Park Electrochemical Corp. — Form 10-Q Summary
Reporting period: Fiscal third quarter (13 weeks) ended November 25, 2012, and first 39 weeks of fiscal 2013; comparisons are with the corresponding 2011 periods. The filing identifies the registrant as Park Electrochemical Corp.
Business context and results
The company develops and sells high-technology printed circuit materials and aerospace composite materials, parts and assemblies. Its reported sales span North America, Europe and Asia.
| Metric | 13 weeks ended Nov. 25, 2012 | 13 weeks ended Nov. 27, 2011 | 39 weeks ended Nov. 25, 2012 | 39 weeks ended Nov. 27, 2011 |
|---|---|---|---|---|
| Net sales | $41.3 million | $47.3 million | $133.7 million | $149.6 million |
| Gross profit / margin | $12.5 million / 30.4% | $13.0 million / 27.5% | $38.7 million / 28.9% | $43.5 million / 29.1% |
| Operating earnings | $5.6 million | $6.0 million | $15.6 million | $22.1 million |
| Net earnings | $4.7 million | $5.4 million | $12.9 million | $20.3 million |
| Diluted EPS | $0.23 | $0.26 | $0.62 | $0.98 |
Financial position and cash flow
- At November 25, 2012, cash and cash equivalents were $152.9 million and marketable securities were $120.6 million, totaling $273.5 million; approximately $212.7 million was held by foreign subsidiaries. Working capital was $299.5 million and the current ratio was 17.0 to 1.
- Total liabilities were $20.0 million, and the company reported no long-term debt. Shareholders’ equity was $349.5 million.
- For the first 39 weeks, operating cash flow was $13.3 million, investing cash flow was positive $16.4 million and financing cash flow was negative $6.2 million. Capital expenditures were $1.2 million and dividends paid were $6.2 million.
- Quarterly and year-to-date dividends declared were $0.10 and $0.30 per share, respectively.
Material changes and management commentary
- Sales fell 13% in the quarter and 11% year to date. Management attributed the declines mainly to lower printed circuit materials volumes, with weakness across North America and Europe in the quarter and across all regions year to date; aerospace composite sales also declined.
- Quarterly gross margin improved to 30.4% from 27.5%, reflecting better aerospace operating performance, completion of manufacturing transfers, facility cost reductions and a higher share of high-performance printed circuit materials. Year-to-date margin slipped to 28.9% from 29.1%.
- Operating earnings and net earnings declined. Results included $3.1 million of restructuring charges year to date, while prior-year year-to-date results included $1.6 million of lawsuit-settlement income. Management said restructuring charges reduced 2013 year-to-date net earnings by about $2.9 million; the prior-year settlement increased net earnings by about $1.1 million.
- Management said printed circuit materials markets were difficult to forecast and it could not predict market conditions for the remainder of fiscal 2013 or beyond. It said it planned to support Asian customers from Singapore after closing its Zhuhai, China facility and did not expect the closure to result in lost business. No quantified sales or earnings guidance is provided.
Restructuring, risks and contingencies
- The company closed its Nelco Zhuhai facility and completed the transfer of aerospace composite manufacturing from its Waterbury, Connecticut facility to Kansas. It expects total Nelco Zhuhai closure charges of about $3.2 million, with $525,000 remaining to be recorded; it also expected approximately $730,000 of remaining charges for the Waterbury closure. The filing reports a $3.6 million non-cash asset impairment charge during the 39-week period.
- Isola USA alleged patent infringement by the company and two subsidiaries, seeking an injunction and unspecified damages. The company said the complaint had not been served and that it believed the patents were not infringed and were invalid.
- The company disclosed environmental matters involving several sites and litigation with insurance carriers over coverage of certain defense and remediation costs. Management believed the ultimate disposition of disclosed proceedings and environmental matters would not materially adversely affect the company.
- Management identified industry and economic conditions, customer relationships, competition, and raw-material, transportation and utility costs among factors that could cause actual results to differ from expectations. It reported no material change in previously disclosed risk factors.
- Disclosure controls and procedures were assessed as effective as of November 25, 2012; no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Whether demand and sales volumes stabilize, particularly in printed circuit materials and aerospace composites, and how regional trends evolve.
- Actual remaining costs and timing for the Zhuhai and Waterbury closures, including whether expected savings are realized.
- Developments in the Isola patent case and environmental-insurance litigation, including any change in potential exposure.
- Cash availability and deployment: a substantial portion of cash and securities was held by foreign subsidiaries, and management intended to reinvest foreign earnings abroad.
- Reported earnings included significant restructuring charges, while the comparable prior-year year-to-date period included a lawsuit-settlement gain; assess these items when comparing underlying performance.