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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended February 25, 2007
28, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| ¨ | 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
(Exact Name of Registrant as Specified in Its Charter)
New York 11-1734643
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
48 South Service Road, Melville, New York 11747
(Address of Principal Executive Offices) (Zip Code)
Registrant's
| New York | 11-1734643 |
(State or Other Jurisdiction of Incorporation of Organization) | (I.R.S. Employer Identification No.) |
48 South Service Road, Melville, New York (Address of Principal Executive Offices) | 11747 (Zip Code) |
Registrant’s telephone number, including area code (631) 465-3600
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange
Title of Each Class on Which Registered
-------------------------------------- -------------------------
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange on Which Registered |
| Common Stock, par value $.10 per share | New York Stock Exchange |
| Preferred Stock Purchase Rights | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]¨ No [X]
x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]¨ No [X]
[cover page 1 of 2 pages]
x
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]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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definitionthe definitions of "accelerated
filer“large accelerated filer”, “accelerated filer” and large accelerated filer"“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ]¨ Accelerated Filer [X]x Non-Accelerated File [ ]
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]
x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
Aggregate As of Close of
Title of Class Market Value Business On
------------------------- --------------- ----------------
Common Stock,
par value $.10 per share $ 515,674,858 August 25, 2006
| Title of Class | Aggregate Market Value | As of Close of Business On |
| Common Stock, par value $.10 per share | $447,992,449 | August 28, 2009 |
Indicate the number of shares outstanding of each of the registrant'sregistrant’s classes of common stock, as of the latest practicable date.
Shares As of Close of
Title of Class Outstanding Business On
------------------------- ------------ --------------
Common Stock,
par value $.10 per share 20,197,814 May 4, 2007
| Title of Class | Shares Outstanding | As of Close of Business On |
| Common Stock, par value $.10 per share | 20,567,202 | May 10, 2010 |
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held July 18, 200720, 2010 incorporated by reference into Part III of this Report.
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[cover page
TABLE OF CONTENTS
Page
----
| | | Page |
| PART I | | | |
| | | |
| Item 1. | Business | | 4 |
| Item 1A. | Risk Factors | | 17 |
| Item 1B. | Unresolved Staff Comments | | 19 |
| Item 2. | Properties | | 19 |
| Item 3. | Legal Proceedings | | 20 |
| Item 4. | Reserved | | 20 |
| Executive Officers of the Registrant | | 20 |
| | | |
| PART II | | | |
| | | |
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | 22 |
| Item 6. | Selected Financial Data | | 23 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 25 |
| Factors That May Affect Future Results | | 44 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | | 45 |
| Item 8. | Financial Statements and Supplementary Data | | 46 |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | 71 |
| Item 9A. | Controls and Procedures | | 71 |
| Item 9B. | Other Information | | 75 |
| | | |
| PART III | | | |
| | | |
| Item 10. | Directors, Executive Officers and Corporate Governance | | 76 |
| Item 11. | Executive Compensation | | 76 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | 76 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | | 76 |
| Item 14. | Principal Accountant Fees and Services | | 76 |
| | | |
| PART IV | | | |
| | | |
| Item 15. | Exhibits and Financial Statement Schedules | | 77 |
| | |
| SIGNATURES | | 78 |
| | |
| FINANCIAL STATEMENT SCHEDULES | | |
| | |
| Schedule II – Valuation and Qualifying Accounts | | 79 |
| | |
| EXHIBIT INDEX | | 80 |
PART I
Item 1. Business................................................... 4
Item 1A. Risk Factors............................................... 16
Item 1B. Unresolved Staff Comments.................................. 18
Item 2. Properties................................................. 19
Item 3. Legal Proceedings.......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders........ 19
Executive Officers of the Registrant....................... 19
PART II
Item 5. Market for the Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities........................................ 21
Item 6. Selected Financial Data.................................... 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 24
Factors That May Affect Future Results..................... 38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 39
Item 8. Financial Statements and Supplementary Data................ 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 66
Item 9A. Controls and Procedures.................................... 66
Item 9B. Other Information.......................................... 68
PART III
Item 10. Directors, Executive Officers and Corporate Governance..... 69
Item 11. Executive Compensation..................................... 69
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters............... 69
Item 13. Certain Relationships and Related Transactions,
and Director Independence................................ 69
Item 14. Principal Accountant Fees and Services..................... 69
PART IV
Item 15. Exhibits and Financial Statement Schedules................. 70
SIGNATURES............................................................... 71
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts........................ 72
EXHIBIT INDEX............................................................ 73
4
PART I
ITEM 1. BUSINESS.
General
Park Electrochemical Corp. ("Park"(“Park”), through its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the "Company"“Company”), is primarily engaged in the design, development, production,
marketinga global advanced materials company which develops, manufactures, markets and sale ofsells high-technology digital and RF/microwave printed circuit materials and advanced composite materialsproducts principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials products and composite parts and assemblies products principally for the aerospace markets. Park'sPark’s core capabilities are in the areas of polymer chemistry formulation and coating technology. Park also specializes in the design and manufacture of complex composite aircraft and space vehicle parts.
Park operates through fully integrated business units in Asia, Europe and North America. The Company's manufacturing facilities are located in Singapore, China, France, Connecticut, New York,Kansas, Arizona, California and California.
The Company's products are marketed and sold under the Nelco(R) and
Nelcote(TM) names.
Washington.
Sales of Park'sPark’s printed circuit materials products were 92%87% of the Company'sCompany’s total net sales worldwide in both the 20072010 and 20062009 fiscal years, and sales of Park'sPark’s advanced composite materials products and its composite parts and assemblies products were 8%13% of the Company'sCompany’s total net sales worldwide in both the 20072010 and 20062009 fiscal years.
Park was founded in 1954 by Jerry Shore, who was the Company'sCompany’s Chairman of the Board until July 14, 2004 and who is one of the Company'sCompany’s largest shareholders.
The sales and long-lived assets of the Company'sCompany’s operations by geographic area for the last three fiscal years are set forth in Note 1716 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. The Company'sCompany’s foreign operations are conducted principally by the Company'sCompany’s subsidiaries in Singapore, China and France. The Company'sCompany’s foreign operations are subject to the impact of foreign currency fluctuations. See Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
The Company makes available free of charge on its Internet website, www.parkelectro.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. None of the information on the Company's website shall be deemed to be a part of this Report.
COREFIX, EF, INNERLAM, LD, NELCO,
NELTEC,NELCOTE, PARKNELCO, RTFOIL and SI are registered trademarks of Park Electrochemical Corp., and
AEROGLIDE, ELECTROVUE,
FIBERCOTE,
NELCOTE,EP, MERCURYWAVE, NELTEC, NOVA, PEELCOTE and POWERBOND are common law trademarks of Park Electrochemical Corp.
5
Printed Circuit Materials
Printed Circuit Materials Operations
The Company is a leading global designer and producer of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems, such as multilayer back-planes, wireless packages, high-speed/low-loss multilayers and high density interconnects ("HDIs"(“HDIs”). The Company'sCompany’s multilayer printed circuit materials consist of copper-clad laminates and prepregs. The Company has long-term relationships with its major customers, which include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs"). Multilayer printed circuit boards and interconnect systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices (such as microprocessors and memory and logic devices), passive components (such as resistors and capacitors) and connection devices (such as infra-red couplings, fiber optics, compliant pin and surface mount connectors). Examples of end uses of the Company'sCompany’s digital printed circuit materials include high speed routers and servers, storage area networks, supercomputers, laptops, satellite switching equipment, cellular telephones and transceivers, wireless personal digital assistants ("PDAs"(“PDAs”) and wireless local area networks ("LANs"). The Company's radio frequency ("RF") printed circuit materials are used primarily for military avionics, antennas for cellular telephone base stations, automotive adaptive cruise control systems and avionic communications equipment. The Company has developed long-term relationships with major customers as a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities.
Park believes it founded the modern day printed circuit industry in 1957 by inventing a composite material consisting of an epoxy resin substrate reinforced with fiberglass cloth which was laminated together with sheets of thin copper foil. This epoxy-glass copper-clad laminate system is still used to construct the large majority of today'stoday’s advanced printed circuit products. The Company also believes that in 1962 it invented the first multilayer printed circuit materials system used to construct multilayer printed circuit boards. The Company also pioneered vacuum lamination and many other manufacturing technologies used in the industry today. The Company believes it is one of the industry'sindustry’s technological leaders.
As a result of its leading edge products, extensive technical and
engineering service support and responsive manufacturing capabilities, the
Company expects to continue to take advantage of several industry trends. These
trends include the increasingly advanced electronic materials required for
interconnect performance and manufacturability, the increasing miniaturization
and portability of advanced electronic equipment, the consolidation of the
printed circuit board fabrication industry and the time-to-market and
time-to-volume pressures requiring closer collaboration with materials
suppliers.
The Company believes that it is one of the world'sworld’s largest manufacturers of advanced multilayer printed circuit materials. It also believes that it is one of only a few significant independent manufacturers of multilayer printed circuit materials in the world. The Company was the first manufacturer in the printed circuit materials industry to establish manufacturing presences in the three major global markets of North America, Europe and Asia, with facilities established in Europe in 1969 and Asia in 1986.
6
Printed Circuit Materials -– Industry Background
The printed circuit materials manufactured by the Company and its competitors are used primarily to construct and fabricate complex multilayer printed circuit boards and other advanced electronic interconnection systems. Multilayer printed circuit materials consist of prepregs and copper-clad
laminates. Prepregs are chemically and electrically engineered thermosetting or thermoplastic resin systems which are impregnated into and reinforced by a specially manufactured fiberglass cloth product or other woven or non-woven reinforcing fiber. This insulating dielectric substrate generally is 0.030 inch to 0.002 inch in thickness or less in some cases. While these resin systems historically have been based on epoxy resin chemistry, in recent years, increasingly demanding OEM requirements have driven the industry to utilize proprietary enhanced epoxies as well as other higher performance resins, such as phenolic, bismalimide triazine ("BT"), cyanate ester, polyimide, or polytetrafluoroethylene ("PTFE"). One or more plies of prepreg are laminated together to form an insulating dielectric substrate to support the copper circuitry patterns of a multilayer printed circuit board. Copper-clad laminates consist of one or more plies of prepreg laminated together with specialty thin copper foil laminated on the top and bottom. Copper foil is specially formed in thin sheets which may vary from 0.00300.0056 inch to 0.0002 inch in thickness and normally have a thickness of 0.0014 inch or 0.0007 inch. The Company supplies both copper-clad laminates and prepregs to its customers, which use these products as a system to construct multilayer printed circuit boards.
The printed circuit board fabricator processes copper-clad laminates to form the inner layers of a multilayer printed circuit board. The fabricator photo images these laminates with a dry film or liquid photoresist. After development of the photoresist, the copper surfaces of the laminate are etched to form the circuit pattern. The fabricator then assembles these etched laminates by inserting one or more plies of dielectric prepreg between each of the inner layer etched laminates and also between an inner layer etched laminate and the outer layer copper plane, and then laminating the entire assembly in a press. Prepreg serves as the insulator and bond between the multiple layers of copper circuitry patterns found in the multilayer circuit board. When the multilayer configuration is laminated, these plies of prepreg form an insulating dielectric substrate supporting and separating the multiple inner and outer planes of copper circuitry. The fabricator drills vertical through-holes or vias in the multilayer assembly and then plates the through-holes or vias to form vertical conductors between the multiple layers of circuitry patterns. These through-holes or vias combine with the conductor paths on the horizontal circuitry planes to create a three-dimensional electronic interconnect system. In specialized applications, an additional set of microvia layers (2 or 4, typically) may be added through a secondary lamination process to provide increased density and functionality to the design. The outer two layers of copper foil are then imaged and etched to form the finished multilayer printed circuit board. The completed multilayer board is a three-dimensional interconnect system with electronic signals traveling in the horizontal planes of multiple layers of copper circuitry patterns, as well as the vertical plane through the plated holes or vias.
7
In the years immediately preceding the severe correction and downturn
that occurred in the global electronics industry in the Company's 2002 fiscal
year first quarter, the global market for advanced electronic products grew as a
result of technological change and frequent new product introductions. This
growth was principally attributable to increased sales and more complex
electronic content of newer products, such as cellular telephones, pagers,
personal computers and portable computing devices and the infrastructure
equipment necessary to support the use of these devices, and greater use of
electronics in other products, such as automobiles. Further, large, almost
completely untapped markets for advanced electronic equipment emerged in such
areas as India and China and other areas of the Pacific Rim. During its 2002
fiscal year, the Company established a business center in Wuxi, China, in the
Shanghai Nanjing corridor, which has been replaced by a new manufacturing
facility in the Zhuhai Free Trade Zone approximately 50 miles west of Hong Kong
in Guangdong Province in southern China. The construction of the facility was
completed in the first quarter of the Company's 2007 fiscal year, and the
Company has installed equipment for the facility and is in the process of
equipment testing, employee training and internal and external qualifications
for the facility. This manufacturing facility is intended to service customers
in China.
Semiconductor manufacturers have introduced successive generations of more powerful microprocessors and memory and logic devices. Electronic equipment manufacturers have designed these advanced semiconductors into more compact and often portable products. High performance computing devices in these smaller portable platforms require greater reliability, faster signal speeds, closer tolerances, higher component and circuit density and increased overall complexity. As a result, the interconnect industry has developed smaller, lighter, faster and more cost-effective interconnect systems, including advanced multilayer printed circuit boards.
Advanced interconnect systems require higher technology printed circuit materials to insure the performance of the electronic system and to improve the manufacturability of the interconnect platform. In the years immediately
preceding the severe correction and downturn that occurred in the global
electronics industry in the Company's 2002 fiscal year first quarter, the growth
of the market for more advanced printed circuit materials outpaced the market
growth for standard printed circuit materials. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced and stable electrical properties in order to support high-speed computing in a miniaturized and often portable environment. Temperature tolerance has been further emphasized by the advent of lead-free assemblies.
With the very high density circuit demands of miniaturized high performance interconnect systems, the uniformity, purity, consistency, performance predictability, dimensional stability and production tolerances of printed circuit materials have become successively more critical. High density printed circuit boards and interconnect systems often involve higher layer count multilayer circuit boards where the multiple planes of circuitry and dielectric insulating substrates are very thin (dielectric insulating substrate layers may be 0.002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (0.002 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very narrowsmall plated through holesthrough-holes or vias which electrically connect the multiple layers of circuitry planes.planes, and these interconnect systems frequently make use of multiple lamination cycles and/or laser drilled vias. High density interconnect systems must utilize printed circuit materials whose dimensional characteristics and purity are consistently manufactured to very high tolerance levels in order for the printed circuit board fabricator to attain and sustain acceptable product yields.
8
Shorter product life cycles and competitive pressures have induced electronic equipment manufacturers to bring new products to market and increase production volume to commercial levels more quickly. These trends have highlighted the importance of front-end engineering of electronic products and have increased the level of collaboration among system designers, fabricators and printed circuit materials suppliers. As the complexity of electronic products increases, materials suppliers must provide greater technical support to interconnect systems fabricators on a timely basis regarding manufacturability and performance of new materials systems.
Printed Circuit Materials -– Products and Services
The Company produces a broad line of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, including backplanes, wireless packages, high speed/low loss multilayers and high density interconnects ("HDIs"(“HDIs”). The Company'sCompany’s diverse advanced printed circuit materials product line is designed to address a wide array of end-use applications and performance requirements.
The Company'sCompany’s electronic materials products have been developed internally and through long-term development projects with its principal suppliers and, to a lesser extent, through licensing arrangements. The Company focuses its research and development efforts on developing industry leading product technology to meet the most demanding product requirements and has designed its product line with a focus on the higher performance, higher technology end of the materials spectrum.
The Company'sCompany’s products include high-speed, low-loss, digital broadband engineered formulations, high-temperature modified epoxies, phenolics, bismalimide
triazine ("BT"(“BT”) epoxies, non-MDA polyimides, enhanced polyimides, SI(R)SI® (Signal Integrity) products, cyanate esters and polytetrafluoroethylene ("PTFE")PTFE formulations for radio frequency ("RF")/microwave applications.
The Company'sCompany’s high performance printed circuit materials consist of high-speed, low-loss materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, BT materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, quartz reinforced materials, and PTFE and modified epoxy materials for RF/microwave systems that operate at frequencies up to 77 GHz.
The Company has developed long-term relationships with select customers through broad-based technical support and service, as well as manufacturing proximity and responsiveness at multiple levels of the customer'scustomer’s organization. The Company focuses on developing a thorough understanding of its customer'scustomer’s business, product lines, processes and technological challenges. The Company seeks customers which are industry leaders committed to maintaining and improving their industry leadership positions and which are committed to long-term relationships with their suppliers. The Company also seeks business opportunities with the more advanced printed circuit fabricators and electronic equipment manufacturers which are interested in the full value of products and services provided by their suppliers. The Company believes its proactive and timely support in assisting its customers with the integration of advanced materials technology into new product designs further strengthens its relationships with its customers.
9
The Company'sCompany’s emphasis on service and close relationships with its customers is reflected in its short lead times. The Company has developed its manufacturing processes and customer service organizations to provide its customers with printed circuit materials products on a just-in-time basis. The Company believes that its ability to meet its customers' customized manufacturing and quick-turn-around ("QTA") requirements is one of its unique strengths.
The Company has located its advanced printed circuit materials
manufacturing operations in strategic locations intended to serve specific
regional markets. By situating its facilities in close geographical proximity to
its customers, the Company is able to rapidly adjust its manufacturing processes
to meet customers' new requirements and respond quickly to customers' technical
needs. The Company has technical staffs based at each of its manufacturing
locations, which allows the rapid dispatch of technical personnel to a
customer's facility to assist the customer in quickly solving design, process,
production or manufacturing problems. During the 2002 fiscal year, the Company
established a business center in Wuxi near Shanghai in central China, which has
been replaced by a new manufacturing facility in the Zhuhai Free Trade Zone
approximately 50 miles west of Hong Kong in southern China to support the
growing customer demand for advanced multilayer printed circuit materials in
China. The construction of this facility was completed in the first quarter of
the Company's 2007 fiscal year, and the Company has installed equipment for the
facility and is in the process of equipment testing, employee training and
internal and external qualifications for the facility.
Printed Circuit Materials -– Customers and End Markets
The Company'sCompany’s customers for its advanced printed circuit materials include the leading independent printed circuit board fabricators, electronic manufacturing service ("EMS"(“EMS”) companies, electronic contract manufacturers ("ECMs"(“ECMs”) and major electronic original equipment manufacturers ("OEMs") in the computer, networking, telecommunications, transportation, aerospace, military and instrumentation industries located throughout North America, Europe and Asia. The Company seeks to align itself with the larger, more technologically-advanced and better capitalized independent printed circuit board fabricators and major electronic equipment manufacturers which are industry leaders committed to maintaining and improving their industry leadership positions and to building long-term relationships with their suppliers. The Company'sCompany’s selling effort typically involves several stages and relies on the talents of Company personnel at different levels, from management to sales personnel and quality engineers. In recent years, the Company has augmented its traditional sales personnel with an OEM marketing teamprocess and product technology specialists. The Company's strategy
emphasizes the use of multiple facilities established in market areas in close
proximity to its customers.
During the Company's 20072010 fiscal year, approximately 16.7%13.7% of the Company's total worldwide sales were to Sanmina-SCI Corporation, a leading electronics contract manufacturer and manufacturer of printed circuit boards,
and approximately
10.7%11.3% of the Company's total worldwide sales were to TTM Technologies, Inc., a leading manufacturer of printed circuit boards. During the
Company's 2006Company’s 2009 fiscal year, approximately
19.4%13.6% of the
Company'sCompany’s total worldwide sales were to Sanmina-SCI Corporation,
and approximately
11.7%12.1% of the Company's total worldwide sales were to TTM Technologies, Inc.
, and approximately 10.4% of
the Company's total worldwide sales were to Multilayer Technology, Inc., a
manufacturer of multilayer printed circuit boards. The
10
sales to TTM Technologies, Inc. during the 2007 and 2006 fiscal years included
sales to Tyco Printed Circuit Group L.P., a leading manufacturer of printed
circuit boards, which was acquired by TTM Technologies, Inc. in the Company's
2007 fiscal year. During the Company's 2007Company’s 2010 and 20062009 fiscal years, sales to no other customer of the Company equaled or exceeded 10% of the Company'sCompany’s total worldwide sales.
Although the printed circuit materials business is not dependent on any single customer, the loss of a major customer or of a group of customers could have a material adverse effect on the printed circuit materials business.
The Company'sCompany’s printed circuit materials products are marketed primarily by sales personnel and, to a lesser extent, by independent distributors and manufacturers’ representatives in industrial centers in North America, Europe and Asia. Such personnel include
both salaried employees and independent sales representatives who work on a
commission basis.
Printed Circuit Materials -– Manufacturing
The process for manufacturing multilayer printed circuit materials is capital intensive and requires sophisticated equipment as well as clean-room environments. The key steps in the Company'sCompany’s manufacturing process include: the impregnation of specially designed fiberglass cloth with a specially designed resin system and the partial curing of that resin system; the assembling of laminates consisting of single or multiple plies of prepreg and copper foil in a clean-room environment; the vacuum lamination of the copper-clad assemblies under simultaneous exposure to heat, pressure and vacuum; and the finishing of the laminates to customer specifications.
Prepreg is manufactured in a treater. A treater is a roll-to-roll continuous machine which sequences specially designed fiberglass cloth or other reinforcement fabric into a resin tank and then sequences the resin-coated cloth through a series of ovens which partially cure the resin system into the cloth. This partially cured product or prepreg is then sheeted or paneled and packaged by the Company for sale to customers, or used by the Company to construct its copper-clad laminates.
The Company manufactures copper-clad laminates by first setting up in a clean room an assembly of one or more plies of prepreg stacked together with a sheet of specially manufactured copper foil on the top and bottom of the assembly. This assembly, together with a large quantity of other laminate assemblies, is then inserted into a large, multiple opening vacuum lamination press. The laminate assemblies are then laminated under simultaneous exposure to heat, pressure and vacuum. After the press cycle is complete, the laminates are removed from the press and sheeted, paneled and finished to customer specifications. The product is then inspected and packaged for shipment to the customer.
The Company manufactures multilayer printed circuit materials at sixfour fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its first Arizona and
France facilitiesfacility in 1984, its Singapore facility in 1986 and its second France facility in 1992. The Company services the North AmericaAmerican market principally through its United States manufacturing facilities, the European market principally through its manufacturing facilities in the United States and in France, and the Asian market principally through its Singapore manufacturing facility. During its 2002 fiscal year, the Company established a business
center in central China, which
has beenwas replaced by a
new manufacturing facility in the Zhuhai
11 Free Trade Zone approximately 50 miles west of Hong Kong in southern China to
supply the growing demand for advanced multilayer printed circuitry materials in
China. The construction of thisThis facility was completed in the first quarterCompany’s 2007 fiscal year. During the 2008 fiscal year, the Company modified certain of the Company's 2007 fiscal year, and the Company has installed equipment at thein this facility and isso that it can laminate PTFE based circuitry materials in the process of equipment testing, employee training and
internal and external qualifications for the facility.Asia. In addition, the Company upgraded its printed circuit materials treating operation in Singapore during the 2007 fiscal year third quarter so that such operation is capable of treating the Company'sCompany’s full line of advanced printed circuit materials in Singapore, except polytetrafluoroethylene ("PTFE")PTFE materials. The Company has located its
manufacturing facilities in its important markets. By maintaining technical and engineering staffs at each of its manufacturing facilities, the Company is able to deliver fully-integrated products and services on a timely basis.
Printed Circuit Materials -– Materials and Sources of Supply
The principal materials used in the manufacture of the Company'sCompany’s printed circuit materials products are specially manufactured copper foil, fiberglass and quartz cloth and synthetic reinforcements, and specially formulated resins and chemicals. The Company attempts to develop and maintain close working relationships with suppliers of those materials who have dedicated themselves to complying with the Company'sCompany’s stringent specifications and technical requirements. While the Company'sCompany’s philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for eachmany of these materials. However, there are a limited number of qualified suppliers of these materials, substitutes for these materials are not readily available, and, in the recent past, the industry has experienced shortages in the market for certain of these materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of materials could materially adversely affect the business, financial condition and results of operations of the Company. Significant increases in the cost of materials purchased by the Company could also have a material adverse effect on the Company'sCompany’s business, financial condition and results of operations if the Company were unable to pass such increases through to its customers. During the first and second quarters of the 20072008 fiscal year and the second quarter of the 2010 fiscal year, the Company incurred significant increases in the cost of copper foil, one of the Company'sCompany’s primary raw materials, and the Company was able to passpassed a substantial portion of such increases through to its customers in the second, third and fourth quarters of
the 2007 fiscal year.
customers.
Printed Circuit Materials -– Competition
The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company'sCompany’s competitors are primarily divisions or subsidiaries of very large, diversified multinational manufacturers which are substantially larger and have greater financial resources than the Company and, to a lesser degree, smaller regional producers. Because the Company focuses on the higher technology segment of the printed circuit materials market, technological innovation, quality and service, as well as price, are significant competitive factors.
The Company believes that there are several significant multilayer printed circuit materials manufacturers in the world and many of these competitors have significant presences in the three major global markets of North America, Europe and Asia. The Company believes that the multilayer
12
printed circuit materials industry has become more global and that the remaining
smaller regional manufacturers are finding it increasingly difficult to remain
competitive. The Company believes that it is currently one of the world'sworld’s largest advanced multilayer printed circuit materials manufacturers. The Company further believes it is one of only a few
significant independent manufacturers of multilayer printed circuit materials in the world today.
The markets in which the Company'sCompany’s printed circuit materials operations compete are characterized by rapid technological advances, and the Company'sCompany’s position in these markets depends largely on its continued ability to develop technologically advanced and highly specialized products. Although the Company believes it is an industry technology leader and directs a significant amount of its time and resources toward maintaining its technological competitive advantage, there is no assurance that the Company will be technologically competitive in the future, or that the Company will continue to develop new products that are technologically competitive.
Advanced Composite Materials
Advanced Composite Materials Operations
The Company also develops and produces engineered, advanced composite materials for the aerospace, fixed and rotary wing aircraft, rocket motor, radio frequency ("RF"(“RF”) and specialty industrial markets.
The Company’s advanced composite materials are manufactured by the Company’s Park Aircraft Technologies Corp. subsidiary located in Newton, Kansas, by the Company’s Park Advanced Composite Materials, -Inc. subsidiary located in Waterbury, Connecticut, which was named Nelcote, Inc. from May 2006 to March 2008 and which was named FiberCote Industries, Inc. prior to May 2006, and by the Company’s Nelco Products Pte. Ltd. subsidiary in Singapore.
Advanced Composite Materials – Industry Background
The advanced composite materials manufactured by the Company and its competitors are used primarily to fabricate light-weight, high-strength structures with specifically designed performance characteristics. Composite materials are typically highly specified combinations of resin formulations and reinforcements. Reinforcements can be unidirectional fibers, woven fabrics, or non-woven goods such as mats or felts, or in some cases unidirectional fibers.felts. Reinforcement materials are constructed of:of E-glass (fiberglass), carbon fiber, S2 glass, aramids such as Kevlar(R)Kevlar® ("Kevlar" is a registered trademark of E.I. du Pont de Nemours & Co.) and Twaron(R) ("Twaron"Twaron® (“Twaron” is a registered trademark of Teijin Twaron B.V. LLC), quartz, polyester, and other synthetic materials. Resin formulations are typically highly proprietary, and include various chemical and physical mixtures. The Company produces resin formulations using various epoxies, polyesters, phenolics,
bismalimides, cyanate esters, polyimides and other complex matrices. The reinforcement combined with the resin is referred to as a "prepreg"“prepreg”, which is an acronym for pre-impregnated material. Advanced composite materials can be broadly categorized as either a thermoset or a thermoplastic. While both material types require the addition of heat and pressure to achieve the
molecular cross-linking of the matrices,form a consolidated laminate, thermoplastics can be reformed using additional heat and pressure.heat. Once fully cured, thermoset materials can not be further reshaped. The Company believes that the demand for thermoset advanced materials is greater than that for thermoplastics due to the fact that fabrication processes for thermoplastics require much higher temperatures and pressures, and are, therefore, typically more capital intensive than the fabrication processes for thermoset materials.
The advanced composite materials industry suppliers have historically been large chemical corporations. During the past ten years, considerable consolidation has occurred in the industry, resulting in three relatively large composite materials suppliers and a number of smaller suppliers.
13
Composite part fabricators typically design and specify a material specifically to meet the needs of the part'spart’s end use and the fabricators'fabricators’ processing methods. Fabricators sometimes work with a supplier to develop the specific resin system and reinforcement combination to match the application. Fabricators'Fabricators’ processing may include hand lay-up, resin infusion or more advanced automated lay-up ("ATL") techniques.processes. Automated lay-up processes include automated tape lay-up (“ATL”), fiber placement and filament winding. These fabrication processes significantly alter the material form purchased. After the lay-up process is completed, the material is cured by the addition of heat and pressure. Cure processes typically include vacuum bag oven curing, high pressure autoclave, press forming and in some cases in-situbefore press curing. After the part has been cured, final finishing and trimming, and assembly of the structure is performed by the fabricator.
Advanced Composite Materials -– Products
The products manufactured by the Company are primarily thermoset curing prepregs. By analyzing the needs of the markets in which it participates, and working with its customers, the Company has developed proprietary resin formulations to suit the needs of its markets. The complex process of developing resin formulations and selecting the proper reinforcement is accomplished through a collaborative effort of the Company'sCompany’s research and development and technical sales and marketing resources working with the customers'customers’ technical staff. The Company focuses on developing a thorough understanding of its customers'customers’ businesses, product lines, processes and technical challenges. The Company believes that it develops innovative solutions which utilize technologically advanced materials and concepts for its customers.
The Company'sCompany’s advanced composite materials products include prepregs manufactured from proprietary formulations using modified epoxies, phenolics, polyesters, cyanate esters bismalimides,and polyimides combined with woven, non-woven, and unidirectional reinforcements. Reinforcement materials used to produce the Company'sCompany’s products include polyacrylonitrile ("PAN"(“PAN”) and pitch based carbons, aramids, E-glass, S2 glass, polyester, quartz and carbonized rayon. The Company also sells certain specialty fabrics, such as Raycarb C2, a carbonized rayon fabric produced by Snecma Propulsion Solide and used mainly in the rocket motor industry.
Advanced Composite Materials -– Customers and End Markets
The Company'sCompany’s advanced composite materials customers the majority of
which are located in the United States, include manufacturers in the aerospace, fixed and rotary wing aircraft, rocket motor, electronics, radio frequency ("RF"(“RF”), marine and specialty industrial markets. The Company'sCompany’s materials are marketed by sales personnel including both salaried employees and independent sales representatives who work
on a commission basis.
representatives.
While no single advanced composite materials customer accounted for 10% or more of the Company'sCompany’s total sales during either of the last two fiscal years, the loss of a major customer or of a group of some of the largest customers of the Company’s advanced composite materials businessproduct line could have a material adverse effect upon the Company's advanced composite materials business.
such product line.
The
Company'sCompany’s aerospace customers
areinclude fabricators of aircraft composite
hardware.parts and assemblies. The
Company'sCompany’s advanced composite materials are used to produce primary and secondary structures, aircraft interiors, and various other aircraft components. The majority of the
Company'sCompany’s customers for aerospace materials do not produce
hardwareparts and assemblies for commercial aircraft, but for the general
aviation and
corporatebusiness aviation, kit aircraft and military
segments. The majority of the Company's
customers for aerospace products are in the United States and Europe.
14
markets.
Customers for the Company'sCompany’s rocket motor materials include United States defense prime contractors and subcontractors. These customers fabricate rocket motors for heavy lift space launchers, strategic defense weapons, tactical motors and various other applications. The Company'sCompany’s materials are used to produce heat shields, exhaust gas management devices, and insulative and ablative nozzle components. Rocket motors are primarily used for commercial and military space launch, and for tactical and strategic weapons. The Company also has customers for these materials outside of the United States.
The Company also sells composite materials for use in RF electrical applications. Customers buying these materials typically fabricate antennas and radomes engineered to preserve electrical signal integrity. A radome is a protective cover over an electrical antenna or signal generator. The radome is designed to minimize signal loss and distortion. Customers for these products
Many of the Company’s composite materials are primarilyused in the United Statesmanufacture of aircraft certified by the Federal Aviation Administration (the “FAA”). In support of these programs, the Company has developed FAA accepted databases of design allowables for certain materials that can be used by customers in the design and Europe.
certification of FAA certified aircraft structures. The Company continues to support public FAA accepted databases such as NCAMP by funding ongoing material qualifications.
Advanced Composite Materials -– Manufacturing
The Company'sCompany’s manufacturing facilityfacilities for advanced composite materials isare currently located in Newton, Kansas, in Waterbury, Connecticut. The Company also produces some
products through the use of toll coating services at other locationsConnecticut and in North
America.Singapore. In the 20062009 fiscal year, the Company installed an additional large
treater at its advanced composite materialscompleted a new development and manufacturing facility in Waterbury, Connecticut,
which has significantly increased Nelcote's treating capacity. In the third
quarter of the 2007 fiscal year, the Company acquired a facility in Singapore
which the Company is modifying and expanding for use as a new advanced
composites manufacturing plant. In addition, the Company is in the final stages
of planning the construction of a new plant in the United StatesNewton, Kansas to produce advanced composite materials principally for the aerospace industry.
The process for manufacturing composite materials is capital intensive and requires sophisticated equipment, significant technical know-how and very tight process control.controls. The key steps used in the manufacturing process include chemical reactors, resin mixing, reinforcement impregnation, and in some cases
resin film casting and solvent drying processes.
Prepreg is manufactured by the Company using either solvent (solution) coating methods on a treater or by hot melt impregnation. A solution treater is a roll-to-roll continuous process machine which sequences reinforcement through tension controllers and combines solvated resin with the reinforcement. The reinforcement is dipped in resin, passed through a drying oven which removes the solvent and advances (or partially cures) the resin. The prepreg material is interleafed with a carrier and cut to the roll lengths desired by the customer. The Company also manufactures prepreg using hot melt impregnation methods which use no solvent. Hot melt prepreg manufacturing is achieved by mixing a resin formulation in a heated resin
vessel, casting a thin film on a carrier paper, and laminating the reinforcement with the resin film. The Company also completes additional processing services, such as
toll coating, slitting, sheeting, biasing, sewing and cutting, if needed by the customer. Many of the products manufactured by the Company also undergo extensive testing of the chemical, physical and mechanical properties of the product. These testing requirements are completed in the laboratories and facilities located at the
Company'sCompany’s manufacturing
facility.facilities. The
Company'sCompany’s laboratories have been approved by several aerospace contractors. After all the processing has been completed, the product is inspected and packaged for shipment to the customer. The Company typically supplies final product to the customer in roll or sheet form.
15
Advanced Composite Materials -– Materials and Sources of Supply
The Company designs and manufactures its advanced composite materials to its own specifications and to the specifications of its customers. Product development efforts are focused on developing prepreg materials that meet the specifications of the customers. The materials used in the manufacture of these engineered materials include graphite and carbon fibers and fabrics, Kevlar(R)Kevlar® (“Kevlar” is a registered trademark of E.I. du Pont de Nemours & Co.), quartz, fiberglass, polyester, specialty chemicals, resins, films, plastics, adhesives and certain other synthetic materials. The Company purchases these materials from several suppliers. Substitutes for many of these materials are not readily available, and demand has increased for certain materials, such as
carbon fiber during the 2006 and 2005 fiscal years. The supply of certain
materials was limited during the 2006 and 2005 fiscal years, but such limitation
did not have a material adverse effect on the Company's advanced composite
materials business.available. The Company is working globally to determine acceptable alternatives for several raw materials with limited availability.
Advanced Composite Materials -– Competition
The Company has many competitors in the advanced composite materials business,market, ranging in size from large, international corporations to small regional producers. Several of the Company'sCompany’s largest competitors are vertically integrated. Some of the Company'sCompany’s competitors may also serve as a supplier to the Company. The Company competes for business on the basis of responsiveness, product performance, innovative new product development, product qualification listing and price.
Advanced Composite Parts and Assemblies
On April 1, 2008, the Company’s wholly owned subsidiary, Park Aerospace Structures Corp., acquired substantially all the assets and business of Nova Composites, Inc. located in Lynnwood, Washington for a cash purchase price of $4.5 million paid at the closing of the acquisition and up to an additional $5.5 million payable over five years depending on the achievement of specified earn-out objectives. The Company paid an additional $1.0 million in the 2010 fiscal year second quarter, leaving up to an additional $4.4 million payable over four years depending on the achievement of the earn-out objectives. Park Aerospace Structures Corp. manufactures aircraft composite parts and assemblies and the tooling for such parts and assemblies. These composite parts and assemblies are manufactured with carbon, fiberglass and other reinforcements impregnated with formulated resins. These impregnated reinforcements, sometimes known as “prepregs”, are supplied by other subsidiaries of Park, as well as independent companies.
In the 2010 fiscal year second quarter, the Company announced plans for the major expansion of its Park Aircraft Technologies Corp. (“PATC”) advanced
composite materials development and manufacturing facility in Newton, Kansas. The PATC facility, which was designed to develop and produce advanced composite materials for the aircraft and space vehicle industries, contains approximately 52,000 square feet of manufacturing, laboratory and office space and cost approximately $15 million to construct and fully equip. The Company is expanding its PATC facility in order to manufacture composite parts and assemblies for the aircraft and space vehicle industries. This expansion, which includes approximately 37,000 square feet of manufacturing and storage space, is expected to cost approximately $5 million and to be complete and operational by October of 2010.
Upon completion of the PATC facility expansion, the Company’s objective is for PATC to offer composite aircraft and space vehicle parts design and assembly services, in addition to “build-to-print” services. The expansion will include both oven and autoclave composite parts curing equipment and capability. When the expansion is complete, PATC plans to be able to offer a full range of advanced composite materials development and manufacturing capability, as well as composite parts design, assembly and production capability, all in its Newton facility. The Company believes that the ability of its PATC facility to offer such a wide and comprehensive array of composite materials and parts manufacturing and development technology and capability to the aircraft and space vehicle industries will provide attractive benefits and advantages to those industries.
Backlog
The Company records an item as backlog when it receives a purchase order specifying the number of units to be purchased, the purchase price, specifications and other customary terms and conditions. At April 29, 2007,May 2, 2010, the unfilled portion of all purchase orders received by the Company and believed by it to be firm was approximately $9,458,000,$10,691,000, compared to $7,401,000$5,397,000 at April 30,
2006.
May 3, 2009.
Various factors contribute to the size of the Company'sCompany’s backlog. Accordingly, the foregoing information may not be indicative of the Company'sCompany’s results of operations for any period subsequent to the fiscal year ended February 25, 2007.
28, 2010.
Patents and Trademarks
The Company holds several patents and trademarks or licenses thereto. In the Company'sCompany’s opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new, or to defend existing, patents and trademarks would have a material adverse effect on the Company.
Employees
At February 25, 2007,28, 2010, the Company had approximately 950612 employees. Of these employees, 840473 were engaged in the Company'sCompany’s printed circuit materials operations, 7094 in its advanced composite materials, parts and assemblies operations and 4045 consisted of executive personnel and general administrative staff. None of the Company'sCompany’s employees are subject to a collective bargaining agreement. However, the
non-executive employees of the Company's Neltec Europe SAS subsidiary in France
are represented by the trade union which represents all non-executive employees
in the industrial sector to which Neltec Europe belongs. Management considers its employee relations to be good.
16
Environmental Matters
The Company is subject to stringent environmental regulation of its use, storage, treatment and disposal of hazardous materials and the release of emissions into the environment. The Company believes that it currently is in substantial compliance with the applicable federal, state and local environmental laws and regulations to which it is subject and that continuing compliance therewith will not have a material effect on its capital expenditures, earnings or competitive position. The Company does not currently anticipate making material capital expenditures for environmental control facilities for its existing manufacturing operations during the remainder of its current fiscal year or its succeeding fiscal year. However, developments, such as the enactment or adoption of even more stringent environmental laws and regulations, could conceivably result in substantial additional costs to the Company.
The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA"“EPA”) or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act"“Superfund Act”) or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at nineeight sites. In addition, a subsidiarytwo subsidiaries of the Company hashave received cost recovery claims under the Superfund Act from other private parties involving onetwo other sitesites, 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'sCompany’s subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at the 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. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect uponon 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.
See "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Environmental Matters"Matters” included in Item 7 of Part II of this Report and Note 1615 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.
ITEM 1A. RISK FACTORS.
The business of the Company faces numerous risks, including those set forth below or those described elsewhere in this Form 10-K Annual Report or in the Company's other filings with the Securities and Exchange Commission. The risks described below are not the only risks that the Company faces, nor are they necessarily listed in order of significance. Other risks and uncertainties may also affect the Company'sCompany’s business. Any of these risks may have a material adverse effect on the Company's business, financial condition, results of operations andor cash flow.
The industries in which the Company operates are undergoing technological changes, and the Company's business could suffer if the Company is unable to adjust to these changes.
17
The Company's operating results could be negatively affected by the Company's inability to maintain and increase its technological and manufacturing capability and expertise. Rapid technological advances in semiconductors and electronic equipment have placed rigorous demands on the printed circuit materials manufactured by the Company and used in printed circuit board production.
The industries in which the Company operates are very competitive.
Certain of the Company's principal competitors are substantially larger and have greater financial resources than the Company, and the Company's operating results will be affected by its ability to maintain its competitive positions in these industries. The printed circuit materials, and advanced composite materials and composite parts and assemblies industries are intensely competitive and the Company competes worldwide in the markets for such materials.
The Company is vulnerable to an increase in the cost of gas or electricity.
Changes in the cost or availability of gas or electricity could materially increase the Company's cost of operations. The Company's production processes require the use of substantial amounts of gas and electricity, the cost and available supply of which are beyond the control of the Company.
The Company’s cost of sales and results of operations were affected by increases in utility costs in the Company’s fiscal year ended March 1, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Report.
The Company is vulnerable to an increase in the price of certain raw materials.
There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of printed circuit materials, and advanced composite materials products.and composite parts and assemblies. Substitutes for these materials are not readily available, and in the past there have been shortages in the market for certain of these materials. These shortages could materially increase the Company's cost of operations. Raw material substitutions for certain aircraft related products may require governmental (such as Federal Aviation Administration) approval.
During the first and second quarters of the Company’s 2008 fiscal year and the second quarter of the 2010 fiscal year, the Company incurred significant increases in the cost of copper foil, one of the Company’s primary raw materials, and the Company passed a substantial portion of such increases through to its customers. See “Business—Printed Circuit Materials—Materials and Sources of Supply” in Item 1 of Part I of this Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Report.
The Company's customer base is highly concentrated, and the loss of one or more customers could adversely affect the Company's business.
A loss of one or more key customers could adversely affect the Company's profitability. The Company's customer base is concentrated, in part, because the Company's business strategy has been to develop long-term relationships with a select group of customers. During the Company's fiscal year ended February 25, 2007,28, 2010, the Company's ten largest customers accounted for approximately 73%66% of net sales. The Company expects that sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. See "Business--Printed"Business—Printed Circuit Materials--CustomersMaterials—Customers and End Markets"Markets” and "Business--Advanced“Business—Advanced Composite Materials--CustomersMaterials—Customers and End Markets"Markets” in Item 1 of Part I of this Report.
The Company's business is dependent on the electronics industryand aerospace industries which isare cyclical in nature.
The electronics
industry isand aerospace industries are cyclical and
hashave experienced recurring
downturns.cycles. The downturns, such as occurred in the electronics industry during the first quarter of the Company's fiscal year ended March
2, 1997 and in the first
quarter of the Company's fiscal year ended March 3, 2002,
and which continues to
a lesser extent at the present time, can be unexpected and have often reduced demand for, and prices of, printed circuit materials,
and advanced composite
materials.materials and composite parts and assemblies. This potential reduction in demand and prices could have a negative impact on the
Company'sCompany’s business.
18
In addition, the Company is subject to the effects of general regional and global economic and financial conditions, such as the worldwide economic and financial crises that occurred in the second half of the Company’s fiscal year ended March 1, 2009 and that continued in the first and second quarters of the Company’s fiscal year ended February 28, 2010.
The Company relies on short-term orders from its customers.
A variety of conditions, both specific to the individual customer and generally affecting the customer'scustomer’s industry, can cause a customer to reduce or delay orders previously anticipated by the Company, which could negatively impact the Company'sCompany’s business. TheIn the electronic materials market, the Company typically does not obtain long-term purchase orders or commitments. Instead, it relies primarily on continual communication with its customers to anticipate the future volume of purchase orders.
The Company faces extensive capital expenditure costs.
The Company'sCompany’s business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company'sCompany’s capital expenditures. In order to remain competitive the Company must continue to make significant investments in capital equipment and expansion
of operations, which could adversely affect the Company'sCompany’s results of operations.
The Company'sCompany’s international operations are subject to different and additional risks than the Company'sCompany’s domestic operations.
The Company'sCompany’s international operations are subject to various risks, including unexpected changes in regulatory requirements, foreign currency exchange rates, tariffs and other barriers, political and economic instability, potentially adverse tax consequences, and any impact on economic and financial conditions around the world resulting from geopolitical conflicts or acts of terrorism, all of which could negatively impact the Company'sCompany’s business. A portion of the sales and costs of the Company'sCompany’s international operations are denominated in currencies other than the U.S. dollar and may be affected by fluctuations in currency exchange rates.
The Company is subject to a variety of environmental regulations.
The Company'sCompany’s production processes require the use, storage, treatment and disposal of certain materials which are considered hazardous under applicable environmental laws, and the Company is subject to a variety of regulatory requirements relating to the handling of such materials and the release of emissions and effluents into the environment, non-compliance with which could have a negative impact on the Company. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES.
Set forth below are the locations of the significant properties owned and leased by the Company, the businesses which use the properties, and the size of each such property. All of such properties, except for the Melville, New York property, are used principally as manufacturing and warehouse facilities.
Size
Owned or (Square
Location Leased Use Footage)
- ------------------ ------------ ---------------------- ------------
Melville, NY Leased Administrative Offices 8,000
Newburgh, NY Leased Electronic Materials 171,000
Fullerton, CA Leased Electronic Materials 95,000
Anaheim, CA Leased Electronic Materials 26,000
Tempe, AZ Leased Electronic Materials 87,000
Mirebeau, France Owned Electronic Materials 81,000
Lannemezan, France Owned Electronic Materials 29,000
Singapore Leased Electronic Materials 128,000
Zhuhai, China Leased Electronic Materials 40,000
Waterbury, CT Leased Advanced Composites 100,000
Singapore Leased Advanced Composites 24,000
| Location | | Owned or Leased | | Use | | Size (Square
Footage) | |
| | | | | | | |
| Melville, NY | | Leased | | Administrative Offices | | | 8,000 | |
| Fullerton, CA | | Leased | | Printed Circuit Materials | | | 95,000 | |
| Anaheim, CA | | Leased | | Printed Circuit Materials | | | 26,000 | |
| Tempe, AZ | | Leased | | Printed Circuit Materials | | | 87,000 | |
| Lannemezan, France | | Owned | | Printed Circuit Materials | | | 29,000 | |
| Singapore | | Leased | | Printed Circuit Materials | | | 128,000 | |
| Zhuhai, China | | Leased | | Printed Circuit Materials | | | 40,000 | |
| Waterbury, CT | | Leased | | Advanced Composites | | | 100,000 | |
| Newton, KS | | Leased | | Advanced Composites | | | 52,000 | |
| Singapore | | Leased | | Advanced Composites | | | 24,000 | |
| Lynnwood, WA | | Leased | | Aerospace Parts | | | 21,000 | |
The electronic materials facility in Zhuhai, China has been constructed
and equipped butCompany is not yet operating. Theexpanding its advanced composites facility in Singapore has been recently acquired byNewton, Kansas as described in Item 1 of Part I of this Report under the Companycaption “Advanced Composite Parts and is currently being
renovated and expanded for use by the Company as an advanced composites
manufacturing facility.
Assemblies”.
The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. During the 20072010 and 20062009 fiscal years, certain of the Company’s advanced composite materials manufacturing facilities were utilized at less than 50% of their designed capacity. During the 2009 and 2008 fiscal years, certain of the Company's printed circuit materials manufacturing facilities were utilized at less than 50% of their designed capacity.
During the 2009 fiscal year fourth quarter, the Company closed its New England Laminates Co., Inc. business unit located in Newburgh, New York, which had a facility consisting of approximately 171,000 square feet, and its Neltec Europe SAS business unit in Mirebeau, France, which had a facility consisting of approximately 81,000 square feet; and the Company is attempting to sell its interests in both such facilities.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
RESERVED.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Title Age
- ------------------- ------------------------------------------ --------
Brian E. Shore Chief Executive Officer, President and a
Director 55
James L. Zerby Vice President and Chief Financial Officer 64
Stephen E. Gilhuley Executive Vice President, Secretary and
General Counsel 62
James W. Kelly Vice President, Taxes and Planning 50
Anthony W. DiGaudio Vice President of Marketing and Sales 37
Louis J. Stans Vice President of Engineering and
Quality and Research and Development 60
20
| Name | | Title | | Age |
| | | | |
| Brian E. Shore | | Chief Executive Officer, President and a Director | | 58 |
| | | | |
| Stephen E. Gilhuley | | Executive Vice President, Secretary and General Counsel | | 65 |
| | | | |
| David R. Dahlquist | | Vice President and Chief Financial Officer | | 36 |
| | | | |
| P. Matthew Farabaugh | | Vice President and Controller | | 49 |
| | | | |
| Katherine O. Abbitt | | Vice President of Sales and Marketing – Americas | | 47 |
| | | | |
| Anthony W. DiGaudio | | Vice President of Sales and Marketing – Asia | | 40 |
| | | | |
| Margaret M. Kendrick | | Vice President of Operations | | 50 |
Mr. Shore has served as a Director of the Company since 1983 and as Chairman of the Board of Directors since July 2004. He was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994, President in March 1996, and Chief Executive Officer in November 1996. Mr. Shore also served as General Counsel of the Company from April 1988 until April 1994.
Mr. Zerby was appointed Vice President and Controller of the Company on
July 24, 2006, and he was elected Vice President and Chief Financial Officer on
October 24, 2006. Prior to joining Park, Mr. Zerby was Chief Financial Officer
of Photocircuits Corporation, a manufacturer of printed circuit boards, in Glen
Cove, New York from 1991 to March 2006.
Mr. Gilhuley has been General Counsel of the Company since April 1994 and Secretary since July 1996. He was elected a Senior Vice President in March 2001 and Executive Vice President on October 24, 2006.
Mr. KellyDahlquist was elected Vice President Taxes and PlanningChief Financial Officer effective March 24, 2010. Mr. Dahlquist joined Park Electrochemical Corp. in June 2006 as Product Director, was appointed Director of Marketing in March 2008, Director of Business Development in October 2008 and Vice President of Business Development of Park in March 2001. He had beenDecember 2008. Prior to joining Park, Mr.
Dahlquist held the positions of Director of TaxesQuality and Engineering – PC- Asia and Director of Technology – Corporate at Photocircuits Corporation in Glen Cove, New York from November 2005 to June 2006 and was Processing Engineering Manager at Photocircuits Corporation from August 2001 to November 2005.
Mr. Farabaugh was appointed Vice President and Controller of the Company on October 8, 2007. Prior to joining Park, Mr. Farabaugh was Corporate Controller of American Technical Ceramics, a publicly traded international company and a manufacturer of electronic components, located in Huntington Station, New York, from 2004 to September 2007 and Assistant Controller from 2000 to 2004. Prior thereto, Mr. Farabaugh was Assistant Controller of Park Electrochemical Corp. from 1989 to 2000. Prior to joining Park in 1989, Mr. Farabaugh had been a senior accountant with KPMG.
Ms. Abbitt was appointed Vice President of Sales and Marketing – Americas in September 2009. Ms. Abbitt had been Global Sales Manager/Carbon Fibers at Hexcel Corporation in Stamford, Connecticut since December 2007, and prior to that time she held sales and marketing positions in Hexcel’s aerospace business and infusion product line business since March 2006. Previously, she held business development positions with A&P Technology, Inc., a manufacturer of braided reinforcements in Cincinnati, Ohio from May 1997.
1998 to March 2006.
Mr. DiGaudio joined the Company as a Product Director in May 2002, was promoted to Vice President of Quality in May 2004 and was promoted to Vice President of Sales effectivein June 13, 2005. He was appointed Vice President of Marketing in June 2006 in addition to the position of Vice President of Sales. He was appointed Vice President of Sales and Marketing – Asia in September 2009. For several years prior to joining Park, Mr. DiGaudio was Technical Manager for Metro Circuits, Division of PJC Technologies, Inc. in Rochester, New York.
Mr. Stans
Ms. Kendrick was appointed Vice President of EngineeringOperations effective April 13, 2009. Previously, she was Vice President of North American Operations of the Company since her appointment to that position in DecemberSeptember 2008. She had been President of the Company’s Nelco Products, Inc. subsidiary in California from January 2004 and he was also appointed to the position ofOctober 2008. Prior to January 2004, she served as Vice President of QualityGlobal Materials for the Company. Ms. Kendrick originally joined the Company in October 2005. He was appointed1984. She is also currently Vice President of Research and
Development in January 2007 in addition toGlobal Supplier Relations of the positions of Vice President of
Engineering and Vice President of Quality. Prior to joining Park, Mr. Stans had
been Director of Technology and Engineering at Photocircuits Corporation, a
major printed circuit board manufacturer, since 1990.
Company.
There are no family relationships between the directors or executive officers of the Company.
Each executive officer of the Company serves at the pleasure of the Board of Directors of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
| ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
The Company'sCompany’s Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the MidwestChicago Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock.
Stock Price
For the Fiscal Year ----------------------- Dividends
Ended February 25, 2007 High Low Declared
----------------------- ---------- ---------- ----------
First Quarter $ 36.45 $ 28.05 $ .08
Second Quarter 34.29 23.05 $ 1.08(a)
Third Quarter 33.70 25.40 $ .08
Fourth Quarter 33.50 24.72 $ .08
Stock Price
For the Fiscal Year ----------------------- Dividends
Ended February 26, 2006 High Low Declared
----------------------- ---------- ---------- ----------
First Quarter $ 23.20 $ 19.07 $ .08
Second Quarter 27.52 22.81 $ .08
Third Quarter 26.98 23.75 $ 1.08(b)
Fourth Quarter 29.75 22.63 $ .08
(a) During the 2007 fiscal year second quarter, the Company declared its
regular quarterly cash dividend of $0.08 per share in June 2006, and in
July 2006 the Company announced that its Board of Directors had
declared a one-time, special cash dividend of $1.00 per share, payable
August 22, 2006 to stockholders of record on August 1, 2006.
(b) During the 2006 fiscal year third quarter, the Company declared its
regular quarterly cash dividend of $0.08 per share in September 2005,
and in October 2005 the Company announced that its Board of Directors
had declared a one-time, special cash dividend of $1.00 per share,
payable December 15, 2005 to stockholders of record on November 15,
2005.
| For the Fiscal Year | | Stock Price | | | Dividends | |
| Ended February 28, 2010 | | High | | | Low | | | Declared | |
| First Quarter | | $ | 21.75 | | | $ | 13.41 | | | $ | .08 | |
| Second Quarter | | | 24.90 | | | | 18.26 | | | | .18 | (a) |
| Third Quarter | | | 27.31 | | | | 20.68 | | | | - | |
| Fourth Quarter | | | 28.81 | | | | 22.60 | | | | .10 | |
| | | | | | | | | | | | | |
| For the Fiscal Year | | Stock Price | | | Dividends | |
| Ended March 1, 2009 | | High | | | Low | | | Declared | |
| First Quarter | | $ | 30.55 | | | $ | 22.58 | | | $ | .08 | |
| Second Quarter | | | 29.83 | | | | 22.77 | | | | .08 | |
| Third Quarter | | | 30.91 | | | | 12.99 | | | | .08 | |
| Fourth Quarter | | | 21.64 | | | | 15.28 | | | | .08 | |
| (a) | On July 22, 2009, the Company announced that its Board of Directors had approved an increase in the Company’s regular quarterly cash dividend to $0.10 per share and declared a regular quarterly cash dividend of $0.10 per share payable November 5, 2009 to stockholders of record on October 7, 2009. The $0.10 per share was paid on November 5, 2009. |
As of May 4, 2007,10, 2010, there were approximately 930790 holders of record of Common Stock.
The Company expects, for the immediate future, to continue to pay regular cash dividends.
22
The following table provides information with respect to shares of the Company'sCompany’s Common Stock acquired by the Company during each month included in the Company's
2007Company’s 2010 fiscal year fourth quarter ended February 25, 2007.
28, 2010.
| | | | | | | | | | | | Maximum Number (or | |
| | | | | | | | | Total Number of | | | Approximate Dollar | |
| | | | | | | | | Shares (or | | | Value) of Shares | |
| | | Total | | | | | | Units)Purchased | | | (or Units) that | |
| | | Number of | | | Average | | | As Part of | | | May Yet Be | |
| | | Shares (or Units) | | | Price Paid Per Share | | | Publicly Announced Plans | | | Purchased Under The Plans or | |
| Period | | Purchased | | | (or Unit) | | | or Programs | | | Programs | |
| | | | | | | | | | | | | |
| November 30 – December 28 | | | 0 | | | | - | | | | 0 | | | | | |
| | | | | | | | | | | | | | | | | |
| December 29 – January 28 | | | 0 | | | | - | | | | 0 | | | | | |
| | | | | | | | | | | | | | | | | |
| January 29 – February 28 | | | 0 | | | | - | | | | 0 | | | | | |
| | | | | | | | | | | | | | | | | |
| Total | | | 0 | | | | - | | | | 0 | | | | 2,000,000 | (a) |
Maximum Number (or
Total Number | (a) | Aggregate number of Approximate Dollar
Shares (or Value) of Shares
Total Units) Purchasedshares available to be purchased by the Company pursuant to a 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 Units) that
Number of Average As Part of May Yet Be
Shares (or Price Paid Publicly Purchased Under
Units) Per Share Announced Plans The Plans or
Period Purchased (or Unit) or Programs Programs
- ----------------------- ---------- ----------- ---------------- ------------------
November 27 -
December 31 0 - 0
January 1-28 0 - 0
January 29 -
February 25 0 - 0
Total 0 - 0 2,000,000(a)
in privately negotiated transactions. |
(a) Aggregate number of shares available to be purchased by the
Company pursuant to a 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 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, related Notes, and Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the five fiscal years ended February 25, 200728, 2010 and is as of the end of such periods, it is derived from the Consolidated Financial Statements for the threefive fiscal years ended February 25, 200728, 2010 and as of such dates audited by Grant Thornton LLP, independent auditor, and from the Consolidated Financial
Statements for the two fiscal years ended February 29, 2004 and as of such dates
audited by Ernst & Young LLP, independent auditor.registered public accounting firm. The Consolidated Financial Statements as of February 25, 200728, 2010 and February 26, 2006March 1, 2009 and for the three years ended February 25, 2007,28, 2010, together with the independent auditor'sauditor’s report for the three years ended February 25, 2007,28, 2010, appear in Item 8 of Part II of this Report.
| | | Fiscal Year Ended | |
| | | (In thousands, except per share amounts) | |
| | | February 28, 2010 | | | March 1, 2009 | | | March 2, 2008 | | | February 25,
2007 | | | February 26, 2006 | |
| | | | | | | | | | | | | | | | |
| STATEMENTS OF EARNINGS INFORMATION: | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net sales | | $ | 175,686 | | | $ | 200,062 | | | $ | 241,852 | | | $ | 257,377 | | | $ | 222,251 | |
| Cost of sales | | | 124,084 | | | | 156,638 | | | | 179,398 | | | | 193,270 | | | | 167,650 | |
| Gross profit | | | 51,602 | | | | 43,424 | | | | 62,454 | | | | 64,107 | | | | 54,601 | |
| Selling, general and administrative expenses | | | 24,480 | | | | 24,806 | | | | 27,159 | | | | 26,682 | | | | 25,129 | |
| Insurance arrangement termination charge | | | - | | | | - | | | | - | | | | 1,316 | | | | - | |
| Asset impairment charge | | | - | | | | 3,967 | | | | - | | | | - | | | | 2,280 | |
| Realignment and severance charges (Note 12) | | - | | | | 2,290 | | | | 1,362 | | | - | | | | 889 | |
| Earnings from operations | | | 27,122 | | | | 12,361 | | | | 33,933 | | | | 36,109 | | | | 26,303 | |
| Interest and other income, net | | | 1,062 | | | | 6,648 | | | | 9,361 | | | 8,033 | | | 6,056 | |
| Earnings from continuing operations before income taxes | | | 28,184 | | | | 19,009 | | | | 43,294 | | | | 44,142 | | | | 32,359 | |
| Income tax provision from continuing operations | | | 2,825 | | | | 495 | | | | 8,615 | | | 4,351 | | | 5,484 | |
| Net earnings from continuing operations | | | 25,359 | | | | 18,514 | | | | 34,679 | | | | 39,791 | | | | 26,875 | |
| Gain from discontinued operations (Note 11) | | - | | | | 16,486 | | | - | | | - | | | - | |
| Net earnings | | $ | 25,359 | | | $ | 35,000 | | | $ | 34,679 | | | $ | 39,791 | | | $ | 26,875 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1.24 | | | $ | 0.90 | | | $ | 1.71 | | | $ | 1.97 | | | $ | 1.34 | |
| Gain from discontinued operations | | - | | | | 0.81 | | | - | | | - | | | - | |
| Basic earnings per share | | $ | 1.24 | | | $ | 1.71 | | | $ | 1.71 | | | $ | 1.97 | | | $ | 1.34 | |
| | | | | | | | | | | | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1.23 | | | $ | 0.90 | | | $ | 1.70 | | | $ | 1.96 | | | $ | 1.33 | |
| Gain from discontinued operations | | - | | | | 0.81 | | | - | | | - | | | - | |
| Diluted earnings per share | | $ | 1.23 | | | $ | 1.71 | | | $ | 1.70 | | | $ | 1.96 | | | $ | 1.33 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash dividends per common share | | $ | 0.36 | | | $ | 0.32 | | | $ | 1.82 | | | $ | 1.32 | | | $ | 1.32 | |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 20,522 | | | | 20,441 | | | | 20,305 | | | | 20,175 | | | | 20,047 | |
| Diluted | | | 20,547 | | | | 20,486 | | | | 20,364 | | | | 20,317 | | | | 20,210 | |
| | | | | | | | | | | | | | | | | | | | | |
| BALANCE SHEET INFORMATION: | | | | | | | | | | | | | | | | | | | | |
| Working capital | | $ | 261,036 | | | $ | 239,645 | | | $ | 239,060 | | | $ | 233,767 | | | $ | 214,934 | |
| Total assets | | | 343,104 | | | | 327,579 | | | | 327,407 | | | | 321,922 | | | | 311,312 | |
| Long-term debt | | | - | | | | - | | | | - | | | | - | | | | - | |
| Stockholders' equity | | | 316,098 | | | | 295,709 | | | | 269,172 | | | | 264,167 | | | | 245,423 | |
See Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
Fiscal Year Ended
------------------------------------------------------------------------
(In thousands, except per share amounts)
February 25, February 26, February 27, February 29, March 2,
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
STATEMENTS| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF EARNINGS INFORMATION:
Net sales $ 257,377 $ 222,251 $ 211,187 $ 194,236 $ 195,578
Cost of sales 193,270 167,650 167,937 161,536 168,921
------------ ------------ ------------ ------------ ------------
Gross profit 64,107 54,601 43,250 32,700 26,657
Selling, general and
administrative expenses 26,682 25,129 26,960 27,962 27,157
Insurance arrangement
termination charge 1,316 - - - -
Asset impairment charge - 2,280 - - 49,035
Restructuring and severance
charges (Note 11) - 889 625 8,469 4,794
Gain on insurance settlement
(Note 12) - - (4,745) - -
Gain on sale of DPI - - - - (3,170)
Gain on sale of UK real estate - - - (429) -
Gain on Delco lawsuit - - - (33,088) -
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 36,109 26,303 20,410 29,786 (51,159)
Interest and other income, net 8,033 6,056 3,386 2,958 3,260
------------ ------------ ------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes 44,142 32,359 23,796 32,744 (47,899)
Income tax provision (benefit)
from continuing operations 4,351 5,484 2,191 2,835 (4,035)
------------ ------------ ------------ ------------ ------------
Earnings (loss) from continuing
operations 39,791 26,875 21,605 29,909 (43,864)
Loss from discontinued
operations, net of taxes
(Note 10) - - - (33,761) (6,895)
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ 39,791 $ 26,875 $ 21,605 $ (3,852) $ (50,759)
============ ============ ============ ============ ============
Basic earnings (loss) per
share:
Earnings (loss) from continuing
operations $ 1.97 $ 1.34 $ 1.09 $ 1.51 $ (2.23)
Loss from discontinued
operations, net of tax - - - (1.71) (0.35)
------------ ------------ ------------ ------------ ------------
Basic earnings (loss) per share $ 1.97 $ 1.34 $ 1.09 $ (0.20) $ (2.58)
============ ============ ============ ============ ============
Diluted earnings (loss) per
share:
Earnings (loss) from continuing
operations $ 1.96 $ 1.33 $ 1.08 $ 1.50 $ (2.23)
Loss from discontinued
operations, net of tax - - - (1.69) (0.35)
------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per
share $ 1.96 $ 1.33 $ 1.08 $ (0.19) $ (2.58)
============ ============ ============ ============ ============
Cash dividends per common share $ 1.32 $ 1.32 $ 1.26 $ 0.24 $ 0.24
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding:
Basic 20,175 20,047 19,879 19,754 19,674
Diluted 20,317 20,210 20,075 19,991 19,674
BALANCE SHEET INFORMATION:
Working capital $ 233,767 $ 214,934 $ 206,714 $ 197,453 $ 170,274
Total assets 321,922 311,312 307,311 311,070 301,542
Long-term debt - - - - -
Stockholders' equity 264,167 245,423 242,857 243,896 245,701
See Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
24
ITEM 7. 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 markets high technologysells high-technology digital and RF/microwave printed circuit materials and advanced composite materialsproducts principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials products and composite parts and assemblies products principally for the aerospace markets. Park’s core capabilities are in the areas of polymer chemistry formulation and coating technology. Park also specializes in the design and manufacture of complex composite aircraft and space vehicle parts. The Company'sCompany’s manufacturing facilities are located in Singapore, China, France, Connecticut, New York,Kansas, Arizona, California and California. Washington.
The Company's productscomparisons of the Company’s results of operations for its 2009 fiscal year ended March 1, 2009 to the Company’s results of operations for its 2008 fiscal year ended March 2, 2008 are marketed and sold underimpacted by the Nelco(R) and Nelcote(TM) names.
The global electronics manufacturing industry, which had become
extremely and unsustainably overheated in the 1990s and into calendar year 2000,
collapsed in calendar year 2001, and has not recovered since that collapse. The
Company believesfacts that the industry has become a mature industry,2008 fiscal year consisted of 53 weeks and the Company
does not expect significant non-cyclical, sustainable growth from that industry
in the future.
2009 fiscal year consisted of 52 weeks.
The Company'sCompany’s total net sales increaseddeclined in the fiscal year ended February 25,
200728, 2010 compared withto the fiscal year ended February 26, 2006March 1, 2009 as a result of increasesdecreases in sales of the Company'sCompany’s printed circuit materials products in North America, and Asia and increasesEurope, following a decline in the Company’s total net sales in the fiscal year ended March 1, 2009 compared to the fiscal year ended March 2, 2008 as a result of decreases in sales of the Company's advanced composite materials,
and the Company achieved higher operating profits and higher net earnings in the
2007 fiscal year compared with the 2006 fiscal year.
The Company's net earnings for the fiscal year ended February 25, 2007
were increased by a tax benefit of $0.7 million recorded by the Company in the
2007 fiscal year fourth quarter relating to the recognition of tax credits
resulting from operating losses sustained in prior years in France and by tax
benefits recognized by the Company in the 2007 fiscal year second quarter of
$3.5 million relating to the elimination of certain valuation allowances
previously established relating to deferred tax assets in the United States,
$1.4 million relating to the elimination of reserves no longer required as the
result of the completion of a tax audit and $0.5 relating to the termination of
a life insurance arrangement with Jerry Shore, the Company's founder and former
Chairman, President and Chief Executive Officer, and such net earnings were
reduced by a pre-tax charge of $1.3 million recorded by the Company in the 2007
fiscal year second quarter relating to the termination of such insurance
arrangement.
The Company's net earnings for the fiscal year ended February 26, 2006
were reduced by a tax charge of $3.1 million recorded in the fourth quarter in
connection with the repatriation of approximately $70 million of accumulated
earnings and profits of the Company's Nelco Products Pte. Ltd. subsidiary in
Singapore, a pre-tax asset impairment charge of $2.3 million recorded in the
fourth quarter for the write-off of construction costs related to the
installation of a treater at the Company's Neltec Europe SAS facility in
Mirebeau, France and a pre-tax employment termination benefits charge of $0.9
million related to a workforce reduction at the Company's Neltec Europe SAS
facility recorded in the 2006 fiscal year first quarter, and such net earnings
were increased by a tax benefit of $1.5 million recognized by the Company in the
2006 fiscal year third quarter relating to the elimination of valuation
allowances against deferred tax assets recorded in the United States in prior
periods.
25
The improvement in the Company's operating performance during the 2007
fiscal year was attributable principally to increases in total sales of the
Company'sCompany’s printed circuit materials products in all three regions.
While the decrease in sales of the Company’s printed circuit materials products in the 2010 fiscal year was accompanied by decreases in sales of the Company’s advanced composite materials products and its composite parts and assemblies products in the 2010 fiscal year compared to the 2009 fiscal year, the decrease in sales of the Company’s printed circuit materials products in the 2009 fiscal year was partially offset by an increase in sales of the Company’s advanced composite materials products in the 2009 fiscal year compared to the 2008 fiscal year and by the addition of sales of the Company’s advanced composite parts and assemblies products as a result of the Company’s acquisition of the composite parts and assemblies business of Nova Composites in Lynnwood, Washington in the 2009 fiscal year first quarter.
Despite the declines in the Company’s total net sales in the 2010 fiscal year compared to the 2009 fiscal year, the Company’s earnings from operations in the 2010 fiscal year were higher than in the 2009 fiscal year as the Company’s gross profit margins, measured as percentages of sales, improved to 29.4% in the 2010 fiscal year compared to 21.7% in the 2009 fiscal year. The Company’s operating and earnings performances during the 2010 fiscal year benefited from higher percentages of sales of higher margin, high performance printed circuit materials products. This
improvement occurred in spiteduring the 2010 fiscal year and lower costs resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of significant increasesthe New England Laminates Co., Inc. and Neltec Europe SAS business units in the cost of copper
foil, one of the Company's primary raw materials,2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the first and second
quarters2010 fiscal year were partially offset by costs incurred at the Company’s Park Aircraft
Technologies Corp. business unit in Newton, Kansas in connection with the start-up of its operation.
The Company’s net earnings for the 20072010 fiscal year were lower than its net earnings for the 2009 fiscal year as a result of the Company was able to pass a substantial
portion of such increases through to its customerslower net sales in the second, third2010 fiscal year and fourth quartersthe significantly lower interest income in the 2010 fiscal year than in the 2009 fiscal year, and the Company’s net earnings for the 2009 fiscal year were significantly increased by the discontinued operations benefit of $16.5 million described elsewhere in this Discussion.
As a result of the 2007declines in the Company’s total net sales in the 2009 compared to the 2008 fiscal year, the Company’s earnings from continuing operations were lower in the 2009 fiscal year than in the 2008 fiscal year.
The conditionsignificant decreases in sales of the global markets for the Company's printed circuit materials products, improvedcombined with, among other things, substantial losses at the Company’s Neltec Europe SAS electronic materials business unit in Mirebeau, France, resulted in lower gross profits and lower earnings from continuing operations in the second half of the 2006 fiscal year; and that
improvement continued in the first nine months of the 2007 fiscal year, although
such markets weakened in the 2007 fiscal year fourth quarter. Consequently,
sales of the Company's printed circuit materials products increased in the 20072009 fiscal year compared to the 20062008 fiscal year. The declines in the Company’s operating and earnings performances during the 2009 fiscal year compared to the 2008 fiscal year were partially offset by higher percentages of sales of higher margin, high performance printed circuit materials and advanced composite materials products during the 2009 fiscal year and by the benefits resulting from the restructurings of the Company’s Neltec Europe SAS and Neltec SA business units in the 2008 fiscal year and from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion.
The Company’s net earnings for the 2010 fiscal year were impacted by a tax benefit of $3.1 million for the reduction of certain deferred tax liabilities in Singapore related to a temporary tax incentive for offshore interest repatriation and by $1.2 million of additional tax reserves in the United States, both recorded in the fourth quarter of the 2010 fiscal year. Such earnings were also impacted by a $0.9 million tax benefit primarily for a retroactive extension of a development and expansion tax incentive in Singapore, recorded in the third quarter of the 2010 fiscal year.
The Company’s net earnings for the 2009 fiscal year were significantly increased by a discontinued operations benefit of $16.5 million recorded by the Company in the 2009 fiscal year fourth quarter related to the elimination of a liability from discontinued operations of the Company’s Dielektra GmbH subsidiary located in Germany as a result of certain legal proceedings in Germany. The Company’s earnings were also increased by a tax benefit of $4.7 million recorded by the Company in the 2009 fiscal year fourth quarter related to the adjustment of certain valuation allowances and by a tax benefit of $1.2 million recorded by the Company in the 2009 fiscal year fourth quarter related to one-time pre-tax charges also recorded by the Company in such quarter for the aforementioned closure of the Company’s New England Laminates Co., Inc. business unit and the closure of the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and for a workforce reduction and an asset impairment at the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore. Such benefits were partially offset by the one-time pre-tax charges of $5.7 million recorded by the Company in the 2009 fiscal year fourth quarter related to the aforementioned business unit
closures, workforce reduction and asset impairment and by a one-time pre-tax charge of $0.6 million recorded by the Company in the 2009 fiscal year third quarter related to restructurings at certain of its North American and European business units.
The Company’s net earnings for the fiscal year ended March 2, 2008 were increased by a tax benefit of $1.5 million recorded by the Company in the 2008 fiscal year fourth quarter resulting from the reduction of tax reserves in the United States related to transfer pricing and were reduced by a charge of $1.4 million recorded by the Company in the 2008 fiscal year fourth quarter for employment termination benefits and other expenses related to a restructuring and workforce reduction at the Company’s Neltec Europe SAS business unit.
The markets for the Company’s printed circuit materials products have contracted from the levels that existed in the 2008 fiscal year. Consequently, sales of the Company’s printed circuit materials products decreased in the 2010 fiscal year compared to the 2009 fiscal year and in the 2009 fiscal year compared to the 2008 fiscal year. However, the weakness that
occurredmarkets in the marketsNorth America, Asia and Europe for the Company'sCompany’s printed circuit materials products strengthened in the 20072010 fiscal year third and fourth quarter has continued intoquarters after prevailing weakness in the 20082010 fiscal year first quarter.and second quarters. The markets for the Company'sCompany’s advanced composite materials, parts and assemblies products weakened during the 2009 fiscal year third and fourth quarters, and such weakness continued to beduring the 2010 fiscal year. The markets for the Company’s advanced composite materials, parts and assemblies were relatively strong during the 2007first half of the 2009 fiscal year, and sales of the Company'sCompany’s advanced composite materials products increased in the 20072009 fiscal year compared to the prior2008 fiscal year.
year principally as a result of the Company’s marketing and sales efforts.
The global markets for the Company'sCompany’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'sCompany’s printed circuit materials products will be in the 20082011 fiscal year. TheFurther, the Company believes thatis not able to predict the impact the current global financial and credit conditions will have on the markets for its advanced composite materials, will continue to be strong duringparts and assemblies products in the 20082011 fiscal year.
In
As previously reported, in the first quarter of the 2007Company’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 composite parts and assemblies and the tooling for such parts and assemblies, located in Lynnwood, Washington, for a cash purchase price of $4.5 million paid at the closing of the acquisition and up to an additional $5.5 million payable over five years depending on the achievement of specified earn-out objectives. The Company paid an additional $1.0 million in the 2010 fiscal year second quarter, leaving up to an additional $4.4 million payable over four years depending on the achievement of the earn-out objectives.
In addition, in the fourth quarter of the Company’s 2009 fiscal year, the Company completed the construction of a new development and manufacturing facility in the Zhuhai Free Trade Zone in
Guangdong Province in southern China to support the demand for advanced printed
circuit materials in China, and the Company is in the process of equipment
testing, employee training and internal and external qualifications for the
facility. In addition, the Company upgraded its printed circuit materials
treating operation in Singapore during the 2007 fiscal year third quarter so
that such operation is capable of treating the Company's full line of advanced
printed circuit materials in Singapore, except polytetrafluoroethylene ("PTFE")
materials, and during the 2005 fiscal year, the Company installed one of its
latest generation, high-technology treaters in its newly expanded facility in
Singapore.
In the third quarter of the 2007 fiscal year, the Company acquired a
facility in Singapore which the Company is modifying and expanding for use as a
new advanced composites manufacturing plant. The Company is also in the final
stages of planning the construction of a new plant in the Untied StatesNewton, Kansas to produce advanced composite materials principally for the aerospace industry.aircraft and space vehicle industries. The Company spent approximately $15 million on the facility and equipment in Kansas. In addition, during the 2006second quarter of the Company’s 2010 fiscal year, second quarter, the Company completedannounced plans
for the installationmajor expansion of an additional large treater at 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 approximately $5 million on the expansion.
In the fourth quarter of the 2009 fiscal year, the Company recorded a discontinued operation benefit of $16.5 million related to the elimination of a liability from discontinued operations of the Company’s Dielektra GmbH subsidiary located in Germany as a result of certain legal proceedings in Germany.
In the fourth quarter of the 2008 fiscal year, the Company opened its new advanced composite materials facilitymanufacturing plant in Waterbury, Connecticut,Singapore, which has significantly increasedit had acquired in the treating capacity2007 fiscal year and modified and expanded for use as a composite materials manufacturing plant.
As previously reported, the Company discontinued its participation in the bidding for certain of that facility.
the assets and business of Columbia Aircraft Manufacturing Corporation (“Columbia”) in an auction conducted in the United States Bankruptcy Court for the District of Oregon in Portland, Oregon on November 27, 2007 and incurred approximately $0.5 million in out-of-pocket expenses relating to its extensive due diligence investigation of Columbia in Bend, Oregon and elsewhere, all of which was expensed in the 2008 fiscal year third quarter ended November 25, 2007.
In the fourth quarter of the 2008 fiscal year, the Company also recorded a tax benefit of $1.5 million relating to the reduction of tax reserves in the United States related to transfer pricing.
While the Company continuedcontinues to expand and invest in its business, during
the 2007 and 2006 fiscal years, it also has made additional adjustments to onecertain of its operations, which resulted in workforce reductions and plant closures.
In the 2008 fiscal year fourth quarter, the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France, completed a restructuring of its operations and a reduction of its workforce in response to the continuing erosion of the markets for electronic materials in Europe and the continuing migration of such markets to Asia, and the Company recorded a one-time charge of approximately $1.4 million in such quarter for employment termination benefits and other expenses resulting from such restructuring and workforce reduction. In addition, in the 2006 fiscal year,
first and second quarters, the Company reduced the size of the workforce at
26
its Neltec Europe SAS subsidiary in Mirebeau, Francebusiness unit as a result of further deterioration of the European market for high-technology printed circuit materials, and it recorded an employment termination benefits charge of $1.1
million duringmaterials.
Despite the 2006 fiscal year first quarter, $0.2 million of which was
reversedrestructurings implemented in the 2006 and 2008 fiscal years, Neltec Europe SAS generated significant operating losses in the second and third quarters of the 2009 fiscal year. In the 2009 fiscal year fourth quarter. quarter, Neltec Europe SAS and the Company’s Neltec SA electronic materials business unit located in Lannemezan, France completed restructurings of their operations in response to the continuing serious erosion of the markets for electronic materials in Europe and the continuing migration of such markets to Asia. The market for such products in Europe had eroded to the point where the Company believed it was not possible for the Neltec Europe SAS business to be viable, and as a major component of such restructurings, Neltec Europe SAS closed completely its operations. Although the Company is
continuing the operations of its Neltec SA RF/microwave electronic materials business unit, the restructuring included a reorganization of certain of the activities of Neltec SA. The Company implemented the plant closure and recorded a one-time pre-tax charge of $4.1 million, reduced by $4.0 million of non-cash cumulative currency translation adjustment recapture, in the fourth quarter of the Company’s 2009 fiscal year.
In addition duringto the 2005restructurings of its Neltec Europe SAS and Neltec SA business units in France, the Company implemented workforce reductions at its Nelco Products, Inc. electronic materials business unit located in Fullerton, California and its Neltec, Inc. electronics circuitry materials business unit located in Tempe, Arizona in the third quarter of its 2009 fiscal year the Company reduced the sizes of the workforces at its North
American and European printed circuit materials operations, asrecorded a result of which
the Company recorded pre-tax chargescharge of $0.6 million in such quarter for such workforce reductions and for the 2005restructuring at its Neltec SA business unit in Lannemezan, France.
In addition, in the 2009 fiscal year third quarter.
In the 2005 fiscal year thirdfourth quarter, the Company also settled an
insurance claim for property and business interruption losses sustained by the
Company in Singapore asimplemented a result of an explosion in one of the four treaters
locatedworkforce reduction at its Nelco manufacturing facilityProducts Pte. Ltd. electronics circuitry materials and advanced composite materials business unit located in Singapore and recorded a pre-tax
gaincharge of $4.7$0.2 million in the fourth quarter of the 2009 fiscal year for such workforce reduction.
Also, in the 2009 fiscal year fourth quarter, the Company’s New England Laminates Co., Inc. electronic materials business unit located in Newburgh, New York closed its operations in response to the very serious erosion of the markets for electronic materials in North America, and as athe result of this closure, the settlement.
Company recorded a one-time pre-tax charge of $1.2 million in the fourth quarter of the 2009 fiscal year.
Since the closures of the Neltec Europe SAS and New England Laminates Co., Inc. business units, the Company has been supplying and supporting customers of such business units from the Company’s electronic materials operations in Fullerton, California, Tempe, Arizona and Lannemezan, France.
The Company believes thattotal one-time pre-tax charges related to the restructurings of the Company’s Neltec Europe SAS and Neltec SA business units in the 2009 fiscal year, the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and the Neltec Europe SAS business units, all described above, and related to 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, which
include special items, such as the tax benefits, the earnings repatriation tax
charge, the asset impairment charge,at the insurance arrangement termination
charge andCompany’s business unit in Singapore recorded by the employment termination benefits chargeCompany in the 2007 and 20062009 fiscal years. Accordingly, in addition to disclosing its financial results
determined in accordance with GAAP,year were $6.3 million, net of the recapture of non-cash cumulative currency translation adjustments totaling $4.0 million recognized by the Company discloses non-GAAP operating
results that exclude special items in orderthe 2009 fiscal year fourth quarter relating to assist its shareholders and other
readers in assessing the Company's operating performance, sinceclosure of the Company's
on-going, normalNeltec Europe SAS business operations do not include such special items. Such
non-GAAP financial measures are provided to supplement the results provided in
accordance with GAAP.
unit.
Fiscal Year 20072010 Compared with Fiscal Year 2006:
2009:
The Company'sCompany’s total net sales of both its printed circuit materials and its
advanced composite materials increasedworldwide declined in the fiscal year ended February 25,
200728, 2010 compared to the fiscal year ended February 26, 2006, following increasesMarch 1, 2009 principally as a result of declines in suchnet sales of the Company’s printed circuit materials products in North America, Europe and Asia.
The Company’s net sales of its advanced composite materials products also declined in the 20062010 fiscal year compared to the 20052009 fiscal year, while net sales of the Company’s composite parts and assemblies products increased in the 2010 fiscal year. Total net sales of the Company’s advanced composite
materials products and its composite parts and assemblies products comprised 13% of the Company’s total net sales worldwide in both the 2010 and 2009 fiscal years.
The increased sales in the 2007 fiscal yearCompany’s gross profit and a slight improvement in
the Company'sits gross profit margin improved in the 2007 fiscal year, following substantial
improvements in the 20062010 fiscal year compared to the 20052009 fiscal year andyear. The gross profit margin improved to 29.4% in the 20052010 fiscal year compared to 21.7% in the 20042009 fiscal year enabled the Company's
operations to generate a larger gross profit than in the prior fiscal year.
The Company's gross profit in the 2007 fiscal year was substantially
higher than the gross profit in the prior fiscal year primarilyprincipally as a result of increased total sales of printed circuit materials products and higher percentages of sales by the Company of its higher margin, high performance printed circuit materials products.
Salesproducts in the 2010 fiscal year and the benefits resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the Company's advanced composite materials products also
increasedNew England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the 20072010 fiscal year primarily aswere partially offset by costs incurred at the Company’s Park Aircraft Technologies Corp. business unit in Newton, Kansas in connection with the start-up of its operations.
The Company’s net earnings for the 2010 fiscal year were impacted by a resulttax benefit of $3.1 million for the reduction of certain deferred tax liabilities in Singapore related to a temporary tax incentive for offshore interest repatriation and by $1.2 million of additional tax reserves in the United States, both recorded in the fourth quarter of the strength2010 fiscal year. Such earnings were also impacted by a $0.9 million tax benefit primarily for a retroactive extension of a development and expansion tax incentive in Singapore, recorded in the third quarter of the aerospace markets for advanced composite materials. Sales of advanced
composite materials were 8% of the Company's total net sales worldwide2010 fiscal year.
The Company’s earnings in the 2007 and 20062009 fiscal years.
The Company's financial results of operationsyear were enhanced by thea tax benefit of $0.7$4.7 million recorded by the Company in the 20072009 fiscal year fourth quarter related to the adjustment of certain valuation allowances and by a tax benefit of $1.2 million recorded by the Company in the 2009 fiscal year fourth quarter related to one-time pre-tax charges also recorded by the Company in such quarter for the recognitionaforementioned closure of tax credits resulting from operating losses
sustainedthe Company’s New England Laminates Co., Inc. business unit and the closure of the Company’s Neltec Europe SAS electronic materials business unit located in prior years inMirebeau, France and for a workforce reduction and an asset impairment at the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore. Such benefits were offset by the tax benefitsone-time pre-tax charges of $5.7 million recorded by the Company in
27
the 20072009 fiscal year secondfourth quarter related to the aforementioned business unit closures, workforce reduction and asset impairment and a one-time pre-tax charge of $3.5$0.6 million relatingrecorded by the Company in the 2009 fiscal year third quarter related to restructurings at certain of its North American and European business units.
The Company’s net earnings in the 2009 fiscal year were also significantly increased by a discontinued operations benefit of $16.5 million recorded by the Company in the 2009 fiscal year fourth quarter related to the elimination of certain valuation allowances previously established related to deferred tax
assets in the United States, $1.4 million relating to the elimination of
reserves no longer required as the resulta liability from discontinued operations of the completion of a tax audit and
$0.5 million relating to the termination of a life insurance agreement with
Jerry Shore, the Company's founder and former Chairman, President and Chief
Executive Officer, which benefits were partially offset by a pre-tax charge of
$1.3 millionCompany’s Dielektra GmbH subsidiary located in the second quarter relating to the termination of the insurance
agreement with Jerry Shore.
Germany.
Results of Operations
Net
The Company’s total net sales worldwide for the fiscal year ended February 25, 2007 increased 16%28, 2010 declined 12% to $257.4$175.7 million from $222.3$200.1 million for the fiscal year ended February 26, 2006.March 1, 2009. The increasedecline in net sales was the result of increaseddecreased sales byof the Company's
operationsCompany’s printed circuit materials in North America,
Europe and Asia and decreased sales of the Company’s advanced composite materials, parts and assemblies, which were only partially offset by increased sales of the Company'sCompany’s high technologyperformance printed circuit materials and advanced composite materials.
The Company's foreign operations accounted for $117.0sales were $88.3 million, of sales,
or 45%50% of the Company's total net sales worldwide, during the 20072010 fiscal year, compared with $97.9to $96.3 million of sales, or 44%48% of total net sales worldwide, during the 20062009 fiscal year and 45%50% of total net sales worldwide during the 20052008 fiscal year. Sales by theThe Company's foreign operationssales during the 20072010 fiscal year increased 20%decreased 8% from the 20062009 fiscal year primarily as a result of increasesdecreases in sales by the Company's operations in Singapore.
Europe and Asia.
For the fiscal year ended February 25, 2007,28, 2010, the Company'sCompany’s sales in North America, Asia and Europe were 55%50%, 32%40% and 13%10%, respectively, of the Company'sCompany’s total net sales worldwide compared with 56%52%, 29%37% and 15%11%, respectively, for the fiscal year ended February 26, 2006.March 1, 2009. The Company'sCompany’s sales in Asia increased 29%Europe declined 19%, its sales in North America increased 13%declined 16% and its sales in Europe increased 1%Asia declined 5% in the 20072010 fiscal year overcompared to the 20062009 fiscal year.
The overall gross profit as a percentage of net sales for the Company's worldwide operations improved to 24.9%29.4% during the 20072010 fiscal year compared with
24.6%to 21.7% during the 20062009 fiscal year. The improvement in the gross profit margin was attributable primarily to increased sales and higher percentages of sales of higher margin, high performance printed circuit materials.
materials products and advanced composite materials, parts and assemblies in the 2010 fiscal year and the benefits resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. The gross profit margin improvement during the 2010 fiscal year was partially offset by costs incurred at the Company’s Park Aircraft Technologies Corp. business unit in Newton, Kansas in connection with the start-up of its operations.
During the fiscal yearyears ended February 25, 2007,28, 2010 and March 1, 2009, the Company'sCompany’s total net sales worldwide of high temperature printed circuit materials, which included high performance materials (non-FR4 printed circuit materials), were 97%100% of the Company'sCompany’s total net sales worldwide of printed circuit materials, compared with
96% for last fiscal year.
materials.
The Company'sCompany’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"triazine (“BT”) materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, quartz reinforced materials, and polytetrafluoroethylene ("PTFE")PTFE and modified epoxy materials for RF/microwave systems that operate at frequencies up to 77GHz.
During the fiscal year ended February 25, 2007,28, 2010, the Company'sCompany’s total net sales worldwide of high performance printed circuit materials (non-FR4 printed circuit materials) were 42%69% of the Company'sCompany’s total net sales worldwide of printed circuit materials, compared with 39%61% for last fiscal year.
28
The Company'sCompany’s cost of sales increaseddecreased by 15%21% in the 20072010 fiscal year from the 20062009 fiscal year as a result of higherlower sales and higherlower production volumes in the 20072010 fiscal year than in the 20062009 fiscal year and as a result of
significant increases in year. Consequently,
the cost of copper foil, although a substantial portion
of the increases in the cost of copper foil was passed on to customers. However,
the Company'sCompany’s cost of sales as a percentage of net sales decreased slightlyto 70.6% in the 20072010 fiscal year from 78.3% in the 2009 fiscal year resulting in a gross profit margin increase from 21.7% to 29.4%, which was attributable to higher percentages of sales of higher margin, high performance printed circuit materials products and advanced composite materials, parts and assemblies in the 2010 fiscal year and the benefits resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the 2010 fiscal year were partially offset by costs incurred at the Company’s Park Aircraft Technologies Corp. business unit in Newton, Kansas in connection with the start-up of its operations.
Selling, general and administrative expenses decreased by $0.3 million, or by 1%, during the 2010 fiscal year compared to the prior year resulting in a slight gross
profit percentage improvement, which was attributable to cost containment
measures implemented by the Company, including workforce reductions.
Selling, general and administrative expenses increased by $1.6 million,
or by 6%, during the 2007 fiscal year compared with the 2006 fiscal year as a
result of higher sales in the 20072009 fiscal year, but these expenses, measured as a percentage of sales, were 10.4%14.0% during the 20072010 fiscal year compared with
11.3%to 12.4% during the 20062009 fiscal year. The decrease in such expenses in the 2010 fiscal year was attributable primarily to reduced costs in the 2010 fiscal year compared to the prior fiscal year resulting from the closures of the Neltec Europe SAS and New England Laminates Co., Inc. business units. The higher percentage in the 2010 fiscal year was the result of lower sales in such year. Selling, general and administrative expenses included $1.3$1.1 million for the 20072010 fiscal year for stock option expenses whichcompared to $1.2 million for the Company recorded pursuant to Statement of Financial Accounting Standards
123(R). No such stock option expenses were recorded in the 2006 and 20052009 fiscal years, prior to the adoption of Statement of Financial Accounting Standards
123(R).
year.
In the 20072009 fiscal year fourth quarter, the Company recorded one-time pre-tax charges of $5.7 million related to the closure of the Company’s New England Laminates Co., Inc. electronic materials business unit located in Newburgh, New York and the closure of the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and related to a workforce reduction and an asset impairment at the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore, and recognized tax benefits of $1.2 million related to these charges and a tax benefit of $0.7$4.7 million relatingrelated to the recognitionelimination of tax creditsvaluation allowances resulting principally from operating losses sustained in prior years in France.the aforementioned closure of the Company’s New England Laminates Co., Inc. business unit. In the 20072009 fiscal year secondthird quarter, the Company recorded a pre-tax charge of $1.3$0.6 million in
connection with the termination of a life insurance arrangement with Jerry
Shore, the Company's founder and former Chairman, President and Chief Executive
Officer, and recognized a tax benefit of $0.5 million relating to this insurance
termination charge. The termination of the insurance arrangement involved a
payment of $1.3 million by the Company to Mr. Shore in January 2007, which
resulted in a net cash cost to the Company of $0.7 million, after the Company's
receipt of a portion of the cash surrender value of the insurance policies.
During the 2007 fiscal year second quarter, the Company also recognized a tax
benefit of $3.5 million relating to the elimination of certain valuation
allowances previously established relating to deferred tax assets in the United
States and a tax benefit of $1.4 million relating to the elimination of reserves
no longer required as the result of the completion of a tax audit.
In the 2006 fiscal year fourth quarter, the Company recorded a tax
charge of $3.1 million in connection with the repatriation of approximately $70
million of accumulated earnings and profits of its subsidiary in Singapore, a
benefit of $0.2 million resulting from the reversal of a portion of the $1.1
charge in the 2006 fiscal year first quarter for employment termination benefits
relating to a workforce reduction at the Company's Neltec Europe SAS facility in
France and an asset impairment charge of $2.3 million for the write-off of
construction costs related to the installationrestructurings at certain of an advanced high-speed treater
at the Company's Neltec Europe SAS facility in Mirebeau, France. The treater,
which was installed at the Neltec Europe facility when theits North American and European business environment
in Europe was more suited for such a treater, has been moved to the Company's
manufacturing facility in Singapore. In the 2006 fiscal year third quarter, the
Company recognized a tax benefit of $1.5 million relating to the elimination of
certain valuation allowances previously established related to deferred tax
assets in the United States in prior periods; and in the 2006 fiscal year first
quarter, the Company recorded a charge of $1.1 million, for which there was no
tax benefit, for employment termination benefits resulting from a workforce
reduction at its Neltec Europe SAS facility in France, which was partially
offset by a reversal of $0.2 million in the 2006 fiscal year fourth quarter.
29
units.
For the reasons set forth above, the Company'sCompany’s earnings from operations for the 20072010 fiscal year were $27.1 million compared to earnings from continuing operations for the 2009 fiscal year, including the chargecharges described above relating to the terminationfacility closures and asset impairment and the restructurings at certain of the life insurance arrangement, were $36.1 million compared to
earnings from operations for the 2006 fiscal year, including the net charge
described above for employment termination benefits resulting from a workforce
reduction in FranceCompany’s North American and the asset impairment charge described above for the
write-offEuropean business units, of construction costs related to the installation of a treater in
France, were $26.3$12.4 million. The net impactsimpact of the charges described above werewas to decreaseincrease earnings from operations by $1.3$2.2 million for the 20072010 fiscal year and to decrease earnings from continuing operations by $3.2$6.3 million for the 20062009 fiscal year.
Interest and other income, net, principally investment income, increased 33%declined 84% to $8.0$1.1 million for the 20072010 fiscal year from $6.1$6.6 million for the 20062009 fiscal year. The increasedecline in investment income was attributable primarily to higherlower prevailing interest rates, and larger amountspartially offset by higher levels of cash available for investment, during the 20072010 fiscal year than during the 2009 fiscal year. The Company's investments were primarily in short-term taxable instruments.
instruments and money market funds. The Company incurred no interest expense during the 2007, 20062010, 2009 or 20052008 fiscal years. See "Liquidity and Capital Resources" elsewhere in this Item 7.
The Company's effective income tax rate was 9.9%10.0% for the 20072010 fiscal year compared to 17.0%2.6% for the 20062009 fiscal year. The Company'stax benefits and charges described above reduced the effective income tax rates by 10.0 and 22.8 percentage points in the 2010 and 2009 fiscal years, respectively. The Company’s effective income tax rate for continuing operations, excluding the tax benefits and the charges
described above, for the 20072010 fiscal year was 23.0% compared to 11.0%impacted by a tax benefit of $3.1 million for the 2006reduction of certain deferred tax liabilities in Singapore related to a temporary tax incentive for offshore interest repatriation and by $1.2 million of additional tax reserves in the United States, both recorded in the fourth quarter of the 2010 fiscal year. Such effective tax rate was also impacted by a $0.9 million tax benefit primarily for a retroactive extension of a development and expansion tax incentive in Singapore, recorded in the third quarter of the 2010 fiscal year.
The Company'sCompany’s net earnings for the 20072010 fiscal year, including the tax benefits described above, relating to the recognition of tax credits in France,
the termination of the life insurance arrangement, the elimination of certain
valuation allowances and the elimination of reserves no longer required and the
charge described above relating to the termination of the life insurance
arrangement, were $39.8$25.4 million compared to net earnings from continuing operations for the 20062009 fiscal year, including the tax charge described above in connection with the
repatriation of foreign earnings, the asset impairment and net employment
termination benefits charges described above and the tax benefitbenefits described above relatedrelating to the eliminationfacility closure and asset impairment charges and to the adjustment of valuation allowances, were $26.9of $18.5 million. The net impacts of the chargestax benefits and tax benefitscharges described above were to increase net earnings by $4.8$2.2 million for the 20072010 fiscal year and to decreaseincrease net earnings from continuing operations by $0.3 million for the 2009 fiscal year.
In the 2009 fiscal year fourth quarter, the Company also recorded a discontinued operations benefit of $16.5 million related to the elimination of a liability from discontinued operations of its Dielektra GmbH subsidiary located in Germany.
The Company’s net earnings for the 2010 fiscal year, including the tax benefits described above, were $25.4 million compared to net earnings for the 2009 fiscal year, including the charges and tax benefits described above and the discontinued operations benefit described above, of $35.0 million. The net impacts of the tax benefits and charges described above and the discontinued operations benefit described above were to increase net earnings by $4.8$2.2 million for the 20062010 fiscal year and to increase net earnings by $16.8 million for the 2009 fiscal year.
Basic and diluted earnings per share, including the charge and tax benefits described above, were $1.97$1.24 and $1.96 per share,$1.23, respectively, for the 20072010 fiscal year compared to basic and diluted earnings per share of $1.34 and
$1.33 per share, respectively,$1.71, including the charges and tax benefits described above and the discontinued operations benefit described above, for the 20062009 fiscal year. The net impacts of the charges and tax benefits described above were to increase the basic and diluted earnings per share by $0.24$0.81 for the 20072009 fiscal year and to decrease the basic and diluted earnings
per share by $0.24 for the 2006 fiscal year.
Fiscal Year 20062009 Compared with Fiscal Year 2005:
2008:
The Company'sCompany’s total net sales worldwide and its total net sales of both its printed circuit materials anddeclined, while its total net sales of its advanced composite materials and parts increased, in the fiscal year ended February 26,
2006March 1, 2009 compared to the fiscal year ended February 27, 2005, following increasesMarch 2, 2008 as a result of declines in suchnet sales of printed circuit materials in North America, Europe and Asia.
The reduced sales in the 20052009 fiscal year resulted in significantly lower gross profit and gross profit margin in the 2009 fiscal year than in the 2008 fiscal year, following a slight improvement in the Company’s gross profit margin in the 2008 fiscal year compared to the 20042007 fiscal year.
30
The increased sales in the 2006 fiscal year and a further improvement
in the Company's gross profit margin in the 2006 fiscal year, following a
substantial improvement in the 2005 fiscal year compared to the 2004 fiscal
year, enabled the Company's operations to generate a larger gross profit than in
the prior fiscal year.
The Company'sCompany’s gross profit in the 20062009 fiscal year was substantially higherlower than the gross profit in the prior fiscal year primarily as a result of increasedreduced total sales the Company's reductions of its costs and expenses andprinted circuit materials products, which were partially offset by higher percentages of sales by the Company of its higher margin, high technologyperformance printed circuit materials products and advanced composite materials. These improvements in gross profits
occurred despitematerials and parts and by the operating inefficienciesbenefits resulting from operating certain
facilities at levels below their designed manufacturing capacities and the competitive pressures that existedrestructuring of the Company’s Neltec Europe SAS business unit in the 20052008 fiscal year and persisted infrom the 2006 year.
The Company's financial results of operations were adversely affected
by the pre-tax asset impairment charge of $2.3 million that the Company recorded
in the 2006 fiscal year fourth quarter for the write-off of construction costs
related to the installation of a treaterworkforce reductions at the Company'sNelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS facility in Mirebeau, France in a prior year, the tax charge of $3.1 million
that the Company recordedbusiness units in the 20062009 fiscal year, fourth quarterall described elsewhere in connection
with the repatriation of approximately $70 million of accumulated earnings and
profits of its Nelco subsidiary in Singapore and the pre-tax charge of $1.1
million that the Company recorded in the 2006 fiscal year first quarter for
employment termination benefits resulting from a workforce reduction at its
Neltec Europe SAS printed circuit materials facility in Mirebeau, France, which
were only partially offset by the reversal in the 2006 fiscal year fourth
quarter of $0.2 million of the previous charge for employment termination
benefits at Neltec Europe SAS and by the tax benefit of $1.5 million that the
Company recognized in the 2006 fiscal year third quarter related to the reversal
of valuation allowances against deferred tax assets previously recorded in the
United States.
this Discussion.
Sales of the Company'sCompany’s advanced composite materials and parts increased during the 20062009 fiscal year primarily as a result of the strengthCompany’s marketing and sales efforts and the addition of sales of the aerospace
markets for advanceCompany’s advanced composite materials.parts as a result of the Company’s acquisition of the advanced composites parts manufacturing business of Nova Composites in Lynnwood, Washington in the 2009 fiscal year first quarter. Sales of advanced composite materials and parts were 8%13% of the Company'sCompany’s total net sales worldwide in the 20062009 fiscal year compared to 9% in the 2008 fiscal year.
The Company’s earnings in the 2009 fiscal year were enhanced by a tax benefit of $4.7 million recorded by the Company in the 2009 fiscal year fourth quarter related to the adjustment of certain valuation allowances and 2005by a tax benefit of $1.2 million recorded by the Company in the 2009 fiscal years.
year fourth quarter related to one-time pre-tax charges also recorded by the Company in such quarter for the aforementioned closure of the Company’s New England Laminates Co., Inc. business unit and the closure of the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and for a workforce reduction and an asset impairment at the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore. Such benefits were offset by the one-time pre-tax charges of $5.7 million recorded by the Company in the 2009 fiscal year fourth quarter related to the aforementioned business unit closures, workforce reduction and asset impairment and a one-time pre-tax charge of $0.6 million recorded by the Company in the 2009 fiscal year third quarter related to restructurings at certain of its North American and European business units.
The Company’s net earnings in the 2009 fiscal year were also significantly increased by a discontinued operations benefit of $16.5 million recorded by the Company in the 2009 fiscal year fourth quarter related to the elimination of a liability from discontinued operations of the Company’s Dielektra GmbH subsidiary located in Germany.
The Company’s results of operations in the 2008 fiscal year were slightly enhanced by a tax benefit of $1.5 million recorded by the Company in the 2008 fiscal year fourth quarter resulting from the reduction of tax reserves in the United States related to transfer pricing, which was partially offset by a charge of $1.4 million recorded by the Company in the 2008 fiscal year fourth quarter for employment termination benefits and other
expenses resulting from a restructuring and workforce reduction at the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France.
Results of Operations
Net
The Company’s total net sales worldwide for the fiscal year ended February 26, 2006 increased 5%March 1, 2009 declined 17% to $222.3$200.1 million from $211.2$241.9 million for the fiscal year ended February 27, 2005.March 2, 2008. The increasedecline in net sales was the result of increaseddecreased sales byof the Company's
operationsCompany’s printed circuit materials in all regionsNorth America, Europe and Asia which were only partially offset by increased sales of the Company'sCompany’s high technologyperformance printed circuit materials and advanced composite materials.
materials and parts.
The Company's foreign operations accounted for $97.9sales were $96.3 million, of sales,
or 44%48% of the Company's total net sales worldwide, during the 20062009 fiscal year, compared with $94.1$120.9 million of sales, or 45%50% of total net sales worldwide, during the 20052008 fiscal year and 45% and 40%, respectively,47% of total net sales worldwide from continuing operations during the 2004 and 20032007 fiscal years.
Sales by theyear. The Company's foreign operationssales during the 20062009 fiscal year increased
4%decreased 20% from the 20052008 fiscal year primarily as a result of increasesdecreases in sales by the
Company's operations in Singapore.
31
Europe and Asia.
For the fiscal year ended February 26, 2006,March 1, 2009, the Company'sCompany’s sales in North America, Asia and Europe were 56%52%, 29%37% and 15%11%, respectively, of the Company'sCompany’s total net sales worldwide compared with 55%50%, 29%37% and 16%13%, respectively, for the fiscal year ended February 27, 2005.March 2, 2008. The Company'sCompany’s sales in Asia declined 19%, its sales in North America increased 6%, its sales in Asia increased 6%declined 14% and its sales in Europe increased
1%declined 25% in the 20062009 fiscal year overcompared to the 20052008 fiscal year.
The overall gross profit as a percentage of net sales for the Company's worldwide operations improveddeclined to 24.6%21.7% during the 20062009 fiscal year compared with
20.5%to 25.8% during the 20052008 fiscal year. The improvementdeterioration in the gross profit margin was attributable primarily to increasedreduced sales reduced operating costs resulting from the
work force reduction at the Company's volume printed circuit materials operation
in France in the 2006 fiscal year and the realignments of the Company's North
American volume printed circuit materials operations in the 2005 and 2004 fiscal
years andvolumes, which were only partially offset by higher percentages of sales of higher margin, high temperatureperformance printed circuit materials.
materials products and advanced composite materials and parts and by the benefits resulting from the restructurings of the Company’s Neltec Europe SAS and Neltec SA business units in the 2008 fiscal year and from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion.
During the fiscal year ended February 26, 2006,March 1, 2009, the Company'sCompany’s total net sales worldwide of high temperature printed circuit materials, which included high performance materials (non-FR4 printed circuit materials), were 96%100% of the Company'sCompany’s total net sales worldwide of printed circuit materials, compared with 94%99% for last fiscal year.
The Company'sCompany’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")BT materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, quartz reinforced materials, and polytetrafluoroethylene ("PTFE")PTFE and modified epoxy materials for RF/microwave systems that operate at frequencies up to 77GHz.
During the fiscal year ended February 26, 2006,March 1, 2009, the Company'sCompany’s total net sales worldwide of high performance printed circuit materials (non-FR4 printed circuit materials) were 39%61% of the Company'sCompany’s total net sales worldwide of printed circuit materials, compared with 35%52% for last fiscal year.
The Company'sCompany’s cost of sales decreased slightlyby 13% in the 20062009 fiscal year from the 2008 fiscal year as a result of lower sales and lower production volumes in the 2009 fiscal year than in the 2008 fiscal year. However, the Company’s cost of sales as a percentage of net sales increased in the 2009 fiscal year compared to the prior year resulting in a gross profit margin percentage decline, which was attributable to lower sales volumes in the 2009 fiscal year despite higher production volumes compared toand the priorimpact of currency translation on costs incurred in Singapore dollars and increases in utility costs in the 2009 fiscal year, as a resultpartially offset by higher percentages of cost reduction measures implemented bysales of higher margin, high performance printed circuit materials and advanced composite materials products in the Company, including workforce reductions and the reduction of overtime.
2009 fiscal year.
Selling, general and administrative expenses decreased by $2.4 million, or by 9%, during the 20062009 fiscal year compared withto the 20052008 fiscal year, asbut these expenses, measured as a percentage of sales, were 11.3%12.4% during the 20062009 fiscal year compared with 12.8%to 11.2% during the 20052008 fiscal year. The decreasehigher percentage in selling,the 2009 fiscal year was the result of lower sales in such year. Selling, general and administrative expenses inincluded $1.2 million for the 20062009 fiscal year resulted from decreases in almost all
categories of expenses.
for stock option expenses compared to $1.4 million for the 2008 fiscal year.
In the 20062009 fiscal year fourth quarter, the Company recorded a tax
chargeone-time pre-tax charges of $3.1$5.7 million in connection withrelated to the repatriation of approximately $70
million of accumulated earnings and profits of its subsidiary in Singapore, a
pre-tax benefit of $0.2 million resulting from the reversal of a portionclosure of the $1.1 pre-tax chargeCompany’s New England Laminates Co., Inc. electronic materials business unit located in Newburgh, New York and the 2006 fiscal year first quarter for employment
termination benefits relatingclosure of the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and related to a workforce reduction at the Company's Neltec
Europe SAS facility in France and an asset impairment chargeat the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore, and recognized tax benefits of $2.3$1.2 million for
the write-off of construction costs related to the installation of an advanced
high-speed treater at the Company's Neltec Europe
32
SAS facility in Mirebeau, France. The treater, which was installed at the Neltec
Europe facility when the business environment in Europe was more suited for such
a treater, has been moved to the Company's manufacturing facility in Singapore.
In the 2006 fiscal year third quarter, the Company recognizedthese charges and a tax benefit of $1.5$4.7 million relatingrelated to the elimination of certain valuation allowances previously established related to deferred tax assets inresulting principally from the United States in
prior periods; and inaforementioned closure of the 2006 fiscal year first quarter, the Company recorded a
charge of $1.1 million, for which there was no tax benefit, for employment
termination benefits resulting from a workforce reduction at its Neltec Europe
SAS facility in France, which was partially offset by a reversal of $0.2 million
in the 2006 fiscal year fourth quarter.Company’s New England Laminates Co., Inc. business unit. In the 20052009 fiscal year third quarter, the Company recorded a gainpre-tax charge of $4.7$0.6 million resulting fromrelated to the settlementrestructurings at certain of an insurance claim for propertyits North American and European business interruption losses sustained byunits.
During the 2008 fiscal year, the Company in Singapore as a
result of an explosion in November 2002 in one of the four treaters located at
its manufacturing facility in Singapore. In the same quarter, the Company also recorded a charge of $0.6$1.4 million for employment termination benefits and other expenses resulting from the restructuring and workforce reductionsreduction at the Company's North AmericanCompany’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and European volume
printed circuit materials operations.
a tax benefit of $1.5 million resulting from the reduction of tax reserves in the United States related to transfer pricing.
For the reasons set forth above, the Company'sCompany’s earnings from continuing operations for the 20062009 fiscal year, including the net chargecharges described above for
employment termination benefits resulting from a workforce reduction in Francerelating to the facility closures and asset impairment and the asset impairmentrestructurings at certain of the Company’s North American and European business units, were $12.4 million compared to earnings from continuing operations for the 2008 fiscal year, including the charge described above for the write-off of
construction costs relatedrestructuring and workforce reduction at the Company’s Neltec Europe SAS electronic materials business unit and the tax benefit relating to the installationreduction of a treater in France, were
$26.3 million compared with earnings from operations for the 2005 fiscal year tax reserves,
of $20.4 million, including the gain described above resulting from the settlement
of an insurance claim for property and business interruption losses sustained by
the Company in Singapore and the charge described above for employment
termination benefits resulting from workforce reductions at the Company's North
America and European volume printed circuit materials operations.$33.9 million. The net impacts of the charges and gain described above were to decrease earnings from continuing operations by $3.2$6.3 million for the 20062009 fiscal year and to increasedecrease earnings from continuing operations by $4.1$1.4 million for the 20052008 fiscal year.
Interest and other income, net, principally investment income, increased 79%declined 29% to $6.1$6.6 million for the 20062009 fiscal year from $3.4$9.4 million for the 20052008 fiscal year. The increasedecline in investment income was attributable to higherlower prevailing interest rates and larger amountspartially offset by higher levels of cash available for investment during the 20062009 fiscal year than during the 2008 fiscal year. The Company's investments were primarily in short-term taxable instruments.instruments and money market funds. The Company incurred no interest expense during the 2006, 20052009, 2008 or 20042007 fiscal years. See "Liquidity and Capital Resources" elsewhere in this Item 7.
6.
The Company's effective income tax rate was 17.0%2.6% for the 20062009 fiscal year compared to 9.2%19.9% for the 20052008 fiscal year. The Company'stax benefits and charges described above reduced the effective income tax rate, excludingrates by 22.8 and 2.8 percentage points in the gains2009 and the charges described above,2008 fiscal years, respectively.
The Company’s net earnings from continuing operations for the 2006
fiscal year was 11.0% compared to 8.0% for the 2005 fiscal year.
The Company's net earnings for the 20062009 fiscal year, including the asset impairment charge and employment termination benefits chargecharges described above and the tax chargebenefits described above in connection withrelating to the repatriationfacility closure and asset impairment charges and to the elimination of foreignvaluation allowances, were $18.5 million compared to net earnings from continuing operations for the 2008 fiscal year, including the charge and the tax benefit described above, related to the
33
reversal of valuation allowances, were $26.9 million compared with net earnings
for the 2005 fiscal year of $21.6 million, including the gain described above
resulting from the insurance settlement and the charge described above for
employment termination benefits resulting from workforce reductions.$34.7 million. The net impacts of the charges and tax benefit and gainbenefits described above were to increase net earnings from continuing operations by $0.3 million for the 2009 fiscal year and to decrease net earnings from continuing operations by $4.8$0.1 million for the 20062008 fiscal year.
In the 2009 fiscal year fourth quarter, the Company also recorded a discontinued operations benefit of $16.5 million related to the elimination of a liability from discontinued operations of its Dielektra GmbH subsidiary located in Germany.
The Company’s net earnings for the 2009 fiscal year, including the charges and tax benefits described above and the discontinued operations benefit described above, were $35.0 million compared to net earnings for the 2008 fiscal year, including the charge and tax benefit described above, of $34.7 million. The net impacts of the charges and tax benefits described above and the discontinued operations benefit described above were to increase net earnings by $16.8 million for the 2009 fiscal year and to increase net earnings by $3.5$0.1 million for the 20052008 fiscal year.
Basic and diluted earnings per share, including the chargecharges and tax benefits described above and the discontinued operations benefit described above, were $1.34 and $1.33$1.71 per share respectively, for the 20062009 fiscal year compared to basic and diluted earnings per share of $1.09$1.71 and $1.08$1.70 per share, respectively, including the gaincharge and chargetax benefit described above, for the 20052008 fiscal year. The net impacts of the charges and tax benefit and gainbenefits described above were to decrease the basic and diluted earnings per share by
$0.24 for the 2006 fiscal year and to increase the basic and diluted earnings per share by $0.18$0.81 for the 20052009 fiscal year.
Liquidity and Capital Resources:
At February 25, 2007,28, 2010, the Company's cash and temporary investments
(consisting of marketable securities)securities were $208.8$237.8 million compared with $199.7to $225.3 million at February 26, 2006,March 1, 2009, the end of the Company's 20062009 fiscal year. The Company's working capital (which includes cash and temporary investments)marketable securities) was $233.8$261.0 million at February 25, 200728, 2010 compared with $214.9$239.6 million at February 26,
2006.March 1, 2009. The increase in working capital at February 25, 200728, 2010 compared with
February 26, 2006to March 1, 2009 was due principally to higher cash and temporary investments
and higher accounts receivable and lower accrued liabilities and lower income
taxes payable. Thethe increase in cash and temporary investmentsmarketable securities and increases in accounts receivable and inventories and decreases in accrued liabilities and income taxes payable partially offset by a decrease in other current assets and an increase in accounts payable. The 6% increase in cash and marketable securities at February 25,
200728, 2010 compared with February 26, 2006to March 1, 2009 was the result of cash provided by operating activities and higher interest and other income. Accountsactivities. The 41% increase in accounts receivable
increased 10% at February 25, 200728, 2010 compared to March 1, 2009 was primarily the result of higher sales volumes in the 2010 fiscal year fourth quarter than in the 2009 fiscal year fourth quarter. Inventories increased 12% at February 26, 200628, 2010 compared to March 1, 2009 primarily due to higher production volumes in the 2010 fiscal year fourth quarter than in the 2009 fiscal year fourth quarter. Accrued liabilities declined by 36% at February 28, 2010 compared to March 1, 2009 primarily as a result of higher sales volumes. The 11% decreasea reduction of $835,000 in accrued liabilities at
February 27, 2007 compared to February 26, 2006 was primarily attributable to
lower liabilities fora reserve in the restorationsecond quarter of a leased facility and for audit, legal
and tax services.the 2010 fiscal year. Income taxes payable declined 45%6% at February 28, 2010 compared to March 1, 2009 primarily as a result of tax
payments made during the 20072010 fiscal year. The 79% decrease in other current assets at February 28, 2010 compared to March 1, 2009 was attributable primarily to the Company’s receipt of an amount due from a foreign taxing authority and lower interest receivable at February 28, 2010. Accounts payable increased by 20% at February 28, 2010 compared to March 1, 2009 primarily due to the timing of raw materials purchases.
The Company's current ratio (the ratio of current assets to current liabilities) was 8.213.1 to 1 at February 25, 200728, 2010 compared with 6.610.9 to 1 at February 26, 2006.
March 1, 2009.
During the 20072010 fiscal year, net earnings from the Company'sCompany’s operations, before depreciation and amortization of $48.8 million and stock-based compensation, reduced by a net increase in working capital items, resulted in $35.8$22.9 million of cash provided by operating activities. This increaseDuring such year, the Company expended a net amount of $3.4 million for the purchase of property, plant and equipment, primarily for the Company’s new development and manufacturing facility in cash provided by operating activities was
partially offset by $26.6Newton, Kansas and for the expansion of such facility, and expended $1.0 million as additional payment for the acquisition of dividends paid duringsubstantially all the year, includingassets and business of Nova Composites, Inc., compared to a special cash dividendnet amount of $20.1 million paid during the 2007 fiscal year second
quarter. Cash dividends paid were $26.5 million, including a special cash
dividend of $20.1$12.2 million during the 20062009 fiscal year for the purchase of property, plant and $25.1equipment, primarily for the Company’s new facility in Newton, Kansas, and a total of $4.7 million includingfor the acquisition of substantially all the assets and business of Nova Composites, Inc. In addition, the Company paid $7.4 million in dividends on its common stock in the 2010 fiscal year as a specialresult of the Company’s increase in its quarterly cash dividend of $19.9 million, during the 2005 fiscal year.
Net earnings excluding $9.6 million of depreciation and amortization were $36.5from $0.08 per share to $0.10 per share payable November 5, 2009 compared to $6.5 million in the 20062009 fiscal year. During the 2009 fiscal year, net earnings from the Company’s operations and a net increase in working capital items and the discontinued operations benefit related to the elimination of a liability from discontinued operations of the Company’s Dielektra GmbH subsidiary in Germany resulted in $36.9$33.6 million of cash provided by operating activities.
Net expenditures for property, plant and equipment were $3.9$3.4 million, $4.2$12.2 million $3.3and $4.4 million in the 2007, 20062010, 2009 and 20052008 fiscal years, respectively.
34
The Company resolved with Royal Sun & Alliance Insurance (Singapore)
Limited
In the Company's property damagefirst 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 interruption insurance claim
resulting fromof Nova Composites, Inc., a manufacturer of aircraft composite parts and the explosiontooling for such parts, located in Lynnwood, Washington, for a treatercash purchase price of $4.5 million paid at the Company's subsidiary in
Singaporeclosing of the acquisition and up to an additional $5.5 million payable over five years depending on November 27, 2002, andthe achievement of specified earn-out objectives. In the second quarter of the 2010 fiscal year, the Company received $5.8paid an additional $1.0 million in cash
and recorded a $4.7for such acquisition, leaving an additional $4.4 million pre-tax gain inpayable over four years depending on the 2005achievement of the earn-out objectives.
During the 2009 fiscal year, third quarter
as a resultthe 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 resolution. The Company has initiated a lawsuit against CNA
Insurance Co.facility to resolve the Company's claim for business interruption damages
in the United States resulting from the explosion.
produce advanced composite parts and assemblies.
At February 25, 200728, 2010 and February 26, 2006,March 1, 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 the operating lease commitments, commitments to purchase equipment for the Company��s new development and manufacturing facility in Newton, Kansas and commitments to purchase plant for the expansion of such facility described in Note 1514 of the Notes to Consolidated Financial Statements included elsewhere in this Report.Report and the Company’s obligation to pay up to an additional $4.4 million over four years in connection with the acquisition of the assets and business of Nova Composites, Inc., described above. The Company has no long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $1.7$1.38 million to secure the Company's obligations under its workers'workers’ compensation insurance program and certain limited energy purchase contracts
intended to protect the Company from increased utilities costs.
program.
As of February
25, 2007,28, 2010, the
Company'sCompany’s significant contractual obligations, including payments due by fiscal year, were as follows:
Contractual Obligations
(Amounts in thousands)
2013 and
Total 2008 2009-2010 2011-2012 thereafter
---------- ---------- ---------- ---------- ----------
Operating lease
obligations $ 11,183 $ 2,029 $ 3,836 $ 2,777 $ 2,541
Purchase obligations - - - - -
---------- ---------- ---------- ---------- ----------
Total $ 11,183 $ 2,029 $ 3,836 $ 2,777 $ 2,541
Contractual Obligations (Amounts in thousands) | | Total | | | 2011 | | | | 2012-
2013 | | | | 2014-
2015 | | | 2016 and thereafter | |
| | | | | | | | | | | | | | | | | | |
| Operating lease obligations | | $ | 6,419 | | | $ | 1,935 | | | $ | 2,325 | | | $ | 1,268 | | | $ | 891 | |
| Plant purchase obligations | | | 1,653 | | | | 1,653 | | | | - | | | | - | | | | - | |
| Total | | $ | 8,072 | | | $ | 3,588 | | | $ | 2,325 | | | $ | 1,268 | | | $ | 891 | |
At February 28, 2010, the Company had gross tax-affected unrecognized tax benefits of $1.7 million. A reasonable estimate of timing of these liabilities is not possible.
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.
35
Environmental Matters:
The Company is subject to various federal,Federal, state and local government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by government agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated.
In the 2007, 20062010, 2009 and 20052008 fiscal years, the Company charged
approximately $0.0 million, $(0.6) million, $0.0 million,reversed accruals of $835,000, $638,000 and $180,000, respectively, against
pre-tax income for environmental remedial response and voluntary cleanup costs, (including
legal fees).which were recorded as reductions to selling, general and administrative expenses for such years, as a result of the Company’s conclusion that the likelihood of any liability in connection with such accruals was remote. While annual expenditures have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At February 25, 2007,28, 2010 and March 1, 2009, the amount recorded in liabilities from discontinued
operations for environmental matters related to Dielektra was $2.1 million and
the amountamounts recorded in accrued liabilities for other environmental matters was
$1.8 million compared with $2.1 million of liabilities for environmental matters
for Dielektrawere $9,000 and $1.8 million for other environmental matters at February 26,
2006.
$844,000, respectively.
Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company. See Note 1615 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for a discussion of the Company's contingencies, including those related to environmental matters.
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
36
expenses and the related disclosure of contingent liabilities. On an on-goingongoing basis, the Company evaluates its estimates, including those related to sales allowances, accounts receivable, allowances for bad debts,doubtful accounts, inventories, valuation of long-lived assets, income taxes, restructurings, contingencies and litigation, and pensions and other employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
Sales revenue is recognized at the time
The Company recognizes revenues when products are shipped and title to product ishas been transferred to a customer.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. The
Company ships its products to customers based upon firm orders, with fixed
selling prices, when collection is reasonably assured.
materials, parts and assemblies.
Sales Allowances
The Company provides for the estimated costs of sales allowances at the time such costs can be reasonably estimated. The Company'sCompany’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'products’ meeting the agreed specifications. The Company'sCompany’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'sCompany’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'sCompany’s last three fiscal years.
Allowances for Doubtful Accounts Receivable
The majority of the Company's accounts receivable are due from
purchasers of the Company's printed circuit materials. Credit is extended based
on evaluation of a customer's financial condition and, generally, collateral is
not required.
Accounts receivable are due within established payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than established payment terms are considered past due. The Company 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'sCompany’s previous loss history, the customer'scustomer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
37
Allowances for Bad Debts
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. 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-livedLong-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'sCompany’s assets or strategy of the overall business.
Income Taxes
Carrying
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. ManagementThe Company evaluates the realizability of the deferred tax
assets quarterly and assesses the need for additional valuation allowances quarterly.
Tax benefits are recognized for an uncertain tax position when, in the Company’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by the Company. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. Interest and penalties recognized on the liability for unrecognized tax benefits are recorded as income tax expense.
Restructurings
The Company recorded one-time pre-tax charges of $5.7 million in the fourth quarter of the fiscal year ended March 1, 2009 related to the closure of the Company’s New England Laminates Co., Inc. electronic materials business unit located in Newburgh, New York and the closure of the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and related to a workforce reduction and an asset impairment at the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore. In the 2009 fiscal year third quarter, the Company recorded a one-time pre-tax charge of $0.6 million related to restructurings at certain of its North American and European business units. In addition, the Company recorded a one-time pre-tax charge of $1.4 million in the fourth quarter of the fiscal year ended March 2, 2008 in connection with the realignment ofa restructuring and workforce reduction at its Neltec Europe SAS business unit. Such restructurings and workforce reductions are described in France during the three-month period ended May 29,
2005 and the realignment of its North American volume printed circuit materials
operations during the fiscal years ended February 29, 2004 and March 2, 2003.
The Company also recorded realignment charges in its North American operations
during the fiscal year ended February 27 2005. In addition, during the 2003
fiscal year, the Company recorded charges in connection with the closureNote 12 of the Company's manufacturing facilityNotes to Consolidated Financial Statements in England. Prior to the Company's treating
Dielektra GmbH as a discontinued operation, the Company recorded chargesItem 8 of Part II of this Report and in connection with the closure“Management’s Discussion and Analysis of the mass lamination operationFinancial Condition and Results of Dielektra and
the realignmentOperations” in Item 7 of Dielektra during the fiscal years ended February 29, 2004,
March 2, 2003 and March 3, 2002.
Part II of this Report.
Contingencies
The Company is subject to a small number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A
38 determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.
The Company is obligated to pay up to an additional $4.4 million over four years depending on the achievement of specified earn-out objectives in connection with the acquisition by the Company’s wholly owned subsidiary, Park Aerospace Structures Corp., of substantially all the assets and business
of Nova Composites, Inc., a manufacturer of composite parts and assemblies and the tooling for such parts and assemblies, located in Lynnwood, Washington, in addition to a cash purchase price of $4.5 million paid at the closing of the acquisition on April 1, 2008 and a payment of $1.0 million paid in the 2010 fiscal year second quarter.
Pension and Other Employee Benefit Programs
Dielektra GmbH has significant pension costs that were developed from
actuarial valuations. Inherent in these valuations are key assumptions including
discount rates and wage inflation rates. 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 effectively self-insured, although the Company maintains individual and aggregate stop-loss insurance coverage. The Company uses an insurance company
administrator to process allcoverage for such claims and benefits.claims. The Company accrues its workers'workers compensation liability based uponon estimates of the claim reserves established by the
third-party administratortotal exposure of known claims using historical experience and historical experience.
projected loss development factors less amounts previously paid out.
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, some 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:
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. 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, forecasted, estimated or budgeted by the Company in forward-looking statements. The factors described under "Risk Factors"“Risk Factors” in Item 1A of this Report, as well as the following additional factors, could cause the Company's actual results to differ materially from any such results which might be projected, forecast,forecasted, estimated or budgeted by the Company in forward-looking statements.
. The Company's operating results are affected by a
number of factors, including various factors beyond
the Company's control. Such factors include economic
conditions in the electronics industry, the timing of
customer orders, product prices, process yields, the
mix of products sold and maintenance-related
shutdowns of facilities. Operating results also can
be influenced by development and introduction of new
products and the costs associated with the start-up
of new facilities.
39
. The Company, from time to time, is engaged in the
expansion of certain of its manufacturing facilities.
The anticipated
| § | The Company's operating results are affected by a number of factors, including various factors beyond the Company's control. Such factors include economic conditions in the printed circuit materials, advanced composite materials and composite parts and assemblies industries, the timing of customer orders, product prices, process yields, the mix of products sold and maintenance-related shutdowns of facilities. Operating results also can be influenced by development and introduction of new products and the costs associated with the start-up of new facilities. |
| § | The Company, from time to time, is engaged in the expansion of certain of its manufacturing facilities. The anticipated |
costs of such expansions cannot be determined with precision and may vary materially from those budgeted. In addition, such expansions will increase the Company's fixed costs. The Company's future profitability depends upon its ability to utilize its manufacturing capacity in an effective manner.
. The Company may acquire businesses, product lines or
technologies that expand or complement those of the
Company. The integration and management of an
acquired company or business may strain the Company's
management resources and technical, financial and
operating systems. In addition, implementation of
acquisitions can result in large one-time charges and
costs. A given acquisition, if consummated, may
materially affect the Company's business, financial
condition and results of operations.
. The Company's success is dependent upon its
relationship with key management and technical
personnel.
. The Company's future success depends in part upon its
intellectual property which the Company seeks to
protect through a combination of contract provisions,
trade secret protections, copyrights and patents.
. The market price of the Company's securities can be
subject to fluctuations in response to quarter to
quarter variations in operating results, changes in
analyst earnings estimates, market conditions in the
electronic materials industry, as well as general
economic conditions and other factors external to the
Company.
. The Company's results could be affected by changes in
the Company's accounting policies and practices or
changes in the Company's organization, compensation
and benefit plans, or changes in the Company's
material agreements or understandings with third
parties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
| § | The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one-time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations. |
| § | The Company's success is dependent upon its relationship with key management and technical personnel. |
| § | The Company's future success depends in part upon its intellectual property which the Company seeks to protect through a combination of contract provisions, trade secret protections, copyrights and patents. |
| § | The market price of the Company’s securities can be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analyst earnings estimates, market conditions in the electronic materials industry, as well as general economic conditions and other factors external to the Company. |
| § | The Company's results could be affected by changes in the Company's accounting policies and practices or changes in the Company's organization, compensation and benefit plans, or changes in the Company's material agreements or understandings with third parties. |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Company is exposed to market risks for changes in foreign currency exchange rates and interest rates. The Company's primary foreign currency exchange exposure relates to the translation of the financial statements of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency. The Company does not believe that a 10% fluctuation in foreign exchange rates would have had a material impact on its consolidated results of operations or financial position. The exposure to market risks for changes in interest rates relates to the Company's short-term investment portfolio. This investment portfolio is managed in accordance with guidelines issued by the Company. These guidelines are designed to establish a high quality fixed income portfolio of government and highly rated corporate debt securities with a maximum weighted maturity of less than one year. The Company does not use derivative financial instruments in its investment portfolio. Based on the average anticipated maturity of the investment portfolio at the end of the
20072010 fiscal year, a 10% increase in short-term interest rates would not have had a material impact on the consolidated results of operations or financial position of the Company.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
The Company's Financial Statements begin on the next page.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors of
Park Electrochemical Corp.
We have audited the accompanying consolidated balance sheets of Park Electrochemical Corp. and subsidiaries (the “Company”) as of February 25, 200728, 2010 and February 26,
2006,March 1, 2009, and the related consolidated statements of operations, stockholders'stockholders’ equity and cash flows for each of the three years in the period ended February 25, 2007.28, 2010. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park Electrochemical Corp. and subsidiaries as of February 25, 200728, 2010 and February 26,
2006March 1, 2009 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended February 25, 2007,28, 2010, in conformity with accounting principles generally accepted in the United States of America. As discussedAlso in Note 7our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements, the Company
changed its method of accounting for share-based compensation effective February
27, 2006 in connection with the adoption of Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment".
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule II Valuation and Qualifying
Accounts is presented for purposes of additional analysis and is not a required
part of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, iswhole, presents fairly, stated in all material respects, in relation to the basic financial statements taken as a whole.
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Park Electrochemical Corp. and subsidiaries'subsidiaries’ internal control over financial reporting as of February 25, 2007,28, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”) and our report dated May 8,
200712, 2010 expressed an unqualified opinion thereon.
/s/
/s/ GRANT THORNTON LLP
New York, New York
May
8, 2007
42
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In12, 2010
| PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
February 25, February 26,
2007 2006
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 119,051 $ 108,027
Marketable securities (Note 2) 89,724 91,625
Accounts receivable, less allowance
for doubtful accounts of $1,144 and
$1,930, respectively 39,418 35,964
Inventories (Note 3) 15,090 15,022
Prepaid expenses and other current assets 3,049 3,023
------------ ------------
Total current assets 266,332 253,661
Property, plant and equipment, net of
accumulated depreciation and
amortization (Note 4) 49,895 54,370
Other assets 5,695 3,281
------------ ------------
Total assets $ 321,922 $ 311,312
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,589 $ 13,259
Accrued liabilities (Note 5) 13,058 14,651
Income taxes payable 5,918 10,817
------------ ------------
Total current liabilities 32,565 38,727
Deferred income taxes (Note 6) 4,294 5,193
Restructuring accruals - non current 3,715 4,718
Liabilities from discontinued operations (Note 10) 17,181 17,251
------------ ------------
Total liabilities 57,755 65,889
------------ ------------
Commitments and contingencies (Notes 15 and 16)
Stockholders' equity (Note 8):
Preferred stock, $1 par value per share--authorized, 500,000 shares;
issued, none - -
Common stock, $.10 par value per
share--authorized, 60,000,000
shares; issued, 20,369,986 shares 2,037 2,037
Additional paid-in capital 140,030 137,513
Retained earnings 118,961 105,808
Accumulated other comprehensive income 4,764 2,435
------------ ------------
265,792 247,793
Less treasury stock, at cost,
175,192 and 255,428
shares, respectively (1,625) (2,370)
------------ ------------
Total stockholders' equity 264,167 245,423
------------ ------------
Total liabilities and stockholders' equity $ 321,922 $ 311,312
============ ============
share amounts)
| | | February 28, 2010 | | | March 1, 2009 | | | | | | | | | | | ASSETS | | | | | | | | Current assets: | | | | | | | | Cash and cash equivalents | | $ | 134,030 | | | $ | 40,790 | | | Marketable securities (Note 2) | | | 103,810 | | | | 184,504 | | | Accounts receivable, less allowance for doubtful accounts of $578 and $687, respectively | | | 31,698 | | | | 22,433 | | | | | | | | | | | | | Inventories (Note 3) | | | 11,973 | | | | 10,677 | | | Prepaid expenses and other current assets | | | 1,167 | | | | 5,527 | | | Total current assets | | | 282,678 | | | | 263,931 | | | | | | | | | | | | | Property, plant and equipment, net of accumulated depreciation and amortization (Note 4) | | | 44,905 | | | | 48,777 | | | Other assets (Note 5) | | | 15,521 | | | | 14,871 | | | Total assets | | $ | 343,104 | | | $ | 327,579 | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | Current liabilities: | | | | | | | | | | Accounts payable | | $ | 10,201 | | | $ | 8,480 | | | Accrued liabilities (Note 6) | | | 7,301 | | | | 11,425 | | | Income taxes payable | | | 4,140 | | | | 4,381 | | | Total current liabilities | | | 21,642 | | | | 24,286 | | | | | | | | | | | | | Deferred income taxes (Note 7) | | | 1,398 | | | | 3,927 | | | Other liabilities (Notes 7 and 12) | | | 3,966 | | | | 3,657 | | | Total liabilities | | | 27,006 | | | | 31,870 | | | | | | | | | | | | | Commitments and contingencies (Notes 14 and 15) | | | | | | | | | | | | | | | | | | | | Stockholders' equity (Note 9): | | | | | | | | | | Preferred stock, $1 par value per share—authorized, 500,000 shares; issued, none | | | - | | | | - | | | Common stock, $.10 par value per share—authorized, 60,000,000 shares; issued, 20,540,836 and 20,470,661 shares, respectively | | | 2,054 | | | | 2,047 | | | Additional paid-in capital | | | 149,352 | | | | 146,934 | | | Retained earnings | | | 163,077 | | | | 145,107 | | | Accumulated other comprehensive income | | | 1,616 | | | | 1,622 | | | | | | 316,099 | | | | 295,710 | | | Less treasury stock, at cost, 146 and 145 shares, respectively | | | (1 | ) | | | (1 | ) | | | | | | | | | | | | Total stockholders' equity | | | 316,098 | | | | 295,709 | | | Total liabilities and stockholders' equity | | $ | 343,104 | | | $ | 327,579 | |
See Notes to Consolidated Financial Statements.
43
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
| PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES | | CONSOLIDATED STATEMENTS OF OPERATIONS | (In thousands, except per share amounts)
- --------------------------------------------------------------------------------
Fiscal Year Ended
--------------------------------------------
February 25, February 26, February 27,
2007 2006 2005
------------ ------------ ------------
Net sales $ 257,377 $ 222,251 $ 211,187
Cost of sales 193,270 167,650 167,937
------------ ------------ ------------
Gross profit 64,107 54,601 43,250
Selling, general and administrative
expenses 26,682 25,129 26,960
Insurance arrangement termination
charge (Note 13) 1,316 - -
Realignment and severance charges
(Note 11) - 889 625
Asset impairment charge - 2,280 -
Gain on insurance settlement (Note 12) - - (4,745)
------------ ------------ ------------
Earnings from operations 36,109 26,303 20,410
Interest and other income, net 8,033 6,056 3,386
------------ ------------ ------------
Earnings before income taxes 44,142 32,359 23,796
Income tax provision (Note 6) 4,351 5,484 2,191
------------ ------------ ------------
Net earnings $ 39,791 $ 26,875 $ 21,605
============ ============ ============
Earnings per share:
Basic earnings per share $ 1.97 $ 1.34 $ 1.09
============ ============ ============
Basic weighted average shares 20,175 20,047 19,879
Diluted earnings per share $ 1.96 $ 1.33 $ 1.08
============ ============ ============
Diluted weighted average shares 20,317 20,210 20,075
amounts)
See Notes to Consolidated Financial statements.
44
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Accumulated
Other
Common Stock Additional Comprehensive Treasury Stock Comprehensive
------------------- Paid-in Retained Income ------------------ Income
Shares Amount Capital Earnings Loss Shares Amount Loss
---------- ------- ---------- --------- ------------- -------- -------- -------------
Balance, February 29, 2004 20,369,986 $ 2,037 $ 133,335 $ 108,915 $ 3,734 582,061 $ (4,125)
Net earnings 21,605 $ 21,605
Exchange rate changes 1,529 1,529
Unrealized loss on marketable
securities (658) (658)
Stock option activity 871 (132,848) 684
Cash dividends ($1.26 per share) (25,070)
-------------
Comprehensive income $ 22,476
=============
---------- ------- ---------- --------- ------------- -------- --------
Balance, February 27, 2005 20,369,986 $ 2,037 $ 134,206 $ 105,450 $ 4,605 449,213 $ (3,441)
Net earnings 26,875 $ 26,875
Exchange rate changes (1,822) (1,822)
Unrealized loss on marketable
securities (348) (348)
Stock option activity 3,307 (193,785) 1,071
Cash dividends ($1.32 per share) (26,517)
-------------
Comprehensive income $ 24,705
=============
---------- ------- ---------- --------- ------------- -------- --------
Balance, February 26, 2006 20,369,986 $ 2,037 $ 137,513 $ 105,808 $ 2,435 255,428 $ (2,370)
Net earnings 39,791 $ 39,791
Exchange rate changes 1,684 1,684
Unrealized gain on
marketable securities 645 645
Stock option activity 1,234 (80,236) 745
SFAS 123R compensation cost 1,283
Cash dividends ($1.32 per share) (26,638)
-------------
Comprehensive income $ 42,120
---------- ------- ---------- --------- ------------- -------- -------- =============
Balance, February 25, 2007 20,369,986 $ 2,037 $ 140,030 $ 118,961 $ 4,764 175,192 $ (1,625)
========== ======= ========== ========= ============= ======== ========
| | | Fiscal Year Ended | | | | | February 28, | | | March 1, | | | March 2, | | | | | 2010 | | | 2009 | | | 2008 | | | | | | | | | | | | | | Net sales | | $ | 175,686 | | | $ | 200,062 | | | $ | 241,852 | | | Cost of sales | | | 124,084 | | | | 156,638 | | | | 179,398 | | | Gross profit | | | 51,602 | | | | 43,424 | | | | 62,454 | | | Selling, general and administrative expenses | | | 24,480 | | | | 24,806 | | | | 27,159 | | | Realignment and severance charges (Note 12) | | | - | | | | 2,290 | | | | 1,362 | | | Asset impairment charge | | | - | | | | 3,967 | | | | - | | | | | | | | | | | | | | | | | Earnings from continuing operations | | | 27,122 | | | | 12,361 | | | | 33,933 | | | Interest and other income, net | | | 1,062 | | | | 6,648 | | | | 9,361 | | | Earnings before income taxes | | | 28,184 | | | | 19,009 | | | | 43,294 | | | Income tax provision (Note 7) | | | 2,825 | | | | 495 | | | | 8,615 | | | Net earnings from continuing operations | | | 25,359 | | | | 18,514 | | | | 34,679 | | | Gain from discontinued operations (Note 11) | | | - | | | | 16,486 | | | | - | | | Net earnings | | $ | 25,359 | | | $ | 35,000 | | | $ | 34,679 | | | | | | | | | | | | | | | | | Earnings per share: | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 1.24 | | | $ | 0.90 | | | $ | 1.71 | | | Gain from discontinued operations | | | - | | | | 0.81 | | | | - | | | Basic earnings per share | | $ | 1.24 | | | $ | 1.71 | | | $ | 1.71 | | | | | | | | | | | | | | | | | Basic weighted average shares | | | 20,522 | | | | 20,441 | | | | 20,305 | | | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 1.23 | | | $ | 0.90 | | | $ | 1.70 | | | Gain from discontinued operations | | | - | | | | 0.81 | | | | - | | | Diluted earnings per share | | $ | 1.23 | | | $ | 1.71 | | | $ | 1.70 | | | | | | | | | | | | | | | | | Diluted weighted average shares | | | 20,547 | | | | 20,486 | | | | 20,364 | |
See Notes to Consolidated Financial Statements.
45
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Fiscal Year Ended
--------------------------------------------
February 25, February 26, February 27,
2007 2006 2005
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 39,791 $ 26,875 $ 21,605
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation| PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES | | CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | (In thousands, except share and amortization 8,992 9,645 10,202
Loss (gain) on sale of fixed assets (18) 60 35
Gain from insurance settlement - - (4,745)
Proceeds from insurance settlement - - 5,816
SFAS 123R compensation cost 1,283 - -
Non-cash impairment charge - 2,280 -
Provision for doubtful accounts receivable (954) (1) 66
Provision for deferred income taxes (899) 151 (55)
Tax benefit from stock option exercises - 1,110 -
Changes in operating assets and liabilities:
Accounts receivable (2,092) (659) 596
Inventories 210 110 (3,553)
Prepaid expenses and other current assets (627) (200) 437
Other assets and liabilities 1,302 (2,884) (2,164)
Accounts payable 158 (1,661) 91
Accrued liabilities (6,782) (803) (4,051)
Income taxes payable (4,576) 2,904 3,423
------------ ------------ ------------
Net cash provided by operating activities 35,788 36,927 27,703
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,793) (4,320) (3,328)
Proceeds from sales of property, plant and equipment 896 100 20
Purchases of marketable securities (123,592) (33,672) (66,833)
Proceeds from sales and maturities of marketable securities 126,844 45,236 39,533
------------ ------------ ------------
Net cash provided by (used in) investing activities (645) 7,344 (30,608)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid (26,638) (26,517) (25,070)
Proceeds from exercise of stock options 1,979 4,378 1,555
------------ ------------ ------------
Net cash used in financing activities (24,659) (22,139) (23,515)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents before effect
of exchange rate changes
10,484 22,132 (26,420)
Effect of exchange rate changes on cash and cash equivalents 540 (176) 502
------------ ------------ ------------
Increase(decrease)in cash and cash equivalents 11,024 21,956 (25,918)
Cash and cash equivalents, beginning of year 108,027 86,071 111,989
------------ ------------ ------------
Cash and cash equivalents, end of year $ 119,051 $ 108,027 $ 86,071
============ ============ ============
per share amounts) |
| | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | | | | | | | | | | Additional | | | | | | Comprehensive | | | | | | | | | Comprehensive | | | | | Common Stock | | | Paid-in | | | Retained | | | Income | | | Treasury Stock | | | Income | | | | | Shares | | | Amount | | | Capital | | | Earnings | | | (Loss) | | | Shares | | | Amount | | | (Loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, February 25, 2007 | | | 20,369,986 | | | $ | 2,037 | | | $ | 140,030 | | | $ | 118,961 | | | $ | 4,764 | | | | 175,192 | | | $ | (1,625 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | | | | | | | | | | | | | 34,679 | | | | | | | | | | | | | | | $ | 34,679 | | | Exchange rate changes | | | | | | | | | | | | | | | | | | | 2,217 | | | | | | | | | | | | 2,217 | | | Unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | | 455 | | | | | | | | | | | | 455 | | | Stock option activity | | | | | | | | | | | 1,211 | | | | | | | | | | | | (152,086 | ) | | | 1,411 | | | | | | | Stock-based compensation | | | | | | | | | | | 1,392 | | | | | | | | | | | | | | | | | | | | | | | Tax benefit on exercise of options | | | | | | | | | | | 634 | | | | | | | | | | | | | | | | | | | | | | | Cash dividends ($1.32 per share) | | | | | | | | | | | | | | | (36,994 | ) | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 37,351 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 2, 2008 | | | 20,369,986 | | | $ | 2,037 | | | $ | 143,267 | | | $ | 116,646 | | | $ | 7,436 | | | | 23,106 | | | $ | (214 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | | | | | | | | | | | | | 35,000 | | | | | | | | | | | | | | | $ | 35,000 | | | Exchange rate changes | | | | | | | | | | | | | | | | | | | (5,659 | ) | | | | | | | | | | | (5,659 | ) | | Unrealized loss on marketable securities | | | | | | | | | | | | | | | | | | | (155 | ) | | | | | | | | | | | (155 | ) | | Stock option activity | | | 100,675 | | | | 10 | | | | 2,056 | | | | | | | | | | | | (22,961 | ) | | | 213 | | | | | | | Stock-based compensation | | | | | | | | | | | 1,231 | | | | | | | | | | | | | | | | | | | | | | | Tax benefit on exercise of options | | | | | | | | | | | 380 | | | | | | | | | | | | | | | | | | | | | | | Cash dividends ($1.82 per share) | | | | | | | | | | | | | | | (6,539 | ) | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 29,186 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 1, 2009 | | | 20,470,661 | | | $ | 2,047 | | | $ | 146,934 | | | $ | 145,107 | | | $ | 1,622 | | | | 145 | | | $ | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | | | | | | | | | | | | | 25,359 | | | | | | | | | | | | | | | $ | 25,359 | | | Exchange rate changes | | | | | | | | | | | | | | | | | | | 38 | | | | | | | | | | | | 38 | | | Unrealized loss on marketable securities | | | | | | | | | | | | | | | | | | | (44 | ) | | | | | | | | | | | (44 | ) | | Stock option activity | | | 70,175 | | | | 7 | | | | 1,171 | | | | | | | | | | | | 1 | | | | | | | | | | | Stock-based compensation | | | | | | | | | | | 1,117 | | | | | | | | | | | | | | | | | | | | | | | Tax benefit on exercise of options | | | | | | | | | | | 130 | | | | | | | | | | | | | | | | | | | | | | | Cash dividends ($0.32 per share) | | | | | | | | | | | | | | | (7,389 | ) | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 25,353 | | | Balance, February 28, 2010 | | | 20,540,836 | | | $ | 2,054 | | | $ | 149,352 | | | $ | 163,077 | | | $ | 1,616 | | | | 146 | | | $ | (1 | ) | | | | |
See Notes To Consolidated Financial Statements.
| PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES | | CONSOLIDATED STATEMENTS OF CASH FLOWS | | (In thousands) |
| | | Fiscal Year Ended | | | | | February 28, 2010 | | | March 1, 2009 | | | March 2, 2008 | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | Net earnings | | $ | 25,359 | | | $ | 35,000 | | | $ | 34,679 | | | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | | Depreciation and amortization | | | 7,057 | | | | 7,707 | | | | 8,286 | | | Loss (gain) on sale of fixed assets | | | 250 | | | | (3 | ) | | | (74 | ) | | Stock-based compensation | | | 1,117 | | | | 1,231 | | | | 1,392 | | | Provision for doubtful accounts receivable | | | (57 | ) | | | 7 | | | | 166 | | | Provision for deferred income taxes | | | (2,174 | ) | | | (5,409 | ) | | | (812 | ) | | Gain from discontinued operations | | | - | | | | (16,486 | ) | | | - | | | Impairment of fixed assets | | | - | | | | 3,967 | | | | - | | | Non-cash restructuring | | | - | | | | (3,752 | ) | | | - | | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | Accounts receivable | | | (9,146 | ) | | | 14,683 | | | | 2,300 | | | Inventories | | | (1,273 | ) | | | 3,199 | | | | 1,375 | | | Prepaid expenses and other current assets | | | 4,283 | | | | 583 | | | | (3,087 | ) | | Other assets and liabilities | | | 77 | | | | 1,026 | | | | (1,603 | ) | | Accounts payable | | | 1,690 | | | | (4,186 | ) | | | (983 | ) | | Accrued liabilities | | | (4,493 | ) | | | (2,028 | ) | | | (209 | ) | | Income taxes payable | | | 176 | | | | (1,890 | ) | | | 473 | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | 22,866 | | | | 33,649 | | | | 41,903 | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | Purchases of property, plant and equipment | | | (3,422 | ) | | | (12,224 | ) | | | (4,525 | ) | | Proceeds from sales of property, plant and equipment | | | 69 | | | | 16 | | | | 78 | | | Purchases of marketable securities | | | (153,153 | ) | | | (296,252 | ) | | | (165,690 | ) | | Proceeds from sales and maturities of marketable securities | | | 233,892 | | | | 224,808 | | | | 142,535 | | | Business acquisition | | | (1,025 | ) | | | (4,728 | ) | | | - | | | | | | | | | | | | | | | | | Net cash provided by (used in) investing activities | | | 76,361 | | | | (88,380 | ) | | | (27,602 | ) | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | Dividends paid | | | (7,389 | ) | | | (6,539 | ) | | | (36,994 | ) | | Proceeds from exercise of stock options | | | 1,178 | | | | 2,280 | | | | 2,622 | | | Tax benefits from stock-based compensation | | | 130 | | | | 380 | | | | 634 | | | | | | | | | | | | | | | | | Net cash used in financing activities | | | (6,081 | ) | | | (3,879 | ) | | | (33,738 | ) | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents before effect of exchange rate changes | | | 93,146 | | | | (58,610 | ) | | | (19,437 | ) | | Effect of exchange rate changes on cash and cash equivalents | | | 94 | | | | (759 | ) | | | 545 | | | | | | | | | | | | | | | | | Increase(decrease)in cash and cash equivalents | | | 93,240 | | | | (59,369 | ) | | | (18,892 | ) | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of year | | | 40,790 | | | | 100,159 | | | | 119,051 | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of year | | $ | 134,030 | | | $ | 40,790 | | | $ | 100,159 | |
See Notes to Consolidated Financial Statements.
46
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three years ended February 25, 2007
(In28, 2010 (In thousands, except share, per share and option amounts)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Park Electrochemical Corp. ("Park"(“Park”), through its subsidiaries (collectively, the "Company"“Company”), is a global advanced materials company which develops, manufactures, markets and manufacturessells high-technology digital and RF/microwave printed circuit materials and advanced composite materialsproducts principally for the telecommunications and internet infrastructure and high-end computing and aerospace
markets.
a. Principles of Consolidation - The consolidated financial
statements include the accounts of Park and its subsidiaries.
All significant intercompany balances and transactions have
been eliminated.
b. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results may differ
from those estimates.
c. Accounting Period - The Company's fiscal year is the 52 or 53
week period ending the Sunday nearest to the last day of
February. The 2007, 2006 and 2005 fiscal years ended on
February 25, 2007, February 26, 2006 and February 27, 2005,
respectively. Fiscal years 2007, 2006 and 2005 each consisted
of 52 weeks.
d. Cash and Cash Equivalents - The Company considers all money
market securities and investments with contractual maturities
at the date of purchase of 90 days or less to be cash
equivalents.
Supplemental cash flow information:
Fiscal Year
----------------------------
2007 2006 2005
-------- ------- ---------
Cash paid during the year for:
Income taxes paid (refunded) 11,712 3,108 (1,124)
e. Marketable Securities - All marketable securities are
classified as available-for-sale and are carried at fair
value, with the unrealized gains and losses, net of tax,
included in comprehensive income (loss). Realized gains and
losses, amortization of premiums and discounts, and interest
and dividend income are included in other income. The cost of
securities sold is based on the specific identification
method. The Company has classified any investment in auction
rate securities for which the underlying security had a
maturity greater than three months as marketable securities.
f. 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.
47
g. Revenue Recognition - Sales revenue is recognized at the time
title is transferred to a customer. All material sales
transactions are for the shipment of manufactured prepreg and
laminate productsmarkets and advanced composite materials. The
Company ships itsmaterials products to customers based upon firm
orders, with fixed selling prices, when collection is
reasonably assured.
h. Sales Allowances and Product Warranties - The Company providescomposite parts and assemblies products principally for the estimated costs of sales allowancesaerospace markets. | a. | Principles of Consolidation – The consolidated financial statements include the accounts of Park and its subsidiaries. All significant intercompany balances and transactions have been eliminated. |
| b. | Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. |
| c. | Accounting Period – The Company’s fiscal year is the 52 or 53 week period ending the Sunday nearest to the last day of February. The 2010, 2009 and 2008 fiscal years ended on February 28, 2010, March 1, 2009 and March 2, 2008, respectively. Fiscal years 2010, 2009 and 2008 consisted of 52, 52 and 53 weeks, respectively. |
| d. | Cash and Cash Equivalents – The Company considers all money market securities and investments with contractual maturities at the date of purchase of 90 days or less to be cash equivalents. |
Supplemental cash flow information: | | | | | | | Fiscal Year | | | | | 2010 | | | 2009 | | | 2008 | | | | | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | | Income taxes paid, net of refunds | | $ | 3,946 | | | $ | 5,381 | | | $ | 9,804 | |
| e. | Marketable Securities – All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive income (loss). Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in other income. The cost of securities sold is based on the specific identification method. The Company has classified any investment in auction rate securities for which the underlying security had a maturity greater than three months as marketable securities. The Company has not had any investment in auction rate securities since the 2008 fiscal year third quarter. |
| f. | 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 time such
costs can be reasonably estimated. The Company's products are
made to customer specifications and tested for adherence to
specifications before shipment to customers. There are no
future performance requirements other than the products'
meeting the agreed specifications. The Company's products and market conditions. |
| g. | 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. |
| h. | Sales Allowances and Product Warranties - 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 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 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. |
| i. | Accounts Receivable – The majority of the Company’s accounts receivable are due from purchasers of the Company’s printed circuit materials. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within established payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than established payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. |
| j. | Allowance for Doubtful Accounts – The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. |
| k. | 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. |
| l. | Goodwill and Other Intangible Assets - Goodwill is not amortized. Other intangible assets are amortized over the useful lives of the assets on a straight line basis. The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company assesses the impairment of goodwill at least annually. The Company conducted its annual goodwill impairment test as of November 30, 2009, the first day of the fourth quarter, and concluded that there was no impairment. |
| m. | Shipping Costs – The amounts paid by the Company to third-party shippers for transporting products to customers, which are not reimbursed by customers, are classified as selling expenses. The shipping costs included in selling, general and administrative expenses were approximately $3,973, $3,929 and $4,221 for fiscal years 2010, 2009 and 2008, respectively. |
| n. | Property, Plant and Equipment – Property, plant and equipment are stated at cost less accumulated depreciation. The Company capitalizes additions, improvements and major renewals and expenses maintenance, repairs and minor renewals as incurred. Depreciation and amortization are computed principally by the straight-line method over the estimated useful lives. Machinery, equipment, furniture and fixtures are generally depreciated over 10 years. Building and leasehold improvements generally are depreciated over 25-30 years or the term of the lease, if shorter. |
| o. | Income Taxes – Deferred income taxes are provided for temporary differences in the reporting of certain items, primarily depreciation, for income tax purposes as compared with financial accounting purposes. |
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. The CompanyWhile it is focused on
manufacturingoften difficult to predict the highest quality printed circuit and advance
composite materials possible and employs stringent
manufacturing process controls and works with raw material
suppliers who have dedicated themselves to complying withfinal outcome or the Company's specifications and technical requirements. The
amountstiming of returns and allowances resulting from defective or
damaged products have been approximately 1.0%resolution of sales for
each of the Company's last three fiscal years.
i. Accounts Receivable - The majority of the Company's accounts
receivable are due from purchasers of the Company's printed
circuit materials. Credit is extended based on evaluation of a
customer's financial condition and, generally, collateral is
not required. Accounts receivable are due within established
payment terms and are stated at amounts due from customers net
of an allowance for doubtful accounts. Accounts outstanding
longer than established payment terms are considered past due.
The Company determines its allowance by considering a number
of factors, including the length of time accounts receivable
are past due, the Company's previous loss history, the
customer's current ability to pay its obligation toany particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. Interest and penalties recognized on the condition of the general economy and the
industryliability for unrecognized tax benefits are recorded as a whole. The Company writes off accounts
receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the
allowance for doubtful accounts.
j. Allowance for Bad Debts - 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.
k. 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.
48
l. Shipping Costs - The amounts paid by the Company to
third-party shippers for transporting products to customers,
which are not reimbursed by customers, are classified as
selling expenses. The shipping costs included in selling,
general and administrative expenses were approximately $4,417,
$4,258 and $4,659 for fiscal years 2007, 2006 and 2005,
respectively.
m. Property, Plant and Equipment - Property, plant and equipment
are stated at cost less accumulated depreciation. The Company
capitalizes additions, improvements and major renewals and
expenses maintenance, repairs and minor renewals as incurred.
Depreciation and amortization are computed principally by the
straight-line method over the estimated useful lives.
Machinery and equipment are generally depreciated over 10
years. Building and leasehold improvements are depreciated
over 30 years or the term of the lease, if shorter.
n. Income Taxes - Deferred income taxes are provided for
temporary differences in the reporting of certain items,
primarily depreciation, for income tax purposes as compared
with financial accounting purposes.
expense. United States ("(“U.S. "”) Federal income taxes have not been provided on the undistributed earnings (approximately $93,700
at$152,000 as of February 25, 2007)28, 2010) of the Company'sCompany’s foreign subsidiaries, because it is management'smanagement’s practice and intent to reinvest such earnings in the operations of such subsidiaries.
o. Foreign Currency Translation - Assets and liabilities of
foreign subsidiaries using currencies other than the U.S.
dollar as their functional currency are translated into U.S.
dollars at fiscal year-end exchange rates, and income and
expense items are translated at average exchange rates for the
period. Gains and losses resulting from translation are
recorded as currency translation adjustments in comprehensive
income.
p. Stock-based Compensation - The Company implemented the
disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", in the fourth
quarter of fiscal year 2003. Effective February 27, 2006, the
beginning of the Company's 2007 fiscal year, the Company began
recording compensation expense associated with stock options,
the only form of equity compensation issued by the Company, in
accordance with Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment" ("SFAS 123R"), and
Securities and Exchange Commission Staff Accounting Bulletin
No. 107. The Company recognizes such compensation expense on a
straight-line basis over the four-year service period during
which the options become exercisable.
As of February 25, 2007, the Company had two stock option
plans which are more fully described in Note 7. All options
under such plans had an exercise price equal to the fair
market value of the underlying common stock at the time of the
grant, which pursuant to the terms of such 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.
49
2. MARKETABLE SECURITIES
| p. | Foreign Currency Translation – Assets and liabilities of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency are translated into U.S. dollars at fiscal year-end exchange rates, and income and expense items are translated at average exchange rates for the period. Gains and losses resulting from translation are recorded as currency translation adjustments in comprehensive income. |
| q. | Stock-Based Compensation - The Company accounts for employee stock options, the only form of equity compensation issued by the Company, as compensation expense based on the fair value of the options on the date of grant and recognizes such expense on a straight-line basis over the four-year service period during which the options become exercisable. The Company determines the values of such options using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions relating to risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate. |
The following is a summary of available-for-sale securities:
Gross Gross
Unrealized Unrealized Estimated
Gains Losses Fair Value
------------ ------------ ------------
February 25, 2007:
U.S. Treasury and other
government securities $ 2 $ 467 $ 61,278
U.S. corporate debt securities 13 - 11,338
Certificate of deposits - - 17,000
------------ ------------ ------------
Total debt securities 15 467 89,616
Equity securities 102 - 108
------------ ------------ ------------
$ 117 $ 467 $ 89,724
============ ============ ============
February 26, 2006:
U.S. Treasury and other
government securities $ 6 $ 1,463 $ 76,202
U.S. corporate debt securities - - 15,333
------------ ------------ ------------
Total debt securities 6 1,463 91,535
Equity securities 86 - 90
------------ ------------ ------------
$ 92 $ 1,463 $ 91,625
============ ============ ============
| | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated Fair Value | | | 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 debt securities | | $ | 33 | | | $ | 18 | | | $ | 103,810 | | | | | | | | | | | | | | | | | March 1, 2009: | | | | | | | | | | | | | | U.S. Treasury and other government securities | | $ | 25 | | | $ | - | | | $ | 7,975 | | | U.S. corporate debt securities | | | 48 | | | | 166 | | | | 40,918 | | | Certificates of deposit | | 10 | | | - | | | | 135,611 | | | Total debt securities | | $ | 83 | | | $ | 166 | | | $ | 184,504 | |
The gross realized gains on the sales of securities were $43, $23$14, $0 and $4$1 for fiscal years 2007, 20062010, 2009 and 2005,2008, respectively, and the gross realized losses were $114, $2$90, $0 and $13$4 for fiscal years 2007, 20062010, 2009 and 2005,2008, respectively.
The amortized cost andfair value of investments was determined based on observable inputs, which were quoted market prices for identical assets in active markets. The estimated fair valuevalues of the debt and marketable securities at February 25, 2007,28, 2010, by contractual maturity, are shown below:
Estimated Fair Value
and
Amortized Cost
--------------------
Due in one year or less $ 80,329
Due after one year through five years 9,287
--------------------
89,616
Equity securities 108
--------------------
$ 89,724
====================
3. INVENTORIES
| | | Estimated Fair Value | | | | | | | | Due in one year or less | | $ | 83,831 | | | Due after one year through five years | | | 19,979 | | | | | | | | | | | $ | 103,810 | |
Inventories consisted of the following:
February 25, February 26,
2007 2006
------------ ------------
Raw materials $ 6,867 $ 6,092
Work-in-process 3,372 3,412
Finished goods 4,535 5,195
Manufacturing supplies 316 323
------------ ------------
$ 15,090 $ 15,022
============ ============
50
4.
| | | February 28, 2010 | | | March 1, 2009 | | | | | | | | | | | Raw materials | | $ | 5,675 | | | $ | 5,711 | | | Work-in-process | | | 2,975 | | | | 2,110 | | | Finished goods | | | 3,059 | | | | 2,561 | | | Manufacturing supplies | | | 264 | | | | 295 | | | | | $ | 11,973 | | | $ | 10,677 | |
| 4. | PROPERTY, PLANT AND EQUIPMENT |
| | | February 28, 2010 | | | March 1, 2009 | | | | | | | | | | | Land, buildings and improvements | | $ | 40,531 | | | $ | 35,496 | | | Machinery, equipment, furniture and fixtures | | | 129,757 | | | | 131,731 | | | | | | 170,288 | | | | 167,227 | | | Less accumulated depreciation and amortization | | | 125,383 | | | | 118,450 | | | | | $ | 44,905 | | | $ | 48,777 | |
| Property, plant and equipment are initially valued at cost. Depreciation and amortization expense relating to property, plant and equipment was $7,057, $7,707 and $8,286 for fiscal years 2010, 2009 and 2008, respectively. In the 2009 fiscal year fourth quarter, the Company recorded a pre-tax impairment charge of $3,967 for the write-off of construction costs related to the installation of an advanced high-speed treater at the Company’s Nelco Products Pte. Ltd. electronic materials business unit in Singapore. |
| The Company has $750 of buildings which are held for sale at its Neltec Europe SAS business unit in Mirebeau, France and its New England Laminates Co., Inc. business unit in Newburgh, New York. The Company has stopped depreciating these buildings and intends to sell them during the 2011 or 2012 fiscal years. The selling prices are expected to equal or exceed the book values. |
5. GOODWILL AND EQUIPMENT
February 25, February 26,
2007 2006
------------ -------------
Land, buildings and improvements $ 33,698 $ 34,962
Machinery, equipment, furniture
and fixtures 137,806 131,954
------------ -------------
171,504 166,916
Less accumulated depreciation
and amortization 121,609 112,546
------------ -------------
$ 49,895 $ 54,370
============ =============
Property, plant and equipment are initially valued at cost.
Depreciation and amortization expense relating to property, plant and
equipment was $8,992, $9,645 and $10,202 for fiscal years 2007, 2006
and 2005, respectively. OTHER INTANGIBLE ASSETS
In the 2006first quarter of the Company’s 2009 fiscal year, fourththe 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 $4,500 paid at the closing of the acquisition and up to an additional $5,500 payable over five years depending on the achievement of specified earn-out objectives. In the second quarter of the 2010 fiscal year, the Company recorded a pre-tax impairment chargepaid an additional $1,025 for such acquisition, leaving an additional $4,400 payable over four years depending on the achievement of $2,280the earn-out objectives. The Company is in the process of determining the additional amount, if any, up to $1,100, payable for the write-offsecond year. The Company has recorded $5,376 of construction costs
goodwill and an intangible asset related to the installationa patent of an
advanced high-speed treater at the Company's Neltec Europe SAS facility
in Mirebeau, France.
5. ACCRUED LIABILITIES
February 25, February 26,
2007 2006
------------ ------------
Payroll and payroll related $ 3,832 $ 3,580
Employee benefits 897 1,189
Workers compensation accrual 1,575 1,608
Environmental reserve (Note 16) 1,757 1,757
Restructuring accruals 434 495
Other 4,563 6,022
------------ ------------
$ 13,058 $ 14,651
============ ============
6. INCOME TAXES
$106, which is being amortized over 15 years.
| | | February 28, 2010 | | | March 1, 2009 | | | | | | | | | | | Goodwill | | $ | 5,376 | | | $ | 4,351 | | | Other Intangibles | | | 106 | | | | 112 | | | | | $ | 5,482 | | | $ | 4,463 | |
| | | February 28, 2010 | | | March 1, 2009 | | | | | | | | | | | Payroll and payroll related | | $ | 2,228 | | | $ | 2,485 | | | Employee benefits | | | 525 | | | | 989 | | | Workers’ compensation accrual | | | 1,134 | | | | 1,233 | | | Professional fees | | | 1,509 | | | | 1,393 | | | Environmental reserve (Note 15) | | | 9 | | | | 844 | | | Restructuring accruals | | | 681 | | | | 2,239 | | | Other | | | 1,215 | | | | 2,242 | | | | | $ | 7,301 | | | $ | 11,425 | |
The income tax (benefit) provision includes the following:
Fiscal Year
--------------------------------------------
2007 2006 2005
------------ ------------ -------------
Current:
Federal $ 2,319 $ 5,122 $ (585)
State and local 349 339 170
Foreign 3,445 2,793 2,672
------------ ------------ -------------
6,113 8,254 2,257
------------ ------------ -------------
Deferred:
Federal (664) (2,397) -
State and local (554) (123) (6)
Foreign (544) (250) (60)
------------ ------------ -------------
(1,762) (2,770) (66)
------------ ------------ -------------
$ 4,351 $ 5,484 $ 2,191
============ ============ =============
51
As part
| | | Fiscal Year | | | | | 2010 | | | 2009 | | | 2008 | | | Current: | | | | | | | | | | | Federal | | $ | 2,587 | | | $ | 2,087 | | | $ | 3,388 | | | State and local | | | (35 | ) | | | 224 | | | | 698 | | | Foreign | | | 2,447 | | | | 3,593 | | | | 5,341 | | | | | | 4,999 | | | | 5,904 | | | | 9,427 | | | Deferred: | | | | | | | | | | | | | | Federal | | | 683 | | | | (4,354 | ) | | | (1,015 | ) | | State and local | | | 16 | | | | (583 | ) | | | (100 | ) | | Foreign | | | (2,873 | ) | | | (472 | ) | | | 303 | | | | | | (2,174 | ) | | | (5,409 | ) | | | (812 | ) | | | | $ | 2,825 | | | $ | 495 | | | $ | 8,615 | |
During the fourth quarter of its quarterly evaluation of deferred tax assets,the 2010 fiscal year, the Company recognized a tax benefit of $3,500 during$3,050 for the 2007 fiscal year second
quarter relating to the eliminationreduction of certain valuation allowances
previously establisheddeferred tax liabilities in Singapore related to deferredtemporary tax assetsincentives for offshore interest repatriation and recorded $1,188 of additional tax reserves in the United States. The Company believes that it is more likely than not thatDuring the tax benefits associated with these deferred tax assets will be realized
duringthird quarter of the next five fiscal years. In addition, during the 20072010 fiscal year, secondthe Company recognized a $945 tax benefit primarily for a retroactive extension and amendment of a development and expansion tax incentive in Singapore. The extension and amendment provides for reduced tax rates for taxable income in excess of a stipulated base level of taxable income.
During the fourth quarter of the 2009 fiscal year, the Company recorded a tax benefit of $4,677 from the adjustment of certain valuation allowances.
During the fourth quarter of the 2008 fiscal year, the Company recognized a tax benefit of $1,391
relating$1,500 related to reserves previously established in the elimination of reserves no longer required asUnited States for transfer pricing. During the resultthird quarter of the completion of a tax audit and a $499 tax benefit relating
to the life insurance arrangement termination charge. In the 20072008 fiscal year, fourth quarter, the Company recorded a tax benefit of $715
relating to the recognition of tax credits resulting from operating
losses sustained in prior years in France.
During last year's third quarter, the Company recognized a tax benefit of $1,512 relating$540 related to reserves that were deemed no longer required due to a change in market conditions. During the second quarter of the 2008 fiscal year, the Company recognized a tax benefit of $537 for the elimination of valuation allowances
previously established related to deferred tax assetsa reserve in a foreign jurisdiction where the United
States.
The current income tax provision for the 2006 fiscal year included
$3,088 in Federal, state and local taxes relating to the repatriation
of foreign earnings.
Company no longer operates.
The components of income (loss) before income tax were as follows:
Fiscal Year
--------------------------------------------
2007 2006 2005
------------ ------------ -------------
United States $ 18,330 $ 12,823 $ 1,198
Foreign 25,812 19,536 22,598
------------ ------------ -------------
Earningsearnings before income taxes $ 44,142 $ 32,359 $ 23,796
============ ============ =============
were as follows:
| | | Fiscal Year | | | | | 2010 | | | 2009 | | | 2008 | | | | | | | | | | | | | | United States | | $ | 2,914 | | | $ | 2,422 | | | $ | 13,729 | | | Foreign | | | 25,270 | | | | 16,587 | | | | 29,565 | | | Earnings from continuing operations before income taxes | | $ | 28,184 | | | $ | 19,009 | | | $ | 43,294 | |
The Company'sCompany’s effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following:
Fiscal Year
---------------------------------------------
2007 2006 2005
------------ ------------- -------------
Statutory U.S. Federal tax rate 35.0% 35.0% 35.0%
State and local taxes, net of
federal benefit (0.3) 0.4 0.5
Foreign tax rate differentials (9.1) (9.1) (20.2)
Valuation allowance on deferred tax
assets (4.4) (8.0) (8.0)
Elimination of reserves no longer
required (5.8) - -
Utilization of net operating loss
carryovers (1.6) (9.7) -
Foreign tax credits (2.1) - -
Additional U.S. taxes on
repatriated foreign earnings - 9.5 -
Other, net (1.8) (1.1) 1.9
------------ ------------- -------------
9.9% 17.0% 9.2%
============ ============= =============
52
| | | 2010 | | | 2009 | | | 2008 | | | | | | | | | | | | | | Statutory U.S. Federal tax rate | | | 34.0 | % | | | 34.0 | % | | | 35.0 | % | | State and local taxes, net of Federal benefit | | | (0.1 | ) ) | | | 0.6 | | | | 0.9 | | | Foreign tax rate differentials | | | (17.3 | ) | | | (7.7 | ) | | | (8.1 | ) | | Valuation allowance on deferred tax assets | | | 3.6 | | | | (24.0 | ) | | | 0.1 | | | Adjustment of tax accruals and reserves | | | 4.2 | | | | (0.4 | ) | | | (6.0 | ) | | Foreign deferred liability reduction | | | (14.2 | ) | | | - | | | | - | | | Foreign tax credits | | | (0.2 | ) | | | (3.2 | ) | | | (2.3 | ) | | Permanent differences and other | | | - | | | | 3.3 | | | | 0.3 | | | | | | 10.0 | % | | | 2.6 | % | | | 19.9 | % |
The Company had total net operating loss carry-forwardscarryforwards of approximately $17,400$27,800 and $15,800$24,300 in fiscal years 20072010 and 2006,2009, respectively. All of the total net operating loss carry-forwardscarryforwards related to foreign operations in fiscal years 20072010 and 2006.2009. The foreign net operating loss carry-forwardscarryforwards have no expiration.
The Company had New York State investment tax creditscredit carryforwards of $2,238 and
$2,238$1,180 in both fiscal years 20072010 and 2006, respectively. No2009. A $50 benefit has been recognized for these credits ascredits; however, the Company does not believe that realization of the principal portion of the investment tax credit carryforward is more likely than not.
In the 2006
The deferred tax asset valuation allowance of $9,814 as of February 28, 2010 related to foreign net operating losses and New York State investment tax credit carryforwards. During fiscal year 2010, the Company utilized all of its U.S. net
operating loss carry-forwards including $2,000 of cumulative deductions
relatingvaluation allowance increased by $1,027 due to the taxable disposition of incentive stock options carried
forward from fiscal years 2005 and 2004. The totalcurrent year foreign losses, for which no tax benefit credited
to additional paid in capital relating to the exercise of stock options
was $1,264.
recognized. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. At February 25, 2007, the Company had current deferred tax assets of
$3,791 compared to $2,927 at February 26, 2006. Significant components of the Company's long-term deferred tax liabilities and assets as of February 25, 200728, 2010 and February 26, 2006March 1, 2009 were as follows:
2007 2006
------------ -------------
Deferred tax liabilities:
Depreciation $ (1,380) $ (1,763)
Offshore Singapore earnings subject to
local tax (2,914) (3,430)
------------ -------------
Total deferred tax liabilities $ (4,294) $ (5,193)
============ =============
Deferred tax assets:
Impairment of fixed assets $ 4,266 $ 4,379
Net operating loss carry-forwards 5,598 5,157
New York State investment tax credits 2,238 2,238
Other, net 4,158 5,836
------------ -------------
Total deferred tax assets 16,260 17,610
Valuation allowance for deferred
tax assets (12,469) (14,683)
------------ -------------
| | | February 28, | | | March 1, | | | | | 2010 | | | 2009 | | | Deferred tax assets: | | | | | | | | Impairment of fixed assets | | $ | 6,654 | | | $ | 5,757 | | | Net operating loss carryforwards | | | 8,684 | | | | 7,657 | | | New York State investment tax credits | | | 1,180 | | | | 1,180 | | | Other, net | | | 2,584 | | | | 4,310 | | | | | | 19,102 | | | | 18,904 | | | Valuation allowance for deferred tax assets | | | (9,814 | ) | | | (8,787 | ) | | Net deferred tax assets | | | 9,288 | | | | 10,117 | | | Depreciation | | | (1,246 | ) | | | (1,354 | ) | | Offshore Singapore earnings subject to local tax | | | (150 | ) | | | (3,056 | ) | | Total deferred tax liabilities | | | (1,396 | ) | | | (4,410 | ) | | Net deferred tax | | $ | 7,892 | | | $ | 5,707 | |
Net deferred tax assets $ 3,791 $ 2,927
============ =============
Net deferred tax assetsof $9,288 are included in non-current "Other Assets"“Other assets” on the Consolidated Balance Sheets. Also
At February 28, 2010, the Company had gross tax-affected unrecognized tax benefits of $1,715, included in "Other Assets" are
French“Other liabilities” on the Consolidated Balance Sheets, all of which, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | Unrecognized | | | | | Tax Benefits | | | Balance as of March 1, 2009 | | $ | 702 | | | Gross increases–tax positions in prior period | | | 766 | | | Gross decreases-tax positions in prior period | | | - | | | Gross increases-current period tax positions | | | 324 | | | Gross decreases-current period tax positions | | | - | | | Lapse of statute of limitations | | | (77 | ) | | Balance as of February 28, 2010 | | $ | 1,715 | |
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding or reducing amounts for current year tax positions, expiration of statutes of limitation on open income tax refunds totaling $1,572 expectedreturns, changes in management’s judgment about the level of uncertainty, status of tax examinations, and legislative activity. The Company does not expect the unrecognized tax benefits to be receivedsignificantly decrease during the 2011 fiscal year. The gross increases in tax positions in prior period increased as a result of a change in the Company's judgement based on updated information.
A list of open tax years by major jurisdiction follows:
| United States | 2006-2010 | | Arizona | 2006-2010 | | California | 2006-2010 | | New York | 2007-2010 | | France | 2009-2010 | | Singapore | 2004-2010 |
The Company had approximately $354 and $180 of accrued interest and penalties as of February 28, 2010 and March 1, 2009, respectively. The Company’s policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of income tax expense. Net operating losses in the United States from fiscal years 20092004 and 2010.
7. STOCK-BASED COMPENSATION
2005 have been carried forward to fiscal year 2006 and remain open until the statute of limitations for fiscal year 2006 expires. | 8. | STOCK-BASED COMPENSATION |
As of February 25, 2007,28, 2010, the Company had a 1992 Stock Option Plan and a 2002 Stock Option Plan, and no other stock-based compensation plan. Both Stock Option Plans have been approved by the Company'sCompany’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
53 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 900,0001,800,000 shares of common stock were authorized for grant under the 2002 Stock Option Plan. At February 25, 2007, 1,418,47028, 2010, 1,951,126 shares of common stock of the Company were reserved for issuance upon exercise of stock options under the 1992 Stock Option Plan and the 2002 Stock Option Plan and 351,843933,031 shares were available for future grant under the 2002 Stock Option Plan. Options to purchase 174,700150,450 and 157,250146,850 shares of common stock were granted during the 20072010 fiscal year and 20062009 fiscal year, respectively.
Effective February 27, 2006, the beginning of the Company's 2007 fiscal
year, the Company began recording compensation expense associated with
stock options, the only form of equity compensation issued by the
Company, in accordance with Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment" ("SFAS 123R"), and Securities and
Exchange Commission Staff Accounting Bulletin No. 107. Prior to
February 27, 2006, the Company accounted for equity compensation
according to the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
and, therefore, no related compensation expense was recorded in the
statements of earnings for awards granted with no intrinsic value.
| The compensation expense for stock options includes an estimate for forfeitures and is recognized on a straight line basis over the requisite service period. |
| The future compensation expense to be recognized in earnings before income taxes for options outstanding at February 28, 2010 will be $2,041. |
The Company adopted the modified prospective transition method pursuant to
SFAS 123R, and, consequently, has not retroactively adjusted results
from prior periods. Under this transition method,records its stock-based compensation costs
associated with equity compensation recognized during the 13 weeks and
52 weeks ended February 25, 2007 included (1) quarterly amortization
related to the remaining unexercisable portion of all stock options
granted prior to February 27, 2006 based on the grant dateat fair value
estimated in accordance with the original provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and (2) quarterly amortization related to
all stock options granted subsequent to February 27, 2006 based on the
grant date fair value estimated in accordance with the provisions of
SFAS 123R.
The Company determines the fair value of stock options on the dates of
grants using an option pricing model with assumptions regarding a
number of highly complex and subjective variables. These variables
include, but are not limited to, the risk-free interest rate of the
options, the expected life of the options, the expected volatility of
the market price of the Company's common stock over the term of the
options, the expected dividends to be paid on the Company's common
stock, and an estimate of the amount of options that are expected to be
forfeited. The Company uses the Black-Scholes option-pricing model to
determine the fair value of options under SFAS 123R and the original
SFAS 123. The compensation expense for stock options includes an
estimate for forfeitures and is recognized over the vesting term using
the ratable method. Prior to the Company's adoption of SFAS 123R,
benefits of tax deductions in excess of recognized compensation costs
were reported as operating cash flows. SFAS 123R requires that such
benefits be recorded as a financing cash inflow rather than as a
reduction of taxes paid. For the 13 weeks and 52 weeks ended February
25, 2007 no excess tax benefits were generated from option exercises.
54
As a result of the adoption of SFAS 123R, the Company's earnings before
income taxes for the 13 weeks and 52 weeks ended February 25, 2007 were
$350 and $1,283, respectively, lower than under the previous accounting
methodology for stock-based compensation. The future compensation
expense affecting earnings before income taxes for options outstanding
at February 25, 2007 will be $2,590 as a result of the adoption of SFAS
123R.
If compensation expense for the Company's stock option plans had been
determined based upon estimated fair values at the grant dates in
accordance with SFAS 123, the Company's pro forma net income and basic
and diluted earnings per common share for the 2006 and 2005 fiscal
years for stock options granted prior to the adoption of SFAS 123R
would have been as follows (in thousands, except for per share data):
2006 2005
------------ ------------
Net earnings $ 26,875 $ 21,605
Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards, net
of tax effects (1,627) (1,803)
------------ ------------
Pro forma net earnings $ 25,248 $ 19,802
============ ============
Basic earnings per share:
As reported $ 1.34 $ 1.09
Pro forma $ 1.26 $ 1.00
Diluted earnings per share:
As reported $ 1.33 $ 1.08
Pro forma $ 1.25 $ 0.97value. The weighted average fair value for options was estimated at the dates of grants using the Black-Scholes option-pricing model to be $10.84$8.05 for fiscal year 2007, $7.772010, $ 3.22 for fiscal year 20062009 and $8.41$10.30 for fiscal year 2005,2008, with the following assumptions: risk free interest rate of 4.0%-5.0%2.75%-3.42% for fiscal year 2007 and 5.0%2010, 2.75%-4.00% for fiscal years 2006year 2009 and 2005;4.75% for fiscal year 2008; expected volatility factors of 34.4%-58.8%32.1%-35.7%, 34%-36%27.5%-32.5%, and 38%-46%32.1%-32.4% for fiscal years 2007, 20062010, 2009 and 2005,2008 respectively; expected dividend yield of 1.0%-1.6%1.60%-1.98% for fiscal year 2007, 1.3%2010, 1.18%-1.77% for fiscal year 20062009 and 1.6%1.06% for fiscal year 2005;2008 and estimated option terms of 4.0-5.65.1-5.7 years for fiscal year 2007, and 4.02010, 4.7-5.6 years for fiscal year 2009 and 5.2–5.4 years 2006 and 2005.
The estimated term of the options is based on evaluations of historical
and expected future employee exercise behavior. The risk free interest
rate is based on U.S. Treasury rates at the date of grant with maturity
dates approximately equal to the estimated term of the options at the
date of the grant. Volatility is based on historical volatility of the
company stock.
55
for fiscal year 2008.
| The risk free interest rate is based on U. S. Treasury rates at the date of grant with maturity dates approximately equal to the estimated term of the options at the date of the grant. Volatility is based on historical volatility of the Company’s common stock. The expected annual dividend yield is based on the regular quarterly cash dividend per share most recently declared by the Company and on the exercise price of the options granted during the fiscal year 2010. The estimated term of the options is based on evaluations of the historical and expected future employee exercise behavior. |
Information with respect to options follows:
Weighted
Average
Outstanding Exercise
Options Price
------------ ------------
Balance,
| | | Outstanding Options | | | Weighted Average Exercise Price | | | | | | | | | | | Balance, February 25, 2007 | | | 1,066,627 | | | $ | 21.61 | | | Granted | | | 168,150 | | | | 30.29 | | | Exercised | | | (152,086 | ) | | | 17.74 | | | Terminated or expired | | | (41,952 | ) | | | 25.27 | | | | | | | | | | | | | Balance, March 2, 2008 | | | 1,040,739 | | | $ | 23.50 | | | Granted | | | 146,850 | | | | 26.36 | | | Exercised | | | (123,649 | ) | | | 18.07 | | | Terminated or expired | | | (81,213 | ) | | | 26.72 | | | | | | | | | | | | | Balance, March 1, 2009 | | | 982,727 | | | $ | 24.35 | | | Granted | | | 150,450 | | | | 24.70 | | | Exercised | | | (70,175 | ) | | | 16.78 | | | Terminated or expired | | | (44,907 | ) | | | 26.32 | | | Balance February 28, 2010 | | | 1,018,095 | | | | 24.89 | | | Exercisable February 28, 2010 | | | 675,029 | | | $ | 24.11 | |
At February 29,2004 1,396,653 $ 19.91
Granted 183,900 22.86
Exercised (152,327) 13.04
Terminated or expired (144,407) 23.89
------------
Balance,28, 2010, 1,018,095 stock options were outstanding having a weighted average remaining contract term of 5.56 years and an aggregate intrinsic value of $2,901. At February 27, 2005 1,283,819 $ 20.71
Granted 157,250 24.57
Exercised (218,770) 17.89
Terminated or expired (218,845) 25.89
------------
Balance, February 26, 2006 1,003,454 $ 20.80
Granted 174,700 25.35
Exercised (80,236) 17.85
Terminated or expired (31,291) 26.07
------------
Balance, February 25, 2007 1,066,627 21.61
============
Exercisable February 25, 2007 714,615 $ 20.13
============
The following table summarizes information concerning outstanding28, 2010, 675,029 stock options were exercisable having a weighted average remaining contract term of 4.00 years and exercisablean aggregate intrinsic value of $2,441.
A summary of the status of the Company’s nonvested options at February 25, 2007.
Weighted
Average
Weighted Remaining
Average Contractual Aggregated
Number of Exercise Term In Intrinsic
Options Price Years Value
--------- ------------ ------------ ------------
Outstanding at February 25, 2007 1,066,627 $ 20.61 5.33 $ 7,446
Exercisable at February 25, 2007 714,615 20.13 3.68 6,046
28, 2010, and changes during the fiscal year then ended, is presented below: | | | | | | Weighted Average | | | | | Shares Subject | | | Grant Date Fair | | | | | to Options | | | Value | | | Nonvested, beginning of year | | | 337,985 | | | $ | 7.16 | | | Granted | | | 150,450 | | | | 8.05 | | | Vested | | | (111,094 | ) | | | 7.76 | | | Terminated | | | (34,275 | ) | | | 7.70 | | | | | | | | | | | | | Nonvested, end of year | | | 343,066 | | | $ | 7.44 | |
The total values realized (the market value of the underlying shares on the date of exercise, less the exercise price, times the number of shares acquired) from the exercise of options during the 2007, 20062010, 2009 and 20052008 fiscal years were $1,153, $1,424$352, $1,259 and $1,489,$1,889, respectively. Stock options available for future grant under the 2002 Stock Option Plan at February 25, 200728, 2010 and February 26, 2006March 1, 2009 were 351,843933,031 and 502,453,1,046,606, respectively.
56
8. STOCKHOLDERS' EQUITY
a. Stockholders' Rights Plan -
| a. | Stockholders’ Rights Plan – On July 20, 2005, the Board of
Directors renewed the Company's stockholders' rights plan on
substantially the same terms as its previous rights plan which
expired in July, 2005. In accordance with the Company's
stockholders' rights plan, a right (the "Right") to purchase
from the Company a unit consisting of one one-thousandth
(1/1000) of a share (a "Unit") of Series B Junior
Participating Preferred Stock, par value $1.00 per share (the
"Series B Preferred Stock"), at a purchase price of $150 (the
"Purchase Price") per Unit, subject to adjustment, is attached
to each outstanding share of the Company's common stock. The
Rights expire on July 20, 2005, the Board of Directors renewed the Company’s stockholders’ rights plan on substantially the same terms as its previous rights plan which expired in July 2005. In accordance with the Company’s stockholders’ rights plan, a right (the “Right”) to purchase from the Company a unit consisting of one one-thousandth (1/1000) of a share (a “Unit”) of Series B Junior Participating Preferred Stock, par value $1.00 per share (the “Series B Preferred Stock”), at a purchase price of $150 (the “Purchase Price”) per Unit, subject to adjustment, is attached to each outstanding share of the Company’s common stock. The Rights expire on July |
20, 2015. Subject to certain exceptions, the Rights will become exercisable 10 business days after a person acquires 1520 percent or more of the Company'sCompany’s outstanding common stock or commences a tender offer that would result in such person'sperson’s owning 1520 percent or more of such stock. If any person acquires 1520 percent or more of the Company'sCompany’s outstanding common stock, the rights of holders, other than the acquiring person, become rights to buy shares of the Company'sCompany’s common stock (or of the acquiring company if the Company is involved in a merger or other business combination and is not the surviving corporation) having a market value of twice the Purchase Price of each Right. The Company may redeem the Rights for $.01 per Right until 10 business days after the first date of public announcement by the Company that a person acquired 1520 percent or more of the Company'sCompany’s outstanding common stock.
b. Reserved Common Shares - At February 25, 2007, 1,418,470
shares of common stock were reserved for issuance upon
exercise of stock options.
c. Accumulated Other Comprehensive Income - Accumulated balances
related to each component of other comprehensive income were
as follows:
February 25, February 26,
2007 2006
------------ -------------
Currency translation adjustment $ 5,010 $ 3,326
Unrealized losses on investments (246) (891)
------------ -------------
Accumulated balance $ 4,764 $ 2,435
============ =============
d. Dividends Declared - On July 20, 2006, the Company announced
that its Board of Directors had declared a special cash
dividend of $1.00 per share, which was paid August 22, 2006
and was in addition to the Company's regular quarterly cash
dividends of $0.08 per share; and on October 19, 2005, the
Company announced that its Board of Directors had declared a
special cash dividend of $1.00 per share, which was paid
December 15, 2005 and was in addition to the Company's regular
quarterly cash dividends of $0.08 per share.
57
9. 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.
| b. | Reserved Common Shares – At February 28, 2010, 1,951,126 shares of common stock were reserved for issuance upon exercise of stock options. |
| c. | Accumulated Other Comprehensive Income – Accumulated balances related to each component of other comprehensive income were as follows: |
| | | February 28, 2010 | | | March 1, 2009 | | | | | | | | | | | Currency translation adjustment | | $ | 1,606 | | | $ | 1,568 | | | Unrealized gains (losses) on investments | | | 10 | | | | 54 | | | | | | | | | | | | | Accumulated balance | | $ | 1,616 | | | $ | 1,622 | |
| d. | Dividends Declared - On July 22, 2009, the Company announced that its Board of Directors had approved an increase in the Company’s regular quarterly cash dividend to $0.10 per share and declared a regular quarterly cash dividend of $0.10 per share payable November 5, 2009 to stockholders of record on October 7, 2009. The $0.10 per share was paid on November 5, 2009. |
| 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 last three fiscal years:
2007 2006 2005
------------ ------------ ------------
Net earnings $ 39,791 $ 26,875 $ 21,605
============ ============ ============
Weighted average common shares
outstanding for basic EPS 20,175,422 20,046,900 19,879,278
Net effect of dilutive options 141,418 163,300 195,741
------------ ------------ ------------
Weighted average shares outstanding
for diluted EPS 20,316,840 20,210,200 20,075,019
============ ============ ============
Basic earnings per share $ 1.97 1.34 $ 1.09
============ ============ ============
Diluted earnings per share $ 1.96 $ 1.33 $ 1.08
============ ============ ============
| | | 2010 | | | 2009 | | | 2008 | | | Net earnings from continuing operations | | $ | 25,359 | | | $ | 18,514 | | | $ | 34,679 | | | Gain from discontinued operations | | - | | | | 16,486 | | | - | | | Net earnings | | $ | 25,359 | | | $ | 35,000 | | | $ | 34,679 | | | | | | | | | | | | | | | | | Weighted average common shares outstanding for basic EPS | | | 20,521,697 | | | | 20,441,354 | | | | 20,305,199 | | | Net effect of dilutive options | | 25,400 | | | 44,762 | | | 59,004 | | | Weighted average shares outstanding for diluted EPS | | | 20,547,097 | | | | 20,486,116 | | | | 20,364,203 | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 1.24 | | | $ | 0.90 | | | $ | 1.71 | | | Gain from discontinued operations | | - | | | 0.81 | | | - | | | Basic earnings per share | | $ | 1.24 | | | $ | 1.71 | | | $ | 1.71 | | | Diluted earnings per share: | | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 1.23 | | | $ | 0.90 | | | $ | 1.70 | | | Gain from discontinued operations | | - | | | | 0.81 | | | - | | | Diluted earnings per share | | $ | 1.23 | | | $ | 1.71 | | | $ | 1.70 | |
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 3,619, 100,058336,450, 123,503 and 99,44710,885 for the fiscal years 2007, 20062010, 2009 and 2005,2008, respectively.
10. DISCONTINUED OPERATIONS AND PENSION LIABILITY
| 11. | DISCONTINUED OPERATIONS |
On February 4, 2004, the Company announced that it was discontinuing its financial support of its Dielektra GmbH ("Dielektra"(“Dielektra”) subsidiary located in Cologne, Germany, due to the continued erosion of the European market for the Company'sCompany’s high technology products. Without Park'sPark’s financial support, Dielektra filed an insolvency petition, which the Company believes willbelieved would result in the liquidation of Dielektra. In
accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", Dielektra iswas 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 arewere reported separately on the Consolidated Balance Sheet.
These liabilities from discontinued operations included $12,094 for
Dielektra's deferred pension liability. TheSheets.
In the 2009 fiscal year, the Company expects to
recognizerecognized a gain of approximately $17 million$16,486 related to the reversal of these liabilities when the Dielektra insolvency process is
completed, although it is unclear when the process will be completed.
58
Liabilities for discontinued operations as of February 25, 2007 and
February 26, 2006 consisteda result of the following:
February 25, February 26,
2007 2006
------------ ------------
Environmental and
otherCompany’s judgment that the incurrence of such liabilities $ 5,087 $ 5,157
Pension liabilities 12,094 12,094
------------ ------------
Total liabilities $ 17,181 $ 17,251
============ ============
11. REALIGNMENT AND SEVERANCE CHARGES
Duringwas remote based on certain legal proceedings in Germany.
| 12. | REALIGNMENT AND SEVERANCE CHARGES |
In the 20062009 fiscal year firstfourth quarter, the Company recorded one-time pre-tax charges of $5,687 related to the closure of the Company’s New England Laminates Co., Inc. electronic materials business unit located in Newburgh, New York and the closure of the Company’s Neltec Europe SAS electronic materials business unit located in Mirebeau, France and related to an asset impairment and workforce reduction at the Company’s Nelco Products Pte. Ltd. electronic materials and advanced composite materials business unit in Singapore. The charges for the closure of the business units included a non-cash asset impairment charge of $650 and were net of the recapture of non-cash cumulative currency translation adjustments of $3,957. In the 2009 fiscal year third quarter, the Company recorded a pre-tax charge of $570 related to restructurings at certain of its North American and European business units. The Company paid $3,045 and $2,609 of these charges during the 2009 fiscal year and 2010 fiscal year, respectively. The Company recorded an additional pre-tax charge of $169 during the 2010 fiscal year and expects to pay the remaining $112 during the 2011 fiscal year.
In the 2008 fiscal year fourth quarter, the Company recorded a charge of $1,059$1,362 for employment termination benefits forand other expenses resulting from a restructuring and workforce reduction at itsthe Company’s Neltec Europe SAS subsidiary in Mirebeau, France, $170business unit. The Company paid $626 of which was reversed inthese charges during the 20062008 fiscal year fourth quarter. The
payment of these termination benefits was substantially completed byand paid the end ofremaining $736 during the 20062009 fiscal year.
During the 20052004 fiscal year, third quarter, the Company recorded $625 of
charges for severance payments for workforce reductions at its North
American and European volume printed circuit materials operations.
These severance payments were made to employees during the 2005 fiscal
year third quarter and there were no remaining liabilities as of
February 27, 2005.
The Company recorded pre-tax charges of $1,934 and $6,504 during the
first and second quarters, respectively, of the 2004 fiscal year related to the realignment of its North America volume printed circuit materials operationsoperations. The charges were for employment termination benefits of $1,258, which were fully paid in Newburgh, New York and Fullerton, California.
During the fourth quarter of fiscal year 2004, and lease and other obligations of $7,292. All costs other than the Company recorded
pretax charges of $112 relatedlease obligations were settled prior to workforce reductions in Europe and
recovered $81 from sales of impaired assets related to its European
operations. The components of these charges and the related liability
balances and activity for the year ended February 25, 2007 are set
forth below.
Paid or
Reversed in Present 2/25/07
Original Prior Balance Charges Value Remaining
Charge Years 2/26/06 Paid Adjustment Liabilities
------------ ------------ ------------ ------------ ------------ ------------
Neltec Europe
Termination benefits $ 1,059 $ (853) $ 206 $ (40) $ - $ 166
New York and California and
other realignment charges:
Lease payments,
taxes, utilities
and other 7,292 (2,079) 5,213 (494) (570) 4,149
Termination benefits 1,258 (1,258) - - - -
------------ ------------ ------------ ------------ ------------ ------------
$ 9,609 $ (4,190) $ 5,419 $ (534) $ (570) $ 4,315
============ ============ ============ ============ ============ ============
59
The termination benefits were for the termination of hourly and
salaries, administrative, manufacturing and support employees. Such
employees were terminated in France during the 2006 fiscal year second
quarter and in North America during the 2004 fiscal year first, second
and third quarters.2007. The major portion of the termination benefits were
paid for such employees in France during the second, third and fourth
quarters of the 2006 fiscal year, and the termination benefits were
paid for such employees in North America in installments during fiscal
year 2004. Thefuture lease charges covered one lease obligation payable
through December 2004 and a portion of another lease obligationobligations are payable through September 2013. ForThe remaining balances on the 13lease obligations relating to the realignment were $2,534 and 52 weeks ended$3,209 as of February 25,
2007,28, 2010 and March 1, 2009, respectively. Of these remaining balances, $1,897 and $2,776 were included in “Other liabilities” on the Consolidated Balance Sheets for the 2010 and 2009 fiscal years, respectively. The Company applied $123$637 and $494 respectively,$497 of payments against the liability.
As a result of the foregoing employee terminations and other less
significant employee terminations in connection with business
contractions and in the ordinary course of business and substantial
numbers of employee resignations and retirements in the ordinary course
of business, the total number of employees employed by the Company
declined to approximately 950 as of February 25, 2007.
12. GAIN ON INSURANCE SETTLEMENT
In the 2005 fiscal year third quarter, the Company settled an insurance
claim for damages sustained by the Company in Singapore as the result
of an explosion that occurred in November 2002 in one of the four
treaters located at its Nelco manufacturing facility in Singapore.
During the 2005 fiscal year third quarter, the Company received $5,816
related to this insurance claim. The proceeds represent reimbursement
for assets destroyed in the accident and for business interruption
losses. As a result, the Company recognized a $4,745 gainliability during the 2005 fiscal year third quarter.
13. INSURANCE ARRANGEMENT TERMINATION CHARGE
During the 2007 fiscal year second quarter ended August 27, 2006, the
Company terminated a split-dollar life insurance arrangement with Jerry
Shore, the Company's founder2010 and former Chairman, President and Chief
Executive Officer. The insurance arrangement, which involved two life
insurance policies payable on the death of the survivor of Jerry Shore
and his spouse with an aggregate face value of $5 million and annual
premium payments by the Company of approximately $129, was implemented
in 1997 but discontinued in 2004 in light of certain provisions of the
Sarbanes-Oxley Act of 2002 and due to changes in the income taxation of
split-dollar life insurance arrangements. The arrangement is more fully
described in the Company's annual proxy statements for each of the
years 1998 through 2006. Pursuant to an agreement entered into between
Jerry Shore and the Company, the termination of the insurance
arrangement involved a payment of $1,335 by the Company to Mr. Shore in
January 2007. Such termination and payment resulted in a net cash cost
to the Company of $685, after the Company's receipt of a portion of the
cash surrender value of the life insurance policies. The Company
recorded a pre-tax charge of $1,316 in the 2007 fiscal year second
quarter ended August 27, 2006 in connection with this termination and
recognized a $499 tax benefit relating to this insurance termination
charge.
60
14. EMPLOYEE BENEFIT PLANS
a. Profit Sharing Plan - The Company and certain of its
subsidiaries have a non-contributory profit sharing retirement
plan covering their regular full-time employees. The plan may
be modified or terminated at any time, but in no event may any
portion of the contributions revert back to the Company. The
Company's estimated contributions are accrued at the end of
each fiscal year and paid to the plan in the subsequent fiscal
year. The Company's actual contributions to the plan were $847
and $687 for2009 fiscal years, 2006 and 2005, respectively. The
contribution estimated for fiscal year 2007 has not been paid.
Contributions are discretionary and may not exceed the amount
allowable as a tax deduction under the Internal Revenue Code.
b. Savings Plan - The Company also sponsors a 401(k) savings
plan, pursuant to which the contributions of employees of
certain subsidiaries were partially matched by the Company in
the amounts of $247, $218 and $236 in fiscal years 2007, 2006
and 2005, respectively.
15. LEASE COMMITMENTS
| 13. | EMPLOYEE BENEFIT PLANS |
| a. | Profit Sharing Plan - The Company and certain of its subsidiaries have a non-contributory profit sharing retirement plan covering substantially all full-time employees in the United States. The plan may be modified or terminated at any time, but in no event may any portion of the contributions revert back to the Company. The Company's estimated contributions are accrued at the end of each fiscal year and paid to the plan in the subsequent fiscal year. The Company’s contributions to the plan were $367 and $833 for fiscal years 2009 and 2008, respectively. The contribution for fiscal year 2010 has not been paid. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code. |
| b. | Savings Plan - The Company also sponsors a 401(k) savings plan, pursuant to which the contributions of employees of certain subsidiaries were partially matched by the Company in the amounts of $176, $210 and $222 in fiscal years 2010, 2009 and 2008, respectively. |
The Company conducts certain of its operations in leased facilities, which include several manufacturing plants, warehouses and offices, and
land leases.offices. The leases on facilities are for terms of up to 10 years, the latest of which expires in 2015. Many of the leases contain renewal options for periods ranging from one to ten years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2054.
These non-cancelable operating leases have the following payment schedule.
Fiscal Year Amount
----------- ----------
2008 2,029
2009 1,905
2010 1,931
2011 1,669
2012 1,108
Thereafter 2,541
----------
$ 11,183
==========
| Fiscal Year | | Amount | | | 2011 | | | 1,935 | | | 2012 | | | 1,359 | | | 2013 | | | 966 | | | 2014 | | | 679 | | | 2015 | | | 589 | | | Thereafter | | 891 | | | | | $ | 6,419 | |
Rental expenses, inclusive of real estate taxes and other cost $2,047,
$2,257costs, were $3,046, $2,721 and $2,560$2,465 for fiscal years 2007, 20062010, 2009 and 2005,2008, respectively.
16. 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.
61
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 Com-
prehensive Environmental Response, Compensation and Liability
Act (the "Superfund Act") or similar state law as potentially
responsible parties in connection with alleged releases of
haz- ardous substances at nine sites.
In addition, a
subsidiary of the Company has received cost recovery claims
under the Superfund Act from other private parties involving
one other sitecommitments of $1,653 to construct an expansion of its development and has received requests from the EPA under
the Superfund Act for information with respect to its
involvement at threemanufacturing facility in Newton, Kansas.
| 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 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 subsidiariessub-sidiaries 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 environmentalenviron-mental compliance program.
The insurance carriers who provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company's subsidiaries' waste was disposed at these sites have agreed to pay, or reimburse the Company and its subsidiaries for, 100% of their legal defense and remediation costs associated with three of these sites and 25% of such costs associated with another one of these sites.
The total costs incurred by the Company and its subsidiaries in connection with these sites, including legal fees incurred by the Company and its subsidiaries and their assessed share of remediation costs and excluding amounts paid or reimbursed by insurance carriers, were approximately $1, $1$107 and $2$9 in fiscal years 2007, 20062010, 2009 and 2005,2008, respectively. In the 2010 and 2009 fiscal years, the Company reversed accruals of approximately $835 and $638, respectively, for environmental remedial response and clean-up costs, which were recorded as reductions to selling, general and administrative expenses for such years, as a result of the Company’s conclusion that the likelihood of any liability in connection with such accruals was remote. The recorded liabilities included in accrued liabilities for environmental matters were $1,757, $1,757$9, $844 and $2,387$1,577 for fiscal years 2007,
20062010, 2009 and 2005,2008, respectively. As discussed in Note 10,
liabilities from discontinued operations have been segregated
on the Consolidated Balance Sheet and include $2,121 for
environmental matters related to Dielektra.
Such recorded liabilities do not include environmental liabilities and related legal expenses for which the Company has concluded indemnification agreements with the insurance carriers who provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company's subsidiaries' waste was disposed at three sites for which certain subsidiaries of the Company have been named as potentially responsible parties, pursuant to which agreements such insurance carriers have been paying 100% of the legal defense and remediation costs associated with such three sites since 1985.
62
Included in cost of salesselling, general and administrative expenses are charges for actual expenditureexpenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business or consolidated results of operations or financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated results of operations or financial position for a particular reporting period.
17. BUSINESS SEGMENTS
| c. | Acquisition – The Company is obligated to pay up to an additional $4,400 over four years depending on the achievement of specified earn-out objectives in connection with the acquisition by the Company’s wholly owned subsidiary, Park Aerospace Structures Corp., of substantially all the assets and business of Nova Composites, Inc., a manufacturer of composite parts and assemblies and the tooling for such parts and assemblies, located in Lynnwood, Washington, in addition to a cash purchase price of $4,500 paid at the closing of the acquisition on April 1, 2008. In the second quarter of the 2010 fiscal year, the Company paid an additional $1,025 for such acquisition, leaving an additional $4,400 payable over four years depending on the achievement of the earn-out objectives. The Company is in the process of determining the additional amount, if any, up to $1,100, payable for the second year. |
The Company considers itself to operate in one business segment becauseCompany’s printed circuit materials products, the Company'sCompany’s advanced composite materials product line comprises less
than 10% ofproducts and the Company's assets, revenuesCompany’s composite parts and profit from operations
on an absolute basis. The Company's printed circuit materials (the
Nelco(R) product line)assemblies products are marketed primarilysold to leading independent
printed circuit board fabricators, electronic manufacturing service
companies, electronic contract manufacturers and major electronic
original equipment manufacturers ("OEMs") located throughoutcustomers in North America, Europe and Asia. The Company's advanced composite materials
(the Nelcote(TM) product line) customers, the majority of which are
located in the United States, include OEMs, independent firms and
distributors in the electronics, aerospace, and industrial industries.
Sales are attributed to geographic region based upon the region fromin which the materials were invoiceddelivered to the customer. Sales between geographic regions were not significant.
Financial information regarding the Company'sCompany’s operations by geographic region follows: | | | Fiscal Year | | | | | 2010 | | | 2009 | | | 2008 | | | Sales: | | | | | | | | | | | North America | | $ | 87,361 | | | $ | 103,772 | | | $ | 120,953 | | | Europe | | | 18,451 | | | | 22,804 | | | | 30,533 | | | Asia | | | 69,874 | | | | 73,486 | | | | 90,366 | | | Total sales | | $ | 175,686 | | | $ | 200,062 | | | $ | 241,852 | | | | | | | | | | | | | | | | | Long-lived assets: | | | | | | | | | | | | | | North America | | $ | 40,020 | | | $ | 41,423 | | | $ | 25,069 | | | Europe | | | 1,264 | | | | 1,112 | | | | 4,552 | | | Asia | | | 19,141 | | | | 21,113 | | | | 26,747 | | | Total long-lived assets | | $ | 60,425 | | | $ | 63,648 | | | $ | 56,368 | |
Fiscal Year
--------------------------------------------
2007 2006 2005
------------ ------------ ------------
Sales:
United States $ 140,390 $ 124,365 $ 117,109
Europe 34,870 34,372 34,198
Asia 82,117 63,514 59,880
------------ ------------ ------------
Total| 17. | CUSTOMER AND SUPPLIER CONCENTRATIONS |
| a. | Customers - Sales to Sanmina-SCI Corporation were 13.7%, 13.6% and 13.4% of the Company's total worldwide sales $ 257,377 $ 222,251 $ 211,187
============ ============ ============
Long-lived assets:
United States $ 25,600 $ 27,769 $ 32,610
Europe 4,659 9,077 10,856
Asia 25,331 20,105 20,183
------------ ------------ ------------
Total long-lived assets $ 55,590 $ 56,951 $ 63,649
============ ============ ============
|
18. CUSTOMER AND SUPPLIER CONCENTRATIONS
a. Customers - Sales to Sanmina-SCI Corporation were 16.7%, 19.4%
and 16.2% of the Company's total worldwide sales for fiscal
years 2007, 2006 and 2005, respectively. Sales to TTM
Technologies Inc. "TTM") were 10.7%, 11.7% and 13.3% of the
Company's total worldwide sales for fiscal years 2007, 2006
and 2005. The sales to TTM during the 2007, 2006 and 2005
fiscal years included sales to Tyco Printed Circuit Group
L.P., which was acquired by TTM
63
during the Company's 2007 fiscal year; and the sales to
Sanmina-SCI Corporation during the 2005 fiscal year included
sales to Pentex Schweitzer, which was acquired by Sanmina
during the Company's 2006 fiscal year. Sales to Multilayer
Technology, Inc. were 8.6%, 10.4% and 9.5% of the Company's
total worldwide sales for fiscal year 2007, 2006 and 2005,for fiscal years 2010, 2009 and 2008, respectively. Sales to TTM Technologies Inc. (“TTM”) were 11.3%, 12.1% and 10.8% of the Company's total worldwide sales for fiscal years 2010, 2009 and 2008, respectively. |
While no other customer accounted for 10% or more of the Company's total worldwide sales in fiscal years 2007, 20062010, 2009 and 2005,2008, and the Company is not dependent on any single customer, the loss of a major printed circuit materials customer or of a group of customers could have a material adverse effect on the Company's business or consolidated results of operations or financial position.
b.
| b. | Sources of Supply - The principal materials used in the manufacture of the Company's high-technology printed circuit materials and advanced composite materials, parts and assemblies are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. Although there are a limited number of qualified suppliers of these materials, the Company has nevertheless identified alternate sources of supply for many of such materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from a principal supplier could adversely affect the Company's business. Furthermore, substitutes for these materials are not readily available and an inability to obtain essential materials, if prolonged, could materially adversely affect the Company’s business. |
| 18. | RECENT ACCOUNTING PRONOUNCEMENTS |
Effective March 2, 2009, the Company adopted new authoritative guidance on Business Combinations. The new guidance requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the manufactureacquiree at fair value as of the Company's high-technology printed circuit
materialsacquisition date. The new guidance requires acquisition-related costs to be expensed as incurred rather than allocating such costs to the assets acquired and advanced composite materials products are
specially manufactured copper foil, fiberglass cloth and
synthetic reinforcements, and specially formulated resins and
chemicals. Although there are a limited numberliabilities assumed. The adoption of qualified
suppliers of these materials,this new guidance did not have an impact on the Company’s Consolidated Financial Statements.
Effective August 30, 2009, the Company has nevertheless
identified alternate sourcesadopted new authoritative guidance on Interim Disclosures about Fair Value of supplyFinancial Instruments, which requires fair value disclosures for eachall financial instruments whether recognized or not in the statement of such
materials. Whilefinancial position. With the adoption of this new guidance, on a quarterly basis, quantitative and qualitative information will be required to be disclosed about the fair value estimates for all financial instruments. The adoption of this new guidance did not have an impact on the Company’s Consolidated Financial Statements.
Effective August 30, 2009, the Company adopted new authoritative guidance on Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This new guidance clarifies the methodology used to determine fair value when there is no active market or when the price inputs being used represent distressed sales. This new guidance also reaffirms the objective of fair value measurement, which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. The adoption of this new guidance did not experienced significant
problems inhave an impact on the delivery of these materials and considers its
relationships with its suppliers to be strong, a disruption of
the supply of material from a principal supplier could
adversely affect the Company's business. Furthermore,
substitutes for these materials are not readily available and
an inability to obtain essential materials, if prolonged,
could materially adversely affect the Company's business.
19. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Company’s Consolidated Financial Statements.
In May 2005,June 2009, the Financial Accounting Standards Board (the "FASB"“FASB”) issued Statement of Financial“The FASB Accounting Standards No. 154, "Accounting
ChangesCodification™ and Error Corrections,the Hierarchy of Generally Accepted Accounting Principles – a replacement of APB Opinion No. 20 and
FASB Statement No. 3" ("SFAS 154"). SFAS No. 154 requires retrospective
application to prior periods financial statements for changes in
accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.
SFAS No. 154 also requires that retrospective application of a change
in accounting principle be limited to the direct effects of the change.
Indirect effects of a change in accounting principle should be
recognized in the period of the accounting change. SFAS No. 154 further
requires a change in depreciation, amortization or depletion method for
long-lived, non-financial assets to be accounted for as a change in
accounting estimate effected by a change in accounting principle. SFAS
No. 154 became effective for the Company's 2007 fiscal year and did not
have a material effect on the Company's Consolidated Financial
Statements.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes -- an Interpretation of FASB Statement No. 109" ("FIN 48"). This Interpretation clarifies162”, which establishes the accounting for
uncertainty in income taxesFASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative U.S. Generally Accepted Accounting Principles (“GAAP”) recognized in an entity's financial
statements in accordance with SFAS No. 109, "Accounting for Income
Taxes". It prescribes a recognition threshold and measurement
methodology
64
for financial statement reporting purposes and promulgates a series of
new disclosures of tax positions taken or expectedby the FASB to be taken on a tax
return for which less than allapplied by nongovernmental entities. Rules and interpretive releases of the resulting tax benefits are
expected to be realized. This Interpretation is effective for fiscal
years beginning after December 15, 2006. The Company will adopt this
Interpretation in the first quarter of its 2008 fiscal year, which will
begin February 26, 2007. The Company is currently evaluating the
requirements of FIN 48 and has not yet determined the impact of such
requirements on the Company's Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles in the United
States ("GAAP"), and expands disclosures about fair value measurements.
SFAS 157 applies whenever other standards require, or permit, assets or
liabilities to be measured at fair value. SFAS 157 is effective for
fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Early adoption is permitted. SFAS 157 did
not have a material effect on the Company's Consolidated Financial
Statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB No. 108"(the “SEC”), which provides
interpretive guidance on how under authority of Federal securities laws are also sources of authoritative GAAP for SEC registrants. The Company implemented the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a
current year misstatement. If the effect of the initial misstatement is
determined to be material, the cumulative effect may be reported as an
adjustment to the beginning of year retained earnings with disclosure
of the nature and amount of each individual error being corrected in
the cumulative adjustment. SAB No. 108 is effective for fiscal years
ending after November 15, 2006, with early applicationCodification for the first
interimthree-month period ending afterended November 15, 2006. The Company adopted SAB
No. 108 in the fourth quarter of fiscal year 2007. The Company has not
discovered material errors in prior years with material effects as of
the date of this Form l0-K Annual Report.
In February 2007, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 159, "The Fair Value Option for Financial Assets29, 2009, and Financial Liabilities--Including an amendment of FASB Statement No.
115" ("SFAS 159"). SFAS 159 permits entities to elect to measure many
financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been
elected will be recognized in earnings at each subsequent reporting
date. SFAS 159 is effective for fiscal years beginning after November
15, 2007. SFAS 159such implementation did not have a material effectany impact on the Company'sCompany’s Consolidated Financial Statements.
65
On April 1, 2008, the Company’s wholly owned subsidiary, Park Aerospace Structures Corp., acquired substantially all the assets and business of Nova Composites, Inc. located in Lynnwood, Washington for a cash purchase price of $4,500 paid at the closing of the acquisition and up to an additional $5,500 payable over five years depending on the achievement of specified earn-out objectives. In the second quarter of the 2010 fiscal year, the Company paid an additional $1,025 such acquisition, leaving an additional $4,400 payable over four years depending on the achievement of the earn-out objectives. Park Aerospace
Structures Corp. manufactures aircraft composite parts and assemblies and the tooling for such parts and assemblies.
The allocation of the purchase price is as follows:
| Current assets | | $ | 181 | | | Fixed assets | | | 174 | | | Goodwill and other intangibles | | | 5,482 | | | Total assets acquired | | | 5,837 | | | Current liabilities assumed | | | (84 | ) | | Total Purchase Price | | $ | 5,753 | |
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
----------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ ------------
(In thousands, except per share amounts)
Fiscal 2007:
Net sales 62,838 66,518 68,195 59,826
Gross profit 16,363 16,044 17,241 14,459
Net earnings 8,894 12,544 9,529 8,824
Basic earnings per share:
Net earnings per share $ 0.44 $ 0.62 $ 0.47 $ 0.44
Diluted earnings per share:
Net earnings per share $ 0.44 $ 0.62 $ 0.47 $ 0.44
Weighted average common
shares outstanding:
Basic 20,135 20,183 20,189 20,194
Diluted 20,357 20,295 20,332 20,283
Fiscal 2006:
Net sales $ 55,676 $ 52,442 $ 57,159 $ 56,974
Gross profit 12,030 11,595 15,292 15,684
Net earnings 5,328 6,057 9,745 5,745
Basic earnings per share:
Net earnings per share $ 0.27 $ 0.30 $ 0.48 $ 0.29
Diluted earnings per share:
Net earnings per share $ 0.27 $ 0.30 $ 0.48 $ 0.28
Weighted average common
shares outstanding:
Basic 19,947 20,032 20,099 20,109
Diluted 20,076 20,223 20,251 20,291
| | | Quarter | | | | | First | | | Second | | | Third | | | Fourth | | | | | (In thousands, except per share amounts) | | | | | | | | | | | | | | | | | Fiscal 2010: | | | | | | | | | | | | | | Net sales | | $ | 36,697 | | | $ | 42,518 | | | $ | 46,088 | | | $ | 50,383 | | | Gross profit | | | 9,208 | | | | 10,948 | | | | 13,761 | | | | 17,685 | | | | | | | | | | | | | | | | | | | | | Net earnings | | | 3,074 | | | | 4,755 | | | | 7,169 | | | | 10,361 | | | | | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | | | Net earnings per share | | $ | 0.15 | | | $ | 0.23 | | | $ | 0.35 | | | $ | 0.50 | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | | | | | | Net earnings per share | | $ | 0.15 | | | $ | 0.23 | | | $ | 0.35 | | | $ | 0.50 | | | | | | | | | | | | | | | | | | | | | Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | Basic | | | 20,471 | | | | 20,534 | | | | 20,541 | | | | 20,541 | | | Diluted | | | 20,482 | | | | 20,554 | | | | 20,573 | | | | 20,579 | | | | | | | | | | | | | | | | | | | | | Fiscal 2009: | | | | | | | | | | | | | | | | | | Net sales | | $ | 59,800 | | | $ | 55,599 | | | $ | 49,166 | | | $ | 35,497 | | | Gross profit | | | 14,573 | | | | 10,953 | | | | 9,786 | | | | 8,112 | | | | | | | | | | | | | | | | | | | | | Net earnings from continuing operations | | | 7,557 | | | | 4,937 | | | | 2,934 | | | | 3,086 | | | | | | | | | | | | | | | | | | | | | Discontinued operations | | | - | | | | - | | | | - | | | | 16,486 | | | | | | | | | | | | | | | | | | | | | Net Earnings | | | 7,557 | | | | 4,937 | | | | 2,934 | | | | 19,572 | | | | | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 0.37 | | | $ | 0.24 | | | $ | 0.14 | | | $ | 0.15 | | | Discontinued operations | | $ | - | | | $ | - | | | $ | - | | | $ | 0.81 | | | Net earnings per share | | $ | 0.37 | | | $ | 0.24 | | | $ | 0.14 | | | $ | 0.96 | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 0.37 | | | $ | 0.24 | | | $ | 0.14 | | | $ | 0.15 | | | Discontinued operations | | $ | - | | | $ | - | | | $ | - | | | $ | 0.81 | | | Net earnings per share | | $ | 0.37 | | | $ | 0.24 | | | $ | 0.14 | | | $ | 0.96 | | | | | | | | | | | | | | | | | | | | | Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | Basic | | | 20,366 | | | | 20,458 | | | | 20,471 | | | | 20,471 | | | Diluted | | | 20,430 | | | | 20,520 | | | | 20,512 | | | | 20,483 | |
Earnings per share are computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for the years.
66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
| ITEM 9A. | 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 February 25, 2007,28, 2010, the end of the fiscal year covered by this annual report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such fiscal year, 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'sCompany’s management, including the Company'sCompany’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management'sManagement’s Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company'sCompany’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company'sCompany’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company'sCompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company'sCompany’s internal control over financial reporting as of February 25, 2007.28, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”) in Internal Control-IntegratedControl–Integrated Framework. Based on management'smanagement’s assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of February 25, 2007.
67
28, 2010.
The Company's independent auditorregistered public accounting firm that audited the Company’s financial statements included in this Annual Report on Form 10-K has issued its auditan attestation report on management's
assessment of the Company'sCompany’s internal control over financial reporting. That report appears in Item 9A(c) below.
(c) Attestation Report of the Independent Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors of Park Electrochemical Corp. We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting, that Park Electrochemical Corp. and subsidiaries maintained effectivesubsidiaries’ (the “Company”) internal control over financial reporting as of February 25, 2007,28, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"(“COSO”). The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the
Company'sCompany’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, in the United States of
America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
68
In our opinion, management's assessment that Park Electrochemical Corp. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of February 25, 2007, is fairly stated, in all material respects,28, 2010, based on the
COSO criteria. Also,criteria established in our opinion, the Company maintained, in all material
respect, effective internal control over financial reporting as of February 25,
2007, based on the COSO criteria.
Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the CompanyPark Electrochemical Corp. and subsidiaries as of February 25, 200728, 2010 and February 26, 2006,March 1, 2009, and the related consolidated statements of operations, stockholders'stockholders’ equity and cash flows for each of the three years in the period ended February 25, 2007,28, 2010, and our report dated May 8, 200712, 2010 expressed an unqualified opinion on those consolidated financial statements.
/s/
/s/GRANT THORNTON LLP
New York, New York May 8, 2007
12, 2010
(d) Changes in Internal Control Over Financial Reporting.
There has not been any change in the Company'sCompany’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 fourth fiscal quarter of the fiscal year to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
The Company is not disclosing under this item any information required
to be disclosed on Form 8-K during the fourth quarter of the year covered by
this Form 10-K Annual Report, but not reported, whether or not otherwise
required by this Form 10-K.
69
| ITEM 9B. | OTHER INFORMATION. |
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information called for by this item (except for information as to the Company's executive officers, which information appears elsewhere in this Report) is incorporated by reference to the Company's definitive proxy statement for the 20072010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
| ITEM 11. | EXECUTIVE COMPENSATION. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20072010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20072010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20072010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
This information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20072010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
70
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| | Page
----
| | | | | (a) Documents filed as a part of this Report | | | | | | | (1) Financial Statements: | | | | | | | The following Consolidated Financial Statements of the Company are included in Part II, Item 8: | | | | | | Report of Independent Registered Public Accounting Firm 41
| | 47 | | | | Balance Sheets 42
| | 48 | | | | Statements of Operations 43
| | 49 | | | | Statements of Stockholders' Equity 44
| | 50 | | | | Statements of Cash Flows 45
| | 51 | | | | Notes to Consolidated Financial Statements (1-18) 46
(1-19) | | 52 | | | | | (2) Financial Statement Schedules: | | | | | | | The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant described in Item 15(a)(1) above: | | | | | | Schedule II -– Valuation and Qualifying Accounts 72
| | 79 | | | | | All other schedules have been omitted because they are not applicable or not required, or the information is included elsewhere in the financial statements or notes thereto. | | | | | | | (3) Exhibits: | | 80 | | | | The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index beginning on page 7380 hereof. | | |
71
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: May 8, 2007 PARK ELECTROCHEMICAL CORP.
By: /s/ Brian E. Shore
-------------------------------------
Brian E. Shore,
President and Chief Executive Officer
| Date: May 12, 2010 | PARK ELECTROCHEMICAL CORP. | | | | By: | /s/ Brian E. Shore | | | Brian E. Shore, | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | | Title | | Date
- --------------------- ----------------------------------------------------- -----------
/s/ | | | | | | | /s/ Brian E. Shore | | Chairman of the Board, President and | | | | Brian E. Shore | | Chief Executive
- --------------------- Officer and Director (principal | | | | | (principal executive officer) | | May 8, 2007
Brian E. Shore
/s/ James L. Zerby 12, 2010 | | | | | | | /s/ David R. Dahlquist | | Vice President and Chief Financial | | | | David R. Dahlquist | | Officer (principal
- --------------------- | | | | | (principal financial officer) | | May 8, 2007
James L. Zerby
/s/12, 2010 | | | | | | | /s/ P. Matthew Farabaugh | | Vice President and Controller | | | | P. Matthew Farabaugh | | (principal accounting officer) | | May 12, 2010 | | | | | | /s/ Dale Blanchfield Director May 8, 2007
- ---------------------
| | | | | Dale Blanchfield
/s/ Anthony Chiesa | | Director | | May 8, 2007
- ---------------------
Anthony Chiesa
/s/12, 2010 | | | | | | /s/ Lloyd Frank Director May 8, 2007
- ---------------------
| | | | | Lloyd Frank
/s/ | | Director | | May 12, 2010 | | | | | | | | | | | | Emily J. Groehl | | Director | | May , 2010 | | | | | | /s/ Steven T. Warshaw Director May 8, 2007
- ---------------------
| | | | | | Steven T. Warshaw | | Director | | May 12, 2010 |
72
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SCHEDULE II -– VALUATION AND QUALIFYING ACCOUNTS
| Column A | | Column B | | | Column C Additions | | | Column D | | | Column E | | | Description | | Balance at Beginning of Period | | | Costs and Expenses | | | Other | | | Reductions | | | Balance at End of Period | | | | | | | | | | | | | | | | | | | | DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 52 weeks ended February 28, 2010 | | $ | 8,787,000 | | | $ | 1,027,000 | | | $ | - | | | $ | - | | | $ | 9,814,000 | | | | | | | | | | | | | | | | | | | | | | | | | 52 weeks ended March 1, 2009 | | $ | 13,014,000 | | | $ | 450,000 | | | $ | - | | | $ | (4,677,000 | ) | | $ | 8,787,000 | | | | | | | | | | | | | | | | | | | | | | | | | 53 weeks ended March 2, 2008 | | $ | 12,469,000 | | | $ | 545,000 | | | $ | - | | | $ | - | | | $ | 13,014,000 | |
| Column A | | Column B | | | Column C | | | Column D Other | | | Column E | | | Description | | Balance at Beginning of Period | | | Charged to Cost and Expenses | | | Accounts Written Off | | | Translation Adjustment | | | Balance at End of Period | | | | | | | | | | | (A) | | | | | | | | | ALLOWANCE FOR DOUBTFUL ACCOUNTS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 52 weeks ended February 28, 2010 | | $ | 687,000 | | | $ | (109,000 | ) | | $ | - | | | $ | - | | | $ | 578,000 | | | | | | | | | | | | | | | | | | | | | | | | | 52 weeks ended March 1, 2009 | | $ | 750,000 | | | $ | (48,000 | ) | | $ | (10,000 | ) | | $ | (5,000 | ) | | $ | 687,000 | | | | | | | | | | | | | | | | | | | | | | | | | 53 weeks ended March 2, 2008 | | $ | 1,144,000 | | | $ | (166,000 | ) | | $ | (190,000 | ) | | $ | (38,000 | ) | | $ | 750,000 | |
Column C
Column A Column B Additions Column D Column E
- ---------------------------------------------------- ------------ ---------------------------- ------------ ------------
Balance at Balance at
Beginning| (A) | Uncollectible accounts, net of Costs and End of
Description Period Expenses Other Reductions Period
- ---------------------------------------------------- ------------ ------------ ------------ ------------ ------------
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE:
52 weeks ended February 25, 2007 $ 12,445,000 $ 1,286,000 - $ (3,500,000) $ 10,231,000
============ ============ ============ ============
52 weeks ended February 26, 2006 $ 18,212,000 $ (2,840,000) - $ (2,927,000) $ 12,445,000
============ ============ ============ ============
52 weeks ended February 27, 2005 $ 21,564,000 $ (3,352,000) - - $ 18,212,000
============ ============ ============
recoveries. |
Column D
Column A Column B Column C Other Column E
- ---------------------------------------------------- ------------ ------------ --------------------------- ------------
Balance at Charged to Accounts Balance at
Beginning of Costs and Written Translation End of
Description Period Expenses Off Adjustment Period
- ---------------------------------------------------- ------------ ------------ ------------ ------------ ------------
(A)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
52 weeks ended February 25, 2007 $ 1,930,000 $ (623,000) $ (140,000) $ (23,000) $ 1,144,000
============ ============ ============ ============ ============
52 weeks ended February 26, 2006 $ 1,984,000 $ (1,000) $ (26,000) $ (27,000) $ 1,930,000
============ ============ ============ ============ ============
52 weeks ended February 27, 2005 $ 1,845,000 $ 90,000 $ (28,000) $ 77,000 $ 1,984,000
============ ============ ============ ============ ============
(A) Uncollectible accounts, net of recoveries.
73
EXHIBIT INDEX
-------------
Exhibit Numbers | | Description | | Page
- ------- ----------------------------------------------------------------------- ----
| | | | | | | 3.1 | | Restated Certificate of Incorporation, dated March 28, 1989, filed with the Secretary of State of the State of New York on April 10, 1989, as amended by Certificate of Amendment of the Certificate of Incorporation, increasing the number of authorized shares of Common stock from 15,000,000 to 30,000,000 shares, dated July 12, 1995, filed with the Secretary of State of the State of New York on July 17, 1995, and by Certificate of Amendment of the Certificate of Incorporation, amending certain provisions relating to the rights, preferences and limitations of the shares of a series of Preferred Stock, datedated August 7, 1995, filed with the Secretary of State of the State of New York on August 16, 1995 (Reference is made to Exhibit 3.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) | | - | | | | | | | 3.2 | | Certificate of Amendment of the Certificate of Incorporation, increasing the number of authorized shares of Common Stock from 30,000,000 to 60,000,000 shares, dated October 10, 2000, filed with the Secretary of State of the State of New York on October 11, 2000 (Reference is made to Exhibit 3.02 of the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended March 2, 2003, Commission File No. 1-4415, which is incorporated herein by reference.) ................... | | - | | | | | | | 3.3 | | Certificate of Amendment of the Certificate of Incorporation, canceling Series A Preferred Stock of the Company and authorizing a new Series B Junior Participating Preferred Stock of the Company, dated July 21, 2005, filed with the Secretary of the State of New York on July 21, 2005 (Reference is made to Exhibit 3.1 of the Company'sCompany’s Current Report on Form 8-K filed on July 21, 2005, Commission File No. 1-4415, which is incorporated herein by reference) .................................. | | - | | | | | | | 3.4 | | By-Laws, as amended May 21, 2002November 15, 2007 (Reference is made to Exhibit 3.033 of the Company's AnnualCurrent Report on Form 10-K for the fiscal year ended
March 3, 2002,8-K filed on November 21, 2007, Commission File No. 1-4415, which is incorporated herein by reference.) ........................................................ | | - | | | | | | | 4.1 | | Rights Agreement, dated as of July 20, 2005, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company'sCompany’s Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Form 8-A filed on July 21, 2005, Commission File No. 1-4415, which is incorporated herein by reference.) ................... | | - | | | | | | | 10.1 | | Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1100 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease (Reference is made to Exhibit 10.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) ................... | | - |
74
Exhibit Numbers | | Description | | Page
- ------- ----------------------------------------------------------------------- ----
| | | | | | | 10.2 | | Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1107 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease (Reference is made to Exhibit 10.02 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) ................... | | - | | | | | | | 10.3 | | Lease Agreement dated August 16, 1983 and Exhibit C, First Addendum to Lease, between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California (Reference is made to Exhibit 10.03 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) ................... | | - | | | | | | | 10.3(a) | | Second Addendum to Lease dated January 26, 1987 to Lease Agreement dated August 16, 1983 (see Exhibit 10.0310.3 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1421 E. Orangethorpe Avenue, Fullerton, California (Reference is made to Exhibit 10.03(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) .................................... | | - | | | | | | | 10.3(b) | | Third Addendum to Lease dated January 7, 1991 and Fourth Addendum to Lease dated January 7, 1991 to Lease Agreement dated August 16, 1983 (see Exhibit 10.0310.3 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411, 1421 and 1431 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) .................................... | | - | | | | | | | 10.3(c) | | Fifth Addendum to Lease dated July 5, 1995 to Lease dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California (Reference is made to Exhibit 10.03(c)10.3(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) ........................................................ | | - | | | | | | | 10.4 | | Lease Agreement dated May 26, 1982 between Nelco Products Pte. Ltd. (lease was originally entered into by Kiln Technique (Private) Limited, which subsequently assigned this lease to Nelco Products Pte. Ltd.) and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore (Reference is made to Exhibit 10.04 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) ........................................................... | | - |
75
Exhibit Numbers | | Description | | Page
- ------- ----------------------------------------------------------------------- ----
| | | | | | | 10.4(a) | | Deed of Assignment, dated April 17, 1986 between Nelco Products Pte. Ltd., Kiln Technique (Private) Limited and Paul Ma, Richard Law, and Michael Ng, all of Peat Marwick & Co., of the Lease Agreement dated May 26, 1982 (see Exhibit 10.0410.4 hereto) between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore (Reference is made to Exhibit 10.04(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) .................................... | | - | | | | | | | 10.5 | | 1992 Stock Option Plan of the Company, as amended by First Amendment thereto. (Reference is made to Exhibit 10.06(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contractorcontract or compensatory plan or arrangement.) . | | - | | | | | | | 10.6 | | Lease dated April 15, 1988 between FiberCote Industries, Inc. (lease was initially entered into by USP Composites, Inc., which subsequently changed its name to FiberCote Industries, Inc.) and Geoffrey Etherington, II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut (Reference is made to Exhibit 10.07 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) ........................................................ | | - | | | | | | | 10.6(a) | | Amendment to Lease dated December 21, 1992 to Lease dated April 15, 1988 (see Exhibit 10.0610.6 hereto) between FiberCote Industries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut (Reference is made to Exhibit 10.07(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) .................................... | | - | | | | | | | 10.6(b) | | Letter dated June 30, 1997 from FiberCote Industries, Inc. to Geoffrey Etherington II extending the Lease dated April 15, 1988 (see Exhibit 10.0610.6 hereto) between FiberCote Industries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury Connecticut. (Reference is made to Exhibit 10.08(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) ........................................................ | | - | | | | | | | 10.7 | | Lease dated December 12, 1990 between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) .......... | | - |
76
Exhibit
Numbers Description Page
- ------- ----------------------------------------------------------------------- ----
10.7(a) Letter dated January 8, 1996 from Neltec, Inc. to NZ Properties, Inc.
exercising its option to extend the Lease dated December 12, 1990 (see
Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc.
regarding real property located at 1420 W. 12th Place, Tempe, Arizona.
(Reference is made to Exhibit 10.13(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended March 2, 1997, Commission File
No. 1-4415, which is incorporated herein by reference.) ............... -
10.7(b) Letter dated January 25, 2001 from Neltec, Inc. to NZ Properties, Inc.
exercising its option to extend the Lease dated December 12, 1990 (see
Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc.
regarding real estate property located at 1420 W. 12th Place, Tempe,
Arizona (Reference is made to Exhibit 10.7(b) of the Company's Annual
Report on Form l0-K for the fiscal year ended February 26, 2006,
Commission File No. 1-4415, which is incorporated herein by reference.) -
10.7(c) Letter dated February 14, 2006 from Neltec, Inc. to REB Ltd.
Properties, Inc. exercising its option to extend the Lease dated
December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ
Properties, Inc. regarding real property located at 1420 W. 12th Place,
Tempe, Arizona (Reference is made to Exhibit 10.7(c) of the Company's
Annual Report on Form 10-K for the fiscal year ended February 26, 2006,
Commission File No. 1-4415, which is incorporated herein by reference.) -
10.8 Lease Contract dated February 26, 1988 between the New York State
Department of Transportation and the Edgewater Stewart Company
regarding real property located at 15 Governor Drive in the Stewart
International Airport Industrial Park, New Windsor, New York (Reference
is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K
for the fiscal year ended March 3, 2002, Commission File No. 1-4415,
which is incorporated herein by reference.) ........................... -
10.8(a) Assignment and Assumption of Lease dated February 16, 1995 between New
England Laminates Co., Inc. and the Edgewater Stewart Company regarding
the assignment of the Lease Contract (see Exhibit 10.8 hereto) for the
real property located at 15 Governor Drive in the Stewart International
Airport Industrial Park, New Windsor, New York (Reference is made to
Exhibit 10.13(a) of the Company's Annual Report on Form 10-K for the
fiscal year ended March 3, 2002, Commission File No. 1-4415, which is
incorporated herein by reference.) .................................... -
10.8(b) Lease Amendment No. 1 dated February 17, 1995 between New England
Laminates Co., Inc. and the New York State Department of Transportation
to Lease Contract dated February 26, 1988 (see Exhibit 10.8 hereto)
regarding the real property located at 15 Governor Drive in the Stewart
International Airport Industrial Park, New Windsor, New York (Reference
is made to Exhibit 10.13(b) of the Company's Annual Report on Form 10-K
for the fiscal year ended March 3, 2002, Commission File No. 1-4415,
which is incorporated herein by reference.) ........................... -
77
Exhibit
Numbers Description Page
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10.9 2002 Stock Option Plan of the Company (Reference is made to Exhibit
10.01 of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 1, 2002, Commission File No. 1-4415, which is
incorporated herein by reference. This exhibit is a management contract
or compensatory plan or arrangement.) ................................. -
10.10 Forms of Incentive Stock Option Contract for employees, Non-Qualified
Stock Option Contract for employees and Non-Qualified Stock Option
Contract for directors under the 2002 Stock Option Plan of the Company
(Reference is made to Exhibit 10.10 of the Company's Annual Report on
Form 10-K for the fiscal year ended February 27, 2005, Commission File
No. 1-4415, which is incorporated herein by reference. ................ -
14.1 Code of Ethics for Chief Executive Officer and Senior Financial
Officers adopted on May 6, 2004 (Reference is made to Exhibit 14.1 of
the Company's Annual Report on Form 10-K for the fiscal year ended
February 29, 2004, Commission File No. 1-4415, which is incorporated
herein by reference.) ................................................. -
21.1 Subsidiaries of the Company ........................................... 78
23.1 Consent of Independent Registered Public Accounting Firm (Grant
Thornton LLP) ......................................................... 79
31.1 Certification of principal executive officer pursuant to Exchange Act
Rule 13a-14(a) or 15d-14(a) ........................................... 80
31.2 Certification of principal financial officer pursuant to Exchange Act
Rule 13a-14(a) or 15d-14(a) ........................................... 82
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 ........................................................... 84
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 ........................................................... 85
Exhibit Numbers | | Description | | Page | | | | | | | | 10.7(a) | | Letter dated January 8, 1996 from Neltec, Inc. to NZ Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) | | - | | | | | | | | 10.7(b) | | Letter dated January 25, 2001 from Neltec, Inc. to NZ Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real estate property located at 1420 W. 12th Place, Tempe, Arizona (Reference is made to Exhibit 10.7(b) of the Company’s Annual Report on Form l0-K for the fiscal year ended February 26, 2006, Commission File No. 1-4415, which is incorporated herein by reference.) | | - | | | | | | | | 10.7(c) | | Letter dated February 14, 2006 from Neltec, Inc. to REB Ltd. Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona (Reference is made to Exhibit 10.7(c) of the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2006, Commission File No. 1-4415, which is incorporated herein by reference.) | | - | | | | | | | | 10.8 | | 2002 Stock Option Plan of the Company (Reference is made to Exhibit 10.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 1, 2002, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) | | - | | | | | | | | 10.9 | | Forms of Incentive Stock Option Contract for employees, Non-Qualified Stock Option Contract for employees and Non-Qualified Stock Option Contract for directors under the 2002 Stock Option Plan of the Company (Reference is made to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2005, Commission File No. 1-4415, which is incorporated herein by reference.) | | - | | | | | | | | 14.1 | | Code of Ethics for Chief Executive Officer and Senior Financial Officers adopted on May 6, 2004 (Reference is made to Exhibit 14.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2004, Commission File No. 1-4415, which is incorporated herein by reference.) | | - | | | | | | | | 21.1 | | Subsidiaries of the Company | | 85 |
Exhibit Numbers | | Description | | Page | | | | | | | | 23.1 | | Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP) | | 86 | | | | | | | | 31.1 | | Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) | | 87 | | | | | | | | 31.2 | | Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) | | 89 | | | | | | | | 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 | | 91 | | | | | | | | 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 | | 92 |
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