Park Electrochemical Corp. — Form 10-Q Summary
Period and entity: The filing covers the 13 and 39 weeks ended November 26, 2017. Although the request identifies Park Aerospace Corp. and 2016 Q3, the filing itself is for Park Electrochemical Corp. and fiscal 2018 Q3. Financial amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise.
Business context and results
Park develops and sells advanced composite materials and aerospace structures, as well as printed circuit materials for electronics, telecommunications and aerospace markets. It reports one operating segment. Management attributed weaker overall results primarily to lower printed circuit materials sales and costs and inefficiencies from consolidating two North American electronics business units.
| Metric | 13 weeks ended Nov. 26, 2017 | 13 weeks ended Nov. 27, 2016 | 39 weeks ended Nov. 26, 2017 | 39 weeks ended Nov. 27, 2016 |
|---|---|---|---|---|
| Net sales | $26.1m | $26.5m | $83.4m | $87.0m |
| Gross profit / margin | $6.1m / 23.2% | $6.6m / 25.1% | $19.6m / 23.5% | $22.7m / 26.0% |
| Operating earnings | $0.8m | $1.9m | $0.9m | $7.4m |
| Net earnings | $0.7m | $1.9m | $2.6m | $6.8m |
| Diluted EPS | $0.04 | $0.09 | $0.13 | $0.34 |
Aerospace sales increased to $10.2m for the quarter and $30.3m year to date, while printed circuit materials sales declined to $15.9m and $53.1m, respectively. North American sales rose, but sales in Asia fell 32% for the quarter and 21% year to date, principally reflecting lower printed circuit materials sales.
Cash flow, liquidity and debt
- For the 39 weeks, operating cash flow was $5.0m, versus $10.7m a year earlier. Capital spending was $0.7m; dividends paid were $6.1m.
- Investing cash flow was a $68.1m use, largely reflecting purchases of marketable securities net of sales and maturities. Cash and cash equivalents declined to $30.6m from $102.4m at fiscal year-end; marketable securities increased to $201.2m from $136.2m.
- At November 26, cash and marketable securities totaled $231.8m, plus $10.0m of restricted cash. Working capital was $248.8m and the current ratio was 19.2 to 1.
- Debt was $69.25m at November 26, at a stated interest rate of 3.41%. After the quarter, the company prepaid the loan and terminated its HSBC credit agreement on January 3, 2018, paying $68.779m including accrued interest. The bank had waived certain financial covenant compliance for the November quarter.
Material changes, outlook and notable items
- Year-to-date restructuring charges were $4.735m, primarily for consolidating the Nelco and Neltec electronics units; the consolidation was substantially completed in the quarter. Management estimated about $1.08m of remaining pretax charges, primarily during the fiscal year ending February 28, 2021.
- Management cited $0.375m of one-time litigation expense year to date and $0.190m of advisory fees. The cited restructuring, litigation and advisory items reduced EPS by an estimated $0.02 for the quarter and $0.16 year to date.
- Management said demand in global markets remained difficult to forecast and it could not clearly predict demand for the rest of fiscal 2018 or beyond. No numerical earnings or revenue guidance was provided.
- On January 4, 2018, Park announced a strategic evaluation, including a potential sale, of its Electronics Business. Management warned that a transaction might not occur and that the process could affect business relationships, employees, expenses, management focus and the share price.
- The Tax Cuts and Jobs Act, enacted after quarter-end, was still under evaluation; management expected a material effect on deferred tax balances and the tax provision in fiscal Q4. Park also reported repatriating a significant portion of accumulated foreign income in January 2018.
- On January 4, 2018, the board declared a $3.00-per-share special cash dividend, payable February 13, 2018. Management stated it expected adequate liquidity after considering debt repayment, taxes on repatriated earnings and the dividend.
- The company disclosed litigation and environmental matters, including potential responsibility at four sites. Management did not expect their ultimate disposition to materially adversely affect the company; insurance carriers had reimbursed defense and remediation costs at three sites.
Key facts for investors to verify
- Reconcile the request’s company and period labels with the filing’s registrant, Park Electrochemical Corp., and November 26, 2017 reporting date.
- Track whether the electronics business strategic evaluation results in a transaction, and the transaction’s costs and effects on operations.
- Verify the final accounting and cash-tax impacts of the Tax Cuts and Jobs Act and foreign-income repatriation.
- Assess completion costs and operating benefits, if any, from the Nelco/Neltec consolidation against the remaining restructuring estimate.
- Confirm the cash and marketable securities available after debt repayment, repatriation-related taxes and payment of the special dividend.
- Monitor printed circuit materials demand, particularly in Asia, and the sustainability of aerospace sales growth and gross margins.