10K.02-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 10549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 3, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________ to _______ Commission file number 1-4415 Park Electrochemical Corp. (Exact Name of Registrant as Specified in Its Charter) New York 11-1734643 (State or Other Jurisdiction of (I.R.S. Employer Incorporation of Organization) Identification No.) 5 Dakota Drive, Lake Success, New 11042 York (Zip Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code (516) 354-4100 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $.10 per New York Stock share Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] [cover page 1 of 2 pages] 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'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. [X} State the aggregate market value of the voting and non- voting common equity held by non-affiliates of the registrant. The aggregate market value shall be 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 a specified date within 60 days prior to the date of filing. As of Close of Title of Class Aggregate Market Business On Value Common Stock, par value $.10 per $577,617,597* May 24, 2002 share Indicate the number of shares outstanding of each of the registrant'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 19,514,108 May 24, 2002 share DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Shareholders to be held July 17, 2002 incorporated by reference into Part III of this Report. *Included in such amount are 1,442,298 shares of common stock valued at $29.60 per share and held by Jerry Shore, the Registrant's Chairman of the Board and a member of the Registrant's Board of Directors. [cover page 2 of 2 pages] TABLE OF CONTENTS Page PART I Item 1. Business 	 4 Item 2. Properties 15 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 Executive Officers of the Registrant 16 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 18 Item 6. Selected Financial Data 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Factors That May Affect Future Results 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32 Item 8. Financial Statements and Supplementary Data 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 58 PART III Item 10. Directors and Executive Officers of the Registrant 58 Item 11. Executive Compensation 58 Item 12. Security Ownership of Certain Beneficial Owners and Management 58 Item 13. Certain Relationships and Related Transactions 58 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 59 SIGNATURES 60 FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation and Qualifying Accounts 61 EXHIBIT INDEX 62 PART I Item 1. Business. General Park Electrochemical Corp. ("Park"), through its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the "Company"), is primarily engaged in the design, production and marketing of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems. Park specializes in advanced materials for high layer count circuit boards and high-speed digital broadband telecommunications, internet and networking applications. Park's electronic materials business operates under the "Nelco" name through fully integrated business units in Asia, Europe and North America. The Company's electronic materials manufacturing facilities are located in Singapore, China, Germany, France, England, New York, Arizona and California. The Company is also engaged in the design, production and marketing of advanced composite materials through its FiberCote Industries subsidiary in Waterbury, Connecticut and specialty adhesive tapes and films through its Dielectric Polymers subsidiary in Holyoke, Massachusetts for the electronics, aerospace and industrial markets. Park was founded in 1954 by Jerry Shore, the Company's Chairman of the Board and largest shareholder. Unless otherwise indicated, all information in this Report has been adjusted to give effect to the Company's three-for-two stock split in the form of a stock dividend, which was distributed November 8, 2000 to shareholders of record at the close of business on October 20, 2000. In the fiscal year ended February 27, 2000, the Company's business was divided into two industry segments: (1) electronic materials and (2) engineered materials and plumbing hardware. However, during the fourth quarter of the 2000 fiscal year, the Company decided to close and liquidate the plumbing hardware portion of its engineered materials and plumbing hardware business segment. See Note 16 of the Notes to Consolidated Financial Statements in Item 8 of this Report for information concerning the closure of the plumbing hardware business. In addition, in the fiscal years ended February 25, 2001 and March 3, 2002, the engineered materials and plumbing hardware businesses comprised less than 10% of the Company's consolidated revenues, earnings and assets, and the Company considered itself to operate in one business segment. See Note 14 of the Notes to Consolidated Financial Statements in Item 8 of this Report for information concerning the Company's business segments. The sales and long-lived assets of the Company's operations by geographic area for the last three fiscal years are set forth in Note 14 of the Notes to Consolidated Financial Statements in Item 8 of this Report. The Company's foreign operations are conducted principally by the Company's subsidiaries in Singapore, China, Germany, France and England. The Company'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 this Report. Electronic Materials Operations The Company is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, such as multilayer back-planes, wireless packages, high-speed/low-loss multilayers and high density interconnects ("HDIs"). The Company's multilayer printed circuit materials include 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 and surface mount connectors). Examples of end uses of the Company's printed circuit materials include high speed routers and servers, supercomputers, laptops, satellite switching equipment, cellular telephones and transceivers and wireless personal digital assistants ("PDAs"). 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'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. In addition, the Company's subsidiary, Dielektra GmbH in Germany, which the Company acquired in 1997, owns a patented process for con tinuously producing thin copper-clad laminates for printed circuit board applications. The Company believes it is one of the industry'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 increasing global demand for electronic products and technology, 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's largest manufacturers of multilayer printed circuit materials and the market leader in North America and Southeast Asia. It also believes that it is the only significant independent manufacturer 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. Industry Background The electronic materials manufactured by the Company and its competitors are used to construct and fabricate complex multilayer printed circuit boards and other advanced electronic interconnect systems. Multilayer printed circuit materials consist of prepregs and copper-clad laminates, as well as semi- finished multilayer printed circuit board panels. Prepregs are chemically and electrically engineered plastic 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 is .030 inch to .002 inch in thickness or less in some cases. These resin systems are usually based upon an epoxy chemistry. 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 .0030 inch to ...0002 inch in thickness and normally have a thickness of .0014 inch or .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 photoimages 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 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. The global market for advanced electronic products has grown in recent years as a result of technological change and frequent new product introductions. This growth is 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 greater use of electronics in other products, such as automobiles. Further, large, almost completely untapped markets for advanced electronic equipment have 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 is an emerging region for advanced multilayer printed circuit fabrication 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, 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. The growth of the market for more advanced printed circuit materials has outpaced the market growth for standard printed circuit materials in recent years. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced electrical properties in order to support high-speed computing in a miniaturized and often portable environment. 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 .002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (.002 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very narrow plated through holes or vias which electrically connect the multiple layers of circuitry planes. 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. 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. 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"). The Company's subsidiary, Dielektra GmbH in Germany, also manufactures semi-finished multilayer printed circuit board panels. The Company's diverse advanced printed circuit materials product line is designed to address a wide array of end-use applications and performance requirements. The Company'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. All of the Company's existing electronic materials products have been introduced since 1990. Most of the Company's research and development expenditures are attributable to the efforts of its electronic materials operations. In response to the rapid technological changes in the electronic materials business, these expenditures on research and product development have increased over the past several years. The Company's products include high-speed, low-loss, digital broadband engineered formulations, high-temperature modified epoxies, bismaleimide triazine epoxies ("BT epoxy"), non-MDA polyimides, enhanced polyimides, high performance epoxy Thermountr materials ("Thermount" is a registered trademark of E.I. duPont de Nemours & Co.), APPE resin technology (a licensed product of Asahi Chemical Industry Co., Ltd.), SIT (Signal Integrity) products, cyanate esters and polytetrafluoroethylene ("PTFE") formulations for RF/microwave applications. 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's organization. The Company focuses on developing a thorough understanding of its customer'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. The Company'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 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, China to support the rapidly growing customer demand for advanced multilayer printed circuitry materials in China. Customers and End Markets The Company's customers for its advanced electronic materials include the leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs") in the computer, networking, telecommunications, transportation, aerospace 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'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 team 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 2002 fiscal year, approximately 18.1% of the Company's total worldwide sales were to Sanmina Corporation, a leading electronics contract manufacturer and manufacturer of printed circuit boards and approximately 11.3% of the Company's total worldwide sales were to Tyco Printed Circuit Group L.P., a leading manufacturer of printed circuit boards. During the Company's 2001 fiscal year, approximately 25.1% of the Company's total worldwide sales were to Sanmina Corporation. During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp. However, in March 1998 the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. After the plant closure, Delco purchased all of its printed circuit boards from outside suppliers and Delco was no longer a customer of the Company's. After that time, the Company marketed its semi-finished multilayer circuit board material manufacturing capability to leading printed circuit board fabricators, contract assemblers and electronic original equipment manufacturers in North America. The Company had not previously marketed this capability as its semi-finished multilayer capacity had been largely committed to supplying Delco Electronics. Although the Company's electronic materials business was not dependent on this single customer, the loss of this customer had a material adverse effect on the business in the fiscal years ended February 27, 2000, February 25, 2001 and March 3, 2002. In the first quarter of the fiscal year ended March 3, 2002, the Company sold the assets and business of its subsidiary in Arizona that conducted the mass lamination business and recorded non-recurring, pre-tax charges of approximately $15.7 million in its 2002 fiscal year first quarter ended May 27, 2001 in connection with the sale and the closure of a related support facility to the mass lamination business also located in Arizona. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report for a discussion of the significant pre-tax losses incurred during the 2000 fiscal year by the Company's Arizona based business unit which formerly supplied Delco Electronics Corporation with semi- finished circuit boards; and see Item 3 of this Report for a discussion of legal proceedings initiated by the Company against Delco Electronics Corporation. Although the electronic 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 electronic materials business. The Company's electronic materials products are marketed by sales personnel 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. 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's manufacturing process include: the impregnation of specially designed fiberglass cloth with a 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 manufacturers 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. In addition, the Company manufactures very thin copper- clad laminates utilizing Dielektra's unique, patented continuous lamination technology. The Company manufactures multilayer printed circuit materials at eight fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its England facility in 1969, its first Arizona and France facilities in 1984, its Singapore facility in 1986 and its second France facility in 1992, and in 1997, the Company acquired Dielektra GmbH with a fully integrated facility in Cologne, Germany. The Company services the North America market principally through its United States manufacturing facilities, the European market principally through its manufacturing facilities in England, France and Germany, and the Asian market principally through its Singapore manufacturing facility. During its 2002 fiscal year, the Company established a business center in China to supply the demand for advanced multilayer printed circuitry materials in China. 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. The Company has been expanding the manufacturing capacity of its electronic materials facilities in recent years. During the 2000 fiscal year, the Company completed expansions of its electronic materials operations in Singapore and France, acquired additional manufacturing capacity in California, and commenced significant additional expansions of its electronic materials operations in California and New York, which it completed in its 2002 fiscal year. During the 2001 fiscal year, the Company commenced a significant expansion of its higher technology product line manufacturing facility in Arizona, which the Company completed during the first quarter of its 2002 fiscal year. During the 2002 fiscal year, the Company established a business center in China, redesigned its German electronic materials business to focus its efforts and capabilities on its unique DatlamT automated continuous lamination and paneling technology and on the marketing and manufacturing of high technology, higher layer count mass lamination product, and established the capability to manufacture PTFE materials for RF/microwave applications at its Neltec high performance materials facility in Tempe, Arizona, augmenting the Company's PTFE manufacturing capability in Lannemezan, France. Materials and Sources of Supply The principal materials used in the manufacture of the Company's electronic products are specially manufactured copper foil, fiberglass 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's stringent specifications and technical requirements. While the Company's philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for each 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's business, financial condition and results of operations if the Company were unable to pass such price increases through to its customers. Competition The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company's competitors are primarily divisions of 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 electronic materials market, technological innovation, quality and service, as well as price, are significant competitive factors. The Company believes that there are approximately ten significant multilayer printed circuit materials manufacturers in the world and many of these competitors have or are developing significant presences in the three major global markets of North America, Europe and Asia. The Company believes that the multilayer printed circuit materials industry is rapidly becoming more global and that the remaining smaller regional manufacturers will find it increasingly difficult to remain competitive. The Company believes that it is currently one of the world's largest multilayer printed circuit materials manufacturers. The Company further believes it is the only significant independent manufacturer of multilayer printed circuit materials in the world today. The markets in which the Company's electronic materials operations compete are characterized by rapid technological advances, and the Company'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 Composites and Specialty Tape Operations For many years, the Company was also engaged in the advanced composite materials and specialty adhesive tape businesses and the plumbing hardware business. However, during the fourth quarter of the 2000 fiscal year, the Company decided to close and liquidate its plumbing hardware business. See Notes 14 and 16 of the Notes to Consolidated Financial Statements in Item 8 of this Report for information concerning the Company's business segments and the closure of the plumbing hardware business. FiberCote Industries, Inc., the Company's composite materials business, develops and produces engineered composite materials for the aerospace, rocket motor, electronics, radio frequency ("RF") and specialty industrial markets. Dielectric Polymers, Inc., the Company's specialty adhesive tape and film business, produces tapes and bonding films for a variety of applications including joining industrial components together. Marketing and Customers The Company's advanced composite materials and specialty adhesive tape customers, substantially all of which are located in the United States, include manufacturers in the automotive, graphic arts, aerospace, rocket motor, electronics, RF and specialty industrial industries. Such materials are marketed by sales personnel including both salaried employees and independent sales representatives who work on a commission basis. While no single advanced composite materials or specialty adhesive tape customer accounted for 10% or more of the Company's total sales during the last fiscal year, the loss of a major customer or of a group of some of the largest customers of the advanced composite materials and specialty adhesive tape business could have a material adverse effect upon the business. Manufacturing and Sources of Supply The Company's advanced composite materials manufacturing facility is located in Waterbury, Connecticut, and its specialty adhesive tape and film business is located in Holyoke, Massachusetts. The Company designs and manufactures its advanced composite materials and industrial tapes and films to its own specifications and to the specifications of its customers. Product development efforts are devoted toward the conforming of the Company's advanced composites to the specifications of, and the obtaining of approvals from, the Company's customers. The materials used in the manufacture of these engineered materials include graphite and carbon fibers and fabrics, Kevlarr ("Kevlar" is a registered trademark of E.I. du Pont de Nemours & Co.), quartz, fiberglass, polyester, chemicals, resins, films, plastics, adhesives and certain other synthetic materials. The Company purchases these materials from several suppliers. Although satisfactory substitutes for many of these materials are not readily available, the Company has experienced no difficulties in obtaining such materials. Competition The Company has many competitors in the advanced composite materials and specialty adhesive tape businesses, including some major corporations which have substantially greater financial resources than the Company. The Company competes for business on the basis of product performance and development, product qualification and approval, the ability to manufacture and deliver products in accordance with customers' needs and requirements, and price. 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 May 5, 2002, the unfilled portion of all purchase orders received by the Company and believed by it to be firm was approximately $4,807,000, compared to $9,696,000 at April 29, 2001. The decline in backlog at May 5, 2002 compared to April 29, 2001 was due primarily to the continuing slump in the Company's business that began during the first two months of its 2002 fiscal year resulting from the severe downturn and correction in the global electronics industry. Various factors contribute to the size of the Company's backlog. Accordingly, the foregoing information may not be indicative of the Company's results of operations for any period subsequent to the fiscal year ended March 3, 2002. Patents and Trademarks The Company holds several patents and trademarks or licenses thereto. In the Company'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 March 3, 2002, the Company had approximately 1,700 employees. Of these employees, 1,525 were engaged in the Company's electronic materials operations, 120 in its specialty adhesive tape and advanced composite materials operations and 55 consisted of executive personnel and general administrative staff. As a result of a severe correction and downturn in the global electronics industry and, consequently, in the Company's electronic materials business, the Company reduced its total number of employees during the first two months of its 2002 fiscal year from approximately 2,850 total employees to approximately 2,330 total employees at April 30, 2001, and during the remainder of the 2002 fiscal year the Company's total number of employee`s declined to approximately 1,700. None of the Company's employees are subject to a collective bargaining agreement. Management considers its employee relations to be good. 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") 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 nine sites. In addition, a subsidiary of the Company has received cost recovery claims under the Superfund Act from other private parties involving two other sites and 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 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 upon the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters" included in Item 7 of this Report and Note 13 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. 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 Lake Success, New York property, are used principally as manufacturing, warehouse and assembly facilities. <table> <caption> Owned Size Location or Use (Square Leased Footage) <s> <c> <c> <c> Lake Success, NY Leased Administrative 7,000 Offices Walden, NY Owned Electronic 51,000 Materials Newburgh, NY Leased Electronic 171,000 Materials Fullerton, CA Leased Electronic 95,000 Materials Anaheim, CA Leased Electronic 26,000 Materials Anaheim, CA Leased Electronic 41,000 Materials Tempe, AZ Leased Electronic 14,000 Materials Tempe, AZ Leased Electronic 81,000 Materials Tempe, AZ Leased Electronic 6,000 Materials Mirebeau, France Owned Electronic 81,000 Materials Lannemezan, Owned Electronic 29,000 France Materials Cologne, Germany Owned Electronic 193,000 Materials Skelmersdale, Owned Electronic 54,000 England Materials Singapore Leased Electronic 53,000 Materials Singapore Leased Electronic 15,000 Materials Singapore Leased Electronic 10,000 Materials Wuxi, China Leased Electronic 12,000 Materials Holyoke, MA Leased Specialty Adhesive Tapes and Films 46,000 Waterbury, CT Leased Advanced Composites 100,000 </table> The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. During the 2002 fiscal year, certain of the Company's electronic manufacturing facilities were utilized at less than 50% of their capacity. Item 3. Legal Proceedings. In May 1998, the Company and its Nelco Technology, Inc. ("NTI") subsidiary in Arizona filed a complaint against Delco Electronics Corporation and the Delphi Automotive Systems unit of General Motors Corp. in the United States District Court for the District of Arizona. The complaint alleged, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from NTI and that Delphi interfered with NTI's contract with Delco, that Delco breached the covenant of good faith and fair dealing implied in the contract, that Delco engaged in negligent misrepresentation and that Delco fraudulently induced NTI to enter into the contract. The Company and NTI sought substantial compensatory and punitive damages. On November 29, 2000, after a five day trial in Phoenix, Arizona, a jury awarded damages to NTI in the amount of $32,280,000, and on December 12, 2000 the judge in the United States District Court entered judgment for NTI on its claim of breach of the implied covenant of good faith and fair dealing with damages in the amount of $32,280,000. Both parties filed motions for post-judgment relief and a new trial, all of which the judge denied, and both parties have appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco. The appeal has been fully briefed and the parties await oral argument, which the Ninth Circuit has not yet scheduled. Park announced in March 1998 that it had been informed by Delco Electronics that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. After the plant closure, Delco purchased all of its printed circuit boards from outside suppliers and Delco was no longer a customer of the Company's. As a result, the Company's sales to Delco declined significantly during the three- month period ended May 31, 1998, were negligible during the three- month period ended August 30, 1998 and have been nil since that time. During the Company's 1999 fiscal year first quarter and during its 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation; and the Company had been Delco's principal supplier of semi-finished multilayer printed circuit board materials for more than ten years. These materials were used by Delco to produce finished multilayer printed circuit boards. See "Business-Electronic Materials Operations-Customers and End Markets" in Item 1 of this Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report and "Factors That May Affect Future Results" after Item 7 of this Report. In the first quarter of the fiscal year ended March 3, 2002, the Company sold the assets and business of NTI and recorded non- recurring, pre-tax charges of approximately $15.7 million in its 2002 fiscal year first quarter ended May 27, 2001 in connection with the sale of NTI and the closure of a related support facility also located in Arizona. See Notes 10 and 11 of the Notes to Consolidated Financial Statements in Item 8 of this Report. Item 4. Submission of Matters to a Vote of Security Holders. None Executive Officers of the Registrant. Name Title Age Brian E. Shore Chief Executive Officer, President and a Director 50 Stephen E. Senior Vice President, Gilhuley Secretary and General Counsel 57 Emily J. Groehl Senior Vice President, Sales and Marketing 55 John Jongebloed Senior Vice President, Global 45 Logistics Thomas T. Spooner Senior Vice President, Corporate and Technology 65 Development Murray O. Stamer Senior Vice President, 44 Finance Gary M. Watson Senior Vice President, Engineering and Technology 54 Brian Shore has served as a Director of the Company for more than the past five years. Brian Shore was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994, President effective March 4, 1996, the first day of the Company's 1997 fiscal year, and Chief Executive Officer in November 1996. Brian Shore also served as General Counsel of the Company from April 1988 until April 1994. 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. Ms. Groehl has been with one of Park's "Nelco" business units for more than the past five years. She was elected Vice President of New England Laminates Co., Inc. in 1988 and was Vice President, Marketing and Sales of Nelco International Corporation from 1993 until June 1999, when Nelco International Corporation merged into Park Electrochemical Corp. She was elected Senior Vice President of Park in May 1999. Mr. Jongebloed has been employed by one of Park's "Nelco" business units for more than the past ten years. He was Vice President and General Manager of New England Laminates Co., Inc. from January 1992 to May 1999, and he has been President and General Manager of New England Laminates Co., Inc. since May 4, 1999. He was elected Senior Vice President of Park in July 2001. Mr. Spooner has been employed by one of Park's "Nelco" business units for more than the past five years. He was Vice President, Technology of Nelco International Corporation from 1993 until June 1999, when Nelco International Corporation merged into Park Electrochemical Corp. He was elected Senior Vice President, Technology of Park in May 1999. His title was changed to Senior Vice President, Corporate and Technology Development in May 2001. Mr. Stamer has been employed by the Company since 1989 and served as the Company's Corporate Controller from 1993 to May 1999, when he was elected Treasurer. He was elected Senior Vice President, Finance in March 2001. Mr. Watson was elected Senior Vice President, Engineering in June 2000. His title was changed to Senior Vice President, Engineering and Technology in May 2001. Prior to June 2000, Mr. Watson was Senior Director, Manufacturing Process Technology of Fort James Corporation since March 1999; Vice President, Research and Development of Boise Cascade Corporation from 1992 to March 1999; and Business Division Technology Manager of Weyerhauser Company from 1986 to 1992. There are no family relationships between the directors or executive officers of the Company, except that Brian Shore is the son of Jerry Shore, who is the Chairman of the Board and a Director of the Company and who also served as President of the Company for more than five years until March 4, 1996 and as Chief Executive Officer of the Company for more than five years until November 19, 1996. The term of office of each executive officer of the Company expires upon the election and qualification of his successor. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Midwest 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, all as adjusted for the three-for-two stock split in the form of a stock dividend distributed November 8, 2000 to stockholders of record at the close of business on October 20, 2000. For the Fiscal Year Stock Price Dividends Ended March 3, 2002 High Low Declared First Quarter $35.45 $20.03 $.060 Second Quarter 26.73 21.22 $.060 Third Quarter 26.50 19.06 $.060 Fourth Quarter 27.97 24.30 $.060 For the Fiscal Year Stock Price Dividends Ended February 25, 2001 High Low Declared First Quarter $17.89 $14.87 $.053 Second Quarter 27.53 15.69 $.053 Third Quarter 49.72 26.45 $.060 Fourth Quarter 43.10 20.50 $.060 As of May 21, 2002, there were approximately 1,520 holders of record of Common Stock. The Company expects, for the immediate future, to continue to pay regular cash dividends. 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'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 March 3, 2002 and is as of the end of such periods, it is derived from the consolidated financial statements for such periods and as of such dates audited by Ernst & Young LLP, independent auditors. The Consolidated financial statements as of March 3, 2002 and February 25, 2001 and for the three years ended March 3, 2002, together with the independent auditors' report for the three years ended March 3, 2002, appear in Item 8 of this Report. <table> <caption> Fiscal Year Ended (In thousands, except per share amounts) Mar. 3, Feb. 25, Feb. 27, Feb. 28, Mar. 1, 2002 2001 2000 1999 1998 <s> <c> <c> <c> <c> <c> STATEMENTS OF EARNINGS INFORMATION: Net sales $230,060 $522,197 $425,261 $387,634 $376,158 Cost of sales 218,265 404,527 351,841 328,884 301,968 Gross profit 11,795 117,670 73,420 58,750 74,190 Selling, general and administrative expenses 34,360 49,897 45,508 41,279 39,418 Loss on sale of NTI and closure of related support facility (Note 10) 15,707 - - - - Restructuring and severance charges (Note 11) 3,727 - - - - Closure of plumbing hardware business(Note 16) - - 4,464 - - (Loss)/profit from operations (41,999) 67,773 23,448 17,471 34,772 Other income: Interest and other income, net 5,543 8,419 6,654 7,642 8,382 Interest expense - 5,593 5,720 5,400 5,468 Total other income 5,543 2,826 934 2,242 2,914 (Loss)/earnings before income taxes (36,456) 70,599 24,382 19,713 37,686 Income tax (benefit)/provision (10,937) 21,180 6,085 4,337 12,436 Net (loss)/earnings $(25,519) $ 49,419 $ 18,297 $ 15,376 $ 25,250 (Loss)/earnings per share: Basic $ (1.31) $ 3.10 $ 1.16 $ .93 $ 1.48 Diluted $ (1.31) $ 2.65 $ 1.12 $ .92 $ 1.38 Weighted average number of common Shares outstanding: Basic 19,535 15,932 15,761 16,470 17,030 Diluted 19,535 20,002 19,643 16,707 20,922 Cash dividends per common share $ .24 $ .23 $ .21 $ .21 $ .21 BALANCE SHEET INFORMATION: Working capital $167,000 $188,511 $176,113 $166,840 $176,553 Total assets 360,644 430,581 365,252 351,698 359,329 Long-term debt - 97,672 100,000 100,000 100,000 Stockholders' equity 292,546 228,906 179,118 164,646 166,404 <fn> See Notes 10,11 and 16 of the Notes to Consolidated Financial Statements in Item 8 of this Report. </table> Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: Park is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems. The Company's customers include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries. The sales and earnings growth that the Company achieved during its 2001 and 2000 fiscal years halted in the 2002 fiscal year as a result of a severe correction and downturn in the global electronics industry. The Company's sales declined dramatically in the fiscal year ended March 3, 2002, with steep declines in sales by the Company's North American, European and Asian operations. The Company's sales volumes during the 2002 fiscal year were less than one half of the sales levels during the 2001 fiscal year, and the Company reported a substantial loss in the 2002 fiscal year. The Company's sales growth during the 2001 and 2000 fiscal years was attributable to increased sales of electronic materials in North America, excluding the loss of sales to Delco Electronics, discussed below, and in Europe and Asia. The Company's ongoing efforts to expand its higher technology, higher margin product lines were significant factors in the growth of the Company's sales of electronic materials. The Company's earnings increased during each of the 2001 and 2000 fiscal years, despite the significant losses in the 2000 fiscal year incurred by the Company's mass lamination business in Arizona which formerly supplied Delco Electronics and despite the significant charges related to the closure and the write-down of the assets of the plumbing hardware business and the 2000 fiscal year operating loss of that business. In the 2001 fiscal year, the Company's earnings reached record levels as a result of the surge in demand for the Company's electronic materials products throughout the global electronics markets served by the Company and the Company's continuing emphasis on its higher technology product lines. Growth of the Company's electronic materials business was constrained during the 2001 and 2000 fiscal years by the Company's available manufacturing capacity, although the Company has been expanding the manufacturing capacity of its electronic materials facilities in recent years. Nevertheless, all the Company's electronic materials facilities were operating at full capacity during the 2001 fiscal year. During the 2000 fiscal year, the Company completed expansions of its electronic materials operations in Singapore and France, acquired additional manufacturing capacity in California, and commenced significant additional expansions of its electronic materials operations in California and New York, which it completed in its 2002 fiscal year. During the 2001 fiscal year, the Company commenced a significant expansion of its higher technology product line manufacturing facility in Arizona, which it completed in the 2002 fiscal year first quarter. During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp., and the Company's wholly owned subsidiary, Nelco Technology, Inc. ("NTI") located in Tempe, Arizona, had been Delco's principal supplier of semi-finished multilayer printed circuit board materials, commonly known as mass lamination, which were used by Delco to produce finished multilayer printed circuit boards. However, in March 1998, the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. As a result, the Company's sales to Delco declined during the three-month period ended May 31, 1998, were negligible during the remainder of the 1999 fiscal year and have been nil since that time. In May 1998, the Company and NTI filed a complaint against Delco Electronics Corporation and the Delphi Automotive Systems unit of General Motors Corp. in the United States District Court for the District of Arizona. The complaint alleged, among other things, that Delco breached its contract to purchase semi- finished multilayer printed circuit boards from NTI and that Delphi interfered with NTI's contract with Delco, that Delco breached the covenant of good faith and fair dealing implied in the contract, that Delco engaged in negligent misrepresentation and that Delco fraudulently induced NTI to enter into the contract. The Company and NTI sought substantial compensatory and punitive damages. In November 2000, a jury awarded damages to NTI in the amount of $32,280,000, and in December 2000 the judge in the United States District Court for the District of Arizona entered judgment for NTI on its claim of breach of the implied covenant of good faith and fair dealing with damages in the amount of $32,280,000. Both parties filed motions for post- judgment relief and a new trial, all of which the judge denied, and both parties have appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco. After March 1998, the business of NTI languished and its performance was unsatisfactory due primarily to the absence of the unique, high-volume, high-quality business that had been provided by Delco Electronics and the absence of any other customer in the North American electronic materials industry with a similar demand for the large volumes of semi-finished multilayer printed circuit board materials that Delco purchased from NTI. Although NTI's business experienced a resurgence in the 2001 fiscal year as the North American market for printed circuit materials became extremely strong and demand exceeded supply for the electronic materials manufactured by the Company, the Company's internal expectations and projections for the NTI business were for continuing volatility in the business' performance over the foreseeable future. Consequently, the Company commenced efforts to sell the business in the second half of its 2001 fiscal year; and in April 2001, the Company sold the assets and business of NTI and closed a related support facility, also located in Tempe, Arizona. In connection with the sale and closure, the Company recorded non-recurring, pre-tax charges of $15.7 million in its 2002 fiscal year first quarter ended May 27, 2001. As a result of this sale, the Company exited the mass lamination business in North America. Although the Company's electronic materials business was not dependent on this single customer, the loss of this customer had a material adverse effect on this business in the last three fiscal years. The Company is not engaged in any related party transactions involving relationships or transactions with persons or entities that derive benefits from their non-independent relationship with the Company or the Company's related parties, or in any transactions with parties with whom the Company or its related parties have a relationship that enables the parties to negotiate terms of material transactions that may or would not be available from other, more clearly independent parties on an arm's-length basis, or in any trading activities involving non-exchange traded commodity or other contracts that are accounted for at fair value or otherwise or in any energy trading or risk management activities, other than certain limited foreign currency contracts intended to hedge the Company's contractual commitments to pay certain obligations or to realize certain receipts in foreign currencies. Fiscal Year 2002 Compared with Fiscal Year 2001: The Company experienced a sharp decline in its results of operations for the fiscal year ended March 3, 2002 as the North American, European and Asian markets for sophisticated printed circuit materials experienced severe downturns during such periods. In addition to its severely depressed results of operations, during the 2002 fiscal year first quarter, the Company incurred non-recurring, pre-tax charges of $15.7 million in connection with the sale of the assets and business of NTI and the closure of a related support facility in Arizona and $0.7 million in connection with workforce reductions at the Company's continuing operations. The Company also incurred pre-tax charges during the 2002 fiscal year third quarter totaling $2.9 million in connection with the realignment of the operations of its German subsidiary, Dielektra GmbH, the Company's electronic materials business located in Cologne, Germany. The realignment included the closure of Dielektra's conventional lamination line to enable it to better focus its efforts and capabilities on its unique DatlamT automated continuous lamination and paneling manufacturing technology and the reduction of the size of its mass lamination operations in order to focus on the marketing and manufacturing of high technology, higher layer count mass lamination product. The Company incurred an additional $125,000 in pre-tax charges during the third quarter for a workforce reduction at another business unit. The significant reduction in the Company's sales of electronic materials was largely responsible for the severe decline in the Company's results of operations for the fiscal year ended March 3, 2002. The North American, European and Asian markets for sophisticated printed circuit materials collapsed during the 2002 fiscal year, and the Company's electronic materials operations located in each region suffered as a result, although the Company believes it gained market share with certain of its electronic materials customers. The Company's results of operations and margins declined in the 2002 fiscal year principally as a result of the electronic material business' decrease in sales of all products and the concomitant operation of the Company's facilities at levels far below their designed manufacturing capacity. Operating results of the Company's specialty adhesive tape and advanced composite materials businesses also declined during the 2002 fiscal year. This decline was attributable to lower volumes of products sold. While the Company's sales volumes during the 2002 fiscal year were only about 44% of the robust sales volumes achieved by the Company during the 2001 fiscal year, the Company has experienced a small improvement in its sales levels during the months of January through April 2002 compared to the preceding seven months. The Company believes this improvement is attributable to market share gains and to improvements in the business of the Company's customers. However, the Company cannot predict whether this small improvement is sustainable or to ascertain whether the global electronics industry is in fact beginning to recover. Results of Operations Net sales for the fiscal year ended March 3, 2002 declined 56% to $230.1 million from $522.2 million for the fiscal year ended February 25, 2001. This decline in sales was the result of lower unit volumes of materials shipped and the absence of sales by NTI, which, as described above, the Company sold in the 2002 fiscal year first quarter. Although the net sales of NTI during the 2001 fiscal year were material relative to the Company's consolidated net sales during such year, the operations of NTI were not material to the Company's consolidated financial position, results of operations, capital resources or liquidity, and the sale of NTI is not expected to have any material effect on the Company's future operating results, financial position, capital resources, liquidity or continuing operations. The Company's foreign operations accounted for $97.5 million of sales, or 42% of the Company's total sales worldwide, during the 2002 fiscal year, compared with $209.3 million of sales, or 40% of total sales worldwide, during the 2001 fiscal year. Sales by the Company's foreign operations during the 2002 fiscal year decreased 54% from the 2001 fiscal year. The decrease in sales by the Company's foreign operations in the 2002 fiscal year was due to decreases in sales in both Asia and Europe. The overall gross margin as a percentage of net sales for the Company's worldwide operations was 5.1% during the 2002 fiscal year compared with 22.5% during the 2001 fiscal year. The deterioration in the gross margin was attributable to the significant declines in sales volumes from the 2001 fiscal year, the absence of growth in sales of higher technology, higher margin products, which was only slightly offset by increases in market share with certain key electronic materials customers and inefficiencies caused by operating certain facilities at levels below their designed manufacturing capacity. Although the Company's cost of sales decreased significantly as a result of lower production volumes and cost reduction measures implemented by the Company, including significant workforce reductions, the reduction of overtime and the decision to not implement annual salary increases, the declines in sales and production volumes resulted in lower volumes to absorb fixed overhead costs and, consequently, an increase in the cost of sales as a percentage of net sales in the 2002 fiscal year. Although selling, general and administrative expenses declined by $15.5 million, or by 31%, during the 2002 fiscal year compared with the 2001 fiscal year, these expenses, measured as a percentage of sales, were 14.9% during the 2002 fiscal year compared with 9.5% during the 2001 fiscal year. The increase in selling, general and administrative expenses as a percentage of sales in the 2002 fiscal year resulted from proportionately lower sales compared to the 2001 fiscal year. For the reasons set forth above, for the 2002 fiscal year, income from operations, including the non-recurring, pre-tax charges, described above, related to the realignment of the operations of the Company's German business unit, the sale of NTI and the closure of a related support facility and severance for workforce reductions at the Company's continuing operations, declined to a loss of $42.0 million, and income from operations, before the non-recurring, pre-tax charges, declined to a loss of $22.6 million, in both cases compared to a profit of $67.8 million for the 2001 fiscal year. Interest and other income, net, principally investment income, declined 34% to $5.5 million for the 2002 fiscal year from $8.4 million for the 2001 fiscal year. The decrease in investment income was attributable to the reduction in cash available for investment and lower prevailing interest rates during the 2002 fiscal year. The Company's investments were primarily short-term taxable instruments. The Company incurred no interest expense during the 2002 fiscal year compared with $5.6 million during the 2001 fiscal year. The Company's interest expense was related primarily to its $100 million principal amount of 5.5% Convertible Subordinated Notes due 2006, issued in 1996, $2,328,000 principal amount of which was converted into 82,750 shares of the Company's common stock prior to February 25,2001, the end of the Company's 2001 fiscal year, $95,934,000 of which was converted into 3,410,908 shares of the Company's common stock on March 1, 2001, and $1,738,000 of which was redeemed by the Company for cash on March 2, 2001. See "Liquidity and Capital Resources" elsewhere in this Item 7. The Company's effective income tax rate was 30.0% for the 2002 fiscal year and the 2001 fiscal year. Net earnings for the 2002 fiscal year, including the non- recurring, pre-tax charges, described above, related to the realignment of the operations of the Company's German business unit, the sale of NTI and the closure of a related support facility and severance for workforce reductions at the Company's continuing operations, declined to a net loss of $25.5 million, and net earnings, before the non-recurring, pre-tax charges, declined to a net loss of $11.9 million, in both cases from net earnings of $49.4 million for the 2001 fiscal year. Basic and diluted earnings per share decreased from $3.10 and $2.65, respectively, for the 2001 fiscal year to a loss per share of $1.31 including the non-recurring, pre-tax charges and to a loss per share of $0.61 before the non-recurring, pre-tax charges for the 2002 fiscal year. The declines in net earnings and earnings per share were primarily attributable to the decline in the profit from operations and the charge for the closure of the business unit in Arizona which formerly supplied Delco Electronics Corporation with semi-finished multilayer circuit boards. Fiscal Year 2001 Compared with Fiscal Year 2000: The Company's electronic materials business was largely responsible for the dramatic improvement in the Company's results of operations for the fiscal year ended February 25, 2001. The North American, Asian and European markets for sophisticated printed circuit materials were extremely strong during the 2001 fiscal year, and the Company's electronic materials operations located in all three geographic areas performed well as a result. The Company's results of operations and margins improved in the 2001 fiscal year principally as a result of the optimal utilization of the electronic materials business' manufacturing resources and the business' increase in its market share with certain key customers and increase in its sales of higher technology, higher margin products. Results of Operations Net sales for the fiscal year ended February 25, 2001 increased 23% to $522.2 million from $425.3 million for the fiscal year ended February 27, 2000. This increase in sales was principally the result of higher volume of materials shipped and an increase in sales of higher technology products. The Company's foreign operations accounted for $209.3 million of sales, or 40% of the Company's total sales worldwide, during the 2001 fiscal year compared with $159.1 million of sales, or 37% of total sales worldwide, during the 2000 fiscal year. Sales by the Company's foreign operations during the 2001 fiscal year increased 32% from the 2000 fiscal year. The increase in sales by the Company's foreign operations in the 2001 fiscal year was due to increases in sales by both the Asian and European operations of the Company. The gross margin for the Company's continuing worldwide operations was 22.5% during the 2001 fiscal year compared with 17.3% for the 2000 fiscal year. The increase in the gross margin was attributable to efficiencies achieved by operating facilities at levels close to their designed capacity in the 2001 fiscal year, the continuing growth in sales of higher technology, higher margin products as a percentage of total sales and increases in market share with certain key electronic materials customers. Selling, general and administrative expenses, measured as a percentage of sales, were 9.5% during the 2001 fiscal year compared with 10.7% during the 2000 fiscal year. This decrease was a result of the partially fixed nature of these expenses and the Company's increased sales in the 2001 fiscal year. For the reasons set forth above, profit from operations for the 2001 fiscal year increased 190% to $67.8 million from $23.4 million for the 2000 fiscal year. Interest and other income, principally investment income, increased 25% to $8.4 million for the 2001 fiscal year from $6.7 million for the 2000 fiscal year. The increase in investment income was attributable to increased cash available for investment and higher prevailing interest rates during the 2001 fiscal year. The Company's investments were primarily short-term taxable instruments and government securities. Interest expense for the 2001 fiscal year was $5.6 million compared with $5.7 million during the 2000 fiscal year. The Company's interest expense was related primarily to its $100 million principal amount of 5.5% Convertible Subordinated Notes due 2006 issued in February 1996. See "Liquidity and Capital Resources" elsewhere in this Item 7. The Company's effective income tax rate for the 2001 fiscal year was 30.0% compared with 25.0% for the 2000 fiscal year. This increase in the effective tax rate was primarily the result of a change in the Company's income mix among the tax jurisdictions in which the Company does business. Net earnings for the 2001 fiscal year increased 170% to $49.4 million from $18.3 million for the 2000 fiscal year. Basic and diluted earnings per share increased to $3.10 and $2.65, respectively, for the 2001 fiscal year from $1.16 and $1.12, respectively, for the 2000 fiscal year. This increase in net earnings and earnings per share was primarily attributable to the increase in the profit from operations offset, in part, by the higher effective tax rate. Liquidity and Capital Resources: At March 3, 2002, the Company's cash and temporary investments were $151.4 million compared with $155.7 million at February 25, 2001, the end of the Company's 2001 fiscal year. The decrease in the Company's cash and investment position at March 3, 2002 was attributable to reduced cash provided from operating activities and cash used for the purchase of fixed assets, as discussed below. The Company's working capital (which includes cash and temporary investments) was $167.0 million at March 3, 2002 compared with $188.5 million at February 25, 2001. The decrease at March 3, 2002 compared with February 25, 2001 was due principally to lower cash and temporary investments, accounts receivable and inventories, offset in part by lower current liabilities. The decrease in accounts receivable, inventories and current liabilities at March 3, 2002 compared with February 25, 2001 was a result principally of reduced operating activity in support of lower sales volumes. The Company's current ratio (the ratio of current assets to current liabilities) was 4.9 to 1 at March 3, 2002 compared with 3.4 to 1 at February 25, 2001. During the 2002 fiscal year, cash provided by the Company's operations, before depreciation and amortization and before non- cash losses related to the sale and impairment of fixed assets, of $4.3 million was enhanced by a significant net reduction in working capital items, resulting in $23.4 million of cash provided from operating activities. A major portion of the 2002 fiscal year's capital expenditures related to the expansions of the Company's electronic materials facilities in Arizona, California and New York. These expansions increased the Company's capacity and capability for the production of sophisticated printed circuit materials. Net expenditures for property, plant and equipment were $22.8 million, $51.8 million and $27.7 million in the 2002, 2001 and 2000 fiscal years, respectively. The Company expects the capital expenditures in the 2003 fiscal year to be less than the expenditures in the 2002 fiscal year and in the 2001 fiscal year. At March 3, 2002, the Company had no long-term debt. During the Company's 2001 fiscal year, $2,328,000 principal amount of Notes was converted into 82,750 shares of the Company's common stock, and immediately after the end of the 2001 fiscal year, $95,934,000 principal amount of Notes was converted into 3,410,908 shares of the Company's common stock, all at a conversion price of $28.125 per share. On March 2, 2001, the Company redeemed $1,738,000 principal amount of Notes for a redemption price of $1,000.15 (including accrued interest) for each $1,000 principal amount Note pursuant to a previous announcement that on March 2, 2001 it would redeem all of the outstanding Notes that were not converted on or before March 1, 2001. See Note 6 of the Notes to Consolidated Financial Statements in Item 8 of this Report. 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 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 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. 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 described in Note 13 of the Notes to Consolidated Financial Statements included elsewhere in this Report. 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 a standby letter of credit in the amount of $1,042,000 to secure the Company's obligations under its workers' compensation insurance program. Environmental Matters: The Company is subject to various 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 2002, 2001 and 2000 fiscal years, the Company charged approximately $0.2 million, $0.3 million and $0.2 million, respectively, against pre-tax income for remedial response and voluntary cleanup costs (including legal fees). While annual expenditures have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from 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 March 3, 2002, the recorded liability in accrued liabilities for environmental matters was $4.0 million compared with $4.4 million at February 25, 2001. Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. See Note 13 of the Notes to Consolidated Financial Statements included in Item 8 of this Report for a discussion of the Company's commitments and 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 expenses and the related disclosure of contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to sales allowances, bad debts, inventories, valuation of long-lived assets, income taxes, restructuring, pensions and other employee benefit programs, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Sales Allowances The Company provides for the estimated costs of sales allowances at the time such costs can be reasonably estimated. The Company is focused on manufacturing the highest quality electronic materials and other products possible and employs stringent manufacturing process controls and works with raw material suppliers who have dedicated themselves to complying with the Company's specifications and technical requirements. However, if the quality of the Company's products declined, the Company may incur higher sales allowances. Bad Debt The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventory The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company's products and market conditions. If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Valuation of Long-lived Assets The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Important factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends and significant changes in the use of the Company's assets or strategy of the overall business. Income Taxes Carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly. Restructuring During the fiscal year ended March 3, 2002, the Company recorded significant reserves in connection with the restructuring relating to the sale of Nelco Technology, Inc., the closure of a related support facility and the realignment of Dielektra, GmbH. These reserves include estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from the Company's actions. Although the Company does not anticipate significant changes, the actual costs incurred by the Company may differ from these estimates. Contingencies and Litigation The Company is subject to a small number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. Pension and Other Employee Benefit Programs The Company's subsidiary in Europe has significant pension costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and wage inflation rates. The Company is required to consider current market conditions, including changes in interest rates and wage costs, in selecting these assumptions. Changes in the related pension costs may occur in the future in addition to changes resulting from fluctuations in the Company's related headcount due to changes in the assumptions. The Company's obligations for workers' compensation claims and employee-health care benefits are effectively self-insured. The Company uses an insurance company administrator to process all such claims and benefits. The Company accrues its workers' compensation liability based upon the claim reserves established by the third-party administrator and historical experience. The Company's employee health insurance benefit liability is based on its historical claims experience. The Company and certain of its subsidiaries have a non- contributory profit sharing retirement plan covering their regular full-time employees. In addition, the Company's subsidiaries have various bonus and incentive compensation programs, most of which are determined at management's discretion. The Company's reserves associated with these self-insured liabilities and benefit programs are reviewed by management for adequacy at the end of each reporting period. Factors That May Affect Future Results. 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. Accordingly, the Company hereby identifies the following important factors which could cause the Company's actual results to differ materially from any such results which might be projected, forecast, estimated or budgeted by the Company in forward-looking statements. . 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 March 3, 2002, the Company's ten largest customers accounted for approximately 59% 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. A loss of one or more of such key customers could affect the Company's profitability. See "Business-Electronic Materials Operations-Customers and End Markets" in Item 1 of this Report, "Legal Proceedings" in Item 3 of this Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report for discussions of the loss of a key cus tomer early in the 1999 fiscal year. . The Company's business is dependent on certain aspects of the electronics industry, which is a cyclical industry and which has experienced recurring downturns. The downturns, such as occurred in 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, can be unexpected and have often reduced demand for, and prices of, electronic materials. . 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. . 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. Changes in the cost or availability of gas or electricity could materially increase the Company's cost of operations. . Rapid technological advances in semiconductors and electronic equipment have placed rigorous demands on the electronic materials manufactured by the Company and used in printed circuit board production. The Company's operating results will be affected by the Company's ability to maintain and increase its technological and manufacturing capability and expertise in this rapidly changing industry. . The electronic materials industry is intensely competitive and the Company competes worldwide in the market for materials used in the production of complex multilayer printed circuit boards. 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 position in the industry. . There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of electronic materials products. Substitutes for these products are not readily available, and in the recent past there have been shortages in the market for certain of these materials. . 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. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, can cause a customer to reduce or delay orders previously anticipated by the Company. . The Company, from time to time, is engaged in the expansion of certain of its manufacturing facilities for electronic materials. 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's business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company's capital expenditures. In order to remain competitive the Company must continue to make significant investments in capital equipment and expansion of operations. This may require that the Company continue to be able to access capital on terms acceptable to the Company. . 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 international operations are subject to risks, including unexpected changes in regulatory requirements, exchange rates, tariffs and other barriers, political and economic instability and potentially adverse tax consequences. . A portion of the sales and costs of the Company'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'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 Company'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. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company. . 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 analysts' 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 by outside professional managers 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 maturity of the investment portfolio at the end of the 2002 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. Item 8. Financial Statements and Supplementary Data. The Company's Financial Statements begin on the next page. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Park Electrochemical Corp. Lake Success, New York We have audited the accompanying consolidated balance sheets of Park Electrochemical Corp. and subsidiaries as of March 3, 2002 and February 25, 2001 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 3, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audits 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 March 3, 2002 and February 25, 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 3, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York April 22, 2002 <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) <caption> March 3, February 25, 2002 2001 <s> <c> <c> ASSETS Current assets: Cash and cash equivalents $99,492 $123,726 Marketable securities (Note 2) 51,917 32,017 Accounts receivable, less allowance for doubtful accounts of $1,817 and $2,074, respectively 33,628 71,105 Inventories (Note 3) 13,242 32,307 Prepaid expenses and other (Note 7) 12,082 9,456 --------- --------- Total current assets 210,361 268,611 Property, plant and equipment, net of accumulated depreciation and amortization (Notes 4, 10 and 11) 149,810 159,309 Other assets (Note 7) 473 2,661 Total $360,644 $430,581 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,098 $ 29,481 Accrued liabilities (Notes 5 and 13) 27,862 39,052 Income taxes payable 1,401 11,567 -------- -------- Total current liabilities 43,361 80,100 Long-term debt (Note 6) - 97,672 Deferred income taxes (Note 7) 13,054 12,679 Deferred pension liability and other (Note 12) 11,683 11,224 Commitments and contingencies (Notes 12 and 13) Stockholders' equity (Notes 6, 8, 9 and 12): 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 131,138 57,318 Retained earnings 172,953 203,150 Accumulated other non-owner changes (7,890) (5,764) -------- -------- 298,238 256,741 Less treasury stock, at cost, 877,163 and 4,441,359 shares, respectively (5,692) (27,835) -------- --------- Total stockholders' equity 292,546 228,906 --------- --------- Total $360,644 $430,581 ========= ========= See notes to consolidated financial statements. <fn> </table> <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) <caption> Fiscal Year Ended March 3, February 25, February 27, 2002 2001 2000 <s> <c> <c> <c> Net sales $230,060 $522,197 $425,261 Cost of sales 218,265 404,527 351,841 --------- --------- -------- Gross profit 11,795 117,670 73,420 Selling, general and administrative expenses 34,360 49,897 45,508 Loss on sale of NTI and closure of related support facility (Note 10) 15,707 - - Restructuring and severance charges (Note 11) 3,727 - - Closure of plumbing hardware business (Note 16) - - 4,464 -------- -------- -------- (Loss)/profit from operations (41,999) 67,773 23,448 -------- -------- -------- Other income: Interest and other income, net 5,543 8,419 6,654 Interest expense (Note 6) - 5,593 5,720 -------- -------- -------- Total other income 5,543 2,826 934 -------- -------- -------- (Loss)/earnings before income taxes (36,456) 70,599 24,382 Income taxes (Note 7) (10,937) 21,180 6,085 --------- --------- -------- Net (loss)/earnings $(25,519) $ 49,419 $ 18,297 ========= ========= ========= (Loss)/earnings per share (Note 9): Basic $(1.31) $3.10 $1.16 Diluted $(1.31) $2.65 $1.12 <fn> See notes to consolidated financial statements. </table> <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share and per share amounts) <caption> Additional Common Stock Paid-in Retained Shares Amount Capital Earnings <s> <c> <c> <c> <c> Balance, February 28, 1999 20,369,986 $2,037 $52,429 $142,336 Net earnings 18,297 Exchange rate changes Change in pension liability adjustment Market revaluation Stock options exeercised 1,686 Cash dividends ($.21 per share) (3,325) Comprehensive income __________ ______ _______ _________ Balance, February 27, 2000 20,369,986 2,037 54,115 157,308 Net earnings 49,419 Exchange rate changes Change in pension liability adjustment Market revaluation Conversion of long-term debt 1,810 Stock options exercised 1,393 Purchase of treasury stock Cash dividends ($.23 per share) (3,577) Comprehensive income __________ ______ _______ _________ Balance, February 25, 2001 20,369,986 2,037 57,318 203,150 Net loss (25,519) Exchange rate changes Change in pension liability adjustment Market revaluation Conversion of long-term debt 72,634 Stock options exercised 1,186 Purchase of treasury stock Cash dividends ($.24 per share) (4,678) Comprehensive loss __________ ______ ________ _________ Balance, March 3, 2002 20,369,986 $2,037 $131,138 $172,953 <fn> See notes to consolidated financial statements. </table> <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share and per share amounts) <caption> Accumulated Other Non- Comprehen- Owner Treasury Stock sive Changes Shares Amount Income <s> <c> <c> <c> <c> Balance, February 28, 1999 $(1,802) 4,887,569 $(30,354) Net earnings $ 18,297 Exchange rate changes (3,407) (3,407) Change in pension liability adjustment 149 149 Market revaluation (231) (231) Stock options exercised (215,339) 1,303 Cash dividends ($.21 _________ per share) Comprehensive income ________ _________ ________ $ 14,808 Balance, February 27, 2000 (5,291) 4,672,230 (29,051) ========= Net earnings $49,419 Exchange rate changes (2,255) (2,255) Change in pension liability adjustment 1,481 1,481 Market revaluation 301 301 Conversion of long-term debt (82,750) 519 Stock options exercised (156,666) 978 Purchase of treasury stock 8,545 (281) Cash dividends ($.23 _________ per share) Comprehensive income ________ _________ _______ $ 48,946 Balance, February 25, 2001 (5,764) 4,441,359 (27,835) ========= Net loss $(25,519) Exchange rate changes (1,257) (1,257) Change in pension liability adjustment (802) (802) Market revaluation (67) (67) Conversion of long-term debt (3,411,204) 21,381 Stock options exercised (162,830) 1,027 Purchase of treasury stock 9,838 (265) Cash dividends ($.24 _________ per share) Comprehensive loss $(27,645) ________ __________ __________ ========= Balance, March 3, 2002 $(7,890) 877,163 $ (5,692) <fn> See notes to consolidated financial statements. </table> <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <caption> Fiscal Year Ended March 3, February 25, February 27. 2002 2001 2000 <s> <c> <c> <c> Cash flows from operating activities: Net (loss)/earnings $(25,519) $ 49,419 $ 18,297 Adjustments to reconcile net (loss)/earnings to net cash provided by operating activities: Depreciation and amortization 16,257 16,724 16,264 Loss on sale of fixed assets 10,636 - - Provision for plumbing business closure - - 3,230 Provision for impairment of fixed assets 2,959 1,146 1,234 Provision for doubtful accounts receivable 123 228 725 Provision for deferred income taxes (4,690) 2,781 600 Other, net (63) (1,026) 107 Changes in operating assets and liabilities: Accounts receivable 36,907 (4,324) (13,722) Inventories 18,793 (5,410) (2,831) Prepaid expenses and other current assets 4,511 (3,404) 292 Other assets and liabilities 29 (476) 1,281 Accounts payable (13,617) 5,004 (5,140) Accrued liabilities (9,744) 10,599 3,922 Income taxes payable (13,176) 6,141 (2,777) Net cash provided by operating activities 23,406 77,402 21,482 Cash flows from investing activities: Purchases of property, plant and equipment (25,786) (55,011) (27,846) Proceeds from sales of property, plant and equipment 2,986 3,250 117 Purchases of marketable securities (47,355) (70,144) (127,677) Proceeds from sales and maturities of marketable securities 27,036 117,245 152,388 Net cash used in investing activities (43,119) (4,660) (3,018) Cash flows from financing activities: Redemption of long term debt (1,738) - - Dividends paid (4,678) (3,577) (3,325) Proceeds from exercise of stock options 1,959 1,722 2,478 Net cash used in financing activities (4,457) (1,855) (847) (Decrease)/increase in cash and cash equivalents before effect of exchange rate changes (24,170) 70,887 17,617 Effect of exchange rate changes on cash and cash equivalents (64) (314) (1,146) (Decrease)/increase in cash and cash equivalents (24,234) 70,573 16,471 Cash and cash equivalents, beginning of year 123,726 53,153 36,682 Cash and cash equivalents, end of year $ 99,492 $123,726 $ 53,153 <fn> See notes to consolidated financial statements. </table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three years ended March 3, 2002 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Electrochemical Corp. ("Park"), through its subsidiaries (collectively, the "Company"), is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems. The Company's multilayer printed circuit board materials include copper-clad laminates and prepregs. Multilayer printed circuit boards and interconnection systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices and passive components. The Company also designs and manufactures specialty adhesive tapes and advanced composite materials for the electronics, aerospace and industrial 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 financial statements and accompanying notes. Actual results may differ from those estimates. See "Critical Accounting Policies and Estimates" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 8 of this Report. 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 2002, 2001 and 2000 fiscal years ended on March 3, 2002 February 25, 2001 and February 27, 2000, respectively. Fiscal year 2002 consisted of 53 weeks and fiscal years 2001 and 2000 consisted of 52 weeks. d. 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. 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. e. Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market. f. Revenue Recognition - Revenues are recognized at the time product is shipped to the customer. g. Product Warranties - The Company accrues for defective products at the time the existence of the defect is known and the amount is reasonably determinable. The Company's products are made to specific customer order specifications, and there are no future performance requirements for the Company's products other than the products' meeting the agreed specifications. The amounts of returns and allowances resulting from defective or damaged products have been approximately 0.5% of sales for each of the Company's last three fiscal years. h. Shipping Costs - The amounts paid to third-party shippers for transporting products to customers are classified as selling expenses. The amounts included in selling, general and administrative expenses were approximately $4,034,000, $6,485,000 and $6,483,000 for fiscal years 2002, 2001 and 2000, respectively. i. Depreciation and Amortization - Depreciation and amortization are computed principally by the straight- line method over the estimated useful lives of the related assets or, with respect to leasehold improvements, the terms of the leases, if shorter. j. Deferred Charges - Costs incurred in connection with the issuance of debt are deferred and included in other assets and amortized, using the effective interest method, over the debt repayment period. k. 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. United States ("U.S.") Federal income taxes have not been provided on the undistributed earnings (approximately $95,300,000 at March 3, 2002) of the Company's foreign subsidiaries, because it is management's practice and intent to reinvest such earnings in the operations of such subsidiaries. l. 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. m. Consolidated Statements of Cash Flows - The Company considers all money market securities and investments with maturities at the date of purchase of 90 days or less to be cash equivalents. Supplemental cash flow information: <table> <caption> Fiscal Year 2002 2001 2000 <s> <c> <c> <c> Cash paid during the year for: Interest $2,700,000 $5,593,000 $5,524,000 Income taxes 6,847,000 12,281,000 7,976,000 </table> 2. MARKETABLE SECURITIES <table> The following is a summary of available-for-sale securities: <caption> Gross Gross Unrealized Unrealized Estimated Amortized Gains Losses Fair Value Cost <s> <c> <c> <c> <c> March 3, 2002: U.S. Treasury and other government securities $29,956,000 $ 76,000 $ 72,000 $29,960,000 U.S. corporate debt securities 21,853,000 80,000 49,000 21,884,000 Total debt securities 51,809,000 156,000 121,000 51,844,000 Equity securities 5,000 68,000 - 73,000 $51,814,000 $224,000 $121,000 $51,917,000 February 25, 2001: U.S. Treasury and other government securities $ 1,007,000 $ 11,000 $ - $ 1,018,000 U.S. corporate debt securities 30,800,000 231,000 102,000 30,929,000 Total debt securities 31,807,000 242,000 102,000 31,947,000 Equity securities 5,000 65,000 - 70,000 $31,812,000 $307,000 $102,000 $32,017,000 </table> The gross realized gains on the sales of securities were $0, $26,000 and $9,000 for fiscal years 2002, 2001 and 2000, respectively, and the gross realized losses were $60,000, $0, and $11,000 for fiscal years 2002, 2001 and 2000, respectively. The amortized cost and estimated fair value of the debt and marketable equity securities at March 3, 2002, by contractual maturity, are shown below: <table> <caption> Estimated Fair Cost Value <s> <c> <c> Due in one year or less $ 9,123,000 $ 9,208,000 Due after one year through five years 42,686,000 42,636,000 51,809,000 51,844,000 Equity securities 5,000 73,000 $51,814,000 $51,917,000 </table> 3. INVENTORIES <table> <caption> March 3, February 25, 2002 2001 <s> <c> <c> Raw materials $ 4,996,000 $14,988,000 Work-in-process 2,916,000 5,075,000 Finished goods 4,784,000 11,319,000 Manufacturing supplies 546,000 925,000 $13,242,000 $32,307,000 </table> 4. PROPERTY, PLANT AND EQUIPMENT <table> <caption> March 3, February 25, 2002 2001 <s> <c> <c> Land, buildings and improvements $ 60,689,000 $ 48,501,000 Machinery, equipment, furniture and fixtures 203,476,000 233,078,000 ------------ ------------ 264,165,000 281,579,000 Less accumulated depreciation and amortizationn 114,355,000 122,270,000 ------------ ------------ $149,810,000 $159,309,000 </table> Depreciation and amortization expense relating to property, plant and equipment was $16,257,000, $16,724,000 and $16,200,000 for fiscal years 2002, 2001 and 2000, respectively. Pretax charges of $2,959,000, $1,146,000 and $1,234,000 were recorded in fiscal years 2002, 2001 and 2000, respectively, for the write-down of impaired operating equipment to its estimated net realizable value (see Notes 10, 11 and 16 below). Interest expense capitalized to property, plant and equipment was $0, $239,000 and $93,000 for fiscal years 2002, 2001 and 2000, respectively. 5. ACCRUED LIABILITIES <table> <caption> March 3, February 25, 2002 2001 <s> <c> <c> Payroll and payroll related $ 9,000,000 $12,067,000 Taxes, other than income taxes 471,000 1,139,000 Interest - 2,700,000 Employee benefits 5,525,000 7,275,000 Environmental reserve 3,975,000 4,431,000 Other 8,891,000 11,440,000 ----------- ----------- $27,862,000 $39,052,000 </table> 6. LONG-TERM DEBT On February 28, 1996, the Company issued $100,000,000 principal amount of 5.5% Convertible Subordinated Notes due 2006 (the "Notes") with interest payable semiannually on March 1 and September 1 of each year, commencing September 1, 1996. The Notes were unsecured and subordinated to other long-term debt and were convertible at the option of the holder at any time prior to maturity, unless previously redeemed or repurchased, into shares of the Company's common stock at $28.125 per share, subject to adjustment under certain conditions. The Notes were not redeemable at the option of the Company prior to March 1, 1999; at any time on or after such date, the Notes were redeemable at the option of the Company, in whole or in part, initially at 102.75% of the principal amount of such Notes redeemed and thereafter at prices declining to 100% on March 1, 2001, together with accrued interest. On March 1, 2001, $95,934,000 principal amount of the Notes was converted into 3,410,908 shares of the Company's common stock, and the remaining $1,738,000 principal amount of the Notes was redeemed by the Company for cash. Prior to February 25, 2001, $2,328,000 principal amount of the Notes was converted into 82,750 shares of the Company's common stock. At February 25, 2001, the fair value of the Notes approximated $109,220,000. Foreign lines of credit totaled $2,228,000 at March 3, 2002, all of which is available to the Company's foreign subsidiaries. 7. INCOME TAXES The income tax (benefit)/provision includes the following: <table> <caption> Fiscal Year 2002 2001 2000 <s> <c> <c> <c> Current: Federal $(5,901,000) $ 8,367,000 $2,445,000 State and local 18,000 1,509,000 339,000 Foreign (364,000) 8,523,000 2,587,000 (6,247,000) 18,399,000 5,371,000 Deferred: Federal (4,345,000) 1,722,000 (869,000) State and local (729,000) 259,000 (46,000) Foreign 384,000 800,000 1,629,000 (4,690,000) 2,781,000 714,000 $(10,937,000) $21,180,000 $6,085,000 </table> The Company's effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following: <table> Fiscal Year 2002 2001 2000 <s> <c> <c> <c> Statutory U.S. Federal tax rate 35.0% 35.0% 35.0% State and local taxes, net of Federal benefit 1.3 1.6 0.8 Foreign tax rate differentials (5.5) (8.3) (9.3) Reversal of reserves no longer required - - (3.1) Other, net (0.8) 1.7 1.6 ------ ------ ------ 30.0% 30.0% 25.0% </table> The Company had foreign net operating loss carryforwards of approximately $58,500,000 and $31,600,000 in fiscal years 2002 and 2001, respectively. Most of the net operating loss carryforwards were acquired in fiscal year 1998 when the Company purchased the capital stock of Dielektra GmbH ("Dielektra"), a German corporation located in Cologne, Germany. During fiscal year 2002, an audit of Dielektra's tax filings relating to tax periods prior to its acquisition by the Company was completed. The audit resulted in an increase in pre-acquisition net operating losses of approximately $25.0 million. Long-term deferred tax assets arising from these net operating loss carryforwards were valued at $0 at both March 3, 2002 and February 25, 2001, net of valuation reserves of approximately $22,217,000 and $11,400,000, respectively. None of the acquired net operating loss carryforwards relate to goodwill or other intangible assets. Approximately $1,600,000 of the foreign net operating loss carryforwards expire in varying amounts from fiscal year 2003 through fiscal year 2005, and the remainder have an indefinite expiration. At March 3, 2002 and February 25, 2001, current deferred tax assets of $7,006,000 and $1,844,000, respectively, which were primarily attributable to expenses not currently deductible, were included in other current assets. The long- term deferred tax liabilities consisted primarily of timing differences relating to depreciation. 8. STOCKHOLDERS' EQUITY a. Stock Split and Number of Authorized Shares - On October 10, 2000, the Company's Board of Directors approved a three-for-two stock split in the form of a stock dividend. The stock dividend was distributed November 8, 2000 to stockholders of record on October 20, 2000. All share and per share data for prior periods has been retroactively restated to reflect the stock split. In addition, on October 10, 2000, the Company's stockholders approved an increase in the number of authorized shares of common stock from 30,000,000 to 60,000,000 shares. b. Stock Options - Under the 1992 Stock Option Plan (the "Plan") approved by the Company's stockholders, directors and key employees may be granted options to purchase shares of common stock of the Company exercisable at prices not less than the fair market value at the date of grant. Options become exercisable 25% one year from the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant. On July 12, 2000, the Company's stockholders approved an amendment to the Plan to increase the aggregate number of shares of Common Stock authorized for issuance under the Plan by 450,000 shares. Options to purchase a total of 2,625,000 shares of common stock were authorized for grant under such Plan. The authority to grant additional options under the Plan expired on March 24, 2002. The Company has elected the disclosure provisions of Statement of Financial Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), and continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for the Plan. Under APB 25, because the exercise price of the granted options is not less than the market price at the date of the grant, no compensation expense is recognized. The weighted averaged fair value for options was estimated at the date of grant using the Black-Scholes option-pricing model to be $8.09 for fiscal year 2002, $8.40 for fiscal year 2001 and $5.77 for fiscal year 2000, with the following weighted average assumptions: risk free interest rate of 4.0% for fiscal year 2002, 5.0% for fiscal year 2001 and 5.5% for fiscal year 2000; expected volatility factors of 41%, 39% and 40% for fiscal years 2002, 2001 and 2000, respectively; expected dividend yield of 1.0% for fiscal year 2002, 1.5% for fiscal year 2001 and 2% for fiscal year 2000; and estimated option lives of 4.0 years for fiscal years 2002 and 2001 and 3.6 years for fiscal year 2000. For the purpose of pro forma disclosures, the effect of applying SFAS 123 on net (loss)/income and (loss)/earnings per share for fiscal years 2002, 2001 and 2000 would approximate the amounts shown below (in thousands, except EPS data): <table> <caption> 2002 2001 2000 As Pro As Pro As Pro Reported forma Reported forma Reported forma <s> <c> <c> <c> <c> <c> <c> Net (loss)/income $(25,519) $(26,923) $49,419 $47,935 $18,297 $17,303 (loss)/income EPS-basic $ (1.31) $ (1.38) $ 3.10 $ 3.01 $ 1.16 $ 1.10 EPS-diluted $ (1.31) $ (1.38) $ 2.65 $ 2.58 $ 1.12 $ 1.07 </table> <table> Information with respect to the Plan follows: <caption> Weighted Range of Average Exercise Outstanding Exercise Prices Options Price <s> <c> <c> <c> Balance, February 28, 1999 $ 3.67 - $18.42 1,141,238 $12.67 Granted 16.37 - 23.96 346,350 16.71 Exercised 3.67 - 16.42 (217,589) 11.61 Cancelled 8.75 - 16.54 (54,205) 15.91 Balance, February 27, 2000 $ 3.67 - $23.96 1,215,794 $13.87 Granted 15.92 - 43.63 360,075 23.71 Exercised 3.67 - 18.42 (156,667) 12.79 Cancelled 4.54 - 16.54 (61,050) 16.16 Balance, February 25, 2001 $ 3.67 - $43.63 1,358,152 $16.50 Granted 22.62 - 26.77 275,725 23.62 Exercised 3.67 - 23.96 (162,831) 13.06 Cancelled 3.67 - 43.63 (227,339) 21.92 Balance, March 3, 2002 $ 4.67 - $43.63 1,243,707 $17.53 Exercisable, March 3, 2002 $ 4.67 - $43.63 645,645 $ 9.56 </table> The following table summarizes information concerning currently outstanding and exercisable options. <table> <caption> Options Outstanding Options Exercisable Weighted Average Weighted Weighted Number of Remaining Average Number of Average Range of Options Contractual Exercise Options Exercise Exercise Prices Outstanding Life Price Exercisable Price (Years) <s> <c> <c> <c> <c> <c> <c> $ 4.67 -$ 9.99 166,725 1.62 $ 6.56 166,725 $ 6.56 10.00 - 19.99 731,932 6.48 15.76 454,920 15.56 20.00 - 43.63 345,050 9.19 26.61 24,000 34.38 --------- ------- 1,243,707 645,645 </table> Stock options available for future grant under the Plan at March 3, 2002 and February 25, 2001 were 688,710 and 737,096, respectively. c. Stockholders' Rights Plan - On February 2, 1989, the Company adopted a stockholders' rights plan designed to protect stockholder interests in the event the Company is confronted with coercive or unfair takeover tactics. Under the terms of the plan, as amended on July 12, 1995, each share of the Company's common stock held of record on February 15, 1989 or issued thereafter received one right. In the event that a person has acquired, or has the right to acquire, 15% (25% in certain cases) or more of the then outstanding common stock of the Company (an "Acquiring Person") or tenders for 15% or more of the then outstanding common stock of the Company, such rights will become exercisable, unless the Board of Directors otherwise determines. Upon becoming exercisable as aforesaid, each right will entitle the holder thereof to purchase one one-hundredth of a share of Series A Preferred Stock for $75, subject to adjustment (the "Purchase Price"). In the event that any person becomes an Acquiring Person, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of the Company's common stock as shall equal the then current Purchase Price divided by 50% of the then market price per share of the Company's common stock. In addition, if after a person becomes an Acquiring Person, the Company engages in any of certain business combination transactions as specified in the plan, the Company will take all action to ensure that, and will not consummate any such business combination unless, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of common stock of the other party to the transaction for each right held by such holder as shall equal the then current Purchase Price divided by 50% of the then market price per share of such other party's common stock. The Company may redeem the rights for a nominal consideration at any time, and after any person becomes an Acquiring Person, but before any person becomes the beneficial owner of 50% or more of the outstanding common stock of the Company, the Company may exchange all or part of the rights for shares of the Company's common stock at a one-for-one exchange ratio. Unless redeemed, exchanged or exercised earlier, all rights expire on July 12, 2005. d. Reserved Common Shares - At March 3, 2002, 1,932,417 shares of common stock were reserved for issuance upon exercise of stock options. e. Accumulated Other Non-Owner Changes - Accumulated balances related to each component of other comprehensive income (loss) were as follows: <table> <caption> March 3, February 25, 2002 2001 <s> <c> <c> Currency translation adjustment $(7,112) $(5,855) Pension liability adjustment (845) (43) Unrealized gains on investment 67 134 Accumulated balance $(7,890) $(5,764) </table> 9. (LOSS)/EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted (loss)/earnings per share for the fiscal years: <table> <caption> 2002 2001 2000 <s> <c> <c> <c> Net (loss)/income for basic EPS $(25,519,000) $49,419,000 $18,297,000 Add interest on 5.5% Convertible Subordinated Notes, net of taxes - 3,585,000 3,702,000 Net (loss)/income for dilted EPS $(25,519,000) $53,004,000 $21,999,000 Weighted average common shares outstanding for basic EPS 19,535,000 15,932,000 15,761,000 Net effect of dilutive options * 548,000 327,000 Assumed conversion of 5.5% Convertible Subordinated Notes - 3,522,000 3,555,000 Weighted average shares outstanding for diluted EPS 19,535,000 20,002,000 19,643,000 Basic (loss)/earnings per share $(1.31) $3.10 $1.16 Diluted (loss)/earnings per share $(1.31) $2.65 $1.12 *For the fiscal year ended March 3, 2002, the effect of employee stock options was not considered because it was antidilutive. </table> The net loss for fiscal year 2002, in the above table, includes a $15,707,000 loss on the sale of Nelco Technology, Inc.(see Note 10 below) and a related support facility and a $3,727,000 charge for restructuring and severance costs (see Note 11 below). During the first half of the 2001 fiscal year, the Company closed and liquidated its plumbing hardware business. The net income shown above includes losses of $25,000 and $5,022,000 for the 2001 and 2000 fiscal years, respectively, for the discontinued plumbing hardware business. The weighted average number of shares outstanding and the earnings per share for each year have been adjusted to give retroactive effect to the three-for-two split of the Company's common stock declared October 10, 2000 payable November 8, 2000 to stockholders of record on October 20, 2000. 10. SALE OF NELCO TECHNOLOGY, INC. During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp., and the Company's wholly owned subsidiary, Nelco Technology, Inc. ("NTI") located in Tempe, Arizona, had been Delco's principal supplier of semi-finished multilayer printed circuit board materials, commonly known as mass lamination, which were used by Delco to produce finished multilayer printed circuit boards. However, in March 1998, the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. As a result, the Company's sales to Delco declined during the three-month period ended May 31, 1998, were negligible during the remainder of the 1999 fiscal year and were nil during the 2000, 2001 and 2002 fiscal years. After March 1998, the business of NTI languished and its performance was unsatisfactory due primarily to the absence of the unique, high-volume, high-quality business that had been provided by Delco Electronics and the absence of any other customer in the North American electronic materials industry with a similar demand for the large volumes of semi-finished multilayer printed circuit board materials that Delco purchased from NTI. Although NTI's business experienced a resurgence in the 2001 fiscal year as the North American market for printed circuit materials became extremely strong and demand exceeded supply for the electronic materials manufactured by the Company, the Company's internal expectations and projections for the NTI business were for continuing volatility in the business' performance over the foreseeable future. Consequently, the Company commenced efforts to sell the business in the second half of its 2001 fiscal year; and in April 2001, the Company sold the assets and business of NTI and closed a related support facility, also located in Tempe, Arizona. As a result of this sale, the Company exited the mass lamination business in North America. In connection with the sale of NTI and the closure of the related support facility, the Company recorded non-recurring, pre-tax charges of $15,707,000 in its fiscal year 2002 first quarter ended May 27, 2001. The components of these charges and the related liability balances and activity from the May 27, 2001 balance sheet date to the March 3, 2002 balance sheet date are set forth below. Charges 3/3/02 Closure Incurred or Remaining Charges Paid Reversals Liabilities <s> <c> <c> <c> <c> NTI charges: Loss on sale of assets and business $10,580,000 $10,580,000 $ - $ - Severance payments 387,000 387,000 - - Medical and other costs 95,000 95,000 - - Support facility charges: Impairment of long lived assets 2,058,000 2,058,000 - - Write down accounts receivable 350,000 304,000 31,000 15,000 Write down inventory 590,000 590,000 - - Severance payments 688,000 688,000 - - Medical and other costs 133,000 123,000 - 10,000 Lease payments, taxes, utilities, maint. 781,000 202,000 - 579,000 utilities, maint. Other 45,000 45,000 - - ----------- ----------- ------- -------- $15,707,000 $15,072,000 $31,000 $604,000 =========== =========== ======= ======== The severance payments and medical and other costs incurred in connection with the sale of NTI and the closure of the related support facility were for the termination of hourly and salaried, administrative, manufacturing and support employees, all of whom were terminated during the first and second fiscal quarters ended May 27, 2001 and August 26, 2001, respectively, and substantially all of the severance payments and related costs for such terminated employees (totaling $1,303,000) were paid during such quarters. The lease obligations will be paid through August 2004 pursuant to the related lease agreements. NTI did not have a material effect on Park's consolidated financial position, results of operations, capital resources, liquidity or continuing operations, and the sale of NTI is not expected to have a material effect on the Company's future operating results. 11. RESTRUCTURING AND SEVERANCE CHARGES The Company recorded non-recurring, pre-tax charges of $2,921,000 in its fiscal year 2002 third quarter ended November 25, 2001 in connection with the closure of the conventional lamination line of Dielektra GmbH ("Dielektra"), its electronic materials business located in Cologne, Germany, and the reduction of the size of Dielektra's mass lamination operations to enable Dielektra to focus on its DatlamT automated continuous lamination and paneling technology and on the marketing and manufacturing of high technology, higher layer count mass lamination product. The charges included $2,020,000 for severance payments and related costs for terminated employees. In addition, the Company recorded non- recurring, pre-tax severance charges of $681,000 in its fiscal 2002 first quarter ended May 27, 2001 and $125,000 in its third quarter ended November 25, 2001 for severance payments and related costs for terminated employees at the Company's continuing operations. The components of these charges and the related liability balances and activity from the November 25, 2001 and May 27, 2001 balance sheet dates to the March 3, 2002 balance sheet date are set forth below. Charges 3/3/02 Closure Incurred or Remaining Charges Paid Reversals Liabilities <s> <c> <c> <c> <c> Dielektra GmbH charges: Impairment of long lived assets $ 378,000 $ 378,000 $ - $ - Write down of assets 523,000 523,000 - - Severance payments 2,020,000 808,000 - 1,212,000 and related costs ---------- ---------- --------- ---------- 2,921,000 1,709,000 1,212,000 Other severance payments and related costs 806,000 806,000 - - ---------- ---------- -------- ---------- $3,727,000 $2,515,000 $ - $1,212,000 ========== ========== ======== ========== The charge for fixed asset impairments was comprised of $378,000 to write off the net book value of machinery and equipment and $523,000 to write down related land and building that are no longer used as a result of the close-down of the conventional lamination line of Dielektra. The machinery and equipment have no residual value. The land and building that previously housed the closed operations are being held for sale and have been written down to their estimated net realizable value of $2,050,000. As stated above in this Note and in the preceding Note 10, the Company incurred charges (totaling $4,129,000) for severance payments and related costs for employees whose employment was terminated by the Company as follows: $2,020,000 for employees terminated in Germany during the third quarter ended November 25, 2001; $681,000 and $125,000 for employees terminated at its continuing operations in Asia, Europe and North America during the first quarter ended May 27, 2001 and third quarter ended August 26, 2001, respectively; and $1,303,000 for employees terminated in connection with the sale of NTI and the closure of a related support facility in Arizona during the first fiscal quarter ended May 27, 2001. All the terminated employees were hourly and salaried, administrative, manufacturing and support employees, all such employees were terminated during the first, second and third fiscal quarters ended May 27, 2001, August 26, 2001 and November 25, 2001, respectively, and substantially all the severance payments and related costs for such terminated employees (totaling $4,129,000) were paid during such quarters, except payments and costs of $1,212,000 in Germany all of which are expected to be paid in installments to terminated employees in Germany during the Company's 2003 fiscal year first and second quarters ending June 2, 2002 and September 1, 2002, respectively. All the severance payments and related costs for the employees terminated in connection with the sale of NTI and the closure of the related support facility (totaling $1,303,000) were included in the $15,707,000 of charges in connection with the sale of NTI and the closure of the related support facility. 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 1,700 as of March 3, 2002 from approximately 3,000 as of February 25, 2001, the end of the Company's 2001 fiscal year. 12. EMPLOYEE BENEFIT PLANS a. Profit Sharing Plan - Park 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 contribu tions under the plan amounted to $791,000, $4,597,000 and $2,269,000 for fiscal years 2002, 2001 and 2000, respectively. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code. In addition, the Company 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 $527,000, $751,000 and $848,000 in fiscal years 2002, 2001 and 2000, respectively. b. Pension Plans - The domestic subsidiary of the Company which conducted the plumbing hardware business had two pension plans, neither of which are active, covering its union employees. On February 27, 2000, the two plans were merged in order to simplify the administration of the plans. The Company's funding policy was to contribute annually the amounts necessary to satisfy applicable funding standards. There were no changes made to funding levels or retiree benefits as a result of the merger of the two plans. However, in connection with the closure of the plumbing hardware business, the Company terminated the combined plan and purchased annuity contracts to fund the pension liability. A subsidiary of the Company in Europe has a non-contributory defined benefit pension plan which covers certain employees. Under the terms of this plan, participants may not accrue additional service time after December 31, 1987. The Company's policy with respect to this plan is to contribute annually the amounts necessary to meet current payment obligations of the plan. The Company recorded deferred pension liabilities relating to this plan in the amounts of $8,908,000 and $8,678,000 at March 3, 2002 and February 25, 2001, respectively, in accordance with SFAS 87. The effect on the Company's consolidated financial statements in recording the liability was to record a corresponding reduction to accumulated non-owner changes of $845,000 and $43,000 at those same dates. Net pension costs included the following components: <table> <caption> Fiscal Year Changes in Benefit Obligations 2002 2001 <s> <c> <c> Benefit obligation at beginning of year $ 9,408,000 $14,130,000 Service cost 82,000 96,000 Interest cost 533,000 839,000 Actuarial loss 108,000 148,000 Currency translation (gain)/loss (439,000) (633,000) Benefits paid (542,000) (871,000) Payment for annuities - (4,301,000) ------------ ------------ Benefit obligation at end of Year $ 9,150,000 $ 9,408,000 Changes in Plan Assets Fair value of plan assets at beginning of year $ - $ 3,213,000 Actual return on plan assets - 169,000 Employer contributions 542,000 1,831,000 Benefits paid (542,000) (871,000) Payment for annuities - (4,301,000) Administrative expenses paid - (41,000) ------------ ------------ Fair value of plan assets $ - $ - Underfunded status $(9,150,000) $(9,408,000) Unrecognized net loss 1,317,000 1,000,000 ------------ ------------ Net accrued pension cost $(7,833,000) $(8,408,000) </table> <table> <caption> Fiscal Year Components of Net Periodic 2002 2001 2000 Benefit Cost <s> <c> <c> <c> Service cost - benefits earned during the period $ 82,000 $ 96,000 $ 97,000 Interest cost on projected 533,000 839,000 953,000 benefit obligation Expected return on plan assets - (252,000) (262,000) Amortization of unrecognized transition obligation - - 17,000 Amortization of prior service cost - - 14,000 Recognized net actuarial loss - 38,000 58,000 Effect of curtailment - 1,761,000 144,000 -------- ---------- ---------- Net periodic pension cost $615,000 $2,482,000 $1,021,000 </table> The projected benefit obligation for the terminated domestic plan was determined using an assumed discount rate of 7.50% for fiscal year 2000 and the assumed long-term rate of return on plan assets was 8%. Projected wage increases are not applicable as benefits pursuant to the plan are based upon years of service without regard to levels of compensation. The projected benefit obligation for the foreign plan was determined using an assumed discount rate of 6% for fiscal years 2002 and 2001. Projected wage increases of 3.5% and 2.1% and inflation factors of 2.0% and 1.5% were also assumed for fiscal years 2002 and 2001, respectively. As previously stated, the Company's funding policy with respect to this plan is to contribute annually the amounts necessary to meet current payment obligations of the plan. 13. COMMITMENTS AND CONTINGENCIES a.Lease Commitments - The Company conducts certain of its operations in leased facilities, which include several manufacturing plants, warehouses and offices, and land leases. The leases on facilities are for terms of up to 10 years, the latest of which expires in 2006. 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 2013 and this land lease contains renewal options of up to 35 years. These non-cancelable operating leases have the following payment schedule. Fiscal Year Amount 2003 $2,794,000 2004 1,799,000 2005 1,102,000 2006 557,000 2007 180,000 Thereafter 819,000 ---------- $7,251,000 Rental expense, inclusive of real estate taxes and other costs, amounted to $3,933,000, $3,711,000 and $3,424,000 for fiscal years 2002, 2001 and 2000, respectively 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 nine sites. In addition, a subsidiary of the Company has received cost recovery claims under the Superfund Act from other private parties involving two other sites and has received requests from the EPA under the Superfund Act for information with respect to its involvement at three other sites. Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environ mental compliance program. The insurance carriers that 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 three 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 $200,000, $300,000 and $200,000 in fiscal years 2002, 2001 and 2000, respectively. The recorded liabilities included in accrued liabilities for environmental matters were $3,975,000, $4,431,000 and $4,350,000 for fiscal years 2002, 2001 and 2000, respectively. Included in cost of sales are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental mat ters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. 14. BUSINESS SEGMENTS The Company's specialty adhesive tape and film business, advanced composite business and plumbing hardware business were previously aggregated into the engineered materials and plumbing hardware segment. During fiscal year 2001, the Company closed and liquidated its plumbing hardware business (see Note 16 below). In fiscal years 2001, 2000 and 1999, the specialty adhesive tape, advanced composite and plumbing hardware businesses comprised less than 10% of the Company's consolidated revenues and assets, and the Company considered itself to operate in one business segment. The Company's electronic materials products are marketed primarily to leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs") located throughout North America, Europe and Asia. The Company's specialty adhesive tape and advanced composite 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 from which the materials were shipped to the customer. Intersegment sales and sales between geographic areas were not significant. Financial information regarding the Company's operations by geographic area follows (in thousands): <table> <caption> Fiscal Year 2002 2001 2000 <s> <c> <c> <c> United States $132,520 $312,851 $266,158 Europe 55,507 121,329 95,812 Asia 42,033 88,017 63,291 -------- -------- -------- Total sales $230,060 $522,197 $425,261 United States $104,386 $108,804 $ 74,846 Europe 22,954 24,657 27,484 Asia 22,943 26,596 24,092 -------- -------- -------- Total long-lived assets $150,283 $160,057 $126,422 </table> 15. CUSTOMER AND SUPPLIER CONCENTRATIONS a. Customers - Sales to Sanmina Corporation were 18.1% and 25.1% of the Company's total worldwide sales for fiscal years 2002 and 2001, respectively. Sales to Tyco Printed Circuit Group L.P. were 11.3% of the Company's total worldwide sales for fiscal year 2002. While no other customer accounted for 10% or more of the Company's total worldwide sales in fiscal year 2002, and the Company is not dependent on any single customer, the loss of a major electronic materials customer or of a group of customers could have a material adverse effect on the Company's business and results of operations. b.Sources of Supply - The principal materials used in the manufacture of the Company's electronic materials products 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 each 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 electronic materials 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 electronic materials business. 16.CLOSURE OF PLUMBING HARDWARE BUSINESS In the fourth quarter of the 2000 fiscal year, the Company decided to close and liquidate its plumbing hardware business. The pre-tax charges to earnings for the 2000 fiscal year related to the closure of the plumbing hardware business totaled $4,464,000, including $1,234,000 for the impairment of long-lived assets, $1,111,000 for other asset write-offs, and $2,119,000 for facility and other costs related to the closure. During the 2001 fiscal year, the Company closed and liquidated its plumbing hardware business. In the fourth quarter of the 2001 fiscal year, the Company realized $1,262,000 in gains from the sale of real estate and other plumbing hardware business assets, collected $290,000 more of accounts receivable than originally anticipated, and reversed $600,000 of liabilities accrued in fiscal year 2000 for other costs to close the business, which were no longer required. In the fourth quarter of the 2001 fiscal year, an expense of $1,149,000 was incurred for the purchase of annuity contracts to fund the liability of the pension plan that was terminated. At March 3, 2002, the remaining accrued liability relating to the closure and liquidation of the plumbing hardware business consisted of $669,000 for environmental issues and $150,000 for workers' compensation claims. At February 25, 2001, these amounts were $675,000 and $200,000, respectively. Although the plan for the closure and liquidation of the Company's plumbing hardware business was implemented during the Company's 2001 fiscal year, the Company cannot reasonably estimate when the environmental issues and workers' compensation claims will be resolved. The operating results of the plumbing hardware business included in the Consolidated Statement of Operations are as follows (in thousands): <table> <caption> Fiscal Year Ended February 25, February 27, 2001 2000 <s> <c> <c> Net sales $1,883 $13,491 Cost of sales 1,001 11,486 Gross profit 882 2,005 Selling, general and administrative expenses 907 2,563 (Loss) profit from operations $ (25) $ (558) </table> 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) <table> <caption> Quarter First Second Third Fourth (In thousands, except per share amounts) <s> <c> <c> <c> <c> Fiscal 2002: Net sales $ 69,102 $ 51,743 $ 52,625 $ 56,590 Gross profit 3,266 1,422 1,539 5,568 Net loss (14,612) (3,779) (6,117) (1,011) Loss per share: Basic $(.75) $(.19) $(.31) $(.05) Diluted $(.75) $(.19) $(.31) $(.05) Weighted average common shares outstanding: Basic 19,420 19,545 19,559 19,612 Diluted 19,420 19,545 19,559 19,612 Fiscal 2001: Net sales $120,159 $129,902 $142,608 $129,528 Gross profit 23,695 28,393 34,116 31,466 Net earnings 8,829 11,655 14,827 14,108 Earnings per share: Basic $.56 $.73 $.93 $.88 Diluted $.50 $.63 $.78 $.74 Weighted average common shares outstanding: Basic 15,858 15,882 15,940 16,047 Diluted 19,602 19,939 20,217 20,249 </table> (Loss)/earnings per share is computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for the years. The weighted average number of shares outstanding and the (loss)/earnings per share for each period, have been adjusted to give retroactive effect to the three-for-two split of the Company's common stock declared October 10, 2000 payable November 8, 2000 to stockholders of record on October 20, 2000. 18.RECENTLY ISSUED ACCOUNTING PROUNOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations", and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules set forth in these Statements, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. In addition, Statement 141 eliminates the pooling-of-interests method of accounting for business combinations, except for qualifying business combinations that were initiated prior to July 1, 2001. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of its fiscal year ending March 2, 2003. The Company does not have any goodwill on its balance sheet, has virtually no intangible assets, and is not engaged in any transactions that are affected by the Statements; and, therefore, the Company believes that application of the non-amortization provisions of the Statements will not have a material adverse effect on the Company's consolidated results of operations or financial position. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") effective for fiscal years beginning after June 15, 2002. SFAS 143 requires the fair value of liabilities for asset retirement obligations to be recognized in the period in which the obligations are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company has not yet determined what effect SFAS 143 will have on the Company's consolidated results of operations or financial position. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which supercedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Although it retains the basic requirements of SFAS 121 regarding when and how to measure an impairment loss, SFAS 144 provides additional implementation guidance. SFAS 144 is effective for all fiscal years beginning after December 15, 2001. The Company has not yet determined what effect SFAS 144 will have on the Company's consolidated results of operations or financial position. ******* Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. 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 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 11. Executive Compensation. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. PART IV Item 14. Exhibits, Financial Statement Schedules, and Page Reports on Form 8-K. (a) Documents filed as a part of this Report (1)Financial Statements: The following Consolidated Financial Statement of the Company are included in Part II, Item 8: Report of Ernst & Young LLP, independent 34 auditors Balance Sheets 35 Statements of Operations 36 Statements of Stockholders' Equity 37 Statements of Cash Flows 38 Notes to Consolidated Financial Statement 39 (1-18) (2)Financial Statement Schedules: The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant described in item 14(a)(1) above: Schedule II - Valuation and Qualifying 61 Accounts 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: The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index on pages 62 to 66 hereof. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the fiscal quarter ended March 3, 2002. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 29, 2002 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 President and Chief /s/Brian E. Shore Executive Officer and Brian E. Shore Director May 29, 2002 (principal executive officer) Senior Vice President, /s/Murray O. Stamer Finance Murray O. Stamer (principal financial and May 29, 2002 accounting officer) /s/Jerry Shore Chairman of the Board and Jerry Shore Director May 29, 2002 /s/Mark S. Ain Mark S. Ain Director May 29, 2002 /s/Anthony Chiesa Anthony Chiesa Director May 29, 2002 /s/Lloyd Frank Lloyd Frank Director May 29, 2002 Schedule II <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES <caption> SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Balance at Charged to Beginning Cost and Description of Period Expenses <s> <c> <c> ALLOWANCE FOR DOUBTFUL ACCOUNTS: 53 weeks ended March 3 2002 $2,074,000 $ 123,000 52 weeks ended February 25, 2001 $2,388,000 $ 228,000 52 weeks ended February 27, 2000 $2,030,000 $ 725,000 <fn> (A) Uncollectable accounts, net of recoveries. </table> Schedule II (continued) <table> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES <caption> SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column D Column E Other Accounts Balance at Written Translation End of Description Off Adjustment Period <s> <c> <c> <c> (A) ALLOWANCE FOR DOUBTFUL ACCOUNTS: 53 weeks ended March 3 2002 $(366,000) $ (14,000 $1,817,000 52 weeks ended February 25, 2001 $(477,000) $ (65,000) $2,074,000 52 weeks ended February 27, 2000 $(332,000) $ (35,000) $2,388,000 <fn> (A) Uncollectable accounts, net of recoveries. </table> EXHIBIT INDEX Exhibit Numbers Description Page 3.01 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, date August 7, 1995, filed with the Secretary of State of the State of New York on August 16, 1995 ........................................ 3.02 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...................... 3.03 By-Laws, as amended May 21, 2002........................... 4.01 Amended and Restated Rights Agreement, dated as of July 12, 1995, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company's Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Amendment No. 1 on Form 8-A/A filed on August 10, 1995, Commission File No. 1-4415, which is - incorporated herein by reference.)...................................... 10.01 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 exer cising its option to extend such Lease................ 10.02 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 exer cising its option to extend such Lease................ 10.03 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................. 10.03(a)Second Addendum to Lease dated January 26, 1987 to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1421 E. Orangethorpe Avenue, Fullerton, California...................................... 10.03(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 10.03 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.).... 10.03(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....................................... .......... 10.04 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 Cor poration regarding real property located at 4 Gul Crescent, Jurong, Singapore........................................ .. 10.04(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 10.04 hereto) between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore....................... 10.05(b)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 contract or compensatory plan or - arrangement.).................................... .......... 10.06 Amended and Restated Employment Agreement dated February 28, 1994 between the Company and Jerry Shore. (This exhibit is a management contract or compensatory plan or arrangement.).................................... .......... 10.06(a) Amendment No. 1 dated March 1, 1995 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.06 hereto) between the Company and Jerry Shore. (This exhibit is a management contract or compensatory plan or arrangement.)............................ 10.06(b)Amendment No. 2 dated December 5, 1996 to the Amended and Restated Employment Agreement dated - February 28, 1994 (see Exhibit 10.06 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(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. This exhibit is a management contract or compensatory plan or arrangement.)...................... 10.06(c)Amendment No. 3 dated October 14, 1997 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.06 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) 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 contract or compensatory plan or arrangement.)...................... 10.07 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.................. 10.07(a)Amendment to Lease dated December 21, 1992 to Lease dated April 15, 1988 (see Exhibit 10.07 hereto) between FiberCote Industries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury, Con necticut......................................... .......... 10.07(b)Letter dated June 30, 1997 from FiberCote Industries, Inc. to Geoffrey Etherington II extending the Lease dated April 15, 1988 (see Exhibit 10.07 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.)......................... 10.08 Lease dated August 31, 1989 between Nelco Technology, Inc. and Cemanudi Associates regarding real property located at 1104 West Geneva Drive, Tempe, Arizona..................... 10.08(a)First Amendment to Lease dated October 21, 1994 to Lease dated August 31, 1989 (see Exhibit 10.08 hereto) between Nelco Technology, Inc. and Cemanudi Associates regarding real property located at 1104 West Geneva Drive, Tempe, Arizona.......................................... 10.10 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.).......... 10.10(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 10.10 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.)...................................... 10.12 Tenancy Agreement dated October 8, 1992 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, - which is incorporated herein by reference.)...................................... 10.12(a)Tenancy Agreement dated November 3, 1995 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.16(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.)......................... 10.13 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..................... 10.13(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 10.13 hereto) for the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York............. 10.13(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 10.13 hereto) regarding the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York............. 10.14 Sale and Purchase Agreement dated 29 October 1997 between Dieter G. Weiss, Lothar Hubert Reinartz, Nelco International Corporation and Park Electrochemical Corp. relating to the sale and purchase of shares of capital in Dielektra GmbH. (Reference is made to Exhibit 10.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1997, - Commission File No. 1-4415, which is incorporated herein by reference.).......... 21.01 Subsidiaries of the Company................................ 23.01 Consent of Ernst & Young LLP...............................