1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 1, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to__________
Commission file Number 1-4415
PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
__________New York___________ _____11-1734643_____
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
__5 Dakota Drive, Lake Success, N.Y.__ ___11042___
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 354-
4100
Not Applicable
-----------------------------------------------------
- -
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X} No[ }
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes X No _
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12,
13, or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a
court. Yes { } No { }
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 19,759,016 as of July 11, 2003.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION: Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 1, 2003 (Unaudited) and March 2, 3
2003.............
Consolidated Statements of Operations
13 weeks ended June 1, 2003 and June 2, 2002
(Unaudited)................................... 4
Condensed Consolidated Statements of Cash
Flows
13 weeks ended June 1, 2003 and June 2, 2002 5
(Unaudited)
...........................................
Notes to Condensed Consolidated Financial
Statements 6
(Unaudited)...................................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 12
Operations...................
Factors That May Affect Future 20
Results.................
Item 3. Quantitive and Qualitative Disclosures About
Market 20
Risk..........................................
Item 4. Controls and 20
Procedures................................
PART II. OTHER INFORMATION:
Item 1. Legal 21
Proceedings...................................
Item 6. Exhibits and Reports on Form 8-K.............. 22
SIGNATURES............................................... 23
CERTIFICATONS............................................ 24
EXHIBIT 26
INDEX....................................................
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 1,
2003 March 2,
(Unaudited) 2003*
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ASSETS
Current assets:
Cash and cash equivalents $ 99,133 $ 111,036
Marketable securities 64,201 51,899
Accounts receivable, net 29,388 30,272
Inventories (Note 2) 11,335 12,688
Prepaid expenses and other current 5,495 4,690
assets
Total current assets 209,552 210,585
Property, plant and equipment, net 90,831 90,503
Other assets 522 454
Total $300,905 $301,542
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 15,623 $ 15,145
Accrued liabilities 29,995 21,790
Income taxes payable 3,443 3,376
Total current liabilities 49,061 40,311
Deferred income taxes 2,684 4,539
Deferred pension liability and 11,859 10,991
other
Stockholders' equity:
Common stock 2,037 2,037
Additional paid-in capital 133,014 133,172
Retained earnings 107,874 117,506
Treasury stock, at cost (4,292) (4,582)
Accumulated other non-owner (1,332) (2,432)
changes
Total stockholders' equity 237,301 245,701
Total $300,905 $301,542
<FN>
*The balance sheet at March 2, 2003 has been derived from the
audited financial statements at that date.
See accompanying Notes to the Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
13 Weeks Ended
(Unaudited)
June 1, June 2,
2003 2002
<s> <c> <c>
Net sales $49,970 $56,561
Cost of sales 45,319 50,300
Gross profit 4,651 6,261
Selling, general and administrative 6,900 8,111
expenses
Restructuring and severance charges 8,076 -
(Note 4)
Loss from operations (10,325) (1,850)
Other income:
Interest and other income, net 747 942
Loss before income taxes (9,578) (908)
Income tax benefit (1,127) (272)
Net loss $(8,451) $ (636)
Loss per share (Note 5):
Basic and Diluted $ (.43) $ (.03)
Weighted average number of common and
common equivalent shares outstanding:
Basic and Diluted 19,709 19,661
Dividends per share $ .06 $ .06
See accompanying Notes to the Consolidated Financial Statements
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
13 Weeks Ended
(Unaudited)
June 1, June 2,
2003 2002
<s> <c> <c>
Cash flows from operating
activities:
Net loss $ (8,451) $ (636)
Depreciation and amortization 2,910 4,445
Change in operating assets and 8,028 (1,891)
liabilities
Net cash provided by operating 2,487 1,918
activities
Cash flows from investing
activities:
Purchases of property, plant and (1,200) (2,693)
equipment, net
Purchases of marketable securities (28,987) (4,997)
Proceeds from sales and maturities
of marketable securities 16,598 5,991
Net cash (used in) provided by
investing activities (13,589) (1,699)
Cash flows from financing activities:
Dividends paid (1,181) (1,170)
Proceeds from exercise of stock options 132 136
Net cash used in financing activities (1,049) (1,034)
Change in cash and cash equivalents before
exchange rate changes (12,151) (815)
Effect of exchange rate changes on cash
and cash equivalents 248 (325)
Change in cash and cash equivalents (11,903) (1,140)
Cash and cash equivalents, beginning
of period 111,036 99,492
Cash and cash equivalents, end of $ 99,133 $98,352
period
Supplemental cash flow information:
Cash paid during the period for:
Income taxes $ 323 $ -
See accompanying Notes to the Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share amounts)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 1,
2003, the consolidated statements of operations for the 13
weeks ended June 1, 2003 and June 2, 2002, and the
condensed consolidated statements of cash flows for the 13
weeks then ended have been prepared by the Company,
without audit. In the opinion of management, these
unaudited condensed consolidated financial statements
contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position at June 1, 2003 and the results of
operations and cash flows for all periods presented.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with accounting principles generally accepted in the
United States have been condensed or omitted. It is
suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year
ended March 2, 2003.
2. INVENTORIES
Inventories consisted of the following:
June 1, March 2,
2003 2003
<s> <c> <c>
Raw materials $ 4,129 $ 4,072
Work-in-process 2,771 3,424
Finished goods 3,892 4,680
Manufacturing supplies 543 512
$11,335 $12,688
3. STOCK OPTIONS
As of June 1, 2003, the Company had two fixed stock
options plans. All options under the stock plans had an
exercise price equal to the market value of the
underlying common stock on the date of grant. The
Company continues to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations for
the plans. If compensation costs of the grants had been
determined based upon the fair market value at the
grant dates consistent with the FASB No. 123
"Accounting for Stock-Based Compensation", the
Company's net loss and loss per share would have
approximated the amounts shown below.
3 months ended
June 1, June 2,
2003 2002
<s> <c> <c>
Net loss $ 8,451 $ 636
Deduct: Total stock-based
employee compensation
determined under fair value
based method for all
awards, net of tax effects 478 500
-------- --------
Pro forma net loss $ 8,929 $ 1,136
======== ========
EPS-basic and diluted as $ (0.43) $ (0.03)
reported ======== ========
EPS-basic and diluted pro $ (0.45) $ (0.06)
forma ======== ========
</table>
4. RESTRUCTURING AND SEVERANCE CHARGES
The Company recorded pre-tax charges of $8,076 during the
first quarter of fiscal year 2004. These charges related
to the closure of the Company's mass lamination operation
in Cologne, Germany and the realignment of its North
America FR-4 business operations in Newburgh, New York and
Fullerton, California and the establishment of a new
business unit called "Nelco/North America".
The components of these charges and the related liability
balances and activity for the quarter ended June 1, 2003
are set forth below.
Charges 6/01/03
Closure Incurred Remaining
Charges or Paid Reversals Liabilities
<s> <c> <c> <c> <c>
Dielektra charges:
Severance payments $6,142 $ 230 $ - $5,912
NY/CA Realignment
charges:
Lease payments, taxes,
utilities and other 788 86 702
Severance payments 1,146 352 794
$8,076 $ 668 $ - 7,408
======= ===== ==== ======
The severance payments are for the termination of hourly
and salaried, administrative, manufacturing and support
employees. Some of such employees were terminated during
the 2004 fiscal year first quarter, and the remaining
employees are expected to be terminated during the 2004
fiscal year second and third quarters. The severance
payments are expected to be paid to such employees in
installments during fiscal year 2004. The lease obligation
will be paid through December 2004.
The Company recorded pre-tax charges of $4,674 and $120 in
the fiscal year 2003 third quarter ended December 1, 2002
in connection with the closure of its Nelco U.K.
manufacturing facility located in Skelmersdale, England
and severance costs at a North American business unit. The
components of these charges and the related liability
balances and activity for the quarter ended June 1, 2003
are set forth below.
Charges 6/01/03
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
<s> <c> <c> <c> <c>
United Kingdom charges:
Impairment of long
lived assets $1,993 $1,993 $ - $ -
Severance payments
and related costs 1,997 1,807 - 190
Utilities, maintenance,
taxes, other 684 653 31
------ ------ ----- ------
4,674 4,453 - 221
Other severance payments
and related costs 120 120 - -
------ ------ ----- ------
$4,794 $4,573 $ - $221
====== ====== ===== ======
The severance payments and related costs are for the
termination of hourly and salaried, administrative,
manufacturing and support employees, most of whom were
terminated during the 2003 fiscal year third and fourth
quarters and the 2004 fiscal year first quarter, and the
remainder of whom are expected to be terminated during the
2004 fiscal year second and third quarters. Severance
payments and related costs for such terminated employees
(totaling $1,927) were paid during such quarters, except
payments and costs of $190 which are expected to be paid
to such employees in installments during the 2004 fiscal
year third quarter.
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 employee resignations and retirements in the
ordinary course of business, the total number of employees
employed by the Company declined to approximately 1,400 as
of June 1, 2003 from approximately 1,700 as of March 3,
2002.
5. LOSS PER SHARE
Basic loss per share is computed by dividing net loss by
the weighted average number of shares of common stock
outstanding during the period. Diluted loss per share is
computed by dividing net loss by the sum of (a) the
weighted average number of shares of common stock
outstanding during the period and (b) the potential common
stock equivalents outstanding during the period. Stock
options are the only common stock equivalents and are
computed using the treasury stock method.
The following table sets forth the basic and diluted
weighted average number of shares of common stock and
potential common stock equivalents outstanding during the
periods specified:
13 weeks ended
June 1, June 2,
2003 2002
<s> <c> <c>
Weighted average shares 19,709 19,661
outstanding for basic and
diluted EPS
Common stock equivalents, which were not included in the
computation of diluted loss per share because either the
effect would have been antidilutive or the options'
exercise prices were greater than the average market price
of the common stock, were 1,133 and 532 for the thirteen
weeks ended June 1, 2003 and June 2, 2002, respectively.
6. BUSINESS SEGMENTS
The Company considers itself to operate in one business
segment. The Company's electronic materials products are
marketed primarily to leading independent printed circuit
board fabricators, electronic manufacturing service
companies, electronic contract manufacturers and major
electronic original equipment manufacturers ("OEMs")
located throughout North America, Europe and Asia. The
Company's advanced composite materials customers, 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. Sales between geographic regions were not
significant.
Financial information concerning the Company's operations
by geographic area follows:
13 Weeks Ended
June 1, June 2,
2003 2002
<s> <c> <c>
Sales:
North America $25,147 $32,248
Europe 13,372 12,934
Asia 11,451 11,379
Total sales $49,970 $56,561
June 1, March 2,
2003 2003
<s> <c> <c>
Long-lived assets:
United States $42,883 $44,425
Europe 27,534 25,373
Asia 20,936 21,159
Total long-lived assets $91,353 $90,957
7. COMPREHENSIVE LOSS
Total comprehensive loss for the 13 weeks ended June 1,
2003 and June 2, 2002 was $7,351 and $1,209, respectively.
Comprehensive loss consisted primarily of net loss and
foreign currency translation adjustments.
8. SALE OF NELCO TECHNOLOGY, INC.
During the Company's 1998 fiscal year and for several
years prior thereto, more than 10% of the Company's total
worldwide sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp., and the Company's
wholly owned subsidiary, Nelco Technology, Inc. ("NTI")
located in Tempe, Arizona, had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials, commonly known as mass lamination, which were
used by Delco to produce finished multilayer printed
circuit boards. However, in March 1998, the Company was
informed by Delco that Delco planned to close its printed
circuit board fabrication plant and exit the printed
circuit board manufacturing business. As a result, the
Company's sales to Delco declined during the three-month
period ended May 31, 1998, were negligible during the
remainder of the 1999 fiscal year and have been nil in
subsequent years.
After March 1998, the business of NTI languished and its
performance was unsatisfactory due primarily to the
absence of the unique, high-volume, high-quality business
that had been provided by Delco Electronics and the
absence of any other customer in the North American
electronic materials industry with a similar demand for
the large volumes of semi-finished multilayer printed
circuit board materials that Delco purchased from NTI.
Although NTI's business experienced a resurgence in the
2001 fiscal year as the North American market for printed
circuit materials became extremely strong and demand
exceeded supply for the electronic materials manufactured
by NTI, the Company's internal expectations and
projections for the NTI business were for continuing
volatility in the business' performance over the
foreseeable future. Consequently, 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 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
June 1, 2003 balance sheet date are set forth below:
Charges 6/01/03
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
<s> <c> <c> <c> <c>
NTI charges:
Loss on sale of
assets and business $10,580 $10,580 $ - $ -
and business
Severance payments 387 387 - -
Medical and other costs 95 95 - -
Support facility charges:
Impairment of long
lived assets 2,058 2,058 - -
Write down of
accounts receivable 350 319 31 -
Write down of inventory 590 590 - -
Severance payments 688 688 - -
Medical and other costs 133 133 - -
Lease payments, taxes
utilities, maint. 781 368 - 413
Other 45 45 - -
------- ------- --- ----
$15,707 $15,263 $31 $413
======= ======= === ====
The severance payments and medical and other costs
incurred in connection with the sale of NTI and the
closure of the related support facility were for the
termination of hourly and salaried, administrative,
manufacturing and support employees, all of whom were
terminated during the first and second fiscal quarters
ended May 27, 2001 and August 26, 2001, respectively, and
substantially all of the severance payments and related
costs for such terminated employees (totaling $1,303) were
paid during such quarters. The lease obligations will be
paid through August 2004 pursuant to the related lease
agreements.
9. SUBSEQUENT EVENT
On June 19, 2003, the Company announced that the United
States District Court for the District of Arizona had
entered final judgment in favor of the Company's
subsidiary, Nelco Technology, Inc., in its lawsuit against
Delco Electronics Corporation, a subsidiary of Delphi
Automotive Systems Corporation, on Nelco's claim for
breach of the implied covenant of good faith and fair
dealing. As a result, the Company received a net amount
of approximately $33 million from Delco on July 1, 2003 in
settlement of the lawsuit.
Item 2. 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 electronic original equipment manufacturers
in the computer, telecommunications, transportation, aerospace
and instrumentation industries.
The Company's sales declined in the three-month period
ended June 1, 2003 compared with last year's comparable period
as a result of declines in sales by the Company's North
American operations. The 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 downturn in the global
electronics industry, and the global electronics industry
continued to be very depressed throughout the 2003 fiscal year
and during the 2004 fiscal year first quarter, with no clear
signs of recovery.
In the Company's 2004 fiscal year first quarter, Dielektra
GmbH, the Company's advanced electronic materials business
located in Cologne, Germany, closed its mass lamination
operation. Dielektra's mass lamination operation supplied
higher-end mass lamination products to European circuit board
manufacturers. However, the market for these products in
Europe had eroded to the point where the Company no longer
believed it was possible to operate a viable mass lamination
business in Europe, and the Company did not believe that, at
any time in the foreseeable future, the higher-end European
mass lamination market would recover to the extent necessary to
justify the Company's operating a mass lamination business in
Europe. As a result of the closure of its mass lamination
operation, Dielektra's manufacturing operations consist exclu-
sively of high technology treating and Dielektra's proprietary
Datlam TM automated continuous laminate manufacturing. The
Company believes that Dielektra's Datlam products have certain
unique technological capabilities which are useful to high-
tech-nology circuit board customers which produce complex high-
density circuit boards.
In the 2004 fiscal year first quarter, the Company
announced the realignment of its North American FR-4 business
operations located in New York and California and the
establishment of a new business unit called "Nelco/North
America", which will include the Company's FR-4 manufacturing
operations in New York and California and will be administered
principally from Fullerton, California. As part of the
realignment, the New York operation will be scaled down to a
smaller focused operation and the California operation will be
scaled up to a larger volume operation, and there will be
significant workforce reductions at the Company's New York
facility and significant workforce increases at the Company's
California facility, with the end result being a net reduction
in the Company's workforce in North America. After the New York
operations have been scaled back, a large portion of the New
York facility will be mothballed. The Company will have the
flexibility in the future to scale back up the Newburgh, New
York facility if the opportunity to do so presents itself. The
realignment is designed to help the Company achieve improved
operating and cost efficiencies in its North American FR-4
business and to help the Company best service all of the its
existing North American customers. The Company does not
contemplate losing any North American customers as a result of
the realignment.
As a result of the Company's decision to realign
its North American FR-4 business operations and to close
Dielektra's mass lamination operation, the Company recorded pre-
tax charges totaling $8.1 million in the Company's 2004 fiscal
year first quarter and expects to record additional pre-tax
charges totaling approximately $8 million later in the 2004
fiscal year due to such realignment and closure and related
workforce reductions. See Note 4 of the Notes to Consolidated
Financial Statements in Item 1 of this Report for additional
information regarding the realignment and closure.
During the fourth quarter of the 2003 fiscal year, the Company
determined that cerain of the fixed assets of its North American
business operations and Dielektra's mass lamination operation
were impaired and recorded pre-tax impairment charges of $50.3
million in the Company's 2003 fiscal year fourth quarter to
reduce the book values of such fixed assets to their estimated
fair values.
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. In November 2000, a jury awarded damages to NTI in
the amount of $32.3 million, and in December 2000 the
judge in the United States District Court 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 $32.3 million. Both parties appealed the decision
to the United States Court of Appeals for the Ninth Circuit in
San Francisco; and on May 7, 2003, a panel of three judges in
the Court of Appeals for the Ninth Circuit rendered a unanimous
decision affirming the jury verdict. On June 17, 2003, the
United States District Court for the District of Arizona
entered final judgment in favor of NTI; and, on July 1, 2003,
NTI received a net amount of approximately $33 million in
payment of such judgment.
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.
The Company believes that an evaluation of its ongoing
operations would be difficult if the disclosure of its
financial results were limited to generally accepted accounting
principles ("GAAP") financial measures. Accordingly, in
addition to disclosing its financial results determined in
accordance with GAAP, the Company discloses non-GAAP operating
results that exclude certain items in order to assist its
shareholders and other readers in assessing the Company's
operating performance. Such non-GAAP financial measures are
provided to supplement the results provided in accordance with
GAAP.
Three Months Ended June 1, 2003 Compared with Three Months
Ended June 2, 2002:
The Company's operations continued to generate losses
during the three-month period ended June 1, 2003 as the markets
for sophisticated printed circuit materials continued to
experience severely depressed conditions during the 2004 fiscal
year first quarter.
Despite the Company's reductions of its costs and
expenses and higher percentage of sales of higher technology,
higher margin products, the Company's gross profit in the 2004
fiscal year first quarter was lower than the gross profit in
the prior year's first quarter primarily as a result of lower
levels of sales of electronic materials in the 2004 fiscal year
first quarter and operating inefficiencies resulting from
operating certain facilities at levels below their designed
manufacturing capacities and from the Company's realignment of
it North American FR-4 business operations.
In addition to its depressed financial results of
operations, the Company recorded pre-tax charges of $8.1
million in the 2004 fiscal year first quarter related to the
Company's realignment of its North American FR-4 business
operations and the closure of Dielektra's mass lamination
operation and related workforce reductions.
Operating results of the Company's advanced composite
materials business also declined during the 2004 fiscal year
first quarter primarily as a result of lower sales volumes
related to weakness in the aircraft manufacturing industry.
Results of Operations
Net sales for the three-month period ended June 1, 2003
declined 12% to $50.0 million from $56.6 million for last
fiscal year's comparable period. The decrease in net sales was
principally the result of lower unit volumes of materials
shipped by the Company's operations in North America. The
Company's foreign operations accounted for $24.8 million of net
sales, or 50% of the Company's total net sales worldwide, during
the three-month period ended June 1, 2003 compared with $24.3
million of sales, or 43% of total net sales worldwide, during
last fiscal year's comparable period. Net sales by the Company's
foreign operations during the 2004 fiscal year first quarter
increased by 2% from the 2003 fiscal year comparable period.
The overall gross profit as a percentage of net sales for
the Company's worldwide operations declined to 9.3% during the
three-month period ended June 1, 2003 compared with 11.1% for
last fiscal year's comparable period. The decline in the gross
profit was the result of lower sales volumes and operating
inefficiencies resulting from operating certain facilities at
levels below their designed manufacturing capacities and from
the Company's realignment of its North American FR-4 business
operations, which were only partially offset by increases in
market share with certain key electronic materials customers
and higher percentages of sales of higher technology, higher
margin products.
The Company's cost of sales decreased significantly as a
result of lower production volumes and cost reduction measures
implemented by the Company, including workforce reductions and
the reduction of overtime. In addition, the Company continued
to implement an annual salary freeze for significant numbers of
salaried employees, especially senior management employees, and
paid no performance bonuses or significantly reduced bonuses
and other incentives.
Selling, general and administrative expenses declined by
$1.2 million, or by 15%, during the three months ended June 1,
2003 compared with last fiscal year's comparable period, and
these expenses, measured as a percentage of sales, were 13.8%
during the three-months ended June 1, 2003 compared with 14.3%
during last fiscal year's comparable period. The decrease in
selling, general and administrative expenses as a percentage of
sales in the 2004 fiscal year first quarter was due to
workforce reductions and expense reduction measures implemented
by the Company during the 2004 fiscal year.
The Company incurred pre-tax charges of $8.1 million,
and after-tax charges of $7.4 million, during the 2004 fiscal
year first quarter in connection with the realignment of its
North American FR-4 business operations in New York and
California and the closure of Dielektra's mass lamination
operation in Germany and related workforce reductions.
For the reasons set forth above, the Company's operating
loss for the three months ended June 1, 2003 was $10.3 million,
including the pre-tax charges described above related to the
realignment of its North American FR-4 business operations and
the closure of Dielektra's mass lamination operation and
related workforce reductions, and $2.2 million, before the pre-
tax charges described above, compared with an operating loss of
$1.9 million for the three months ended June 2, 2002.
Interest and other income, net, principally investment
income, was $0.7 million for the three-month period ended June
1, 2003 compared with $0.9 million for last fiscal year's
comparable period. The decrease in investment income was
attributable to a decrease in prevailing interest rates. The
Company's investments were primarily short-term taxable
instruments.
The Company's effective income tax rate for the three-
month period ended June 1, 2003 was 11.8%, after the pre-tax
charges described above, and 30.0%, before the pre-tax charges
described above, compared with 30.0% for last fiscal year's
comparable period. The reduction in the effective income tax
rate was due primarily to losses in Germany without tax
benefit.
The Company's net loss for the three months ended June
1, 2003, including the charges described above related to the
realignment of the Company's North American FR-4 business
operations and the closure of Dielektra's mass lamination
operation and related workforce reductions, was $8.5 million
compared to a net loss of $0.6 million for the three months
ended June 2, 2002; and the Company's net operating loss for
the three months ended June 1, 2003 was $1.1 million, before
the charges described above, compared to $0.6 million for last
year's comparable period.
Basic and diluted losses per share for the three-month
period ended June 1, 2003 were $0.43, including the charges
described above, compared to losses per share of $0.03 for the
three-month period ended June 2, 2002. Basic and diluted losses
per share, before the charges described above, were $0.05 for
the three-month period ended June 1, 2003 compared to losses
per share of $0.03 for the three-month period ended June 2,
2002.
Liquidity and Capital Resources:
At June 1, 2003, the Company's cash and temporary
investments were $163.3 million compared with $162.9 million at
March 2, 2003, the end of the Company's 2003 fiscal year. The
Company's working capital (which includes cash and temporary
investments) was $160.5 million at June 1, 2003 compared with
$170.3 million at March 2, 2003. The decrease in working
capital at June 1, 2003 compared with March 2, 2003 was due
principally to an increase in accrued liabilities related to
the realignment of the Company's North American FR-4 business
operations and the closure of Dielektra's mass lamination
operation and related workforce reductions, and a decrease in
accounts receivable and inventories. The Company's current
ratio (the ratio of current assets to current liabilities) was
4.3 to 1 at June 1, 2003 compared to 5.2 to 1 at March 2, 2003.
During the three months ended June 1, 2003, cash used in
the Company's operations, before depreciation and amortization,
of $.4 million included a slight net increase in working
capital items, resulting in $2.5 million of cash provided by
operating activities. During the same three-month period, the
Company expended $1.2 million for the purchase of property,
plant and equipment compared with $2.7 million for the three-
month period ended June 2, 2002 and paid $1.2 million in
dividends on its common stock in each of such three-month
periods. Net expenditures for property, plant and equipment
were $6.4 million in the 2003 fiscal year and $22.8 million in
the 2002 fiscal year and $51.8 in the 2001 fiscal year.
On July 1, 2003, the Company received a net amount of
approximately $33.0 million from Delco Electronics Corporation
in settlement of the lawsuit by the Company's subsidiary, Nelco
Technology, Inc., against Delco. See Note 9 of the Notes to
Consolidated Financial Statements in Item 1 of this Report and
Item 1 of Park II of this Report for additional information
regarding the lawsuit.
At June 1, 2003, the Company had no long-term debt. The
Company believes its financial resources will be sufficient,
for the foreseeable future, to provide for continued investment
in working capital and property, plant and equipment and for
general corporate purposes. Such resources would also be
available for 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. 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 $1,348,000 to secure the Company's
obligations under the workers' compensation insurance program.
Environmental Matters:
In the three-month periods ended June 1, 2003 and June
2, 2002, the Company charged less than $0.1 million against
pretax income for environmental remedial response and voluntary
cleanup costs (including legal fees). While annual expenditures
have generally been constant from year to year and may increase
over time, the Company expects it will be able to fund such
expenditures from available cash. The timing of expenditures
depends on a number of factors, including regulatory approval
of cleanup projects, remedial techniques to be utilized and
agreements with other parties. At June 1, 2003 and March 2,
2003, the recorded liability in accrued liabilities for
environmental matters was approximately $4.4 million and $4.2
million, respectively. Management does not expect that
environmental matters will have a material adverse effect on
the liquidity, capital resources, business, consolidated
results of operations or consolidated financial position of the
Company.
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 2, 2003, the Company
recorded significant charges in connection with the realignment
of its North American FR-4 business operations, the closures of
its mass lamination operation in Germany and its manufacturing
facility in England and employee severance costs at a North
American business unit; and during the three-month period ended
June 1, 2003, the Company recorded additional significant
charges in connection with the realignment of its North
American FR-4 business operations and the closure of its mass
lamination operation in Germany and related employee severance
costs. During the fiscal year ended March 3, 2002, the Company
recorded significant charges 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 charges include estimates pertaining
to employee separation costs and the settlements of contractual
obligations resulting from the Company's actions. Although the
Company does not anticipate significant changes, the actual
costs incurred by the Company may differ from these estimates.
Contingencies and Litigation
The Company is subject to a small number of proceedings,
lawsuits and other claims related to environmental, employment,
product and other matters. The Company is required to assess
the likelihood of any adverse judgments or outcomes in these
matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for
these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the
future due to new developments in each matter or changes in
approach such as a change in settlement strategy in dealing
with these matters.
Pension and Other Employee Benefit Programs
One of the Company's subsidiaries 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.
Certain portions of this Report which do not relate to
historical financial information may be deemed to constitute
forward-looking statements that are subject to various factors
which could cause actual results to differ materially from
Park's expectations or from results which might be projected,
forecast, estimated or budgeted by the Company in forward-
looking statements. Such factors include, but are not limited
to, general conditions in the electronics industry, the
Company's competitive position, the status of the Company's
relationships with its customers, economic conditions in
international markets, the cost and availability of utilities,
and the various factors set forth under the caption "Factors
That May Affect Future Results" after Item 7 of Park's Annual
Report on Form 10-K for the fiscal year ended March 2, 2003.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk.
The Company's market risk exposure at June 1, 2003 is
consistent with, and not greater than, the types of market risk
and amount of exposures presented in the Annual Report on Form
10-K for the fiscal year ended March 2, 2003.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The
Company's Chief Executive Officer and Senior Vice President,
Finance and Principal Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rules 13a-14(c) and 15d-
14(c) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as
of the Evaluation Date, the Company's disclosure controls and
procedures are effective in alerting them, on a timely basis,
to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date,
there have not been any significant changes in the Company's
internal controls or in other factors that could significantly
affect such controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1998, the Company and its Nelco Technology, Inc.
("NTI") subsidiary in Arizona filed a complaint against Delco
Electronics Corporation and the Delphi Automotive Systems unit
of General Motors Corp. in the United States District Court for
the District of Arizona. The complaint alleged, among other
things, that Delco breached its contract to purchase semi-
finished multilayer printed circuit boards from NTI and that
Delphi interfered with NTI's contract with Delco, that Delco
breached the covenant of good faith and fair dealing implied in
the contract, that Delco engaged in negligent misrepresentation
and that Delco fraudulently induced NTI to enter into the
contract.
On November 29, 2000, after a five day trial in Phoenix,
Arizona, a jury awarded damages to NTI in the amount of $32.3
million, 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 $32.3 million. Both parties filed
motions for post-judgment relief and a new trial, all of which
the judge denied, and both parties appealed the decision to the
United States Court of Appeals for the Ninth Circuit in San
Francisco. The appeals were fully briefed, and on December 2,
2002 the parties presented their oral arguments to a panel of
three judges in the Court of Appeals for the Ninth Circuit. On
May 7, 2003, the three judge panel rendered a unanimous
decision affirming the jury verdict. On June 17, 2003, the
United States District Court for the District of Arizona
entered final judgment in favor of NTI, and Delco paid NTI on
July 1, 2003. NTI received a net amount of approximately $33
million.
Park announced in March 1998 that it had been informed
by Delco Electronics that Delco planned to close its printed
circuit board fabrication plant and exit the printed circuit
board manufacturing business. After the plant closure, Delco
purchased all of its printed circuit boards from outside
suppliers and Delco was no longer a customer of the Company's.
As a result, the Company's sales to Delco declined
significantly during the three-month period ended May 31, 1998,
were negligible during the three-month period ended August 30,
1998, have been nil since that time. During the Company's 1999
fiscal year first quarter and during its 1998 fiscal year and
for several years prior thereto, more than 10% of the Company's
total worldwide sales were to Delco Electronics Corporation;
and the Company had been Delco's principal supplier of semi-
finished multilayer printed circuit board materials for more
than ten years. These materials were used by Delco to produce
finished multilayer printed circuit boards. See "Factors That
May Affect Future Results" after Item 2 of Part I of this
Report.
In the first quarter of the fiscal year ended March 3,
2002, the Company sold the assets and business of NTI and
recorded pre-tax charges of approximately $15.7 million in its
2002 fiscal year first quarter ended May 27, 2001 in connection
with the sale of NTI and the closure of a related support
facility also located in Arizona. See Note 8 of the Notes to
Condensed Consolidated Financial Statements in Item 2 of this
Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
99.01. Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.02. Certification of Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K:
Report on Form 8-K, dated May 7, 2003, Commission File
No. 1-4415, reporting in Item 12 that Park issued a
news release on May 7, 2003 reporting its results of
operations for the fiscal year 2003 fourth quarter and
for its full fiscal year 2003 ended March 2, 2003 and
furnishing the news release to the Securities and
Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Park Electrochemical Corp.
--------------------------
(Registrant)
/s/Brian E. Shore
Date: July 14, 2003 -----------------------
Brian E. Shore
President and
Chief Executive Officer
/s/Murray O. Stamer
Date: July 14, 2003 -----------------------
Murray O. Stamer
Senior Vice President, Finance
Principal Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Brian E. Shore, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Park
Electrochemical Corp.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: July 14, 2003
/s/Brian E. Shore
Brian E. Shore
President and Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Murray O. Stamer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Park
Electrochemical Corp.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: July 14, 2003
/s/Murray O. Stamer
Murray O. Stamer
Senior Vice President, Finance
Principal Financial Officer
EXHIBIT INDEX
Exhibit No. Name Page
----------- ---- ----
99.01. Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 27
2002...................
99.02. Certification of Principal Financial
Officer pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of 28
the Sarbanes-Oxley Act of
2002...................