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DRAFT 5/28/03
10K.03-1
UNITED STATES
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 March 2, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 1-4415
Park Electrochemical Corp.
(Exact Name of Registrant as Specified in Its Charter)
New York 11-1734643
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of 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:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _
[cover page 1 of 2 pages]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes X No___
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates 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 the last
business day of the registrant's most recently completed second
fiscal quarter.
As of Close of
Title of Class Aggregate Market Value Business On
Common Stock,
par value $.10 per share $417,627,420* August 30, 2002
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Shares As of Close of
Title of Class Outstanding Business On
Common Stock,
par value $.10 per share 19,755,755 May 23, 2003
share
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held
July 17, 2003 incorporated by reference into Part III of this
Report.
*Included in such amount are 1,442,298 shares of common stock
valued at $21.40 per share and held as of such date by Jerry
Shore, the Registrant's Chairman of the Board and a member of the
Registrant's Board of Directors.
[cover page 2 of 2 pages]
TABLE OF CONTENTS
Page
PART I
Item 1. Business 4
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security 16
Holders
Executive Officers of the Registrant 16
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Factors That May Affect Future Results 33
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 35
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 62
PART III
Item 10. Directors and Executive Officers of the 63
Registrant
Item 11. Executive Compensation 63
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder 63
Matters
Item 13. Certain Relationships and Related 64
Transactions
Item 14. Controls and Procedures 64
PART IV
Item 15 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 65
SIGNATURES 66
CERTIFICATIONS 67
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 71
EXHIBIT INDEX 72
PART I
Item 1. Business.
General
Park Electrochemical Corp. ("Park"), through its
subsidiaries (unless the context otherwise requires, Park and its
subsidiaries are hereinafter called the "Company"), is primarily
engaged in the design, production and marketing of advanced
electronic materials used to fabricate complex multilayer printed
circuit boards and other electronic interconnection systems. Park
specializes in advanced materials for high layer count circuit
boards and high-speed digital broadband telecommunications,
internet and networking applications and radio frequency wireless
systems. Park's electronic materials business operates under the
"Nelco" name through fully integrated business units in Asia,
Europe and North America. The Company's electronic materials
manufacturing facilities are located in Singapore, China,
Germany, France, New York, Arizona and California.
The Company is also engaged in the design, production and
marketing of advanced composite materials through its FiberCote
Industries subsidiary in Waterbury, Connecticut.
Park was founded in 1954 by Jerry Shore, the Company's
Chairman of the Board and one of its largest shareholders.
Unless otherwise indicated, all information in this Report
has been adjusted to give effect to the Company's three-for-two
stock split in the form of a stock dividend, which was
distributed November 8, 2000 to shareholders of record at the
close of business on October 20, 2000.
In the fiscal year ended February 27, 2000, the Company's
business was divided into two industry segments: (1) electronic
materials and (2) engineered materials and plumbing hardware,
consisting of the Company's advanced composite materials,
plumbing hardware and specialty adhesive tapes and films
businesses. However, during the 2001 fiscal year, the Company
closed and liquidated the plumbing hardware portion of its
engineered materials and plumbing hardware business segment; and
in the second quarter of the 2003 fiscal year, the Company sold
its specialty adhesive tapes and films business. See Notes 16, 18
and 10 of the Notes to Consolidated Financial Statements in Item
8 of this Report for information concerning the closure of the
plumbing hardware business and the sale of the specialty adhesive
tapes and films business. In addition, in the 2001 fiscal year
the plumbing hardware, specialty adhesive tapes and films and
advanced composite materials businesses, and in the 2002 and 2003
fiscal years the remaining specialty adhesive tapes and films and
advanced composite materials businesses, comprised less than 10%
of the Company's consolidated revenues, earnings and assets, and
the Company considered itself to operate in one business segment
in such fiscal years. See Note 16 of the Notes to Consolidated
Financial Statements in Item 8 of this Report for information
concerning the Company's business segments.
The sales and long-lived assets of the Company's operations
by geographic area for the last three fiscal years are set forth
in Note 16 of the Notes to Consolidated Financial Statements in
Item 8 of this Report. The Company's foreign operations are
conducted principally by the Company's subsidiaries in Singapore,
China, Germany and France. 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.
The Company makes available free of charge on its Internet
website, www.parkelectro.com, its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and
all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to
the Securities and Exchange Commission. None of the information
on the Company's website shall be deemed to be a part of this
Report.
Electronic Materials Operations
The Company is a leading global designer and producer of
advanced electronic materials used to fabricate complex
multilayer printed circuit boards and other electronic
interconnect systems, such as multilayer back-planes, wireless
packages, high-speed/low-loss multilayers and high density
interconnects ("HDIs"). The Company's multilayer printed circuit
materials include copper-clad laminates and prepregs. The Company
has long-term relationships with its major customers, which
include leading independent printed circuit board fabricators,
electronic manufacturing service companies, electronic contract
manufacturers and major electronic original equipment
manufacturers ("OEMs"). Multilayer printed circuit boards and
interconnect systems are used in virtually all advanced
electronic equipment to direct, sequence and control electronic
signals between semiconductor devices (such as microprocessors
and memory and logic devices), passive components (such as
resistors and capacitors) and connection devices (such as infra-
red couplings, fiber optics and surface mount connectors).
Examples of end uses of the Company's digital printed circuit
materials include high speed routers and servers, storage area
networks, supercomputers, laptops, satellite switching equipment,
cellular telephones and transceivers, wireless personal digital
assistants ("PDAs") and wireless local area networks ("LANs").
The Company's radio frequency ("RF") printed circuit materials
are used primarily for military avionics, antennas for cellular
telephone base stations, automotive adaptive cruise control
systems and avionic communications equipment. The Company has
developed long-term relationships with major customers as a
result of its leading edge products, extensive technical and
engineering service support and responsive manufacturing
capabilities.
Park believes it founded the modern day printed circuit
industry in 1957 by inventing a composite material consisting of
an epoxy resin substrate reinforced with fiberglass cloth which
was laminated together with sheets of thin copper foil. This
epoxy-glass copper-clad laminate system is still used to
construct the large majority of today's advanced printed circuit
products. The Company also believes that in 1962 it invented the
first multilayer printed circuit materials system used to
construct multilayer printed circuit boards. The Company also
pioneered vacuum lamination and many other manufacturing
technologies used in the industry today. In addition, the
Company's subsidiary, Dielektra GmbH in Germany, which the
Company acquired in 1997, owns a patented process, called
DatlamT, 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 increasingly advanced electronic materials required for
interconnect performance and manufacturability, the increasing
miniaturization and portability of advanced electronic equipment,
the consolidation of the printed circuit board fabrication
industry and the time-to-market and time-to-volume pressures
requiring closer collaboration with materials suppliers.
The Company believes that it is one of the world's largest
manufacturers of advanced multilayer printed circuit materials
and the market leader in North America and Southeast Asia. It
also believes that it is one of only a few significant
independent manufacturers of multilayer printed circuit materials
in the world. The Company was the first manufacturer in the
printed circuit materials industry to establish manufacturing
presences in the three major global markets of North America,
Europe and Asia, with facilities established in Europe in 1969
and Asia in 1986.
Industry Background
The electronic materials manufactured by the Company and its
competitors are used to construct and fabricate complex
multilayer printed circuit boards and other advanced electronic
interconnect systems. Multilayer printed circuit materials
consist of prepregs and copper-clad laminates. Prepregs are
chemically and electrically engineered thermosetting or
thermoplastic 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 0.030 inch to 0.002 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 0.0030 inch to 0.0002 inch in
thickness and normally have a thickness of 0.0014 inch or 0.0007
inch. The Company supplies both copper-clad laminates and
prepregs to its customers, which use these products as a system
to construct multilayer printed circuit boards.
The printed circuit board fabricator processes copper-clad
laminates to form the inner layers of a multilayer printed
circuit board. The fabricator photoimages these laminates with a
dry film or liquid photoresist. After development of the
photoresist, the copper surfaces of the laminate are etched to
form the circuit pattern. The fabricator then assembles these
etched laminates by inserting one or more plies of dielectric
prepreg between each of the inner layer etched laminates and also
between an inner layer etched laminate and the outer layer copper
plane, and then laminating the entire assembly in a press.
Prepreg serves as the insulator between the multiple layers of
copper circuitry patterns found in the multilayer circuit board.
When the multilayer configuration is laminated, these plies of
prepreg form an insulating dielectric substrate supporting and
separating the multiple inner and outer planes of copper
circuitry. The fabricator drills vertical through-holes or vias
in the multilayer assembly and then plates the through-holes or
vias to form vertical conductors between the multiple layers of
circuitry patterns. These through holes or vias combine with the
conductor paths on the horizontal circuitry planes to create a
three-dimensional electronic interconnect system. In specialized
applications, an additional set of microvia layers (2 or 4,
typically) may be added through a secondary lamination process to
provide increased density and functionality to the design. The
outer two layers of copper foil are then imaged and etched to
form the finished multilayer printed circuit board. The completed
multilayer board is a three-dimensional interconnect system with
electronic signals traveling in the horizontal planes of multiple
layers of copper circuitry patterns, as well as the vertical
plane through the plated holes or vias.
In the years immediately preceding the severe correction and
downturn that occurred in the global electronics industry in the
Company's 2002 fiscal year first quarter, the global market for
advanced electronic products grew as a result of technological
change and frequent new product introductions. This growth was
principally attributable to increased sales and more complex
electronic content of newer products, such as cellular
telephones, pagers, personal computers and portable computing
devices and the infrastructure equipment necessary to support the
use of these devices, and greater use of electronics in other
products, such as automobiles. Further, large, almost completely
untapped markets for advanced electronic equipment emerged in
such areas as India and China and other areas of the Pacific Rim.
During its 2002 fiscal year, the Company established a business
center in Wuxi, China, in the Shanghai-Nanjing corridor, which is
an emerging region for advanced multilayer printed circuit
fabrication in China.
Semiconductor manufacturers have introduced successive
generations of more powerful microprocessors and memory and logic
devices. Electronic equipment manufacturers have designed these
advanced semiconductors into more compact and often portable
products. High performance computing devices in these smaller
portable platforms require greater reliability, closer
tolerances, higher component and circuit density and increased
overall complexity. As a result, the interconnect industry has
developed smaller, lighter, faster and more cost-effective
interconnect systems, including advanced multilayer printed
circuit boards.
Advanced interconnect systems require higher technology
printed circuit materials to insure the performance of the
electronic system and to improve the manufacturability of the
interconnect platform. In the years immediately preceding the
severe correction and downturn that occurred in the global
electronics industry in the Company's 2002 fiscal year first
quarter, the growth of the market for more advanced printed
circuit materials outpaced the market growth for standard printed
circuit materials. Printed circuit board fabricators and
electronic equipment manufacturers require advanced printed
circuit materials that have increasingly higher temperature
tolerances and more advanced and stable electrical properties in
order to support high-speed computing in a miniaturized and often
portable environment.
With the very high density circuit demands of miniaturized
high performance interconnect systems, the uniformity, purity,
consistency, performance predictability, dimensional stability
and production tolerances of printed circuit materials have
become successively more critical. High density printed circuit
boards and interconnect systems often involve higher layer count
multilayer circuit boards where the multiple planes of circuitry
and dielectric insulating substrates are very thin (dielectric
insulating substrate layers may be 0.002 inch or less) and the
circuit line and space geometries in the circuitry plane are very
narrow (0.002 inch or less). In addition, advanced surface mount
interconnect systems are typically designed with very small pad
sizes and very narrow plated through holes or vias which
electrically connect the multiple layers of circuitry planes.
High density interconnect systems must utilize printed circuit
materials whose dimensional characteristics and purity are
consistently manufactured to very high tolerance levels in order
for the printed circuit board fabricator to attain and sustain
acceptable product yields.
Shorter product life cycles and competitive pressures have
induced electronic equipment manufacturers to bring new products
to market and increase production volume to commercial levels
more quickly. These trends have highlighted the importance of
front-end engineering of electronic products and have increased
the level of collaboration among system designers, fabricators
and printed circuit materials suppliers. As the complexity of
electronic products increases, materials suppliers must provide
greater technical support to interconnect systems fabricators on
a timely basis regarding manufacturability and performance of new
materials systems.
Products and Services
The Company produces a broad line of advanced printed
circuit materials used to fabricate complex multilayer printed
circuit boards and other electronic interconnect systems,
including backplanes, wireless packages, high speed/low loss
multilayers and HDIs. The Company's diverse advanced printed
circuit materials product line is designed to address a wide
array of end-use applications and performance requirements.
The Company's electronic materials products have been
developed internally and through long-term development projects
with its principal suppliers and, to a lesser extent, through
licensing arrangements. The Company focuses its research and
development efforts on developing industry leading product
technology to meet the most demanding product requirements and
has designed its product line with a focus on the higher
performance, higher technology end of the materials spectrum. All
of the Company's existing electronic materials products have been
introduced since 1990.
Most of the Company's research and development expenditures
are attributable to the efforts of its electronic materials
operations. In response to the rapid technological changes in the
electronic materials business, these expenditures on research and
product development have increased over the past several years.
The Company's products include high-speed, low-loss, digital
broadband engineered formulations, high-temperature modified
epoxies, bismaleimide triazine epoxies ("BT epoxy"), non-MDA
polyimides, enhanced polyimides, high performance epoxy
Thermountr materials ("Thermount" is a registered trademark of
E.I. duPont de Nemours & Co.), SIT (Signal Integrity) products,
cyanate esters and polytetrafluoroethylene ("PTFE") formulations
for RF/microwave applications.
The Company has developed long-term relationships with
select customers through broad-based technical support and
service, as well as manufacturing proximity and responsiveness at
multiple levels of the customer's organization. The Company
focuses on developing a thorough understanding of its customer's
business, product lines, processes and technological challenges.
The Company seeks customers which are industry leaders committed
to maintaining and improving their industry leadership positions
and which are committed to long-term relationships with their
suppliers. The Company also seeks business opportunities with the
more advanced printed circuit fabricators and electronic
equipment manufacturers which are interested in the full value of
products and services provided by their suppliers. The Company
believes its proactive and timely support in assisting its
customers with the integration of advanced materials technology
into new product designs further strengthens its relationships
with its customers.
The Company's emphasis on service and close relationships
with its customers is reflected in its short lead times. The
Company has developed its manufacturing processes and customer
service organizations to provide its customers with printed
circuit materials products on a just-in-time basis. The Company
believes that its ability to meet its customers customized
manufacturing and quick-turn-around ("QTA") requirements is one
of its unique strengths.
The Company has located its advanced printed circuit
materials manufacturing operations in strategic locations
intended to serve specific regional markets. By situating its
facilities in close geographical proximity to its customers, the
Company is able to rapidly adjust its manufacturing processes to
meet customers' new requirements and respond quickly to
customers' technical needs. The Company has technical staffs
based at each of its manufacturing locations, which allows the
rapid dispatch of technical personnel to a customer's facility to
assist the customer in quickly solving design, process,
production or manufacturing problems. During the 2002 fiscal
year, the Company established a business center in Wuxi, China to
support the growing customer demand for advanced multilayer
printed circuitry materials in China.
Customers and End Markets
The Company's customers for its advanced electronic
materials include the leading independent printed circuit board
fabricators, electronic manufacturing service companies,
electronic contract manufacturers and major electronic original
equipment manufacturers ("OEMs") in the computer, networking,
telecommunications, transportation, aerospace and instrumentation
industries located throughout North America, Europe and Asia. The
Company seeks to align itself with the larger, more
technologically-advanced and better capitalized independent
printed circuit board fabricators and major electronic equipment
manufacturers which are industry leaders committed to maintaining
and improving their industry leadership positions and to building
long-term relationships with their suppliers. The Company's
selling effort typically involves several stages and relies on
the talents of Company personnel at different levels, from
management to sales personnel and quality engineers. In recent
years, the Company has augmented its traditional sales personnel
with an OEM marketing team and product technology specialists.
The Company's strategy emphasizes the use of multiple facilities
established in market areas in close proximity to its customers.
During the Company's 2003 fiscal year, approximately 17.3%
of the Company's total worldwide sales were to Sanmina
Corporation, a leading electronics contract manufacturer and
manufacturer of printed circuit boards, and approximately 10.0%
of the Company's total worldwide sales were to Multilayer
Technology, Inc., a manufacturer of multilayer printed circuit
boards. During the Company's 2002 fiscal year, approximately
18.1% of the Company's total worldwide sales were to Sanmina
Corporation and approximately 11.3% of the Company's total
worldwide sales were to Tyco Printed Circuit Group L.P., a
leading manufacturer of printed circuit boards.
During the Company's 1998 fiscal year and for several years
prior thereto, more than 10% of the Company's total worldwide
sales were to Delco Electronics Corporation, a subsidiary of
General Motors Corp. However, in 1998 Delco closed its printed
circuit board fabrication plant, exited the printed circuit board
manufacturing business, and ceased being a customer of the
Company's. After that time, the Company marketed its semi-
finished multilayer circuit board material manufacturing
capability to leading printed circuit board fabricators, contract
assemblers and electronic original equipment manufacturers in
North America. The Company had not previously marketed this
capability as its semi-finished multilayer capacity had been
largely committed to supplying Delco Electronics. In the first
quarter of the fiscal year ended March 3, 2002, the Company sold
the assets and business of its subsidiary in Arizona that
conducted the mass lamination business and recorded pre-tax
charges of approximately $15.7 million in its 2002 fiscal year
first quarter ended May 27, 2001 in connection with the sale and
the closure of a related support facility to the mass lamination
business also located in Arizona. See Item 3 of this Report for a
discussion of legal proceedings initiated by the Company against
Delco Electronics Corporation.
Although the electronic materials business is not dependent
on any single customer, the loss of a major customer or of a
group of customers could have a material adverse effect on the
electronic materials business.
The Company's electronic materials products are marketed by
sales personnel in industrial centers in North America, Europe
and Asia. Such personnel include both salaried employees and
independent sales representatives who work on a commission basis.
Manufacturing
The process for manufacturing multilayer printed circuit
materials is capital intensive and requires sophisticated
equipment as well as clean-room environments. The key steps in
the Company's manufacturing process include: the impregnation of
specially designed fiberglass cloth with a resin system and the
partial curing of that resin system; the assembling of laminates
consisting of single or multiple plies of prepreg and copper foil
in a clean-room environment; the vacuum lamination of the copper-
clad assemblies under simultaneous exposure to heat, pressure and
vacuum; and the finishing of the laminates to customer
specifications.
Prepreg is manufactured in a treater. A treater is a roll-to-
roll continuous machine which sequences specially designed
fiberglass cloth or other reinforcement fabric into a resin tank
and then sequences the resin-coated cloth through a series of
ovens which partially cure the resin system into the cloth. This
partially cured product or prepreg is then sheeted or paneled and
packaged by the Company for sale to customers, or used by the
Company to construct its copper-clad laminates.
The Company 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 manufactures very thin copper-
clad laminates utilizing Dielektra's unique, patented continuous
lamination technology.
The Company manufactures multilayer printed circuit
materials at seven fully integrated facilities located in the
United States, Europe and Southeast Asia. The Company opened its
California facility in 1965, its first Arizona and France
facilities in 1984, its Singapore facility in 1986 and its second
France facility in 1992, and in 1997, the Company acquired
Dielektra GmbH with a fully integrated facility in Cologne,
Germany. The Company services the North America market
principally through its United States manufacturing facilities,
the European market principally through its manufacturing
facilities in France and Germany, and the Asian market
principally through its Singapore manufacturing facility. During
its 2002 fiscal year, the Company established a business center
in China to supply the demand for advanced multilayer printed
circuitry materials in China. The Company has located its
manufacturing facilities in its important markets. By maintaining
technical and engineering staffs at each of its manufacturing
facilities, the Company is able to deliver fully-integrated
products and services on a timely basis.
The Company expanded the manufacturing capacity of its
electronic materials facilities in recent years. During the 2000
fiscal year, the Company completed expansions of its electronic
materials operations in Singapore and France, acquired additional
manufacturing capacity in California, and commenced significant
additional expansions of its electronic materials operations in
California and New York, which it completed in its 2002 fiscal
year. During the 2001 fiscal year, the Company commenced a
significant expansion of its higher technology product line
manufacturing facility in Arizona, which the Company completed
during the first quarter of its 2002 fiscal year. During the 2002
fiscal year, the Company established a business center in China,
realigned its German electronic materials business to focus its
efforts and capabilities on its unique DatlamT automated
continuous lamination and paneling technology and established the
capability to manufacture PTFE materials for RF/microwave
applications at its Neltec high performance materials facility in
Tempe, Arizona, augmenting the Company's PTFE manufacturing
capability in Lannemezan, France.
As a result of the persistent and pervasive depressed state
of the worldwide electronics manufacturing industry following the
severe downturn that occurred during the Company's 2002 fiscal
year first quarter, the Company closed its Nelco U.K.
manufacturing facility in Skelmersdale, England during its 2003
fiscal year third quarter and announced the closure of the mass
lamination operation of its Dielektra electronic materials
manufacturing business in Germany and the realignment of its
North American FR-4 electronic materials operations in New York
and California in its 2004 fiscal year first quarter. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 of this Report and Notes 12, 13
and 21 of the Notes to Consolidated Financial Statements in Item
8 of this Report for a discussion of the significant pre-tax
charges recorded by the Company in the 2003 fiscal year and
expected to be recorded by the Company in the first half of the
2004 fiscal year.
Materials and Sources of Supply
The principal materials used in the manufacture of the
Company's electronic products are specially manufactured copper
foil, fiberglass cloth and synthetic reinforcements, and
specially formulated resins and chemicals. The Company attempts
to develop and maintain close working relationships with
suppliers of those materials who have dedicated themselves to
complying with the Company's stringent specifications and
technical requirements. While the Company's philosophy is to work
with a limited number of suppliers, the Company has identified
alternate sources of supply for each of these materials. However,
there are a limited number of qualified suppliers of these
materials, substitutes for these materials are not readily
available, and, in the recent past, the industry has experienced
shortages in the market for certain of these materials. While the
Company has not experienced significant problems in the delivery
of these materials and considers its relationships with its
suppliers to be strong, a disruption of the supply of materials
could materially adversely affect the business, financial
condition and results of operations of the Company. Significant
increases in the cost of materials purchased by the Company could
also have a material adverse effect on the Company's business,
financial condition and results of operations if the Company were
unable to pass such price increases through to its customers.
Competition
The multilayer printed circuit materials industry is
characterized by intense competition and ongoing consolidation.
The Company's competitors are primarily divisions 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 significant
presences in the three major global markets of North America,
Europe and Asia. The Company believes that the multilayer printed
circuit materials industry has become more global and that the
remaining smaller regional manufacturers are finding 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 one of only a few significant independent
manufacturers of multilayer printed circuit materials in the
world today.
The markets in which the Company's electronic materials
operations compete are characterized by rapid technological
advances, and the Company's position in these markets depends
largely on its continued ability to develop technologically
advanced and highly specialized products. Although the Company
believes it is an industry technology leader and directs a
significant amount of its time and resources toward maintaining
its technological competitive advantage, there is no assurance
that the Company will be technologically competitive in the
future, or that the Company will continue to develop new products
that are technologically competitive.
Advanced Composite Operations
For many years, the Company was also engaged in the advanced
composite materials business, specialty adhesive tapes and films
business and plumbing hardware business. However, during the 2001
fiscal year, the Company closed and liquidated its plumbing
hardware business, and in June 2002 the Company sold its
specialty adhesive tapes and films business. See Notes 16, 18 and
10 of the Notes to Consolidated Financial Statements in Item 8 of
this Report for information concerning the Company's business
segments, the closure of the plumbing hardware business and the
sale of the specialty adhesive tapes and films business.
FiberCote Industries, Inc., the Company's advanced composite
materials business, develops and produces engineered composite
materials for the aerospace, rocket motor, electronics, radio
frequency and specialty industrial markets.
Marketing and Customers
The Company's advanced composite materials customers,
substantially all of which are located in the United States,
include manufacturers in the automotive, graphic arts, aerospace,
rocket motor, electronics, RF and specialty industrial
industries. Such materials are marketed by sales personnel
including both salaried employees and independent sales
representatives who work on a commission basis.
While no single advanced composite materials customer
accounted for 10% or more of the Company's total sales during the
last fiscal year, the loss of a major customer or of a group of
some of the largest customers of the advanced composite materials
business could have a material adverse effect upon the business.
Manufacturing and Sources of Supply
The Company's advanced composite materials manufacturing
facility is located in Waterbury, Connecticut.
The Company designs and manufactures its advanced composite
materials to its own specifications and to the specifications of
its customers. Product development efforts are devoted to
conforming the Company's advanced composites to the
specifications of, and obtaining approvals from, the Company's
customers. The materials used in the manufacture of these
engineered materials include graphite and carbon fibers and
fabrics, Kevlarr ("Kevlar" is a registered trademark of E.I. du
Pont de Nemours & Co.), quartz, fiberglass, polyester, chemicals,
resins, films, plastics, adhesives and certain other synthetic
materials. The Company purchases these materials from several
suppliers. Although satisfactory substitutes for many of these
materials are not readily available, the Company has experienced
no difficulties in obtaining such materials.
Competition
The Company has many competitors in the advanced composite
materials business, including some major corporations which have
substantially greater financial resources than the Company. The
Company competes for business on the basis of product performance
and development, product qualification and approval, the ability
to manufacture and deliver products in accordance with customers'
needs and requirements, and price.
Backlog
The Company records an item as backlog when it receives a
purchase order specifying the number of units to be purchased,
the purchase price, specifications and other customary terms and
conditions. At May 4, 2003, the unfilled portion of all purchase
orders received by the Company and believed by it to be firm was
approximately $3,966,000, compared to $4,807,000 at May 5, 2002.
The decline in backlog at May 4, 2003 compared to May 5, 2002 was
due primarily to the continuing slump in the Company's business
that began during the first two months of its 2002 fiscal year
resulting from the severe downturn and correction in the global
electronics industry and to the continuing trend of quick-turn-
around requirements of the Company's customers.
Various factors contribute to the size of the Company's
backlog. Accordingly, the foregoing information may not be
indicative of the Company's results of operations for any period
subsequent to the fiscal year ended March 2, 2003.
Patents and Trademarks
The Company holds several patents and trademarks or licenses
thereto. In the Company's opinion, some of these patents and
trademarks are important to its products. Generally, however, the
Company does not believe that an inability to obtain new, or to
defend existing, patents and trademarks would have a material
adverse effect on the Company.
Employees
At March 2, 2003, the Company had approximately 1,400
employees. Of these employees, 1,300 were engaged in the
Company's electronic materials operations, 45 in its advanced
composite materials operations and 55 consisted of executive
personnel and general administrative staff. As a result of a
severe correction and downturn in the global electronics industry
and, consequently, in the Company's electronic materials
business, the Company reduced its total number of employees
during the first two months of its 2002 fiscal year from
approximately 2,850 total employees to approximately 2,330 total
employees at April 30, 2001, and during the remainder of the 2002
fiscal year the Company's total number of employees declined to
approximately 1,700. None of the Company's employees are subject
to a collective bargaining agreement. Management considers its
employee relations to be good.
Environmental Matters
The Company is subject to stringent environmental regulation
of its use, storage, treatment and disposal of hazardous
materials and the release of emissions into the environment. The
Company believes that it currently is in substantial compliance
with the applicable federal, state and local environmental laws
and regulations to which it is subject and that continuing
compliance therewith will not have a material effect on its
capital expenditures, earnings or competitive position. The
Company does not currently anticipate making material capital
expenditures for environmental control facilities for its
existing manufacturing operations during the remainder of its
current fiscal year or its succeeding fiscal year. However,
developments, such as the enactment or adoption of even more
stringent environmental laws and regulations, could conceivably
result in substantial additional costs to the Company.
The Company and certain of its subsidiaries have been named
by the Environmental Protection Agency (the "EPA") or a
comparable state agency under the Comprehensive Environmental
Response, Compensation and Liability Act (the "Superfund Act") or
similar state law as potentially responsible parties in
connection with alleged releases of hazardous substances at eight
sites. In addition, a subsidiary of the Company has received cost
recovery claims under the Superfund Act from other private
parties involving two other sites and has received requests from
the EPA under the Superfund Act for information with respect to
its involvement at three other sites. Under the Superfund Act and
similar state laws, all parties who may have contributed any
waste to a hazardous waste disposal site or contaminated area
identified by the EPA or comparable state agency may be jointly
and severally liable for the cost of cleanup. Generally, these
sites are locations at which numerous persons disposed of
hazardous waste. In the case of the Company's subsidiaries,
generally the waste was removed from their manufacturing
facilities and disposed at the waste sites by various companies
which contracted with the subsidiaries to provide waste disposal
services. Neither the Company nor any of its subsidiaries have
been accused of or charged with any wrongdoing or illegal acts in
connection with any such sites. The Company believes it maintains
an effective and comprehensive environmental compliance program.
Management believes the ultimate disposition of known
environmental matters will not have a material adverse effect
upon the Company.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Matters"
included in Item 7 of this Report and Note 15 of the Notes to
Consolidated Financial Statements included in Item 8 of this
Report.
Item 2. Properties.
Set forth below are the locations of the significant
properties owned and leased by the Company, the businesses which
use the properties, and the size of each such property. All of
such properties, except for the Lake Success, New York property,
are used principally as manufacturing, warehouse and assembly
facilities.
Owned Size
Location or Use (Square
Leased Footage)
Lake Success, NY Leased Administrative 7,000
Offices
Newburgh, NY Leased Electronic Materials 171,000
Fullerton, CA Leased Electronic Materials 95,000
Anaheim, CA Leased Electronic Materials 26,000
Tempe, AZ Leased Electronic Materials 81,000
Tempe, AZ Leased Electronic Materials 6,000
Mirebeau, France Owned Electronic Materials 81,000
Lannemezan, France Owned Electronic Materials 29,000
Cologne, Germany Owned Electronic Materials 193,000
Singapore Leased Electronic Materials 53,000
Singapore Leased Electronic Materials 10,000
Kuching, Malaysia Leased Electronic Materials 11,000
Wuxi, China Leased Electronic Materials 12,000
Waterbury, CT Leased Advanced Composites 100,000
The Company believes its facilities and equipment to be in
good condition and reasonably suited and adequate for its current
needs. During the 2003 fiscal year, certain of the Company's
electronic manufacturing facilities were utilized at less than
50% of their capacity.
Item 3. Legal Proceedings.
In May 1998, the Company and its Nelco Technology, Inc.
("NTI") subsidiary in Arizona filed a complaint against Delco
Electronics Corporation and the Delphi Automotive Systems unit of
General Motors Corp. in the United States District Court for the
District of Arizona. The complaint alleged, among other things,
that Delco breached its contract to purchase semi-finished
multilayer printed circuit boards from NTI and that Delphi
interfered with NTI's contract with Delco, that Delco breached
the covenant of good faith and fair dealing implied in the
contract, that Delco engaged in negligent misrepresentation and
that Delco fraudulently induced NTI to enter into the contract.
The Company and NTI sought substantial compensatory and punitive
damages.
On November 29, 2000, after a five day trial in Phoenix,
Arizona, a jury awarded damages to NTI in the amount of
$32,280,000, and on December 12, 2000 the judge in the United
States District Court entered judgment for NTI on its claim of
breach of the implied covenant of good faith and fair dealing
with damages in the amount of $32,280,000. Both parties filed
motions for post-judgment relief and a new trial, all of which
the judge denied, and both parties appealed the decision to the
United States Court of Appeals for the Ninth Circuit in San
Francisco. The appeals were fully briefed, and on December 2,
2002 the parties presented their oral arguments to a panel of
three judges in the Court of Appeals for the Ninth Circuit. On
May 7, 2003, the three judge panel rendered a unanimous decision
affirming the jury verdict. The time period within which Delco
could have filed a petition for rehearing by the United States
Court of Appeals for the Ninth Circuit has expired. As of May 27,
2003, neither the Company nor NTI has received notice that Delco
has filed a petition for rehearing.
Park announced in March 1998 that it had been informed by
Delco Electronics that Delco planned to close its printed circuit
board fabrication plant and exit the printed circuit board
manufacturing business. After the plant closure, Delco purchased
all of its printed circuit boards from outside suppliers and
Delco was no longer a customer of the Company's. As a result, the
Company's sales to Delco declined significantly during the three-
month period ended May 31, 1998, were negligible during the three-
month period ended August 30, 1998 and have been nil since that
time. During the Company's 1999 fiscal year first quarter and
during its 1998 fiscal year and for several years prior thereto,
more than 10% of the Company's total worldwide sales were to
Delco Electronics Corporation; and the Company had been Delco's
principal supplier of semi-finished multilayer printed circuit
board materials for more than ten years. These materials were
used by Delco to produce finished multilayer printed circuit
boards. See "Business-Electronic Materials Operations-Customers
and End Markets" in Item 1 of this Report, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of this Report and "Factors That May Affect
Future Results" after Item 7 of this Report.
In the first quarter of the fiscal year ended March 3, 2002,
the Company sold the assets and business of NTI and recorded pre-
tax charges of approximately $15.7 million in its 2002 fiscal
year first quarter ended May 27, 2001 in connection with the sale
of NTI and the closure of a related support facility also located
in Arizona. See Notes 11 and 12 of the Notes to Consolidated
Financial Statements in Item 8 of this Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Executive Officers of the Registrant.
Name Title Age
Brian E. Shore Chief Executive Officer,
President and a Director 51
Stephen E. Gilhuley Senior Vice President,
Secretary and General Counsel 58
Emily J. Groehl Senior Vice President, Sales
and Marketing 56
John Jongebloed Senior Vice President, Global 46
Logistics
Thomas T. Spooner Senior Vice President, 66
Corporate and Technology
Development
Murray O. Stamer Senior Vice President, 45
Finance
Gary M. Watson Senior Vice President,
Engineering and Technology
and Senior Vice President, 55
Asian Business Unit
Brian Shore has served as a Director of the Company for more
than the past five years. Brian Shore was elected a Vice
President of the Company in January 1993, Executive Vice
President in May 1994, President effective March 4, 1996, the
first day of the Company's 1997 fiscal year, and Chief Executive
Officer in November 1996. Brian Shore also served as General
Counsel of the Company from April 1988 until April 1994.
Mr. Gilhuley has been General Counsel of the Company since
April 1994 and Secretary since July 1996. He was elected a Senior
Vice President in March 2001.
Ms. Groehl has been with one of Park's "Nelco" business
units for more than the past five years. She was elected Vice
President of New England Laminates Co., Inc. in 1988 and was Vice
President, Marketing and Sales of Nelco International Corporation
from 1993 until June 1999, when Nelco International Corporation
merged into Park Electrochemical Corp. She was elected Senior
Vice President of Park in May 1999.
Mr. Jongebloed has been employed by one of Park's "Nelco"
business units for more than the past ten years. He was Vice
President and General Manager of New England Laminates Co., Inc.
from January 1992 to May 1999, and President and General Manager
of New England Laminates Co., Inc. from May 1999 to August 2002
and since April 28, 2003. He was elected Senior Vice President of
Park in July 2001.
Mr. Spooner has been employed by one of Park's "Nelco"
business units for more than the past five years. He was Vice
President, Technology of Nelco International Corporation from
1993 until June 1999, when Nelco International Corporation merged
into Park Electrochemical Corp. He was elected Senior Vice
President, Technology of Park in May 1999. His title was changed
to Senior Vice President, Corporate and Technology Development in
May 2001.
Mr. Stamer has been employed by the Company since 1989 and
served as the Company's Corporate Controller from 1993 to May
1999, when he was elected Treasurer. He was elected Senior Vice
President, Finance in March 2001.
Mr. Watson was elected Senior Vice President, Engineering in
June 2000. His title was changed to Senior Vice President,
Engineering and Technology in May 2001. In addition, he became
Senior Vice President, Asian Business Unit in August 2002. Prior
to June 2000, Mr. Watson was Senior Director, Manufacturing
Process Technology of Fort James Corporation since March 1999;
Vice President, Research and Development of Boise Cascade
Corporation from 1992 to March 1999; and Business Division
Technology Manager of Weyerhauser Company from 1986 to 1992.
There are no family relationships between the directors or
executive officers of the Company, except that Brian Shore is the
son of Jerry Shore, who is the Chairman of the Board and a
Director of the Company and who also served as President of the
Company for more than five years until March 4, 1996 and as Chief
Executive Officer of the Company for more than five years until
November 19, 1996.
Each executive officer of the Company serves at the pleasure
of the Board of Directors of the Company.
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters.
The Company's Common Stock is listed and trades on the New
York Stock Exchange (trading symbol PKE). (The Common Stock also
trades on the Midwest Stock Exchange.) The following table sets
forth, for each of the quarterly periods indicated, the high and
low sales prices for the Common Stock as reported on the New York
Stock Exchange Composite Tape and dividends declared on the
Common Stock.
For the Fiscal Year Stock Price Dividends
Ended March 2, 2003 High Low Declared
First Quarter $31.45 $26.76 $.06
Second Quarter 28.15 19.10 $.06
Third Quarter 21.70 14.00 $.06
Fourth Quarter 22.14 15.27 $.06
For the Fiscal Year Stock Price Dividends
Ended March 3, 2002 High Low Declared
First Quarter $35.45 $20.03 $.06
Second Quarter 26.73 21.22 $.06
Third Quarter 26.50 19.06 $.06
Fourth Quarter 27.97 24.30 $.06
As of May 21, 2003, there were approximately 1,520 holders
of record of Common Stock.
The Company expects, for the immediate future, to continue
to pay regular cash dividends.
Item 6. Selected Financial Data.
The following selected consolidated financial data of Park
and its subsidiaries is qualified by reference to, and should be
read in conjunction with, the consolidated financial statements,
related notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained elsewhere
herein. Insofar as such consolidated financial information
relates to the five fiscal years ended March 2, 2003 and is as of
the end of such periods, it is derived from the consolidated
financial statements for such periods and as of such dates
audited by Ernst & Young LLP, independent auditors. The
Consolidated financial statements as of March 2, 2003 and March
3, 2002 and for the three years ended March 2, 2003, together
with the independent auditors' report for the three years ended
March 2, 2003, appear in Item 8 of this Report.
Fiscal Year Ended
(In thousands, except per share amounts)
Mar. 2, Mar. 3, Feb. 25, Feb. 27, Feb. 28,
2003 2002 2001 2000 1999
STATEMENTS OF EARNINGS
INFORMATION:
Net sales $216,776 $230,060 $522,197 $425,261 $387,634
Cost of sales 193,689 218,265 404,527 351,841 328,884
Gross profit 23,087 11,795 117,670 73,420 58,750
Selling, general and
administrative expenses 29,131 34,360 49,897 45,508 41,279
Asset impairment charge
(Note 13) 50,255 - - - -
Restructuring and
severance
Charges (Note 12) 4,794 3,727 - - -
Gain on sale of DPI
(Note 10) (3,170) - - - -
Loss on sale of NTI and
closure of related
support facility
(Note 11) - 15,707 - - -
Closure of plumbing
hardware business(Note 18) - - - 4,464 -
(Loss) profit from
operations (57,923) (41,999) 67,773 23,448 17,471
Other income:
Interest and other2
income, net 3,279 5,543 8,419 6,654 7,642
Interest expense - 5,593 5,720 5,400 -
Total other income 3,279 5,543 2,826 934 2,242
(Loss) earnings before
income taxes (54,644) (36,456) 70,599 24,382 19,713
Income tax (benefit)
provision (3,885) (10,937) 21,180 6,085 4,337
Net (loss) earnings $(50,759) $(25,519) $ 49,419 $ 18,297 $ 15,376
(Loss) earnings per share:
Basic $ (2.58) $ (1.31) $ 3.10 $ 1.16 $ .93
Diluted $ (2.58) $ (1.31) $ 2.65 $ 1.12 $ .92
Weighted average number
of common Shares outstanding:
Basic 19,674 19,535 15,932 15,761 16,470
Diluted 19,674 19,535 20,002 19,643 16,707
Cash dividends per
common share $ .24 $ .24 $ .23 $ .21 $ .21
BALANCE SHEET
INFORMATION:
Working capital $170,274 $167,000 $188,511 $176,113 $166,840
Total assets 301,542 360,644 430,581 365,252 351,698
Long-term debt - - 97,672 100,000 100,000
Stockholders' equity 245,701 292,546 228,906 179,118 164,646
See Notes to Consolidated Financial Statements in Item 8 of this Report.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
General:
Park is a leading global designer and producer of advanced
electronic materials used to fabricate complex multilayer printed
circuit boards and other electronic interconnect systems. The
Company's customers include leading independent printed circuit
board fabricators, electronic manufacturing service companies,
electronic contract manufacturers and major electronic original
equipment manufacturers in the computer, telecommunications,
transportation, aerospace and instrumentation industries.
The severe correction and downturn that occurred in the
global electronics industry early in the fiscal year ended March
3, 2002 and that dramatically affected the Company's financial
performance during that fiscal year, with steep declines in sales
by the Company's North American, European and Asian operations,
persisted during the fiscal year ended March 2, 2003 and caused
the global electronics industry to be very depressed throughout
the fiscal year, with no clear signs of recovery. Consequently,
the Company's sales declined during the 2003 fiscal year,
although not as steeply as in the prior fiscal year, with
decreased sales of electronic materials in North America and
Europe.
While the Company's operations continued to be weak during
the 2003 fiscal year as almost all markets for sophisticated
printed circuit materials continued to experience severely
depressed conditions, the Company's gross profit in the 2003
fiscal year was significantly more than its gross profit in the
2002 fiscal year as a result of the Company's reductions of its
costs and expenses and higher percentages of sales of higher
technology, higher margin products.
In addition to its depressed financial results of
operations, during the 2003 fiscal year the Company recorded pre-
tax charges totaling $55.0 million related to the closure of its
Nelco U.K. manufacturing facility and workforce reductions at a
North American business unit and the writedowns of fixed assets
at its continuing operations in North America and Germany
resulting from the realignment of its North American FR-4
business operations in New York and California and the closure of
the mass lamination operation in Germany. These charges were only
slightly offset by the pre-tax gain of $3.2 million realized by
the Company during the 2003 fiscal year second quarter in
connection with the sale of its Dielectric Polymers, Inc. ("DPI")
subsidiary for $5.0 million cash.
The Company recorded a pre-tax charge of $4.7 million in its
2003 fiscal year third quarter for the cost of closing its Nelco
U.K. manufacturing facility located in Skelmersdale, England,
which it announced in October 2002 in response to the almost
complete collapse of the U.K. high technology circuit board
industry. For many years, Nelco U.K. was one of the most vital
parts of the Company's global high technology circuit materials
business, but the U.K. high technology circuit board industry had
been devastated, and the closure of the Nelco U.K. facility was
unavoidable, as there was not enough business available in the
entire U.K. market to justify the Company's having an operation
in the U.K. in the future. The Company is supplying its few
remaining customers in the U.K. with product produced at its
Nelco facility located in Mirebeau, France and will continue to
provide these U.K. customers with local account management,
technical service and materials and inventory support. In
addition, the Company recorded a pre-tax charge of $0.1 million
during the 2003 fiscal year third quarter for severance payments
for workforce reductions at a North American business unit.
In its 2004 fiscal year first quarter, the Company announced
that Dielektra GmbH, the Company's advanced electronic materials
business located in Cologne, Germany, was closing its mass
lamination operation. Dielektra's mass lamination operation
supplied higher-end mass lamination products to European circuit
board manufacturers. However, the market for these products in
Europe had eroded to the point where the Company no longer
believed it was possible to operate a viable mass lamination
business in Europe, and the Company did not believe that, at any
time in the foreseeable future, the higher-end European mass
lamination market would recover to the extent necessary to
justify the Company's operating a mass lamination business in
Europe. After the closure of Dielektra's mass lamination
operation, its manufacturing operations will consist exclusively
of high technology treating and Dielektra's proprietary DatlamT
automated continuous laminate manufacturing, and the Dielektra
business will be focused exclusively on its unique high
technology manufacturing processes and product line. The Company
is developing new and more advanced products to be manufactured
by Dielektra on its DatlamT automated continuous manufacturing
lines. The Company believes that Dielektra's Datlam products
have certain unique technological capabilities which are useful
to high-technology circuit board customers which produce complex
high-density circuit boards.
In the 2004 fiscal year first quarter, the Company also
announced the realignment of its North American FR-4 business
operations located in New York and California and the
establishment of a new business unit called "Nelco/North
America", which will include the Company's FR-4 manufacturing
operations in New York and California and will be administered
principally from Fullerton, California. As part of the
realignment, the New York operation will be scaled down to a
smaller focused operation and the California operation will be
significantly scaled up to a larger volume operation, and there
will be significant workforce reductions at the Company's New
York facility and significant workforce increases at the
Company's California facility. After the New York operations have
been scaled back, a large portion of the New York facility will
be mothballed. The Company will have the flexibility in the
future to scale back up the Newburgh, New York facility if the
opportunity to do so presents itself. The realignment is designed
to help the Company achieve improved operating and cost
efficiencies in its North American FR-4 business and to help the
Company better service all of the its existing North American
customers. The Company does not contemplate losing any North
American customers as a result of the realignment. The Company
believes it has recently gained market share with two of its
major customers in North America.
As a result of continuing declines in the Company's North
American business operations and Dielektra's mass lamination
operation, during the fourth quarter of the 2003 fiscal year the
Company reassessed the recoverability of the fixed assets of
those operations based on cash flow projections and determined
that such fixed assets were impaired, and the Company recorded
pre-tax impairment charges of $50.3 million in the Company's 2003
fiscal year fourth quarter to reduce the book values of such
fixed assets to their estimated fair values. In the 2004 fiscal
year first quarter, the Company decided to realign its North
American FR-4 business operations located in Newburgh, New York
and Fullerton, California and to close Dielektra's mass
lamination operation, and the Company expects to record
additional pre-tax charges totaling approximately $16 million in
the first half of the Company's 2004 fiscal year as a result of
the North American realignment and the closure of Dielektra's
mass lamination operation and related workforce reductions. See
Notes 13 and 21 of the Notes to Consolidated Financial Statements
in Item 8 of this Report for additional information regarding the
realignment and closure.
During the Company's 1998 fiscal year and for several years
prior thereto, more than 10% of the Company's total worldwide
sales were to Delco Electronics Corporation, a subsidiary of
General Motors Corp., and the Company's wholly owned subsidiary,
Nelco Technology, Inc. ("NTI") located in Tempe, Arizona, had
been Delco's principal supplier of semi-finished multilayer
printed circuit board materials, commonly known as mass
lamination, which were used by Delco to produce finished
multilayer printed circuit boards. However, in March 1998, the
Company was informed by Delco that Delco planned to close its
printed circuit board fabrication plant and exit the printed
circuit board manufacturing business. As a result, the Company's
sales to Delco declined during the three-month period ended May
31, 1998, were negligible during the remainder of the 1999 fiscal
year and have been nil since that time.
In May 1998, the Company and NTI filed a complaint against
Delco Electronics Corporation and the Delphi Automotive Systems
unit of General Motors Corp. in the United States District Court
for the District of Arizona. The complaint alleged, among other
things, that Delco breached its contract to purchase semi-
finished multilayer printed circuit boards from NTI and that
Delphi interfered with NTI's contract with Delco, that Delco
breached the covenant of good faith and fair dealing implied in
the contract, that Delco engaged in negligent misrepresentation
and that Delco fraudulently induced NTI to enter into the
contract. The Company and NTI sought substantial compensatory and
punitive damages. In November 2000, a jury awarded damages to NTI
in the amount of $32.3 million, and in December 2000 the judge in
the United States District Court for the District of Arizona
entered judgment for NTI on its claim of breach of the implied
covenant of good faith and fair dealing with damages in the
amount of $32.3 million. Both parties appealed the decision to
the United States Court of Appeals for the Ninth Circuit in San
Francisco; and on May 7, 2003, a panel of three judges in the
Court of Appeals for the Ninth Circuit rendered a unanimous
decision affirming the jury verdict. The time period within which
Delco could have filed a petition for rehearing by the United
States Court of Appeals for the Ninth Circuit has expired. As of
May 27, 2003, neither the Company nor NTI has received notice
that Delco has filed a petition for rehearing.
The Company is not engaged in any related party transactions
involving relationships or transactions with persons or entities
that derive benefits from their non-independent relationship with
the Company or the Company's related parties, or in any
transactions with parties with whom the Company or its related
parties have a relationship that enables the parties to negotiate
terms of material transactions that may or would not be available
from other, more clearly independent parties on an arm's-length
basis, or in any trading activities involving non-exchange traded
commodity or other contracts that are accounted for at fair value
or otherwise or in any energy trading or risk management
activities, other than certain limited foreign currency contracts
intended to hedge the Company's contractual commitments to pay
certain obligations or to realize certain receipts in foreign
currencies.
The Company believes that an evaluation of its ongoing
operations would be difficult if the disclosure of its financial
results were limited to generally accepted accounting principles
("GAAP") financial measures. Accordingly, in addition to
disclosing its financial results determined in accordance with
GAAP, the Company discloses non-GAAP operating results that
exclude certain items in order to assist its shareholders and
other readers in assessing the Company's operating performance.
Such non-GAAP financial measures are provided to supplement the
results provided in accordance with GAAP.
Fiscal Year 2003 Compared with Fiscal Year 2002:
The Company's operations continued to be weak during the
fiscal year ended March 2, 2003 as the North American, European
and, to a lesser extent, Asian markets for sophisticated printed
circuit materials continued to experience severely depressed
conditions during the 2003 fiscal year.
Nevertheless, the Company's gross profit in the fiscal year
ended March 2, 2003 was significantly more than the gross profit
in the fiscal year ended March 3, 2002 as a result of the
company's reductions of its costs and expenses and higher
percentages of sales of higher technology, higher margin
products.
In addition to its depressed financial results of
operations, the Company recorded pre-tax, fixed asset impairment
charges of $50.3 million in the 2003 fiscal year fourth quarter
related to the writedowns of fixed assets at its continuing
operations in North America and Germany. The Company also
recorded pre-tax charges of $4.8 million in the 2003 fiscal year
third quarter in connection with the closure of its Nelco U.K.
manufacturing facility in Skelmersdale, England and severance
costs at a North American business unit and realized a pre-tax
gain of $3.2 million in the 2003 fiscal year second quarter in
connection with the sale of its DPI subsidiary.
In the 2002 fiscal year, the Company recorded pre-tax
charges totaling $19.4 million related to the realignment of the
operations of Dielektra GmbH, the sale of the assets and business
of NTI, the Company's wholly owned subsidiary that manufactured
semi-finished printed circuit boards, commonly known as mass
lamination, in Tempe, Arizona, the closure of a related support
facility in Arizona and severance payments for workforce
reductions at the Company's continuing operations.
The continuing low levels of sales of electronic materials
wwew largely responsible for the Company's results of operations
for the fiscal year ended March 2, 2003. The North American and
European markets for sophisticated printed circuits continued to
be severely depressed during the 2003 fiscal year, and the
Company's electronic materials operations located in those
regions suffered as a result, although the Company believes it
gained market share with certain of its electronic materials
customers.
The Company's results of operations and margins improved in
the 2003 fiscal year principally as a result of the electronic
material business' reductions in costs and expenses despite the
decrease in sales and the concomitant operation of the Company's
facilities at levels far below their designed manufacturing
capacities.
Operating results of the Company's advanced composite
materials business also improved during the 2003 fiscal year
primarily as a result of higher percentages of sales of higher
margin products.
Results of Operations
Net sales for the fiscal year ended March 2, 2003 declined
6% to $216.8 million from $230.1 million for the fiscal year
ended March 3, 2002. The decrease in net sales was principally
the result of lower unit volumes of materials shipped by the
Company's operations in Europe and North America, partially
offset by higher unit volumes of materials shipped by the
Company's operations in Asia. The comparative decrease in net
sales was also influenced by the fact that the Company's net
sales in the fiscal year ended March 3, 2002 benefited from
significantly higher sales in March 2001 than in any subsequent
month, as the downturn in the global electronics industry and in
the Company's sales occurred in the 2002 fiscal year first
quarter.
The Company's foreign operations accounted for $98.9 million
of sales, or 46% of the Company's total sales worldwide, during
the 2003 fiscal year, compared with $97.5 million of sales, or
42% of total sales worldwide, during the 2002 fiscal year and 40%
of total sales worldwide during the 2001 fiscal year. Sales by
the Company's foreign operations during the 2003 fiscal year
increased slightly from the 2002 fiscal year due to increases in
sales in Asia while sales by the Company's operations in England
and Germany declined during the 2003 fiscal year compared with
the prior fiscal year.
The overall gross profit as a percentage of net sales for
the Company's worldwide operations improved to 10.7% during the
2003 fiscal year compared with 5.1% during the 2002 fiscal year.
The improvement in the gross margin was attributable to the
significant declines in costs and expenses from the 2002 fiscal
year, production efficiencies resulting from enhanced
manufacturing automation, and increases in market share with
certain key electronic materials customers, which were only
partially offset by lower sales volumes and inefficiencies caused
by operating certain facilities at levels below their designed
manufacturing capacities. Gross profit was also positively
impacted by higher percentages of sales of higher technology,
higher margin products, as high performance materials accounted
for 77% of worldwide sales for the 2003 fiscal year compared with
71% for the prior fiscal year. The Company's cost of sales
decreased significantly as a result of lower production volumes
and cost reduction measures implemented by the Company, including
significant workforce reductions and the reduction of overtime,
and the Company continued to implement an annual salary freeze
for significant numbers of salaried employees, especially senior
management employees, and paid no performance bonuses or
significantly reduced bonuses and other incentives.
Selling, general and administrative expenses declined by
$5.2 million, or by 15%, during the 2003 fiscal year compared
with the 2002 fiscal year, and these expenses, measured as a
percentage of sales, were 13.4% during the 2003 fiscal year
compared with 14.9% during the 2002 fiscal year. The decrease in
selling, general and administrative expenses as a percentage of
sales in the 2003 fiscal year was due to workforce reductions
resulting from the sale of DPI and the closure of the Company's
U.K. manufacturing facility in Skelmersdale, England and expense
reduction measures implemented by the Company during the 2003
fiscal year.
In the 2003 fiscal year fourth quarter, the Company recorded
pre-tax, fixed asset impairment charges of $50.3 million related
to the writedowns of fixed assets at continuing operations in
North America and Germany, which the Company announced in its
2004 fiscal year first quarter. The after-tax impact of these
fixed asset impairments was $46.0 million. In addition, the
Company recorded pre-tax charges totaling $4.8 million in the
2003 fiscal year third quarter related to the closure of its
Nelco U.K. manufacturing facility and severance costs at a North
American business unit and a pre-tax gain of $3.2 million in the
2003 fiscal year second quarter in connection with the sale of
DPI on June 27, 2002 for $5.0 million in cash. The net pre-tax
charge for all these items for the 2003 fiscal year was $51.9
million, and the net after-tax charge for the fiscal year was
$48.8 million.
For the reasons set forth above, loss from operations was
$57.9 million for the 2003 fiscal year, including the pre-tax
charges described above related to the writedowns of fixed assets
at continuing operations in North America and Germany, the
closure of the Nelco U.K. manufacturing facility and severance
costs at a North American business unit and the pre-tax gain
described above related to the sale of DPI, compared with a loss
from operations of $42.0 million for the 2002 fiscal year,
including the pre-tax charges described above related to the
realignment of the operations of the Company's German business
unit, a workforce reduction at another business unit, the sale of
NTI, the closure of a related support facility and severance for
the lay-off of employees at the Company's continuing operations.
The loss from operations for the 2003 fiscal year, before the pre-
tax items described above, was $1.9 million, compared with a loss
from operations of $11.9 million before the pre-tax charges
described above for the 2002 fiscal year.
Interest and other income, net, principally investment
income, declined 41% to $3.3 million for the 2003 fiscal year
from $5.5 million for the 2002 fiscal year. The decrease in
investment income was attributable to lower prevailing interest
rates during the 2003 fiscal year. The Company's investments were
primarily short-term taxable instruments. The Company incurred no
interest expense during the 2003 or 2002 fiscal years. The
Company's interest expense in prior fiscal years was related to
its $100 million principal amount of 5.5% Convertible
Subordinated Notes due 2006. See "Liquidity and Capital
Resources" elsewhere in this Item 7.
The Company's effective income tax rate was 7.1% for the
2003 fiscal year compared to 30.0% for the 2002 fiscal year. This
decrease in the effective tax rate was the result of a valuation
allowance on the tax benefit from losses sustained in the 2003
fiscal year that will be carried forward to future years for tax
purposes. The valuation allowance eliminated the current
recognition of the tax benefit from the tax loss carryforward due
to the uncertainty of the use of such benefit.
The net loss for the 2003 fiscal year, including the after-
tax charges of $48.8 described above related to the writedowns of
fixed assets at continuing operations in North America and
Germany, the closure of the Nelco U.K. manufacturing facility and
severance costs at a North American business unit, was $50.8
million, compared to a net loss of $25.5 million for the 2002
fiscal year, including the pre-tax charges described above
related to the realignment of the operations of the Company's
German business unit, a workforce reduction at another business
unit, the sale of NTI, the closure of a related support facility
and severance for the lay-off of employees at the Company's
continuing operations.
Basic and diluted losses per share for the 2003 fiscal year
were $2.58, including the pre-tax charges and gain described
above, compared to losses per share of $1.31 including the pre-
tax charges described above, for the 2002 fiscal year. Basic and
diluted losses per share, before the pre-tax charges and gain
described above, were $0.10 for the 2003 fiscal year, compared to
losses of $0.61 for the 2002 fiscal year, before the pre-tax
charges described above.
Fiscal Year 2002 Compared with Fiscal Year 2001:
The Company experienced a sharp decline in its results of
operations for the fiscal year ended March 3, 2002 as the North
American, European and Asian markets for sophisticated printed
circuit materials experienced severe downturns during such
periods.
In addition to its severely depressed results of operations,
during the 2002 fiscal year first quarter, the Company incurred
pre-tax charges of $15.7 million in connection with the sale of
the assets and business of NTI and the closure of a related
support facility in Arizona and $0.7 million in connection with
workforce reductions at the Company's continuing operations.
After Delco Electronics Corporation informed the Company in
March 1998 that Delco planned to close its printed circuit board
manufacturing business, the business of NTI languished and its
performance was unsatisfactory due primarily to the absence of
the unique, high-volume, high-quality business that had been
provided by Delco Electronics and the absence of any other
customer in the North American electronic materials industry with
a similar demand for the large volumes of semi-finished
multilayer printed circuit board materials that Delco purchased
from NTI. Although NTI's business experienced a resurgence in the
2001 fiscal year as the North American market for printed circuit
materials became extremely strong and demand exceeded supply for
the electronic materials manufactured by the Company, the
Company's internal expectations and projections for the NTI
business were for continuing volatility in the business'
performance over the foreseeable future. Consequently, the
Company commenced efforts to sell the business in the second half
of its 2001 fiscal year; and in April 2001, the Company sold the
assets and business of NTI and closed a related support facility,
also located in Tempe, Arizona. In connection with the sale and
closure, the Company recorded pre-tax charges of $15.7 million in
its 2002 fiscal year first quarter ended May 27, 2001. As a
result of this sale, the Company exited the mass lamination
business in North America.
Although the Company's electronic materials business was not
dependent on this single customer, the loss of this customer had
a material adverse effect on this business in the last three
fiscal years.
The Company also incurred pre-tax charges during the 2002
fiscal year third quarter totaling $2.9 million in connection
with the realignment of the operations of its German subsidiary,
Dielektra GmbH, the Company's electronic materials business
located in Cologne, Germany. The realignment included the closure
of Dielektra's conventional lamination line to enable it to
better focus its efforts and capabilities on its unique DatlamT
automated continuous lamination and paneling manufacturing
technology and the reduction of the size of its mass lamination
operations in order to focus on the marketing and manufacturing
of high technology, higher layer count mass lamination product.
The closure of Dielektra's remaining mass lamination operations
was subsequently announced by the Company in the fiscal year 2004
first quarter. The Company incurred an additional $125,000 pre-
tax charge during the fiscal year 2002 third quarter for a
workforce reduction at another business unit.
The significant reduction in the Company's sales of
electronic materials was largely responsible for the severe
decline in the Company's results of operations for the fiscal
year ended March 3, 2002. The North American, European and Asian
markets for sophisticated printed circuit materials collapsed
during the 2002 fiscal year, and the Company's electronic
materials operations located in each region suffered as a result,
although the Company believes it gained market share with certain
of its electronic materials customers.
The Company's results of operations and margins declined in
the 2002 fiscal year principally as a result of the electronic
material business' decrease in sales of all products and the
concomitant operation of the Company's facilities at levels far
below their designed manufacturing capacity.
Operating results of the Company's specialty adhesive tape
business, which the Company sold in the 2003 fiscal year second
quarter, and advanced composite materials business also declined
during the 2002 fiscal year. This decline was attributable to
lower volumes of products sold.
Results of Operations
Net sales for the fiscal year ended March 3, 2002 declined
56% to $230.1 million from $522.2 million for the fiscal year
ended February 25, 2001. This decline in sales was the result of
lower unit volumes of materials shipped and the absence of sales
by NTI, which, as described above, the Company sold in the 2002
fiscal year first quarter.
Although the net sales of NTI during the 2001 fiscal year
were material relative to the Company's consolidated net sales
during such year, the operations of NTI were not material to the
Company's consolidated financial position, results of operations,
capital resources or liquidity, and the sale of NTI is not
expected to have any material effect on the Company's future
operating results, financial position, capital resources,
liquidity or continuing operations.
The Company's foreign operations accounted for $97.5 million
of sales, or 42% of the Company's total sales worldwide, during
the 2002 fiscal year, compared with $209.3 million of sales, or
40% of total sales worldwide, during the 2001 fiscal year. Sales
by the Company's foreign operations during the 2002 fiscal year
decreased 54% from the 2001 fiscal year. The decrease in sales by
the Company's foreign operations in the 2002 fiscal year was due
to decreases in sales in both Asia and Europe.
The overall gross profit as a percentage of net sales for
the Company's worldwide operations was 5.1% during the 2002
fiscal year compared with 22.5% during the 2001 fiscal year. The
deterioration in the gross profit was attributable to the
significant declines in sales volumes from the 2001 fiscal year
and inefficiencies caused by operating certain facilities at
levels below their designed manufacturing capacity, which was
only slightly offset by increases in market share with certain
key electronic materials customers and the growth in sales of
higher technology, higher margin products as a percentage of
total sales. Although the Company's cost of sales decreased
significantly as a result of lower production volumes and cost
reduction measures implemented by the Company, including
significant workforce reductions, the reduction of overtime and
the decision to not implement annual salary increases, the
declines in sales and production volumes resulted in lower
volumes to absorb fixed overhead costs and, consequently, an
increase in the cost of sales as a percentage of net sales in the
2002 fiscal year.
Although selling, general and administrative expenses
declined by $15.5 million, or by 31%, during the 2002 fiscal year
compared with the 2001 fiscal year, these expenses, measured as a
percentage of sales, were 14.9% during the 2002 fiscal year
compared with 9.5% during the 2001 fiscal year. The increase in
selling, general and administrative expenses as a percentage of
sales in the 2002 fiscal year resulted from lower sales compared
to the 2001 fiscal year and the fixed components of such
expenses.
For the reasons set forth above, for the 2002 fiscal year,
profit from operations, including the pre-tax charges, described
above, related to the realignment of the operations of the
Company's German business unit, the sale of NTI and the closure
of a related support facility and severance for workforce
reductions at the Company's continuing operations, declined to a
loss of $42.0 million, and profit from operations, before the pre-
tax charges, declined to a loss of $22.6 million, in both cases
compared to a profit of $67.8 million for the 2001 fiscal year.
Interest and other income, net, principally investment
income, declined 34% to $5.5 million for the 2002 fiscal year
from $8.4 million for the 2001 fiscal year. The decrease in
investment income was attributable to lower prevailing interest
rates and the reduction in cash available for investment during
the 2002 fiscal year. The Company's investments were primarily
short-term taxable instruments. The Company incurred no interest
expense during the 2002 fiscal year compared with $5.6 million
during the 2001 fiscal year. The Company's interest expense was
related primarily to its $100 million principal amount of 5.5%
Convertible Subordinated Notes due 2006, issued in 1996,
$2,328,000 principal amount of which was converted into 82,750
shares of the Company's common stock prior to February 25,2001,
the end of the Company's 2001 fiscal year, $95,934,000 of which
was converted into 3,410,908 shares of the Company's common stock
on March 1, 2001, and $1,738,000 of which was redeemed by the
Company for cash on March 2, 2001. See "Liquidity and Capital
Resources" elsewhere in this Item 7.
The Company's effective income tax rate was 30.0% for the
2002 fiscal year and the 2001 fiscal year.
Net earnings for the 2002 fiscal year, including the pre-tax
charges, described above, related to the realignment of the
operations of the Company's German business unit, the sale of NTI
and the closure of a related support facility and severance for
workforce reductions at the Company's continuing operations,
declined to a net loss of $25.5 million, and net earnings, before
the pre-tax charges, declined to a net loss of $11.9 million, in
both cases from net earnings of $49.4 million for the 2001 fiscal
year.
Basic and diluted earnings per share decreased from $3.10
and $2.65, respectively, for the 2001 fiscal year to a loss per
share of $1.31 including the pre-tax charges and to a loss per
share of $0.61 before the pre-tax charges for the 2002 fiscal
year.
The declines in net earnings and earnings per share were
primarily attributable to the decline in the profit from
operations and the charge for the closure of the business unit in
Arizona which formerly supplied Delco Electronics Corporation
with semi-finished multilayer circuit boards.
Liquidity and Capital Resources:
At March 2, 2003, the Company's cash and temporary
investments were $162.9 million compared with $151.4 million at
March 3, 2002, the end of the Company's 2002 fiscal year. The
increase in the Company's cash and investment position at March
2, 2003 was attributable to cash provided by operations, lower
non-cash working capital items, the proceeds from the sale of the
Company's Dielectric Polymers, Inc. subsidiary and the refund of
Federal income taxes paid for prior years. The Company's working
capital (which includes cash and temporary investments) was
$170.3 million at March 2, 2003 compared with $167.0 million at
March 3, 2002. The increase in working capital at March 2, 2003
compared with March 3, 2002 was due principally to higher cash
and cash equivalents and lower accrued liabilities, offset in
part by lower accounts receivable, inventories and prepaid
expenses and other current assets and higher income taxes
payable. The decrease in accrued liabilities, accounts
receivable, inventories and prepaid expenses and other current
assets at March 2, 2003 compared with March 3, 2002 was a result
principally of reduced operating activity in support of lower
sales volumes. The Company's current ratio (the ratio of current
assets to current liabilities) was 5.2 to 1 at March 2, 2003
compared with 4.9 to 1 at March 3, 2002.
During the 2003 fiscal year, cash provided by the Company's
operations was enhanced by a small net reduction in non-cash
working capital items, resulting in $16.2 million of cash
provided from operating activities. Net expenditures for
property, plant and equipment were $6.4 million, $22.8 million
and $51.8 million in the 2003, 2002 and 2001 fiscal years,
respectively. The Company expects the capital expenditures in the
2004 fiscal year to be approximately the same amount as the
expenditures in the 2003 fiscal year.
The Company sold its DPI subsidiary on June 27, 2002 for
$5.0 million in cash and recorded a pre-tax gain of $3.2 million
in the 2003 fiscal year second quarter in connection with the
sale.
At March 2, 2003 and March 3, 2002, the Company had no long-
term debt. During the Company's 2001 fiscal year, $2.3 million
principal amount of Notes was converted into 82,750 shares of the
Company's common stock, and immediately after the end of the 2001
fiscal year, $95.9 million principal amount of Notes was
converted into 3,410,908 shares of the Company's common stock,
all at a conversion price of $28.125 per share. On March 2, 2001,
the Company redeemed $1.7 million principal amount of Notes for a
redemption price of $1,000.15 (including accrued interest) for
each $1,000 principal amount Note pursuant to a previous
announcement that on March 2, 2001 it would redeem all of the
outstanding Notes that were not converted on or before March 1,
2001. See Note 6 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
The Company believes its financial resources will be
sufficient, for the foreseeable future, to provide for continued
investment in working capital and property, plant and equipment
and for general corporate purposes. Such resources would also be
available for appropriate acquisitions and other expansions of
the Company's business.
The Company is not aware of any circumstances or events that
are reasonably likely to occur that could materially affect its
liquidity.
The Company's liquidity is not dependent on the use of, and
the Company is not engaged in, any off-balance sheet financing
arrangements, such as securitization of receivables or obtaining
access to assets through special purpose entities.
The Company's contractual obligations and other commercial
commitments to make future payments under contracts, such as
lease agreements, consist only of the operating lease commitments
described in Note 15 of the Notes to Consolidated Financial
Statements included elsewhere in this Report. The Company has no
long-term debt, capital lease obligations, unconditional purchase
obligations or other long-term obligations, standby letters of
credit, guarantees, standby repurchase obligations or other
commercial commitments or contingent commitments, other than a
standby letter of credit in the amount of $1.4 million to secure
the Company's obligations under its workers' compensation
insurance program.
Environmental Matters:
The Company is subject to various federal, state and local
government requirements relating to the protection of the
environment. The Company believes that, as a general matter, its
policies, practices and procedures are properly designed to
prevent unreasonable risk of environmental damage and that its
handling, manufacture, use and disposal of hazardous or toxic
substances are in accord with environmental laws and regulations.
However, mainly because of past operations and operations of
predecessor companies, which were generally in compliance with
applicable laws at the time of the operations in question, the
Company, like other companies engaged in similar businesses, is a
party to claims by government agencies and third parties and has
incurred remedial response and voluntary cleanup costs associated
with environmental matters. Additional claims and costs involving
past environmental matters may continue to arise in the future.
It is the Company's policy to record appropriate liabilities for
such matters when remedial efforts are probable and the costs can
be reasonably estimated.
In the 2003, 2002 and 2001 fiscal years, the Company charged
approximately $0.1 million, $0.2 million and $0.3 million,
respectively, against pre-tax income for remedial response and
voluntary cleanup costs (including legal fees). While annual
expenditures have generally been constant from year to year, and
may increase over time, the Company expects it will be able to
fund such expenditures from cash flow from operations. The timing
of expenditures depends on a number of factors, including
regulatory approval of cleanup projects, remedial techniques to
be utilized and agreements with other parties. At March 2, 2003,
the recorded liability in accrued liabilities for environmental
matters was $4.2 million compared with $4.0 million at March 3,
2002.
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 15 of the Notes to Consolidated Financial
Statements included in Item 8 of this Report for a discussion of
the Company's commitments and contingencies, including those
related to environmental matters.
Critical Accounting Policies and Estimates:
In response to financial reporting release, FR-
60,"Cautionary Advice Regarding Disclosure About Critical
Accounting Policies", issued by the Securities and Exchange
Commission in December 2001, the following information is
provided regarding critical accounting policies that are
important to the Consolidated Financial Statements and that
entail, to a significant extent, the use of estimates,
assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial
condition and results of operations are based upon the Company's
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires the Company to make estimates, assumptions and judgments
that affect the reported amounts of assets, liabilities, revenues
and expenses and the related disclosure of contingent
liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to sales allowances, bad
debts, inventories, valuation of long-lived assets, income taxes,
restructuring, pensions and other employee benefit programs, and
contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting
policies affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements.
Sales Allowances
The Company provides for the estimated costs of sales
allowances at the time such costs can be reasonably estimated.
The Company is focused on manufacturing the highest quality
electronic materials and other products possible and employs
stringent manufacturing process controls and works with raw
material suppliers who have dedicated themselves to complying
with the Company's specifications and technical requirements.
However, if the quality of the Company's products declined, the
Company may incur higher sales allowances.
Bad Debt
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
Inventory
The Company writes down its inventory for estimated
obsolescence or unmarketability based upon the age of the
inventory and assumptions about future demand for the Company's
products and market conditions. If actual demand or market
conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
Valuation of Long-lived Assets
The Company assesses the impairment of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Important
factors that could trigger an impairment review include, but are
not limited to, significant negative industry or economic trends
and significant changes in the use of the Company's assets or
strategy of the overall business.
Income Taxes
Carrying value of the Company's net deferred tax assets
assumes that the Company will be able to generate sufficient
future taxable income in certain tax jurisdictions, based on
estimates and assumptions. If these estimates and assumptions
change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets
resulting in additional income tax expense in the Company's
consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets quarterly and assesses
the need for additional valuation allowances quarterly.
Restructuring
During the fiscal year ended March 2, 2003, the Company
recorded significant charges in connection with the realignment
of its North American FR-4 business operations, the closures of
its mass lamination operation in Germany and its manufacturing
facility in England and employee severance costs at a North
American business unit; and during the fiscal year ended March 3,
2002, the Company recorded significant charges in connection with
the restructuring relating to the sale of Nelco Technology, Inc.,
the closure of a related support facility and the realignment of
Dielektra, GmbH. These charges include estimates pertaining to
employee separation costs and the settlements of contractual
obligations resulting from the Company's actions. Although the
Company does not anticipate significant changes, the actual costs
incurred by the Company may differ from these estimates.
Contingencies and Litigation
The Company is subject to a small number of proceedings,
lawsuits and other claims related to environmental, employment,
product and other matters. The Company is required to assess the
likelihood of any adverse judgments or outcomes in these matters
as well as potential ranges of probable losses. A determination
of the amount of reserves required, if any, for these
contingencies is made after careful analysis of each individual
issue. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
Pension and Other Employee Benefit Programs
One of the Company's subsidiaries in Europe has significant
pension costs that are developed from actuarial valuations.
Inherent in these valuations are key assumptions including
discount rates and wage inflation rates. The Company is required
to consider current market conditions, including changes in
interest rates and wage costs, in selecting these assumptions.
Changes in the related pension costs may occur in the future in
addition to changes resulting from fluctuations in the Company's
related headcount due to changes in the assumptions.
The Company's obligations for workers' compensation claims
and employee-health care benefits are effectively self-insured.
The Company uses an insurance company administrator to process
all such claims and benefits. The Company accrues its workers'
compensation liability based upon the claim reserves established
by the third-party administrator and historical experience. The
Company's employee health insurance benefit liability is based on
its historical claims experience.
The Company and certain of its subsidiaries have a non-
contributory profit sharing retirement plan covering their
regular full-time employees. In addition, the Company's
subsidiaries have various bonus and incentive compensation
programs, most of which are determined at management's
discretion.
The Company's reserves associated with these self-insured
liabilities and benefit programs are reviewed by management for
adequacy at the end of each quarterly reporting period.
Factors That May Affect Future Results.
The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about
their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those
projected in the statement. Certain portions of this Report which
do not relate to historical financial information may be deemed
to constitute forward-looking statements that are subject to
various factors which could cause actual results to differ
materially from Park's expectations or from results which might
be projected, forecasted, estimated or budgeted by the Company in
forward-looking statements. Accordingly, the Company hereby
identifies the following important factors which could cause the
Company's actual results to differ materially from any such
results which might be projected, forecast, estimated or budgeted
by the Company in forward-looking statements.
.. The Company's customer base is concentrated, in part,
because the Company's business strategy has been to develop
long-term relationships with a select group of customers.
During the Company's fiscal year ended March 2, 2003, the
Company's ten largest customers accounted for approximately
62% of net sales. The Company expects that sales to a
relatively small number of customers will continue to
account for a significant portion of its net sales for the
foreseeable future. A loss of one or more of such key
customers could affect the Company's profitability. See
"Business-Electronic Materials Operations-Customers and End
Markets" in Item 1 of this Report, "Legal Proceedings" in
Item 3 of this Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
in Item 7 of this Report for discussions of the loss of a
key 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 and in the first quarter of
the Company's fiscal year ended March 3, 2002, and which
continues at the present time, 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 con
trol. Such factors include economic conditions in the elec
tronics industry, the timing of customer orders, product
prices, process yields, the mix of products sold and mainte
nance-related shutdowns of facilities. Operating results
also can be influenced by development and introduction of
new products and the costs associated with the start-up of
new facilities.
.. The Company's production processes require the use of
substantial amounts of gas and electricity, the cost and
available supply of which are beyond the control of the
Company. Changes in the cost or availability of gas or
electricity could materially increase the Company's cost of
operations.
.. Rapid technological advances in semiconductors and elec
tronic equipment have placed rigorous demands on the elec
tronic 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 main
tain 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 materi
als used in the production of complex multilayer printed cir
cuit boards. The Company's principal competitors are substan
tially 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 con
tinual communication with its customers to anticipate the
future volume of purchase orders. A variety of conditions,
both specific to the individual customer and generally
affecting the customer's industry, can cause a customer to
reduce or delay orders previously anticipated by the
Company.
.. The Company, from time to time, is engaged in the expansion
of certain of its manufacturing facilities for electronic
materials. The anticipated costs of such expansions cannot
be determined with precision and may vary materially from
those budgeted. In addition, such expansions will increase
the Company's fixed costs. The Company's future
profitability depends upon its ability to utilize its
manufacturing capacity in an effectiv