Park Electrochemical Corp. — Form 10-Q Summary
Reporting period: 13 and 26 weeks ended August 27, 2017; balance-sheet comparison is with February 26, 2017. The supplied filing identifies the registrant as Park Electrochemical Corp., not Park Aerospace Corp., and covers 2017 rather than 2016.
Business context
The company is a global advanced-materials manufacturer serving aerospace and electronics markets. It operates as one segment. Its products include aerospace composite materials, structures and assemblies, and printed-circuit materials.
Financial performance
| Metric | 13 weeks ended Aug. 27, 2017 | 13 weeks ended Aug. 28, 2016 | 26 weeks ended Aug. 27, 2017 | 26 weeks ended Aug. 28, 2016 |
|---|---|---|---|---|
| Net sales | $29.8m | $29.1m | $57.3m | $60.5m |
| Gross profit / margin | $7.2m / 24.1% | $7.2m / 24.9% | $13.5m / 23.6% | $16.0m / 26.5% |
| Operating earnings (loss) | $(0.2)m | $2.1m | $0.1m | $5.5m |
| Net earnings | $0.5m | $2.0m | $1.9m | $4.9m |
| Diluted EPS | $0.03 | $0.10 | $0.09 | $0.24 |
Quarterly sales rose 3%, mainly on stronger aerospace sales; first-half sales fell 5%, principally due to weaker printed-circuit materials sales in Asia and North America. Aerospace sales were $11.4m for the quarter and $20.1m for the half, while printed-circuit materials sales were $18.5m and $37.2m, respectively. SG&A declined 13% for the quarter and 12% for the half.
First-half operating cash flow was $1.5m, down from $8.8m. Investing cash outflow was $68.2m, largely reflecting purchases of marketable securities; financing cash outflow was $5.8m, including $4.0m in dividends and $1.75m in debt repayments. Capital spending was $0.5m.
Financial position and liquidity
At August 27, 2017, cash and cash equivalents were $30.2m and marketable securities were $202.9m, totaling $233.1m; restricted cash was an additional $10.0m. Working capital was $251.1m and the current ratio was 15.2:1. Total bank debt was $70.25m, including $3.25m current, at a stated interest rate of 3.41%. The revolving facility matures January 26, 2019. The company reported compliance with its financial covenants.
Management said liquidity was sufficient for the next 12 months and the foreseeable future. However, $235.1m of the reported $243.1m in cash, cash equivalents, marketable securities and restricted cash was held by foreign subsidiaries. Marketable securities totaled $202.9m, primarily U.S. government and corporate debt securities.
Material changes, outlook and risks
- Restructuring: The company is consolidating its Nelco Products and Neltec electronics business units. It recorded $2.9m in restructuring charges for the quarter and $4.3m for the half, primarily related to the consolidation. The plan was expected to take four to six months; estimated total costs were $5.5m, with approximately $1.5m remaining, expected primarily in fiscal 2019 or later. Management attributed lower margins partly to operating inefficiencies and duplicate costs during the consolidation.
- Other unusual items: First-half SG&A included a one-time $375,000 litigation expense. A $688,000 tax-reserve reversal related to prior-year foreign tax deductions contributed to the unusually low reported tax provision; the filing also cites jurisdictional earnings mix and restructuring charges as tax-rate factors.
- Outlook: No numerical sales or earnings guidance was provided. Management said global demand for its products remained difficult to forecast and it could not clearly predict demand for the rest of fiscal 2018 or beyond.
- Risks and contingencies: Risks include electronics and aerospace industry conditions, customer relationships, international markets, and raw-material, transportation and utility costs. The company disclosed environmental matters at four sites and other litigation, but said it did not expect their ultimate disposition to materially adversely affect its business or financial condition. It reported no material changes to previously disclosed risk factors.
- Debt covenant amendments: Amendments modified covenant calculations and repayment terms in connection with expected repatriation of foreign funds and restructuring costs. The filing states the company was in compliance; investors should assess the covenant thresholds and any future amendment or compliance developments.
Most important facts to verify
- Confirm the issuer and period: this text is for Park Electrochemical Corp. and the quarter ended August 27, 2017, despite the request metadata.
- Track results of the Nelco/Neltec consolidation, remaining charges, and the effect on margins and cash costs.
- Assess cash accessibility given the large foreign-held balance, debt maturity, interest costs, and covenant requirements.
- Monitor demand and regional sales, particularly printed-circuit materials in Asia and North America.
- Review the tax-reserve reversal and unusually low effective tax rates when evaluating earnings comparability.