PARK AEROSPACE CORP - Quarter Report: 2010 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 28, 2010
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
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 Filer ¨
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: 20,670,249 as of January 4, 2011.
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
TABLE OF
CONTENTS
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|
Page
Number
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||
|
PART
I.
|
FINANCIAL
INFORMATION:
|
|||
|
Item
1.
|
Financial
Statements
|
|||
|
Condensed
Consolidated Balance Sheets November
28, 2010 (Unaudited) and February 28, 2010
|
3
|
|||
|
Consolidated
Statements of Operations 13
weeks and 39 weeks ended November 28, 2010 and November 29, 2009
(Unaudited)
|
4
|
|||
|
Condensed
Consolidated Statements of Cash Flows 39
weeks ended November 28, 2010 and November 29, 2009 (Unaudited)
|
5
|
|||
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
6
|
|||
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
||
|
Factors
That May Affect Future Results
|
26
|
|||
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
27
|
||
|
Item
4.
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Controls
and Procedures
|
27
|
||
|
PART
II.
|
OTHER
INFORMATION:
|
|||
|
Item
1.
|
Legal
Proceedings
|
28
|
||
|
Item 1A.
|
Risk
Factors
|
28
|
||
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
||
|
Item
3.
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Defaults
Upon Senior Securities
|
28
|
||
|
Item
4.
|
Reserved
|
28
|
||
|
Item
5.
|
Other
Information
|
28
|
||
|
Item
6.
|
Exhibits
|
29
|
||
|
SIGNATURES
|
30
|
|||
|
EXHIBIT
INDEX
|
31
|
|||
2
PART
I. FINANCIAL INFORMATION
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands)
|
November 28, 2010
(Unaudited)
|
February
28,
2010*
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 124,297 | $ | 134,030 | ||||
|
Marketable
securities (Note 3)
|
138,615 | 103,810 | ||||||
|
Accounts
receivable, net
|
27,760 | 31,698 | ||||||
|
Inventories
(Note 4)
|
13,417 | 11,973 | ||||||
|
Prepaid
expenses and other current assets
|
2,613 | 1,167 | ||||||
|
Total
current assets
|
306,702 | 282,678 | ||||||
|
Property,
plant and equipment, net
|
42,615 | 44,905 | ||||||
|
Goodwill
|
6,476 | 5,376 | ||||||
|
Other
assets
|
10,543 | 10,145 | ||||||
|
Total
assets
|
$ | 366,336 | $ | 343,104 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 9,553 | $ | 10,201 | ||||
|
Accrued
liabilities
|
9,847 | 7,301 | ||||||
|
Income
taxes payable
|
4,205 | 4,140 | ||||||
|
Total
current liabilities
|
23,605 | 21,642 | ||||||
|
Deferred
income taxes
|
1,398 | 1,398 | ||||||
|
Other
liabilities (Note 6)
|
3,422
|
3,966
|
||||||
|
Total
liabilities
|
28,425 | 27,006 | ||||||
|
Stockholders'
equity:
|
||||||||
|
Common
stock
|
2,065 | 2,054 | ||||||
|
Additional
paid-in capital
|
152,460 | 149,352 | ||||||
|
Retained
earnings
|
181,232 | 163,077 | ||||||
|
Treasury
stock, at cost
|
(2 | ) | (1 | ) | ||||
|
Accumulated
other comprehensive income
|
2,156 | 1,616 | ||||||
|
Total
stockholders' equity
|
337,911 | 316,098 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 366,336 | $ | 343,104 | ||||
*The
balance sheet at February 28, 2010 has been derived from the audited financial
statements at that date.
See
accompanying Notes to the Condensed Consolidated Financial Statements
(Unaudited).
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
28,
2010
|
November
29,
2009
|
November
28,
2010
|
November
29,
2009
|
|||||||||||||
|
Net
sales
|
$ | 46,920 | $ | 46,088 | $ | 160,451 | $ | 125,303 | ||||||||
|
Cost
of sales
|
32,428 | 32,327 | 107,479 | 91,386 | ||||||||||||
|
Gross
profit
|
14,492 | 13,761 | 52,972 | 33,917 | ||||||||||||
|
Selling,
general and administrative expenses
|
6,381 | 6,128 | 21,381 | 17,248 | ||||||||||||
|
Restructuring
charges (Note 6)
|
1,312
|
- |
1,312
|
-
|
||||||||||||
|
Earnings
from operations
|
6,799 | 7,633 | 30,279 | 16,669 | ||||||||||||
|
Interest
income and other income
|
123
|
112
|
417
|
1,005 | ||||||||||||
|
Earnings
from operations before income taxes
|
6,922 | 7,745 | 30,696 | 17,674 | ||||||||||||
|
Income
tax provision
|
1,902 |
576
|
6,360 | 2,676 | ||||||||||||
|
Net
earnings
|
$ | 5,020 | $ | 7,169 | $ | 24,336 | $ | 14,998 | ||||||||
|
Earnings
per share (Note 7)
|
||||||||||||||||
|
Basic
|
$ | 0.24 | $ | 0.35 | $ | 1.18 | $ | 0.73 | ||||||||
|
Diluted
|
$ | 0.24 | $ | 0.35 | $ | 1.18 | $ | 0.73 | ||||||||
|
Weighted
average number of common and common equivalent shares
outstanding:
|
||||||||||||||||
|
Basic
shares
|
20,636 | 20,541 | 20,610 | 20,515 | ||||||||||||
|
Diluted
shares
|
20,674 | 20,573 | 20,641 | 20,536 | ||||||||||||
|
Dividends
declared per share
|
$ | 0.10 | $ | - | $ | 0.30 | $ | 0.26 | ||||||||
See
accompanying Notes to the Condensed Consolidated Financial Statements
(Unaudited).
4
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
|
39
Weeks Ended
|
||||||||
|
(Unaudited)
|
||||||||
|
November
28,
2010
|
November
29,
2009
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
earnings
|
$ | 24,336 | $ | 14,998 | ||||
|
Depreciation
and amortization
|
5,186 | 5,221 | ||||||
|
Stock-based
compensation
|
750 | 828 | ||||||
|
Change
in operating assets and liabilities
|
2,759
|
(5,499 | ) | |||||
|
Net
cash provided by operating activities
|
33,031
|
15,548
|
||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of property, plant and equipment
|
(2,585 | ) | (1,675 | ) | ||||
|
Proceeds
from sales of property, plant and Equipment
|
- | 130 | ||||||
|
Purchases
of marketable securities
|
(211,727 | ) | (91,732 | ) | ||||
|
Proceeds
from sales and maturities of marketable
securities
|
176,631 | 199,565 | ||||||
|
Business
acquisition
|
(1,100
|
) |
(1,025
|
) | ||||
|
Net
cash (used in) provided by investing Activities
|
(38,781 | ) | 105,263 | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Dividends
paid
|
(6,181 | ) | (5,335 | ) | ||||
|
Proceeds
from exercise of stock options
|
1,941 | 1,178 | ||||||
|
Tax
benefits from exercise of stock options
|
429
|
155
|
||||||
|
Net
cash used in financing activities
|
(3,811 | ) |
(4,002
|
) | ||||
|
Change
in cash and cash equivalents before exchange
rate changes
|
(9,561 | ) | 116,809 | |||||
|
Effect
of exchange rate changes on cash and
cash equivalents
|
(172
|
) |
391
|
|||||
|
Change
in cash and cash equivalents
|
(9,733 | ) | 117,200 | |||||
|
Cash
and cash equivalents, beginning of Period
|
134,030 | 40,790 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 124,297 | $ | 157,990 | ||||
|
Supplemental
cash flow information:
|
||||||||
|
Cash
paid during the period for income taxes
|
$ | 5,817 | $ | 3,941 | ||||
See
accompanying Notes to the Condensed Consolidated Financial Statements
(Unaudited).
5
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 28, 2010, the consolidated
statements of operations for the 13 weeks and 39 weeks ended November 28, 2010
and 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 28, 2010 and the results of operations and cash flows for all
periods presented.
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 February 28, 2010.
|
2.
|
FAIR
VALUE MEASUREMENTS
|
The
Company adopted the accounting standard related to fair value measurements,
effective March 2, 2009. Under this standard, fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability (i.e.,
the “exit price”) in an orderly transaction between market participants at the
measurement date.
Fair
value measurements are broken down into three levels based on the reliability of
inputs as follows:
Level 1
inputs are quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access at the measurement date. An active
market for the asset or liability is a market in which transactions for the
asset or liability occur with sufficient frequency and volume to provide pricing
information on an ongoing basis. The valuation under this approach does not
entail a significant degree of judgment.
Level 2
inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets
or liabilities in active markets, inputs other than quoted prices that are
observable for the asset or liability (e.g., interest rates and
yield curves observable at commonly quoted intervals or current market) and
contractual prices for the underlying financial instrument, as well as other
relevant economic measures.
Level 3
inputs are unobservable inputs for the asset or
liability. Unobservable inputs are used to measure fair value to the
extent that observable inputs are not available, thereby allowing for situations
in which there is little, if any, market activity for the asset or liability at
the measurement date.
6
The fair
value of the Company’s cash and cash equivalents, accounts receivable, accounts
payable and current liabilities approximate their carrying values due to their
short-term nature. Certain assets and liabilities of the Company are required to
be recorded at fair value on either a recurring or non-recurring basis. On a
recurring basis, the Company records its marketable securities (see Note 3) at
fair value using Level 1 inputs.
The
Company’s non-financial assets measured at fair value on a non-recurring basis
include goodwill and any assets and liabilities acquired in a business
combination or any long-lived assets written down to fair value. To measure fair
value for such assets, the Company uses Level 3 inputs consisting of techniques
including an income approach and a market approach. The income approach is based
on a discounted cash flow analysis and calculates the fair value by estimating
the after-tax cash flows attributable to a reporting unit and then discounting
the after-tax cash flows to a present value using a risk-adjusted discount
rate. Assumptions used in the discounted cash flow analysis require
the exercise of significant judgment, including judgment about appropriate
discount rates and terminal value, growth rates and the amount and timing of
expected future cash flows.
|
3.
|
MARKETABLE
SECURITIES
|
The
following is a summary of available-for-sale securities:
|
Gross
|
Gross
|
|||||||||||
|
Unrealized
|
Unrealized
|
Estimated
|
||||||||||
|
Gains
|
Losses
|
Fair Value
|
||||||||||
|
November
28, 2010:
|
||||||||||||
|
U.S.
Treasury and other government securities
|
$ | 30 | $ | 76 | $ | 88,400 | ||||||
|
U.S.
corporate debt securities
|
57 | 13 | 50,215 | |||||||||
|
Total
marketable securities
|
$ | 87 | $ | 89 | $ | 138,615 | ||||||
|
February
28, 2010:
|
||||||||||||
|
U.S.
Treasury and other government securities
|
$ | 33 | $ | 6 | $ | 56,279 | ||||||
|
U.S.
corporate debt securities
|
- | 12 | 5,209 | |||||||||
|
Certificates
of deposit
|
- | - |
42,322
|
|||||||||
|
Total
marketable securities
|
$ | 33 | $ | 18 | $ | 103,810 | ||||||
The
estimated fair values of such securities were determined based on observable
inputs, which were quoted market prices for identical assets in active markets.
The estimated fair values of such securities at November 28, 2010, by
contractual maturity, are shown below:
|
Due
in one year or less
|
$ | 104,284 | ||
|
Due
after one year through five years
|
34,331 | |||
| $ | 138,615 |
7
|
4.
|
INVENTORIES
|
Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Inventories consisted of the following:
|
November
28,
|
February
28,
|
|||||||
|
2010
|
2010
|
|||||||
|
Raw
materials
|
$ | 6,808 | $ | 5,675 | ||||
|
Work-in-progress
|
2,837 | 2,975 | ||||||
|
Finished
goods
|
3,465 | 3,059 | ||||||
|
Manufacturing
supplies
|
307 | 264 | ||||||
| $ | 13,417 | $ | 11,973 | |||||
5. STOCK-BASED COMPENSATION
|
|
As
of November 28, 2010, 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 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 28, 2010, 1,830,845 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 953,481 options were
available for future grant under the 2002 Stock Option Plan. One option to
purchase 3,000 shares of common stock was granted during the 13-week and
39-week periods ended November 28, 2010. 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.
|
|
|
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 $8.39 for the first 39 weeks
of the fiscal year 2011, with the following assumptions: risk free
interest rate of 2.63%; expected volatility factor of 35.4%; expected
dividend yield of 1.52%; and estimated option term of 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 option 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 2010 fiscal year and on the exercise price
of the option granted during the 13 weeks and 39 weeks ended November 28, 2010.
The estimated term of the option is based on evaluations of historical and
expected future employee exercise behavior.
8
The
future compensation expense affecting earnings from operations before income
taxes for options outstanding at November 28, 2010 will be $1,316 and will be
recognized over the next four fiscal years.
The following is a summary of options
for the 39 weeks ended November 28, 2010:
|
Weighted
Average
|
||||||||||||||||
|
Weighted
Average
|
Remaining
Contract
|
Aggregated
|
||||||||||||||
|
Options
|
Exercise
Price
|
Life
in
Months
|
Intrinsic
Value
|
|||||||||||||
|
Outstanding
at February 28, 2010
|
1,018,095 | $ | 24.89 | 66.68 | $ | 2,901 | ||||||||||
|
Granted
|
3,000 | 26.40 | ||||||||||||||
|
Exercised
|
(110,193 | ) | 17.60 | |||||||||||||
|
Terminated
or expired
|
(33,538 | ) | 24.25 | |||||||||||||
|
Outstanding
at November 28, 2010
|
877,364 | $ | 25.75 | 64.35 | $ | 2,265 | ||||||||||
|
Exercisable
at November 28, 2010
|
672,695 | $ | 25.68 | 53.95 | $ | 1,859 | ||||||||||
The total
intrinsic values of options exercised during the 13 weeks ended November 28,
2010 and November 29, 2009 were $61 and $0, respectively. The total intrinsic
values of options exercised during the 39 weeks ended November 28, 2010 and
November 29, 2009 were $1,310 and $352, respectively.
A summary
of the status of the Company’s nonvested options at November 28, 2010, and
changes during the 13 week period then ended, is presented below:
|
Shares Subject
To Options
|
Weighted Average
Grant Date Fair
Value
|
|||||||
|
Nonvested
at August 29, 2010
|
248,094 | $ | 7.26 | |||||
|
Granted
|
3,000 | 8.39 | ||||||
|
Vested
|
(32,124 | ) | 7.95 | |||||
|
Terminated
|
(14,301 | ) | 7.77 | |||||
|
Nonvested
at November 28, 2010
|
204,669 | $ | 6.95 | |||||
|
6.
|
RESTRUCTURING
CHARGES
|
In the
2009 fiscal year fourth quarter, the Company recorded a charge of $4,100 for the
closure of the Company’s Neltec Europe SAS digital electronic materials business
unit located in Mirebeau, France. In the 13 weeks and 39 weeks ended
November 28, 2010, the Company recorded an additional charge of $1,312 related
to the closure. The additional charge was based on updated estimates of the
total costs to complete the closure of the Neltec Europe business unit as a
result of recent additional information regarding such costs, including recent
developments relating to certain employment litigation initiated in France after
the closure and other expenses in excess of the original estimates.
|
|
As
of February 28, 2010, the Company had remaining obligations of $112
related to the closure of the Neltec Europe SAS business unit. The Company
paid $177 and $202 of these obligations in the 13 weeks and 39 weeks ended
November 28, 2010 and expects to pay the remaining $1,222 during the 2011
and 2012 fiscal years.
|
9
|
|
During
the 2004 fiscal year, the Company recorded charges related to the
realignment of its North American 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 $2,028 and $2,534 as of
November 28, 2010 and February 28, 2010, respectively. For the 13 weeks
and 39 weeks ended November 28, 2010, the Company applied $265 and $506,
respectively, of lease payments against such lease
obligations.
|
7. 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.
The
following table sets forth the calculation of basic and diluted earnings per
share for the 13 weeks and 39 weeks ended November 28, 2010 and November 29,
2009.
|
13 weeks ended
|
39 weeks ended
|
|||||||||||||||
|
November
28,
2010
|
November
29,
2009
|
November
28,
2010
|
November
29,
2009
|
|||||||||||||
|
Net
Earnings
|
$ | 5,020 | $ | 7,169 | $ | 24,336 | $ | 14,998 | ||||||||
|
Weighted
average common shares outstanding for basic EPS
|
20,636 | 20,541 | 20,610 | 20,515 | ||||||||||||
|
Net
effect of dilutive options
|
38 |
32
|
31
|
21
|
||||||||||||
|
Weighted
average shares outstanding for diluted EPS
|
20,674 | 20,573 | 20,641 | 20,536 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.24 | $ | 0.35 | $ | 1.18 | $ | 0.73 | ||||||||
|
Diluted
earnings per share
|
$ | 0.24 | $ | 0.35 | $ | 1.18 | $ | 0.73 | ||||||||
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 328 and 707 for the 13 weeks ended November 28, 2010 and
November 29, 2009, respectively, and 290 and 758 for the 39 weeks ended November
28, 2010 and November 29, 2009, respectively.
10
|
8.
|
SHAREHOLDERS’
EQUITY
|
During
the 39 weeks ended November 28, 2010, the Company issued 110,193 shares pursuant
to the exercise of stock options and recognized stock-based compensation expense
and tax benefits from stock-based compensation of $750 and $429, respectively.
These transactions resulted in the $3,108 increase in additional paid-in capital
during the period.
|
9.
|
INCOME
TAXES
|
|
|
The
Company’s effective tax rates for the 13-week and 39-week periods ended
November 28, 2010 were 27.5% and 20.7%, respectively, compared to 7.4% and
15.1%, respectively, for the 13-week and 39-week periods ended November
29, 2009. 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 provided for reduced tax rates for taxable income in excess
of a stipulated base level of taxable income. The Company’s policy is to
include applicable interest and penalties related to unrecognized tax
benefits as a component of income tax
expense.
|
10.
COMPREHENSIVE INCOME
|
|
The
following table summarizes the components of comprehensive income for the
13 weeks and 39 weeks ended November 28, 2010 and November 29,
2009:
|
|
13 weeks ended
|
39 weeks ended
|
|||||||||||||||
|
November
28,
2010
|
November
29,
2009
|
November
28,
2010
|
November
29,
2009
|
|||||||||||||
|
Net
earnings
|
$ | 5,020 | $ | 7,169 | $ | 24,336 | $ | 14,998 | ||||||||
|
Exchange
rate changes
|
17 | 98 | 551 | 354 | ||||||||||||
|
Net
unrealized (loss) gain on marketable securities, net of
tax
|
(13 | ) | 86 | (10 | ) | 94 | ||||||||||
|
Comprehensive
income
|
$ | 5,024 | $ | 7,353 | $ | 24,877 | $ | 15,446 | ||||||||
|
11.
|
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 for the aerospace markets. The Company’s printed circuit materials
products, the Company’s advanced composite materials products and the Company’s
composite parts and assemblies products 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.
11
Financial
information concerning the Company's operations by geographic region
follows:
|
13 weeks
ended
|
39 weeks
ended
|
|||||||||||||||
|
November
28
|
November
29,
|
November
28,
|
November
29,
|
|||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Sales:
|
||||||||||||||||
|
North
America
|
$ | 23,093 | $ | 22,092 | $ | 74,542 | $ | 63,834 | ||||||||
|
Europe
|
4,567 | 4,240 | 16,818 | 11,967 | ||||||||||||
|
Asia
|
19,260 | 19,756 | 69,091 | 49,502 | ||||||||||||
|
Total
sales
|
$ | 46,920 | $ | 46,088 | $ | 160,451 | $ | 125,303 | ||||||||
|
November
28,
2010
|
February
28,
2010
|
|||||||
|
Long-lived
assets:
|
||||||||
|
North
America
|
$ | 39,561 | $ | 40,021 | ||||
|
Europe
|
1,253 | 1,264 | ||||||
|
Asia
|
18,820 | 19,141 | ||||||
|
Total
long-lived assets
|
$ | 59,634 | $ | 60,426 | ||||
12.
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.
|
|
|
The
$1,312 charge in the 39 weeks ended November 28, 2010 related to the
closure, in January of 2009, of the Company’s Neltec Europe SAS digital
electronic materials business unit located in Mirebeau, France included an
amount relating to certain employment litigation initiated in France after
the closure. See Note 6.
|
|
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
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,
|
12
|
|
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 nil in both the 13 weeks and 39 weeks
ended November 28, 2010 and approximately $1 and $2 respectively, in the 13
weeks and 39 weeks ended November 29, 2009. The recorded liabilities included in
accrued liabilities for environmental matters were $9 at both November 28, 2010
and February 28, 2010.
Such
recorded liabilities do not include environmental liabilities and related legal
expenses for which the Company has 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 these agreements,
such insurance carriers have been paying 100% of the legal defense and
remediation costs associated with such three sites since 1985.
|
|
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 $3,300 over the next three
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., 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 additional payments of $1,100 in the
first quarter of the 2011 fiscal year and $1,025 in the second quarter of
the 2010 fiscal year pursuant to the earn-out provision. Both payments
were recorded as additional goodwill, and any additional amount paid will
be recorded as goodwill.
|
13
|
13.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
|
|
In
January 2010, the Financial Accounting Standards Board issued an
accounting pronouncement that improves disclosures around fair value
measurements. This pronouncement requires additional disclosures regarding
transfers between Levels 1, 2 and 3 of the fair value hierarchy of this
pronouncement as well as a more detailed reconciliation of recurring Level
3 measurements. Certain disclosure requirements of this pronouncement were
effective and adopted by the Company in the first quarter of its 2011
fiscal year. The remaining disclosure requirements of this pronouncement
will be effective for the Company’s 2012 fiscal year first quarter. The
adoption of this pronouncement did not have an 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 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, Kansas, Arizona, California
and Washington.
The Company's total net sales increased
slightly in the three-month period ended November 28, 2010 compared to last
year's comparable period primarily as a result of an increase in sales of the
Company’s printed circuit materials products in North America, and the Company’s
total net sales increased substantially in the nine-months ended November 28,
2010 compared to last year’s comparable period as a result of increases in sales
of printed circuit materials products in North America, Europe and Asia. The
Company’s sales of advanced composite materials, parts and assemblies also
increased in the three months ended November 28, 2010 and increased slightly in
the nine-months ended November 28, 2010. However, the Company’s total net sales
in the three months ended November 28, 2010 were lower than its total net sales
in the three months ended August 29, 2010.
The Company’s operating performance in
the three-month and nine-month periods ended November 28, 2010 was stronger than
in the 2010 fiscal year comparable periods. The Company’s gross profit margin,
measured as a percentage of sales, improved to 30.9% in the 2011 fiscal year
third quarter compared to 29.9% in the 2010 fiscal year third quarter as a
result of the higher percentage of sales of higher margin, high performance
printed circuit materials products in the 2011 fiscal year period. The Company’s
gross profit margin in the nine months ended November 28, 2010 improved to 33.0%
compared to 27.1% in the 2010 fiscal year comparable period as a result of
operating efficiencies resulting from the increase in the Company’s total net
sales in the 2011 fiscal year first nine months and as a result of the higher
percentage of sales of higher margin, high performance printed circuit materials
products in the 2011 fiscal year period. However, the gross profit margin
improvements during the three-month and nine-month periods ended November 28,
2010 were partially offset by losses incurred at the Company’s recently
established Park Aircraft Technologies Corp. business unit in Newton,
Kansas.
The Company’s earnings from operations
in the three months ended November 28, 2010 were lower than its earnings from
operations in the three months ended November 29, 2009 as a result of the
pre-tax charge of $1.3 million recorded by the Company in the three-month period
ended November 28, 2010 related to the closure, in January of 2009, of the
operations of Neltec Europe SAS, the Company’s digital electronic materials
business unit located in Mirebeau, France. The Company’s earnings from
operations in the nine months ended November 28, 2010 were substantially higher
than its earnings from operations in the nine months ended November 29, 2009 as
a
15
result of
the higher total sales and a higher percentage of sales of higher margin, high
performance printed circuit materials products in the 2011 fiscal year period
despite the aforementioned charge. The Company’s net earnings in the three
months ended November 28, 2010 were lower than its net earnings in the three
months ended November 29, 2009 as a result of the aforementioned charge and as a
result of the higher income tax provision in the three months ended November 28,
2010 than in the 2010 fiscal year period. The Company’s net earnings in the 2011
fiscal year first nine months were substantially higher than its net earnings in
the 2010 fiscal year first nine months as a result of the Company’s strong
operating performance in the 2011 fiscal year period and despite the
aforementioned $1.3 million charge and despite the higher income tax provision
in the 2011 fiscal year first nine months than in the 2010 fiscal year
comparable period.
The markets in North America, Asia and
Europe for the Company’s printed circuit materials products strengthened in the
2010 fiscal year third and fourth quarters after prevailing weakness in the 2010
fiscal year first and second quarters, and such strength continued in the 2011
fiscal year first and second quarters but abated in the 2011 fiscal year third
quarter. 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. Such markets
for the Company’s advanced composite materials, parts and assemblies showed some
small signs of improvement during the 2011 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 2011 fiscal year fourth quarter or beyond. 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 2011 fiscal year fourth quarter or
beyond.
In the third quarter of the Company’s
2010 fiscal year, the Company commenced the construction of a major expansion of
its new development and manufacturing facility in Newton, Kansas in order to
manufacture composite parts and assemblies for the aircraft and space vehicle
industries. The expansion includes approximately 37,000 square feet of
manufacturing and storage space, and the Company plans to spend approximately $5
million on the expansion. The Company completed the construction of the new
facility in Newton, Kansas to produce advanced composite materials principally
for the aircraft and space vehicle industries in the fourth quarter of the
Company’s 2009 fiscal year, and the Company spent approximately $15 million on
the facility and equipment.
The Company recorded a pre-tax charge
of $1.3 million in the three-month period ended November 28, 2010 related to the
closure, in January of 2009, of the operations of Neltec Europe SAS, the
Company’s digital electronic materials business unit located in Mirebeau,
France. The Company previously recorded a pre-tax charge of $4.1 million in
connection with such closure in the fourth quarter of its fiscal year ended
March 1, 2009. The additional charge in the 2011 fiscal year third quarter was
based on updated estimates of the total costs to complete the closure of the
Neltec Europe SAS business unit as a result of recent additional information
regarding such costs, including recent developments relating to certain
employment litigation initiated in France after the closure and other expenses
in excess of the original estimates. The closure of Neltec Europe SAS
in
16
January
of 2009 was a major component of restructurings of the operations of the
Company’s Neltec Europe SAS and Neltec SA business units in the fourth quarter
of the 2009 fiscal year 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 restructurings included a reorganization of certain of the activities of
Neltec SA.
Three
and Nine Months Ended November 28, 2010 Compared with Three and Nine Months
Ended November 29, 2009:
The
Company’s total net sales and its net sales of printed circuit materials
products increased slightly during the three-month period ended November 28,
2010 compared to the three-month period ended November 29, 2009 as a result of
increases in such sales in North America, and the Company’s total net sales and
its net sales of printed circuit materials products increased substantially in
the nine-month period ended November 28, 2010 compared to last year’s comparable
period as a result of increases in sales of printed circuit materials products
in North America, Europe and Asia. The Company’s sales of advanced composite
materials, parts and assemblies products also increased in the three-month
period ended November 28, 2010 and increased slightly in the nine-month period
ended November 28, 2010. Net sales of the Company’s advanced composite
materials, parts and assemblies products were $5.5 million and $17.9 million in
the three months and nine months, respectively, ended November 28, 2010, or 12%
and 11% of the Company’s total net sales worldwide in the three-months and
nine-months, respectively, ended November 28, 2010 compared to $4.8 million and
$17.8 million in the three months and nine months, respectively, ended November
29, 2009, or 10% and 14%, respectively, of the Company’s total net sales
worldwide in the 2010 fiscal year comparable periods.
The
Company’s gross profits and its gross profit margins improved in the three
months and nine months ended November 28, 2010 compared to the prior year
comparable period. The gross profit margin improved to 30.9% in the three months
ended November 28, 2010 compared to 29.9% in the prior year comparable period as
a result of the higher percentage of sales of higher margin, high performance
printed circuit materials products in the 2011 fiscal year period. In the nine
months ended November 28, 2010, the gross profit margin improved to 33.0%
compared to 27.1% in the prior year comparable period as a result of operating
efficiencies resulting from the higher total net sales and as a result of the
higher percentage of sales of higher margin, high performance printed circuit
materials products. However, the gross profit margin improvements during the
three-month and nine-month periods ended November 28, 2010 were partially offset
by losses incurred at the Company’s recently established Park Aircraft
Technologies Corp. business unit in Newton, Kansas.
The
Company’s earnings from operations in the three-month and nine-month periods
ended November 28, 2010 were adversely affected by the pre-tax charge of $1.3
million recorded by the Company in the three-month period ended November 28,
2010 related to the closure, in January of 2009, of the operations of Neltec
Europe SAS, the Company’s digital electronic materials business unit located in
Mirebeau, France, and the Company’s net earnings in the three-month and
nine-month periods ended November 28, 2010 were adversely affected by such
charge and by the higher income tax provisions in the
three-
17
month
and nine-month periods ended November 28, 2010 than in the prior fiscal years
comparable periods. Earnings from operations and net earnings in the three
months ended November 28, 2010 were lower than in the prior year’s comparable
period, while earnings from operations and net earnings in the nine months ended
November 28, 2010 were substantially higher than in the prior year’s comparable
period.
Results of Operations
The
Company’s total net sales in the three-month period ended November 28, 2010
increased 2% to $46.9 million from $46.1 million in last fiscal year’s
comparable period. The Company’s total net sales for the nine-month period ended
November 28, 2010 increased 28% to $160.5 million from $125.3 million in last
fiscal year’s comparable period. The increases in net sales were the result of
higher unit volumes of printed circuit materials products shipped by the
Company’s operations in North America in the 2011 fiscal year third quarter and
higher unit volumes of printed circuit materials products shipped by the
Company’s operations in North America, Europe and Asia in the 2011 fiscal year
first nine months. The increases in net sales in
the 2011 fiscal year third quarter was also
the result of higher sales of the Company’s advanced composite materials, parts
and assemblies, while the sales levels of such products in the 2011 fiscal year
first nine months were almost unchanged from the levels in the prior year’s
comparable period.
The
Company’s foreign sales were $23.8 million and $85.9 million, respectively, or
51% and 54%, respectively, of the Company’s total net sales worldwide, during
the three-month and nine-month periods ended November 28, 2010, compared with
$24.4 million and $61.9 million, respectively, of foreign sales, or 53% and 49%,
respectively, of total net sales worldwide, during last year’s comparable
periods. The Company’s foreign sales decreased 2% during the three months ended
November 28, 2010 from last year’s comparable period primarily as a result of a
decrease in sales in Asia and increased 40% during the nine months ended
November 28, 2010 from last year’s comparable period as a result of increases in
sales in Europe and Asia.
For
the three-month period ended November 28, 2010, the Company’s sales in North
America, Asia and Europe were 49%, 41% and 10%, respectively, of the Company’s
total net sales worldwide compared with 47%, 43% and 10%, respectively, for the
three-month period ended November 29, 2009; and for the nine-month period ended
November 28, 2010, the Company’s sales in North America, Asia and Europe were
46%, 43% and 11%, respectively, of the Company’s total net sales worldwide
compared with 51%, 39% and 10%, respectively, for the nine-month period ended
November 29, 2009. The Company’s sales in North America increased 6%, its sales
in Europe decreased 1% and its sales in Asia decreased 3% in the three-month
period ended November 28, 2010 compared with the three-month period ended
November 29, 2009, and its sales in North America increased 17%, its sales in
Asia increased 40% and its sales in Europe increased 36% in the nine-month
period ended November 28, 2010 compared with the nine-month period ended
November 29, 2009.
The
gross profits as percentages of net sales for the Company’s worldwide operations
improved to 30.9% and 33.0%, respectively, in the three months and nine months
ended November 28, 2010 compared with 29.9% and 27.1% in last fiscal year’s
comparable periods. The increase in the gross profit margin in the three months
ended November 28, 2010 was attributable to the higher percentage of sales of
higher margin, high performance printed circuit materials products than in the
2010 fiscal year comparable period, while the
18
increase
in the gross profit margin in the nine months ended November 28, 2010 was
attributable to operating efficiencies resulting from the higher total net sales
as well as to the higher percentage of sales of higher margin, high performance
printed circuit materials products than in the 2010 fiscal year comparable
period. However, the gross profit margin improvements during the three-month and
nine-month periods ended November 28, 2010 were partially offset by losses
incurred at the Company’s recently established Park Aircraft Technologies Corp.
business unit in Newton, Kansas.
During both the three-month and nine-month periods
ended November 28, 2010 and 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.
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, quartz reinforced materials,
and polytetrafluoroethylene (“PTFE”) and modified epoxy materials for
RF/Microwave systems that operate at frequencies up to
77GHz.
During the three-month and nine-month periods ended
November 28, 2010, the Company’s total net sales worldwide of high performance
printed circuit materials (non-FR4 printed circuit materials) were 72% and 74%,
respectively, of the Company’s total net sales worldwide of printed circuit
materials, compared with 69% and 67% for last fiscal year’s comparable
periods.
The Company’s cost of sales as a percentage of net
sales decreased to 69.1% in the three months ended November 28, 2010 from 70.1%
in the three months ended November 29, 2009 and to 67.0% in the nine months
ended November 28, 2010 from 72.9% in the nine months ended November 29, 2009
resulting in gross profit margin increases. The gross profit margin increase in
the three months ended November 28, 2010 was attributable to the higher
percentage of sales of higher margin, high performance printed circuit materials
products in the 2011 fiscal year period than in the 2010 fiscal year comparable
period. The gross profit margin increase in the nine months ended November 28,
2010 was attributable to operating efficiencies resulting from the higher total
net sales in such period than in the nine months ended November 29, 2009 as well
as to the higher percentage of sales of higher margin, high performance printed
circuit materials products. However, the gross profit margin improvements during
the three-month and nine-month periods ended November 28, 2010 were partially
offset by losses incurred at the Company’s recently established Park Aircraft
Technologies Corp. business unit in Newton, Kansas.
Selling, general and administrative expenses
increased by $0.3 million and $4.1 million, respectively, or by 4% and 24%,
respectively, during the three-month period and nine-month period, respectively,
ended November 28, 2010 compared with last fiscal year’s comparable periods.
These expenses, measured as percentages of sales, increased to 13.6% during the
three months ended
November 28, 2010 from 13.3% during last fiscal year’s comparable period but
declined to 13.3% during the nine months ended November 28, 2010 compared to
13.8% during last year’s comparable period. The increases in these expenses
during the 2011 fiscal year periods were attributable
19
primarily
to increases in freight costs and commissions, which vary with shipments, and
increases in legal fees and expenses. Stock option expenses were $200,000 and
$750,000, respectively, for the three-month and nine-month periods ended
November 28, 2010 compared with $257,000 and $828,000 for last fiscal year’s
comparable periods.
During the three-month period ended November 28,
2010, the Company recorded a pre-tax charge of $1.3 million related to the
closure, in January of 2009, of the operations of Neltec Europe SAS, the
Company’s digital electronic materials business unit located in Mirebeau,
France.
For
the reasons set forth above, the Company’s earnings from operations were $6.8
million for the three months ended November 28, 2010, including the $1.3 million
charge related to the closure of Neltec Europe SAS in January 2009, compared to
$7.6 million for the three months ended November 29, 2009, and its earnings from
operations were $30.3 million for the nine months ended November 28, 2010,
including the aforementioned charge, compared to $16.7 million for the nine
months ended November 29, 2009.
Interest and other income, principally investment
income, was $0.1 million and $0.4 million, respectively, for the three-month and
nine-month periods ended November 28, 2010 compared to $0.1 million and $1.0
million, respectively, for last fiscal year’s comparable periods. The decrease
in investment income for the nine months ended November 28, 2010 was
attributable to lower prevailing interest rates, partially offset by higher
levels of cash available for investment, during the 2011 fiscal year period than
during the 2010 fiscal year period. 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 28, 2010 were 27.5% and 20.7%, respectively, compared to
effective income tax rates for the three-month and nine-month periods ended
November 29, 2009 of 7.4% and 15.1%, respectively. There was no tax benefit
associated with the $1.3 million charge related to the 2009 closure of Neltec
Europe SAS described above. Such charge had the effect of increasing the
effective income tax rates by 4.4 and 0.8 percentage points in the three-months
and nine-months, respectively, ended November 28, 2010. 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 28,
2010 were $5.0 million and $24.3 million, respectively, including the $1.3
million charge described above, compared to net earnings for the three months
and nine months ended November 29, 2009 of $7.2 million and $15.0 million,
respectively.
Basic
and diluted earnings per share were $0.24 for the three months ended November
28, 2010 and $1.18 for the nine months ended November 28, 2010 compared to basic
and diluted earnings per share of $0.35 and $0.73 for the three months and nine
months, respectively, ended November 29, 2009. The net impact of the charge
described above was to reduce basic and diluted earnings per share by $0.07 in
the three months ended November 28, 2010 and to reduce basic and diluted
earnings per share by $0.06 in the nine months ended November 28,
2010.
20
Liquidity
and Capital Resources:
At
November 28, 2010, the Company's cash and marketable securities were $262.9
million compared to $237.8 million at February 28, 2010, the end of the
Company's 2010 fiscal year. The Company's working capital (which includes cash
and marketable securities) was $283.1 million at November 28, 2010 compared to
$261.0 million at February 28, 2010. The increase in working capital at November
28, 2010 compared with February 28, 2010 was due principally to the increase in
cash and marketable securities and increases in inventories and other current
assets and a decrease in accounts payable partially offset by a decrease in
accounts receivable and an increase in accrued liabilities.
The
12% increase in inventories at November 28, 2010 compared to February 28, 2010
was primarily due to an increase in raw materials caused by a reduction in
production activity in the 2011 fiscal year third quarter. The 124% increase in
other current assets at November 28, 2010 compared to February 28, 2010 was
attributable primarily to an increase in prepaid insurance, value added tax
receivables primarily in Singapore and higher interest receivables at November
28, 2010. Accounts payable declined 6% at November 28, 2010 compared to February
28, 2010 primarily due to decreased raw materials purchases at the end of the
third quarter. Accounts receivable were 12% lower at November 28, 2010 than at
February 28, 2010 as a result of lower sales volumes in the 2011 fiscal year
third quarter than in the 2010 fiscal year fourth quarter. Accrued liabilities
increased by 35% at November 28, 2010 compared to February 28, 2010 primarily as
a result of the additional charge related to the closure of the Company’s Neltec
Europe SAS business unit and payroll related benefits.
The
Company's current ratio (the ratio of current assets to current liabilities) was
13.0 to 1 at November 28, 2010 compared to 13.1 to 1 at February 28,
2010.
During
the nine months ended November 28, 2010, net earnings from the Company's
operations, before depreciation and amortization and stock-based compensation,
increased by a net decrease in working capital items, resulted in $33.0 million
of cash provided by operating activities. During the same nine-month period, the
Company expended a net amount of $2.6 million for the purchase of property,
plant and equipment, primarily for the Company’s new development and
manufacturing facility in Newton, Kansas, and expended $1.1 million as
additional payment for the acquisition of substantially all the assets and
business of Nova Composites, Inc., compared to a net amount of $1.5 million for
the purchase of property, plant and equipment, primarily for the facility in
Kansas, and a total of $1.0 million as additional payment for the acquisition of
substantially all the assets and business of Nova Composites, Inc. in the
nine-month period ended November 29, 2009. In addition, the Company paid $6.2
million in dividends on its common stock in the nine-month period ended November
28, 2010 as a result of the Company’s increase in its quarterly cash dividend
from $0.08 per share to $0.10 per share in the 2010 fiscal year third quarter
compared to $5.3 million in the nine-month period ended November 29, 2009. Net
expenditures for property, plant and equipment were $3.4 million in the 2010
fiscal year and $12.2 million in the 2009 fiscal year.
The
Company paid a special cash dividend of $1.00 per share on December 28, 2010 to
stockholders of record on December 16, 2010.
21
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 for such acquisition in the 2010
fiscal year second quarter and an additional $1.1 million in the 2011 fiscal
year first quarter, leaving an additional $3.3 million payable over three 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. During the 2010 fiscal year, the Company
expended approximately $1.1 million for equipment for such facility and
approximately $1.1 million for the construction of an expansion of such facility
to produce advanced composite parts and assemblies.
At
November 28, 2010 and at February 28, 2010, 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 expansion
of the Company’s new development and manufacturing facility in Newton, Kansas
and the Company’s obligation to pay up to an additional $3.3 million over three
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 28, 2010, 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
February 28, 2010.
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.
22
Environmental
Matters:
In
the nine-month period ended November 29, 2009, the Company reversed an accrual
of $0.8 million for environmental remedial response and clean-up costs, which
was recorded as a reduction to selling, general and administrative expenses for
such period, as a result of the Company’s conclusion that the likelihood of any
liability in connection with such accrual 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 28, 2010 and February 28, 2010, the
amounts recorded in accrued liabilities for environmental matters was
$9,000.
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:
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,
contingencies and litigation, and 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
The
Company recognizes revenues when products are shipped and title has been
transferred to a customer, the sales price is fixed and determinable, and
collection is reasonably assured. All material sales transactions are
for the shipment of manufactured prepreg and laminate products and advanced
composite materials, parts and assemblies.
23
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. Composite parts and assemblies may be subject to “airworthiness”
acceptance by customers after receipt at the customers’ locations. 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 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.
24
Income
Taxes
As
part of the processes of preparing its consolidated financial statements, the
Company is required to estimate the income taxes in each of the jurisdictions in
which it operates. This process involves estimating the actual current tax
expense together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included in the
Company’s Consolidated Balance Sheets. The 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. The Company
evaluates the realizability of the deferred tax assets quarterly and assesses
the need for additional valuation allowances quarterly.
Tax
benefits are recognized for an uncertain tax position when, in the Company’s
judgment, it is more likely than not that the position will be sustained upon
examination by a taxing authority. For a tax position that meets the
more-likely-than-not recognition threshold, the tax benefit is measured as the
largest amount that is judged to have a greater than 50% likelihood of being
realized upon ultimate settlement with a taxing authority. The liability
associated with unrecognized tax benefits is adjusted periodically due to
changing circumstances and when new information becomes available. Such
adjustments are recognized entirely in the period in which they are identified.
The effective tax rate includes the net impact of changes in the liability for
unrecognized tax benefits and subsequent adjustments as considered appropriate
by the Company. While it is often difficult to predict the final outcome or the
timing of resolution of any particular tax matter, the Company believes its
liability for unrecognized tax benefits is adequate. Interest and penalties
recognized on the liability for unrecognized tax benefits are recorded as income
tax expense.
Restructurings
The
Company recorded a pre-tax charge of $1.3 million in the three-month period
ended November 28, 2010 related to the closure, in January of 2009, of the
operations of Neltec Europe SAS, the Company’s digital electronic materials
business unit located in Mirebeau, France. The Company previously recorded a
pre-tax charge of $4.1 million in connection with such closure in the fourth
quarter of its fiscal year ended March 1, 2009. The additional charge in the
2011 fiscal year third quarter was based on updated estimates of the total costs
to complete the closure of the Neltec Europe SAS business unit as a result of
recent additional information regarding such costs, including recent
developments relating to certain employment litigation initiated in France after
the closure and other expenses in excess of the original estimates. The closure
of Neltec Europe SAS in January of 2009 was a major component of restructurings
of the operations of the Company’s Neltec Europe SAS and Neltec SA business
units in the fourth quarter of the 2009 fiscal year.
Contingencies
The
Company is subject to a small number of proceedings, lawsuits and other claims
related to environmental, employment, product and other matters.
25
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
$1.3 million charge in the three-month period ended November 28, 2010 related to
the closure, in January of 2009, of the Company’s Neltec Europe SAS digital
electronic materials business unit located in Mirebeau, France included an
amount relating to certain employment litigation initiated in France after the
closure. See Note 6 of the Notes to the Condensed Consolidated Financial
Statements in Item 1 of Part I of this Report for additional information
relating to the aforementioned charge.
The
Company is obligated to pay up to an additional $3.3 million over three 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 payments of $1.0 million paid in the 2010
fiscal year second quarter and $1.1 million paid in the 2011 fiscal year first
quarter.
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
26
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 February 28, 2010.
Item
3. Quantitative
and Qualitative Disclosure About Market Risk.
Company's market risk exposure at November 28, 2010
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
February 28, 2010.
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 Chief 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 28, 2010, the end of the quarterly fiscal
period covered by this quarterly report. Based on such evaluation, the Company's
Chief Executive Officer and Chief Financial Officer 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 Chief
Financial Officer, 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.
27
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 February 28,
2010.
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
2011 fiscal year third quarter ended November 28, 2010.
|
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
28
|
0 | $ | − | 0 | ||||||||||||
|
September
29 – October
28
|
0 | – | 0 | |||||||||||||
|
October
29 – November 28
|
3
|
26.43 | 0 | |||||||||||||
|
Total
|
3 | $ | 26.43 | 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. Reserved.
Item
5. Other
Information.
None.
28
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.
|
29
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)
|
|
|
/s/ Brian E.
Shore
|
|
|
Date:
January 6, 2011
|
Brian
E. Shore
|
|
President
and
|
|
|
Chief
Executive Officer
|
|
|
(principal
executive officer)
|
|
|
/s/ David R.
Dahlquist
|
|
|
Date:
January 6, 2011
|
David
R. Dahlquist
|
|
Vice
President and Chief
Financial
Officer
|
|
|
(principal
financial officer)
|
30
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)
|
32
|
||
|
31.2
|
Certification
of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a)
|
34
|
||
|
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
|
36
|
||
|
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
|
37
|
31