Park Electrochemical Corp. — Form 10-Q Summary
Business context and reporting period
The filing is for the 13-week quarter and 26-week first half ended August 28, 2011, compared with the periods ended August 29, 2010. The filing identifies the registrant as Park Electrochemical Corp.; this differs from the request metadata, which names Park Aerospace Corp. The company makes advanced printed circuit materials and aerospace composite materials, parts and assemblies. Financial amounts below are in millions of dollars unless otherwise indicated.
Financial performance and liquidity
| Metric | Quarter | First half |
|---|---|---|
| Net sales | $50.4, down 7% year over year | $102.3, down 10% |
| Gross profit margin | 28.8%, versus 33.6% | 29.8%, versus 33.9% |
| Earnings from operations | $7.6, versus $11.1 | $16.1, versus $23.5 |
| Net earnings | $7.7, versus $9.4 | $14.9, versus $19.3 |
| Diluted EPS | $0.37, versus $0.46 | $0.72, versus $0.94 |
| Operating cash flow | $14.9, versus $19.3 in the prior-year first half |
Quarterly cost of sales was 71.2% of sales, compared with 66.4%; SG&A was $6.9 million, or 13.7% of sales, versus $7.2 million, or 13.3%. First-half SG&A was $14.5 million, or 14.1% of sales, versus $15.0 million, or 13.2%.
At August 28, 2011, cash and cash equivalents were $149.8 million and marketable securities were $107.9 million, totaling $257.7 million. Working capital was $282.6 million and the current ratio was 13.5 to 1. The company reported no long-term debt. First-half capital expenditures were $2.6 million; dividends paid were $4.1 million. Cash and marketable securities held by foreign subsidiaries were approximately $185.7 million, which the company intended to reinvest in foreign operations or activities.
Material changes versus prior comparable periods
- Printed circuit materials sales declined, principally from lower volumes in North America and Asia in the quarter and lower volumes across all three regions in the first half. Aerospace composites sales increased to $7.1 million for the quarter and $12.8 million for the first half, from $5.9 million and $12.4 million, respectively.
- Gross margins contracted amid lower sales, higher utility costs, and additional, sometimes duplicative, costs to transfer aerospace manufacturing to Newton, Kansas. Higher sales mix of high-performance printed circuit materials partly offset these pressures.
- Interest and other income included a $1.6 million gain from lawsuit settlements. The gain increased net earnings by approximately $1.1 million, or $0.05 per share, in both the quarter and first half.
- Cash and marketable securities increased $7.3 million from February 27, 2011; cash alone rose to $149.8 million from $112.2 million. Inventory increased 15% from fiscal year-end.
Outlook, risks and unusual items
Management said printed circuit materials markets were difficult to forecast and that it could not predict market conditions for either product area for the remainder of the fiscal year. The Newton, Kansas facility expansion was expected to become operational in the second half of fiscal 2012; the company expected to spend approximately $5 million on the expansion and equipment. Management believed available resources were sufficient for foreseeable needs.
Key exposures include uncertain global electronics and aerospace demand, customer relationships, competition, and the cost and availability of raw materials, transportation and utilities. Environmental matters involve multiple sites; recorded environmental liabilities were $9,000, and management did not expect a material adverse overall effect, while noting an individual matter could significantly affect a particular period. The company could owe up to $2.2 million in additional Nova Composites acquisition earn-outs over two years. It also reported routine litigation and IRS examination-related tax liabilities; the IRS examination was completed and a $1.0 million federal assessment was paid.
The company reported effective disclosure controls and no material changes to internal control over financial reporting. No material changes to previously disclosed risk factors were reported. The filing provides no quantified earnings or revenue guidance.
Important facts for investors to verify
- Confirm the correct issuer and reporting period: the filing is Park Electrochemical Corp.’s quarter ended August 28, 2011, not a 2010 quarter.
- Assess whether weaker printed circuit materials demand and lower gross margins persisted after the reported period.
- Track the costs, timing and expected returns of transferring aerospace production and commissioning the Kansas expansion.
- Separate recurring operating performance from the $1.6 million pre-tax settlement gain when evaluating earnings.
- Review the location and accessibility of foreign-held cash, outstanding acquisition earn-outs, and developments in environmental and tax contingencies.