SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ___________________
Commission file number 1-4415
PARK ELECTROCHEMICAL CORP.
----------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 11-1734643
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Dakota Drive, Lake Success, N.Y. 11042
- ------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 354-4100
Not Applicable
-----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 10,318,377 as of January 8,
1999.
<PAGE> 2
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 29, 1998 (Unaudited) and
March 1, 1998 ...................................... 4
Consolidated Statements of Earnings
13 weeks and 39 weeks ended November 29, 1998 and
November 30, 1997 (Unaudited)....................... 5
Condensed Consolidated Statements of Cash Flows
39 weeks ended November 29, 1998 and
November 30, 1997 (Unaudited)....................... 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) ............................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ......................................... 9
Factors That May Affect Future Results........................ 13
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings ................................... 14
Item 6. Exhibits and Reports on Form 8-K .................... 14
SIGNATURES ..................................................... 15
EXHIBIT INDEX.................................................... 16
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Company's Financial Statements begin on the next page.
<PAGE> 4
<TABLE>
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
November 29, March 1,
1998 1998
----------- --------
<S> <C> <C>
ASSETS (Unaudited) *
Current assets:
Cash and cash equivalents $ 30,072 $ 45,102
Marketable securities 103,041 113,358
Accounts receivable, net 63,652 53,511
Inventories (Note 2) 28,656 26,953
Prepaid expenses and other current assets 7,778 8,456
-------- --------
Total current assets 233,199 247,380
Property, plant and equipment, net 118,243 108,116
Other assets 3,731 3,833
-------- --------
$355,173 $359,329
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,847 $ 37,426
Accrued liabilities 22,984 25,261
Income taxes payable 9,003 8,140
-------- --------
Total current liabilities 68,834 70,827
Long-term debt 100,000 100,000
Deferred income taxes 9,681 8,781
Deferred pension and other liabilities 14,310 13,317
Stockholders' equity:
Common stock 1,358 1,358
Additional paid-in capital 52,994 52,990
Retained earnings 137,794 130,435
Treasury stock, at cost (Note 4) (30,386) (17,113)
Accumulated other non-owner changes 588 (1,266)
--------- ---------
Total stockholders' equity 162,348 166,404
--------- ---------
$355,173 $359,329
========= =========
<FN>
*The balance sheet at March 1, 1998 has been derived from the audited
financial statements at that date.
</TABLE>
<PAGE> 5
<TABLE>
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited--in thousands, except per share amounts)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
------------------------ ------------------------
November 29, November 30, November 29, November 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $103,290 $97,625 $289,493 $272,344
Cost of sales 87,294 77,774 247,133 219,512
--------- -------- --------- ---------
Gross profit 15,996 19,851 42,360 52,832
Selling, general and
administrative expenses 10,991 10,115 30,786 28,106
--------- -------- --------- ---------
Profit from
operations 5,005 9,736 11,574 24,726
--------- -------- --------- ---------
Other income (expense):
Interest and other
income, net 1,788 2,086 5,936 6,250
Interest expense (1,393) (1,374) (4,165) (4,084)
--------- -------- --------- ---------
Total other income 395 712 1,771 2,166
--------- -------- --------- ---------
Earnings before income taxes 5,400 10,448 13,345 26,892
Income tax provision 1,151 3,452 3,336 8,879
--------- -------- --------- ---------
Net earnings $ 4,249 $ 6,996 $10,009 $18,013
========= ======== ========= =========
Earnings per share (Note 3):
Basic $ .41 $ .62 $ .90 $ 1.59
Diluted $ .40 $ .56 $ .89 $ 1.48
Weighted average number of
common and common equivalent
shares outstanding:
Basic 10,483 11,366 11,166 11,307
Diluted 12,941 13,993 11,302 13,918
Dividends per share $ .08 $ .08 $ .24 $ .24
</TABLE>
<PAGE> 6
<TABLE>
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited--in thousands)
<CAPTION>
39 Weeks Ended
--------------------------
November 29, November 30,
1998 1997
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 8,288 $26,200
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (18,682) (10,958)
Purchases of marketable securities (105,061) (98,446)
Proceeds from sales of marketable
securities 115,487 75,651
Acquisition of business, net of cash
acquired - (5,178)
-------- --------
Net cash used in investing
activities (8,256) (38,931)
-------- --------
Cash flows from financing activities:
Dividends paid (2,650) (2,708)
Proceeds from exercise of stock options 183 297
Purchase of treasury stock (13,452) -
-------- --------
Net cash used in financing activities (15,919) (2,411)
-------- --------
Decrease in cash and cash equivalents
before effect of exchange rate changes (15,887) (15,142)
Effect of exchange rate changes on cash
and cash equivalents 857 24
-------- --------
Decrease in cash and cash equivalents (15,030) (15,118)
Cash and cash equivalents, beginning of period 45,102 42,321
-------- --------
Cash and cash equivalents, end of period $30,072 $27,203
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 5,500 $ 5,500
Income taxes $ 1,479 $ 6,747
Non-cash investing activities:
Stock issued in connection with acquisition - $ 2,074
</TABLE>
<PAGE> 7
PARK ELECTROCHEMICAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of November 29, 1998, the
consolidated statements of earnings for the 13 weeks and 39 weeks ended
November 29, 1998 and November 30, 1997, and the condensed consolidated
statements of cash flows for the 39 week periods then ended have been
prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position at November 29, 1998, and the
results of operations and cash flows for all periods presented, have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles 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 1, 1998.
<TABLE>
2. INVENTORIES
Inventories consist of the following:
<CAPTION> (In thousands)
November 29, March 1,
1998 1998
----------- ----------
<S> <C> <C>
Raw materials $ 9,938 $10,686
Work-in-process 5,595 5,740
Finished goods 12,271 9,806
Manufacturing supplies 852 721
------- -------
$28,656 $26,953
</TABLE> ======= =======
<TABLE>
3. EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings per share for the periods specified (in thousands, except per
share amounts):
<CAPTION> 13 weeks ended 39 weeks ended
-------------- --------------
November 29, November 30, November 29, November 30,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income for basic EPS $ 4,249 $ 6,996 $10,009 $18,013
Add interest on 5.5% convertible
subordinated notes, net of taxes 905 901 * 2,647
------- ------- ------- -------
Net income for diluted EPS $ 5,154 $ 7,897 $10,009 $20,660
======= ======= ======= =======
Weighted average common shares
outstanding for basic EPS 10,483 11,366 11,166 11,307
Net effect of dilutive options 88 257 136 241
Assumed conversion of 5.5%
convertible subordinated notes 2,370 2,370 * 2,370
------- ------- ------- -------
Weighted average shares
outstanding for diluted EPS 12,941 13,993 11,302 13,918
======= ======= ======= =======
EPS-basic $ .41 $ .62 $ .90 $ 1.59
EPS-diluted $ .40 $ .56 $ .89 $ 1.48
<FN>
*For the 39 weeks ended November 29, 1998 the effects of the 5.5% convertible
subordinated notes were not considered as their effect was anti-dilutive.
</TABLE>
<PAGE> 8
4. TREASURY STOCK
During the 13 weeks ended November 29, 1998, the Company repurchased
1,103,200 shares of its common stock at a total cost of $13,452,000
pursuant to share repurchase authorizations announced on June 24, 1998 and
September 9, 1998.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective March 2, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130 - "Reporting Comprehensive Income" (SFAS No.
130), which establishes standards for reporting changes in equity from
non-owner sources in the financial statements. Total non-owner changes
in stockholders' equity were $4,972,000 and $7,815,000 for the 13 weeks
ended November 29, 1998 and November 30, 1997, respectively, and
$11,863,000 and $17,827,000 for the 39 weeks ended November 29, 1998 and
November 30, 1997, respectively, which represents primarily net income and
foreign currency translation adjustments.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Park is a leading global designer and producer of advanced
electronic materials used to fabricate complex multilayer printed circuit
boards and electronic interconnect systems. Park's electronic materials
business is operated by its "Nelco" group of companies. In October 1997,
the Company acquired Dielektra GmbH, a manufacturer of advanced electronic
materials, including mass-laminated multilayer panels and continuously
produced copper-clad laminates, located in Cologne, Germany. The Company's
customers for its advanced printed circuit materials include leading
independent circuit board fabricators and large electronic equipment
manufacturers in the computer, telecommunications, transportation, aerospace
and instrumentation industries.
The Company's electronic materials operations accounted for
approximately 89% and 87%, respectively, of net sales worldwide in the last
two fiscal years, approximately 91% and 90% in the three-month period and
nine-month period, respectively, ended November 29, 1998 and approximately
90% and 89% in the three-month period and nine-month period, respectively,
ended November 30, 1997. The Company's foreign electronic materials
operations accounted for approximately 31% and 29%, respectively, of net
sales worldwide in the 1998 and 1997 fiscal years, approximately 42% and 40%
in the three-month period and nine-month period, respectively, ended
November 29, 1998 and approximately 32% and 29% in the three-month period
and nine-month period, respectively, ended November 30, 1997.
Park is also engaged in the engineered materials and plumbing
hardware businesses, which consist of the Company's specialty adhesive tape
and film business, its advanced composite materials business and its
plumbing hardware business, all of which operate as independent business
units. These businesses accounted for approximately 11% and 13%,
respectively, of the Company's total net sales worldwide in the last two
fiscal years, approximately 9% and 10% in the three-month period and nine-
month period, respectively, ended November 29, 1998 and approximately 10%
and 11% in the three-month and nine-month period, respectively, ended
November 30, 1997.
The sales growth that the Company achieved during the fiscal
year ended March 1, 1998 and prior fiscal years continued in the three-month
and nine-month periods ended November 29, 1998, led by growth in sales by
the Company's electronic materials operations and the inclusion of Dielektra
in the Company's sales, which was partially offset by the loss of sales to
Delco Electronics, discussed below. However, the earnings growth that the
Company achieved during its 1998 fiscal year did not continue in the 1999
fiscal year first, second and third quarters, primarily as a result of
earnings declines in the Company's North American electronic materials
operations, which were caused primarily by the loss of sales to Delco
Electronics.
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 sales were to Delco Electronics Corporation, a
subsidiary of General Motors Corp. Sales to Delco Electronics represented
14.8% of the Company's total sales worldwide for the fiscal year 1999 first
quarter and 15.8% and 17.3% of the Company's total sales worldwide for the
1998 and 1997 fiscal years, respectively.
However, in March 1998, the Company was informed by Delco that
Delco planned to close its printed circuit board fabrication plant and
completely exit the printed circuit board manufacturing business. As a
result, the Company's sales to Delco declined during the three-month period
ended May 31, 1998, were negligible during the three-month period ended
August 30, 1998, were nil during the three-month period ended November 29,
1998 and are expected to be nil during the remainder of the 1999 fiscal year
<PAGE> 10
and in future years. In May 1998, the Company and its Nelco 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 alleges, among
other things, that Delco breached its contract to purchase semi-finished
multilayer printed circuit boards from Nelco and that Delphi interfered with
Nelco's contract with Delco, and seeks compensatory and punitive damages of
not less than $170 million.
The loss of this customer had a material adverse effect on the
business of the Company's electronic materials segment during the three-
month and nine-month periods ended November 29, 1998 and may continue to
have a negative effect during the remaining portion of the fiscal year
ending February 28, 1999 and in subsequent fiscal years.
Three and Nine Months Ended November 29, 1998 Compared with Three and Nine
Months Ended November 30, 1997:
The Company's electronic materials business was principally
responsible for the decline in the Company's results of operations for the
three-month and nine-month periods ended November 29, 1998. This decline
was caused primarily by the reduction in the volume of the Company's
business with Delco Electronics during the first quarter and the absence of
such business during the second and third quarters, which negatively
affected the Company's margins.
During the three-month and nine-month periods ended November 29,
1998, the Company's electronic materials business experienced inefficiencies
caused by operating certain of its facilities at levels lower than their
designed manufacturing capacity and faced intense price pressure from its
customers. These factors adversely affected the Company's gross margins.
The Company's performance was also adversely affected by weakness in the
market for sophisticated printed circuit materials during the 1999 fiscal
year first and second quarters and to a lesser extent during the 1999 fiscal
year third quarter. The Company believes this weakness was attributable to
an industry-wide inventory correction, the Asian financial crisis and global
economic weakness.
The Company's results of operations and margins improved in the
three-month period ended November 29, 1998 compared with the prior three-
month period principally as a result of the electronic material business'
reducing its internal costs and maximizing the utilization of its
manufacturing resources, working closely with its suppliers to reduce its
raw material costs and increasing its market share with certain key
customers.
Operating results of the Company's engineered materials and
plumbing hardware business also declined during the three-month and nine-
month periods ended November 29, 1998. This decline was attributable
principally to the advanced composite materials business.
Results of Operations
Sales for the three-month and nine-month periods ended November
29, 1998 increased 6% to $103.3 million and 6% to $289.5 million,
respectively, from $97.6 million and $272.3 million for last fiscal year's
comparable periods. Sales of the electronic materials business for the
three-month and nine-month periods ended November 29, 1998 were $93.6
million and $261.4 million, respectively, or approximately 91% and 90%,
respectively, of total sales worldwide, compared with $87.5 million and
$241.6 million, respectively, or approximately 90% and 89%, respectively, of
total sales worldwide for last fiscal year's comparable periods. The
increases in sales of electronic materials was principally the result of
higher volume of electronic materials shipped, an increase in sales of
higher technology products and the inclusion of Dielektra in the Company's
sales. Sales of the engineered materials and plumbing hardware business for
the three-month and nine-month periods ended November 29, 1998 decreased 5%
to $9.7 million and 9% to $28.1 million, respectively, from $10.2 million
and $30.7 million for last fiscal year's comparable periods.
<PAGE> 11
The Company's foreign electronic materials operations accounted
for $43.5 million and $116.1 million, respectively, of sales, or 42% and 40%
of the Company's total sales worldwide, during the three-month and nine-
month periods ended November 29, 1998 compared with $31.7 million and $80.3
million, respectively, of sales, or 32% and 29% of total sales worldwide,
during last fiscal year's comparable periods. While sales by each of the
Company's foreign operations were higher in the 1999 fiscal year first,
second and third quarters compared with the 1998 fiscal year first, second
and third quarters, the increase in sales by foreign operations was
principally due to the inclusion of Dielektra in the Company's sales and
increases in sales by the Company's Asian operations in the first and second
quarters and by the Company's operations in England and France in the third
quarter. The Company expanded the manufacturing capacity of its facility in
Singapore during the 1998 and 1997 fiscal years and is engaged in a further
expansion of the Singapore manufacturing facility during the Company's 1999
fiscal year.
The gross margins for the Company's worldwide operations were
15.5% and 14.6%, respectively, during the three-month and nine-month periods
ended November 29, 1998 compared with 20.3% and 19.4%, respectively, for
last fiscal year's comparable periods. The decline in the gross margins in
the 1999 fiscal year periods was attributable to inefficiencies caused by
operating facilities at levels lower than their designed capacity, price
pressure exerted by customers, and reduced sales volumes with Delco
Electronics, which offset the continuing growth in sales of higher
technology, higher margin products. However, the gross margin improved in
the three-month period ended November 29, 1998 compared with the prior
three-month period as a result of reductions in internal costs and in raw
material costs in the Company's electronic materials operations and
increases in market share with certain key electronic materials customers.
Selling, general and administrative expenses, measured as a
percentage of sales, were 10.7% and 10.6% during the three-month period and
nine-month period, respectively, ended November 29, 1998 compared with 10.3%
during each of last fiscal year's comparable periods.
For the reasons set forth above, profit from operations for the
three-month period ended November 29, 1998 declined 49% to $5.0 million from
$9.7 million for last fiscal year's comparable period, and profit from
operations for the nine-month period ended November 29, 1998 declined 53% to
$11.6 million from $24.7 million for last fiscal year's comparable period.
Interest and other income, principally investment income,
declined 14% to $1.8 million and 5% to $5.9 million, respectively, for the
three-month and nine-month periods ended November 29, 1998 from $2.1 million
and $6.3 million, respectively, for last fiscal year's comparable periods.
The declines in investment income were attributable to reductions in cash
available for investment and a decrease in prevailing interest rates. The
Company's investments were primarily short-term taxable instruments and
government securities. Interest expense for the three-month and nine-month
periods ended November 29, 1998 was $1.4 million and $4.2 million,
respectively, compared with approximately the same amounts during last
fiscal year's comparable periods. The Company's interest expense is related
primarily to its $100 million principal amount of 5.5% Convertible
Subordinated Notes due 2006 (the "Notes") issued in February 1996.
The Company's effective income tax rate for the three-month
period ended November 29, 1998 was 21.3% compared with 33.0% for last fiscal
year's comparable period, and the Company's effective income tax rate for
the nine-month period ended November 29, 1998 was 25.0% compared with 33.0%
for last fiscal year's comparable period. This decrease in the effective
tax rate was primarily the result of a change in the Company's income mix
among the tax jurisdictions in which the Company does business.
<PAGE> 12
Net earnings for the three-month and nine-month periods ended
November 29, 1998 decreased 39% to $4.2 million and 44% to $10.0 million,
respectively, from $7.0 million and $18.0 million, respectively, for last
fiscal year's comparable periods. Basic and diluted earnings per share
decreased to $0.41 and $0.40, respectively, for the three-month period ended
November 29, 1998 from $0.62 and $0.56, respectively, for last fiscal year's
comparable period, and basic and diluted earnings per share decreased to
$0.90 and $0.89, respectively, for the nine-month period ended November 29,
1998 from $1.59 and $1.48, respectively, for last fiscal year's comparable
period. These decreases in net earnings and earnings per share were
attributable to the Company's lower operating results.
Liquidity and Capital Resources:
At November 29, 1998, the Company's cash and temporary
investments were $133.1 million compared with $158.5 million at March 1,
1998, the end of the Company's 1998 fiscal year. The decrease in the
Company's cash and investment position at November 29, 1998 was attributable
to investments in property, plant and equipment and repurchases of the
Company's Common Stock in excess of cash provided from operating activities,
as discussed below. The Company's working capital was $164.4 million at
November 29, 1998 compared with $176.6 million at March 1, 1998. The
decrease at November 29, 1998 compared with March 1, 1998 was due
principally to the reduction in cash and temporary investments, offset in
part by higher receivables and inventories and lower accrued liabilities.
The Company's current ratio (the ratio of current assets to current
liabilities) was 3.4 to 1 at November 29, 1998 compared with 3.5 to 1 at
March 1, 1998.
During the nine-months ended November 29, 1998, cash provided by
net earnings, before depreciation and amortization, of $20.5 million was
reduced by a net increase in working capital items, resulting in $8.3
million of cash provided from operating activities, while the Company
expended $18.7 million for the purchase of property, plant and equipment and
$13.5 million for repurchases of the Company's Common Stock. Net
expenditures for property, plant and equipment were $18.3 million and $18.7
million in the 1998 and 1997 fiscal years, respectively. The Company is
planning further expansions of its electronic materials operations,
particularly in the United States and Asia.
At November 29, 1998, the Company's only long-term debt was the
Notes. The Company believes its financial resources will be sufficient, for
the foreseeable future, to provide for continued investment in property,
plant and equipment and for general corporate purposes. Such resources,
including the proceeds from the Notes, would also be available for
appropriate acquisitions and other expansions of the Company's business.
Environmental Matters:
In the nine-month periods ended November 29, 1998 and November
30, 1997, 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 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 November 29, 1998 and March 1, 1998, the
recorded liability in accrued liabilities for environmental matters was $3.5
million. Management does not expect that environmental matters will have a
material adverse effect on the liquidity, capital resources, business,
consolidated results of operations or consolidated financial position of the
Company.
<PAGE> 13
Year 2000:
Year 2000 issues relate to system failures or errors resulting
from computer programs and embedded computer chips which utilize dates with
only two digits instead of four digits to represent a year. A dated field
with two digits representing a year may result in an error or failure due to
the system's inability to recognize "00" as the Year 2000. The Company is
reviewing its worldwide computer systems, including systems controlling
manufacturing equipment and facilities operations, for Year 2000 readiness
and is implementing a plan to resolve existing issues.
The Company is upgrading its information systems to improve
their functionality and efficiency. As part of this ongoing system
development, the Company is modifying or replacing existing computer
programs so that they will function properly with respect to dates beyond
December 31, 1999. The customization and development of the Company's
computer programs is being undertaken with the assistance of external
consultants. A major component of this project includes the replacement of
legacy computer programs with a fully integrated Oracle based system. The
Oracle system is being implemented at one Company location at a time. The
Company has developed a contingency plan to upgrade the existing legacy
system to function beyond 1999 for those locations which have not completed
the conversion to the Oracle based system.
The Company anticipates that all critical systems will be
modified for Year 2000 compliance during 1999 and believes that, after such
modifications have been completed, Year 2000 issues will not pose
significant operational problems. As mentioned in the preceding paragraph,
the primary reason for the extensive system modifications which are being
undertaken by the Company was the improvement of the functionality and
efficiency of the Company's existing information systems. Accordingly, the
Company's budget for these information technology improvements included
enhanced Year 2000 compliant software. Management does not expect that the
incremental cost of its Year 2000 compliance program will have a material
adverse effect on the liquidity, capital resources, business, consolidated
results of operations or consolidated financial position of the Company.
In addition to the risks of the failure to locate and correct
Year 2000 problems in the Company's information systems and software
programs that control various equipment functions, the Company is exposed to
the risk of the Year 2000 readiness of its suppliers, as well as suppliers
to its suppliers, customers and other third parties. Although the Company
has initiated a program to communicate with all of its significant suppliers
and customers to determine the extent to which the Company is vulnerable to
a failure by such a third party to adequately address its own Year 2000
issues, the Company does not have control over these third parties and, as
a result, cannot currently estimate to what extent the failure of these
third parties to successfully address their Year 2000 issues may adversely
affect the Company's liquidity, capital resources, business, consolidated
results of operations or consolidated financial position.
Factors That May Affect Future Results.
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, and the various factors set
forth under the caption "Factors That May Affect Future Results" after Item
7 of the Company's Annual Report on Form 10-K for the fiscal year ended
March 1, 1998.
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1998, the Company and its Nelco subsidiary in Arizona filed
a complaint against Delco Electronics Corporation and Delphi Automotive
Systems in the United States District Court for the District of Arizona.
The complaint alleges, among other things, that Delco breached its contract
to purchase semi-finished multilayer printed circuit boards from Nelco and
that Delphi interfered with Nelco's contract with Delco and seeks
compensatory and punitive damages of not less than $170 million.
The Company 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.
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, were nil during the three-month period
ended November 29, 1998 and are expected to be nil during the remainder of
the 1999 fiscal year and in future years. The Company had been Delco's
principal supplier of semi-finished multilayer printed circuit board
materials for more than ten years. These materials were used by Delco to
produce finished multilayer printed circuit boards. Sales to Delco
Electronics represented 15.8%, 17.3% and 17.1% of the Company's total
worldwide sales for the 1998, 1997 and 1996 fiscal years, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 2 of this Report and "Factors That May Affect Future
Results" after Item 2 of this Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
27.01 Financial data schedule
(b) No reports on Form 8-K have been filed during the fiscal quarter
ended November 29, 1998.
<PAGE> 15
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)
Date: January 12, 1999 /s/Brian E. Shore
---------------- ---------------------------
Brian E. Shore
President and
Chief Executive Officer
Date: January 12, 1999 /s/Murray O. Stamer
---------------- ---------------------------
Murray O. Stamer
Corporate Controller and
Chief Accounting Officer
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Name Page
27.01 Financial data schedule (filed
only by electronic transmission
with EDGAR filing with the
Securities and Exchange Commission).......... -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PARK ELECTROCHEMICAL CORP. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> NOV-29-1998
<CASH> 30,072
<SECURITIES> 103,041
<RECEIVABLES> 63,652
<ALLOWANCES> 0
<INVENTORY> 28,656
<CURRENT-ASSETS> 233,199
<PP&E> 223,770
<DEPRECIATION> 105,527
<TOTAL-ASSETS> 355,173
<CURRENT-LIABILITIES> 68,834
<BONDS> 100,000
0
0
<COMMON> 1,358
<OTHER-SE> 160,990
<TOTAL-LIABILITY-AND-EQUITY> 355,173
<SALES> 289,493
<TOTAL-REVENUES> 295,429
<CGS> 247,133
<TOTAL-COSTS> 277,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,165
<INCOME-PRETAX> 13,345
<INCOME-TAX> 3,336
<INCOME-CONTINUING> 10,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,009
<EPS-PRIMARY> .90
<EPS-DILUTED> .89
</TABLE>
