Business context and reporting period
The supplied filing is Park Electrochemical Corp.’s Form 10-K for the fiscal year ended February 28, 2016—not a 2014 Q4 filing for Park Aerospace Corp. The company develops and manufactures advanced printed circuit materials for electronics and advanced composite materials, parts and assemblies for aerospace markets. It reports one operating segment.
Key financial metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Net sales | $145.9 million | $162.1 million |
| Gross profit / margin | $42.8 million / 29.3% | $49.0 million / 30.2% |
| Operating earnings | $21.0 million | $23.4 million |
| Net earnings | $18.0 million | $20.0 million |
| Diluted EPS | $0.89 | $0.96 |
| Cash from operating activities | $13.9 million | $29.0 million |
| Cash and marketable securities | $237.4 million | $272.1 million |
| Restricted cash | $10.0 million | None reported |
| Bank debt | $75.0 million | $94.0 million |
| Working capital / current ratio | $255.5 million / 16.3 | $283.5 million / 10.5 |
Printed circuit materials generated $106.7 million, or 73% of sales; aerospace composites, parts and assemblies generated $39.1 million, or 27%. Capital expenditures were $0.4 million. The company paid $8.2 million in dividends and spent $12.2 million on treasury-stock purchases during FY2016. The effective tax rate was 12.0%.
Material changes versus the prior comparable period
- Sales declined 10%, principally because of lower printed circuit materials demand in Asia and North America. Asia’s prior-year sales had benefited from infrastructure build-outs and customer inventory increases. Aerospace sales rose, partially offsetting the decline.
- Gross margin fell from 30.2% to 29.3%, reflecting lower sales and production and under-absorbed fixed costs; cost initiatives, lower utility rates, and a richer mix of higher-performance products provided partial offsets.
- Operating earnings and net earnings each declined 10%. SG&A fell 13%, but this did not fully offset weaker sales and margins. Cash from operations fell by $15.1 million.
- Debt decreased by $19 million. In January 2016, the company replaced its PNC facility with a three-year HSBC revolving facility; $75 million was outstanding at year-end.
- FY2015 dividends included a $1.50-per-share special dividend; FY2016 dividends were $0.40 per share, all regular quarterly dividends.
Outlook, risks, contingencies and unusual items
- Management said global markets were difficult to forecast and demand for FY2017 and beyond was unclear. No specific earnings or revenue guidance was provided. Management expected available resources to fund operations through the end of 2017 and thereafter.
- Backlog was approximately $17.9 million at May 1, 2016, versus $28.1 million at April 26, 2015. The filing cautions that backlog may not predict subsequent results.
- Key risks include cyclical electronics and aerospace markets, short-term customer ordering, customer concentration (the ten largest customers represented 51% of FY2016 sales), technology and qualification requirements, supplier concentration and raw-material volatility, energy costs, foreign exchange, and environmental regulation. TTM Technologies accounted for 13.8% of FY2016 sales.
- The company repatriated $61.0 million from Singapore and paid $10.7 million in related taxes during FY2016; the tax expense had been accrued in FY2014. Approximately $231.6 million of year-end cash, restricted cash and marketable securities was held by foreign subsidiaries.
- FY2016 results included $0.5 million in restructuring charges and $0.3 million of accelerated deferred financing costs. The company sold its Zhuhai, China building for $2.0 million with no gain or loss.
- The company and subsidiaries were named potentially responsible parties at four environmental sites. No environmental liability was recorded at year-end; management did not expect known matters to materially affect the company. The filing reports no separate legal proceedings under Item 3.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Confirm the intended issuer and reporting period: the source is Park Electrochemical Corp., FY2016, rather than Park Aerospace Corp. or 2014 Q4.
- Review whether weaker Asia demand and the lower backlog continued after year-end, and how sales and production levels affected margins.
- Check the HSBC facility’s covenants, required domestic liquidity, repayment schedule and refinancing exposure; $69 million of the $75 million debt was scheduled for repayment in FY2019.
- Assess the availability and location of cash: most reported cash and securities were held by foreign subsidiaries, and $10 million was restricted.
- Monitor customer concentration, raw-material supply and pricing, environmental-site developments, and the sustainability of dividends and share repurchases.