Filing summary
Identity and period note: The request identifies PARK AEROSPACE CORP. and “2015 Q3,” but the supplied filing is for PARK ELECTROCHEMICAL CORP. and the 13-week quarter ended November 27, 2016 (fiscal 2017 third quarter). The figures below summarize the supplied filing. Financial statements are unaudited.
Business context and reporting period
Park Electrochemical develops and sells advanced composite materials, structures and tooling for aerospace, and printed circuit materials for telecommunications, internet infrastructure, enterprise and military/aerospace markets. It reports one operating segment. The filing presents quarterly and 39-week results through November 27, 2016, compared with the periods ended November 29, 2015.
Financial performance and position
| Metric | 13 weeks ended Nov. 27, 2016 | 13 weeks ended Nov. 29, 2015 | 39 weeks ended Nov. 27, 2016 | 39 weeks ended Nov. 29, 2015 |
|---|---|---|---|---|
| Net sales | $26.462 million | $34.323 million | $87.010 million | $110.099 million |
| Gross profit | $6.634 million | $10.297 million | $22.655 million | $32.025 million |
| Gross margin | 25.1% | 30.0% | 26.0% | 29.1% |
| Operating earnings | $1.917 million | $4.875 million | $7.398 million | $15.578 million |
| Net earnings | $1.875 million | $4.109 million | $6.806 million | $13.455 million |
| Diluted EPS | $0.09 | $0.20 | $0.34 | $0.66 |
- Quarterly sales declined 23%; nine-month sales declined 21%. Management attributed the declines principally to lower printed circuit materials sales in Asia and North America and lower aerospace product sales.
- Gross margin fell by 4.9 percentage points for the quarter and 3.1 points for the 39-week period, primarily because of lower sales and production levels of printed circuit materials.
- SG&A was $4.604 million for the quarter and $15.051 million for the 39 weeks, down 13% and 6%, respectively, year over year. As a share of sales, however, it rose to 17.4% and 17.3%, respectively.
- Interest expense was $343,000 for the quarter and $1.010 million for the 39 weeks. Interest and other income was $430,000 and $1.177 million, respectively. Effective tax rates were 6.4% for the quarter and 10.0% for the 39 weeks, versus 13.4% and 12.1% in the comparable prior-year periods.
- Operating cash flow was $10.666 million for the 39 weeks, compared with $6.786 million a year earlier. Investing activities provided $6.129 million, while financing activities used $8.320 million. Capital expenditures were $194,000; cash dividends paid were $6.070 million.
- At November 27, 2016, cash and cash equivalents were $106.474 million, marketable securities $132.350 million, and restricted cash $10.000 million. Working capital was $256.140 million and the current ratio was 19.8 to 1.
- Total debt was $72.750 million, including $3.000 million current and $69.750 million long-term, compared with $75.000 million at February 28, 2016. The reported borrowing rate was 1.79%.
Material changes and management commentary
- Printed circuit materials generated $19.0 million of quarterly sales and $63.0 million for the 39 weeks, down from $25.5 million and $79.8 million. Aerospace composite materials, structures and assemblies generated $7.5 million and $24.0 million, versus $8.9 million and $30.3 million.
- North American and Asian sales declined; European sales increased modestly. For the 39 weeks, sales fell 20% in North America and 25% in Asia, while Europe rose 3%.
- Management said global demand for its products remained difficult to forecast and that it could not clearly predict demand for the remainder of fiscal 2017 or beyond. It believed available resources would fund operations through fiscal year-end and for the foreseeable future.
- Restructuring charges related to earlier facility closures were $113,000 for the quarter and $206,000 for the 39 weeks, versus $158,000 and $373,000 in the comparative periods.
- The company reported approximately $238.0 million of cash, marketable securities and restricted cash held by certain wholly owned foreign subsidiaries. This geographic concentration may be relevant to availability and repatriation considerations.
Debt, risks and other notable items
- The HSBC revolving credit facility provides for up to $75 million of loans and $2 million of letters of credit, with quarterly principal installments and remaining debt due January 26, 2019. The filing reports covenant requirements and a minimum $10 million of domestic liquid assets.
- After the reporting date, on January 5, 2017, the company amended the credit agreement, changing LIBOR spreads over a stepped schedule from 1.65% to 2.65% and modifying certain covenants. These are subsequent-period developments, not terms in effect as of November 27, 2016.
- The company cited general industry and economic conditions, competition, customer relationships, international markets, and raw-material, transportation and utility costs as factors that could affect results. It said market-risk exposure was consistent with the prior annual report.
- The company disclosed proceedings involving environmental, employment, product and other matters, but stated it did not expect their disposition to materially affect its business or financial position. It was named as a potentially responsible party at four environmental sites; it reported no environmental liabilities at period-end and insurance reimbursement for costs at three sites.
- Quarterly dividends declared were $0.10 per share, unchanged from the prior-year quarter. No shares were repurchased during the 39 weeks; 1,531,412 shares remained authorized for repurchase.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material change to previously disclosed risk factors was reported.
Most important facts for investors to verify
- Confirm that PARK ELECTROCHEMICAL CORP. and the November 27, 2016 reporting period are the intended company and period, given the mismatch with the request metadata.
- Track whether sales and production recover in printed circuit materials markets, especially in Asia and North America, and whether margins stabilize.
- Review the HSBC amendment, covenant compliance, stepped-up borrowing spreads, repayment schedule and domestic liquidity requirement.
- Assess the availability of foreign-held cash and securities, and any tax or other consequences of repatriation.
- Monitor demand uncertainty, restructuring costs, environmental matters, and the effect of ongoing dividends on cash resources.