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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 May 30, 2004
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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Dakota Drive, Lake Success, N.Y. 11042
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 354-4100
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 is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes[X] No[ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 19,890,669 as of July 6, 2004.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION: Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 30, 2004 (Unaudited) and February 29,
2004..................................... 3
Consolidated Statements of Operations
13 weeks ended May 30, 2004 and June 1, 2003
(Unaudited)............................... 4
Condensed Consolidated Statements of Cash
Flows 13 weeks ended May 30, 2004 and
June 1, 2003 (Unaudited).................. 5
Notes to Condensed Consolidated Financial
Statements (Unaudited).................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 13
Factors That May Affect Future Results.... 20
Item 3. Quantitive and Qualitative Disclosures About
Market Risk .............................. 20
Item 4. Controls and Procedures................... 21
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................... 22
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities..... 23
Item 3. Defaults Upon Senior Securities........... 23
Item 4. Submission of Matters to a Vote of Security
Holders................................... 23
Item 5. Other Information......................... 23
Item 6. Exhibits and Reports on Form 8-K.......... 23
SIGNATURES............................................ 25
EXHIBIT INDEX......................................... 26
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
May 30,
2004 February 29,
(Unaudited) 2004*
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $154,951 $129,989
Marketable securities 46,334 59,197
Accounts receivable, net 33,902 36,149
Inventories (Note 2) 13,752 11,707
Prepaid expenses and other current assets 1,441 3,040
Total current assets 250,380 240,082
Property, plant and equipment, net 68,346 70,569
Other assets 606 419
Total assets $319,332 $311,070
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,788 $ 14,913
Accrued liabilities 23,617 24,468
Income taxes payable 7,107 3,248
Total current liabilities 47,512 42,629
Deferred income taxes 5,099 5,107
Liabilities from discontinued
operations (Note 4) 17,373 19,438
Total liabilities 69,984 67,174
Stockholders' equity:
Common stock 2,037 2,037
Additional paid-in capital 133,708 133,335
Retained earnings 113,749 108,915
Treasury stock, at cost (3,693) (4,125)
Accumulated other non-owner changes 3,547 3,734
Total stockholders' equity 249,348 243,896
Total liabilities and stockholders'
equity $319,332 $311,070
*The balance sheet at February 29, 2004 has been derived from the
audited financial statements at that date.
See accompanying Notes to the Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
13 weeks ended
(Unaudited)
May 30, June 1,
2004 2003
Net sales $ 58,518 $44,323
Cost of sales 44,806 39,700
Gross profit 13,712 4,623
Selling, general and administrative
expenses 8,341 6,204
Realignment and severance charges (Note 5) - 1,934
Operating income (loss) from continuing
operations 5,371 (3,515)
Interest and other income 651 744
Earnings (loss) from continuing
operations before income taxes 6,022 (2,771)
Income tax provision (benefit) from
continuing operations 1 (1,127)
Net earnings (loss) from continuing
operations 6,021 (1,644)
Loss from discontinued operations, net
of taxes (Note 4 ) - (6,807)
Net earnings (loss) $ 6,021 $ (8,451)
Basic earnings (loss) per share (Note 6):
Earnings (loss) from continuing operations $ 0.30 $ (0.08)
Loss from discontinued operations - (0.35)
Basic earnings (loss) per share $ 0.30 $ (0.43)
Diluted earnings (loss) per share (Note 6):
Earnings (loss) from continuing operatons $ 0.30 $ (0.08)
Loss from discontinued operations - (0.35)
Diluted earnings (loss) per share $ 0.30 $ (0.43)
Weighted average number of common and
common equivalent shares outstanding:
Basic shares 19,810 19,709
Diluted shares 20,068 19,709
Dividends per share $ 0.06 $ 0.06
See accompanying Notes to the Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
13 Weeks Ended
(Unaudited)
May 30, June 1,
2004 2003
Cash flows from operating activities:
Net earnings (loss) $ 6,021 $ (8,451)
Depreciation and amortization 2,549 2,910
Change in operating assets and liabilities 4,659 8,028
Net cash provided by operating activities 13,229 2,487
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (356) (1,200)
Purchases of marketable securities (4,508) (28,987)
Proceeds from sales and maturities
of marketable securities 16,650 16,598
Net cash provided by (used in)
investing activities 11,786 (13,589)
Cash flows from financing activities:
Dividends paid (1,187) (1,181)
Proceeds from exercise of stock options 807 132
Net cash used in financing activities (380) (1,049)
Change in cash and cash equivalents before
exchange rate changes 24,635 (12,151)
Effect of exchange rate changes on cash
and cash equivalents 327 248
Change in cash and cash equivalents 24,962 (11,903)
Cash and cash equivalents, beginning
of period 129,989 111,036
Cash and cash equivalents, end of period $154,951 $ 99,133
Supplemental cash flow information:
Cash (received) paid during the
period for income taxes $ (3,710) $ 323
See accompanying Notes to the Consolidated Financial Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share amounts)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of May 30,
2004, the consolidated statements of operations for the 13
weeks ended May 30, 2004 and June 1, 2003, and the
condensed consolidated statements of cash flows for the 13
weeks then ended have been prepared by the Company,
without audit. In the opinion of management, these
unaudited condensed consolidated financial statements
contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position at May 30, 2004 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 condensed 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 29, 2004.
2. INVENTORIES
Inventories consisted of the following:
May 30, February 29,
2004 2004
Raw materials $ 5,003 $ 4,088
Work-in-process 3,328 2,424
Finished goods 5,006 4,835
Manufacturing supplies 415 360
$13,752 $11,707
3. STOCK OPTIONS
As of May 30, 2004, the Company had two fixed stock option
plans. All options under the plans had an exercise price
equal to the market value of the underlying common stock
of the Company on the date of grant. The Company continues
to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and
related interpretations for the plans. If compensation
costs of the grants had been determined based upon the
fair market value at the grant dates consistent with the
FASB No. 123 "Accounting for Stock-Based Compensation",
the Company's net earnings and earnings per share would
have approximated the amounts shown below.
13 weeks ended
May 30, June 1,
2004 2003
Net earnings $6,021 $(8,451)
Deduct: Total stock-based
employee compensation determined
under fair value based method
for all awards, net of tax effects 459 478
------ --------
Pro forma net income (loss) $5,562 $(8,929)
====== ========
EPS-basic as reported $ 0.30 $ (0.43)
====== ========
EPS-basic pro forma $ 0.28 $ (0.45)
====== ========
EPS-diluted as reported $ 0.30 $ (0.43)
====== ========
EPS-diluted pro forma $ 0.28 $ (0.45)
====== ========
4. DISCONTINUED OPERATIONS
On February 4, 2004, the Company announced that it was
discontinuing its financial support of its Dielektra GmbH
("Dielektra") subsidiary located in Cologne, Germany, due
to the continued erosion of the European market for the
Company's high technology products. Without Park's
financial support, Dielektra filed an insolvency petition,
which may result in the reorganization, sale or
liquidation of Dielektra. In accordance with SFAS No.
144, "Accounting for the Impairment of Disposal of Long-
Lived Assets", Dielektra is treated as a discontinued
operation. As a result of the discontinuation of
financial support for Dielektra, the Company recognized an
impairment charge of $22,023 for the write-off of
Dielektra assets and other costs during the fourth quarter
of the 2004 fiscal year. The liabilities from
discontinued operations are reported separately on the
consolidated balance sheet. These liabilities from
discontinued operations included $12,094 for Dielektra's
deferred pension liability. The Company expects to
recognize a gain of approximately $17 million related to
the reversal of these liabilities when the Dielektra
insolvency process is completed, although it is unclear
when the process will be completed. The $6,807 loss from
discontinued operations for the quarter ended June 1,
2003, includes losses from operations of $665 and $6,142
for termination and other costs related to Dielektra,
recorded in the first quarter of the 2004 fiscal year. At
the time of the discontinuation of support for Dielektra,
$5,539 of the $6,142 of termination and other costs had
been paid and the remaining $603 was included in
liabilities from discontinued operations in the Condensed
Consolidated Balance Sheets as of February 29, 2004 and
May 30, 2004.
Dielektra's net sales and operating results for the 13
weeks ended May 30, 2004 and June 1, 2003, and the assets
and liabilities of discontinued operations at May 30, 2004
and February 29, 2004 were as follows:
13 weeks ended
May 30, June 1,
2004 2003
Net sales $ - $ 5,647
Operating loss $ - $ (665)
Restructuring and impairment
charges - (6,142)
Net loss $ - $(6,807)
May 30, February 29,
2004 2004
Current and other liabilities $ 5,279 $ 7,344
Pension liabilities 12,094 12,094
Total liabilities $17,373 $19,438
5. REALIGNMENT AND SEVERANCE CHARGES
The Company recorded pre-tax charges of $1,934 and $6,504
during the first and second quarters of fiscal year 2004,
respectfully, related to the realignment of its North
America FR-4 business operations in Newburgh, New York and
Fullerton, California. During the fourth quarter of fiscal
year 2004, the Company recorded pretax charges of $112
related to workforce reductions in Europe. The components
of these charges and the related liability balances and
activity from the quarter ended June 1, 2003 through the
quarter ended May 30, 2004 are set forth below.
Charges 5/30/04
Realignment Incurred or Remaining
Charges Paid Reversals Liabilities
New York and
California and other
realignment charges:
Lease payments, taxes,
utilities and other $7,292 $ 857 - $6,435
Severance payments 1,258 1,258 - -
$8,550 $2,115 $ - $6,435
The severance payments were for the termination of hourly
and salaried, administrative, manufacturing and support
employees. Such employees were terminated during the 2004
fiscal year first, second and third quarters. The severance
payments were paid to such employees in installments during
fiscal year 2004. The lease charges cover one lease
obligation payable through December 2004 and a portion of
another lease obligation payable through September 2013.
6. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net
earnings by the weighted average number of shares of
common stock outstanding during the period. Diluted
earnings per share is 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 are computed using the treasury stock
method.
The following table sets forth the basic and diluted
weighted average number of shares of common stock and
potential common stock equivalents outstanding during the
periods specified:
13 weeks ended
May 30, June 1,
2004 2003
Weighted average shares
outstanding for basic EPS 19,810 19,709
Weighted average shares
outstanding for diluted EPS 20,068 19,709
Common stock equivalents, which were not included in the
computation of diluted earnings per share because either
the effect would have been antidilutive or the options'
exercise prices were greater than the average market price
of the common stock, were 57 and 1,133 for the thirteen
weeks ended May 30, 2004 and June 1, 2003, respectively.
7. BUSINESS SEGMENTS
The Company considers itself to operate in one business
segment. The Company's electronic materials products are
marketed primarily to leading independent printed circuit
board fabricators, electronic manufacturing service
companies, electronic contract manufacturers and major
electronic original equipment manufacturers ("OEMs")
located throughout North America, Europe and Asia. The
Company's advanced composite materials customers,
substantially all of which are located in the United
States, include OEMs, independent firms and distributors
in the electronics, radio frequency, aerospace, rocket
motor, automotive, graphic arts and specialty industrial
industries.
Sales are attributed to geographic region based upon the
region from which the materials were shipped to the
customer. Sales between geographic regions were not
significant.
Financial information concerning the Company's continuing
operations by geographic area follows:
13 Weeks Ended
May 30, June 1,
2004 2003
Sales:
North America $32,264 $25,147
Europe 9,117 7,725
Asia 17,137 11,451
Total sales $58,518 $44,323
May 30, February 29,
2004 2004
Long-lived assets:
United States $36,945 $38,549
Europe 10,544 10,969
Asia 21,463 21,470
Total long-lived assets $68,952 $70,988
8. COMPREHENSIVE INCOME
Total comprehensive income (loss) for the 13 weeks ended
May 30, 2004 and June 1, 2003 was $5,834 and ($7,351),
respectively. Comprehensive income consisted primarily of
net income and foreign currency translation adjustments
and unrealized gains and losses on marketable securities.
9. SALE OF NELCO TECHNOLOGY, INC.
During the Company's 1998 fiscal year and for several
years prior thereto, more than 10% of the Company's total
worldwide sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp., and the Company's
wholly owned subsidiary, Nelco Technology, Inc. ("NTI")
located in Tempe, Arizona, had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials, commonly known as mass lamination, which were
used by Delco to produce finished multilayer printed
circuit boards. However, in March 1998, the Company was
informed by Delco that Delco planned to close its printed
circuit board fabrication plant and exit the printed
circuit board manufacturing business. As a result, the
Company's sales to Delco declined during the three-month
period ended May 31, 1998, were negligible during the
remainder of the 1999 fiscal year and have been nil in
subsequent years.
After March 1998, the business of NTI languished and its
performance was unsatisfactory due primarily to the
absence of the unique, high-volume, high-quality business
that had been provided by Delco Electronics and the
absence of any other customer in the North American
electronic materials industry with a similar demand for
the large volumes of semi-finished multilayer printed
circuit board materials that Delco purchased from NTI.
Although NTI's business experienced a resurgence in the
2001 fiscal year as the North American market for printed
circuit materials became extremely strong and demand
exceeded supply for the electronic materials manufactured
by NTI, the Company's internal expectations and
projections for the NTI business were for continuing
volatility in the business' performance over the
foreseeable future. Consequently, in April 2001, the
Company sold the assets and business of NTI and closed a
related support facility, also located in Tempe, Arizona.
As a result of this sale, the Company exited the mass
lamination business in North America.
In connection with the sale of NTI and the closure of the
related support facility, the Company recorded pre-tax
charges of $15,707 in its fiscal year 2002 first quarter
ended May 27, 2001. The components of these charges and
the related liability balances and activity from the May
27, 2001 balance sheet date to the May 30, 2004 balance
sheet date are set forth below:
Charges 5/30/04
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
NTI charges:
Loss on sale of assets
and business $10,580 $10,580 $ - $ -
Severance payments 387 387 - -
Medical and other costs 95 95 - -
Support facility charges:
Impairment of long
lived assets 2,058 2,058 - -
Write down of accounts
receivable 350 319 31 -
Write down of inventory 590 590 - -
Severance payments 688 688 - -
Medical and other costs 133 133 - -
Lease payments, taxes,
utilities, maintenance 781 542 - 239
Other 45 45 - -
------- ------- --- ----
$15,707 $15,437 $31 $239
======= ======= ==== ====
The severance payments and medical and other costs
incurred in connection with the sale of NTI and the
closure of the related support facility were for the
termination of hourly and salaried, administrative,
manufacturing and support employees, all of whom were
terminated during the first and second fiscal quarters
ended May 27, 2001 and August 26, 2001, respectively, and
substantially all of the severance payments and related
costs for such terminated employees (totaling $1,303) were
paid during such quarters. The lease obligations will be
paid through August 2004 pursuant to the related lease
agreements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General:
Park is a leading global designer and producer of
electronic materials used to fabricate complex multilayer
printed circuit boards and electronic interconnection systems.
Park specializes in advanced materials for high layer count
circuit boards and high-speed digital and RF/Microwave
electronic systems and also designs and manufactures advanced
composite materials for the aerospace, military and industrial
markets. The Company's customers include leading independent
printed circuit board fabricators, electronic manufacturing
service companies, electronic contract manufacturers and
electronic original equipment manufacturers in the computer,
telecommunications, transportation, aerospace and
instrumentation industries.
The Company's sales and earnings increased significantly
in the three-month period ended May 30, 2004 compared with last
year's comparable period as a result of increases in sales by
all the Company's operations, although the improvements were
attributable principally to increases in sales of the Company's
advanced technology products, sales by the Company's operations
in Asia and North America and sales by the Company's FiberCote
advanced composite materials business.
The electronics industry began to improve slightly at the
end of the 2004 fiscal year second quarter and continued to
improve in the 2004 fiscal year third and fourth quarters and
in the 2005 fiscal year first quarter, and there were some
indications that the improvement would continue. However, it is
not completely clear whether and to what degree the improvement
is sustainable. The global markets for the Company's electronic
materials products continued to be mixed during the 2005 fiscal
year first quarter, and it appeared that the electronic
materials industry may have begun to slow down to some extent
in the 2005 fiscal year second quarter.
During the first and second quarters of the 2004 fiscal
year, the Company realigned its North American FR-4 business
operations located in New York and California. As part of the
realignment, the New York operation was scaled down to a
smaller, focused operation and the California operation was
scaled up to a larger volume operation, and there were
significant workforce reductions at the Company's New York
facility and significant workforce increases at the Company's
California facility, with the end result being a net reduction
in the Company's workforce in North America. A large portion of
the New York facility was mothballed. The Company has the
flexibility in the future to scale back up the Newburgh, New
York facility if the opportunity to do so presents itself. The
realignment was designed to help the Company achieve improved
operating and cost efficiencies in its North American FR-4
business and to help the Company best service all of its North
American customers.
As a result of the Company's realignment of its North
American FR-4 business operations and related workforce
reductions, the Company recorded pre-tax charges totaling $1.9
million in the Company's 2004 fiscal year first quarter. See
Note 5 of the Notes to Consolidated Financial Statements in
Item 1 of Part I of this Report for additional information
regarding the realignment.
In February 2004, the Company discontinued its financial
support of Dielektra GmbH, the Company's wholly owned
subsidiary located in Cologne, Germany ("Dielektra"), which
supplied electronic materials to European circuit board
manufacturers. The Company discontinued its support of
Dielektra because the market in Europe had eroded to the point
where the Company believed it would not be possible, at any
time in the foreseeable future, for the Dielektra business to
be viable. Dielektra had required substantial financial support
from the Company. The discontinuation of the Company's
financial support resulted in the filing of an insolvency
petition by Dielektra. The Company believes that the insolvency
procedure in Germany will result in the eventual
reorganization, sale or liquidation of Dielektra. The Company
continues to service the higher technology European digital and
RF circuit board markets through its Neltec Europe SAS business
located in Mirebeau, France, and its Neltec SA business located
in Lannemezan, France.
In accordance with generally accepted accounting
principles, the Company treated Dielektra as a discontinued
operation. Accordingly, the Company reclassified Dielektra's
operating losses and charges and recorded a net loss from
discontinued operations of $33.8 million in the 2004 fiscal
year, comprised of $5.6 million of operating losses incurred by
Dielektra, $6.2 million related to the closure of Dielektra's
mass lamination operation and related workforce reductions in
the 2004 fiscal year first quarter and $22.0 million for the
write-off of assets of Dielektra and other costs. Furthermore,
the Company's sales from its continuing operations did not
include sales by Dielektra of $14.4 million for the 2004 fiscal
year. The Company's sales for the 2005 fiscal year first
quarter did not include any sales by Dielektra, and Dielektra
had no impact on the Company's results of operations during the
2005 fiscal year first quarter. See Note 4 of the Notes to
Consolidated Financial Statements in Item 1 of Part I of this
Report for additional information regarding the discontinued
operations.
The Company is not engaged in any related party
transactions involving relationships or transactions with
persons or entities that derive benefits from their non-
independent relationship with the Company or the Company's
related parties, or in any transactions with parties with whom
the Company or its related parties have a relationship that
enables the parties to negotiate terms of material transactions
that may or would not be available from other, more clearly
independent parties on an arm's-length basis, or in any trading
activities involving non-exchange traded commodity or other
contracts that are accounted for at fair value or otherwise or
in any energy trading or risk management activities, other than
certain limited foreign currency contracts intended to hedge
the Company's contractual commitments to pay certain
obligations or to realize certain receipts in foreign
currencies and certain limited energy purchase contracts
intended to protect the Company from increased utilities costs.
The Company believes that an evaluation of its ongoing
operations would be difficult if the disclosure of its
financial results were limited to generally accepted accounting
principles ("GAAP") financial measures. Accordingly, in
addition to disclosing its financial results determined in
accordance with GAAP, the Company discloses non-GAAP operating
results that exclude certain items in order to assist its
shareholders and other readers in assessing the Company's
operating performance. Such non-GAAP financial measures are
provided to supplement the results provided in accordance with
GAAP.
Three Months Ended May 30, 2004 Compared with Three Months
Ended June 1, 2003:
The Company's operations generated profits during the
three-month period ended May 30, 2004 as the improved
conditions that developed in the markets for sophisticated
printed circuit materials in the second half of the 2004 fiscal
year continued during the 2005 fiscal year first quarter.
The Company's gross profit in the 2005 fiscal year first
quarter was significantly higher than the gross profit in the
prior year's first quarter primarily as a result of the
improvement in the Company's utilization of its manufacturing
plants resulting from higher sales and concomitant production
volumes, higher percentages of sales of higher technology,
higher margin products and the Company's reduction of its
operating costs, partially offset by continuing operating
inefficiencies resulting from operating certain facilities at
levels below their designed manufacturing capacities.
Operating results of the Company's advanced composite
materials business also improved during the 2005 fiscal year
first quarter primarily as a result of higher sales volumes
related to strength in the aircraft manufacturing industry.
Results of Operations
Net sales for the three-month period ended May 30, 2004
increased 32% to $58.5 million from $44.3 million for last
fiscal year's comparable period. The increase in net sales was
principally the result of higher unit volumes of materials
shipped by the Company's operations in Asia, North America and
Europe. The Company's foreign operations accounted for $26.3
million of net sales, or 45% of the Company's total net sales
worldwide, during the three-month period ended May 30, 2004
compared with $19.2 million of sales, or 43% of total net sales
worldwide, during last fiscal year's comparable period. Net
sales by the Company's foreign operations during the 2005
fiscal year first quarter increased by 37% from the 2004 fiscal
year comparable period, principally as the result of increased
sales in Asia.
The overall gross profit as a percentage of net sales for
the Company's worldwide operations improved to 23.4% during the
three-month period ended May 30, 2004 compared with 10.4% for
last fiscal year's comparable period. The significant
improvement in the gross profit margin was attributable to
increased sales volume, higher percentages of sales of higher
margin, advanced technology products, as high performance
materials accounted for 92% of worldwide sales from continuing
operations for the first quarter of the 2005 fiscal year
compared with 88% for the first quarter of the prior fiscal
year, and reductions in the Company's operating costs from the
2004 fiscal year, which were only partially offset by
inefficiencies caused by operating certain facilities at levels
below their designed manufacturing capacities. The Company's
cost of sales increased moderately by 12.9% in support of
higher production volumes.
Selling, general and administrative expenses increased
by $2.1 million, or by 34%, during the three months ended May
30, 2004 compared with last fiscal year's comparable period,
but these expenses, measured as a percentage of sales, were
14.3% during the three-months ended May 30, 2004 compared with
almost the same percentage, 14.0%, during last fiscal year's
comparable period. The increase in selling, general and
administrative expenses in the 2005 fiscal year first quarter
was a result of increased shipping costs incurred by the
Company to meet its customers' customized manufacturing and
quick-turn-around requirements and an increase in the provision
for employee performance based incentive compensation.
The Company incurred pre-tax charges of $1.9 million,
and after-tax charges of $1.1 million, during the 2004 fiscal
year first quarter in connection with the realignment of its
North American FR-4 business operations in New York and
California and related workforce reductions.
For the reasons set forth above, the Company's operating
income from continuing operations was $5.4 million for the
three months ended May 30, 2004 compared to an operating loss
from continuing operations of $3.5 million for the three months
ended June 1, 2003, including the pre-tax charges described
above related to the realignment of its North American FR-4
business operations and related workforce reductions.
Interest and other income, net, principally investment
income, was $0.7 million for the three-month period ended May
30, 2004 compared with the same amount for last fiscal year's
comparable period. The Company's investments were primarily
short-term taxable instruments.
The Company's effective income tax rate for the three-
month period ended May 30, 2004 was 0.0%, compared to a tax
benefit of 30.0% on the operating loss before the realignment
and workforce reduction charges for last fiscal year's
comparable period. The zero tax provision for the 2005 fiscal
year first quarter was the result of higher sales and taxable
income in jurisdictions with lower income tax rates and the
elimination of foreign tax provisions that were no longer
required.
The Company's net earnings for the three months ended
May 30, 2004 were $6.0 million compared to a net loss of $8.5
million for the three months ended June 1, 2003, including the
charges described above related to the realignment of the
Company's North American FR-4 business operations and related
workforce reductions, which consisted of a net loss from
continuing operations of $1.6 million and a net loss from
discontinued operations of $6.8 million.
Basic and diluted earnings per share for the three-month
period ended May 30, 2004 were $0.30, compared to basic and
diluted losses per share of $0.43 for the three-month period
ended June 1, 2003, including the charges described above,
which were $0.05 per share, and compared to basic and diluted
losses from continuing operations of $0.03 per share, before
the charges described above, and basic and diluted losses from
discontinued operations of $0.35 per share for the three-month
period ended June 1, 2003.
Liquidity and Capital Resources:
At May 30, 2004, the Company's cash and temporary
investments were $201.3 million compared with $189.2 million at
February 29, 2004, the end of the Company's 2004 fiscal year.
The increase in the Company's cash and investment position at
May 30, 2004 was attributable to cash generated by operating
activities, partially offset by purchases of property, plant
and equipment and the payment of dividends. The Company's
working capital (which includes cash and temporary investments)
was $202.9 million at May 30, 2004 compared with $197.5 million
at February 29, 2004. The increase in working capital at May
30, 2004 compared with February 29, 2004 was due principally to
the increase in cash and temporary investments and an increase
in inventories partially offset by decreases in accounts
receivable and other current assets and increases in accounts
payable and income taxes payable. The Company's current ratio
(the ratio of current assets to current liabilities) was 5.3 to
1 at May 30, 2004 compared to 5.6 to 1 at February 29, 2004.
During the three months ended May 30, 2004, net earnings
from the Company's operations, before depreciation and
amortization, of $8.6 million and a net increase in working
capital items, resulting in $13.2 million of cash provided by
operating activities. During the same three-month period, the
Company expended only $0.4 million for the purchase of
property, plant and equipment compared with $1.2 million for
the three-month period ended June 1, 2003 and paid $1.2 million
in dividends on its common stock in each of such three-month
periods. Net expenditures for property, plant and equipment
were $2.4 million in the 2004 fiscal year, $6.4 million in the
2003 fiscal year and $22.8 million in the 2002 fiscal year.
At May 30, 2004, 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. 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 $2.7 million to secure the
Company's obligations under its workers' compensation insurance
program and certain limited energy purchase contracts intended
to protect the Company from increased utilities costs.
As of May 30, 2004, 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 29, 2004.
Off-Balance Sheet Arrangements:
The Company's liquidity is not dependent on the use of,
and the Company is not engaged in, any off-balance sheet
financing arrangements, such as securitization of receivables
or obtaining access to assets through special purpose entities.
Environmental Matters:
In the three-month periods ended May 30, 2004 and June
1, 2003, the Company charged less than $0.1 million against
pretax income for environmental remedial response and voluntary
cleanup costs (including legal fees). 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 available cash. 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 May 30, 2004 and February 29,
2004, the recorded liability in liabilities from discontinued
operations for environmental matters related to Dielektra was
$2.1 million and the recorded liability in accrued liabilities
for environmental matters was $2.4 million. Management does not
expect that environmental matters will have a material adverse
effect on the liquidity, capital resources, business,
consolidated results of operations or consolidated financial
position of the Company.
Critical Accounting Policies and Estimates:
In response to financial reporting release, FR-60,
"Cautionary Advice Regarding Disclosure About Critical
Accounting Policies", issued by the Securities and Exchange
Commission in December 2001, the following information is
provided regarding critical accounting policies that are
important to the Consolidated Financial Statements and that
entail, to a significant extent, the use of estimates,
assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial
condition and results of operations are based upon the
Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires the Company to make estimates,
assumptions and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the related
disclosure of contingent liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to
sales allowances, bad debts, inventories, valuation of long-
lived assets, income taxes, restructuring, pensions and other
employee benefit programs, and contingencies and litigation.
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.
Sales Allowances
The Company provides for the estimated costs of sales
allowances at the time such costs can be reasonably estimated.
The Company is focused on manufacturing the highest quality
electronic materials and other products 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.
However, if the quality of the Company's products declined, the
Company may incur higher sales allowances.
Bad Debt
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
Inventory
The Company writes down its inventory for estimated
obsolescence or unmarketability based upon the age of the
inventory and assumptions about future demand for the Company's
products and market conditions.
Valuation of Long-lived Assets
The Company assesses the impairment of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Important
factors that could trigger an impairment review include, but
are not limited to, significant negative industry or economic
trends and significant changes in the use of the Company's
assets or strategy of the overall business.
Income Taxes
Carrying value of the Company's net deferred tax assets
assumes that the Company will be able to generate sufficient
future taxable income in certain tax jurisdictions, based on
estimates and assumptions. If these estimates and assumptions
change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets
resulting in additional income tax expense in the Company's
consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets quarterly and assesses
the need for additional valuation allowances quarterly.
Restructuring
During the fiscal years ended February 29, 2004 and March
2, 2003, the Company recorded significant charges in connection
with the realignment of its North American FR-4 business
operations and the closure of the Company's manufacturing
facility in England and employee severance costs; and during
the fiscal year ended March 3, 2002, the Company recorded
significant charges in connection with the restructuring
related to the sale of Nelco Technology, Inc. and the closure
of a related support facility. Prior to the Company's treating
Dielektra GmbH as a discontinued operation, the Company
recorded significant charges in connection with the closure of
the mass lamination operation of Dielektra and the realignment
of Dielektra during the fiscal years ended February 29, 2004,
March 2, 2003 and March 3, 2002. These charges include
estimates pertaining to employee separation costs and the
settlements of contractual obligations resulting from the
Company's actions. Although the Company does not anticipate
significant changes, the actual costs incurred by the Company
may differ from these estimates.
Contingencies and 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.
Pension and Other Employee Benefit Programs
Dielektra GmbH has significant pension costs that are
developed from actuarial valuations. Inherent in these
valuations are key assumptions including discount rates and
wage inflation rates. The Company is required to consider
current market conditions, including changes in interest rates
and wage costs, in selecting these assumptions. The pension
liability of Dielektra has been included in liabilities from
discontinued operations on the Company's balance sheet.
The Company's obligations for workers' compensation claims
are self-insured, and its obligations for a recently terminated
employee health care benefits program were self-insured. The
Company uses an insurance company administrator to process all
such claims and benefits. The Company accrues its workers'
compensation liability based upon the claim reserves
established by the third-party administrator and historical
experience. The Company's employee health insurance benefit
liability is based on its historical claims experience.
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 industry, 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 utilities,
and the various factors set forth 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 29,
2004.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk.
The Company's market risk exposure at May 30, 2004 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 29, 2004.
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 May 30, 2004, the end of the 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.
(b) 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1998, the Company and its Nelco Technology, Inc.
("NTI") subsidiary in Arizona filed a complaint against Delco
Electronics Corporation and the Delphi Automotive Systems unit
of General Motors Corp. in the United States District Court for
the District of Arizona. The complaint alleged, among other
things, that Delco breached its contract to purchase semi-
finished multilayer printed circuit boards from NTI and that
Delphi interfered with NTI's contract with Delco, that Delco
breached the covenant of good faith and fair dealing implied in
the contract, that Delco engaged in negligent misrepresentation
and that Delco fraudulently induced NTI to enter into the
contract.
In November 2000, after a trial in Phoenix, Arizona, a
jury awarded damages to NTI in the amount of $32.3 million, and
in December 2000 the judge in the United States District Court
entered judgment for NTI on its claim of breach of the implied
covenant of good faith and fair dealing with damages in the
amount of $32.3 million. Both parties appealed the decision to
the United States Court of Appeals for the Ninth Circuit in San
Francisco, and in May 2003, a panel of three judges in the
Court of Appeals for the Ninth Circuit rendered a unanimous
decision affirming the jury verdict. In June 2003, the United
States District Court for the District of Arizona entered final
judgment in favor of NTI, and Delco paid NTI on July 1, 2003.
NTI received a net amount of $33.1 million.
Park announced in March 1998 that it had been informed by
Delco Electronics that Delco planned to close its printed
circuit board fabrication plant and exit the printed circuit
board manufacturing business. After the plant closure, Delco
purchased all of its printed circuit boards from outside
suppliers and Delco was no longer a customer of the Company's.
As a result, the Company's sales to Delco declined
significantly during the three-month period ended May 31, 1998,
were negligible during the three-month period ended August 30,
1998 and have been nil since that time. During the Company's
1999 fiscal year first quarter and during its 1998 fiscal year
and for several years prior thereto, more than 10% of the
Company's total worldwide sales were to Delco Electronics
Corporation; and the Company had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials for more than ten years. These materials were used by
Delco to produce finished multilayer printed circuit boards.
See "Factors That May Affect Future Results" after Item 2 of
Part I of this Report.
In the first quarter of the fiscal year ended March 3,
2002, the Company sold the assets and business of NTI and
recorded pre-tax charges of approximately $15.7 million in its
2002 fiscal year first quarter ended May 27, 2001 in connection
with the sale of NTI and the closure of a related support
facility also located in Arizona. See Note 9 of the Notes to
Condensed Consolidated Financial Statements in Item 1 of Part I
of this Report.
Item 2. Changes to Securities, Use of Proceeds and Issuer
Purchases of Equity Securities.
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 2005 fiscal year
first quarter ended May 30, 2004.
Maximum Number
Total Number (or Approximate
of Shares (or Dollar Value)
Units) of Shares (or
Total Average Purchased as Units) that May
Number of Price Part of yet Be
Shares (or paid per Publicly Purchased Under
Period Units) Share (or Announced the Plans or
Purchased Unit) Plan or Programs
Programs
March 1-31 0 - 0
April 1-30 0 - 0
May 1-30 11,687(a) $22.46 0
Total 11,687(a) $22.46 0 2,305,170(b)
(a) Acquired by the Company upon surrender of such shares to
the Company in payment of the exercise price of stock options
issued pursuant to the Company's 1992 Stock Option Plan.
(b) Aggregate number of shares available to be purchased by
the Company pursuant to previous share purchase authorizations
announced on June 24, 1998 and September 9, 1998. Pursuant to
such authorizations, the Company is authorized to purchase its
shares from time to time on the open market or in privately
negotiated transactions.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
31.1 Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
32.1 Certification of Chief 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 Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
(1) Report on Form 8-K, dated April 27, 2004, Commission
File No. 1-4415, reporting in Item 12 that the Company
issued a news release on April 27, 2004 reporting its
results of operations for the fiscal year 2004 fourth
quarter and for the full fiscal year ended February 29,
2004 and furnishing the news release to the Securities
and Exchange Commission pursuant to Item 12 of Form 8-K
as Exhibit 99.1 thereto.
(2) Report on Form 8-K, dated May 26, 2004, Commission
File No. 1-4415, reporting in Item 4 that on May 26, 2004
the Company was notified by Ernst & Young LLP ("E&Y"),
the Company's independent auditor for the fiscal year
ended February 29, 2004 and for ten years prior thereto,
that E&Y would decline reappointment as the Company's
independent auditor for the current fiscal year, although
E&Y and the Company agreed that E&Y would review the
Company's financial statements for its 2005 fiscal year
first quarter ended May 30, 2004.
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: July 8, 2004 ----------------------------
Brian E. Shore
President and
Chief Executive Officer
/s/Murray O. Stamer
Date: July 8, 2004 ----------------------------
Murray O. Stamer
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Name Page
----------- ---- ----
31.1 Certification of Chief Executive
Officer pursuant to Exchange Act Rule
13a-14(a) or 15d-14(a) 27
31.2 Certification of Chief Financial
Officer pursuant to Exchange Act Rule
13a-14(a) or 15d-14(a) 29
32.1 Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 31
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 32