplemental
cash flow information:
|
||||||||
|
Cash
paid during the period for income taxes
|
$ | 2,345 | $ | 5,060 | ||||
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 amounts)
|
1.
|
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
|
The
condensed consolidated balance sheet as of August 30, 2009, the consolidated
statements of operations and stockholders’ equity for the 13 weeks and 26 weeks
ended August 30, 2009 and the condensed consolidated statements of cash flows
for the 26 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 August 30, 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
October 8, 2009, 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:
|
|
August
30,
|
March
1,
|
|||||||
|
2009
|
2009
|
|||||||
|
Raw
materials
|
$ | 5,702 | $ | 5,711 | ||||
|
Work-in-process
|
2,296 | 2,110 | ||||||
|
Finished
goods
|
2,771 | 2,561 | ||||||
|
Manufacturing
supplies
|
239 | 295 | ||||||
| $ | 11,008 | $ | 10,677 | |||||
|
4.
|
STOCK-BASED
COMPENSATION
|
|
|
As
of August 30, 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,
|
7
|
|
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 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
August 30, 2009, 1,957,676 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 1,070,968 options were
available for future grant under the 2002 Stock Option Plan. No options
were granted during the 13 weeks ended August 30, 2009, and options to
purchase 4,000 shares of common stock were granted during the 26 weeks
ended August 30, 2009. Options to purchase 142,850 shares of common stock
were granted during the 13 weeks and 26 weeks ended August 31,
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 $4.43 for the first 26 weeks of fiscal
year 2010, with the following assumptions: risk free interest rate of 2.75%;
expected volatility factor of 32.1%; expected dividend yield of 1.98%; and
estimated option term of 5.4 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 26 weeks ended August 30, 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 August 30, 2009 will be $1,473 and will be
recognized over the next four fiscal years.
The
following is a summary of options for the 26 weeks ended August 30,
2009.
|
Weighted
Average
|
||||||||||||||||
|
Weighted
Average
|
Remaining
Contract
|
Aggregated
|
||||||||||||||
|
Options
|
Exercise
Price
|
Life in
Months
|
Intrinsic
Value
|
|||||||||||||
|
Outstanding
at March 1, 2009
|
982,727 | $ | 24.35 | 66.38 | $ | - | ||||||||||
|
Granted
|
4,000 | 16.15 | ||||||||||||||
|
Exercised
|
(70,175 | ) | 16.78 | |||||||||||||
|
Terminated
or expired
|
(29,844 | ) | 27.46 | |||||||||||||
|
Outstanding
at August 30, 2009
|
886,708 | $ | 24.87 | 64.23 | $ | 666 | ||||||||||
|
Exercisable
at August 30, 2009
|
683,598 | $ | 24.09 | 53.46 | $ | 628 | ||||||||||
8
The
total intrinsic value of options exercised during the 13 weeks
ended August 30, 2009 and August 31, 2008 was $338 and $155,
respectively. The total intrinsic value of options exercised during
the 26 weeks ended August 30, 2009 and August 31, 2008 was $352 and
$1,259, respectively.
A
summary of the status of the Company’s nonvested options at August
30, 2009, and changes during the 13 week-period then ended, is
presented below:
|
Shares Subject
to Options
|
Weighted Average
Grant Date Fair
Value
|
|||||||
|
Nonvested,
beginning of period
|
335,235 | $ | 7.08 | |||||
|
Granted
|
- | - | ||||||
|
Vested
|
(110,513 | ) | 9.56 | |||||
|
Terminated
|
(21,612 | ) | 8.15 | |||||
|
Nonvested,
end of period
|
203,110 | $ | 6.65 | |||||
|
5.
|
RESTRUCTURING
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 $1,289 and $2,426, respectively, during the 13 weeks and 26 weeks ended
August 30, 2009 and expects to pay the remaining $127 during the 2010 fiscal
year.
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 $2,713 and $3,209 as of
August 30, 2009 and March 1, 2009, respectively. For the 13 weeks and 26 weeks
ended August 30, 2009, the Company applied $250 and $496, 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 26 weeks ended August 30, 2009 and August 31,
2008.
|
13 weeks
ended
|
26 weeks
ended
|
|||||||||||||||
|
August
30,
2009
|
August
31,
2008
|
August
30,
2009
|
August
31,
2008
|
|||||||||||||
|
Net
Earnings
|
$ | 4,755 | $ | 4,937 | $ | 7,829 | $ | 12,494 | ||||||||
|
Weighted
average common shares outstanding for basic EPS
|
20,534 | 20,458 | 20,503 | 20,412 | ||||||||||||
|
Net
effect of dilutive options
|
20 | 62 |
15
|
63 | ||||||||||||
|
Weighted
average shares outstanding for diluted EPS
|
20,554 | 20,520 | 20,518 | 20,475 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.23 | $ | 0.24 | $ | 0.38 | $ | 0.61 | ||||||||
|
Diluted
earnings per share
|
$ | 0.23 | $ | 0.24 | $ | 0.38 | $ | 0.61 | ||||||||
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 163 and 30 for the 13 weeks ended August 30, 2009 and August
31, 2008, respectively, and 251 and 28 for the 26 weeks ended August 30, 2009
and August 31, 2008, respectively.
|
7.
|
DIVIDENDS
DECLARED
|
|
|
On
July 22, 2009, the Company announced that its Board of Directors had
declared an increase in the Company’s regular quarterly dividend to $0.10
per share. The $0.10 per share dividend is payable November 5, 2009 to
stockholders of record at the close of business on October 7,
2009. At the quarter ended August 30, 2009, the Company
recorded a $2,054 dividend payable for the regular quarterly $0.10
dividend to be paid November 5,
2009.
|
|
8.
|
INCOME
TAXES
|
The
Company’s effective tax rate for the 13-week and 26-week periods ended August
30, 2009 were 20.1% and 21.2%, respectively, compared to 23.8% for both the
13-week and 26-week periods ended August 31, 2008. The effective rates varied
from the U.S. Federal statutory rate primarily due to foreign income taxed at
lower rates. The Company’s policy is to include applicable interest and
penalties related to unrecognized tax benefits as a component of income tax
expense.
|
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
10
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
|
26 weeks
ended
|
|||||||||||||||
|
August
30,
2009
|
August
31,
2008
|
August
30,
2009
|
August
31,
2008
|
|||||||||||||
|
Sales:
|
||||||||||||||||
|
North
America
|
$ | 21,881 | $ | 27,832 | $ | 41,742 | $ | 58,197 | ||||||||
|
Europe
|
4,230 | 6,565 | 7,727 | 14,185 | ||||||||||||
|
Asia
|
16,407 | 21,202 | 29,746 | 43,017 | ||||||||||||
|
Total
sales
|
$ | 42,518 | $ | 55,599 | $ | 79,215 | $ | 115,399 | ||||||||
|
August
30,
|
March
1,
|
|||||||||||||||
|
2009
|
2009
|
|||||||||||||||
|
Long-lived
assets:
|
||||||||||||||||
|
North
America
|
40,657 | $ | 41,423 | |||||||||||||
|
Europe
|
1,267 | 1,112 | ||||||||||||||
|
Asia
|
20,585 | 21,113 | ||||||||||||||
|
Total
long-lived assets
|
$ | 62,509 | $ | 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. In addition, two subsidiaries of the
Company have received cost recovery claims under the Superfund Act or
similar state laws 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
|
11
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 $2, respectively, in
the 13 weeks and 26 weeks ended August 30, 2009 and approximately $110 in the 13
weeks and 26 weeks ended August 31, 2008. In the six-month periods ended August
30, 2009 and August 31, 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 $4 at August 30, 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
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
|
12
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 Statement of Financial Accounting Standards
No. 141R (revised 2007), which replaces Statement of Financial Accounting
Standards No. 141, “Business Combinations” (“SFAS 141R”). SFAS 141R 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. This fair value approach replaces the original
Statement 141’s cost allocation process, whereby the cost of an acquisition was
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair value. SFAS 141R requires acquirers to expense
acquisition-related costs as incurred rather than allocating such costs to the
assets acquired and liabilities assumed, as was previously the case under
Statement of Financial Accounting Standards No. 141. SFAS 141R is effective for
fiscal years beginning on or after December 15, 2008. The adoption of SFAS 141R
did not have an impact on the Company’s Consolidated Financial
Statements.
Effective
August 30, 2009, the Company adopted FSP FAS No. 107-1 and APB Opinion No. 28-1,
“Interim Disclosures about Fair Value of Financial Instruments” (”FSP FAS 107-1
and APB Opinion 28-1”), which require fair value disclosures for all financial
instruments whether recognized or not in the statement of financial position.
With the issuance of FSP FAS 107-1 and APB Opinion 28-1, on a quarterly basis
quantitative and qualitative information will be required to be disclosed about
the fair value estimates for all financial instruments. FSP FAS 107-1 and APB
Opinion 28-1 is effective for interim reporting periods after June 15,
2009. The adoption of FSP FAS 107-1 and APB Opinion 28-1 did not have an impact
on the Company’s Consolidated Financial Statements.
Effective
August 30, 2009, the Company adopted FSP FAS No. 157-4, “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” (“FSP
FAS 157-4”), which clarifies the methodology used to determine fair value when
there is no active market or when the price inputs being used represent
distressed sales. FSP FAS 157-4 also reaffirms the objective of fair
value measurement, as stated in SFAS 157, 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.
FSP FAS 157-4 is effective for interim
and annual reporting periods ending after June 15, 2009. The adoption
of FSP FAS 157-4 did not have an impact on the Company’s Consolidated Financial
Statements.
In
May 2009, the Financial Accounting Standards Board (the “FASB”) issued SFAS No.
165, “Subsequent Events” (“SFAS No. 165”), which establishes general standards
of 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. SFAS No. 165 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 the balance sheet date in its
financial statements, and (3) the disclosures that an entity should make about
13
events
or transactions that occurred after the balance sheet date. SFAS No.
165 also requires disclosure of the date through which an entity has evaluated
subsequent events. The Company adopted the provisions of SFAS No. 165 on June 1,
2009. In connection with the adoption of SFAS No. 165, 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 SFAS No. 168, “The FASB Accounting Standards
Codification™ and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162” (“SFAS No. 168”), 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. SFAS No. 168 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The
implementation of SFAS No. 168 will 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 manufacture of complex composite aircraft and space vehicle parts. The
Company’s manufacturing facilities are located in Singapore, China, France,
Connecticut, 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 six-month
period ended August 30, 2009 compared with last year's comparable periods as a
result of decreases in sales of the Company’s printed circuit materials products
in North America, Asia and Europe. However, primarily as a result of the
Company’s business development, marketing and sales efforts, the Company’s sales
of advanced composite materials, parts and assemblies in both the three-month
and six-month periods ended August 30, 2009 were substantially the same as such
sales in last year’s comparable periods.
As a
result of the declines in the Company’s total net sales in the three-month and
six-month periods ended August 30, 2009 compared to the three-month and
six-month periods ended August 31, 2008 and the lower interest income earned by
the Company in such 2010 fiscal year periods, the Company’s net earnings were
lower in the 2010 fiscal year periods than in the 2009 fiscal year periods and
the Company’s earnings from operations in the 2010 fiscal year first six months
were also lower than in the 2009 fiscal year first six
months.
However, the Company’s earnings from operations in
the three-month period ended August 30, 2009 were higher than in the three-month
period ended August 31, 2008 as the Company’s gross profit margins, measured as
percentages of sales, improved to 25.7% in the 2010 fiscal year second quarter
and to 25.4% in the 2010 fiscal year first six months compared to 19.7% and
22.1%, respectively, in the 2009 fiscal year second quarter and first six months
and 25.1% in the 2010 fiscal year first quarter. The Company’s operating and
earnings performances during the 2010 fiscal year second quarter and first six
months benefited from higher percentages of sales of higher margin, high
performance printed circuit materials and advanced composite materials, parts
and assemblies during the 2010 fiscal year second quarter and first six 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 six-month periods ended August
30, 2009 were partially offset by costs incurred at the Company’s Park Aircraft
Technology Corp. business unit in Newton, Kansas in connection with the start-up
of its operations.
The
markets in North America, Asia and Europe for the Company’s printed circuit
materials products continued to be weak 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 and
second quarters.
15
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 third 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 third 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 42,000 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 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 2009 fiscal year third quarter and a workforce
reduction at its Nelco Products Pte. Ltd. electronics circuitry materials and
advanced composite materials business unit located in Singapore in the 2009
fiscal year fourth quarter.
16
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 Six Months Ended August 30, 2009 Compared with Three and Six Months Ended
August 31, 2008:
The
Company’s total net sales and its net sales of printed circuit materials
products decreased during the three-month and six-month periods ended August 30,
2009 compared to the three-month and six-month periods ended August 31, 2008 as
a result of declines in such sales in North America, Europe and
Asia. The
Company’s net sales of advanced composite materials, parts and assemblies in
both the three-month and six-month periods ended August 30, 2009 were
substantially the same as such sales in the prior year’s comparable periods
primarily as a result of the Company’s business development, marketing and sales
efforts relating to such materials, parts and assemblies for aircraft
applications. Net sales of the Company’s advanced composite materials, parts and
assemblies products were 16% of the Company’s total net sales worldwide in each
of the three-month and six-month periods ended August 30, 2009 compared to 12%
and 11% of the Company’s total net sales worldwide in the three-month and
six-month periods, respectively, ended August 31,
2008.
While
the Company’s gross profits in the three months and six months ended August 30,
2009 were lower than its gross profits in the prior year’s comparable periods
primarily as a result of lower sales volumes of printed circuit materials
products, its gross profit margins improved to 25.7% and 25.4% in the three
months and six months, respectively, ended August 30, 2009, compared to 19.7%
and 22.1% 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 and advanced composite materials, parts and assemblies 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 six-month periods ended August 30, 2009 were partially offset by
costs incurred at the Company’s Park Aircraft Technology Corp. business unit in
Newton, Kansas in connection with the start-up of its
operations.
The
decreased sales of printed circuit materials products and the lower interest
income earned in the three months and six months ended August 30, 2009 resulted
in lower net earnings compared to the 2009 fiscal year comparable
periods.
Results of Operations
The
Company’s total net sales for the three-month period ended August 30, 2009
decreased 24% to $42.5 million from $55.6 million for last fiscal year’s
comparable period. The Company’s total net sales for the six-month period ended
August 30, 2009 decreased 31% to $79.2 million from $115.4 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, Europe and Asia.
17
The
Company’s foreign sales were $20.6 million and $37.5 million, respectively, or
49% and 47%, respectively, of the Company’s total net sales worldwide,
during the three-month and six-month periods ended August 30, 2009, compared
with $27.8 million and $57.2 million, respectively, of foreign sales, or 50% of
total net sales worldwide, during last year’s comparable periods. The
Company’s foreign sales during the three-month and six-month periods ended
August 30, 2009 decreased 26% and 34%, respectively, from the 2009 fiscal year
comparable periods, as a result of decreases in sales in Asia and Europe in both
periods.
For
the three-month period ended August 30, 2009, the Company’s sales in North
America, Asia and Europe were 51%, 39% and 10%, respectively, of the Company’s
total net sales worldwide compared with 50%, 38% and 12%, respectively, for the
three-month period ended August 31, 2008; and for the six-month period ended
August 30, 2009, the Company’s sales in North America, Asia and Europe were 53%,
37% and 10% of the Company’s total net sales worldwide compared with 51%, 37%
and 12%, respectively, for the six-month period ended August 31, 2008. The
Company’s sales in North America decreased 21%, its sales in Asia decreased 23%
and its sales in Europe decreased 36% in the three-month period ended August 30,
2009 compared with the three-month period ended August 31, 2008, and its sales
in North America decreased 28%, its sales in Asia decreased 31% and its sales in
Europe decreased 46% in the six-month period ended August 30, 2009 compared with
the six-month period ended August 31, 2008.
The overall gross profits as
percentages of net sales for the Company’s worldwide operations improved to
25.7% and 25.4%, respectively, for the three months and six months ended August
30, 2009 compared with 19.7% and 22.1% 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 and advanced composite materials, parts and assemblies 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 six-month periods ended August 30, 2009 were
partially offset by costs incurred at the Company’s Park Aircraft Technology
Corp. business unit in Newton, Kansas in connection with the start-up of its
operations.
During both the three-month and six-month periods
ended August 30, 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
six-month periods ended August 31, 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.
18
During the three-month and six-month periods ended
August 30, 2009, the Company’s total net sales worldwide of high performance
printed circuit materials (non-FR4 printed circuit materials) were 64% and 65%,
respectively, of the Company’s total net sales worldwide of printed circuit
materials, compared with 57% and 58% for last fiscal year’s comparable
periods.
The
Company’s cost of sales as a percentage of net sales decreased to 74.3% in the
three-month period ended August 30, 2009 from 80.3% in the three-month period
ended August 31, 2008 and to 74.6% in the six-month period ended
August 30, 2009 from 77.9% in the six-month period ended August 31, 2008
resulting in gross profit margin increases, which were attributable to higher
percentages of sales of higher margin, high performance printed circuit
materials products and advanced composite materials, parts and assemblies 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 six-month periods ended August 30, 2009 were partially offset by
costs incurred at the Company’s Park Aircraft Technology Corp. business unit in
Newton, Kansas in connection with the start-up of its operations.
Selling, general and administrative expenses
decreased by $1.0 million and $1.4 million or by 16% and 11%, respectively,
during the three-month period and six-month period, respectively, ended August
30, 2009 compared with last fiscal year’s comparable periods. The decreases were
attributable primarily to reduced costs for the three-month and six-month
periods ended August 30, 2009 compared to the comparable periods in the prior
fiscal year resulting from the closure 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 12.2% and 14.0%, respectively, during the three-month
and six-month periods ended August 30, 2009 compared with 11.1% and 10.8%,
respectively, during the last fiscal year’s comparable periods. Stock option
expenses were $0.3 million and $0.6 million, respectively, for the three-month
and six-month periods ended August 30, 2009 and $0.3 million and $0.7 million,
respectively, for the three-month and six-month periods ended August 31,
2008.
For
the reasons set forth above, the Company’s earnings from operations were $5.7
million for the three months ended August 30, 2009 compared to $4.8 million for
the three months ended August 31, 2008 and $9.0 million for the six months ended
August 30, 2009 compared to $13.0 million for the six months ended August 31,
2008.
Interest
and other income, net, principally investment income, was $0.2 million and $0.9
million, respectively, for the three-month and six-month periods ended August
30, 2009 compared with $1.7 million and $3.4 million, respectively, for last
fiscal year’s comparable periods. The decreases in investment income were
attributable principally to lower prevailing interest rates, partially offset by
higher levels of cash available for investment, during the 2010 fiscal year
first and second quarters than during the 2009 fiscal year first and second
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 six-month periods
ended August 30, 2009 were 20.1% and 21.2%, respectively, compared to effective
income tax rates of 23.8% for both the three-month and six-month periods ended
August 31, 2008. The lower tax provisions for the three-month and six-month
periods ended August 30, 2009 were primarily the results of lower taxable income
in jurisdictions with higher income tax rates.
19
The
Company’s net earnings for the three months ended August 30, 2009 were $4.8
million compared to net earnings of $4.9 million for the three months ended
August 31, 2008, and the Company’s net earnings for the six months ended August
30, 2009 were $7.8 million compared to net earnings of $12.5 million for the
six-months ended August 31, 2008.
Basic
and diluted earnings per share were $0.23 and $0.38 for the three months and six
months, respectively, ended August 30, 2009 compared to basic and diluted
earnings per share of $0.24 and $0.61 for the three-months and six-months,
respectively, ended August 31, 2008.
Liquidity
and Capital Resources:
At
August 30, 2009, the Company's cash and marketable securities were $233.7
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 $244.8 million at August 30, 2009 compared with
$239.6 million at March 1, 2009. The increase in working capital at August 30,
2009 compared with March 1, 2009 was due principally to the increase in cash and
marketable securities and the decrease in accrued liabilities only partially
offset by the decrease in other current assets and the increases in accounts
payable and dividends payable. Accrued liabilities declined by 20% at August 30,
2009 compared to March 1, 2009 primarily as a result of a reduction of $0.8
million in a reserve in the second quarter. The 51% decrease in other current
assets at August 30, 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 August 30, 2009. Accounts payable
increased by 21% at August 30, 2009 compared to March 1, 2009 principally due to
the timing of raw material purchases. The increase in dividends payable was the
result of the declaration of the regular quarterly cash dividend in the 2010
fiscal year second quarter payable in the 2010 fiscal year third
quarter.
The
Company's current ratio (the ratio of current assets to current liabilities) was
10.5 to 1 at August 30, 2009 compared to 10.9 to 1 at March 1,
2009.
During the six months ended August 30, 2009, net
earnings from the Company's operations, before depreciation and amortization and
stock-based compensation, increased by a net increase in working capital items,
resulted in $12.4 million of cash provided by operating activities. During the
same six-month period, the Company expended a net amount of $1.2 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 $8.1
million for the purchase of property, plant and equipment, primarily for the
facility in Kansas, and a total of $4.7 million for the acquisition of
substantially all the assets and business of Nova Composites, Inc. in the
six-month period ended August 31, 2008. In addition, the Company paid $3.3
million in dividends on its common stock in the six-month period ended August
30, 2009 compared to the same amount in the six-month period ended August 31,
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
20
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
August 30, 2009 and at August 31, 2008, the Company had no long-term
debt.
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 $1.45 million to secure the Company's
obligations under its workers' compensation insurance program.
As of
August 30, 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 six-month periods ended August 30, 2009 and August 31, 2008, the Company
reversed accruals of approximately $0.8 million and $0.6 million, 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. 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 August 30, 2009 and March 1, 2009, the amounts
recorded in accrued liabilities for environmental matters were $0.01 million and
$0.8 million, respectively.
21
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 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, accounts receivable,
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
22
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.
Accounts Receivable
The
majority of the Company’s accounts receivable are due from purchasers of the
Company’s printed circuit materials. Credit is extended based on
evaluation of a customer’s financial condition and, generally, collateral is not
required. 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 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. 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.
Allowances
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. 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.
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. 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 closures of the Company’s Neltec
23
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 $0.6 million 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.
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.
24
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.
|
Item 3.
|
Quantitative
and Qualitative Disclosure About Market
Risk.
|
Company's market risk exposure at August 30, 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 August 30, 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.
25
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 second quarter ended August 30, 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
|
||||||||||
|
June
1 – June
30
|
0 | - | 0 | |||||||||||
|
July
1 – July
31
|
0 | - | 0 | |||||||||||
|
August
1 – August 30
|
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.
|
At
the Annual Meeting of Shareholders held on July 21, 2009:
(a)
the
persons elected as directors of the Company and the voting for such
persons were as follows:
26
|
Authority
|
||||||||
|
Name
|
Votes For
|
Withheld
|
||||||
|
Dale
Blanchfield
|
18,539,308 | 977,046 | ||||||
|
Lloyd
Frank
|
17,774,740 | 1,741,614 | ||||||
|
Brian
E. Shore
|
18,312,807 | 1,203,547 | ||||||
|
Steven
T. Warshaw
|
18,542,088 | 974,266 | ||||||
|
|
(b)
the appointment of Grant Thornton LLP as the Company’s independent
registered public accounting firm for the fiscal year ending February 28,
2010 was ratified by the Shareholders. There were 19,490,646 votes for
such ratification, 23,143 votes against, and 2,564
abstentions.
|
|
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.
|
|
27
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:
October 8, 2009
|
|
/s/ Brian E. Shore | |
|
Brian
E. Shore
|
|||
|
President
and
Chief
Executive Officer
(principal
executive officer)
|
|||
|
Date:
October 8, 2009
|
|
/s/ Matthew Farabaugh | |
|
P.
Matthew Farabaugh
|
|||
|
Vice
President and Controller
(principal
accounting officer)
|
|||
28
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)
|
30
|
||
|
31.2
|
Certification
of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a)
|
32
|
||
|
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
|
34
|
||
|
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
|
|
35
|
29