PARK AEROSPACE CORP - Quarter Report: 2010 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 29, 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: 20,633,127 as of October 5, 2010.
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
TABLE
OF CONTENTS
|
Page
Number
|
||
|
PART I.
|
FINANCIAL INFORMATION:
|
|
|
Item
1.
|
Financial
Statements
|
|
|
Condensed
Consolidated Balance Sheets August 29, 2010 (Unaudited) and February 28,
2010
|
3
|
|
|
Consolidated
Statements of Operations 13 weeks and 26 weeks ended August 29, 2010 and
August 30, 2009 (Unaudited)
|
4
|
|
|
Condensed
Consolidated Statements of Cash Flows 26 weeks ended August 29, 2010 and
August 30, 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
|
14
|
|
Factors
That May Affect Future Results
|
23
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
Item
4.
|
Controls
and Procedures
|
23
|
|
PART
II.
|
OTHER
INFORMATION:
|
|
|
Item
1.
|
Legal
Proceedings
|
25
|
|
Item
1A.
|
Risk
Factors
|
25
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
25
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
25
|
|
Item
4.
|
Reserved
|
25
|
|
Item
5.
|
Other
Information
|
25
|
|
Item
6.
|
Exhibits
|
26
|
|
SIGNATURES
|
27
|
|
|
EXHIBIT
INDEX
|
28
|
|
2
PART
I. FINANCIAL INFORMATION
PARK
ELECTROCHEMICAL CORP.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands)
|
August 29, 2010
(Unaudited)
|
February 28,
2010*
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 100,476 | $ | 134,030 | ||||
|
Marketable
securities (Note 3)
|
151,677 | 103,810 | ||||||
|
Accounts
receivable, net
|
34,180 | 31,698 | ||||||
|
Inventories
(Note 4)
|
14,144 | 11,973 | ||||||
|
Prepaid
expenses and other current assets
|
2,611 | 1,167 | ||||||
|
Total
current assets
|
303,088 | 282,678 | ||||||
|
Property,
plant and equipment, net
|
43,392 | 44,905 | ||||||
|
Goodwill
|
6,476 | 5,376 | ||||||
|
Other
assets
|
10,508 | 10,145 | ||||||
|
Total
assets
|
$ | 363,464 | $ | 343,104 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 9,985 | $ | 10,201 | ||||
|
Accrued
liabilities
|
10,109 | 7,301 | ||||||
|
Income
taxes payable
|
3,964 | 4,140 | ||||||
|
Total
current liabilities
|
24,058 | 21,642 | ||||||
|
Deferred
income taxes
|
1,398 | 1,398 | ||||||
|
Other
liabilities (Note 6)
|
3,646
|
3,966
|
||||||
|
Total
liabilities
|
29,102 | 27,006 | ||||||
|
Stockholders'
equity:
|
||||||||
|
Common
stock
|
2,063 | 2,054 | ||||||
|
Additional
paid-in capital
|
151,872 | 149,352 | ||||||
|
Retained
earnings
|
178,276 | 163,077 | ||||||
|
Treasury
stock, at cost
|
(1 | ) | (1 | ) | ||||
|
Accumulated
other comprehensive income
|
2,152 | 1,616 | ||||||
|
Total
stockholders' equity
|
334,362 | 316,098 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 363,464 | $ | 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
|
26 weeks ended
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
August 29,
2010
|
August 30,
2009
|
August 29,
2010
|
August 30,
2009
|
|||||||||||||
|
Net
sales
|
$ | 54,505 | $ | 42,518 | $ | 113,531 | $ | 79,215 | ||||||||
|
Cost
of sales
|
36,188 | 31,570 | 75,051 | 59,059 | ||||||||||||
|
Gross
profit
|
18,317 | 10,948 | 38,480 | 20,156 | ||||||||||||
|
Selling,
general and administrative expenses
|
7,238
|
5,203 | 15,000 | 11,120 | ||||||||||||
|
Earnings
from operations
|
11,079 | 5,745 | 23,480 | 9,036 | ||||||||||||
|
Interest
income and other income
|
218
|
205
|
294
|
893 | ||||||||||||
|
Earnings
from operations before income taxes
|
11,297 | 5,950 | 23,774 | 9,929 | ||||||||||||
|
Income
tax provision
|
1,850 | 1,195 | 4,458 | 2,100 | ||||||||||||
|
Net
earnings
|
$ | 9,447 | $ | 4,755 | $ | 19,316 | $ | 7,829 | ||||||||
|
Earnings
per share (Note 7)
|
||||||||||||||||
|
Basic
|
$ | 0.46 | $ | 0.23 | $ | 0.94 | $ | 0.38 | ||||||||
|
Diluted
|
$ | 0.46 | $ | 0.23 | $ | 0.94 | $ | 0.38 | ||||||||
|
Weighted
average number of common and common equivalent shares
outstanding:
|
||||||||||||||||
|
Basic
shares
|
20,632 | 20,534 | 20,596 | 20,503 | ||||||||||||
|
Diluted
shares
|
20,642 | 20,554 | 20,625 | 20,518 | ||||||||||||
|
Dividends
declared per share
|
$ | 0.10 | $ | 0.18 | $ | 0.20 | $ | 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)
|
26 Weeks Ended
|
||||||||
|
(Unaudited)
|
||||||||
|
August 29,
2010
|
August 30,
2009
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
earnings
|
$ | 19,316 | $ | 7,829 | ||||
|
Depreciation
and amortization
|
3,463 | 3,432 | ||||||
|
Stock-based
compensation
|
550 | 571 | ||||||
|
Change
in operating assets and liabilities
|
(4,217 | ) | 559 | |||||
|
Net
cash provided by operating activities
|
19,112
|
12,391 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of property, plant and equipment, net
|
(1,853 | ) | (1,199 | ) | ||||
|
Purchases
of marketable securities
|
(163,492 | ) | (58,413 | ) | ||||
|
Proceeds
from sales and maturities of marketable securities
|
115,836 | 185,037 | ||||||
|
Business
acquisition
|
(1,100 | ) | (1,025 | ) | ||||
|
Net
cash (used in) provided by investing activities
|
(50,609 | ) | 124,400 | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Dividends
paid
|
(4,117 | ) | (3,281 | ) | ||||
|
Proceeds
from exercise of stock options
|
1,514 | 1,178 | ||||||
|
Tax
benefits from stock-based compensation
|
466 | - | ||||||
|
Net
cash used in financing activities
|
(2,137 | ) |
(2,103
|
) | ||||
|
Change
in cash and cash equivalents before exchange
rate changes
|
(33,634 | ) | 134,688 | |||||
|
Effect
of exchange rate changes on cash and
cash equivalents
|
80 | 263 | ||||||
|
Change
in cash and cash equivalents
|
(33,554 | ) | 134,951 | |||||
|
Cash
and cash equivalents, beginning of period
|
134,030 | 40,790 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 100,476 | $ | 175,741 | ||||
|
Supplemental
cash flow information:
|
||||||||
|
Cash
paid during the period for income taxes
|
$ | 4,133 | $ | 2,345 | ||||
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 August 29, 2010, the consolidated
statements of operations for the 13 weeks and 26 weeks ended August 29, 2010 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 29, 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.
6
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.
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 and 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
|
||||||||||
|
August
29, 2010:
|
||||||||||||
|
U.S.
Treasury and other government
securities
|
$ | 46 | $ | 91 | $ | 114,524 | ||||||
|
U.S.
corporate debt securities
|
46 | 9 | 37,153 | |||||||||
|
Total
marketable securities
|
$ | 92 | $ | 100 | $ | 151,677 | ||||||
|
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 August 29, 2010, by contractual
maturity, are shown below:
|
Due
in one year or less
|
$ | 122,434 | ||
|
Due
after one year through five years
|
29,243 | |||
| $ | 151,677 |
7
|
4.
|
INVENTORIES
|
Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Inventories consisted of the following:
|
August
29,
|
February
28,
|
|||||||
|
2010
|
2010
|
|||||||
|
Raw
materials
|
$ | 7,159 | $ | 5,675 | ||||
|
Work-in-progress
|
3,259 | 2,975 | ||||||
|
Finished
goods
|
3,475 | 3,059 | ||||||
|
Manufacturing
supplies
|
251 | 264 | ||||||
| $ | 14,144 | $ | 11,973 | |||||
|
5.
|
STOCK-BASED
COMPENSATION
|
|
|
As
of August 29, 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
August 29, 2010, 1,849,645 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 935,681 options were
available for future grant under the 2002 Stock Option Plan. No options of
common stock were granted during the 13-week and 26-week periods ended
August 29, 2010.
|
|
|
The
Company records its stock-based compensation at fair
value.
|
The
future compensation expense affecting earnings from operations before income
taxes for options outstanding at August 29, 2010 will be $1,490 and will be
recognized over the next three fiscal years.
The following is a summary of options
for the 26 weeks ended August 29, 2010:
8
|
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
|
- | - | ||||||||||||||
|
Exercised
|
(92,443 | ) | 16.37 | |||||||||||||
|
Terminated
or expired
|
(11,688 | ) | 23.71 | |||||||||||||
|
Outstanding
at August 29, 2010
|
913,964 | $ | 25.77 | 67.28 | $ | 595 | ||||||||||
|
Exercisable
at August 29, 2010
|
665,870 | $ | 25.66 | 54.17 | $ | 555 | ||||||||||
The
total intrinsic value of options exercised during the 13 weeks ended August 29,
2010 and August 30, 2009 was $16 and $338, respectively. The total intrinsic
value of options exercised during the 26 weeks ended August 29, 2010 and August
30, 2009 was $1,249 and $352, respectively.
A
summary of the status of the Company’s nonvested options at August 29, 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 February 28, 2010
|
340,260 | $ | 7.45 | |||||
|
Granted
|
- | - | ||||||
|
Vested
|
(91,166 | ) | 7.99 | |||||
|
Terminated
|
(1,000 | ) | 7.99 | |||||
|
Nonvested
at August 29, 2010
|
248,094 | $ | 7.26 | |||||
|
6.
|
RESTRUCTURINGS
AND SEVERANCE CHARGES
|
As
of February 28, 2010, the Company had remaining obligations of $112 related to
the closure of the Company’s Neltec Europe SAS electronic materials business
unit located in Mirebeau, France. The Company paid $15 and $25 of these
obligations in the 13 weeks and 26 weeks ended August 29, 2010 and expects to
pay the remaining $87 during the 2011 fiscal year.
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 $2,293 and $2,534 as of
August 29, 2010 and February 28, 2010, respectively. For the 13 weeks and 26
weeks ended August 29, 2010, the Company applied $103 and $241, respectively, of
lease payments against such lease obligations.
9
|
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 26 weeks ended August 29, 2010 and August 30,
2009.
|
13 weeks ended
|
26 weeks ended
|
|||||||||||||||
|
August 29,
2010
|
August 30,
2009
|
August 29,
2010
|
August 30,
2009
|
|||||||||||||
|
Net
Earnings
|
$ | 9,447 | $ | 4,755 | $ | 19,316 | $ | 7,829 | ||||||||
|
Weighted
average common shares outstanding
for basic EPS
|
20,632 | 20,534 | 20,596 | 20,503 | ||||||||||||
|
Net
effect of dilutive options
|
10 |
20
|
29
|
15
|
||||||||||||
|
Weighted
average shares outstanding for diluted EPS
|
20,642 | 20,554 | 20,625 | 20,518 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.46 | $ | 0.23 | $ | 0.94 | $ | 0.38 | ||||||||
|
Diluted
earnings per share
|
$ | 0.46 | $ | 0.23 | $ | 0.94 | $ | 0.38 | ||||||||
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 334 and 754 for the 13 weeks ended August 29, 2010 and August
30, 2009, respectively, and 270 and 784 for the 26 weeks ended August 29, 2010
and August 30, 2009, respectively.
|
8.
|
SHAREHOLDERS’
EQUITY
|
During
the 26 weeks ended August 29, 2010, the Company issued 92,443 shares pursuant to
the exercise of stock options and recognized stock-based compensation expense
and tax benefits from stock-based compensation expense of $550 and $466,
respectively. These transactions resulted in the $2,520 increase in additional
paid-in capital during the period.
|
9.
|
INCOME
TAXES
|
|
|
The
Company’s effective tax rates for the 13-week and 26-week periods ended
August 29, 2010 were 16.4% and 18.8%, respectively, compared to 20.1% and
21.2%, respectively, for the 13-week and 26-week periods ended August 29,
2009. The effective rates varied from the U.S. Federal statutory rate
primarily due to foreign income taxed at lower
rates.
|
10
|
|
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 26 weeks ended August 29, 2010 and August 30,
2009:
|
|
13 weeks ended
|
26 weeks ended
|
|||||||||||||||
|
August 29,
2010
|
August 30,
2009
|
August 29,
2010
|
August 30,
2009
|
|||||||||||||
|
Net
earnings
|
$ | 9,447 | $ | 4,755 | $ | 19,316 | $ | 7,829 | ||||||||
|
Exchange
rate changes
|
381 | 70 | 534 | 258 | ||||||||||||
|
Net
unrealized gain on marketable
securities, net of tax
|
83 | 8 | 2 | 8 | ||||||||||||
|
Comprehensive
income
|
$ | 9,911 | $ | 4,833 | $ | 19,852 | $ | 8,095 | ||||||||
|
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 and specialty 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.
Financial
information concerning the Company's operations by geographic region
follows:
|
13 weeks ended
|
26 weeks ended
|
|||||||||||||||
|
August 29,
|
August 30,
|
August 29,
|
August 30,
|
|||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Sales:
|
||||||||||||||||
|
North
America
|
$ | 24,731 | $ | 21,881 | $ | 51,449 | $ | 41,742 | ||||||||
|
Europe
|
4,725 | 4,230 | 12,251 | 7,727 | ||||||||||||
|
Asia
|
25,049 | 16,407 | 49,831 | 29,746 | ||||||||||||
|
Total
sales
|
$ | 54,505 | $ | 42,518 | $ | 113,531 | $ | 79,215 | ||||||||
|
August 29,
2010
|
February 28,
2010
|
|||||||
|
Long-lived assets:
|
||||||||
|
North
America
|
$ | 40,235 | $ | 40,021 | ||||
|
Europe
|
1,204 | 1,264 | ||||||
|
Asia
|
18,937 | 19,141 | ||||||
|
Total
long-lived assets
|
$ | 60,376 | $ | 60,426 | ||||
11
|
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.
|
|
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, 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 26 weeks
ended August 29, 2010 and approximately $1 and $2 respectively, in the 13 weeks
and 26 weeks ended August 30, 2009. The recorded liabilities included in accrued
liabilities for environmental matters were $9 at both August 29, 2010 and
February 28, 2010.
12
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.
|
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.
|
13
|
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 and specialty 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
in both the three-month period and six-month period ended August 29, 2010
compared with last year's comparable periods as a result of increases in sales
of the Company’s printed circuit materials products in North America, Asia and
Europe. However, the Company’s sales of advanced composite materials, parts and
assemblies in both the three-month and six-month periods ended August 29, 2010
were slightly less than such sales in last year’s comparable
periods.
As a result of the increases in the
Company’s total net sales and the higher percentage of sales of higher margin,
high performance printed circuit materials products in the three-month and
six-month periods ended August 29, 2010 compared to the three-month and
six-month periods ended August 30, 2009, the Company’s earnings from operations
and net earnings were higher in the 2011 fiscal year second quarter and first
six months than in the 2010 fiscal year second quarter and first six months,
although the Company’s net earnings in the 2011 fiscal year first six months
were negatively impacted by the lower interest income earned by the Company in
such period compared to the interest income earned by the Company in the 2010
fiscal year first six months.
The significant increases in sales of
printed circuit materials products and the higher percentages of sales of higher
margin, high performance printed circuit materials products resulted in higher
gross profits and higher earnings from operations and higher net earnings in the
three months and six months ended August 29, 2010 compared to the 2010 fiscal
year comparable periods. The Company’s gross profit margins, measured as
percentages of sales, improved to 33.6% in the 2011 fiscal year second quarter
and to 33.9% in the 2011 fiscal year first six months compared to 25.7% and
25.4%, respectively, in the 2010 fiscal year second quarter and first six
months. However, the gross profit margin improvements during the three-month and
six-month periods ended August 29, 2010 were partially offset by losses incurred
at the Company’s recently established Park Aircraft Technologies Corp. business
unit in Newton, Kansas.
The markets in North America, Europe
and Asia 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. The markets for the Company’s
advanced composite materials, parts and assemblies products weakened during the
2009 fiscal year
14
third
and fourth quarters, and such weakness continued during the 2010 fiscal year.
While such markets for the Company’s advanced composite materials, parts and
assemblies showed some small signs of improvement during the 2011 fiscal year
first and second quarters, such markets remained weaker in the 2011 fiscal year
quarters than in the 2010 fiscal year comparable periods.
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 third 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 third quarter or
beyond.
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 37,000 square feet of
manufacturing and storage space, and the Company plans to spend a total of
approximately $5 million on the expansion.
Three
and Six Months Ended August 29, 2010 Compared with Three and Six Months Ended
August 30, 2009:
The Company’s total net sales and its
net sales of printed circuit materials products increased during the three-month
and six-month periods ended August 29, 2010 compared to the three-month and
six-month periods ended August 30, 2009 as a result of increases 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 slightly less than such sales in the prior
year’s comparable periods. Net sales of the Company’s advanced composite
materials, parts and assemblies products were $5.9 million and $12.4 million in
the three months and six months, respectively, ended August 29, 2010, or 11% of
the Company’s total net sales worldwide in both such periods, compared to $6.8
million and $13.0 million in the three months and six months, respectively,
ended August 30, 2009, or 16% of the Company’s total net sales worldwide in both
such periods.
The increased sales, combined with
increases in the percentages of sales of higher margin, high performance
electronic printed circuit materials products, in the three months and six
months ended August 29, 2010 resulted in higher gross profit margins and higher
earnings from operations and net earnings compared to the three months and six
months ended August 30, 2009. The Company’s gross profit margins improved to
33.6% and 33.9% in the three months and six months, respectively, ended August
29, 2010, compared to 25.7% and 25.4% in the prior year’s comparable periods.
However, the gross profit margin improvements during the three-month and
six-month periods ended August 29, 2010 were partially offset by losses incurred
at the Company’s recently established Park Aircraft Technologies Corp. business
unit in Newton, Kansas.
15
Results
of Operations
The
Company’s total net sales for the three-month period ended August 29, 2010
increased 28% to $54.5 million from $42.5 million for last fiscal year’s
comparable period. The Company’s total net sales for the six-month period ended
August 29, 2010 increased 43% to $113.5 million from $79.2 million for last
fiscal year’s comparable period. The increases in net sales were the result of
higher unit volumes of printed circuit materials products shipped to the
Company’s customers in North America, Europe and Asia.
The
Company’s foreign sales were $29.8 million and $62.1 million, respectively,
during the three-month and six-month periods ended August 29, 2010, or 55% of
the Company’s total net sales worldwide in both such periods, compared to $20.6
million and $37.5 million, respectively, of foreign sales, or 49% and 47%,
respectively, 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 29, 2010 increased 44% and 66%, respectively, from the 2010
fiscal year comparable periods, as a result of increases in sales in Asia and
Europe in both periods.
For
the three-month period ended August 29, 2010, the Company’s sales in North
America, Asia and Europe were 45%, 46% and 9%, respectively, of the Company’s
total net sales worldwide compared to 51%, 39% and 10%, respectively, for the
three-month period ended August 30, 2009; and for the six-month period ended
August 29, 2010, the Company’s sales in North America, Asia and Europe were 45%,
44% and 11%, respectively, of the Company’s total net sales worldwide compared
to 53%, 37% and 10%, respectively, for the six-month period ended August 30,
2009. The Company’s sales in North America increased 13%, its sales in Asia
increased 53% and its sales in Europe increased 12% in the three-month period
ended August 29, 2010 compared to the three-month period ended August 30, 2009,
and its sales in North America increased 23%, its sales in Asia increased 67%
and its sales in Europe increased 59% in the six-month period ended August 29,
2010 compared to the six-month period ended August 30, 2009.
The
overall gross profits as percentages of net sales for the Company’s worldwide
operations improved to 33.6% and 33.9%, respectively, for the three months and
six months ended August 29, 2010 compared to 25.7% and 25.4% for last fiscal
year’s comparable periods. The increases in the gross profit margins were
attributable mainly to higher total net sales and higher percentages of sales of
higher margin, high performance printed circuit materials products in the 2011
fiscal year periods. The gross profit margin improvements during the three-month
and six-month periods ended August 29, 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 six-month periods ended August 29, 2010 and 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.
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
16
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 six-month periods ended August 29, 2010, the Company’s total
net sales worldwide of high performance printed circuit materials (non-FR4
printed circuit materials) were 76% and 74%, respectively, of the Company’s
total net sales worldwide of printed circuit materials, compared with 63% and
65% for last fiscal year’s comparable periods.
The
Company’s cost of sales as a percentage of net sales decreased to 66.4% in the
three-month period ended August 29, 2010 from 74.3% in the three-month period
ended August 30, 2009 and to 66.1% in the six-month period ended August 29, 2010
from 74.6% in the six-month period ended August 30, 2009 resulting in gross
profit margin increases, which were attributable to higher total net sales and
higher percentages of sales of higher margin, high performance printed circuit
materials products in the 2011 fiscal year periods. However, the gross profit
margin improvements during the three-month and six-month periods ended August
29, 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 $2.0 million and $3.9 million
or by 39% and 35%, respectively, during the three-month period and six-month
period, respectively, ended August 29, 2010 compared to last fiscal year’s
comparable periods. These expenses, measured as percentages of sales, increased
to 13.3% during the three months ended August 29, 2010 from 12.2% during last
fiscal year’s comparable period but declined to 13.2% during the six months
ended August 29, 2010 compared to 14.0% during last year’s comparable
period. The increases in these expenses during the 2011 fiscal year
periods were attributable primarily to increases in freight costs and
commissions, which vary with shipments, and increases in legal fees and
expenses. Stock option expenses were $0.3 million and $0.6 million,
respectively, for the three-month and six-month periods ended August 29, 2010
and $0.3 million and $0.6 million, respectively, for the three-month and
six-month periods ended August 30, 2009.
For
the reasons set forth above, the Company’s earnings from operations increased to
$11.1 million for the three months ended August 29, 2010 from $5.7 million for
the three months ended August 30, 2009 and increased to $23.5 million for the
six months ended August 29, 2010 from $9.0 million for the six months ended
August 30, 2009.
Interest
and other income, principally investment income, was $0.2 million and $0.3
million, respectively, for the three-month and six-month periods ended August
29, 2010 compared to $0.2 million and $0.9 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 2011 fiscal year
first and second quarters than during the 2010 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 29, 2010 were 16.4% and 18.8%, respectively, compared to effective
income tax rates of 20.1% and 21.2%, respectively, for the three-month and
six-month periods ended August 30, 2009. The lower effective income tax rates
for the three-month and six-month periods ended August 29, 2010 were primarily
the results of higher taxable income in jurisdictions with lower income tax
rates.
17
The Company’s net earnings for the
three months ended August 29, 2010 increased to $9.4 million from net earnings
of $4.8 million for the three months ended August 30, 2009, and the Company’s
net earnings for the six months ended August 29, 2010 increased to $19.3 million
from net earnings of $7.8 million for the six-months ended August 30,
2009.
Basic and diluted earnings per share
were $0.46 for the three months ended August 29, 2010 and $0.94 for the six
months ended August 29, 2010 compared to basic and diluted earnings per share of
$0.23 and $0.38 for the three-months and six-months, respectively, ended August
30, 2009.
Liquidity
and Capital Resources:
At August 29, 2010, the Company's cash
and marketable securities were $252.2 million compared to $237.8 million at
February 28, 2010, the end of the Company's 2010 fiscal year. Of that $252.2
million, approximately $156.1 million was owned by certain of the Company’s
wholly owned foreign subsidiaries at that date. It is the Company’s
practice and intent to reinvest such cash owned by its foreign subsidiaries in
the operations of its foreign subsidiaries or in other foreign
activities.
The Company's working capital (which
includes cash and marketable securities) was $279.0 million at August 29, 2010
compared with $261.0 million at February 28, 2010. The increase in working
capital at August 29, 2010 compared with February 28, 2010 was due principally
to the increase in cash and marketable securities and increases in accounts
receivable, inventories and prepaid expenses and other current assets slightly
offset by an increase in accrued liabilities. Accounts receivable at August 29,
2010 were 8% higher than at February 28, 2010 as a result of higher sales during
the three months ended August 29, 2010 than during the three months ended
February 28, 2010. Inventories were 18% higher at August 29, 2010 than at
February 28, 2010 primarily as a result of higher raw materials and finished
goods. At August 29, 2010, prepaid expenses and other current assets
were 124% higher than at February 28, 2010 as a result of increases in prepaid
insurance and value added tax receivable. At August 29, 2010, accrued
liabilities were 38% higher than at February 28, 2010 principally as a result of
increases in employee benefits.
The Company's current ratio (the ratio
of current assets to current liabilities) was 12.6 to 1 at August 29, 2010
compared to 13.1 to 1 at February 28, 2010.
During the six months ended August 29,
2010, net earnings from the Company's operations, before depreciation and
amortization and stock-based compensation, reduced by a net decrease in working
capital items, resulted in $19.1 million of cash provided by operating
activities. During the same six-month period, the Company expended a net amount
of $1.9 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 $1.2 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 six-month period ended August 30, 2009. In addition, the Company
paid $4.1 million in dividends on its common stock in the six-month period ended
August 29, 2010 compared to $3.3 million in the six-month period ended August
30, 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.
18
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 up to 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
August 29, 2010 and at August 30, 2009, 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 August 29, 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.
19
Environmental
Matters:
In
the six-month period ended August 30, 2009, the Company reversed an accrual of
approximately $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 August
29, 2010 and February 28, 2010, the amount 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.
20
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.
21
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.
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 $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 in the 2011 fiscal year first
quarter.
22
Employee
Benefit Programs
The
Company's obligations for workers' compensation claims are effectively
self-insured, although the Company maintains individual and aggregate stop-loss
insurance coverage for such claims. The Company accrues its workers’
compensation liability based on estimates of the total exposure of known claims
using historical experience and projected loss development factors less amounts
previously paid.
The
Company and certain of its subsidiaries have a non-contributory profit sharing
retirement plan covering their regular full-time employees. In addition, the
Company's subsidiaries have various bonus and incentive compensation programs,
most of which are determined at management's discretion.
The
Company's reserves associated with these self-insured liabilities and benefit
programs are reviewed by management for adequacy at the end of each reporting
period.
Factors That May Affect
Future Results.
Certain
portions of this Report which do not relate to historical financial information
may be deemed to constitute forward-looking statements that are subject to
various factors which could cause actual results to differ materially from
Park's expectations or from results which might be projected, forecast,
estimated or budgeted by the Company in forward-looking statements. Such factors
include, but are not limited to, general conditions in the electronics and
aerospace industries, the Company's competitive position, the status of the
Company's relationships with its customers, economic conditions in international
markets, the cost and availability of raw materials, transportation and
utilities, and the various factors set forth in Item 1A “Risk Factors” and under
the caption "Factors That May Affect Future Results" after Item 7 of Park's
Annual Report on Form 10-K for the fiscal year ended February 28,
2010.
|
Item
3.
|
Quantitative and
Qualitative Disclosure About Market
Risk.
|
Company's
market risk exposure at August 29, 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 August 29, 2010, the end of the quarterly fiscal
period covered by this quarterly report.
23
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.
24
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 second
quarter ended August 29, 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
|
||||||||||
|
May
31 – June
29
|
0 | $ | − | 0 | ||||||||||
|
June
30 – July
29
|
0 | - | 0 | |||||||||||
|
July
30 -August 29
|
6
|
24.88
|
0
|
|||||||||||
|
Total
|
6 | $ | 24.88 | 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.
25
|
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.
|
26
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 7, 2010
|
/s/ Brian E.
Shore
|
|
Brian
E. Shore
|
|
|
President
and
|
|
|
Chief
Executive Officer
|
|
|
(principal
executive officer)
|
|
|
Date:
October 7, 2010
|
/s/ David R.
Dahlquist
|
|
David
R. Dahlquist
|
|
|
Vice
President and Chief
|
|
|
Financial
Officer
|
|
|
(principal
financial officer)
|
27
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)
|
29
|
||
|
31.2
|
Certification
of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a)
|
31
|
||
|
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
|
33
|
||
|
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
|
34
|
28