UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 2, 2014 |
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 Incorporation of Organization) |
(I.R.S. Employer Identification No.) |
48 South Service Road, Melville, New York (Address of Principal Executive Offices) |
11747 (Zip Code) |
Registrant’s telephone number, including area code (631) 465-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered | |
Common Stock, par value $.10 per share |
New York Stock Exchange | |
Preferred Stock Purchase Rights |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐ Smaller Reporting Company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
Title of Class |
Aggregate Market Value |
As of Close of Business On |
Common Stock, par value $.10 per share |
$544,915,606 |
August 30, 2013 |
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Title of Class |
Shares Outstanding |
As of Close of Business On |
Common Stock, par value $.10 per share |
20,882,095 |
May 9, 2014 |
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held July 22, 2014 incorporated by reference into Part III of this Report.
TABLE OF CONTENTS |
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Page | ||
PART I |
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Item 1. |
Business |
2 |
Item 1A. |
Risk Factors |
14 |
Item 1B. | Unresolved Staff Comments | 17 |
Item 2. |
Properties |
18 |
Item 3. |
Legal Proceedings |
18 |
Item 4. |
Mine Safety Disclosures |
18 |
Executive Officers of the Registrant |
19 | |
PART II |
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Item 5. |
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
21 |
Item 6. |
Selected Financial Data |
22 |
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Factors That May Affect Future Results |
39 | |
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
40 |
Item 8. |
Financial Statements and Supplementary Data |
40 |
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
69 |
Item 9A. |
Controls and Procedures |
70 |
Item 9B. |
Other Information |
72 |
PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
73 |
Item 11. |
Executive Compensation |
73 |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
73 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
73 |
Item 14. |
Principal Accountant Fees and Services |
73 |
PART IV |
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Item 15. |
Exhibits and Financial Statement Schedules |
74 |
SIGNATURES |
75 | |
FINANCIAL STATEMENT SCHEDULES |
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Schedule II – Valuation and Qualifying Accounts |
76 | |
EXHIBIT INDEX |
77 |
PART I
ITEM 1. BUSINESS.
General
Park Electrochemical Corp. (“Park”), through its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the “Company”), is a global advanced materials company which develops, manufactures, markets and sells high-technology digital and radio frequency (“RF”)/microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies products for the aerospace markets. Park’s core capabilities are in the areas of polymer chemistry formulation and coating technology.
Park operates through fully integrated business units in Asia, Europe and North America. The Company's manufacturing facilities are located in Singapore, France, Kansas, Arizona and California. The Company also maintains research and development facilities in Arizona, Kansas and Singapore.
Sales of Park’s printed circuit materials products were 82%, 85% and 86% of the Company’s total net sales worldwide in the 2014, 2013 and 2012 fiscal years, respectively, and sales of Park’s advanced composite materials, parts and assemblies products were 18%, 15% and 14% of the Company’s total net sales worldwide in the 2014, 2013 and 2012 fiscal years, respectively.
Park was founded in 1954 by Jerry Shore, who was the Company’s Chairman of the Board until July 14, 2004.
The sales and long-lived assets of the Company’s operations by geographic area for the last three fiscal years are set forth in Note 14 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. The Company’s foreign operations are conducted principally by the Company’s subsidiaries in Singapore and France. The Company’s foreign operations are subject to the impact of foreign currency fluctuations. See Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
The Company makes available free of charge on its Internet website, www.parkelectro.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. None of the information on the Company's website shall be deemed to be a part of this Report.
AEROGLIDE®, COREFIX®, EASYCURE E-710®, EF®, LD®, MERCURYWAVE®, METEORWAVE®, NELCO®, RTFOIL® and SI® are registered trademarks of Park Electrochemical Corp., and ALPHASTRUT™, ELECTROGLIDE™, ELECTROVUE™, EP™, PEELCOTE™, POWERBOND™, SIGMASTRUT™ and TIN CITY AIRCRAFT WORKS™ are common law trademarks of Park Electrochemical Corp.
Printed Circuit Materials
Printed Circuit Materials - Operations
The Company is a leading global designer and manufacturer of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems, such as multilayer back-planes, wireless packages, high-speed/low-loss multilayers and high density interconnects (“HDIs”). The Company’s multilayer printed circuit materials consist of copper-clad laminates and prepregs, which is an acronym for pre-impregnated material. The Company has long-term relationships with its major customers, which include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs"). Multilayer printed circuit boards and interconnect systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices (such as microprocessors and memory and logic devices), passive components (such as resistors and capacitors) and connection devices (such as infra-red couplings, fiber optics, compliant pin and surface mount connectors). Examples of end uses of the Company’s digital printed circuit materials include high speed routers and servers, storage area networks, supercomputers, satellite switching equipment, and wireless local area networks ("LANs"). The Company's RF/microwave printed circuit materials are used primarily for military avionics, antennas for cellular telephone base stations, automotive adaptive cruise control systems and avionic communications equipment. The Company has developed long-term relationships with major customers as a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities.
Park believes it founded the modern day printed circuit industry in 1957 by inventing a composite material consisting of an epoxy resin substrate reinforced with fiberglass cloth which was laminated together with sheets of thin copper foil. This epoxy-glass copper-clad laminate system is still used to construct the large majority of today’s advanced printed circuit products. The Company also believes that in 1962 it invented the first multilayer printed circuit materials system used to construct multilayer printed circuit boards. The Company also pioneered vacuum lamination and many other manufacturing technologies used in the industry today. The Company believes it is one of the industry’s technological leaders.
The Company believes that it is one of the world’s largest manufacturers of advanced multilayer printed circuit materials. It also believes that it is one of only a few significant independent manufacturers of high performance multilayer printed circuit materials in the world. The Company was the first manufacturer in the printed circuit materials industry to establish manufacturing presences in the three major global markets of North America, Europe and Asia, with facilities established in Europe in 1969 and Asia in 1986.
Printed Circuit Materials – Industry Background
The printed circuit materials manufactured by the Company and its competitors are used primarily to construct and fabricate complex multilayer printed circuit boards and other advanced electronic interconnection systems. Multilayer printed circuit materials consist of prepregs and copper-clad laminates. Prepregs are chemically and electrically engineered thermosettingor thermoplastic resin systems which are impregnated into and reinforced by a specially manufactured fiberglass cloth product or other woven or non-woven reinforcing fiber. This insulating dielectric substrate generally is 0.030 inch to 0.002 inch in thickness or less in some cases. While these resin systems historically have been based on epoxy resin chemistry, in recent years, increasingly demanding OEM requirements have driven the industry to utilize proprietary enhanced epoxies as well as other higher performance resins, such as phenolic, bismalimide triazine ("BT"), cyanate ester, enhanced polyimide, non-Methylene Dianiline (“MDA”) polyimide, allylated polyphenylene ether (“APPE”) or polytetrafluoroethylene ("PTFE"). One or more plies of prepreg are laminated together to form an insulating dielectric substrate to support the copper circuitry patterns of a multilayer printed circuit board. Copper-clad laminates consist of one or more plies of prepreg with each ply laminated on the top and bottom with specialty thin copper foil. Copper foil is specially formed in thin sheets which may vary from 0.0056 inch to 0.0002 inch in thickness and normally have a thickness of 0.0014 inch or 0.0007 inch. The Company supplies both copper-clad laminates and prepregs to its customers, which use these products as a system to construct multilayer printed circuit boards.
The printed circuit board fabricator processes copper-clad laminates to form the inner layers of a multilayer printed circuit board. The fabricator photo images these laminates with a dry film or liquid photoresist. After development of the photoresist, the copper surfaces of the laminate are etched to form the circuit pattern. The fabricator then assembles these etched laminates by inserting one or more plies of dielectric prepreg between each of the inner layer etched laminates and also between an inner layer etched laminate and the outer layer copper plane, and then laminating the entire assembly in a press. Prepreg serves as the insulator and bond between the multiple layers of copper circuitry patterns found in the multilayer circuit board. When the multilayer configuration is laminated, these plies of prepreg form an insulating dielectric substrate supporting and separating the multiple inner and outer planes of copper circuitry. The fabricator drills vertical through-holes or vias in the multilayer assembly and then plates the through-holes or vias to form vertical conductors between the multiple layers of circuitry patterns. These through-holes or vias combine with the conductor paths on the horizontal circuitry planes to create a three-dimensional electronic interconnect system. In specialized applications, an additional set of microvia layers (2 or 4, typically) may be added through a secondary lamination process to provide increased density and functionality to the design. The outer two layers of copper foil are then imaged and etched to form the finished multilayer printed circuit board. The completed multilayer board is a three-dimensional interconnect system with electronic signals traveling in the horizontal planes of multiple layers of copper circuitry patterns, as well as in the vertical planes through the plated holes or vias.
Semiconductor manufacturers have introduced successive generations of more powerful microprocessors and memory and logic devices. Electronic equipment manufacturers have designed these advanced semiconductors into more compact products. High performance computing devices in these smaller platforms require greater reliability, faster signal speeds, closer tolerances, higher component and circuit density and increased overall complexity. As a result, the interconnect industry has developed smaller, lighter, faster and more cost-effective interconnect systems, including advanced multilayer printed circuit boards.
Advanced interconnect systems require higher technology printed circuit materials to ensure the performance and reliability of the electronic system and to improve the manufacturability of the interconnect platform. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced and stable electrical properties in order to support high-speed computing in a miniaturized and often portable environment. Temperature tolerance has been further emphasized by the advent of lead-free assemblies.
With the very high density circuit demands of miniaturized high performance interconnect systems, the uniformity, purity, consistency, performance predictability, dimensional stability and production tolerances of printed circuit materials have become successively more critical. High density printed circuit boards and interconnect systems often involve higher layer count multilayer circuit boards where the multiple planes of circuitry and dielectric insulating substrates are very thin (dielectric insulating substrate layers may be 0.002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (0.002 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very small plated through-holes or vias which electrically connect the multiple layers of circuitry planes, and these interconnect systems frequently make use of multiple lamination cycles and/or laser drilled vias. High density interconnect systems must utilize printed circuit materials whose dimensional characteristics and purity are consistently manufactured to very high tolerance levels in order for the printed circuit board fabricator to attain and sustain acceptable product yields.
Shorter product life cycles and competitive pressures have induced electronic equipment manufacturers to bring new products to market and increase production volume to commercial levels more quickly. These trends have highlighted the importance of front-end engineering of electronic products and have increased the level of collaboration among system designers, fabricators and printed circuit materials suppliers. As the complexity of electronic products increases, materials suppliers must provide greater technical support to interconnect systems fabricators on a timely basis regarding manufacturability and performance of new materials systems.
Printed Circuit Materials – Products and Services
The Company produces a broad line of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, including backplanes, high speed/low loss multilayers and high density interconnects (“HDIs”). The Company’s diverse advanced printed circuit materials product line is designed to address a wide array of end-use applications and performance requirements.
The Company’s printed circuit materials products have been developed internally and through long-term development projects with its principal suppliers and, to a lesser extent, through licensing arrangements. The Company focuses its research and development efforts on developing industry leading product technology to meet the most demanding product requirements and has designed its product line with a focus on the higher performance, higher technology end of the materials spectrum.
The Company’s products utilize, among other things, high-speed, low-loss, engineered formulations, high-temperature modified epoxies, phenolics, BT epoxies, MDA polyimides, enhanced polyimides, APPE, SI® (Signal Integrity) products, cyanate esters and PTFE formulations for RF/microwave applications.
The Company’s high performance printed circuit materials consist of high-speed, low-loss Cathodic Anodic Filament (“CAF”) resistant materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, BT materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, quartz reinforced materials, and PTFE and modified epoxy materials for RF/microwave systems that operate at frequencies up to 77 GHz.
The Company has developed long-term relationships with select customers through broad-based technical support and service, as well as manufacturing proximity and responsiveness at multiple levels of the customer’s organization. The Company focuses on developing a thorough understanding of its customer’s business, product lines, processes and technological challenges. The Company seeks customers which are industry leaders committed to maintaining and improving their industry leadership positions and which are committed to long-term relationships with their suppliers. The Company also seeks business opportunities with the more advanced printed circuit fabricators and electronic equipment manufacturers which are interested in the full value of products and services provided by their suppliers. The Company believes its proactive and timely support in assisting its customers with the integration of advanced materials technology into new product designs further strengthens its relationships with its customers.
The Company’s emphasis on service and close relationships with its customers is reflected in its short lead times. The Company has developed its manufacturing processes and customer service organizations to provide its customers with printed circuit materials products on a just-in-time basis. The Company believes that its ability to meet its customers' customized manufacturing and quick-turn-around ("QTA") requirements is one of its unique strengths.
Printed Circuit Materials – Customers and End Markets
The Company’s customers for its advanced printed circuit materials include the leading independent printed circuit board fabricators, electronic manufacturing service (“EMS”) companies, electronic contract manufacturers (“ECMs”) and major electronic original equipment manufacturers ("OEMs") in the computer, networking, telecommunications, wireless communications, transportation, aerospace, military and instrumentation industries located throughout North America, Europe and Asia. The Company seeks to align itself with the larger, more technologically-advanced and better capitalized independent printed circuit board fabricators and major electronic equipment manufacturers which are industry leaders committed to maintaining and improving their industry leadership positions and to building long-term relationships with their suppliers. The Company’s selling effort typically involves several stages and relies on the talents of Company personnel at different levels, from management to sales personnel and quality engineers. In recent years, the Company has augmented its traditional sales personnel with an OEM marketing team and process and product technology specialists.
During the Company’s 2014 fiscal year, approximately 15.8% of the Company's total worldwide sales were to TTM Technologies, Inc., a leading manufacturer of printed circuit boards. During the Company’s 2013 fiscal year, approximately 16.1% of the Company's total worldwide sales were to TTM Technologies, Inc., and approximately 10.1% of the Company's total worldwide sales were to Sanmina-SCI Corporation, a leading electronics contract manufacturer and manufacturer of printed circuit boards. During the Company’s 2012 fiscal year, approximately 15.7% of the Company’s total worldwide sales were to TTM Technologies, Inc., approximately 11.5% of the Company’s total worldwide sales were to Sanmina-SCI Corporation and approximately 10.0% of the Company’s total worldwide sales were to subsidiaries of Flextronics International Ltd. which are manufacturers of multilayer printed circuit boards. During the Company’s 2014, 2013 and 2012 fiscal years, sales to no other customer of the Company equaled or exceeded 10% of the Company’s total worldwide sales.
Although the Company’s printed circuit materials business is not dependent on any single customer, the loss of a major customer or of a group of customers could have a material adverse effect on the Company’s business or its consolidated results of operations or financial position.
The Company’s printed circuit materials products are marketed primarily by sales personnel and, to a lesser extent, by independent distributors and manufacturers’ representatives in industrial centers in Europe and Asia.
Printed Circuit Materials – Manufacturing
The process for manufacturing multilayer printed circuit materials is capital intensive and requires sophisticated equipment as well as clean-room environments. The key steps in the Company’s manufacturing process include: the impregnation of specially designed fiberglass cloth with a specially designed resin system and the partial curing of that resin system; the assembling of laminates consisting of single or multiple plies of prepreg and copper foil in a clean-room environment; the vacuum lamination of the copper-clad assemblies under simultaneous exposure to heat, pressure and vacuum; and the finishing of the laminates to customer specifications.
Prepreg is manufactured in a treater. A treater is a roll-to-roll continuous machine which sequences specially designed fiberglass cloth or other reinforcement fabric into a resin tank and then sequences the resin-coated cloth through a series of ovens which partially cure the resin system into the cloth. This partially cured product or prepreg is then sheeted or paneled and packaged by the Company for sale to customers, or used by the Company to construct its copper-clad laminates.
The Company manufactures copper-clad laminates by first setting up in a clean room an assembly of one or more plies of prepreg stacked together with a sheet of specially manufactured copper foil on the top and bottom of the assembly. This assembly, together with a large quantity of other laminate assemblies, is then inserted into a large, multiple opening vacuum lamination press. The laminate assemblies are then laminated under simultaneous exposure to heat, pressure and vacuum. After the press cycle is complete, the laminates are removed from the press and sheeted, paneled and finished to customer specifications. The product is then inspected and packaged for shipment to the customer.
The Company manufactures multilayer printed circuit materials at four fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its Arizona facility in 1984, its Singapore facility in 1986 and its France facility in 1992. The Company services the North American market principally through its United States manufacturing facilities, the European market principally through its manufacturing facilities in the United States and in France, and the Asian market principally through its Singapore manufacturing facility. During the 2011 fiscal year, the Company modified certain of the equipment in its printed circuit materials manufacturing facility in Singapore so that it can treat PTFE based circuitry material in Asia; and during the 2014 fiscal year, the Company modified certain of the equipment in its facility in Singapore to support the production of PTFE laminates and other laminates requiring elevated process temperatures. In addition, during the 2012 fiscal year, the Company completed an expansion of its printed circuit materials treating operation in Singapore with the installation of an additional advanced, high-speed treater. By maintaining technical and engineering staffs at each of its manufacturing facilities, the Company is able to deliver fully-integrated products and services on a timely basis.
Printed Circuit Materials – Materials and Sources of Supply
The principal materials used in the manufacture of the Company’s printed circuit materials products are specially manufactured copper foil, fiberglass and quartz cloth and synthetic reinforcements, and specially formulated resins and chemicals. The Company develops and maintains close working relationships with suppliers of these materials who have dedicated themselves to complying with the Company’s stringent specifications and technical requirements. While the Company’s philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for many, but not all, of these materials. However, there are a limited number of qualified suppliers of these materials, in some cases substitutes for these materials are not always readily available, and, in the past, the industry has experienced shortages in the market for certain of these materials. While the Company considers its relationships with its suppliers to be strong, a shortage of these materials or a disruption of the supply of materials caused by a natural disaster, such as the temporary disruption caused by the earthquake and tsunami in Japan in March 2011, or otherwise, could materially increase the Company’s cost of operations and could materially adversely affect the business and results of operations of the Company.
Significant increases in the cost of materials purchased by the Company could also have a material adverse effect on the Company’s business and results of operations if the Company were unable to pass such increases through to its customers. During the 2014, 2013 and 2012 fiscal years, the Company experienced significant volatility in the cost of copper foil, one of the Company’s primary raw materials, and the Company passed substantial portions of such increases through to its customers.
Printed Circuit Materials – Competition
The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company’s competitors are primarily divisions or subsidiaries of very large, diversified multinational manufacturers which are substantially larger and have greater financial resources than the Company and, to a lesser degree, smaller regional producers. Because the Company focuses on the higher technology segment of the printed circuit materials market, technological innovation, quality and service, as well as price, are significant competitive factors.
The Company believes that there are several significant multilayer printed circuit materials manufacturers in the world and many of these competitors have significant presences in the three major global markets of North America, Europe and Asia. The Company believes that it is currently one of the world’s largest advanced multilayer printed circuit materials manufacturers. The Company further believes it is one of only a few significant independent manufacturers of multilayer printed circuit materials in the world today.
The markets in which the Company’s printed circuit materials operations compete are characterized by rapid technological advances, and the Company’s position in these markets depends largely on its continued ability to develop technologically advanced and highly specialized products. Although the Company believes it is an industry technology leader and directs a significant amount of its time and resources toward maintaining its technological competitive advantage, there is no assurance that the Company will be technologically competitive in the future, or that the Company will continue to develop new products that are technologically competitive.
Advanced Composite Materials, Parts and Assemblies
Advanced Composite Materials, Parts and Assemblies - Operations
The Company also develops and manufactures engineered, advanced composite materials and advanced composite parts and assemblies for the aerospace markets and prototype tooling for such parts and assemblies.
The Company’s advanced composite materials are developed and manufactured by the Company’s Park Aerospace Technologies Corp. (“PATC”) business unit located at the Newton, Kansas Airport, by the Company’s Nelco Products Pte. Ltd. business unit in Singapore and until it closed in the 2013 fiscal year third quarter, by the Company’s Park Advanced Composite Materials, Inc. (“PACM”) business unit located in Waterbury, Connecticut, which was named Nelcote, Inc. from May 2006 to March 2008 and which was named FiberCote Industries, Inc. prior to May 2006. The Company’s advanced composite parts and assemblies are also developed and manufactured by the Company’s PATC business unit.
In the 2012 fiscal year third quarter, the Company completed a major expansion of its PATC aerospace composite materials development and manufacturing facility in Kansas in order to manufacture aerospace composite parts and assemblies in the same facility as advanced composite materials, which are used in the manufacture of such parts and assemblies. The expansion consisted of approximately 37,000 square feet of manufacturing and storage space and included both oven and autoclave composite parts curing equipment and capability, and the Company spent approximately $5 million on the facility expansion and equipment.
Following the expansion of PATC’s facility, the Company transferred the aerospace composite parts and assemblies manufacturing activities of its Park Aerospace Structures Corp. (“PASC”) business unit in Lynnwood, Washington to PATC and closed PASC in the 2012 fiscal year fourth quarter, and the Company transferred PACM’s aerospace composite materials manufacturing activities to PATC and closed PACM in the 2013 fiscal year third quarter. The activities of PASC which were transferred to PATC included the assets and business of Nova Composites, Inc., which PASC acquired in April 2008.
Such transfer of aerospace composite materials manufacturing activities from PACM to PATC and the transfer of aerospace composite parts and assemblies manufacturing activities from PASC to PATC completed the Company’s plan to concentrate and consolidate all of its North American aerospace composite materials, parts and assemblies manufacturing, development and design activities at PATC.
As a result of the PATC facility expansion and the transfer of manufacturing activities from PACM and PASC to PATC, PATC is able to offer a full range of advanced composite materials manufacturing capability, as well as composite parts design, assembly and production capability, all in its Newton facility. PATC offers composite aircraft and space vehicle parts design and assembly services, in addition to “build-to-print” services. The Company believes that the ability of its PATC facility to offer such a wide and comprehensive array of composite materials and parts manufacturing and development technology and capability to the aircraft and space vehicle industries provides attractive benefits and advantages to those industries.
Advanced Composite Materials, Parts and Assemblies – Industry Background
The advanced composite materials manufactured by the Company and its competitors are used primarily to fabricate light-weight, high-strength structures with specifically designed performance characteristics. Composite materials are typically highly specified combinations of resin formulations and reinforcements. Reinforcements can be unidirectional fibers, woven fabrics, or non-woven goods such as mats or felts. Reinforcement materials are constructed of E-glass (fiberglass), carbon fiber, S2 glass, aramids, such as Kevlar® ("Kevlar" is a registered trademark of E.I. du Pont de Nemours & Co.) and Twaron® (“Twaron” is a registered trademark of Teijin Twaron B.V. LLC), quartz, polyester and other synthetic materials. Resin formulations are typically highly proprietary, and include various chemical and physical mixtures. The Company produces resin formulations using various epoxies, polyesters, phenolics, cyanate esters, polyimides and other complex matrices. The reinforcement combined with the resin is referred to as a “prepreg”, which is an acronym for pre-impregnated material. Advanced composite materials can be broadly categorized as either a thermoset or a thermoplastic. While both material types require the addition of heat to form a consolidated laminate, thermoplastics can be reformed using additional heat. Once fully cured, thermoset materials can not be further reshaped. The Company believes that the demand for thermoset advanced materials is greater than that for thermoplastics due to the fact that fabrication processes for thermoplastics require much higher temperatures and pressures and are, therefore, typically more capital intensive than the fabrication processes for thermoset materials.
The advanced composite materials industry suppliers have historically been large chemical corporations. During the past ten years, considerable consolidation has occurred in the industry, resulting in three relatively large composite materials suppliers and a number of smaller suppliers.
The Company works with aerospace original equipment manufacturers (“OEMs”), such as general aviation aircraft manufacturers, and certain tier I suppliers to qualify its advanced composite materials or parts and assemblies for use on current and upcoming programs. The Company’s customers typically design and specify a material specifically to meet the needs of the part’s end use and the customers’ processing methods. Such customers sometimes work with a supplier to develop the specific resin system and reinforcement combination to match the application. The Company’s customers’ processing, or the Company’s processing, may include hand lay-up, resin infusion or more advanced automated lay-up processes. Automated lay-up processes include automated tape lay-up, automated fiber placement and filament winding. These fabrication processes significantly alter the material form purchased. After the lay-up process is completed, the material is cured by the addition of heat and pressure. Cure processes typically include vacuum bag oven curing, high pressure autoclave, press forming and before-press curing. After the part has been cured, final finishing and trimming, and assembly of the structure, is performed by the fabricator or the Company.
Advanced Composite Materials, Parts and Assemblies – Products
The advanced composite materials products manufactured by the Company are primarily thermoset curing prepregs. By analyzing the needs of the markets in which it participates, and working with its customers, the Company has developed proprietary resin formulations to suit the needs of its markets. The complex process of developing resin formulations and selecting the proper reinforcement is accomplished through a collaborative effort of the Company’s research and development and technical sales and marketing resources working with the customers’ technical staff. The Company focuses on developing a thorough understanding of its customers’ businesses, product lines, processes and technical challenges. The Company believes that it develops innovative solutions which utilize technologically advanced materials and concepts for its customers.
The Company’s advanced composite materials products include prepregs manufactured from proprietary formulations using modified epoxies, phenolics, polyesters, cyanate esters and polyimides combined with woven, non-woven and unidirectional reinforcements. Reinforcement materials used to produce the Company’s products include polyacrylonitrile (“PAN”) based carbons, E-glass, S2 glass, polyester, quartz, carbonized rayon, carbon fiber, aramids, such as Kevlar® (“Kevlar” is a registered trademark of E.I. du Pont de Nemours & Co.), Twaron® (“Twaron” is a registered trademark of Teijin Twaron B.V. LLC), polyester and other synthetic materials. The Company also sells certain specialty fabrics, such as Raycarb C2, a carbonized rayon fabric produced by Herakles (formerly Snecma Propulsion Solide) and used mainly in the rocket motor industry.
The Company’s composite parts and assemblies are manufactured with carbon, fiberglass and other reinforcements impregnated with formulated resins. Certain of these impregnated reinforcements, or prepregs, are also manufactured by PATC.
Advanced Composite Materials, Parts and Assemblies – Customers and End Markets
The Company’s advanced composite materials, parts and assemblies customers include manufacturers in the aerospace, fixed and rotary wing aircraft, rocket motor, electronics, RF and specialty industrial markets. The Company’s materials are marketed primarily by sales personnel and, to a lesser extent, by independent sales representatives.
While no single advanced composite materials, parts and assemblies customer accounted for 10% or more of the Company’s total sales during either of the last two fiscal years, the loss of a major customer or of a group of some of the largest customers of the Company’s advanced composite materials, parts and assemblies product line could have a material adverse effect on such product line.
The Company’s aerospace customers include fabricators of aircraft composite parts and assemblies. The Company’s advanced composite materials are used by such fabricators and by the Company to produce primary and secondary structures, aircraft interiors and various other aircraft components. The Company’s customers for aerospace materials, and the Company itself, produce parts and assemblies for commercial aircraft and for the general aviation and business aviation, kit aircraft and military markets. Many of the Company’s composite materials are used in the manufacture of aircraft certified by the Federal Aviation Administration (the “FAA”).
Customers for the Company’s rocket motor materials include United States defense prime contractors and subcontractors. These customers fabricate rocket motors for heavy lift space launchers, strategic defense weapons, tactical motors and various other applications. The Company’s materials are used to produce heat shields, exhaust gas management devices and insulative and ablative nozzle components. Rocket motors are primarily used for commercial and military space launch, and for tactical and strategic weapons. The Company also has customers for these materials outside of the United States.
The Company also sells composite materials for use in RF electrical applications. Customers buying these materials typically fabricate antennas and radomes engineered to preserve electrical signal integrity. A radome is a protective cover over an electrical antenna or signal generator. The radome is designed to minimize signal loss and distortion.
Advanced Composite Materials, Parts and Assemblies – Manufacturing
The Company’s manufacturing facilities for advanced composite materials are currently located in Newton, Kansas and in Singapore, and its manufacturing facility for composite parts and assemblies is also located in Newton, Kansas. See “Advanced Composite Materials, Parts and Assemblies - Operations” elsewhere in this Report.
The process for manufacturing composite materials, parts and assemblies is capital intensive and requires sophisticated equipment, significant technical know-how and very tight process controls. The key steps used in the manufacturing process include resin mixing, reinforcement impregnation, resin film casting and solvent drying processes.
Prepreg is manufactured by the Company using either solvent (solution) coating methods on a treater or by hot melt impregnation. A solution treater is a roll-to-roll continuous process machine which sequences reinforcement through tension controllers and combines solvated resin with the reinforcement. The reinforcement is dipped in resin, passed through a drying oven which removes the solvent and advances (or partially cures) the resin. The prepreg material is interleafed with a carrier and cut to the roll lengths desired by the customer. The Company also manufactures prepreg using hot melt impregnation methods which use no solvent. Hot melt prepreg manufacturing is achieved by mixing a resin formulation in a heated resin vessel, casting a thin film on a carrier paper, and laminating the reinforcement with the resin film.
The Company also completes additional processing services, such as slitting, sheeting, biasing, sewing and cutting, if needed by the customer. Many of the products manufactured by the Company also undergo extensive testing of the chemical, physical and mechanical properties of the product. These testing requirements are completed in the laboratories and facilities located at the Company’s manufacturing facilities. The Company’s laboratories have been approved by several aerospace OEMs, and the Company has achieved certification pursuant to the National Aerospace and Defense Contractors Accreditation Program (“NADCAP”) for both non-metallic materials manufacturing and testing and composites fabrication. After all the processing has been completed, the product is inspected and packaged for shipment to the customer. The Company typically supplies final product to the customer in roll or sheet form. The Company’s PATC facility has received accreditation by NADCAP for composite parts manufacturing and for composite materials manufacturing, and the Company believes that the PATC facility is one of the few facilities in the world with NADCAP accreditation for manufacturing both composite materials and composite parts.
Advanced Composite Materials, Parts and Assemblies – Materials and Sources of Supply
The Company designs and manufactures its advanced composite materials to its own specifications and to the specifications of its customers. Product development efforts are focused on developing prepreg materials that meet the specifications of the customers. The materials used in the manufacture of these engineered materials include graphite and carbon fibers and fabrics, aramids, such as Kevlar® (“Kevlar” is a registered trademark of E.I. du Pont de Nemours & Co.) and Twaron® (“Twaron” is a registered trademark of Teijin Twaron B.V. LLC), quartz, fiberglass, polyester, specialty chemicals, resins, films, plastics, adhesives and certain other synthetic materials. The Company purchases these materials from several suppliers. Substitutes for many of these materials are not readily available. The qualification and certification of advanced composite materials for certain FAA certified aircraft typically include specific requirements for raw material supply and may restrict the Company’s flexibility in qualifying alternative sources of supply for certain key raw materials. The Company continues to work to determine acceptable alternatives for several raw materials.
The Company manufactures composite parts and assemblies primarily to its customers’ specifications using its own composite materials or composite materials supplied by third parties, based on the specific requirements of the Company’s customers.
Advanced Composite Materials, Parts and Assemblies – Competition
The Company has many competitors in the advanced composite materials, parts and assemblies markets, ranging in size from large international corporations to small regional producers. Several of the Company’s largest competitors are vertically integrated, producing raw materials, such as carbon fiber and cloth, as well as composite parts and assemblies. Some of the Company’s competitors may also serve as a supplier to the Company. The Company competes for business on the basis of responsiveness, product performance, product qualification, FAA data base design allowables, innovative new product development and price.
Backlog
The Company considers an item as backlog when it receives a purchase order specifying the number of units to be purchased, the purchase price, specifications and other customary terms and conditions. At April 27, 2014, the unfilled portion of all purchase orders received by the Company and believed by it to be firm was approximately $33,755,000, compared to $9,174,000 at April 28, 2013.
Various factors contribute to the size of the Company’s backlog. Accordingly, the foregoing information may not be indicative of the Company’s results of operations for any period subsequent to the fiscal year ended March 2, 2014.
Patents and Trademarks
The Company holds several patents and trademarks or licenses thereto. In the Company’s opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new; or to defend existing, patents and trademarks would have a material adverse effect on the Company.
Employees
At March 2, 2014, the Company had 523 employees. Of these employees, 457 were engaged in the Company’s manufacturing operations, and 66 consisted of executive, sales and marketing and research and development personnel and general administrative staff.
Environmental Matters
The Company is subject to stringent environmental regulation of its use, storage, treatment and disposal of hazardous materials and the release of emissions into the environment. The Company believes that it currently is in substantial compliance with the applicable Federal, state and local and foreign environmental laws and regulations to which it is subject and that continuing compliance therewith will not have a material effect on its capital expenditures, earnings or competitive position. The Company does not currently anticipate making material capital expenditures for environmental control facilities for its existing manufacturing operations during the remainder of its current fiscal year or its succeeding fiscal year. However, developments, such as the enactment or adoption of even more stringent environmental laws and regulations, could conceivably result in substantial additional costs to the Company.
The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the “EPA”) or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the “Superfund Act”) or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at four sites. In addition, a subsidiary of the Company has received a cost recovery claim under a state law similar to the Superfund Act from a private party involving one other site.
Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA orcomparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company’s subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at the waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries has been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or financial position of the Company.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Environmental Matters” included in Item 7 of Part II of this Report and Note 13 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.
ITEM 1A. RISK FACTORS.
The business of the Company faces numerous risks, including those set forth below or those described elsewhere in this Form 10-K Annual Report or in the Company's other filings with the Securities and Exchange Commission. The risks described below are not the only risks that the Company faces, nor are they necessarily listed in order of significance. Other risks and uncertainties may also affect the Company’s business. Any of these risks may have a material adverse effect on the Company's business, financial condition, results of operations or cash flow.
The industries in which the Company operates are undergoing technological changes, and the Company's business could suffer if the Company is unable to adjust to these changes.
The Company's operating results could be negatively affected by the Company's inability to maintain and increase its technological and manufacturing capability and expertise. Rapid technological advances in semiconductors and electronic equipment have placed rigorous demands on the printed circuit materials manufactured by the Company and used in printed circuit board production.
The industries in which the Company operates are very competitive.
Certain of the Company's principal competitors are substantially larger and have greater financial resources than the Company, and the Company's operating results will be affected by its ability to maintain its competitive positions in these industries. The printed circuit materials, advanced composite materials and composite parts and assemblies industries are intensely competitive and the Company competes worldwide in the markets for such products.
The Company is vulnerable to an increase in the cost of gas or electricity.
Changes in the cost or availability of gas or electricity could materially increase the Company's cost of operations. The Company's production processes require the use of substantial amounts of gas and electricity, the cost and available supply of which are beyond the control of the Company.
The Company’s cost of sales and results of operations were affected by increases in utility costs in the Company’s fiscal year ended February 26, 2012. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Report.
The Company is vulnerable to disruptions and shortages in the supply of, and increases in the prices of, certain raw materials.
There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of printed circuit materials, advanced composite materials and composite parts and assemblies. The Company has qualified alternate sources of supply for many, but not all, of its raw materials, but certain raw materials are produced by only one supplier. In some cases, substitutes for certain raw materials are not always readily available, and in the past there have been shortages in the market for certain of these materials. Raw material substitutions for certain aircraft related products may require governmental (such as Federal Aviation Administration) approval. While the Company considers its relationships with its suppliers to be strong, a shortage of these materials or a disruption of the supply of these materials caused by a natural disaster, such as the earthquake and tsunami in Japan in March 2011, or otherwise could materially increase the Company’s cost of operations and could materially adversely affect the business and results of operations of the Company. Likewise, significant increases in the cost of materials purchased by the Company could also materially increase the Company’s cost of operations and could have a material adverse effect on the Company’s business and results of operations if the Company were unable to pass such increases through to its customers. The Company experienced a supply chain issue as a result of the earthquake and tsunami in Japan in March 2011. Such issue was resolved during the 2012 fiscal year third quarter.
During the 2012, 2013 and 2014 fiscal years, the Company experienced significant volatility in the cost of copper foil, one of the Company’s primary raw materials, and the Company passed substantial portions of such increases through to its customers. See “Business—Printed Circuit Materials—Materials and Sources of Supply” in Item 1 of Part I of this Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Report.
The Company's customer base is highly concentrated, and the loss of one or more customers could adversely affect the Company's business.
A loss of one or more key customers could adversely affect the Company's profitability. The Company's customer base is concentrated, in part, because the Company's business strategy has been to develop long-term relationships with a select group of customers. During the Company's fiscal years ended March 2, 2014, March 3, 2013 and February 26, 2012, the Company's ten largest customers accounted for approximately 59%, 63% and 64%, respectively, of net sales. The Company expects that sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. See "Business—Printed Circuit Materials—Customers and End Markets” and “Business—Advanced Composite Materials, Parts and Assemblies—Customers and End Markets” in Item 1 of Part I of this Report.
The Company's business is dependent on the electronics and aerospace industries, which are cyclical in nature.
The electronics and aerospace industries are cyclical and have experienced recurring cycles. The downturns, such as occurred in the electronics industry during the first quarter of the Company's fiscal year ended March 3, 2002 and in the general aviation industry in the fourth quarter of the Company’s 2009 fiscal year, can be unexpected and have often reduced demand for, and prices of, printed circuit materials and advanced composite materials, parts and assemblies. This potential reduction in demand and prices could have a negative impact on the Company’s business.
In addition, the Company is subject to the effects of general regional and global economic and financial conditions, such as the worldwide economic and financial crises that commenced in the second half of the Company’s fiscal year ended March 1, 2009.
The Company relies on short-term orders from its customers.
A variety of conditions, both specific to the individual customer and generally affecting the customer’s industry, can cause a customer to reduce or delay orders previously anticipated by the Company, which could negatively impact the Company’s business. In the printed circuit materials market, the Company typically does not obtain long-term purchase orders or commitments. Instead, it relies primarily on continual communication with its customers to anticipate the future volume of purchase orders.
The Company’s customers may require the Company to undergo a lengthy and expensive qualification process with respect to its products, with no assurance of sales. Any delay or failure in such qualification process could negatively affect the Company’s business and operating results.
The Company’s customers frequently require that the Company’s products undergo an extensive qualification process, which may include testing for performance, structural integrity and reliability. This qualification process may be lengthy and does not assure any sales of the product to that customer. The Company devotes substantial resources, including design, engineering, sales, marketing and management efforts, and often substantial expense, to qualifying the Company’s products with customers in anticipation of sales. Any delay or failure in qualifying any of its products with a customer may preclude or delay sales of those products to the customer, which may impede the Company’s growth and cause its business to suffer.
In addition, the Company engages in product development efforts with OEMs. The Company will not recover the cost of this product development directly even if the Company actually produces and sells any resulting product. There can be no guarantee that such efforts will result in any sales.
Consolidation among the Company’s customers could negatively impact the Company’s business.
A number of the Company’s customers have combined in recent years and consolidation of other customers may occur. If an existing customer is not the controlling entity following a combination, the Company may not be retained as a supplier. While there is potential for increasing the Company’s position with the combined customer, the Company’s revenues may decrease if the Company is not retained as a supplier.
The Company faces extensive capital expenditure costs.
The Company’s business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company’s capital expenditures. In order to remain competitive the Company must continue to make significant investments in capital equipment and expansion of operations, which could adversely affect the Company’s results of operations.
The Company’s international operations are subject to different and additional risks than the Company’s domestic operations.
The Company’s international operations are subject to various risks, including unexpected changes in regulatory requirements, foreign currency exchange rates, tariffs and other barriers, political and economic instability, potentially adverse tax consequences, and any impact on economic and financial conditions around the world resulting from geopolitical conflicts or acts of terrorism, all of which could negatively impact the Company’s business. A portion of the sales and costs of the Company’s international operations are denominated in currencies other than the U.S. dollar and may be affected by fluctuations in currency exchange rates.
The Company is subject to a variety of environmental regulations.
The Company’s production processes require the use, storage, treatment and disposal of certain materials which are considered hazardous under applicable environmental laws, and the Company is subject to a variety of regulatory requirements relating to the handling of such materials and the release of emissions and effluents into the environment, non-compliance with which could have a negative impact on the Company’s business or consolidated results of operations. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company.
If the Company’s efforts to protect its trade secrets are not sufficient, the Company may be adversely affected.
The Company’s business relies upon proprietary information, trade secrets and know-how in its product formulations and its manufacturing and research and development activities. The Company takes steps to protect its proprietary rights and information, including the use of confidentiality and other agreements with employees and consultants and in commercial relationships, including with distributors and customers. If these steps prove to be inadequate or are violated, the Company’s competitors might gain access to the Company’s trade secrets, and there may be no adequate remedy available to the Company
The Company depends upon the experience and expertise of its senior management team and key technical employees, and the loss of any key employee may impair the Company’s ability to operate effectively.
The Company’s success depends, to a certain extent, on the continued availability of its senior management team and key technical employees. Each of the Company’s executive officers, key technical personnel and other employees could terminate his or her employment at any time. The loss of any member of the Company’s senior management team might significantly delay or prevent the achievement of the Company’s business objectives and could materially harm the Company’s business and customer relationships. In addition, because of the highly technical nature of the Company’s business, the loss of any significant number of the Company’s key technical personnel could have a material adverse effect on the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Set forth below are the locations of the significant properties owned and leased by the Company, the businesses which use the properties and the size of each such property. All of such properties, except for the Melville, New York property, are used principally as manufacturing and warehouse facilities.
Location |
Owned or Leased |
Use |
Size (Square Footage) |
|||||
Melville, NY |
Leased |
Administrative Offices |
8,000 | |||||
Fullerton, CA |
Leased |
Printed Circuit Materials |
95,000 | |||||
Anaheim, CA |
Leased |
Printed Circuit Materials |
26,000 | |||||
Tempe, AZ |
Leased |
Printed Circuit Materials |
81,000 | |||||
Lannemezan, France |
Owned |
Printed Circuit Materials |
29,000 | |||||
Singapore |
Leased |
Printed Circuit Materials |
88,000 | |||||
Newton, KS |
Leased |
Advanced Composite Materials, Parts and Assemblies |
89,000 | |||||
Singapore |
Leased |
Advanced Composite Materials |
21,000 |
The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. Most of the Company’s manufacturing facilities have the capacity to substantially increase their production levels.
In the 2013 fiscal year third quarter, the Company closed its PACM facility, located in Waterbury, Connecticut, after the completion of the transfer of PACM’s aerospace composite materials manufacturing activities to PATC. In the 2013 fiscal year second quarter, the Company closed its Nelco Technology (Zhuhai FTZ) Ltd. facility located in the Free Trade Zone in Zhuhai, China and transferred the manufacturing activities conducted by such business unit to the Company’s Nelco Products Pte. Ltd. business unit located in Singapore.
In the third quarter of the Company’s 2012 fiscal year, the Company completed a major expansion of its aerospace composite materials development and manufacturing facility in Newton, Kansas in order to manufacture aerospace composite parts and assemblies in the same facility as advanced composite materials, which are used in the manufacture of such parts and assemblies. The expansion consisted of approximately 37,000 square feet of manufacturing and storage space, and the Company spent approximately $5 million on the facility expansion and equipment. See “Advanced Composite Materials, Parts and Assemblies” elsewhere in this Report.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
Executive Officers of the Registrant.
Name |
Title |
Age |
Brian E. Shore |
Chief Executive Officer, President and a Director |
62 |
Stephen E. Gilhuley |
Executive Vice President-Administration and Secretary |
69 |
Christopher T. Mastrogiacomo |
Executive Vice President and Chief Operating Officer |
56 |
Stephen M. Banker |
Vice President and General Counsel |
62 |
P. Matthew Farabaugh |
Vice President and Chief Financial Officer |
53 |
John Jongebloed |
Vice President- Aerospace |
57 |
Mr. Shore has served as a Director of the Company since 1983 and as Chairman of the Board of Directors since July 2004. He was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994, President in March 1996, and Chief Executive Officer in November 1996. Mr. Shore also served as General Counsel of the Company from April 1988 until April 1994.
Mr. Gilhuley was elected Executive Vice President – Administration on April 5, 2012, and he has been Secretary of the Company since July 1996. Prior to April 5, 2012, he had been Executive Vice President of the Company since October 2006 and Senior Vice President from March 2001 to October 2006. He also was General Counsel of the Company from April 1994 to October 31, 2011, when he was succeeded by Mr. Banker.
Mr. Mastrogiacomo was elected Executive Vice President and Chief Operating Officer on June 1, 2011 after having served as Senior Vice President of Strategic Marketing since December 8, 2010. Prior to joining the Company as Vice President of Strategic Marketing in September 2010, Mr. Mastrogiacomo held senior management positions with Sanmina-SCI Corporation, a leading electronics contract manufacturing services company, and its predecessor, Hadco Corporation, a major manufacturer of advanced electronic interconnect systems. Since 2008, Mr. Mastrogiacomo was Senior Vice President, Printed Wiring Board (USA) of Sanmina-SCI Corporation; from 2004 to 2008, he was Senior Vice President of Operations, the Americas Enclosures Systems of Sanmina-SCI; and from 2000 to 2004, he was Senior Vice President, Printed Wiring Board Operations of Sanmina-SCI. During the twelve years prior to 1997, he held several management positions with Hadco Corporation.
Mr. Banker was elected Vice President and General Counsel on October 31, 2011. Prior to joining the Company, Mr. Banker had been a lawyer in the Skadden, Arps, Slate, Meagher & Flom LLP law firm in New York City since 1977 and a partner in the firm since 1985. Mr. Banker resigned as Vice President and General Counsel effective May 2, 2014.
Mr. Farabaugh was elected Vice President and Chief Financial Officer on April 9, 2012. He had been Vice President and Controller of the Company since October 2007. Prior to joining Park, Mr. Farabaugh was Corporate Controller of American Technical Ceramics, a publicly traded international company and a manufacturer of electronic components, located in Huntington Station, New York, from 2004 to September 2007 and Assistant Controller from 2000 to 2004. Prior thereto, Mr. Farabaugh was Assistant Controller of Park Electrochemical Corp. from 1989 to 2000. Prior to joining Park in 1989, Mr. Farabaugh had been a senior accountant with KPMG.
Mr. Jongebloed was appointed Vice President- Aerospace of the Company in April 2013. Mr. Jongebloed was also appointed as President of the Company’s PATC business unit in Newton, Kansas. Mr. Jongebloed has been employed by the Company and its subsidiaries in various positions since 1989. He was President of the Company’s New England Laminates Co, Inc. business unit in Newburgh, New York from 1999 until January 2009 and President of the Company’s PACM business unit in Waterbury, Connecticut from 2007 until December 2012. Mr. Jongebloed was also appointed Vice President of Global Logistics of the Company in April 2000 and Senior Vice President of Global Logistics from July 2001 to January 2006. He was appointed Vice President of Business Development of the Company in January 2013.
There are no family relationships between the directors or executive officers of the Company.
Each executive officer of the Company serves at the pleasure of the Board of Directors of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company’s Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Chicago Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock.
For the Fiscal Year Ended |
Stock Price |
Dividends |
||||||||||
March 2, 2014 |
High |
Low |
Declared |
|||||||||
First Quarter |
$ | 26.41 | $ | 22.31 | $ | 0.10 | ||||||
Second Quarter |
28.43 | 23.08 | 0.10 | |||||||||
Third Quarter |
30.18 | 26.32 | 0.10 | |||||||||
Fourth Quarter |
30.64 | 24.88 | 2.60 | (a) |
For the Fiscal Year Ended |
Stock Price |
Dividends |
||||||||||
March 3, 2013 |
High |
Low |
Declared |
|||||||||
First Quarter |
$ | 31.34 | $ | 22.89 | $ | 0.10 | ||||||
Second Quarter |
28.88 | 22.64 | 0.10 | |||||||||
Third Quarter |
28.10 | 22.54 | 0.10 | |||||||||
Fourth Quarter |
28.54 | 23.41 | 2.60 | (b) |
(a) |
During the 2014 fiscal year fourth quarter, the Company declared its regular quarterly cash dividend of $0.10 per share in December 2013, payable February 3, 2014 to shareholders of record on January 3, 2014, and declared a special cash dividend of $2.50 per share in January 2014, payable February 25, 2014 to shareholders of record on February 11, 2014. | ||||||||
(b) |
During the 2013 fiscal year fourth quarter, the Company declared its regular quarterly cash dividend of $0.10 per share in December 2012, payable February 4, 2013 to shareholders of record on January 4, 2013, and declared a special cash dividend of $2.50 per share in January 2013, payable February 26, 2013 to shareholders of record on February 12, 2013. |
As of May 9, 2014, there were 641 holders of record of Common Stock.
The Company expects, for the immediate future, to continue to pay regular cash dividends.
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 2014 fiscal year fourth quarter ended March 2, 2014.
Period |
Total Number of Shares (or Units) Purchased |
Average Price Paid Per Share (or Unit) |
Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs |
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||||||
December 2 - January 2 |
0 | $ | - | 0 | |||||||||
January 2 - February 2 |
0 | - | 0 | ||||||||||
February 2 - March 2 |
2 | 27.38 | 0 | ||||||||||
Total |
2 | $ | 27.38 | 0 |
996,095 (a) |
(a) | Aggregate number of shares available to be purchased by the Company pursuant to a share purchase authorization announced on October 18, 2012. Pursuant to such authorization, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions. |
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, related Notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the five fiscal years ended March 2, 2014 and is as of the end of such periods, it is derived from the Consolidated Financial Statements for the five fiscal years ended March 2, 2014 and as of such dates audited by Grant Thornton LLP, independent registered public accounting firm. The Consolidated Financial Statements as of March 2, 2014 and March 3, 2013, and for the three years ended March 2, 2014, together with the independent auditor’s report for the three years ended March 2, 2014, appear in Item 8 of Part II of this Report.
Fiscal Year Ended |
||||||||||||||||||||
(Amounts in thousands, except per share amounts) |
||||||||||||||||||||
March 2, |
March 3, |
February 26, |
February 27, |
February 28, |
||||||||||||||||
2014 |
2013 |
2012 |
2011 |
2010 |
||||||||||||||||
STATEMENT OF EARNINGS INFORMATION |
||||||||||||||||||||
Net Sales |
$ | 165,764 | $ | 176,416 | $ | 193,254 | $ | 211,652 | $ | 175,686 | ||||||||||
Cost of sales |
117,664 | 125,866 | 138,512 | 141,751 | 124,084 | |||||||||||||||
Gross profit |
48,100 | 50,550 | 54,742 | 69,901 | 51,602 | |||||||||||||||
Selling, general and administative expenses |
25,168 | 26,595 | 28,247 | 27,917 | 24,480 | |||||||||||||||
Restructuring charges |
546 | 3,703 | 1,250 | 1,312 | - | |||||||||||||||
Earnings from operations |
22,386 | 20,252 | 25,245 | 40,672 | 27,122 | |||||||||||||||
Interest expense |
764 | 14 | - | - | - | |||||||||||||||
Interest and other income |
460 | 647 | 808 | 645 | 1,062 | |||||||||||||||
Litigation and insurance settlements |
- | - | 1,598 | - | - | |||||||||||||||
Earnings before income taxes |
22,082 | 20,885 | 27,651 | 41,317 | 28,184 | |||||||||||||||
Income tax provision |
64,411 | 3,924 | 4,209 | 8,696 | 2,825 | |||||||||||||||
Net (loss) earnings |
$ | (42,329 | ) | $ | 16,961 | $ | 23,442 | $ | 32,621 | $ | 25,359 | |||||||||
Earnings per share: |
||||||||||||||||||||
Basic (loss) earnings per share |
$ | (2.03 | ) | $ | 0.82 | $ | 1.13 | $ | 1.58 | $ | 1.24 | |||||||||
Diluted (loss) earnings per share |
$ | (2.03 | ) | $ | 0.81 | $ | 1.13 | $ | 1.58 | $ | 1.23 | |||||||||
Cash dividends per common share |
$ | 2.90 | $ | 2.90 | $ | 0.40 | $ | 1.40 | $ | 0.36 | ||||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||||||
Basic |
20,849 | 20,801 | 20,746 | 20,628 | 20,522 | |||||||||||||||
Diluted |
20,849 | 20,823 | 20,792 | 20,675 | 20,547 | |||||||||||||||
BALANCE SHEET INFORMATION |
||||||||||||||||||||
Working capital |
$ | 286,997 | $ | 303,996 | $ | 290,149 | $ | 271,706 | $ | 261,036 | ||||||||||
Total assets |
377,093 | 369,658 | 365,988 | 353,808 | 343,104 | |||||||||||||||
Long-term debt |
94,000 | 52,000 | - | - | - | |||||||||||||||
Stockholders' equity |
200,543 | 299,922 | 343,211 | 325,308 | 316,098 |
See notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General:
Park Electrochemical Corp. (“Park” or the “Company”) is a global advanced materials company which develops, manufactures, markets and sells high-technology digital and RF/microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies products for the aerospace markets. Park’s core capabilities are in the areas of polymer chemistry formulation and coating technology. The Company’s manufacturing facilities are located in Singapore, France, Kansas, Arizona and California. The Company also maintains research and development facilities in Arizona, Kansas and Singapore.
The Company’s fiscal year is the 52 or 53 week period ending the Sunday nearest to the last day of February. The 2014, 2013 and 2012 fiscal years ended on March 2, 2014, March 3, 2013 and February 26, 2012, respectively. The 2014, 2013 and 2012 fiscal years consisted of 52, 53 and 52 weeks, respectively. Unless otherwise indicated in this Discussion and Analysis, all reference to years in this Discussion and Analysis are to the Company’s fiscal years and all annual information in this Discussion and Analysis is for such fiscal years.
The comparisons of the Company's results of operations for 2014 and 2012 to the Company's results of operations for 2013 are impacted by the facts that the 2014 and 2012 fiscal years consisted of 52 weeks and the 2013 fiscal year consisted of 53 weeks.
2014 Financial Overview
The Company's total net sales worldwide in 2014 were 6% lower than in 2013 primarily as a result of lower sales of the Company’s printed circuit materials products in North America, Asia and Europe. The Company’s sales of aerospace composite materials, parts and assemblies were higher in 2014 than in 2013. The decline in sales of printed circuit materials products resulted in lower gross profit in 2014 compared to 2013. However, the Company’s gross profit margin, measured as a percentage of sales, improved to 29.0% in 2014 from 28.7% in 2013 due primarily to the benefits from higher percentages of sales of higher margin, high performance printed circuit materials products in 2014 than in 2013 and to the improved operating performance of the Company’s Park Aerospace Technologies Corp. (“PATC”) business unit in Newton, Kansas in 2014 following the consolidation of the Company’s aerospace activities at such business unit, which resulted in the elimination of the additional, and in some instances duplicative, expenses associated with operating two facilities during the consolidation.
The Company’s earnings from operations in 2014 were 11% higher than in 2013 primarily as a result of a reduction in restructuring charges, lower legal fees and expenses and the elimination of the additional, and in some instances duplicative, expenses associated with the aerospace consolidation discussed above. The earnings from operations in 2014 were adversely impacted by a pre-tax charge related to the modification of previously issued employee stock options resulting from the special cash dividend paid by the Company in February 2014 and a financial advisory services retention fee. The Company’s net earnings in 2014 were lower than in 2013 primarily as a result of a non-cash charge of $64.0 million for the accrual of U.S. deferred income taxes on the undistributed earnings of the Company’s subsidiary in Singapore. The charge included $34.4 million related to the U.S. income tax that would be payable if the Company were to repatriate funds in an after-tax amount necessary to repay the Company’s existing $104.0 million principal amount bank loan from PNC Bank, further described below, and $29.6 million relating to the remainder of the undistributed earnings of the Company’s subsidiary in Singapore. The charge was partially offset by a tax benefit of $2.2 million recorded by the Company in the 2014 second quarter in connection with a tax refund related to amended federal income tax returns. The Company has no current plan to repatriate the undistributed earnings of its subsidiary in Singapore.
On February 12, 2014, the Company entered into a four-year amended and restated revolving credit facility agreement (the “Amended Credit Agreement”) with PNC Bank, National Association. The Amended Credit Agreement provides for loans up to $104.0 million to the Company and letters of credit up to $2.0 million for the account of the Company. To date, the Company has borrowed $52.0 million to finance a special dividend paid to shareholders of the Company in the fourth quarter of 2014 and an additional $52.0 million to continue the loan that was provided under the prior agreement entered into during the fourth quarter of 2013.
The global markets for the Company’s printed circuit materials products continue to be very difficult to forecast, and it is not clear to the Company what the condition of the global markets for the Company’s printed circuit materials products will be in 2015 or beyond. Further, the Company is not able to predict the impact the current global economic and financial conditions will have on the markets for its aerospace composite materials, parts and assemblies in 2015 or beyond.
Results of Operations:
Fiscal Year 2014 Compared with Fiscal Year 2013
Fiscal Year Ended |
||||||||||||||||
March 2, |
March 3, |
|||||||||||||||
(amounts in thousands, except per share amounts) |
2014 |
2013 |
Increase / (Decrease) |
|||||||||||||
Net sales |
$ | 165,764 | $ | 176,416 | $ | (10,652 | ) | -6 | % | |||||||
Cost of sales |
117,664 | 125,866 | (8,202 | ) | -7 | % | ||||||||||
Gross profit |
48,100 | 50,550 | (2,450 | ) | -5 | % | ||||||||||
Selling, general and administrative expenses |
25,168 | 26,595 | (1,427 | ) | -5 | % | ||||||||||
Restructuring charges |
546 | 3,703 | (3,157 | ) | -85 | % | ||||||||||
Earnings from operations |
22,386 | 20,252 | 2,134 | 11 | % | |||||||||||
Interest expense |
764 | 14 | 750 | 5357 | % | |||||||||||
Interest and other income |
460 | 647 | (187 | ) | -29 | % | ||||||||||
Earnings before income taxes |
22,082 | 20,885 | 1,197 | 6 | % | |||||||||||
Income tax provision |
64,411 | 3,924 | 60,487 | 1541 | % | |||||||||||
Net (loss) earnings |
$ | (42,329 | ) | $ | 16,961 | $ | (59,290 | ) | -350 | % | ||||||
Earnings per share: |
||||||||||||||||
Basic (loss) earnings per share |
$ | (2.03 | ) | $ | 0.82 | $ | (2.85 | ) | -348 | % | ||||||
Diluted (loss) earnings per share |
$ | (2.03 | ) | $ | 0.81 | $ | (2.84 | ) | -351 | % |
Net Sales
The Company’s total net sales worldwide in 2014 decreased 6% from 2013 as a result of lower unit volumes of printed circuit materials products shipped to the Company’s customers in North America, Asia and Europe. The lower sales of printed circuit materials products sold by the Company in 2014 was partially offset by higher sales of aerospace composite materials, parts and assemblies products by the Company’s operations in North America, Asia and Europe. The Company’s total net sales of its printed circuit materials products were $135.4 million in 2014 and $150.6 million in 2013 and comprised 82% and 85% of the Company’s total net sales worldwide in 2014 and 2013, respectively. The Company’s total net sales of its aerospace composite materials, parts and assemblies products were $30.4 million in 2014 and $25.9 million in 2013 and comprised 18% and 15% of the Company’s total net sales worldwide in 2014 and 2013, respectively.
The Company's foreign sales were $83.6 million, or 50% of the Company's total net sales worldwide, during 2014 compared to $95.4 million of sales, or 54% of total net sales worldwide during 2013. The Company's foreign sales during 2014 declined 12% from 2013 as a result of lower sales in Asia and Europe.
The Company’s sales in North America, Asia and Europe were 50%, 43% and 7%, respectively, of the Company’s total net sales worldwide in 2014 compared to 46%, 45% and 9%, respectively, in 2013. The Company’s sales in North America increased 2%, its sales in Asia decreased 9% and its sales in Europe decreased 31% in 2014 compared to 2013.
During 2014, 88% of the Company’s total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials, compared to 82% for 2013.
The Company’s high performance printed circuit materials (non-FR4 printed circuit materials) include high-speed, low-loss materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, bismalimide triazine (“BT”) materials, polyimides for applications that demand extremely high thermal performance and reliability, cyanate esters, quartz reinforced materials, and polytetrafluoroethylene (“PTFE”) and modified epoxy materials for RF/microwave systems that operate at frequencies up to 77GHz.
Cost of Sales
The Company’s cost of sales decreased by 7% in 2014 from 2013 primarily as a result of lower sales and lower production volumes in 2014 than in 2013, and cost of sales as a percentage of sales decreased to 71.0% in 2014 from 71.3% in 2013. The decrease in costs of sales as a percentage of sales was due primarily to the improved operating performance of the Company’s PATC business unit, the elimination of the additional, and in some instances duplicative, costs associated with transferring aerospace composite materials manufacturing from the Company’s Park Advanced Composite Materials, Inc. (“PACM”) facility to the Company’s PATC facility in 2013, the cost reductions resulting from the closures of the Company’s PACM facility and Nelco Zhuhai facility in 2013 and lower depreciation expense in 2014 than in 2013.
Gross Profit
The Company’s gross profit in 2014 was lower than its gross profit in the prior fiscal year, but the overall gross profit as a percentage of net sales for the Company’s worldwide operations increased to 29.0% in 2014 compared to 28.7% in 2013 despite significantly lower sales and the partially fixed nature of overhead costs. The gross profit margin in 2014 benefitted from the higher percentage of sales of higher margin, high performance printed circuit materials products in 2014 than in 2013, cost reductions as a result of the aforementioned facility closures, the improved operating performance of the Company’s PATC business unit and the lower depreciation expense in 2014 than in 2013.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $1.4 million, or 5%, during 2014 compared to 2013. Such expenses measured as percentages of sales were 15.2% during 2014 compared to 15.1% during 2013. The increase as a percentage of sales was the result of lower revenues combined with the partially fixed nature of such expenses. Such expenses in 2013 were impacted by additional, and in some instances duplicative, expenses associated with the consolidation of all of the Company’s North American aerospace composite materials, parts and assemblies manufacturing, development and design activities at its PATC business unit. The decrease in such expenses in 2014 was primarily the result of lower legal fees and expenses, lower selling and freight expenses commensurate with lower sales in 2014 than in 2013 and the elimination of the additional, and in some instances duplicative, expenses associated with operating two facilities during the consolidation of the Company’s aerospace activities at its PATC business unit in the 2013 fiscal year. Although such expenses declined in 2014, they were partially offset by increases in stock option expenses in 2014 compared to 2013 due to additional non-cash charges resulting from the modification of previously issued employee stock options resulting from the special cash dividend paid by the Company in February 2014 and a financial advisory services retention fee. Selling, general and administrative expenses in 2014 included $1.7 million of stock option expenses compared to $0.9 million in 2013.
Restructuring Charges
The Company recorded pre-tax restructuring charges of $0.5 million during 2014 in connection with the closure of its Nelco Zhuhai facility located in the Free Trade Zone in Zhuhai, China in the 2013 fiscal year second quarter, and the Company recorded pre-tax restructuring charges of $3.7 million in 2013 in connection with the closure of the Nelco Zhuhai facility and the closure of the PACM facility in Waterbury, Connecticut in the 2013 fiscal year third quarter.
Earnings from Operations
For the reasons set forth above, the Company’s earnings from operations were $22.4 million for 2014, including the non-cash pre-tax charges of $0.7 million associated with the modification of previously issued employee stock options, $0.3 million for the financial advisory services retention fee and $0.5 million related to the closure of the Nelco Zhuhai facility described above, compared to $20.3 million for 2013, including the pre-tax restructuring charges of $3.7 million related to the closures of the Nelco Zhuhai facility and the PACM facility described above.
Interest Expense
The interest expense in 2014 related to the Company’s borrowings under the four-year amended and restated revolving credit facility agreement that the Company entered into with PNC Bank, National Association in the fourth quarter of 2014. The amended and restated agreement provides for loans up to $104 million to the Company and letters of credit up to $2 million for the account of the Company and, subject to the terms and conditions of the agreement, an interest rate on the outstanding loan balance of LIBOR plus 1.10%. Other interest rate options are available to the Company under the agreement. At the end of 2014, the Company borrowed $104 million under this credit facility and used all of such borrowed funds to finance the payment of a special cash dividend of $2.50 per share, totaling $52 million, paid to its shareholders on February 25, 2014 and to continue the $52 million loan that was provided under the credit facility agreement that the Company entered into with PNC Bank in January 2013 to finance the payment of a special cash dividend of $2.50 per share, totaling $52 million, paid to the Company’s shareholders on February 26, 2013. The credit facility agreement entered into in 2014 replaced the credit facility agreement entered into in 2013. See “Liquidity and Capital Resources” elsewhere in this Item 7 and Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this Report for additional information.
Interest Income
Interest income decreased $187,000, or 29%, during 2014 compared to 2013 primarily as a result of lower prevailing interest rates and shorter average maturities of the Company’s investments during 2014 than 2013. During 2014 and 2013, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds.
Income Tax Provision
The Company's effective income tax rate was 291.7% for 2014 compared to 18.8% for 2013. The effective income tax rate for 2014 was adversely affected by a non-cash charge of $64.0 million for the accrual of U.S. deferred income taxes on the undistributed earnings of the Company’s subsidiary in Singapore. The charge included $34.4 million related to the U.S. income tax that would be payable if the Company were to repatriate funds in an after-tax amount necessary to repay the Company’s existing $104.0 million principal amount bank loan from PNC Bank and $29.6 million relating to the remainder of the undistributed earnings of the Company’s subsidiary in Singapore. The Company has no current plan to repatriate the undistributed earnings of its subsidiary in Singapore. The aforementioned charge was partially offset by a tax benefit of $2.2 million recorded by the Company in the 2014 second quarter in connection with a tax refund related to amended federal income tax returns. The effect of the aforementioned items was to increase the Company’s income tax provision from $2.6 million to $64.4 million for 2014.
Net Earnings
The Company’s net loss for 2014 was $42.3 million, including the $64.0 million non-cash charge for the accrual of U.S. income tax on undistributed earnings, the tax benefit of $2.2 million in connection with the tax refund related to amended federal income tax returns, the $0.7 million non-cash pre-tax charges associated with the modification of previously issued employee stock options and the pre-tax charges of $0.5 million in connection with the closure of the Nelco Zhuhai facility and $0.3 million financial advisory services retention fee described above, compared to net earnings for 2013 of $17.0 million, including the $3.7 million pre-tax charges related primarily to the closures of PACM and Nelco Zhuhai, described above. The net impact of the items described above was to reduce net earnings by $62.5 million in 2014 and to reduce net earnings by $3.4 million in 2013.
Basic and Diluted Earnings Per Share
Basic and diluted losses per share for 2014 were $2.03, including the non-cash charge for the accrual of U.S. income tax on undistributed earnings, the tax benefit in connection with the tax refund related to amended federal income tax returns, the additional non-cash charges resulting from the modification of previously issued employee stock options, the pre-tax charges in connection with the closure of the Nelco Zhuhai facility and the financial advisory services retention fee described above, compared to basic and diluted earnings per share of $0.82 and $0.81, respectively for 2013, including the charges related to the closures of PACM and Nelco Zhuhai described above. The net impact of the items described above was to reduce basic and diluted earnings per share by $3.00 in 2014 and to reduce basic and diluted earnings per share by $0.16 and $0.17, respectively, in 2013.
Fiscal Year 2013 Compared with Fiscal Year 2012
The comparisons of the Company’s results of operations for 2013 to the Company’s results of operations for 2012 are impacted by the facts that the 2013 fiscal year consisted of 53 weeks and the 2012 fiscal year consisted of 52 weeks.
Fiscal Year Ended |
||||||||||||||||
March 3, |
February 26, |
|||||||||||||||
(amounts in thousands, except per share amounts) |
2013 |
2012 |
Increase / (Decrease) |
|||||||||||||
Net sales |
$ | 176,416 | $ | 193,254 | $ | (16,838 | ) | -8.7 | % | |||||||
Cost of sales |
125,866 | 138,512 | (12,646 | ) | -9.1 | % | ||||||||||
Gross profit |
50,550 | 54,742 | (4,192 | ) | -7.7 | % | ||||||||||
Selling, general and administrative expenses |
26,595 | 28,247 | (1,652 | ) | -5.8 | % | ||||||||||
Restructuring charges |
3,703 | 1,250 | 2,453 | 196.2 | % | |||||||||||
Earnings from operations |
20,252 | 25,245 | (4,993 | ) | -19.8 | % | ||||||||||
Interest expense |
14 | - | 14 | 100 | % | |||||||||||
Interest and other income |
647 | 808 | (161 | ) | -19.9 | % | ||||||||||
Litigation and insurance settlements |
- | 1,598 | (1,598 | ) | -100.0 | % | ||||||||||
Earnings before income taxes |
20,885 | 27,651 | (6,766 | ) | -24.5 | % | ||||||||||
Income tax provision |
3,924 | 4,209 | (285 | ) | -6.8 | % | ||||||||||
Net earnings |
$ | 16,961 | $ | 23,442 | $ | (6,481 | ) | -27.6 | % | |||||||
Earnings per share: |
||||||||||||||||
Basic earnings per share |
$ | 0.82 | $ | 1.13 | $ | (0.31 | ) | -27.4 | % | |||||||
Diluted earnings per share |
$ | 0.81 | $ | 1.13 | $ | (0.32 | ) | -28.3 | % |
Net Sales
The Company’s total net sales worldwide in 2013 decreased 9% from 2012 as a result of lower unit volumes of printed circuit materials products shipped to the Company’s customers in North America, Asia and Europe. The lower sales of printed circuit materials products sold by the Company in 2013 was accompanied by slightly lower sales of aerospace composite materials, parts and assemblies products by the Company’s operations in North America, Asia and Europe. The Company’s total net sales of its printed circuit materials products were $150.5 million in 2013 and $166.8 million in 2012 and comprised 85% and 86% of the Company’s total net sales worldwide in 2013 and 2012, respectively. The Company’s total net sales of its aerospace composite materials, parts and assemblies products were $25.9 million in 2013 and $26.5 million in 2012 and comprised 15% and 14% of the Company’s total net sales worldwide in 2013 and 2012, respectively.
The Company's foreign sales were $95.4 million, or 54% of the Company's total net sales worldwide, during 2013 compared to $107.3 million of sales, or 56% of total net sales worldwide during 2012. The Company's foreign sales during 2013 declined 11% from 2012 as a result of lower sales in Asia and Europe.
The Company’s sales in North America, Asia and Europe were 46%, 45% and 9%, respectively, of the Company’s total net sales worldwide in 2013 compared to 44%, 43% and 13%, respectively, in 2012. The Company’s sales in North America decreased 6%, its sales in Asia decreased 5% and its sales in Europe decreased 32% in 2013 compared to 2012.
During 2013, 82% of the Company’s total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials, compared to 79% for 2012.
Cost of Sales
The Company’s cost of sales decreased by 9% in 2013 from 2012 primarily as a result of lower sales and lower production volumes in 2013 than in 2012, the improved operating performance of the Company’s PATC business unit, the elimination of the additional, and in some instances duplicative, costs associated with transferring aerospace composite materials manufacturing from the Company’s PACM facility to the Company’s PATC facility in 2013, the cost reductions resulting from the closures of the Company’s PACM facility and Nelco Zhuhai facility in 2013, lower depreciation expense in 2013 than in 2012 and lower rental expense at one of the Company’s business units in 2013 than in 2012. The Company’s cost of sales as a percentage of net sales decreased to 71.3% in 2013 from 71.7% in 2012.
Gross Profit
The Company’s gross profit in 2013 was lower than its gross profit in the prior fiscal year, but the overall gross profit as a percentage of net sales for the Company’s worldwide operations increased to 28.7% in 2013 compared to 28.3% in 2012 despite significantly lower sales and the partially fixed nature of overhead costs. The gross profit margin in 2013 benefitted from the higher percentage of sales of higher margin, high performance printed circuit materials products in 2013 than in 2012, cost reductions as a result of the aforementioned facility closures, the improved operating performance of the Company’s PATC business unit, the lower depreciation expense in 2013 than in 2012 and the lower rental expense in 2013 than in 2012.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $1.7 million, or 6%, during 2013 compared to 2012. Such expenses measured as percentages of sales were 15.1% during 2013 compared to 14.6% during 2012. The increase as a percentage of sales was the result of lower revenues combined with the partially fixed nature of such expenses. Such expenses in 2013 and 2012 were impacted by additional, and in some instances duplicative, expenses associated with the consolidation of all of the Company’s North American aerospace composite materials, parts and assemblies manufacturing, development and design activities at its PATC business unit. The decrease in such expenses in 2013 was primarily the result of lower selling and freight expenses commensurate with lower sales than in 2012. Although such expenses declined in 2013, they were inflated by increases in legal fees and expenses in 2013 compared to 2012. Selling, general and administrative expenses in 2013 included $0.9 million of stock option expenses compared to $0.8 million in 2012.
Restructuring Charges
During 2013, the Company recorded charges of $3.7 million primarily for the closures of its PACM facility in Waterbury, Connecticut and its Nelco Zhuhai facility in the Free Trade Zone in Zhuhai, China; and in the fourth quarter of 2012, the Company recorded a charge of $1.3 million in connection with the closure of the PACM facility.
Earnings From Operations
For the reasons set forth above, the Company’s earnings from operations were $20.3 million for 2013, including the $3.7 million charge primarily for the closures of PACM and Nelco Zhuhai, compared to $25.2 million for 2012, including the $1.3 million charge related to the closure of PACM. The Company’s earnings from operations in the first half of 2013 and in 2012 were reduced by losses incurred at the Company’s PATC business unit.
Interest Expense
The Company incurred no interest expense during 2012 and incurred $14,000 of interest expense in the fourth quarter of 2013 under a five-year revolving credit agreement entered into with PNC Bank, National Association in such quarter. See “Liquidity and Capital Resources” elsewhere in this Item 7 for additional information.
Interest and Other Income
Interest and other income, net was $0.6 million in 2013 compared to $0.8 million in 2012. During 2013 and 2012, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds.
Litigation and Insurance Settlements
During the second quarter of 2012, the Company recognized other income of $1.6 million resulting from the aforementioned settlements of a lawsuit for a business interruption insurance claim and a lawsuit pertaining to defective equipment.
Income Tax Provision
The Company's effective income tax rate was 18.8% for 2013 compared to 15.2% for 2012. The higher effective income tax rate for 2013 was attributable principally to a change in the earnings mix between United States and foreign operations subject to different income tax rates, the expiration, on June 30, 2011, of Nelco Products Pte. Ltd.’s qualification and favorable tax rates under the development and expansion tax incentive in Singapore and the charge related to the closure of Nelco Zhuhai with no associated tax benefit.
Net Earnings
The Company’s net earnings for 2013 were $17.0 million, including the $3.7 million pre-tax charges related primarily to the closures of PACM and Nelco Zhuhai described above, compared to net earnings for 2012 of $23.4 million, including the $1.3 million pre-tax charge related to the closure of PACM and the $1.6 million pre-tax other income resulting from the settlements of the lawsuits described above. The net impact of the charges described above related primarily to the closures of PACM and Nelco Zhuhai was to reduce net earnings by $3.4 million in 2013. The net impact of the charge described above in 2012 related to the closure of PACM was to reduce net earnings by $0.8 million in 2012, and the impact of the other income, net of tax, resulting from the settlements of the lawsuits described above was to increase net earnings by $1.1 million in 2012.
Basic and Diluted Earnings Per Share
Basic and diluted earnings per share for 2013 were $0.82 and $0.81, respectively, including the charges related to the closures of PACM and Nelco Zhuhai as described above, compared to basic and diluted earnings per share of $1.13 for 2012, including the charge related to the closure of PACM described above and the other income resulting from the settlements of the lawsuits described above. The net impact of the charges related primarily to the closures of PACM and Nelco Zhuhai was to reduce basic and diluted earnings per share by $0.16 and $0.17, respectively, in 2013. The net impact of the charge described above was to reduce basic and diluted earnings per share by $0.04 in 2012, and the impact of the other income, net of tax, resulting from the settlements of the lawsuits described above was to increase basic and diluted earnings per share by $0.05 in 2012.
Liquidity and Capital Resources:
(amounts in thousands) |
March 2, |
March 3, |
Increase / |
|||||||||
2014 |
2013 |
(Decrease) |
||||||||||
Cash and marketable securities |
$ | 270,356 | $ | 275,216 | $ | (4,860 | ) | |||||
Restricted cash | 25,000 | - | 25,000 | |||||||||
Working capital |
286,997 | 303,996 | (16,999 | ) |
Fiscal Year Ended | ||||||||||||||||||||
(amounts in thousands) |
March 2, |
March 3, |
February 26, |
Increase / (Decrease) |
||||||||||||||||
2014 |
2013 |
2012 |
2014 vs. 2013 |
2013 vs. 2012 |
||||||||||||||||
Net cash provided by operating activities |
$ | 30,382 | $ | 19,334 | $ | 31,434 | $ | 11,048 | $ | (12,100 | ) | |||||||||
Net cash provided by (used in) investing activities |
(50,675 | ) | 44,947 | (7,569 | ) | $ | (95,622 | ) | $ | 52,516 | ||||||||||
Net cash used in financing activities |
(32,536 | ) | (7,774 | ) | (6,395 | ) | $ | (24,762 | ) | $ | (1,379 | ) |
Cash, Marketable Securities and Restricted Cash
Of the $295.4 million of cash, marketable securities and restricted cash at March 2, 2014, approximately $242.4 million was owned by certain of the Company’s wholly owned foreign subsidiaries. In the fourth quarter of 2014, the Company provided a non-cash charge for the accrual of U.S. deferred income taxes in the amount of $64.0 million on undistributed earnings of the Company’s subsidiary in Singapore. The charge included $34.4 million related to the U.S. income tax that would be payable if the Company were to repatriate funds in an after-tax amount necessary to repay the Company’s existing $104.0 million principle amount bank loan from PNC Bank and an additional $29.6 million relating to the remainder of the undistributed earnings of the Company’s subsidiary in Singapore. However, the Company has no current plan to repatriate the undistributed earnings of its subsidiary in Singapore. The Company believes it has sufficient liquidity in the United States to fund its activities in the United States for the foreseeable future.
The change in cash, marketable securities and restricted cash at March 2, 2014 compared to March 3, 2013 was the result of cash provided by operating activities and a number of additional factors, including the following:
● |
accounts receivable were 12% lower at March 2, 2014 than at March 3, 2013 principally due to lower sales in the fourth quarter of 2014 compared to the fourth quarter of 2013; |
● |
other current assets were 38% lower at March 2, 2014 than at March 3, 2013 primarily as a result of the receipt of income tax refunds; |
● |
accrued liabilities were 15% lower at March 2, 2014 than at March 3, 2013 due primarily to lower restructuring accruals; and |
● |
income taxes payable decreased 28% at March 2, 2014 compared to March 3, 2013 primarily as a result of tax payments made in connection with the Company’s operations in Singapore, partially offset by the 2014 tax provision. |
In addition, as described below, the Company paid $60.5 million in cash dividends during the 2014 fiscal year, including a special cash dividend of $52.2 million paid in the fourth quarter of 2014.
Working Capital
The decrease in working capital at March 2, 2014 compared to March 3, 2013 was due principally to the decreases in cash and marketable securities, accounts receivable and other current assets and the increase in current portion of long-term debt, partially offset by the decreases in accrued liabilities and income taxes payable.
The Company's current ratio (the ratio of current assets to current liabilities) was 12.8 to 1 at March 2, 2014 compared with 19.2 to 1 at March 3, 2013.
Cash Flows
During 2014, net earnings from the Company’s operations, before depreciation and amortization, stock-based compensation, provision for deferred income taxes, amortization of bond premium and the gain on the sale of fixed assets, of $28.6 million, increased by a net addition in working capital items (as discussed above), resulted in $30.4 million of cash provided by operating activities.
During 2014, the Company expended $1.1 million for the purchase of property, plant and equipment, primarily for the purchase of equipment for the Company’s printed circuit materials manufacturing facility in Singapore and for the Company’s aerospace development and manufacturing facility in Newton, Kansas. Such expenditures compare to $1.4 million during 2013 for the purchase of property, plant and equipment, primarily for the purchase of equipment for the facility in Singapore and for the facility in Kansas, and $2.2 million as additional payment for the acquisition of substantially all the assets and business of Nova Composites, Inc.
In addition, the Company paid $60.5 million in cash dividends on its common stock in 2014, including a special cash dividend of $2.50 per share, totaling $52.2 million, paid in the fourth quarter of 2014, compared to $60.4 million in cash dividends on its common stock in 2013, including a special cash dividend of $2.50 per share, totaling $52.1 million.
Long-Term Debt
At March 2, 2014 and March 3, 2013, the Company had $104.0 million and $52.0 million of long-term debt, respectively. In the fourth quarter of 2014, the Company entered into a four-year amended and restated revolving credit facility agreement (the “Amended Credit Agreement”) with PNC Bank, National Association. The Amended Credit Agreement provides for loans up to $104.0 million to the Company and letters of credit up to $2.0 million for the account of the Company, and subject to the terms and conditions of the Amended Credit Agreement, an interest rate on the outstanding loan balance of LIBOR plus 1.10%. Other interest rate options are available to the Company under the Amended Credit Agreement. At the end of 2014, the Company borrowed $104.0 million under the Amended Credit Agreement and used all of such borrowed funds to finance the payment of a special cash dividend of $2.50 per share, totaling $52.2 million, paid to its shareholders on February 25, 2014 and to continue the $52.0 million loan that was provided under the credit facility agreement that the Company entered into with PNC Bank in January 2013 to finance the payment of a special cash dividend of $2.50 per share, totaling $52.0 million, paid to the Company’s shareholders on February 26, 2013. The Amended Credit Agreement entered into in 2014 replaced the credit facility agreement entered into in 2013. The Company incurred $0.8 million of interest expense in 2014 under the Amended Credit Agreement. The $104.0 million outstanding amount under the Amended Credit Agreement will be paid as follows: $10.0 million due on February 12, 2015 followed by four quarterly installments of $2.5 million and then eight quarterly installments of $3.8 million with the remaining amount outstanding payable on February 12, 2018. The Amended Credit Agreement also contains certain customary affirmative and negative covenants and customary financial covenants, including maintaining minimum domestic liquid assets of $25,000 in cash and marketable securities. See Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this Report.
Other Liquidity Factors
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.
Contractual Obligations:
The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of (i) operating lease commitments, commitments to purchase raw materials and commitments to purchase equipment, as described in Note 12 of the Notes to Consolidated Financial Statements included elsewhere in this Report, and (ii) the long-term debt described above. The Company has no other long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $1.1 million to secure the Company's obligations under its workers’ compensation insurance program.
As of March 2, 2014, the Company’s significant contractual obligations, including payments due by fiscal year, were as follows:
Contractual Obligations (Amounts in thousands) |
Total |
2015 |
2016-2017 | 2018-2019 |
2020 and thereafter |
|||||||||||||||
Operating lease obligations |
$ | 7,722 | $ | 1,886 | $ | 1,582 | $ | 426 | $ | 3,828 | ||||||||||
Long-term debt |
104,000 | 10,000 | 25,000 | 69,000 | - | |||||||||||||||
Inventory purchase obligations |
1,201 | 1,201 | - | - | - | |||||||||||||||
Equipment purchase obligations |
87 | 87 | - | - | - | |||||||||||||||
Total |
$ | 113,010 | $ | 13,174 | $ | 26,582 | $ | 69,426 | $ | 3,828 |
At March 2, 2014, the Company had gross tax-effected unrecognized tax benefits of $0.3 million. A reasonable estimate of timing of these liabilities is not possible.
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:
The Company is subject to various Federal, state and local government and foreign government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by government agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated.
In 2014, 2013 and 2012, the Company charged approximately $22,000, $70,000 and $145,000, respectively, against pre-tax income for remedial response and voluntary cleanup costs and related legal fees. The Company expects to receive reimbursement pursuant to general liability insurance coverage for approximately $15,000, $15,000 and $18,000, respectively, of such amounts charged in 2014, 2013 and 2012. While annual environmental remedial response and voluntary cleanup expenditures, including legal fees, have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At March 2, 2014 and March 3, 2013, there were no amounts recorded in accrued liabilities for environmental matters.
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. See Note 13 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for a discussion of the Company's contingencies, including those related to environmental matters.
Critical Accounting Policies and Estimates:
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 ongoing basis, the Company evaluates its estimates, including those related to sales allowances, allowances for doubtful accounts, inventories, valuation of long-lived assets, income taxes, restructurings, contingencies and litigation, and employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its Consolidated Financial Statements.
Revenue Recognition
The Company recognizes revenues when products are shipped and title has been transferred to a customer, the sales price is fixed and determinable, and collection is reasonably assured. All material sales transactions are for the shipment of the Company’s products.
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. Composite parts and assemblies may be subject to “airworthiness” acceptance by customers after receipt at the customers’ locations. 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 printed circuit materials and advanced composite materials, parts and assemblies 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. The amounts of returns and allowances resulting from defective or damaged products have been approximately 1.0% of sales for each of the Company’s last three fiscal years.
Accounts Receivable
The Company’s accounts receivable are due from purchasers of the Company’s products. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within established payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than established payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the conditions of the general economy and the electronics and aerospace industries. 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. The Company writes off accounts receivable when they become uncollectible.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market. 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. In addition, the Company assesses the impairment of goodwill at least annually. 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
As part of the processes of preparing its consolidated financial statements, the Company is required to estimate the income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. Deferred income taxes are provided for temporary differences in the reporting of certain items, such as depreciation and undistributed earnings of foreign subsidiaries, for income tax purposes compared to financial accounting purposes. In evaluating the Company’s ability to recover the deferred tax assets within the jurisdiction from which they arise, all positive and negative evidence is considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent acquisitions. 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 Statements of Operations, or conversely to further reduce the existing valuation allowance, resulting in less income tax expense. The Company evaluates the realizability of the deferred tax assets and assesses the need for additional valuation allowances quarterly.
Tax benefits are recognized for an uncertain tax position when, in the Company’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by the Company. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. Interest and penalties recognized on the liability for unrecognized tax benefits are recorded as income tax expense.
Contingencies and Litigation
The Company is subject to a 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.
Employee Benefit Programs
The Company's obligations for workers' compensation claims are effectively self-insured, although the Company maintains individual and aggregate stop-loss insurance coverage for such claims. The Company accrues its workers compensation liability based on estimates of the total exposure of known claims using historical experience and projected loss development factors less amounts previously paid out.
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.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. 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, forecasted, estimated or budgeted by the Company in forward-looking statements.
Generally, forward-looking statements can be identified by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. Such forward-looking statements are based on current expectations that involve a number of uncertainties and risks that may cause actual events or results to differ materially from Park’s expectations.
The factors described under “Risk Factors” in Item 1A of this Report, as well as the following additional factors, could cause the Company's actual results to differ materially from any such results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements.
■ |
The Company's operating results are affected by a number of factors, including various factors beyond the Company's control. Such factors include economic conditions in the printed circuit materials, advanced composite materials and composite parts and assemblies industries, the timing of customer orders, product prices, process yields, the mix of products sold and maintenance-related shutdowns of facilities. Operating results also can be influenced by development and introduction of new products and the costs associated with the start-up of new facilities. |
■ |
The Company, from time to time, is engaged in the expansion of certain of its manufacturing facilities. The anticipated costs of such expansions cannot be determined with precision and may vary materially from those budgeted. In addition, such expansions will increase the Company's fixed costs. The Company's future profitability depends upon its ability to utilize its manufacturing capacity in an effective manner. |
■ |
The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one-time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations. |
■ |
The Company's success is dependent upon its relationships with key suppliers and customers and key management and technical personnel. |
■ |
The Company's future success depends in part upon its intellectual property which the Company seeks to protect through a combination of contract provisions, trade secret protections, copyrights and patents. |
■ |
The market price of the Company’s securities can be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analyst earnings estimates, market conditions in the printed circuit materials, advanced composite materials and composite parts and assemblies industries, as well as general economic conditions and other factors external to the Company. |
■ |
The Company's operating results could be affected by changes in the Company's accounting policies and practices or changes in the Company's organization, compensation and benefit plans, or changes in the Company's material agreements or understandings with third parties. |
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk. |
Foreign Exchange Risk - The Company's primary foreign currency exchange exposure relates to the translation of the financial statements of foreign subsidiaries using currencies other than the U.S. dollar as their functional currencies. The Company does not believe that a hypothetical 10% fluctuation in foreign exchange rates would have had a material impact on its consolidated results of operations or financial position.
Interest Rate Risk - The exposure to market risks for changes in interest rates relates to the Company's short-term investment portfolio and its variable rate borrowings under its long-term debt obligations pursuant to the four-year amended and restated revolving credit facility agreement (the “Amended Credit Agreement”) with PNC Bank, National Association. See Note 11 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. The Company does not use derivative financial instruments in its investment portfolio or its long-term debt obligations. The Company’s short-term investment portfolio is managed in accordance with guidelines issued by the Company. These guidelines are designed to establish a high quality fixed income portfolio of government and highly rated corporate debt securities with a maximum weighted maturity of less than one year. Based on the average anticipated maturity of the investment portfolio at the end of the 2014 fiscal year, the Company does not believe that a hypothetical 10% fluctuation in short-term interest rates would have had a material impact on the consolidated results of operations or financial position of the Company. The Company’s outstanding borrowings of $104.0 million million, at March 2, 2014, represent 100% of the Company’s total long-term debt obligations. Outstanding borrowings bear interest at a rate equal to, at the Company’s option, either a (a) LIBOR rate option determined by a fluctuating rate per annum equal to the LIBOR Rate plus 1.10% or (b) base rate option determined by a fluctuating rate per annum equal to the highest of (i) the Federal Funds Open Rate (as defined in the Amended Credit Agreement) plus 0.5%, (ii) the Prime Rate (as defined in the Amended Credit Agreement), and (iii) the Daily LIBOR Rate (as defined in the Amended Credit Agreement) plus 1.0%. The Company does not believe that a hypothetical 10% fluctuation in interest rates would have had a material impact on the consolidated results of operations or financial position of the Company.
Item 8. |
Financial Statements and Supplementary Data. |
The Company's Financial Statements begin on the next page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Park Electrochemical Corp.
We have audited the accompanying consolidated balance sheets of Park Electrochemical Corp. (a New York corporation) and subsidiaries (the “Company”) as of March 2, 2014 and March 3, 2013, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended March 2, 2014. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Park Electrochemical Corp. and subsidiaries as of March 2, 2014 and March 3, 2013, and the results of their operations and their cash flows for each of the three years in the period ended March 2, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 2, 2014, based on criteria established in the 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 16, 2014 expressed an adverse opinion thereon.
/s/ GRANT THORNTON LLP
New York, New York
May 16, 2014
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
March 2, 2014 |
March 3, 2013 |
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 133,150 | $ | 186,117 | ||||
Marketable securities (Note 2) |
137,206 | 89,099 | ||||||
Accounts receivable, less allowance for doubtful accounts of $416 and $423, respectively |
22,881 | 25,878 | ||||||
Inventories (Note 3) |
13,871 | 12,918 | ||||||
Prepaid expenses and other current assets |
4,132 | 6,662 | ||||||
Total current assets |
311,240 | 320,674 | ||||||
Property, plant and equipment, net of accumulated depreciation and amortization (Note 3) |
29,674 | 32,187 | ||||||
Goodwill and other intangible assets (Note 3) |
9,847 | 9,854 | ||||||
Restricted cash |
25,000 | - | ||||||
Other assets (Note 4) |
1,332 | 6,943 | ||||||
Total Assets |
$ | 377,093 | $ | 369,658 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt (Note 11) |
$ | 10,000 | $ | - | ||||
Accounts payable |
6,109 | 6,485 | ||||||
Accrued liabilities (Note 3) |
5,139 | 6,016 | ||||||
Income taxes payable |
2,995 | 4,177 | ||||||
Total current liabilities |
24,243 | 16,678 | ||||||
Long-term debt (Note 11) |
94,000 | 52,000 | ||||||
Deferred income taxes (Note 4) |
58,124 | 812 | ||||||
Other liabilities (Note 4) |
183 | 246 | ||||||
Total liabilities |
176,550 | 69,736 | ||||||
Commitments and contingencies (Notes 12 and 13) |
||||||||
Shareholders' equity (Note 6): |
||||||||
Preferred stock, $1 par value per shares-authorized, 500,000 shares; issued, none |
- | - | ||||||
Common stock, $0.10 par value per shares-authorized, 60,000,000 shares; issued, 20,882,844 and 20,831,578 shares, respectively |
2,088 | 2,083 | ||||||
Additional paid in capital |
161,677 | 158,790 | ||||||
Retained earnings |
35,651 | 138,514 | ||||||
Accumulated other comprehensive earnings |
1,221 | 629 | ||||||
200,637 | 300,016 | |||||||
Less treasury stock, at cost, 4,074 and 4,066 shares, respectively |
(94 | ) | (94 | ) | ||||
Total shareholders' equity |
200,543 | 299,922 | ||||||
Total liabilities and shareholders' equity |
$ | 377,093 | $ | 369,658 |
See Notes to Consolidated Financial Statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Fiscal Year Ended |
||||||||||||
March 2, |
March 3, |
February 26, |
||||||||||
2014 |
2013 |
2012 |
||||||||||
Net sales |
$ | 165,764 | $ | 176,416 | $ | 193,254 | ||||||
Cost of sales |
117,664 | 125,866 | 138,512 | |||||||||
Gross profit |
48,100 | 50,550 | 54,742 | |||||||||
Selling, general and administrative expenses |
25,168 | 26,595 | 28,247 | |||||||||
Restructuring charges (Note 9) |
546 | 3,703 | 1,250 | |||||||||
Earnings from operations |
22,386 | 20,252 | 25,245 | |||||||||
Interest expense (Note 11) |
764 | 14 | - | |||||||||
Interest and other income |
460 | 647 | 808 | |||||||||
Litigation and insurance settlements (Note 8) |
- | - | 1,598 | |||||||||
Earnings before income taxes |
22,082 | 20,885 | 27,651 | |||||||||
Income tax provision (Note 4) |
64,411 | 3,924 | 4,209 | |||||||||
Net (loss) earnings |
$ | (42,329 | ) | $ | 16,961 | $ | 23,442 | |||||
Earnings per share (Note 7): |
||||||||||||
Basic (loss) earnings per share |
$ | (2.03 | ) | $ | 0.82 | $ | 1.13 | |||||
Basic weighted average shares |
20,849 | 20,801 | 20,746 | |||||||||
Diluted (loss) earnings per share |
$ | (2.03 | ) | $ | 0.81 | $ | 1.13 | |||||
Diluted weighted average shares |
20,849 | 20,823 | 20,792 |
See Notes to Consolidated Financial Statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS
(Amounts in thousands)
Fiscal Year Ended |
||||||||||||
March 2, |
March 3, |
February 26, |
||||||||||
2014 |
2013 |
2012 |
||||||||||
Net (loss) earnings |
$ | (42,329 | ) | $ | 16,961 | $ | 23,442 | |||||
Other comprehensive earnings, net of tax: |
||||||||||||
Foreign currency translation |
420 | 75 | 70 | |||||||||
Less: reclassification adjustment for foreign currency translation gains included in net earnings |
- | (1,465 | ) | - | ||||||||
Unrealized gains on marketable securities: |
||||||||||||
Unrealized holding gains arising during the period |
117 | 41 | 60 | |||||||||
Less: reclassification adjustment for gains included in net (loss) earnings |
(20 | ) | (67 | ) | (44 | ) | ||||||
Unrealized losses on marketable securities: |
||||||||||||
Unrealized holding losses arising during the period |
(83 | ) | (72 | ) | (44 | ) | ||||||
Less: reclassification adjustment for losses included in net (loss) earnings |
158 | 40 | 52 | |||||||||
Other comprehensive earnings (loss) |
592 | (1,448 | ) | 94 | ||||||||
Total comprehensive (loss) earnings |
$ | (41,737 | ) | $ | 15,513 | $ | 23,536 |
See Notes to Consolidated Financial Statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except share and per share amounts)
Accumulated |
||||||||||||||||||||||||||||
Additional |
Other |
|||||||||||||||||||||||||||
Common Stock |
Paid-in |
Retained |
Comprehensive |
Treasury Stock |
||||||||||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Earnings (Loss) |
Shares |
Amount |
||||||||||||||||||||||
Balance, February 27, 2011 |
20,722,179 | $ | 2,072 | $ | 154,459 | $ | 166,795 | $ | 1,983 | 158 | $ | (1 | ) | |||||||||||||||
Net earnings |
- | - | - | 23,442 | - | - | - | |||||||||||||||||||||
Foreign currency translation |
- | - | - | - | 70 | - | - | |||||||||||||||||||||
Unrealized gain on marketable securities, net of tax |
- | - | - | - | 24 | - | - | |||||||||||||||||||||
Stock options exercised |
73,412 | 7 | 1,803 | - | - | - | - | |||||||||||||||||||||
Stock-based compensation |
- | - | 762 | - | - | - | - | |||||||||||||||||||||
Tax benefit on exercise of options |
- | - | 91 | - | - | - | - | |||||||||||||||||||||
Cash dividends ($0.40 per share) |
- | - | - | (8,296 | ) | - | - | - | ||||||||||||||||||||
Balance, February 26, 2012 |
20,795,591 | 2,079 | 157,115 | 181,941 | 2,077 | 158 | (1 | ) | ||||||||||||||||||||
Net earnings |
- | - | - | 16,961 | - | - | - | |||||||||||||||||||||
Foreign currency translation |
- | - | - | - | (1,390 | ) | - | - | ||||||||||||||||||||
Unrealized loss on marketable securities, net of tax |
- | - | - | - | (58 | ) | - | - | ||||||||||||||||||||
Stock options exercised |
35,987 | 4 | 758 | - | - | 3,908 | (93 | ) | ||||||||||||||||||||
Stock-based compensation |
- | - | 915 | - | - | - | - | |||||||||||||||||||||
Tax benefit on exercise of options |
- | - | 2 | - | - | - | - | |||||||||||||||||||||
Cash dividends ($2.90 per share) |
- | - | - | (60,388 | ) | - | - | - | ||||||||||||||||||||
Balance, March 3, 2013 |
20,831,578 | 2,083 | 158,790 | 138,514 | 629 | 4,066 | (94 | ) | ||||||||||||||||||||
Net loss |
- | - | - | (42,329 | ) | - | - | - | ||||||||||||||||||||
Foreign currency translation |
- | - | - | - | 420 | - | - | |||||||||||||||||||||
Unrealized gain on marketable securities, net of tax |
- | - | - | - | 172 | - | - | |||||||||||||||||||||
Stock options exercised |
51,266 | 5 | 1,157 | - | - | 8 | - | |||||||||||||||||||||
Stock-based compensation |
- | - | 1,730 | - | - | - | - | |||||||||||||||||||||
Cash dividends ($2.90 per share) |
- | - | - | (60,534 | ) | - | - | - | ||||||||||||||||||||
Balance, March 2, 2014 |
20,882,844 | $ | 2,088 | $ | 161,677 | $ | 35,651 | $ | 1,221 | 4,074 | $ | (94 | ) |
See Notes to Consolidated Financial Statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Fiscal Year Ended |
||||||||||||
March 2, |
March 3, |
February 26, |
||||||||||
2014 |
2013 |
2012 |
||||||||||
Cash flows from operating activities: |
||||||||||||
Net (loss) earnings |
$ | (42,329 | ) | $ | 16,961 | $ | 23,442 | |||||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
3,757 | 4,269 | 5,891 | |||||||||
Stock-based compensation |
1,730 | 915 | 762 | |||||||||
Recovery of doubtful accounts |
- | (135 | ) | - | ||||||||
Provision for deferred income taxes |
63,681 | 1,137 | 22 | |||||||||
Amortization of bond premium |
1,816 | 1,499 | 1,481 | |||||||||
Impairment of fixed assets |
- | 3,620 | 928 | |||||||||
Gain on sale of fixed assets |
(75 | ) | - | - | ||||||||
Non-cash restructuring |
- | (1,465 | ) | 322 | ||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
3,087 | (2,255 | ) | 6,260 | ||||||||
Inventories |
(925 | ) | 2,882 | (2,947 | ) | |||||||
Prepaid expenses and other current assets |
2,442 | (3,126 | ) | 982 | ||||||||
Other assets and liabilities |
(813 | ) | (310 | ) | (1,642 | ) | ||||||
Accounts payable |
(240 | ) | (1,929 | ) | (1,485 | ) | ||||||
Accrued liabilities |
(567 | ) | (2,708 | ) | (968 | ) | ||||||
Income taxes payable |
(1,182 | ) | (21 | ) | (1,614 | ) | ||||||
Net cash provided by operating activities |
30,382 | 19,334 | 31,434 | |||||||||
Cash flows from investing activities: |
||||||||||||
Purchase of property, plant and equipment |
(1,117 | ) | (1,447 | ) | (3,994 | ) | ||||||
Proceeds from sales of property, plant and eqipment |
100 | - | - | |||||||||
Purchases of marketable securities |
(210,693 | ) | (142,134 | ) | (172,724 | ) | ||||||
Proceeds from sales and maturities of marketable securities |
161,035 | 190,728 | 170,249 | |||||||||
Business acquisition |
- | (2,200 | ) | (1,100 | ) | |||||||
Net cash (used in) provided by investing activities |
(50,675 | ) | 44,947 | (7,569 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Dividends paid |
(60,534 | ) | (60,388 | ) | (8,296 | ) | ||||||
Increase in restricted cash |
(25,000 | ) | - | - | ||||||||
Proceeds from exercise of stock options |
1,162 | 758 | 1,810 | |||||||||
Tax impact from stock-based compensation |
- | 2 | 91 | |||||||||
Proceeds from long-term debt |
52,000 | 52,000 | - | |||||||||
Payments for debt issuance costs |
(164 | ) | (53 | ) | - | |||||||
Purchase of treasury stock |
- | (93 | ) | - | ||||||||
Net cash used in financing activities |
(32,536 | ) | (7,774 | ) | (6,395 | ) | ||||||
(Decrease) increase in cash and cash equivalents before effect of exchange rate changes |
(52,829 | ) | 56,507 | 17,470 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
(138 | ) | 107 | (162 | ) | |||||||
(Decrease) increase in cash and cash equivalents |
(52,967 | ) | 56,614 | 17,308 | ||||||||
Cash and cash equivalents, beginning of year |
186,117 | 129,503 | 112,195 | |||||||||
Cash and cash equivalents, end of year |
$ | 133,150 | $ | 186,117 | $ | 129,503 |
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended March 2, 2014
(Amounts in thousands, except share (unless otherwise stated), per share and option amounts)
1. |
Summary of Significant Accounting Policies |
Park Electrochemical Corp. (“Park”), through its subsidiaries (collectively, the “Company”), is a global advanced materials company which develops, manufactures, markets and sells high-technology digital and RF/microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies products for the aerospace markets.
a. |
Principles of Consolidation – The consolidated financial statements include the accounts of Park and its subsidiaries. All significant intercompany balances and transactions have been eliminated. |
b. |
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. |
c. |
Accounting Period – The Company’s fiscal year is the 52 or 53 week period ending the Sunday nearest to the last day of February. The 2014, 2013 and 2012 fiscal years ended on March 2, 2014, March 3, 2013 and February 26, 2012, respectively. Fiscal years 2014, 2013 and 2012 consisted of 52, 53 and 52 weeks, respectively. |
d. |
Fair Value Measurements – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. |
Fair value measurements are broken down into three levels based on the reliability of inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and current liabilities approximate their carrying value due to their short-term nature. Due to the variable interest rates periodically adjusting with the current LIBOR, the carrying value of outstanding borrowings under the Company’s long-term debt approximates its fair value. (See Note 11). Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or non-recurring basis. On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs. (See Note 2).
The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill and any long-lived assets written down to fair value. To measure fair value of such assets, the Company uses Level 3 inputs consisting of techniques including an income approach and a market approach. The income approach is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the discounted cash flow analysis require the exercise of significant judgment, including judgment about appropriate discount rates, terminal value, growth rates and the amount and timing of expected future cash flows. There were no transfers between levels within the fair value hierarchy during the 2014 and 2013 fiscal years. (See Note 1.l).
During the 2013 fiscal year, the Company impaired the long-lived assets of Nelco Technology (Zhuhai FTZ) Ltd. (See Note 9).
e. |
Cash and Cash Equivalents – The Company considers all money market securities and investments with contractual maturities at the date of purchase of 90 days or less to be cash equivalents. The Company had $19,995 and $0 in debt securities included in cash equivalents at March 2, 2014 and March 3, 2013, respectively, which were valued based on level 2 inputs. (See Note 2). From time to time, certain of the Company’s cash and cash equivalents are in excess of U.S. government insurance. |
The Company classifies amounts required by the Amended Credit Agreement described in Note 11 to be maintained in cash and marketable securities as restricted cash on the consolidated balance sheets.
Supplemental cash flow information:
Fiscal Year |
||||||||||||
2014 |
2013 |
2012 |
||||||||||
Cash paid during the year for: |
||||||||||||
Income taxes, net of refunds |
$ | 612 | $ | 5,866 | $ | 6,856 | ||||||
Interest |
729 | - | - |
At March 2, 2014 and March 3, 2013, the Company held approximately $27,195 and $26,043, respectively, of cash and cash equivalents in foreign financial institutions.
f. |
Marketable Securities – All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive income (loss). Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in interest and other income, net. The cost of securities sold is based on the specific identification method. |
g. |
Inventories – Inventories are stated at the lower of cost (first-in, first-out method) or market. 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. |
h. |
Revenue Recognition – The Company recognizes revenues when products are shipped and title has been transferred to a customer, the sales price is fixed and determinable, and collection is reasonably assured. All material sales transactions are for the shipment of the Company’s products. |
i. |
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 specifications before shipment to customers. Composite parts and assemblies may be subject to “airworthiness” acceptance by customers after receipt at the customers’ locations. 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 products supplied by the Company. The Company is focused on manufacturing the highest quality products 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. The amounts of returns and allowances resulting from defective or damaged products have been less than 1.0% of sales for each of the Company's last three fiscal years. |
j. |
Accounts Receivable – The Company’s accounts receivable are due from purchasers of the Company’s products. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within established payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than established payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the conditions of the general economy and the electronics and aerospace industries. 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. The Company writes off accounts receivable when they become uncollectible. |
k. |
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. No impairments of long-lived assets were identified in the 2014, 2013 or 2012 fiscal years other than impairments associated with restructuring activities. (See Note 9). |
l. |
Goodwill and Other Intangible Assets – Goodwill is not amortized. Other intangible assets are amortized over the useful lives, which is 15 years, of the assets on a straight line basis. The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. With respect to goodwill, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value is less than the carrying value. If, based on that assessment, the Company believes it is more likely than not that the fair value is less than the carrying value, a two-step goodwill impairment test is performed. The Company assesses the impairment of goodwill at least annually. The Company conducts its annual goodwill impairment test as of the first day of the fourth quarter. The Company concluded that there was no impairment in the 2014, 2013 or 2012 fiscal years. |
m. |
Shipping Costs – The amounts paid by the Company to third-party shippers for transporting products to customers, which are not reimbursed by customers, are classified as selling expenses. The shipping costs included in selling, general and administrative expenses were approximately $3,781, $4,080 and $4,629 for the 2014, 2013 and 2012 fiscal years, respectively. |
n. |
Property, Plant and Equipment – Property, plant and equipment are stated at cost less accumulated depreciation and amortization. The Company capitalizes additions, improvements and major renewals and expenses maintenance, repairs and minor renewals as incurred. Depreciation and amortization are computed principally by the straight-line method over the estimated useful lives of the assets. Machinery, equipment, furniture and fixtures are generally depreciated over 10 years. Building and leasehold improvements are generally depreciated over 25-30 years or the term of the lease, if shorter. The depreciation and amortization expenses associated with property, plant and equipment were $3,757, $4,269 and $5,891 for the 2014, 2013 and 2012 fiscal years, respectively. |
o. |
Income Taxes – Deferred income taxes are provided for temporary differences in the reporting of certain items, such as depreciation and undistributed earnings of foreign subsidiaries, for income tax purposes compared to financial accounting purposes. In evaluating the Company’s ability to recover the deferred tax assets within the jurisdiction from which they arise, all positive and negative evidence is considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent acquisitions. 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 Statements of Operations, or conversely to further reduce the existing valuation allowance, resulting in less income tax expense. The Company evaluates the realizability of the deferred tax assets and assesses the need for additional valuation allowances quarterly. |
Tax benefits are recognized for an uncertain tax position when, in the Company’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by the Company. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. Interest and penalties recognized on the liability for unrecognized tax benefits are recorded as income tax expense.
p. |
Foreign Currency Translation – Assets and liabilities of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency are translated into U.S. dollars at period-end exchange rates or historical exchange rates, where applicable, and income and expense items are translated at average exchange rates for the period. Gains and losses resulting from translation are recorded as currency translation adjustments in comprehensive (loss) earnings. |
|
q. |
Stock-Based Compensation – The Company accounts for employee stock options, the only form of equity compensation issued by the Company, as compensation expense based on the fair value of the options on the date of grant and recognizes such expense on a straight-line basis over the four-year service period during which the options become exercisable. The Company determines the fair value of such options using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions relating to risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate. |
r. |
Treasury Stock – The Company considers all shares of the Company’s common stock purchased by the Company as authorized but unissued shares on the trade date. The aggregate purchase price of such shares is reflected as a reduction to Shareholders’ Equity, and such shares are held in treasury at cost. |
2. |
MArketable Securities |
The following is a summary of available-for-sale securities:
March 2, 2014 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
U.S. Treasury and other government securities |
$ | 112,793 | $ | 112,793 | $ | - | $ | - | ||||||||
U.S. corporate debt securities |
24,413 | 17,329 | 7,084 | $ | - | |||||||||||
Total marketable securities |
$ | 137,206 | $ | 130,122 | $ | 7,084 | $ | - |
March 3, 2013 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
U.S. Treasury and other government securities |
$ | 58,299 | $ | 58,299 | $ | - | $ | - | ||||||||
U.S. corporate debt securities |
30,800 | 20,859 | 9,941 | $ | - | |||||||||||
Total marketable securities |
$ | 89,099 | $ | 79,158 | $ | 9,941 | $ | - |
At March 2, 2014 and March 3, 2013, the Company’s level 2 investments consisted of commercial paper which was not traded on a regular basis or in an active market, and the Company was unable to obtain pricing information on an on-going basis. Therefore, these investments were measured using quoted market prices for similar assets currently trading in an active market or using model-derived valuations in which all significant inputs were observable for substantially the full term of the asset.
The following tables show the amortized cost basis, gross unrealized gains and losses and gross realized gains and losses on the Company’s available-for-sale securities:
Amortized Cost Basis |
Gross Unrealized Gains |
Gross Unrealized Losses |
||||||||||
March 2, 2014: |
||||||||||||
U.S. Treasury and other government securities |
$ | 112,593 | $ | 200 | $ | - | ||||||
U.S. corporate debt securities |
24,401 | 13 | 1 | |||||||||
Total marketable securities |
$ | 136,994 | $ | 213 | $ | 1 | ||||||
March 3, 2013: |
||||||||||||
U.S. Treasury and other government securities |
$ | 48,293 | $ | 47 | $ | 48 | ||||||
U.S. corporate debt securities |
40,859 | 11 | 63 | |||||||||
Total marketable securities |
$ | 89,152 | $ | 58 | $ | 111 |
Fiscal Year |
||||||||||||
2014 |
2013 |
2012 |
||||||||||
Gross realized gains on sale |
$ | 26 | $ | 9 | $ | 43 | ||||||
Gross realized losses on sale |
209 | 35 | 65 |
The estimated fair values of such securities at March 2, 2014, by contractual maturity, are shown below:
Due in one year or less |
$ | 73,301 | ||
Due after one year through five years |
63,905 | |||
$ | 137,206 |
3. |
Other balance sheet data |
Other balance sheet data consisted of the following:
March 2, |
March 3, |
|||||||
2014 |
2013 |
|||||||
Inventories: |
||||||||
Raw materials |
$ | 7,253 | $ | 6,639 | ||||
Work-in-process |
3,097 | 2,870 | ||||||
Finished goods |
3,223 | 3,213 | ||||||
Manufacturing supplies |
298 | 196 | ||||||
$ | 13,871 | $ | 12,918 | |||||
Property, plant and equipment: |
||||||||
Land, buildings and improvements |
$ | 39,686 | $ | 39,517 | ||||
Machinery, equipment, furniture and fixtures |
133,138 | 131,950 | ||||||
172,824 | 171,467 | |||||||
Less accumulated depreciation and amortization |
143,150 | 139,280 | ||||||
$ | 29,674 | $ | 32,187 | |||||
Goodwill and other intangible assets: |
||||||||
Goodwill |
$ | 9,776 | $ | 9,776 | ||||
Other intangibles |
71 | 78 | ||||||
$ | 9,847 | $ | 9,854 | |||||
Accrued liabilities: |
||||||||
Payroll and payroll related |
$ | 1,910 | $ | 2,210 | ||||
Employee benefits |
274 | 297 | ||||||
Workers' compensation |
354 | 687 | ||||||
Professional fees |
1,116 | 1,002 | ||||||
Restructuring (Note 9) |
198 | 304 | ||||||
Other |
1,287 | 1,516 | ||||||
$ | 5,139 | $ | 6,016 |
Property, Plant and Equipment – The New England Laminates Co., Inc. building in Newburgh, New York is held for sale. In the 2004 fiscal year, the Company reduced the book value of the building to zero, and the Company intends to sell it during the 2015 fiscal year. The Nelco Technology (Zhuhai FTZ) Ltd. building in Zhuhai, China is held for sale with a carrying value of $2,028. The Company ceased depreciating this building during the second quarter of the 2013 fiscal year, and it intends to sell the building during the 2015 fiscal year.
4. |
Income Taxes |
The income tax provision includes the following:
Fiscal Year |
||||||||||||
2014 |
2013 |
2012 |
||||||||||
Current: |
||||||||||||
Federal |
$ | (2,435 | ) | $ | (2,804 | ) | $ | (696 | ) | |||
State and local |
(55 | ) | 172 | (194 | ) | |||||||
Foreign |
3,220 | 5,419 | 5,077 | |||||||||
730 | 2,787 | 4,187 | ||||||||||
Deferred: |
||||||||||||
Federal |
63,105 | 1,652 | (239 | ) | ||||||||
State and local |
69 | (314 | ) | 658 | ||||||||
Foreign |
507 | (201 | ) | (397 | ) | |||||||
63,681 | 1,137 | 22 | ||||||||||
$ | 64,411 | $ | 3,924 | $ | 4,209 |
Current federal income tax benefits of $2,435 and $2,804 recognized in the 2014 and 2013 fiscal years, respectively, were the result of loss carrybacks to the 2011 and 2010 fiscal years, net of the tax impact from the loss of the domestic production activities deductions in those years.
The Company continuously evaluates the liquidity and capital requirements of its operations in the United States and of its foreign subsidiaries. As a result of such evaluation, the Company recorded a non-cash charge for the accrual of U.S. deferred income taxes in the amount of $63,958 on undistributed earnings of the Company's subsidiary in Singapore during the fourth quarter of the 2014 fiscal year.
State income tax benefits from loss carryforwards to future years are recognized as deferred tax assets in the 2014 and 2013 fiscal years.
The components of earnings before income taxes were as follows:
Fiscal Year |
||||||||||||
2014 |
2013 |
2012 |
||||||||||
United States |
$ | (2,080 | ) | $ | (4,196 | ) | $ | (1,447 | ) | |||
Foreign |
24,162 | 25,081 | 29,098 | |||||||||
Earnings before income taxes |
$ | 22,082 | $ | 20,885 | $ | 27,651 |
The Company’s effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following:
Fiscal Year |
||||||||||||
2014 |
2013 |
2012 |
||||||||||
Statutory U.S. Federal tax rate |
34.0 | % | 34.0 | % | 34.0 | % | ||||||
State and local taxes, net of Federal benefit |
(0.2 | ) | (0.8 | ) | (0.6 | ) | ||||||
Foreign tax rate differentials |
(19.6 | ) | (22.3 | ) | (19.9 | ) | ||||||
Valuation allowance on deferred tax assets |
2.4 | 0.4 | 3.1 | |||||||||
Adjustment on tax accruals and reserves |
(3.0 | ) | 4.8 | (2.4 | ) | |||||||
Foreign tax credits |
(0.6 | ) | (0.3 | ) | (0.3 | ) | ||||||
Deferred tax liability on undistributed earnings |
289.6 | - | - | |||||||||
Claim for refund |
(10.5 | ) | - | - | ||||||||
Permanent differences and other |
(0.4 | ) | 2.9 | 1.3 | ||||||||
291.7 | % | 18.7 | % | 15.2 | % |
The Company had federal net operating loss carryforwards of approximately $2,042 and $0 in the 2014 and 2013 fiscal years, respectively, state net operating loss carryforwards of approximately $8,899 and $7,013 in the 2014 and 2013 fiscal years, respectively, and total net foreign operating loss carryforwards of approximately $33,835 and $35,681 in the 2014 and 2013 fiscal years, respectively. The federal net operating loss carryforwards will expire in 2032 through 2034. The China net operating loss carryforwards will expire in 2015 through 2019, while the France net operating loss carryforward has an unlimited carryforward period. The state net operating loss carryforwards will expire in 2017 through 2034.
The Company has foreign tax credit carryforwards of $424 and $354 at March 2, 2014 and March 3, 2013, respectively, which expire in 2021 through 2024. As of March 2, 2014 and March 3, 2013, research and development credits of $321 and $282, respectively, expire in 2031 through 2034.
The Company had New York State investment tax credit carryforwards of $709 and $710 in the 2014 and 2013 fiscal years, respectively. The New York State Investment tax credits expire in fiscal years 2015 through 2018. The Company has Kansas tax credits of $211 in both fiscal years 2014 and 2013, for which no benefit has been provided. The Company does not believe that realization of the principal portion of the Kansas tax credit or the investment tax credit carryforward is more likely than not. The Kansas credits will expire in the 2019 and 2020 fiscal years.
The deferred tax asset valuation allowance of $11,941 as of March 2, 2014 relates to foreign net operating losses and state tax credit carryforwards for which the Company does not expect to realize any tax benefit. During the 2014 fiscal year, the valuation allowance decreased by $524 primarily due to the expiration of foreign net operating loss carryforwards for which no tax benefit was recognized. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as of March 2, 2014 and March 3, 2013 were as follows:
March 2, |
March 3, |
|||||||
2014 |
2013 |
|||||||
Deferred tax assets: |
||||||||
Depreciation |
$ | 4,593 | $ | 4,190 | ||||
Net operating loss carryforwards |
12,210 | 11,917 | ||||||
Tax credits carryforward |
1,695 | 1,343 | ||||||
Stock options |
1,693 | 953 | ||||||
Other, net |
665 | 1,387 | ||||||
20,856 | 19,790 | |||||||
Valuation allowance on deferred tax assets |
(11,941 | ) | (12,465 | ) | ||||
Total deferred tax assets, net of valuation allowance |
8,915 | 7,325 | ||||||
Depreciation |
(867 | ) | (419 | ) | ||||
Undistributed earnings |
(63,958 | ) | - | |||||
Other |
(1,616 | ) | (741 | ) | ||||
Total deferred tax liabilities |
(66,441 | ) | (1,160 | ) | ||||
Net deferred tax (liability) asset |
$ | (57,526 | ) | $ | 6,165 |
The breakdown between current and non-current deferred tax assets follows:
March 2, |
March 3, |
|||||||
2014 |
2013 |
|||||||
Current |
$ | 598 | $ | 1,206 | ||||
Non-current |
- | 5,771 | ||||||
Total deferred tax assets |
$ | 598 | $ | 6,977 |
On the Consolidated Balance Sheets, the current net deferred tax assets are included in prepaid expenses and other current assets, and the non-current net deferred tax assets are included in other assets.
At March 2, 2014, the Company had gross unrecognized tax benefits of $152 included in current liabilities and $124 included in other liabilities. The prior year unrecognized tax benefit of $2,715 relating to a claim for refund filed to recoup the tax benefit for the Company’s remaining investment in New England Laminates (U.K.) Ltd was settled with the IRS in 2014 for $1,949 plus interest of $375. If any portion of the unrecognized tax benefits at March 2, 2014 were recognized, the Company’s effective tax rate would change.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
Unrecognized Tax Benefits |
||||||||||||
March 2, |
March 3, |
February 26, |
||||||||||
2014 |
2013 |
2012 |
||||||||||
Balance, beginning of year |
$ | 3,053 | $ | 3,999 | $ | 2,044 | ||||||
Gross increases-tax positions in prior period |
- | - | 2,715 | |||||||||
Gross decreases-tax positions in prior period |
(2,776 | ) | (235 | ) | (268 | ) | ||||||
Gross increases-current period tax positions |
- | - | 264 | |||||||||
Audit settlements |
- | (711 | ) | (756 | ) | |||||||
Lapse of statute of limitations |
(1 | ) | - | - | ||||||||
Balance, end of year |
$ | 276 | $ | 3,053 | $ | 3,999 |
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding or subtracting amounts for current year tax positions, expiration of statutes of limitation on open income tax years, changes in the Company’s judgment about the level of uncertainty, status of tax examinations, and legislative changes. Changes in prior period tax positions are the result of a re-evaluation of the probability of realizing the benefit of a particular tax position based on new information. It is reasonably possible that none of the unrecognized tax benefits will be recognized in the 2014 fiscal year upon the expiration of statutes of limitations.
A list of open tax years by major jurisdiction follows:
California |
2010 | - | 2014 | |
New York |
2008 | - | 2014 | |
France |
2012 | - | 2014 | |
Singapore |
2007 | - | 2014 |
The Company had approximately $98 and $95 of accrued interest and penalties as of March 2, 2014 and March 3, 2013, respectively. The Company’s policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of current income tax expense.
During the 2012 fiscal year, the New York State Department of Taxation commenced an examination of the Company’s tax returns for the 2008, 2009, 2010 and 2011 fiscal years. As of March 2, 2014, no significant preliminary audit findings were received by the Company and no reserves have been recorded.
5. |
STOCK-BASED COMPENSATION |
As of March 2, 2014, the Company had a 2002 Stock Option Plan (the “Plan”), and no other stock-based compensation plan. The Plan has been approved by the Company’s shareholders and provides for the grant of stock options to directors and key employees of the Company. All options granted under the Plan have exercise prices equal to the fair market value of the underlying common stock of the Company at the time of grant, which, pursuant to the terms of the Plan, is the reported closing price of the common stock on the New York Stock Exchange on the date preceding the date the option is granted. Options granted under the Plan become exercisable 25% one year after the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant, and expire 10 years after the date of grant. Options to purchase a total of 1,800,000 shares of common stock were authorized for grant under the Plan. At March 2, 2014, 1,548,330 shares of common stock of the Company were reserved for issuance upon exercise of stock options under the Plan, and 467,213 options were available for future grant under the Plan.
The compensation expense for stock options includes an estimate for forfeitures and is recognized on a straight line basis over the requisite service period.
The future compensation expense to be recognized in earnings before income taxes for options outstanding at March 2, 2014 was $3,227, which is expected to be recognized ratably over a weighted average vesting period of 2.06 years.
The Company records its stock-based compensation at fair value. The weighted average fair value for options was estimated at the dates of grants, using the Black-Scholes option pricing model. The following table represents the weighted average fair value and valuation assumptions used for options granted in the 2014, 2013 and 2012 fiscal years:
Fiscal Year | ||||||||||||
2014 |
2013 |
2012 | ||||||||||
Weighted average fair value of option grants |
$8.79 | $8.56 | $6.96 | |||||||||
Risk-free interest rates |
1.64 | - | 2.15% | 1.50 | - | 1.80% | 1.90% | |||||
Expected stock price volatility |
32.80 | - | 34.00% | 35.02 | - | 37.06% | 35.40% | |||||
Expected dividend yields |
1.46 | - | 1.67% | 1.54 | - | 1.65% | 1.50 | - | 1.80% | |||
Estimated option terms (years) | 6.1 | - | 8.1 | 5.7 | - | 6.9 | 5.4 | - | 6.5 |
The risk-free interest rates are based on U.S. Treasury rates at the date of grant with maturity dates approximately equal to the estimated term of the options at the date of the grant. Volatility factors are based on historical volatility of the Company’s common stock. The expected dividend yields are based on the regular quarterly cash dividend per share most recently declared by the Company and on the exercise price of the options granted during the 2014 fiscal year. The estimated terms of the options are based on evaluations of the historical and expected future employee exercise behavior.
During the fourth quarter of the 2014 fiscal year, the Company’s Board of Directors approved a reduction of $2.50 per share in the exercise price of all outstanding options as a result of the special cash dividend of $2.50 per share paid by the Company in February 2014. The reduction in the exercise price was treated as a modification of the stock options for accounting purposes. The modification, based on the fair value of the options both immediately before and after the modification, resulted in a total of incremental compensation expense of $731 during the 2014 fiscal year, which was recorded in selling, general and administrative expenses.
Information with respect to stock option activity follows:
Outstanding Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
|||||||||||||
Balance, February 27, 2011 |
802,089 | $ | 26.05 | |||||||||||||
Granted |
198,750 | 22.53 | ||||||||||||||
Exercised |
(73,412 | ) | 24.65 | |||||||||||||
Terminated or expired |
(11,476 | ) | 25.75 | |||||||||||||
Balance, February 26, 2012 |
915,951 | $ | 25.40 | |||||||||||||
Granted |
205,520 | 25.60 | ||||||||||||||
Exercised |
(35,987 | ) | 21.16 | |||||||||||||
Terminated or expired |
(107,701 | ) | 25.91 | |||||||||||||
Balance, March 3, 2013 |
977,783 | $ | 25.54 | |||||||||||||
Granted |
193,600 | 27.20 | ||||||||||||||
Exercised |
(51,266 | ) | 23.44 | |||||||||||||
Terminated or expired |
(39,000 | ) | 26.07 | |||||||||||||
Granted under option modification |
902,517 | 23.13 | ||||||||||||||
Cancelled under option modification |
(902,517 | ) | 25.63 | |||||||||||||
Balance, March 2, 2014 |
1,081,117 | $ | 23.84 | 6.09 | $ | 5,029 | ||||||||||
Exercisable, March 2, 2014 |
664,329 | $ | 23.46 | 4.26 | $ | 3,343 |
The aggregate intrinsic values realized (the market value of the underlying shares on the date of exercise, less the exercise price, times the number of shares acquired) from the exercise of options during the 2014, 2013 and 2012 fiscal years were $249, $227 and $402, respectively.
A summary of the status of the Company’s non-vested options at March 2, 2014, and changes during the fiscal year then ended, is presented below:
Shares Subject to Options |
Weighted Average Grant Date Fair Value |
|||||||
Nonvested, beginning of year |
363,708 | $ | 8.07 | |||||
Granted |
193,600 | 8.79 | ||||||
Vested |
(122,422 | ) | 8.08 | |||||
Terminated or expired |
(18,098 | ) | 7.81 | |||||
Nonvested, end of year |
416,788 | $ | 8.41 |
6. |
SHAREHOLDERS’ EQUITY |
Shareholders’ Rights Plan – On July 20, 2005, the Board of Directors renewed the Company’s shareholders’ rights plan on substantially the same terms as its previous rights plan which expired in July 2005. In accordance with the Company’s shareholders’ rights plan, a right (the “Right”) to purchase from the Company a unit consisting of one one-thousandth (1/1,000) of a share (a “Unit”) of Series B Junior Participating Preferred Stock, par value $1.00 per share (the “Series B Preferred Stock”), at a purchase price of $150 (the “Purchase Price”) per Unit, subject to adjustment, is attached to each outstanding share of the Company’s common stock. The Rights expire on July 20, 2015. Subject to certain exceptions, the Rights will become exercisable 10 business days after a person acquires 20 percent or more of the Company’s outstanding common stock or commences a tender offer that would result in such person’s owning 20 percent or more of such stock. If any person acquires 20 percent or more of the Company’s outstanding common stock, the rights of holders, other than the acquiring person, become rights to buy shares of the Company’s common stock (or of the acquiring company if the Company is involved in a merger or other business combination and is not the surviving corporation) having a market value of twice the Purchase Price of each Right. The Company may redeem the Rights for $.01 per Right until 10 business days after the first date of public announcement by the Company that a person acquired 20 percent or more of the Company’s outstanding common stock.
Treasury Stock – The Company announced on October 18, 2012 that its Board of Directors had authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,000,000 shares of its common stock, representing approximately 5% of the Company’s 20,802,020 total outstanding shares as of the close of business on October 17, 2012. During the 2014 and 2013 fiscal years, the Company purchased 0 and 3,905 shares, respectively, pursuant to such authorization at an aggregate purchase price of $0 and $93, respectively, leaving 996,095 shares that may be purchased pursuant to such authorization. In addition, the Company purchased 3 and 8 shares during the 2014 and 2013 fiscal years, respectively, not pursuant to such authorization.
Reserved Common Shares – At March 2, 2014, 1,548,330 shares of common stock were reserved for issuance upon exercise of stock options.
Accumulated Other Comprehensive Income – Accumulated balances related to each component of other comprehensive income were as follows:
March 2, 2014 |
March 3, 2013 |
|||||||
Currency translation adjustment |
$ | 1,083 | $ | 663 | ||||
Unrealized gains (losses) on investments, net of tax |
138 | (34 | ) | |||||
Accumulated balance |
$ | 1,221 | $ | 629 |
7. |
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 the number of dilutive options is computed using the treasury stock method.
The following table sets forth the calculation of basic and diluted earnings per share:
Fiscal Year |
||||||||||||
(Amounts in thousands, except per share amounts) |
2014 |
2013 |
2012 |
|||||||||
Net Earnings |
$ | (42,329 | ) | $ | 16,961 | $ | 23,442 | |||||
Weighted average common shares outstanding for basic EPS |
20,849 | 20,801 | 20,746 | |||||||||
Net effect of dilutive options |
- | 22 | 46 | |||||||||
Weighted average outstanding for diluted EPS |
20,849 | 20,823 | 20,792 | |||||||||
Basic (loss) earnings per share |
$ | (2.03 | ) | $ | 0.82 | $ | 1.13 | |||||
Diluted (loss) earnings per share |
$ | (2.03 | ) | $ | 0.81 | $ | 1.13 |
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 approximately 1,081,000, 423,000 and 197,000 for the 2014, 2013 and 2012 fiscal years, respectively.
8. |
LITIGATION AND INSURANCE SETTLEMENTS |
During the 2013 fiscal year, the Company recorded pre-tax other income of $1,000 resulting from the settlement of a business interruption insurance claim at the Company’s Neltec, Inc. (“Neltec”) business unit in Tempe, Arizona and Nelco Products, Inc. (“Nelco”) business unit in Fullerton, California resulting from an interruption of material shipments from one of the Company’s vendors located in Japan to these subsidiaries caused by the March 2011 tsunami in Japan. The settlement amount has been recorded in litigation and insurance settlements on the Consolidated Statements of Operations.
During the 2013 fiscal year, the Company settled all pending litigation with Isola USA Corporation (“Isola”) for $1,000, which has been recorded in litigation and insurance settlements on the Consolidated Statements of Operations. The settlement resulted in the dismissal of the patent infringement lawsuit that Isola filed against Park, Nelco and Neltec. Park, Nelco and Neltec agreed to refrain from challenging the validity or enforceability of any of the applicable patents. In the settlement, neither party admitted any liability or wrongdoing. (See Note 13).
During the 2012 fiscal year, the Company recorded pre-tax other income of $1,598 resulting from the settlements of (a) a lawsuit for an insurance claim for business interruption at the Company’s Neltec business unit in Tempe, Arizona in the 2003 fiscal year caused by the explosion and resulting destruction of a treater at the Company’s business unit in Singapore and (b) a lawsuit pertaining to defective equipment purchased by the Company’s Park Aerospace Technologies Corp. business unit in Newton, Kansas. The gain has been recorded in litigation and insurance settlements on the Consolidated Statements of Operations.
9. |
RESTRUCTURING CHARGES |
During the 2013 fiscal year, the Company recorded restructuring charges of $2,730, related to the closure of the Company’s Nelco Technology (Zhuhai FTZ) Ltd. business unit located in Zhuhai, China. The charges include a non-cash asset impairment charge of $3,620, related to property, plant and equipment, and are net of the recapture of a non-cash cumulative currency translation adjustment of $1,465. The reclassification of the non-cash cumulative currency translation adjustment was included in foreign currency translation changes in the Consolidated Statements of Comprehensive (Loss) Earnings. The Company has a building with a carrying value of $2,028 as of March 2, 2014, which is held for sale at its Nelco Technology (Zhuhai FTZ) Ltd. business unit. The Company ceased depreciating this building during the 2013 fiscal year second quarter and expects to sell the building in the 2015 fiscal year. During the 2014 fiscal year, the Company recorded $546 of additional pre-tax charges related to such closure. The Company paid $526 of such charges during the 2014 fiscal year and does not expect to record any additional charge in connection with such closure.
In the 2012 fiscal year fourth quarter, the Company recorded a pre-tax charge of $1,250 related to the closing of the Company’s Park Advanced Composite Materials, Inc. business unit located in Waterbury, Connecticut. The charge for closing the business unit included a non-cash asset impairment charge of $928 related to property, plant and equipment. As a result of the closing, the Company recorded $820 of additional pre-tax charges during the 2013 fiscal year. The Company paid $51 and $1,091 of such charges during the 2014 and 2013 fiscal years, respectively. The Company does not expect to record any additional charge resulting from such closing.
As of February 26, 2012, the Company had remaining obligations and potential liabilities in the aggregate amount of $1,187 related to the closure, in January of 2009, of the Neltec Europe SAS printed circuit materials business unit and recorded an additional pre-tax charge of $153 in the 2013 fiscal year fourth quarter. The Company paid $1,133 of these obligations in the 2013 fiscal year and settled the remaining $207 during the 2014 fiscal year.
10. |
EMPLOYEE BENEFIT PLANS |
Profit Sharing Plan – The Company and certain of its subsidiaries have a non-contributory profit sharing retirement plan covering substantially all full-time employees in the United States. The plan may be modified or terminated at any time, but in no event may any portion of the contributions revert back to the Company. The Company's estimated contributions are accrued at the end of each fiscal year and paid to the plan in the subsequent fiscal year. The Company’s contributions to the plan were $256 and $460 for fiscal years 2013 and 2012, respectively. The contribution for fiscal year 2014 has not been paid. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code.
Savings Plan – The Company also sponsors a 401(k) savings plan, pursuant to which the contributions of employees of certain subsidiaries were partially matched by the Company in the amounts of $142, $154 and $164 in the 2014, 2013 and 2012 fiscal years, respectively.
11. |
LONG-TERM DEBT |
On January 30, 2013, the Company entered into a five-year revolving credit facility agreement (the “Credit Agreement”) with PNC Bank, National Association. The Credit Agreement provided for loans up to $52,000 (the “Facility”) to the Company and letters of credit up to $2,000 for the account of the Company. The Company borrowed $52,000 to finance a special dividend paid to shareholders of the Company in the 2013 fiscal year fourth quarter.
On February 12, 2014, the Company entered into a four-year amended and restated revolving credit facility agreement (the “Amended Credit Agreement”) with PNC Bank, National Association. The Amended Credit Agreement provides for loans up to $104,000 (the “Amended Facility”) to the Company and letters of credit up to $2,000 for the account of the Company. To date, the Company has borrowed $52,000 to finance a special dividend paid to shareholders of the Company in the 2014 fiscal year fourth quarter and an additional $52,000 to continue the loan that was provided under the Credit Agreement, and PNC Bank has issued two standby letters of credit for the account of the Company in the total amount of $1,120 to secure the Company’s obligations under its workers’ compensation insurance program.
Borrowings under the Amended Facility bear interest at a rate equal to, at the Company’s option, either a (a) LIBOR rate option determined by a fluctuating rate per annum equal to the LIBOR Rate plus 1.10% or (b) base rate option determined by a fluctuating rate per annum equal to the highest of (i) the Federal Funds Open Rate (as defined in the Amended Credit Agreement) plus 0.5%, (ii) the Prime Rate (as defined in the Amended Credit Agreement), and (iii) the Daily LIBOR Rate (as defined in the Amended Credit Agreement) plus 1.0%. Under the Amended Credit Agreement, the Company also is obligated to pay a nonrefundable commitment fee, accruing from February 12, 2014 until the earlier of February 12, 2018 and the date on which the Amended Credit Agreement is terminated, equal to 0.20% per annum multiplied by the average daily difference between the amount of (a) the revolving credit commitment and (b) the revolving facility usage, payable quarterly in arrears.
The Amended Credit Agreement also contains certain customary affirmative and negative covenants and customary financial covenants that require the Company to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 at the end of each fiscal quarter and not to exceed a maximum funded debt ratio, which decreases periodically, of (a) 3.75 to 1.00 through February 28, 2015, (b) 3.50 to 1.00 for the period March 1, 2015 through February 27, 2016, (c) 3.00 to 1.00 for the period February 28, 2016 through February 25, 2017, and (d) 2.25 to 1.00 for all periods thereafter. In addition, the Company must maintain minimum domestic liquid assets of $25,000 in cash and marketable securities and a quick ratio (as defined in the Amended Credit Agreement), which decreases periodically, of (a) 10.50 to 1.00 through February 28, 2015, (b) 10.00 to 1.00 for the period March 1, 2015 through February 27, 2016, (c) 8.50 to 1.00 for the period from February 28, 2016 through February 25, 2017, and (d) 3.25 to 1.00 for all periods thereafter. As of March 2, 2014, the Company was in compliance with these financial covenants. The dividend covenant permits the Company to pay regular quarterly dividends in amounts not exceeding $0.10 per share and an annual special dividend to shareholders in amounts ranging from $1.00 to $2.50 with prior written notification to PNC Bank, National Association. The Company’s obligations under the Amended Credit Agreement are guaranteed by its Nelco Products, Inc., Neltec, Inc. and Park Aerospace Technologies Corp. subsidiaries and secured by a pledge of 65% of the capital stock of the Company’s Nelco Products Pte. Ltd. subsidiary in Singapore. The minimum domestic liquid assets of $25,000 are reflected as restricted cash on the Consolidated Balance Sheets.
The Amended Facility is available to (i) refinance the Credit Agreement, (ii) support working capital and general corporate needs, including the issuance of letters of credit, (iii) fund special distributions to the Company’s shareholders permitted under the Amended Facility, and (iv) finance on-going capital expenditures and acquisitions. At March 2, 2014, $104,000 of indebtedness was outstanding under the Amended Credit Agreement with an interest rate of 1.30%. Interest expense recorded under the Facility and Amended Facility was approximately $764 and $14 during the 2014 and 2013 fiscal years, respectively, which is included in interest expense on the Consolidated Statements of Operations.
At March 2, 2014, scheduled principal maturities of long-term debt were as follows:
Fiscal Year |
Amount |
|||
2015 |
$ | 10,000 | ||
2016 |
10,000 | |||
2017 |
15,000 | |||
2018 |
69,000 | |||
$ | 104,000 | |||
Less current portion: |
10,000 | |||
$ | 94,000 |
12. |
Commitments |
The Company conducts certain of its operations in leased facilities, which include several manufacturing plants, warehouses and offices. The leases of facilities are for terms of up to 10 years, the latest of which expires in 2016. Many of the leases contain renewal options for periods ranging from one to ten years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2054.
These non-cancelable leases have the following payment schedule:
Fiscal Year |
Amount |
|||
2015 |
$ | 1,886 | ||
2016 |
1,246 | |||
2017 |
336 | |||
2018 |
213 | |||
2019 |
213 | |||
Thereafter |
3,828 | |||
$ | 7,722 |
Rental expenses, inclusive of real estate taxes and other costs, were $2,765, $3,068 and $3,734 for the 2014, 2013 and 2012 fiscal years, respectively. In addition, the Company has commitments to purchase raw materials for $1,201, which extend through November 2015, and commitments to purchase equipment for $87.
13. |
CONTINGENCIES |
Litigation
The Company is subject to a 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. The Company believes that the ultimate disposition of such proceedings, lawsuits and claims will not have a material adverse effect on the liquidity, capital resources, business or consolidated results of operations or financial position of the Company.
In June 2012, Isola USA Corporation filed a complaint against the Company and its Nelco Products, Inc. and Neltec, Inc. business units in the United States District Court for the District of Arizona, in Phoenix, Arizona, alleging that the sales of certain products by Park and the two aforementioned business units in the United States infringe two United States patents owned by Isola. Isola amended the complaint in August 2012 to add a third United States patent. In the 2013 fiscal year fourth quarter, Isola and Park agreed to settle all pending litigation between the parties related to Isola’s patents for the use of Styrene Maleic Anhydride (“SMA”) in laminates for $1,000, which has been recorded in litigation and insurance settlements on the Consolidated Statements of Operations. The settlement resulted in the dismissal of the patent infringement lawsuit that Isola filed against Park, Nelco and Neltec. Park, Nelco and Neltec agreed to refrain from challenging the validity or enforceability of any of Isola’s SMA patents. In the settlement, neither party admitted any liability or wrongdoing.
Environmental Contingencies
The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at four sites. In addition, a subsidiary of the Company has received a cost recovery claim under a state law similar to the Superfund Act from a private party involving one other site.
Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program.
The insurance carriers who provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company's subsidiaries' waste was disposed at these sites have in the past reimbursed the Company and its subsidiaries for 100% of their legal defense and remediation costs associated with three of these sites.
The total costs incurred by the Company and its subsidiaries in connection with these sites, including legal fees incurred by the Company and its subsidiaries and their assessed share of remediation costs and excluding amounts expected to be reimbursed by insurance carriers, were approximately $8, $56 and $127 in the 2014, 2013 and 2012 fiscal years, respectively. The Company had no recorded liabilities for environmental matters for the 2014 and 2013 fiscal years.
Such recorded liabilities do not include environmental liabilities and related legal expenses for which the Company believes that it and its subsidiaries have general liability insurance coverage for the years during which the Company's subsidiaries' waste was disposed at three sites for which certain subsidiaries of the Company have been named as potentially responsible parties. Pursuant to such general liability insurance coverage, two insurance carriers have been paying 100% of the legal defense and remediation costs associated with such three sites since 1985. In the 2012 fiscal year fourth quarter, one of such insurance carriers, which had been paying 45% of such legal defense and remediation costs, indicated that it no longer agreed to such percentage. As a result, the Company commenced litigation against such insurance carriers and a third insurance carrier. The three insurance carriers have filed answers to the lawsuit, and one has asserted counter claims against the Company. The insurance carriers and the Company are engaged in discussions to settle this matter. The Company does not expect any such settlement to have a material adverse effect on the Company’s results of operations, cash flows or financial position.
Included in selling, general and administrative expenses are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters, including the litigation described above, will not have a material adverse effect on the liquidity, capital resources, business or consolidated results of operations or financial position of the Company.
14. |
GEOGRAPHIC REGIONS |
The Company is a global advanced materials company which develops, manufactures, markets and sells high technology digital and RF/microwave printed circuit materials principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies for the aerospace markets. The Company’s products are sold to customers in North America, Asia and Europe. The Company’s manufacturing facilities are located in Singapore, France, Kansas, Arizona and California. The Company operates as a single operating segment, which is advanced materials for the electronics and aerospace markets, with common management and identical or very similar economic characteristics, products, raw materials, manufacturing processes and equipment, customers and markets, marketing, sales and distribution methods and regulatory environments. The chief operating decision maker reviews financial information on a consolidated basis.
Sales are attributed to geographic region based upon the region in which the materials were delivered to the customer. Sales between geographic regions were not significant.
Financial information regarding the Company’s operations by geographic region is as follows:
Fiscal Year |
||||||||||||
2014 |
2013 |
2012 |
||||||||||
Sales: |
||||||||||||
United States |
$ | 80,880 | $ | 79,336 | $ | 83,877 | ||||||
Asia (China, South Korea and all other) |
71,853 | 78,559 | 82,325 | |||||||||
All other |
13,031 | 18,521 | 27,052 | |||||||||
Total sales |
165,764 | 176,416 | 193,254 | |||||||||
Long-lived assets: |
||||||||||||
United States |
26,899 | 34,555 | 35,419 | |||||||||
Asia |
13,557 | 14,102 | 18,584 | |||||||||
Europe |
397 | 327 | 395 | |||||||||
Total long-lived assets |
$ | 40,853 | $ | 48,984 | $ | 54,398 |
15. |
Customer and Supplier Concentrations |
Customers – Sales to TTM Technologies Inc. were 15.8%, 16.1% and 15.7% of the Company's total worldwide sales for the 2014, 2013 and 2012 fiscal years, respectively. Sales to Sanmina-SCI Corporation were 10.1% and 11.5% of the Company's total worldwide sales for the 2013 and 2012 fiscal years, respectively. Sales to subsidiaries of Flextronics International, Ltd. were 10.0%, of the Company’s total worldwide sales for the 2012 fiscal year.
While no other customer accounted for 10% or more of the Company's total worldwide sales in the 2014, 2013 or 2012 fiscal years, the loss of a major printed circuit materials customer or of a group of customers could have a material adverse effect on the Company's business or consolidated results of operations or financial position.
Sources of Supply – The principal materials used in the manufacture of the Company's high-technology printed circuit materials and advanced composite materials, parts and assemblies are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. Although there is a limited number of qualified suppliers of these materials, the Company has nevertheless identified alternate sources of supply for many of such materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from a principal supplier could adversely affect the Company's business. Furthermore, substitutes for these materials are not readily available, and an inability to obtain essential materials, if prolonged, could materially adversely affect the Company’s business. The Company experienced a supply chain issue in Japan as a result of the earthquake and tsunami in Japan in March 2011. Such issue was resolved during the 2012 fiscal year third quarter.
16. |
ACCOUNTING PRONOUNCEMENTS |
Recently Adopted
In February 2013, the FASB issued authoritative guidance that requires disclosure of amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about such amounts. The Company adopted this guidance effective March 4, 2013, the first day of the Company’s 2014 fiscal year, and the adoption of this guidance did not impact the Company’s results of operations, cash flows or financial condition.
Recently Issued
In March 2013, the FASB issued authoritative guidance which states that when a parent sells an investment in a foreign entity and ceases to have a controlling interest in that foreign entity, or when a foreign subsidiary disposes of substantially all of its assets, or when a parent acquires control of a foreign entity in which the parent held an equity interest before the acquisition date, the cumulative translation adjustment should be released into net income. This guidance is effective prospectively for fiscal years (and interim reporting periods within those fiscal years) beginning after December 15, 2013, with early adoption permitted, which is the first quarter of the Company’s 2015 fiscal year. The Company does not expect that the adoption of this guidance will have a material impact on the Company’s results of operations, cash flows or financial condition.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
Selected Quarterly Financial Data (Unaudited)
(Amounts in thousands, except per share amounts)
Quarter |
||||||||||||||||
First |
Second |
Third |
Fourth |
|||||||||||||
Fiscal 2014: |
||||||||||||||||
Net sales |
$ | 43,438 | $ | 44,497 | $ | 39,678 | $ | 38,151 | ||||||||
Gross profit |
12,991 | 13,621 | 11,038 | 10,450 | ||||||||||||
Net Earnings (Loss) |
4,929 | 8,045 | 4,721 | (60,024 | ) | |||||||||||
Basic net earnings (loss) per share |
$ | 0.24 | $ | 0.39 | $ | 0.23 | $ | (2.88 | ) | |||||||
Diluted net earnings (loss) per share |
$ | 0.24 | $ | 0.39 | $ | 0.23 | $ | (2.88 | ) | |||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
20,828 | 20,836 | 20,857 | 20,873 | ||||||||||||
Diluted |
20,844 | 20,852 | 20,917 | 20,873 |
Fiscal 2013: |
||||||||||||||||
Net sales |
$ | 46,046 | $ | 46,430 | $ | 41,265 | $ | 42,675 | ||||||||
Gross profit |
12,976 | 13,199 | 12,540 | 11,835 | ||||||||||||
Net Earnings |
4,933 | 3,246 | 4,710 | 4,072 | ||||||||||||
Basic net earnings per share |
$ | 0.24 | $ | 0.16 | $ | 0.23 | $ | 0.20 | ||||||||
Diluted net earnings per share |
$ | 0.24 | $ | 0.16 | $ | 0.23 | $ | 0.20 | ||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
20,796 | 20,800 | 20,801 | 20,806 | ||||||||||||
Diluted |
20,849 | 20,819 | 20,803 | 20,822 |
Earnings per share are computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for each year.
During the fourth quarter of the 2014 fiscal year, the Company provided for U.S. deferred income taxes in the amount of $63,958 on the undistributed earnings of the Company’s subsidiary in Singapore. See Note 4 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report
During the fourth quarter of the 2014 fiscal year, the Company’s Board of Directors approved a reduction of $2.50 per share in the exercise price of all outstanding stock options as a result of the special cash dividend of $2.50 per share paid by the Company in February 2014. The reduction in the exercise price was treated as a modification of the stock options for accounting purposes. The modification, based on the fair value of the options both immediately before and after the modification, resulted in a total of incremental compensation expense of $731 during the fourth quarter of the 2014 fiscal year, which was recorded in selling, general and administrative expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. 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 March 2, 2014, the end of the fiscal year covered by this annual report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such fiscal year, due to the material weakness in internal control over financial reporting described below, the Company's disclosure controls and procedures were not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A “material weakness” in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected in a timely basis by the company’s internal controls.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 2, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 1992 Internal Control–Integrated Framework. Based on adjustments identified in the accounting for complex and non-routine transactions, management concluded that the Company did not have adequate policies and procedures in place to ensure the timely, effective review of such transactions. Therefore, there was a material weakness in the design and operating effectiveness of the internal control over these complex and non-routine transactions. Management concluded that the Company’s internal control over financial reporting was not effective as of March 2, 2014. Notwithstanding the existence of the material weakness, management has concluded that the consolidated financial statements in this report present fairly, in all material respects, the Company's financial position and the results of our operations and cash flows as of the dates and for the periods presented, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The independent registered public accounting firm that audited the Company’s financial statements included in this Annual Report on Form 10-K has issued an attestation report on the Company’s internal control over financial reporting. That report appears in Item 9A(c) below.
(c) Attestation Report of the Independent Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Park Electrochemical Corp.
We have audited the internal control over financial reporting of Park Electrochemical Corp. (a New York corporation) and subsidiaries (the “Company”) as of March 2, 2014, based on criteria established in the 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management disclosed that a material weakness in internal control exists relating to its process and procedures over complex and non-routine transactions to ensure their timely and effective review.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of March 2, 2014, based on criteria established in the 1992 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended March 2, 2014. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and this report does not affect our report dated May 16, 2014, which expressed an unqualified opinion on those financial statements.
/s/GRANT THORNTON LLP
New York, New York
May 16, 2014
(d) Changes in Internal Control Over Financial Reporting.
There has not been any change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter of the fiscal year to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information called for by this item (except for information as to the Company's executive officers, which information appears elsewhere in this Report) is incorporated by reference to the Company's definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 11. |
EXECUTIVE COMPENSATION. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
This information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
PART IV
ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Page | |||
(a) |
Documents filed as a part of this Report |
||
(1) |
Financial Statements: |
||
The following Consolidated Financial Statements of the Company are included in Part II, Item 8: |
|||
Report of Independent Registered Public Accounting Firm |
41 | ||
Balance Sheets |
42 | ||
Statements of Operations |
43 | ||
Statements of Comprehensive (Loss) Earnings |
44 | ||
Statements of Shareholders' Equity |
45 | ||
Statements of Cash Flows |
46 | ||
Notes to Consolidated Financial Statements (1-16) |
47 | ||
(2) |
Financial Statement Schedules: |
||
The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant described in Item 15(a)(1) above: |
|||
Schedule II – Valuation and Qualifying Accounts |
76 | ||
All other schedules have been omitted because they are not applicable or not required, or the information is included elsewhere in the financial statements or notes thereto. |
|||
(3) |
Exhibits: |
||
The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index beginning on page 77 hereof. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: May 16, 2014 |
PARK ELECTROCHEMICAL CORP. |
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|
|
|
|
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By: |
/s/ Brian E. Shore |
|
|
|
Brian E. Shore |
|
|
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President and Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date | |
/s/ Brian E. Shore | Chairman of the Board, President and Chief Executive Officer and Director (principal | ||
Brian E. Shore |
executive officer) |
May 16, 2014 | |
/s/ P. Matthew Farabaugh | Vice President and Chief Financial Officer (principal financial officer and principal | ||
P. Matthew Farabaugh |
accounting officer) | May 16, 2014 | |
/s/ Dale Blanchfield | Director | May 16, 2014 | |
Dale Blanchfield |
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/s/ Emily J. Groehl | Director | May 16, 2014 | |
Emily J. Groehl |
|
||
/s/ Peter Maurer |
Director |
May 16, 2014 | |
Peter Maurer |
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/s/ Steven T. Warshaw | Director | May 16, 2014 | |
Steven T. Warshaw |
|
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PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Column C |
||||||||||||||||||||
Column A |
Column B |
Additions |
Column D |
Column E |
||||||||||||||||
Description |
Balance at Beginning of Period |
Costs and Expenses |
Other |
Reductions |
Balance at End of Period |
|||||||||||||||
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE: |
||||||||||||||||||||
52 weeks ended March 2, 2014 |
$ | 12,465,000 | $ | 330,000 | $ | - | $ | (854,000 | ) | $ | 11,941,000 | |||||||||
53 weeks ended March 3, 2013 |
$ | 11,661,000 | $ | 804,000 | $ | - | $ | - | $ | 12,465,000 | ||||||||||
52 weeks ended February 26, 2012 |
$ | 10,877,000 | $ | 784,000 | $ | - | $ | - | $ | 11,661,000 |
Column D |
||||||||||||||||||||
Column A |
Column B |
Column C |
Other |
Column E |
||||||||||||||||
Description |
Balance at Beginning of Period |
Charged to Cost and Expenses |
Accounts Written Off (A) |
Translation Adjustment |
Balance at End of Period |
|||||||||||||||
ALLOWANCE FOR DOUBTFUL ACCOUNTS: |
||||||||||||||||||||
52 weeks ended March 2, 2014 |
$ | 423,000 | $ | (7,000 | ) | $ | - | $ | - | $ | 416,000 | |||||||||
53 weeks ended March 3, 2013 |
$ | 598,000 | $ | (135,000 | ) | $ | (40,000 | ) | $ | - | $ | 423,000 | ||||||||
52 weeks ended February 26, 2012 |
$ | 599,000 | $ | (1,000 | ) | $ | - | $ | - | $ | 598,000 |
(A) Uncollectible amounts, net of recoveries |
EXHIBIT INDEX
Exhibit Numbers |
Description |
| |
3.1 |
Restated Certificate of Incorporation, dated March 28, 1989, filed with the Secretary of State of the State of New York on April 10, 1989, as amended by Certificate of Amendment of the Certificate of Incorporation, increasing the number of authorized shares of Common stock from 15,000,000 to 30,000,000 shares, dated July 12, 1995, filed with the Secretary of State of the State of New York on July 17, 1995, and by Certificate of Amendment of the Certificate of Incorporation, amending certain provisions relating to the rights, preferences and limitations of the shares of a series of Preferred Stock, dated August 7, 1995, filed with the Secretary of State of the State of New York on August 16, 1995 (Reference is made to Exhibit 3.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
3.2 |
Certificate of Amendment of the Certificate of Incorporation, increasing the number of authorized shares of Common Stock from 30,000,000 to 60,000,000 shares, dated October 10, 2000, filed with the Secretary of State of the State of New York on October 11, 2000 (Reference is made to Exhibit 3.02 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2003, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
3.3
|
Certificate of Amendment of the Certificate of Incorporation, canceling Series A Preferred Stock of the Company and authorizing a new Series B Junior Participating Preferred Stock of the Company, dated July 21, 2005, filed with the Secretary of the State of New York on July 21, 2005 (Reference is made to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on July 21, 2005, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
3.4 |
By-Laws, as amended November 15, 2007 (Reference is made to Exhibit 3 of the Company's Current Report on Form 8-K filed on November 21, 2007, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
4.1
|
Rights Agreement, dated as of July 20, 2005, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company’s Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Form 8-A filed on July 21, 2005, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.1 |
Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1100 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease (Reference is made to Exhibit 10.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
|
Exhibit Numbers |
Description |
||
10.2 |
Lease dated December 12, 1989 between Nelco Products, Inc. and James Emmi regarding real property located at 1107 East Kimberly Avenue, Anaheim, California and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease (Reference is made to Exhibit 10.02 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.3 |
Lease Agreement dated August 16, 1983 and Exhibit C, First Addendum to Lease, between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California (Reference is made to Exhibit 10.03 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.3(a) |
Second Addendum to Lease dated January 26, 1987 to Lease Agreement dated August 16, 1983 (see Exhibit 10.3 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1421 E. Orangethorpe Avenue, Fullerton, California (Reference is made to Exhibit 10.03(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.3(b) |
Third Addendum to Lease dated January 7, 1991 and Fourth Addendum to Lease dated January 7, 1991 to Lease Agreement dated August 16, 1983 (see Exhibit 10.3 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411, 1421 and 1431 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.3(c) |
Fifth Addendum to Lease dated July 5, 1995 to Lease dated August 16, 1983 (see Exhibit 10.03 hereto) between Nelco Products, Inc. and TCLW/Fullerton regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California (Reference is made to Exhibit 10.3(c) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
|
Exhibit Numbers |
Description | ||
10.4 |
Lease Agreement dated May 26, 1982 between Nelco Products Pte. Ltd. (lease was originally entered into by Kiln Technique (Private) Limited, which subsequently assigned this lease to Nelco Products Pte. Ltd.) and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore (Reference is made to Exhibit 10.04 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.4(a) |
Deed of Assignment, dated April 17, 1986 between Nelco Products Pte. Ltd., Kiln Technique (Private) Limited and Paul Ma, Richard Law, and Michael Ng, all of Peat Marwick & Co., of the Lease Agreement dated May 26, 1982 (see Exhibit 10.4 hereto) between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore (Reference is made to Exhibit 10.04(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.5 |
Lease dated December 12, 1990 between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.5(a)
|
Letter dated January 8, 1996 from Neltec, Inc. to NZ Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1997, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.5(b) |
Letter dated January 25, 2001 from Neltec, Inc. to NZ Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real estate property located at 1420 W. 12th Place, Tempe, Arizona (Reference is made to Exhibit 10.7(b) of the Company’s Annual Report on Form l0-K for the fiscal year ended February 26, 2006, Commission File No. 1-4415, which is incorporated herein by reference.) |
|
Exhibit Numbers |
Description | ||
10.5(c) |
Letter dated February 14, 2006 from Neltec, Inc. to REB Ltd. Properties, Inc. exercising its option to extend the Lease dated December 12, 1990 (see Exhibit 10.7 hereto) between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona (Reference is made to Exhibit 10.7(c) of the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2006, Commission File No. 1-4415, which is incorporated herein by reference.) |
| |
10.6 |
2002 Stock Option Plan of the Company (Reference is made to Exhibit 10.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 1, 2002, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) |
| |
10.7 |
Forms of Incentive Stock Option Contract for employees, Non-Qualified Stock Option Contract for employees and Non-Qualified Stock Option Contract for directors under the 2002 Stock Option Plan of the Company (Reference is made to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2005, Commission File No.1-4415, which is incorporated herein by reference.) |
| |
10.8 |
Amended and Restated Credit Agreement by and among Park Electrochemical Corp., as Borrower, the Guarantors party thereto, and PNC Bank, National Association, as Lender, dated as of February 12, 2014 |
||
14.1 |
Code of Ethics for Chief Executive Officer and Senior Financial Officers adopted on May 6, 2004 (Reference is made to Exhibit 14.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2004, Commission File No. 1-4415, which is incorporated herein by reference.) |
||
21.1 |
Subsidiaries of the Company |
||
23.1 |
Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP) |
||
31.1 |
Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) |
||
31.2 |
Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) |
||
32.1 |
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 |
||
32.2 |
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101 |
The following materials from the Company’s Annual Report on Form 10-K for the year ended March 2, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 2, 2014 and March 3, 2013, (ii) Consolidated Statements of Operations for the years ended March 2, 2014, March 3, 2013 and February 26, 2012 (iii) Consolidated Statements of Comprehensive (Loss) Earnings for the years ended March 2, 2014, March 3, 2013 and February 26, 2012, (iv) Consolidated Statements of Shareholders’ Equity for the years ended March 2, 2014, March 3, 2013 and February 26, 2012, and (iv) Consolidated Statements of Cash Flows for the years ended March 2, 2014, March 3, 2013 and February 26, 2012 *+ |
* Filed electronically herewith. | |
+ Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
Exhibit 10.8
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (as hereafter amended, modified, supplemented or restated, this “Agreement”) is dated as of February 12, 2014 and is made by and among PARK ELECTROCHEMICAL CORP., a New York corporation (the “Parent Company”), and any of its Subsidiaries that hereafter join this Agreement as Borrowers (with the Parent Company, each a “Borrower” and collectively, the “Borrowers”), each of the GUARANTORS (as hereinafter defined) party hereto, and PNC BANK, NATIONAL ASSOCIATION (the “Lender”).
RECITALS
The Borrowers and Lender entered into a Credit Agreement dated as of January 30, 2013 (as amended by a certain written amendment agreement dated as of April 29, 2013, the “Existing Credit Agreement”).
The Borrowers have requested the Lender to amend and restate the Existing Credit Agreement to provide a revolving credit facility to the Borrowers in an aggregate principal amount not to exceed $106,000,000, on the terms and subject to the conditions set forth in this Agreement. In consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto covenant and agree as follows:
1. DEFINED TERMS
1.1 Certain Definitions. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:
Affiliate shall mean, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Anti-Terrorism Laws shall mean any Laws relating to terrorism, trade sanctions programs and embargoes, import/export licensing, money laundering or bribery, and any regulation, order, or directive promulgated, issued or enforced pursuant to such Laws, all as amended, supplemented or replaced from time to time.
Approved Fund shall mean any fund that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of business and that is administered or managed by (a) the Lender, (b) an Affiliate of the Lender or (c) an entity or an Affiliate of an entity that administers or manages the Lender.
Authorized Officer shall mean, with respect to any Loan Party, the Chief Executive Officer, President, Chief Financial Officer, Secretary or Treasurer of such Loan Party or such other individuals, designated by written notice to the Lender from the Borrowers, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder. The Borrowers may amend such list of individuals from time to time by giving written notice of such amendment which shall be acknowledged by the Lender.
Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (a) the Federal Funds Open Rate, plus 0.5%, (b) the Prime Rate, and (c) the Daily LIBOR Rate plus 100 basis points (1.0%). Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs.
Base Rate Option shall mean the option of the Borrowers to have Loans bear interest at the rate and under the terms set forth in Section 4.1.1(i) [Revolving Credit Base Rate Option].
Borrower shall mean individually and Borrowers shall mean collectively the Parent Company and any of its Subsidiaries who hereafter join this Agreement as Borrowers.
Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans outstanding as follows: (a) any Loans to which a LIBOR Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrowers shall constitute one Borrowing Tranche, and (b) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche.
Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania and if the applicable Business Day relates to any Loan to which the LIBOR Rate Option applies, such day must also be a day on which dealings are carried on in the London interbank market.
Capital Lease shall mean, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.
Cash Collateralize shall mean to pledge and deposit with or deliver to the Lender, as collateral for the Letter of Credit Obligations, cash or deposit account balances pursuant to documentation satisfactory to the Lender. Such cash collateral shall be maintained in blocked, non-interest bearing deposit accounts at the Lender.
CEA shall mean the Commodity Exchange Act (7 U.S.C.§1 et seq.), as amended from time to time, and any successor statute.
CFTC shall mean the Commodity Futures Trading Commission.
Change in Control shall mean:
(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of 50% or more of the equity securities of the Parent Company entitled to vote for members of the board of directors or equivalent governing body of the Parent Company on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or
(b) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent Company, or control over the equity securities of the Parent Company entitled to vote for members of the board of directors or equivalent governing body of the Parent Company on a fully-diluted basis (and taking into account all such securities that such Person or group has the right to acquire pursuant to any option right) representing 50% or more of the combined voting power of such securities.
Closing Date shall mean the date on which the conditions specified in Sections 7.1 and 7.2 shall first have been satisfied, as confirmed in writing by (a) the Borrower pursuant to its certificate delivered under Section 7.1.1(xi), and (b) the Lender (which writing may be from the Lender or its counsel, and may be in the form of an electronic message), which shall be the date hereof. For the sake of clarity, the Closing Date shall occur prior to the funding of any Loans or issuance of any Letters of Credit.
Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.
Collateral shall mean the collateral under the Pledge Agreement and any cash collateral referred to in the definition of Cash Collateralize.
Commercial Letter of Credit shall mean any letter of credit which is a commercial letter of credit issued in respect of the purchase of goods or services by one or more of the Loan Parties or any Subsidiary thereof in the ordinary course of their business.
Commitment Fee shall have the meaning specified in Section 2.3 [Commitment Fees].
Compliance Certificate shall have the meaning specified in Section 8.3.3 [Certificates of the Borrowers].
Consolidated EBITDA for any period of determination shall mean the sum of net income, interest expense, income tax expense, depreciation, amortization and non-cash charges (including non-cash charges related to deferred tax liabilities), minus non-cash gains, in each case of the Borrowers and their Subsidiaries for such period determined and consolidated in accordance with GAAP.
Control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
Covered Entity shall mean (a) the Borrowers, each of the Borrowers' Subsidiaries, all Guarantors and all pledgors of Collateral, and (b) each Person that, directly or indirectly, is in control of a Person described in the foregoing clause (a). For purposes of this definition, control of a Person shall mean the direct or indirect (x) ownership of, or power to vote, 25% or more of the issued and outstanding equity interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for such Person, or (y) power to direct or cause the direction of the management and policies of such Person whether by ownership of equity interests, contract or otherwise (but not solely by reason of the position of officer or director).
Current Maturities shall mean, for any period, the scheduled payments of principal made during the prior four (4) fiscal quarters on all Indebtedness for borrowed money having an original term of more than one (1) year (including but not limited to amortization of Capital Lease obligations), for the Borrowers and their consolidated Subsidiaries for such period; provided, however, that “Current Maturities” with respect to Revolving Credit Loans shall be set at $10,000,000 for each of the fiscal quarters ending on or about May 30, 2015, August 30, 2015 and November 30, 2015.
Daily LIBOR Rate shall mean, for any day, the rate per annum determined by the Lender by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the LIBOR Reserve Percentage on such day.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America.
Drawing Date shall have the meaning specified in Section 2.7.3 [Disbursements, Reimbursement].
Eligible Contract Participant shall mean an "eligible contract participant" as defined in the CEA and regulations thereunder.
Eligibility Date shall mean, with respect to each Loan Party and each Swap, the date on which this Agreement or any other Loan Document becomes effective with respect to such Swap (for the avoidance of doubt, the Eligibility Date shall be the stated effective date of such Swap if this Agreement or any other Loan Document is then in effect with respect to such Loan Party, and otherwise it shall be the stated effective date of this Agreement and/or such other Loan Document(s) to which such Loan Party is a party).
Environmental Laws shall mean all applicable federal, state, local, tribal, territorial and foreign Laws (including common law), constitutions, statutes, treaties, regulations, rules, ordinances and codes and any consent decrees, settlement agreements, judgments, orders, directives, policies or programs issued by or entered into with an Official Body pertaining or relating to: (i) pollution or pollution control; (ii) protection of human health from exposure to regulated substances; (iii) protection of the environment and/or natural resources; (iv) employee safety in the workplace; (v) the presence, use, management, generation, manufacture, processing, extraction, treatment, recycling, refining, reclamation, labeling, packaging, sale, transport, storage, collection, distribution, disposal or release or threat of release of regulated substances; (vi) the presence of contamination; (vii) the protection of endangered or threatened species; and (viii) the protection of environmentally sensitive areas.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.
ERISA Affiliate shall mean, at any time, any trade or business (whether or not incorporated) under common Control with any of the Borrowers and treated as a single employer under Section 414 of the Code.
ERISA Event shall mean (a) a reportable event (under Section 4043 of ERISA and regulations thereunder) with respect to a Pension Plan; (b) a withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA of, or the commencement of proceedings by the PBGC to terminate, a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA or contributions due but not delinquent, upon any Borrower or any ERISA Affiliate.
Event of Default shall mean any of the events described in Section 9.1 [Events of Default] and referred to therein as an “Event of Default.”
Evergreen Letter of Credit shall mean a Letter of Credit having an automatic renewal feature (subject to Lender’s annual right to not renew such Letter of Credit on terms acceptable to the Lender) and a final expiration date prior to the Expiration Date.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.
Excluded Hedge Liability or Liabilities shall mean, with respect to each Loan Party, each of its Swap Obligations if, and only to the extent that, all or any portion of this Agreement or any other Loan Document that relates to such Swap Obligation is or becomes illegal under the CEA, or any rule, regulation or order of the CFTC, solely by virtue of such Loan Party's failure to qualify as an Eligible Contract Participant on the Eligibility Date for such Swap. Notwithstanding anything to the contrary contained in the foregoing or in any other provision of this Agreement or any other Loan Document, the foregoing is subject to the following provisos: (a) if a Swap Obligation arises under a master agreement governing more than one Swap, this definition shall apply only to the portion of such Swap Obligation that is attributable to Swaps for which the applicable guaranty or security interest under the applicable security agreement is or becomes illegal under the CEA, or any rule, regulations or order of the CFTC, solely as a result of the failure by such Loan Party for any reason to qualify as an Eligible Contract Participant on the Eligibility Date for such Swap, (b) if a guarantee of a Swap Obligation would cause such obligation to be an Excluded Hedge Liability but the grant of a security interest would not cause such obligation to be an Excluded Hedge Liability, such Swap Obligation shall constitute an Excluded Hedge Liability for purposes of such guaranty but not for purposes of the grant of such security interest, and (c) if there is more than one Loan Party executing this Agreement or the other Loan Documents and a Swap Obligation would be an Excluded Hedge Liability with respect to one or more of such Persons, but not all of them, the definition of Excluded Hedge Liability or Liabilities with respect to each such Person shall only be deemed applicable to (i) the particular Swap Obligations that constitute Excluded Hedge Liabilities with respect to such Person, and (ii) the particular Person with respect to which such Swap Obligations constitute Excluded Hedge Liabilities.
Expiration Date shall mean, with respect to the Revolving Credit Commitment, February 12, 2018.
Federal Funds Open Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by the Lender (for purposes of this definition, an “Alternate Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by the Lender at such time (which determination shall be conclusive absent manifest error); provided however, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day. If and when the Federal Funds Open Rate changes, the rate of interest hereunder with respect to any advance to which the Federal Funds Open Rate applies will change automatically without notice to the Borrowers, effective on the date of any such change.
First Funding Date shall mean the Business Day on which proceeds of the Revolving Credit Loans are first advanced under this Agreement.
Fixed Charge Coverage Ratio for any period shall mean (i) Consolidated EBITDA, divided by (ii) the sum of Current Maturities, plus interest expense, plus cash taxes paid, plus cash dividends paid, plus Unfunded Capital Expenditures, in each case of the Borrowers and their Subsidiaries for such period all determined and consolidated in accordance with GAAP, less distributions of the Parent Company to its shareholders from the proceeds of the Loans.
Funded Debt shall mean, without duplication, all Indebtedness for borrowed money, including but not limited to capitalized lease obligations, reimbursement obligations in respect of letters of credit (that are not fully collateralized by cash or cash equivalents, which is held by PNC), and guaranties of any such Indebtedness.
GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3 [Accounting Principles], and applied on a consistent basis both as to classification of items and amounts.
Guarantor shall mean each of the parties to this Agreement which is designated as a “Guarantor” on the signature page hereof and each other Person which joins this Agreement as a Guarantor after the date hereof. As of the Closing Date, Nelco Products, Inc., a Delaware corporation, Neltec, Inc., a Delaware corporation and Park Aerospace Technologies Corp., a Kansas corporation, are Guarantors.
Guarantor Joinder shall mean a joinder by a Person as a Guarantor under the Loan Documents in the form of Exhibit 1.1(G)(1).
Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business, including without limitation such Person’s liabilities under agreements to indemnify that are (a) characterized as debt or guarantied debt, (b) the subject of footnotes in the Borrowers’ financial statements, or (c) if paid, could result in a Material Adverse Change, but excluding other agreements to indemnify in the ordinary course of business.
Guaranty Agreement shall mean the Guaranty and Suretyship Agreement dated as of January 30, 2013 by each of the Guarantors in favor of Lender, a copy of which is attached hereto as Exhibit 1.1(G)(2), as the same may be amended, restated or otherwise modified.
Immaterial Domestic Subsidiary shall mean, as of the Closing Date, any domestic Subsidiary of the Parent Company other than a Guarantor. In accordance with Section 8.2.9, the Borrowers and Lender may agree in writing to designate (or remove the designation of) domestic Subsidiaries of the Parent Company as “Immaterial Domestic Subsidiaries” from time to time after the Closing Date.
Immaterial Foreign Subsidiary shall mean, as of the Closing Date, any foreign Subsidiary of the Parent Company other than Nelco Products Pte. Ltd., a Singapore entity. In accordance with Section 8.2.9, the Borrowers and Lender may agree in writing to designate (or remove the designation of) foreign Subsidiaries of the Parent Company as “Immaterial Foreign Subsidiaries” from time to time after the Closing Date.
Immaterial Subsidiary shall mean any Immaterial Domestic Subsidiary or Immaterial Foreign Subsidiary, as the case may be.
Indebtedness shall mean, as to any Person at any time, without duplication:
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property acquired by such Person (excluding (i) accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property, and (ii) contingent earn-out payment obligations and other similar purchase price adjustments that (A) are not characterized as debt, (B) are not the subject of footnotes in the Borrowers’ financial statements, and (C) if paid, could not result in a Material Adverse Change) and its liabilities under agreements to indemnify that are (x) characterized as debt, (y) the subject of footnotes in the Borrowers’ financial statements, or (z) if paid, could result in a Material Adverse Change, but excluding other agreements to indemnify in the ordinary course of business;
(c) (i) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases and (ii) all liabilities which would appear on its balance sheet in accordance with GAAP in respect of Synthetic Leases assuming such Synthetic Leases were accounted for as Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money);
(f) the aggregate Swap Termination Value of all Interest Rate Hedges of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP.
Indemnitee shall have the meaning specified in Section 10.3.2 [Indemnification by the Borrowers].
Information shall mean all information received from the Loan Parties or any of their Subsidiaries relating to the Loan Parties or any of such Subsidiaries or any of their respective businesses, other than any such information that is available to the Lender on a non-confidential basis prior to disclosure by the Loan Parties or any of their Subsidiaries.
Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of its creditors undertaken under any Law.
Interest Period shall mean the period of time selected by the Borrowers in connection with (and to apply to) any election permitted hereunder by the Borrowers to have Revolving Credit Loans bear interest under the LIBOR Rate Option. Subject to the last sentence of this definition, such period shall be one, two, three or six Months. Such Interest Period shall commence on the effective date of such Interest Rate Option, which shall be (a) the Borrowing Date if the Borrowers are requesting new Loans, or (b) the date of renewal of or conversion to the LIBOR Rate Option if the Borrowers are renewing or converting to the LIBOR Rate Option applicable to outstanding Loans. Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (B) the Borrowers shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date.
Interest Rate Hedge shall mean (a) any and all interest rate swap transactions, basis swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward foreign exchange transactions, cap transactions, floor transactions, currency options, spot contracts or any other similar transactions or any of the foregoing (including, but without limitation, any options to enter into any of the foregoing), and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., International Foreign Exchange Master Agreement.
Interest Rate Option shall mean any LIBOR Rate Option or Base Rate Option.
IRS shall mean the Internal Revenue Service.
Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award by or settlement agreement with any Official Body.
Lender shall mean PNC Bank, National Association, and its successors and assigns, as lender of the Loans hereunder and issuer of Letters of Credit hereunder.
Lender Provided Interest Rate Hedge shall mean an Interest Rate Hedge which is provided to any of the Loan Parties by the Lender or any of its Affiliates.
Letter of Credit shall have the meaning specified in Section 2.7.1 [Issuance of Letters of Credit].
Letter of Credit Fee shall have the meaning specified in Section 2.7.2 [Letter of Credit Fees].
Letter of Credit Obligation shall mean, as of any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit on such date (if any Letter of Credit shall increase in amount automatically in the future, such aggregate amount available to be drawn shall currently give effect to any such future increase) plus without duplication the aggregate Reimbursement Obligations on such date.
Letter of Credit Sublimit shall have the meaning specified in Section 2.7.1 [Issuance of Letters of Credit].
LIBOR Rate shall mean with respect to the Loans comprising any Borrowing Tranche to which the LIBOR Rate Option applies for any Interest Period, the interest rate per annum determined by the Lender by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which US dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by the Lender which has been approved by the British Bankers' Association as an authorized information vendor for the purpose of displaying rates at which US dollar deposits are offered by leading banks in the London interbank deposit market (for purposes of this definition, an “Alternate Source”), at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period as the London interbank offered rate for U.S. Dollars for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Interest Period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement rate determined by the Lender at such time (which determination shall be conclusive absent manifest error)), by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage. LIBOR may also be expressed by the following formula:
London interbank offered rates quoted by Bloomberg
LIBOR Rate = or appropriate successor as shown on Bloomberg Page BBAM1
1.00 - LIBOR Reserve Percentage
The LIBOR Rate shall be adjusted with respect to any Loan to which the LIBOR Rate Option applies that is outstanding on the effective date of any change in the LIBOR Reserve Percentage as of such effective date. The Lender shall give prompt notice to the Borrowers of the LIBOR Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.
LIBOR Rate Option shall mean the option of the Borrowers to have Loans bear interest at the rate and under the terms set forth in Section 4.1.1(ii) [Revolving Credit LIBOR Rate Option].
LIBOR Reserve Percentage shall mean as of any day the maximum percentage in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency Liabilities”).
Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing); provided, however, that a filed financing statement that was not authorized by the applicable debtor will not, by itself, constitute a Lien, so long as the applicable debtor is pursuing in good faith with appropriate diligence to have such financing statement terminated of record, for a period of time not to exceed ninety (90) days after the date of the applicable Person’s knowledge thereof.
Loan Documents shall mean this Agreement, the Guaranty Agreement, the Note, the Pledge Agreement and any other instruments, certificates or documents delivered in connection herewith or therewith.
Loan Parties shall mean the Borrowers and the Guarantors.
Loan Request shall have the meaning specified in Section 2.4 [Revolving Credit Loan Requests].
Loans shall mean collectively and Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan.
Material Adverse Change shall mean any set of circumstances or events which (a) has any material adverse effect upon the validity or enforceability of the Loan Documents, (b) is material and adverse to the business, assets, financial condition or results of operations of the Loan Parties and their Subsidiaries, (c) impairs materially the ability of the Loan Parties to duly and punctually pay or perform the Obligations, or (d) impairs materially the ability of the Lender to enforce its legal remedies pursuant to the Loan Documents.
Month, with respect to an Interest Period under the LIBOR Rate Option, shall have the meaning commonly associated therewith; provided that if any LIBOR Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month.
Multiemployer Plan shall mean any employee benefit plan which is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA and to which any Borrower or any ERISA Affiliate is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions.
Non-Qualifying Party shall mean any Loan Party that fails for any reason to qualify as an Eligible Contract Participant on the Effective Date of the applicable Swap.
Note shall mean the promissory note in the form of Exhibit 1.1(N) evidencing the Revolving Credit Loan.
Obligation shall mean any obligation or liability of any of the Loan Parties, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with (i) this Agreement, the Notes, the Letters of Credit, or any other Loan Document whether to the Lender or its Affiliates or other persons provided for under such Loan Documents, (ii) any Lender Provided Interest Rate Hedge and (iii) any Other Lender Provided Financial Service Product, including without limitation any interest accruing thereon after maturity, the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to a Loan Party. Notwithstanding anything to the contrary contained in the foregoing, the term “Obligation” shall not include any Excluded Hedge Liabilities.
Official Body shall mean the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).
Other Lender Provided Financial Service Product shall mean an agreement or other arrangement under which the Lender or any Affiliate of the Lender provides any of the following products or services to any of the Loan Parties: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) foreign currency exchange.
Parent Company shall mean Park Electrochemical Corp., a New York corporation, its successors and assigns.
Participant has the meaning specified in Section 10.8.3 [Participations].
Payment Date shall mean the first day of each calendar quarter after the date hereof and on the Expiration Date or upon acceleration of the Notes.
Payment In Full shall mean the indefeasible payment in full in cash of the Loans and other Obligations hereunder (other than future obligations consisting of contingent Obligations that may be owing or for which no claims have been made and which expressly survive termination of the Loan Documents), termination of the Revolving Credit Commitment and cash collateralization, expiration and/or termination of all Letters of Credit.
PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.
Pension Plan shall mean any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Borrower or any ERISA Affiliate or to which any Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
Permitted Acquisitions shall have the meaning assigned to such term in Section 8.2.6(ii).
Permitted Investments shall mean:
(a) investments in cash;
(b) direct obligations of the United States of America or any agency or instrumentality thereof or obligations backed by the full faith and credit of the United States of America maturing in twelve (12) months or less from the date of acquisition;
(c) short-term commercial paper, including variable amount master demand notes, in Dollars, carrying the highest rating by Standard & Poor's or P-1 by Moody's Investors Service, Inc. issued for corporations headquartered in the United States on the date of acquisition;
(d) time certificates of deposit or repurchase agreements (including those purchased through the Certificate of Deposit Account Registry Service) in Dollars maturing within one year in commercial banks carrying the highest rating by Standard & Poor's or P-1 by Moody's Investors Service, Inc. issued for commercial banks headquartered in the United States on the date of acquisition or having capital, surplus and undivided profits in excess of $200,000,000;
(e) corporate and municipal obligations maturing in twelve (12) months or less from the date of acquisition and having a rating of AA or better by Standard & Poor’s or Aa by Moody’s Investors Service, Inc.;
(f) money market or mutual funds whose investments are limited to those types of investments described in clauses (b)-(e) above; and
(g) other investments consistent with (or more conservative than) the Parent Company’s written investment policy, a copy of which is attached hereto as Schedule 1.1(P).
Permitted Liens shall mean:
(a) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable, or are being contested in good faith, with adequate reserves set aside, by appropriate proceedings diligently conducted;
(b) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs;
(c) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default;
(d) Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business;
(e) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use;
(f) Liens in favor of the Lender and its Affiliates securing the Obligations;
(g) Liens on property leased by any Loan Party or Subsidiary of a Loan Party under operating leases securing obligations of such Loan Party or Subsidiary to the lessor under such leases;
(h) Any Lien existing on the date of this Agreement and described on Schedule 1.1(P), together with any renewals thereof; provided that the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien;
(i) Purchase Money Security Interests and Capital Leases securing Indebtedness permitted under Section 8.2.1(ii)(a), so long as such Liens extend only to the assets purchased (and proceeds thereof);
(j) The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within forty-five (45) days of entry, and in either case they do not affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform its Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty; provided that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property other than the Collateral, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits;
(3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; or
(4) Liens resulting from final judgments or orders described in Section 9.1.7 [Final Judgments or Orders].
(k) Liens securing Indebtedness permitted under Sections 8.2.1(ii) and 8.2.1(iii);
(l) statutory or common law rights of setoff upon deposits of cash in favor of depository institutions;
(m) any title transfer, retention of title, hire purchase or conditional sale arrangements having similar effect arising in the ordinary course of business in favor of the suppliers of goods or services to any Loan Party or Subsidiary thereof;
(n) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(o) Liens of a collection bank arising under Section 4-210 of the Uniform Commercial Code on the items in the course of collection;
(p) Liens (i) on cash advances or cash earnest money deposits in favor of the seller of any property to be acquired in a joint venture permitted under Section 8.2.4(vi) or a Permitted Acquisition under Section 8.2.6(ii) to be applied against the purchase price for such joint venture or Permitted Acquisition, or (ii) consisting of any agreement to dispose of any property in a disposition permitted under Section 8.2.7 [Disposition of Assets or Subsidiaries]; and
(q) Liens that are contractual rights of setoff relating to purchase orders and other agreements entered into with third party customers in the ordinary course of business;
provided that the only “Permitted Liens” on the pledged Subsidiary Equity Interests and related Collateral are the Liens of the Lender pursuant to the Pledge Agreement and inchoate Liens for taxes not yet due and payable.
Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.
Pledge Agreement shall mean the Pledge Agreement dated as of January 30, 2013 granting Lender a lien on and security interest in 65% of all issued and outstanding equity interests in each 1st tier foreign Subsidiary (other than an Immaterial Foreign Subsidiary), a copy of which is attached hereto as Exhibit 1.1(P), as the same may be amended, restated or otherwise modified.
Potential Default shall mean any event or condition which with notice or passage of time, or both, would constitute an Event of Default.
Prime Rate shall mean the interest rate per annum announced from time to time by the Lender at its Principal Office as its then prime rate, which rate may not be the lowest or most favorable rate then being charged commercial borrowers or others by the Lender. Any change in the Prime Rate shall take effect at the opening of business on the day such change is announced.
Principal Office shall mean the main banking office of the Lender in Pittsburgh, Pennsylvania.
Prior Security Interest shall mean a valid and enforceable perfected first-priority security interest under the Uniform Commercial Code in the Collateral which is subject only to Liens of the Lender pursuant to the Loan Documents, and inchoate Liens for taxes not yet due and payable.
Pro Forma Operating Leverage Ratio shall mean (a) total Funded Debt of the Borrower and its Subsidiaries after giving effect to any Indebtedness incurred or assumed in a Permitted Acquisition, divided by (b) trailing twelve month EBITDA of the Borrower and its Subsidiaries plus the trailing twelve month EBITDA of the acquired Person, business or division that is the subject of such Permitted Acquisition.
Published Rate shall mean the rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the rate at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market for a one month period as published in another publication selected by the Lender).
Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property.
Qualified ECP Loan Party shall mean each Loan Party that on the Eligibility Date is (a) a corporation, partnership, proprietorship, organization, trust, or other entity other than a "commodity pool" as defined in Section 1a(10) of the CEA and CFTC regulations thereunder that has total assets exceeding $10,000,000, or (b) an Eligible Contract Participant that can cause another person to qualify as an Eligible Contract Participant on the Eligibility Date under Section 1a(18)(A)(v)(II) of the CEA by entering into or otherwise providing a "letter of credit or keepwell, support, or other agreement" for purposes of Section 1a(18)(A)(v)(II) of the CEA.
Reimbursement Obligation shall have the meaning specified in Section 2.7.3 [Disbursements, Reimbursement].
Related Parties shall mean, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates.
Relief Proceeding shall mean any proceeding seeking a decree or order for relief in respect of any Loan Party or Subsidiary of a Loan Party in a voluntary or involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary of a Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, or an assignment for the benefit of its creditors.
Reportable Compliance Event shall mean that any Covered Entity becomes a Sanctioned Person, or is charged by indictment, criminal complaint or similar charging instrument, arraigned, or custodially detained in connection with any Anti-Terrorism Law or any predicate crime to any Anti-Terrorism Law, or has knowledge of facts or circumstances to the effect that it is reasonably likely that any aspect of its operations is in violation of any Anti-Terrorism Law.
Revolving Credit Commitment shall mean, as to the Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(A) in the column labeled “Commitment,” as such Commitment is thereafter assigned or modified in accordance with the terms of this Agreement.
Revolving Credit Loans shall mean collectively and Revolving Credit Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Lender to the Borrowers pursuant to Section 2.1 [Revolving Credit Commitment] or 2.7.3 [Disbursements, Reimbursement].
Revolving Facility Usage shall mean at any time the sum of the outstanding Revolving Credit Loans and the Letter of Credit Obligations.
Sanctioned Country shall mean a country subject to a sanctions program maintained under any Anti-Terrorism Law.
Sanctioned Person shall mean any individual person, group, regime, entity or thing listed or otherwise recognized as a specially designated, prohibited, sanctioned or debarred person, group, regime, entity or thing, or subject to any limitations or prohibitions (including but not limited to the blocking of property or rejection of transactions), under any Anti-Terrorism Law.
Solvent shall mean, with respect to any Person on any date of determination, taking into account such right of reimbursement, contribution or similar right available to such Person from other Persons, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
Standard & Poor's shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
Statements shall have the meaning specified in Section 6.1.6(i) [Historical Statements].
Subordinated Debt shall mean Funded Debt that has been subordinated to the Obligations pursuant to subordination terms and conditions satisfactory to the Lender in its discretion.
Subsidiary of a Person shall mean a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Parent Company.
Subsidiary Equity Interests shall have the meaning specified in Section 6.1.2 [Subsidiaries and Owners; Investment Companies].
Swap shall mean any "swap" as defined in Section 1a(47) of the CEA and regulations thereunder, other than (a) a swap entered into on, or subject to the rules of, a board of trade designated as a contract market under Section 5 of the CEA, or (b) a commodity option entered into pursuant to CFTC Regulation 32.3(a).
Swap Obligation shall mean any obligation to pay or perform under any agreement, contract or transaction that constitutes a Swap which is a Lender Provided Interest Rate Hedge.
Swap Termination Value shall mean, in respect of any one or more Interest Rate Hedges, after taking into account the effect of any legally enforceable netting agreement relating to such Interest Rate Hedges, (a) for any date on or after the date such Interest Rate Hedges have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amounts(s) determined as the mark-to-market values(s) for such Interest Rate Hedges, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Interest Rate Hedges.
Synthetic Lease shall mean, at any time, with respect to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (a) that is accounted for as an operating lease under GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for U.S. federal income tax purposes, other than any such lease under which such Person is the lessor.
Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Official Body, including any interest, additions to tax or penalties applicable thereto.
Unfunded Capital Expenditures shall mean, for any period, capital expenditures made from funds other than those paid with funds of the Loans or other permitted term Indebtedness incurred to finance such capital expenditures, less up to $10,000,000 for the aerospace plant expansion, for the Borrowers and their Subsidiaries for such period.
1.2 Construction. Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: (i) references to the plural include the singular, the plural, the part and the whole, except where the context requires otherwise, and the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (ii) the words “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, respectively, as a whole; (iii) article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified; (iv) reference to any Person includes such Person's successors and assigns; (v) reference to any agreement, including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto, document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated; (vi) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding,” and “through” means “through and including”; (vii) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (viii) section headings herein and in each other Loan Document are included for convenience and shall not affect the interpretation of this Agreement or such Loan Document, and (ix) unless otherwise specified, all references herein to times of day shall be references to Eastern Time.
1.3 Accounting Principles; Changes in GAAP. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided, however, that all accounting terms used in Section 8.2 [Negative Covenants] (and all defined terms used in the definition of any accounting term used in Section 8.2 shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing Statements referred to in Section 6.1.6(i) [Historical Statements]. Notwithstanding the foregoing, if the Borrowers notify the Lender in writing that the Borrowers wish to amend any financial covenant in Section 8.2 of this Agreement and/or any related definition to eliminate the effect of any change in GAAP occurring after the Closing Date on the operation of such financial covenants and/or interest (or if the Lender notifies the Borrower in writing that the Lender wishes to amend any financial covenant in Section 8.2 and/or any related definition to eliminate the effect of any such change in GAAP), then the Lender and the Borrowers shall negotiate in good faith to amend such ratios or requirements to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, the Loan Parties' compliance with such covenants shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenants or definitions are amended in a manner satisfactory to the Borrowers and the Lender, and the Loan Parties shall provide to the Lender, when they deliver their financial statements pursuant to Section 8.3.1 [Quarterly Financial Statements] and 8.3.2 [Annual Financial Statements] of this Agreement, such reconciliation statements as shall be reasonably requested by the Lender.
2. REVOLVING CREDIT FACILITY
2.1 Revolving Credit Commitment. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, the Lender agrees to make Revolving Credit Loans to the Borrowers at any time or from time to time on or after the date hereof to the Expiration Date; provided that after giving effect to each such Loan (i) the aggregate amount of Revolving Credit Loans from the Lender shall not exceed the Lender's Revolving Credit Commitment minus the amount of Letter of Credit Obligations, and (ii) the Revolving Facility Usage shall not exceed the Revolving Credit Commitment. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrowers may borrow, repay and reborrow pursuant to this Section 2.1. The Obligation of the Borrowers to repay the aggregate unpaid principal amount of the Revolving Credit Loans made by the Lender, together with interest thereon, shall be evidenced by a revolving credit Note, dated the Closing Date payable to the order of the Lender in a face amount equal to the maximum amount of the Revolving Credit Commitment.
2.2 Nature of Lender's Obligations with Respect to Revolving Credit Loans. The aggregate of the Lender's Revolving Credit Loans outstanding hereunder to the Borrowers at any time shall never exceed its Revolving Credit Commitment minus the Letter of Credit Obligations. The Lender shall have no obligation to make Revolving Credit Loans hereunder on or after the Expiration Date.
2.3 Commitment Fees. Accruing from the date hereof until the earlier to occur of the Expiration Date and the date on which the Revolving Credit Commitment is terminated, the Borrowers agree to pay to the Lender a nonrefundable commitment fee (the “Commitment Fee”) equal to 0.20% per annum (computed on the basis of a year of 360 days and actual days elapsed) multiplied by the average daily difference between the amount of (i) the Revolving Credit Commitment and (ii) the Revolving Facility Usage, payable quarterly in arrears on each Payment Date.
2.4 Revolving Credit Loan Requests. Except as otherwise provided herein, the Borrowers may from time to time prior to the Expiration Date request the Lender to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods], by delivering to the Lender, not later than 11:00 a.m., (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the LIBOR Rate Option applies or the conversion to or the renewal of the LIBOR Rate Option for any Loans, and (ii) the same Business Day of the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Loan, a duly completed request therefor substantially in the form of Exhibit 2.4 signed by an Authorized Officer or a request by telephone from an Authorized Officer immediately confirmed in writing by letter, facsimile or telex signed by an Authorized Officer in such form (each, a “Loan Request”), it being understood that the Lender may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall specify the aggregate amount of the proposed Loans comprising each Borrowing Tranche, and, if applicable, the Interest Period.
2.5 Repayment of Revolving Credit Loans. The Borrowers shall pay accrued interest on the unpaid principal balance of the Note in arrears: (a) for the portion of advances bearing interest under the Base Rate Option, on the first day of each month during the term hereof, (b) for the portion of advances bearing interest under the LIBOR Rate Option, on the last day of the respective Interest Period for such advance, (c) if any Interest Period is longer than three (3) months, then also on the three (3) month anniversary of the commencement of such interest period and every three (3) months thereafter, and (d) for all advances, at maturity, whether by acceleration of the Note or otherwise, and after maturity, on demand until paid in full. All outstanding principal and accrued interest hereunder shall be due and payable in full on the Expiration Date, if not required to be paid earlier pursuant to this Agreement. If any payment under this Agreement shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest in connection with such payment. Each Borrower hereby authorizes the Lender to charge any Borrower’s deposit account at the Lender for any payment when due hereunder.
2.6 Use of Proceeds. The proceeds of the Loans shall be used to (i) refinance on the Closing Date obligations owing under the Existing Credit Agreement (as defined in the recitals hereto) (but without the incurrence of any indemnification obligations for the Borrowers under Section 5.7 of this Agreement or early termination of LIBOR rate interest periods), (ii) support working capital and general corporate needs, including the issuance of Letters of Credit, (iii) fund annual special distributions permitted under Section 8.2.5 [Dividends and Related Distributions] and/or (iv) finance ongoing capital expenditures and Permitted Acquisitions.
2.7 Letter of Credit Subfacility.
2.7.1 Issuance of Letters of Credit. The Borrowers may at any time prior to the Expiration Date request the issuance of a standby or trade letter of credit (a “Standby Letter of Credit”) or Commercial Letter of Credit (each a “Letter of Credit”) denominated in Dollars on behalf of itself or another Loan Party or any other Subsidiary of the Parent Company, or the amendment or extension of an existing Letter of Credit, by delivering or having such other Loan Party deliver to the Lender a completed application and agreement for letters of credit, or request for such amendment or extension, as applicable, signed by an Authorized Officer, in such form as the Lender may specify from time to time by no later than 10:00 a.m. at least five (5) Business Days, or such shorter period as may be agreed to by the Lender, in advance of the proposed date of issuance. Subject to the terms and conditions hereof, the Lender or any of the Lender's Affiliates will issue a Letter of Credit or agree to such amendment or extension, provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, except in the case of an Evergreen Letter of Credit, and (B) in no event expire later than the date which is 364 days after the Expiration Date and provided further that in no event shall (i) the Letter of Credit Obligations exceed, at any one time, $2,000,000 (the “Letter of Credit Sublimit”) or (ii) the Revolving Facility Usage exceed, at any one time, the Revolving Credit Commitment. Each request by the Borrowers for the issuance, amendment or extension of a Letter of Credit shall be deemed to be a representation by the Borrowers that they shall be in compliance with the preceding sentence and with Section 7 [Conditions of Lending and Issuance of Letters of Credit] after giving effect to the requested issuance, amendment or extension of such Letter of Credit. Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to the beneficiary thereof, the Lender will also deliver to Borrowers a true and complete copy of such Letter of Credit or amendment. Upon the request of the Lender (i) if the Lender has honored any full or partial drawing request under any Letter of Credit and has not been reimbursed therefor as required in this Agreement, or (ii) if, on the Expiration Date, any Letter of Credit Obligation for any reason remains outstanding, the Borrowers shall, in each case, immediately Cash Collateralize the then outstanding amount of all Letter of Credit Obligations. The Borrowers hereby grant to the Lender a security interest in all cash collateral pledged pursuant to this Section or otherwise under this Agreement.
2.7.2 Letter of Credit Fees. The Borrowers shall pay to the Lender a fee (the “Letter of Credit Fee”) equal to 1.00% for standby Letters of Credit (computed on the basis of a year of 360 days and actual days elapsed), which fee shall be computed on the daily average of standby Letter of Credit Obligations and shall be payable quarterly in arrears on each Payment Date following issuance of each standby Letter of Credit. The Borrowers shall also pay to the Lender for the Lender's sole account the Lender's then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Lender may generally charge or incur from time to time in connection with the issuance, maintenance, amendment (if any), assignment or transfer (if any), negotiation, and administration of Letters of Credit to the extent invoiced by the Lender.
2.7.3 Disbursements, Reimbursement. In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Lender will promptly notify the Borrowers thereof. Provided that it shall have received such notice, the Borrowers shall reimburse (such obligation to reimburse the Lender shall sometimes be referred to as a “Reimbursement Obligation”) the Lender on each date that an amount is paid by the Lender under any Letter of Credit (each such date, a “Drawing Date”) by paying to the Lender an amount equal to the amount so paid by the Lender.
2.7.4 Documentation. Each Loan Party agrees to be bound by the terms of the Lender's application and agreement for letters of credit and the Lender's written regulations and customary practices relating to letters of credit as set forth in such application and agreement or, if none are stated therein, in Section 10.11.1 hereof. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Lender shall not be liable for any errors, negligence and/or mistakes, whether of omission or commission, in following any Loan Party's instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.
2.7.5 Determinations to Honor Drawing Requests. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit.
2.7.6 Nature of Reimbursement Obligations. The Obligations of the Borrowers to reimburse the Lender upon a drawing under a Letter of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.7 (including Sections 2.7.7 and 2.7.8) under all circumstances, including the following circumstances:
(i) any set-off, counterclaim, recoupment, defense or other right which the Lender may have against the Borrowers or any other Person for any reason whatsoever, or which any Loan Party may have against the Lender or any of its Affiliates or any other Person for any reason whatsoever;
(ii) any lack of validity or enforceability of any Letter of Credit, the issuance of which was requested by the Borrowers;
(iii) any claim of breach of warranty that might be made by any Loan Party or the Lender against any beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, crossclaim, defense or other right which any Loan Party or the Lender may have at any time against a beneficiary, successor beneficiary any transferee or assignee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), the Lender or its Affiliates or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured);
(iv) the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provision of services relating to a Letter of Credit, in each case even if the Lender or any of its Affiliates has been notified thereof;
(v) payment by the Lender or any of its Affiliates under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit;
(vi) the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;
(vii) any failure by the Lender or any of its Affiliates to issue any Letter of Credit in the form requested by any Loan Party, unless the Lender has received written notice from such Loan Party of such failure, has had sufficient time and the beneficiary thereof has agreed to amend such Letter of Credit, and no drawing has been made thereon;
(viii) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party;
(ix) any breach of this Agreement or any other Loan Document by any party thereto;
(x) the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party;
(xi) the fact that an Event of Default or a Potential Default shall have occurred and be continuing;
(xii) the fact that the Expiration Date shall have passed or this Agreement or the Revolving Credit Commitment hereunder shall have been terminated; and
(xiii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.
2.7.7 Indemnity. The Borrowers, jointly and severally, hereby agree to protect, indemnify, pay and save harmless the Lender and any of its Affiliates that has issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Lender or any of its Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Lender or Lender’s Affiliate as determined by a final non-appealable judgment of a court of competent jurisdiction or (B) the wrongful dishonor (or wrongful honor) by the Lender or any of the Lender's Affiliates of a proper demand (or, in the case of wrongful honor, improper demand) for payment made under any Letter of Credit, except if such dishonor (or honor, as applicable) resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Official Body. Notwithstanding the foregoing, the Borrowers shall be responsible for allocated costs of internal counsel only during a post-Event of Default out-of-court restructuring or after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to a Loan Party.
2.7.8 Liability for Acts and Omissions. As between any Loan Party and the Lender, or the Lender's Affiliates, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Lender shall not be responsible for any of the following, including any losses or damages to any Loan Party or other Person or property relating therefrom: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Lender or its Affiliates shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Lender or its Affiliates, as applicable, including any act or omission of any Official Body, and none of the above shall affect or impair, or prevent the vesting of, any of the Lender's or its Affiliate's rights or powers hereunder. Nothing in the preceding sentence shall relieve the Lender from liability for the Lender's gross negligence or willful misconduct in connection with actions or omissions described in such clauses (i) through (viii) of such sentence. In no event shall the Lender or its Affiliates be liable to any Loan Party for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without limitation attorneys' fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.
Without limiting the generality of the foregoing, the Lender and each of its Affiliates (i) may rely on any oral or other communication believed in good faith by the Lender or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by the Lender or its Affiliate; (iv) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored presentation under the laws or practices of the place where such bank is located, provided such negotiating bank was authorized by PNC (or the Borrowers, as applicable) to act in such capacity; and (vi) may settle or adjust any claim or demand made on the Lender or its Affiliate in any way related to any order issued at the applicant's request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an “Order”) and honor any drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.
In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Lender or its Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Lender or its Affiliates under any resulting liability to any Borrower or any other Loan Party. This paragraph is not intended to relieve the Lender from liability, subject to the terms of Section 2.7.7 and set forth above in this Section 2.7.8, for conduct for which the Lender would not be entitled to indemnification under clause (A) of Section 2.7.7.
3. RESERVED
4. INTEREST RATES
4.1 Interest Rate Options. The Borrowers shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option or LIBOR Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrowers may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche; provided that there shall not be at any one time outstanding more than six (6) Borrowing Tranches in the aggregate among all of the Loans and provided further that if an Event of Default exists and is continuing, the Borrowers may not request, convert to, or renew the LIBOR Rate Option for any Loans and the Lender may demand that all existing Borrowing Tranches bearing interest under the LIBOR Rate Option shall be converted immediately to the Base Rate Option, subject to the obligation of the Borrowers to pay any indemnity under Section 5.7 [Indemnity] in connection with such conversion. If at any time the designated rate applicable to any Loan made by the Lender exceeds the Lender's highest lawful rate, the rate of interest on such Loan shall be limited to the Lender's highest lawful rate.
4.1.1 Revolving Credit Interest Rate Options. The Borrowers shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:
(i) Revolving Credit Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or
(ii) Revolving Credit LIBOR Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the LIBOR Rate plus 1.10%.
4.1.2 Rate Quotations. The Borrowers may call the Lender on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such indication shall not be binding on the Lender nor affect the rate of interest which thereafter is actually in effect when the election is made.
4.2 Interest Periods. At any time when the Borrowers shall select, convert to or renew a LIBOR Rate Option, the Borrowers shall notify the Lender thereof at least three (3) Business Days prior to the effective date of such LIBOR Rate Option by delivering a Loan Request. The notice shall specify an Interest Period during which such Interest Rate Option shall apply. Notwithstanding the preceding sentence, in the case of the renewal of a LIBOR Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day.
4.3 Interest After Default. To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived, and at the discretion of the Lender:
4.3.1 Letter of Credit Fees, Interest Rate. The Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.7.2 [Letter of Credit Fees] or Section 4.1 [Interest Rate Options], respectively, shall be increased by 2.0% per annum;
4.3.2 Other Obligations. Each other Obligation hereunder if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Revolving Credit Base Rate Option plus an additional 2.0% per annum from the time such Obligation becomes due and payable and until it is paid in full; and
4.3.3 Acknowledgment. The Borrowers acknowledge that the increase in rates referred to in this Section 4.3 reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lender is entitled to additional compensation for such risk; and all such interest shall be payable by Borrowers upon demand by Lender.
4.4 LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.
4.4.1 Unascertainable. If on any date on which a LIBOR Rate would otherwise be determined, the Lender shall have determined that:
(i) adequate and reasonable means do not exist for ascertaining such LIBOR Rate, or
(ii) a contingency has occurred which materially and adversely affects the London interbank eurodollar market relating to the LIBOR Rate,
then the Lender shall have the rights specified in Section 4.4.3 [Lender's Rights].
4.4.2 Illegality; Increased Costs; Deposits Not Available. If at any time the Lender shall have determined that:
(i) the making, maintenance or funding of any Loan to which a LIBOR Rate Option applies has been made impracticable or unlawful by compliance by the Lender in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or
(ii) such LIBOR Rate Option will not adequately and fairly reflect the cost to the Lender of the establishment or maintenance of any such Loan, or
(iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan to which a LIBOR Rate Option applies are not available to the Lender with respect to such Loan, or to banks generally, in the interbank eurodollar market,
then the Lender shall have the rights specified in Section 4.4.3 [Lender's Rights].
4.4.3 Lender's Rights. In the case of any event specified in Section 4.4.1 [Unascertainable] or in Section 4.4.2 [Illegality; Increased Costs; Deposits Not Available] above, the Lender shall promptly so notify the Borrowers and endorse a certificate to such notice as to the specific circumstances of such notice. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of the Lender, to allow the Borrowers to select, convert to or renew a LIBOR Rate Option shall be suspended until the Lender shall have later notified the Borrowers, of the Lender's determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Lender makes a determination under Section 4.4.1 [Unascertainable] and the Borrowers have previously notified the Lender of its selection of, conversion to or renewal of a LIBOR Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Loans. If the Lender notifies the Borrowers of a determination under Section 4.4.2 [Illegality; Increased Costs; Deposits Not Available], the Borrowers shall, subject to the Borrowers' indemnification Obligations under Section 5.7 [Indemnity], as to any Loan of the Lender to which a LIBOR Rate Option applies, on the date specified in such notice either (i) as applicable, convert such Loan to the Base Rate Option otherwise available with respect to such Loan, or (ii) prepay such Loan in accordance with Section 5.3 [Voluntary Prepayments]. Absent due notice from the Borrowers of conversion or prepayment, such Loan shall automatically be converted to the Base Rate Option otherwise available with respect to such Loan upon such specified date.
4.5 Selection of Interest Rate Options. If the Borrowers fail to select a new Interest Period to apply to any Borrowing Tranche of Loans under the LIBOR Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 4.2 [Interest Periods], the Borrowers shall be deemed to have converted such Borrowing Tranche to the Base Rate Option, commencing upon the last day of the existing Interest Period.
5. PAYMENTS
5.1 Payments. All payments and prepayments to be made in respect of principal, interest, Commitment Fees, Letter of Credit Fees or other fees or amounts due from the Borrowers hereunder shall be payable prior to 4:00 p.m. on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Lender at the Principal Office for the account of the Lender in Dollars and in immediately available funds. The Lender's statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an “account stated.”
5.2 Interest and Principal Payment Dates. Interest on Loans to which the Base Rate Option applies shall be due and payable in arrears on the first Business Day of each calendar month (for purposes of this Section 5.2, a “Payment Date”). Interest on Loans to which the LIBOR Rate Option applies shall be due and payable on the last day of each Interest Period for those Loans. Interest on the principal amount of each Loan or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated Expiration Date, upon acceleration or otherwise). Principal of Loans shall be due in installments as follows: (i) on the 1st anniversary of the Closing Date, $10,000,000; (ii) from the 1st anniversary of the Closing Date to the day immediately preceding the 2nd anniversary of the Closing Date, $2,500,000 in quarterly installments on each quarterly Payment Date occurring in such time period (for a total of $10,000,000 for such annual period); (iii) from the 2nd anniversary of the Closing Date to the day immediately preceding the 3rd anniversary of the Closing Date, $3,750,000 in quarterly installments on each quarterly Payment Date occurring in such time period (for a total of $15,000,000 for such annual period); and (iv) from the 3rd anniversary of the Closing Date to the Expiration Date, $3,750,000 in quarterly installments on each quarterly Payment Date occurring in such time period (for a total of $15,000,000 for such annual period). The Borrowers may make any of the preceding installment payments in advance of the applicable Payment Date. Once paid, such principal amounts shall not be available for re-borrowing and shall reduce the Revolving Credit Commitment on a dollar-for-dollar basis.
5.3 Voluntary Prepayments or Revolving Credit Commitment Reductions. The Borrowers shall have the right at their option from time to time to prepay the Loans or reduce the unborrowed Revolving Credit Commitment in whole or part without premium or penalty (except as provided in Section 5.5 [Increased Costs; Yield Protection] and Section 5.7 [Indemnity]).
5.4 Mandatory Prepayments and Revolving Credit Commitment Reductions.
5.4.1 Mandatory Prepayment from Repatriated Foreign Earnings. Within five (5) Business Days of the Loan Parties’ submission of a Federal income tax return reflecting the inclusion in Federal taxable income of a cash distribution of earnings from a foreign Subsidiary, the Borrower shall make a mandatory prepayment of principal on the Loans equal to 75% of the after-tax proceeds of such distribution (as estimated in good faith by the Borrower), together with accrued interest on such principal amount. All prepayments pursuant to this Section 5.4.1 shall be applied first to payment of the principal amount of the Loans by application to the unpaid installments of principal in the order of scheduled maturities (i.e., to scheduled principal payments first coming due and then continuing with each successive scheduled principal payment coming due under Section 5.2), next to reduce any other Obligations, with an equal reduction of the Revolving Credit Commitment until it is not greater than $52,000,000 (at which time Borrowers shall prepay an amount of the Loans (and, if applicable, cash collateralize Letters of Credit) such that Revolving Facility Usage, after taking into account any such permanent reduction of the Revolving Credit Commitment, does not exceed the amount of the Revolving Credit Commitment, as so permanently reduced). Principal prepaid under this Section 5.4.1 shall not be available for re-borrowing and shall reduce the Revolving Credit Commitment on a dollar-for-dollar basis. This Section 5.4.1 shall not apply after the Revolving Credit Commitment and the Obligations are reduced to $52,000,000 as provided herein.
5.4.2 Mandatory Commitment Reductions for Revolving Facility Usage. If, on any date, the maximum amount of the Revolving Credit Commitment is more than $50,000,000 greater than Revolving Facility Usage, the maximum amount of the Revolving Credit Commitment shall permanently and automatically reduce on such date by $50,000,000 (but, in any event, not below zero); provided, however, that the foregoing requirement shall not be in effect during the period from the date hereof until the earlier to occur of the First Funding Date and February 25, 2014.
5.4.3 Application Among Interest Rate Options. All prepayments required pursuant to this Section 5.4 shall first be applied among the Interest Rate Options to the principal amount of the Loans subject to the Base Rate Option, then to Loans subject to a LIBOR Rate Option (and to such Loans, in the order among different LIBOR Rate Options as directed by Borrowers, or in the absence of such direction, as determined by Lender). In accordance with Section 5.7 [Indemnity], the Borrowers shall indemnify the Lender for any loss or expense, including loss of margin, incurred with respect to any such prepayments applied against Loans subject to a LIBOR Rate Option on any day other than the last day of the applicable Interest Period.
5.5 Increased Costs; Yield Protection. Within ten (10) Business Days of written demand therefor, together with written evidence of the justification therefor, the Borrowers jointly and severally agree to pay the Lender all direct costs incurred, any losses suffered or payments made by the Lender as a result of any Change in Law (hereinafter defined), imposing any reserve (without duplication of the LIBOR Reserve), deposit, allocation of capital or similar requirement (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) on the Lender, its holding company or any of their respective assets specifically relative to the Revolving Credit Commitment or Revolving Credit Loans. “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any governmental authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any governmental authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith (to the extent enacted, adopted or issued after the Closing Date) and (y) all requests, rules, guidelines or directives promulgated by the Lender for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued. Notwithstanding the foregoing, Borrowers shall not be required to compensate the Lender pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than one (1) year prior to the date that Lender notifies the Borrowers of the change giving rise to such increased costs or reductions and of Lender’s intention to claim compensation therefor (except that, if the change giving rise to such increased costs or reductions is retroactive, then the one (1) year period referred to above shall be extended to include the period of retroactive effect thereof).
5.6 No Offsets. Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be without deduction or withholding for any taxes, offsets or other deductions.
5.7 Indemnity. Each Borrower jointly and severally agrees to indemnify the Lender against any liabilities, losses or expenses (including, without limitation, loss of margin, any loss or expense sustained or incurred in liquidating or employing deposits from third parties, and any loss or expense incurred in connection with funds acquired to effect, fund or maintain any advance (or any part thereof) bearing interest under the LIBOR Rate Option which the Lender sustains or incurs as a consequence of either (i) the Borrowers’ failure to make a payment on the due date thereof, (ii) the Borrowers’ revocation (expressly, by later inconsistent notices or otherwise) in whole or in part of any notice given to Lender to request, convert, renew or prepay any advance bearing interest under the LIBOR Rate Option, or (iii) the Borrowers’ payment or prepayment (whether voluntary, after acceleration of the maturity of this Agreement or otherwise) or conversion of any advance bearing interest under the LIBOR Rate Option on a day other than the last day of the applicable Interest Period. A notice as to any amounts payable pursuant to this paragraph (including calculations with a reasonable level of detail, when available) given to the Borrowers by the Lender shall, in the absence of manifest error, be conclusive and shall be payable within ten (10) Business Days of written demand therefor. The Borrowers’ indemnification obligations hereunder shall survive the payment in full of the Loans and all other amounts payable hereunder.
5.8 Interbank Market Presumption. Subject to the definition of LIBOR Rate, for all purposes of this Agreement and each Note with respect to any aspects of the LIBOR Rate and any Loan under the LIBOR Rate Option, the Lender shall be presumed to have obtained rates, funding, currencies, deposits, and the like in the Relevant Interbank Market regardless of whether it did so or not; and, the Lender's determination of amounts payable under, and actions required or authorized by, Section 5.5 [Increased Costs; Yield Protection] and Section 5.7 [Indemnity] shall be calculated, at the Lender's option, as though the Lender funded each Borrowing Tranche of Loans under the LIBOR Rate Option through the purchase of deposits of the types and maturities corresponding to the deposits used as a reference in accordance with the terms hereof in determining the LIBOR Rate applicable to such Loans, whether in fact that is the case.
6. REPRESENTATIONS AND WARRANTIES
The Loan Parties, jointly and severally, represent and warrant to the Lender as follows:
6.1.1 Organization and Qualification; Power and Authority; Compliance With Laws; Title to Properties; Event of Default. Each Loan Party and each Subsidiary of each Loan Party (i) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct, (iii) is duly licensed or qualified and in good standing in each jurisdiction where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary, except where the failure to do so would not result in a Material Adverse Change, (iv) has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness to be incurred by it under the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part, (v) is in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 6.1.14 [Environmental Matters]) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business, except where the failure to do so would not constitute a Material Adverse Change, and (vi) has good and marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens. No Event of Default or Potential Default exists or is continuing.
6.1.2 Subsidiaries and Owners; Investment Companies. Schedule 6.1.2 states as of the Closing Date (i) the name of each of the Parent Company’s Subsidiaries, its jurisdiction of organization and the amount, percentage and type of equity interests in such Subsidiary (the “Subsidiary Equity Interests”), (ii) the name of each holder of an equity interest in the Parent Company (in the case of the Parent Company, such disclosure is limited to each holder having, to the knowledge of Parent Company, an equity interest of 5% or more) and its Subsidiaries, the amount, percentage and type of such equity interest (the “Parent Company Equity Interests”), and (iii) any options, warrants or other rights outstanding to purchase any such equity interests referred to in clause (i) or (iii), other than employee stock options (collectively with the Subsidiary Equity Interests and Parent Company Equity Interests, the “Equity Interests”). The Parent Company and each of its Subsidiaries has good and marketable title to all of the Subsidiary Equity Interests it purports to own, free and clear in each case of any Lien, other than Permitted Liens, and all such Subsidiary Equity Interests have been validly issued, fully paid and are nonassessable. None of the Loan Parties or Subsidiaries of any Loan Party is an “investment company” registered or required to be registered under the Investment Company Act of 1940 or under the “control” of an “investment company” as such terms are defined in the Investment Company Act of 1940 and shall not become such an “investment company” or under such “control.”
6.1.3 Validity and Binding Effect. This Agreement and each of the other Loan Documents (i) has been duly and validly executed and delivered by each Loan Party named as a party thereto, and (ii) constitutes, or will constitute, legal, valid and binding obligations of each Loan Party which is or will be a party thereto, enforceable against such Loan Party in accordance with its terms, except to the extent such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, preference and other similar laws affecting creditors’ rights generally, and by general principles of equity (regardless of whether enforcement is sought in equity or at law).
6.1.4 No Conflict; Material Agreements; Consents. Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other than Liens granted under the Loan Documents). There is no default under such material agreement (referred to above) and none of the Loan Parties or their Subsidiaries is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law, in each case, which would result in a Material Adverse Change. No consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents, except for such consents and approvals that have been duly obtained.
6.1.5 Litigation. There are no actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened against such Loan Party or any Subsidiary of such Loan Party at law or in equity before any Official Body which, individually or in the aggregate is reasonably likely to result in any Material Adverse Change. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any order, writ, injunction or any decree of any Official Body which would result in any Material Adverse Change.
6.1.6 Financial Statements.
(i) Historical Statements. The Parent Company and its Subsidiaries (including Borrowers) have delivered to the Lender copies (by filing thereof on EDGAR) of their audited consolidated year-end financial statements for and as of the end of the fiscal year ended March 3, 2013. In addition, the Parent Company and its Subsidiaries (including Borrowers) have delivered to the Lender copies of their (A) unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended September 1, 2013 and (B) unaudited consolidated interim financial statements for the fiscal year to date as of the fiscal quarter ended December 1, 2013 (all such annual and interim statements being collectively referred to as the “Statements”). The Statements were compiled from the books and records maintained by the Parent Company and its Subsidiaries’ management, are correct and complete and fairly represent the consolidated and consolidating financial condition of the Parent Company and its Subsidiaries (including Borrowers) as of the respective dates thereof and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject (in the case of the interim statements) to normal year-end audit adjustments.
(ii) Accuracy of Financial Statements. Neither any Borrower nor any Subsidiary of the Borrowers has any liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of any Borrower or any Subsidiary of the Borrowers which may cause a Material Adverse Change. Since March 3, 2013, and with respect to future Loans, since the date of the most recently delivered audited financial statements delivered pursuant to this Agreement, no Material Adverse Change has occurred.
6.1.7 Margin Stock. None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U, T or X as promulgated by the Board of Governors of the Federal Reserve System). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock.
6.1.8 Full Disclosure. Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other document furnished to the Lender in connection herewith or therewith (as modified or supplemented, but excluding financial projection information and information of a general economic or industry specific nature), when furnished or taken as a whole, contains any material misstatement of fact or omits to state a fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not materially misleading. With respect to projected financial information, the Borrowers represent and warrant only that such information reflects their good faith estimates as of the date of preparation thereof, based upon methods and data the Borrowers believe to be reasonable and accurate, notwithstanding that actual results may differ materially from such projected financial information.
6.1.9 Taxes. All federal tax returns, and all material state, local and other tax returns required to have been filed with respect to each Loan Party and each Subsidiary of each Loan Party have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made.
6.1.10 Patents, Trademarks, Copyrights, Licenses, Etc. Each Loan Party and each Subsidiary of each Loan Party owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Loan Party or Subsidiary, without known possible, alleged or actual conflict with the rights of others (except for any such conflict which is not reasonably likely to result in a Material Adverse Change).
6.1.11 Liens in the Collateral. The Liens in the Collateral granted to the Lender pursuant to the Loan Documents, other than Liens in the Subsidiary Equity Interests in Foreign Subsidiaries as to which the Lender has not required that it obtain Prior Security Interests under any foreign jurisdictions that may be applicable, constitute and will continue to constitute Prior Security Interests and are subject only to Permitted Liens. All filing fees and other expenses in connection with the perfection of such Liens have been or will be paid by the Borrowers.
6.1.12 Insurance. The properties of each Loan Party and each of its Subsidiaries are insured pursuant to policies and other bonds which are valid and in full force and effect and which provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each such Loan Party and Subsidiary in accordance with prudent business practice in the industry of such Loan Parties and Subsidiaries.
6.1.13 ERISA Compliance.
(i) Each Pension Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws, except where such failure to comply would not result in a Material Adverse Change. Each Pension Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter or prototype opinion letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Borrower and each ERISA Affiliate have made all required contributions to each Pension Plan, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Pension Plan.
(ii) No ERISA Event has occurred or is reasonably expected to occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party or any Subsidiary of a Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $2,250,000; (a) each Pension Plan is in compliance in all material respects with the minimum funding requirements of Section 412 and 430 of the Code; (b) neither any Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA or contributions due and not delinquent); (c) neither any Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (d) neither any Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
(iii) As of the Closing Date, no Loan Party or ERISA Affiliate sponsors, maintains, participates in or has any liability under any Pension Plan, except as set forth on Schedule 6.1.13 attached hereto.
6.1.14 Environmental Matters. Each Loan Party is and has been and, to the knowledge of each respective Loan Party, each of its Subsidiaries is and has been, (a) as of the Closing Date, in compliance with applicable Environmental Laws except as disclosed in the SEC filings of the Parent Company, provided that such matters so disclosed would not in the aggregate result in a Material Adverse Change and except for any noncompliance that would not result in a Material Adverse Change, and (b) as of any other date on which the representations set forth in this Section 6.1.14 are or are deemed made, in compliance with applicable Environmental Laws, except for any non-compliance which would not result in a Material Adverse Change.
6.1.15 Solvency. Before and after giving effect to the initial Loans hereunder, each of the Loan Parties is Solvent.
6.1.16 Anti-Terrorism Laws. (i) No Covered Entity is a Sanctioned Person, and (ii) no Covered Entity, either in its own right or through any third party, (a) has any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law, (b) does business in or with, or derives any of its income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law; or (c) engages in any dealings or transactions prohibited by any Anti-Terrorism Law.
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
The obligation of the Lender to make Loans and to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions:
7.1 First Loans and Letters of Credit.
7.1.1 Deliveries. On the Closing Date, the Lender shall have received each of the following in form and substance satisfactory to the Lender:
(i) A certificate of each of the Loan Parties signed by an Authorized Officer, dated the Closing Date stating that (w) all representations and warranties of the Loan Parties set forth in this Agreement are true and correct in all material respects (except for those representations and warranties that are qualified by reference to materiality, which shall be true and correct in all respects), (x) no Event of Default or Potential Default exists, and (y) no Material Adverse Change has occurred since March 3, 2013;
(ii) A certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to: (a) all action taken by each Loan Party to duly authorize the execution, delivery and performance of this Agreement and the other Loan Documents; (b) the names of the Authorized Officers authorized to sign the Loan Documents and their true signatures; (c) copies of its organizational documents as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office (or certified as not having changed since the versions most recently delivered to Lender); and (d) certificates from the appropriate state officials as to the continued existence and good standing of each Loan Party in each state where organized;
(iii) This Agreement and each of the other Loan Documents (to the extent being executed on the date hereof) duly signed by an Authorized Officer and each other party thereto;
(iv) All appropriate stock powers and certificates evidencing the pledged Subsidiary Equity Interests (to the extent not already delivered to Lender);
(v) A written opinion of U.S. counsel for the Loan Parties, dated the Closing Date;
(vi) A Lien search in acceptable scope and with acceptable results;
(vii) A Loan Request for any Loans being requested on the Closing Date; and
(viii) Such other documents in connection with such transactions as the Lender or said counsel may have reasonably requested.
7.1.2 Payment of Fees. The Borrowers shall have paid all fees payable on or before the Closing Date as required by this Agreement or any other Loan Document, including without limitation a closing fee which Borrower shall pay to the Lender by the Closing Date in the amount of $130,000 (which fee shall be fully earned and non-refundable when paid).
7.2 Each Loan or Letter of Credit. At the time of making any Loans or issuing, extending or increasing any Letters of Credit and after giving effect to the proposed extensions of credit: (i) the representations and warranties of the Loan Parties in the Loan Documents shall then be true and correct in all material respects (except for those representations and warranties that are qualified by reference to materiality, which shall be true and correct in all respects), (ii) no Event of Default or Potential Default shall have occurred and be continuing, and (iii) the Borrowers shall have delivered to the Lender a duly executed and completed Loan Request or an application for a Letter of Credit, as the case may be.
8. COVENANTS
The Loan Parties, jointly and severally, covenant and agree that until Payment In Full, the Loan Parties shall comply at all times with the following covenants:
8.1 Affirmative Covenants.
8.1.1 Preservation of Existence, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries (other than Immaterial Subsidiaries) to, maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 8.2.6 [Liquidations, Mergers, Etc.].
8.1.2 Payment of Liabilities, Including Taxes, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits in an amount in excess of $2,250,000, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made.
8.1.3 Maintenance of Insurance. Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured and in such amounts as are substantially consistent with past practice and with reputable and financially sound insurers.
8.1.4 Maintenance of Properties and Leases. Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in good repair, working order and condition (ordinary wear and tear excepted) all of those properties necessary to its business, and from time to time, such Loan Party will make or cause to be made all commercially reasonable repairs, renewals or replacements thereof.
8.1.5 Visitation Rights. Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any of the officers or authorized employees or representatives of the Lender to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as the Lender may reasonably request, provided that the Lender shall provide the Borrowers with reasonable notice prior to any visit or inspection.
8.1.6 Keeping of Records and Books of Account. Each Borrower shall, and shall cause each Subsidiary of the Borrowers to, maintain and keep proper books of record and account which enable the Borrowers and their Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over any Borrower or any Subsidiary of the Borrowers, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs.
8.1.7 Compliance with Laws; Use of Proceeds. Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with all applicable Laws, including all Environmental Laws, in all material respects. The Loan Parties will use the Letters of Credit and the proceeds of the Loans only in accordance with Section 2.6 [Use of Proceeds] and as permitted by applicable Law.
8.1.8 Further Assurances. Each Loan Party shall, from time to time, at its expense, faithfully preserve and protect the Lender's Lien on and Prior Security Interest in the Collateral whether now owned or hereafter acquired as a continuing first priority perfected Lien, subject only to Permitted Liens, and shall do such other acts and things as the Lender in its sole discretion may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents and to exercise and enforce its rights and remedies thereunder with respect to the Collateral.
8.1.9 Depository Accounts and Cash Management. The Borrowers shall maintain their primary depository accounts and treasury management services (which specifically does not include investment accounts) with the Lender.
8.1.10 Anti-Terrorism Laws; International Trade Compliance. None of the Loan Parties is or shall be (i) a Person with whom the Lender is restricted from doing business under Executive Order No. 13224 or any other Anti-Terrorism Law, (ii) engaged in any business involved in making or receiving any contribution of funds, goods or services to or for the benefit of such a Person or in any transaction that evades or avoids, or has the purpose of evading or avoiding, the prohibitions set forth in any Anti-Terrorism Law, or (iii) otherwise in violation of any Anti-Terrorism Law. The Loan Parties shall provide to the Lender any certifications or information that Lender reasonably requests to confirm compliance by the Loan Parties with Anti-Terrorism Laws. Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, the Loan Parties agree that (a) no Covered Entity will become a Sanctioned Person, (b) no Covered Entity, either in its own right or through any third party, will (A) have any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law; (B) do business in or with, or derive any of its income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law; (C) engage in any dealings or transactions prohibited by any Anti-Terrorism Law; or (D) use the Loans to fund any operations in, finance any investments or activities in, or, make any payments to, a Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law, (c) the funds used to repay the Obligations will not be derived from any unlawful activity, (d) each Covered Entity shall comply with all Anti-Terrorism Laws, and (e) the Borrower shall promptly notify the Lender in writing upon the occurrence of a Reportable Compliance Event.
8.1.11 Keepwell. Each Qualified ECP Loan Party jointly and severally (together with each other Qualified ECP Loan Party) hereby absolutely, unconditionally and irrevocably (a) guarantees the prompt payment and performance of all Swap Obligations owing by each Non-Qualifying Party (it being understood and agreed that this guarantee is a guaranty of payment and not of collection), and (b) undertakes to provide such funds or other support as may be needed from time to time by any Non-Qualifying Party to honor all of such Non-Qualifying Party's obligations under this Agreement or any other Loan Document in respect of Swap Obligations (provided, however, that each Qualified ECP Loan Party shall only be liable under this Section 8.1.11 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 8.1.11, or otherwise under this Agreement or any other Loan Document, voidable under applicable law, including applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of each Qualified ECP Loan Party under this Section 8.1.11 shall remain in full force and effect until payment in full of the Obligations and termination of this Agreement and the other Loan Documents. Each Qualified ECP Loan Party intends that this Section 8.1.11 constitutes, and this Section 8.1.11 shall be deemed to constitute, a guarantee of the obligations of, and a "keepwell, support, or other agreement" for the benefit of, each other Loan Party for all purposes of Section 1a(18(A)(v)(II)) of the CEA.
8.2 Negative Covenants.
8.2.1 Indebtedness. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Indebtedness incurred with respect to Purchase Money Security Interests and Capital Leases, secured by such Purchase Money Security Interests or Capital Leases (as applicable), Indebtedness assumed in connection with (but not incurred in contemplation of) a Permitted Acquisition secured by Liens that extend only to the property so acquired in such Permitted Acquisition, and other secured Indebtedness in an aggregate amount not to exceed $5,000,000 outstanding at any time;
(iii) so long as no Potential Default or Event of Default exists at the time of, or will be caused by, the incurrence thereof (including without limitation under Section 8.2.14 or 8.2.15), the following additional Indebtedness:
(a) additional Indebtedness incurred with respect to Purchase Money Security Interests and Capital Leases;
(b) additional Indebtedness assumed in connection with (but not incurred in contemplation of) a Permitted Acquisition; and
(c) other additional Indebtedness;
provided, however, that the aggregate outstanding amount of secured Indebtedness existing under Sections 8.2.1(iii)(b) and 8.2.1(iii)(c) above shall not exceed $5,000,000 at any time.
(iv) any (i) Lender Provided Interest Rate Hedge, (ii) other unsecured Interest Rate Hedges approved by the Lender and not otherwise causing a Potential Default or Event of Default hereunder (including without limitation under a financial covenant set forth herein), or (iii) Indebtedness under any Other Lender Provided Financial Services Product; provided however, the Loan Parties and their Subsidiaries shall enter into a Lender Provided Interest Rate Hedges or other Interest Rate Hedges only for hedging (rather than speculative) purposes;
(v) Guaranties permitted by Section 8.2.3 [Guaranties];
(vi) Indebtedness representing deferred compensation incurred in the ordinary course of business;
(vii) Indebtedness to current or former officers, directors, managers, consultants and employees to finance the required purchase or redemption of stock of the Parent Company in the ordinary course of business;
(viii) Indebtedness under Other Lender Provided Financial Service Products;
(ix) Indebtedness incurred in respect of letters of credit, bank guarantees, bankers’ acceptances, warehouse receipts or similar instruments (including reimbursement-type obligations) issued or created in the ordinary course of business consistent with past practice in respect of workers compensation claims, health, disability or other employee benefits, property, casualty or liability insurance, or performance, bid, appeal or surety bonds; and
(x) Indebtedness arising from intercompany loans and advances permitted by Section 8.2.4 [Loans and Investments].
8.2.2 Liens. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, except Permitted Liens.
8.2.3 Guaranties. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree to, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for:
(i) Indebtedness in the form of Guaranties of Indebtedness permitted under Sections 8.2.1(i) through (iv) and (vi) through (x);
(ii) Guaranties in favor of other Loan Parties;
(iii) Guaranties in favor of the Lender; and
(iv) so long as no Potential Default or Event of Default exists at the time of, or will be caused by, the incurrence thereof (including without limitation under Section 8.2.14 or 8.2.15), Guaranties of lease obligations of non-Loan Parties in respect of leases that are not Capital Leases;
provided that the aggregate outstanding amount of Guaranties referred to in the preceding Sections 8.2.3(i) and (iv) by the Parent Company or its domestic Subsidiaries of obligations of foreign Subsidiaries shall not exceed $5,000,000 at any time.
8.2.4 Loans and Investments. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company interest in, or any other investment or interest in, or make any capital contribution to, any other Person, except:
(i) trade credit or investments in the nature of accounts receivable or notes receivable extended to third parties, or trade receivables extended to Subsidiaries, in any case on usual and customary terms in the ordinary course of business;
(ii) loans or advances to employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) loans, advances and investments (other than trade receivables extended on usual and customary terms in the ordinary course of business) by: (A) any Loan Party in or to any other Loan Party; (B) any Subsidiary of the Parent Company that is not a Loan Party in or to any other Subsidiary of the Parent Company that is not a Loan Party; (C) any Subsidiary of the Parent Company that is not a Loan Party in or to any Loan Party, which, if in the form of Indebtedness, is Subordinated Debt; and (D) any Loan Party in or to any Subsidiary of the Parent Company that is not a Loan Party, provided that, in the case of this clause (D), either such loans, advances and investments are (a) set forth on Schedule 8.2.4 attached hereto or (b) in an aggregate amount not to exceed $3,000,000 outstanding at any time;
(v) investments made in connection with Permitted Acquisitions in accordance with Section 8.2.1 [Indebtedness], 8.2.6 [Liquidations, Mergers, Consolidations, Acquisitions] and/or Section 8.2.9 [Subsidiaries];
(vi) joint ventures, provided that (A) if such joint venture involves the acquisition of ownership interests in, or other creation of, a Subsidiary, then such Subsidiary shall comply with Section 8.2.9 [Subsidiaries] promptly following consummation of such joint venture, (B) the business acquired or otherwise to be conducted by the joint venture shall comply with Section 8.2.10 [Continuation or Change in Business], (C) no Potential Default or Event of Default shall exist immediately prior to and after giving effect to such joint venture and (D) in the case of a joint venture outside the ordinary course of business, the Pro Forma Operating Leverage Ratio shall meet the requirements set forth in Section 8.2.6(ii)(d) as applied to the joint venture (rather than a Permitted Acquisition or acquired Person) as demonstrated by a certificate (in form and substance reasonably acceptable to the Lender) delivered by the Borrowers to the Lender at least five (5) Business Days prior to consummating such joint venture;
(vii) promissory notes and other non-cash consideration received in connection with dispositions permitted under Section 8.2.7 [Dispositions of Assets or Subsidiaries];
(viii) investments (including debt obligations and equity interests) received in connection with the bankruptcy or reorganization of third party suppliers and customers or in settlement of delinquent obligations of, or other disputes with, third party customers and suppliers arising in the ordinary course of business or upon the foreclosure with respect to any secured such investment or other transfer of title with respect to any secured such investment; and
(ix) Guaranties permitted under Section 8.2.3 [Guaranties].
8.2.5 Dividends and Related Distributions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, make or pay, or agree to become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock, partnership interests or limited liability company interests on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor), partnership interests or limited liability company interests, dividends or other distributions payable to another Loan Party except for (a) dividends and distributions from Subsidiaries of the Parent Company to the Parent Company or another Loan Party, (b) only so long as no Potential Default or Event of Default is occurring, regular quarterly dividends of Parent Company to its shareholders in amounts not exceeding $.10 per share, and (c) after prior written notice to the Lender, and only so long as no Potential Default or Event of Default is occurring, an annual special dividend of Parent Company to its shareholders in amounts ranging from $1.00 to $2.50 per share; provided, however that the Lender acknowledges receipt of prior written notice of the payment by the Parent Company of a special dividend to its shareholders in an amount of $2.50 per share on February 25, 2014, which dividend is, in reliance on the Loan Parties’ confirmation and covenant by way of execution of this Agreement that no Potential Default or Event of Default is occurring on the date hereof or will be occurring on February 25, 2014, and assuming effectiveness of this Agreement prior to or concurrent with the payment of such special dividend, expressly permitted hereunder.
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries (other than Immaterial Subsidiaries) to, dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person other than dispositions of assets or Subsidiaries permitted under Section 8.2.7 [Dispositions of Assets or Subsidiaries]; provided that:
(i) (A) any Loan Party and any Subsidiary of a Loan Party (other than the Borrowers) may consolidate or merge into another Loan Party, and (B) any Subsidiary of the Parent Company that is not a Loan Party may consolidate or merge into a Loan Party or another Subsidiary of the Parent Company that is not a Loan Party, and
(ii) any Loan Party or any Subsidiary thereof may acquire, whether by purchase or by merger, (A) all of the ownership interests of another Person or (B) substantially all of assets of another Person or of a business or division of another Person (each, a “Permitted Acquisition”), provided that each of the following requirements is met for each Permitted Acquisition:
(a) if such Loan Party or Subsidiary is acquiring the ownership interests in such Person, such Person shall comply with the requirements of Section 8.2.9 [Subsidiaries] promptly following such Permitted Acquisition;
(b) the business acquired, or the business conducted by the Person whose ownership interests are being acquired shall comply with Section 8.2.10 [Continuation of or Change in Business];
(c) no Potential Default or Event of Default shall exist immediately prior to and after giving effect to such Permitted Acquisition;
(d) the Pro Forma Operating Leverage Ratio shall not exceed 2.25 to 1.00 and the Borrowers shall have delivered to the Lender a certificate (in form and substance reasonably acceptable to the Lender) demonstrating such compliance, at least five (5) Business Days prior to consummating such Permitted Acquisition; provided, however, that if trailing twelve month EBITDA of such acquired Person, business or division is not available for purposes of calculating the Pro Forma Operating Leverage Ratio, the Borrowers shall instead deliver to the Lender within such time period the Parent Company’s projections of the expected combined pro-forma EBITDA of the Borrower, its Subsidiaries and such acquired Person, business or division over the subsequent twelve month period, demonstrating that the consummation of such Permitted Acquisition will not result in a ratio of trailing twelve month Consolidated EBITDA to consolidated Funded Debt of the Borrowers and their Subsidiaries (including any Indebtedness incurred or assumed) that exceeds 2.25 to 1.00; and
(e) the Loan Parties shall deliver to the Lender as soon as available prior to the consummation of a Permitted Acquisition copies of any agreements entered into by such Loan Party or Subsidiary in connection with such Permitted Acquisition and shall deliver to the Lender such other information about such Person or its assets as any Loan Party may reasonably require.
8.2.7 Dispositions of Assets or Subsidiaries. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except:
(i) transactions involving the sale of inventory in the ordinary course of business;
(ii) any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by:
(A) any Loan Party to another Loan Party;
(B) any Subsidiary of the Parent Company that is not a Loan Party to another Subsidiary of the Parent Company that is not a Loan Party;
(C) any Subsidiary of the Parent Company that is not a Loan Party to a Loan Party, or any Loan Party to any Subsidiary of the Parent Company that is not a Loan Party, in each case in the ordinary course of business substantially consistent with past practice (“Ordinary Course”);
(D) any Subsidiary of the Parent Company that is not a Loan Party to a Loan Party, outside the Ordinary Course, provided that the consideration paid by such Loan Party (x) must not be greater than fair market value of the assets sold, transferred or leased, (y) if paid as Indebtedness, is permitted under Section 8.2.1 [Indebtedness], and (z) either (I) when added with the outstanding loans, investments and advances made by Loan Parties in Subsidiaries of the Parent Company that are not Loan Parties pursuant to Section 8.2.4(iv)(D) (not including those set forth on Schedule 8.2.4), does not exceed $3,000,000 in the aggregate at any time or (II) is set forth on Schedule 8.2.4; and
(E) any Loan Party to any Subsidiary of the Parent Company that is not a Loan Party, outside the Ordinary Course, provided that the consideration paid by such Subsidiary (x) must not be less than fair market value of such sold, transferred or leased assets, and, if paid as Indebtedness, is permitted under Section 8.2.1 [Indebtedness], and (y) when added with the outstanding loans, investments and advances made by Loan Parties in Subsidiaries of the Parent Company that are not Loan Parties pursuant to Section 8.2.4(iv)(D), does not exceed $5,000,000 in the aggregate;
(iv) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased;
(v) sales, transfers, leases or other dispositions of assets of Immaterial Subsidiaries;
(vi) dividends and distributions permitted by Section 8.2.5 [Dividends and Related Distributions];
(vii) investments, advances and loans permitted by Section 8.2.4 [Loans and Investments];
(viii) assignments, licenses and sublicenses of intellectual property in the ordinary course of business; and
(ix) the sale, transfer or lease of assets resulting from the facility closures listed on Schedule 8.2.7 attached hereto.
8.2.8 Affiliate Transactions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, enter into or carry out any transaction with any Affiliate of any Loan Party (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) unless such transaction (a) is not otherwise prohibited by this Agreement, (b) is in accordance with all applicable Law, and (c) either is entered into with a Loan Party or, if entered into with a non-Loan Party, is entered into in the ordinary course of business upon fair and reasonable arm's-length terms.
8.2.9 Subsidiaries. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, own or create directly or indirectly any Subsidiary other than:
(i) any domestic Subsidiary, not designated as an Immaterial Domestic Subsidiary, existing as of the Closing Date which has joined the Loan Documents as a Guarantor as of the Closing Date (including any domestic Subsidiary that the Lender and Borrowers agree in accordance with this Section 8.2.9 after the Closing Date will no longer be designated as an “Immaterial Domestic Subsidiary”);
(ii) any Immaterial Domestic Subsidiary or Immaterial Foreign Subsidiary (including any Subsidiary that the Lender and Borrowers agree in accordance with this Section 8.2.9 to designate as an “Immaterial Domestic Subsidiary” or “Immaterial Foreign Subsidiary”, as the case may be);
(iii) any foreign Subsidiary, existing as of the Closing Date as to which, if it is a 1st tier foreign Subsidiary and not an Immaterial Foreign Subsidiary (including any foreign Subsidiary that the Lender and Borrowers agree in accordance with this Section 8.2.9 after the Closing Date will no longer be designated as an “Immaterial Foreign Subsidiary”), 65% of all issued and outstanding equity interests of such 1st tier foreign Subsidiary is pledged to the Lender under the Pledge Agreement, including delivery to the Lender of documents necessary to grant and perfect Prior Security Interests to the Lender in equity interests of such 1st tier foreign Subsidiary under U.S. law, all of which is satisfactory in form and substance to the Lender;
(iv) any domestic Subsidiary (other than any domestic Subsidiary that the Lender and Borrowers agree in accordance with this Section 8.2.9 will be designated as an “Immaterial Domestic Subsidiary”) created or acquired after the Closing Date which joins the Loan Documents as a Guarantor by delivering to the Lender a signed Guarantor Joinder and other documents in the forms described in Section 7.1 [First Loans] modified as appropriate and in form and substance satisfactory to the Lender; or
(v) any foreign Subsidiary (other than any foreign Subsidiary that the Lender and Borrowers agree in accordance with this Section 8.2.9 will be designated as an “Immaterial Foreign Subsidiary”) created or acquired after the Closing Date as to which, if it is a 1st tier foreign Subsidiary and not an Immaterial Foreign Subsidiary, 65% of all issued and outstanding equity interests of such foreign Subsidiary is pledged to the Lender under the Pledge Agreement, including delivery to the Lender of documents necessary to grant and perfect Prior Security Interests to the Lender in equity interests of such foreign Subsidiary under U.S. law and the laws of its jurisdiction if so required by Lender, all of which is satisfactory in form and substance to the Lender, provided that Lender shall not require perfection in such foreign jurisdiction to the extent (i) such pledge would be unlawful under applicable Law, and (ii) in the reasonable discretion of the Lender (in consultation with the Borrowers), the costs and burdens of obtaining such pledge are excessive in relation to the value of the security being afforded by such pledge;
provided that the designation of any Subsidiary as an Immaterial Subsidiary shall be made by agreement among the Borrowers and Lender in writing, with the understanding that any Subsidiary that materially contributes to the overall assets or revenues of the Borrowers and their Subsidiaries, as reasonably determined by the Lender, will not be designated as an Immaterial Subsidiary.
8.2.10 Continuation of or Change in Business. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, engage in any business if, as a result, the general nature of the business in which the Loan Parties and their Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Loan Parties and their Subsidiaries, taken as a whole, are engaged on the Closing Date.
8.2.11 Fiscal Year. Each Borrower shall not, and shall not permit any Subsidiary of the Borrowers to, change its fiscal year from the twelve-month period ending the Sunday nearest to the last day of February, or the last day of February, for each calendar year, without providing at least thirty (30) days’ prior written notice to the Lender.
8.2.12 Changes in Organizational Documents. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, amend in any respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents without, if such change would be materially adverse to the Lender, providing at least thirty (30) days' prior written notice to the Lender. Notwithstanding the foregoing, if any Loan Party as a grantor under the Pledge Agreement changes its jurisdiction of organization from that listed on Schedule 6.1.2 or anyone other than such Loan Party as a grantor under the Pledge Agreement comes to own any equity interests pledged under the Pledge Agreement or if any new equity interests (whether by increase of amount or creation of a new class or type, or otherwise) in any issuer referenced in the Pledge Agreement exist, Borrowers shall provide Lender with immediate written notice thereof and promptly deliver such documents, instruments or certificates as Lender may require to perfect or continue perfection of its Lien pursuant to the Pledge Agreement and promptly take any other actions required pursuant to the Pledge Agreement.
8.2.13 Maximum Funded Debt Ratio. The Loan Parties shall not at any time permit the ratio of consolidated Funded Debt of the Borrowers and their consolidated Subsidiaries to Consolidated EBITDA, calculated as of the end of each fiscal quarter for the four immediately preceding fiscal quarters, beginning with the fiscal quarter first ending after the Closing Date and continuing thereafter, to exceed (i) 3.75 to 1.00 for the period from the Closing Date to February 28, 2015, (ii) 3.50 to 1.00 for the period from March 1, 2015 to February 27, 2016, (iii) 3.00 to 1.00 for the period from February 28, 2016 to February 25, 2017, and (iv) 2.25 to 1.00 for all periods thereafter.
8.2.14 Minimum Fixed Charge Coverage Ratio. The Loan Parties shall not permit the Fixed Charge Coverage Ratio of the Borrowers and their consolidated Subsidiaries, calculated as of the end of each fiscal quarter for the four immediately preceding fiscal quarters, beginning with the fiscal quarter first ending after the Closing Date and continuing thereafter, to be less than 1.10 to 1.00.
8.2.15 Minimum Domestic Liquid Assets; Quick Ratio. The Loan Parties covenant and agree that (A) they shall not, and shall not permit the Borrowers and their consolidated Subsidiaries to, maintain for the Borrowers and their consolidated Subsidiaries less than an aggregate of $25,000,000 in cash, securities for which there is an active market and/or commercial paper held at all times in domestic deposit and investment accounts titled in the name of, and under enforceable ownership of, a domestic Loan Party (i.e., organized in the United States); and (B) they and their consolidated Subsidiaries shall maintain, on a consolidated basis (i) cash plus marketable securities plus accounts receivable, divided by (ii) current liabilities, to be calculated as of the end of each fiscal quarter, beginning with the fiscal quarter first ending after the Closing Date and continuing thereafter, in excess of (a) 10.50 to 1.00 for the period from the Closing Date to February 28, 2015, (b) 10.00 to 1.00 for the period from March 1, 2015 to February 27, 2016, (c) 8.50 to 1.00 for the period from February 28, 2016 to February 25, 2017, and (d) 3.25 to 1.00 for all periods thereafter.
8.2.16 Negative Pledges. Each of the Loan Parties covenants and agrees that it shall not, and shall not permit any of its Subsidiaries to, enter into any Agreement with any Person which, in any manner, whether directly or contingently, prohibits, restricts or limits the right of any of the Loan Parties from granting any Liens to the Lender.
8.3 Reporting Requirements. The Loan Parties will furnish or cause to be furnished to the Lender:
8.3.1 Quarterly Financial Statements. As soon as available and in any event within ninety (90) calendar days after the end of each of the first three fiscal quarters in each fiscal year of the Borrowers, financial statements of the Parent Company and its Subsidiaries (including Borrowers), consisting of a consolidated balance sheet as of the end of such fiscal quarter and related consolidated statement of income and consolidated statement of cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by an Authorized Officer of the Borrowers as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year. Delivery within the time period specified above of copies of the Parent Company’s Report on Form 10-Q prepared in compliance with the requirements thereunder and filed with the SEC shall be deemed to satisfy the requirements of this Section.
8.3.2 Annual Financial Statements.
8.3.2.1 Consolidated Financial Statements. As soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrowers, financial statements of the Parent Company and its Subsidiaries (including Borrowers) consisting of a consolidated balance sheet as of the end of such fiscal year, and related consolidated statement of income and stockholders' equity and statement of cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants of nationally recognized standing reasonably satisfactory to the Lender as presenting fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and having been prepared in conformity with GAAP. Delivery within the time period specified above of copies of the Parent Company’s Report on Form 10-K prepared in compliance with the requirements thereunder and filed with the SEC shall be deemed to satisfy the requirements of this Section; and
8.3.2.2 Consolidating Financial Statements. As soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrowers, financial statements of the Parent Company and its Subsidiaries (including Borrowers) consisting of a consolidating balance sheet as of the end of such fiscal year, and related consolidating statement of income and stockholders' equity and statement of cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified (subject to normal year-end audit adjustments) by an Authorized Officer of the Borrowers as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year.
8.3.3 Certificates of the Borrowers. Concurrently with the financial statements of the Borrowers furnished to the Lender pursuant to Sections 8.3.1 [Quarterly Financial Statements] and 8.3.2 [Annual Financial Statements], a certificate of the Borrowers signed by an Authorized Officer of the Borrowers in the form of Exhibit 8.3.3.1 (each a “Compliance Certificate”).
8.3.4 Notices. Borrowers shall deliver to the Lender the following notices and reports:
8.3.4.1 Default. Promptly after any officer of any Loan Party has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by an Authorized Officer setting forth the details of such Event of Default or Potential Default and the action which such Loan Party proposes to take with respect thereto.
8.3.4.2 Litigation. Promptly after the commencement thereof, notice of any action, suit, proceeding or investigation before or by any Official Body or any other Person against any Loan Party or Subsidiary of any Loan Party which relate to the Collateral or which if adversely determined would constitute a Material Adverse Change.
8.3.4.3 Organizational Documents. If any amendment to the organizational documents of any Loan Party is required to be delivered to Lender pursuant to Section 8.2.12, within the time limits set forth in Section 8.2.12 [Changes in Organizational Documents].
8.3.4.4 Erroneous Financial Information. Promptly and in any event within five (5) Business Days in the event that the Borrowers or their accountants conclude or advise that any previously issued financial statement, audit report or interim review should no longer be relied upon or that disclosure should be made or action should be taken to prevent future reliance.
8.3.4.5 ERISA Event. Promptly upon the occurrence of any ERISA Event with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party or any Subsidiary of a Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $2,250,000.
8.3.4.6 Other Reports. Promptly upon their becoming available to the Borrowers:
(i) Financial Projections. If the Parent Company hereafter ceases to be publicly traded on a U.S. stock exchange, within sixty (60) days after commencement of each fiscal year of the Parent Company, the annual projections of the Parent Company and its Subsidiaries for the then-current fiscal year.
(ii) Material Management Letters. Any material reports, including material management letters, submitted to the Borrowers by independent accountants in connection with any annual, interim or special audit, and
(iii) Other Material Information. A copy of each material public filing as to any Loan Party or their Subsidiaries (or notice of the filing thereof on EDGAR), and such other reports and information as the Lender may from time to time reasonably request.
9. DEFAULT
9.1 Events of Default. An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law):
9.1.1 Payments Under Loan Documents. The Borrowers shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity) or Reimbursement Obligation or any interest on any Loan or Reimbursement Obligation or any other amount owing hereunder or under the other Loan Documents on the date on which such principal, interest or other amount becomes due in accordance with the terms hereof or thereof; provided, however, that the Borrowers shall have a grace period of two (2) Business Days for the payment of amounts owing hereunder or under the other Loan Documents other than principal.
9.1.2 Breach of Warranty. Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished;
9.1.3 Breach of Negative Covenants or Visitation Rights. Any of the Loan Parties shall default in the observance or performance of any covenant contained in Section 8.1.5 [Visitation Rights] or Section 8.2 [Negative Covenants];
9.1.4 Breach of Other Covenants. Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of thirty (30) days (provided that no such grace period shall apply to Sections 8.3.1 [Quarterly Financial Statements], 8.3.2 [Annual Financial Statements] and 8.3.3 [Certificates of Borrowers]);
9.1.5 Defaults in Other Agreements or Indebtedness. A default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party or Subsidiary of any Loan Party may be obligated as a borrower or guarantor in excess of $2,250,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any Indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default permits or causes the acceleration of any such Indebtedness (whether or not such right shall have been waived) or the termination of any commitment to lend;
9.1.6 [reserved];
9.1.7 Final Judgments or Orders. Any final judgments or orders for the payment of money in excess of $2,250,000 in the aggregate, not covered by insurance, shall be entered against any Loan Party or any Subsidiary of a Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry;
9.1.8 Loan Document Unenforceable. Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby;
9.1.9 Uninsured Losses; Proceedings Against Assets. There shall occur any uninsured damage to or loss, theft or destruction of any of assets or properties of a Loan Party or any Subsidiary of a Loan Party that constitutes a Material Adverse Change, or any of the Loan Parties' or any of their Subsidiaries' assets with a fair market value of $2,250,000 or greater are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter;
9.1.10 Events Relating to Plans and Benefit Arrangements. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party or any Subsidiary of a Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $2,250,000, or (ii) any Loan Party or any Subsidiary of a Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $2,250,000;
9.1.11 Change in Control. If any Change in Control shall occur; and
9.1.12 Relief Proceedings. (i) A Relief Proceeding shall have been instituted against any Loan Party or Subsidiary of a Loan Party and such Relief Proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or a court shall enter a decree or order granting any of the relief sought in such Relief Proceeding, (ii) any Loan Party or Subsidiary of a Loan Party institutes, or takes any action in furtherance of, a Relief Proceeding, or (iii) any Loan Party or any Subsidiary of a Loan Party (other than an Immaterial Subsidiary) ceases to be Solvent or admits in writing its inability to pay its debts as they mature.
9.2 Consequences of Event of Default.
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings. If an Event of Default specified under Sections 9.1.1 through 9.1.11 shall occur and be continuing, the Lender shall be under no further obligation to make Loans or under no obligation to issue Letters of Credit and the Lender may (i) by written notice to the Borrowers, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Lender hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Lender without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrowers to, and the Borrowers shall thereupon, deposit in a non-interest-bearing account with the Lender, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrowers hereby pledge to the Lender, and grant to the Lender a security interest in, all such cash as security for such Obligations.
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings. If an Event of Default specified under Section 9.1.12 [Relief Proceedings] shall occur, the Lender shall be under no further obligations to make Loans hereunder and shall be under no obligation to issue Letters of Credit and the unpaid principal amount of the Loans then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Lender hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived.
9.2.3 Set-off. If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Lender or any such Affiliate to or for the credit or the account of any Loan Party against any and all of the Obligations of such Loan Party now or hereafter existing under this Agreement or any other Loan Document to the Lender or Affiliate, irrespective of whether or not the Lender or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such Obligations of such Borrower or such Loan Party may be contingent or unmatured or are owed to a branch or office of the Lender different from the branch or office holding such deposit or obligated on such Indebtedness. The rights of the Lender and its Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that the Lender or its Affiliates may have. The Lender agrees to notify the Borrowers promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
9.2.4 Application of Proceeds. From and after the date on which the Lender has taken any action pursuant to this Section 9.2 and until all Obligations of the Loan Parties have been paid in full, any and all proceeds received by the Lender from any sale or other disposition of any Collateral, or any part thereof, or the exercise of any other remedy by the Lender, shall be applied as follows:
(i) first, to reimburse the Lender for out-of-pocket costs, expenses and disbursements, including reasonable attorneys' fees and expenses, incurred by the Lender in connection with realizing on any Collateral or collection of any Obligations of any of the Loan Parties under any of the Loan Documents, including advances made by the Lender for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, any Collateral, including advances for taxes, insurance, repairs and the like and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale or other realization on, any Collateral;
(ii) second, to the repayment of all Obligations then due and unpaid of the Loan Parties to the Lender or its Affiliates incurred under this Agreement or any of the other Loan Documents or agreements evidencing any Lender Provided Interest Rate Hedge or Other Lender Provided Financial Services Obligations, whether of principal, interest, fees, expenses or otherwise and to cash collateralize the Letter of Credit Obligations, in such manner as the Lender may determine in its discretion; and
(iii) the balance, if any, to the Loan Parties or as otherwise required by Law.
10. MISCELLANEOUS
10.1 Modifications, Amendments or Waivers. The Lender and the Borrowers, on behalf of the Loan Parties, may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Lender or the Loan Parties hereunder or thereunder, or may grant written waivers or consents hereunder or thereunder. Any such agreement, waiver or consent made with such written consent shall be effective to bind all the Loan Parties and the Lender.
10.2 No Implied Waivers; Cumulative Remedies. No course of dealing and no delay or failure of the Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Lender under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which it would otherwise have.
10.3 Expenses; Indemnity; Damage Waiver.
10.3.1 Costs and Expenses. The Borrowers shall pay (i) all out-of-pocket expenses incurred by the Lender and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Lender), and shall pay all reasonable fees and time charges and disbursements for attorneys who may be employees of the Lender, in connection with the participation of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket expenses incurred by the Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all out-of-pocket expenses incurred by the Lender (including the reasonable fees, charges and disbursements of any counsel for the Lender), and shall pay all reasonable fees and time charges for attorneys who may be employees of the Lender in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit, and (iv) all reasonable out-of-pocket expenses of the Lender's regular employees and agents engaged periodically, in accordance with Section 8.1.5, to perform audits of the Loan Parties' books, records and business properties. Notwithstanding the foregoing, the Borrowers shall be responsible for allocated costs of internal counsel only during a post-Event of Default out-of-court restructuring or after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to a Loan Party.
10.3.2 Indemnification by the Borrowers. The Borrowers shall jointly and severally indemnify and defend the Lender (and any agent thereof) and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance or nonperformance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) breach of representations, warranties or covenants of the Borrowers under the Loan Documents, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, including any such items or losses relating to or arising under Environmental Laws or pertaining to environmental matters, whether based on contract, tort or any other theory, whether brought by a third party or by any Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any Borrower or any other Loan Party against an Indemnitee for breach in bad faith of Lender’s or such Indemnitee's obligations hereunder or under any other Loan Document, if such Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. This Section 10.3.2 [Indemnification by the Borrowers] shall not apply with respect to Taxes other than Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
If any such claim or action shall be brought against any Indemnitee, such Indemnitee shall notify the Borrowers thereof, and the Borrowers shall be entitled to participate in the defense against such claim, though all aspects of the defense shall be principally managed by counsel selected by the Lender or such Indemnitee (with the understanding that Lender and any other Indemnities will not retain duplicative counsel for their representation, unless there are conflicts necessitating separate counsel). Notwithstanding the foregoing, the Borrowers, Lender and such Indemnitee may agree, in their discretion, in writing to share a single counsel in any such claim or action, on such terms and conditions as they may establish at such time.
Notwithstanding the foregoing, the Borrowers shall be responsible for allocated costs of internal counsel only during a post-Event of Default out-of-court restructuring or after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to a Loan Party.
10.3.3 Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable Law, each Indemnitee and each Loan Party shall not assert, and hereby waives, any claim against any Indemnitee or any Loan Party (as applicable), on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in Section 10.3.2 [Indemnification by Borrowers] shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it, other than through gross negligence or willful misconduct, through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
10.3.4 Payments. All amounts due under this Section shall be payable not later than ten (10) Business Days after demand therefor.
10.4 Holidays. Whenever payment of a Loan to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day (except as provided in Section 4.2 [Interest Periods]) and such extension of time shall be included in computing interest and fees, except that the Loans shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action.
10.5 Notices; Effectiveness; Electronic Communication.
10.5.1 Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 10.5.2 [Electronic Communications]), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier to the applicable party hereto at its address set forth on Schedule 1.1(A).
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in Section 10.5.2 [Electronic Communications], shall be effective as provided in such Section.
10.5.2 Electronic Communications. Notices and other communications to the Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Lender. The Lender or the Borrowers may, in their discretion, agree to accept notices and other communications to them hereunder by electronic communications pursuant to procedures approved by them; provided that approval of such procedures may be limited to particular notices or communications. Unless the Lender otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
10.5.3 Change of Address, Etc. Any party hereto may change its address, e-mail address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.
10.6 Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.
10.7 Duration; Survival. All representations and warranties of the Loan Parties contained herein or made in connection herewith shall survive the execution and delivery of this Agreement, the completion of the transactions hereunder and Payment In Full. All covenants and agreements of the Loan Parties contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Notes, Section 5 [Payments] and Section 10.3 [Expenses; Indemnity; Damage Waiver], shall survive Payment In Full. All other covenants and agreements of the Loan Parties shall continue in full force and effect from and after the date hereof and until Payment In Full.
10.8 Successors and Assigns.
10.8.1 Successors and Assigns Generally. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns permitted hereby, except that neither any Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender and the Lender may not assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 10.8.2 [Assignments by Lender], (ii) by way of participation in accordance with the provisions of Section 10.8.3 [Participations], or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.8.4 [Certain Pledges; Successors and Assigns Generally] (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 10.8.3 [Participations] and, to the extent expressly contemplated hereby, the Related Parties of the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement.
10.8.2 Assignments by Lender. The Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment and the Loans at the time owing to it). Any assignment by the Lender under this Section 10.8.2 when no Event of Default has occurred and is continuing shall be subject to the Borrowers’ consent (not to be unreasonably withheld); provided, however, that if the Lender has requested Borrowers’ consent and no consent (or refusal to provide consent) has been received within ten (10) days, such consent shall be deemed granted.
10.8.3 Participations. The Lender may at any time, without the consent of, or notice to, the Borrowers, sell participations to any Person (other than a natural person or any Borrower or any of the Borrowers' Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of the Lender's rights and/or obligations under this Agreement (including all or a portion of its Revolving Credit Commitment and/or the Loans owing to it); provided that (i) the Lender's obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers and the Lender shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under this Agreement.
10.8.4 Certain Pledges. The Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of the Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for the Lender as a party hereto.
10.9 Confidentiality.
10.9.1 General. The Lender agrees to maintain the confidentiality of the Information, except that Information may be disclosed (i) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, advisors and other representatives who need to know such Information (the “Shared Affiliates”), (ii) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (iii) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (iv) to any other party hereto, (v) to the extent required in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (B) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrowers and their obligations, (vii) with the consent of the Borrowers or (viii) to the extent such Information (Y) becomes publicly available other than as a result of a breach of this Section or (Z) becomes available to the Lender or any of its Affiliates on a nonconfidential basis from a source other than the Borrowers or the other Loan Parties, which source the Lender or its applicable Affiliates are not actually aware to be bound by an obligation of confidentiality. If any disclosure is made pursuant to clause (i) above of this Section to any Shared Affiliate, such Shared Affiliates are obligated to maintain the confidential nature of such Information the same as Lender is pursuant to this Section and, if requested by the Borrowers, shall reasonably confirm said obligation in writing. The Lender acknowledges that it has developed compliance procedures regarding the use of material non-public information and it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Lender shall be responsible for any disclosure of Information by Shared Affiliates or any Persons contemplated by clause (vi) above.
10.9.2 Sharing Information With Affiliates of the Lender. Each Loan Party acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to one or more Borrowers or one or more of their Affiliates (in connection with this Agreement or otherwise) by the Lender or by one or more Subsidiaries or Affiliates of the Lender, and each of the Loan Parties hereby authorizes the Lender to share any information delivered to the Lender by such Loan Party and its Subsidiaries pursuant to this Agreement to any such Subsidiary or Affiliate subject to the provisions of Section 10.9.1 [General].
10.10 Counterparts; Integration; Effectiveness.
10.10.1 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Lender, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof including any prior confidentiality agreements and commitments. Except as provided in Section 7 [Conditions Of Lending And Issuance Of Letters Of Credit], this Agreement shall become effective when it shall have been executed by the Lender and when the Lender shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or e-mail shall be as effective as delivery of a manually executed counterpart of this Agreement.
10.11 CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
10.11.1 Governing Law. This Agreement shall be deemed to be a contract under the Laws of the State of New York without regard to its conflict of laws principles. Each standby Letter of Credit issued under this Agreement shall be subject either to the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce (the “ICC”) at the time of issuance (“UCP”) or the rules of the International Standby Practices (ICC Publication Number 590) (“ISP98”), as determined by the Lender, and each trade Letter of Credit shall be subject to UCP, and in each case to the extent not inconsistent therewith, the Laws of the State of New York (including for such purpose Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York) without regard to is conflict of laws principles.
10.11.2 SUBMISSION TO JURISDICTION. EACH BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK (MANHATTAN BOROUGH) IN THE STATE OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
10.11.3 WAIVER OF VENUE. EACH BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN THIS SECTION 10.11. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT ASSERT ANY SUCH DEFENSE.
10.11.4 SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION]. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
10.11.5 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, LENDER OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.12 USA Patriot Act Notice. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each Loan Party or Subsidiary of a Loan Party that opens an account. What this means: when a Loan Party or Subsidiary of a Loan Party opens an account, the Lender will ask for the business name, business address, taxpayer identifying number and other information that will allow the Lender to identify the Loan Party or Subsidiary of a Loan Party, such as organizational documents. For some businesses and organizations, the Lender may also need to ask for identifying information and documentation relating to certain individuals associated with the business or organization.
10.13 Amendment and Restatement. This Agreement shall become effective on the Closing Date and shall supersede all provisions of the Existing Credit Agreement (as defined in the recitals hereto) as of the Closing Date. From and after the Closing Date, all references made to the Existing Credit Agreement in any Loan Document or in any other instrument or document shall, without more, be deemed to refer to this Agreement, as amended, restated or otherwise modified. This Agreement amends and restates the Existing Credit Agreement but is not intended to be or operate as a novation or an accord and satisfaction of the Existing Credit Agreement or the indebtedness, obligations and liabilities of the Borrowers evidenced or provided for thereunder. The Loan Parties heretofore executed and delivered certain Loan Documents,
including without limitation, the Pledge Agreement. The Loan Parties hereby acknowledge and agree that the Liens created and provided for by such Loan Documents continue to secure, among other things, the Obligations arising under this Agreement and the other Loan Documents, and the rights and remedies of the Lender thereunder, the obligations of the Loan Parties thereunder, and the Liens created and provided for thereunder remain in full force and effect and shall not be affected, impaired or discharged hereby.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written.
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BORROWER:
PARK ELECTROCHEMICAL CORP. By: |
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GUARANTORS:
NELCO PRODUCTS, INC. By:
NELTEC, inc.
PARK AEROSPACE TECHNOLOGIES CORP. |
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LENDER:
PNC BANK, NATIONAL ASSOCIATION Name: |
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SCHEDULE 1.1(A)
COMMITMENT OF LENDER AND ADDRESSES FOR NOTICES
Page 1 of 2
Part 1 - Commitment of Lender and Address for Notice to Lender
Lender |
Commitment |
PNC Bank, National Association Two Tower Center Boulevard |
$106,000,000 |
SCHEDULE 1.1(A)
COMMITMENTS OF LENDER AND ADDRESSES FOR NOTICES
Page 2 of 2
Part 2 - Addresses for Notices to Borrowers and Guarantors:
BORROWERS:
Name: Park Electrochemical Corp.
Address: 48 South Service Rd.
Melville, NY 11747
Attn: Matthew Farabaugh, VP and CFO
Telephone: (631) 465-3625
Telecopy: (631) 465-3100
GUARANTORS:
Name: c/o Park Electrochemical Corp.
Address: 48 South Service Rd.
Melville, NY 11747
Attn: Matthew Farabaugh, VP and CFO
Telephone: (631) 465-3625
Telecopy: (631) 465-3100
EXHIBIT 21.1
SUBSIDIARIES OF PARK ELECTROCHEMICAL CORP.
The following table lists all Park's directly and indirectly owned subsidiaries and the jurisdiction in which each such subsidiary is organized.
Name |
Jurisdiction of Incorporation |
Grand Rapids Die Casting Corp. |
Michigan |
Metclad International Corp. |
Delaware |
Nelco Products, Inc. |
Delaware |
Nelco Products Pte. Ltd. |
Singapore |
Nelco Technology, Inc. |
Delaware |
Nelco Technology (Zhuhai FTZ) Ltd. |
China |
Neltec, Inc. |
Delaware |
Neltec Europe SAS |
France |
Neltec SA |
France |
Neluk, Inc. |
Delaware |
New England Laminates Co., Inc. |
New York |
Papa Echo Aircraft Corp. |
Delaware |
Park Advanced Composite Materials, Inc. |
Connecticut |
Park Advanced Product Development Corp. |
Delaware |
Park Aerospace Structures Corp. |
Washington |
Park Aerospace Technologies Corp. |
Kansas |
ParkNelco SNC |
France |
Park Sales Corp. |
Delaware |
Tin City Aircraft Works, Inc. |
Kansas |
Zin-Plas Corporation |
Michigan |
Zin-Plas Marketing and Business |
|
Development Corporation | Michigan |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated May 16, 2014, with respect to the consolidated financial statements, schedule and internal control over financial reporting included in the Annual Report of Park Electrochemical Corp. on Form 10-K for the year ended March 2, 2014. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Park Electrochemical Corp. on Forms S-8 (File No. 33-55383, effective September 7, 1994; File No. 333-12463, effective September 20, 1996; and File No. 333-153264, effective August 29, 2008).
/s/GRANT THORNTON LLP
New York, New York
May 16, 2014
EXHIBIT 31.1
Certification of Principal Executive Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, Brian E. Shore, as President and Chief Executive Officer of Park Electrochemical Corp., certify that:
1. |
I have reviewed this Annual Report on Form 10-K for the fiscal year ended March 2, 2014 of Park Electrochemical Corp.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 16, 2014
/s/ Brian E. Shore
Name: Brian E. Shore
Title: President and Chief Executive Officer
EXHIBIT 31.2
Certification of Principal Financial Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, P. Matthew Farabaugh, as Vice President and Chief Financial Officer of Park Electrochemical Corp., certify that:
1. |
I have reviewed this Annual Report on Form 10-K for the fiscal year ended March 2, 2014 of Park Electrochemical Corp.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 16, 2014
/s/ P. Matthew Farabaugh____________________
Name: P. Matthew Farabaugh
Title: Vice President and Chief Financial Officer
EXHIBIT 32.1
Certification of Principal Executive Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Park Electrochemical Corp. (the "Company") for the fiscal year ended March 2, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Brian E. Shore, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Brian E. Shore
Name: Brian E. Shore
Title: President and Chief Executive Officer
Date: May 16, 2014
EXHIBIT 32.2
Certification of Principal Financial Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Park Electrochemical Corp. (the "Company") for the fiscal year ended March 2, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), P. Matthew Farabaugh, as Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ P. Matthew Farabaugh
Name: P. Matthew Farabaugh
Title: Vice President and Chief Financial Officer
Date: May 16, 2014
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