UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 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 August 30, 2015

 

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.)
	48 South Service Road, Melville, N.Y.		11747
	(Address of Principal Executive Offices)		(Zip Code)

 

                  (631) 465-3600                    

(Registrant's Telephone Number, Including Area Code)

 

                  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 [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐ Smaller Reporting Company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 20,253,471 as of October 5, 2015.

 

  

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION:	Page Number
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets August 30, 2015 (Unaudited) and March 1, 2015	3
	Consolidated Statements of Operations 13 weeks and 26 weeks ended August 30, 2015 and August 31, 2014 (Unaudited)	4
	Consolidated Statements of Comprehensive Earnings 13 weeks and 26 weeks ended August 30, 2015 and August 31, 2014 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows 26 weeks ended August 30, 2015 and August 31, 2014 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Factors That May Affect Future Results	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II.	OTHER INFORMATION:
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	27
Item 6.	Exhibits	27
SIGNATURES		28
EXHIBIT INDEX		29

  

 

PART I. FINANCIAL INFORMATION

Item I.     Financial Statements.

 

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

*The balance sheet at March 1, 2015 has been derived from the audited financial statements at that date.

 

 

See Notes to Consolidated Financial Statements (Unaudited).

 

 

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts) 

 

 

See Notes to Consolidated Financial Statements (Unaudited).

 

 

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Amounts in thousands) 

---

 

 

 

See Notes to Consolidated Financial Statements (Unaudited).

 

 

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) 

---

 

 

See Notes to Consolidated Financial Statements (Unaudited).

 

 

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share (unless otherwise stated), per share and option amounts) 

 

  

  

 

 

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

General:

 

Park Electrochemical Corp. (“Park” or the “Company”) is a global advanced materials company which develops, manufactures, markets and sells high-technology digital and RF/microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies products and low-volume tooling for the aerospace markets. Park’s core capabilities are in the areas of polymer chemistry formulation and coating technology. The Company’s manufacturing facilities are located in Singapore, France, Kansas, Arizona and California. The Company also maintains research and development facilities in Arizona, Kansas and Singapore.

 

Financial Overview

 

The Company's total net sales worldwide in the 13 weeks and 26 weeks ended August 30, 2015 were 10% and 17% lower, respectively, than in the 13 weeks and 26 weeks ended August 31, 2014 principally as a result of lower sales of the Company’s printed circuit materials products in Asia, partially offset by higher sales of the Company’s aerospace composite materials, parts and assemblies. The Company’s higher sales in Asia in the first half of the 2015 fiscal year were the result of a spike in demand for the Company’s printed circuit materials products in Asia, which was caused by internet and telecommunications infrastructure build-out programs in developing countries. In addition, the original equipment manufacturers (“OEMs”) which manufacture equipment for these programs rapidly increased their inventory levels in excess of program demands. The Company’s total net sales worldwide in the 13 weeks ended August 30, 2015 were relatively flat compared to such sales in the 13 weeks ended May 31, 2015, which was the result of higher sales of the Company’s aerospace composite materials, parts and assemblies products in the 13 weeks ended August 30, 2015, offset by lower sales of the Company’s printed circuit materials products in Asia. The lower sales in Asia were primarily due to a slowdown in demand for the Company’s products which are used by OEMs in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries.

 

The Company’s gross profit margins, measured as percentages of sales, decreased to 27.3% and 28.7%, respectively, in the 13 weeks and 26 weeks ended August 30, 2015 from 28.7% and 31.9%, respectively, in the 13 weeks and 26 weeks ended August 31, 2014 principally as a result of lower sales and production levels of its printed circuit materials products in Asia and North America combined with the fixed nature of certain overhead costs in the 13 weeks and 26 weeks ended August 30, 2015, which were partially offset by higher sales of its aerospace products, an improvement in its printed circuit materials production processes in North America, cost reduction initiatives and lower utility rates.

 

The Company’s earnings from operations and net earnings were 10% and 8% lower, respectively, in the 13 weeks ended August 30, 2015 than in last fiscal year’s comparable period primarily as a result of the aforementioned decrease in sales and reduction in the gross profit margin, partially offset by a 20% reduction in selling, general and administrative expenses. Earnings from operations in the 13 weeks ended August 30, 2015 included pre-tax restructuring charges of $91,000 in connection with the closure in fiscal year 2013 of the Nelco Technology (Zhuhai FTZ) Ltd. (“Nelco Zhuhai”) facility located in the Free Trade Zone in Zhuhai, China and the closure in fiscal year 2009 of the New England Laminates Co., Inc. facility located in Newburgh, New York. Earnings from operations in the 13 weeks ended August 31, 2014 included pre-tax restructuring charges of $83,000 related to the aforementioned facility closures.

 

 

The Company’s earnings from operations and net earnings were 33% and 29% lower, respectively, in the 26 weeks ended August 30, 2015 than in last fiscal year’s comparable period primarily as a result of the aforementioned decrease in sales and reduction in the gross profit margin, partially offset by a 16% reduction in selling, general and administrative expenses. Earnings from operations in the 26 weeks ended August 30, 2015 included pre-tax restructuring charges of $215,000 in connection with aforementioned facility closures. Earnings from operations in the 26 weeks ended August 31, 2014 included pre-tax restructuring charges of $350,000 related to the aforementioned facility closures and a pre-tax charge of $260,000 included in selling, general and administrative expenses for additional fees incurred in connection with the 2014 fiscal year-end audit.

 

During the first quarter of the 2016 fiscal year, the Company sold the Nelco Zhuhai building in Zhuhai, China for $2.0 million. There was no gain or loss on the sale of the building, since the carrying value of the building was equal to the selling price.

 

During the first quarter of the 2016 fiscal year, the Company repatriated $58.0 million to the United States from its subsidiary in Singapore primarily to replenish domestic cash that was used to pay a special cash dividend of $1.50 per share in the fourth quarter of the 2015 fiscal year and to purchase 699,788 shares of the Company’s stock in the fourth quarter of the 2015 fiscal year and the first and second quarters of the 2016 fiscal year. The Company made tax payments of $10.7 million during the 2016 fiscal year first quarter in connection with such repatriation. The $58.0 million repatriation did not have an impact on the provision for income taxes during the 13 weeks or 26 weeks ended August 30, 2015, since the income taxes on the repatriation were previously accrued during the 2014 fiscal year fourth quarter.

 

The global markets for the Company’s products continue to be very difficult to forecast, and it is not clear to the Company what the demand for the Company’s products will be in the remainder of the 2016 fiscal year or beyond.

 

Results of Operations:

 

The following table provides the components of the consolidated statements of operations:

 

		13 Weeks Ended												26 Weeks Ended
		August 30,				August 31,				%				August 30,				August 31,				%
(amounts in thousands, except per share amounts)		2015				2014				Change				2015				2014				Change
Net sales		$	37,947			$	42,349				(10	)%		$	75,776			$	91,166				(17	)%
Cost of sales			27,586				30,178				(9	)%			54,048				62,066				(13	)%
Gross profit			10,361				12,171				(15	)%			21,728				29,100				(25	)%
Selling, general and administrative expenses			5,009				6,252				(20	)%			10,810				12,848				(16	)%
Restructuring charges			91				83				10	%			215				350				(39	)%
Earnings from operations			5,261				5,836				(10	)%			10,703				15,902				(33	)%
Interest expense			356				360				(1	)%			725				713				2	%
Interest income			317				226				40	%			582				373				56	%
Earnings before income taxes			5,222				5,702				(8	)%			10,560				15,562				(32	)%
Income tax provision			653				747				(13	)%			1,214				2,391				(49	)%
Net earnings		$	4,569			$	4,955				(8	)%		$	9,346			$	13,171				(29	)%
Earnings per share:
Basic earnings per share		$	0.23			$	0.24				(8	)%		$	0.46			$	0.63				(27	)%
Diluted earnings per share		$	0.23			$	0.24				(8	)%		$	0.46			$	0.63				(27	)%

  

 

Net Sales

 

The Company’s total net sales worldwide in the 13 weeks and 26 weeks ended August 30, 2015 decreased to $37.9 million and $75.8 million, respectively, from $42.3 million and $91.2 million in the 13 weeks and 26 weeks, respectively, ended August 31, 2014, primarily as a result of lower sales of the Company’s printed circuit materials products in Asia, partially offset by higher sales of the Company’s aerospace composite materials, parts and assemblies products. The Company’s higher sales in Asia in the first half of the 2015 fiscal year were the result of a spike in demand for the Company’s printed circuit materials products in Asia, which was caused by internet and telecommunications infrastructure build-out programs in developing countries. In addition, the OEMs which manufacture equipment for these programs rapidly increased their inventory levels in excess of program demands.

 

The Company’s total net sales of its printed circuit materials products were $26.2 million and $54.3 million in the 13 weeks and 26 weeks, respectively, ended August 30, 2015, or 69% and 72%, respectively, of the Company’s total net sales worldwide in such periods, compared to $33.7 million and $73.6 million in the 13 weeks and 26 weeks, respectively, ended August 31, 2014, or 80% and 81%, respectively, of the Company’s total net sales worldwide in such periods. The Company’s total net sales of its aerospace composite materials, parts and assemblies products were $11.7 million and $21.5 million in the 13 weeks and 26 weeks, respectively, ended August 30, 2015, or 31% and 28%, respectively, of the Company’s total net sales worldwide in such periods, compared to $8.6 million and $17.6 million in the 13 weeks and 26 weeks, respectively, ended August 31, 2014, or 20% and 19%, respectively, of the Company’s total net sales worldwide in such periods.

 

The Company's foreign sales were $16.6 million and $36.1 million, respectively, during the 13 weeks and 26 weeks ended August 30, 2015, or 44% and 48%, respectively, of the Company's total net sales worldwide during such periods, compared with $23.1 million and $50.6 million, respectively, of foreign sales, or 54% and 55%, respectively, of total net sales worldwide during last fiscal year's comparable periods. The Company’s foreign sales during the 13-week and 26-week periods ended August 30, 2015 decreased 28% and 29%, respectively, from the 2015 fiscal year comparable periods. The decrease in the 13-week and 26-week periods was primarily due to the lower sales in Asia described above.

 

For the 13 weeks ended August 30, 2015, the Company’s sales in North America, Asia and Europe were 56%, 39% and 5%, respectively, of the Company’s total net sales worldwide compared to 46%, 48% and 6%, respectively, for the 13 weeks ended August 31, 2014. For the 26 weeks ended August 30, 2015, the Company’s sales in North America, Asia and Europe were 52%, 42% and 6%, respectively, of the Company’s total net sales worldwide compared to 45%, 49% and 6%, respectively, for the 26 weeks ended August 31, 2014. The Company’s sales in North America increased 11%, its sales in Asia decreased 29% and its sales in Europe decreased 22% in the 13-week period ended August 30, 2015 compared to the 13-week period ended August 31, 2014, and its sales in North America decreased 2%, its sales in Asia decreased 29% and its sales in Europe decreased 24% in the 26-week period ended August 30, 2015 compared to the 26-week period ended August 31, 2014.

 

During each of the 13 weeks and 26 weeks ended August 30, 2015, the Company’s total net sales worldwide of high performance printed circuit materials were 93% of the Company’s total net sales worldwide of printed circuit materials, compared to 92% and 93%, respectively, in the 13 weeks and 26 weeks ended August 31, 2014.

 

The Company’s high performance printed circuit materials (non-FR4 printed circuit materials) include high-speed, low-loss materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, bismalimide triazine (“BT”) materials, polyimides for applications that demand extremely high thermal performance and reliability, cyanate esters, quartz reinforced materials, and polytetrafluoroethylene (“PTFE”) and modified epoxy materials for RF/microwave systems that operate at frequencies up to at least 79GHz.

 

 

Gross Profit

 

The Company’s gross profits in the 13 weeks and 26 weeks ended August 30, 2015 were lower than its gross profits in the prior year’s comparable period, and the gross profits as percentages of sales for the Company’s worldwide operations in the 13 weeks and 26 weeks ended August 30, 2015 decreased to 27.3% and 28.7%, respectively, from 28.7% and 31.9%, respectively, in the 13 weeks and 26 weeks ended August 31, 2014 primarily due to lower sales and production levels of its printed circuit materials products in Asia and North America in the 2016 fiscal year periods combined with the fixed nature of certain overhead costs, which were partially offset by the higher sales of the Company’s aerospace products, an improvement in its printed circuit materials production processes in North America, cost reduction initiatives and lower utility rates.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses decreased by $1.2 million and by $2.0 million during the 13 weeks and 26 weeks, respectively, ended August 30, 2015, or by 20% and 16%, respectively, compared to last fiscal year's comparable periods, and these expenses, measured as percentages of sales, were 13.2% and 14.3%, respectively, in the 13 weeks and 26 weeks ended August 30, 2015 compared to 14.8% and 14.1%, respectively, in the 13 weeks and 26 weeks ended August 31, 2014. Selling, general and administrative expenses included stock option expenses of $422,000 and $841,000, respectively, for the 13 weeks and 26 weeks ended August 30, 2015, compared to stock option expenses of $304,000 and $605,000, respectively, for the 13 weeks and 26 weeks ended August 31, 2014.

 

The decrease in selling, general and administrative expenses in the 13 weeks ended August 30, 2015 was primarily the result of cost reduction initiatives, a decrease in incentive compensation expenses, favorable changes in foreign exchange rates and lower shipping expenses and legal fees. The decrease in selling, general and administrative expenses in the 26 weeks ended August 30, 2015 was primarily the result of cost reduction initiatives, decreases in shipping expenses and legal and professional fees, lower incentive compensation expenses and favorable foreign exchange rates.

 

Restructuring Charges

 

In the 13 weeks and 26 weeks ended August 30, 2015, the Company recorded pre-tax restructuring charges of $91,000 and $215,000, respectively, in connection with the closure in prior years of its facilities located in Zhuhai, China and Newburgh, New York, compared to $83,000 and $350,000, respectively, for the 13 weeks and 26 weeks ended August 31, 2014.

 

Earnings from Operations

 

For the reasons set forth above, the Company's earnings from operations were $5.3 million and $10.7 million, respectively, for the 13 weeks and 26 weeks ended August 30, 2015, which included the aforementioned restructuring charges of $91,000 and $215,000, respectively, compared to $5.8 million and $15.9 million, respectively, for the 13 weeks and 26 weeks ended August 31, 2014, which included the aforementioned restructuring charges of $83,000 and $350,000, respectively, and the additional fees of $260,000 in connection with the 2014 fiscal year-end audit.

 

 

Interest Expense

 

Interest expense in the 13 weeks and 26 weeks ended August 30, 2015 related to the Company’s outstanding borrowings under the four-year amended and restated revolving credit facility agreement that the Company entered into with PNC Bank, National Association in the fourth quarter of the 2014. The amended and restated agreement provides for an interest rate on the outstanding loan balance of LIBOR plus 1.10%. Other interest rate options are available to the Company under the agreement. See “Liquidity and Capital Resources” elsewhere in this Item 2 and Note 5 of the Notes to Consolidated Financial Statements included elsewhere in this Report for additional information.

 

Interest Income

 

Interest income was $317,000 and $582,000, respectively, for the 13 weeks and 26 weeks ended August 30, 2015 compared to $226,000 and $373,000, respectively, for last fiscal year's comparable periods. Interest income increased 40% and 56%, respectively, for the 13 weeks and 26 weeks ended August 30, 2015 primarily as a result of higher weighted average interest rates and larger average balances of marketable securities held by the Company in the 13 weeks and 26 weeks ended August 30, 2015 compared to last fiscal year's comparable period. During the 26 weeks ended August 30, 2015, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds.

 

Income Tax Provision

 

The Company's effective income tax rates for the 13 weeks and 26 weeks ended August 30, 2015 were 12.5% and 11.5%, respectively, compared to 13.1% and 15.4% for the 13 weeks and 26 weeks ended August 31, 2014. The lower effective tax rates were primarily due to higher portions of taxable income in jurisdictions with lower effective income tax rates and larger foreign tax incentives in the 13 weeks and 26 weeks ended August 30, 2015.

 

Net Earnings

 

For the reasons set forth above, the Company's net earnings for the 13 weeks and 26 weeks ended August 30, 2015 were $4.6 million and $9.3 million, including the pre-tax restructuring charges described above, compared to net earnings of $5.0 million and $13.2 million for the 13 weeks and 26 weeks ended August 31, 2014, including the pre-tax restructuring charges and the additional fees in connection with the 2014 fiscal year-end audit described above.

 

Basic and Diluted Earnings Per Share

 

In the 13 weeks and 26 weeks ended August 30, 2015, basic and diluted earnings per share were $0.23 and $0.46, respectively, including, in both such periods, the restructuring charges described above. This compared to basic and diluted earnings per share of $0.24 and $0.63 in the 13 weeks and 26 weeks ended August 31, 2014, respectively, including, in both such periods, the restructuring charges described above and the additional fees in connection with the 2014 fiscal year-end audit in the 26-week period. The net impact of the restructuring charges and additional fees discussed above reduced basic and diluted earnings per share by $0.01 in the 26 weeks ended August 30, 2015 and reduced basic and diluted earnings per share by $0.02 in the 26 weeks ended August 31, 2014.

 

 

Liquidity and Capital Resources:

 

(amounts in thousands)		August 30,				March 1,				Increase /
		2015				2015				(Decrease)
Cash and marketable securities		$	229,463			$	272,133			$	(42,670	)
Restricted cash			25,000				-				25,000
Working capital			241,453				283,535				(42,082	)

 

 

		26 Weeks Ended
(amounts in thousands)		August 30,				August 31,				Increase /
		2015				2014				(Decrease)
Net cash provided by operating activities		$	1,981			$	18,150			$	(16,169	)
Net cash used in investing activities			(8,583	)			(34,274	)			25,691
Net cash used in financing activities			(45,979	)			(2,599	)			(43,380	)

 

Cash and Marketable Securities

 

Of the $229.5 million of cash and marketable securities at August 30, 2015, $224.8 million was owned by certain of the Company’s wholly owned foreign subsidiaries. In the 2014 fiscal year, the Company recorded a non-cash charge for the accrual of U.S. deferred income taxes in the amount of $64.0 million on the undistributed earnings of the Company’s subsidiary in Singapore. During the 26 weeks ended August 30, 2015, the Company repatriated $58.0 million to the United States from its subsidiary in Singapore primarily to replenish domestic cash that was used to pay a special cash dividend of $1.50 per share in the 2015 fiscal year fourth quarter and to purchase 699,788 shares of the Company’s stock in the 2015 fiscal year fourth quarter and the 2016 fiscal year first and second quarters. The Company paid $10.7 million of taxes in the 26 weeks ended August 30, 2015 in connection with such repatriation. The Company believes it has sufficient liquidity to fund its operating activities through the end of the 2016 fiscal year and for the foreseeable future thereafter.

 

The change in cash, marketable securities and restricted cash at August 30, 2015 compared to March 1, 2015 was the result of cash used in operating activities and a number of additional factors. The significant changes in cash flows from operating activities were as follows:

 

●

Income taxes payable decreased by 21% at August 30, 2015 compared to March 1, 2015 primarily due to income tax payments made during the 13 weeks ended August 30, 2015;

 

●

accounts payable increased by 21% at August 30, 2015 compared to March 1, 2015 primarily due to the timing of vendor payments and raw material purchases from suppliers;

 

●

accrued liabilities increased by 11% at August 30, 2015 compared to March 1, 2015 due to an increase in payroll related accruals; and

 

●

deferred income taxes decreased 111% at August 30, 2015 compared to March 1, 2015 primarily due to income tax payments made in connection with the $58 million repatriation of cash from Singapore to the United States.

  

 

In addition, the Company paid $4.1 and $4.2 million in cash dividends in the 26 weeks ended August 30, 2015 and August 31, 2014, respectively. During the 26 weeks ended August 30, 2015, the Company also received $2.0 million of proceeds from the sale of the Nelco Zhuhai building in Zhuhai, China, made $5.0 million of principal payments on its long-term debt and purchased treasury shares at an aggregate cost of $11.9 million.

 

Working Capital

 

The decrease in working capital at August 30, 2015 compared to March 1, 2015 was due principally to a decrease in cash and marketable securities, partially offset by a decrease in current deferred income taxes.

 

The Company's current ratio (the ratio of current assets to current liabilities) was 9.2 to 1 at August 30, 2015 compared to 10.5 to 1 at March 1, 2015.

 

Cash Flows

 

During the 26 weeks ended August 30, 2015, the Company's net earnings, before depreciation and amortization, stock-based compensation, amortization of bond premium and changes in operating assets and liabilities, were $12.8 million. Such earnings were reduced by a decrease in the provision for deferred income taxes of $10.9 million, resulting in $2.0 million of cash provided by operating activities. This decrease in the provision for deferred income taxes was primarily related to the aforementioned $10.7 million of taxes paid in connection with cash repatriated to the United States from Singapore. During the same 26 week period, the Company expended $226,000 for the purchase of property, plant and equipment, compared with $232,000 during the 26 weeks ended August 31, 2014.  The Company paid $4.1 and $4.2 million in cash dividends in the 26 weeks ended August 30, 2015 and August 31, 2014, respectively.  In addition, during the 26 week period ended August 30, 2015, the Company received $2.0 million in proceeds from the sale of the Nelco Zhuhai building in Zhuhai, China, made $5.0 million of principal payments on its long-term debt and purchased treasury shares at an aggregate cost of $11.9 million.

 

Debt

 

At August 30, 2015 and March 1, 2015, the Company had $89.0 million and $94.0 million of bank debt, respectively. In the fourth quarter of 2014, the Company entered into a four-year amended and restated revolving credit facility agreement (the “Amended Credit Agreement”) with PNC Bank, National Association. The Amended Credit Agreement provides for loans up to $104.0 million to the Company and letters of credit up to $2.0 million for the account of the Company, and subject to the terms and conditions of the Amended Credit Agreement, an interest rate on the outstanding loan balance of LIBOR plus 1.10%. The Amended Credit Agreement contains certain customary affirmative and negative covenants and customary financial covenants. In the event that the Company breaches a covenant that is deemed to be a default under the Amended Credit Agreement requiring prepayment of the outstanding borrowings, the Company has sufficient liquidity to prepay the outstanding amount, as well as any related income taxes for potentially repatriated funds, at any time, and such prepayment would not have a material adverse effect on the Company’s liquidity or operations. For additional information, see Note 5 of the Notes to Consolidated Financial Statements included elsewhere in this Report.

 

Other Liquidity Factors

 

The Company believes its financial resources will be sufficient, through the end of fiscal year 2016 and for the foreseeable future thereafter, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. The Company’s financial resources are also available for purchases of the Company's common stock, appropriate acquisitions and other expansions of the Company's business.

 

 

The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity.

 

Contractual Obligations:

 

The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of (i) operating lease commitments and commitments to purchase raw materials and (ii) the bank debt described above. The Company has no other long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $1.1 million to secure the Company's obligations under its workers' compensation insurance program.

 

Off-Balance Sheet Arrangements:

 

The Company's liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities.

 

Critical Accounting Policies and Estimates:

 

The foregoing Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Consolidated Financial Statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to sales allowances, allowances for doubtful accounts, inventories, valuation of long-lived assets, income taxes, contingencies and litigation, and employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The Company’s critical accounting policies that are important to the Consolidated Financial Statements and that entail, to a significant extent, the use of estimates and assumptions and the application of management’s judgment are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in the Company’s Annual Report on Form 10-K for the fiscal year ended March 1, 2015. There have been no significant changes to such accounting policies during the 2016 fiscal year second quarter.

 

Contingencies:

 

The Company is subject to a small number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.

 

 

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 the Company’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 and aerospace industries, the Company's competitive position, the status of the Company's relationships with its customers, economic conditions in international markets, the cost and availability of raw materials, transportation and utilities, and the various factors set forth in Item 1A “Risk Factors” and under the caption "Factors That May Affect Future Results" after Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 1, 2015.

 

Item 3.        Quantitative and Qualitative Disclosures About Market Risk.

 

The Company's market risk exposure at August 30, 2015 is consistent with, and not greater than, the types of market risk and amount of exposures presented in the Annual Report on Form 10-K for the fiscal year ended March 1, 2015.

 

Item 4.        Controls and Procedures.

 

(a)     Disclosure Controls and Procedures.

 

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of August 30, 2015, the end of the quarterly fiscal period covered by this quarterly report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b)     Changes in Internal Control Over Financial Reporting.

 

There has not been any change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1.        Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

There have been no material changes in the risk factors as previously disclosed in the Company’s Form 10-K Annual Report for the fiscal year ended March 1, 2015.

 

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table provides information with respect to shares of the Company's Common Stock acquired by the Company during each month included in the Company’s 2016 fiscal year second quarter ended August 30, 2015.

 

 

Period		Total Number of Shares (or Units) Purchased				Average Price Paid Per Share (or Unit)				Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs			Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
June 1 - June 30			0			$	-				0
July 1 - July 30			111,534				18.01				111,534
July 31 - Aug 30			24,664				17.50				24,664
Total			136,198			$	17.92				136,198		550,212 (a)

 

(a)

Aggregate number of shares available to be purchased by the Company pursuant to a share purchase authorization announced on January 8, 2015. Pursuant to such authorization, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions.

 

Item 3.        Defaults Upon Senior Securities.

 

None.

 

Item 4.        Mine Safety Disclosures.

 

None.

 

 

Item 5.           Other Information.

 

None.

 

Item 6.           Exhibits.

 

31.1

Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).

 

31.2

Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).

 

32.1

Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended August 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at August 30, 2015 (unaudited) and March 1, 2015; (ii) Consolidated Statements of Operations for the 13 weeks and 26 weeks ended August 30, 2015 and August 31, 2014 (unaudited); (iii) Consolidated Statements of Comprehensive Earnings (Loss) for the 13 weeks and 26 weeks ended August 30, 2015 and August 31, 2014 (unaudited); and (iv) Condensed Consolidated Statements of Cash Flows for the 26 weeks ended August 30, 2015 and August 31, 2014 (unaudited) * +

 

 

*     Filed electronically herewith.

 

+     Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

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)
	/s/ Brian E. Shore
Date: October 9, 2015	Brian E. Shore Chief Executive Officer (principal executive officer)
	/s/ P. Matthew Farabaugh
Date: October 9, 2015	P. Matthew Farabaugh Vice President and Chief Financial Officer (principal financial officer)
	/s/ Robert Yaniro
Date: October 9, 2015	Robert Yaniro Vice President and Corporate Controller (principal accounting officer)

 

 

EXHIBIT INDEX

 

 

Exhibit No.	Name
31.1	Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
31.2	Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
32.1	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended August 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at August 30, 2015 (unaudited) and March 1, 2015; (ii) Consolidated Statements of Operations for the 13 weeks and 26 weeks ended August 30, 2015 and August 31, 2014 (unaudited); (iii) Consolidated Statements of Comprehensive Earnings (Loss) for the 13 weeks and 26 weeks ended August 30, 2015 and August 31, 2014 (unaudited); and (iv) Condensed Consolidated Statements of Cash Flows for the 26 weeks ended August 30, 2015 and August 31, 2014 (unaudited) * +
*	Filed electronically herewith.
+	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

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