-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+LQKyNtd+0kSOTqOMckbzxQ+fAn71YUokw+BJJaYJw7BzJ0hFw8DCGTuvxnVKRv Q9B0XDwIiCk4fBcQ+/wpXA== 0000076267-98-000009.txt : 19981014 0000076267-98-000009.hdr.sgml : 19981014 ACCESSION NUMBER: 0000076267-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980830 FILED AS OF DATE: 19981013 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK ELECTROCHEMICAL CORP CENTRAL INDEX KEY: 0000076267 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 111734643 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04415 FILM NUMBER: 98724553 BUSINESS ADDRESS: STREET 1: 5 DAKOTA DR CITY: LAKE SUCCESS STATE: NY ZIP: 11042 BUSINESS PHONE: 5163544100 MAIL ADDRESS: STREET 1: 5 DAKOTA DR CITY: LAKE SUCCESS STATE: NY ZIP: 11042 10-Q 1 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 August 30, 1998 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: 10,420,227 as of October 9, 1998. 2 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets August 30, 1998 (Unaudited) and March 1, 1998 ...................................... 4 Consolidated Statements of Earnings 13 weeks and 26 weeks ended August 30, 1998 and August 31, 1997 (Unaudited)....................... 5 Condensed Consolidated Statements of Cash Flows 26 weeks ended August 30, 1998 and August 31, 1997 (Unaudited)....................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited) ............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 9 Factors That May Affect Future Results........................ 13 PART II. OTHER INFORMATION: Item 1. Legal Proceedings ................................... 14 Item 4. Submission of Matters to a Vote of Security Holders..................................... 14 Item 6. Exhibits and Reports on Form 8-K .................... 14 SIGNATURES ..................................................... 15 EXHIBIT INDEX.................................................... 16 -2- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The Company's Financial Statements begin on the next page. -3- 4 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
August 30, March 1, 1998 1998 ----------- -------- ASSETS (Unaudited) * Current assets: Cash and cash equivalents $ 43,347 $ 45,102 Marketable securities 109,513 113,358 Accounts receivable, net 49,084 53,511 Inventories (Note 2) 25,105 26,953 Prepaid expenses and other current assets 8,486 8,456 -------- -------- Total current assets 235,535 247,380 Property, plant and equipment, net 116,147 108,116 Other assets 3,680 3,833 -------- -------- $355,362 $359,329 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 29,896 $ 37,426 Accrued liabilities 22,393 25,261 Income taxes payable 8,271 8,140 -------- -------- Total current liabilities 60,560 70,827 Long-term debt 100,000 100,000 Deferred income taxes 9,303 8,781 Deferred pension and other liabilities 13,856 13,317 Stockholders' equity: Common stock 1,358 1,358 Additional paid-in capital 52,993 52,990 Retained earnings 134,371 130,435 Treasury stock, at cost (16,944) (17,113) Accumulated other non-owner changes (135) (1,266) --------- --------- Total stockholders' equity 171,643 166,404 --------- --------- $355,362 $359,329 ========= ========= *The balance sheet at March 1, 1998 has been derived from the audited financial statements at that date.
-4- 5 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited--in thousands, except per share amounts)
13 Weeks Ended 26 Weeks Ended ------------------------ ------------------------ August 30, August 31, August 30, August 31, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net sales $86,348 $83,086 $186,203 $174,719 Cost of sales 77,355 68,146 159,839 141,738 -------- -------- --------- --------- Gross profit 8,993 14,940 26,364 32,981 Selling, general and administrative expenses 9,660 8,518 19,795 17,991 -------- -------- --------- --------- Profit (loss) from operations (667) 6,422 6,569 14,990 -------- -------- --------- --------- Other income (expense): Interest and other income, net 2,099 2,174 4,148 4,164 Interest expense (1,394) (1,354) (2,772) (2,710) -------- -------- --------- --------- Total other income 705 820 1,376 1,454 -------- -------- --------- --------- Earnings before income taxes 38 7,242 7,945 16,444 Income tax provision (benefit) (187) 2,390 2,185 5,427 -------- -------- --------- --------- Net earnings $ 225 $ 4,852 $ 5,760 $11,017 ======== ======== ========= ========= Earnings per share (Note 3): Basic $ .02 $ .43 $ .50 $ .98 Diluted $ .02 $ .41 $ .49 $ .92 Weighted average number of common and common equivalent shares outstanding: Basic 11,512 11,283 11,507 11,278 Diluted 11,633 13,915 11,668 13,881 Dividends per share $ .08 $ .08 $ .16 $ .16
-5- 6 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited--in thousands)
26 Weeks Ended ------------------------- August 30, August 31, 1998 1997 ---------- ------------ Net cash provided by operating activities $ 8,992 $18,299 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment, net (13,666) (6,714) Purchases of marketable securities (85,995) (78,086) Proceeds from sales of marketable securities 89,919 65,373 -------- -------- Net cash used in investing activities (9,742) (19,427) -------- -------- Cash flows from financing activities: Dividends paid (1,824) (1,804) Proceeds from exercise of stock options 180 200 -------- -------- Net cash used in financing activities (1,644) (1,604) -------- -------- Decrease in cash and cash equivalents before effect of exchange rate changes (2,394) (2,732) Effect of exchange rate changes on cash and cash equivalents 639 (294) -------- -------- Decrease in cash and cash equivalents (1,755) (3,026) Cash and cash equivalents, beginning of period 45,102 42,321 -------- -------- Cash and cash equivalents, end of period $43,347 $39,295 ======== ======== Supplemental cash flow information: Cash paid during the period for: Interest $ 2,750 $ 2,750 Income taxes $ 1,264 $ 5,300
-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 August 30, 1998, the consolidated statements of earnings for the 13 weeks and 26 weeks ended August 30, 1998 and August 31, 1997, 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 August 30, 1998, 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 1, 1998. 2. INVENTORIES Inventories consist of the following:
(In thousands) August 30, March 1, 1998 1998 ---------- ---------- Raw materials $10,667 $10,686 Work-in-process 4,882 5,740 Finished goods 8,522 9,806 Manufacturing supplies 1,034 721 ------- ------- $25,105 $26,953
======= ======= 3. EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share for the periods specified (in thousands, except per share amounts):
13 weeks ended 26 weeks ended -------------- -------------- August 30, August 31, August 30, August 31, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net income for basic EPS $ 225 $ 4,852 $ 5,760 $11,017 Add interest on 5.5% convertible subordinated notes, net of taxes * 873 * 1,746 ------- ------- ------- ------- Net income for diluted EPS $ 225 $ 5,725 $ 5,760 $12,763 ======= ======= ======= ======= Weighted average common shares outstanding for basic EPS 11,512 11,283 11,507 11,278 Net effect of dilutive options 121 262 161 233 Assumed conversion of 5.5% convertible subordinated notes * 2,370 * 2,370 ------- ------- ------- ------- Weighted average shares outstanding for diluted EPS 11,633 13,915 11,668 13,881 ======= ======= ======= ======= EPS-basic $ .02 $ .43 $ .50 $ .98 EPS-diluted $ .02 $ .41 $ .49 $ .92 -7- 8 *For the 13 and 26 weeks ended August 30, 1998 the effects of the 5.5% convertible subordinated notes were not considered as their effect was anti- dilutive.
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective March 2, 1998 the Company adopted Statement of Financial Accounting Standards No. 130 - "Reporting Comprehensive Income" (SFAS No. 130), which establishes standards for reporting changes in equity from non-owner sources in the financial statements. Total non-owner changes in stockholders' equity were $935,000 and $3,941,000 for the three-month periods ended August 30, 1998 and August 31, 1997, respectively, and $6,891,000 and $10,012,000 for the six-month periods ended August 30, 1998 and August 31, 1997, respectively, which represents primarily net income and foreign currency translation adjustments. 5. SUBSEQUENT EVENT During the month of September 1998, the Company repurchased 1,103,200 shares of its common stock at a total cost of $13,452,000 pursuant to share repurchase authorizations announced on June 24, 1998 and September 9, 1998. -8- 9 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 electronic interconnect systems. Park's electronic materials business is operated by its "Nelco" group of companies. In October 1997, the Company acquired Dielektra GmbH, a manufacturer of advanced electronic materials, including mass-laminated multilayer panels and continuously produced copper-clad laminates, located in Cologne, Germany. 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 industries. The Company's electronic materials operations accounted for approximately 89% and 87%, respectively, of net sales worldwide in the last two fiscal years, approximately 89% and 90% in the three-month period and six-month period, respectively, ended August 30, 1998 and approximately 88% in each of the three-month and six-month periods ended August 31, 1997. The Company's foreign electronic materials operations accounted for approximately 31% and 29%, respectively, of net sales worldwide in the 1998 and 1997 fiscal years, approximately 43% and 39% in the three-month period and six-month period, respectively, ended August 30, 1998 and approximately 28% in each of the three-month and six-month periods ended August 31, 1997. Park is also engaged in the engineered materials and plumbing hardware businesses, which consist of the Company's specialty adhesive tape and film business, its advanced composite materials business and its plumbing hardware business, all of which operate as independent business units. These businesses accounted for approximately 11% and 13%, respectively, of the Company's total net sales worldwide in the last two fiscal years, approximately 11% and 10% in the three-month period and six- month period, respectively, ended August 30, 1998 and approximately 12% in each of the three-month and six-month periods ended August 31, 1997. The sales growth that the Company achieved during the fiscal year ended March 1, 1998 and prior fiscal years continued in the three-month and six-month periods ended August 30, 1998, led by growth in sales by the Company's Asian electronic materials operations and the inclusion of Dielektra in the Company's sales, which was only partially offset by the declines in sales by the Company's North American electronic materials operations resulting principally from the loss of sales to Delco Electronics, discussed below. However, the earnings growth that the Company achieved during its 1998 fiscal year did not continue in the 1999 fiscal year first and second quarters, primarily as a result of earnings declines in the Company's North American electronic materials operations, which were caused primarily by the loss of sales to Delco Electronics. During the Company's 1999 fiscal year first quarter and during its 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp. Sales to Delco Electronics represented 15.8%, 17.3% and 17.1% of the Company's total sales worldwide for the 1998, 1997 and 1996 fiscal years, respectively. However, in March 1998, the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and completely exit the printed circuit board manufacturing business. As a result, the Company's sales to Delco declined during the three-month period ended May 31, 1998, were negligible during the three-month period ended August 30, 1998 and are expected to be negligible during the remainder of the 1999 fiscal year and in future years. In May 1998, the Company and its Nelco subsidiary in Arizona filed a complaint against Delco Electronics Corporation and the Delphi Automotive Systems unit of General Motors Corp. -9- 10 in the United States District Court for the District of Arizona. The complaint alleges, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from Nelco and that Delphi interfered with Nelco's contract with Delco, and seeks compensatory and punitive damages of not less than $170 million. The loss of this customer had a material adverse effect on the business of the Company's electronic materials segment during the three- month period ended August 30, 1998 and may continue to have a negative effect during the remaining portion of the fiscal year ending February 28, 1999 and in subsequent fiscal years. Three and Six Months Ended August 30, 1998 Compared with Three and Six Months Ended August 31, 1997: The Company's electronic materials business was principally responsible for the decline in the Company's results of operations for the three-month and six-month periods ended August 30, 1998. The market for sophisticated printed circuit materials experienced weakness during the 1999 fiscal year first and second quarters, and the Company believes this was attributable to an industry-wide inventory correction, the Asian financial crisis and global economic weakness. During the three-month and six-month periods ended August 30, 1998, the Company's electronic materials business experienced inefficiencies caused by operating its facilities at levels significantly lower than their designed manufacturing capacity and faced intense price pressure from its customers. These factors adversely affected the Company's gross margins. The Company's performance was also adversely affected by a decline in the volume of its business with Delco Electronics during the first quarter and the absence of such business during the second quarter, which negatively affected the Company's margins. Operating results of the Company's engineered materials and plumbing hardware business also declined during the three-month and six- month periods ended August 30, 1998. This decline was attributable primarily to the plumbing hardware business. Results of Operations Sales for the three-month and six-month periods ended August 30, 1998 increased 4% to $86.3 million and 7% to $186.2 million, respectively, from $83.1 million and $174.7 million for last fiscal year's comparable periods. Sales of the electronic materials business for the three-month and six-month periods ended August 30, 1998 were $77.2 million and $167.8 million, respectively, or approximately 89% and 90%, respectively, of total sales worldwide, compared with $72.8 million and $154.2 million, respectively, or 88% of total sales worldwide for last fiscal year's comparable periods. The increases in sales of electronic materials was principally the result of higher volume of electronic materials shipped, an increase in sales of higher technology products and the inclusion of Dielektra in the Company's sales. Sales of the engineered materials and plumbing hardware business for the three-month and six-month periods ended August 30, 1998 were $9.1 million and $18.4 million, respectively, compared with approximately 12% higher sales for last fiscal year's comparable periods. This decrease was mainly the result of reduced sales in the plumbing hardware business. The Company's foreign electronic materials operations accounted for $36.9 million and $72.6 million, respectively, of sales, or 43% and 39% of the Company's total sales worldwide, during the three-month and six-month periods ended August 30, 1998 compared with $24.0 million and $48.6 million, respectively, of sales, or 29% and 28% of total sales worldwide, during last fiscal year's comparable periods. While sales by each of the Company's foreign operations were higher in the 1999 fiscal year first and second quarters compared with the 1998 fiscal year first and second quarters, the -10- 11 increase in sales by foreign operations was principally due to the inclusion of Dielektra in the Company's sales and an increase in sales by the Company's Asian operations. The Company expanded the manufacturing capacity of its facility in Singapore during the 1998 and 1997 fiscal years and is engaged in a further expansion of the Singapore manufacturing facility during the Company's 1999 fiscal year. The gross margins for the Company's worldwide operations were 10.4% and 14.2%, respectively, during the three-month and six-month periods ended August 30, 1998 compared with 18.0% and 18.9%, respectively, for last fiscal year's comparable periods. The decline in the gross margins in the 1999 fiscal year first half was attributable to inefficiencies caused by operating facilities at levels significantly lower than their designed capacity, price pressure exerted by customers, and reduced sales volumes with Delco Electronics, which offset the continuing growth in sales of higher technology, higher margin products. Selling, general and administrative expenses, measured as a percentage of sales, were 11.2% and 10.7% during the three-month period and six-month period, respectively, ended August 30, 1998 compared with 10.3% during each of last fiscal year's comparable periods. For the reasons set forth above, profit from operations for the three-month period ended August 30, 1998 declined to a loss of $667 thousand from $6.4 million for last fiscal year's comparable period, while profit from operations for the six-month period ended August 30, 1998 declined 56% to $6.6 million from $15.0 million for last fiscal year's comparable period. Interest and other income, principally investment income, was $2.1 million and $4.2 million, respectively, for the three-month and six- month periods ended August 30, 1998 compared with approximately the same amounts for last fiscal year's comparable periods. The Company's investments were primarily short-term taxable instruments and government securities. Interest expense for the three-month and six-month periods ended August 30, 1998 was $1.4 million and $2.8 million, respectively, compared with approximately the same amounts during last fiscal year's comparable periods. The Company's interest expense is related primarily to its $100 million principal amount of 5.5% Convertible Subordinated Notes due 2006 (the "Notes") issued in February 1996. The Company recorded a tax benefit of $187,000 for the three- month period ended August 30, 1998 compared with an effective income tax rate of 33.0% for last fiscal year's comparable period, and the Company's effective income tax rate for the six-month period ended August 30, 1998 was 27.5% compared with 33.0% for last fiscal year's comparable period. This decrease in the effective tax rate was primarily the result of a change in the Company's income mix among the tax jurisdictions in which the Company does business. Net earnings for the three-month and six-month periods ended August 30, 1998 decreased 95% to $225 thousand and 48% to $5.8 million, respectively, from $4.9 million and $11.0 million, respectively, for last fiscal year's comparable periods. Basic and diluted earnings per share each decreased to $0.02 for the three-month period ended August 30, 1998 from $0.43 and $0.41, respectively, for last fiscal year's comparable period, and basic and diluted earnings per share decreased to $0.50 and $0.49, respectively, for the six-month period ended August 30, 1998 from $0.98 and $0.92, respectively, for last fiscal year's comparable period. These decreases in net earnings and earnings per share were attributable to the Company's lower operating results. Liquidity and Capital Resources: At August 30, 1998, the Company's cash and temporary investments were $152.9 million compared with $158.5 million at March 1, 1998, the end of the Company's 1998 fiscal year. The decrease in the Company's cash and investment position at August 30, 1998 was attributable to investments in property, plant and equipment in excess of cash provided from operating activities, as discussed below. The Company's working capital was $175.0 -11- 12 million at August 30, 1998 compared with $176.6 million at March 1, 1998. The decrease at August 30, 1998 compared with March 1, 1998 was due principally to the reductions in cash and temporary investments, receivables and inventories, offset in part by lower payables and accrued liabilities. The Company's current ratio (the ratio of current assets to current liabilities) was 3.9 to 1 at August 30, 1998 compared with 3.5 to 1 at March 1, 1998. During the six-months ended August 30, 1998, cash provided by net earnings before depreciation and amortization of $12.4 million was reduced by a net increase in working capital items, resulting in $9.0 million of cash provided from operating activities, and the Company expended $13.7 million for the purchase of property, plant and equipment. Net expenditures for property, plant and equipment were $18.3 million and $18.7 million in the 1998 and 1997 fiscal years, respectively. The Company is planning further expansions of its electronic materials operations, particularly in the United States and Asia. At August 30, 1998, 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, including the proceeds from the Notes, would also be available for appropriate acquisitions and other expansions of the Company's business. In the six month periods ended August 30, 1998 and August 31, 1997, the Company charged less than $0.1 million against pretax income for environmental remedial response and voluntary cleanup costs (including legal fees). While annual expenditures have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At August 30, 1998 and March 1, 1998, the recorded liability in accrued liabilities for environmental matters was $3.5 million. Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company. Year 2000: Year 2000 issues relate to system failures or errors resulting from computer programs and embedded computer chips which utilize dates with only two digits instead of four digits to represent a year. A dated field with two digits representing a year may result in an error or failure due to the system's not being able to recognize "00" as the Year 2000. The Company is reviewing its worldwide computer systems, including systems controlling manufacturing equipment and facilities operations, for Year 2000 readiness and is implementing a plan to resolve existing issues. The Company is upgrading its information systems to improve their functionality and efficiency. As part of this ongoing system development, the Company is modifying or replacing existing computer programs so that they will function properly with respect to dates beyond December 31, 1999. The customization and development of the Company's computer programs is being undertaken with the assistance of external consultants. A major component of this project includes the replacement of legacy computer programs with a fully integrated Oracle based system. The Oracle system is being implemented at one Company location at a time. The Company has developed a contingency plan to upgrade the existing legacy system to function beyond 1999 for those locations which have not completed the conversion to the Oracle based system. -12- 13 The Company anticipates that all critical systems will be modified for Year 2000 compliance by mid-1999 and believes that, after such modifications have been completed, Year 2000 issues will not pose significant operational problems. As mentioned in the preceding paragraph, the primary reason for the extensive system modifications which are being undertaken by the Company was the improvement of the functionality and efficiency of the Company's existing information systems. Accordingly, the Company's budget for these information technology improvements included enhanced Year 2000 compliant software. Management does not expect that the incremental cost of its Year 2000 compliance program will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company. Environmental Matters: In addition to the risks of the failure to locate and correct Year 2000 problems in the Company's information systems and software programs that control various equipment functions, the Company is exposed to the risk of the Year 2000 readiness of its suppliers, as well as suppliers to its suppliers, customers and other third parties. Although the Company has initiated a program to communicate with all of its significant suppliers and customers to determine the extent to which the Company is vulnerable to a failure by such a third party to adequately address its own Year 2000 issues, the Company does not have control over these third parties and, as a result, cannot currently estimate to what extent the failure of these third parties to successfully address their Year 2000 issues may adversely affect the Company's liquidity, capital resources, business, consolidated results of operations or consolidated financial position. 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, the Company's competitive position, the status of the Company's relationships with its customers, economic conditions in international markets, and the various factors set forth 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, 1998. -13- 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings. In May 1998, the Company and its Nelco subsidiary in Arizona filed a complaint against Delco Electronics Corporation and Delphi Automotive Systems in the United States District Court for the District of Arizona. The complaint alleges, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from Nelco and that Delphi interfered with Nelco's contract with Delco and seeks compensatory and punitive damages of not less than $170 million. The Company announced in March 1998 that it had been informed by Delco Electronics that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. As a result, the Company's sales to Delco declined significantly during the three-month period ended May 31, 1998, were negligible during the three- month period ended August 30, 1998 and are expected to be negligible during the remainder of the 1999 fiscal year and in future years. The Company had been Delco's principal supplier of semi-finished multilayer printed circuit board materials for more than ten years. These materials were used by Delco to produce finished multilayer printed circuit boards. Sales to Delco Electronics represented 15.8%, 17.3% and 17.1% of the Company's total worldwide sales for the 1998, 1997 and 1996 fiscal years, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of this Report and "Factors That May Affect Future Results" after Item 2 of this Report. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on July 15, 1998: (a) the persons elected as directors of the Company and the voting for such persons were as follows: Authority Name Votes For Withheld -------------- ---------- --------- Mark S. Ain 10,164,121 300,802 Anthony Chiesa 10,213,257 251,666 Lloyd Frank 10,215,557 249,366 Brian E. Shore 10,222,067 242,856 Jerry Shore 10,221,463 243,460 E. Phillip Smoot 10,222,593 242,330 (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 300,000 shares and to authorize the grant of stock options under such Plan to directors of the Company who are not employees of the Company. There were 9,643,655 votes for these amendments, 512,284 votes against, and 308,980 abstentions. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number 27.01 Financial data schedule (b) No reports on Form 8-K have been filed during the fiscal quarter ended August 30, 1998. -14- 15 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 13, 1998 /s/Brian E. Shore ---------------- --------------------------- Brian E. Shore President and Chief Executive Officer Date: October 13, 1998 /s/Murray O. Stamer ---------------- --------------------------- Murray O. Stamer Corporate Controller and Chief Accounting Officer -15- 16 EXHIBIT INDEX Exhibit No. Name Page 27.01 Financial data schedule (filed only by electronic transmission with EDGAR filing with the Securities and Exchange Commission).......... - -16- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PARK ELECTROCHEMICAL CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS FEB-28-1999 AUG-30-1998 43,347 109,513 49,084 0 25,105 235,535 217,660 101,513 355,362 60,560 100,000 0 0 1,358 170,285 355,362 186,203 190,351 159,839 179,634 0 0 2,772 7,945 2,185 5,760 0 0 0 5,760 .50 .49
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