SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________ to________ Commission file number 1-4415 Park Electrochemical Corp. (Exact Name of Registrant as Specified in Its Charter) New York 11-1734643 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 5 Dakota Drive, Lake Success, New York 11042 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (516) 354-4100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, $.10 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 5.5% Convertible Subordinated Notes New York Stock Exchange due 2006 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] [cover page 1 of 2 pages] State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing. As of Close Title of Class Aggregate Market Value of Business On Common Stock, $248,199,336* May 14, 1999 $.10 par value Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Shares As of Close Title of Class Outstanding of Business On Common Stock, 10,341,639 May 14, 1999 $.10 par value DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Shareholders to be held July 13, 1999 incorporated by reference into Part III of this Report. ===================================================================== *Included in such amount are 1,015,032 shares of common stock valued at $24.00 per share and held by Jerry Shore, the Registrant's Chairman of the Board and a member of the Registrant's Board of Directors. [cover page 2 of 2 pages] TABLE OF CONTENTS Page PART I Item 1. Business............................................ 3 Item 2. Properties.......................................... 12 Item 3. Legal Proceedings................................... 13 Item 4. Submission of Matters to a Vote of Security Holders. 14 Executive Officers of the Registrant................ 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................ 16 Item 6. Selected Financial Data............................. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 18 Factors That May Affect Future Results.............. 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................ 27 Item 8. Financial Statements and Supplementary Data......... 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 47 PART III Item 10. Directors and Executive Officers of the Registrant.. 47 Item 11. Executive Compensation.............................. 47 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 47 Item 13. Certain Relationships with Related Transactions..... 47 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................ 48 PART I Item 1. Business. General Park Electrochemical Corp. ("Park"), through its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the "Company"), is primarily engaged in the design, production and marketing of advanced electronic materials used to fabricate complex multilayer printed circuit boards, semiconductor packages and other electronic interconnection systems. The Company's electronic materials business is operated by its "Nelco" group of companies. The Company is also engaged in the design, production and marketing of specialty adhesive tapes and films, advanced composite materials and microwave circuitry materials for the electronics, aerospace and industrial markets and plumbing hardware. Park was founded in 1954 by Jerry Shore, the Company's Chairman of the Board and largest shareholder. In October 1997, the Company acquired Dielektra GmbH, located in Cologne, Germany. Dielektra manufactures advanced electronic materials, including continuously produced copper-clad laminates and mass-laminated multilayer panels, used to produce sophisticated multilayer printed circuit boards. Dielektra became part of Park's Nelco group of companies. See Note 14 of the Notes to Consolidated Financial Statements in Item 8 of this Report. The Company's business is divided into two industry segments: (1) electronic materials and (2) engineered materials and plumbing hardware. See Note 12 of the Notes to Consolidated Financial Statements in Item 8 of this Report for information concerning the sales to unaffiliated customers, operating profit, identifiable assets, depreciation and amortization, and capital expenditures attributable to each of the Company's industry segments during its last three fiscal years. The sales and long-lived assets of the Company's operations by geographic area for the last three fiscal years are also set forth in Note 12 of the Notes to Consolidated Financial Statements in Item 8 of this Report. The Company's foreign operations are conducted principally by the Company's subsidiaries in the United Kingdom, France, Germany and Singapore. The Company's foreign operations are subject to the impact of foreign currency fluctuations. See Note 1 of the Notes to Consolidated Financial Statements in Item 8 of this Report. Electronic Materials Operations The Company is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, such as backplanes, PC cards and semiconductor packaging systems. The Company's multilayer printed circuit materials include copper-clad laminates, prepregs and semi-finished multilayer printed circuit board panels. The Company has long-term relationships with its major customers, which include leading independent printed circuit board fabricators and major electronic equipment manufac- turers. Multilayer printed circuit boards and interconnect systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices (such as micropro- cessors and memory and logic devices) and passive components (such as resistors and capacitors). Examples of end uses of the Company's printed circuit materials range from supercomputers to laptops and from satellite switching equipment to cellular telephones. The Company has developed long- term relationships with major customers as a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities. Park founded the modern day printed circuit industry in 1957 by inventing a composite material consisting of an epoxy resin substrate reinforced with fiberglass cloth which was laminated together with sheets of thin copper foil. This epoxy-glass copper-clad laminate system is still used to construct the large majority of today's advanced printed circuit products. In 1962, the Company invented the first multilayer printed circuit materials system used to construct multilayer printed circuit boards. The Company also pioneered vacuum lamination and many other manufacturing technologies used in the industry today. In addition, the Company's subsidiary, Dielektra GmbH in Germany, which the Company acquired in 1997, owns a patented process for continuously producing thin copper-clad laminates for printed circuit board applications. The Company believes it is one of the industry's technological leaders. As a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities, the Company expects to continue to take advantage of several industry trends. These trends include the increasing global demand for electronic products and technology, the increasing complexity of electronic products, the increasingly advanced electronic materials required for interconnect performance and manufacturability, the consolidation of the printed circuit board fabrication industry and the time-to-market and time-to-volume pressures requiring closer collaboration with materials suppliers. The Company believes that it is one of the world's largest manufacturers of multilayer printed circuit materials and the market leader in North America and Southeast Asia. It also believes that it is the only significant independent manufacturer of multilayer printed circuit materials in the world. The Company was the first manufacturer in the printed circuit materials industry to establish manufacturing presences in the three major global markets of North America, Europe and Asia, with facilities estab- lished in Europe in 1969 and Asia in 1986. Industry Background The electronic materials manufactured by the Company and its competitors are used to construct and fabricate complex multilayer printed circuit boards and other advanced electronic interconnect systems. Multilayer printed circuit materials consist of prepregs and copper-clad laminates, as well as semi-finished multilayer printed circuit board panels. Prepregs are chemically and electrically engineered plastic resin systems which are impregnated into and reinforced by a specially manufactured fiberglass cloth product or other woven or non-woven reinforcing fiber. This insulating dielectric substrate is .030 inch to .002 inch in thickness or less in some cases. These resin systems are usually based upon an epoxy chemistry. One or more plies of prepreg are laminated together to form an insulating dielectric substrate to support the copper circuitry patterns of a multilayer printed circuit board. Copper-clad laminates consist of one or more plies of prepreg laminated together with specialty thin copper foil laminated on the top and bottom. Copper foil is specially formed in thin sheets which may vary from .0030 inch to .0002 inch in thickness and normally have a thickness of .0014 inch or .0007 inch. The Company supplies both copper-clad laminates and prepregs to its customers, which use these products as a system to construct multilayer printed circuit boards. The printed circuit board fabricator processes copper-clad laminates to form the inner layers of a multilayer printed circuit board. The fabricator photoimages these laminates with a dry film or liquid photo- resist. After development of the photoresist, the copper surfaces of the laminate are etched to form the circuit pattern. The fabricator then assembles these etched laminates by inserting one or more plies of dielectric prepreg between each of the inner layer etched laminates and also between an inner layer etched laminate and the outer layer copper plane, and then laminating the entire assembly in a press. Prepreg serves as the insulator between the multiple layers of copper circuitry patterns found in the multilayer circuit board. When the multilayer configuration is laminated, these plies of prepreg form an insulating dielectric substrate supporting and separating the multiple inner and outer planes of copper circuitry. The fabricator drills vertical through-holes or vias in the multilayer assembly and then plates the through-holes or vias to form vertical conductors between the multiple layers of circuitry patterns. These through holes or vias combine with the conductor paths on the horizontal circuitry planes to create a three-dimensional electronic interconnect system. The outer two layers of copper foil are then imaged and etched to form the finished multilayer printed circuit board. The completed multilayer board is a three-dimensional interconnect system with electronic signals traveling in the horizontal planes of multiple layers of copper circuitry patterns, as well as the vertical plane through the plated holes or vias. The global market for advanced electronic products is growing as a result of technological change and frequent new product introductions. This growth is principally attributable to increased sales and more complex electronic content of newer products, such as cellular phones, pagers, personal computers and portable computing devices, and greater use of electronics in other products, such as automobiles. Further, large, almost completely untapped markets for advanced electronic equipment have emerged in such areas as India and China and other areas of the Pacific Rim. Semiconductor manufacturers have introduced successive generations of more powerful microprocessors and memory and logic devices. Electronic equipment manufacturers have designed these advanced semiconductors into more compact and often portable products. High performance computing devices in these smaller portable platforms require greater reliability, closer tolerances, higher component and circuit density and increased overall complexity. As a result, the interconnect industry has developed smaller, lighter, faster and more cost-effective interconnect systems, including advanced multilayer printed circuit boards and new types of semiconductor packaging systems such as ball-grid arrays and multi-chip modules. Advanced interconnect systems require higher technology printed circuit materials to insure the performance of the electronic system and to improve the manufacturability of the interconnect platform. The growth of the market for more advanced printed circuit materials has outpaced the market growth for standard printed circuit materials in recent years. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced electrical properties in order to support high speed computing in a miniaturized and often portable environ- ment. With the very high density circuit demands of miniaturized high performance interconnect systems, the uniformity, purity, consistency, performance predictability, dimensional stability and production tolerances of printed circuit materials have become successively more critical. High density printed circuit boards and interconnect systems often involve higher layer count multilayer circuit boards where the multiple planes of circuitry and dielectric insulating substrates are very thin (dielectric insulating substrate layers may be .002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (.003 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very narrow plated through holes or vias which electrically connect the multiple layers of circuitry planes. High density interconnect systems must utilize printed circuit materials whose dimension- al characteristics and purity are consistently manufactured to very high tolerance levels in order for the printed circuit board fabricator to attain and sustain acceptable production yields. Shorter product life cycles and competitive pressures have induced electronic equipment manufacturers to bring new products to market and increase production volume to commercial levels more quickly. These trends have highlighted the importance of front-end engineering of electronic products and have increased the level of collaboration among system designers, fabricators and printed circuit materials suppliers. As the complexity of electronic products increases, materials suppliers must provide greater technical support to interconnect systems fabricators on a timely basis regarding manufacturability and performance of new materials systems. Products and Services The Company produces a broad line of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, including backplanes, PC cards and semiconductor packaging systems. The Company also manufactures semi- finished multilayer printed circuit board panels for a select group of customers. The Company's diverse advanced printed circuit materials product line is designed to address a wide array of end-use applications and performance requirements. The Company's product line has been developed internally and through long-term development projects with its principal suppliers. The Company focuses its research and development efforts on developing industry leading product technology to meet the most demanding product requirements and has designed its product line with a focus on the higher performance, higher technology end of the materials spectrum. All of the Company's existing electronic materials products have been introduced since 1990. Most of the Company's research and development expenditures are attributable to the efforts of its electronic materials operations. In response to the rapid technological changes in the electronic materials business, these expenditures on research and product development have increased over the past several years. The Company's products include high-temperature modified epoxies, bismaleimide triazine epoxies ("BT epoxy"), non-MDA polyimides, enhanced polyimides, high performance epoxy Thermount(R) materials ("Thermount" is a registered trademark of E.I. duPont de Nemours & Co.), cyanate esters and polytetrafluoroethylene ("PTFE") materials. During the 1999 fiscal year, the Company introduced several new high technology electronic materials products, including: . N4000-6FC - Nelco's faster curing version of its high-performance, high-temperature N4000-6 product, which improves customers' cycle times in processing the product; . N4000-7 - Nelco's completely new mid-range product with exceptional CTE (coefficient of thermal expansion) and thermal properties, which provides customers with a cost effective alternative material that can be designed into very complex circuit boards; . N4000-13SI - Nelco's new version of the N4000-13 product introduced during the 1997 fiscal year, which has even more advanced electrical properties than the N4000-13 product and which is intended for high frequency digital applications; and . N6000 and N6000SI - These products, which have been developed under license from Asahi Chemical of Japan, are designed for very high frequency digital applications and will be utilized principally in the wireless communications industry and form a very attractive bridge between Nelco's advanced digital products and the microwave circuitry material products offered by Park's Metclad business. In addition to prepreg and copper-clad laminate printed circuit materials products, the Company also manufactures semi-finished multilayer printed circuit board panels as a value-added service for certain of its customers. Production of the Company's semi-finished multilayer product involves several additional manufacturing steps beginning with the photoimaging and etching of the copper-clad laminate product into the circuitry patterns specified by the customer. These etched laminates form the inner layers of the multilayer circuit board. The etched inner layers are then laminated into a multilayer assembly with insulating dielectric prepreg inserted between the multiple etched inner layers and outer layer copper planes. The outer planes of copper foil are left in unprocessed "blank" form and the product is delivered to the customer at this stage in the process. The fabricator customer then drills and plates the through holes or vias and finishes the outer layers of circuitry patterns to complete the product. The Company has developed long-term relationships with select customers through broad-based technical support and service, as well as manufacturing proximity and responsiveness at multiple levels of the customer's organization. The Company focuses on developing a thorough understanding of its customer's business, product lines, processes and technological challenges. The Company seeks customers which are industry leaders committed to maintaining and improving their industry leadership positions and which are committed to long-term relationships with their suppliers. The Company also seeks business opportunities with the more advanced printed circuit fabricators and electronic equipment manufacturers which are interested in the full value of products and services provided by their suppliers. The Company believes its proactive and timely support in assisting its customers with the integration of advanced materials technology into new product designs further strengthens its relationships with its customers. The Company's emphasis on service and close relationship with its customers is reflected in its relatively short lead times. The Company has designed its manufacturing processes and service organizations to provide the customer with its printed circuit materials products on a just-in-time basis. The Company has located its advanced printed circuit materials manufacturing operations in strategic locations intended to serve specific regional markets. By situating its facilities in close geographical proximity to its customers, the Company is able to rapidly adjust its manufacturing processes to meet customers' new requirements and respond quickly to customers' technical needs. The Company has full technical staffs based at each of its manufacturing locations, which allows the rapid dispatch of technical personnel to a customer's facility to assist the customer in quickly solving design, process, production or manufacturing problems. Customers and End Markets The Company's customers for its advanced electronic materials include the leading independent printed circuit board fabricators and major electronic equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries located throughout North America, Europe and Asia. The Company seeks to align itself with the larger, more technologically-advanced and better capitalized independent printed circuit board fabricators and major electronic equipment manufactur- ers which are industry leaders committed to maintaining and improving their industry leadership positions and to building long-term relationships with their suppliers. The Company's selling effort typically involves several stages and relies on the talents of Company personnel at different levels, from management to sales personnel and quality engineers. The Company's strategy emphasizes the use of multiple facilities established in market areas in close proximity to its customers. During the Company's 1999 fiscal year, approximately 10.5% of the Company's sales were to Hadco Corporation, the largest manufacturer of printed circuit boards in North America. During the Company's 1998 fiscal year, more than 10% of the Company's sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp. Delco Electronics had purchased a significant amount of product from the Company for more than three years. However, in March 1998 the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. After the plant closure, Delco purchased all of its printed circuit boards from outside suppliers and Delco was no longer a customer of Park's. During the 1998 and 1997 fiscal years, sales to Delco Electronics represented 15.8% and 17.3%, respectively, of the Company's total worldwide sales. The Company is aggressively marketing its unique high technology semi-finished multilayer circuit board material manufacturing capability to leading printed circuit board fabricators, contract assemblers and electronic original equipment manufacturers in North America. The Company had not previously been able to aggressively market this capability as its semi-finished multilayer capacity had been largely committed to supplying Delco Electronics. Although the Company's electronic materials segment was not dependent on this single customer, the loss of this customer had a material adverse effect on the business of this segment in the fiscal year ended February 28, 1999 and may have a material adverse effect on the business of this segment in the fiscal year ending February 27, 2000 and in subsequent fiscal years. Although the electronic materials segment is not dependent on any single customer, the loss of a major customer or of a group of this segment's customers could have a material adverse effect on the business of this segment. The Company's electronic materials segment's products are marketed by sales personnel in industrial centers in North America, Europe and Asia. Such personnel include both salaried employees and independent sales representatives who work on a commission basis. Manufacturing The process for manufacturing multilayer printed circuit materials is capital intensive and requires sophisticated equipment as well as clean- room environments. The key steps in the Company's manufacturing process include: the impregnation of specially designed fiberglass cloth with a resin system and the partial curing of that resin system; the assembling of laminates consisting of single or multiple plies of prepreg and copper foil in a clean-room environment; the vacuum lamination of the copper-clad assemblies under simultaneous exposure to heat, pressure and vacuum; and the finishing of the laminates to customer specifications. Prepreg is manufactured in a treater. A treater is a roll-to-roll continuous machine which sequences specially designed fiberglass cloth or other reinforcement fabric into a resin tank and then sequences the resin- coated cloth through a series of ovens which partially cure the resin system into the cloth. This partially cured product or prepreg is then sheeted or paneled and packaged by the Company for sale to customers, or used by the Company to construct its copper-clad laminates. The Company manufactures copper-clad laminates by first setting up in a clean room an assembly of one or more plies of prepreg stacked together with a sheet of specially manufactured copper foil on the top and bottom of the assembly. This assembly, together with a large quantity of other laminate assemblies, is then inserted into a large, multiple opening vacuum lamination press. The laminate assemblies are then laminated under simultaneous exposure to heat, pressure and vacuum. After the press cycle is complete, the laminates are removed from the press and sheeted, paneled and finished to customer specifications. The product is then inspected and packaged for shipment to the customer. In addition, the Company manufactur- es very thin copper-clad laminates utilizing Dielektra's unique, patented continuous lamination technology. The Company manufactures multilayer printed circuit materials at nine fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its United Kingdom facility in 1969, its first Arizona and France facilities in 1984, its Singapore facility in 1986 and its second Arizona and France facilities in 1992, and in October 1997, the Company acquired Dielektra GmbH with a fully integrated facility in Cologne, Germany. The Company services the North American market principally through its United States manufactur- ing facilities, the European market principally through its manufacturing facilities in the United Kingdom, France and Germany, and the Asian market principally through its Singapore manufacturing facility. The Company has located its manufacturing facilities in its important markets. By maintaining full technical and engineering staffs at each of its manufactur- ing facilities, the Company is able to deliver fully-integrated products and services on a timely basis. The Company expanded the manufacturing capacity of its New York, California, Arizona and Singapore facilities during the last three fiscal years, will complete an additional expansion of its electronic materials operation in Singapore during the 2000 fiscal year, and is planning to commence significant additional expansion of its electronic materials operations in California and New York during the 2000 fiscal year. All of the Company's multilayer printed circuit materials manufac- turing facilities are used for manufacturing, engineering and product development. All of the Company's Nelco and Dielektra printed circuit materials manufacturing facilities are ISO 9002 certified. Materials and Sources of Supply The principal materials used in the manufacture of the Company's electronic products are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. The Company attempts to develop and maintain close working relationships with suppliers of those materials who have dedicated themselves to complying with the Company's stringent specifications and technical requirements. While the Company's philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for each of these materials. However, there are a limited number of qualified suppliers of these materials, substitutes for these materials are not readily available, and, in the recent past, the industry has experienced shortages in the market for certain of these materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from one of the Company's principal suppliers or an inability to obtain essential materials could materially adversely affect the business, financial condition and results of operations of the Company. Significant increases in the cost of materials purchased by the Company could also have a material adverse effect on the Company's business, financial condition and results of operations if the Company were unable to pass such price increases through to its customers. Competition The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company's competitors are primarily divisions or subsidiaries of very large, diversified multinational manufacturers which are substantially larger and have greater financial resources than the Company and, to a lesser degree, smaller regional producers. Because the Company focuses on the higher technology segment of the electronic materials market, technological innovation, quality and service, as well as price, are significant competitive factors. The Company believes that there are approximately ten significant multilayer printed circuit materials manufacturers in the world and many of these competitors have or are developing significant presences in the three major global markets of North America, Europe and Asia. The Company believes that the multilayer printed circuit materials industry is rapidly becoming more global and that the remaining smaller regional manufacturers will find it increasingly difficult to remain competitive. The Company believes that it is currently one of the world's largest multilayer printed circuit materials manufacturers. The Company further believes it is the only significant independent manufacturer of multilayer printed circuit materials in the world today. The markets in which the Company's electronic materials operations compete are characterized by rapid technological advances, and the Company's position in these markets depends largely on its continued ability to develop technologically advanced and highly specialized products. Although the Company believes it is an industry technology leader and directs a significant amount of its time and resources toward maintaining its technological competitive advantage, there is no assurance that the Company will be technologically competitive in the future, or that the Company will continue to develop new products that are technologically competitive. Engineered Materials and Plumbing Hardware The Company's engineered materials and plumbing hardware segment is comprised of its specialty adhesive tape and film, advanced composite materials and plumbing hardware businesses. Dielectric Polymers, Inc., the Company's specialty adhesive tape and film business, produces tapes and bonding films for a variety of applications including joining industrial components together. FiberCote Industries, Inc., the Company's composites business, designs and produces engineered advanced composite materials for the electronics, aerospace and industrial markets. Zin-Plas Corporation markets plumbing hardware products, which it designs and manufactures typically from chrome and brass plated zinc and plastic, and markets brass cast and plastic plumbing hardware products and components. Marketing and Customers The Company's engineered materials and plumbing hardware customers, substantially all of which are located in the United States, include manufacturers in the electronics, aerospace and industrial industries and original equipment manufacturers, hardware and plumbing wholesalers and home improvement centers. All of such products are marketed by sales personnel including both salaried employees and independent sales representatives who work on a commission basis. While no single engineered materials and plumbing hardware customer accounted for 10% or more of the Company's total sales during the last fiscal year, the loss of a major customer or of a group of some of the largest customers of the engineered materials and plumbing hardware segment could have a material adverse effect upon this segment. Manufacturing and Sources of Supply The Company's advanced composite materials manufacturing facility is located in Waterbury, Connecticut. Holyoke, Massachusetts is the site of the Company's specialty adhesive tape and film business. Zinc and plastic plumbing hardware products are manufactured and assembled at the Company's facilities in Grand Rapids and Walker, Michigan. The Company designs and manufactures its advanced composite materials and industrial tapes and films to its own specifications and to the specifications of its customers. Product development efforts are devoted toward the conforming of the Company's advanced composites to the specifications of, and the obtaining of approvals from, the Company's customers. The materials used in the manufacture of these engineered materials include chemicals, films, resins, fiberglass, plastics, and other fabricated materials and adhesives. The Company purchases these materials from several suppliers. Although satisfactory substitutes for many of these materials are not readily available, the Company has experienced no difficulties in obtaining such materials. The Company designs and manufactures its plumbing hardware to its own specifications and to the specifications of original equipment manufacturers, using combinations of materials and product designs that are developed by its personnel. The Company's product development efforts relating to its plumbing hardware business operations are directed toward the development of new decorative plumbing hardware product designs and new materials to be used in the manufacture of plumbing products. This requires market research, industrial design, engineering and testing for ease of installation and durability. The Company usually combines chrome-plated zinc and plastic moldings for its products. The principal materials used in the manufacture of the Company's plumbing hardware products consist of zinc castings, plastics, plating materials, and other component parts. The Company purchases these materials from several suppliers. Although satisfactory substitutes for these materials are not readily available, the Company has experienced no difficulties in obtaining such materials. Competition The Company has many competitors in the engineered materials and plumbing hardware segment, including some major corporations which have substantially greater financial resources than the Company. The Company competes for business on the basis of product performance and development, product qualification and approval, the ability to manufacture and deliver products in accordance with customers' needs and requirements, and price. The Company's plumbing hardware business can be affected by fluctuations in the housing industry. Backlog The Company records an item as backlog when it receives a purchase order specifying the number of units to be purchased, the purchase price, specifications and other customary terms and conditions. At April 30, 1999, the unfilled portion of all purchase orders believed to be firm was approximately $19,072,000, compared to $18,918,000 at May 1, 1998. Backlog of the Company's two industry segments at April 30, 1999, compared to May 1, 1998, was as follows: April 30, 1999 May 1, 1998 Electronic Materials $12,350,000 $10,436,000 Engineered Materials and Plumbing Hardware 6,722,000 8,482,000 Total $19,072,000 $18,918,000 Various factors contribute to the size of the Company's backlog. Accordingly, the foregoing information may not be indicative of the Company's results of operations for any period subsequent to the fiscal year ended February 28, 1999. Patents and Trademarks The Company holds several patents and trademarks or licenses thereto. In the Company's opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new, or to defend existing, patents and trademarks would have a material adverse effect on the Company. Employees At February 28, 1999, the Company had approximately 2,680 employees. Of these employees, 2,460 were engaged in the Company's electronic materials operations, 200 in its engineered materials and plumbing hardware operations and 20 consisted of executive personnel and general administrative staff. Approximately 1% of the Company's employees, all of whom are engaged in the plumbing hardware operations, are subject to a collective bargaining agreement. Management considers its labor relations to be satisfactory. Environmental Matters The Company is subject to stringent environmental regulation of its use, storage, treatment and disposal of hazardous materials and the release of emissions into the environment. The Company believes that it currently is in substantial compliance with the applicable federal, state and local environmental laws and regulations to which it is subject and that continuing compliance therewith will not have a material effect on its capital expenditures, earnings or competitive position. The Company does not currently anticipate making material capital expenditures for environ- mental control facilities for its existing manufacturing operations during the remainder of its current fiscal year or its succeeding fiscal year. However, developments, such as the enactment or adoption of even more stringent environmental laws and regulations, could conceivably result in substantial additional costs to the Company. The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at nine sites. In addition, a subsidiary of the Company has received cost recovery claims under the Superfund Act from other private parties involving three other sites and has received requests from the EPA under the Superfund Act for information with respect to its involvement at two other sites. Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at the waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehen- sive environmental compliance program. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect upon the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters" included in Item 7 of this Report and Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Item 2. Properties. The following chart indicates the significant properties owned and leased by the Company, the industry segment which uses the properties, and the location and size of each such property. All of such properties, except for the Lake Success, New York property, are used principally as manufactur- ing, warehouse and assembly facilities. Size Owned or (Square Location Leased Use Footage) Lake Success, NY Leased Executive Offices 7,000 Walden, NY Owned Electronic Materials 51,000 Newburgh, NY Leased Electronic Materials 57,000 Fullerton, CA Leased Electronic Materials 95,000 Anaheim, CA Leased Electronic Materials 26,000 Tempe, AZ Leased Electronic Materials 86,000 Tempe, AZ Leased Electronic Materials 38,000 Tempe, AZ Leased Electronic Materials 15,000 Mirebeau, France Owned Electronic Materials 81,000 Lannemezan, France Owned Electronic Materials 29,000 Cologne, Germany Owned Electronic Materials 193,000 Sindelfingen, Germany Leased Electronic Materials 14,000 Skelmersdale, England Owned Electronic Materials 54,000 Singapore Leased Electronic Materials 48,000 Singapore Leased Electronic Materials 10,000 Grand Rapids, MI Owned Plumbing Hardware 165,000 Walker, MI Leased Plumbing Hardware 38,000 Holyoke, MA Leased Engineered Materials- 37,000 Specialty Adhesive Tapes and Films Waterbury, CT Leased Engineered Materials- 100,000 Advanced Composites The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. Item 3. Legal Proceedings. In May 1998, the Company and its Nelco subsidiary in Arizona filed a complaint against Delco Electronics Corporation and Delphi Automotive Systems, Inc. in the United States District Court for the District of Arizona. The complaint alleges, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from Nelco and that Delphi interfered with Nelco's contract with Delco and seeks compensatory and punitive damages of not less than $170 million. Park announced in March 1998 that it had been informed by Delco Electronics that Delco planned to close its printed circuit board fabrica- tion 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. 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. Sales to Delco Electronics represented 15.8% and 17.3% of the Company's total worldwide sales for the 1998 and 1997 fiscal years, respectively. See "Business-Electronic Materials Operations-Customers and End Markets" in Item 1 of this Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report, "Factors That May Affect Future Results" after Item 7 of this Report and Note 13 of the Notes to Consolidated Financial Statements in Item 8 of this Report. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Registrant. Name Title Age Brian E. Shore Chief Executive Officer, President 47 and a Director E. Phillip Smoot Executive Vice President and a 61 Director Robert A. Forcier Senior Vice President, Advanced 49 Product Marketing Emily J. Groehl Senior Vice President, Sales and 52 Marketing Lee H. Newton Senior Vice President, Finance 55 and Planning Carl W. Smith Senior Vice President, North 51 American Business Unit Thomas T. Spooner Senior Vice President, Technology 62 Brian Shore has served as a Director of the Company for more than the past five years. Brian Shore was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994, President effective March 4, 1996, the first day of the Company's 1997 fiscal year, and Chief Executive Officer in November 1996. Brian Shore also served as General Counsel of the Company from April 1988 until April 1994. Mr. Smoot has served the Company in the capacities stated above for more than the past five years. Mr. Forcier has been employed by Park's "Nelco" group of companies for more than the past five years. He was president of Nelco Technology, Inc. from December 1987 to August 1992 and he has been Vice President, New Product Marketing, of Nelco International Corporation since 1993. Ms. Groehl has been with Park's "Nelco" group of companies for more than the past five years. She was elected Vice President of New England Laminates Co., Inc. in 1988 and Vice President, Marketing and Sales of Nelco International Corporation in 1993. Mr. Newton has been employed by Park's "Nelco" group of companies for more than the past five years. He was elected Treasurer of New England Laminates Co., Inc. in 1981, Vice President of Nelco Products, Inc. in 1986, Vice President of Nelco Technology, Inc. in 1987 and Vice President, Finance and Chief Financial Officer of Nelco International Corporation in 1993. Mr. Smith joined the Company in April 1998 as Vice President and Chief Operating Officer of Nelco International Corporation. Prior to April 1998, Mr. Smith held various management and technical positions at General Dynamics Convair, Martin Marietta Corporation and Fiberite, Inc. Most recently, Mr. Smith served as President and Chief Operating Officer of Fiberite, Inc. Mr. Spooner has been employed by Park's "Nelco" group of companies for more than the past five years. He has been Vice President, Technology of Nelco International Corporation since 1993. There are no family relationships between the directors or executive officers of the Company, except that Brian Shore is the son of Jerry Shore, who is the Chairman of the Board and a Director of the Company and who also served as President of the Company for more than five years until March 4, 1996 and as Chief Executive Officer of the Company for more than five years until November 19, 1996. The term of office of each executive officer of the Company expires upon the election and qualification of his successor. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. The Company's Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Midwest Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock. For the Fiscal Year Stock Price Dividends Ended February 28, 1999 High Low Declared First Quarter $32 3/8 $23 5/8 $.08 Second Quarter 23 3/4 14 13/16 $.08 Third Quarter 21 10 15/16 $.08 Fourth Quarter 31 3/8 18 5/8 $.08 For the Fiscal Year Stock Price Dividends Ended March 1, 1998 High Low Declared First Quarter $25 3/4 $21 1/4 $.08 Second Quarter 31 3/4 24 7/8 $.08 Third Quarter 31 3/4 25 1/8 $.08 Fourth Quarter 32 1/2 26 $.08 As of May 25, 1999, there were approximately 2,200 holders of record of Common Stock. The Company expects, for the immediate future, to continue to pay regular cash dividends. Item 6. Selected Financial Data. The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the consolidated financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the five fiscal years ended February 28, 1999 and is as of the end of such periods, it is derived from the consolidated financial statements for such periods and as of such dates audited by Ernst & Young LLP, independent Certified Public Accountants. The consolidated financial statements as of February 28, 1999 and March 1, 1998 and for the three years ended February 28, 1999, together with the auditors' reports for the three years ended February 28, 1999, appear in Item 8 of this Report. Fiscal Year Ended Feb. 28, Mar. 1, Mar. 2, Mar. 3, Feb. 26, 1999 1998 1997 1996 1995 (In thousands, except per share amounts) STATEMENT OF EARNINGS INFORMATION: Net sales $387,634 $376,158 $334,490 $312,966 $253,022 Cost of sales 328,884 301,968 275,372 242,655 196,917 Gross profit 58,750 74,190 59,118 70,311 56,105 Selling, general and administrative expenses 41,279 39,418 34,366 35,236 29,995 Profit from operations 17,471 34,772 24,752 35,075 26,110 Other income (expense): Interest and other income, net 7,642 8,382 7,653 2,285 1,822 Interest expense (5,400) (5,468) (5,508) (96) (431) Total other income 2,242 2,914 2,145 2,189 1,391 Earnings before income taxes 19,713 37,686 26,897 37,264 27,501 Income tax provision 4,337 12,436 8,338 12,366 10,156 Net earnings $ 15,376 $ 25,250 $ 18,559 $ 24,898 $ 17,345 Earnings per share: Basic $ 1.40 $ 2.22 $ 1.64 $ 2.17 $ 1.60 Diluted $ 1.38 $ 2.07 $ 1.58 $ 2.11 $ 1.51 Weighted average number of common shares outstanding: Basic 10,980 11,353 11,349 11,500 10,858 Diluted 11,138 13,948 13,932 11,843 11,630 Cash dividends per common share $ .32 $ .32 $ .32 $ .28 $ .20 BALANCE SHEET INFORMATION: Working capital $166,840 $176,553 $165,004 $160,965 $ 55,035 Total assets 351,698 359,329 307,862 298,975 162,051 Long-term debt 100,000 100,000 100,000 100,000 23 Stockholders' equity 164,646 166,404 143,355 134,427 112,048 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Park is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards, semiconductor packages and other electronic interconnection systems. In October 1997, the Company acquired Dielektra GmbH, a manufacturer of advanced electronic materials, including continuously produced copper-clad laminates and mass-laminated multilayer panels, located in Cologne, Germany. The Company's customers for its advanced printed circuit materials include leading independent circuit board fabricators and large electronic equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries. The Company's electronic materials operations accounted for approximately 90% of the Company's total net sales worldwide in the 1999 fiscal year and approximately 89% and 87% of net sales worldwide in the 1998 and 1997 fiscal years, respectively. The Company's foreign electronic materials operations accounted for approximately 39% of the Company's total net sales worldwide in the 1999 fiscal year and approxi- mately 31% and 29% of net sales worldwide in the 1998 and 1997 fiscal years, respectively. Park is also engaged in the engineered materials business, which consists of the Company's specialty adhesive tape business and advanced composite business, both of which operate as independent business units. In addition, Park operates a plumbing hardware business. The Company's engineered materials and plumbing hardware businesses accounted for approximately 10% of the Company's total net sales worldwide in the 1999 fiscal year and approximately 11% and 13% of net sales worldwide in the 1998 and 1997 fiscal years, respectively. The Company's sales growth during the last three fiscal years has been led by strong growth in sales by its Asian electronic materials operations and its North American electronic materials operations, excluding the loss of sales to Delco Electronics in the 1999 fiscal year, discussed below. During the 1999 and 1998 fiscal years, the sales of Dielektra contributed to this growth. The Company's ongoing efforts to expand its higher technology, higher margin product lines have been significant factors in the growth of the Company's sales of electronic materials during this period. The Company introduced several new electronic materials products during the past three fiscal years. Sales volume of the Company's electronic materials segment increased during each of the last three fiscal years but was adversely affected in the last fiscal year by the loss of sales to Delco Electronics, discussed below. However, the earnings growth that the Company achieved during its 1998 fiscal year did not continue in the 1999 fiscal year primarily as a result of an earnings decline in the Company's North American electronic materials operations, which was caused by the loss of sales to Delco Electronics. In addition, growth of the Company's electronic materials business was constrained during these fiscal years by the Company's available manufactur- ing capacity. The Company has expanded the manufacturing capacity of its New York, California, Arizona and Singapore facilities during the last three fiscal years, will complete an additional expansion of its electronic materials operation in Singapore during the 2000 fiscal year, and is planning to commence significant additional expansions of its electronic materials operations in California and New York during the 2000 fiscal year. During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total sales were to Delco Electron- ics Corporation, a subsidiary of General Motors Corp. Sales to Delco Electronics represented 15.8% and 17.3% of the Company's total sales worldwide for the 1998 and 1997 fiscal years, respectively. However, in March 1998, the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and completely 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 three-month period ended August 30, 1998, were nil during the remainder of the 1999 fiscal year and are expected to be nil in future years. In May 1998, the Company and its Nelco subsidiary in Arizona filed a complaint against Delco Electronics Corpora- tion and the Delphi Automotive Systems unit of General Motors Corp. in the United States District Court for the District of Arizona. The complaint alleges, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from Nelco and that Delphi interfered with Nelco's contract with Delco, and seeks compensatory and punitive damages of not less than $170 million. Although the Company's electronic materials segment was not dependent on this single customer, the loss of this customer had a material adverse effect on the business of this segment in the fiscal year ended February 28, 1999 and may have a material adverse effect on the business of this segment in the fiscal year ending February 27, 2000 and in subsequent fiscal years. Fiscal Year 1999 Compared with Fiscal Year 1998: The Company's electronic materials business was largely responsible for the decline in the Company's results of operations for the fiscal year ended February 28, 1999. The North American and Asian markets for sophisticated printed circuit materials strengthened during the 1999 fiscal year, and the Company's electronic materials operations located in Asia performed well as a result. However, the reduction in the volume of the Company's business with Delco Electronics during the first quarter and the absence of such business during the second, third and fourth quarters reduced the Company's sales volume in North America and negatively affected the Company's margins. During the first three quarters of the 1999 fiscal year, the Company's electronic materials business experienced inefficiencies caused by operating certain of its facilities at levels lower than their designed manufacturing capacity and faced intense price pressure from its customers, and these factors adversely affected the Company's gross margins. The Company's performance was also adversely affected by the weakness in the market for sophisticated printed circuit materials during the 1999 fiscal year first and second quarters and to a lesser extent during the 1999 fiscal year third quarter. The Company believes this weakness was attributable to an industry-wide inventory correction, the Asian financial crisis and global economic weakness. The Company's results of operations and margins improved in the latter part of the 1999 fiscal year principally as a result of the electronic material business' reducing its internal costs and maximizing the utilization of its manufacturing resources, working closely with its suppliers to reduce its raw material costs, and increasing its market share with certain key customers. During most of the fourth quarter of the 1999 fiscal year, the Company's electronic materials business experienced improved efficiencies resulting from the operation of its facilities at levels close to their designed manufacturing capacity, which favorably impacted the Company's margins. Operating results of the Company's engineered materials and plumbing hardware business segment declined during the 1999 fiscal year. This decline was attributable to the advanced composite materials business. The results of the Company's specialty adhesive tape and plumbing hardware businesses improved during the 1999 fiscal year. Results of Operations Sales for the fiscal year ended February 28, 1999 increased 3% to $387.6 million from $376.2 million for the fiscal year ended March 1, 1998. Sales of the electronic materials business for the 1999 fiscal year were $350.3 million, or 90% of total sales worldwide, compared with $335.2 million, or 89% of total sales worldwide, for the 1998 fiscal year. This 5% increase in sales of electronic materials was principally the result of higher volume of electronic materials shipped, an increase in sales of higher technology products and the inclusion of Dielektra in the Company's sales for the complete fiscal year. Sales of the engineered materials and plumbing hardware businesses declined during the 1999 fiscal year as the result of reduced volume of materials shipped. The sales increase by the specialty adhesive tape business was overshadowed by the reduced sales of the advanced composite and plumbing hardware businesses, which resulted in an overall decline of 9% in the engineered materials and plumbing hardware segment to $37.3 million in the 1999 fiscal year from $40.9 million in the 1998 fiscal year. The Company's foreign operations accounted for $151.9 million of sales, or 39% of the Company's total sales worldwide, during the 1999 fiscal year compared with $115.7 million of sales, or 31% of total sales worldwide, during the 1998 fiscal year. Sales by the Company's foreign operations during the 1999 fiscal year increased 31% from the 1998 fiscal year. The increase in sales by the Company's foreign operations in the 1999 fiscal year was principally due to the inclusion of Dielektra in the Company's sales for the complete fiscal year and an increase in sales by the Company's Asian electronic materials operations. An expansion of the Company's Singapore manufacturing facility was completed at the end of the Company's 1997 fiscal year, and the Company further expanded the manufacturing capacity of its facility in Singapore during the 1999 and 1998 fiscal years. The gross margin for the Company's worldwide operations was 15.2% during the 1999 fiscal year compared with 19.7% for the 1998 fiscal year. The decline in the gross margin was attributable to inefficiencies caused by operating facilities at levels lower than their designed capacity in the first three quarters of the 1999 fiscal year, price pressure exerted by customers, and reduced sales volumes with Delco Electronics, which offset the continuing growth in sales of higher technology, higher margin products. However, the gross margin improved in each of the three-month periods ended November 29, 1998 and February 28, 1999 compared with the prior three-month periods as a result of reductions in internal costs and in raw material costs in the Company's electronic materials operations and increases in market share with certain key electronic materials customers. Selling, general and administrative expenses, measured as a percentage of sales, were 10.7% during the 1999 fiscal year compared with 10.5% during the 1998 fiscal year. This increase was a function of increased selling expenses. For the reasons set forth above, profit from operations for the 1999 fiscal year decreased 50% to $17.5 million from $34.8 million for the 1998 fiscal year. Interest and other income, principally investment income, declined 9% to $7.6 million for the 1999 fiscal year from $8.4 million for the 1998 fiscal year. The decrease in investment income was attributable to the reduction in cash available for investment and a decline in the prevailing interest rates during the 1999 fiscal year. The Company's investments were primarily short-term taxable instruments and government securities. Interest expense for the 1999 fiscal year was $5.4 million compared with approximately the same amount during the 1998 fiscal year. The Company's interest expense is related primarily to its $100 million principal amount of 5.5% Convertible Subordinated Notes due 2006 (the "Notes") issued in February 1996. The Company's effective income tax rate for the 1999 fiscal year was 22.0% compared with 33.0% for the 1998 fiscal year. This decrease in the effective tax rate was primarily the result of more favorable foreign tax rate differentials, a change in the Company's income mix among the tax jurisdictions in which the Company does business and unusual tax credits in the fourth quarter. Net earnings for the 1999 fiscal year declined 39% to $15.4 million from $25.3 million for the 1998 fiscal year. Basic and diluted earnings per share declined to $1.40 and $1.38, respectively, for the 1999 fiscal year from $2.22 and $2.07, respectively, for the 1998 fiscal year. This decline in net earnings and earnings per share was primarily attributable to the decrease in the profit from operations offset, in part, by the lower effective tax rate. Fiscal Year 1998 Compared with Fiscal Year 1997: The Company's electronic materials business was largely responsible for the improvement in the Company's results of operations for the fiscal year ended March 1, 1998. The North American and Asian markets for sophisticated printed circuit materials were strong during the 1998 fiscal year, and the Company's electronic materials operations located in these regions performed well as a result. The market in Europe for sophisticated printed circuit materials was not as strong as in North America or Asia, although the Company's European operations benefited from the acquisition of Dielektra, resulting in higher sales and improved profitability. During most of the 1998 fiscal year, the Company's electronic materials business experienced improved efficiencies resulting from the operation of its facilities at levels close to their designed manufacturing capacity, which favorably impacted the Company's margins. Operating results of the Company's engineered materials businesses and plumbing hardware business improved during the 1998 fiscal year. Results of Operations Sales for the fiscal year ended March 1, 1998 increased 12% to $376.2 million from $334.5 million for the fiscal year ended March 2, 1997. Sales of the electronic materials business for the 1998 fiscal year were $335.2 million, or 89% of total sales worldwide, compared with $291.1 million, or 87% of total sales worldwide, for the 1997 fiscal year. This 15% increase in sales of electronic materials was principally the result of higher volume of electronic materials shipped, an increase in sales of higher technology products and the inclusion of Dielektra in the Company's sales since the date of acquisition. Sales of the engineered materials businesses continued to grow during the 1998 fiscal year as the result of increased volume of materials shipped and the addition of new products. The sales increase by the engineered materials business was overshadowed by the reduced sales of the plumbing hardware business, which resulted in an overall decline of 6% in the engineered materials and plumbing hardware segment to $40.9 million in the 1998 fiscal year from $43.3 million in the 1997 fiscal year. The Company's foreign operations accounted for $115.7 million of sales, or 31% of the Company's total sales worldwide, during the 1998 fiscal year compared with $98.7 million of sales, or 30% of total sales worldwide, during the 1997 fiscal year. Sales by the Company's foreign operations during the 1998 fiscal year increased 17% from the 1997 fiscal year. The increase in sales by the Company's foreign operations in the 1998 fiscal year was principally due to the inclusion of Dielektra in the Company's sales and an increase in sales by the Company's Asian electronic materials operations. An expansion of the Company's Singapore manufacturing facility was completed at the end of the Company's 1997 fiscal year, and the Company further expanded the manufacturing capacity of its facility in Singapore during the 1998 fiscal year. The gross margin for the Company's worldwide operations was 19.7% during the 1998 fiscal year compared with 17.7% for the 1997 fiscal year. The improvement in the gross margin was attributable to the increase in sales volume over the prior fiscal year, the continuing growth in sales of higher technology, higher margin products and efficiencies resulting from operating the Company's facilities at levels close to their designed capacity. This improvement was partially offset by a $1.4 million pre-tax charge included in the cost of sales in the fourth quarter of the 1998 fiscal year to write down certain fixed assets that will no longer be utilized in the Company's plumbing hardware business and in the Company's semi-finished multilayer printed circuit board business. Selling, general and administrative expenses, measured as a percentage of sales, were 10.5% during the 1998 fiscal year compared with 10.3% during the 1997 fiscal year. This increase was a function of increased general and administrative expenses, resulting, in part, from higher employee bonus and profit sharing expenses due to higher operating profits. For the reasons set forth above, profit from operations for the 1998 fiscal year increased 40% to $34.8 million from $24.8 million for the 1997 fiscal year. Interest and other income, principally investment income, increased 9% to $8.4 million for the 1998 fiscal year from $7.7 million for the 1997 fiscal year. The increase in investment income was attributable to the increase in cash available for investment and an increase in the prevailing interest rates during the current year. The Company's investments were primarily short-term taxable instruments and government securities. Interest expense for the 1998 fiscal year was $5.5 million compared with the same amount during the 1997 fiscal year. The Company's effective income tax rate for the 1998 fiscal year was 33.0% compared with 31.0% for the 1997 fiscal year. This increase in the effective tax rate was primarily the result of less favorable foreign tax rate differentials and a change in the domestic sales mix into states with higher tax rates. Net earnings for the 1998 fiscal year increased 36% to $25.3 million from $18.6 million for the 1997 fiscal year. Basic and diluted earnings per share increased to $2.22 and $2.07, respectively, for the 1998 fiscal year from $1.64 and $1.58, respectively, for the 1997 fiscal year. This increase in net earnings and earnings per share was primarily attributable to the increase in the profit from operations offset, in part, by the higher effective tax rate. Liquidity and Capital Resources: At February 28, 1999, the Company's cash and temporary investments were $139.7 million compared with $158.5 million at March 1, 1998, the end of the Company's 1998 fiscal year. The decrease in the Company's cash and investment position at February 28, 1999 was attributable to investments in property, plant and equipment and purchases of the Company's Common Stock in excess of cash provided from operating activities, as discussed below. The Company's working capital was $166.8 million at February 28, 1999 compared with $176.6 million at March 1, 1998. The decrease at February 28, 1999 compared with March 1, 1998 was due principally to the reduction in cash and temporary investments, offset in part by higher receivables and lower accounts payable. The increase in receivables at February 28, 1999 compared with March 1, 1998 was a result principally of longer outstanding receiv- ables due primarily to a different customer mix and the elimination of discount terms. The Company's current ratio (the ratio of current assets to current liabilities) was 3.6 to 1 at February 28, 1999 compared with 3.5 to 1 at March 1, 1998. During the 1999 fiscal year, the Company generated funds from operations of $22.2 million and expended $24.4 million for the net purchase of property, plant and equipment and $13.5 million for purchases of the Company's Common Stock. Cash provided by net earnings before depreciation and amortization of $29.7 million combined with a net increase in non-cash working capital items resulted in $22.2 million of cash provided from operating activities. A significant portion of the 1999 fiscal year's capital expenditures related to installation of additional capacity at the Company's electronic materials facilities in Arizona, California and Singapore. These expansions will increase the Company's capacity and capability for the production of sophisticated printed circuit materials. Net expenditures for property, plant and equipment were $24.4 million, $18.3 million and $18.7 million in the 1999, 1998 and 1997 fiscal years, respec- tively. The Company expects the capital expenditures in the 2000 fiscal year to exceed the expenditures in the 1999 fiscal year. The Company is planning further expansions of its electronic materials operations in California, New York and Asia. At February 28, 1999, the Company's only long-term debt was the 5.5% Convertible Subordinated Notes due 2006 (the "Notes") issued at the end of the 1996 fiscal year. The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in property, plant and equipment and for general corporate purposes. Such resources, including the proceeds from the Notes, would also be available for appropriate acquisitions and other expansions of the Company's business. Environmental Matters: The Company is subject to various federal, state and local government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmen- tal damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by government agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated. In the 1999, 1998 and 1997 fiscal years, the Company charged approximately $0.2 million, $0.4 million and $0.2 million, respectively, against pretax income for remedial response and voluntary cleanup costs (including legal fees). While annual expenditures have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At February 28, 1999, the recorded liability in accrued liabilities for environmental matters was $3.5 million compared with approximately the same amount at March 1, 1998. Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Report for a discussion of the Company's commitments and contingencies, including those related to environmental matters. Year 2000: Year 2000 issues relate to system failures or errors resulting from computer programs and embedded computer chips which utilize dates with only two digits instead of four digits to represent a year. A dated field with two digits representing a year may result in an error or failure due to the system's inability to recognize "00" as the Year 2000. To address Year 2000 issues, the Company has initiated a plan comprised of the following four phases: inventory, assessment, remediation and testing. The Company is applying this plan to the areas of information technology related to internal systems and processes, embedded systems related to manufacturing and other facility equipment, and external relationships which includes evaluating the Year 2000 readiness of third parties such as suppliers, customers and service providers. The Company is utilizing external information technology consultants, in addition to the Company's internal resources, to evaluate and monitor the Company's Year 2000 readiness. In the information technology and embedded systems areas, the Company has completed the inventory and assessment phases and is conducting the remediation and testing phases. The Company anticipates that the remediation and testing phases for all critical systems will be completed by September 30, 1999 and that after it has completed any necessary modifica- tions, Year 2000 issues will not pose significant operating problems. The Company is also in the process of assessing the Year 2000 compliance of third parties it relies upon, and is developing contingency plans where possible. Such contingency plans may include using alternate suppliers and increasing inventory levels. The Company will continue to evaluate the readiness of its suppliers and to refine its contingency plans on an ongoing basis. The Company is upgrading its information systems to improve their functionality and efficiency. As part of this ongoing system development, the Company is modifying or replacing existing computer programs so that they will function properly with respect to dates beyond December 31, 1999. A major component of this project includes the replacement of legacy computer programs with a fully integrated Oracle based system. The Oracle system is being implemented at one Company location at a time. The Company has developed a contingency plan to upgrade the existing legacy system to function beyond 1999 for those locations which have not completed the conversion to the Oracle based system. As mentioned in the preceding paragraph, the primary reason for the extensive system modifications which are being undertaken by the Company was the improvement of the functionality and efficiency of the Company's existing information systems. Accordingly, the Company's budget for these information technology improvements included enhanced Year 2000 compliant software. Management does not expect that the incremental cost of its Year 2000 compliance program will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company. Although the Company believes it is taking appropriate measures to avoid any material adverse effects relating to Year 2000 issues, no amount of preparation and testing can guarantee Year 2000 compliance. In addition to the risks of the failure to locate and correct Year 2000 problems in the Company's information systems and software programs that control various equipment functions, the Company is exposed to the risk of the Year 2000 readiness of its suppliers, as well as suppliers to its suppliers, customers, other third parties and infrastructure failures. Although the Company has initiated a program to communicate with all of its significant suppliers and customers to determine the extent to which the Company is vulnerable to a failure by such a third party to adequately address its own Year 2000 issues, the Company does not have control over these third parties and, as a result, cannot currently estimate to what extent the failure of these third parties to successfully address their Year 2000 issues may adversely affect the Company's liquidity, capital resources, business, consolidated results of operations or consolidated financial position. Factors That May Affect Future Results. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from Park's expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements. Accordingly, the Company hereby identifies the following important factors which could cause the Company's actual results to differ materially from any such results which might be projected, forecast, estimated or budgeted by the Company in forward-looking statements. . The Company's customer base is concentrated, in part, because the Company's business strategy has been to develop long-term relation- ships with a select group of customers. During the Company's fiscal year ended February 28, 1999, the Company's ten largest customers accounted for approximately 54% of net sales. The Company expects that sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. A loss of one or more of such key customers could affect the Company's profitability. See "Business-Electronic Materials Operations-Customers and End Markets" in Item 1 of this Report, "Legal Proceedings" in item 3 of this Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report and Note 13 of the Notes to Consolidated Financial Statements in Item 8 of this Report for discussions of the loss of a key customer early in the 1999 fiscal year. . The Company's business is dependent on certain aspects of the electronics industry, which is a cyclical industry and which has experienced recurring downturns. The downturns, such as occurred in the first quarter of the Company's fiscal year ended March 2, 1997, can be unexpected and have often reduced demand for, and prices of, electronic materials. . The Company's operating results are affected by a number of factors, including various factors beyond the Company's control. Such factors include economic conditions in the electronics industry, the timing of customer orders, product prices, process yields, the mix of products sold and maintenance-related shutdowns of facilities. Operating results also can be influenced by development and introduction of new products and the costs associated with the start-up of new facilities. . Rapid technological advances in semiconductors and electronic equipment have placed rigorous demands on the electronic materials manufactured by the Company and used in printed circuit board production. The Company's operating results will be affected by the Company's ability to maintain and increase its technological and manufacturing capability and expertise in this rapidly changing industry. . The electronic materials industry is intensely competitive and the Company competes worldwide in the market for materials used in the production of complex multilayer printed circuit boards. The Company's competitors are substantially larger and have greater financial resources than the Company, and the Company's operating results will be affected by its ability to maintain its competitive position in the industry. . There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of electronic materials products. Substitutes for these products are not readily available, and in the recent past there have been shortages in the market for certain of these materials. . The Company typically does not obtain long-term purchase orders or commitments. Instead, it relies primarily on continual communica- tion with its customers to anticipate the future volume of purchase orders. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, can cause a customer to reduce or delay orders previously anticipated by the Company. . The Company, from time to time, is engaged in the expansion of certain of its manufacturing facilities for electronic materials. The anticipated costs of such expansions cannot be determined with precision and may vary materially from those budgeted. In addition, such expansions will increase the Company's fixed costs. The Company's future profitability depends upon its ability to utilize its manufacturing capacity in an effective manner. . The Company's business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company's capital expenditures. In order to remain competitive the Company must continue to make significant investments in capital equipment and expansion of operations. This may require that the Company continue to be able to access capital on terms acceptable to the Company. . The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one-time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations. . The Company's international operations are subject to risks, including unexpected changes in regulatory requirements, exchange rates, tariffs and other barriers, political and economic instabil- ity and potentially adverse tax consequences. . A portion of the sales and costs of the Company's international operations are denominated in currencies other than the U.S. dollar and may be affected by fluctuations in currency exchange rates. . The Company's success is dependent upon its relationship with key management and technical personnel. . The Company's future success depends in part upon its intellectual property which the Company seeks to protect through a combination of contract provisions, trade secret protections, copyrights and patents. . The Company's production processes require the use, storage, treatment and disposal of certain materials which are considered hazardous under applicable environmental laws and the Company is subject to a variety of regulatory requirements relating to the handling of such materials and the release of emissions and effluents into the environment. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company. . The market price of the Company's securities can be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the electronic materials industry, as well as general economic conditions and other factors external to the Company. . The Company's results could be affected by changes in the Company's accounting policies and practices or changes in the Company's organization, compensation and benefit plans, or changes in the Company's material agreements or understandings with third parties. . Although the Company believes it is taking appropriate measures to avoid any material adverse effects relating to Year 2000 issues, no amount of preparation and testing can guarantee Year 2000 compli- ance. In addition to the risks of the failure to locate and correct Year 2000 problems in the Company's information systems and software programs that control various equipment functions, the Company is exposed to the risk of the Year 2000 readiness of its suppliers, as well as suppliers to its suppliers, customers, other third parties and infrastructure failures. Although the Company has initiated a program to communicate with all of its significant suppliers and customers to determine the extent to which the Company is vulnerable to a failure by such a third party to adequately address its own Year 2000 issues, the Company does not have control over these third parties and, as a result, cannot currently estimate to what extent the failure of these third parties to successfully address their Year 2000 issues may adversely affect the Company's liquidity, capital resources, business, consolidated results of operations or consolidated financial position. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks for changes in foreign currency exchange rates and interest rates. The Company's primary foreign currency exchange exposure relates to the translation of the financial statements of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency. The Company does not believe that a 10% fluctuation in foreign exchange rates would have had a material impact on its consolidated results of operations or financial position. The exposure to market risks for changes in interest rates relates to the Company's short-term investment portfolio. This investment portfolio is managed by outside professional managers in accordance with guidelines issued by the Company. These guidelines are designed to establish a high quality fixed income portfolio of government and highly rated corporate debt securities with a maximum weighted average maturity of less than one year. The Company does not use derivative financial instruments in its investment portfolio. Based on the average maturity of the investment portfolio at the end of the 1999 fiscal year a 10% increase in short term interest rates would not have had a material impact on the consolidated results of opera- tions or financial position of the Company. Item 8. Financial Statements and Supplementary Data. The Company's Financial Statements begin on the next page. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Park Electrochemical Corp. Lake Success, New York We have audited the accompanying consolidated balance sheets of Park Electrochemical Corp. and subsidiaries as of February 28, 1999 and March 1, 1998 and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended February 28, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park Electrochemical Corp. and subsidiaries as of February 28, 1999 and March 1, 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York April 23, 1999 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except shares and per share amounts) February 28, March 1, 1999 1998 ASSETS Current assets: Cash and cash equivalents $ 36,682 $ 45,102 Marketable securities (Note 2) 103,020 113,358 Accounts receivable, less allowance for doubtful accounts of $2,030 and $1,858, respectively 56,917 53,511 Inventories (Note 3) 25,703 26,953 Prepaid expenses and other current assets (Note 7) 7,874 8,456 Total current assets 230,196 247,380 Property, plant and equipment, at cost, less accumulated depreciation and amortization (Note 4) 118,012 108,116 Other assets (Notes 7 and 10) 3,490 3,833 Total $351,698 $359,329 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,019 $ 37,426 Accrued liabilities (Note 5) 23,154 25,261 Income taxes payable 9,183 8,140 Total current liabilities 63,356 70,827 Long-term debt (Note 6) 100,000 100,000 Deferred income taxes (Note 7) 9,501 8,781 Deferred pension liability and other (Note 10) 14,195 13,317 Commitments and contingencies (Notes 10 and 11) Stockholders' equity (Notes 6, 8, 9 and 10): Preferred stock, $1 par value per share-- authorized, 500,000 shares; issued, none - - Common stock, $.10 par value per share-- authorized, 30,000,000; issued, 13,580,018 shares 1,358 1,358 Additional paid-in capital 53,108 52,990 Retained earnings 142,336 130,435 Accumulated other non-owner changes (1,802) (1,266) 195,000 183,517 Less treasury stock, at cost, 3,258,379 and 2,181,247 shares, respectively (30,354) (17,113) Total stockholders' equity 164,646 166,404 Total $351,698 $359,329 <FN> See notes to consolidated financial statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts) 52 Weeks Ended February 28, March 1, March 2, 1999 1998 1997 Net sales $387,634 $376,158 $334,490 Cost of sales 328,884 301,968 275,372 Gross profit 58,750 74,190 59,118 Selling, general and administrative expenses 41,279 39,418 34,366 Profit from operations 17,471 34,772 24,752 Other income (expense): Interest and other income, net 7,642 8,382 7,653 Interest expense (Note 6) (5,400) (5,468) (5,508) Total other income 2,242 2,914 2,145 Earnings before income taxes 19,713 37,686 26,897 Income tax provision (Note 7) 4,337 12,436 8,338 Net earnings $ 15,376 $ 25,250 $ 18,559 Earnings per share (Note 9): Basic $1.40 $2.22 $1.64 Diluted $1.38 $2.07 $1.58 <FN> See notes to consolidated financial statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares and per share amounts) Additional Accumulated Common Stock Paid-in Retained Other Non- Treasury Stock Comprehensive Shares Amount Capital Earnings Owner Changes Shares Amount Income Balance, March 3, 1996 13,580,018 $1,358 $50,958 $ 93,892 $ 297 2,033,704 $(12,078) Net earnings 18,559 $18,559 Exchange rate changes (497) (497) Change in pension liability adjustment 151 151 Market revaluation 19 19 Stock options exercised 332 (84,868) 546 Cash dividends ($.32 per share) (3,647) Purchase of treasury stock 358,929 (6,535) Comprehensive income $18,232 Balance, March 2, 1997 13,580,018 1,358 51,290 108,804 (30) 2,307,765 (18,067) Net earnings 25,250 $25,250 Exchange rate changes (1,122) (1,122) Change in pension liability adjustment (189) (189) Market revaluation 75 75 Stock options exercised 228 (49,529) 352 Cash dividends ($.32 per share) (3,619) Purchase of treasury stock 11 - Shares issued in business acquisition 1,472 (77,000) 602 Comprehensive income $24,014 Balance, March 1, 1998 13,580,018 1,358 52,990 130,435 (1,266) 2,181,247 (17,113) Net earnings 15,376 $15,376 Exchange rate changes 98 98 Change in pension liability adjustment (634) (634) Market revaluation - - Stock options exercised 118 (26,080) 211 Cash dividends ($.32 per share) (3,475) Purchase of treasury stock 1,103,212 (13,452) Comprehensive income $14,840 Balance, February 28, 1999 13,580,018 $1,358 $53,108 $142,336 $(1,802) 3,258,379 $(30,354) <FN> See notes to consolidated financial statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 52 Weeks Ended February 28, March 1, March 2, 1999 1998 1997 Cash flows from operating activities: Net earnings $ 15,376 $ 25,250 $ 18,559 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 14,291 13,207 11,584 Provision for write-down of fixed assets - 1,400 - Provision for doubtful accounts receivable 237 75 (306) Provision (benefit) for deferred income taxes 828 (301) 1,596 Other, net (165) (11) 49 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (3,624) 1,273 (7,612) Decrease (increase) in inventories 1,298 (3,138) 7,202 Decrease (increase) in prepaid expenses and other current assets 333 (1,950) (1,456) Decrease (increase) in other assets 579 (544) 122 (Decrease) increase in accounts payable (6,481) 1,235 (2,528) (Decrease) increase in accrued liabilities (1,627) (250) 1,700 Increase in income taxes payable 1,137 4,204 286 Net cash provided by operating activities 22,182 40,450 29,196 Cash flows from investing activities: Purchases of property, plant and equipment, net (24,375) (18,274) (18,735) Purchases of marketable securities (129,693) (135,390) (137,897) Proceeds from sales of marketable securities 140,031 124,264 103,330 Business acquisition net of cash acquired (Note 14) - (4,585) - Net cash used in investing activities (14,037) (33,985) (53,302) Cash flows from financing activities: Dividends paid (3,475) (3,619) (3,647) Proceeds from exercise of stock options 232 228 604 Purchase of treasury stock (13,452) - (6,535) Net cash used in financing activities (16,695) (3,391) (9,578) (Decrease) increase in cash and cash equivalents before effect of exchange rate changes (8,550) 3,074 (33,684) Effect of exchange rate changes on cash and cash equivalents 130 (293) 35 (Decrease) increase in cash and cash equivalents (8,420) 2,781 (33,649) Cash and cash equivalents, beginning of year 45,102 42,321 75,970 Cash and cash equivalents, end of year $ 36,682 $ 45,102 $ 42,321 <FN> See notes to consolidated financial statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three years ended February 28, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Electrochemical Corp. ("Park"), through its subsidiaries (collectively, the "Company"), is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards, semiconductor packages and other electronic interconnection systems. The Company's multilayer printed circuit board materials include copper-clad laminates, prepregs and semi-finished multilayer printed circuit board panels. Multilayer printed circuit boards and interconnection systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices and passive components. The Company also designs and manufactures specialty adhesive tapes, advanced composite materials, microwave circuitry materials and plumbing hardware for the electronics, aerospace, industrial and plumbing markets. a. Principles of Consolidation - The consolidated financial statements include the accounts of Park and its subsidiaries. All significant intercompany balances and transactions have been eliminated. b. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. c. Accounting Period - The Company's fiscal year is the 52 or 53 week period ending the Sunday nearest to the last day of February. The 1999, 1998 and 1997 fiscal years ended on February 28, 1999, March 1, 1998 and March 2, 1997, respectively. Fiscal 1999, 1998 and 1997 each included 52 weeks. d. Marketable Securities - All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive income. Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in other income. The cost of securities sold is based on the specific identification method. e. Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market. f. Revenue Recognition - Revenues are recognized at the time product is shipped to the customer. g. Depreciation and Amortization - Depreciation and amortization are computed principally by the straight-line method over the estimated useful lives of the related assets or, with respect to leasehold improvements, the term of the lease, if shorter. h. Deferred Charges - Costs incurred in connection with the issuance of debt financing are deferred and included in other assets and amortized, using the effective interest method, over the respective debt repayment period. i. Income Taxes - Deferred income taxes are provided for temporary differences in the reporting of certain items, primarily depreciation, for income tax purposes as compared with financial accounting purposes. United States ("U.S.") Federal income taxes have not been provided on the undistributed earnings (approximately $50,300,000 at February 28, 1999) of the Company's foreign subsidiaries, since it is management's practice and intent to reinvest such earnings in the operations of these subsidiaries. j. Foreign Currency Translation - Assets and liabilities of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency are translated into U.S. dollars at year-end exchange rates and income and expense items are translated at average exchange rates for the period. Gains and losses resulting from translation are recorded as currency translation adjustments in comprehensive income. k. Consolidated Statements of Cash Flows - The Company considers all money market securities and investments with maturities at the date of purchase of 90 days or less to be cash equivalents. Supplemental cash flow information: Fiscal Year 1999 1998 1997 Cash paid during the year for: Interest $5,500,000 $5,519,000 $2,792,000 Income taxes 2,159,000 8,289,000 6,570,000 l. Recently Issued Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes standards for the recognition and measurement of derivatives and hedging activities and requires all derivative instruments to be recorded on the balance sheet at fair value. Unless specific hedge accounting criteria are met SFAS 133 requires changes in the fair value of the derivative instrument to be currently recognized in earnings. This statement is effective for fiscal years beginning after June 15, 2000. It is the Company's policy to only enter into forward foreign currency contracts to hedge specific transactions in order to reduce exposure to foreign exchange risks. The Company believes the adoption of this standard will not have a material effect on the Company's consolidated results of operation or financial position. 2. MARKETABLE SECURITIES The following is a summary of available-for-sale securities: Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value February 28, 1999: U.S. Treasury and other government securities $ 14,729,000 $ 32,000 $25,000 $ 14,736,000 U.S. corporate debt securities 88,187,000 74,000 49,000 88,212,000 Total debt securities 102,916,000 106,000 74,000 102,948,000 Equity securities 5,000 67,000 - 72,000 $102,921,000 $173,000 $74,000 $103,020,000 March 1, 1998: U.S. Treasury and other government securities $ 6,177,000 $ 44,000 $ - $ 6,221,000 U.S. corporate debt securities 107,077,000 51,000 47,000 107,081,000 Total debt securities 113,254,000 95,000 47,000 113,302,000 Equity securities 4,000 52,000 - 56,000 $113,258,000 $147,000 $47,000 $113,358,000 The gross realized gains on sales of available-for-sale securities totalled $39,000, $18,000 and $39,000 for 1999, 1998 and 1997, respectively, and the gross realized losses totalled $9,000, $6,000 and $23,000 for 1999, 1998 and 1997, respectively. The amortized cost and estimated fair value of the debt and marketable equity securities at February 28, 1999, by contractual maturity, are shown below: Estimated Fair Cost Value Due in one year or less $98,555,000 $ 98,593,000 Due after one year through five years 4,361,000 4,355,000 102,916,000 102,948,000 Equity securities 5,000 72,000 $102,921,000 $103,020,000 3. INVENTORIES February 28, March 1, 1999 1998 Raw materials $ 8,787,000 $10,686,000 Work-in-process 4,590,000 5,740,000 Finished goods 11,533,000 9,806,000 Manufacturing supplies 793,000 721,000 $25,703,000 $26,953,000 4. PROPERTY, PLANT AND EQUIPMENT February 28, March 1, 1999 1998 Land, buildings and improvements $ 44,626,000 $ 41,598,000 Machinery, equipment, furniture and fixtures 178,859,000 160,888,000 223,485,000 202,486,000 Less accumulated depreciation and amortization 105,473,000 94,370,000 $118,012,000 $108,116,000 Depreciation and amortization expense relating to property, plant and equipment amounted to $14,255,000, $12,884,000 and $11,146,000 for fiscal 1999, 1998 and 1997, respectively. A pretax charge of $1,400,000 was recorded in fiscal 1998, for the write-down of operating equipment that will no longer be utilized, to its estimated net realizable value. Interest expense capitalized to property, plant and equipment amounted to $395,000, $294,000 and $260,000 for fiscal 1999, 1998 and 1997, respectively. 5. ACCRUED LIABILITIES February 28, March 1, 1999 1998 Payroll and commissions $ 5,946,000 $ 6,091,000 Taxes, other than income taxes 1,109,000 1,130,000 Interest 2,750,000 2,765,000 Other 13,349,000 15,275,000 $23,154,000 $25,261,000 6. LONG-TERM DEBT On February 28, 1996, the Company issued $100,000,000 principal amount of 5.5% Convertible Subordinated Notes due 2006 (the "Notes") with interest payable semiannually on March 1 and September 1 of each year, commencing September 1, 1996. The Notes are unsecured and subordinated to other long-term debt and are convertible at the option of the holder at any time prior to maturity, unless previously redeemed or repurchased, into shares of the Company's common stock at $42.188 per share, subject to adjustment under certain conditions. The Notes are not redeemable at the option of the Company prior to March 1, 1999; at any time on or after such date, the Notes will be redeemable at the option of the Company, in whole or in part, initially at 102.75% of the principal amount of such Notes redeemed and thereafter at prices declining to 100% on March 1, 2001, together with accrued interest. At February 28, 1999 and March 1, 1998, the fair value of the Notes approximated $87,000,000 and $99,000,000, respectively. Foreign lines of credit totalled $5,100,000 at February 28, 1999, all of which remains available to the subsidiaries. 7. INCOME TAXES The income tax provision includes the following: Fiscal Year 1999 1998 1997 Current: Federal $ 724,000 $10,181,000 $6,150,000 State and local 608,000 1,332,000 592,000 Foreign 2,177,000 1,224,000 - 3,509,000 12,737,000 6,742,000 Deferred: Federal 31,000 (680,000) 863,000 State and local 62,000 94,000 150,000 Foreign 735,000 285,000 583,000 828,000 (301,000) 1,596,000 $4,337,000 $12,436,000 $8,338,000 The Company's effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following: Fiscal Year 1999 1998 1997 Statutory U.S. Federal tax rate 35.0% 35.0% 35.0% State and local taxes, net of Federal benefit 2.0 2.5 1.8 Foreign tax rate differentials (13.7) (7.4) (7.8) Reversal of reserves no longer required (3.5) - - Other, net 2.2 2.9 2.0 22.0% 33.0% 31.0% The Company had foreign net operating loss carryforwards of approximately $44,300,000 and $37,500,000 in fiscal 1999 and 1998, respectively. Most of the net operating loss carryforwards were acquired in fiscal 1998 when the Company purchased the capital stock of Dielektra GmbH ("Dielektra"), a German corporation located in Cologne, Germany. Long-term deferred tax assets arising from these net operating loss carryforwards were valued at $0 at both February 28, 1999 and March 1, 1998, net of valuation reserves of approximately $22,400,000 and $19,500,000, respectively. None of the acquired net operating loss carryforwards relate to goodwill or other intangible assets. Approximately $2,200,000 of the foreign net operating loss carryforwards expire in varying amounts from fiscal 2000 through fiscal 2004; the remainder have an indefinite expiration. At February 28, 1999 and March 1, 1998, current deferred tax assets of $2,147,000 and $2,254,000, respectively, which were primarily attributable to expenses not currently deductible were included in other current assets. The long-term deferred tax liabilities consisted primarily of timing differences relating to depreciation. 8. STOCKHOLDERS' EQUITY a. Stock Options - Under the 1992 Stock Option Plan (the "Plan") approved by the Company's stockholders, key employees may be granted options to purchase shares of common stock of the Company exercisable at prices not less than the fair market value at the date of grant. Options become exercisable 25% one year from the date of grant, with an additional 25% exercisable each succeeding year. The options expire 10 years from the date of grant. Options to purchase a total of 1,450,000 shares of common stock are authorized for grant under such Plan. The Plan will expire in March, 2002. The Company has elected the disclosure provision of Statement of Financial Standards No. 123, "Accounting for Stock-Based Compensation," and continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for the option plans. Under APB 25, because the exercise price of the granted options is not less than the market price at the date of the grant, no compensation expense is recognized. The weighted average fair value for options was estimated at the date of grant using the Black-Scholes option pricing model to be $7.38 for fiscal 1999, $7.17 for fiscal 1998 and $7.78 for fiscal 1997, with the following weighted average assumptions; risk free interest rate of 5.5% for fiscal 1999 and 6.0% for fiscal 1998 and 1997; expected volatility factors of 41%, 33% and 34% for fiscal 1999, 1998 and 1997, respectively; expected dividend yield of 2% for fiscal 1999, 1998 and 1997; and estimated option lives of 4.1 years for fiscal 1999 and 4.6 years for fiscal 1998 and 1997. For the purpose of pro forma disclosures, the effect of applying SFAS 123 on net income and earnings per share for fiscal 1999, 1998 and 1997 would approximate the amounts shown below (in thousands, except EPS data): 1999 1998 1997 As Pro As Pro As Pro Reported forma Reported forma Reported forma Net income $15,376 $14,692 $25,250 $24,810 $18,559 $18,330 EPS-basic $1.40 $1.34 $2.22 $2.19 $1.64 $1.62 EPS-diluted $1.38 $1.33 $2.07 $2.04 $1.58 $1.57 Information with respect to the Company's stock option plans follows: Weighted Average Range of Outstanding Exercise Exercise Prices Options Price Balance, March 2, 1997 $ 5.50 - $24.63 519,975 $14.48 Granted 23.75 - 28.00 211,700 25.01 Exercised 5.50 - 24.63 (51,041) 8.80 Cancelled 6.00 - 28.00 (55,909) 26.59 Balance, March 1, 1998 5.50 - 27.63 624,725 17.43 Granted 18.88 - 23.75 179,600 23.34 Exercised 5.50 - 24.63 (26,080) 8.89 Cancelled 13.13 - 24.63 (17,420) 22.31 Balance, February 28, 1999 $ 5.50 - $27.63 760,825 $19.00 Exercisable, February 28, 1999 $ 5.50 - $27.63 391,213 $14.76 The following table summarizes information concerning currently outstanding and exercisable options. Options Outstanding Options Exercisable Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life(Years) Price Exercisable Price $ 5.50 - $ 9.99 127,100 3.57 $ 7.02 127,100 $ 7.02 10.00 - 19.99 217,900 5.99 16.13 178,625 15.61 20.00 - 28.00 415,825 8.44 24.17 85,488 24.49 760,825 391,213 Stock options available for future grant under the 1992 Plan at February 28, 1999 and March 1, 1998 were 585,710 and 447,890, respectively. b. Stockholders' Rights Plan - On February 2, 1989, the Company adopted a stockholders' rights plan designed to protect stockholder interests in the event the Company is confronted with coercive or unfair takeover tactics. Under the terms of the plan, as amended on July 12, 1995, each share of the Company's common stock held of record on February 15, 1989 or issued thereafter received one right. In the event that a person has acquired, or has the right to acquire, 15% (25% in certain cases) or more of the then outstanding common stock of the Company (an "Acquiring Person") or tenders for 15% or more of the then outstanding common stock of the Company, such rights will become exercisable, unless the Board of Directors otherwise determines. Upon becoming exercisable as aforesaid, each right will entitle the holder thereof to purchase one one-hundredth of a share of Series A Preferred Stock for $75, subject to adjustment (the "Purchase Price"). In the event that any person becomes an Acquiring Person, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of the Company's common stock as shall equal the then current Purchase Price divided by 50% of the then market price per share of the Company's common stock. In addition, if after a person becomes an Acquiring Person, the Company engages in any of certain business combination transactions as specified in the plan, the Company will take all action to ensure that, and will not consummate any such business combination unless, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of common stock of the other party to the transaction for each right held by such holder as shall equal the then current Purchase Price divided by 50% of the then market price per share of such other party's common stock. The Company may redeem the rights for a nominal consideration at any time, and after any person becomes an Acquiring Person, but before any person becomes the beneficial owner of 50% or more of the outstanding common stock of the Company, the Company may exchange all or part of the rights for shares of the Company's common stock at a one-for-one exchange ratio. Unless redeemed, exchanged or exercised earlier, all rights expire on July 12, 2005. c. Reserved Common Shares - At February 28, 1999, 2,370,342 shares of common stock were reserved for issuance upon conversion of the Notes and 1,346,535 shares were reserved for issuance upon exercise of stock options. d. Accumulated Other Non-Owner Changes - Beginning in fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. SFAS 130 requires foreign currency translation adjustments, changes in pension liability and unrealized gains or losses on the Company's available-for-sale securities to be included in other comprehensive income. These items, which were previously reported as separate components of stockholder's equity, have been reclassified to conform to the requirements of SFAS 130. Adoption of SFAS 130 had no effect on the Company's earnings or stockholders' equity. Reclassification adjustments in each year are not material. Accumulated balances related to each component of other comprehensive income (loss) are as follows: February 28, March 1, 1999 1998 Currency translation adjustment $ (193) $ (291) Pension liability adjustment (1,673) (1,039) Unrealized gains on investments 64 64 Accumulated balance $(1,802) $(1,266) 9. EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share for the fiscal years: 1999 1998 1997 Net income for basic EPS $15,376,000 $25,250,000 $18,559,000 Add interest on 5.5% convertible subordinated notes, net of taxes - 3,554,000 3,523,000 Net income for diluted EPS $15,376,000 $28,804,000 $22,082,000 Weighted average common shares outstanding for basic EPS 10,980,000 11,353,000 11,349,000 Net effect of dilutive options 158,000 225,000 213,000 Assumed conversion of 5.5% convertible subordinated notes - 2,370,000 2,370,000 Weighted average shares outstanding for diluted EPS 11,138,000 13,948,000 13,932,000 EPS-basic $1.40 $2.22 $1.64 EPS-diluted $1.38 $2.07 $1.58 10. EMPLOYEE BENEFIT PLANS a. Profit Sharing Plan - Park and certain of its subsidiaries have a noncontributory profit sharing retirement plan covering their regular full-time employees. The plan may be modified or terminated at any time, but in no event may any portion of the contributions revert to the Company. The Company's contributions under the plan amounted to $1,641,000, $2,179,000 and $1,775,000 for fiscal 1999, 1998 and 1997, respectively. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code. In addition, the Company sponsors a 401(k) savings plan; commencing in fiscal 1996, the contributions of employees of certain subsidiaries were partially matched by the Company, amounting to $789,000, $692,000 and $554,000 in fiscal 1999, 1998 and 1997, respectively. b. Pension Plans - A domestic subsidiary of the Company has two pension plans, one of which is active, covering its union employees. The pension plans are noncontributory defined benefit plans. The Company's funding policy is to contribute annually the amounts necessary to satisfy applicable funding standards. On October 29, 1997, the Company acquired Dielektra GmbH, ("Dielektra"), including its pension plan. Dielektra has a noncontributory defined benefit plan which covers certain employees. Under the terms of the plan, participants may not accrue additional service time after December 31, 1987. The Company's policy with respect to this plan is to contribute annually the amounts necessary to meet current payment obligations of the plan. In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other Post Retirement Benefits," which changed the financial statement disclosure requirements under Statement of Financial Standards No. 87 (SFAS 87) "Employers' Accounting for Pensions," but did not change the existing measurement or recognition of provisions of SFAS 87. In accordance with SFAS 87, the Company records its deferred pension liability related to its three defined benefit pension plans, which amounted to $10,956,000 and $10,172,000 at February 28, 1999 and March 1, 1998, respectively. The effect on the Company's consolidated financial statements in recording the liability was to recognize an asset (included in other assets) of $175,000 and $230,000 at February 28, 1999 and March 1, 1998, respectively, and to record a corresponding reduction to accumulated non-owner changes of $1,673,000 and $1,039,000 at those same dates. Net pension costs include the following components: Fiscal Year Change in Benefit Obligation 1999 1998 Benefit obligation at beginning of year $ 13,336,000 $ 3,931,000 Benefit obligation due to acquisition - 9,626,000 Service cost 131,000 54,000 Interest cost 949,000 494,000 Actuarial loss 974,000 123,000 Currency translation loss/(gain) 71,000 (416,000) Benefits paid (860,000) (476,000) Benefit obligation at end of year $ 14,601,000 $ 13,336,000 Change in Plan Assets Fair value of plan assets at beginning of year $ 3,164,000 $ 2,937,000 Actual return on plan assets 132,000 143,000 Employer contributions 825,000 560,000 Benefits paid (860,000) (476,000) Fair value of plan assets $ 3,261,000 $ 3,164,000 Underfunded status $(11,340,000) $(10,172,000) Unrecognized net transition obligation 90,000 119,000 Unamortized prior service cost 85,000 109,000 Unrecognized net loss 2,058,000 1,039,000 Net accrued pension cost $ (9,107,000) $ (8,905,000) Component of Net Periodic Fiscal Year Benefit Cost 1999 1998 1997 Service cost - benefits earned during the period $ 131,000 $ 54,000 $ 50,000 Interest cost on projected benefit obligation 949,000 494,000 289,000 Expected return on plan assets (250,000) (238,000) (220,000) Amortization of unrecognized transition obligation 29,000 30,000 30,000 Amortization of prior service cost 24,000 23,000 28,000 Recognized net actuarial loss 53,000 31,000 42,000 Effect of curtailment - - 75,000 Net periodic pension cost $ 936,000 $ 394,000 $ 294,000 The projected benefit obligation for the domestic plans was determined using an assumed discount rate of 6.75% and 7.25% for fiscal 1999 and 1998, respectively, and the assumed long-term rate of return on plan assets was 8% for both fiscal years. Projected wage increases are not applicable as benefits pursuant to the plans are based upon years of service without regard to levels of compensation. The projected benefit obligation for the foreign plan was determined using an assumed discount rate of 7.00% for fiscal years 1999 and 1998. Projected wage increases of 2.50% and an inflation factor of 2.00% were also assumed for both years. As previously stated, the Company's funding policy with respect to this plan is to contribute annually the amounts necessary to meet current payment obligations of the plan. At February 28, 1999, domestic plan assets were invested in U.S. government securities, corporate debt securities, mutual funds and money market funds. 11. COMMITMENTS AND CONTINGENCIES a. Lease Commitments - The Company conducts certain of its operations from leased facilities, which include several manufacturing plants, warehouses and offices, and land leases. The leases on facilities are for terms of up to 10 years, the latest of which expires in 2005. Many of the leases contain renewal options for periods ranging from one to ten years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2013 and this land lease contains renewal options of up to 35 years. These noncancelable operating leases have the following payment schedule: Fiscal Year Amount 2000 $2,722,000 2001 2,397,000 2002 1,954,000 2003 1,606,000 2004 1,077,000 Thereafter 2,309,000 $12,065,000 Rental expense, inclusive of real estate taxes and other costs, amounted to $2,861,000, $2,781,000 and $2,620,000 for fiscal 1999, 1998 and 1997, respectively. b. Environmental Contingencies - The Company and certain of its subsid- iaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environ- mental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at nine sites. In addition, a subsidiary of the Company has received cost recovery claims under the Superfund Act from other private parties involving three other sites, and has received requests from the EPA under the Superfund Act for information with respect to its involvement at two other sites. Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. The insurance carriers that provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company's subsidiaries' waste was disposed at these sites have agreed to pay, or reimburse the Company and its subsidiaries for, 100% of their legal defense and remediation costs associated with three of these sites, 35% of such costs associated with one of these sites and 25% of such costs associated with another three of these sites. The total costs incurred by the Company and its subsidiaries in connection with these sites, including legal fees incurred by the Company and its subsidiaries and their assessed share of remediation costs and excluding amounts paid or reimbursed by insurance carriers, were approximately $200,000, $400,000 and $200,000 in fiscal 1999, 1998 and 1997, respectively. The recorded liabilities in other liabilities for environmental matters were $3,500,000 at February 28, 1999 and March 1, 1998. The environmental liability at March 1, 1998, included an accrual of $2,300,000 which was acquired when the Company purchased Dielektra in October, 1997. Dielektra's liability is for various compliance and remediation costs expected to be incurred at its facility in Cologne, Germany over the next several years. Included in cost of sales are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. 12. BUSINESS SEGMENTS In fiscal 1999, the Company adopted Statement of Financial Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards for public business enterprises to report information regarding operating segments and disclosures about products and services, geographic areas, and major customers. The Company has two business segments: electronic materials and engineered materials and plumbing hardware. The Company's electronic materials products are marketed primarily to major independent printed circuit board fabricators and to large electronic original equipment manufacturers ("OEMs") that are located throughout North America, Europe and Asia. The Company's specialty adhesive tape and film business, advanced composite business and plumbing hardware business are aggregated into the engineered materials and plumbing hardware segment. The Company's engineered materials and plumbing hardware customers, the majority of which are located in the United States, include OEMs, independent firms and distributors in the electronics, aerospace, industrial and plumbing industries. Financial information concerning the Company's business segments follows (in thousands): Fiscal Year 1999 1998 1997 Electronic materials $350,294 $335,227 $291,146 Engineered materials and plumbing hardware 37,340 40,931 43,344 Net sales $387,634 $376,158 $334,490 Electronic materials $ 18,523 $ 35,132 $ 25,298 Engineered materials and plumbing hardware 3,273 3,928 3,026 General corporate expense (4,325) (4,288) (3,572) Interest and other income, net 7,642 8,382 7,653 Interest expense (5,400) (5,468) (5,508) Earnings before income taxes $ 19,713 $ 37,686 $ 26,897 Electronic materials $233,886 $210,714 $153,653 Engineered materials and plumbing hardware 11,752 13,884 14,111 Corporate (1) 106,060 134,731 140,098 Total assets $351,698 $359,329 $307,862 Electronic materials $ 13,546 $ 12,403 $ 10,789 Engineered materials and plumbing hardware 716 785 774 Corporate 29 19 21 Total depreciation and amortization $ 14,291 $ 13,207 $ 11,584 Electronic materials $ 23,635 $ 18,161 $ 18,030 Engineered materials and plumbing hardware 1,093 868 795 Corporate 32 11 26 Total capital expenditures $ 24,760 $ 19,040 $ 18,851 <FN> (1) Corporate assets consist primarily of cash, cash equivalents and marketable securities. Sales are attributed to geographic region based upon the region from which the materials were shipped to the customer. Intersegment sales and sales between geographic areas were not significant. Financial information regarding the Company's operations by geographic area follows (in thousands): Fiscal Year 1999 1998 1997 United States $235,699 $260,498 $235,773 Europe 90,112 59,134 48,421 Asia 61,823 56,526 50,296 Total sales $387,634 $376,158 $334,490 United States $ 65,231 $ 61,914 $ 59,538 Europe 30,948 29,645 10,116 Asia 22,814 17,607 14,754 Total long-lived assets $118,993 $109,166 $ 84,408 13. CUSTOMER AND SUPPLIER CONCENTRATIONS a. Customers - Sales to Hadco Corporation were 10.5% of the Company's total worldwide sales for fiscal 1999. During fiscal 1998 and 1997 sales to Delco Electronics Corporation, a subsidiary of General Motors Corp., were 15.8% and 17.3%, respectively, of the Company's total worldwide sales. In March 1998, Delco informed the Company of Delco's decision to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. Delco Electronics ceased being a customer of the Company during fiscal 1999. While no other customer accounts for 10% or more of the total sales of the Company in fiscal 1999, and the Company is not dependent on any other single customer, the loss of a major customer or of a group of customers within each significant business segment could have a material adverse effect on the Company's business. b. Sources of Supply - The principal materials used in the manufacture of the Company's electronic materials products are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. Although there are a limited number of qualified suppliers of these materials, the Company has nevertheless identified alternate sources of supply for each of the aforementioned materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from a principal supplier could adversely affect the electronic materials segment's business. Furthermore, substitutes for the aforesaid materials are not readily available and an inability to obtain essential materials, if prolonged, could materially adversely affect the business of the electronic materials segment. 14. ACQUISITION On October 29, 1997, the Company acquired Dielektra GmbH ("Dielektra"). Dielektra, located in Cologne, Germany, is a manufacturer of advanced electronic materials used to produce sophisticated multilayer printed circuit boards. Dielektra's advanced circuit materials product line includes very high layer count semi-finished multilayer printed circuit boards and very thin continuously produced copper-clad laminates. The purchase price was comprised of $8.8 million in cash, 77,000 shares of Park common stock having a fair market value of $2.1 million and an additional 103,000 shares of Park common stock, having a fair market value of $2.7 million, due five years after the purchase date. The acquisition of Dielektra is being accounted for as a purchase. The purchase price of the acquisition has been allocated on the basis of the estimated fair value of the assets acquired and liabilities assumed. There was no goodwill recognized as a result of this acquisition. Dielektra's operating results are included in the Company's consolidated statements of earnings from the date of acquisition. Pro forma operating results are not presented because the impact of including Dielektra on the Company's consolidated operating income was immaterial for fiscal 1998 and 1997. 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) [CAPTION] Quarter First Second Third Fourth (In thousands, except per share amounts) Fiscal 1999: Net sales $99,855 $86,348 $103,290 $98,141 Gross profit 17,371 8,993 15,996 16,390 Net earnings 5,535 225 4,249 5,367 Earnings per share: Basic $.48 $.02 $.41 $.52 Diluted $.46 $.02 $.40 $.47 Weighted average common shares outstanding: Basic 11,502 11,512 10,483 10,422 Diluted 14,073 11,633 12,941 13,014 Fiscal 1998: Net sales $91,633 $83,086 $ 97,625 $103,814 Gross profit 18,041 14,940 19,851 21,358 Net earnings 6,165 4,852 6,996 7,237 Earnings per share: Basic $.55 $.43 $.62 $.63 Diluted $.51 $.41 $.56 $.58 Weighted average common shares outstanding: Basic 11,273 11,283 11,366 11,492 Diluted 13,847 13,915 13,993 14,118 Earnings per share is computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for the years. ******* Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information called for by this Item (except for information as to the Company's executive officers, which information appears elsewhere in this Report) is incorporated by reference to the Company's definitive proxy statement for the 1999 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 11. Executive Compensation. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 1999 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 1999 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 1999 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. PART IV Item 14. Exhibits, Financial Statement Page Schedules, and Reports on Form 8-K. (a) Documents filed as a part of this report (1) Financial Statements: The following Consolidated Financial Statements of the Company are included in Part II, Item 8: Report of Ernst & Young LLP, independent auditors 28 Balance sheets 29 Statements of earnings 30 Statements of stockholders' equity 31 Statements of cash flows 32 Notes to consolidated financial statements (1-15) 33 (2) Financial Statement Schedules: Schedule II - Valuation and qualifying accounts 58 All other schedules have been omitted because they are inapplicable or not required, or the information is included elsewhere in the financial statements or notes thereto. (3)Exhibits: Exhibit Number Description 3.01 Restated Certificate of Incorporation, as amended. (Reference is made to Exhibit 3.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 27, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 3.02 By-Laws, as amended March 15, 1999. (Reference is made to Exhibit 3(i) of the Company's Current Report on Form 8-K dated March 15, 1999, Commission File No. 1-4415, which is incorporated herein by reference.) 4.01 Amended and Restated Rights Agreement, dated as of July 12, 1995, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company's Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Amendment No. 1 on Form 8-A/A to the Company's Registration Statement on Form 8-A filed on August 10, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 4.02 Form of Indenture, dated as of February 1, 1996, between the Company and The Chase Manhattan Bank, N.A., as Trustee, relating to the Company's 5.5% Convertible Subordinated Notes due 2006. (Reference is made to Exhibit 1.02 to Amendment No. 1 to the Company's Form S-3 Registration Statement, Registration No. 333- 00213, as filed with the Securities and Exchange Commission on February 1, 1996, which is incorporated herein by reference.) Information concerning Registrant's long-term debt is set forth in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Other than the Indenture filed as Exhibit 4.02 hereto, no instrument defining the rights of holders of such long-term debt relates to securities having an aggregate principal amount in excess of 10% of the consoli- dated total assets of Registrant and its subsidiaries; therefore, in accordance with paragraph (iii) of Item 4 of Item 601(b) of Regulation S-K, the other instruments defining the rights of holders of long-term debt are not filed herewith. Registrant hereby agrees to furnish a copy of any such other instruments to the Securities and Exchange Commission upon request. 10.01 Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1100 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. (Reference is made to Exhibit 10.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.02 Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1107 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. (Reference is made to Exhibit 10.02 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.03 Lease Agreement dated August 16, 1983 and Exhibit C, First Addendum to Lease, between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.03(a) Second Addendum to Lease dated January 26, 1987 to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1421 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorpo- rated herein by reference.) 10.03(b) Third Addendum to Lease dated January 7, 1991 and Fourth Addendum to Lease dated January 7, 1991 to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411, 1421 and 1431 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.03(c) Fifth Addendum to Lease dated July 5, 1995 to Lease Agreement dated August 16, 1983 (See Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.04 Lease dated February 15, 1983 between Nelco Products, Inc. and CMD Southwest, Inc. regarding real property located at 1130 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.04 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.04(a) First Amendment to Lease dated December 10, 1992 to Lease dated February 15, 1983 (see Exhibit 10.04 hereto) between Nelco Technology, Inc. and CMD Southwest Inc., and novation substituting Nelco Technology, Inc. for Nelco Products, Inc., regarding real property located at 1130 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.04(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.04(b) Letter dated August 28, 1997 from Nelco Technology, Inc. to SPT Real Estate Corp. E extending the Lease dated February 15, 1983 (see Exhibit 10.04 hereto) and Second Amendment to Lease dated February 2, 1998 to Lease dated February 15, 1993 (see Exhibit 10.04 hereto) between Nelco Technology, Inc. and SPT Real Estate Corp. E regarding real property located at 1130 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.04(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.05 Lease Agreement dated May 26, 1982 between Nelco Products Pte. Ltd. (lease was originally entered into by Kiln Technique (Pri- vate) Limited, which subsequently assigned this lease to Nelco Products Pte. Ltd.) and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore. (Reference is made to Exhibit 10.05 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.05(a) Deed of Assignment, dated April 17, 1986 between Nelco Products Pte. Ltd., Kiln Technique (Private) Limited and Paul Ma, Richard Law, and Michael Ng, all of Peat Marwick & Co., of the Lease Agreement dated May 26, 1982 (see Exhibit 10.05 hereto) between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore. (Reference is made to Exhibit 10.05(a) of the Com- pany's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorpo- rated herein by reference.) 10.06(a) Amended and Restated 1982 Stock Option Plan of the Company. (Reference is made to Exhibit 10.06(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.06(b) 1992 Stock Option Plan of the Company, as amended by First Amendment thereto. (Reference is made to Exhibit 10.06(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07 Amended and Restated Employment Agreement dated February 28, 1994 between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1- 4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(a) Amendment No. 1 dated March 1, 1995 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(b) Amendment No. 2 dated December 5, 1996 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) Exhibit Number Description 10.07(c) Amendment No. 3 dated October 14, 1997 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.08 Lease dated April 15, 1988 between FiberCote Industries, Inc. (lease was initially entered into by USP Composites, Inc., which subsequently changed its name to FiberCote Industries, Inc.) and Geoffrey Etherington, II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut. (Reference is made to Exhibit 10.08 of the Company's Annual Report on form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1- 4415, which is incorporated herein by reference.) 10.08(a) Amendment to Lease dated December 21, 1992 to Lease dated April 15, 1988 (see Exhibit 10.08 hereto) between FiberCote Indus- tries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut. (Reference is made to Exhibit 10.08(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.08(b) Letter dated June 30, 1997 from FiberCote Industries, Inc. to Geoffrey Etherington II extending the Lease dated April 15, 1988 (see Exhibit 10.08 hereto) between FiberCote Industries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut. (Reference is made to Exhibit 10.08(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09 Lease dated March 14, 1988 between Nelco Products, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.09 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(a) First Amendment to Lease dated December 10, 1992 to Lease dated March 14, 1988 (see Exhibit 10.09 hereto) between Nelco Technology, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona, and novation substituting Nelco Technology, Inc. for Nelco Products, Inc. (Reference is made to Exhibit 10.09(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(b) Second Amendment to Lease dated March 24, 1995 to Lease dated March 14, 1988 (see Exhibit 10.09 hereto) between Nelco Technology, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.09(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.09(c) Third Amendment to Lease dated January 18, 1996 to Lease dated March 14, 1988 (see Exhibit 10.09 hereto) between Nelco Technology, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.09(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.10 Lease dated October 1, 1991 between Zin-Plas Corporation and Philip L. Johnson d/b/a Johnson Development Company regarding real property located at 25 North Park, N.E., Comstock Park, Michigan. (Reference is made to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.10(a) Letter dated October 17, 1996 from Zin-Plas Corporation to Philip L. Johnson extending the Lease dated October 1, 1991 (see Exhibit 10.10 hereto) between Zin-Plas Corporation and Philip L. Johnson d/b/a Johnson Development Company regarding real property located at 25 North Park, N.E., Comstock Park, Michigan. (Reference is made to Exhibit 10.10(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.11 Lease dated August 31, 1989 between Nelco Technology, Inc. and Cemanudi Associates regarding real property located at 1104 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.11(a) First Amendment to Lease dated October 21, 1994 to Lease dated August 31, 1989 (see Exhibit 10.11 hereto) between Nelco Technology, Inc. and Cemanudi Associates regarding real property located at 1104 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.11(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.12 Lease dated March 24, 1995 between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.12(a) First Amendment to Lease dated January 18, 1996 to Lease dated March 24, 1995 (see Exhibit 10.12 hereto) between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.12(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.13 Lease dated December 12, 1990 between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.13(a) Letter dated January 8, 1996 from Neltec, Inc. to NZ Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.13 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14 Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(a) Extension of Lease dated May 30, 1986 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(b) Second Extension of Lease dated May 30, 1991 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(c) Amendment to Second Extension of Lease dated May 19, 1994 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(d) 1995 Extension to Amendment to Second Extension of Lease dated October 19, 1995 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(d) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(e) Letter dated July 31, 1996 from Dielectric Polymers, Inc. to Holyoke Supply Company, Inc. exercising its option to extend the Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(e) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.14(f) 1997 Extension to Amendment to Second Extension of Lease dated March 26, 1997 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(f) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(g) Letter dated August 27, 1997 from Dielectric Polymers, Inc. to Holyoke Supply Company, Inc. extending the Indenture of Lease (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(g) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) 10.15 Lease dated January 8, 1992 between Nelco Technology, Inc. and CMD Southwest, Inc. regarding real property located at 1135 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which is incorporated herein by reference.) 10.15(a) First Amendment dated July 8, 1996 to Lease dated January 8, 1992 (see Exhibit 10.15 hereto) between Nelco Technology, Inc. and CMD Southwest, Inc. regarding real property located at 1135 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.15(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.16 Tenancy Agreement dated October 8, 1992 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.18 of the Company's Annual Report on Form 10- K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.16(a) Tenancy Agreement dated November 3, 1995 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.16(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.17 Lease Contract dated February 26, 1988 between the New York State Department of Transportation and the Edgewater Stewart Company regarding real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.17(a) Assignment and Assumption of Lease dated February 16, 1995 between New England Laminates Co., Inc. and The Edgewater Stewart Company regarding the assignment of the Lease Contract (see Exhibit 10.17 hereto) for the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.17(b) Lease Amendment No. 1 dated February 17, 1995 between New England Laminates Co., Inc. and the New York State Department of Transportation to Lease Contract dated February 26, 1988 (see Exhibit 10.17 hereto) regarding the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.18(a) Employment Agreement, dated March 18, 1996, between the Company and E. Phillip Smoot. (Reference is made to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.18(b) Employment and Consulting Agreement, dated February 9, 1999, between the Company and E. Phillip Smoot. (This exhibit is a management contract or compensatory plan or arrangement.) 10.19 Sale and Purchase Agreement dated 29 October 1997 between Dieter G. Weiss, Lothar Hubert Reinartz, Nelco International Corporation and Park Electrochemical Corp. relating to the sale and purchase of shares of capital in Dielektra GmbH. (Reference is made to Exhibit 10.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 21.01 Subsidiaries of the Company. 23.01 Consent of Ernst & Young LLP. 27.01 Financial Data Schedule (Filed only by electronic transmission with EDGAR filing with the Securities and Exchange Commission.) (b) No reports on Form 8-K have been filed during the fiscal quarter ended February 28, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 26, 1999 PARK ELECTROCHEMICAL CORP. By:/s/Brian E. Shore Brian E. Shore, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/Brian E. Shore Chief Executive Officer, Brian E. Shore President and Director (principal executive and May 26, 1999 financial officer) /s/Murray O. Stamer Treasurer Murray O. Stamer (principal accounting officer) May 26, 1999 /s/Jerry Shore Chairman of the Board and Jerry Shore Director May 26, 1999 /s/Mark S. Ain Director Mark S. Ain May 26, 1999 /s/Anthony Chiesa Director Anthony Chiesa May 26, 1999 /s/Lloyd Frank Director Lloyd Frank May 26, 1999 /s/E. Phillip Smoot Director E. Phillip Smoot May 26, 1999 Schedule II PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E Balance at Charged to Other Balance at Beginning Cost and Accounts Translation End Description of Period Expenses Written Off Adjustment of Period (A) ALLOWANCE FOR DOUBTFUL ACCOUNTS: 52 weeks ended February 28, 1999 $1,858,000 $ 238,000 $ (63,000) $ (3,000) $2,030,000 52 weeks ended March 1, 1998 $1,746,000 $ 75,000 $ 46,000 (B) $ (9,000) $1,858,000 52 weeks ended March 2, 1997 $1,857,000 $(306,000) $ 204,000 $ (9,000) $1,746,000 <FN> (A) Uncollectible accounts, net of recoveries. (B) Includes $169,000 acquired in business acquisition. ================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ EXHIBITS filed with FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 1, 1998 ___________________ PARK ELECTROCHEMICAL CORP. ================================================= Exhibit Number Description 3.01 Restated Certificate of Incorporation, as amended. (Reference is made to Exhibit 3.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 27, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 3.02 By-Laws, as amended March 15, 1999. (Reference is made to Exhibit 3(i) of the Company's Current Report on Form 8-K dated March 15, 1999, Commission File No. 1-4415, which is incorporated herein by reference.) 4.01 Amended and Restated Rights Agreement, dated as of July 12, 1995, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company's Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Amendment No. 1 on Form 8-A/A to the Company's Registration Statement on Form 8-A filed on August 10, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 4.02 Form of Indenture, dated as of February 1, 1996, between the Company and The Chase Manhattan Bank, N.A., as Trustee, relating to the Company's 5.5% Convertible Subordinated Notes due 2006. (Reference is made to Exhibit 1.02 to Amendment No. 1 to the Company's Form S-3 Registration Statement, Registration No. 333- 00213, as filed with the Securities and Exchange Commission on February 1, 1996, which is incorporated herein by reference.) Information concerning Registrant's long-term debt is set forth in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Other than the Indenture filed as Exhibit 4.02 hereto, no instrument defining the rights of holders of such long-term debt relates to securities having an aggregate principal amount in excess of 10% of the consoli- dated total assets of Registrant and its subsidiaries; therefore, in accordance with paragraph (iii) of Item 4 of Item 601(b) of Regulation S-K, the other instruments defining the rights of holders of long-term debt are not filed herewith. Registrant hereby agrees to furnish a copy of any such other instruments to the Securities and Exchange Commission upon request. 10.01 Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1100 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. (Reference is made to Exhibit 10.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.02 Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1107 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. (Reference is made to Exhibit 10.02 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.03 Lease Agreement dated August 16, 1983 and Exhibit C, First Addendum to Lease, between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.03(a) Second Addendum to Lease dated January 26, 1987 to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1421 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorpo- rated herein by reference.) 10.03(b) Third Addendum to Lease dated January 7, 1991 and Fourth Addendum to Lease dated January 7, 1991 to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411, 1421 and 1431 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.03(c) Fifth Addendum to Lease dated July 5, 1995 to Lease Agreement dated August 16, 1983 (See Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.04 Lease dated February 15, 1983 between Nelco Products, Inc. and CMD Southwest, Inc. regarding real property located at 1130 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.04 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.04(a) First Amendment to Lease dated December 10, 1992 to Lease dated February 15, 1983 (see Exhibit 10.04 hereto) between Nelco Technology, Inc. and CMD Southwest Inc., and novation substituting Nelco Technology, Inc. for Nelco Products, Inc., regarding real property located at 1130 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.04(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.04(b) Letter dated August 28, 1997 from Nelco Technology, Inc. to SPT Real Estate Corp. E extending the Lease dated February 15, 1983 (see Exhibit 10.04 hereto) and Second Amendment to Lease dated February 2, 1998 to Lease dated February 15, 1993 (see Exhibit 10.04 hereto) between Nelco Technology, Inc. and SPT Real Estate Corp. E regarding real property located at 1130 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.04(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.05 Lease Agreement dated May 26, 1982 between Nelco Products Pte. Ltd. (lease was originally entered into by Kiln Technique (Pri- vate) Limited, which subsequently assigned this lease to Nelco Products Pte. Ltd.) and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore. (Reference is made to Exhibit 10.05 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.05(a) Deed of Assignment, dated April 17, 1986 between Nelco Products Pte. Ltd., Kiln Technique (Private) Limited and Paul Ma, Richard Law, and Michael Ng, all of Peat Marwick & Co., of the Lease Agreement dated May 26, 1982 (see Exhibit 10.05 hereto) between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore. (Reference is made to Exhibit 10.05(a) of the Com- pany's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorpo- rated herein by reference.) 10.06(a) Amended and Restated 1982 Stock Option Plan of the Company. (Reference is made to Exhibit 10.06(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.06(b) 1992 Stock Option Plan of the Company, as amended by First Amendment thereto. (Reference is made to Exhibit 10.06(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07 Amended and Restated Employment Agreement dated February 28, 1994 between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1- 4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(a) Amendment No. 1 dated March 1, 1995 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(b) Amendment No. 2 dated December 5, 1996 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) Exhibit Number Description 10.07(c) Amendment No. 3 dated October 14, 1997 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07 hereto) between the Company and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.08 Lease dated April 15, 1988 between FiberCote Industries, Inc. (lease was initially entered into by USP Composites, Inc., which subsequently changed its name to FiberCote Industries, Inc.) and Geoffrey Etherington, II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut. (Reference is made to Exhibit 10.08 of the Company's Annual Report on form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1- 4415, which is incorporated herein by reference.) 10.08(a) Amendment to Lease dated December 21, 1992 to Lease dated April 15, 1988 (see Exhibit 10.08 hereto) between FiberCote Indus- tries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut. (Reference is made to Exhibit 10.08(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.08(b) Letter dated June 30, 1997 from FiberCote Industries, Inc. to Geoffrey Etherington II extending the Lease dated April 15, 1988 (see Exhibit 10.08 hereto) between FiberCote Industries, Inc. and Geoffrey Etherington II regarding real property located at 172 East Aurora Street, Waterbury, Connecticut. (Reference is made to Exhibit 10.08(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09 Lease dated March 14, 1988 between Nelco Products, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.09 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(a) First Amendment to Lease dated December 10, 1992 to Lease dated March 14, 1988 (see Exhibit 10.09 hereto) between Nelco Technology, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona, and novation substituting Nelco Technology, Inc. for Nelco Products, Inc. (Reference is made to Exhibit 10.09(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(b) Second Amendment to Lease dated March 24, 1995 to Lease dated March 14, 1988 (see Exhibit 10.09 hereto) between Nelco Technology, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.09(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.09(c) Third Amendment to Lease dated January 18, 1996 to Lease dated March 14, 1988 (see Exhibit 10.09 hereto) between Nelco Technology, Inc. and CMD Southwest One regarding real property located at 1117 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.09(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.10 Lease dated October 1, 1991 between Zin-Plas Corporation and Philip L. Johnson d/b/a Johnson Development Company regarding real property located at 25 North Park, N.E., Comstock Park, Michigan. (Reference is made to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.10(a) Letter dated October 17, 1996 from Zin-Plas Corporation to Philip L. Johnson extending the Lease dated October 1, 1991 (see Exhibit 10.10 hereto) between Zin-Plas Corporation and Philip L. Johnson d/b/a Johnson Development Company regarding real property located at 25 North Park, N.E., Comstock Park, Michigan. (Reference is made to Exhibit 10.10(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.11 Lease dated August 31, 1989 between Nelco Technology, Inc. and Cemanudi Associates regarding real property located at 1104 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.11(a) First Amendment to Lease dated October 21, 1994 to Lease dated August 31, 1989 (see Exhibit 10.11 hereto) between Nelco Technology, Inc. and Cemanudi Associates regarding real property located at 1104 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.11(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.12 Lease dated March 24, 1995 between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.12(a) First Amendment to Lease dated January 18, 1996 to Lease dated March 24, 1995 (see Exhibit 10.12 hereto) between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. (Reference is made to Exhibit 10.12(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.13 Lease dated December 12, 1990 between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.13(a) Letter dated January 8, 1996 from Neltec, Inc. to NZ Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.13 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14 Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(a) Extension of Lease dated May 30, 1986 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(b) Second Extension of Lease dated May 30, 1991 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(c) Amendment to Second Extension of Lease dated May 19, 1994 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(d) 1995 Extension to Amendment to Second Extension of Lease dated October 19, 1995 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(d) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(e) Letter dated July 31, 1996 from Dielectric Polymers, Inc. to Holyoke Supply Company, Inc. exercising its option to extend the Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(e) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.14(f) 1997 Extension to Amendment to Second Extension of Lease dated March 26, 1997 to Indenture of Lease dated November 1, 1984 (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(f) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(g) Letter dated August 27, 1997 from Dielectric Polymers, Inc. to Holyoke Supply Company, Inc. extending the Indenture of Lease (see Exhibit 10.14 hereto) between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(g) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1998, Commission File No. 1-4415, which is incorporated herein by reference.) 10.15 Lease dated January 8, 1992 between Nelco Technology, Inc. and CMD Southwest, Inc. regarding real property located at 1135 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which is incorporated herein by reference.) 10.15(a) First Amendment dated July 8, 1996 to Lease dated January 8, 1992 (see Exhibit 10.15 hereto) between Nelco Technology, Inc. and CMD Southwest, Inc. regarding real property located at 1135 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.15(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.16 Tenancy Agreement dated October 8, 1992 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.18 of the Company's Annual Report on Form 10- K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.16(a) Tenancy Agreement dated November 3, 1995 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.16(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 10.17 Lease Contract dated February 26, 1988 between the New York State Department of Transportation and the Edgewater Stewart Company regarding real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.17(a) Assignment and Assumption of Lease dated February 16, 1995 between New England Laminates Co., Inc. and The Edgewater Stewart Company regarding the assignment of the Lease Contract (see Exhibit 10.17 hereto) for the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.17(b) Lease Amendment No. 1 dated February 17, 1995 between New England Laminates Co., Inc. and the New York State Department of Transportation to Lease Contract dated February 26, 1988 (see Exhibit 10.17 hereto) regarding the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.18(a) Employment Agreement, dated March 18, 1996, between the Company and E. Phillip Smoot. (Reference is made to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.18(b) Employment and Consulting Agreement, dated February 9, 1999, between the Company and E. Phillip Smoot. (This exhibit is a management contract or compensatory plan or arrangement.) 10.19 Sale and Purchase Agreement dated 29 October 1997 between Dieter G. Weiss, Lothar Hubert Reinartz, Nelco International Corporation and Park Electrochemical Corp. relating to the sale and purchase of shares of capital in Dielektra GmbH. (Reference is made to Exhibit 10.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) 21.01 Subsidiaries of the Company. 23.01 Consent of Ernst & Young LLP. 27.01 Financial Data Schedule (Filed only by electronic transmission with EDGAR filing with the Securities and Exchange Commission.)