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 28, 1999
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: 10,462,198 as of January 7,
2000.
<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 28, 1999 (Unaudited) and
February 28, 1999 .................................. 4
Consolidated Statements of Earnings
13 weeks and 39 weeks ended November 28, 1999 and
November 29, 1998 (Unaudited)....................... 5
Condensed Consolidated Statements of Cash Flows
39 weeks ended November 28, 1999 and
November 29, 1998 (Unaudited)....................... 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) ............................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ......................................... 10
Factors That May Affect Future Results........................ 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk......................................... 15
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings ................................... 16
Item 6. Exhibits and Reports on Form 8-K .................... 16
SIGNATURES ..................................................... 17
EXHIBIT INDEX.................................................... 18
<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 28, February 28,
1999 1999
----------- ------------
<S> <C> <C>
ASSETS (Unaudited) *
Current assets:
Cash and cash equivalents $ 32,347 $ 36,682
Marketable securities 103,420 103,020
Accounts receivable, net 66,802 56,917
Inventories (Note 2) 29,603 25,703
Prepaid expenses and other current assets 8,397 7,874
-------- --------
Total current assets 240,569 230,196
Property, plant and equipment, net 123,493 118,012
Other assets 3,340 3,490
-------- --------
$367,402 $351,698
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,103 $ 31,019
Accrued liabilities 26,445 23,154
Income taxes payable 6,261 9,183
-------- --------
Total current liabilities 63,809 63,356
Long-term debt 100,000 100,000
Deferred income taxes 10,360 9,501
Deferred pension and other liabilities 13,661 14,195
Stockholders' equity:
Common stock 1,358 1,358
Additional paid-in capital 54,233 53,108
Retained earnings 157,383 142,336
Treasury stock, at cost (29,128) (30,354)
Accumulated other non-owner changes (Note 5) (4,274) (1,802)
--------- ---------
Total stockholders' equity 179,572 164,646
--------- ---------
$367,402 $351,698
========= =========
<FN>
*The balance sheet at February 28, 1999 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 28, November 29, November 28, November 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $108,183 $103,290 $320,366 $289,493
Cost of sales 89,479 87,294 263,214 247,133
--------- -------- --------- ---------
Gross profit 18,704 15,996 57,152 42,360
Selling, general and
administrative expenses 11,273 10,991 34,398 30,786
--------- -------- --------- ---------
Profit from
operations 7,431 5,005 22,754 11,574
--------- -------- --------- ---------
Other income (expense):
Interest and other
income, net 1,686 1,788 4,818 5,936
Interest expense (1,397) (1,393) (4,192) (4,165)
--------- -------- --------- ---------
Total other income 289 395 626 1,771
--------- -------- --------- ---------
Earnings before income taxes 7,720 5,400 23,380 13,345
Income tax provision 1,930 1,151 5,845 3,336
--------- --------- --------- ---------
Net earnings $ 5,790 $ 4,249 $17,535 $10,009
========= ========= ========= =========
Earnings per share (Note 3):
Basic $ .55 $ .41 $ 1.67 $ .90
Diluted $ .51 $ .40 $ 1.55 $ .89
Weighted average number of
common and common equivalent
shares outstanding:
Basic 10,546 10,483 10,488 11,166
Diluted 13,221 12,941 13,096 11,302
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 28, November 29,
1999 1998
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $16,637 $ 8,288
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (19,494) (18,682)
Purchases of marketable securities (119,435) (105,061)
Proceeds from sales of marketable
securities 119,027 115,487
-------- --------
Net cash used in investing
activities (19,902) (8,256)
-------- --------
Cash flows from financing activities:
Dividends paid (2,488) (2,650)
Proceeds from exercise of stock options 2,351 183
Purchase of treasury stock - (13,452)
-------- --------
Net cash used in financing activities (137) (15,919)
-------- --------
Decrease in cash and cash equivalents
before effect of exchange rate changes (3,402) (15,887)
Effect of exchange rate changes on cash
and cash equivalents (933) 857
-------- --------
Decrease in cash and cash equivalents (4,335) (15,030)
Cash and cash equivalents, beginning of period 36,682 45,102
-------- --------
Cash and cash equivalents, end of period $32,347 $30,072
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 5,500 $ 5,500
Income taxes $ 7,422 $ 1,479
</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 28, 1999, the
consolidated statements of earnings for the 13 weeks and 39 weeks ended
November 28, 1999 and November 29, 1998, 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 28, 1999, 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 February 28, 1999.
<TABLE>
2. INVENTORIES
Inventories consist of the following:
<CAPTION> (In thousands)
November 28, February 28,
1999 1999
----------- ------------
<S> <C> <C>
Raw materials $11,405 $ 8,787
Work-in-process 6,199 4,590
Finished goods 10,903 11,533
Manufacturing supplies 1,096 793
------- -------
$29,603 $25,703
</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 28, November 29, November 28, November 29,
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income for basic EPS $ 5,790 $ 4,249 $17,535 $10,009
Add interest on 5.5% convertible
subordinated notes, net of taxes 908 905 2,725 *
------- ------- ------- -------
Net income for diluted EPS $ 6,698 $ 5,154 $20,260 $10,009
======= ======= ======= =======
Weighted average common shares
outstanding for basic EPS 10,546 10,483 10,488 11,166
Net effect of dilutive options 305 88 238 136
Assumed conversion of 5.5%
convertible subordinated notes 2,370 2,370 2,370 *
------- ------- ------- -------
Weighted average shares
outstanding for diluted EPS 13,221 12,941 13,096 11,302
======= ======= ======= =======
EPS-basic $ .55 $ .41 $ 1.67 $ .90
EPS-diluted $ .51 $ .40 $ 1.55 $ .89
<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. BUSINESS SEGMENTS
Park Electrochemical Corp. ("Park"), through its subsidiaries
(collectively, the "Company"), is a leading global designer and
producer of advanced electronic materials used to fabricate complex
multilayer printed circuit boards and other electronic interconnect
systems. The Company's multilayer printed circuit board materials
include copper-clad laminates, prepregs and semi-finished multilayer
printed circuit board panels. Multilayer printed circuit boards and
interconnect systems are used in virtually all advanced electronic
equipment to direct, sequence and control electronic signals between
semiconductor devices and passive components. The Company also
designs and manufactures specialty adhesive tapes, advanced composite
materials, microwave circuitry materials and plumbing hardware for the
electronics, aerospace, industrial and plumbing markets.
Financial information concerning the Company's business segments
follows (in thousands):
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
-------------- --------------
November 28, November 29, November 28, November 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Electronic materials $100,045 $ 93,606 $294,198 $261,422
Engineered materials and
plumbing hardware 8,138 9,684 26,168 28,071
--------- --------- --------- ---------
Net sales $108,183 $103,290 $320,366 $289,493
========= ========= ========= =========
Profit/(Loss)
Electronic materials $ 8,421 $ 5,403 $ 25,867 $ 13,344
Engineered materials and
plumbing hardware 316 946 1,517 1,567
General corporate expense (1,306) (1,344) (4,630) (3,337)
Interest and other income,
net 1,686 1,788 4,818 5,936
Interest expense (1,397) (1,393) (4,192) (4,165)
--------- --------- --------- ---------
Earnings before income taxes $ 7,720 $ 5,400 $ 23,380 $ 13,345
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
November 28, February 28,
1999 1999
------------ ------------
<S> <C> <C>
Assets
Electronic materials $256,002 $233,886
Engineered materials and
plumbing hardware 12,062 11,752
Corporate(1) 99,338 106,060
--------- ---------
Total assets $367,402 $351,698
========= =========
<FN>
(1) Corporate assets consist primarily of cash, cash equivalents and marketable
securities.
</TABLE>
<PAGE> 9
5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 - "Reporting
Comprehensive Income" (SFAS No. 130), establishes standards for reporting
changes in equity from non-owner sources in the financial statements.
Total non-owner changes in stockholders' equity for the 13 weeks ended
November 28, 1999 and November 29, 1998 were $4,819,000 and $4,972,000,
respectively. Total non-owner changes for the 39 weeks ended November 28,
1999 and November 29, 1998 were $15,063,000 and $11,863,000,
respectively. Comprehensive income consists primarily of net income and
foreign currency translation adjustments.
<PAGE> 10
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 operates under the "Nelco" name. The Company's customers for its
advanced printed circuit materials include leading independent circuit board
fabricators, contract manufacturers and large electronic equipment
manufacturers in the computer, telecommunications, transportation, aerospace
and instrumentation industries.
The Company's electronic materials operations accounted for
approximately 90% and 89%, respectively, of net sales worldwide in the last
two fiscal years ended February 28, 1999 and March 1, 1998, approximately
92% in the three-month and nine-month periods ended November 28, 1999 and
approximately 91% and 90% in the three-month period and nine-month period,
respectively, ended November 29, 1998. The Company's foreign electronic
materials operations accounted for approximately 39% and 31%, respectively,
of net sales worldwide in the 1999 and 1998 fiscal years, approximately 38%
and 37% in the three-month period and nine-month period, respectively, ended
November 28, 1999 and approximately 42% and 40% in the three-month period
and nine-month period, respectively, ended November 29, 1998.
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 10% and 11%,
respectively, of the Company's total net sales worldwide in the last two
fiscal years, approximately 8% in the three-month and nine-month periods
ended November 28, 1999 and approximately 9% and 10% in the three-month
period and nine-month period, respectively, ended November 29, 1998.
The Company's sales continued to grow in the three-month and
nine-month periods ended November 28, 1999, led by growth in sales by the
Company's North American and Asian electronic materials operations, which
was partially offset by the loss of sales to Delco Electronics, discussed
below. The earnings growth that the Company achieved during its 1998 fiscal
year, and that did not continue in the 1999 fiscal year, resumed in the 2000
fiscal year first, second and third quarters. This resumed growth was
primarily a result of strong performances by the Company's electronic
materials operations despite the significant negative impact caused 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% of the Company's total sales worldwide for the 1998 fiscal
year.
However, in March 1998, the Company was informed by Delco that
Delco planned to close its printed circuit board fabrication plant and
completely exit the printed circuit board manufacturing business. As a
result, the Company's sales to Delco declined during the three-month period
ended May 31, 1998, were negligible during the three-month period ended
August 30, 1998, were nil during the remainder of the 1999 fiscal year and
during the 2000 fiscal year first, second and third quarters and are
expected to be nil during the remainder of the 2000 fiscal year 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 Dis-
<PAGE> 11
trict 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 damages of not less than
$70 million and substantial punitive damages.
Although the Company's electronic materials segment was not
dependent on this single customer, the loss of this customer had a material
adverse effect on the business of the segment in the 1999 fiscal year and in
the 2000 fiscal year first, second and third quarters and may have a
material adverse effect on the business of this segment in the fiscal year
ending February 27,2000 and in subsequent fiscal years.
Three and Nine Months Ended November 28, 1999 Compared with Three and Nine
Months Ended November 29, 1998:
The Company's electronic materials business was principally
responsible for the improvement in the Company's results of operations for
the three-month and nine-month periods ended November 28, 1999. The
strengthening of the Company's printed circuit materials businesses during
the latter part of the 1999 fiscal year continued in the 2000 fiscal year
first, second and third quarters. However, the absence of the business with
Delco Electronics during the 2000 fiscal year constrained the Company's
sales volume in North America and negatively affected the Company's margins.
The Company's results of operations and gross margins improved
in the 2000 fiscal year first and second quarters principally as a result of
the electronic materials business' reducing its internal costs and
maximizing the utilization of its manufacturing resources, working closely
with its suppliers to reduce its raw material costs, increasing its market
share with certain key customers, and increasing its sales of higher
technology, higher margin products. These factors continued to favorably
impact the Company's operations and margins in the 2000 fiscal year third
quarter; however, the Company's electronic materials business also
experienced inefficiencies resulting from the operation of certain of its
facilities at levels in excess of their designed manufacturing capacity,
difficulty associated with the integration of a small acquisition which was
closed in the 2000 fiscal year second quarter, less than satisfactory
performance by certain of the Company's electronic materials business units
and price pressure exerted by customers, all of which negatively affected
the Company's margins in the third quarter.
Operating results of the Company's engineered materials and
plumbing hardware businesses declined during the three-month and nine-month
periods ended November 28, 1999. This decline was attributable to the
plumbing hardware business and was only partially offset by improvements in
the specialty adhesive tape and film business and advanced composite
materials business.
Results of Operations
Sales for the three-month and nine-month periods ended November
28, 1999 increased 5% to $108.2 million and 11% to $320.4 million,
respectively, from $103.3 million and $289.5 million for last fiscal year's
comparable periods. Sales of the electronic materials business for the
three-month and nine-month periods ended November 28, 1999 were $100.0
million and $294.2 million, respectively, compared with $93.6 million and
$261.4 million, respectively, for last fiscal year's comparable periods. The
increases in sales of electronic materials were principally the result of
higher volumes of electronic materials shipped and increases in sales of
higher technology products. Sales of the engineered materials and plumbing
hardware businesses for the three-month and nine-month periods ended
November 28, 1999 decreased 16% to $8.1 million and 7% to $26.2 million,
respectively, from $9.7 million and $28.1 million for last fiscal year's
comparable periods.
<PAGE> 12
The Company's foreign electronic materials operations accounted
for $41.4 million and $117.0 million, respectively, of sales during the
three-month and nine-month periods ended November 28, 1999 compared with
$43.5 million and $116.1 million, respectively, of sales
during last fiscal year's comparable periods. The decline in sales by
foreign operations during the three-month period ended November 28, 1999 was
due principally to a decline in sales by the Company's European operations,
while the slight increase in such sales during the nine-month period ended
November 28, 1999 was due principally to an increase in sales by the
Company's Asian operations.
The gross margins for the Company's worldwide operations were
17.3% and 17.8%, respectively, during the three-month and nine-month periods
ended November 28, 1999 compared with 15.5% and 14.6%, respectively, for
last fiscal year's comparable periods. The improvements in the gross
margins were attributable to the increases in sales volumes over last fiscal
year's comparable periods, the continuing growth in sales of higher
technology, higher margin products and increases in market share with
certain key electronic materials customers. However, the favorable impact of
these factors was partially offset by the absence of sales volumes with
Delco Electronics, inefficiencies caused by operating certain facilities at
levels in excess of their designed manufacturing capacity, difficulty
associated with the integration of a small acquisition which was closed in
the 2000 fiscal year second quarter, less than satisfactory performance by
certain of the Company's electronic materials business units and price
pressure exerted by customers.
Selling, general and administrative expenses, measured as a
percentage of sales, were 10.4% and 10.7%, respectively, during the three-
month and nine-month periods ended November 28, 1999 compared with 10.7% and
10.6%, respectively, during last fiscal year's comparable periods. The
decline for the three-month period resulted from proportionately greater
sales compared to the comparable period during the last fiscal year, while
the increase for the nine-month period was a function of increased general
and administrative expenses, resulting, in part, from higher professional
fees, some of which are non-recurring, and increased employee performance
incentives.
For the reasons set forth above, profit from operations for the
three-month period ended November 28, 1999 increased 48% to $7.4 million
from $5.0 million for last fiscal year's comparable period, and profit from
operations for the nine-month period ended November 28, 1999 increased 97%
to $22.8 million from $11.6 million for last fiscal year's comparable
period.
Interest and other income, principally investment income,
declined 6% to $1.7 million and 19% to $4.8 million, respectively, for the
three-month and nine-month periods ended November 28, 1999 from $1.8 million
and $5.9 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 28, 1999 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 28, 1999 was 25.0% compared with 21.3% for last fiscal
year's comparable period, and the Company's effective income tax rate for
the nine-month period ended November 28, 1999 was 25.0% compared with the
same rate for last fiscal year's comparable period. This increase in the
effective tax rate for the three-month period was primarily the result of a
change in the Company's income mix among the tax jurisdictions in which the
Company does business.
<PAGE> 13
Net earnings for the three-month and nine-month periods ended
November 28, 1999 increased 36% to $5.8 million and 75% to $17.5 million,
respectively, from $4.2 million and $10.0 million, respectively, for last
fiscal year's comparable periods. Basic and diluted earnings per share
increased to $0.55 and $0.51, respectively, for the three-month period ended
November 28, 1999 from $0.41 and $0.40, respectively, for last fiscal year's
comparable period, and basic and diluted earnings per share increased to
$1.67 and $1.55, respectively, for the nine-month period ended November 28,
1999 from $0.90 and $0.89, respectively, for last fiscal year's comparable
period. These increases in net earnings and earnings per share were
attributable to the Company's significantly improved operating results.
Liquidity and Capital Resources:
At November 28, 1999, the Company's cash and temporary
investments were $135.8 million compared with $139.7 million at February 28,
1999, the end of the Company's 1999 fiscal year. The decrease in the
Company's cash and temporary investment position at November 28, 1999 was
attributable to investments in property, plant and equipment in excess of
cash provided from operating activities, as discussed below. The Company's
working capital was $176.8 million at November 28, 1999 compared with $166.8
million at February 28, 1999. The increase at November 28, 1999 compared
with February 28, 1999 was due principally to higher receivables and
inventories and lower income taxes payable, offset in part by the reduction
in cash and temporary investments and higher accrued liabilities. The
Company's current ratio (the ratio of current assets to current liabilities)
was 3.8 to 1 at November 28, 1999 compared with 3.6 to 1 at February 28,
1999.
During the nine-months ended November 28, 1999, cash provided by
net earnings, before depreciation and amortization, of $29.8 million was
reduced by a net increase in working capital items, resulting in $16.6
million of cash provided from operating activities, and the Company expended
$19.5 million for the purchase of property, plant and equipment. Net
expenditures for property, plant and equipment were $24.4 million in the
1999 fiscal year. In the 2000 fiscal year second quarter, the Company
announced large expansion programs relating to its electronic materials
operations in New York and California, and the Company expects to complete
an expansion of its electronic materials operations in Asia during the
current fiscal year.
At November 28, 1999, 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 28, 1999 and November
29, 1998, 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 28, 1999 and February 28, 1999,
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> 14
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 date field
with two digits representing a year may result in an error or failure due to
the system's inability to recognize "00" as the Year 2000.
To address Year 2000 issues, the Company has conducted a plan
comprised of the following four phases: inventory, assessment, remediation
and testing. The Company has applied this plan to the areas of information
technology related to internal systems and processes, embedded systems
related to manufacturing and other facility equipment, and external
relationships which included evaluating the Year 2000 readiness of third
parties such as suppliers, customers and service providers. The Company
utilized external information technology consultants, in addition to the
Company's internal resources, to evaluate and monitor the Company's Year
2000 readiness.
In the information technology and embedded systems areas, the
Company has completed the inventory, assessment, remediation and testing
phases. The Company anticipates that Year 2000 issues will not pose
significant operating problems. The Company is also continually assessing
the Year 2000 compliance of third parties on whom it relies, and has
developed contingency plans where possible. Such contingency plans include
using alternate suppliers and increasing inventory levels. The Company will
continue to evaluate the readiness of its suppliers and to refine its
contingency plans on an ongoing basis.
The Company is upgrading its information systems to improve
their functionality and efficiency. As part of this ongoing system upgrade,
the Company has modified or replaced existing computer programs so that they
will function properly with respect to dates beyond December 31, 1999. A
major component of this project includes the replacement of legacy computer
programs with a fully integrated Oracle based system. The Oracle system is
being implemented at one Company location at a time. The Company has
upgraded the existing legacy systems to function beyond 1999 for those
locations which have not completed the conversion to the Oracle based
system.
As mentioned in the preceding paragraph, the primary reason for
the extensive system modifications which are being undertaken by the Company
is 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
hardware and software. The incremental cost of the Company's Year 2000
compliance program did not have a material adverse effect on the liquidity,
capital resources, business, consolidated results of operations or
consolidated financial position of the Company.
Although the Company believes it is taking appropriate measures
to avoid any material adverse effects relating to Year 2000 issues, no
amount of preparation and testing can guarantee Year 2000 compliance. In
addition to the risks of the failure to locate and correct Year 2000
problems in the Company's information systems and software programs that
control various equipment functions, the Company is exposed to the risk of
the Year 2000 readiness of its suppliers, as well as suppliers to its
suppliers, customers and other third parties, and infra-structure failures.
Although the Company has initiated a program to communicate with all of its
significant suppliers and customers to determine the extent to which the
Company is vulnerable to a failure by such a third party to adequately
address its own Year 2000 issues, the Company does not have control over
these third parties and, as a result, cannot currently estimate to what
extent the failure of these third parties to successfully address their Year
2000 issues may adversely affect the Company's liquidity, capital resources,
business, consolidated results of operations or consolidated financial
position. As of January 7, 2000, the Company has not experienced any
material adverse effects relating to Year 2000 issues.
<PAGE> 15
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
February 28, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risks for changes in foreign
currency exchange rates and interest rates. The Company's primary foreign
currency exchange exposure relates to the translation of the financial
statements of foreign subsidiaries using currencies other than the U.S.
dollar as their functional currency. The Company does not believe that a
10% fluctuation in foreign exchange rates would have had a material impact
on its consolidated results of operations or financial position. The
exposure to market risks for changes in interest rates relates to the
Company's short-term investment portfolio. This investment portfolio is
managed by outside professional managers in accordance with guidelines
issued by the Company. These guidelines are designed to establish a high
quality fixed income portfolio of government and highly rated corporate debt
securities with a maximum weighted average maturity of less than one year.
The Company does not use derivative financial instruments in its investment
portfolio. Based on the average maturity of the investment portfolio at the
end of the 1999 fiscal year and at November 28, 1999, a 10% increase in
short term interest rates would not have had a material impact on the
consolidated results of operations or financial position of the Company.
<PAGE> 16
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 damages of not less than $70 million and substantial punitive
damages.
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 remainder of the
1999 fiscal year and during the 2000 fiscal year first, second and third
quarters and are expected to be nil during the remainder of the 2000 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% and 17.3% of the Company's total worldwide sales for the 1998 and 1997
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 28, 1999.
<PAGE> 17
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 10, 2000 /s/Brian E. Shore
---------------------------
Brian E. Shore
President and
Chief Executive Officer
Date: January 10, 2000 /s/Murray O. Stamer
---------------------------
Murray O. Stamer
Treasurer and
Chief Accounting Officer
<PAGE> 18
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
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<PERIOD-END> NOV-28-1999
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<SECURITIES> 103,420
<RECEIVABLES> 66,802
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<INVENTORY> 29,603
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<PP&E> 240,286
<DEPRECIATION> 116,793
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0
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<COMMON> 1,358
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<TOTAL-REVENUES> 325,184
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