SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 1, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ___________________ Commission file number 1-4415 PARK ELECTROCHEMICAL CORP. ---------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 11-1734643 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 Dakota Drive, Lake Success, N.Y. 11042 - ------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 354-4100 Not Applicable ----------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 11,256,230 as of October 11, 1996.
2 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets September 1, 1996 (Unaudited) and March 3, 1996 ...................................... 4 Consolidated Statements of Earnings 13 weeks and 26 weeks ended September 1, 1996 and August 27, 1995 (Unaudited)......................... 5 Condensed Consolidated Statements of Cash Flows 26 weeks ended September 1, 1996 and August 27, 1995 (Unaudited)......................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited) ............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 8 PART II. OTHER INFORMATION: Item 1. Legal Proceedings ................................... 11 Item 4. Submission of Matters to a Vote of Security Holders..................................... 11 Item 6. Exhibits and Reports on Form 8-K .................... 11 SIGNATURES ..................................................... 12 EXHIBIT INDEX.................................................... 13 -2-
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The Company's Financial Statements begin on the next page. -3-
4 <TABLE> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) <CAPTION> September 1, March 3, 1996 1996 ------------ -------- <S> <C> <C> ASSETS (Unaudited) * Current assets: Cash and cash equivalents $ 82,121 $ 75,970 Marketable securities 52,304 67,243 Accounts receivable, net 44,304 42,821 Inventories (Note 2) 25,969 27,712 Prepaid expenses and other current assets 4,506 4,026 -------- ------- Total current assets 209,204 217,772 Property, plant and equipment, net 79,758 76,439 Other assets 4,486 4,764 -------- -------- $293,448 $298,975 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,556 $ 35,924 Accrued liabilities 15,649 16,941 Income taxes payable 3,461 3,942 -------- -------- Total current liabilities 50,666 56,807 Long-term debt 100,000 100,000 Deferred income taxes 6,832 6,324 Deferred pension liability 1,417 1,417 Stockholders' equity: Common stock 1,358 1,358 Other stockholders' equity 133,175 133,069 -------- -------- Total stockholders' equity 134,533 134,427 -------- -------- $293,448 $298,975 ======== ======== <FN> *The balance sheet at March 3, 1996 has been derived from the audited financial statements at that date. </TABLE> -4-
5 <TABLE> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited--in thousands, except per share data) <CAPTION> 13 Weeks Ended 26 Weeks Ended ------------------------- ------------------------ September 1, August 27, September 1, August 27, 1996 1995 1996 1995 ------------ ---------- ------------ ---------- <S> <C> <C> <C> <C> Net sales $81,974 $69,937 $157,380 $145,349 Cost of sales 67,120 54,728 130,694 112,423 -------- -------- --------- --------- Gross profit 14,854 15,209 26,686 32,926 Selling, general and administrative expenses 8,375 7,630 16,176 16,487 -------- -------- --------- --------- Profit from operations 6,479 7,579 10,510 16,439 -------- -------- --------- --------- Other income (expense): Interest and other income, net 1,675 551 3,528 1,119 Interest expense (1,370) - (2,725) - -------- -------- --------- --------- Total other income 305 551 803 1,119 -------- -------- -------- -------- Earnings before income taxes 6,784 8,130 11,313 17,558 Income tax provision 2,103 2,764 3,507 6,168 -------- -------- -------- -------- Net earnings $ 4,681 $ 5,366 $ 7,806 $11,390 ======== ======== ======== ======== Earnings per share (Note 3): Primary $ .40 $ .45 $ .67 $ .97 Fully diluted $ .40 $ .45 $ .67 $ .96 Weighted average number of common and common equivalent shares outstanding: Primary 11,590 11,801 11,686 11,749 Fully diluted 13,960 11,829 11,686 11,814 Dividends per share $ .08 $ .06 $ .16 $ .12 </TABLE> -5-
6 <TABLE> PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited--in thousands) <CAPTION> 26 Weeks Ended ------------------------- September 1, August 27, 1996 1995 ------------ ---------- <S> <C> <C> Net cash provided by operating activities $ 7,767 $10,276 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment, net (8,596) (13,844) Purchases of marketable securities (44,756) (13,476) Proceeds from sales of marketable securities 59,638 5,393 -------- -------- Net cash provided by (used in) investing activities 6,286 (21,927) -------- -------- Cash flows from financing activities: Dividends paid (1,846) (1,375) Proceeds from exercise of stock options 225 347 Purchase of treasury stock (6,293) - Other 1 (2) -------- -------- Net cash used in financing activities (7,913) (1,030) -------- -------- Increase (decrease) in cash and cash equivalents before effect of exchange rate changes 6,140 (12,681) Effect of exchange rate changes on cash and cash equivalents 11 (76) -------- -------- Increase (decrease) in cash and cash equivalents 6,151 (12,757) Cash and cash equivalents, beginning of period 75,970 30,803 -------- -------- Cash and cash equivalents, end of period $82,121 $18,046 ======== ======== Supplemental cash flow information: Cash paid during the period for: Interest $ - $ - Income taxes $ 6,450 $ 4,983 </TABLE> -6-
7 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of September 1, 1996, the consolidated statements of earnings for the 13 weeks and 26 weeks ended September 1, 1996 and August 27, 1995, and the condensed consolidated statements of cash flows for the 26 week periods then ended have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at September 1, 1996, and the results of operations and cash flows for all periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1996. <TABLE> 2. INVENTORIES Inventories consist of the following: <CAPTION> (In thousands) September 1, March 3, 1996 1996 ------------ -------- <S> <C> <C> Raw materials $12,593 $13,040 Work-in-process 4,990 4,280 Finished goods 7,711 9,674 Manufacturing supplies 675 718 ------- ------- $25,969 $27,712 ======= ======= </TABLE> 3. EARNINGS PER SHARE Primary earnings per share are computed based on the weighted average number of common and common equivalent shares outstanding during the period. Fully diluted earnings per share reflects additional shares assumed to be outstanding based upon (i) the assumed exercise of stock options at the period-end market price of the Company's common stock if such price is higher than the average market price during the period, and (ii) the assumed conversion of the Company's Convertible Subordinated Notes ("Notes"), if the effect would be dilutive. For the 26 weeks ended September 1, 1996, the effect of the assumed conversion of the Notes was antidilutive and, accordingly, the amount reported for fully diluted earnings per share was equal to the amount reported for primary earnings per share. -7-
8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Park is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, such as backplanes and semiconductor packaging systems. The Company's customers for its advanced printed circuit materials include leading independent circuit board fabricators and large electronic equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation indus- tries. The Company's electronic materials operations accounted for more than 86% of net sales worldwide and more than 91% of operating profit in each of the last two fiscal years and in the three-month and six-month periods ended September 1, 1996. The Company's foreign electronic materials operations accounted for approximately 24% and 29% of net sales worldwide for the 1995 and 1996 fiscal years, respectively, and approximately 30% and 29%, respectively, for the three-month and six-month periods ended September 1, 1996. Three and Six Months Ended September 1, 1996 Compared with Three and Six Months Ended August 27, 1995: The Company's electronic materials business was responsible for the deterioration in the Company's results of operations for the three-month and six-month periods ended September 1, 1996. The United States, Asian and European markets for sophisticated printed circuit materials continued to experience weakness during the 1997 fiscal year second quarter which the Company believes was principally attributable to an industry-wide inventory correction that began in the first quarter. During the three-month and six-month periods ended September 1, 1996, the Company's electronic materials business experienced inefficiencies caused by operating its facilities at levels significantly lower than their designed manufacturing capacity and faced price pressure from its customers resulting in an inability to pass along raw material cost increases which it received earlier in the current year. These factors adversely affected the Company's gross margins. The improvement in the Company's margins in the second quarter of the 1997 fiscal year over the first quarter were achieved from internal operating adjustments and the return of the Company's largest customer to more normal business levels after it suffered a strike which significantly reduced the Company's sales of electronic materials to that customer during the first quarter and negatively affected the Company's margins. The Company's plumbing and industrial components segment consists of the Company's specialty adhesive tape business, its advanced composite materials business and its plumbing hardware business, all of which operate as independent business units. The Company's specialty adhesive tape business performed very well in the current fiscal year's first and second quarters. The Company's advanced composite and microwave circuitry materials business continued its improved performance in the second quarter. The performance of the Company's plumbing hardware business was disappointing again in the second quarter, and the Company continues to explore and pursue its options with respect to that business. Results of Operations Sales for the three-month and six-month periods ended September 1, 1996 were $82.0 million and $157.4 million, respectively, compared with $69.9 million and $145.3 million for last fiscal year's comparable periods. Sales of the electronic materials business for the three-month and six-month periods ended September 1, 1996 were $71.2 million and $136.6 million, respectively, or 87% of total sales worldwide, compared with $61.9 million -8-
9 and $127.2 million, or 88% of total sales worldwide, for last fiscal year's comparable periods. Sales of the plumbing and industrial components business for the three-month and six-month periods ended September 1, 1996 were $10.8 million and $20.8 million, respectively, compared with $8.0 million and $18.1 million for last fiscal year's comparable periods. The Company's foreign electronic materials operations accounted for $24.4 million and $45.5 million, respectively, or 30% and 29% of the Company's total sales worldwide, during the three-month and six-month periods ended September 1, 1996 compared with $22.5 million and $43.9 million, respectively, of sales, or 32% and 30% of total sales worldwide, during last fiscal year's comparable periods. The gross margins for the Company's worldwide operations were 18.1% and $17.0%, respectively, during the three-month and six-month periods ended September 1, 1996 compared with 21.7% and 22.7% for last fiscal year's comparable periods. The deterioration in the gross margins was attributable to inefficiencies caused by operating facilities at levels significantly lower than their designed capacity, price pressure exerted by customers and, in the first quarter of the current fiscal year, reduced sales volumes with the Company's largest customer due to a strike which interrupted that customer's operations, and increased costs associated with new facilities in Newburgh, New York and Tempe, Arizona. Selling, general and administrative expenses, measured as a percentage of sales, were 10.2% and 10.3%, respectively, during the three- month and six-month periods ended September 1, 1996 compared with 10.9% and 11.4% during last fiscal year's comparable periods. This reduction was a function of reduced general and administrative expenses resulting, in part, from lower employee bonus and profit sharing expenses due to lower operating profits. For the reasons set forth above, profit from operations for the three-month and six-month periods ended September 1, 1996 decreased 15% to $6.5 million and 36% to $10.5 million, respectively, from $7.6 million and $16.4 million for last fiscal year's comparable periods. Interest and other income, principally investment income, increased 204% to $1.7 million and 215% to $3.5 million, respectively, for the three-month and six-month periods ended September 1, 1996 from $0.6 million and $1.1 million for last fiscal year's comparable periods. The increase in investment income was attributable to the substantial increase in cash available for investment. The Company's investments were primarily short-term taxable instruments and government securities. Interest expense for the three-month and six-month periods ended September 1, 1996 was $1.4 million and $2.7 million, respectively, compared with minimal amounts during last fiscal year's comparable periods. At the end of the 1996 fiscal year, the Company issued $100 million principal amount of 5.5% Convertible Subordinated Notes due 2006 (the "Notes"); as a result, such Notes were outstanding during the entire fiscal periods ended September 1, 1996, which resulted in the associated interest expense and cash available for investment. The Company had no long-term debt outstanding during the first or second quarters of the 1996 fiscal year. The Company's effective income tax rate for the three-month and six-month periods ended September 1, 1996 was 31.0% compared with 34.0% and 35.1% for last fiscal year's comparable periods. This decrease in the effective tax rate was primarily the result of favorable foreign tax rate differentials. -9-
10 Net earnings for the three-month and six-month periods ended September 1, 1996 decreased 13% to $4.7 million and 31% to $7.8 millon, respectively, from $5.4 million and $11.4 million for last fiscal year's comparable periods. Primary and fully diluted earnings per share decreased to $0.40 and $0.67 for the three-month and six-month periods ended September 1, 1996 from primary earnings per share of $0.45 and $0.97 and fully diluted earnings per share of $0.45 and $0.96 for last fiscal year's comparable periods. These decreases in net earnings and earnings per share were attributable to the Company's lower operating results. Liquidity and Capital Resources: At September 1, 1996, the Company's cash and temporary investments were $134.4 million compared with $143.2 million at March 3, 1996, the end of the Company's 1996 fiscal year. The decrease in the Company's cash and investment position at September 1, 1996 was attributable to investments in property, plant and equipment, as discussed below, and repurchase of the Company's Common Stock. The Company's working capital was $158.5 million at September 1, 1996 compared with $161.0 million at March 3, 1996. The decrease at September 1, 1996 compared with March 3, 1996 was due to the reductions in cash and temporary investments and inventories offset in part by the increase in receivables and the decrease in payables. The Company's current ratio (the ratio of current assets to current liabilities) was 4.1 to 1 at September 1, 1996 compared with 3.8 to 1 at March 3, 1996. During the six-months ended September 1, 1996, cash provided by net earnings before depreciation and amortization of $13.3 million was reduced by a net increase in working capital items (other than cash and marketable securities), resulting in $7.8 million of cash provided from operating activities. The Company expended $8.6 million for the purchase of property, plant and equipment and $6.3 million for repurchases of the Company's Common Stock. Expenditures for property, plant and equipment were $24.5 million and $17.5 million in the 1996 and 1995 fiscal years, respec- tively. The Company currently expects the level of capital expenditures in the 1997 fiscal year to be lower than in the 1996 fiscal year. The Company is continuing to consider further expansions of its electronic materials operations, particularly in the United States and Asia. At September 1, 1996, the Company's only long-term debt was the Notes. The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in property, plant and equipment and for general corporate purposes. Such resources would also be available for appropriate acquisitions and other expansions of the Company's business. Factors That May Affect Future Results Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from Park's expectations or from results which might be projected, forecast, estimated or budgeted by the Company in forward-looking statements. Such factors include, but are not limited to, general conditions in the electronics industry, Park's competitive position, the status of customer orders, and the various factors set forth under the caption "Factors That May Affect Future Results" in Item 7 of Park's Annual Report on Form 10-K for the fiscal year ended March 3, 1996. -10-
11 PART II. OTHER INFORMATION Item 1. Legal Proceedings (a) There are no material pending legal proceedings to which the Company is a party or to which any of its properties is subject. (b) No material pending legal proceeding was terminated during the fiscal quarter ended September 1, 1996. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on July 17, 1996: (a) the persons elected as directors of the Company and the voting for such persons were as follows: Authority Name Votes For Withheld -------------- ---------- ---------- Anthony Chiesa 10,388,578 112,539 Lloyd Frank 10,365,878 135,239 Norman M. Schneider 10,379,154 121,963 Brian E. Shore 10,401,547 99,570 Jerry Shore 10,378,157 122,960 E. Phillip Smoot 10,377,759 123,358 (b) amendments to the Company's 1992 Stock Option Plan were approved by the Shareholders to increase the aggregate number of shares of Common Stock of the Company authorized for issuance under such Plan by 550,000 shares and to add a provision with respect to section 162(m) of the Internal Revenue Code of 1986, as amended. There were 10,169,977 votes for these amendments, 278,757 votes against, and 52,383 abstentions. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number 11.01 Computation of fully diluted earnings per share 27.01 Financial Data Schedule (b) No reports on Form 8-K have been filed during the fiscal quarter ended September 1, 1996. -11-
12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Park Electrochemical Corp. --------------------------- (Registrant) Date: October 14, 1996 /s/Brian E. Shore ---------------- --------------------------- Brian E. Shore President Date: October 14, 1996 /s/Paul R. Shackford ---------------- --------------------------- Paul R. Shackford Vice President and Principal Financial Officer -12-
13 EXHIBIT INDEX Exhibit No. Name Page 11.01 Computation of fully diluted earnings per share............................ 14 27.01 Financial Data Schedule (filed only by electronic transmission with EDGAR filing with the Securities and Exchange Commission).......... - -13-