1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 28, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to__________
Commission file Number 1-4415
PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
__________New York___________ _____11-1734643_____
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
48 South Service Road, Melville, N.Y. ___11747___
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (631) 465-3600
5 Dakota Drive, Lake Success, NY 11042
-----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes[X] No[ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 19,919,338 as of January 3, 2005.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION: Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 28, 2004 (Unaudited) and February 29,
2004.......................................... 3
Consolidated Statements of Earnings
13 weeks and 39 weeks ended November 28, 2004
and November 30, 2003 (Unaudited)............. 4
Consolidated Statements of Stockholders'
Equity 13 weeks and 39 weeks ended
November 28, 2004 and November 30, 2003
(Unaudited)................................... 5
Condensed Consolidated Statements of Cash
Flows 39 weeks ended November 28, 2004
and November 30, 2003 (Unaudited)............. 6
Notes to Condensed Consolidated Financial
Statements (Unaudited)........................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 15
Factors That May Affect Future Results........ 27
Item 3. Quantitive and Qualitative Disclosures About
Market Risk................................... 27
Item 4. Controls and Procedures....................... 27
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................. 28
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds............................... 29
Item 3. Defaults Upon Senior Securities............... 29
Item 4. Submission of Matters to a Vote of Security
Holders....................................... 29
Item 5. Other Information............................. 29
Item 6. Exhibits...................................... 29
SIGNATURES............................................... 31
EXHIBIT INDEX............................................ 32
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
November 28,
2004 February 29,
__(Unaudited)_ ___2004*___
<s> <c> <c>
ASSETS
Current assets:
Cash and cash equivalents $142,999 $129,989
Marketable securities 61,886 59,197
Accounts receivable, net 33,039 36,149
Inventories (Note 2) 14,342 11,707
Prepaid expenses and other current assets 4,218 3,040
-------- ---------
Total current assets 256,484 240,082
Property, plant and equipment, net 64,835 70,569
Other assets 764 419
-------- ---------
Total assets $322,083 $311,070
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,354 $ 14,913
Accrued liabilities 22,920 24,468
Dividends payable (Note 13) 21,494 -
Income taxes payable 5,874 3,248
-------- ---------
Total current liabilities 61,642 42,629
Deferred income taxes 5,100 5,107
Liabilities from discontinued
operations (Note 4) 17,317 19,438
-------- ---------
Total liabilities 84,059 67,174
Stockholders' equity:
Common stock 2,037 2,037
Additional paid-in capital 134,189 133,335
Retained earnings 100,506 108,915
Treasury stock, at cost (3,456) (4,125)
Accumulated other non-owner changes 4,748 3,734
-------- ---------
Total stockholders' equity 238,024 243,896
-------- ---------
Total liabilities and stockholders'equity $322,083 $311,070
-------- --------
<FN>
*The balance sheet at February 29, 2004 has been derived from the
audited financial statements at that date.
See accompanying Notes to the Condensed Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share amounts)
13 weeks ended 39 weeks ended
(Unaudited) (Unaudited)
November 28, November 30, November 28, November 30,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net sales $50,359 $51,058 $159,975 $138,947
Cost of sales 40,519 41,294 127,005 118,641
Gross profit 9,840 9,764 32,970 20,306
Selling, general and
administrative expenses 6,282 7,838 21,144 20,255
Realignment and severance
charges (Note 5) 625 - 625 8,438
Gain on Delco lawsuit (Note 11) - - - (33,088)
Gain on sale of U.K. real estate
(Note 12) - (429) - (429)
Gain on insurance settlement
(Note 10) (4,745) - (4,745) -
Operating income from continuing
operations 7,678 2,355 15,946 25,130
Interest and other income 971 706 2,398 2,194
Earnings from continuing
operations before income taxes 8,649 3,061 18,344 27,324
Income tax provision for continuing
operations 957 238 1,684 5,163
Net earnings from continuing
operations 7,692 2,823 16,660 22,161
Loss from discontinued
operations, net of taxes (Note 4) - (1,838) - (10,589)
Net earnings $ 7,692 $ 985 $ 16,660 $ 11,572
Basic earnings per share (Note 6):
Earnings from continuing operations $ 0.39 $ 0.14 $ 0.84 $ 1.12
Loss from discontinued operations - (0.09) - (0.53)
Basic earnings per share $ 0.39 $ 0.05 $ 0.84 $ 0.59
Diluted earnings per share (Note 6):
Earnings from continuing operations $ 0.38 $ 0.14 $ 0.83 $ 1.11
Loss from discontinued operations - (0.09) - (0.53)
Diluted earnings per share $ 0.38 $ 0.05 $ 0.83 $ 0.58
Weighted average number of common
and common equivalent shares
outstanding:
Basic shares 19,901 19,764 19,866 19,744
Diluted shares 20,061 20,083 20,081 19,932
Dividends declared per share
(Note 13) $ 1.14 $ 0.06 $ 1.26 $ 0.18
See accompanying Notes to the Condensed Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
13 weeks ended 39 weeks ended
(Unaudited) (Unaudited)
November 28, November 30, November 28, November 30,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Common stock and paid-in capital
Balance, beginning of period $135,909 $135,083 $135,372 $135,209
Stock option activity 317 39 854 (87)
Balance, end of period 136,226 135,122 136,226 135,122
Retained earnings
Balance, beginning of period 115,502 125,726 108,915 117,506
Net income 7,692 985 16,660 11,572
Dividends declared (22,688) (1,186) (25,069) (3,553)
Balance, end of period 100,506 125,525 100,506 125,525
Accumulated other non-owner changes
Balance, beginning of period 2,985 (3,172) 3,734 (2,432)
Net unrealized investment
(losses) gains (152) 275 (398) 1,153
Translation adjustments 1,915 1,246 1,412 (372)
Balance, end of period 4,748 (1,651) 4,748 (1,651)
Treasury stock
Balance, beginning of period (3,551) (4,249) (4,125) (4,582)
Stock option activity 95 36 669 369
Balance, end of period (3,456) (4,213) (3,456) (4,213)
Total stockholders' equity $238,024 $254,783 $238,024 $254,783
See accompanying Notes to the Condensed Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
39 Weeks Ended
(Unaudited)
November 28, November 30,
__2004__ __2003__
<s> <c> <c>
Cash flows from operating activities:
Net earnings $ 16,660 $ 11,572
Depreciation and amortization 7,698 8,998
Gain from insurance settlement (4,745) -
Proceeds from insurance settlement 5,816 -
(Gain) loss on sale of fixed assets 23 (429)
Change in operating assets and liabilities (5,479) 4,949
Net cash provided by operating activities 19,973 25,090
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (2,369) (3,750)
Proceeds from sales of fixed assets 20 1,954
Purchases of marketable securities (28,983) (67,676)
Proceeds from sales and maturities of
marketable securities 25,924 56,627
Net cash used in investing activities (5,408) (12,845)
Cash flows from financing activities:
Dividends paid (3,575) (3,553)
Proceeds from exercises of stock options 1,523 282
Net cash used in financing activities (2,052) (3,271)
Change in cash and cash equivalents before
exchange rate changes 12,513 8,974
Effect of exchange rate changes on cash
and cash equivalents 497 (137)
Change in cash and cash equivalents 13,010 8,837
Cash and cash equivalents, beginning of
period 129,989 111,036
Cash and cash equivalents, end of period $142,999 $119,873
Supplemental cash flow information:
Cash (received) paid during the
period for income taxes $ (541) $ 5,471
See accompanying Notes to the Condensed 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 November
28, 2004, the consolidated statements of earnings and the
consolidated statements of stockholders' equity for the 13
weeks and 39 weeks ended November 28, 2004 and November
30, 2003, and the condensed consolidated statements of
cash flows for the 39 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 November 28, 2004
and the results of operations and cash flows for all
periods presented.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with accounting principles generally accepted in the
United States have been condensed or omitted. It is
suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year
ended February 29, 2004.
2. INVENTORIES
Inventories consisted of the following:
November 28, February 29,
____2004__ ____2004___
<s> <c> <c>
Raw materials $ 6,329 $ 4,088
Work-in-process 3,150 2,424
Finished goods 4,464 4,835
Manufacturing supplies 399 360
------- -------
$14,342 $11,707
3. STOCK OPTIONS
As of November 28, 2004, the Company had two fixed stock
option plans. All options under the plans had exercise
prices equal to the market value of the underlying common
stock of the Company on the dates of grants. The Company
continues to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and
related interpretations for the plans. If compensation
costs of the grants had been determined based upon the
fair market value at the grant dates consistent with the
FASB No. 123 "Accounting for Stock-Based Compensation",
the Company's net earnings and earnings per share would
have approximated the amounts shown below. (See Note 14
below for a discussion of a recently issued accounting
pronouncement relating to accounting for stock options.)
13 weeks ended 39 weeks ended
November 28, November 30, November 28, November 30,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net earnings $7,692 $ 985 $16,660 $11,572
Deduct: Total stock-based
employee compensation
determined under fair value
based method for all awards,
net of tax effects 462 474 1,365 1,379
Pro forma net income $7,230 $ 511 $15,295 $10,193
EPS-basic as reported $ 0.39 $ 0.05 $ 0.84 $ 0.59
EPS-basic pro forma $ 0.36 $ 0.03 $ 0.77 $ 0.52
EPS-diluted as reported $ 0.38 $ 0.05 $ 0.83 $ 0.58
EPS-diluted pro forma $ 0.36 $ 0.03 $ 0.76 $ 0.51
4. DISCONTINUED OPERATIONS
On February 4, 2004, the Company announced that it was
discontinuing its financial support of its Dielektra GmbH
("Dielektra") subsidiary located in Cologne, Germany, due
to the continued erosion of the European market for the
Company's high technology products. Without Park's
financial support, Dielektra filed an insolvency petition,
which may result in the reorganization, sale or
liquidation of Dielektra. In accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-
Lived Assets", Dielektra is treated as a discontinued
operation. As a result of the discontinuation of
financial support for Dielektra, the Company recognized an
impairment charge of $22,023 for the write-off of
Dielektra assets and other costs during the fourth quarter
of the 2004 fiscal year. The liabilities from
discontinued operations are reported separately on the
consolidated balance sheet. These liabilities from
discontinued operations included $12,094 for Dielektra's
deferred pension liability. The Company expects to
recognize a gain of approximately $17 million related to
the reversal of these liabilities when the Dielektra
insolvency process is completed, although it is unclear
when the process will be completed. The $10,589 loss from
discontinued operations for the 39 weeks ended November
30, 2003, includes losses from operations of $4,447 and
$6,142 for termination and other costs related to
Dielektra, recorded in the first quarter of the 2004
fiscal year. At the time of the discontinuation of
support for Dielektra, $5,539 of the $6,142 of termination
and other costs had been paid and the remaining $603 was
included in liabilities from discontinued operations in
the Condensed Consolidated Balance Sheets as of February
29, 2004 and November 28, 2004.
Dielektra's net sales and operating results for the 13
weeks and 39 weeks ended November 28, 2004 and November
30, 2003, and the liabilities of discontinued operations
at November 28, 2004 and February 29, 2004 were as
follows:
13 weeks ended 39 weeks ended
November 28, November 30, November 28, November 30,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net sales $ - $ 3,219 $ - $ 12,427
Operating loss $ - $(1,838) $ - $(4,447)
Restructuring and
impairment charges - - - (6,142)
Net loss $ - $(1,838) $ - $(10,589)
November 28, February 29,
2004 2004
Current and other
liabilities $ 5,223 $ 7,344
Pension liabilities 12,094 12,094
Total liabilities $17,317 $19,438
5. REALIGNMENT AND SEVERANCE CHARGES
During the third quarter ended November 28, 2004, the
Company recorded $625 of charges for severance payments
for workforce reductions at its North American and
European operations. These severance payments were made to
employees during the 2005 fiscal year third quarter and
there were no remaining liabilities as of November 28,
2004.
The Company recorded pre-tax charges of $1,934 and $6,504
during the first and second quarters, respectively, of
fiscal year 2004, related to the realignment of its North
America FR-4 business operations in Newburgh, New York and
Fullerton, California. During the fourth quarter of fiscal
year 2004, the Company recorded pre-tax charges of $112
related to workforce reductions in Europe. The components
of these fiscal 2004 charges and the related liability
balances and activity from the quarter ended June 1, 2003
through November 28, 2004 are set forth below.
Charges 11/28/04
Realignment Incurred or Remaining
Charges Paid Reversals Liabilities
<s> <c> <c> <c> <c>
New York and
California and other
realignment charges:
Lease payments, taxes,
utilities and other $7,292 $1,273 $ - $6,019
Severance payments 1,258 1,258 - -
----- ------ ---- ------
$8,550 $2,531 $ - $6,019
The severance payments were for the termination of hourly
and salaried, administrative, manufacturing and support
employees. Such employees were terminated during the 2004
fiscal year first, second and third quarters. The severance
payments were paid to such employees in installments during
fiscal year 2004. The lease charges cover one lease
obligation payable through December 2004 and a portion of
another lease obligation payable through September 2013. For
the 13 weeks and 39 weeks ended November 28, 2004, the
Company paid $86 and $503, respectively, for lease payments,
taxes, utilities and other, and $0 and $112, respectively,
for severance payments.
6. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net
earnings by the weighted average number of shares of
common stock outstanding during the period. Diluted
earnings per share are computed by dividing net earnings
by the sum of (a) the weighted average number of shares of
common stock outstanding during the period and (b) the
potential common stock equivalents outstanding during the
period. Stock options are the only common stock
equivalents, and the number of dilutive options is
computed using the treasury stock method.
The following table sets forth the basic and diluted
weighted average number of shares of common stock and
potential common stock equivalents outstanding during the
periods specified:
13 weeks ended 39 weeks ended
November 28, November 30, November 28, November 30,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Weighted average
shares outstanding
for basic EPS 19,901 19,764 19,866 19,744
Net effect of dilutive
options 160 319 215 188
Weighted average
shares outstanding
for diluted EPS 20,061 20,083 20,081 19,932
Common stock equivalents, which were not included in the
computation of diluted earnings per share because either
the effect would have been antidilutive or the options'
exercise prices were greater than the average market price
of the common stock, were 133 and 57 for the thirteen
weeks ended November 28, 2004 and November 30, 2003,
respectively, and 85 and 191 for the thirty-nine weeks
ended November 28, 2004 and November 30, 2003,
respectively.
7. BUSINESS SEGMENTS
The Company considers itself to operate in one business
segment because the Company's advanced composite materials
business comprises less than 10% of the Company's revenues
and net earnings from continuing operation on an absolute
basis. The Company's electronic materials products are
marketed primarily to leading independent printed circuit
board fabricators, electronic manufacturing service
companies, electronic contract manufacturers and major
electronic original equipment manufacturers ("OEMs")
located throughout North America, Europe and Asia. The
Company's advanced composite materials customers,
substantially all of which are located in the United
States, include OEMs, independent firms and distributors
in the electronics, radio frequency, aerospace, rocket
motor, automotive, graphic arts and specialty industrial
industries.
Sales are attributed to geographic region based upon the
region from which the materials were shipped to the
customer. Sales between geographic regions were not
significant.
Financial information concerning the Company's continuing
operations by geographic area follows:
13 weeks ended 39 weeks ended
November 28, November 30, November 28, November 30,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Sales:
North America $28,257 $26,793 $ 90,117 $76,659
Europe 8,469 9,536 26,345 23,160
Asia 13,633 14,729 43,513 39,128
Total sales $50,359 $51,058 $159,975 $138,947
November 28, February 29,
2004 2004
<s> <c> <c>
Long-lived assets:
North America $34,119 $38,549
Europe 11,076 10,969
Asia 20,404 21,470
Total long-lived assets $65,599 $70,988
8. COMPREHENSIVE INCOME
Total comprehensive income for the 13 weeks ended November
28, 2004 and November 30, 2003 was $9,455 and $2,506,
respectively. Total comprehensive income for the 39 weeks
ended November 28, 2004 and November 30, 2003 was $17,674
and $12,353, respectively. Comprehensive income consisted
primarily of net income and foreign currency translation
adjustments and unrealized gains and losses on marketable
securities.
9. SALE OF NELCO TECHNOLOGY, INC.
During the Company's 1998 fiscal year and for several
years prior thereto, more than 10% of the Company's total
worldwide sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp., and the Company's
wholly owned subsidiary, Nelco Technology, Inc. ("NTI")
located in Tempe, Arizona, had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials, commonly known as mass lamination, which were
used by Delco to produce finished multilayer printed
circuit boards. However, in March 1998, the Company was
informed by Delco that Delco planned to close its printed
circuit board fabrication plant and exit the printed
circuit board manufacturing business. As a result, the
Company's sales to Delco declined during the three-month
period ended May 31, 1998, were negligible during the
remainder of the 1999 fiscal year and have been nil in
subsequent years.
After March 1998, the business of NTI languished and its
performance was unsatisfactory due primarily to the
absence of the unique, high-volume, high-quality business
that had been provided by Delco Electronics and the
absence of any other customer in the North American
electronic materials industry with a similar demand for
the large volumes of semi-finished multilayer printed
circuit board materials that Delco purchased from NTI.
Although NTI's business experienced a resurgence in the
2001 fiscal year as the North American market for printed
circuit materials became extremely strong and demand
exceeded supply for the electronic materials manufactured
by NTI, the Company's internal expectations and
projections for the NTI business were for continuing
volatility in the business' performance over the
foreseeable future. Consequently, in April 2001, the
Company sold the assets and business of NTI and closed a
related support facility, also located in Tempe, Arizona.
As a result of this sale, the Company exited the mass
lamination business in North America.
In connection with the sale of NTI and the closure of the
related support facility, the Company recorded pre-tax
charges of $15,707 in its fiscal year 2002 first quarter
ended May 27, 2001. The components of these charges and
the related liability balances and activity from the May
27, 2001 balance sheet date to the November 28, 2004
balance sheet date are set forth below.
Charges 11/28/04
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 $ - $ -
Severance payments 387 387 - -
Medical and other costs 95 95 - -
Support facility charges:
Impairment of long
lived assets 2,058 2,058 - -
Write down of accounts
receivable 350 319 31 -
Write down of inventory 590 590 - -
Severance payments 688 688 - -
Medical and other costs 133 133 - -
Lease payments, taxes,
utilities, maintenance 781 606 - 175
Other 45 45 - -
------- ------- --- ----
$15,707 $15,501 $31 $175
======= ======= ==== ====
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 payments were paid
through November 2004 pursuant to the related lease
agreements.
10. GAIN ON INSURANCE SETTLEMENT
In 2005 fiscal year third quarter, the Company settled an
insurance claim for damages sustained by the company in
Singapore as the result of an explosion that occurred in
November 2002 in one of the four treaters located at its
Nelco manufacturing facility in Singapore. During the 2005
fiscal year, the Company received $5,816 related to this
insurance claim. The proceeds represent reimbursement for
assets destroyed in the accident and for business
interruption losses. As a result, the Company recognized
a $4,745 gain during the third quarter ended November 28,
2004.
11. GAIN ON DELCO LAWSUIT
The United States District Court for the District of
Arizona entered final judgment in favor of the Company's
subsidiary, NTI, 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 $33,088 from Delco on
July 1, 2003 in satisfaction of the judgment.
12. SALE OF U.K. REAL ESTATE
During the third quarter of fiscal year 2004, the Company
sold real estate previously used by its Nelco U.K.
subsidiary, which had ceased operations. As a result, the
company recorded a pretax gain of $429.
13. DIVIDENDS DECLARED
On October 25, 2004, the Company announced that its Board
of Directors had declared a one-time, special cash
dividend of $1.00 per share and an increase in the
Company's regular quarterly dividend to $0.08 per share.
The one-time, special cash dividend of $1.00 per share was
paid December 15, 2004 to stockholders of record at the
close of business on November 15, 2004. The $0.08 per
share dividend is payable February 8, 2005 to stockholders
of record at the close of business on January 6, 2005.
These dividends are in addition to the regular quarterly
cash dividend of $0.06 per share that the Company
announced on September 16, 2004 and paid November 2, 2004.
At the quarter ended November 28, 2004, the Company
recorded a $21,494 dividend payable for the one-time,
special dividend of $1.00 to be paid December 15, 2004 and
the regular quarterly $0.08 dividend to be paid February
8, 2005.
14. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
123R, "Accounting for Stock-Based Compensation" ("SFAS
123R"). This Statement supersedes Accounting Principles
Board Opinion No.25, "Accounting for Stock Issued to
Employees"("APB 25"), and its related implementation
guidance and is effective as of the beginning of the first
interim or annual reporting period that begins after June
15, 2005. This Statement applies to all awards granted
after the required effective date and to awards modified,
repurchased or cancelled after that date. The cumulative
effect of initially applying this Statement, if any, is
recognized as of the required effective date. This
Statement addresses the accounting for transactions in
which an entity exchanges its equity instruments for goods
or services. It also addressed transactions in which an
entity in an exchange for goods or services incurs
liabilities that are based on the fair value of the
entity's equity instruments or that may be settled by the
issuance of those equity instruments. The Statement
eliminates the ability to account for share-based
compensation transactions using APB 25, and generally
requires instead that such transactions be accounted for
using a fair-value-bases method. The Company has not yet
determined what effect SFAS 123R will have on the
Company's consolidated results of operation or financial
position. (The Company's accounting for shared-based
compensation transactions using APB 25 is included in Note
3 above.)
In November 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
151, "Inventory Costs" ("SFAS 151"), an amendment of ARB
No.43, Chapter 4, effective for fiscal years beginning
after June 15, 2005. This Statement clarifies that
abnormal amounts of idle facility expense, freight
handling costs, and waste materials (spoilage) should be
recognized as current-period charges. In addition, this
Statement requires that the allocation of fixed production
overheads to the cost of conversions be based on the
normal capacity of the production facilities. The Company
has not yet determined what effect SFAS 151 will have on
the Company's consolidated results of operations or
financial position.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General:
Park Electrochemical Corp. is a global advanced materials
company which develops and manufactures high-technology digital
and RF/microwave printed circuit materials and advanced
composite materials for the electronics, military, aerospace,
wireless communication and industrial markets. The Company's
manufacturing facilities are located in Singapore, China
(currently under construction), France (two facilities),
Connecticut, New York, Arizona and California. The Company
operates under the FiberCote, Nelco and Neltec names.
The Company's sales from continuing operations declined
slightly in the three-month period ended November 28, 2004
compared with the three-month period ended November 30, 2003
due to declines in sales in Asia and Europe that were only
partially offset by an increase in sales in North America.
However, the Company's net profit from continuing operations,
before special items, increased significantly in the three-
month period ended November 28, 2004 compared with the
Company's net profit from continuing operations, before special
items, in the three-month period ended November 30, 2003. Such
special items consisted of the gain on an insurance recovery
related to the November 2002 accident at the Company's
Singapore manufacturing facility and severance charges for
workforce reductions at the Company's North American and
European FR-4 business operations in the three-month period
ended November 28, 2004 and the gain on the sale of real estate
previously used by the Company's Nelco U.K. subsidiary which
had ceased operations and charges in connection with the
realignment of the Company's North American FR-4 business
operations and related workforce reductions in the three-month
period ended November 30, 2003.
For the nine-month period ended November 28, 2004, the
Company's sales and net profit from continuing operations,
before special items, increased significantly compared with the
Company's sales and net profit from continuing operations,
before special items, in the nine-month period ended November
30, 2003. Such special items consisted of the gain on the
insurance recovery and severance charges for workforce
reductions at the Company's FR-4 business operations in the
nine-month period ended November 28, 2004 and the gains on the
sale of real estate and on the Delco lawsuit and charges in
connection with the realignment of the Company's North American
FR-4 business operations and related workforce reductions in
the nine-month period ended November 30, 2003.
For the nine-month period ended November 28, 2004, the
increases were the result of increases in sales by nearly all
the Company's operations, although the improvements were
attributable principally to increases in sales of the Company's
advanced technology products, cost reductions resulting from
the realignment of the Company's FR-4 business operations and
increases in sales by the Company's FiberCote advanced
composite materials business.
The electronic materials industry began to improve
slightly at the end of the 2004 fiscal year second quarter and
continued to improve in the 2004 fiscal year third and fourth
quarters and in the 2005 fiscal year first quarter. However,
the electronic materials industry slowed down to some extent in
the 2005 fiscal year second quarter. Consequently, sales of the
Company's electronic materials operations declined in the
second quarter compared to the 2005 fiscal year first quarter.
Although the global markets for the Company's electronic
materials improved to some degree during September 2004, those
markets were anemic during the remainder of the 2005 fiscal
year third quarter. Consequently, sales of the Company's
electronic materials continuing operations declined in the 2005
fiscal year third quarter compared to the 2005 fiscal year
first and second quarters and compared to the 2004 fiscal year
third quarter. However, the military, aerospace, wireless
communication and industrial markets for the Company's
FiberCote advanced composite materials business were healthy
during the 2005 fiscal year third quarter, with particular
strength coming from the rocket motor, airframe and radome
components of those markets, and, as a result, sales of
FiberCote's advanced composite materials increased in each of
the first three quarters of the 2005 fiscal year compared to
the comparable periods in the prior fiscal year.
While the global markets for the Company's electronic
materials continue to be very difficult to forecast, the
Company believes that the markets for FiberCote's advanced
composite materials will continue to be healthy during the 2005
fiscal year fourth quarter.
The Company continues to invest its human and financial
resources in the higher technology portions of its electronic
materials business and in its FiberCote advanced composite
materials business. The Company is in the process of installing
an additional large treater at its FiberCote advanced composite
materials facility in Waterbury, Connecticut, which will
effectively double FiberCote's treating capacity. In addition,
the Company's expansions in Singapore and China are progressing
on track.
While the Company continued to expand and invest in its
business in Asia during the 2005 fiscal year, it made
additional adjustments to its volume FR-4 oriented businesses,
particularly in North America, which resulted in workforce
reductions at the Company's North American and European FR-4
business operations as a result of which the Company recorded
pre-tax charges of $0.6 million in the Company's 2005 fiscal
year third quarter.
In the 2005 fiscal year third quarter, the Company also
settled an insurance claim for property and business
interruption losses sustained by the Company in Singapore as a
result of an explosion in one of the four treaters located at
its Nelco manufacturing facility in Singapore and recorded a
pre-tax gain of $4.7 million as a result of the settlement.
During the first and second quarters of the 2004 fiscal
year, the Company realigned its North American FR-4 business
operations located in New York and California. As part of the
realignment, the New York operation was scaled down to a
smaller, focused operation and the California operation was
scaled up to a larger volume operation, and there were
workforce reductions at the Company's New York facility and
workforce increases at the Company's California facility, with
the end result being a net reduction in the Company's workforce
in North America. A large portion of the New York facility was
mothballed. The realignment was designed to help the Company
achieve improved operating and cost efficiencies in its North
American FR-4 business and to help the Company best service all
of its North American customers.
As a result of the Company's realignment of its North
American FR-4 business operations and related workforce
reductions, the Company recorded pre-tax charges totaling $1.9
million and $6.5 million in the Company's 2004 fiscal year
first quarter and second quarter, respectively. The Company
also recorded a pre-tax gain of $0.4 million in the 2004 fiscal
year third quarter resulting from the sale of real estate
previously used by its Nelco U.K. subsidiary, which had ceased
operations after its closure in the 2003 fiscal year third
quarter. See Notes 5 and 12 of the Notes to Condensed
Consolidated Financial Statements in Item 1 of Part I of this
Report for additional information regarding the realignment and
sale.
In February 2004, the Company discontinued its financial
support of Dielektra GmbH, the Company's wholly owned
subsidiary located in Cologne, Germany ("Dielektra"), which
supplied electronic materials to European circuit board
manufacturers. The Company discontinued its support of
Dielektra because the market in Europe had eroded to the point
where the Company believed it would not be possible, at any
time in the foreseeable future, for the Dielektra business to
be viable. Dielektra had required substantial financial support
from the Company. The discontinuation of the Company's
financial support resulted in the filing of an insolvency
petition by Dielektra. The Company believes that the insolvency
procedure in Germany will result in the eventual
reorganization, sale or liquidation of Dielektra. The Company
continues to service the higher technology European digital and
RF circuit board markets through its Neltec Europe SAS business
located in Mirebeau, France, and its Neltec SA business located
in Lannemezan, France.
In accordance with generally accepted accounting
principles, the Company treated Dielektra as a discontinued
operation. Accordingly, the Company reclassified Dielektra's
operating losses and charges and recorded a net loss from
discontinued operations of $33.8 million in the 2004 fiscal
year, comprised of $5.6 million of operating losses incurred by
Dielektra, $6.2 million related to the closure of Dielektra's
mass lamination operation and related workforce reductions in
the 2004 fiscal year first quarter and $22.0 million for the
write-off of assets of Dielektra and other costs. Furthermore,
the Company's sales from its continuing operations did not
include sales by Dielektra of $14.4 million for the 2004 fiscal
year. The Company's sales for the 2005 fiscal year first,
second and third quarters did not include any sales by
Dielektra, and Dielektra had no impact on the Company's results
of operations during the 2005 fiscal year first, second and
third quarters. See Note 4 of the Notes to Condensed
Consolidated Financial Statements in Item 1 of Part I of this
Report for additional information regarding the discontinued
operations.
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.("Delco"), 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 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 in May 2003, a panel of three judges in the Court of
Appeals for the Ninth Circuit rendered a unanimous decision
affirming the jury verdict. In June 2003, the United States
District Court for the District of Arizona entered final
judgment in favor of NTI; and, on July 1, 2003, NTI received a
net amount of $33.1 million in payment of such judgment. The
Company recorded a pre-tax gain of $33.1 million in the 2004
fiscal year second quarter related to such payment. See Notes 9
and 11 of the Notes to Condensed Consolidated Financial
Statements in Item 1 of Part I of this Report for additional
information regarding the sale of NTI and the gain on the
lawsuit against Delco and Item 1 of Part II of this Report for
additional information regarding the lawsuit against Delco.
The Company is not engaged in any related party
transactions involving relationships or transactions with
persons or entities that derive benefits from their non-
independent relationship with the Company or the Company's
related parties, or in any transactions with parties with whom
the Company or its related parties have a relationship that
enables the parties to negotiate terms of material transactions
that may or would not be available from other, more clearly
independent parties on an arm's-length basis, or in any trading
activities involving non-exchange traded commodity or other
contracts that are accounted for at fair value or otherwise or
in any energy trading or risk management activities, other than
certain limited foreign currency contracts intended to hedge
the Company's contractual commitments to pay certain
obligations or to realize certain receipts in foreign
currencies and certain limited energy purchase contracts
intended to protect the Company from increased utilities costs.
The Company believes that an evaluation of its ongoing
operations would be difficult if the disclosure of its
financial results were limited to generally accepted accounting
principles ("GAAP") financial measures, which include special
items, such as realignment and severance charges and the gains
on the insurance claim settlement, the Delco lawsuit and the
sale of real estate. Accordingly, in addition to disclosing its
financial results determined in accordance with GAAP, the
Company discloses non-GAAP operating results that exclude
special items in order to assist its shareholders and other
readers in assessing the Company's operating performance, since
the Company's on-going, normal business operations do not
include such special items. Such non-GAAP financial measures
are provided to supplement the results provided in accordance
with GAAP.
Three and Nine Months Ended November 28, 2004 Compared with
Three and Nine Months Ended November 30, 2003:
The Company's profit from continuing operations improved
during the three months ended November 28, 2004, compared with
the three months ended November 30, 2003, despite a small
decrease in net sales, as a result of an improvement in its
profit margin resulting from higher percentages of sales of
higher margin, advanced technology products, increased sales of
the Company's FiberCote advanced composite materials and
reduced costs compared to last year's comparable three-month
period, and the Company reported net earnings of $7.7 million
for the three-month period after a pre-tax gain of $4.7 million
resulting from the settlement of an insurance claim for
property and business interruption losses sustained by the
Company in Singapore as a result of an explosion in one of the
four treaters located at its Nelco manufacturing facility in
Singapore and after pre-tax charges of $0.6 million for
severance payments resulting from workforce reductions at the
Company's North American and European FR-4 business operations.
Compared with the prior fiscal year's first nine-month
period, the Company's continuing operations also generated a
profit during the nine months ended November 28, 2004 as a
result of an increase in net sales and improvements in profit
margins resulting from higher percentages of sales of higher
margin, advanced technology electronic material products and
increased sales of higher margin, advanced composite materials
by the Company's FiberCote business unit, and the Company
reported net earnings of $16.7 million for the nine-month
period ended November 28, 2004 after the pre-tax gain described
above resulting from the insurance recovery and after the pre-
tax charges described above for severance payments resulting
from workforce reductions.
Operating results of the Company's FiberCote advanced
composite materials business improved during the three-month
and nine-month periods ended November 28, 2004 primarily as a
result of higher sales volumes related to strength in the
rocket motor, airframe and radome components of the military,
aerospace, wireless communication and industrial markets for
FiberCote's advanced composite materials. Sales of the
FiberCote business unit increased to 8% of the Company's total
net sales worldwide in the nine months ended November 28, 2004
compared with 6% of the Company's total net sales worldwide in
the nine months ended November 30, 2003.
While the Company's gross profit in the three months ended
November 28, 2004 was only slightly higher than its gross
profit in the prior fiscal year's third quarter, its gross
profit in the 2005 fiscal year first nine months was
substantially higher than the gross profit in the prior year's
comparable period as a result of the Company's reductions of
its costs and expenses, higher percentages of sales of higher
margin, advanced technology products and increased sales of the
Company's FiberCote advanced composite materials. These changes
in gross profits were despite lower levels of sales of
electronic materials in the three months ended November 28,
2004, 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, and competitive pressures.
In addition to its financial results of operations, the
Company recorded pre-tax charges of $0.6 million in the 2005
fiscal year third quarter related to further adjustments to the
Company's North American and European FR-4 business operations
and related workforce reductions.
Results of Operations
Net sales for the three-month period ended November 28,
2004 declined 1% to $50.4 million from $51.1 million for last
year's third quarter, while net sales for the nine-month period
ended November 28, 2004 increased 15% to $160.0 million from
$138.9 million for last fiscal year's comparable period. The
decline in net sales during the third quarter was the result of
lower sales by the Company's operations in Asia and Europe,
which were only partially offset by higher sales by the
Company's operations in North America. The increase in net
sales during the nine months ended November 28, 2004 was the
result of increased sales by the Company's operations in all
regions and increased sales of the Company's advanced
technology electronic materials and an increase in sales of the
Company's FiberCote advanced composite materials.
The Company's foreign operations accounted for $22.1
million and $69.9 million, respectively, of net sales, or 44%
of the Company's total net sales worldwide, during the three-
month and nine-month periods ended November 28, 2004 compared
with $24.3 million and $62.3 million, respectively, of net
sales, or 48% and 45%, respectively, of total net sales
worldwide, during last fiscal year's comparable periods. Net
sales by the Company's foreign operations during the three-
month period ended November 28, 2004 declined 9% from the 2004
fiscal year comparable period, while net sales by the Company's
foreign operations during the nine-month period ended November
28, 2004 increased 12%. The decline in net sales by foreign
operations during the third quarter was due to decreased sales
by the Company's operations in both Asia and Europe, although
sales of the Company's advanced technology digital and
RF/microwave electronic materials increased in Asia and Europe
during the quarter as well as during the nine-month period
ended November 28, 2004. The increase in net sales by foreign
operations during the nine months ended November 28, 2004 was
due to increases in sales by the Company's operations in Asia
and Europe.
The overall gross profit as a percentage of net sales for
the Company's worldwide operations improved to 19.5% and 20.6%,
respectively, for the three months and nine months ended
November 28, 2004 compared with 19.1% and 14.6% for last fiscal
year's comparable periods. The increases in the gross profit
were the result of higher percentages of sales of higher
margin, advanced technology products, increased sales of the
Company's FiberCote advanced composite materials and decreases
in the Company's cost of sales.
The Company's cost of sales as a percentage of sales
decreased compared to the comparable periods in the prior
fiscal year due to personnel reductions and cost savings
resulting from the Company's realignment of its North American
FR-4 business, other cost reduction measures implemented by the
Company, including workforce reductions and the reduction of
overtime, and higher production volumes during the first and
second quarters of the 2005 fiscal year compared to the
comparable periods in the 2004 fiscal year.
Selling, general and administrative expenses declined by
$1.6 million, or by 20%, during the three-month period ended
November 28, 2004 compared with last fiscal year's comparable
period, and increased only $0.9 million, or by 4%, during the
nine-month period ended November 28, 2004 compared with last
year's comparable period, while sales increased 15% during the
same period, but these expenses, measured as a percentage of
sales, were 12.4% and 13.2%, respectively, during the three-
month and nine-month periods ended November 28, 2004 compared
with 15.3% and 14.6%, respectively, during last fiscal year's
comparable periods. The decreases in selling, general and
administrative expenses as percentages of sales in the three
months and nine months ended November 28, 2004 resulted from
higher sales, lower shipping costs incurred by the Company to
meet its customers' customized manufacturing and quick-turn-
around requirements and cost reductions resulting from the
realignment of the Company's FR-4 business operations.
In the 2005 fiscal year third quarter, the Company
recorded a pre-tax gain of $4.7 million resulting from the
settlement of an insurance claim for property and business
interruption losses sustained by the Company in Singapore as a
result of an explosion in one of the four treaters located at
its Nelco manufacturing facility in Singapore and pre-tax
charges of $0.6 for severance payments resulting from workforce
reductions at the Company's North American and European FR-4
business operations.
The Company recorded a pre-tax gain of $0.4 million in the
2004 fiscal year third quarter resulting from the sale of real
estate in Skelmersdale, England previously used by its Nelco
U.K. subsidiary, which had ceased operations after its closure
in the 2003 fiscal year third quarter, and a pre-tax gain of
$33.1 million during the 2004 fiscal year second quarter
related to the payment by Delco Electronics Corporation of the
judgment against Delco in favor of the Company's subsidiary,
Nelco Technology, Inc., in its lawsuit against Delco. The
Company also recorded pre-tax charges of $1.9 million in the
2004 fiscal year first quarter in connection with the
realignment of its North American FR-4 business operations in
New York and California and related workforce reductions and
recorded additional pre-tax charges of $6.5 million in the 2004
fiscal year second quarter due to such realignment.
For the reasons set forth above, net earnings from
continuing operations were $7.7 million for the three months
ended November 28, 2004, including the pre-tax gain described
above resulting from the insurance settlement and the pre-tax
charges described above for severance payments resulting from
workforce reductions, compared with net earnings from
continuing operations of $2.8 million for the three months
ended November 30, 2003, including the pre-tax gain described
above resulting from the sale of real estate in England. Net
earnings from continuing operations for the nine months ended
November 28, 2004 were $16.7 million, including the pre-tax
gain described above resulting from the insurance settlement
and the pre-tax charges described above for severance payments
resulting from workforce reductions, compared with net earnings
from continuing operations of $22.2 million for the nine months
ended November 30, 2003, including the pre-tax gains described
above resulting from the sale of real estate in England and the
payment by Delco Electronics Corporation of the judgment
against it in favor of the Company's subsidiary, Nelco
Technology, Inc., in Nelco's lawsuit against Delco and the pre-
tax charges described above related to the realignment of the
Company's North American FR-4 business operations. The
Company's net profit from continuing operations excluding the
pre-tax gains and the pre-tax charges described above was $4.2
million and $13.2 million, respectively, for the three months
and nine months ended November 28, 2004 compared with net
profit from continuing operations excluding the pre-tax gains
and the pre-tax charges described above of $2.4 million and
$1.9 million, respectively, for the three months and nine
months ended November 30, 2003.
Interest and other income, net, principally investment
income, was $1.0 million and $2.4 million, respectively, for
the three-month and nine-month periods ended November 28, 2004
compared with $0.7 million and $2.2 million, respectively, for
last fiscal year's comparable periods. The increases in
investment income were attributable to increases in cash
available for investment and in prevailing interest rates. The
Company's investments were primarily short-term taxable
instruments.
The Company's effective income tax rates for continuing
operations, excluding the pre-tax gains and the pre-tax charges
described above, for the three-month and nine-month periods
ended November 28, 2004 were 7.5% compared with 9.0% for the
three-month period ended November 30, 2003 and an income tax
benefit of 29.4%. The tax benefit for the nine-month period
ended November 30, 2003 was principally a result of the tax
impact of the reversal of valuation allowances resulting from
the gain on the Delco lawsuit. The effective income tax rates
on earnings from continuing operations, including the pre-tax
gains and the pre-tax charges described above, were 11.1% and
9.2% for the three months and nine months ended November 28,
2004, principally as a result of the tax impact of the
insurance settlement, compared with rates of 7.8% and 18.9%
principally as a result of the tax impact of the gain on the
Delco litigation payment for the three-month and nine-month
periods ended November 30, 2003.
For the reasons set forth above, net earnings for the
three-month period ended November 28, 2004, including the pre-
tax gain described above resulting from the insurance
settlement and the pre-tax charges described above for
severance payments resulting from workforce reductions, were
$7.7 million compared with net earnings of $1.0 million for the
three-month period ended November 30, 2003, including the pre-
tax gain described above resulting from the sale of real estate
in England and the loss on discontinued operations. Net
earnings for the nine-month period ended November 28, 2004 were
$16.7 million, including the pre-tax gain described above
resulting from the insurance settlement and the pre-tax charges
described above for severance payments resulting from workforce
reductions, compared with net earnings of $11.6 million for the
nine-month period ended November 30, 2003, including the pre-
tax gains described above resulting from the sale of real
estate in England and the payment by Delco Electronics
Corporation of the judgment in favor of the Company's
subsidiary, Nelco Technology, Inc., the pre-tax charges
described above related to the realignment of the Company's
North American FR-4 business operations and related workforce
reductions and the loss on discontinued operations. Excluding
the pre-tax gains and the pre-tax charges described above, the
Company reported net earnings from continuing operations of
$4.2 million and $13.2 million, respectively, for the three-
month and nine-month periods ended November 28, 2004, compared
with net earnings from continuing operations of $2.4 million
and $2.9 million, respectively, for the three-month and nine-
month periods ended November 30, 2003.
Basic and diluted earnings per share, including the pre-
tax gains and charges described above, were $0.39 and $0.38,
respectively, for the three-month period ended November 28,
2004 and $0.84 and $0.83, respectively, for the nine-month
period ended November 28, 2004, compared with basic and diluted
earnings per share of $0.05 and $0.05, respectively, and $0.59
and $0.58, respectively, for the three-month and nine-month
periods ended November 30, 2003, including the pre-tax gain and
pre-tax charges described above and the loss on discontinued
operations. Excluding the pre-tax gains and charges described
above, basic and diluted earnings per share were $0.21 for the
three months ended November 28, 2004 and basic and diluted
earnings per share were $0.66 for the nine months ended
November 28, 2004, compared to basic and diluted earnings per
share from continuing operations, excluding the pre-tax gain
and pre-tax charges for the prior year's comparable periods, of
$0.12 and $0.15, respectively.
Liquidity and Capital Resources:
At November 28, 2004, the Company's cash and temporary
investments were $204.9 million compared with $189.2 million at
February 29, 2004, the end of the Company's 2004 fiscal year.
The increase in the Company's cash and investment position at
November 28, 2004 was attributable to cash received in the
insurance settlement and cash generated by operating
activities, partially offset by the payment of dividends and
purchases of property, plant and equipment. The Company's
working capital (which includes cash and temporary investments)
was $194.8 million at November 28, 2004 compared with $197.5
million at February 29, 2004. The decrease in working capital
at November 28, 2004 compared with February 29, 2004 was due
principally to dividends payable, the increase in income taxes
payable and the decrease in accounts receivable partially
offset by the increases in cash and marketable securities,
inventories and other current assets and the decreases in
accounts payable and accrued liabilities. The dividends payable
were attributable to the Company's declaration in the third
quarter of a one-time, special cash dividend of $1.00 per share
payable December 15, 2004 and an increased quarterly cash
dividend of $0.08 per share payable February 8, 2005, and the
increase in income taxes payable was attributable mainly to the
receipt of a $3.8 million income tax refund during the first
quarter of the 2005 fiscal year, while the decrease in accounts
receivable was due to the lower level of sales in the third
quarter of the 2005 fiscal year compared to the fourth quarter
of the 2004 fiscal year. The increase in inventories was
attributable mainly to an increase in raw material stocks. The
decreases in accounts payable and accrued liabilities were
results of the settlements of obligations during the second and
third quarters. The Company's current ratio (the ratio of
current assets to current liabilities) was 4.2 to 1 at November
28, 2004 compared to 5.6 to 1 at February 29, 2004. The
decrease in the current ratio at November 28, 2004 was the
result of the $21.5 million dividend payable for the dividends
declared but not paid in the quarter then ended.
During the nine months ended November 28, 2004, net
earnings from the Company's operations, before depreciation and
amortization, of $23.7 million and a net decrease in working
capital items, resulted in $20.0 million of cash provided by
operating activities. During the same nine-month period, the
Company expended $2.4 million for the purchase of property,
plant and equipment, compared with $3.8 million for the nine-
month period ended November 30, 2003, and paid $3.6 million in
dividends on its common stock in each of such nine-month
periods.
At November 28, 2004, the Company had no long-term debt.
The Company resolved with Royal Sun & Alliance Insurance
(Singapore) Limited the Company's property damage and business
interruption insurance claim resulting from the explosion in a
treater at the Company's subsidiary in Singapore on November
27, 2002, and the Company recorded a $4.7 million pre-tax gain
in the 2005 fiscal year third quarter as a result of such
resolution. The Company is in negotiations with CNA Insurance
Co. to resolve the Company's claim for business interruption
damages in the United States resulting from the explosion.
The Company believes its financial resources will be
sufficient, for the foreseeable future, to provide for
continued investment in working capital and property, plant and
equipment and for general corporate purposes. Such resources
would also be available for purchases of the Company's common
stock, appropriate acquisitions and other expansions of the
Company's business.
The Company is not aware of any circumstances or events
that are reasonably likely to occur that could materially
affect its liquidity.
The Company's contractual obligations and other
commercial commitments to make future payments under contracts,
such as lease agreements, consist only of operating lease
commitments. The Company has no long-term debt, capital lease
obligations, unconditional purchase obligations or other long-
term obligations, standby letters of credit, guarantees,
standby repurchase obligations or other commercial commitments
or contingent commitments, other than two standby letters of
credit in the total amount of $2.7 million to secure the
Company's obligations under its workers' compensation insurance
program and certain limited energy purchase contracts intended
to protect the Company from increased utilities costs.
As of November 28, 2004, there were no material changes
outside the ordinary course of the Company's business in the
Company's contractual obligations disclosed in Item 7 of Part
II of its Form 10-K Annual Report for the fiscal year ended
February 29, 2004.
Off-Balance Sheet Arrangements:
The Company's liquidity is not dependent on the use of,
and the Company is not engaged in, any off-balance sheet
financing arrangements, such as securitization of receivables
or obtaining access to assets through special purpose entities.
Environmental Matters:
In the nine-month periods ended November 28, 2004 and
November 30, 2003, the Company charged less than $0.1 million
against pretax income for environmental remedial response and
voluntary cleanup costs (including legal fees). While annual
expenditures have generally been constant from year to year and
may increase over time, the Company expects it will be able to
fund such expenditures from available cash. The timing of
expenditures depends on a number of factors, including
regulatory approval of cleanup projects, remedial techniques to
be utilized and agreements with other parties. At November 28,
2004 and February 29, 2004, the recorded liability in
liabilities from discontinued operations for environmental
matters related to Dielektra was $2.1 million and the recorded
liability in accrued liabilities for environmental matters was
$2.4 million. Management does not expect that environmental
matters will have a material adverse effect on the liquidity,
capital resources, business, consolidated results of operations
or consolidated financial position of the Company.
Critical Accounting Policies and Estimates:
In response to financial reporting release, FR-60,
"Cautionary Advice Regarding Disclosure About Critical
Accounting Policies", issued by the Securities and Exchange
Commission in December 2001, the following information is
provided regarding critical accounting policies that are
important to the Consolidated Financial Statements and that
entail, to a significant extent, the use of estimates,
assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial
condition and results of operations are based upon the
Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires the Company to make estimates,
assumptions and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the related
disclosure of contingent liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to
sales allowances, bad debts, inventories, valuation of long-
lived assets, income taxes, restructuring, pensions and other
employee benefit programs, and contingencies and litigation.
The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting
policies affect its more significant judgments and estimates
used in the preparation of its consolidated financial
statements.
Sales revenue is recognized at the time product is shipped
to a customer. All material sales transactions are for the
shipment of manufactured prepreg and laminate products and
advanced composite materials. The Company ships its products to
customers based upon firm orders, with fixed selling prices,
when collection is reasonably assured.
Sales Allowances and Product Warranties
The Company provides for the estimated costs of sales
allowances at the time such costs can be reasonably estimated.
The Company's products are made to customer specifications and
tested for adherence to such specifications before shipment to
customers. There are no future performance requirements other
than the products' meeting the agreed specifications. The
Company's bases for providing sales allowances for returns are
known situations in which products may have failed due to
manufacturing defects in the products supplied by the Company.
The Company is focused on manufacturing the highest quality
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.
Bad Debt
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
Inventory
The Company writes down its inventory for estimated
obsolescence or unmarketability based upon the age of the
inventory and assumptions about future demand for the Company's
products and market conditions.
Valuation of Long-lived Assets
The Company assesses the impairment of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Important
factors that could trigger an impairment review include, but
are not limited to, significant negative industry or economic
trends and significant changes in the use of the Company's
assets or strategy of the overall business.
Income Taxes
Carrying value of the Company's net deferred tax assets
assumes that the Company will be able to generate sufficient
future taxable income in certain tax jurisdictions, based on
estimates and assumptions. If these estimates and assumptions
change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets
resulting in additional income tax expense in the Company's
consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets quarterly and assesses
the need for additional valuation allowances quarterly.
Restructuring
During the fiscal years ended February 29, 2004 and March
2, 2003, the Company recorded significant charges in connection
with the realignment of its North American FR-4 business
operations and the closure of the Company's manufacturing
facility in England; and during the fiscal year ended March 3,
2002, the Company recorded significant charges in connection
with the restructuring related to the sale of Nelco Technology,
Inc. and the closure of a related support facility. Prior to
the Company's treating Dielektra GmbH as a discontinued
operation, the Company recorded significant charges in
connection with the closure of the mass lamination operation of
Dielektra and the realignment of Dielektra during the fiscal
years ended February 29, 2004, March 2, 2003 and March 3, 2002.
These charges include estimates pertaining to employee
separation costs and the settlements of contractual obligations
resulting from the Company's actions. Although the Company does
not anticipate significant changes, the actual costs incurred
by the Company may differ from these estimates.
Contingencies and Litigation
The Company is subject to a small number of proceedings,
lawsuits and other claims related to environmental, employment,
product and other matters. The Company is required to assess
the likelihood of any adverse judgments or outcomes in these
matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for
these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the
future due to new developments in each matter or changes in
approach such as a change in settlement strategy in dealing
with these matters.
Pension and Other Employee Benefit Programs
Dielektra GmbH has significant pension costs that are
developed from actuarial valuations. Inherent in these
valuations are key assumptions including discount rates and
wage inflation rates. The pension liability of Dielektra has
been included in liabilities from discontinued operations on
the Company's balance sheet.
The Company's obligations for workers' compensation claims
are self-insured, and its obligations for a recently terminated
employee health care benefits program were self-insured. The
Company uses an insurance company administrator to process all
such claims and benefits. The Company accrues its workers'
compensation liability based upon the claim reserves
established by the third-party administrator and historical
experience.
The Company and certain of its subsidiaries have a non-
contributory profit sharing retirement plan covering their
regular full-time employees. In addition, the Company's
subsidiaries have various bonus and incentive compensation
programs, most of which are determined at management's
discretion.
The Company's reserves associated with these self-insured
liabilities and benefit programs are reviewed by management for
adequacy at the end of each reporting period.
Factors that May Affect Future Results.
Certain portions of this Report which do not relate to
historical financial information may be deemed to constitute
forward-looking statements that are subject to various factors
which could cause actual results to differ materially from
Park's expectations or from results which might be projected,
forecast, estimated or budgeted by the Company in forward-
looking statements. Such factors include, but are not limited
to, general conditions in the electronics industry, the
Company's competitive position, the status of the Company's
relationships with its customers, economic conditions in
international markets, the cost and availability of utilities,
and the various factors set forth under the caption "Factors
That May Affect Future Results" after Item 7 of Park's Annual
Report on Form 10-K for the fiscal year ended February 29,
2004.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk.
The Company's market risk exposure at November 28, 2004
is consistent with, and not greater than, the types of market
risk and amount of exposures presented in the Annual Report on
Form 10-K for the fiscal year ended February 29, 2004.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company's
management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of November 28, 2004, the end of the
period covered by this quarterly report. Based on such
evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such
period, the Company's disclosure controls and procedures are
effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by the
Company in the reports that it files or submits under the
Exchange Act.
(b) Internal Control Over Financial Reporting. There has not
been any change in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the fiscal quarter
to which this report relates that has materially affected, or
is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1998, the Company and its Nelco Technology, Inc.
("NTI") subsidiary in Arizona filed a complaint against Delco
Electronics Corporation and the Delphi Automotive Systems unit
of General Motors Corp. in the United States District Court for
the District of Arizona. The complaint alleged, among other
things, that Delco breached its contract to purchase semi-
finished multilayer printed circuit boards from NTI and that
Delphi interfered with NTI's contract with Delco, that Delco
breached the covenant of good faith and fair dealing implied in
the contract, that Delco engaged in negligent misrepresentation
and that Delco fraudulently induced NTI to enter into the
contract.
In November 2000, after a trial in Phoenix, Arizona, a
jury awarded damages to NTI in the amount of $32.3 million, and
in December 2000 the judge in the United States District Court
entered judgment for NTI on its claim of breach of the implied
covenant of good faith and fair dealing with damages in the
amount of $32.3 million. Both parties appealed the decision to
the United States Court of Appeals for the Ninth Circuit in San
Francisco, and in May 2003, a panel of three judges in the
Court of Appeals for the Ninth Circuit rendered a unanimous
decision affirming the jury verdict. In June 2003, the United
States District Court for the District of Arizona entered final
judgment in favor of NTI, and Delco paid NTI on July 1, 2003.
NTI received a net amount of $33.1 million.
Park announced in March 1998 that it had been informed by
Delco Electronics that Delco planned to close its printed
circuit board fabrication plant and exit the printed circuit
board manufacturing business. After the plant closure, Delco
purchased all of its printed circuit boards from outside
suppliers and Delco was no longer a customer of the Company's.
As a result, the Company's sales to Delco declined
significantly during the three-month period ended May 31, 1998,
were negligible during the three-month period ended August 30,
1998 and have been nil since that time. During the Company's
1999 fiscal year first quarter and during its 1998 fiscal year
and for several years prior thereto, more than 10% of the
Company's total worldwide sales were to Delco Electronics
Corporation; and the Company had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials for more than ten years. These materials were used by
Delco to produce finished multilayer printed circuit boards.
See "Factors That May Affect Future Results" after Item 2 of
Part I of this Report.
In the first quarter of the fiscal year ended March 3,
2002, the Company sold the assets and business of NTI and
recorded pre-tax charges of approximately $15.7 million in its
2002 fiscal year first quarter ended May 27, 2001 in connection
with the sale of NTI and the closure of a related support
facility also located in Arizona. See Note 9 of the Notes to
Condensed Consolidated Financial Statements in Item 1 of Part I
of this Report.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
The following table provides information with respect to
shares of the Company's Common Stock acquired by the Company
during each month included in the Company's 2005 fiscal year
third quarter ended November 28, 2004.
Maximum Number
Total Number (or Approximate
of Shares (or Dollar Value)
Units) of Shares (or
Total Average Purchased as Units) that May
Number of Price Part of Yet Be
Shares Paid per Publicly Purchased Under
Period (or Share (or Announced the Plans or
Units) Unit) Plans or Programs
Purchased Programs
<s> <c> <c> <c> <c>
August 30 -
September 30 0 - 0
October 1-31 0 - 0
November 1-28 7,792(a) $21.62 0
Total 0 - 0 2,000,000(b)
(a) Shares surrendered to the Company by employees in payment
of the exercise price of stock options pursuant to the
Company's 1992 Stock Option Plan.
(b) Aggregate number of shares available to be purchased by
the Company pursuant to a previous share purchase authorization
announced on October 20, 2004. Pursuant to such authorization,
the Company is authorized to purchase its shares from time to
time on the open market or in privately negotiated
transactions.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
31.1 Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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: January 6, 2005 -----------------------
Brian E. Shore
President and
Chief Executive Officer
/s/Murray O. Stamer
Date: January 6, 2005 -----------------------
Murray O. Stamer
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Name Page
----------- ---- ----
31.1 Certification of Chief Executive
Officer pursuant to Exchange Act Rule
13a-14(a) or 15d-14(a)................ 34
31.2 Certification of Chief Financial
Officer pursuant to Exchange Act Rule
13a-14(a) or 15d-14(a)................ 36
32.1 Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.................................. 38
32.2 Certification of Chief Financial
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.................................. 39