Park Electrochemical Corp. — Form 10-Q summary
Period and identity: The filing is for the 13 weeks and 26 weeks ended August 28, 2016, the company’s fiscal 2017 second quarter and first half. The supplied metadata says “Park Aerospace Corp.” and “2015 Q2,” but the filing identifies the registrant as Park Electrochemical Corp. and reports 2016 results.
Business context and financial results
Park develops and sells advanced materials and structures for electronics and aerospace markets. It reports as one operating segment. Amounts below are in millions of dollars, except per-share data.
| Metric | 13 weeks ended Aug. 28, 2016 | Prior-year 13 weeks | 26 weeks ended Aug. 28, 2016 | Prior-year 26 weeks |
|---|---|---|---|---|
| Net sales | $29.1 | $37.9 | $60.5 | $75.8 |
| Gross profit / margin | $7.2 / 24.9% | $10.4 / 27.3% | $16.0 / 26.5% | $21.7 / 28.7% |
| Operating earnings | $2.1 | $5.3 | $5.5 | $10.7 |
| Net earnings | $2.0 | $4.6 | $4.9 | $9.3 |
| Diluted EPS | $0.10 | $0.23 | $0.24 | $0.46 |
- Sales fell 23% for the quarter and 20% for the half. Management attributed the decline primarily to lower printed-circuit-material sales in Asia and North America and lower aerospace materials, structures and assemblies sales. In the first half, printed circuit materials generated $44.0 million of sales and aerospace products $16.5 million.
- Gross margin contracted as lower sales and production left fixed overhead spread over less volume; lower direct material costs in aerospace partly offset the decline. First-half SG&A fell 3% to $10.4 million, but represented a larger share of sales.
- First-half operating cash flow was $8.8 million, versus $2.0 million a year earlier. Investing activities provided $2.3 million, largely reflecting net marketable-security maturities and purchases; financing used $5.5 million, including $4.0 million in dividends and $1.5 million of debt repayments. Cash increased $5.7 million to $103.4 million.
Balance sheet, debt and liquidity
- At August 28, 2016, cash and cash equivalents were $103.4 million and marketable securities $136.3 million; combined, $239.7 million. Restricted cash was an additional $10.0 million. Working capital was $256.7 million and the current ratio was 17.7 to 1.
- Total debt was $73.5 million, including $3.0 million current and $70.5 million long-term, down from $75.0 million at February 28, 2016. The HSBC facility bears interest at 1.75% at period-end and matures January 26, 2019; scheduled quarterly installments are $750,000. The agreement includes financial covenants and a requirement to maintain at least $10 million of domestic cash.
- Management said financial resources were sufficient for operations and foreseeable needs. However, $238.6 million of the $249.7 million in cash, securities and restricted cash was held by certain foreign subsidiaries.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management said global markets remained difficult to forecast and demand for the remainder of fiscal 2017 and beyond was unclear.
- Restructuring charges were $23,000 for the quarter and $93,000 for the half, related to prior closures in Newburgh, New York, and Zhuhai, China. The Newburgh facility was held for sale, with a sale intended during fiscal 2017.
- The quarter’s effective tax rate was 7.3%, versus 12.5% a year earlier; the half-year rate was 11.3%, versus 11.5%. Management cited the mix of taxable income and losses across jurisdictions and foreign tax incentives.
- The company disclosed proceedings involving environmental, employment, product and other matters, and potential responsibility at four environmental sites. It reported no recorded environmental liabilities at period-end and believed these matters would not materially harm its financial position. It also said no material changes had occurred in previously disclosed risk factors.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing and reporting period: this is Park Electrochemical Corp.’s quarter ended August 28, 2016, not a 2015 Q2 filing or a filing under the Park Aerospace Corp. name.
- Track whether sales and production recover, particularly in printed circuit materials in Asia and North America, and whether gross margins stabilize.
- Assess the geographic accessibility of the substantial foreign-held cash and securities, including any tax or repatriation considerations.
- Monitor compliance with HSBC facility covenants, scheduled debt repayments, and the domestic-cash minimum.
- Review subsequent developments in environmental and other contingencies and any sale of the Newburgh facility.