Park Electrochemical Corp. — Form 10-Q Summary
Period and entity: The filing covers the 13 weeks ended May 28, 2017, the company’s first quarter of fiscal 2018—not 2016 Q1 as indicated in the request metadata. The registrant named in the filing is Park Electrochemical Corp. (not Park Aerospace Corp.). Financial statements are unaudited; amounts below are in millions unless otherwise noted.
Business context and key results
The company develops and manufactures advanced materials for aerospace and electronics markets. It reports one operating segment. The quarter’s results weakened mainly because printed circuit materials sales and production declined across regions; higher aerospace sales partly offset the decline.
| Metric | Q1 FY2018 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $27.4 | $31.5 | Down 13% |
| Gross profit / margin | $6.3 / 23.1% | $8.8 / 27.9% | Margin down 4.8 percentage points |
| Operating earnings | $0.2 | $3.4 | Down 93% |
| Net earnings | $1.4 | $3.0 | Down 53% |
| Diluted EPS | $0.07 | $0.15 | Down 53% |
| Operating cash flow | $2.6 | $8.4 | Down $5.9 |
Printed circuit materials sales were $18.7 million, down from $23.8 million; aerospace materials, structures and assemblies sales rose to $8.7 million from $7.7 million. Sales fell in North America (8%), Asia (17%) and Europe (21%). SG&A declined 11% to $4.7 million, but rose slightly as a share of sales to 17.2% from 16.9%.
Liquidity, cash flow and debt
- At May 28, cash and cash equivalents were $47.3 million and marketable securities were $190.5 million, totaling $237.8 million. Restricted cash was an additional $10.0 million. The company said $238.3 million of its $247.8 million in cash, securities and restricted cash was held by foreign subsidiaries.
- Working capital was $253.7 million; the current ratio was 17.6:1, compared with 19.1:1 at fiscal year-end.
- Operating cash flow was $2.6 million. Investing cash outflow was $54.9 million, primarily reflecting net purchases of marketable securities; financing cash outflow was $2.8 million, including $2.0 million in dividends and $0.75 million in debt repayment. Cash and cash equivalents declined $55.1 million, while cash plus marketable securities declined only $0.8 million from fiscal year-end.
- Outstanding bank debt was $71.25 million, down from $72.0 million at February 26, 2017; the reported interest rate was 2.67%. The company stated it was compliant with financial covenants and believed liquidity would be sufficient through fiscal 2018 and thereafter.
- The quarterly dividend declared was $0.10 per share. No shares were repurchased during the quarter.
Material changes, outlook and risks
- Management attributed lower sales and gross margin chiefly to weak printed circuit materials sales and production levels. It said demand for the remainder of fiscal 2018 and beyond was difficult to forecast.
- The company began consolidating its California and Arizona business units, with completion expected in four to six months. It expects total pretax charges of approximately $5.0–$5.5 million, primarily in the first nine months of fiscal 2018, plus $0.3 million of duplicative costs. It expects annual pretax savings of approximately $3.0–$3.5 million once complete. The quarter included $1.25 million related to the consolidation and $0.11 million for a prior facility closure.
- Operating results also included a one-time $0.375 million employment-litigation settlement expense. A $0.688 million reversal of a tax reserve contributed to the quarter’s $0.921 million income tax benefit and unusually negative 194.3% effective tax rate.
- The company disclosed environmental matters involving four sites, but reported no environmental liabilities at quarter-end and said it did not expect known matters to materially affect results, cash flows or financial position. It reported no material changes to previously disclosed risk factors.
- The credit agreement was amended during the quarter, including covenant changes, restructuring-charge treatment and relaxed repayment requirements tied to repatriation of foreign funds. The filing’s wording on the amended leverage covenant should be checked against the executed agreement.
Important facts for investors to verify
- Confirm the intended company and reporting period: the filing is for Park Electrochemical Corp. and the quarter ended May 28, 2017.
- Track printed circuit materials demand, gross margin recovery and the expected benefits and remaining costs of the facility consolidation.
- Review the credit-agreement amendments and covenant thresholds, particularly the leverage-ratio language, repayment terms and compliance headroom.
- Assess the location and accessibility of foreign-held liquidity, including potential restrictions or costs associated with repatriation.
- Reconcile future earnings comparisons for restructuring costs, the litigation settlement and the nonrecurring tax-reserve reversal.