10-Q 1 q1-02a.txt 10-Q 1ST QUARTER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 2, 2002 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 Section 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: 19,515,307 as of July 12, 2002. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION: Number Item 1. Financial Statements Condensed Consolidated Balance Sheets June 2, 2002 (Unaudited) and March 3, 2003 3 Consolidated Statements of Operations 13 weeks ended June 2, 2002 and May 27, 2001 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows 13 weeks ended June 2, 2002 and May 27, 2001 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Factors That May Affect Future Results 18 Item 3. Quantitive and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION: Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES............................................... 21 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
June 2, 2002 March 3, (Unaudited) 2002* ASSETS Current assets: Cash and cash equivalents $ 98,352 $ 99,492 Marketable securities 50,888 51,917 Accounts receivable, net 34,848 33,628 Inventories (Note 2) 13,751 13,242 Prepaid expenses and other current assets 12,770 12,082 -------- ------- Total current assets 210,609 210,361 Property, plant and equipment, net 149,813 149,810 Other assets 917 473 -------- -------- Total $361,339 $360,644 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 13,530 $ 14,098 Accrued liabilities 28,579 27,862 Income taxes payable 1,020 1,401 -------- -------- Total current liabilities 43,129 43,361 Deferred income taxes 13,059 13,054 Deferred pension liability and other 12,430 11,683 Stockholders' equity: Common stock 2,037 2,037 Additional paid-in capital 131,297 131,138 Retained earnings 171,147 172,953 Treasury stock, at cost (5,715) (5,692) Accumulated other non-owner changes (6,045) (7,890) --------- --------- Total stockholders' equity 292,721 292,546 --------- --------- Total $361,339 $360,644 --------- --------- *The balance sheet at March 3, 2002 has been derived from the audited financial statements at that date.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts)
13 Weeks Ended (Unaudited) June 2, May 27, 2002 2001 Net sales $56,561 $ 69,102 Cost of sales 50,300 65,836 Gross profit 6,261 3,266 Selling, general and administrative expenses 8,111 9,492 Loss on sale of NTI and closure of related support facility (Note 4) - 15,707 Restructuring and severance charges (Note 5) - 681 Loss from operations (1,850) (22,614) Other income: Interest and other income, net 942 1,740 Loss before income taxes (908) (20,874) Income tax benefit (272) (6,262) Net loss $ (636) $(14,612) Loss per share (Note 6): Basic $ (.03) $ (.75) Diluted $ (.03) $ (.75) Weighted average number of common and common equivalent shares outstanding: Basic 19,661 19,420 Diluted 19,661 19,420 Dividends per share $ .06 $ .06
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
13 Weeks Ended (Unaudited) June 2, May 27, 2002 2001 Cash flows from operating activities: Net loss $ (636) $(14,612) Depreciation and amortization 4,445 4,292 Loss on sale of fixed assets - 10,636 Impairment of fixed assets - 2,058 Change in operating assets and liabilities (1,891) 18,446 Net cash provided by operating activities $ 1,918 $ 20,820 Cash flows from investing activities: Purchases of property, plant and equipment, net (2,693) (6,548) Purchases of marketable securities (4,997) - Proceeds from sales and maturities of marketable securities 5,991 14,565 Net cash (used in) provided by investing activities (1,699) 8,017 Cash flows from financing activities: Redemption of long-term debt (Note 3) - (1,738) Dividends paid (1,170) (1,163) Proceeds from exercise of stock options 136 601 Net cash used in financing activities (1,034) (2,300) Change in cash and cash equivalents before exchange rate changes (815) 26,537 Effect of exchange rate changes on cash and cash equivalents (325) (757) Change in cash and cash equivalents (1,140) 25,780 Cash and cash equivalents, beginning of period 99,492 123,726 Cash and cash equivalents, end of period $98,352 $149,506 Supplemental cash flow information: Cash paid during the period for: Income taxes $ - $ 668
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of June 2, 2002, the consolidated statements of operations for the 13 weeks ended June 2, 2002 and May 27, 2001, and the condensed consolidated statements of cash flows for the 13 weeks then ended have been prepared by the Company, without audit. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 2, 2002 and the results of operations and cash flows for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States 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, 2002. 2. INVENTORIES Inventories consisted of the following:
(Amounts in thousands) June 2, March 3, 2002 2002 Raw materials $ 5,089 $ 4,996 Work-in-process 3,394 2,916 Finished goods 4,595 4,784 Manufacturing supplies 673 546 $13,751 $13,242
3. LONG-TERM DEBT On March 1, 2001, $95,934,000 principal amount of the Company's 5.5% Convertible Subordinated Notes due March 1, 2006 was converted into 3,410,908 shares of the Company's common stock, and the remaining $1,738,000 principal amount of the Notes was redeemed by the Company on March 2, 2001 for cash. 4. SALE OF NELCO TECHNOLOGY, INC. During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp., and the Company's wholly owned subsidiary, Nelco Technology, Inc. ("NTI") located in Tempe, Arizona, had been Delco's principal supplier of semi-finished multilayer printed circuit board materials, commonly known as mass lamination, which were used by Delco to produce finished multilayer printed circuit boards. However, in March 1998, the Company was informed by Delco 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 during the three-month period ended May 31, 1998, were negligible during the remainder of the 1999 fiscal year and have been nil in subsequent years. After March 1998, the business of NTI languished and its performance was unsatisfactory due primarily to the absence of the unique, high-volume, high-quality business that had been provided by Delco Electronics and the absence of any other customer in the North American electronic materials industry with a similar demand for the large volumes of semi-finished multilayer printed circuit board materials that Delco purchased from NTI. Although NTI's business experienced a resurgence in the 2001 fiscal year as the North American market for printed circuit materials became extremely strong and demand exceeded supply for the electronic materials manufactured by NTI, the Company's internal expectations and projections for the NTI business were for continuing volatility in the business' performance over the foreseeable future. Consequently, the Company commenced efforts to sell the business in the second half of its 2001 fiscal year; and in April 2001, the Company sold the assets and business of NTI and closed a related support facility, also located in Tempe, Arizona. As a result of this sale, the Company exited the mass lamination business in North America. In connection with the sale of NTI and the closure of the related support facility, the Company recorded non- recurring, pre-tax charges of $15.7 million in its fiscal year 2002 first quarter ended May 27, 2001. The components of these charges and the related liability balances and activity from the May 27, 2001 balance sheet date to the June 2, 2002 balance sheet date are set forth below.
(Amounts in thousands) Charges 6/2/02 Closure Incurred or Remaining Charges Paid Reversals Liabilities ------- ----------- --------- ----------- NTI charges: Loss on sale of assets and business $10,580 $10,580 $ - $ - Severance payments 387 387 - - Medical and other costs 95 95 - - Support facility charges: Impairment of long lived assets 2,058 2,058 - - Write down accounts receivable 350 304 31 15 Write down inventory 590 590 - - Severance payments 688 688 - - Medical and other costs 133 123 - 10 Lease payments, taxes utilities, main. 781 244 - 537 Other 45 45 - - ------- ------- ---- ---- $15,707 $15,114 $31 $562 ======= ======= ==== ====
The severance payments and medical and other costs incurred in connection with the sale of NTI and the closure of the related support facility were for the termination of hourly and salaried, administrative, manufacturing and support employees, all of whom were terminated during the first and second fiscal quarters ended May 27, 2001 and August 26, 2001, respectively, and substantially all of the severance payments and related costs for such terminated employees (totaling $1.3 million) were paid during such quarters. The lease obligations will be paid through August 2004 pursuant to the related lease agreements. NTI did not have a material effect on Park's consolidated financial position, results of operations, capital resources, liquidity or continuing operations, and the sale of NTI is not expected to have a material effect on the Company's future operating results. 5. RESTRUCTURING AND SEVERANCE CHARGES The Company recorded non-recurring, pre-tax charges of $2,921,000 in its fiscal year 2002 third quarter ended November 25, 2001 in connection with the closure of the conventional lamination line of Dielektra GmbH ("Dielektra"), its electronic materials business located in Cologne, Germany, and the reduction of the size of Dielektra's mass lamination operations to enable Dielektra to focus on its DatlamT automated continuous lamination and paneling technology and on the marketing and manufacturing of high technology, higher layer count mass lamination product. The charges included $2,020,000 for severance payments and related costs for terminated employees. In addition, the Company recorded non- recurring, pre-tax severance charges of $681,000 in its fiscal 2002 first quarter ended May 27, 2001 and $125,000 in its third quarter ended November 25, 2001 for severance payments and related costs for terminated employees at the Company's continuing operations in Asia, Europe and North America. The terminated employees were hourly and salaried, administrative, manufacturing and support employees. The components of these charges and the related liability balances and activity from the November 25, 2001 and May 27, 2001 balance sheet dates to the June 2, 2002 balance sheet date are set forth below.
(Amounts in thousands) Charges 6/2/02 Closure Incurred or Remaining Charges Paid Reversals Liabilities -------- ----------- --------- ----------- Dielektra GmbH charges: Impairment of long lived assets $ 378 $ 378 $ - $ - Write down of assets 523 523 - - Severance payments and related costs 2,020 1,506 - 514 ------ ------ ----- ---- 2,921 2,407 514 Other severance payments and related costs 806 806 - - ------ ------ ----- ---- $3,727 $3,213 $ - $514 ====== ====== ===== ====
The remaining liabilities relate to terminated employees in Germany, all of which are expected to be paid during the Company's 2003 fiscal year second quarter ending September 1, 2002. The charge for fixed asset impairments was comprised of $378,000 to write off the net book value of machinery and equipment and $523,000 to write down related land and building that are no longer used as a result of the close- down of the conventional lamination line of Dielektra. The machinery and equipment have no residual value. The land and building that previously housed the closed operations are being held for sale and have been written down to their estimated net realizable value of $2,050,000. All the terminated employees referred to in this Note were hourly and salaried, administrative, manufacturing and support employees, all such employees were terminated during the first, second and third fiscal quarters ended May 27, 2001, August 26, 2001 and November 25, 2001, respectively, and substantially all the severance payments and related costs for such terminated employees were paid during such quarters, except payments and costs of $1,212,000 in Germany, $698,000 of which were paid in installments to terminated employees in Germany during the Company's 2003 fiscal year first quarter ended June 2, 2002 and the balance of which is expected to be paid to terminated employees in Germany during the Company's 2003 fiscal year second quarter ending September 1, 2002. As a result of the foregoing employee terminations and other less significant employee terminations in connection with business contractions and in the ordinary course of business and substantial numbers of employee resignations and retirements in the ordinary course of business, the total number of employees employed by the Company declined to approximately 1,700 as of March 3, 2002 from approximately 3,000 as of February 25, 2001, the end of the Company's 2001 fiscal year, and was approximately 1,700 as of June 2, 2002. 6. LOSS PER SHARE Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share is computed by dividing net loss by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potential common stock equivalents during the period. Stock options are the only common stock equivalents and are computed using the treasury stock method. The table below sets forth the basic and diluted weighted average number of shares of common stock and potential common stock equivalents outstanding for the periods specified:
13 weeks ended June 2, May 27, 2002 2001 Basic weighted average shares outstanding 19,661,000 19,420,000 Diluted weighted average shares and potential common stock equivalents outstanding 19,661,000 19,420,000
Common stock equivalents, not included in the computation of diluted (loss) earnings per share because the effect would have been antidilutive, were 514,916 and 471,688 for the thirteen weeks ended June 2, 2002 and May 27, 2001, respectively. 7. BUSINESS SEGMENTS The Company's specialty adhesive tape and film business, advanced composite materials business and plumbing hardware business were previously aggregated into the engineered materials and plumbing hardware segment. During fiscal year 2001, the Company closed and liquidated its plumbing hardware business. In fiscal years 2001, 2000 and 1999, the specialty adhesive tape, advanced composite materials and plumbing hardware businesses comprised less than 10% of the Company's consolidated revenues and assets, and the Company considered itself to operate in one business segment. The Company's electronic materials products are marketed primarily to leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs") located throughout North America, Europe and Asia. The Company's specialty adhesive tape and advanced composite materials customers, the majority of which are located in the United States, include OEMs, independent firms and distributors in the electronics, aerospace and industrial industries. Sales are attributed to geographic region based upon the region from which the materials were shipped to the customer. Sales between geographic regions were not significant. Financial information concerning the Company's operations by geographic area follows:
(Amounts in thousands) 13 Weeks Ended June 2, May 27, 2002 2001 Sales: North America $32,248 $41,459 Europe 12,934 16,981 Asia 11,379 10,662 Total sales $56,561 $69,102
June 2, March 3, 2002 2002 Long-lived assets: United States $102,262 $104,386 Europe 25,961 22,954 Asia 22,507 22,943 Total long-lived assets $150,730 $150,283
8. COMPREHENSIVE INCOME (LOSS) Total comprehensive income (loss) for the 13 weeks ended June 2, 2002 and May 27, 2001 was $1,209,000 and ($16,559,000), respectively. Comprehensive income (loss) consisted primarily of net loss and foreign currency translation adjustments. 9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations", and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules set forth in these Statements, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. In addition, Statement 141 eliminates the pooling-of- interests method of accounting for business combinations, except for qualifying business combinations that were initiated prior to July 1, 2001. The Company adopted SFAS 142 for the fiscal quarter ended June 2, 2002. The Company does not have any goodwill on its balance sheet, has virtually no intangible assets, and is not engaged in any transactions that are affected by the Statements; and, therefore, the application of the non-amortization provisions of the Statements did not have a material adverse effect on the Company's consolidated results of operations or financial position for the 13 weeks ended June 2, 2002. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") effective for fiscal years beginning after June 15, 2002. SFAS 143 requires the fair value of liabilities for asset retirement obligations to be recognized in the period in which the obligations are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company has not yet determined what effect SFAS 143 will have on the Company's consolidated results of operations or financial position. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long- Lived Assets" ("SFAS 144"), which supercedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Although it retains the basic requirements of SFAS 121 regarding when and how to measure an impairment loss, SFAS 144 provides additional implementation guidance. SFAS 144 is effective for all fiscal years beginning after December 15, 2001. The Company adopted SFAS 144 for the quarter ended June 2, 2002. The adoption did not have a material effect on the Company's results of operations or financial condition. 10. SUBSEQUENT EVENT On June 28, 2002, the Company announced that it sold its Dielectric Polymers, Inc. ("DPI") subsidiary to Adhesive Applications, Inc. of Easthampton, Massachusetts and that the Company expected to record a gain of approximately $3.2 million in its fiscal year 2003 second quarter ending September 1, 2002 in connection with the sale. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General 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. The Company's customers include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries. The Company's sales declined in the three-month period ended June 2, 2002 compared with last year's comparable period, with declines in sales by the Company's North American and European operations. The earnings growth that the Company achieved during its 2001 and 2000 fiscal years halted in the 2002 fiscal year as a result of a severe downturn in the global electronics industry, and the global electronics industry continued to be very depressed during the 2003 fiscal year first quarter. The Company is not engaged in any related party transactions involving relationships or transactions with persons or entities that derive benefits from their non- independent relationship with the Company or the Company's related parties, or in any transactions with parties with whom the Company or its related parties have a relationship that enables the parties to negotiate terms of material transactions that may or would not be available from other, more clearly independent parties on an arm's-length basis, or in any trading activities involving non-exchange traded commodity or other contracts that are accounted for at fair value or otherwise or in any energy trading or risk management activities, other than certain limited foreign currency contracts intended to hedge the Company's contractual commitments to pay certain obligations or to realize certain receipts in foreign currencies. Three Months Ended June 2, 2002 Compared with Three Months Ended May 27, 2001 The Company's operations continued to generate losses during the three-month period ended June 2, 2002 as the North American, European and Asian markets for sophisticated printed circuit materials continued to experience severely depressed conditions during the 2003 fiscal year first quarter. Nevertheless, the Company's losses in the 2003 fiscal year first quarter were substantially less than they were in last year's comparable period as a result of the Company's reductions of its costs and expenses and as a result of the non- recurring, pre-tax charge of $15.7 million that the Company incurred during the 2002 fiscal year first quarter in connection with the sale of the assets and business of Nelco Technology, Inc. ("NTI"), the Company's wholly owned subsidiary that manufactured semi-finished printed circuit boards, commonly known as mass lamination, in Tempe, Arizona, and the closure of a related support facility in Arizona and the pre- tax severance charges of $0.7 million that the Company incurred during the 2002 fiscal year first quarter related to the layoff of employees at the Company's continuing operations. Results of Operations Net sales for the three-month period ended June 2, 2002 declined 18% to $56.6 million from $69.1 million for last year's comparable period. This decrease in net sales was the result of lower unit volumes of materials shipped. The Company's foreign operations accounted for $24.3 million of net sales, or 43% of the Company's total net sales worldwide, during the three-month period ended June 2, 2002 compared with $27.6 million of sales, or 40% of total net sales worldwide, during last fiscal year's comparable period. Net sales by the Company's foreign operations during the 2003 fiscal year first quarter declined 12% from the 2002 fiscal year comparable period. The decline in sales by foreign operations was due to decreases in sales in Europe. The gross margin for the Company's worldwide operations was 11.1% during the three-month period ended June 2, 2002 compared with 4.7% for last fiscal year's comparable period. The improvement in the gross margin was attributable to the Company's ongoing cost reduction measures, including significant workforce reductions, the decision to not implement annual salary increases and the payment of significantly reduced performance bonuses. Gross profit was also positively impacted by higher percentages of sales of higher technology, higher margin products as high performance materials accounted for 76% of worldwide sales for the first quarter of the 2003 fiscal year compared with 66% for the first quarter of the 2002 fiscal year. Although selling, general and administrative expenses declined by $1.4 million, or 14.5%, during the three-month period ended June 2, 2002 compared with last year's comparable period, these expenses measured as a percentage of sales, were 14.3% during the three-month period ended June 2, 2002 compared with 13.7% during last fiscal year's comparable period. This increase in the expenses as a percentage of sales in the 2003 fiscal year period resulted from proportionately lower sales compared to the comparable period during the last fiscal year. The Company incurred a non-recurring, pre-tax charge of $15.7 million during the 2002 fiscal year first quarter in connection with the sale of the assets and business of Nelco Technology, Inc. ("NTI"), the Company's wholly owned subsidiary that manufactured semi-finished printed circuit boards, commonly known as mass lamination, in Tempe, Arizona, and the closure of a related support facility in Arizona. NTI formerly supplied Delco Electronics Corporation with semi-finished printed circuit boards. The Company also incurred pre-tax severance charges of $0.7 million during the 2002 fiscal year first quarter related to the layoff of employees at the Company's continuing operations. For reasons set forth above, loss from operations was $1.9 million for the three months ended June 2, 2002 compared with $22.6 million for the three months ended May 27, 2001, including the non-recurring pre-tax charges described above. Interest and other income, net, principally investment income, was $0.9 million for the three-month period ended June 2, 2002 compared with $1.7 million for last fiscal year's comparable period. The decrease in investment income was attributable to a decrease in prevailing interest rates. The Company's investments were primarily short-term taxable instruments. The Company's effective income tax rate was 30.0% for the three-month period ended June 2, 2002 and for last fiscal year's comparable period. The net loss for the three month period ended June 2, 2002 declined to $0.6 million compared to $14.6 million for the three months ended May 27, 2001. Basic and diluted loss per share decreased to $0.03 for the three-month period ended June 2, 2002 from a basic and diluted loss of $0.75 per share including the non-recurring, pre-tax charges for the three- month period ended May 27, 2001. Liquidity and Capital Resources: At June 2, 2002, the Company's cash and temporary investments were $149.2 million compared with $151.4 million at March 3, 2002, the end of the Company's 2002 fiscal year. The Company's working capital (which includes cash and temporary investments) was $167.5 million at June 2, 2002 compared with $167.0 million at March 3, 2002. The Company's current ratio (the ratio of current assets to current liabilities) was 4.9 to 1 at June 2, 2002 and at March 3, 2002. During the three-months ended June 2, 2002, cash used in the Company's operations, before depreciation and amortization, of $2.5 million included a slight net increase in working capital items, resulting in $1.9 million of cash provided by operating activities. During the same three-month period, the Company expended $2.7 million for the purchase of property, plant and equipment compared with $6.5 million for the three month period ended May 27, 2001 and paid $1.2 million in dividends on its common stock in each of such three-month periods. Net expenditures for property, plant and equipment were $22.8 million in the 2002 fiscal year and $51.8 million in the 2001 fiscal year. During the past two fiscal years, the Company completed significant expansions of its electronic materials manufacturing facilities in California and New York and its higher technology product line manufacturing facility in Arizona. At June 2, 2002, the Company had no long-term debt. The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. Such resources would also be available for appropriate acquisitions and other expansion 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. 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. The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of the operating lease commitments. The Company has no 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 a standby letter of credit in the amount of $1,042,000 to secure the Company's obligations under the workers' compensation insurance program. Environmental Matters: In the three-month periods ended June 2, 2002 and May 27, 2001, 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 available cash. 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 June 2, 2002 and March 3, 2002, the recorded liability in accrued liabilities for environmental matters was approximately $3.9 million and $4.0 million, respectively. 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. Critical Accounting Policies and Estimates: In response to financial reporting release, FR-60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies", issued by the Securities and Exchange Commission in December 2001, the following information is provided regarding critical accounting policies that are important to the Consolidated Financial Statements and that entail, to a significant extent, the use of estimates, assumptions and the application of management's judgment. General The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 on-going basis, the Company evaluates its estimates, including those related to sales allowances, bad debts, inventories, valuation of long- lived assets, income taxes, restructuring, pensions and other employee benefit programs, and contingencies and litigation. 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 believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Sales Allowances The Company provides for the estimated costs of sales allowances at the time such costs can be reasonably estimated. The Company is focused on manufacturing the highest quality electronic materials and other products possible and employs stringent manufacturing process controls and works with raw material suppliers who have dedicated themselves to complying with the Company's specifications and technical requirements. However, if the quality of the Company's products declined, the Company may incur higher sales allowances. Bad Debt The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventory The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company's products and market conditions. If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Valuation of Long-lived Assets The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Important factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends and significant changes in the use of the Company's assets or strategy of the overall business. Income Taxes Carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly. Restructuring During the fiscal year ended March 3, 2002, the Company recorded significant reserves in connection with the restructuring relating to the sale of Nelco Technology, Inc., the closure of a related support facility and the realignment of Dielektra, GmbH. These reserves include estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from the Company's actions. Although the Company does not anticipate significant changes, the actual costs incurred by the Company may differ from these estimates. Contingencies and Litigation 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. Pension and Other Employee Benefit Programs The Company's subsidiary in Europe has significant pension costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and wage inflation rates. The Company is required to consider current market conditions, including changes in interest rates and wage costs, in selecting these assumptions. Changes in the related pension costs may occur in the future in addition to changes resulting from fluctuations in the Company's related headcount due to changes in the assumptions. The Company's obligations for workers' compensation claims and employee-health care benefits are effectively self-insured. The Company uses an insurance company administrator to process all such claims and benefits. The Company accrues its workers' compensation liability based upon the claim reserves established by the third-party administrator and historical experience. The Company's employee health insurance benefit liability is based on its historical claims experience. The Company and certain of its subsidiaries have a non- contributory profit sharing retirement plan covering their regular full-time employees. In addition, the Company's subsidiaries have various bonus and incentive compensation programs, most of which are determined at management's discretion. The Company's reserves associated with these self-insured liabilities and benefit programs are reviewed by management for adequacy at the end of each reporting period. 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, the cost and availability of utilities, and the various factors set forth under the caption "Factors That May Affect Future Results" after Item 7 of Park's Annual Report on Form 10-K for the fiscal year ended March 3, 2002. Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company's market risk exposure at June 2, 2002 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 3, 2002. PART II. OTHER INFORMATION Item 1. Legal Proceedings. In May 1998, the Company and its Nelco Techology, Inc. ("NTI") subsidiary in Arizona filed a complaint against Delco Electronics Corporation and the Delphi Automotive Systems unit of General Motors Corp. in the United States District Court for the District of Arizona. The complaint alleged, among other things, that Delco breached its contract to purchase semi- finished multilayer printed circuit boards from NTI and that Delphi interfered with NTI's contract with Delco, that Delco breached the covenant of good faith and fair dealing implied in the contract, that Delco engaged in negligent misrepresentation and that Delco fraudulently induced NTI to enter into the contract. The Company and NTI sought substantial compensatory and punitive damages. On November 29, 2000, after a five day trial in Phoenix, Arizona, a jury awarded damages to NTI in the amount of $32,280,000, and on December 12, 2000 the judge in the United States District Court entered judgment for NTI on its claim of breach of the implied covenant of good faith and fair dealing with damages in the amount of $32,280,000. Both parties filed motions for post-judgment relief and a new trial, all of which the judge denied, and both parties have appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco. The appeal has been fully briefed and the parties await oral argument, which the Ninth Circuit has not yet scheduled. Park 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. After the plant closure, Delco purchased all of its printed circuit boards from outside suppliers and Delco was no longer a customer of the Company's. 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, have been nil since that time. 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 worldwide sales were to Delco Electronics Corporation; and 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. See "Factors That May Affect Future Results" after Item 2 of Part I of this Report. In the first quarter of the fiscal year ended March 3, 2002, the Company sold the assets and business of NTI and recorded non-recurring, pre-tax charges of approximately $15.7 million in its 2002 fiscal year first quarter ended May 27, 2001 in connection with the sale of NTI and the closure of a related support facility also located in Arizona. See Note 4 of the Notes to Condensed Consolidated Financial Statements in Item 2 of this Report. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: None (b) No reports on Form 8-K have been filed during the fiscal quarter ended June 2, 2002. 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: July 16, 2002 ----------------------- Brian E. Shore President and Chief Executive Officer /s/Murray O. Stamer Date: July 16, 2002 ----------------------- Murray O. Stamer Senior Vice President, Finance Principal Financial Officer