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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 25, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 1-4415
PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
New York 11-1734643
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
48 South Service Road, Melville, New York 11747
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (631) 465-3600
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class 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 [X]
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 [X]
[cover page 1 of 2 pages]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark 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, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated File [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
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.
Aggregate As of Close of
Title of Class Market Value Business On
------------------------- --------------- ----------------
Common Stock,
par value $.10 per share $ 515,674,858 August 25, 2006
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Shares As of Close of
Title of Class Outstanding Business On
------------------------- ------------ --------------
Common Stock,
par value $.10 per share 20,197,814 May 4, 2007
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held July 18, 2007
incorporated by reference into Part III of this Report.
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[cover page 2 of 2 pages]
3
TABLE OF CONTENTS
Page
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PART I
Item 1. Business................................................... 4
Item 1A. Risk Factors............................................... 16
Item 1B. Unresolved Staff Comments.................................. 18
Item 2. Properties................................................. 19
Item 3. Legal Proceedings.......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders........ 19
Executive Officers of the Registrant....................... 19
PART II
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..................... 38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 39
Item 8. Financial Statements and Supplementary Data................ 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 66
Item 9A. Controls and Procedures.................................... 66
Item 9B. Other Information.......................................... 68
PART III
Item 10. Directors, Executive Officers and Corporate Governance..... 69
Item 11. Executive Compensation..................................... 69
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters............... 69
Item 13. Certain Relationships and Related Transactions,
and Director Independence................................ 69
Item 14. Principal Accountant Fees and Services..................... 69
PART IV
Item 15. Exhibits and Financial Statement Schedules................. 70
SIGNATURES............................................................... 71
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts........................ 72
EXHIBIT INDEX............................................................ 73
4
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 primarily engaged in the design, development, production,
marketing and sale of high-technology digital and RF/microwave printed circuit
materials and advanced composite materials principally for the
telecommunications and internet infrastructure, high-end computing and 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, China, France, Connecticut, New York, Arizona and California.
The Company's products are marketed and sold under the Nelco(R) and
Nelcote(TM) names.
Sales of Park's printed circuit materials were 92% of the Company's
total net sales worldwide in the 2007 and 2006 fiscal years, and sales of Park's
advanced composite materials were 8% of the Company's total net sales worldwide
in the 2007 and 2006 fiscal years.
Park was founded in 1954 by Jerry Shore, who was the Company's Chairman
of the Board until July 14, 2004 and who is one of the Company's largest
shareholders.
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 17 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, China 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.
COREFIX, EF, INNERLAM, LD, NELCO, NELTEC, PARKNELCO, RTFOIL and SI are
registered trademarks of Park Electrochemical Corp., and ELECTROVUE, FIBERCOTE,
NELCOTE, PEELCOTE and POWERBOND are common law trademarks of Park
Electrochemical Corp.
5
Printed Circuit Materials
Printed Circuit Materials Operations
The Company is a leading global designer and producer 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. 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 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, laptops, satellite switching
equipment, cellular telephones and transceivers, wireless personal digital
assistants ("PDAs") and wireless local area networks ("LANs"). The Company's
radio frequency ("RF") 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.
As a result of its leading edge products, extensive technical and
engineering service support and responsive manufacturing capabilities, the
Company expects to continue to take advantage of several industry trends. These
trends include the increasingly advanced electronic materials required for
interconnect performance and manufacturability, the increasing miniaturization
and portability of advanced electronic equipment, the consolidation of the
printed circuit board fabrication industry and the time-to-market and
time-to-volume pressures requiring closer collaboration with materials
suppliers.
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 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.
6
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 thermosetting or
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
bismalimide triazine ("BT"), cyanate ester, polyimide, 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 laminated together with specialty thin
copper foil laminated on the top and bottom. Copper foil is specially formed in
thin sheets which may vary from 0.0030 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 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 the vertical plane
through the plated holes or vias.
7
In the years immediately preceding the severe correction and downturn
that occurred in the global electronics industry in the Company's 2002 fiscal
year first quarter, the global market for advanced electronic products grew as a
result of technological change and frequent new product introductions. This
growth was principally attributable to increased sales and more complex
electronic content of newer products, such as cellular telephones, pagers,
personal computers and portable computing devices and the infrastructure
equipment necessary to support the use of these devices, and greater use of
electronics in other products, such as automobiles. Further, large, almost
completely untapped markets for advanced electronic equipment emerged in such
areas as India and China and other areas of the Pacific Rim. During its 2002
fiscal year, the Company established a business center in Wuxi, China, in the
Shanghai Nanjing corridor, which has been replaced by a new manufacturing
facility in the Zhuhai Free Trade Zone approximately 50 miles west of Hong Kong
in Guangdong Province in southern China. The construction of the facility was
completed in the first quarter of the Company's 2007 fiscal year, and the
Company has installed equipment for the facility and is in the process of
equipment testing, employee training and internal and external qualifications
for the facility. This manufacturing facility is intended to service customers
in China.
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 and
often portable products. High performance computing devices in these smaller
portable platforms require greater reliability, 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 insure the performance of the electronic system and to improve the
manufacturability of the interconnect platform. In the years immediately
preceding the severe correction and downturn that occurred in the global
electronics industry in the Company's 2002 fiscal year first quarter, the growth
of the market for more advanced printed circuit materials outpaced the market
growth for standard printed circuit materials. 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.
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 narrow plated through holes or vias which electrically connect
the multiple layers of circuitry planes. 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.
8
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, wireless packages, 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 electronic 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 include high-speed, low-loss, digital broadband
engineered formulations, high-temperature modified epoxies, bismalimide triazine
("BT") epoxies, non-MDA polyimides, enhanced polyimides, SI(R) (Signal
Integrity) products, cyanate esters and polytetrafluoroethylene ("PTFE")
formulations for radio frequency ("RF")/microwave applications.
The Company's high performance printed circuit materials consist of
high-speed low-loss materials for digital and RF/microwave applications
requiring lead-free compatibility, high bandwidth signal integrity, BT
materials, polyimides for applications that demand extremely high thermal
performance, cyanate esters, and PTFE 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.
9
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.
The Company has located its advanced printed circuit materials
manufacturing operations in strategic locations intended to serve specific
regional markets. By situating its facilities in close geographical proximity to
its customers, the Company is able to rapidly adjust its manufacturing processes
to meet customers' new requirements and respond quickly to customers' technical
needs. The Company has technical staffs based at each of its manufacturing
locations, which allows the rapid dispatch of technical personnel to a
customer's facility to assist the customer in quickly solving design, process,
production or manufacturing problems. During the 2002 fiscal year, the Company
established a business center in Wuxi near Shanghai in central China, which has
been replaced by a new manufacturing facility in the Zhuhai Free Trade Zone
approximately 50 miles west of Hong Kong in southern China to support the
growing customer demand for advanced multilayer printed circuit materials in
China. The construction of this facility was completed in the first quarter of
the Company's 2007 fiscal year, and the Company has installed equipment for the
facility and is in the process of equipment testing, employee training and
internal and external qualifications for the facility.
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, transportation, aerospace 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 product technology specialists. The Company's strategy
emphasizes the use of multiple facilities established in market areas in close
proximity to its customers.
During the Company's 2007 fiscal year, approximately 16.7% of the
Company's total worldwide sales were to Sanmina-SCI Corporation, a leading
electronics contract manufacturer and manufacturer of printed circuit boards,
and approximately 10.7% of the Company's total worldwide sales were to TTM
Technologies, Inc., a leading manufacturer of printed circuit boards. During the
Company's 2006 fiscal year, approximately 19.4% of the Company's total worldwide
sales were to Sanmina-SCI Corporation, approximately 11.7% of the Company's
total worldwide sales were to TTM Technologies, Inc., and approximately 10.4% of
the Company's total worldwide sales were to Multilayer Technology, Inc., a
manufacturer of multilayer printed circuit boards. The
10
sales to TTM Technologies, Inc. during the 2007 and 2006 fiscal years included
sales to Tyco Printed Circuit Group L.P., a leading manufacturer of printed
circuit boards, which was acquired by TTM Technologies, Inc. in the Company's
2007 fiscal year. During the Company's 2007 and 2006 fiscal years, sales to no
other customer of the Company equaled or exceeded 10% of the Company's total
worldwide sales.
Although the 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 printed circuit materials business.
The Company's printed circuit materials products are marketed primarily
by sales personnel and, to a lesser extent, by independent distributors in
industrial centers in North America, Europe and Asia. Such personnel include
both salaried employees and independent sales representatives who work on a
commission basis.
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 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 six
fully integrated facilities located in the United States, Europe and Southeast
Asia. The Company opened its California facility in 1965, its first Arizona and
France facilities in 1984, its Singapore facility in 1986 and its second France
facility in 1992. The Company services the North America market principally
through its United States manufacturing facilities, the European market
principally through its manufacturing facilities in France, and the Asian market
principally through its Singapore manufacturing facility. During its 2002 fiscal
year, the Company established a business center in central China, which has been
replaced by a new manufacturing facility in the Zhuhai
11
Free Trade Zone approximately 50 miles west of Hong Kong in southern China to
supply the growing demand for advanced multilayer printed circuitry materials in
China. The construction of this facility was completed in the first quarter of
the Company's 2007 fiscal year, and the Company has installed equipment at the
facility and is in the process of equipment testing, employee training and
internal and external qualifications for the facility. In addition, the Company
upgraded its printed circuit materials treating operation in Singapore during
the 2007 fiscal year third quarter so that such operation is capable of treating
the Company's full line of advanced printed circuit materials in Singapore,
except polytetrafluoroethylene ("PTFE") materials. The Company has located its
manufacturing facilities in its important markets. 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 cloth and synthetic reinforcements, and specially formulated resins
and chemicals. The Company attempts to develop and maintain close working
relationships with suppliers of those 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 each of
these materials. However, there are a limited number of qualified suppliers of
these materials, substitutes for these materials are not readily available, and,
in the recent past, the industry has experienced shortages in the market for
certain of these 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 materials could
materially adversely affect the business, financial condition 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, financial condition and results of operations if the Company
were unable to pass such increases through to its customers. During the first
and second quarters of the 2007 fiscal year, the Company incurred significant
increases in the cost of copper foil, one of the Company's primary raw
materials, and the Company was able to pass a substantial portion of such
increases through to its customers in the second, third and fourth quarters of
the 2007 fiscal year.
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 the multilayer
12
printed circuit materials industry has become more global and that the remaining
smaller regional manufacturers are finding it increasingly difficult to remain
competitive. 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
Advanced Composite Materials Operations
The Company also develops and produces engineered composite materials
for the aerospace, rocket motor, radio frequency ("RF") and specialty industrial
markets.
Advanced Composite Materials - 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 woven fabrics, non-woven goods such as
mats or felts, or in some cases unidirectional fibers. Reinforcement materials
are constructed of: E-glass (fiberglass), carbon fiber, S2 glass, aramids such
as Kevlar(R) ("Kevlar" is a registered trademark of E.I. du Pont de Nemours &
Co.) and Twaron(R) ("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 mixtures. The Company
produces resin formulations using various epoxies, polyesters, phenolics,
bismalimides, 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 and pressure to achieve the
molecular cross-linking of the matrices, thermoplastics can be reformed using
additional heat and pressure. 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.
13
Composite part fabricators typically design and specify a material
specifically to meet the needs of the part's end use and the fabricators'
processing methods. Fabricators sometimes work with a supplier to develop the
specific resin system and reinforcement combination to match the application.
Fabricators' processing may include hand lay-up or more advanced automated
lay-up ("ATL") techniques. Automated lay-up processes include automated tape
lay-up, 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 in some cases in-situ curing. After the part has been cured,
final finishing and trimming, and assembly of the structure is performed by the
fabricator.
Advanced Composite Materials - Products
The 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
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, bismalimides, polyimides combined with woven,
non-woven, and unidirectional reinforcements. Reinforcement materials used to
produce the Company's products include polyacrylonitrile ("PAN") and pitch based
carbons, aramids, E-glass, S2 glass, polyester, quartz and rayon. The Company
also sells certain specialty fabrics, such as Raycarb C2, a carbonized rayon
fabric produced by Snecma Propulsion Solide and used mainly in the rocket motor
industry.
Advanced Composite Materials - Customers and End Markets
The Company's advanced composite materials customers, the majority of
which are located in the United States, include manufacturers in the aerospace,
rocket motor, electronics, radio frequency ("RF"), marine and specialty
industrial markets. The Company's materials are marketed by sales personnel
including both salaried employees and independent sales representatives who work
on a commission basis.
While no single advanced composite materials 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 advanced composite materials business could have a material adverse effect
upon the Company's advanced composite materials business.
The Company's aerospace customers are fabricators of aircraft composite
hardware. The Company's advanced composite materials are used to produce primary
and secondary structures, aircraft interiors, and various other aircraft
components. The majority of the Company's customers for aerospace materials do
not produce hardware for commercial aircraft, but for the general and corporate
aviation, kit aircraft and military segments. The majority of the Company's
customers for aerospace products are in the United States and Europe.
14
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. Customers for these products
are primarily in the United States and Europe.
Advanced Composite Materials - Manufacturing
The Company's manufacturing facility for advanced composite materials
is currently located in Waterbury, Connecticut. The Company also produces some
products through the use of toll coating services at other locations in North
America.
In the 2006 fiscal year, the Company installed an additional large
treater at its advanced composite materials facility in Waterbury, Connecticut,
which has significantly increased Nelcote's treating capacity. In the third
quarter of the 2007 fiscal year, the Company acquired a facility in Singapore
which the Company is modifying and expanding for use as a new advanced
composites manufacturing plant. In addition, the Company is in the final stages
of planning the construction of a new plant in the United States to produce
advanced composite materials principally for the aerospace industry.
The process for manufacturing composite materials is capital intensive
and requires sophisticated equipment, significant technical know-how and very
tight process control. The key steps used in the manufacturing process include
chemical reactors, resin mixing, reinforcement impregnation, and in some cases
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 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 facility. The
Company's laboratories have been approved by several aerospace contractors.
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.
15
Advanced Composite Materials - 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, Kevlar(R),
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, and demand has increased for certain materials, such as
carbon fiber during the 2006 and 2005 fiscal years. The supply of certain
materials was limited during the 2006 and 2005 fiscal years, but such limitation
did not have a material adverse effect on the Company's advanced composite
materials business. The Company is working globally to determine acceptable
alternatives for several raw materials with limited availability.
Advanced Composite Materials - Competition
The Company has many competitors in the advanced composite materials
business, ranging in size from large, international corporations to small
regional producers. Several of the Company's largest competitors are vertically
integrated. 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, innovative new product development, product qualification
listing and price.
Backlog
The Company records 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 29, 2007, the
unfilled portion of all purchase orders received by the Company and believed by
it to be firm was approximately $9,458,000, compared to $7,401,000 at April 30,
2006.
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
February 25, 2007.
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 February 25, 2007, the Company had approximately 950 employees. Of
these employees, 840 were engaged in the Company's printed circuit materials
operations, 70 in its advanced composite materials operations and 40 consisted
of executive personnel and general administrative staff. None of the Company's
employees are subject to a collective bargaining agreement. However, the
non-executive employees of the Company's Neltec Europe SAS subsidiary in France
are represented by the trade union which represents all non-executive employees
in the industrial sector to which Neltec Europe belongs. Management considers
its employee relations to be good.
16
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
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 nine sites. In
addition, a subsidiary of the Company has received cost recovery claims under
the Superfund Act from other private parties involving one other site and has
received requests from the EPA under the Superfund Act for information with
respect to its involvement at three other sites. 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 the 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. Management believes the ultimate
disposition of known environmental matters will not have a material adverse
effect upon 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 16 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 and 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.
17
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 and advanced composite materials
industries are intensely competitive and the Company competes worldwide in the
markets for such materials.
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 is vulnerable to an increase in the price 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 and advanced
composite materials products. Substitutes for these materials are not readily
available, and in the past there have been shortages in the market for certain
of these materials. These shortages could materially increase the Company's cost
of operations.
The Company's customer base is highly concentrated, and the loss of one or more
customers could affect the Company's business.
A loss of one or more key customers could 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 year ended February 25, 2007,
the Company's ten largest customers accounted for approximately 73% 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--Customers and End Markets"
in Item 1 of Part I of this Report.
The Company's business is dependent on the electronics industry which is
cyclical in nature.
The electronics industry is cyclical and has experienced recurring downturns.
The downturns, such as occurred in the electronics industry during the first
quarter of the Company's fiscal year ended March 2, 1997 and in the first
quarter of the Company's fiscal year ended March 3, 2002, and which continues to
a lesser extent at the present time, can be unexpected and have often reduced
demand for, and prices of, printed circuit materials and advanced composite
materials. This potential reduction in demand and prices could have a negative
impact on the Company's business.
18
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. 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 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 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. Other possible developments, such as the
enactment or adoption of additional environmental laws, could result in
substantial costs to the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
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.
Size
Owned or (Square
Location Leased Use Footage)
------------------ ------------ ---------------------- ------------
Melville, NY Leased Administrative Offices 8,000
Newburgh, NY Leased Electronic Materials 171,000
Fullerton, CA Leased Electronic Materials 95,000
Anaheim, CA Leased Electronic Materials 26,000
Tempe, AZ Leased Electronic Materials 87,000
Mirebeau, France Owned Electronic Materials 81,000
Lannemezan, France Owned Electronic Materials 29,000
Singapore Leased Electronic Materials 128,000
Zhuhai, China Leased Electronic Materials 40,000
Waterbury, CT Leased Advanced Composites 100,000
Singapore Leased Advanced Composites 24,000
The electronic materials facility in Zhuhai, China has been constructed
and equipped but is not yet operating. The advanced composites facility in
Singapore has been recently acquired by the Company and is currently being
renovated and expanded for use by the Company as an advanced composites
manufacturing facility.
The Company believes its facilities and equipment to be in good
condition and reasonably suited and adequate for its current needs. During the
2007 and 2006 fiscal years, certain of the Company's printed circuit materials
manufacturing facilities were utilized at less than 50% of their designed
capacity.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Title Age
------------------- ------------------------------------------ --------
Brian E. Shore Chief Executive Officer, President and a
Director 55
James L. Zerby Vice President and Chief Financial Officer 64
Stephen E. Gilhuley Executive Vice President, Secretary and
General Counsel 62
James W. Kelly Vice President, Taxes and Planning 50
Anthony W. DiGaudio Vice President of Marketing and Sales 37
Louis J. Stans Vice President of Engineering and
Quality and Research and Development 60
20
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. Zerby was appointed Vice President and Controller of the Company on
July 24, 2006, and he was elected Vice President and Chief Financial Officer on
October 24, 2006. Prior to joining Park, Mr. Zerby was Chief Financial Officer
of Photocircuits Corporation, a manufacturer of printed circuit boards, in Glen
Cove, New York from 1991 to March 2006.
Mr. Gilhuley has been General Counsel of the Company since April 1994
and Secretary since July 1996. He was elected a Senior Vice President in March
2001 and Executive Vice President on October 24, 2006.
Mr. Kelly was elected Vice President, Taxes and Planning of Park in
March 2001. He had been Director of Taxes of the Company since May 1997.
Mr. DiGaudio joined the Company as a Product Director in May 2002, was
promoted to Vice President of Quality in May 2004 and was promoted to Vice
President of Sales effective June 13, 2005. He was appointed Vice President of
Marketing in June 2006 in addition to the position of Vice President of Sales.
For several years prior to joining Park, Mr. DiGaudio was Technical Manager for
Metro Circuits, Division of PJC Technologies, Inc. in Rochester, New York.
Mr. Stans was appointed Vice President of Engineering of the Company in
December 2004, and he was also appointed to the position of Vice President of
Quality in October 2005. He was appointed Vice President of Research and
Development in January 2007 in addition to the positions of Vice President of
Engineering and Vice President of Quality. Prior to joining Park, Mr. Stans had
been Director of Technology and Engineering at Photocircuits Corporation, a
major printed circuit board manufacturer, since 1990.
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.
21
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 Midwest
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.
Stock Price
For the Fiscal Year ----------------------- Dividends
Ended February 25, 2007 High Low Declared
----------------------- ---------- ---------- ----------
First Quarter $ 36.45 $ 28.05 $ .08
Second Quarter 34.29 23.05 $ 1.08(a)
Third Quarter 33.70 25.40 $ .08
Fourth Quarter 33.50 24.72 $ .08
Stock Price
For the Fiscal Year ----------------------- Dividends
Ended February 26, 2006 High Low Declared
----------------------- ---------- ---------- ----------
First Quarter $ 23.20 $ 19.07 $ .08
Second Quarter 27.52 22.81 $ .08
Third Quarter 26.98 23.75 $ 1.08(b)
Fourth Quarter 29.75 22.63 $ .08
(a) During the 2007 fiscal year second quarter, the Company declared its
regular quarterly cash dividend of $0.08 per share in June 2006, and in
July 2006 the Company announced that its Board of Directors had
declared a one-time, special cash dividend of $1.00 per share, payable
August 22, 2006 to stockholders of record on August 1, 2006.
(b) During the 2006 fiscal year third quarter, the Company declared its
regular quarterly cash dividend of $0.08 per share in September 2005,
and in October 2005 the Company announced that its Board of Directors
had declared a one-time, special cash dividend of $1.00 per share,
payable December 15, 2005 to stockholders of record on November 15,
2005.
As of May 4, 2007, there were approximately 930 holders of record of
Common Stock.
The Company expects, for the immediate future, to continue to pay
regular cash dividends.
22
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
2007 fiscal year fourth quarter ended February 25, 2007.
Maximum Number (or
Total Number of Approximate Dollar
Shares (or Value) of Shares
Total Units) Purchased or Units) that
Number of Average As Part of May Yet Be
Shares (or Price Paid Publicly Purchased Under
Units) Per Share Announced Plans The Plans or
Period Purchased (or Unit) or Programs Programs
----------------------- ---------- ----------- ---------------- ------------------
November 27 -
December 31 0 - 0
January 1-28 0 - 0
January 29 -
February 25 0 - 0
Total 0 - 0 2,000,000(a)
(a) Aggregate number of shares available to be purchased by the
Company pursuant to a share purchase authorization announced
on October 20, 2004. 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 February 25, 2007 and is as of the end of
such periods, it is derived from the Consolidated Financial Statements for the
three fiscal years ended February 25, 2007 and as of such dates audited by Grant
Thornton LLP, independent auditor, and from the Consolidated Financial
Statements for the two fiscal years ended February 29, 2004 and as of such dates
audited by Ernst & Young LLP, independent auditor. The Consolidated Financial
Statements as of February 25, 2007 and February 26, 2006 and for the three years
ended February 25, 2007, together with the independent auditor's report for the
three years ended February 25, 2007, appear in Item 8 of Part II of this Report.
23
Fiscal Year Ended
------------------------------------------------------------------------
(In thousands, except per share amounts)
February 25, February 26, February 27, February 29, March 2,
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
STATEMENTS OF EARNINGS INFORMATION:
Net sales $ 257,377 $ 222,251 $ 211,187 $ 194,236 $ 195,578
Cost of sales 193,270 167,650 167,937 161,536 168,921
------------ ------------ ------------ ------------ ------------
Gross profit 64,107 54,601 43,250 32,700 26,657
Selling, general and
administrative expenses 26,682 25,129 26,960 27,962 27,157
Insurance arrangement
termination charge 1,316 - - - -
Asset impairment charge - 2,280 - - 49,035
Restructuring and severance
charges (Note 11) - 889 625 8,469 4,794
Gain on insurance settlement
(Note 12) - - (4,745) - -
Gain on sale of DPI - - - - (3,170)
Gain on sale of UK real estate - - - (429) -
Gain on Delco lawsuit - - - (33,088) -
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 36,109 26,303 20,410 29,786 (51,159)
Interest and other income, net 8,033 6,056 3,386 2,958 3,260
------------ ------------ ------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes 44,142 32,359 23,796 32,744 (47,899)
Income tax provision (benefit)
from continuing operations 4,351 5,484 2,191 2,835 (4,035)
------------ ------------ ------------ ------------ ------------
Earnings (loss) from continuing
operations 39,791 26,875 21,605 29,909 (43,864)
Loss from discontinued
operations, net of taxes
(Note 10) - - - (33,761) (6,895)
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ 39,791 $ 26,875 $ 21,605 $ (3,852) $ (50,759)
============ ============ ============ ============ ============
Basic earnings (loss) per
share:
Earnings (loss) from continuing
operations $ 1.97 $ 1.34 $ 1.09 $ 1.51 $ (2.23)
Loss from discontinued
operations, net of tax - - - (1.71) (0.35)
------------ ------------ ------------ ------------ ------------
Basic earnings (loss) per share $ 1.97 $ 1.34 $ 1.09 $ (0.20) $ (2.58)
============ ============ ============ ============ ============
Diluted earnings (loss) per
share:
Earnings (loss) from continuing
operations $ 1.96 $ 1.33 $ 1.08 $ 1.50 $ (2.23)
Loss from discontinued
operations, net of tax - - - (1.69) (0.35)
------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per
share $ 1.96 $ 1.33 $ 1.08 $ (0.19) $ (2.58)
============ ============ ============ ============ ============
Cash dividends per common share $ 1.32 $ 1.32 $ 1.26 $ 0.24 $ 0.24
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding:
Basic 20,175 20,047 19,879 19,754 19,674
Diluted 20,317 20,210 20,075 19,991 19,674
BALANCE SHEET INFORMATION:
Working capital $ 233,767 $ 214,934 $ 206,714 $ 197,453 $ 170,274
Total assets 321,922 311,312 307,311 311,070 301,542
Long-term debt - - - - -
Stockholders' equity 264,167 245,423 242,857 243,896 245,701
See Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General:
Park is a global advanced materials company which develops,
manufactures and markets high technology digital and RF/microwave printed
circuit materials and advanced composite materials principally for the
telecommunications and internet infrastructure, high-end computing and aerospace
markets. The Company's manufacturing facilities are located in Singapore, China,
France, Connecticut, New York, Arizona and California. The Company's products
are marketed and sold under the Nelco(R) and Nelcote(TM) names.
The global electronics manufacturing industry, which had become
extremely and unsustainably overheated in the 1990s and into calendar year 2000,
collapsed in calendar year 2001, and has not recovered since that collapse. The
Company believes that the industry has become a mature industry, and the Company
does not expect significant non-cyclical, sustainable growth from that industry
in the future.
The Company's net sales increased in the fiscal year ended February 25,
2007 compared with the fiscal year ended February 26, 2006 as a result of
increases in sales of the Company's printed circuit materials in North America
and Asia and increases in sales of the Company's advanced composite materials,
and the Company achieved higher operating profits and higher net earnings in the
2007 fiscal year compared with the 2006 fiscal year.
The Company's net earnings for the fiscal year ended February 25, 2007
were increased by a tax benefit of $0.7 million recorded by the Company in the
2007 fiscal year fourth quarter relating to the recognition of tax credits
resulting from operating losses sustained in prior years in France and by tax
benefits recognized by the Company in the 2007 fiscal year second quarter of
$3.5 million relating to the elimination of certain valuation allowances
previously established relating to deferred tax assets in the United States,
$1.4 million relating to the elimination of reserves no longer required as the
result of the completion of a tax audit and $0.5 relating to the termination of
a life insurance arrangement with Jerry Shore, the Company's founder and former
Chairman, President and Chief Executive Officer, and such net earnings were
reduced by a pre-tax charge of $1.3 million recorded by the Company in the 2007
fiscal year second quarter relating to the termination of such insurance
arrangement.
The Company's net earnings for the fiscal year ended February 26, 2006
were reduced by a tax charge of $3.1 million recorded in the fourth quarter in
connection with the repatriation of approximately $70 million of accumulated
earnings and profits of the Company's Nelco Products Pte. Ltd. subsidiary in
Singapore, a pre-tax asset impairment charge of $2.3 million recorded in the
fourth quarter for the write-off of construction costs related to the
installation of a treater at the Company's Neltec Europe SAS facility in
Mirebeau, France and a pre-tax employment termination benefits charge of $0.9
million related to a workforce reduction at the Company's Neltec Europe SAS
facility recorded in the 2006 fiscal year first quarter, and such net earnings
were increased by a tax benefit of $1.5 million recognized by the Company in the
2006 fiscal year third quarter relating to the elimination of valuation
allowances against deferred tax assets recorded in the United States in prior
periods.
25
The improvement in the Company's operating performance during the 2007
fiscal year was attributable principally to increases in total sales of the
Company's printed circuit materials products and higher percentages of sales of
higher margin, high performance printed circuit materials products. This
improvement occurred in spite of significant increases in the cost of copper
foil, one of the Company's primary raw materials, during the first and second
quarters of the 2007 fiscal year, as the Company was able to pass a substantial
portion of such increases through to its customers in the second, third and
fourth quarters of the 2007 fiscal year.
The condition of the global markets for the Company's printed circuit
materials products improved in the second half of the 2006 fiscal year; and that
improvement continued in the first nine months of the 2007 fiscal year, although
such markets weakened in the 2007 fiscal year fourth quarter. Consequently,
sales of the Company's printed circuit materials products increased in the 2007
fiscal year compared to the 2006 fiscal year. However, the weakness that
occurred in the markets for the Company's printed circuit materials products in
the 2007 fiscal year fourth quarter has continued into the 2008 fiscal year
first quarter. The markets for the Company's advanced composite materials
products continued to be strong during the 2007 fiscal year, and sales of the
Company's advanced composite materials products increased in the 2007 fiscal
year compared to the prior fiscal year.
The global markets for the Company's printed circuit materials 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 will
be in the 2008 fiscal year. The Company believes that the markets for its
advanced composite materials will continue to be strong during the 2008 fiscal
year.
In the first quarter of the 2007 fiscal year, the Company completed the
construction of a new manufacturing facility in the Zhuhai Free Trade Zone in
Guangdong Province in southern China to support the demand for advanced printed
circuit materials in China, and the Company is in the process of equipment
testing, employee training and internal and external qualifications for the
facility. In addition, the Company upgraded its printed circuit materials
treating operation in Singapore during the 2007 fiscal year third quarter so
that such operation is capable of treating the Company's full line of advanced
printed circuit materials in Singapore, except polytetrafluoroethylene ("PTFE")
materials, and during the 2005 fiscal year, the Company installed one of its
latest generation, high-technology treaters in its newly expanded facility in
Singapore.
In the third quarter of the 2007 fiscal year, the Company acquired a
facility in Singapore which the Company is modifying and expanding for use as a
new advanced composites manufacturing plant. The Company is also in the final
stages of planning the construction of a new plant in the Untied States to
produce advanced composite materials principally for the aerospace industry. In
addition, during the 2006 fiscal year second quarter, the Company completed the
installation of an additional large treater at its advanced composite materials
facility in Waterbury, Connecticut, which has significantly increased the
treating capacity of that facility.
While the Company continued to expand and invest in its business during
the 2007 and 2006 fiscal years, it made additional adjustments to one of its
operations, which resulted in a workforce reduction. In the 2006 fiscal year
first and second quarters, the Company reduced the size of the workforce at
26
its Neltec Europe SAS subsidiary in Mirebeau, France as a result of further
deterioration of the European market for high-technology printed circuit
materials, and it recorded an employment termination benefits charge of $1.1
million during the 2006 fiscal year first quarter, $0.2 million of which was
reversed in the 2006 fiscal year fourth quarter. In addition, during the 2005
fiscal year, the Company reduced the sizes of the workforces at its North
American and European printed circuit materials operations, as a result of which
the Company recorded pre-tax charges of $0.6 million in the 2005 fiscal year
third quarter.
In the 2005 fiscal year third quarter, the Company also settled an
insurance claim for property and business interruption losses sustained by the
Company in Singapore as a result of an explosion in one of the four treaters
located at its Nelco manufacturing facility in Singapore and recorded a pre-tax
gain of $4.7 million as a result of the settlement.
The Company believes that an evaluation of its ongoing operations would
be difficult if the disclosure of its financial results were limited to
generally accepted accounting principles ("GAAP") financial measures, which
include special items, such as the tax benefits, the earnings repatriation tax
charge, the asset impairment charge, the insurance arrangement termination
charge and the employment termination benefits charge in the 2007 and 2006
fiscal years. Accordingly, in addition to disclosing its financial results
determined in accordance with GAAP, the Company discloses non-GAAP operating
results that exclude special items in order to assist its shareholders and other
readers in assessing the Company's operating performance, since the Company's
on-going, normal business operations do not include such special items. Such
non-GAAP financial measures are provided to supplement the results provided in
accordance with GAAP.
Fiscal Year 2007 Compared with Fiscal Year 2006:
The Company's sales of both its printed circuit materials and its
advanced composite materials increased in the fiscal year ended February 25,
2007 compared to the fiscal year ended February 26, 2006, following increases in
such sales in the 2006 fiscal year compared to the 2005 fiscal year.
The increased sales in the 2007 fiscal year and a slight improvement in
the Company's gross profit margin in the 2007 fiscal year, following substantial
improvements in the 2006 fiscal year compared to the 2005 fiscal year and in the
2005 fiscal year compared to the 2004 fiscal year, enabled the Company's
operations to generate a larger gross profit than in the prior fiscal year.
The Company's gross profit in the 2007 fiscal year was substantially
higher than the gross profit in the prior fiscal year primarily as a result of
increased total sales of printed circuit materials products and higher
percentages of sales by the Company of its higher margin, high performance
printed circuit materials products.
Sales of the Company's advanced composite materials products also
increased during the 2007 fiscal year primarily as a result of the strength of
the aerospace markets for advanced composite materials. Sales of advanced
composite materials were 8% of the Company's total net sales worldwide in the
2007 and 2006 fiscal years.
The Company's financial results of operations were enhanced by the tax
benefit of $0.7 million recorded by the Company in the 2007 fiscal year fourth
quarter for the recognition of tax credits resulting from operating losses
sustained in prior years in France and by the tax benefits recorded in
27
the 2007 fiscal year second quarter of $3.5 million relating to the elimination
of certain valuation allowances previously established related to deferred tax
assets in the United States, $1.4 million relating to the elimination of
reserves no longer required as the result of the completion of a tax audit and
$0.5 million relating to the termination of a life insurance agreement with
Jerry Shore, the Company's founder and former Chairman, President and Chief
Executive Officer, which benefits were partially offset by a pre-tax charge of
$1.3 million in the second quarter relating to the termination of the insurance
agreement with Jerry Shore.
Results of Operations
Net sales for the fiscal year ended February 25, 2007 increased 16% to
$257.4 million from $222.3 million for the fiscal year ended February 26, 2006.
The increase in net sales was the result of increased sales by the Company's
operations in North America and Asia and increased sales of the Company's high
technology printed circuit materials and advanced composite materials.
The Company's foreign operations accounted for $117.0 million of sales,
or 45% of the Company's total net sales worldwide, during the 2007 fiscal year,
compared with $97.9 million of sales, or 44% of total net sales worldwide,
during the 2006 fiscal year and 45% of total net sales worldwide during the 2005
fiscal year. Sales by the Company's foreign operations during the 2007 fiscal
year increased 20% from the 2006 fiscal year primarily as a result of increases
in sales by the Company's operations in Singapore.
For the fiscal year ended February 25, 2007, the Company's sales in
North America, Asia and Europe were 55%, 32% and 13%, respectively, of the
Company's total net sales worldwide compared with 56%, 29% and 15% for the
fiscal year ended February 26, 2006. The Company's sales in Asia increased 29%,
its sales in North America increased 13% and its sales in Europe increased 1% in
the 2007 fiscal year over the 2006 fiscal year.
The overall gross profit as a percentage of net sales for the Company's
worldwide operations improved to 24.9% during the 2007 fiscal year compared with
24.6% during the 2006 fiscal year. The improvement in the gross profit margin
was attributable to increased sales and higher percentages of sales of higher
margin, high performance printed circuit materials.
During the fiscal year ended February 25, 2007, the Company's total net
sales worldwide of high temperature printed circuit materials, which included
high performance materials (non-FR4 printed circuit materials), were 97% of the
Company's total net sales worldwide of printed circuit materials, compared with
96% for last fiscal year.
The Company's high temperature printed circuit materials include its
high performance materials (non-FR4 printed circuit materials), which consist of
high-speed, low-loss materials for digital and RF/microwave applications
requiring lead-free compatibility, high bandwidth signal integrity, bismalimide
triazine("BT") materials, polyimides for applications that demand extremely high
thermal performance, cyanate esters, and polytetrafluoroethylene ("PTFE")
materials for RF/microwave systems that operate at frequencies up to 77GHz.
During the fiscal year ended February 25, 2007, the Company's total net
sales worldwide of high performance printed circuit materials (non-FR4 printed
circuit materials) were 42% of the Company's total net sales worldwide of
printed circuit materials, compared with 39% for last fiscal year.
28
The Company's cost of sales increased by 15% in the 2007 fiscal year
from the 2006 fiscal year as a result of higher sales and higher production
volumes in the 2007 fiscal year than in the 2006 fiscal year and as a result of
significant increases in the cost of copper foil, although a substantial portion
of the increases in the cost of copper foil was passed on to customers. However,
the Company's cost of sales as a percentage of net sales decreased slightly in
the 2007 fiscal year compared to the prior year resulting in a slight gross
profit percentage improvement, which was attributable to cost containment
measures implemented by the Company, including workforce reductions.
Selling, general and administrative expenses increased by $1.6 million,
or by 6%, during the 2007 fiscal year compared with the 2006 fiscal year as a
result of higher sales in the 2007 fiscal year, but these expenses, measured as
a percentage of sales, were 10.4% during the 2007 fiscal year compared with
11.3% during the 2006 fiscal year. Selling, general and administrative expenses
included $1.3 million for the 2007 fiscal year for stock option expenses, which
the Company recorded pursuant to Statement of Financial Accounting Standards
123(R). No such stock option expenses were recorded in the 2006 and 2005 fiscal
years, prior to the adoption of Statement of Financial Accounting Standards
123(R).
In the 2007 fiscal year fourth quarter, the Company recorded a tax
benefit of $0.7 million relating to the recognition of tax credits resulting
from operating losses sustained in prior years in France. In the 2007 fiscal
year second quarter, the Company recorded a pre-tax charge of $1.3 million in
connection with the termination of a life insurance arrangement with Jerry
Shore, the Company's founder and former Chairman, President and Chief Executive
Officer, and recognized a tax benefit of $0.5 million relating to this insurance
termination charge. The termination of the insurance arrangement involved a
payment of $1.3 million by the Company to Mr. Shore in January 2007, which
resulted in a net cash cost to the Company of $0.7 million, after the Company's
receipt of a portion of the cash surrender value of the insurance policies.
During the 2007 fiscal year second quarter, the Company also recognized a tax
benefit of $3.5 million relating to the elimination of certain valuation
allowances previously established relating to deferred tax assets in the United
States and a tax benefit of $1.4 million relating to the elimination of reserves
no longer required as the result of the completion of a tax audit.
In the 2006 fiscal year fourth quarter, the Company recorded a tax
charge of $3.1 million in connection with the repatriation of approximately $70
million of accumulated earnings and profits of its subsidiary in Singapore, a
benefit of $0.2 million resulting from the reversal of a portion of the $1.1
charge in the 2006 fiscal year first quarter for employment termination benefits
relating to a workforce reduction at the Company's Neltec Europe SAS facility in
France and an asset impairment charge of $2.3 million for the write-off of
construction costs related to the installation of an advanced high-speed treater
at the Company's Neltec Europe SAS facility in Mirebeau, France. The treater,
which was installed at the Neltec Europe facility when the business environment
in Europe was more suited for such a treater, has been moved to the Company's
manufacturing facility in Singapore. In the 2006 fiscal year third quarter, the
Company recognized a tax benefit of $1.5 million relating to the elimination of
certain valuation allowances previously established related to deferred tax
assets in the United States in prior periods; and in the 2006 fiscal year first
quarter, the Company recorded a charge of $1.1 million, for which there was no
tax benefit, for employment termination benefits resulting from a workforce
reduction at its Neltec Europe SAS facility in France, which was partially
offset by a reversal of $0.2 million in the 2006 fiscal year fourth quarter.
29
For the reasons set forth above, the Company's earnings from operations
for the 2007 fiscal year, including the charge described above relating to the
termination of the life insurance arrangement, were $36.1 million compared to
earnings from operations for the 2006 fiscal year, including the net charge
described above for employment termination benefits resulting from a workforce
reduction in France and the asset impairment charge described above for the
write-off of construction costs related to the installation of a treater in
France, were $26.3 million. The net impacts of the charges described above were
to decrease earnings from operations by $1.3 million for the 2007 fiscal year
and to decrease earnings from operations by $3.2 million for the 2006 fiscal
year.
Interest and other income, net, principally investment income,
increased 33% to $8.0 million for the 2007 fiscal year from $6.1 million for the
2006 fiscal year. The increase in investment income was attributable to higher
prevailing interest rates and larger amounts of cash available for investment
during the 2007 fiscal year. The Company's investments were primarily in
short-term taxable instruments. The Company incurred no interest expense during
the 2007, 2006 or 2005 fiscal years. See "Liquidity and Capital Resources"
elsewhere in this Item 7.
The Company's effective income tax rate was 9.9% for the 2007 fiscal
year compared to 17.0% for the 2006 fiscal year. The Company's effective income
tax rate for continuing operations, excluding the tax benefits and the charges
described above, for the 2007 fiscal year was 23.0% compared to 11.0% for the
2006 fiscal year.
The Company's net earnings for the 2007 fiscal year, including the tax
benefits described above relating to the recognition of tax credits in France,
the termination of the life insurance arrangement, the elimination of certain
valuation allowances and the elimination of reserves no longer required and the
charge described above relating to the termination of the life insurance
arrangement, were $39.8 million compared to net earnings for the 2006 fiscal
year, including the tax charge described above in connection with the
repatriation of foreign earnings, the asset impairment and net employment
termination benefits charges described above and the tax benefit described above
related to the elimination of valuation allowances, were $26.9 million. The net
impacts of the charges and tax benefits described above were to increase net
earnings by $4.8 million for the 2007 fiscal year and to decrease net earnings
by $4.8 million for the 2006 fiscal year.
Basic and diluted earnings per share, including the charge and tax
benefits described above, were $1.97 and $1.96 per share, respectively, for the
2007 fiscal year compared to basic and diluted earnings per share of $1.34 and
$1.33 per share, respectively, including the charges and tax benefit described
above, for the 2006 fiscal year. The net impacts of the charges and tax benefits
described above were to increase the basic and diluted earnings per share by
$0.24 for the 2007 fiscal year and to decrease the basic and diluted earnings
per share by $0.24 for the 2006 fiscal year.
Fiscal Year 2006 Compared with Fiscal Year 2005:
The Company's sales of both its printed circuit materials and its
advanced composite materials increased in the fiscal year ended February 26,
2006 compared to the fiscal year ended February 27, 2005, following increases in
such sales in the 2005 fiscal year compared to the 2004 fiscal year.
30
The increased sales in the 2006 fiscal year and a further improvement
in the Company's gross profit margin in the 2006 fiscal year, following a
substantial improvement in the 2005 fiscal year compared to the 2004 fiscal
year, enabled the Company's operations to generate a larger gross profit than in
the prior fiscal year.
The Company's gross profit in the 2006 fiscal year was substantially
higher than the gross profit in the prior fiscal year as a result of increased
sales, the Company's reductions of its costs and expenses and higher percentages
of sales by the Company of its higher margin, high technology printed circuit
materials and advanced composite materials. These improvements in gross profits
occurred despite the operating inefficiencies resulting from operating certain
facilities at levels below their designed manufacturing capacities and the
competitive pressures that existed in the 2005 fiscal year and persisted in the
2006 year.
The Company's financial results of operations were adversely affected
by the pre-tax asset impairment charge of $2.3 million that the Company recorded
in the 2006 fiscal year fourth quarter for the write-off of construction costs
related to the installation of a treater at the Company's Neltec Europe SAS
facility in Mirebeau, France in a prior year, the tax charge of $3.1 million
that the Company recorded in the 2006 fiscal year fourth quarter in connection
with the repatriation of approximately $70 million of accumulated earnings and
profits of its Nelco subsidiary in Singapore and the pre-tax charge of $1.1
million that the Company recorded in the 2006 fiscal year first quarter for
employment termination benefits resulting from a workforce reduction at its
Neltec Europe SAS printed circuit materials facility in Mirebeau, France, which
were only partially offset by the reversal in the 2006 fiscal year fourth
quarter of $0.2 million of the previous charge for employment termination
benefits at Neltec Europe SAS and by the tax benefit of $1.5 million that the
Company recognized in the 2006 fiscal year third quarter related to the reversal
of valuation allowances against deferred tax assets previously recorded in the
United States.
Sales of the Company's advanced composite materials increased during
the 2006 fiscal year primarily as a result of the strength of the aerospace
markets for advance composite materials. Sales of advanced composite materials
were 8% of the Company's total net sales worldwide in the 2006 and 2005 fiscal
years.
Results of Operations
Net sales for the fiscal year ended February 26, 2006 increased 5% to
$222.3 million from $211.2 million for the fiscal year ended February 27, 2005.
The increase in net sales was the result of increased sales by the Company's
operations in all regions and increased sales of the Company's high technology
printed circuit materials and advanced composite materials.
The Company's foreign operations accounted for $97.9 million of sales,
or 44% of the Company's total net sales worldwide, during the 2006 fiscal year,
compared with $94.1 million of sales, or 45% of total net sales worldwide,
during the 2005 fiscal year and 45% and 40%, respectively, of total net sales
worldwide from continuing operations during the 2004 and 2003 fiscal years.
Sales by the Company's foreign operations during the 2006 fiscal year increased
4% from the 2005 fiscal year primarily as a result of increases in sales by the
Company's operations in Singapore.
31
For the fiscal year ended February 26, 2006, the Company's sales in
North America, Asia and Europe were 56%, 29% and 15%, respectively, of the
Company's total net sales worldwide compared with 55%, 29% and 16% for the
fiscal year ended February 27, 2005. The Company's sales in North America
increased 6%, its sales in Asia increased 6% and its sales in Europe increased
1% in the 2006 fiscal year over the 2005 fiscal year.
The overall gross profit as a percentage of net sales for the Company's
worldwide operations improved to 24.6% during the 2006 fiscal year compared with
20.5% during the 2005 fiscal year. The improvement in the gross profit margin
was attributable to increased sales, reduced operating costs resulting from the
work force reduction at the Company's volume printed circuit materials operation
in France in the 2006 fiscal year and the realignments of the Company's North
American volume printed circuit materials operations in the 2005 and 2004 fiscal
years and higher percentages of sales of higher margin, high temperature printed
circuit materials.
During the fiscal year ended February 26, 2006, the Company's total net
sales worldwide of high temperature printed circuit materials, which included
high performance materials (non-FR4 printed circuit materials), were 96% of the
Company's total net sales worldwide of printed circuit materials, compared with
94% for last fiscal year.
The Company's high temperature printed circuit materials include its
high performance materials (non-FR4 printed circuit materials), which consist of
high-speed low-loss materials for digital and RF/microwave applications
requiring lead-free compatibility, high bandwidth signal integrity, bismalimide
triazine ("BT") materials, polyimides for applications that demand extremely
high thermal performance, cyanate esters, and polytetrafluoroethylene ("PTFE")
materials for RF/microwave systems that operate at frequencies up to 77GHz.
During the fiscal year ended February 26, 2006, the Company's total net
sales worldwide of high performance printed circuit materials (non-FR4 printed
circuit materials) were 39% of the Company's total net sales worldwide of
printed circuit materials, compared with 35% for last fiscal year.
The Company's cost of sales decreased slightly in the 2006 fiscal year
compared to the prior fiscal year despite higher production volumes compared to
the prior fiscal year, as a result of cost reduction measures implemented by the
Company, including workforce reductions and the reduction of overtime.
Selling, general and administrative expenses decreased during the 2006
fiscal year compared with the 2005 fiscal year, as these expenses, measured as a
percentage of sales, were 11.3% during the 2006 fiscal year compared with 12.8%
during the 2005 fiscal year. The decrease in selling, general and administrative
expenses in the 2006 fiscal year resulted from decreases in almost all
categories of expenses.
In the 2006 fiscal year fourth quarter, the Company recorded a tax
charge of $3.1 million in connection with the repatriation of approximately $70
million of accumulated earnings and profits of its subsidiary in Singapore, a
pre-tax benefit of $0.2 million resulting from the reversal of a portion of the
$1.1 pre-tax charge in the 2006 fiscal year first quarter for employment
termination benefits relating to a workforce reduction at the Company's Neltec
Europe SAS facility in France and an asset impairment charge of $2.3 million for
the write-off of construction costs related to the installation of an advanced
high-speed treater at the Company's Neltec Europe
32
SAS facility in Mirebeau, France. The treater, which was installed at the Neltec
Europe facility when the business environment in Europe was more suited for such
a treater, has been moved to the Company's manufacturing facility in Singapore.
In the 2006 fiscal year third quarter, the Company recognized a tax benefit of
$1.5 million relating to the elimination of certain valuation allowances
previously established related to deferred tax assets in the United States in
prior periods; and in the 2006 fiscal year first quarter, the Company recorded a
charge of $1.1 million, for which there was no tax benefit, for employment
termination benefits resulting from a workforce reduction at its Neltec Europe
SAS facility in France, which was partially offset by a reversal of $0.2 million
in the 2006 fiscal year fourth quarter.
In the 2005 fiscal year third quarter, the Company recorded a gain of
$4.7 million resulting from the settlement of an insurance claim for property
and business interruption losses sustained by the Company in Singapore as a
result of an explosion in November 2002 in one of the four treaters located at
its manufacturing facility in Singapore. In the same quarter, the Company also
recorded a charge of $0.6 million for employment termination benefits resulting
from workforce reductions at the Company's North American and European volume
printed circuit materials operations.
For the reasons set forth above, the Company's earnings from operations
for the 2006 fiscal year, including the net charge described above for
employment termination benefits resulting from a workforce reduction in France
and the asset impairment charge described above for the write-off of
construction costs related to the installation of a treater in France, were
$26.3 million compared with earnings from operations for the 2005 fiscal year of
$20.4 million, including the gain described above resulting from the settlement
of an insurance claim for property and business interruption losses sustained by
the Company in Singapore and the charge described above for employment
termination benefits resulting from workforce reductions at the Company's North
America and European volume printed circuit materials operations. The net
impacts of the charges and gain described above were to decrease earnings from
operations by $3.2 million for the 2006 fiscal year and to increase earnings
from operations by $4.1 million for the 2005 fiscal year.
Interest and other income, net, principally investment income,
increased 79% to $6.1 million for the 2006 fiscal year from $3.4 million for the
2005 fiscal year. The increase in investment income was attributable to higher
prevailing interest rates and larger amounts of cash available for investment
during the 2006 fiscal year. The Company's investments were primarily in
short-term taxable instruments. The Company incurred no interest expense during
the 2006, 2005 or 2004 fiscal years. See "Liquidity and Capital Resources"
elsewhere in this Item 7.
The Company's effective income tax rate was 17.0% for the 2006 fiscal
year compared to 9.2% for the 2005 fiscal year. The Company's effective income
tax rate, excluding the gains and the charges described above, for the 2006
fiscal year was 11.0% compared to 8.0% for the 2005 fiscal year.
The Company's net earnings for the 2006 fiscal year, including the
asset impairment charge and employment termination benefits charge described
above and the tax charge described above in connection with the repatriation of
foreign earnings and the tax benefit described above related to the
33
reversal of valuation allowances, were $26.9 million compared with net earnings
for the 2005 fiscal year of $21.6 million, including the gain described above
resulting from the insurance settlement and the charge described above for
employment termination benefits resulting from workforce reductions. The net
impacts of the charges, tax benefit and gain described above were to decrease
net earnings by $4.8 million for the 2006 fiscal year and to increase net
earnings by $3.5 million for the 2005 fiscal year.
Basic and diluted earnings per share, including the charge and tax
benefits described above, were $1.34 and $1.33 per share, respectively, for the
2006 fiscal year compared to basic and diluted earnings per share of $1.09 and
$1.08 per share, respectively, including the gain and charge described above,
for the 2005 fiscal year. The net impacts of the charges, tax benefit and gain
described above were to decrease the basic and diluted earnings per share by
$0.24 for the 2006 fiscal year and to increase the basic and diluted earnings
per share by $0.18 for the 2005 fiscal year.
Liquidity and Capital Resources:
At February 25, 2007, the Company's cash and temporary investments
(consisting of marketable securities) were $208.8 million compared with $199.7
million at February 26, 2006, the end of the Company's 2006 fiscal year. The
Company's working capital (which includes cash and temporary investments) was
$233.8 million at February 25, 2007 compared with $214.9 million at February 26,
2006. The increase in working capital at February 25, 2007 compared with
February 26, 2006 was due principally to higher cash and temporary investments
and higher accounts receivable and lower accrued liabilities and lower income
taxes payable. The increase in cash and temporary investments at February 25,
2007 compared with February 26, 2006 was the result of cash provided by
operating activities and higher interest and other income. Accounts receivable
increased 10% at February 25, 2007 compared to February 26, 2006 primarily as a
result of higher sales volumes. The 11% decrease in accrued liabilities at
February 27, 2007 compared to February 26, 2006 was primarily attributable to
lower liabilities for the restoration of a leased facility and for audit, legal
and tax services. Income taxes payable declined 45% primarily as a result of tax
payments made during the 2007 fiscal year.
The Company's current ratio (the ratio of current assets to current
liabilities) was 8.2 to 1 at February 25, 2007 compared with 6.6 to 1 at
February 26, 2006.
During the 2007 fiscal year, net earnings from the Company's
operations, before depreciation and amortization, of $48.8 million and a net
increase in working capital items, resulted in $35.8 million of cash provided by
operating activities. This increase in cash provided by operating activities was
partially offset by $26.6 million of dividends paid during the year, including a
special cash dividend of $20.1 million paid during the 2007 fiscal year second
quarter. Cash dividends paid were $26.5 million, including a special cash
dividend of $20.1 million, during the 2006 fiscal year, and $25.1 million,
including a special cash dividend of $19.9 million, during the 2005 fiscal year.
Net earnings excluding $9.6 million of depreciation and amortization were $36.5
million in the 2006 fiscal year and resulted in $36.9 million of cash provided
by operating activities.
Net expenditures for property, plant and equipment were $3.9 million,
$4.2 million, $3.3 million in the 2007, 2006 and 2005 fiscal years,
respectively.
34
The Company resolved with Royal Sun & Alliance Insurance (Singapore)
Limited the Company's property damage and business interruption insurance claim
resulting from the explosion in a treater at the Company's subsidiary in
Singapore on November 27, 2002, and the Company received $5.8 million in cash
and recorded a $4.7 million pre-tax gain in the 2005 fiscal year third quarter
as a result of such resolution. The Company has initiated a lawsuit against CNA
Insurance Co. to resolve the Company's claim for business interruption damages
in the United States resulting from the explosion.
At February 25, 2007 and February 26, 2006, the Company had no
long-term debt.
The Company believes its financial resources will be sufficient, for
the foreseeable future, to provide for continued investment in working capital
and property, plant and equipment and for general corporate purposes. Such
resources would also be available for purchases of the Company's common stock,
appropriate acquisitions and other expansions of the Company's business.
The Company is not aware of any circumstances or events that are
reasonably likely to occur that could materially affect its liquidity.
The Company's contractual obligations and other commercial commitments
to make future payments under contracts, such as lease agreements, consist only
of the operating lease commitments described in Note 15 of the Notes to
Consolidated Financial Statements included elsewhere in this Report. The Company
has no long-term debt, capital lease obligations, unconditional purchase
obligations or other long-term obligations, standby letters of credit,
guarantees, standby repurchase obligations or other commercial commitments or
contingent commitments, other than two standby letters of credit in the total
amount of $1.7 million to secure the Company's obligations under its workers'
compensation insurance program and certain limited energy purchase contracts
intended to protect the Company from increased utilities costs.
As of February 25, 2007, the Company's significant contractual
obligations, including payments due by fiscal year, were as follows:
Contractual Obligations
(Amounts in thousands)
2013 and
Total 2008 2009-2010 2011-2012 thereafter
---------- ---------- ---------- ---------- ----------
Operating lease
obligations $ 11,183 $ 2,029 $ 3,836 $ 2,777 $ 2,541
Purchase obligations - - - - -
---------- ---------- ---------- ---------- ----------
Total $ 11,183 $ 2,029 $ 3,836 $ 2,777 $ 2,541
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.
35
Environmental Matters:
The Company is subject to various federal, state and local 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 the 2007, 2006 and 2005 fiscal years, the Company charged
approximately $0.0 million, $(0.6) million, $0.0 million, respectively, against
pre-tax income for remedial response and voluntary cleanup costs (including
legal fees). While annual expenditures have generally been constant from year to
year, and may increase over time, the Company expects it will be able to fund
such expenditures from cash flow from operations. The timing of expenditures
depends on a number of factors, including regulatory approval of cleanup
projects, remedial techniques to be utilized and agreements with other parties.
At February 25, 2007, the amount recorded in liabilities from discontinued
operations for environmental matters related to Dielektra was $2.1 million and
the amount recorded in accrued liabilities for other environmental matters was
$1.8 million compared with $2.1 million of liabilities for environmental matters
for Dielektra and $1.8 million for other environmental matters at February 26,
2006.
Management does not expect that environmental matters will have a
material adverse effect on the liquidity, capital resources, business or
consolidated financial position of the Company. See Note 16 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:
In response to financial reporting release, FR-60,"Cautionary Advice
Regarding Disclosure About Critical Accounting Policies", issued by the
Securities and Exchange Commission in December 2001, the following information
is provided regarding critical accounting policies that are important to the
Consolidated Financial Statements and that entail, to a significant extent, the
use of estimates, assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's Consolidated Financial
Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates, assumptions and judgments
that affect the reported amounts of assets, liabilities, revenues and
36
expenses and the related disclosure of contingent liabilities. On an on-going
basis, the Company evaluates its estimates, including those related to sales
allowances, accounts receivable, allowances for bad debts, inventories,
valuation of long-lived assets, income taxes, restructurings, contingencies and
litigation, and pensions and other 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
Sales revenue is recognized at the time title to product is transferred
to a customer. All material sales transactions are for the shipment of
manufactured prepreg and laminate products and advanced composite materials. The
Company ships its products to customers based upon firm orders, with fixed
selling prices, when collection is reasonably assured.
Sales Allowances
The Company provides for the estimated costs of sales allowances at the
time such costs can be reasonably estimated. The Company's products are made to
customer specifications and tested for adherence to such specifications before
shipment to customers. There are no future performance requirements other than
the products' meeting the agreed specifications. The Company's bases for
providing sales allowances for returns are known situations in which products
may have failed due to manufacturing defects in the products supplied by the
Company. The Company is focused on manufacturing the highest quality printed
circuit materials and advanced composite materials 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 majority of the Company's accounts receivable are due from
purchasers of the Company's printed circuit materials. 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 condition of the general economy and the
industry as a whole. The Company writes off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
37
Allowances for Bad Debts
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
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. Important factors that could trigger an
impairment review include, but are not limited to, significant negative industry
or economic trends and significant changes in the use of the Company's assets or
strategy of the overall business.
Income Taxes
Carrying value of the Company's net deferred tax assets assumes that
the Company will be able to generate sufficient future taxable income in certain
tax jurisdictions, based on estimates and assumptions. If these estimates and
assumptions change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets resulting in
additional income tax expense in the Company's consolidated statement of
operations, or conversely to further reduce the existing valuation allowance
resulting in less income tax expense. Management evaluates the realizability of
the deferred tax assets quarterly and assesses the need for additional valuation
allowances quarterly.
Restructurings
The Company recorded charges in connection with the realignment of its
Neltec Europe SAS business in France during the three-month period ended May 29,
2005 and the realignment of its North American volume printed circuit materials
operations during the fiscal years ended February 29, 2004 and March 2, 2003.
The Company also recorded realignment charges in its North American operations
during the fiscal year ended February 27 2005. In addition, during the 2003
fiscal year, the Company recorded charges in connection with the closure of the
Company's manufacturing facility in England. Prior to the Company's treating
Dielektra GmbH as a discontinued operation, the Company recorded charges in
connection with the closure of the mass lamination operation of Dielektra and
the realignment of Dielektra during the fiscal years ended February 29, 2004,
March 2, 2003 and March 3, 2002.
Contingencies
The Company is subject to a small number of proceedings, lawsuits and
other claims related to environmental, employment, product and other matters.
The Company is required to assess the likelihood of any adverse judgments or
outcomes in these matters as well as potential ranges of probable losses. A
38
determination of the amount of reserves required, if any, for these
contingencies is made after careful analysis of each individual issue. The
required reserves may change in the future due to new developments in each
matter or changes in approach, such as a change in settlement strategy in
dealing with these matters.
Pension and Other Employee Benefit Programs
Dielektra GmbH has significant pension costs that were developed from
actuarial valuations. Inherent in these valuations are key assumptions including
discount rates and wage inflation rates. The pension liability of Dielektra has
been included in liabilities from discontinued operations on the Company's
balance sheet.
The Company's obligations for workers' compensation claims are
effectively self-insured, although the Company maintains individual and
aggregate stop-loss insurance coverage. The Company uses an insurance company
administrator to process all such claims and benefits. The Company accrues its
workers' compensation liability based upon the claim reserves established by the
third-party administrator and historical experience.
The Company 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, some 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. 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, forecast, 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 electronics industry, 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.
39
. 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
relationship with 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
electronic materials industry, as well as general
economic conditions and other factors external to the
Company.
. The Company's 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.
The Company is exposed to market risks for changes in foreign currency
exchange rates and interest rates. 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 currency. The Company does not believe that a 10% fluctuation in
foreign exchange rates would have had a material impact on its consolidated
results of operations or financial position. The exposure to market risks for
changes in interest rates relates to the Company's short-term investment
portfolio. This 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. The Company does not use
derivative financial instruments in its investment portfolio. Based on the
average anticipated maturity of the investment portfolio at the end of the 2007
fiscal year, a 10% increase in short-term interest rates would not have had a
material impact on the consolidated results of operations or financial position
of the Company.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Financial Statements begin on the next page.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors of
Park Electrochemical Corp.
We have audited the accompanying consolidated balance sheets of Park
Electrochemical Corp. and subsidiaries as of February 25, 2007 and February 26,
2006, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
25, 2007. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
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 the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Park
Electrochemical Corp. and subsidiaries as of February 25, 2007 and February 26,
2006 and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended February 25, 2007, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for share-based compensation effective February
27, 2006 in connection with the adoption of Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment".
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule II Valuation and Qualifying
Accounts is presented for purposes of additional analysis and is not a required
part of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Park
Electrochemical Corp. and subsidiaries' internal control over financial
reporting as of February 25, 2007, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") and our report dated May 8,
2007 expressed an unqualified opinion thereon.
/s/GRANT THORNTON LLP
New York, New York
May 8, 2007
42
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------
February 25, February 26,
2007 2006
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 119,051 $ 108,027
Marketable securities (Note 2) 89,724 91,625
Accounts receivable, less allowance
for doubtful accounts of $1,144 and
$1,930, respectively 39,418 35,964
Inventories (Note 3) 15,090 15,022
Prepaid expenses and other current assets 3,049 3,023
------------ ------------
Total current assets 266,332 253,661
Property, plant and equipment, net of
accumulated depreciation and
amortization (Note 4) 49,895 54,370
Other assets 5,695 3,281
------------ ------------
Total assets $ 321,922 $ 311,312
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,589 $ 13,259
Accrued liabilities (Note 5) 13,058 14,651
Income taxes payable 5,918 10,817
------------ ------------
Total current liabilities 32,565 38,727
Deferred income taxes (Note 6) 4,294 5,193
Restructuring accruals - non current 3,715 4,718
Liabilities from discontinued operations (Note 10) 17,181 17,251
------------ ------------
Total liabilities 57,755 65,889
------------ ------------
Commitments and contingencies (Notes 15 and 16)
Stockholders' equity (Note 8):
Preferred stock, $1 par value per
share--authorized, 500,000 shares;
issued, none - -
Common stock, $.10 par value per
share--authorized, 60,000,000
shares; issued, 20,369,986 shares 2,037 2,037
Additional paid-in capital 140,030 137,513
Retained earnings 118,961 105,808
Accumulated other comprehensive income 4,764 2,435
------------ ------------
265,792 247,793
Less treasury stock, at cost,
175,192 and 255,428
shares, respectively (1,625) (2,370)
------------ ------------
Total stockholders' equity 264,167 245,423
------------ ------------
Total liabilities and stockholders' equity $ 321,922 $ 311,312
============ ============
See Notes to Consolidated Financial Statements.
43
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
--------------------------------------------------------------------------------
Fiscal Year Ended
--------------------------------------------
February 25, February 26, February 27,
2007 2006 2005
------------ ------------ ------------
Net sales $ 257,377 $ 222,251 $ 211,187
Cost of sales 193,270 167,650 167,937
------------ ------------ ------------
Gross profit 64,107 54,601 43,250
Selling, general and administrative
expenses 26,682 25,129 26,960
Insurance arrangement termination
charge (Note 13) 1,316 - -
Realignment and severance charges
(Note 11) - 889 625
Asset impairment charge - 2,280 -
Gain on insurance settlement (Note 12) - - (4,745)
------------ ------------ ------------
Earnings from operations 36,109 26,303 20,410
Interest and other income, net 8,033 6,056 3,386
------------ ------------ ------------
Earnings before income taxes 44,142 32,359 23,796
Income tax provision (Note 6) 4,351 5,484 2,191
------------ ------------ ------------
Net earnings $ 39,791 $ 26,875 $ 21,605
============ ============ ============
Earnings per share:
Basic earnings per share $ 1.97 $ 1.34 $ 1.09
============ ============ ============
Basic weighted average shares 20,175 20,047 19,879
Diluted earnings per share $ 1.96 $ 1.33 $ 1.08
============ ============ ============
Diluted weighted average shares 20,317 20,210 20,075
See Notes to Consolidated Financial statements.
44
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------
Accumulated
Other
Common Stock Additional Comprehensive Treasury Stock Comprehensive
------------------- Paid-in Retained Income ------------------ Income
Shares Amount Capital Earnings Loss Shares Amount Loss
---------- ------- ---------- --------- ------------- -------- -------- -------------
Balance, February 29, 2004 20,369,986 $ 2,037 $ 133,335 $ 108,915 $ 3,734 582,061 $ (4,125)
Net earnings 21,605 $ 21,605
Exchange rate changes 1,529 1,529
Unrealized loss on marketable
securities (658) (658)
Stock option activity 871 (132,848) 684
Cash dividends ($1.26 per share) (25,070)
-------------
Comprehensive income $ 22,476
=============
---------- ------- ---------- --------- ------------- -------- --------
Balance, February 27, 2005 20,369,986 $ 2,037 $ 134,206 $ 105,450 $ 4,605 449,213 $ (3,441)
Net earnings 26,875 $ 26,875
Exchange rate changes (1,822) (1,822)
Unrealized loss on marketable
securities (348) (348)
Stock option activity 3,307 (193,785) 1,071
Cash dividends ($1.32 per share) (26,517)
-------------
Comprehensive income $ 24,705
=============
---------- ------- ---------- --------- ------------- -------- --------
Balance, February 26, 2006 20,369,986 $ 2,037 $ 137,513 $ 105,808 $ 2,435 255,428 $ (2,370)
Net earnings 39,791 $ 39,791
Exchange rate changes 1,684 1,684
Unrealized gain on
marketable securities 645 645
Stock option activity 1,234 (80,236) 745
SFAS 123R compensation cost 1,283
Cash dividends ($1.32 per share) (26,638)
-------------
Comprehensive income $ 42,120
---------- ------- ---------- --------- ------------- -------- -------- =============
Balance, February 25, 2007 20,369,986 $ 2,037 $ 140,030 $ 118,961 $ 4,764 175,192 $ (1,625)
========== ======= ========== ========= ============= ======== ========
See Notes to Consolidated Financial Statements.
45
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
--------------------------------------------------------------------------------
Fiscal Year Ended
--------------------------------------------
February 25, February 26, February 27,
2007 2006 2005
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 39,791 $ 26,875 $ 21,605
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 8,992 9,645 10,202
Loss (gain) on sale of fixed assets (18) 60 35
Gain from insurance settlement - - (4,745)
Proceeds from insurance settlement - - 5,816
SFAS 123R compensation cost 1,283 - -
Non-cash impairment charge - 2,280 -
Provision for doubtful accounts receivable (954) (1) 66
Provision for deferred income taxes (899) 151 (55)
Tax benefit from stock option exercises - 1,110 -
Changes in operating assets and liabilities:
Accounts receivable (2,092) (659) 596
Inventories 210 110 (3,553)
Prepaid expenses and other current assets (627) (200) 437
Other assets and liabilities 1,302 (2,884) (2,164)
Accounts payable 158 (1,661) 91
Accrued liabilities (6,782) (803) (4,051)
Income taxes payable (4,576) 2,904 3,423
------------ ------------ ------------
Net cash provided by operating activities 35,788 36,927 27,703
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,793) (4,320) (3,328)
Proceeds from sales of property, plant and equipment 896 100 20
Purchases of marketable securities (123,592) (33,672) (66,833)
Proceeds from sales and maturities of marketable securities 126,844 45,236 39,533
------------ ------------ ------------
Net cash provided by (used in) investing activities (645) 7,344 (30,608)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid (26,638) (26,517) (25,070)
Proceeds from exercise of stock options 1,979 4,378 1,555
------------ ------------ ------------
Net cash used in financing activities (24,659) (22,139) (23,515)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents before effect
of exchange rate changes
10,484 22,132 (26,420)
Effect of exchange rate changes on cash and cash equivalents 540 (176) 502
------------ ------------ ------------
Increase(decrease)in cash and cash equivalents 11,024 21,956 (25,918)
Cash and cash equivalents, beginning of year 108,027 86,071 111,989
------------ ------------ ------------
Cash and cash equivalents, end of year $ 119,051 $ 108,027 $ 86,071
============ ============ ============
See Notes to Consolidated Financial Statements.
46
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended February 25, 2007
(In thousands, except share, 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 and manufactures high-technology digital and RF/microwave printed
circuit materials and advanced composite materials principally for the
telecommunications and internet infrastructure, high-end computing and 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 generally accepted accounting principles
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 2007, 2006 and 2005 fiscal years ended on
February 25, 2007, February 26, 2006 and February 27, 2005,
respectively. Fiscal years 2007, 2006 and 2005 each consisted
of 52 weeks.
d. 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.
Supplemental cash flow information:
Fiscal Year
----------------------------
2007 2006 2005
-------- ------- ---------
Cash paid during the year for:
Income taxes paid (refunded) 11,712 3,108 (1,124)
e. 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 other income. The cost of
securities sold is based on the specific identification
method. The Company has classified any investment in auction
rate securities for which the underlying security had a
maturity greater than three months as marketable securities.
f. 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.
47
g. Revenue Recognition - Sales revenue is recognized at the time
title is transferred to a customer. All material sales
transactions are for the shipment of manufactured prepreg and
laminate products and advanced composite materials. The
Company ships its products to customers based upon firm
orders, with fixed selling prices, when collection is
reasonably assured.
h. 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. 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 printed circuit and advance
composite materials 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.
i. Accounts Receivable - The majority of the Company's accounts
receivable are due from purchasers of the Company's printed
circuit materials. 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 condition of the general economy and the
industry as a whole. The Company writes off accounts
receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the
allowance for doubtful accounts.
j. Allowance for Bad Debts - The Company maintains allowances for
doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the
financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
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.
48
l. 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 $4,417,
$4,258 and $4,659 for fiscal years 2007, 2006 and 2005,
respectively.
m. Property, Plant and Equipment - Property, plant and equipment
are stated at cost less accumulated depreciation. 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.
Machinery and equipment are generally depreciated over 10
years. Building and leasehold improvements are depreciated
over 30 years or the term of the lease, if shorter.
n. Income Taxes - Deferred income taxes are provided for
temporary differences in the reporting of certain items,
primarily depreciation, for income tax purposes as compared
with financial accounting purposes.
United States ("U.S.") Federal income taxes have not been
provided on the undistributed earnings (approximately $93,700
at February 25, 2007) of the Company's foreign subsidiaries,
because it is management's practice and intent to reinvest
such earnings in the operations of such subsidiaries.
o. 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 fiscal year-end exchange rates, 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
income.
p. Stock-based Compensation - The Company implemented the
disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", in the fourth
quarter of fiscal year 2003. Effective February 27, 2006, the
beginning of the Company's 2007 fiscal year, the Company began
recording compensation expense associated with stock options,
the only form of equity compensation issued by the Company, in
accordance with Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment" ("SFAS 123R"), and
Securities and Exchange Commission Staff Accounting Bulletin
No. 107. The Company recognizes such compensation expense on a
straight-line basis over the four-year service period during
which the options become exercisable.
As of February 25, 2007, the Company had two stock option
plans which are more fully described in Note 7. All options
under such plans had an exercise price equal to the fair
market value of the underlying common stock at the time of the
grant, which pursuant to the terms of such plans, 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.
49
2. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities:
Gross Gross
Unrealized Unrealized Estimated
Gains Losses Fair Value
------------ ------------ ------------
February 25, 2007:
U.S. Treasury and other
government securities $ 2 $ 467 $ 61,278
U.S. corporate debt securities 13 - 11,338
Certificate of deposits - - 17,000
------------ ------------ ------------
Total debt securities 15 467 89,616
Equity securities 102 - 108
------------ ------------ ------------
$ 117 $ 467 $ 89,724
============ ============ ============
February 26, 2006:
U.S. Treasury and other
government securities $ 6 $ 1,463 $ 76,202
U.S. corporate debt securities - - 15,333
------------ ------------ ------------
Total debt securities 6 1,463 91,535
Equity securities 86 - 90
------------ ------------ ------------
$ 92 $ 1,463 $ 91,625
============ ============ ============
The gross realized gains on the sales of securities were $43, $23 and
$4 for fiscal years 2007, 2006 and 2005, respectively, and the gross
realized losses were $114, $2 and $13 for fiscal years 2007, 2006 and
2005, respectively.
The amortized cost and estimated fair value of the debt and marketable
securities at February 25, 2007, by contractual maturity, are shown
below:
Estimated Fair Value
and
Amortized Cost
--------------------
Due in one year or less $ 80,329
Due after one year through five years 9,287
--------------------
89,616
Equity securities 108
--------------------
$ 89,724
====================
3. INVENTORIES
Inventories consisted of the following:
February 25, February 26,
2007 2006
------------ ------------
Raw materials $ 6,867 $ 6,092
Work-in-process 3,372 3,412
Finished goods 4,535 5,195
Manufacturing supplies 316 323
------------ ------------
$ 15,090 $ 15,022
============ ============
50
4. PROPERTY, PLANT AND EQUIPMENT
February 25, February 26,
2007 2006
------------ -------------
Land, buildings and improvements $ 33,698 $ 34,962
Machinery, equipment, furniture
and fixtures 137,806 131,954
------------ -------------
171,504 166,916
Less accumulated depreciation
and amortization 121,609 112,546
------------ -------------
$ 49,895 $ 54,370
============ =============
Property, plant and equipment are initially valued at cost.
Depreciation and amortization expense relating to property, plant and
equipment was $8,992, $9,645 and $10,202 for fiscal years 2007, 2006
and 2005, respectively. In the 2006 fiscal year fourth quarter, the
Company recorded a pre-tax impairment charge of $2,280 for the
write-off of construction costs related to the installation of an
advanced high-speed treater at the Company's Neltec Europe SAS facility
in Mirebeau, France.
5. ACCRUED LIABILITIES
February 25, February 26,
2007 2006
------------ ------------
Payroll and payroll related $ 3,832 $ 3,580
Employee benefits 897 1,189
Workers compensation accrual 1,575 1,608
Environmental reserve (Note 16) 1,757 1,757
Restructuring accruals 434 495
Other 4,563 6,022
------------ ------------
$ 13,058 $ 14,651
============ ============
6. INCOME TAXES
The income tax (benefit) provision includes the following:
Fiscal Year
--------------------------------------------
2007 2006 2005
------------ ------------ -------------
Current:
Federal $ 2,319 $ 5,122 $ (585)
State and local 349 339 170
Foreign 3,445 2,793 2,672
------------ ------------ -------------
6,113 8,254 2,257
------------ ------------ -------------
Deferred:
Federal (664) (2,397) -
State and local (554) (123) (6)
Foreign (544) (250) (60)
------------ ------------ -------------
(1,762) (2,770) (66)
------------ ------------ -------------
$ 4,351 $ 5,484 $ 2,191
============ ============ =============
51
As part of its quarterly evaluation of deferred tax assets, the Company
recognized a tax benefit of $3,500 during the 2007 fiscal year second
quarter relating to the elimination of certain valuation allowances
previously established related to deferred tax assets in the United
States. The Company believes that it is more likely than not that the
tax benefits associated with these deferred tax assets will be realized
during the next five fiscal years. In addition, during the 2007 fiscal
year second quarter, the Company recognized a tax benefit of $1,391
relating to the elimination of reserves no longer required as the
result of the completion of a tax audit and a $499 tax benefit relating
to the life insurance arrangement termination charge. In the 2007
fiscal year fourth quarter, the Company recorded a tax benefit of $715
relating to the recognition of tax credits resulting from operating
losses sustained in prior years in France.
During last year's third quarter, the Company recognized a tax benefit
of $1,512 relating to the elimination of valuation allowances
previously established related to deferred tax assets in the United
States.
The current income tax provision for the 2006 fiscal year included
$3,088 in Federal, state and local taxes relating to the repatriation
of foreign earnings.
The components of income (loss) before income tax were as follows:
Fiscal Year
--------------------------------------------
2007 2006 2005
------------ ------------ -------------
United States $ 18,330 $ 12,823 $ 1,198
Foreign 25,812 19,536 22,598
------------ ------------ -------------
Earnings before income
taxes $ 44,142 $ 32,359 $ 23,796
============ ============ =============
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
---------------------------------------------
2007 2006 2005
------------ ------------- -------------
Statutory U.S. Federal tax rate 35.0% 35.0% 35.0%
State and local taxes, net of
federal benefit (0.3) 0.4 0.5
Foreign tax rate differentials (9.1) (9.1) (20.2)
Valuation allowance on deferred tax
assets (4.4) (8.0) (8.0)
Elimination of reserves no longer
required (5.8) - -
Utilization of net operating loss
carryovers (1.6) (9.7) -
Foreign tax credits (2.1) - -
Additional U.S. taxes on
repatriated foreign earnings - 9.5 -
Other, net (1.8) (1.1) 1.9
------------ ------------- -------------
9.9% 17.0% 9.2%
============ ============= =============
52
The Company had total net operating loss carry-forwards of
approximately $17,400 and $15,800 in fiscal years 2007 and 2006,
respectively. All of the total net operating loss carry-forwards
related to foreign operations in fiscal years 2007 and 2006.
The foreign net operating loss carry-forwards have no expiration.
The Company had New York State investment tax credits of $2,238 and
$2,238 in fiscal years 2007 and 2006, respectively. No benefit has been
recognized for these credits as the Company does not believe that
realization is more likely than not.
In the 2006 fiscal year, the Company utilized all of its U.S. net
operating loss carry-forwards including $2,000 of cumulative deductions
relating to the taxable disposition of incentive stock options carried
forward from fiscal years 2005 and 2004. The total tax benefit credited
to additional paid in capital relating to the exercise of stock options
was $1,264.
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.
At February 25, 2007, the Company had current deferred tax assets of
$3,791 compared to $2,927 at February 26, 2006. Significant components
of the Company's long-term deferred tax liabilities and assets as of
February 25, 2007 and February 26, 2006 were as follows:
2007 2006
------------ -------------
Deferred tax liabilities:
Depreciation $ (1,380) $ (1,763)
Offshore Singapore earnings subject to
local tax (2,914) (3,430)
------------ -------------
Total deferred tax liabilities $ (4,294) $ (5,193)
============ =============
Deferred tax assets:
Impairment of fixed assets $ 4,266 $ 4,379
Net operating loss carry-forwards 5,598 5,157
New York State investment tax credits 2,238 2,238
Other, net 4,158 5,836
------------ -------------
Total deferred tax assets 16,260 17,610
Valuation allowance for deferred
tax assets (12,469) (14,683)
------------ -------------
Net deferred tax assets $ 3,791 $ 2,927
============ =============
Net deferred tax assets are included in non-current "Other Assets" on
the Consolidated Balance Sheets. Also included in "Other Assets" are
French income tax refunds totaling $1,572 expected to be received in
fiscal years 2009 and 2010.
7. STOCK-BASED COMPENSATION
As of February 25, 2007, the Company had a 1992 Stock Option Plan and a
2002 Stock Option Plan, and no other stock-based compensation plan.
Both Stock Option Plans have been approved by the Company's
stockholders and provide for the grant of stock options to directors
and key employees of the Company. All options granted under such Plans
have exercise prices equal to the fair market value of the underlying
53
common stock of the Company at the time of grant, which pursuant to the
terms of the Plans, 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 Plans become exercisable
25% one year from the date of grant, with an additional 25% exercisable
each succeeding anniversary of the date of grant and expire 10 years
from the date of grant. The authority to grant additional options under
the 1992 Stock Option Plan expired on March 24, 2002, and options to
purchase a total of 900,000 shares of common stock were authorized for
grant under the 2002 Stock Option Plan. At February 25, 2007, 1,418,470
shares of common stock of the Company were reserved for issuance upon
exercise of stock options under the 1992 Stock Option Plan and the 2002
Stock Option Plan and 351,843 shares were available for future grant
under the 2002 Stock Option Plan. Options to purchase 174,700 and
157,250 shares of common stock were granted during the 2007 fiscal year
and 2006 fiscal year, respectively.
Effective February 27, 2006, the beginning of the Company's 2007 fiscal
year, the Company began recording compensation expense associated with
stock options, the only form of equity compensation issued by the
Company, in accordance with Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment" ("SFAS 123R"), and Securities and
Exchange Commission Staff Accounting Bulletin No. 107. Prior to
February 27, 2006, the Company accounted for equity compensation
according to the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
and, therefore, no related compensation expense was recorded in the
statements of earnings for awards granted with no intrinsic value. The
Company adopted the modified prospective transition method pursuant to
SFAS 123R, and, consequently, has not retroactively adjusted results
from prior periods. Under this transition method, compensation costs
associated with equity compensation recognized during the 13 weeks and
52 weeks ended February 25, 2007 included (1) quarterly amortization
related to the remaining unexercisable portion of all stock options
granted prior to February 27, 2006 based on the grant date fair value
estimated in accordance with the original provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and (2) quarterly amortization related to
all stock options granted subsequent to February 27, 2006 based on the
grant date fair value estimated in accordance with the provisions of
SFAS 123R.
The Company determines the fair value of stock options on the dates of
grants using an option pricing model with assumptions regarding a
number of highly complex and subjective variables. These variables
include, but are not limited to, the risk-free interest rate of the
options, the expected life of the options, the expected volatility of
the market price of the Company's common stock over the term of the
options, the expected dividends to be paid on the Company's common
stock, and an estimate of the amount of options that are expected to be
forfeited. The Company uses the Black-Scholes option-pricing model to
determine the fair value of options under SFAS 123R and the original
SFAS 123. The compensation expense for stock options includes an
estimate for forfeitures and is recognized over the vesting term using
the ratable method. Prior to the Company's adoption of SFAS 123R,
benefits of tax deductions in excess of recognized compensation costs
were reported as operating cash flows. SFAS 123R requires that such
benefits be recorded as a financing cash inflow rather than as a
reduction of taxes paid. For the 13 weeks and 52 weeks ended February
25, 2007 no excess tax benefits were generated from option exercises.
54
As a result of the adoption of SFAS 123R, the Company's earnings before
income taxes for the 13 weeks and 52 weeks ended February 25, 2007 were
$350 and $1,283, respectively, lower than under the previous accounting
methodology for stock-based compensation. The future compensation
expense affecting earnings before income taxes for options outstanding
at February 25, 2007 will be $2,590 as a result of the adoption of SFAS
123R.
If compensation expense for the Company's stock option plans had been
determined based upon estimated fair values at the grant dates in
accordance with SFAS 123, the Company's pro forma net income and basic
and diluted earnings per common share for the 2006 and 2005 fiscal
years for stock options granted prior to the adoption of SFAS 123R
would have been as follows (in thousands, except for per share data):
2006 2005
------------ ------------
Net earnings $ 26,875 $ 21,605
Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards, net
of tax effects (1,627) (1,803)
------------ ------------
Pro forma net earnings $ 25,248 $ 19,802
============ ============
Basic earnings per share:
As reported $ 1.34 $ 1.09
Pro forma $ 1.26 $ 1.00
Diluted earnings per share:
As reported $ 1.33 $ 1.08
Pro forma $ 1.25 $ 0.97
The weighted average fair value for options was estimated at the dates
of grants using the Black-Scholes option-pricing model to be $10.84 for
fiscal year 2007, $7.77 for fiscal year 2006 and $8.41 for fiscal year
2005, with the following assumptions: risk free interest rate of
4.0%-5.0% for fiscal year 2007 and 5.0% for fiscal years 2006 and 2005;
expected volatility factors of 34.4%-58.8%, 34%-36% and 38%-46% for
fiscal years 2007, 2006 and 2005, respectively; expected dividend yield
of 1.0%-1.6% for fiscal year 2007, 1.3% for fiscal year 2006 and 1.6%
for fiscal year 2005; and estimated option terms of 4.0-5.6 years for
fiscal year 2007, and 4.0 years for fiscal years 2006 and 2005.
The estimated term of the options is based on evaluations of historical
and expected future employee exercise behavior. The risk free interest
rate is 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 is based on historical volatility of the
company stock.
55
Information with respect to options follows:
Weighted
Average
Outstanding Exercise
Options Price
------------ ------------
Balance, February 29,2004 1,396,653 $ 19.91
Granted 183,900 22.86
Exercised (152,327) 13.04
Terminated or expired (144,407) 23.89
------------
Balance, February 27, 2005 1,283,819 $ 20.71
Granted 157,250 24.57
Exercised (218,770) 17.89
Terminated or expired (218,845) 25.89
------------
Balance, February 26, 2006 1,003,454 $ 20.80
Granted 174,700 25.35
Exercised (80,236) 17.85
Terminated or expired (31,291) 26.07
------------
Balance, February 25, 2007 1,066,627 21.61
============
Exercisable February 25, 2007 714,615 $ 20.13
============
The following table summarizes information concerning outstanding and
exercisable options at February 25, 2007.
Weighted
Average
Weighted Remaining
Average Contractual Aggregated
Number of Exercise Term In Intrinsic
Options Price Years Value
--------- ------------ ------------ ------------
Outstanding at February 25, 2007 1,066,627 $ 20.61 5.33 $ 7,446
Exercisable at February 25, 2007 714,615 20.13 3.68 6,046
The total 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 2007, 2006 and
2005 fiscal years were $1,153, $1,424 and $1,489, respectively. Stock
options available for future grant under the 2002 Stock Option Plan at
February 25, 2007 and February 26, 2006 were 351,843 and 502,453,
respectively.
56
8. STOCKHOLDERS' EQUITY
a. Stockholders' Rights Plan - On July 20, 2005, the Board of
Directors renewed the Company's stockholders' rights plan on
substantially the same terms as its previous rights plan which
expired in July, 2005. In accordance with the Company's
stockholders' rights plan, a right (the "Right") to purchase
from the Company a unit consisting of one one-thousandth
(1/1000) 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 15 percent or more of the Company's
outstanding common stock or commences a tender offer that
would result in such person's owning 15 percent or more of
such stock. If any person acquires 15 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 15 percent or more of the
Company's outstanding common stock.
b. Reserved Common Shares - At February 25, 2007, 1,418,470
shares of common stock were reserved for issuance upon
exercise of stock options.
c. Accumulated Other Comprehensive Income - Accumulated balances
related to each component of other comprehensive income were
as follows:
February 25, February 26,
2007 2006
------------ -------------
Currency translation adjustment $ 5,010 $ 3,326
Unrealized losses on investments (246) (891)
------------ -------------
Accumulated balance $ 4,764 $ 2,435
============ =============
d. Dividends Declared - On July 20, 2006, the Company announced
that its Board of Directors had declared a special cash
dividend of $1.00 per share, which was paid August 22, 2006
and was in addition to the Company's regular quarterly cash
dividends of $0.08 per share; and on October 19, 2005, the
Company announced that its Board of Directors had declared a
special cash dividend of $1.00 per share, which was paid
December 15, 2005 and was in addition to the Company's regular
quarterly cash dividends of $0.08 per share.
57
9. 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 for the last three fiscal years:
2007 2006 2005
------------ ------------ ------------
Net earnings $ 39,791 $ 26,875 $ 21,605
============ ============ ============
Weighted average common shares
outstanding for basic EPS 20,175,422 20,046,900 19,879,278
Net effect of dilutive options 141,418 163,300 195,741
------------ ------------ ------------
Weighted average shares outstanding
for diluted EPS 20,316,840 20,210,200 20,075,019
============ ============ ============
Basic earnings per share $ 1.97 1.34 $ 1.09
============ ============ ============
Diluted earnings per share $ 1.96 $ 1.33 $ 1.08
============ ============ ============
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 3,619, 100,058 and
99,447 for the fiscal years 2007, 2006 and 2005, respectively.
10. DISCONTINUED OPERATIONS AND PENSION LIABILITY
On February 4, 2004, the Company announced that it was discontinuing
its financial support of its Dielektra GmbH ("Dielektra") subsidiary
located in Cologne, Germany, due to the continued erosion of the
European market for the Company's high technology products. Without
Park's financial support, Dielektra filed an insolvency petition, which
the Company believes will result in the liquidation of Dielektra. In
accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", Dielektra is treated as a discontinued
operation. As a result of the discontinuation of financial support for
Dielektra, the Company recognized an impairment charge of $22,023 for
the write-off of Dielektra assets and other costs during the fourth
quarter of the 2004 fiscal year. The liabilities from discontinued
operations are reported separately on the Consolidated Balance Sheet.
These liabilities from discontinued operations included $12,094 for
Dielektra's deferred pension liability. The Company expects to
recognize a gain of approximately $17 million related to the reversal
of these liabilities when the Dielektra insolvency process is
completed, although it is unclear when the process will be completed.
58
Liabilities for discontinued operations as of February 25, 2007 and
February 26, 2006 consisted of the following:
February 25, February 26,
2007 2006
------------ ------------
Environmental and
other liabilities $ 5,087 $ 5,157
Pension liabilities 12,094 12,094
------------ ------------
Total liabilities $ 17,181 $ 17,251
============ ============
11. REALIGNMENT AND SEVERANCE CHARGES
During the 2006 fiscal year first quarter, the Company recorded a
charge of $1,059 for employment termination benefits for a workforce
reduction at its Neltec Europe SAS subsidiary in Mirebeau, France, $170
of which was reversed in the 2006 fiscal year fourth quarter. The
payment of these termination benefits was substantially completed by
the end of the 2006 fiscal year.
During the 2005 fiscal year third quarter, the Company recorded $625 of
charges for severance payments for workforce reductions at its North
American and European volume printed circuit materials operations.
These severance payments were made to employees during the 2005 fiscal
year third quarter and there were no remaining liabilities as of
February 27, 2005.
The Company recorded pre-tax charges of $1,934 and $6,504 during the
first and second quarters, respectively, of the 2004 fiscal year
related to the realignment of its North America volume printed circuit
materials operations in Newburgh, New York and Fullerton, California.
During the fourth quarter of fiscal year 2004 the Company recorded
pretax charges of $112 related to workforce reductions in Europe and
recovered $81 from sales of impaired assets related to its European
operations. The components of these charges and the related liability
balances and activity for the year ended February 25, 2007 are set
forth below.
Paid or
Reversed in Present 2/25/07
Original Prior Balance Charges Value Remaining
Charge Years 2/26/06 Paid Adjustment Liabilities
------------ ------------ ------------ ------------ ------------ ------------
Neltec Europe
Termination benefits $ 1,059 $ (853) $ 206 $ (40) $ - $ 166
New York and California and
other realignment charges:
Lease payments,
taxes, utilities
and other 7,292 (2,079) 5,213 (494) (570) 4,149
Termination benefits 1,258 (1,258) - - - -
------------ ------------ ------------ ------------ ------------ ------------
$ 9,609 $ (4,190) $ 5,419 $ (534) $ (570) $ 4,315
============ ============ ============ ============ ============ ============
59
The termination benefits were for the termination of hourly and
salaries, administrative, manufacturing and support employees. Such
employees were terminated in France during the 2006 fiscal year second
quarter and in North America during the 2004 fiscal year first, second
and third quarters. The major portion of the termination benefits were
paid for such employees in France during the second, third and fourth
quarters of the 2006 fiscal year, and the termination benefits were
paid for such employees in North America in installments during fiscal
year 2004. The lease charges covered one lease obligation payable
through December 2004 and a portion of another lease obligation payable
through September 2013. For the 13 and 52 weeks ended February 25,
2007, the Company applied $123 and $494 respectively, of payments
against the liability.
As a result of the foregoing employee terminations and other less
significant employee terminations in connection with business
contractions and in the ordinary course of business and substantial
numbers of employee resignations and retirements in the ordinary course
of business, the total number of employees employed by the Company
declined to approximately 950 as of February 25, 2007.
12. GAIN ON INSURANCE SETTLEMENT
In the 2005 fiscal year third quarter, the Company settled an insurance
claim for damages sustained by the Company in Singapore as the result
of an explosion that occurred in November 2002 in one of the four
treaters located at its Nelco manufacturing facility in Singapore.
During the 2005 fiscal year third quarter, the Company received $5,816
related to this insurance claim. The proceeds represent reimbursement
for assets destroyed in the accident and for business interruption
losses. As a result, the Company recognized a $4,745 gain during the
2005 fiscal year third quarter.
13. INSURANCE ARRANGEMENT TERMINATION CHARGE
During the 2007 fiscal year second quarter ended August 27, 2006, the
Company terminated a split-dollar life insurance arrangement with Jerry
Shore, the Company's founder and former Chairman, President and Chief
Executive Officer. The insurance arrangement, which involved two life
insurance policies payable on the death of the survivor of Jerry Shore
and his spouse with an aggregate face value of $5 million and annual
premium payments by the Company of approximately $129, was implemented
in 1997 but discontinued in 2004 in light of certain provisions of the
Sarbanes-Oxley Act of 2002 and due to changes in the income taxation of
split-dollar life insurance arrangements. The arrangement is more fully
described in the Company's annual proxy statements for each of the
years 1998 through 2006. Pursuant to an agreement entered into between
Jerry Shore and the Company, the termination of the insurance
arrangement involved a payment of $1,335 by the Company to Mr. Shore in
January 2007. Such termination and payment resulted in a net cash cost
to the Company of $685, after the Company's receipt of a portion of the
cash surrender value of the life insurance policies. The Company
recorded a pre-tax charge of $1,316 in the 2007 fiscal year second
quarter ended August 27, 2006 in connection with this termination and
recognized a $499 tax benefit relating to this insurance termination
charge.
60
14. EMPLOYEE BENEFIT PLANS
a. Profit Sharing Plan - The Company and certain of its
subsidiaries have a non-contributory profit sharing retirement
plan covering their regular full-time employees. 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 actual contributions to the plan were $847
and $687 for fiscal years 2006 and 2005, respectively. The
contribution estimated for fiscal year 2007 has not been paid.
Contributions are discretionary and may not exceed the amount
allowable as a tax deduction under the Internal Revenue Code.
b. 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 $247, $218 and $236 in fiscal years 2007, 2006
and 2005, respectively.
15. LEASE COMMITMENTS
The Company conducts certain of its operations in leased facilities,
which include several manufacturing plants, warehouses and offices, and
land leases. The leases on facilities are for terms of up to 10 years,
the latest of which expires in 2015. 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 operating leases have the following payment
schedule.
Fiscal Year Amount
----------- ----------
2008 2,029
2009 1,905
2010 1,931
2011 1,669
2012 1,108
Thereafter 2,541
----------
$ 11,183
==========
Rental expenses, inclusive of real estate taxes and other cost $2,047,
$2,257 and $2,560 for fiscal years 2007, 2006 and 2005, respectively.
16. CONTINGENCIES
a. Litigation - The Company is subject to a small number of
proceedings, lawsuits and other claims related to
environmental, employment, product and other matters. The
Company is required to assess the likelihood of any adverse
judgments or outcomes in these matters as well as potential
ranges of probable losses. A determination of the amount of
reserves required, if any, for these contingencies is made
after careful analysis of each individual issue. The required
reserves may change in the future due to new developments in
each matter or changes in approach, such as a change in
settlement strategy in dealing with these matters.
61
b. 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 Com-
prehensive Environmental Response, Compensation and Liability
Act (the "Superfund Act") or similar state law as potentially
responsible parties in connection with alleged releases of
haz- ardous substances at nine sites. In addition, a
subsidiary of the Company has received cost recovery claims
under the Superfund Act from other private parties involving
one other site and has received requests from the EPA under
the Superfund Act for information with respect to its
involvement at three other sites.
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 agreed to pay, or reimburse the
Company and its subsidiaries for, 100% of their legal defense
and remediation costs associated with three of these sites and
25% of such costs associated with another one 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
remediation costs and excluding amounts paid or reimbursed by
insurance carriers, were approximately $1, $1 and $2 in fiscal
years 2007, 2006 and 2005, respectively. The recorded
liabilities included in accrued liabilities for environmental
matters were $1,757, $1,757 and $2,387 for fiscal years 2007,
2006 and 2005, respectively. As discussed in Note 10,
liabilities from discontinued operations have been segregated
on the Consolidated Balance Sheet and include $2,121 for
environmental matters related to Dielektra.
Such recorded liabilities do not include environmental
liabilities and related legal expenses for which the Company
has concluded indemnification agreements with 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 three sites
for which certain subsidiaries of the Company have been named
as potentially responsible parties, pursuant to which
agreements such insurance carriers have been paying 100% of
the legal defense and remediation costs associated with such
three sites since 1985.
62
Included in cost of sales are charges for actual expenditure
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 will not have a material
adverse effect on the liquidity, capital resources, business
or consolidated results of operations or financial position of
the Company. However, one or more of such environmental
matters could have a significant negative impact on the
Company's consolidated results of operations or financial
position for a particular reporting period.
17. BUSINESS SEGMENTS
The Company considers itself to operate in one business segment because
the Company's advanced composite materials product line comprises less
than 10% of the Company's assets, revenues and profit from operations
on an absolute basis. The Company's printed circuit materials (the
Nelco(R) product line) are marketed primarily to leading independent
printed circuit board fabricators, electronic manufacturing service
companies, electronic contract manufacturers and major electronic
original equipment manufacturers ("OEMs") located throughout North
America, Europe and Asia. The Company's advanced composite materials
(the Nelcote(TM) product line) customers, the majority of which are
located in the United States, include OEMs, independent firms and
distributors in the electronics, aerospace, and industrial industries.
Sales are attributed to geographic region based upon the region from
which the materials were invoiced to the customer. Sales between
geographic regions were not significant.
Financial information regarding the Company's operations by geographic
region follows:
Fiscal Year
--------------------------------------------
2007 2006 2005
------------ ------------ ------------
Sales:
United States $ 140,390 $ 124,365 $ 117,109
Europe 34,870 34,372 34,198
Asia 82,117 63,514 59,880
------------ ------------ ------------
Total sales $ 257,377 $ 222,251 $ 211,187
============ ============ ============
Long-lived assets:
United States $ 25,600 $ 27,769 $ 32,610
Europe 4,659 9,077 10,856
Asia 25,331 20,105 20,183
------------ ------------ ------------
Total long-lived assets $ 55,590 $ 56,951 $ 63,649
============ ============ ============
18. CUSTOMER AND SUPPLIER CONCENTRATIONS
a. Customers - Sales to Sanmina-SCI Corporation were 16.7%, 19.4%
and 16.2% of the Company's total worldwide sales for fiscal
years 2007, 2006 and 2005, respectively. Sales to TTM
Technologies Inc. "TTM") were 10.7%, 11.7% and 13.3% of the
Company's total worldwide sales for fiscal years 2007, 2006
and 2005. The sales to TTM during the 2007, 2006 and 2005
fiscal years included sales to Tyco Printed Circuit Group
L.P., which was acquired by TTM
63
during the Company's 2007 fiscal year; and the sales to
Sanmina-SCI Corporation during the 2005 fiscal year included
sales to Pentex Schweitzer, which was acquired by Sanmina
during the Company's 2006 fiscal year. Sales to Multilayer
Technology, Inc. were 8.6%, 10.4% and 9.5% of the Company's
total worldwide sales for fiscal year 2007, 2006 and 2005,
respectively.
While no other customer accounted for 10% or more of the
Company's total worldwide sales in fiscal years 2007, 2006 and
2005, and the Company is not dependent on any single customer,
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.
b. Sources of Supply - The principal materials used in the
manufacture of the Company's high-technology printed circuit
materials and advanced composite materials products are
specially manufactured copper foil, fiberglass cloth and
synthetic reinforcements, and specially formulated resins and
chemicals. Although there are a limited number of qualified
suppliers of these materials, the Company has nevertheless
identified alternate sources of supply for each 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.
19. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 154, "Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20 and
FASB Statement No. 3" ("SFAS 154"). SFAS No. 154 requires retrospective
application to prior periods financial statements for changes in
accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.
SFAS No. 154 also requires that retrospective application of a change
in accounting principle be limited to the direct effects of the change.
Indirect effects of a change in accounting principle should be
recognized in the period of the accounting change. SFAS No. 154 further
requires a change in depreciation, amortization or depletion method for
long-lived, non-financial assets to be accounted for as a change in
accounting estimate effected by a change in accounting principle. SFAS
No. 154 became effective for the Company's 2007 fiscal year and did not
have a material effect on the Company's Consolidated Financial
Statements.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes -- an Interpretation of FASB Statement
No. 109" ("FIN 48"). This Interpretation clarifies the accounting for
uncertainty in income taxes recognized in an entity's financial
statements in accordance with SFAS No. 109, "Accounting for Income
Taxes". It prescribes a recognition threshold and measurement
methodology
64
for financial statement reporting purposes and promulgates a series of
new disclosures of tax positions taken or expected to be taken on a tax
return for which less than all of the resulting tax benefits are
expected to be realized. This Interpretation is effective for fiscal
years beginning after December 15, 2006. The Company will adopt this
Interpretation in the first quarter of its 2008 fiscal year, which will
begin February 26, 2007. The Company is currently evaluating the
requirements of FIN 48 and has not yet determined the impact of such
requirements on the Company's Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles in the United
States ("GAAP"), and expands disclosures about fair value measurements.
SFAS 157 applies whenever other standards require, or permit, assets or
liabilities to be measured at fair value. SFAS 157 is effective for
fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Early adoption is permitted. SFAS 157 did
not have a material effect on the Company's Consolidated Financial
Statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB No. 108"), which provides
interpretive guidance on how the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a
current year misstatement. If the effect of the initial misstatement is
determined to be material, the cumulative effect may be reported as an
adjustment to the beginning of year retained earnings with disclosure
of the nature and amount of each individual error being corrected in
the cumulative adjustment. SAB No. 108 is effective for fiscal years
ending after November 15, 2006, with early application for the first
interim period ending after November 15, 2006. The Company adopted SAB
No. 108 in the fourth quarter of fiscal year 2007. The Company has not
discovered material errors in prior years with material effects as of
the date of this Form l0-K Annual Report.
In February 2007, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 159, "The Fair Value Option for Financial Assets
and Financial Liabilities--Including an amendment of FASB Statement No.
115" ("SFAS 159"). SFAS 159 permits entities to elect to measure many
financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been
elected will be recognized in earnings at each subsequent reporting
date. SFAS 159 is effective for fiscal years beginning after November
15, 2007. SFAS 159 did not have a material effect on the Company's
Consolidated Financial Statements.
65
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
----------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ ------------
(In thousands, except per share amounts)
Fiscal 2007:
Net sales 62,838 66,518 68,195 59,826
Gross profit 16,363 16,044 17,241 14,459
Net earnings 8,894 12,544 9,529 8,824
Basic earnings per share:
Net earnings per share $ 0.44 $ 0.62 $ 0.47 $ 0.44
Diluted earnings per share:
Net earnings per share $ 0.44 $ 0.62 $ 0.47 $ 0.44
Weighted average common
shares outstanding:
Basic 20,135 20,183 20,189 20,194
Diluted 20,357 20,295 20,332 20,283
Fiscal 2006:
Net sales $ 55,676 $ 52,442 $ 57,159 $ 56,974
Gross profit 12,030 11,595 15,292 15,684
Net earnings 5,328 6,057 9,745 5,745
Basic earnings per share:
Net earnings per share $ 0.27 $ 0.30 $ 0.48 $ 0.29
Diluted earnings per share:
Net earnings per share $ 0.27 $ 0.30 $ 0.48 $ 0.28
Weighted average common
shares outstanding:
Basic 19,947 20,032 20,099 20,109
Diluted 20,076 20,223 20,251 20,291
Earnings per share are computed separately for each quarter. Therefore, the
sum of such quarterly per share amounts may differ from the total for the
years.
66
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 February 25, 2007, 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, the Company's disclosure controls and procedures
are effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act and are 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.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of February 25, 2007. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated
Framework. Based on management's assessment and those criteria, management
concluded that the Company maintained effective internal control over financial
reporting as of February 25, 2007.
67
The Company's independent auditor has issued its audit report on management's
assessment of the Company's internal control over financial reporting. That
report appears in Item 9A(c) below.
(c) Attestation Report of the Registered Public Accounting Firm.
Stockholders and Board of Directors of
Park Electrochemical Corp.
We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting, that
Park Electrochemical Corp. and subsidiaries maintained effective internal
control over financial reporting as of February 25, 2007, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the "COSO criteria").
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. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, 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 in the United States of America. 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 in the United States of
America, 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.
68
In our opinion, management's assessment that Park Electrochemical Corp. and
subsidiaries maintained effective internal control over financial reporting as
of February 25, 2007, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, the Company maintained, in all material
respect, effective internal control over financial reporting as of February 25,
2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
the Company as of February 25, 2007 and February 26, 2006, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended February 25, 2007, and our report
dated May 8, 2007 expressed an unqualified opinion on those financial
statements.
/s/GRANT THORNTON LLP
New York, New York
May 8, 2007
(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.
The Company is not disclosing under this item any information required
to be disclosed on Form 8-K during the fourth quarter of the year covered by
this Form 10-K Annual Report, but not reported, whether or not otherwise
required by this Form 10-K.
69
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 2007 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 2007 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 2007 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 2007 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 2007 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A.
70
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 Stockholders' Equity 44
Statements of Cash Flows 45
Notes to Consolidated Financial Statements (1-18) 46
(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 72
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 73 hereof.
71
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 8, 2007 PARK ELECTROCHEMICAL CORP.
By: /s/ Brian E. Shore
-------------------------------------
Brian E. Shore,
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 executive officer) May 8, 2007
Brian E. Shore
/s/ James L. Zerby Vice President and Chief Financial Officer (principal
--------------------- financial officer) May 8, 2007
James L. Zerby
/s/ Dale Blanchfield Director May 8, 2007
---------------------
Dale Blanchfield
/s/ Anthony Chiesa Director May 8, 2007
---------------------
Anthony Chiesa
/s/ Lloyd Frank Director May 8, 2007
---------------------
Lloyd Frank
/s/ Steven T. Warshaw Director May 8, 2007
---------------------
Steven T. Warshaw
72
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column C
Column A Column B Additions Column D Column E
---------------------------------------------------- ------------ ---------------------------- ------------ ------------
Balance at Balance at
Beginning of Costs and End of
Description Period Expenses Other Reductions Period
---------------------------------------------------- ------------ ------------ ------------ ------------ ------------
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE:
52 weeks ended February 25, 2007 $ 12,445,000 $ 1,286,000 - $ (3,500,000) $ 10,231,000
============ ============ ============ ============
52 weeks ended February 26, 2006 $ 18,212,000 $ (2,840,000) - $ (2,927,000) $ 12,445,000
============ ============ ============ ============
52 weeks ended February 27, 2005 $ 21,564,000 $ (3,352,000) - - $ 18,212,000
============ ============ ============
Column D
Column A Column B Column C Other Column E
---------------------------------------------------- ------------ ------------ --------------------------- ------------
Balance at Charged to Accounts Balance at
Beginning of Costs and Written Translation End of
Description Period Expenses Off Adjustment Period
---------------------------------------------------- ------------ ------------ ------------ ------------ ------------
(A)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
52 weeks ended February 25, 2007 $ 1,930,000 $ (623,000) $ (140,000) $ (23,000) $ 1,144,000
============ ============ ============ ============ ============
52 weeks ended February 26, 2006 $ 1,984,000 $ (1,000) $ (26,000) $ (27,000) $ 1,930,000
============ ============ ============ ============ ============
52 weeks ended February 27, 2005 $ 1,845,000 $ 90,000 $ (28,000) $ 77,000 $ 1,984,000
============ ============ ============ ============ ============
(A) Uncollectible accounts, net of recoveries.
73
EXHIBIT INDEX
-------------
Exhibit
Numbers Description Page
------- ----------------------------------------------------------------------- ----
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, date 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 May 21, 2002 (Reference is made to Exhibit 3.03 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.) ........................................................ -
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.) ................... -
74
Exhibit
Numbers Description Page
------- ----------------------------------------------------------------------- ----
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 10.03 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 10.03 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 10.03(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.) ........................................................ -
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.) ........................................................... -
75
Exhibit
Numbers Description Page
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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 10.04 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 1992 Stock Option Plan of the Company, as amended by First Amendment
thereto. (Reference is made to Exhibit 10.06(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended March 1, 1998, Commission
File No. 1-4415, which is incorporated herein by reference. This
exhibit is a management contractor compensatory plan or arrangement.) . -
10.6 Lease dated April 15, 1988 between FiberCote Industries, Inc. (lease
was initially entered into by USP Composites, Inc., which subsequently
changed its name to FiberCote Industries, Inc.) and Geoffrey
Etherington, II regarding real property located at 172 East Aurora
Street, Waterbury, Connecticut (Reference is made to Exhibit 10.07 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.) ........................................................ -
10.6(a) Amendment to Lease dated December 21, 1992 to Lease dated April 15,
1988 (see Exhibit 10.06 hereto) between FiberCote Industries, Inc. and
Geoffrey Etherington II regarding real property located at 172 East
Aurora Street, Waterbury, Connecticut (Reference is made to Exhibit
10.07(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.) .................................... -
10.6(b) Letter dated June 30, 1997 from FiberCote Industries, Inc. to Geoffrey
Etherington II extending the Lease dated April 15, 1988 (see Exhibit
10.06 hereto) between FiberCote Industries, Inc. and Geoffrey
Etherington II regarding real property located at 172 East Aurora
Street, Waterbury Connecticut. (Reference is made to Exhibit 10.08(b)
of the Company's Annual Report on Form 10-K for the fiscal year ended
March 1, 1998, Commission File No. 1-4415, which is incorporated herein
by reference.) ........................................................ -
10.7 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.) .......... -
76
Exhibit
Numbers Description Page
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10.7(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.) ............... -
10.7(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.) -
10.7(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.) -
10.8 Lease Contract dated February 26, 1988 between the New York State
Department of Transportation and the Edgewater Stewart Company
regarding real property located at 15 Governor Drive in the Stewart
International Airport Industrial Park, New Windsor, New York (Reference
is made to Exhibit 10.13 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.) ........................... -
10.8(a) Assignment and Assumption of Lease dated February 16, 1995 between New
England Laminates Co., Inc. and the Edgewater Stewart Company regarding
the assignment of the Lease Contract (see Exhibit 10.8 hereto) for the
real property located at 15 Governor Drive in the Stewart International
Airport Industrial Park, New Windsor, New York (Reference is made to
Exhibit 10.13(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.) .................................... -
10.8(b) Lease Amendment No. 1 dated February 17, 1995 between New England
Laminates Co., Inc. and the New York State Department of Transportation
to Lease Contract dated February 26, 1988 (see Exhibit 10.8 hereto)
regarding the real property located at 15 Governor Drive in the Stewart
International Airport Industrial Park, New Windsor, New York (Reference
is made to Exhibit 10.13(b) 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.) ........................... -
77
Exhibit
Numbers Description Page
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10.9 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.) ................................. -
10.10 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. ................ -
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 ........................................... 78
23.1 Consent of Independent Registered Public Accounting Firm (Grant
Thornton LLP) ......................................................... 79
31.1 Certification of principal executive officer pursuant to Exchange Act
Rule 13a-14(a) or 15d-14(a) ........................................... 80
31.2 Certification of principal financial officer pursuant to Exchange Act
Rule 13a-14(a) or 15d-14(a) ........................................... 82
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 ........................................................... 84
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 ........................................................... 85