Business context and reporting period
This filing is Park Electrochemical Corp.’s unaudited Form 10-Q for the 13 weeks ended November 30, 2014 (the company’s fiscal 2015 third quarter) and the 39 weeks ended that date, compared with periods ended December 1, 2013. The supplied request identifies Park Aerospace Corp. and 2013 Q3; those identifiers do not match the filing, which names Park Electrochemical Corp. and reports fiscal 2015 Q3.
The company operates as one advanced-materials segment, serving electronics and aerospace markets. Its products include printed circuit materials and aerospace composite materials, parts, assemblies and tooling.
Financial performance and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | 13 weeks ended Nov. 30, 2014 | Prior-year 13 weeks | 39 weeks ended Nov. 30, 2014 | Prior-year 39 weeks |
|---|---|---|---|---|
| Net sales | $34.7 | $39.7 | $125.8 | $127.6 |
| Gross profit / margin | $8.6 / 24.8% | $11.0 / 27.8% | $37.7 / 30.0% | $37.7 / 29.5% |
| Operating earnings | $2.2 | $4.9 | $18.1 | $18.6 |
| Net earnings | $2.0 | $4.7 | $15.2 | $17.7 |
| Diluted EPS | $0.10 | $0.23 | $0.72 | $0.85 |
| Operating cash flow | Not separately presented for the quarter | $21.0 | $22.7 |
- Third-quarter sales fell 13%; management attributed the decline mainly to weaker printed circuit materials sales in North America and Asia, partly offset by higher aerospace sales. Year-to-date sales declined 1%.
- Printed circuit materials sales were $25.4 million in the quarter and $99.0 million year to date, down from $31.5 million and $105.2 million, respectively. Aerospace sales rose to $9.3 million and $26.9 million, from $8.2 million and $22.4 million.
- Quarterly gross margin contracted 3.0 percentage points, reflecting lower printed circuit materials sales and production and fixed overhead costs. Year-to-date margin improved 0.5 points, supported by aerospace and Asian sales mix and a greater share of higher-performance products.
- At November 30, cash and cash equivalents were $150.3 million and marketable securities were $135.1 million; together they totaled $285.3 million. Restricted cash was $25.0 million. Working capital was $291.5 million, and the current ratio was 10.1:1.
- Debt was $104.0 million, including $17.5 million current and $86.5 million long-term; the stated interest rate was 1.31%. The first $10.0 million installment was due February 12, 2015. The company reported compliance with its credit covenants.
- Year-to-date investing cash flow was positive $1.3 million, including $75.98 million of marketable-security purchases and $77.62 million of sales and maturities. Capital expenditures were $0.4 million; dividends paid were $6.3 million. Cash increased $17.1 million from the fiscal-year start.
Material changes and unusual items
- Quarterly operating earnings declined 55% and net earnings 57% year over year. Restructuring charges of $0.636 million were recorded in the quarter; year-to-date charges were $0.986 million, versus $0.319 million in the prior-year period.
- Restructuring included U.S. cost-reduction initiatives and continuing costs associated with closures in Zhuhai, China, and Newburgh, New York. The company expected the remaining $0.266 million of the U.S. initiative accrual to be paid through December 2015; it expected no significant additional Zhuhai closure charges.
- Year-to-date net earnings were also affected by a $0.260 million audit-fee charge. The prior-year comparable period included a $2.2 million tax benefit from an IRS refund, contributing to the year-over-year earnings decline.
- Year-to-date effective tax rate was 13.8%, versus 3.7% in the prior-year period; the current quarter’s rate was 1.8%, partly reflecting discrete tax adjustments related to restructuring.
- Of cash and marketable securities, approximately $239.5 million was held by foreign subsidiaries. The company had recorded $64.0 million of deferred U.S. income taxes on undistributed Singapore subsidiary earnings in fiscal 2014 and said it had no current plan to repatriate those earnings.
Outlook, risks and contingencies
The filing provides no numerical revenue or earnings guidance. Management said financial resources should be sufficient for foreseeable working-capital, capital-expenditure and general corporate needs, and that it knew of no events reasonably likely to materially affect liquidity. Management identified industry conditions, competition, customer relationships, international economic conditions, and raw-material, transportation and utility costs as factors that could affect future results.
The company reported environmental, employment, product and other claims, but believed their ultimate disposition would not materially affect its business or financial condition. It had been named as a potentially responsible party at four environmental sites, reported no recorded environmental liabilities, and said insurers would cover defense and remediation costs for three sites under a settlement. No material change to previously disclosed risk factors was reported.
The board announced a new authorization on January 8, 2015 to repurchase up to 1.25 million shares, about 6% of shares then outstanding. This post-quarter authorization superseded prior authorizations. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer and period: the filing is Park Electrochemical Corp., fiscal 2015 Q3, not Park Aerospace Corp. or 2013 Q3.
- Review the drivers and durability of the sharp quarterly sales and margin decline, particularly printed circuit materials demand and production levels in North America and Asia.
- Assess the concentration of liquidity in foreign subsidiaries, repatriation-related tax implications, and the distinction between available cash and the $25.0 million restricted-cash covenant requirement.
- Check debt amortization, covenant headroom and the impact of the February 2015 installment, alongside the dividend and new share-repurchase authorization.
- Track remaining restructuring costs, held-for-sale properties, environmental claims and the treatment of the prior-year IRS tax benefit when comparing earnings.