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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 2, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to__________
Commission file Number 1-4415
PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
__________New York___________ _____11-1734643_____
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
__5 Dakota Drive, Lake Success, N.Y.__ ___11042___
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 354-
4100
Not Applicable
-----------------------------------------------------
- -
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X} No[ }
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12,
13, or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a
court. Yes { } No { }
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 19,515,307 as of July 12, 2002.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION: Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 2, 2002 (Unaudited) and March 3, 2003 3
Consolidated Statements of Operations
13 weeks ended June 2, 2002 and May 27, 2001
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows
13 weeks ended June 2, 2002 and May 27, 2001
(Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Factors That May Affect Future Results 18
Item 3. Quantitive and Qualitative Disclosures About
Market Risk 19
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES............................................... 21
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 2,
2002 March 3,
(Unaudited) 2002*
ASSETS
Current assets:
Cash and cash equivalents $ 98,352 $ 99,492
Marketable securities 50,888 51,917
Accounts receivable, net 34,848 33,628
Inventories (Note 2) 13,751 13,242
Prepaid expenses and other current
assets 12,770 12,082
-------- -------
Total current assets 210,609 210,361
Property, plant and equipment, net 149,813 149,810
Other assets 917 473
-------- --------
Total $361,339 $360,644
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 13,530 $ 14,098
Accrued liabilities 28,579 27,862
Income taxes payable 1,020 1,401
-------- --------
Total current liabilities 43,129 43,361
Deferred income taxes 13,059 13,054
Deferred pension liability and other 12,430 11,683
Stockholders' equity:
Common stock 2,037 2,037
Additional paid-in capital 131,297 131,138
Retained earnings 171,147 172,953
Treasury stock, at cost (5,715) (5,692)
Accumulated other non-owner changes (6,045) (7,890)
--------- ---------
Total stockholders' equity 292,721 292,546
--------- ---------
Total $361,339 $360,644
--------- ---------
*The balance sheet at March 3, 2002 has been derived from the
audited financial statements at that date.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
13 Weeks Ended
(Unaudited)
June 2, May 27,
2002 2001
Net sales $56,561 $ 69,102
Cost of sales 50,300 65,836
Gross profit 6,261 3,266
Selling, general and administrative
expenses 8,111 9,492
Loss on sale of NTI and closure of
related support facility (Note 4) - 15,707
Restructuring and severance charges
(Note 5) - 681
Loss from operations (1,850) (22,614)
Other income:
Interest and other income, net 942 1,740
Loss before income taxes (908) (20,874)
Income tax benefit (272) (6,262)
Net loss $ (636) $(14,612)
Loss per share (Note 6):
Basic $ (.03) $ (.75)
Diluted $ (.03) $ (.75)
Weighted average number of common and
common equivalent shares outstanding:
Basic 19,661 19,420
Diluted 19,661 19,420
Dividends per share $ .06 $ .06
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
13 Weeks Ended
(Unaudited)
June 2, May 27,
2002 2001
Cash flows from operating activities:
Net loss $ (636) $(14,612)
Depreciation and amortization 4,445 4,292
Loss on sale of fixed assets - 10,636
Impairment of fixed assets - 2,058
Change in operating assets and
liabilities (1,891) 18,446
Net cash provided by operating
activities $ 1,918 $ 20,820
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (2,693) (6,548)
Purchases of marketable securities (4,997) -
Proceeds from sales and maturities
of marketable securities 5,991 14,565
Net cash (used in) provided by
investing activities (1,699) 8,017
Cash flows from financing activities:
Redemption of long-term debt (Note 3) - (1,738)
Dividends paid (1,170) (1,163)
Proceeds from exercise of stock options 136 601
Net cash used in financing activities (1,034) (2,300)
Change in cash and cash equivalents before
exchange rate changes (815) 26,537
Effect of exchange rate changes on cash
and cash equivalents (325) (757)
Change in cash and cash equivalents (1,140) 25,780
Cash and cash equivalents, beginning
of period 99,492 123,726
Cash and cash equivalents, end of period $98,352 $149,506
Supplemental cash flow information:
Cash paid during the period for:
Income taxes $ - $ 668
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 2,
2002, the consolidated statements of operations for the 13
weeks ended June 2, 2002 and May 27, 2001, and the
condensed consolidated statements of cash flows for the 13
weeks then ended have been prepared by the Company,
without audit. In the opinion of management, these
unaudited condensed consolidated financial statements
contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position at June 2, 2002 and the results of
operations and cash flows for all periods presented.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with accounting principles generally accepted in the
United States have been condensed or omitted. It is
suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year
ended March 3, 2002.
2. INVENTORIES
Inventories consisted of the following:
(Amounts in thousands)
June 2, March 3,
2002 2002
Raw materials $ 5,089 $ 4,996
Work-in-process 3,394 2,916
Finished goods 4,595 4,784
Manufacturing supplies 673 546
$13,751 $13,242
3. LONG-TERM DEBT
On March 1, 2001, $95,934,000 principal amount of the
Company's 5.5% Convertible Subordinated Notes due March 1,
2006 was converted into 3,410,908 shares of the Company's
common stock, and the remaining $1,738,000 principal
amount of the Notes was redeemed by the Company on March
2, 2001 for cash.
4. SALE OF NELCO TECHNOLOGY, INC.
During the Company's 1998 fiscal year and for several
years prior thereto, more than 10% of the Company's total
worldwide sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp., and the Company's
wholly owned subsidiary, Nelco Technology, Inc. ("NTI")
located in Tempe, Arizona, had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials, commonly known as mass lamination, which were
used by Delco to produce finished multilayer printed
circuit boards. However, in March 1998, the Company was
informed by Delco that Delco planned to close its printed
circuit board fabrication plant and exit the printed
circuit board manufacturing business. As a result, the
Company's sales to Delco declined during the three-month
period ended May 31, 1998, were negligible during the
remainder of the 1999 fiscal year and have been nil in
subsequent years.
After March 1998, the business of NTI languished and its
performance was unsatisfactory due primarily to the
absence of the unique, high-volume, high-quality business
that had been provided by Delco Electronics and the
absence of any other customer in the North American
electronic materials industry with a similar demand for
the large volumes of semi-finished multilayer printed
circuit board materials that Delco purchased from NTI.
Although NTI's business experienced a resurgence in the
2001 fiscal year as the North American market for printed
circuit materials became extremely strong and demand
exceeded supply for the electronic materials manufactured
by NTI, the Company's internal expectations and
projections for the NTI business were for continuing
volatility in the business' performance over the
foreseeable future. Consequently, the Company commenced
efforts to sell the business in the second half of its
2001 fiscal year; and in April 2001, the Company sold the
assets and business of NTI and closed a related support
facility, also located in Tempe, Arizona. As a result of
this sale, the Company exited the mass lamination business
in North America.
In connection with the sale of NTI and the closure of the
related support facility, the Company recorded non-
recurring, pre-tax charges of $15.7 million in its fiscal
year 2002 first quarter ended May 27, 2001. The components
of these charges and the related liability balances and
activity from the May 27, 2001 balance sheet date to the
June 2, 2002 balance sheet date are set forth below.
(Amounts in thousands)
Charges 6/2/02
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
------- ----------- --------- -----------
NTI charges:
Loss on sale of
assets and business $10,580 $10,580 $ - $ -
Severance payments 387 387 - -
Medical and other
costs 95 95 - -
Support facility
charges:
Impairment of long
lived assets 2,058 2,058 - -
Write down accounts
receivable 350 304 31 15
Write down inventory 590 590 - -
Severance payments 688 688 - -
Medical and other
costs 133 123 - 10
Lease payments, taxes
utilities, main. 781 244 - 537
Other 45 45 - -
------- ------- ---- ----
$15,707 $15,114 $31 $562
======= ======= ==== ====
The severance payments and medical and other costs
incurred in connection with the sale of NTI and the
closure of the related support facility were for the
termination of hourly and salaried, administrative,
manufacturing and support employees, all of whom were
terminated during the first and second fiscal quarters
ended May 27, 2001 and August 26, 2001, respectively, and
substantially all of the severance payments and related
costs for such terminated employees (totaling $1.3
million) were paid during such quarters. The lease
obligations will be paid through August 2004 pursuant to
the related lease agreements.
NTI did not have a material effect on Park's consolidated
financial position, results of operations, capital
resources, liquidity or continuing operations, and the
sale of NTI is not expected to have a material effect on
the Company's future operating results.
5. RESTRUCTURING AND SEVERANCE CHARGES
The Company recorded non-recurring, pre-tax charges of
$2,921,000 in its fiscal year 2002 third quarter ended
November 25, 2001 in connection with the closure of the
conventional lamination line of Dielektra GmbH
("Dielektra"), its electronic materials business located
in Cologne, Germany, and the reduction of the size of
Dielektra's mass lamination operations to enable Dielektra
to focus on its DatlamT automated continuous lamination
and paneling technology and on the marketing and
manufacturing of high technology, higher layer count mass
lamination product. The charges included $2,020,000 for
severance payments and related costs for terminated
employees. In addition, the Company recorded non-
recurring, pre-tax severance charges of $681,000 in its
fiscal 2002 first quarter ended May 27, 2001 and $125,000
in its third quarter ended November 25, 2001 for severance
payments and related costs for terminated employees at the
Company's continuing operations in Asia, Europe and North
America. The terminated employees were hourly and
salaried, administrative, manufacturing and support
employees. The components of these charges and the related
liability balances and activity from the November 25, 2001
and May 27, 2001 balance sheet dates to the June 2, 2002
balance sheet date are set forth below.
(Amounts in thousands)
Charges 6/2/02
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
-------- ----------- --------- -----------
Dielektra GmbH charges:
Impairment of long
lived assets $ 378 $ 378 $ - $ -
Write down of assets 523 523 - -
Severance payments and
related costs 2,020 1,506 - 514
------ ------ ----- ----
2,921 2,407 514
Other severance payments
and related costs 806 806 - -
------ ------ ----- ----
$3,727 $3,213 $ - $514
====== ====== ===== ====
The remaining liabilities relate to terminated employees
in Germany, all of which are expected to be paid during
the Company's 2003 fiscal year second quarter ending
September 1, 2002.
The charge for fixed asset impairments was comprised of
$378,000 to write off the net book value of machinery and
equipment and $523,000 to write down related land and
building that are no longer used as a result of the close-
down of the conventional lamination line of Dielektra. The
machinery and equipment have no residual value. The land
and building that previously housed the closed operations
are being held for sale and have been written down to
their estimated net realizable value of $2,050,000.
All the terminated employees referred to in this Note were
hourly and salaried, administrative, manufacturing and
support employees, all such employees were terminated
during the first, second and third fiscal quarters ended
May 27, 2001, August 26, 2001 and November 25, 2001,
respectively, and substantially all the severance payments
and related costs for such terminated employees were paid
during such quarters, except payments and costs of
$1,212,000 in Germany, $698,000 of which were paid in
installments to terminated employees in Germany during the
Company's 2003 fiscal year first quarter ended June 2,
2002 and the balance of which is expected to be paid to
terminated employees in Germany during the Company's 2003
fiscal year second quarter ending September 1, 2002.
As a result of the foregoing employee terminations and
other less significant employee terminations in connection
with business contractions and in the ordinary course of
business and substantial numbers of employee resignations
and retirements in the ordinary course of business, the
total number of employees employed by the Company declined
to approximately 1,700 as of March 3, 2002 from
approximately 3,000 as of February 25, 2001, the end of
the Company's 2001 fiscal year, and was approximately
1,700 as of June 2, 2002.
6. LOSS PER SHARE
Basic loss per share is computed by dividing net loss by
the weighted average number of shares of common stock
outstanding for the period. Diluted loss per share is
computed by dividing net loss by the sum of (a) the
weighted average number of shares of common stock
outstanding during the period and (b) the potential common
stock equivalents during the period. Stock options are the
only common stock equivalents and are computed using the
treasury stock method.
The table below sets forth the basic and diluted weighted
average number of shares of common stock and potential
common stock equivalents outstanding for the periods
specified:
13 weeks ended
June 2, May 27,
2002 2001
Basic weighted average shares
outstanding 19,661,000 19,420,000
Diluted weighted average shares
and potential common stock
equivalents outstanding 19,661,000 19,420,000
Common stock equivalents, not included in the computation
of diluted (loss) earnings per share because the effect
would have been antidilutive, were 514,916 and 471,688 for
the thirteen weeks ended June 2, 2002 and May 27, 2001,
respectively.
7. BUSINESS SEGMENTS
The Company's specialty adhesive tape and film business,
advanced composite materials business and plumbing
hardware business were previously aggregated into the
engineered materials and plumbing hardware segment. During
fiscal year 2001, the Company closed and liquidated its
plumbing hardware business. In fiscal years 2001, 2000 and
1999, the specialty adhesive tape, advanced composite
materials and plumbing hardware businesses comprised less
than 10% of the Company's consolidated revenues and
assets, and the Company considered itself to operate in
one business segment. The Company's electronic materials
products are marketed primarily to leading independent
printed circuit board fabricators, electronic
manufacturing service companies, electronic contract
manufacturers and major electronic original equipment
manufacturers ("OEMs") located throughout North America,
Europe and Asia. The Company's specialty adhesive tape and
advanced composite materials customers, the majority of
which are located in the United States, include OEMs,
independent firms and distributors in the electronics,
aerospace and industrial industries.
Sales are attributed to geographic region based upon the
region from which the materials were shipped to the
customer. Sales between geographic regions were not
significant.
Financial information concerning the Company's operations
by geographic area follows:
(Amounts in thousands)
13 Weeks Ended
June 2, May 27,
2002 2001
Sales:
North America $32,248 $41,459
Europe 12,934 16,981
Asia 11,379 10,662
Total sales $56,561 $69,102
June 2, March 3,
2002 2002
Long-lived assets:
United States $102,262 $104,386
Europe 25,961 22,954
Asia 22,507 22,943
Total long-lived assets $150,730 $150,283
8. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) for the 13 weeks ended
June 2, 2002 and May 27, 2001 was $1,209,000 and
($16,559,000), respectively. Comprehensive income (loss)
consisted primarily of net loss and foreign currency
translation adjustments.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
141, "Business Combinations", and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning
after December 15, 2001. Under the new rules set forth in
these Statements, goodwill and other intangible assets
deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets
will continue to be amortized over their useful lives. In
addition, Statement 141 eliminates the pooling-of-
interests method of accounting for business combinations,
except for qualifying business combinations that were
initiated prior to July 1, 2001. The Company adopted SFAS
142 for the fiscal quarter ended June 2, 2002. The Company
does not have any goodwill on its balance sheet, has
virtually no intangible assets, and is not engaged in any
transactions that are affected by the Statements; and,
therefore, the application of the non-amortization
provisions of the Statements did not have a material
adverse effect on the Company's consolidated results of
operations or financial position for the 13 weeks ended
June 2, 2002.
In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS
143") effective for fiscal years beginning after June 15,
2002. SFAS 143 requires the fair value of liabilities for
asset retirement obligations to be recognized in the
period in which the obligations are incurred if a
reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. The
Company has not yet determined what effect SFAS 143 will
have on the Company's consolidated results of operations
or financial position.
In October 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-
Lived Assets" ("SFAS 144"), which supercedes Statement No.
121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS 121").
Although it retains the basic requirements of SFAS 121
regarding when and how to measure an impairment loss, SFAS
144 provides additional implementation guidance. SFAS 144
is effective for all fiscal years beginning after December
15, 2001. The Company adopted SFAS 144 for the quarter
ended June 2, 2002. The adoption did not have a material
effect on the Company's results of operations or financial
condition.
10. SUBSEQUENT EVENT
On June 28, 2002, the Company announced that it sold its
Dielectric Polymers, Inc. ("DPI") subsidiary to Adhesive
Applications, Inc. of Easthampton, Massachusetts and that
the Company expected to record a gain of approximately
$3.2 million in its fiscal year 2003 second quarter ending
September 1, 2002 in connection with the sale.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Park is a leading global designer and producer of
advanced electronic materials used to fabricate complex
multilayer printed circuit boards and other electronic
interconnect systems. The Company's customers include leading
independent printed circuit board fabricators, electronic
manufacturing service companies, electronic contract
manufacturers and major electronic original equipment
manufacturers in the computer, telecommunications,
transportation, aerospace and instrumentation industries.
The Company's sales declined in the three-month period
ended June 2, 2002 compared with last year's comparable period,
with declines in sales by the Company's North American and
European operations. The earnings growth that the Company
achieved during its 2001 and 2000 fiscal years halted in the
2002 fiscal year as a result of a severe downturn in the global
electronics industry, and the global electronics industry
continued to be very depressed during the 2003 fiscal year
first quarter.
The Company is not engaged in any related party
transactions involving relationships or transactions with
persons or entities that derive benefits from their non-
independent relationship with the Company or the Company's
related parties, or in any transactions with parties with whom
the Company or its related parties have a relationship that
enables the parties to negotiate terms of material transactions
that may or would not be available from other, more clearly
independent parties on an arm's-length basis, or in any trading
activities involving non-exchange traded commodity or other
contracts that are accounted for at fair value or otherwise or
in any energy trading or risk management activities, other than
certain limited foreign currency contracts intended to hedge
the Company's contractual commitments to pay certain
obligations or to realize certain receipts in foreign
currencies.
Three Months Ended June 2, 2002 Compared with Three Months
Ended May 27, 2001
The Company's operations continued to generate losses
during the three-month period ended June 2, 2002 as the North
American, European and Asian markets for sophisticated printed
circuit materials continued to experience severely depressed
conditions during the 2003 fiscal year first quarter.
Nevertheless, the Company's losses in the 2003 fiscal
year first quarter were substantially less than they were in
last year's comparable period as a result of the Company's
reductions of its costs and expenses and as a result of the non-
recurring, pre-tax charge of $15.7 million that the Company
incurred during the 2002 fiscal year first quarter in
connection with the sale of the assets and business of Nelco
Technology, Inc. ("NTI"), the Company's wholly owned subsidiary
that manufactured semi-finished printed circuit boards,
commonly known as mass lamination, in Tempe, Arizona, and the
closure of a related support facility in Arizona and the pre-
tax severance charges of $0.7 million that the Company incurred
during the 2002 fiscal year first quarter related to the layoff
of employees at the Company's continuing operations.
Results of Operations
Net sales for the three-month period ended June 2, 2002
declined 18% to $56.6 million from $69.1 million for last
year's comparable period. This decrease in net sales was the
result of lower unit volumes of materials shipped. The
Company's foreign operations accounted for $24.3 million of net
sales, or 43% of the Company's total net sales worldwide,
during the three-month period ended June 2, 2002 compared with
$27.6 million of sales, or 40% of total net sales worldwide,
during last fiscal year's comparable period. Net sales by the
Company's foreign operations during the 2003 fiscal year first
quarter declined 12% from the 2002 fiscal year comparable
period. The decline in sales by foreign operations was due to
decreases in sales in Europe.
The gross margin for the Company's worldwide operations
was 11.1% during the three-month period ended June 2, 2002
compared with 4.7% for last fiscal year's comparable period.
The improvement in the gross margin was attributable to the
Company's ongoing cost reduction measures, including
significant workforce reductions, the decision to not implement
annual salary increases and the payment of significantly
reduced performance bonuses. Gross profit was also positively
impacted by higher percentages of sales of higher technology,
higher margin products as high performance materials accounted
for 76% of worldwide sales for the first quarter of the 2003
fiscal year compared with 66% for the first quarter of the 2002
fiscal year.
Although selling, general and administrative expenses
declined by $1.4 million, or 14.5%, during the three-month
period ended June 2, 2002 compared with last year's comparable
period, these expenses measured as a percentage of sales, were
14.3% during the three-month period ended June 2, 2002 compared
with 13.7% during last fiscal year's comparable period. This
increase in the expenses as a percentage of sales in the 2003
fiscal year period resulted from proportionately lower sales
compared to the comparable period during the last fiscal year.
The Company incurred a non-recurring, pre-tax charge of
$15.7 million during the 2002 fiscal year first quarter in
connection with the sale of the assets and business of Nelco
Technology, Inc. ("NTI"), the Company's wholly owned subsidiary
that manufactured semi-finished printed circuit boards,
commonly known as mass lamination, in Tempe, Arizona, and the
closure of a related support facility in Arizona. NTI formerly
supplied Delco Electronics Corporation with semi-finished
printed circuit boards. The Company also incurred pre-tax
severance charges of $0.7 million during the 2002 fiscal year
first quarter related to the layoff of employees at the
Company's continuing operations.
For reasons set forth above, loss from operations was
$1.9 million for the three months ended June 2, 2002 compared
with $22.6 million for the three months ended May 27, 2001,
including the non-recurring pre-tax charges described above.
Interest and other income, net, principally investment
income, was $0.9 million for the three-month period ended June
2, 2002 compared with $1.7 million for last fiscal year's
comparable period. The decrease in investment income was
attributable to a decrease in prevailing interest rates. The
Company's investments were primarily short-term taxable
instruments.
The Company's effective income tax rate was 30.0% for
the three-month period ended June 2, 2002 and for last fiscal
year's comparable period.
The net loss for the three month period ended June 2,
2002 declined to $0.6 million compared to $14.6 million for the
three months ended May 27, 2001. Basic and diluted loss per
share decreased to $0.03 for the three-month period ended June
2, 2002 from a basic and diluted loss of $0.75 per share
including the non-recurring, pre-tax charges for the three-
month period ended May 27, 2001.
Liquidity and Capital Resources:
At June 2, 2002, the Company's cash and temporary
investments were $149.2 million compared with $151.4 million at
March 3, 2002, the end of the Company's 2002 fiscal year. The
Company's working capital (which includes cash and temporary
investments) was $167.5 million at June 2, 2002 compared with
$167.0 million at March 3, 2002. The Company's current ratio
(the ratio of current assets to current liabilities) was 4.9 to
1 at June 2, 2002 and at March 3, 2002.
During the three-months ended June 2, 2002, cash used in
the Company's operations, before depreciation and amortization,
of $2.5 million included a slight net increase in working
capital items, resulting in $1.9 million of cash provided by
operating activities. During the same three-month period, the
Company expended $2.7 million for the purchase of property,
plant and equipment compared with $6.5 million for the three
month period ended May 27, 2001 and paid $1.2 million in
dividends on its common stock in each of such three-month
periods. Net expenditures for property, plant and equipment
were $22.8 million in the 2002 fiscal year and $51.8 million in
the 2001 fiscal year. During the past two fiscal years, the
Company completed significant expansions of its electronic
materials manufacturing facilities in California and New York
and its higher technology product line manufacturing facility
in Arizona.
At June 2, 2002, the Company had no long-term debt. The
Company believes its financial resources will be sufficient,
for the foreseeable future, to provide for continued investment
in working capital and property, plant and equipment and for
general corporate purposes. Such resources would also be
available for appropriate acquisitions and other expansion of
the Company's business.
The Company is not aware of any circumstances or events
that are reasonably likely to occur that could materially
affect its liquidity.
The Company's liquidity is not dependent on the use of,
and the Company is not engaged in, any off-balance sheet
financing arrangements, such as securitization of receivables
or obtaining access to assets through special purpose entities.
The Company's contractual obligations and other
commercial commitments to make future payments under contracts,
such as lease agreements, consist only of the operating lease
commitments. The Company has no long-term debt, capital lease
obligations, unconditional purchase obligations or other long-
term obligations, standby letters of credit, guarantees,
standby repurchase obligations or other commercial commitments
or contingent commitments, other than a standby letter of
credit in the amount of $1,042,000 to secure the Company's
obligations under the workers' compensation insurance program.
Environmental Matters:
In the three-month periods ended June 2, 2002 and May
27, 2001, the Company charged less than $0.1 million against
pretax income for environmental remedial response and voluntary
cleanup costs (including legal fees). While annual expenditures
have generally been constant from year to year and may increase
over time, the Company expects it will be able to fund such
expenditures from available cash. The timing of expenditures
depends on a number of factors, including regulatory approval
of cleanup projects, remedial techniques to be utilized and
agreements with other parties. At June 2, 2002 and March 3,
2002, the recorded liability in accrued liabilities for
environmental matters was approximately $3.9 million and $4.0
million, respectively. Management does not expect that
environmental matters will have a material adverse effect on
the liquidity, capital resources, business, consolidated
results of operations or consolidated financial position of the
Company.
Critical Accounting Policies and Estimates:
In response to financial reporting release, FR-60,
"Cautionary Advice Regarding Disclosure About Critical
Accounting Policies", issued by the Securities and Exchange
Commission in December 2001, the following information is
provided regarding critical accounting policies that are
important to the Consolidated Financial Statements and that
entail, to a significant extent, the use of estimates,
assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial
condition and results of operations are based upon the
Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires the Company to make estimates,
assumptions and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the related
disclosure of contingent liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to
sales allowances, bad debts, inventories, valuation of long-
lived assets, income taxes, restructuring, pensions and other
employee benefit programs, and contingencies and litigation.
The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting
policies affect its more significant judgments and estimates
used in the preparation of its consolidated financial
statements.
Sales Allowances
The Company provides for the estimated costs of sales
allowances at the time such costs can be reasonably estimated.
The Company is focused on manufacturing the highest quality
electronic materials and other products possible and employs
stringent manufacturing process controls and works with raw
material suppliers who have dedicated themselves to complying
with the Company's specifications and technical requirements.
However, if the quality of the Company's products declined, the
Company may incur higher sales allowances.
Bad Debt
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
Inventory
The Company writes down its inventory for estimated
obsolescence or unmarketability based upon the age of the
inventory and assumptions about future demand for the Company's
products and market conditions. If actual demand or market
conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
Valuation of Long-lived Assets
The Company assesses the impairment of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Important
factors that could trigger an impairment review include, but
are not limited to, significant negative industry or economic
trends and significant changes in the use of the Company's
assets or strategy of the overall business.
Income Taxes
Carrying value of the Company's net deferred tax assets
assumes that the Company will be able to generate sufficient
future taxable income in certain tax jurisdictions, based on
estimates and assumptions. If these estimates and assumptions
change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets
resulting in additional income tax expense in the Company's
consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets quarterly and assesses
the need for additional valuation allowances quarterly.
Restructuring
During the fiscal year ended March 3, 2002, the Company
recorded significant reserves in connection with the
restructuring relating to the sale of Nelco Technology, Inc.,
the closure of a related support facility and the realignment
of Dielektra, GmbH. These reserves include estimates pertaining
to employee separation costs and the settlements of contractual
obligations resulting from the Company's actions. Although the
Company does not anticipate significant changes, the actual
costs incurred by the Company may differ from these estimates.
Contingencies and Litigation
The Company is subject to a small number of proceedings,
lawsuits and other claims related to environmental, employment,
product and other matters. The Company is required to assess
the likelihood of any adverse judgments or outcomes in these
matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for
these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the
future due to new developments in each matter or changes in
approach such as a change in settlement strategy in dealing
with these matters.
Pension and Other Employee Benefit Programs
The Company's subsidiary in Europe has significant pension
costs that are developed from actuarial valuations. Inherent in
these valuations are key assumptions including discount rates
and wage inflation rates. The Company is required to consider
current market conditions, including changes in interest rates
and wage costs, in selecting these assumptions. Changes in the
related pension costs may occur in the future in addition to
changes resulting from fluctuations in the Company's related
headcount due to changes in the assumptions.
The Company's obligations for workers' compensation claims
and employee-health care benefits are effectively self-insured.
The Company uses an insurance company administrator to process
all such claims and benefits. The Company accrues its workers'
compensation liability based upon the claim reserves
established by the third-party administrator and historical
experience. The Company's employee health insurance benefit
liability is based on its historical claims experience.
The Company and certain of its subsidiaries have a non-
contributory profit sharing retirement plan covering their
regular full-time employees. In addition, the Company's
subsidiaries have various bonus and incentive compensation
programs, most of which are determined at management's
discretion.
The Company's reserves associated with these self-insured
liabilities and benefit programs are reviewed by management for
adequacy at the end of each reporting period.
Factors that May Affect Future Results.
Certain portions of this Report which do not relate to
historical financial information may be deemed to constitute
forward-looking statements that are subject to various factors
which could cause actual results to differ materially from
Park's expectations or from results which might be projected,
forecast, estimated or budgeted by the Company in forward-
looking statements. Such factors include, but are not limited
to, general conditions in the electronics industry, the
Company's competitive position, the status of the Company's
relationships with its customers, economic conditions in
international markets, the cost and availability of utilities,
and the various factors set forth under the caption "Factors
That May Affect Future Results" after Item 7 of Park's Annual
Report on Form 10-K for the fiscal year ended March 3, 2002.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk
The Company's market risk exposure at June 2, 2002 is
consistent with, and not greater than, the types of market risk
and amount of exposures presented in the Annual Report on Form
10-K for the fiscal year ended March 3, 2002.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1998, the Company and its Nelco Techology, Inc.
("NTI") subsidiary in Arizona filed a complaint against Delco
Electronics Corporation and the Delphi Automotive Systems unit
of General Motors Corp. in the United States District Court for
the District of Arizona. The complaint alleged, among other
things, that Delco breached its contract to purchase semi-
finished multilayer printed circuit boards from NTI and that
Delphi interfered with NTI's contract with Delco, that Delco
breached the covenant of good faith and fair dealing implied in
the contract, that Delco engaged in negligent misrepresentation
and that Delco fraudulently induced NTI to enter into the
contract. The Company and NTI sought substantial compensatory
and punitive damages.
On November 29, 2000, after a five day trial in Phoenix,
Arizona, a jury awarded damages to NTI in the amount of
$32,280,000, and on December 12, 2000 the judge in the United
States District Court entered judgment for NTI on its claim of
breach of the implied covenant of good faith and fair dealing
with damages in the amount of $32,280,000. Both parties filed
motions for post-judgment relief and a new trial, all of which
the judge denied, and both parties have appealed the decision
to the United States Court of Appeals for the Ninth Circuit in
San Francisco. The appeal has been fully briefed and the
parties await oral argument, which the Ninth Circuit has not
yet scheduled.
Park announced in March 1998 that it had been informed
by Delco Electronics that Delco planned to close its printed
circuit board fabrication plant and exit the printed circuit
board manufacturing business. After the plant closure, Delco
purchased all of its printed circuit boards from outside
suppliers and Delco was no longer a customer of the Company's.
As a result, the Company's sales to Delco declined
significantly during the three-month period ended May 31, 1998,
were negligible during the three-month period ended August 30,
1998, have been nil since that time. During the Company's 1999
fiscal year first quarter and during its 1998 fiscal year and
for several years prior thereto, more than 10% of the Company's
total worldwide sales were to Delco Electronics Corporation;
and the Company had been Delco's principal supplier of semi-
finished multilayer printed circuit board materials for more
than ten years. These materials were used by Delco to produce
finished multilayer printed circuit boards. See "Factors That
May Affect Future Results" after Item 2 of Part I of this
Report.
In the first quarter of the fiscal year ended March 3,
2002, the Company sold the assets and business of NTI and
recorded non-recurring, pre-tax charges of approximately $15.7
million in its 2002 fiscal year first quarter ended May 27,
2001 in connection with the sale of NTI and the closure of a
related support facility also located in Arizona. See Note 4 of
the Notes to Condensed Consolidated Financial Statements in
Item 2 of this Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) No reports on Form 8-K have been filed during the fiscal
quarter ended June 2, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Park Electrochemical Corp.
--------------------------
(Registrant)
/s/Brian E. Shore
Date: July 16, 2002 -----------------------
Brian E. Shore
President and
Chief Executive Officer
/s/Murray O. Stamer
Date: July 16, 2002 -----------------------
Murray O. Stamer
Senior Vice President, Finance
Principal Financial Officer