10-Q 1 e10q205.txt FORM 10-Q 2ND QUARTER 1 UNITED STATES 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 August 29, 2004 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[ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes[X] No[ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 19,897,290 as of October 4, 2004. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION: Number Item 1. Financial Statements Condensed Consolidated Balance Sheets August 29, 2004 (Unaudited) and February 29, 2004 3 Consolidated Statements of Earnings 13 weeks and 26 weeks ended August 29, 2004 and August 31, 2003(Unaudited) 4 Consolidated Statements of Stockholders' Equity 13 weeks and 26 weeks ended August 29, 2004 and August 31, 2003 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows 26 weeks ended August 29, 2004 and August 31, 2003 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Factors That May Affect Future Results 24 Item 3. Quantitive and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 25 PART II. OTHER INFORMATION: Item 1. Legal Proceedings 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 28 Item 6. Exhibits 28 SIGNATURES 29 EXHIBIT INDEX 30 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
August 29, 2004 February 29, (Unaudited) 2004* ASSETS Current assets: Cash and cash equivalents $138,799 $129,989 Marketable securities 60,622 59,197 Accounts receivable, net 32,409 36,149 Inventories (Note 2) 14,345 11,707 Prepaid expenses and other current assets 2,005 3,040 Total current assets 248,180 240,082 Property, plant and equipment, net 66,767 70,569 Other assets 758 419 Total assets $315,705 $311,070 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 13,053 $ 14,913 Accrued liabilities 22,915 24,468 Income taxes payable 6,421 3,248 Total current liabilities 42,389 42,629 Deferred income taxes 5,098 5,107 Liabilities from discontinued operations (Note 4) 17,373 19,438 Total liabilities 64,860 67,174 Stockholders' equity: Common stock 2,037 2,037 Additional paid-in capital 133,872 133,335 Retained earnings 115,502 108,915 Treasury stock, at cost (3,551) (4,125) Accumulated other non-owner changes 2,985 3,734 Total stockholders' equity 250,845 243,896 Total liabilities and stockholders'equity $315,705 $311,070 *The balance sheet at February 29, 2004 has been derived from the audited financial statements at that date.
See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands, except per share amounts)
13 weeks ended 26 weeks ended (Unaudited) (Unaudited) August 29, August 31, August 29, August 31, 2004 2003 2004 2003 Net sales $51,098 $43,566 $109,616 $87,889 Cost of sales 41,680 37,647 86,486 77,347 Gross profit 9,418 5,919 23,130 10,542 Selling, general and administrative expenses 6,521 6,213 14,862 12,417 Realignment and severance charges (Note 5) - 6,504 - 8,438 Gain on Delco lawsuit (Note 10) - (33,088) - (33,088) Operating income from continuing operations 2,897 26,290 8,268 22,775 Interest and other income 776 744 1,427 1,488 Earnings from continuing operations before income taxes 3,673 27,034 9,695 24,263 Income tax provision for continuing operations 726 6,052 727 4,925 Net earnings from continuing operations 2,947 20,982 8,968 19,338 Loss from discontinued operations, net of taxes (Note 4) - (1,944) - (8,751) Net earnings $ 2,947 $19,038 $ 8,968 $10,587 Basic earnings per share (Note 6): Earnings from continuing operations $ 0.15 $ 1.06 $ 0.45 $ 0.98 Loss from discontinued operations - (0.10) - (0.44) Basic earnings per share $ 0.15 $ 0.96 $ 0.45 $ 0.54 Diluted earnings per share (Note 6): Earnings from continuing operations $ 0.15 $ 1.05 $ 0.45 $ 0.97 Loss from discontinued operations - (0.10) - (0.44) Diluted earnings per share $ 0.15 $ 0.95 $ 0.45 $ 0.53 Weighted average number of common and common equivalent shares outstanding: Basic shares 19,885 19,759 19,847 19,734 Diluted shares 20,112 19,943 20,090 19,856 Dividends per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Amounts in thousands)
13 weeks ended 26 weeks ended (Unaudited) (Unaudited) August 29, August 31, August 29, August 31, 2004 2003 2004 2003 Common stock and paid-in capital Balance, beginning of period $ 135,745 $135,051 $135,372 $135,209 Stock option activity 164 32 537 (126) Balance, end of period 135,909 135,083 135,909 135,083 Retained earnings Balance, beginning of period 113,749 107,874 108,915 117,506 Net income 2,947 19,038 8,968 10,587 Dividends (1,194) (1,186) (2,381) (2,367) Balance, end of period 115,502 125,726 115,502 125,726 Accumulated other non-owner changes Balance, beginning of period 3,547 (1,332) 3,734 (2,432) Net unrealized investment gains (losses) 342 (657) (246) (647) Translation adjustments (904) (1,183) (503) (93) Balance, end of period 2,985 (3,172) 2,985 (3,172) Treasury stock Balance, beginning of period (3,693) (4,292) (4,125) (4,582) Stock option activity 142 43 574 333 Balance, end of period (3,551) (4,249) (3,551) (4,249) Total stockholders' equity $250,845 $253,388 $250,845 $253,388
See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
26 Weeks Ended (Unaudited) August 29, August 31, 2004 2003 Cash flows from operating activities: Net earnings $ 8,968 $ 10,587 Depreciation and amortization 5,124 5,962 Change in operating assets and liabilities (726) 16,480 Net cash provided by operating activities 13,366 33,029 Cash flows from investing activities: Purchases of property, plant and equipment, net (1,706) (2,088) Purchases of marketable securities (19,988) (64,677) Proceeds from sales and maturities of marketable securities 18,416 39,903 Net cash used in investing activities (3,278) (26,862) Cash flows from financing activities: Dividends paid (2,381) (2,367) Proceeds from exercise of stock options 1,111 207 Net cash used in financing activities (1,270) (2,160) Change in cash and cash equivalents before exchange rate changes 8,818 4,007 Effect of exchange rate changes on cash and cash equivalents (8) (27) Change in cash and cash equivalents 8,810 3,980 Cash and cash equivalents, beginning of period 129,989 111,036 Cash and cash equivalents, end of period $138,799 $115,016 Supplemental cash flow information: Cash (received) paid during the period for income taxes $ (1,426) $ 323
See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Amounts in thousands, except per share amounts) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of August 29, 2004, the consolidated statements of operations for the 13 weeks and 26 weeks ended August 29, 2004 and August 31, 2003, and the condensed consolidated statements of cash flows for the 26 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 August 29, 2004 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 February 29, 2004. 2. INVENTORIES Inventories consisted of the following:
August 29, February 29, 2004 2004 Raw materials $ 5,359 $ 4,088 Work-in-process 3,336 2,424 Finished goods 5,215 4,835 Manufacturing supplies 435 360 $14,345 $11,707
3. STOCK OPTIONS As of August 29, 2004, the Company had two fixed stock option plans. All options under the plans had an exercise price equal to the market value of the underlying common stock of the Company on the date of grant. The Company continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations for the plans. If compensation costs of the grants had been determined based upon the fair market value at the grant dates consistent with the FASB No. 123 "Accounting for Stock-Based Compensation", the Company's net earnings and earnings per share would have approximated the amounts shown below.
13 weeks ended 26 weeks ended August 29, August 31, August 29, August 31, 2004 2003 2004 2003 Net earnings $2,947 $19,038 $8,968 $10,587 Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of tax effects 444 426 903 904 Pro forma net income $2,503 $18,612 $8,065 $ 9,683 EPS-basic as reported $ 0.15 $ 0.96 $ 0.45 $ 0.54 EPS-basic pro forma $ 0.13 $ 0.94 $ 0.41 $ 0.49 EPS-diluted as reported $ 0.15 $ 0.95 $ 0.45 $ 0.53 EPS-diluted pro forma $ 0.12 $ 0.93 $ 0.40 $ 0.49
4. DISCONTINUED OPERATIONS On February 4, 2004, the Company announced that it was discontinuing its financial support of its Dielektra GmbH ("Dielektra") subsidiary located in Cologne, Germany, due to the continued erosion of the European market for the Company's high technology products. Without Park's financial support, Dielektra filed an insolvency petition, which may result in the reorganization, sale or liquidation of Dielektra. In accordance with SFAS No. 144, "Accounting for the Impairment of Disposal of Long- Lived Assets", Dielektra is treated as a discontinued operation. As a result of the discontinuation of financial support for Dielektra, the Company recognized an impairment charge of $22,023 for the write-off of Dielektra assets and other costs during the fourth quarter of the 2004 fiscal year. The liabilities from discontinued operations are reported separately on the consolidated balance sheet. These liabilities from discontinued operations included $12,094 for Dielektra's deferred pension liability. The Company expects to recognize a gain of approximately $17 million related to the reversal of these liabilities when the Dielektra insolvency process is completed, although it is unclear when the process will be completed. The $8,751 loss from discontinued operations for the 26 weeks ended August 31, 2003, includes losses from operations of $2,609 and $6,142 for termination and other costs related to Dielektra, recorded in the first quarter of the 2004 fiscal year. At the time of the discontinuation of support for Dielektra, $5,539 of the $6,142 of termination and other costs had been paid and the remaining $603 was included in liabilities from discontinued operations in the Condensed Consolidated Balance Sheets as of February 29, 2004 and August 29, 2004. Dielektra's net sales and operating results for the 13 weeks and 26 weeks ended August 29, 2004 and August 31, 2003, and the liabilities of discontinued operations at August 29, 2004 and February 29, 2004 were as follows:
13 weeks ended 26 weeks ended August 29, August 31, August 29, August 31, 2004 2003 2004 2003 Net sales $ - $ 3,561 $ - $ 9,208 Operating loss $ - $(1,944) $ - $(2,609) Restructuring and impairment charges - - - (6,142) Net loss $ - $(1,944) $ - $(8,751) August 29, February 29, 2004 2004 Current and other liabilities $ 5,279 $ 7,344 Pension liabilities 12,094 12,094 Total liabilities $17,373 $19,438
5. REALIGNMENT AND SEVERANCE CHARGES The Company recorded pre-tax charges of $1,934 and $6,504 during the first and second quarters of fiscal year 2004, respectively, related to the realignment of its North America FR-4 business operations in Newburgh, New York and Fullerton, California. During the fourth quarter of fiscal year 2004, the Company recorded pre-tax charges of $112 related to workforce reductions in Europe. The components of these charges and the related liability balances and activity from the quarter ended June 1, 2003 through August 29, 2004 are set forth below.
Charges 8/29/04 Realignment Incurred Remaining Charges or Paid Reversals Liabilities New York and California and other realignment charges: Lease payments, taxes, utilities and other $7,292 $ 1,065 $ - $6,227 Severance payments 1,258 1,258 - - $8,550 $2,323 $ - $6,227
The severance payments were for the termination of hourly and salaried, administrative, manufacturing and support employees. Such employees were terminated during the 2004 fiscal year first, second and third quarters. The severance payments were paid to such employees in installments during fiscal year 2004. The lease charges cover one lease obligation payable through December 2004 and a portion of another lease obligation payable through September 2013. For the 13 weeks and 26 weeks ended August 29, 2004, the Company paid $208 and $417, respectively, for lease payments, taxes, utilities and other, and $0 and $112, respectively, for severance payments. 6. EARNINGS PER SHARE Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings 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 outstanding during the period. Stock options are the only common stock equivalents and are computed using the treasury stock method. The following table sets forth the basic and diluted weighted average number of shares of common stock and potential common stock equivalents outstanding during the periods specified:
13 weeks ended 26 weeks ended August 29, August 31, August 29, August 31, 2004 2003 2004 2003 Weighted average shares outstanding for basic EPS 19,885 19,759 19,847 19,734 Net effect of dilutive options 227 184 243 122 Weighted average shares outstanding for diluted EPS 20,112 19,943 20,090 19,856
Common stock equivalents, which were not included in the computation of diluted earnings per share because either the effect would have been antidilutive or the options' exercise prices were greater than the average market price of the common stock, were 67 and 176 for the thirteen weeks ended August 29, 2004 and August 31, 2003, respectively, and 62 and 258 for the twenty-six weeks ended August 29, 2004 and August 31, 2003, respectively. 7. BUSINESS SEGMENTS The Company considers itself to operate in one business segment because the Company's advanced composite business comprises less than 10% of the Company's revenues and net earnings from continuing operation on an absolute basis. 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 advanced composite materials customers, substantially all of which are located in the United States, include OEMs, independent firms and distributors in the electronics, radio frequency, aerospace, rocket motor, automotive, graphic arts and specialty 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 continuing operations by geographic area follows:
13 weeks ended 26 weeks ended August 29, August 31, August 29, August 31, 2004 2003 2004 2003 Sales: North America $29,596 $24,719 $ 61,860 $49,866 Europe 8,759 5,899 17,876 13,624 Asia 12,743 12,948 29,880 24,399 Total sales $51,098 $43,566 $109,616 $87,889
August 29, February 29, 2004 2004 Long-lived assets: North America $35,605 $38,549 Europe 10,238 10,969 Asia 21,682 21,470 Total long-lived assets $67,525 $70,988
8. COMPREHENSIVE INCOME Total comprehensive income for the 13 weeks ended August 29, 2004 and August 31, 2003 was $2,385 and $17,198, respectively. Total comprehensive income for the 26 weeks ended August 29, 2004 and August 31, 2003 was $8,219 and $9,847, respectively. Comprehensive income consisted primarily of net income and foreign currency translation adjustments and unrealized gains and losses on marketable securities. 9. 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, 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 pre-tax charges of $15,707 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 August 29, 2004 balance sheet date are set forth below:
Charges 8/29/04 Closure Incurred Remaining Charges or Paid Reversals Liabilities NTI charges: Loss on sale of assets and bisomess $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 of accounts receivable 350 319 31 - Write down of inventory 590 590 - - Severance payments 688 688 - - Medical and other costs 133 133 - - Lease payments, taxes, utilities, maintenance 781 606 - 175 Other 45 45 - - ------- ------- --- ---- $15,707 $15,501 $31 $175 ======= ======= ==== ====
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 $1,303) were paid during such quarters. The lease payments were paid through August 2004 pursuant to the related lease agreements. 10. GAIN ON DELCO LAWSUIT The United States District Court for the District of Arizona entered final judgment in favor of the Company's subsidiary, NTI, in its lawsuit against Delco Electronics Corporation, a subsidiary of Delphi Automotive Systems Corporation, on Nelco's claim for breach of the implied covenant of good faith and fair dealing. As a result, the Company received a net amount of $33,088 from Delco on July 1, 2003 in satisfaction of the judgment. 11. SUBSEQUENT EVENT During September 2004, the Company made adjustments to its volume FR-4 businesses, particularly in North America, which included workforce reductions at the Company's operations in North America and Europe. As a result, the Company expects to record approximately $0.6 million of severance charges in the 2005 fiscal year third quarter. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: Park is a leading global designer and producer of electronic materials used to fabricate complex multilayer printed circuit boards and electronic interconnection systems. Park specializes in advanced materials for high layer count circuit boards and high-speed digital and RF/Microwave electronic systems and also designs and manufactures advanced composite materials for the aerospace, military and industrial markets. The Company's customers include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and electronic original equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries. The Company's sales and earnings from continuing operations before the gain on the Delco lawsuit and realignment and severance charges increased significantly in the three- month and six-month periods ended August 29, 2004 compared with last year's comparable periods as a result of increases in sales by nearly all the Company's operations, although the improvements were attributable principally to increases in sales of the Company's advanced technology products, sales by the Company's operations in Asia and North America and sales by the Company's FiberCote advanced composite materials business. The electronics industry began to improve slightly at the end of the 2004 fiscal year second quarter and continued to improve in the 2004 fiscal year third and fourth quarters and in the 2005 fiscal year first quarter. However, the global markets for the Company's electronic materials products continued to be mixed during the 2005 fiscal year first quarter, and the electronic materials industry slowed down to some extent in the 2005 fiscal year second quarter. Consequently, sales of the Company's electronic materials operations declined in the second quarter compared to the 2005 fiscal year first quarter. During the first and second quarters of the 2004 fiscal year, the Company realigned its North American FR-4 business operations located in New York and California. As part of the realignment, the New York operation was scaled down to a smaller, focused operation and the California operation was scaled up to a larger volume operation, and there were workforce reductions at the Company's New York facility and workforce increases at the Company's California facility, with the end result being a net reduction in the Company's workforce in North America. A large portion of the New York facility was mothballed. The realignment was designed to help the Company achieve improved operating and cost efficiencies in its North American FR-4 business and to help the Company best service all of its North American customers. As a result of the Company's realignment of its North American FR-4 business operations and related workforce reductions, the Company recorded pre-tax charges totaling $1.9 million and $6.5 million in the Company's 2004 fiscal year first quarter and second quarter, respectively. See Note 5 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for additional information regarding the realignment. In February 2004, the Company discontinued its financial support of Dielektra GmbH, the Company's wholly owned subsidiary located in Cologne, Germany ("Dielektra"), which supplied electronic materials to European circuit board manufacturers. The Company discontinued its support of Dielektra because the market in Europe had eroded to the point where the Company believed it would not be possible, at any time in the foreseeable future, for the Dielektra business to be viable. Dielektra had required substantial financial support from the Company. The discontinuation of the Company's financial support resulted in the filing of an insolvency petition by Dielektra. The Company believes that the insolvency procedure in Germany will result in the eventual reorganization, sale or liquidation of Dielektra. The Company continues to service the higher technology European digital and RF circuit board markets through its Neltec Europe SAS business located in Mirebeau, France, and its Neltec SA business located in Lannemezan, France. In accordance with generally accepted accounting principles, the Company treated Dielektra as a discontinued operation. Accordingly, the Company reclassified Dielektra's operating losses and charges and recorded a net loss from discontinued operations of $33.8 million in the 2004 fiscal year, comprised of $5.6 million of operating losses incurred by Dielektra, $6.2 million related to the closure of Dielektra's mass lamination operation and related workforce reductions in the 2004 fiscal year first quarter and $22.0 million for the write-off of assets of Dielektra and other costs. Furthermore, the Company's sales from its continuing operations did not include sales by Dielektra of $14.4 million for the 2004 fiscal year. The Company's sales for the 2005 fiscal year first and second quarters did not include any sales by Dielektra, and Dielektra had no impact on the Company's results of operations during the 2005 fiscal year first and second quarters. See Note 4 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for additional information regarding the discontinued operations. 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.("Delco"), 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 since that time. In May 1998, the Company and NTI filed a complaint against Delco 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. In November 2000, a jury awarded damages to NTI in the amount of $32.3 million, and in December 2000 the judge in the United States District Court for the District of Arizona 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 $32.3 million. Both parties appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco; and in May 2003, a panel of three judges in the Court of Appeals for the Ninth Circuit rendered a unanimous decision affirming the jury verdict. In June 2003, the United States District Court for the District of Arizona entered final judgment in favor of NTI; and, on July 1, 2003, NTI received a net amount of $33.1 million in payment of such judgment. The Company recorded a pre-tax gain of $33.1 million in the 2004 fiscal year second quarter related to such payment. See Notes 9 and 10 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for additional information regarding the sale of NTI and the gain on the lawsuit against Delco and Item 1 of Part II of this Report for additional information regarding the lawsuit against Delco. 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 and certain limited energy purchase contracts intended to protect the Company from increased utilities costs. The Company believes that an evaluation of its ongoing operations would be difficult if the disclosure of its financial results were limited to generally accepted accounting principles ("GAAP") financial measures, which include special items, such as realignment and severance charges and the gain on the Delco lawsuit. Accordingly, in addition to disclosing its financial results determined in accordance with GAAP, the Company discloses non-GAAP operating results that exclude special items in order to assist its shareholders and other readers in assessing the Company's operating performance, since the Company's on-going, normal business operations do not include such special items. Such non-GAAP financial measures are provided to supplement the results provided in accordance with GAAP. Three and Six Months Ended August 29, 2004 Compared with Three and Six Months Ended August 31, 2003: The Company's operations continued to generate profits during the three-month and six-month periods ended August 29, 2004, as the improved conditions that developed in the markets for sophisticated printed circuit materials in the second half of the 2004 fiscal year continued during the first quarter of the 2005 fiscal year, although such conditions abated to some extent in the 2005 fiscal year second quarter. Despite the Company's operating losses during the three- month and six-month periods ended August 31, 2003, the Company reported net earnings of $19.0 million for the three months ended August 31, 2003 after a pre-tax gain of $33.1 million related to the payment by Delco Electronics Corporation of the judgment against it in favor of the Company's subsidiary, Nelco Technology, Inc., in the lawsuit against Delco and after pre- tax charges of $6.5 million related to the realignment of the Company's North American FR-4 business operations and related workforce reductions and net earnings of $10.6 million for the six months ended August 31, 2003 after such pre-tax gain of $33.1 million and after pre-tax charges of $8.4 million related to such realignment and related workforce reductions. The Company's gross profits in the three-month and six- month periods ended August 29, 2004 were significantly higher than the gross profits in the prior year's comparable periods primarily as a result of the improvement in the Company's utilization of its manufacturing plants resulting from higher sales and concomitant production volumes, higher percentages of sales of higher technology, higher margin products and the Company's reduction of its operating costs. Similarly, the Company's gross profit in the 2005 fiscal year second quarter was lower than its gross profit in the 2005 fiscal year first quarter due to lower sales and production volumes during the 2005 fiscal year second quarter. Operating results of the Company's advanced composite materials business also improved during the three-month and six- month periods ended August 29, 2004 primarily as a result of higher sales volumes related to strength in the aircraft manufacturing industry. Results of Operations Net sales for the three-month and six-month periods ended August 29, 2004 increased 17% to $51.1 million and 25% to $109.6 million, respectively, from $43.6 million and $87.9 million, respectively, for last fiscal year's comparable periods. The increases in net sales were principally the result of higher unit volumes of materials shipped by the Company's operations in North America, Asia and Europe. The Company's foreign operations accounted for $21.5 million and $47.8 million, respectively, of net sales, or 42% and 44% of the Company's total net sales worldwide, during the three-month and six-month periods ended August 29, 2004 compared with $18.8 million and $38.0 million, respectively, of net sales, or 43% and 43%, respectively, of total net sales worldwide, during last fiscal year's comparable periods. Net sales by the Company's foreign operations during the three- month and six-month periods ended August 29, 2004 increased 14% and 26%, respectively from the 2004 fiscal year comparable periods, as a result of increases in sales in Europe during the three-month period and as a result of increases in sales in both Europe and Asia during the six-month period. For the three-month period ended August 29, 2004, the Company's sales in North America, Asia and Europe were 58%, 25% and 17%, respectively, of the Company's total net sales worldwide compared with 57%, 30% and 13%, respectively, for the three-month period ended August 31, 2003; and for the six-month period ended August 29, 2004, the Company's sales in North America, Asia and Europe were 57%, 27% and 16% of the Company's total net sales worldwide compared with 57%, 28% and 15%, respectively, for the six-month period ended August 31, 2003. The Company's sales in North America increased 20%, its sales in Asia decreased 2% and its sales in Europe increased 48% in the three-month period ended August 29, 2004 over the three- month period ended August 31, 2003, and its sales in North America, Asia and Europe increased 24%, 31% and 25%, respectively, in the six-month period ended August 29, 2004 over the six-month period ended August 31, 2003. The overall gross profit as a percentage of net sales for the Company's worldwide operations improved to 18.4% and 21.1%, respectively, for the three months and six months ended August 29, 2004 compared with 13.6% and 12.0% for last fiscal year's comparable periods. The significant improvements in the gross profit margins were attributable to increased sales volumes, higher percentages of sales of higher margin, advanced technology products, and reductions in the Company's operating costs from the 2004 fiscal year. During the three-month and six-month periods ended August 29, 2004, the Company's total net sales worldwide of high temperature electronic materials, which include high performance (non-FR4) materials, were 94% and 93%, respectively, of the Company's total net sales worldwide of electronic materials, compared with 90% and 89%, respectively, for last fiscal year's comparable periods; while the Company's net sales of such high temperature electronic materials in North America were 95% and 94%, respectively, of the Company's total net sales of electronic materials in North America, compared with 93% and 92%, respectively, for last fiscal year's comparable periods; and the Company's net sales of such materials in Asia and Europe combined, were 92% and 92%, respectively, of the Company's total net sales of electronic materials in Asia and Europe combined, compared with 86% and 85%, respectively, for last fiscal year's comparable periods. During the three-month and six-month periods ended August 29, 2004, the Company's total net sales worldwide of high performance (non-FR4) electronic materials were 37% and 35%, respectively, of the Company's total net sales worldwide of electronic materials, compared with 26% and 26%, respectively, for last fiscal year's comparable periods; while the Company's net sales of such high performance electronic materials in North America were 44% and 42%, respectively, of the Company's total net sales of electronic materials in North America, compared with 37% and 35%, respectively, for last fiscal year's comparable periods; and the Company's net sales of such materials in Asia and Europe combined, were 30% and 27%, respectively, of the Company's total net sales of electronic materials in Asia and Europe combined, compared with 19% and 15%, respectively, for last fiscal year's comparable periods. The Company's cost of sales increased moderately by 11% and 12%, respectively, in the three-month and six-month periods ended August 29, 2004 in support of higher production volumes compared to the comparable periods in the prior fiscal year, but the increases were less than the increases in sales as a result of cost reduction measures implemented by the Company, including workforce reductions and the reduction of overtime. Selling, general and administrative expenses increased by $0.3 million and $2.4 million, respectively, or by 5% and 20%, during the three-month period and six-month period, respectively, ended August 29, 2004 compared with last fiscal year's comparable periods, but these expenses, measured as a percentage of sales, were 12.7% and 13.6%, respectively, during the three-month and six-month periods ended August 29, 2004 compared with 14.3% and 14.1%, respectively, during last fiscal year's comparable periods. The increases in selling, general and administrative expenses in the 2005 fiscal year periods were a result of proportionately higher sales compared to the comparable periods in the last fiscal year, increased shipping costs incurred by the Company to meet its customers' customized manufacturing and quick-turn-around requirements and an increase in the provision for employee performance based incentive compensation. The Company recorded a pre-tax gain of $33.1 million during the 2004 fiscal year second quarter related to the payment by Delco Electronics Corporation of the judgment against Delco in favor of the Company's subsidiary, Nelco Technology, Inc., in its lawsuit against Delco. The Company also recorded pre-tax charges of $1.9 million, and after-tax charges of $1.1 million, in the 2004 fiscal year first quarter in connection with the realignment of its North American FR-4 business operations in New York and California and related workforce reductions and recorded additional pre-tax charges of $6.5 million, and after-tax charges of $4.9 million, in the 2004 fiscal year second quarter due to such realignment and related workforce reductions. For the reasons set forth above, the Company's operating income from continuing operations was $2.9 million for the three months ended August 29, 2004 compared to operating income from continuing operations of $26.3 million for the three months ended August 31, 2003, including the pre-tax gain of $33.1 million described above related to the payment by Delco Electronics Corporation of the judgment against it in favor the Company's subsidiary, Nelco Technology, Inc., in Nelco's lawsuit against Delco and the pre-tax charges of $6.5 million described above related to the realignment of the Company's North American FR-4 business operations and related workforce reductions. Operating income from continuing operations was $8.3 million for the six months ended August 29, 2004 compared with operating income from continuing operations of $22.8 million for the six months ended August 31, 2003, including the pre-tax gain described above related to the payment by Delco and the pre-tax charges of $8.4 million described above related to the realignment of the Company's North American FR-4 business operations and related workforce reductions. Excluding the pre-tax gain and the pre-tax charges described above, the Company reported losses from continuing operations of $0.3 million and $1.9 million, respectively, for the three months and six months ended August 31, 2003. Interest and other income, net, principally investment income, was $0.8 million and $1.4 million, respectively, for the three-month and six-month periods ended August 29, 2004 compared with $0.7 million and $1.5 million, respectively, for last fiscal year's comparable periods. The Company's investments were primarily short-term taxable instruments. The Company's effective income tax rates for continuing operations for the three-month and six month periods ended August 29, 2004 were 19.8% and 7.5%, respectively, compared with effective income tax rates for continuing operations, including the pre-tax gain and the pre-tax charges described above, were 22.4% and 20.3% for the three months and six months ended August 31, 2003, which were principally a result of the tax impact of the gain on the Delco litigation payment. The lower tax provisions for the 2005 fiscal year periods were the result of higher taxable income in jurisdictions with lower income tax rates and the elimination of foreign tax provisions that were no longer required. The Company's net earnings for the three months ended August 29, 2004 were $2.9 million compared to net earnings of $19.0 million for the three months ended August 31, 2003, including the pre-tax gain described above related to the payment by Delco Electronics Corporation of the judgment in favor of the Company's subsidiary, Nelco Technology, Inc., the pre-tax charges described above related to the realignment of the Company's North American FR-4 business operations and related workforce reductions, and a net loss from discontinued operations of $1.9 million. Net earnings for the six months ended August 29, 2004 were $9.0 million compared with net earnings of $10.6 million for the six-month period ended August 31, 2003, including the pre-tax gain described above related to the payment by Delco, the pre-tax charges described above related to the realignment of the Company's North American FR-4 business operations and related workforce reductions, and a net loss from discontinued operations of $8.8 million. Excluding the pre-tax gain and the pre-tax charges described above, the Company reported net earnings from continuing operations of $1.1 million and $0.5 million, respectively, for the three- month and six-month periods ended August 31, 2003. Basic and diluted earnings per share were $0.15 and $0.45 for the three-month period and six-month period, respectively, ended August 29, 2004, compared to basic and diluted earnings per share, including the pre-tax gain and pre- tax charges described above, of $0.96 and $0.95, respectively, for the three-month period ended August 31, 2003, and $0.54 and $0.53, respectively, for the six-month period ended August 31, 2003. The earnings per share for the three-month and six-month periods ended August 31, 2003 included losses from discontinued operations of $0.10 per share and $0.44 per share, respectively. Basic and diluted per share earnings from continuing operations for the three-month and six-month periods ended August 31, 2003, excluding the pre-tax gain and the pre- tax charges described above, were $0.06 and $0.03, respectively. Liquidity and Capital Resources: At August 29, 2004, the Company's cash and temporary investments were $199.4 million compared with $189.2 million at February 29, 2004, the end of the Company's 2004 fiscal year. The increase in the Company's cash and investment position at August 29, 2004 was attributable to cash generated by operating activities, partially offset by purchases of property, plant and equipment and the payment of dividends. The Company's working capital (which includes cash and temporary investments) was $205.8 million at August 29, 2004 compared with $197.5 million at February 29, 2004. The increase in working capital at August 29, 2004 compared with February 29, 2004 was due principally to the increase in cash and temporary investments and an increase in inventories and decreases in accounts payable and accrued liabilities partially offset by decreases in accounts receivable and prepaid expenses and other current assets and an increase in income taxes payable. The increase in inventories was attributable mainly to an increase in raw material stocks, and the decrease in accounts receivable was due to the lower level of sales in the second quarter of the 2005 fiscal year compared to the fourth quarter of the 2004 fiscal year. The decreases in accounts payable and accrued liabilities were results of the settlements of obligations during the second quarter, and the increase in income taxes payable was attributable mainly to the receipt of a $3.8 million income tax refund during the first quarter of the 2005 fiscal year. The Company's current ratio (the ratio of current assets to current liabilities) was 5.9 to 1 at August 29, 2004 compared to 5.6 to 1 at February 29, 2004. During the six months ended August 29, 2004, net earnings from the Company's operations, before depreciation and amortization, of $14.1 million and a net increase in working capital items, resulted in $13.4 million of cash provided by operating activities. During the same six-month period, the Company expended $1.7 million for the purchase of property, plant and equipment, compared with $2.1 million for the six- month period ended August 31, 2003, and paid $2.4 million in dividends on its common stock in each of such six-month periods. Net expenditures for property, plant and equipment were $2.4 million in the 2004 fiscal year, $6.4 million in the 2003 fiscal year and $22.8 million in the 2002 fiscal year. At August 29, 2004, the Company had no long-term debt. The Company is in negotiations with Royal Sun & Alliance Insurance (Singapore) Limited and with CNA Insurance Co. to resolve the Company's property damage and business interruption insurance claims relating to the explosion in a treater at the Company's subsidiary in Singapore on November 27, 2002. 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 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. The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of 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 two standby letters of credit in the total amount of $2.7 million to secure the Company's obligations under its workers' compensation insurance program and certain limited energy purchase contracts intended to protect the Company from increased utilities costs. As of August 29, 2004, there were no material changes outside the ordinary course of the Company's business in the Company's contractual obligations disclosed in Item 7 of Part II of its Form 10-K Annual Report for the fiscal year ended February 29, 2004. 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. Environmental Matters: In the six-month periods ended August 29, 2004 and August 31, 2003, 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 August 29, 2004 and February 29, 2004, the recorded liability in liabilities from discontinued operations for environmental matters related to Dielektra was $2.1 million and the recorded liability in accrued liabilities for environmental matters was $2.4 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. 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 revenue is recognized at the time product is shipped to a customer. All material sales transactions are for the shipment of manufactured prepreg and laminate products and advanced composite materials. The Company ships its products to customers based upon firm orders, with fixed selling prices, when collection is reasonably assured. Sales Allowances and Product Warranties The Company provides for the estimated costs of sales allowances at the time such costs can be reasonably estimated. The Company's products are made to customer specifications and tested for adherence to such specifications before shipment to customers. There are no future performance requirements other than the products' meeting the agreed specifications. The Company's bases for providing sales allowances for returns are known situations in which products may have failed due to manufacturing defects in the products supplied by the Company. 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. 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. 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 years ended February 29, 2004 and March 2, 2003, the Company recorded significant charges in connection with the realignment of its North American FR-4 business operations and the closure of the Company's manufacturing facility in England; and during the fiscal year ended March 3, 2002, the Company recorded significant charges in connection with the restructuring related to the sale of Nelco Technology, Inc. and the closure of a related support facility. Prior to the Company's treating Dielektra GmbH as a discontinued operation, the Company recorded significant charges in connection with the closure of the mass lamination operation of Dielektra and the realignment of Dielektra during the fiscal years ended February 29, 2004, March 2, 2003 and March 3, 2002. These charges 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 Dielektra GmbH 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 pension liability of Dielektra has been included in liabilities from discontinued operations on the Company's balance sheet. The Company's obligations for workers' compensation claims are self-insured, and its obligations for a recently terminated employee health care benefits program were 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 February 29, 2004. Item 3. Quantitative and Qualitative Disclosure About Market Risk. The Company's market risk exposure at August 29, 2004 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 February 29, 2004. 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 29, 2004, the end of the 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 are 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. (b) 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. In May 1998, the Company and its Nelco Technology, 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. In November 2000, after a trial in Phoenix, Arizona, a jury awarded damages to NTI in the amount of $32.3 million, and in December 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 $32.3 million. Both parties appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco, and in May 2003, a panel of three judges in the Court of Appeals for the Ninth Circuit rendered a unanimous decision affirming the jury verdict. In June 2003, the United States District Court for the District of Arizona entered final judgment in favor of NTI, and Delco paid NTI on July 1, 2003. NTI received a net amount of $33.1 million. 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 and 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 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 9 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report. 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 2005 fiscal year second quarter ended August 29, 2004.
Maximum Number Total Number (or Approximate of Shares (or Dollar Value) Units) of Shares (or Total Average Purchased as Units) that May Number of Price Part of Yet Be Shares (or Paid per Publicly Purchased Under Period Units) Share (or Announced the Plans or Purchased Unit) Plans or Programs Programs May 31-June 30 0 - 0 July 1-31 0 - 0 August 1-29 0 - 0 Total 0 - 0 2,305,170(a)
(a) Aggregate number of shares available to be purchased by the Company pursuant to previous share purchase authorizations announced on June 24, 1998 and September 9, 1998. Pursuant to such authorizations, 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. Submission of Matters to a Vote of Security Holders. At the Annual Meeting of Shareholders held on July 14, 2004: (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 17,535,733 969,428 Dale Blanchfield 17,962,481 542,680 Anthony Chiesa 13,467,263 5,037,898 Lloyd Frank 17,033,920 1,471,241 Brian E. Shore 17,603,946 901,215 Steven T. Warshaw 17,572,024 933,137 (b) the matching contribution feature of the Company's Employee Stock Purchase Plan was approved by the Shareholders. There were 14,686,367 votes for the matching contribution feature of the Plan, 519,560 votes against, and 600,773 abstentions. Item 5. Other Information. None. Item 6. Exhibits. 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). 32.1 Certification of Chief 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 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: October 7, 2004 ----------------------------- Brian E. Shore President and Chief Executive Officer /s/Murray O. Stamer Date: October 7, 2004 ----------------------------- Murray O. Stamer Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit No. Name Page ----------- ---- ---- 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or15d-14(a) 31 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)or 15d-14(a) 33 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 35 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 36 2002 [10-Q2-05]ll