Park Electrochemical Corp. — Form 10-Q Summary
Filing-period note: The supplied filing is for Park Electrochemical Corp. and the 13 weeks ended May 29, 2016 (fiscal 2017 first quarter), not Park Aerospace Corp. or 2015 Q1 as stated in the request metadata.
Business context and reporting period
Park develops and sells advanced materials for electronics and aerospace markets. It reports as one operating segment. The unaudited quarter is compared with the 13 weeks ended May 31, 2015.
Financial performance and position
| Metric | Quarter ended May 29, 2016 | Prior-year quarter |
|---|---|---|
| Net sales | $31.5 million | $37.8 million |
| Gross profit / margin | $8.8 million / 27.9% | $11.4 million / 30.0% |
| Operating earnings | $3.4 million | $5.4 million |
| Net earnings | $3.0 million | $4.8 million |
| Diluted EPS | $0.15 | $0.23 |
| Operating cash flow | $8.4 million | $(5.8) million |
- Sales fell 17%; operating and net earnings each declined 38%. Management attributed the sales decline chiefly to lower printed-circuit-material sales in Asia and lower aerospace composite sales.
- Asia sales declined 30%, North America 8%, while Europe sales increased 10%. Printed circuit materials generated $23.8 million of sales; aerospace products generated $7.7 million.
- Gross margin declined to 27.9%, mainly because of lower sales and production levels in Asian printed circuit materials. SG&A fell 8% in dollars but rose to 16.9% of sales from 15.3%.
- Operating cash flow benefited from a $4.2 million contribution from changes in operating assets and liabilities. Capital spending was $41,000; dividends paid were $2.0 million.
- At May 29, cash and cash equivalents were $106.9 million, marketable securities $135.5 million, and restricted cash $10.0 million. Working capital was $256.6 million; the current ratio was 14.9 to 1.
- Debt was $74.25 million, including $3.0 million current and $71.25 million long-term, down $750,000 during the quarter. The reported interest rate was 1.67%. Cash and marketable securities totaled $242.4 million.
- Dividends declared were $0.10 per share, unchanged from the prior-year quarter. The effective tax rate was 13.9%, versus 10.5%.
Material changes, outlook and risks
- Management said product-market demand remained difficult to forecast and it could not clearly predict demand for the remainder of fiscal 2017 or beyond. It nevertheless believed available resources were sufficient to fund operations through fiscal 2017 and for the foreseeable future.
- The HSBC three-year credit facility provides for up to $75 million of loans, with quarterly principal payments of $750,000 and maturity in January 2019. It includes financial covenants and a requirement to maintain at least $10 million in domestic cash. Management said liquidity would be sufficient to repay borrowings if a covenant default required prepayment.
- Of $252.4 million in cash, marketable securities and restricted cash, $237.4 million was held by foreign subsidiaries. Repatriating funds could involve income taxes; the company previously repatriated $61 million and paid $10.7 million in taxes in fiscal 2016.
- Restructuring charges were $70,000, compared with $124,000 a year earlier, related to previously closed facilities. No material goodwill impairment was recorded. The China facility building had been sold in the prior fiscal year; the Newburgh building was held for sale.
- The company disclosed environmental, employment, product and other claims, but said their ultimate disposition was not expected to materially affect its financial position or results. It identified four environmental sites; no environmental liabilities were recorded for the quarter. Management reported effective disclosure controls and no material change in internal controls.
- Management cited industry conditions, competition, customer relationships, international economic conditions, and raw-material, transportation and utility costs as factors that could affect future results. No quantitative earnings or sales guidance was provided.
Important facts for investors to verify
- Confirm the intended issuer and quarter: the filing itself is Park Electrochemical Corp., quarter ended May 29, 2016.
- Track demand, sales and production levels in Asia and aerospace, the main drivers of the year-over-year revenue and margin declines.
- Assess whether operating cash generation persists; this quarter’s positive cash flow included a sizable working-capital contribution.
- Review debt covenant compliance, the domestic-cash requirement, and the location and potential tax cost of foreign-held liquidity.
- Note that management’s discussion describes the tax rate as lower due to foreign jurisdictions and incentives, although the reported rate rose from 10.5% to 13.9%; the filing text does not clearly reconcile that wording.