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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to__________
Commission file Number 1-4415
PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
New York 11-1734643
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Dakota Drive, Lake Success, N.Y. 11042
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 354-
4100
Not Applicable
-----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes[X] No[ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 19,782,521 as of January 9, 2004.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION: Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 30, 2003 (Unaudited) and March
2, 2003...................................... 3
Consolidated Statements of Operations
13 weeks and 39 weeks ended November 30, 2003
and December 1, 2002 Unaudited............... 4
Condensed Consolidated Statements of Cash
Flows 39 weeks ended November 30, 2003
and December 1, 2003 (Unaudited)............. 5
Notes to Condensed Consolidated Financial
Statements (Unaudited)....................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 13
Factors That May Affect Future Results....... 23
Item 3. Quantitive and Qualitative Disclosures About
Market Risk.................................. 23
Item 4. Controls and Procedures...................... 23
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................ 25
Item 6. Exhibits and Reports on Form 8-K............. 26
SIGNATURES............................................... 27
EXHIBIT INDEX............................................ 28
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
November 30,
2003 March 2,
(Unaudited) 2003*
ASSETS
Current assets:
Cash and cash equivalents $119,873 $111,036
Marketable securities 62,948 51,899
Accounts receivable, net 33,593 30,272
Inventories (Note 2) 13,309 12,688
Prepaid expenses and other current
assets 4,268 4,690
--------- ---------
Total current assets 233,991 210,585
Property, plant and equipment, net 87,198 90,503
Other assets 527 454
--------- ---------
Total $321,716 $301,542
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,862 $ 15,145
Accrued liabilities 31,848 21,790
Income taxes payable 4,385 3,376
--------- ---------
Total current liabilities 52,095 40,311
Deferred income taxes 2,647 4,539
Deferred pension liability 12,191 10,991
Stockholders' equity:
Common stock 2,037 2,037
Additional paid-in capital 133,085 133,172
Retained earnings 125,525 117,506
Treasury stock, at cost (4,213) (4,582)
Accumulated other non-owner changes (1,651) (2,432)
--------- ---------
Total stockholders' equity 254,783 245,701
--------- ---------
Total $321,716 $301,542
========= =========
*The balance sheet at March 2, 2003 has been derived from the
audited financial statements at that date.
See accompanying Notes to the Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
13 Weeks Ended 39 Weeks Ended
(Unaudited) (Unaudited)
November 30, December 1, November 30, December 1,
2003 2002 2003 2002
------------ ----------- ------------ -----------
Net sales $54,277 $53,587 $151,374 $167,049
Cost of sales 45,872 48,179 133,701 149,171
-------- -------- --------- ---------
Gross profit 8,405 5,408 17,673 17,878
Selling, general and
administrative expenses 8,319 6,608 22,080 22,603
Litigation settlement gain - - (33,088) -
(Note 8 and 10)
Restructuring and - 4,794 14,580 4,794
severance charges (Note 4)
Gain on sale of of UK
real estate (Note 11) (429) - (429) -
Gain on sale of DPI (Note 9) - - - (3,170)
------- ------- ------- -------
Income (loss)
from operations 515 (5,994) 14,530 (6,349)
Interest and other income 708 824 2,205 2,537
------- ------- ------- -------
Earnings (loss) before
income taxes 1,223 (5,170) 16,735 (3,812)
Income tax provision 238 134 5,163 541
------- -------- -------- --------
Net earnings (loss) $ 985 $(5,304) $ 11,572 $(4,353)
------- -------- -------- --------
Earnings (loss) per share
(Note 5):
Basic $ .05 $ (.27) $ .59 $ (.22)
Diluted $ .05 $ (.27) $ .58 $ (.22)
Weighted average number
of common and common
equivalent shares
outstanding:
Basic 19,763 19,682 19,744 19,671
Diluted 20,083 19,682 19,932 19,671
Dividends per share $ .06 $ .06 $ .18 $ .18
See accompanying Notes to the Consolidated Financial Statements
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
39 Weeks Ended
(Unaudited)
---------------------------
November 30, December 1,
2003 2002
Cash flows from operating activities:
Net earnings (loss) $ 11,572 $ (4,353)
Depreciation and amortization 8,998 13,620
Gain on sale of Dielectric
Polymers, Inc. - (3,170)
Gain on sale of fixed assets (429) -
Non cash restructuring charges - 2,150
Change in operating assets and liabilities 4,949 (214)
-------- --------
Net cash provided by operating activities 25,090 8,461
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (3,750) (5,436)
Proceeds from the sale of Dielectric
Polymers, Inc. - 5,000
Proceeds from the sale of fixed assets 1,954 -
Purchases of marketable securities (67,676) (46,005)
Proceeds from sales and maturities
of marketable securities 56,627 39,558
-------- --------
Net cash used in investing activities (12,845) (6,883)
-------- --------
Cash flows from financing activities:
Dividends paid (3,553) (3,507)
Proceeds from exercise of stock options 282 370
-------- --------
Net cash used in financing activities (3,271) (3,137)
-------- --------
Change in cash and cash equivalents before
exchange rate changes 8,974 (1,559)
Effect of exchange rate changes on cash
and cash equivalents (137) 667
-------- --------
Change in cash and cash equivalents 8,837 (892)
Cash and cash equivalents, beginning
of period 111,036 99,492
--------- ---------
Cash and cash equivalents, end of period $119,873 $98,600
========= =========
Supplemental cash flow information:
Cash paid during the period for income
taxes $ 5,471 $ 1,400
See accompanying Notes to the Consolidated Financial
Statements.
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share amounts)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of November
30, 2003, the consolidated statements of operations for
the 13 weeks and 39 weeks ended November 30, 2003 and
December 1, 2002, and the condensed consolidated
statements of cash flows for the 39 weeks then ended have
been prepared by the Company, without audit. In the
opinion of management, these unaudited condensed
consolidated financial statements contain all adjustments
(which include only normal recurring adjustments)
necessary to present fairly the financial position at
November 30, 2003 and the results of operations and cash
flows for all periods presented.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with accounting principles generally accepted in the
United States have been condensed or omitted. It is
suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year
ended March 2, 2003.
2. INVENTORIES
Inventories consisted of the following:
November 30, March 2,
2003 2003
Raw materials $ 4,285 $ 4,072
Work-in-process 3,493 3,424
Finished goods 5,049 4,680
Manufacturing supplies 482 512
------- -------
$13,309 $12,688
======= =======
3. STOCK OPTIONS
As of November 30, 2003, the Company had two fixed
stock option plans. All options under the plans had an
exercise price equal to the market value of the
underlying common stock of the Company on the date of
grant. The Company continues to apply Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25), and related
interpretations for the plans. If compensation costs of
the grants had been determined based upon the fair
market value at the grant dates consistent with the
FASB No. 123 "Accounting for Stock-Based Compensation",
the Company's net earnings and earnings per share would
have approximated the amounts shown below.
13 weeks ended 39 weeks ended
------------------------ ------------------------
November 30, December 1, November 30, December 1,
2003 2002 2003 2002
Net Earnings $ 985 $(5,304) $11,572 $(4,353)
Deduct: Total stock-
based employee
compensation determined
under fair value based
method for all awards, 474 475 1,379 1,450
net of tax effects ------ -------- -------- --------
Pro forma net income (loss)$ 511 $(5,779) $10,193 $(5,803)
====== ======== ======== ========
EPS-basic as reported $ 0.05 $ (0.27) $ 0.59 $ (0.22)
====== ======== ======== ========
EPS-basic pro forma $ 0.03 $ (0.29) $ 0.52 $ (0.30)
====== ======== ======== ========
EPS-diluted as reported $ 0.05 $ (0.27) $ 0.58 $ (0.22)
====== ======== ======== ========
EPS-diluted pro forma $ 0.03 $ (0.29) $ 0.51 $ (0.30)
====== ======== ======== ========
4. REALIGNMENT AND SEVERANCE CHARGES
The Company recorded pre-tax charges of $8,076 during the
first quarter of fiscal year 2004 related to the closure
of the Company's mass lamination operation in Cologne,
Germany, the realignment of its North America FR-4
business operations in Newburgh, New York and Fullerton,
California and related workforce reductions and recorded
pre-tax charges of $6,504 during the second quarter of
fiscal year 2004 related to the realignment of its North
American FR-4 business operations.
The components of these charges and the related liability
balances and activity for the quarter ended November 30,
2003 are set forth below.
Charges 11/30/03
Closure Incurred Remaining
Charges or Paid Reversals Liabilities
------- --------- --------- -----------
Dielektra charges:
Severance payments $ 6,142 $4,679 $ - $1,463
NY/CA Realignment
charges:
Lease payments, taxes,
utilities and other 7,292 475 - 6,817
Severance payments 1,146 1,146 - -
------- ------ ---- ------
$14,580 $6,300 $ - $8,280
======= ====== ==== ======
The severance payments are for the termination of hourly
and salaried, administrative, manufacturing and support
employees. Such employees were terminated during the 2004
fiscal year first, second and third quarters. The
severance payments have been paid, and are expected to
continue to be paid, to such employees in installments
during fiscal year 2004. The lease charges cover one lease
obligation payable through December 2004 and a portion of
another lease obligation payable through September 2013.
The Company recorded pre-tax charges of $4,674 and $120 in
the fiscal year 2003 third quarter ended December 1, 2002
in connection with the closure of its Nelco UK
manufacturing facility located in Skelmersdale, England
and severance costs at a North American business unit. The
components of these charges and the related liability
balances at November 30, 2003 are set forth below.
Charges 11/30/03
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
------- ----------- --------- -----------
United Kingdom charges:
Impairment of long
lived assets $1,993 $1,993 $ - $ -
Severance payments
and related costs 1,997 1,997 - -
Utilities, maintenance,
taxes, other 684 684 - -
------ ------ ---- ----
4,674 4,674 - -
Other severance payments
and related costs 120 120 - -
------ ------ ---- ----
$4,794 $4,794 $ - $ -
====== ====== ==== ====
The severance payments and related costs are for the
termination of hourly and salaried, administrative,
manufacturing and support employees, most of whom were
terminated during the 2003 fiscal year third and fourth
quarters, and the remainder of whom were terminated during
the 2004 fiscal year first, second and third quarters.
Severance payments and related costs for such terminated
employees (totaling $2,117) were paid during such
quarters.
As a result of the foregoing employee terminations and
other less significant employee terminations in connection
with business contractions and in the ordinary course of
business and employee resignations and retirements in the
ordinary course of business, the total number of employees
employed by the Company declined to approximately 1,240 as
of August 31, 2003 from approximately 1,490 as of March 2,
2003. As a result of the Company's realignment of its
North American FR-4 business operations and the
concomitant workforce increase at the Company's California
facility and the increase in the Company's sales during
the 2004 fiscal year third quarter, the total number of
employees employed by the Company increased to
approximately 1,260 as of November 30, 2003.
5. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net
earnings by the weighted average number of shares of
common stock outstanding during the period. Diluted
earnings per share is computed by dividing net earnings by
the sum of (a) the weighted average number of shares of
common stock outstanding during the period and (b) the
potential common stock equivalents outstanding during the
period. Stock options are the only common stock
equivalents and are computed using the treasury stock
method.
The following table sets forth the basic and diluted
weighted average number of shares of common stock and
potential common stock equivalents outstanding during the
periods specified:
13 weeks ended 39 weeks ended
------------------------ ------------------------
November 30, December 1, November 30, December 1,
2003 2002 2003 2002
Weighted average
shares outstanding
for basic EPS 19,763 19,682 19,744 19,671
Weighted average
shares outstanding
for diluted EPS 20,083 19,682 19,932 19,671
Common stock equivalents, which were not included in the
computation of diluted earnings per share because either
the effect would have been antidilutive or the options'
exercise prices were greater than the average market price
of the common stock, were 57 and 448 for the thirteen
weeks ended November 30, 2003 and December 1, 2002,
respectively, and 191 and 471 for the thirty-nine weeks
ended November 30, 2003 and December 1, 2002,
respectively.
6. BUSINESS SEGMENTS
The Company considers itself to operate in one business
segment. The Company's electronic materials products are
marketed primarily to leading independent printed circuit
board fabricators, electronic manufacturing service
companies, electronic contract manufacturers and major
electronic original equipment manufacturers ("OEMs")
located throughout North America, Europe and Asia. The
Company's advanced composite materials customers, the
majority of which are located in the United States, include
OEMs, independent firms and distributors in the electronics,
aerospace and industrial industries.
Sales are attributed to geographic region based upon the
region from which the materials were shipped to the
customer. Sales between geographic regions were not
significant.
Financial information concerning the Company's operations
by geographic area follow:
13 Weeks Ended 39 Weeks Ended
------------------------ ------------------------
November 30, December 1, November 30, December 1,
2003 2002 2003 2002
Sales:
North America $26,793 $28,505 $ 76,659 $ 91,832
Europe 12,755 14,396 35,587 41,265
Asia 14,729 10,686 39,128 33,952
------- ------- -------- --------
Total sales $54,277 $53,587 $151,374 $167,049
======= ======= ======== ========
November 30, March 2,
2003 2003
Long-lived assets:
United States $39,936 $44,425
Europe 26,233 25,373
Asia 21,556 21,159
------- -------
Total long-lived assets $87,725 $90,957
======= =======
7. COMPREHENSIVE INCOME
Total comprehensive income (loss) for the 13 weeks ended
November 30, 2003 and December 1, 2002 was $2,506 and
($5,208), respectively. Total comprehensive income (loss)
for the 39 weeks ended November 30, 2003 and December 1,
2002 was $12,353 and ($958), respectively. Comprehensive
income consisted primarily of net income and foreign
currency translation adjustments and unrealized gains and
losses on marketable securities.
8. SALE OF NELCO TECHNOLOGY, INC.
During the Company's 1998 fiscal year and for several
years prior thereto, more than 10% of the Company's total
worldwide sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp., and the Company's
wholly owned subsidiary, Nelco Technology, Inc. ("NTI")
located in Tempe, Arizona, had been Delco's principal
supplier of semi-finished multilayer printed circuit board
materials, commonly known as mass lamination, which were
used by Delco to produce finished multilayer printed
circuit boards. However, in March 1998, the Company was
informed by Delco that Delco planned to close its printed
circuit board fabrication plant and exit the printed
circuit board manufacturing business. As a result, the
Company's sales to Delco declined during the three-month
period ended May 31, 1998, were negligible during the
remainder of the 1999 fiscal year and have been nil in
subsequent years.
After March 1998, the business of NTI languished and its
performance was unsatisfactory due primarily to the
absence of the unique, high-volume, high-quality business
that had been provided by Delco Electronics and the
absence of any other customer in the North American
electronic materials industry with a similar demand for
the large volumes of semi-finished multilayer printed
circuit board materials that Delco purchased from NTI.
Although NTI's business experienced a resurgence in the
2001 fiscal year as the North American market for printed
circuit materials became extremely strong and demand
exceeded supply for the electronic materials manufactured
by NTI, the Company's internal expectations and
projections for the NTI business were for continuing
volatility in the business' performance over the
foreseeable future. Consequently, the Company commenced
efforts to sell the business in the second half of its
2001 fiscal year; and in April 2001, the Company sold the
assets and business of NTI and closed a related support
facility, also located in Tempe, Arizona. As a result of
this sale, the Company exited the mass lamination business
in North America.
In connection with the sale of NTI and the closure of the
related support facility, the Company recorded non-
recurring, pre-tax charges of $15,707 in its fiscal year
2002 first quarter ended May 27, 2001. The components of
these charges and the related liability balances and
activity from the May 27, 2001 balance sheet date to the
November 30, 2003 balance sheet date are set forth below:
Charges 11/30/03
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
------- ----------- --------- -----------
NTI charges:
Loss on sale of assets
and busines $10,580 $10,580 $ - $ -
Severance payments 387 387 - -
Medical and other costs 95 95 - -
Support facility charges:
Impairment of long
lived assets 2,058 2,058 - -
Write down of accounts
receivable 350 319 31 -
Write down of inventory 590 590 - -
Severance payments 688 688 - -
Medical and other costs 133 133 - -
Lease payments, taxes,
utilities, maintenance 781 458 - 323
Other 45 45 - -
------- ------- --- ----
$15,707 $15,353 $31 $323
======= ======= === ====
The severance payments and medical and other costs
incurred in connection with the sale of NTI and the
closure of the related support facility were for the
termination of hourly and salaried, administrative,
manufacturing and support employees, all of whom were
terminated during the first and second fiscal quarters
ended May 27, 2001 and August 26, 2001, respectively, and
substantially all of the severance payments and related
costs for such terminated employees (totaling $1,303) were
paid during such quarters. The lease obligations will be
paid through August 2004 pursuant to the related lease
agreements.
9. SALE OF DIELECTRIC POLYMERS, INC.
On June 27, 2002, the Company sold its Dielectric
Polymers, Inc. subsidiary to Adhesive Applications, Inc.
of Easthampton, Massachusetts. The Company recorded a
gain of approximately $3.2 million in its fiscal year 2003
second quarter ended September 1, 2002 in connection with
the sale.
10. LITIGATION SETTLEMENT
The United States District Court for the District of
Arizona has entered final judgment in favor of the
Company's subsidiary, Nelco Technology, Inc., in its
lawsuit against Delco Electronics Corporation, a
subsidiary of Delphi Automotive Systems Corporation, on
Nelco's claim for breach of the implied covenant of good
faith and fair dealing. As a result, the Company
received a net amount of $33 million from Delco on July 1,
2003 in settlement of the lawsuit.
11. SALE OF UK REAL ESTATE
During the third quarter of fiscal year 2004, the Company
sold real estate previously used by its Nelco UK
subsidiary, which has ceased operations. As a result, the
company recorded a pre-tax gain of $429.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General:
Park is a leading global designer and producer of advanced
electronic materials used to fabricate complex multilayer
printed circuit boards and other electronic interconnect
systems. The Company's customers include leading independent
printed circuit board fabricators, electronic manufacturing
service companies, electronic contract manufacturers and major
electronic original equipment manufacturers in the computer,
telecommunications, transportation, aerospace and
instrumentation industries.
The Company's sales increased slightly in the three-month
period ended November 30, 2003 compared with last fiscal year's
comparable period principally as a result of continuing
increases in sales of the Company's advanced technology
products and sales by the Company's operations in Asia, while
the Company's sales declined in the nine-month period ended
November 30, 2003 compared with last fiscal year's comparable
period as a result of declines in sales by the Company's North
American and European operations.
The earnings growth that the Company achieved during its
2001 and 2000 fiscal years halted in the 2002 fiscal year as a
result of a severe downturn in the global electronics industry,
and the industry continued to be very depressed throughout the
2003 fiscal year and during the 2004 fiscal year first and
second quarters.
The electronics industry began to improve slightly at the
end of the 2004 fiscal year second quarter and continued to
improve in the third quarter, and there exist some indications
that the improvement will continue. However, it is not
completely clear whether and to what degree the improvement is
sustainable. The Company's advanced electronic materials
business and its business unit in Singapore, which serves the
Asian electronic materials markets, performed reasonably well
during the three-month and nine-month periods ended November
30, 2003, while the Company's higher-volume FR-4 business units
in Europe and North America performed poorly.
During the three months ended November 30, 2003, the
Company opened a facility at its advanced products business
unit in Arizona that had been constructed in its 2002 fiscal
year and that is now being well utilized, continued the
construction of its facility expansion in Singapore and
proceeded with its final planning for the installation of a new
manufacturing facility in China.
During the six months ended August 31, 2003, the Company
realigned its North American FR-4 business operations located
in New York and California. As part of the realignment, the New
York operation was scaled down to a smaller focused operation
and the California operation was scaled up to a larger volume
operation, and there were significant workforce reductions at
the Company's New York facility and significant workforce
increases at the Company's California facility, with the end
result being a net reduction in the Company's workforce in
North America. A large portion of the New York facility was
mothballed, and 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 was
designed to help the Company achieve improved operating and
cost efficiencies in its North American FR-4 business and to
help the Company best service all of its North American
customers.
In the Company's 2004 fiscal year first quarter, Dielektra
GmbH, the Company's advanced electronic materials business
located in Cologne, Germany, closed its mass lamination
operation. Dielektra's mass lamination operation supplied
higher-end mass lamination products to European circuit board
manufacturers. However, the market for these products in
Europe had eroded to the point where the Company no longer
believed it was possible to operate a viable mass lamination
business in Europe, and the Company did not believe that, at
any time in the foreseeable future, the higher-end European
mass lamination market would recover to the extent necessary to
justify the Company's operating a mass lamination business in
Europe. As a result of the closure of its mass lamination
operation, Dielektra's manufacturing operations consist
exclusively of high technology treating and Dielektra's
proprietary DatlamT automated continuous laminate
manufacturing. The Company is continuing to review its FR-4
manufacturing operations in Europe.
As a result of the Company's realignment of its North
American FR-4 business operations and closure of Dielektra's
mass lamination operation in Germany and related workforce
reductions, the Company recorded pre-tax charges totaling $8.1
million in the Company's 2004 fiscal year first quarter, and
the Company recorded additional pre-tax charges of $6.5 million
in the 2004 fiscal year second quarter due to such realignment.
The Company also recorded a pre-tax gain of $0.4 million in the
2004 fiscal year third quarter resulting from the sale of real
estate previously used by its Nelco UK subsidiary, which ceased
operations after its closure in the 2003 fiscal year third
quarter. See Note 4 of the Notes to Consolidated Financial
Statements in Item 1 of Part I of this Report for additional
information regarding the realignment and closures.
During the Company's 1998 fiscal year and for several
years prior thereto, more than 10% of the Company's total
worldwide sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp.("Delco"), and the Company's
wholly owned subsidiary, Nelco Technology, Inc. ("NTI") located
in Tempe, Arizona, had been Delco's principal supplier of semi-
finished multilayer printed circuit board materials, commonly
known as mass lamination, which were used by Delco to produce
finished multilayer printed circuit boards. However, in March
1998, the Company was informed by Delco that Delco planned to
close its printed circuit board fabrication plant and exit the
printed circuit board manufacturing business. As a result, the
Company's sales to Delco declined during the three-month period
ended May 31, 1998, were negligible during the remainder of the
1999 fiscal year and have been nil since that time.
In May 1998, the Company and NTI filed a complaint against
Delco and the Delphi Automotive Systems unit of General Motors
Corp. in the United States District Court for the District of
Arizona. The complaint alleged, among other things, that Delco
breached its contract to purchase semi-finished multilayer
printed circuit boards from NTI and that Delphi interfered with
NTI's contract with Delco, that Delco breached the covenant of
good faith and fair dealing implied in the contract, that Delco
engaged in negligent misrepresentation and that Delco
fraudulently induced NTI to enter into the contract. In
November 2000, a jury awarded damages to NTI in the amount of
$32.3 million, and in December 2000 the judge in the United
States District Court for the District of Arizona entered
judgment for NTI on its claim of breach of the implied covenant
of good faith and fair dealing with damages in the amount of
$32.3 million. Both parties appealed the decision to the United
States Court of Appeals for the Ninth Circuit in San Francisco;
and in May 2003, a panel of three judges in the Court of
Appeals for the Ninth Circuit rendered a unanimous decision
affirming the jury verdict. In June 2003, the United States
District Court for the District of Arizona entered final
judgment in favor of NTI; and, on July 1, 2003, NTI received a
net amount of $33.1 million in payment of such judgment. The
Company recorded a non-recurring, pre-tax gain of $33.1 million
in the 2004 fiscal year second quarter related to such payment.
See Item 1 of Part II of this Report for additional information
regarding the lawsuit against Delco.
The Company is not engaged in any related party
transactions involving relationships or transactions with
persons or entities that derive benefits from their non-
independent relationship with the Company or the Company's
related parties, or in any transactions with parties with whom
the Company or its related parties have a relationship that
enables the parties to negotiate terms of material transactions
that may or would not be available from other, more clearly
independent parties on an arm's-length basis, or in any trading
activities involving non-exchange traded commodity or other
contracts that are accounted for at fair value or otherwise or
in any energy trading or risk management activities, other than
certain limited foreign currency contracts intended to hedge
the Company's contractual commitments to pay certain
obligations or to realize certain receipts in foreign
currencies and certain limited energy purchase contracts
intended to protect the Company from increased utilities costs.
The Company believes that an evaluation of its ongoing
operations would be difficult if the disclosure of its
financial results were limited to generally accepted accounting
principles ("GAAP") financial measures. Accordingly, in
addition to disclosing its financial results determined in
accordance with GAAP, the Company discloses non-GAAP operating
results that exclude certain items in order to assist its
shareholders and other readers in assessing the Company's
operating performance. Such non-GAAP financial measures are
provided to supplement the results provided in accordance with
GAAP.
Three and Nine Months Ended November 30, 2003 Compared with
Three and Nine Months Ended December 1, 2002:
The Company's operations generated a modest profit during
the three months ended November 30, 2003 as a result of a small
increase in net sales and a significant improvement in its
gross profit margin resulting from higher percentages of sales
of higher margin, advanced technology products and reduced
costs compared to last years comparable three-month period, and
the Company reported net earnings of $985 thousand for the
three-month period after a pre-tax gain of $429 thousand on the
sale of real estate previously used by its Nelco UK subsidiary
which has ceased operations. However, during the nine-months
ended November 30, 2003, the Company's operations generated a
loss, despite an improvement in the Company's gross profit
margin, as the markets for sophisticated printed circuit
materials continued to experience depressed conditions during
the 2004 fiscal year first and second quarters. For the nine
months ended November 30, 2003, the Company reported net
earnings of $11.6 million after the gain on the sale of the UK
real estate, after a pre-tax gain of $33.1 million related to
the payment by Delco Electronics Corporation of the judgment
against it in favor of the Company's subsidiary, Nelco
Technology, Inc., in the lawsuit against Delco, and after pre-
tax charges totaling $14.6 million related to the realignment
of the Company's North American FR-4 business operations and
the closure of Dielektra's mass lamination operation in Germany
and related workforce reductions.
While the Company's gross profit in the nine months ended
November 30, 2003 was slightly lower than its gross profit in
the prior fiscal year's first nine months, its gross profit in
the 2004 fiscal year third quarter was substantially higher
than the gross profit in the prior year's comparable quarter as
a result of the Company's reductions of its costs and expenses
and higher percentages of sales of higher margin, advanced
technology products. These changes in gross profits were
despite lower levels of sales of electronic materials in the
nine months ended November 30, 2003 and only slightly increased
sales in the third quarter, operating inefficiencies resulting
from operating certain facilities at levels below their
designed manufacturing capacities and from the Company's
realignment of it North American FR-4 business operations, and
competitive pressures.
In addition to its depressed financial results of
operations, the Company recorded pre-tax charges of $8.1
million in the 2004 fiscal year first quarter related to the
Company's realignment of its North American FR-4 business
operations, the closure of Dielektra's mass lamination
operation and related workforce reductions and pre-tax charges
of $6.5 million in the 2004 fiscal year second quarter related
to such realignment.
Operating results of the Company's advanced composite
materials business were essentially the same for the three-
month and nine-month periods ended November 30, 2003 as they
were for the comparable periods in the 2003 fiscal year, but
such results improved sequentially during the 2004 fiscal year
first, second and third quarters due primarily to improved
profit margins resulting from a more favorable product mix from
quarter to quarter.
Results of Operations
Net sales for the three-month period ended November 30,
2003 increased 1% to $54.3 million from $53.6 million for last
year's third quarter, while net sales for the nine-month period
ended November 30, 2003 declined 9% to $151.4 million from
$167.0 million for last fiscal year's comparable period. The
increase in net sales during the third quarter was the result
of increased sales of the Company's advanced technology
products and increased sales by the Company's operations in
Asia, which were partially offset by decreased sales by the
Company's operations in Europe and North America. The decline
in net sales during the nine months ended November 30, 2003 was
the result of lower sales by the Company's operations in Europe
and North America, which were only slightly offset by higher
sales by the Company's operations in Asia.
The Company's foreign operations accounted for $27.5
million and $74.7 million, respectively, of net sales, or 51%
and 49% of the Company's total net sales worldwide, during the
three-month and nine-month periods ended November 30, 2003
compared with $25.1 million and $75.2 million, respectively, of
net sales, or 47% and 45%, respectively, of total net sales
worldwide, during last fiscal year's comparable periods. Net
sales by the Company's foreign operations during the three-
month period ended November 30, 2003 increased 10% from the
2003 fiscal year comparable period, while net sales by the
Company's foreign operations during the nine-month period ended
November 30, 2003 declined about 1%. The increase in net sales
by foreign operations during the third quarter was due to
increased sales by the Company's operations in Asia, which were
partially offset by decreased sales by the Company's operations
in Europe. The decline in net sales by foreign operations
during the nine months ended November 30, 2003 was due to a
decrease in sales by the Company's operations in Europe, which
resulted from decreases in sales by the Company's FR-4
operations and the Company's closure of its UK facility in the
fourth quarter of its 2003 fiscal year.
The overall gross profit as a percentage of net sales for
the Company's worldwide operations improved to 15.5% and 11.7%,
respectively, for the three months and nine months ended
November 30, 2003 compared with 10.1% and 10.7% for last fiscal
year's comparable periods. The increases in the gross profit
were the result of higher percentages of sales of higher
margin, advanced technology products and decreases in the
Company's cost of sales.
The Company's cost of sales decreased significantly
compared to the comparable periods in the prior fiscal year due
to personnel reductions and cost savings resulting from the
Company's realignment of its North American FR-4 business,
other cost reduction measures implemented by the Company,
including workforce reductions and the reduction of overtime,
and lower production volumes during the first and second
quarters of the 2004 fiscal year. In addition, the Company
continued to implement an annual salary freeze for significant
numbers of salaried employees, especially senior management
employees, and paid no performance bonuses or significantly
reduced bonuses and other incentives.
Selling, general and administrative expenses increased by
$1.7 million, or by 26%, during the three-month period ended
November 30, 2003 compared with last fiscal year's comparable
period, but declined $0.5 million, or by 2%, during the nine-
month period ended November 30, 2003, and these expenses,
measured as a percentage of sales, were 15.3% and 14.6%,
respectively, during the three-month and nine-month periods
ended November 30, 2003 compared with 12.3% and 13.5%,
respectively, during last fiscal year's comparable periods.
Notwithstanding the decrease in selling, general and
administrative expenses in dollar terms, the increase in the
expenses as percentages of sales in the nine months ended
November 30, 2003 resulted from proportionately lower sales
compared to the comparable periods in the last fiscal year.
These expenses increased in the 2004 fiscal year third quarter
compared to the 2003 fiscal year third quarter as a result of
shipping costs incurred by the Company to meet its customers'
customized manufacturing and quick-turn-around requirements.
The Company recorded a pre-tax gain of $0.4 million in the
2004 fiscal year third quarter resulting from the sale of real
estate in Skelmersdale, England previously used by its Nelco UK
subsidiary, which ceased operations after its closure in the
2003 fiscal year third quarter, and a pre-tax gain of $33.1
million during the 2004 fiscal year second quarter related to
the payment by Delco Electronics Corporation of the judgment
against Delco in favor of the Company's subsidiary, Nelco
Technology, Inc., in its lawsuit against Delco. The Company
also recorded pre-tax charges totaling $8.1 million, and after-
tax charges totaling $7.4 million, in the 2004 fiscal year
first quarter in connection with the realignment of its North
American FR-4 business operations, the closure of Dielektra's
mass lamination operation in Germany and related workforce
reductions and recorded additional pre-tax charges of $6.5
million, and after-tax charges of $4.9 million, in the 2004
fiscal year second quarter due to such realignment.
The Company recorded pre-tax charges of $4.8 million in
the 2003 fiscal year third quarter in connection with the
closure of its Nelco UK manufacturing facility in Skelmersdale,
England and severance costs at a North American business unit;
and the Company recorded a pre-tax gain of $3.2 million in the
2003 fiscal year second quarter in connection with the sale of
its Dielectric Polymers, Inc. ("DPI") subsidiary in June 2002
for $5.0 million cash.
For the reasons set forth above, income from operations
was $0.5 million for the three months ended November 30, 2003,
including the pre-tax gain described above resulting from the
sale of real estate in England, compared with a loss from
operations of $6.0 million for the three months ended December
1, 2002, including the pre-tax charges described above relating
to the closure of the Nelco UK manufacturing facility and
severance costs at a North American business unit, and income
from operations was $14.5 million for the nine months ended
November 30, 2003, including the pre-tax gains described above
resulting from the sale of real estate in England and the
payment by Delco Electronics Corporation of the judgment
against it in favor of the Company's subsidiary, Nelco
Technology, Inc., in Nelco's lawsuit against Delco and the pre-
tax charges described above related to the realignment of the
Company's North American FR-4 business operations, the closure
of Dielektra's mass lamination operation and related workforce
reductions, compared with a loss from operations of $6.3
million for the nine months ended December 1, 2002, including
the pre-tax charges described above relating to the closure of
the Nelco UK manufacturing facility and severance costs at a
North American business unit and the pre-tax gain described
above relating to the sale of DPI. Excluding the pre-tax gains
and the pre-tax charges described above, the Company reported
income from operations of $0.1 million and a loss from
operations of $4.4 million, respectively, for the three months
and nine months ended November 30, 2003 compared with losses of
$1.2 million and $4.7 million, respectively, for the three
months and nine months ended December 1, 2002.
Interest and other income, net, principally investment
income, was $0.7 million and $2.2 million, respectively, for
the three-month and nine-month periods ended November 30, 2003
compared with $0.8 million and $2.5 million, respectively, for
last fiscal year's comparable periods. The decreases in
investment income were attributable to declines in prevailing
interest rates. The Company's investments were primarily short-
term taxable instruments.
The Company's effective income tax rates for continuing
operations, excluding the pre-tax gains and the pre-tax charges
described above, for the three-month and nine-month periods
ended November 30, 2003 were 30.0% compared with the same rates
for the three-month and nine-month periods ended December 1,
2002. The effective income tax rates on earnings, including the
pre-tax gains and the pre-tax charges, were 19.5% and 30.9% for
the three months and nine months ended November 30, 2003,
principally as a result of the tax impact of the gain on the
Delco litigation payment, compared with negative rates of 2.6%
and 14.2% principally as a result of the tax impact of the
realignment and closure charges for the three-month and nine-
month periods ended December 1, 2002.
For the reasons set forth above, net earnings for the
three-month period ended November 30, 2003, including the pre-
tax gain described above resulting from the sale of real estate
in England, were $1.0 million compared with a net loss of $5.3
million for the three-month period ended December 1, 2002,
including the pre-tax charges described above relating to the
closure of the Nelco U.K. manufacturing facility and severance
costs at a North American business unit, and net earnings for
the nine-month period ended November 30, 2003 were $11.6
million, including the pre-tax gains described above resulting
from the sale of real estate in England and the payment by
Delco Electronics Corporation of the judgment in favor of the
Company's subsidiary, Nelco Technology, Inc., and the pre-tax
charges described above related to the realignment of the
Company's North American FR-4 business operations, the closure
of Dielektra's mass lamination operation and related workforce
reductions, compared with a net loss of $4.4 million for the
nine-month period ended December 1, 2002, including the pre-tax
charges described above relating to the closure of the Nelco UK
manufacturing facility and severance costs at a North American
business unit and the pre-tax gain described above related to
the sale of DPI. Excluding the pre-tax gains and the pre-tax
charges described above, the Company reported net earnings of
$0.6 million and a net loss of $1.5 million, respectively, for
the three-month and nine-month periods ended November 30, 2003,
compared with net losses of $0.3 million and $1.5 million,
respectively, for the three-month and nine-month periods ended
December 1, 2002.
Basic and diluted earnings per share, including the pre-
tax gains and charges described above, were $0.05 for the three-
month period ended November 30, 2003 and $0.59 and $0.58,
respectively, for the nine-month period ended November 30,
2003, compared to basic and diluted losses per share of $0.27
and $0.22, respectively, for the three-month and nine-month
periods ended December 1, 2002, including the pre-tax gain and
pre-tax charges described above. Excluding the pre-tax gains
and charges described above, basic and diluted earnings per
share were $0.03 for the three months ended November 30, 2003
and basic and diluted losses per share were $0.08 for the nine
months ended November 30, 2003, compared to basic and diluted
per share losses, excluding the pre-tax gain and pre-tax
charges for the prior year's comparable periods, of $0.01 and
$0.08, respectively.
Liquidity and Capital Resources:
At November 30, 2003, the Company's cash and temporary
investments were $182.8 million compared with $162.9 million at
March 2, 2003, the end of the Company's 2003 fiscal year. The
increase in the Company's cash and investments at November 30,
2003 was attributable to cash received from Delco Electronics
Corporation in payment of the judgment in favor of the
Company's subsidiary, Nelco Technology, Inc., in its lawsuit
against Delco. The Company's working capital (which includes
cash and temporary investments) was $181.9 million at November
30, 2003 compared with $170.3 million at March 2, 2003. The
increase in working capital at November 30, 2003 compared with
March 2, 2003 was due principally to the increases in cash and
temporary investments and accounts receivable, which were only
partially offset by increases in accrued liabilities and income
taxes payable. The increase in accounts receivable was due to
increased sales, and the increase in accrued liabilities was
due to the provision for charges related to the Company's
realignment of its North American FR-4 business operations. The
Company's current ratio (the ratio of current assets to current
liabilities) was 4.5 to 1 at November 30, 2003 compared to 5.2
to 1 at March 2, 2003.
During the nine-months ended November 30, 2003, cash used
in the Company's operating activities, including $5.9 million
paid as severance in connection with workforce reductions, was
significantly enhanced by the $33.1 million that the Company
received on July 1, 2003 from Delco Electronics Corporation in
settlement of the lawsuit by the Company's subsidiary, Nelco
Technology, Inc., against Delco, resulting in $25.1 million of
cash provided from operating activities. See Notes 8 and 10 of
the Notes to Consolidated Financial Statements in Item 1 of
Part I of this Report and Item 1 of Part II of this Report for
additional information regarding the lawsuit. During the same
nine-month period, the Company expended $3.8 million for the
purchase of property, plant and equipment compared with $5.4
million for the nine-month period ended December 1, 2002 and
paid $3.6 million in dividends on its common stock during the
nine months ended November 30, 2003 compared with $3.5 million
during the nine months ended December 1, 2002.
At November 30, 2003, the Company had no long-term debt.
The Company believes its financial resources will be
sufficient, for the foreseeable future, to provide for
continued investment in working capital and property, plant and
equipment and for general corporate purposes. Such resources
would also be available for purchases of the Company's common
stock, appropriate acquisitions and other expansions of the
Company's business.
The Company is not aware of any circumstances or events
that are reasonably likely to occur that could materially
affect its liquidity.
The Company's 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 operating lease commitments.
The Company has no long-term debt, capital lease obligations,
unconditional purchase obligations or other long-term
obligations, standby letters of credit, guarantees, standby
repurchase obligations or other commercial commitments or
contingent commitments, other than a standby letter of credit
in the amount of $1,728,000 to secure the Company's obligations
under its workers' compensation insurance program.
Environmental Matters:
In the nine-month periods ended November 30, 2003 and
December 1, 2002 the Company charged less than $0.1 million
against pretax income for environmental remedial response and
voluntary cleanup costs (including legal fees). While annual
expenditures have generally been constant from year to year and
may increase over time, the Company expects it will be able to
fund such expenditures from available cash. The timing of
expenditures depends on a number of factors, including
regulatory approval of cleanup projects, remedial techniques to
be utilized and agreements with other parties. At November 30,
2003 and March 2, 2003, the recorded liabilities in accrued
liabilities for environmental matters were approximately $4.3
million and $4.2 million, respectively. Management does not
expect that environmental matters will have a material adverse
effect on the liquidity, capital resources, business,
consolidated results of operations or consolidated financial
position of the Company.
Critical Accounting Policies and Estimates:
In response to financial reporting release, FR-60,
"Cautionary Advice Regarding Disclosure About Critical
Accounting Policies", issued by the Securities and Exchange
Commission in December 2001, the following information is
provided regarding critical accounting policies that are
important to the Consolidated Financial Statements and that
entail, to a significant extent, the use of estimates,
assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial
condition and results of operations are based upon the
Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires the Company to make estimates,
assumptions and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the related
disclosure of contingent liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to
sales allowances, bad debts, inventories, valuation of long-
lived assets, income taxes, restructuring, pensions and other
employee benefit programs, and contingencies and litigation.
The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting
policies affect its more significant judgments and estimates
used in the preparation of its consolidated financial
statements.
Sales Allowances
The Company provides for the estimated costs of sales
allowances at the time such costs can be reasonably estimated.
The Company is focused on manufacturing the highest quality
electronic materials and other products possible and employs
stringent manufacturing process controls and works with raw
material suppliers who have dedicated themselves to complying
with the Company's specifications and technical requirements.
However, if the quality of the Company's products declines, 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 deteriorates, 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
The 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; during the three-month period ended
June 1, 2003, the Company recorded additional significant
charges in connection with the realignment of its North
American FR-4 business operations, the closure of its mass
lamination operation in Germany and related employee severance
costs; and during the three-month period ended August 31, 2003,
the Company recorded additional significant charges in
connection with the realignment of its North American FR-4
business operations. During the fiscal year ended March 3,
2002, the Company recorded significant charges in connection
with the restructuring relating to the sale of Nelco
Technology, Inc., the closure of a related support facility and
the realignment of Dielektra, GmbH. These charges include
estimates pertaining to employee separation costs and the
settlements of contractual obligations resulting from the
Company's actions. Although the Company does not anticipate
significant changes, the actual costs incurred by the Company
may differ from these estimates.
Contingencies and Litigation
The Company is subject to a small number of proceedings,
lawsuits and other claims related to environmental, employment,
product and other matters. The Company is required to assess
the likelihood of any adverse judgments or outcomes in these
matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for
these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the
future due to new developments in each matter or changes in
approach such as a change in settlement strategy in dealing
with these matters.
Pension and Other Employee Benefit Programs
One of the Company's subsidiaries in Europe has
significant pension costs that are developed from actuarial
valuations. Inherent in these valuations are key assumptions
including discount rates and wage inflation rates. The Company
is required to consider current market conditions, including
changes in interest rates and wage costs, in selecting these
assumptions. Changes in the related pension costs may occur in
the future in addition to changes resulting from fluctuations
in the Company's related headcount due to changes in the
assumptions.
The Company's obligations for workers' compensation claims
and employee-health care benefits are effectively self-insured.
The Company uses an insurance company administrator to process
all such claims and benefits. The Company accrues its workers'
compensation liability based upon the claim reserves
established by the third-party administrator and historical
experience. The Company's employee health insurance benefit
liability is based on its historical claims experience.
The Company and certain of its subsidiaries have a non-
contributory profit sharing retirement plan covering their
regular full-time employees. In addition, the Company's
subsidiaries have various bonus and incentive compensation
programs, most of which are determined at management's
discretion.
The Company's reserves associated with these self-insured
liabilities and benefit programs are reviewed by management for
adequacy at the end of each reporting period.
Factors that May Affect Future Results.
Certain portions of this Report which do not relate to
historical financial information may be deemed to constitute
forward-looking statements that are subject to various factors
which could cause actual results to differ materially from
Park's expectations or from results which might be projected,
forecast, estimated or budgeted by the Company in forward-
looking statements. Such factors include, but are not limited
to, general conditions in the electronics industry, the
Company's competitive position, the status of the Company's
relationships with its customers, economic conditions in
international markets, the cost and availability of utilities,
and the various factors set forth under the caption "Factors
That May Affect Future Results" after Item 7 of Park's Annual
Report on Form 10-K for the fiscal year ended March 2, 2003.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk.
The Company's market risk exposure at November 30, 2003 is
consistent with, and not greater than, the types of market risk
and amount of exposures presented in the Annual Report on Form
10-K for the fiscal year ended March 2, 2003.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company's
management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of November 30, 2003, the end of the
period covered by this quarterly report. Based on such
evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such
period, the Company's disclosure controls and procedures are
effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by the
Company in the reports that it files or submits under the
Exchange Act.
(b) Internal Control Over Financial Reporting. There have not
been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the fiscal quarter
to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1998, the Company and its Nelco Technology, Inc.
("NTI") subsidiary in Arizona filed a complaint against Delco
Electronics Corporation and the Delphi Automotive Systems unit
of General Motors Corp. in the United States District Court for
the District of Arizona. The complaint alleged, among other
things, that Delco breached its contract to purchase semi-
finished multilayer printed circuit boards from NTI and that
Delphi interfered with NTI's contract with Delco, that Delco
breached the covenant of good faith and fair dealing implied in
the contract, that Delco engaged in negligent misrepresentation
and that Delco fraudulently induced NTI to enter into the
contract.
In November 2000, after a trial in Phoenix, Arizona, a
jury awarded damages to NTI in the amount of $32.3 million, and
in December 2000 the judge in the United States District Court
entered judgment for NTI on its claim of breach of the implied
covenant of good faith and fair dealing with damages in the
amount of $32.3 million. Both parties appealed the decision to
the United States Court of Appeals for the Ninth Circuit in San
Francisco, and in May 2003, a panel of three judges in the
Court of Appeals for the Ninth Circuit rendered a unanimous
decision affirming the jury verdict. In June 2003, the United
States District Court for the District of Arizona entered final
judgment in favor of NTI, and Delco paid NTI on July 1, 2003.
NTI received a net amount of $33.1 million. See Note 10 of the
Notes to Condensed Consolidated Financial Statements in Item 1
of Part I of this Report.
Park announced in March 1998 that it had been informed by
Delco Electronics that Delco planned to close its printed
circuit board fabrication plant and exit the printed circuit
board manufacturing business. After the plant closure, Delco
purchased all of its printed circuit boards from outside
suppliers and Delco was no longer a customer of the Company's.
As a result, the Company's sales to Delco declined
significantly during the three-month period ended May 31, 1998,
were negligible during the three-month period ended August 30,
1998, have been nil since that time. During the Company's 1999
fiscal year first quarter and during its 1998 fiscal year and
for several years prior thereto, more than 10% of the Company's
total worldwide sales were to Delco Electronics Corporation;
and the Company had been Delco's principal supplier of semi-
finished multilayer printed circuit board materials for more
than ten years. These materials were used by Delco to produce
finished multilayer printed circuit boards. See "Factors That
May Affect Future Results" after Item 2 of Part I of this
Report.
In the first quarter of the fiscal year ended March 3,
2002, the Company sold the assets and business of NTI and
recorded pre-tax charges of approximately $15.7 million in its
2002 fiscal year first quarter ended May 27, 2001 in connection
with the sale of NTI and the closure of a related support
facility also located in Arizona. See Note 8 of the Notes to
Condensed Consolidated Financial Statements in Item 1 of Part I
of this Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
31.1 Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) or 15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) or 15d-14(a).
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
Report on Form 8-K, dated October 1, 2003, Commission
File No. 1-4415, reporting in Item 12 that Park issued a
news release on October 1, 2003 reporting its results of
operations for the fiscal year 2004 second quarter ended
August 31, 2003 and furnishing the news release to the
Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Park Electrochemical Corp.
--------------------------
(Registrant)
/s/Brian E. Shore
Date: January 13, 2004 -----------------------
Brian E. Shore
President and
Chief Executive Officer
/s/Murray O. Stamer
Date: January 13, 2004 -----------------------
Murray O. Stamer
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Name Page
----------- ---- ----
31.1 Certification of Chief Executive
Officer pursuant to Exchange Act
Rules 13a-14(a) or 15d-14(a) 29
31.2 Certification of Chief Financial
Officer pursuant to Exchange Act
Rules 13a-14(a) or 15d-14(a) 31
32.1 Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 33
32.2 Certification of Principal Financial
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 34