UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended November 2625, 2018, 2017
OR
| [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to__________
Commission file number 1-4415
PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
New York | 11-1734643 | |||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
48 South Service Road, Melville, N.Y. | 11747 | |||
(Address of Principal Executive Offices) | (Zip Code) |
(631) 465-3600
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ] Smaller Reporting Company [ ] Emerging Growth Company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 20,237,44620,279,408 as of January 4, 2018.3, 2019.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
|
| Page Number | |
PART I. | FINANCIAL INFORMATION: | ||
Item 1. | Financial Statements | ||
Condensed Consolidated Balance Sheets November | 3 | ||
Consolidated Statements of Operations 13 weeks and 39 weeks ended November 25, 2018 and November 26, 2017 | 4 | ||
Consolidated Statements of Comprehensive Earnings (Loss) | 5 | ||
Condensed Consolidated Statements of Cash Flows 39 weeks ended November 25, 2018 and November 26, 2017 | 6 | ||
Notes to Consolidated Financial Statements (Unaudited) | 7 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
| |
Factors That May Affect Future Results |
| ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
| |
Item 4. | Controls and Procedures |
| |
PART II. | OTHER INFORMATION: | ||
Item 1. | Legal Proceedings |
| |
Item 1A. | Risk Factors |
| |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| |
Item 3. | Defaults Upon Senior Securities |
| |
Item 4. | Mine Safety Disclosures |
| |
Item 5. | Other Information |
| |
Item 6. | Exhibits |
| |
SIGNATURES |
| ||
EXHIBIT INDEX |
|
PART I. FINANCIAL INFORMATION
Item I. Financial Statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
November 26, 2017 (unaudited) | February 26, 2017* | |||||||||||||||
November 25, 2018 (unaudited) | February 25, 2018* | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 30,592 | $ | 102,438 | $ | 16,995 | $ | 18,254 | ||||||||
Marketable securities (Note 3) | 201,233 | 136,152 | 95,391 | 89,977 | ||||||||||||
Accounts receivable, less allowance for doubtful accounts of $258 and $294, respectively | 16,461 | 17,238 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $32 and $32, respectively | 5,864 | 6,961 | ||||||||||||||
Inventories (Note 4) | 11,449 | 11,105 | 4,577 | 3,955 | ||||||||||||
Prepaid expenses and other current assets | 2,751 | 2,197 | 1,503 | 1,473 | ||||||||||||
Current Assets - Discontinued Operations (Note 10) | 23,110 | 20,648 | ||||||||||||||
Total current assets | 262,486 | 269,130 | 147,440 | 141,268 | ||||||||||||
Property, plant and equipment, net | 17,117 | 18,638 | 8,888 | 9,805 | ||||||||||||
Goodwill and other intangible assets | 9,825 | 9,825 | 9,818 | 9,818 | ||||||||||||
Restricted cash (Note 5) | 10,000 | 10,000 | ||||||||||||||
Other assets | 1,919 | 985 | 384 | 370 | ||||||||||||
Non-current Assets - Discontinued Operations (Note 10) | 11,409 | 11,799 | ||||||||||||||
Total assets | $ | 301,347 | $ | 308,578 | $ | 177,939 | $ | 173,060 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt (Note 5) | $ | 3,000 | $ | 3,500 | ||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | 3,424 | 4,183 | $ | 1,709 | $ | 1,825 | ||||||||||
Accrued liabilities | 6,639 | 3,417 | 1,461 | 1,022 | ||||||||||||
Income taxes payable | 591 | 3,023 | 1,539 | 1,456 | ||||||||||||
Current Liabilities - Discontinued Operations (Note 10) | 9,511 | 7,924 | ||||||||||||||
Total current liabilities | 13,654 | 14,123 | 14,220 | 12,227 | ||||||||||||
Long-term debt (Note 5) | 66,250 | 68,500 | ||||||||||||||
Non-current income taxes payable (Note 9) | 18,594 | 20,364 | ||||||||||||||
Deferred income taxes (Note 9) | 42,088 | 42,088 | 3,107 | 4,047 | ||||||||||||
Other liabilities | 169 | 1,041 | 1,060 | 314 | ||||||||||||
Non-current Liabilities - Discontinued Operations (Note 10) | 847 | 847 | ||||||||||||||
Total liabilities | 122,161 | 125,752 | 37,828 | 37,799 | ||||||||||||
Commitments and contingencies (Note 11) | ||||||||||||||||
Shareholders' equity (Note 8): | ||||||||||||||||
Shareholders' equity (Note 8) | ||||||||||||||||
Common stock | 2,096 | 2,096 | 2,096 | 2,096 | ||||||||||||
Additional paid-in capital | 168,305 | 167,612 | 169,489 | 169,011 | ||||||||||||
Retained earnings | 23,671 | 27,112 | ||||||||||||||
Accumulated deficit | (17,615 | ) | (21,099 | ) | ||||||||||||
Accumulated other comprehensive earnings | 77 | 1,026 | 241 | 131 | ||||||||||||
194,149 | 197,846 | 154,211 | 150,139 | |||||||||||||
Less treasury stock, at cost | (14,963 | ) | (15,020 | ) | (14,100 | ) | (14,878 | ) | ||||||||
Total shareholders' equity | 179,186 | 182,826 | 140,111 | 135,261 | ||||||||||||
Total liabilities and shareholders' equity | $ | 301,347 | $ | 308,578 | $ | 177,939 | $ | 173,060 |
*The balance sheet at February 26, 201725, 2018 has been derived from the audited consolidated financial statements at that date.
See Notes to Consolidated Financial Statements (Unaudited).
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
13 Weeks Ended (Unaudited) | 39 Weeks Ended (Unaudited) | 13 Weeks Ended (Unaudited) | 39 Weeks Ended (Unaudited) | |||||||||||||||||||||||||||||
November 26, | November 27, | November 26, | November 27, | November 25, | November 26, | November 25, | November 26, | |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Net sales | $ | 26,139 | $ | 26,462 | $ | 83,392 | $ | 87,010 | $ | 12,853 | $ | 10,229 | $ | 34,457 | $ | 30,310 | ||||||||||||||||
Cost of sales | 20,069 | 19,828 | 63,823 | 64,355 | 8,569 | 7,264 | 24,176 | 21,840 | ||||||||||||||||||||||||
Gross profit | 6,070 | 6,634 | 19,569 | 22,655 | 4,284 | 2,965 | 10,281 | 8,470 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 4,797 | 4,604 | 13,967 | 15,051 | 1,983 | 2,509 | 6,200 | 7,189 | ||||||||||||||||||||||||
Restructuring charges (Note 6) | 472 | 113 | 4,735 | 206 | ||||||||||||||||||||||||||||
Earnings from operations | 801 | 1,917 | 867 | 7,398 | ||||||||||||||||||||||||||||
Earnings from continuing operations | 2,301 | 456 | 4,081 | 1,281 | ||||||||||||||||||||||||||||
Interest expense (Note 5) | 689 | 343 | 1,802 | 1,010 | - | 689 | - | 1,802 | ||||||||||||||||||||||||
Interest and other income | 734 | 430 | 2,234 | 1,177 | 393 | 734 | 1,090 | 2,234 | ||||||||||||||||||||||||
Earnings before income taxes | 846 | 2,004 | 1,299 | 7,565 | ||||||||||||||||||||||||||||
Income tax provision (benefit) (Note 9) | 130 | 129 | (1,331 | ) | 759 | |||||||||||||||||||||||||||
Net earnings | $ | 716 | $ | 1,875 | $ | 2,630 | $ | 6,806 | ||||||||||||||||||||||||
Earnings from continuing operations before income taxes | 2,694 | 501 | 5,171 | 1,713 | ||||||||||||||||||||||||||||
Income tax provision (Note 9) | 616 | 157 | 453 | 438 | ||||||||||||||||||||||||||||
Net earnings from continuing operations | 2,078 | 344 | 4,718 | 1,275 | ||||||||||||||||||||||||||||
Earnings from discontinued operations, net of tax (Note 10) | 1,613 | 372 | 4,841 | 1,355 | ||||||||||||||||||||||||||||
Net Earnings | $ | 3,691 | $ | 716 | $ | 9,559 | $ | 2,630 | ||||||||||||||||||||||||
Earnings per share (Note 7): | ||||||||||||||||||||||||||||||||
Earnings per share (Note 7) | ||||||||||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.10 | $ | 0.02 | $ | 0.23 | $ | 0.06 | ||||||||||||||||||||||||
Discontinued Operations | 0.08 | 0.02 | 0.24 | 0.07 | ||||||||||||||||||||||||||||
Basic earnings per share | $ | 0.04 | $ | 0.09 | $ | 0.13 | $ | 0.34 | $ | 0.18 | $ | 0.04 | $ | 0.47 | $ | 0.13 | ||||||||||||||||
Basic weighted average shares | 20,237 | 20,235 | 20,236 | 20,235 | 20,278 | 20,237 | 20,258 | 20,236 | ||||||||||||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.10 | $ | 0.02 | $ | 0.23 | $ | 0.06 | ||||||||||||||||||||||||
Discontinued Operations | 0.08 | 0.02 | 0.24 | 0.07 | ||||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.04 | $ | 0.09 | $ | 0.13 | $ | 0.34 | $ | 0.18 | $ | 0.04 | $ | 0.47 | $ | 0.13 | ||||||||||||||||
Diluted weighted average shares | 20,261 | 20,235 | 20,252 | 20,235 | 20,352 | 20,261 | 20,343 | 20,252 | ||||||||||||||||||||||||
Dividends declared per share | $ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 | $ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 |
See Notes to Consolidated Financial Statements (Unaudited).
PARK ELECTROCHEMICAL CORP.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(Amounts in thousands)
13 Weeks Ended (Unaudited) | 39 Weeks Ended (Unaudited) | |||||||||||||||
November 25, | November 26, | November 25, | November 26, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net earnings | $ | 3,691 | $ | 716 | $ | 9,559 | $ | 2,630 | ||||||||
Other comprehensive earnings (loss), net of tax: | ||||||||||||||||
Foreign currency translation | 8 | (44 | ) | 7 | (3 | ) | ||||||||||
Unrealized gains on marketable securities: | ||||||||||||||||
Unrealized holding gains arising during the period | - | - | - | 24 | ||||||||||||
Less: reclassification adjustment for gains included in net earnings | - | (17 | ) | - | (113 | ) | ||||||||||
Unrealized losses on marketable securities: | ||||||||||||||||
Unrealized holding losses arising during the period | (19 | ) | (805 | ) | (37 | ) | (922 | ) | ||||||||
Less: reclassification adjustment for losses included in net earnings | 30 | 19 | 140 | 65 | ||||||||||||
Other comprehensive earnings (loss) | 19 | (847 | ) | 110 | (949 | ) | ||||||||||
Total comprehensive earnings (loss) | $ | 3,710 | $ | (131 | ) | $ | 9,669 | $ | 1,681 |
See Notes to Consolidated Financial Statements (Unaudited).
PARK ELECTROCHEMICAL CORP.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
39 Weeks Ended (Unaudited) | ||||||||
November 25, | November 26, | |||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings from continuing operations | $ | 4,718 | $ | 1,275 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,317 | 1,366 | ||||||
Stock-based compensation | 594 | 709 | ||||||
Deferred income taxes | (940 | ) | 689 | |||||
Amortization of bond premium | (34 | ) | 221 | |||||
Changes in operating assets and liabilities | (430 | ) | (828 | ) | ||||
Net cash provided by operating activities - continuing operations | 5,225 | 3,432 | ||||||
Net cash provided by operating activities - discontinued operations | 5,731 | 1,547 | ||||||
Net cash provided by operating activities | 10,956 | 4,979 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | (399 | ) | (428 | ) | ||||
Purchases of marketable securities | (19,271 | ) | (162,018 | ) | ||||
Proceeds from sales and maturities of marketable securities | 14,238 | 94,577 | ||||||
Net cash used in investing activities - continuing operations | (5,432 | ) | (67,869 | ) | ||||
Net cash used in investing activities - discontinued operations | (158 | ) | (275 | ) | ||||
Net cash used in investing activities | (5,590 | ) | (68,144 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends paid | (6,076 | ) | (6,071 | ) | ||||
Proceeds from exercise of stock options | 661 | 39 | ||||||
Payments of long-term debt | - | (2,750 | ) | |||||
Net cash used in financing activities - continuing operations | (5,415 | ) | (8,782 | ) | ||||
Net cash used in financing activities - discontinued operations | - | - | ||||||
Net cash used in financing activities | (5,415 | ) | (8,782 | ) | ||||
Decrease in cash and cash equivalents before effect of exchange rate changes - continuing operations | (5,622 | ) | (73,219 | ) | ||||
Increase in cash and cash equivalents before effect of exchange rate changes - discontinued operations | 5,573 | 1,272 | ||||||
Decrease in cash and cash equivalents before effect of exchange rate changes | (49 | ) | (71,947 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents - continuing operations | (3 | ) | (67 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents - discontinued operations | (1,207 | ) | 168 | |||||
Effect of exchange rate changes on cash and cash equivalents | (1,210 | ) | 101 | |||||
Decrease in cash and cash equivalents: | (1,259 | ) | (71,846 | ) | ||||
Cash and cash equivalents, beginning of period | 18,254 | 102,438 | ||||||
Cash and cash equivalents, end of period | $ | 16,995 | $ | 30,592 | ||||
Supplemental cash flow information: | ||||||||
Cash paid during the period for income taxes, net of refunds | $ | 2,332 | $ | 3,074 | ||||
Cash paid during the period for interest | $ | - | $ | 1,402 |
See Notes to Consolidated Financial Statements (Unaudited).
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS
(Amounts in thousands)
13 Weeks Ended (Unaudited) | 39 Weeks Ended (Unaudited) | |||||||||||||||
November 26, | November 27, | November 26, | November 27, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net earnings | $ | 716 | $ | 1,875 | $ | 2,630 | $ | 6,806 | ||||||||
Other comprehensive (loss) earnings, net of tax: | ||||||||||||||||
Foreign currency translation | (44 | ) | 28 | (3 | ) | 33 | ||||||||||
Unrealized gains on marketable securities: | ||||||||||||||||
Unrealized holding gains arising during the period | - | - | 24 | 11 | ||||||||||||
Less: reclassification adjustment for gains included in net earnings | (17 | ) | (105 | ) | (113 | ) | (160 | ) | ||||||||
Unrealized losses on marketable securities: | ||||||||||||||||
Unrealized holding losses arising during the period | (805 | ) | (292 | ) | (922 | ) | (361 | ) | ||||||||
Less: reclassification adjustment for losses included in net earnings | 19 | 29 | 65 | 63 | ||||||||||||
Other comprehensive (loss) earnings | (847 | ) | (340 | ) | (949 | ) | (414 | ) | ||||||||
Total comprehensive (loss) earnings | $ | (131 | ) | $ | 1,535 | $ | 1,681 | $ | 6,392 |
See Notes to Consolidated Financial Statements (Unaudited).
PARK ELECTROCHEMICAL CORP.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
39 Weeks Ended (Unaudited) | ||||||||
November 26, | November 27, | |||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 2,630 | $ | 6,806 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,271 | 2,372 | ||||||
Stock-based compensation | 709 | 968 | ||||||
Deferred income taxes | (951 | ) | 108 | |||||
Amortization of bond premium | 221 | 354 | ||||||
Non-cash restructuring charges | 2,450 | - | ||||||
Changes in operating assets and liabilities | (2,351 | ) | 58 | |||||
Net cash provided by operating activities | 4,979 | 10,666 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | (703 | ) | (194 | ) | ||||
Purchases of marketable securities | (162,018 | ) | (44,327 | ) | ||||
Proceeds from sales and maturities of marketable securities | 94,577 | 50,650 | ||||||
Net cash (used in) provided by investing activities | (68,144 | ) | 6,129 | |||||
Cash flows from financing activities: | ||||||||
Dividends paid | (6,071 | ) | (6,070 | ) | ||||
Proceeds from exercise of stock options | 39 | - | ||||||
Payments of long-term debt | (2,750 | ) | (2,250 | ) | ||||
Net cash used in financing activities | (8,782 | ) | (8,320 | ) | ||||
(Decrease) increase in cash and cash equivalents before effect of exchange rate changes | (71,947 | ) | 8,475 | |||||
Effect of exchange rate changes on cash and cash equivalents | 101 | 242 | ||||||
(Decrease) increase in cash and cash equivalents | (71,846 | ) | 8,717 | |||||
Cash and cash equivalents, beginning of period | 102,438 | 97,757 | ||||||
Cash and cash equivalents, end of period | $ | 30,592 | $ | 106,474 | ||||
Supplemental cash flow information: | ||||||||
Cash paid during the period for income taxes, net of refunds | $ | 3,074 | $ | 3,045 | ||||
Cash paid during the period for interest | $ | 1,403 | $ | 1,084 |
See Notes to Consolidated Financial Statements (Unaudited).
PARK ELECTROCHEMICAL CORP.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share (unless otherwise stated), per share and option amounts)
1. | CONSOLIDATED FINANCIAL STATEMENTS |
The Condensed Consolidated Balance Sheet as of November 26, 2017,25, 2018, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Earnings (Loss) Earnings for the 13 weeks and 39 weeks ended November 25, 2018 and November 26, 2017 and November 27, 2016 and the Condensed Consolidated Statements of Cash Flows for the 39 weeks then ended have been prepared by Park Electrochemical Corp. (the “Company”), without audit. In the opinion of management, these unaudited consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at November 26, 201725, 2018 and the results of operations and cash flows for all periods presented. The Consolidated Statements of Operations are not necessarily indicative of the results to be expected for the full fiscal year or any subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“(“US GAAP”) have been condensed or omitted. It is suggested that theseThese consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2017.25, 2018. There have been no significant changes to such accounting policies during the 39 weeks ended November 26, 2017.25, 2018.
On July 25, 2018, the Company entered into a definitive agreement to sell its Electronics Business for $145,000 in cash. This transaction was completed on December 4, 2018. (See Note 13).
The Company has classified the operating results of its Electronics Business, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statements of Operations, in accordance with Accounting Standards Codification (“ASC”) 205-20 Discontinued Operations (See Note 10).
2. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
Fair value measurements are broken down into three levels based on the reliability of inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market), and contractual prices for the underlying financial instrument, as well as other relevant economic measures.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The fair value of the Company’sCompany’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to their short-term nature. Due to the variable interest rates periodically adjusting with the current LIBOR, the carrying value of outstanding borrowings under the Company’s long-term debt approximates its fair value. (See Note 5). Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or non-recurring basis. On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs. (See Note 3).
The Company’sCompany’s non-financial assets measured at fair value on a non-recurring basis include goodwill and any long-lived assets written down to fair value. To measure the fair value of such assets, the Company uses Level 3 inputs consisting of techniques including an income approach and a market approach. The income approach is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the discounted cash flow analysis require the exercise of significant judgment, including judgment about appropriate discount rates, terminal values, growth rates and the amount and timing of expected future cash flows. There were no transfers between levels within the fair value hierarchy during the 39 weeks ended November 26, 201725, 2018 and November 27, 2016.26, 2017. With respect to goodwill, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying value. If, based on that assessment, the Company believes it is more likely than not that the fair value is less than its carrying value, a two-step goodwill impairment test is performed. There have been no changes in events or circumstances which required impairment charges to be recorded during the 13 or 39 weeks ended November 26, 2017.25, 2018.
3. 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 earnings (loss) earnings.. Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in interest and other income in the Consolidated Statements of Operations. The costs of securities sold are based on the specific identification method.
The following is a summary of available-for-sale securities:
November 26, 2017 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
U.S. Treasury and other government securities | $ | 158,276 | $ | 158,276 | $ | - | $ | - | ||||||||
U.S. corporate debt securities | 42,957 | 42,957 | - | - | ||||||||||||
Total marketable securities | $ | 201,233 | $ | 201,233 | $ | - | $ | - |
February 26, 2017 | November 25, 2018 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
U.S. Treasury and other government securities | $ | 111,261 | $ | 111,261 | $ | - | $ | - | $ | 74,463 | $ | 74,463 | $ | - | $ | - | ||||||||||||||||
U.S. corporate debt securities | 24,891 | 24,891 | - | - | 20,928 | 20,928 | - | - | ||||||||||||||||||||||||
Total marketable securities | $ | 136,152 | $ | 136,152 | $ | - | $ | - | $ | 95,391 | $ | 95,391 | $ | - | $ | - |
February 25, 2018 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
U.S. Treasury and other government securities | $ | 78,361 | $ | 78,361 | $ | - | $ | - | ||||||||
U.S. corporate debt securities | 11,616 | 11,616 | - | - | ||||||||||||
Total marketable securities | $ | 89,977 | $ | 89,977 | $ | - | $ | - |
The following table showsshows the amortized cost basis of, and gross unrealized gains and losses on, the Company’s available-for-sale securities:
Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | |||||||||||||||||||
November 26, 2017: | ||||||||||||||||||||||||
November 25, 2018: | ||||||||||||||||||||||||
U.S. Treasury and other government securities | $ | 159,928 | $ | - | $ | 1,652 | $ | 76,070 | $ | - | $ | 1,607 | ||||||||||||
U.S. corporate debt securities | 43,275 | - | 318 | 20,977 | 1 | 50 | ||||||||||||||||||
Total marketable securities | $ | 203,203 | $ | - | $ | 1,970 | $ | 97,047 | $ | 1 | $ | 1,657 | ||||||||||||
February 26, 2017: | ||||||||||||||||||||||||
February 25, 2018: | ||||||||||||||||||||||||
U.S. Treasury and other government securities | $ | 111,727 | $ | 136 | $ | 602 | $ | 80,116 | $ | - | $ | 1,755 | ||||||||||||
U.S. corporate debt securities | 24,938 | 1 | 48 | 11,675 | - | 59 | ||||||||||||||||||
Total marketable securities | $ | 136,665 | $ | 137 | $ | 650 | $ | 91,791 | $ | - | $ | 1,814 |
The estimated fair values of such securities at November 26, 201725, 2018 by contractual maturity are shown below:
Due in one year or less | $ | 23,607 | $ | 41,802 | ||||
Due after one year through five years | 177,626 | 53,589 | ||||||
$ | 201,233 | $ | 95,391 |
4. INVENTORIES
Inventories from continuing operations are stated at the lower of cost (first-in, first-out method) or market. net realizable value. 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. Inventories from continuing operations consisted of the following:
November 26, | February 26, | November 25, | February 25, | |||||||||||||
2017 | 2017 | 2018 | 2018 | |||||||||||||
Inventories: | ||||||||||||||||
Raw materials | $ | 6,157 | $ | 5,842 | $ | 3,407 | $ | 2,824 | ||||||||
Work-in-process | 2,424 | 2,329 | 233 | 159 | ||||||||||||
Finished goods | 2,579 | 2,585 | 937 | 972 | ||||||||||||
Manufacturing supplies | 289 | 349 | ||||||||||||||
$ | 11,449 | $ | 11,105 | $ | 4,577 | $ | 3,955 |
5. LONG-TERM DEBT
On January 15, 2016, the Company entered into a three-year revolving credit facility agreement (the “Credit Agreement”) with HSBC Bank USA, National Association (“HSBC Bank”). This Credit Agreement replaced the Amended Credit Agreement that the Company entered into with PNC Bank in February 2014. The Credit Agreement providesprovided for loans up to $75,000 and letters of credit up to $2,000. The Company borrowed $75,000 under the Credit Agreement and obtained letters of credit in the initial principal amount of $1,075. During the 2016 fiscal year, the Company made no payments in accordance with the Credit Agreement. During the 2017 fiscal year, the Company paid a total of $3,000 in accordance with the Credit Agreement; and, during the 2018 fiscal year first quarter ended May 28, 2017, the Company paid a quarterly installment of $750. The remaining $71,250 was payable in seven quarterly installments of $750 each, with the remaining amount outstanding under the Credit Agreement payable on January 26, 2019. Pursuant to an amendment entered into on April 21, 2017, the second and third installments due in the 2018 fiscal year were increased from $750 to $1,000. On January 3, 2018, the Company prepaid the entire remaining loan balance of $68,500.
Borrowings under the Credit Agreement bore interest at a rate equal to, at the Company’s option, either (a) a fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate (as defined in the Credit Agreement), such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate or (b) a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the one, two, three or six month LIBOR plus 1.15%. Under the Credit Agreement, the Company was also obligated to pay to HSBC Bank a nonrefundable commitment fee equal to 0.10% per annum (computed on the basis of a year of 360 days and actual days elapsed) multiplied by the average daily difference between the amount of (i) the revolving credit commitment plus the letter of credit facility and (ii) the revolving facility usage, payable quarterly in arrears.
On January 5, 2017, the Company entered into an amendment to the Credit Agreement (the “Amended Credit Agreement”) with HSBC Bank that modified the LIBOR interest rate and certain covenants. Under the Amended Credit Agreement, the LIBOR interest rate was equal to the one, two, three, or six month LIBOR plus (a) 1.65% through April 5, 2017, (b) 1.90% from April 6, 2017 through July 5, 2017, (c) 2.15% from July 6, 2017 through October 5, 2017 and (d) 2.65% after October 5, 2017.
The Credit Agreement and the Amended Credit Agreement contained certain customary affirmative and negative covenants, including customary financial covenants. The covenants required the Company to (a) maintain a gross leverage charge ratio not to exceed 4.25 to 1.00 for the fiscal quarter ending November 26, 2017 and 3.75 to 1.00 each fiscal quarter thereafter, (b) maintain a minimum fixed charge coverage ratio of 0.50 to 1.00 for the fiscal quarter ending November 26, 2017 and 1.10 to 1.00 for each fiscal quarter thereafter and (c) maintain a minimum quick ratio of 2.00 to 1.00. In addition, the Company was required to maintain minimum domestic liquid assets of $10,000 in cash held at all times in a domestic deposit account.
At November 26, 2017, $69,250 of indebtedness was outstanding under the Credit Agreement with an interest rate of 3.41%. Interest expense recorded under the Credit Agreement and the Amended Credit Agreement was $689 and $1,802 during the 13-week and 39-week periods ended November 26, 2017, respectively, and $343 and $1,010 during the 13-week and 39-week periods ended November 27, 2016, respectively.
On December 29, 2017, HSBC Bank waived compliance of certain financial covenants for the quarter ended November 26, 2017.
On January 3, 2018, in connection with the Company’sCompany’s voluntary prepayment of the entire loan balance, the Company terminated the Credit Agreement with HSBC Bank.Agreement. The prepayment was made with the Company’s cash and cash equivalents, marketable securities and restricted cash.
6. RESTRUCTURING CHARGES
In April 2017,Interest expense recorded under the Company commenced the consolidation of its Nelco Products, Inc. Business Unit located in Fullerton, California and its Neltec, Inc. Business Unit located in Tempe, Arizona, whichCredit Agreement was substantially completed$0 during the 13-week periodand 39-week periods ended November 26, 2017.
During25, 2018 and $689 and $1,802 during the 13-week and 39-week periods ended November 26, 2017, respectively.
6. STOCK-BASED COMPENSATION
As of November 25, 2018, the Company recorded restructuring chargeshad a 2018 Stock Option Plan (the “2018 Plan”), and no other stock-based compensation plan. The 2018 Plan was adopted by the Board of $360Directors of the Company on May 8, 2018 and $4,423, respectively, relatedapproved by the shareholders of the Company at the Annual Meeting of Shareholders of the Company on July 24, 2018. No options have been granted under the 2018 Plan. Prior to the consolidation.2018 Plan, the Company had the 2002 Stock Option Plan (the “2002 Plan”) which had been approved by the Company’s shareholders and provided for the grant of stock options to directors and key employees of the Company. All options granted under the 2002 Plan have exercise prices equal to the fair market value of the underlying common stock of the Company at the time of grant, which, pursuant to the terms of the 2002 Plan, was the reported closing price of the common stock on the New York Stock Exchange on the date preceding the date the option was granted. Options granted under the 2002 Plan become exercisable 25% one year after the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant, and expire 10 years after the date of grant.
During the 39 weeks ended November 25, 2018, the Company granted options to purchase a total of 2,650 shares of common stock to certain of its employees. The Company estimatesfuture compensation expense to be recognized in earnings before income taxes was $10 and will be recorded on a straight-line basis over the remaining pre-tax charge in connectionrequisite service period. The fair value of the granted options was $3.66 per share using the Black-Scholes option pricing model with the consolidation to be approximately $1,080. This remaining charge isfollowing assumptions: risk-free interest rate of 2.83%; expected to be incurred primarily during the fiscal year ending February 28, 2021.volatility factor of 24.7%; expected dividend yield of 2.32%; and estimated option term of 5.2 years.
The following table sets forthrisk-free interest rates were based on U.S. Treasury rates at the charges and accruals relateddate of grant with maturity dates approximately equal to the consolidation:
Total Expense For 26 Weeks Ended August 27, 2017 | Current Period Expense | Cash Payments | Non-Cash Charges | Accrual November 26, 2017 | Total Expense For 39 Weeks Ended November 26, 2017 | Total Expected Costs | ||||||||||||||||||||||
Facility Lease Costs | $ | 2,753 | $ | (4 | ) | $ | (342 | ) | $ | - | $ | 2,407 | $ | 2,749 | $ | 2,749 | ||||||||||||
Severance Costs | 1,122 | (46 | ) | (1,030 | ) | - | 46 | 1,076 | 1,076 | |||||||||||||||||||
Equipment Removal | - | - | - | - | - | - | 700 | |||||||||||||||||||||
Other | 188 | 410 | (531 | ) | (67 | ) | - | 598 | 975 | |||||||||||||||||||
Total Restructuring Plan | $ | 4,063 | $ | 360 | $ | (1,903 | ) | $ | (67 | ) | $ | 2,453 | $ | 4,423 | $ | 5,500 |
estimated terms of the options at the date of the grant. Volatility factors were based on historical volatility of the Company’s common stock. The expected dividend yields were based on the regular quarterly cash dividend per share most recently declared by the Company recorded additional restructuring chargesand on the exercise price of $112 and $113 during the 13-week periods ended November 26, 2017 and November 27, 2016, respectively, and $312 and $206options granted during the 39 weeks ended November 26, 2017 and November 27, 2016, respectively, related to the closure in the 2009 fiscal year25, 2018. The estimated term of the Company’s New England Laminates Co., Inc. Business Unit located in Newburgh, New York. The New England Laminates Co., Inc. building in Newburgh, New York is held for sale. In the 2004 fiscal year, the Company reduced the book valueoptions was based on evaluations of the building to zero,historical and the Company intends to sell it during the 2018 or 2019 fiscal year.expected future employee exercise behavior.
The 2002 Plan terminated on May 21, 2018, and authority to grant additional options under the 2002 Plan expired on that date. All options granted under the 2002 Plan will expire in April 2028 or earlier.
The following is a summary of option activity for the 39 weeks ended November 25, 2018:
Outstanding Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | ||||||||||
Balance, February 25, 2018 | 885,554 | $ | 17.55 | |||||||||
Granted | 2,650 | 17.75 | ||||||||||
Exercised | (37,837 | ) | 17.50 | |||||||||
Terminated or expired | (101,463 | ) | 19.59 | |||||||||
Balance, November 25, 2018 | 748,904 | $ | 17.28 | 4.78 | ||||||||
Vested and exercisable, November 25, 2018 | 627,935 | $ | 18.00 | 4.41 |
7. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are the only potentially dilutive securities that have been issued by the Company; 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:share:
13 Weeks Ended | 39 Weeks Ended | 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | November 25, 2018 | November 26, 2017 | November 25, 2018 | November 26, 2017 | |||||||||||||||||||||||||
Net earnings - continuing operations | $ | 2,078 | $ | 344 | $ | 4,718 | $ | 1,275 | ||||||||||||||||||||||||
Net earnings - discontinued operations | 1,613 | 372 | 4,841 | 1,355 | ||||||||||||||||||||||||||||
Net earnings | $ | 716 | $ | 1,875 | $ | 2,630 | $ | 6,806 | $ | 3,691 | $ | 716 | $ | 9,559 | $ | 2,630 | ||||||||||||||||
Weighted average common shares outstanding for basic EPS | 20,237 | 20,235 | 20,236 | 20,235 | 20,278 | 20,237 | 20,258 | 20,236 | ||||||||||||||||||||||||
Net effect of dilutive options | 24 | - | 16 | - | 74 | 24 | 85 | 16 | ||||||||||||||||||||||||
Weighted average shares outstanding for diluted EPS | 20,261 | 20,235 | 20,252 | 20,235 | 20,352 | 20,261 | 20,343 | 20,252 | ||||||||||||||||||||||||
Basic earnings per share - continuing operations | 0.10 | 0.02 | 0.23 | 0.06 | ||||||||||||||||||||||||||||
Basic earnings per share - discontinued operations | 0.08 | 0.02 | 0.24 | 0.07 | ||||||||||||||||||||||||||||
Basic earnings per share | $ | 0.04 | $ | 0.09 | $ | 0.13 | $ | 0.34 | $ | 0.18 | $ | 0.04 | $ | 0.47 | $ | 0.13 | ||||||||||||||||
Diluted earnings per share - continuing operations | 0.10 | 0.02 | 0.23 | 0.06 | ||||||||||||||||||||||||||||
Diluted earnings per share - discontinued operations | 0.08 | 0.02 | 0.24 | 0.07 | ||||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.04 | $ | 0.09 | $ | 0.13 | $ | 0.34 | $ | 0.18 | $ | 0.04 | $ | 0.47 | $ | 0.13 |
Potentially dilutive securities, which were not included in the computation of diluted earnings per share because either the effect would have been anti-dilutive or the options’options’ exercise prices were greater than the average market price of the common stock, were 599,000145,000 and 882,000599,000 for the 13 weeks ended November 25, 2018 and November 26, 2017, and November 27, 2016, respectively, and 728,000279,000 and 929,000728,000 for the 39 weeks ended November 25, 2018 and November 26, 2017, and November 27, 2016, respectively.
8. SHAREHOLDERS’ EQUITY
During the 39 weeks ended November 26, 2017,25, 2018, the Company sold 2,77537,837 shares of the Company’s treasury stock pursuant to the exercises of employee stock options and received proceeds of $39$661 from such exercises. The Company recognized stock-based compensation expense, net of tax benefits, of $693.$594.
On January 8, 2015, the Company announced that its Board of Directors authorized the Company’sCompany’s purchase, on the open market and in privately negotiated transactions, of up to 1,250,000 shares of its common stock, representing approximately 6% of the Company’s 20,945,634 total outstanding shares as of the close of business on January 7, 2015. This authorization superseded all prior Board of Directors’ authorizations to purchase shares of the Company’s common stock.
On March 10, 2016, the Company announcedannounced that its Board of Directors authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,000,000 additional shares of its common stock, in addition to the unused prior authorization to purchase shares of the Company’s common stock announced on January 8, 2015. As a result, the Company is authorized to purchase up to a total of 1,531,412 shares of its common stock, representing approximately 7.6% of the Company’s 20,237,44620,279,408 total outstanding shares as of the close of business on January 4, 2018.3, 2019.
The Company did not purchase any shares of its common stock during the 39 weeks ended November 26, 201725, 2018 or during the 39 weeks ended November 27, 2016.26, 2017.
9. INCOME TAXES
The Company’sCompany’s effective tax rates for the 13 weeks and 39 weeks ended November 26, 201725, 2018 were materially different as22.9% and 8.8%, respectively, compared to the 13 weeks31.3% and 39 weeks ended November 27, 2016. The lower effective tax rates were primarily due to the mix of earnings and losses in different jurisdictions during25.6%, respectively, for the 13 weeks and 39 weeks ended November 26, 2017 and the reversal of a tax reserve of $688 related to certain foreign tax deductions taken in prior years.2017.
The Company continuously evaluates the liquidity and capital requirements of its operations in the United States and of its foreign operations. As a result of such evaluation during the 2014 fiscal year, the Company recorded a non-cash charge for the accrual of U.S. deferred income taxes in the amount of $63,958 on undistributed earnings of the Company’s subsidiary in Singapore. As a result of such evaluations, the Company repatriated $11,250, $6,800$113,700 and $61,000$135,300 in cash from the Company’s subsidiary in Singapore in the 2018, 20172019 and 20162018 fiscal years, respectively. See Note 13, “Subsequent Events”, elsewhere in this Report.
10. GEOGRAPHIC REGIONSDISCONTINUED OPERATIONS
On July 25, 2018, the Company entered into a definitive agreement to sell its Electronics Business for $145,000 in cash. The Company completed this transaction on December 4, 2018.
The Company is a global advanced materials company which develops, manufactures, markets and sells advanced composite materials, primary and secondary structures and assemblies and low-volume tooling forhas classified the aerospace markets and high-technology digital and RF/microwave printed circuit materials principally foroperating results of its Electronics Business, together with certain costs related to the telecommunications and internet infrastructure, enterprise and military/aerospace markets. The Company’s products are sold to customerstransaction, as discontinued operations, net of tax, in North America, Asia and Europe. The Company’s manufacturing facilities are located in Kansas, Singapore, France, Arizona and California. The Company operates as a single operating segment, which is advanced materials for the electronics and aerospace markets, with common management and identical or very similar economic characteristics, products, raw materials, manufacturing processes and equipment, customers and markets, marketing, sales and distribution methods and regulatory environments. The chief operating decision maker reviews financial information on a consolidated basis.Consolidated Statements of Operations.
Sales are attributed to geographic regions based uponThe following table shows the region in whichsummary operating results of the materials were delivered to the customer. Sales between geographic regions were not significant.discontinued operations:
Financial information regarding the Company’s operations by geographic region is as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | |||||||||||||
Sales: | ||||||||||||||||
North America | $ | 16,570 | $ | 13,038 | $ | 49,983 | $ | 45,865 | ||||||||
Asia | 7,326 | 10,794 | 27,061 | 34,060 | ||||||||||||
Europe | 2,243 | 2,630 | 6,348 | 7,085 | ||||||||||||
Total sales | $ | 26,139 | $ | 26,462 | $ | 83,392 | $ | 87,010 |
13 Weeks Ended (Unaudited) | 39 Weeks Ended (Unaudited) | |||||||||||||||
November 25, | November 26, | November 25, | November 26, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net sales | $ | 16,680 | $ | 15,910 | $ | 55,232 | $ | 53,082 | ||||||||
Cost of sales | 13,962 | 12,805 | 42,899 | 41,983 | ||||||||||||
Gross profit | 2,718 | 3,105 | 12,333 | 11,099 | ||||||||||||
Selling, general and administrative expenses | 2,597 | 2,098 | 7,643 | 6,213 | ||||||||||||
Restructuring charges | 836 | 662 | 1,593 | 5,300 | ||||||||||||
Earnings (loss) from discontinued operations | (715 | ) | 345 | 3,097 | (414 | ) | ||||||||||
Other income | 2,945 | - | 2,945 | - | ||||||||||||
Earnings (loss) from discontinued operations before income taxes | 2,230 | 345 | 6,042 | (414 | ) | |||||||||||
Income tax provision (benefit) | 617 | (27 | ) | 1,201 | (1,769 | ) | ||||||||||
Net earnings from discontinued operations | $ | 1,613 | $ | 372 | $ | 4,841 | $ | 1,355 |
November 26, 2017 | February 26, 2017 | |||||||
Long-lived assets: | ||||||||
North America | $ | 20,888 | $ | 20,794 | ||||
Asia | 7,733 | 8,440 | ||||||
Europe | 240 | 214 | ||||||
Total long-lived assets | $ | 28,861 | $ | 29,448 |
The following table shows the summary assets and liabilities of the discontinued operations:
November 25, 2018 | February 25, 2018* | |||||||
(unaudited) | ||||||||
Carrying Amount of Major Classes of Assets Included as Part of Discontinued Operations: | ||||||||
Accounts Receivable, Net | $ | 12,261 | $ | 12,801 | ||||
Inventories | 9,950 | 7,201 | ||||||
Fixed Assets, Net | 6,041 | 6,727 | ||||||
Prepaid Expenses and Other Current Assets | 899 | 646 | ||||||
Total Major Assets Included as Part of Discontinued Operations | 29,151 | 27,375 | ||||||
Other Assets | 5,368 | 5,072 | ||||||
Total Assets Included as Part of Discontinued Operations | $ | 34,519 | $ | 32,447 | ||||
Carrying Amount of Major Classes of Liabilities Included as Part of Discontinued Operations: | ||||||||
Accounts Payable | $ | 3,717 | $ | 2,200 | ||||
Accrued Liabilities | 4,460 | 4,360 | ||||||
Deferred Income Taxes | 618 | 618 | ||||||
Income Taxes Payable | 1,334 | 1,364 | ||||||
Total Major Liabilities Included as Part of Discontinued Operations | 10,129 | 8,542 | ||||||
Other Liabilities | 229 | 229 | ||||||
Total Liabilities Included as Part of Discontinued Operations | $ | 10,358 | $ | 8,771 |
* These amounts have not been audited and are based on the audited financial statements.
During the 2018 fiscal year, the Company consolidated its Nelco Products, Inc. Business Unit located in Fullerton, California and its Neltec, Inc. Business Unit located in Tempe, Arizona. The Company estimates the remaining pre-tax charge in connection with the consolidation to be approximately $840, which the Company expects to incur primarily during the fiscal year ending February 28, 2021.
The restructuring expenses were $61 and $231 during the 13-week and 39-week periods ended November 25, 2018, respectively, and $360 and $4,423 during the 13-week and 39-week periods ended November 26, 2017, respectively.
The following table sets forth the charges and accruals related to the consolidation:
Accrual August 26, 2018 | Current Period Charges | Cash Payments | Non-Cash Charges | Accrual November 25, 2018 | Total Expense Accrued to Date | Total Expected Costs | ||||||||||||||||||||||
Facility Lease Costs | $ | 1,835 | $ | 18 | $ | (273 | ) | $ | - | $ | 1,580 | $ | 2,818 | $ | 2,818 | |||||||||||||
Severance Costs | - | - | - | - | - | 1,081 | 1,081 | |||||||||||||||||||||
Equipment Removal | - | - | - | - | - | - | 700 | |||||||||||||||||||||
Other | - | 43 | (43 | ) | - | - | 760 | 901 | ||||||||||||||||||||
Total Restructuring Charges | $ | 1,835 | $ | 61 | $ | (316 | ) | $ | - | $ | 1,580 | $ | 4,659 | $ | 5,500 |
The Company recorded additional restructuring charges of $101 and $357 during the 13-week and 39-week periods ended November 25, 2018, respectively, and $112 and $312 during the 13-week and 39-week periods ended November 26, 2017, respectively, related to the closure in the 2009 fiscal year of the Company’s New England Laminates Co., Inc. Business Unit located in Newburgh, New York. The New England Laminates Co., Inc. building in Newburgh, New York was sold on November 15, 2018; the gain on the sale was $2,945 and was recorded in the 13-week and 39-week periods ended November 25, 2018.
11. CONTINGENCIES
Litigation
The Company is subject to a number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. The Company believes that the ultimate disposition of such proceedings, lawsuits and claims will not have a material adverse effect on the Company’s liquidity, capital resources or business or its consolidated results of operations, cash flows or financial position.
Environmental Contingencies
The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA"“EPA”) or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act"“Superfund Act”) or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at fourthree 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'sCompany’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 whowhich provided general liability insurance coverage to the Company and its subsidiaries for the years duringduring which the Company's subsidiaries'Company’s subsidiaries’ waste was disposed at these sites have in the past reimbursed the Company and its subsidiaries for 100% of their legal defense and remediation costs associated with threetwo of these sites.
The Company does not record environmental liabilities and related legal expenses for which the Company believes that it and its subsidiaries have general liability insurance coverage for the years during which the Company's subsidiaries'Company’s subsidiaries’ waste was disposed at threetwo sites for which certain subsidiaries of the Company have been named as potentially responsible parties. Pursuant to such general liability insurance coverage, three insurance carriers reimburse the Company and its subsidiaries for 100% of the legal defense and remediation costs associated with the threetwo sites.
Included in selling, general and administrative expenses are charges for actual expenditures and accruals, based on estimates, for certain environmental mattersmatters 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 Company’s liquidity, capital resources or business or its consolidated results of operations, cash flows or financial position.
12. ACCOUNTING PRONOUNCEMENTS
Recently Adopted
In MarchNovember 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to improve the accounting for employee share-based payments. The new standard is effective for fiscal years beginning after December 15, 2016 and the interim periods within those fiscal years. The Company has adopted the guidance effective February 27, 2017, the first day of the 2018 fiscal year, and the adoption of this guidance did not impact its consolidated results of operations, cash flows, financial position and disclosures.
Recently Issued
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, to reduce the diversity that exists in the classification and presentation of changes in restricted cash in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and the interim periods within those fiscal years. The Company is currently evaluatinghas adopted the impactguidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this new guidance may have ondid not impact its consolidated results of operations, cash flows.flows, financial position or disclosures.
InIn August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and the interim periods within those fiscal years. The Company is currently evaluatinghas adopted the impact thatguidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this new guidance may have ondid not impact its consolidated results of operations, cash flows.flows, financial position or disclosures.
In FebruaryJanuary 2016, the FASB issued ASU No. 2016-02, 2016-01, Leases (Topic 842)Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,, intended to increase transparencyimprove the recognition and comparability among companies by requiring most leases to be included on the balance sheet and by expanding disclosure requirements,measurement of financial instruments, effective for public business entities for fiscal years beginning after December 15, 2018, including2017, and the interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance.years. The Company is currently evaluatinghas adopted the impact thatguidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this new guidance may have ondid not impact its consolidated results of operations, cash flows, financial position andor disclosures.
In May 2014, the FASB issued Accounting Standards Codification (“ASC”)ASC Topic 606, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. This guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and expands the related disclosure requirements. The new standard was originally scheduled to be effective for fiscal years beginning after December 15, 2016, including interim reporting periods within those fiscal years. In August 2015, the FASB delayed the effective date of this guidance for one year. With the delay, the new standard is effective for fiscal years beginning after December 15, 2017 and interim periods therein,within those fiscal years, with an option to adopt the standard on the originally scheduled effective date. The Company has concludedadopted the guidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this guidance did not impact its consolidated results of operations, cash flows, financial position or disclosures.
Recently Issued
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), intended to increase transparency and comparability among companies by requiring most leases to be included on the balance sheet and by expanding disclosure requirements, effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact that this new guidance will notmay have a significant impact on its consolidated results of operations, cash flows, financial position and disclosures.
13. SUBSEQUENT EVENTS
On December 4, 2018, the Company completed the previously announced sale (the “Sale”) of its digital and radio frequency/microwave printed circuit materials business (collectively, the “Electronics Business”), including manufacturing facilities in Singapore, France, Arizona and California and R&D facilities in Arizona and Singapore, to AGC Inc., a Japanese corporation (the “Buyer”). The Sale was completed pursuant to the terms of the Stock Purchase Agreement (the “Purchase Agreement”), dated as of July 25, 2018, by and among the Company, its wholly-owned subsidiary, ParkNelco SNC, an entity organized under the laws of France, and the Buyer. Under the terms of the Purchase Agreement, the Buyer acquired all of the outstanding equity interests in Nelco Products, Inc., a Delaware corporation, Neltec, Inc., a Delaware corporation, Neltec SA, an entity organized under the laws of France, and Nelco Products Pte. Ltd., an entity organized under the laws of Singapore (collectively, the “Acquired Subsidiaries”), all of which were, directly or indirectly, wholly-owned subsidiaries of the Company, for an aggregate purchase price of $145,000 in cash, subject to post-closing adjustments for changes in working capital compared to a target, cash in the Acquired Subsidiaries and certain accrued and unpaid taxes of the Acquired Subsidiaries.
The Tax Cutsnet proceeds from the Sale were approximately $122,561, net of transaction costs and Jobs Act (“Act”), which was passed and signed into law in December 2017, provides an incentive for United States companies to repatriate accumulated income earned in foreign jurisdictions at a reduced U.S. income tax expense and lowers the corporate income tax rate.taxes of approximately $22,439. The Company is currently evaluating the full effect of the Actnet gain on the financial position, results of operations, and cash flows of the Company but believes that the Act will have a material effect on its deferred tax liabilities and deferred tax assets and tax provision (benefit) accounts in the fourth quarter of the 2018 fiscal year. The Company repatriated a significant portion of its accumulated foreign income in January 2018.
On January 3, 2018, the Company voluntarily prepaid the entire loan outstanding under the Credit Agreement, dated as of January 15, 2016, between the Company and HSBC Bank USA, National Association in the amount of $68,779, including principal and accrued interest, and the Company terminated such Credit Agreement as of the same date. The Company utilized a portion of the repatriated foreign income described aboveSale is estimated to repay the loan.be $101,568.
On January 4, 2018,3, 2019, the Company announced that its Board of Directors has declared a special cash dividend of $3.00$4.25 per share payable February 13, 201826, 2019 to shareholders of record at the close of business on January 23, 2018.February 5, 2019.
In December 2018, the Company’s wholly owned subsidiary, Park Aerospace Technologies, Corp. (“PATC”), entered into a Development Agreement with the City of Newton, Kansas and the Board of County Commissioners of Harvey County, Kansas pursuant to which PATC agreed to construct and operate an additional manufacturing facility approximately 90,000 square feet in size for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace equipped through the purchase of machinery, equipment and furnishings and to create additional new full-time employment of specified levels during a five-year period in exchange for the commitment by the City and the County to lease to PATC three acres of land at the Newton City/County Airport, in addition to the eight acres previously leased to PATC by the City and County, and to provide financial and other assistance toward the construction of the additional facility as set forth in the Development Agreement. The Company estimates the total cost of the additional facility to be approximately $19 million, and the Company expects to complete the construction of the additional facility in the first half of the 2020 calendar year.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General:
Park Electrochemical Corp. (“Park” or the “Company”) is a global advanced materials companyan Aerospace Company which develops and manufactures marketssolution and sellshot-melt advanced composite materials used to produce composite structures for the global aerospace markets. Park’s advanced composite materials include film adhesives (undergoing qualification) and lightning strike materials. Park offers an array of composite materials specifically designed for hand lay-up or automated fiber placement (AFP) manufacturing applications. Park’s advanced composite materials are used to produce primary and secondary structures for jet engines, large and regional transport aircraft, military aircraft, Unmanned Aerial Vehicles (UAVs commonly referred to as “drones”), business jets, general aviation aircraft and rotary wing aircraft. Park also offers specialty ablative materials for rocket motors and nozzles and specially designed materials for radome applications. As a complement to Park’s advanced composite materials offering, Park designs and fabricates composite parts, structures and assemblies and low-volumelow volume tooling for the aerospace industry. Target markets for Park’s composite parts and high-technology digitalstructures (which include Park’s patented composite Sigma Strut and RF/microwave printed circuit materials principally for the telecommunications and internet infrastructure, enterprise and military/aerospace markets. The Company’s manufacturing facilitiesAlpha Strut product lines) are, located in Kansas, Singapore, France, Arizona and California. The Company also maintains researchamong others, prototype and development facilities in Arizona, Kansasaircraft, special mission aircraft, spares for legacy military and Singapore.civilian aircraft and exotic spacecraft.
On JanuaryDecember 4, 2018, Park completed the Companypreviously announced its decision to conduct a strategic evaluation (“Strategic Evaluation”sale (the “Sale”), including the potential sale, of its high-technology digital and radio frequency/microwave printed circuit materials business collectively(collectively, the Electronics Business (“Electronics“Electronics Business”). The Company has retained Greenhill & Co., LLC as financial advisor to assist it in the strategic evaluation of the Electronics Business, which includesincluding manufacturing locationsfacilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona.Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to target, cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 10, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the Sale.
Financial Overview
The Company's total net sales worldwidefrom continuing operations in the 13 weeks and 39 weeks ended November 25, 2018 were $12.9 million and $34.5 million, respectively, compared to $10.2 million and $30.3 million in the 13 weeks and 39 weeks ended November 26, 2017, respectively.
The Company’s gross profit margins from continuing operations, measured as percentages of sales, were 1%33.3% and 4% lower,29.8%, respectively, than in the 13 weeks and 39 weeks ended November 27, 2016 principally as a result of lower sales of the Company’s printed circuit materials in Asia25, 2018 compared to 29.0% and North America, partially offset by higher sales of the Company’s aerospace composite materials, structures and assemblies. The Company’s total net sales worldwide in the 13 weeks ended November 26, 2017 were lower than such sales in the 13 weeks ended August 27, 2017 primarily as a result of lower sales of the Company’s printed circuit materials in the 13 weeks ended November 26, 2017.
The Company’s gross profit margins, measured as percentages of sales, decreased to 23.2% and 23.5%27.9%, respectively, in the 13 weeks and 39 weeks ended November 26, 20172017.
The Company’s earnings from 25.1%continuing operations and 26.0%,net earnings from continuing operations were 405% and 504% higher, respectively, in the 13 weeks and 39 weeks ended November 27, 2016. The lower gross profit margin for25, 2018 compared to the 13 weeks ended November 26, 2017 compared to the 13 weeks ended November 27, 2016 was due principally to operating inefficiencies in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units located in California219% and Arizona, respectively, partially offset by270% higher, sales of the Company’s aerospace composite materials, structures and assemblies. The lower gross profit margin for the 39 weeks ended November 26, 2017 compared to the 39 weeks ended November 27, 2016, was principally a result of lower sales and production levels of printed circuit materials products in Asia and North America, duplicate costs in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units, and the inefficiencies mentioned above, partially offset by higher sales of aerospace materials, structures and assemblies.
The Company’s earnings from operations and net earnings were 58% and 62% lower, respectively, in the 13 weeks ended November 26, 2017 compared to the 13 weeks ended November 27, 2016 primarily as a result of the aforementioned decrease in sales and reduction in gross profit margin, the restructuring charges recorded in the 13 weeks ended November 26, 2017 in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units, advisory fees of $190,000 and a higher effective tax rate compared to last year’s comparable period.
The Company’s earnings from operations and net earnings were 88% and 61% lower, respectively, in the 39 weeks ended November 26, 201725, 2018 than in last fiscal year’s comparable period primarily as a result of the restructuring charges relatedhigher sales, higher net interest income due to the consolidationelimination of interest expense as a result of the Company’s electronics Business Units and advisory fees mentioned above, a one-time litigation expensevoluntary prepayment of $375,000, the aforementioned decrease in sales and reduction in the gross profit marginlong-term debt and a higher effectivelower tax rateprovision compared to last year’s comparable period.periods.
The Company has a number of long-term contracts pursuant to which certain of its customers, some of which represent a substantial portion of the Company’s revenue, place orders. Long-term contracts with the Company’s customers are primarily requirements based and do not guarantee quantities. An order forecast is generally agreed concurrently with pricing for any applicable long-term contract. This order forecast is then typically updated periodically during the term of the underlying contract. Purchase orders generally are received in excess of three months in advance of delivery.
The global markets for the Company’s products continue to be very difficult to forecast, and it is not clear to the Company what the demand for the Company’s products will be in the remainder of the 2018 fiscal year or beyond.
Results of Operations:
The following table sets forth the components of the consolidated statements of operations:
13 Weeks Ended | 39 Weeks Ended | 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||
November 26, | November 27, | % | November 26, | November 27, | % | |||||||||||||||||||||||||||||||||||||||||||
(amounts in thousands, except per share amounts) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||||||||||||||||||||||||||
(amounts in thousands, except per share | November 25, | November 26, | % | November 25, | November 26, | % | ||||||||||||||||||||||||||||||||||||||||||
amounts) | 2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 26,139 | $ | 26,462 | (1 | )% | $ | 83,392 | $ | 87,010 | (4 | )% | $ | 12,853 | $ | 10,229 | 26 | % | $ | 34,457 | $ | 30,310 | 14 | % | ||||||||||||||||||||||||
Cost of sales | 20,069 | 19,828 | 1 | % | 63,823 | 64,355 | (1 | )% | 8,569 | 7,264 | 18 | % | 24,176 | 21,840 | 11 | % | ||||||||||||||||||||||||||||||||
Gross profit | 6,070 | 6,634 | (9 | )% | 19,569 | 22,655 | (14 | )% | 4,284 | 2,965 | 44 | % | 10,281 | 8,470 | 21 | % | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 4,797 | 4,604 | 4 | % | 13,967 | 15,051 | (7 | )% | 1,983 | 2,509 | (21 | )% | 6,200 | 7,189 | (14 | )% | ||||||||||||||||||||||||||||||||
Restructuring charges | 472 | 113 | 318 | % | 4,735 | 206 | 2,199 | % | ||||||||||||||||||||||||||||||||||||||||
Earnings from operations | 801 | 1,917 | (58 | )% | 867 | 7,398 | (88 | )% | ||||||||||||||||||||||||||||||||||||||||
Earnings from continuing operations | 2,301 | 456 | 405 | % | 4,081 | 1,281 | 219 | % | ||||||||||||||||||||||||||||||||||||||||
Interest expense | 689 | 343 | 101 | % | 1,802 | 1,010 | 78 | % | - | 689 | (100 | )% | - | 1,802 | �� | (100 | )% | |||||||||||||||||||||||||||||||
Interest and other income | 734 | 430 | 71 | % | 2,234 | 1,177 | 90 | % | 393 | 734 | (46 | )% | 1,090 | 2,234 | (51 | )% | ||||||||||||||||||||||||||||||||
Earnings before income taxes | 846 | 2,004 | (58 | )% | 1,299 | 7,565 | (83 | )% | ||||||||||||||||||||||||||||||||||||||||
Income tax provision (benefit) | 130 | 129 | 1 | % | (1,331 | ) | 759 | (275 | )% | |||||||||||||||||||||||||||||||||||||||
Net earnings | $ | 716 | $ | 1,875 | (62 | )% | $ | 2,630 | $ | 6,806 | (61 | )% | ||||||||||||||||||||||||||||||||||||
Earnings from continuing operations before income taxes | 2,694 | 501 | 438 | % | 5,171 | 1,713 | 202 | % | ||||||||||||||||||||||||||||||||||||||||
Income tax provision | 616 | 157 | 292 | % | 453 | 438 | 3 | % | ||||||||||||||||||||||||||||||||||||||||
Net earnings from continuing operations | 2,078 | 344 | 504 | % | 4,718 | 1,275 | 270 | % | ||||||||||||||||||||||||||||||||||||||||
Earnings from discontinued operations, net of tax | 1,613 | 372 | 334 | % | 4,841 | 1,355 | 257 | % | ||||||||||||||||||||||||||||||||||||||||
Net Earnings | $ | 3,691 | $ | 716 | 416 | % | $ | 9,559 | $ | 2,630 | 263 | % | ||||||||||||||||||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.10 | $ | 0.02 | 400 | % | $ | 0.23 | $ | 0.06 | 283 | % | ||||||||||||||||||||||||||||||||||||
Discontinued Operations | 0.08 | 0.02 | 300 | % | 0.24 | 0.07 | 243 | % | ||||||||||||||||||||||||||||||||||||||||
Basic earnings per share | $ | 0.04 | $ | 0.09 | (56 | )% | $ | 0.13 | $ | 0.34 | (62 | )% | $ | 0.18 | $ | 0.04 | 350 | % | $ | 0.47 | $ | 0.13 | 262 | % | ||||||||||||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.10 | $ | 0.02 | 400 | % | $ | 0.23 | $ | 0.06 | 283 | % | ||||||||||||||||||||||||||||||||||||
Discontinued Operations | 0.08 | 0.02 | 300 | % | 0.24 | 0.07 | 243 | % | ||||||||||||||||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.04 | $ | 0.09 | (56 | )% | $ | 0.13 | $ | 0.34 | (62 | )% | $ | 0.18 | $ | 0.04 | 350 | % | $ | 0.47 | $ | 0.13 | 262 | % |
Net Sales
The Company’sCompany’s total net sales from continuing operations worldwide in the 13 weeks ended November 26, 2017 decreased25, 2018 increased to $26.1$12.9 million from $26.5$10.2 million in the 13 weeks ended November 27, 2016 primarily as a result of lower sales of the Company’s printed circuit materials products in Asia and North America, partially offset by higher sales of the Company’s aerospace composite materials, structures and assemblies.26, 2017. The Company’s total net sales from continuing operations worldwide in the 39 weeks ended November 26, 2017 decreased25, 2018 increased to $83.4$34.5 million from $87.0$30.3 million in the 39 weeks ended November 27, 2016 primarily as a result of lower26, 2017. The increase in sales of the Company’s printed circuit materials products in Asia and North America, partially offset by higher sales of the Company’s aerospace composite materials, structures and assemblies.
The Company’s total net sales of its aerospace composite materials, structures and assemblies products were $10.2 million and $30.3 million, respectively, in the 13 weeks and 39 weeks ended November 26, 2017, or 39% and 36%, respectively, of the Company’s total net sales worldwide in such periods, compared to $7.5 million and $24.0 million, respectively, in the 13 weeks and 39 weeks ended November 27, 2016, or 28% of the Company’s total net sales worldwide in each such periods. The Company’s total net sales of its printed circuit materials products were $15.9 million and $53.1 million, respectively, in the 13 weeks and 39 weeks ended November 26, 2017, or 61% and 64%, respectively, of the Company’s total net sales worldwide in such periods, compared to $19.0 million and $63.0 million, respectively, in the 13 weeks and 39 weeks ended November 27, 2016, or 72% of the Company’s total net sales worldwide in each such periods.
The Company's foreign sales were $9.6 million and $33.4 million, respectively, during the 13 weeks and 39 weeks ended November 26, 2017, or 37% and 40%, respectively, of the Company's total net sales worldwide during such periods, compared with $13.4 million and $41.1 million, respectively, of foreign sales, or 51% and 47%, respectively, of total net sales worldwide during last fiscal year's comparable periods. The Company’s foreign sales during the 13-week and 39-week periods ended November 26, 2017 decreased 28% and 19%, respectively, from the comparable 2016 fiscal year periods. The decreases in the 13-week and 39-week periods were primarilywas due to the lower sales in Asia described above.ramping up of programs on which the Company’s materials are qualified.
In the 13 weeks ended November 26, 2017, the Company’s sales in North America, Asia and Europe were 63%, 28% and 9%, respectively, of the Company’s total net sales worldwide compared to 49%, 41% and 10%, respectively, in the 13 weeks ended November 27, 2016. In the 39 weeks ended November 26, 2017, the Company’s sales in North America, Asia and Europe were 60%, 32% and 8%, respectively, of the Company’s total net sales worldwide compared to 53%, 39% and 8%, respectively, in the 39 weeks ended November 27, 2016. The Company’s sales in North America increased 27%, its sales in Asia decreased 32% and its sales in Europe decreased 15% in the 13-week period ended November 26, 2017 compared to the 13-week period ended November 27, 2016, and its sales in North America increased 9%, its sales in Asia decreased 21% and its sales in Europe decreased 10% in the 39-week period ended November 26, 2017 compared to the 39-week period ended November 27, 2016. The decreases in Asia and Europe were primarily due to declines in the Company’s sales of printed circuit materials.
During the 13-week and 39-week periods ended November 26, 2017, total net sales worldwide of high performance printed circuit materials were 92% and 93%, respectively, of the Company’s total net sales worldwide of printed circuit materials compared to the 13-week and 39-week periods ended November 27, 2016, during which total net sales worldwide of high performance printed circuit materials were 94% and 93% respectively, of the Company’s total net sales worldwide of printed circuit materials.
The Company’s high performance printed circuit materials (non-FR4 printed circuit materials) include high-speed, low-loss materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, allylated polyphenylene ether (“APPE”) materials, bismalimide triazine (“BT”) materials, polyimides for applications that demand extremely high thermal performance and reliability, cyanate esters, quartz reinforced materials, and polytetrafluoroethylene (“PTFE”) and modified epoxy materials for RF/microwave systems that operate at frequencies up to at least 79GHz.
Gross Profit
The Company’sCompany’s gross profitsprofit from continuing operations in the 13 weeks ended November 25, 2018 was higher than its gross profit from continuing operations in the prior year’s comparable period, and the gross profit from continuing operations as a percentage of sales for the Company’s worldwide operations in the 13 weeks ended November 25, 2018 increased to 33.3% from 29.0% in the 13 weeks ended November 26, 2017. The Company’s gross profit from continuing operations in the 39 weeks ended November 25, 2018 was higher than its gross profit from continuing operations in the prior year’s comparable period, and the gross profit from continuing operations as a percentage of sales for the Company’s worldwide operations in the 39 weeks ended November 25, 2018 increased to 29.8% from 27.9% in the 39 weeks ended November 26, 2017. The higher gross profit margins from continuing operations for the 13 weeks and 39 weeks ended November 25, 2018 compared to the 13 weeks and 39 weeks ended November 26, 2017 were lower than its gross profits in the prior year’s comparable periods,principally a result of higher sales, reduced salaried headcount, primarily through attrition, and the gross profits as percentagespartially fixed nature of sales for the Company’s worldwide operationsoverhead expenses in the 13 weeks and 39 weeks ended November 26, 2017 decreased25, 2018 compared to 23.2% and 23.5%, respectively, from 25.1% and 26.0%, respectively, in the 13 weeks and 39 weeks ended November 27, 2016. The lower gross profit margin for the 13 weeks ended November 26, 2017 compared to the 13 weeks ended November 27, 2016 was principally due to the operating inefficiencies in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units located in California and Arizona, respectively. The lower gross profit margin for the 39 weeks ended November 26, 2017 compared to the 39 weeks ended November 27, 2016 was principally a result of lower sales and production levels of printed circuit materials products in Asia and North America, duplicate costs incurred in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units and the duplicate costs mentioned above, partially offset by higher sales of aerospace materials, structures and assemblies.2017.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increasedfrom continuing operations decreased by $193,000$526,000 during the 13 weeks ended November 26, 2017,25, 2018, or by 4%21%, and decreased by $1,084,000$989,000 during the 39 weeks ended November 26, 2017,25, 2018, or by 7%14%, compared to last fiscal year's comparable periods, and these expenses, measured as percentages of sales was 18.4%from continuing operations, were 15.4% and 16.7%18.0%, respectively, in the 13 weeks and 39 weeks ended November 25, 2018 compared to 24.5% and 23.7%, respectively, in the 13 weeks and 39 weeks ended November 26, 2017 compared to 17.4% and 17.3%, respectively,2017. The decreases in such expenses during the 13 weeks and 39 weeks ended November 27, 2016. The increase in such expenses during the 13 weeks ended November 26, 201725, 2018 were primarily the result of advisory fees of $190,000. The decrease in such expenses during the 39 weeks ended November 26, 2017 was primarily the result of lower payroll, profit sharingtravel and entertainment and stock option expenses. During the 39 weeks ended November 26, 2017, selling, general and administrative expenses included the advisory fees mentioned above and a one-time litigation expense of $375,000.
Selling, general and administrative expenses includedfrom continuing operations included stock option expenses of $194,000 and $594,000, respectively, for the 13 weeks and 39 weeks ended November 25, 2018, compared to stock option expenses of $234,000 and $709,000, respectively, for the 13 weeks and 39 weeks ended November 26, 2017, compared to stock option expenses of $264,0002017.
Earnings from Continuing Operations
For the reasons set forth above, the Company’s earnings from continuing operations were $2.3 million and $968,000,$4.1 million, respectively, for the 13 weeks and 39 weeks ended November 27, 2016.
Restructuring Charges
In the 13 weeks and 39 weeks ended November 26, 2017, the Company recorded pre-tax restructuring charges of $472,000 and $4,735,000, respectively,25, 2018 compared to $113,000$0.5 million and $206,000, respectively, in the 13 weeks and 39 weeks ended November 27, 2016, in connection with the consolidation of the Company’s electronics Business Units in North America in the 2018 fiscal year and the closure, in a prior year, of its facility located in Newburgh, New York.
Earnings from Operations
For the reasons set forth above, the Company’s earnings from operations were $801,000 and $867,000,$1.3 million, respectively, for the 13 weeks and 39 weeks ended November 26, 2017, which included the aforementioned restructuring charges of $472,000 and $4.7 million, respectively, and the $375,000 litigation expense in the 39-week period, compared to $1.9 million and $7.4 million, respectively, for the 13 weeks and 39 weeks ended November 27, 2016, which included the aforementioned restructuring charges of $113,000 and $206,000, respectively.2017.
Interest Expense
Interest expense in the 13 weeks and 39 weeks ended November 26, 2017 related to the Company’sCompany’s borrowings under the three-year revolving credit facility agreement that the Company entered into with HSBC Bank in the fourth quarter of the 20162017 fiscal year. The agreement provided for an interest rate on the outstanding loan balance of LIBOR plus 1.15% to 2.65%. Other interest rate options are were available to the Company under the agreement. On January 3, 2018, the companyCompany voluntarily prepaid the remaining loan balance of $68.5 million. See “Liquidity and Capital Resources” elsewhere in this Item 2 and Note 5 of the Notes to Consolidated Financial Statements included elsewhere in this Report for additional information.
Interest and Other Income
Interest and other income from continuing operations was $734,000$393,000 and $2.2$1.1 million, respectively, for the 13 weeks and 39 weeks ended November 26, 201725, 2018, compared to $430,000$734,000 and $1.2$2.2 million, respectively, for last fiscal year's comparable periods. Interest income increased 71%decreased 46% and 90%51%, respectively, for the 13 weeks and 39 weeks ended November 26, 201725, 2018 primarily as a result of higher weighted average interest rates and largerlower average balances of marketable securities held by the Company in the 13 weeks and 39 weeks ended November 26, 2017,25, 2018, compared to last fiscal year's comparable periods.periods, partially offset by higher weighted average interest rates. During the 39 weeks ended November 26, 2017,25, 2018, the Company earned interest income principally from its investments, which consisted primarily of short-term instruments and money market funds.
Income Tax Provision
The Company's effective income tax rates from continuing operations for the 13 weeks and 39 weeks ended November 26, 201725, 2018 were 15.4%22.9% and negative 102.5%8.8%, respectively, compared to 6.4%31.3% and 10.0%25.6%, respectively, for the 13 weeks and 39 weeks ended November 27, 2016. The differences in effective26, 2017. Tax rates during fiscal year 2019 benefitted from lower U.S. federal tax rates were primarilypertaining to the Tax Cuts and Jobs Act enacted in December 2017. The low effective income tax rate in the 2019 fiscal year 39-week period was due to thea tax benefit from high restructuring charges in the 13 weeks and 39 weeks ended November 26, 2017 and the benefit from the reversal of a $688,000 tax reserve in the 13 weeks ended May 28, 2017$788,000 related to certain foreign tax deductions takenclarifying regulations pertaining to the Tax Cuts and Jobs Act enacted in prior years.December 2017.
Net Earnings from Continuing Operations
For the reasons set forth above, the Company's net earnings from continuing operations for the 13 weeks and 39 weeks ended November 26, 201725, 2018 were $716,000$2.1 million and $2.6$4.7 million, respectively,including the pre-tax restructuring charges, described above, compared to net earnings of $1.9 million$344,000 and $6.8$1.3 million, respectively, for the 13 weeks and 39 weeks ended November 27, 2016, including26, 2017.
Discontinued Operations
On July 25, 2018, the pre-taxCompany entered into a definitive agreement to sell its Electronics Business for $145.0 million in cash. The Company completed this transaction on December 4, 2018.
The operating results of the Electronics Business are classified, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statements of Operations.
The Company’s net earnings from discontinued operations were higher in the 13 weeks ended November 25, 2018 compared to the 13 weeks ended November 26, 2017 primarily as a result of lower restructuring charges described above.and a gain of $2,945 realized on the sale of its New England Laminates Co., Inc. facility located in Newburgh, New York. The Company’s net earnings from discontinued operations were higher in the 39-week period ended November 25, 2018 than in last fiscal year’s comparable period, primarily as a result of lower restructuring charges and higher sales, compared to last year’s comparable period, and a one-time litigation expense of $375,000 in the 39-week period ended November 26, 2017.
During the 2018 fiscal year, the Company consolidated its Nelco Products, Inc. Electronics Business Unit located in Fullerton, California and its Neltec, Inc. Electronics Business Unit located in Tempe, Arizona. The restructuring expenses were $61,000 and $231,000 during the 13-week and 39-week periods ended November 25, 2018, respectively, and $360,000 and $4.4 million during the 13-week and 39-week periods ended November 26, 2017, respectively.
Basic and Diluted Earnings Per Share
In the 13 weeks and 39 weeks ended November 26, 2017,25, 2018, basic and diluted earnings per share from continuing operations were $0.04$0.10 and $0.13,$0.23, respectively, including, in both such periods, the restructuring charges, litigation expense and advisory feestax benefit described above. This compared to basic and diluted earnings per share from continuing operations of $0.09 and $0.34 in the 13 weeks and 39 weeks ended November 27, 2016, respectively, including, in both such periods, the restructuring charges described above. The net impact of the restructuring charges, litigation and advisory fees described above reduced basic and diluted earnings per share by $0.02 and $0.16, respectively,$0.06 in the 13 weeks and 39 weeks ended November 26, 2017.
Liquidity2017, respectively. The net impact of the tax benefit described above increased basic and Capital Resources:diluted earnings per share by $0.04 the 39 weeks ended November 25, 2018.
(amounts in thousands) | November 26, | February 26, | ||||||||||
2017 | 2017 | Change | ||||||||||
Cash and cash equivelants and marketable securities | $ | 231,825 | $ | 238,590 | $ | (6,765 | ) | |||||
Restricted cash | 10,000 | 10,000 | - | |||||||||
Working capital | 248,832 | 255,007 | (6,175 | ) |
39 Weeks Ended | ||||||||||||
(amounts in thousands) | November 26, | November 27, | ||||||||||
2017 | 2016 | Change | ||||||||||
Net cash provided by operating activities | $ | 4,979 | $ | 10,666 | $ | (5,687 | ) | |||||
Net cash (used in) provided by investing activities | (68,144 | ) | 6,129 | (74,273 | ) | |||||||
Net cash used in financing activities | (8,782 | ) | (8,320 | ) | (462 | ) |
Liquidity and Capital Resources - Continuing Operations:
(amounts in thousands) | November 25, | February 25, | ||||||||||
2018 | 2018 | Change | ||||||||||
Cash and cash equivalents and marketable securities | $ | 112,386 | $ | 108,231 | $ | 4,155 | ||||||
Working capital | 119,621 | 116,317 | 3,304 |
39 Weeks Ended | ||||||||||||
(amounts in thousands) | November 25, | November 26, | ||||||||||
2018 | 2017 | Change | ||||||||||
Net cash provided by operating activities | $ | 5,225 | $ | 3,432 | $ | 1,793 | ||||||
Net cash used in investing activities | (5,432 | ) | (67,869 | ) | 62,437 | |||||||
Net cash used in financing activities | (5,415 | ) | (8,782 | ) | 3,367 |
Cash and Marketable Securities
Of the $241.8$112.4 million of cash and cash equivalents and marketable securities and restricted cash at November 26, 2017, $233.025, 2018, $3.7 million was owned by certain of the Company’sCompany’s wholly owned foreign subsidiaries. The Company believes it has sufficient liquidity to fund its operating activities through the next 12 months and for the foreseeable future thereafter after giving consideration to the repayment of the Company’s debt in January 2018, payment of income taxes on repatriated foreign earnings in January 2018 and the expected payment of a special dividend in February 2018.
The change in cash and cash equivalents and marketable securities and restricted cash at November 26, 201725, 2018 compared to February 26, 201725, 2018 was the result of cash used in operating activities and a number of additional factors. The significant changes in cash flows from operating activities were as follows:
● | accounts receivable decreased by |
● |
|
|
|
● | accounts payable |
● | accrued liabilities increased by |
● |
|
In addition, the Company paid $6.1$6.1 million in cash dividends in each of the 39-week periods ended November 26, 201725, 2018 and November 27, 2016. During the 39 weeks ended November 26, 2017, the Company also made $2.75 million of principal payments on its long-term debt.2017.
Working Capital
The decrease in working capital at November 26, 201725, 2018 compared to February 26, 201725, 2018 was due principally to the increase in accrued liabilities and the decreasesdecrease in accounts receivable, cash and cash equivalents and marketable securities, partially offset by increasesthe increase in inventories and prepaid expenses and other current assets, and decreasesthe decrease in income taxes payable, accounts payable and the current portion of long-term debt.payable.
The Company's current ratio (the ratio of current assets to current liabilities) was 19.226.4 to 11.0 at November 26, 201725, 2018 compared to 19.128.0 to 11.0 at February 26, 2017.25, 2018.
Cash Flows
During the 39 weeks ended November 26, 2017,25, 2018, the Company's net earnings, before depreciation and amortization, stock-based compensation, amortization of bond premium and changes in operating assets and liabilities, were $5.0$5.2 million. During the same 39 week39-week period, the Company expended $703,000$399,000 for the purchase of property, plant and equipment, compared with $194,000$428,000 during the 39 weeks ended November 27, 2016.26, 2017. The Company paid $6.1 million in cash dividends in each of the 39-week periods ended November 26, 201725, 2018 and November 27, 2016.
Debt
At November 26, 2017 and February 26, 2017, the Company had $69.3 million and $72.0 million of bank debt, respectively. In the fourth quarter of the 2016 fiscal year, the Company entered into a three-year revolving credit facility agreement (the “Credit Agreement”) with HSBC Bank. The Credit Agreement provided for loans up to $75.0 million to the Company and letters of credit up to $2.0 million for the account of the Company, and subject to the terms and conditions of the Credit Agreement, an interest rate on the outstanding loan balance of LIBOR plus 1.15% to LIBOR plus 2.65%. The Credit Agreement contained certain customary affirmative and negative covenants and customary financial covenants. On January 3, 2018 the company voluntarily prepaid the remaining loan balance of $68,500 and terminated the Credit Agreement. For additional information, see Note 5 of the Notes to Consolidated Financial Statements included elsewhere in this Report.2017.
Other Liquidity Factors
The Company believes its financial resources will be sufficient, through the next 12 months following the filing of this Form 10-Q Quarterly Report and for the foreseeable future thereafter, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes after giving consideration to the repayment of the Company’s debt in January 2018, payment of income taxes on repatriated foreign earnings in January 2018 and the expected payment of a special dividend in February 2018.purposes. The Company’s financial resources are also available for purchases of the Company's common stock, appropriate acquisitions and other expansions of the Company's business.business including the recently announced expansion in Kansas.
The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity.
Liquidity and Capital Resources - Discontinued Operations:
(amounts in thousands) | November 25, | February 25, | ||||||||||
2018 | 2018 | Change | ||||||||||
Cash and cash equivalents and marketable securities | $ | - | $ | - | $ | - | ||||||
Working capital | 13,599 | 12,724 | 875 |
39 Weeks Ended | ||||||||||||
(amounts in thousands) | November 25, | November 26, | ||||||||||
2018 | 2017 | Change | ||||||||||
Net cash provided by operating activities | $ | 5,731 | $ | 1,547 | $ | 4,184 | ||||||
Net cash used in investing activities | (158 | ) | (275 | ) | 117 | |||||||
Net cash used in financing activities | - | - | - |
Working Capital
The increase in working capital at November 25, 2018 compared to February 25, 2018 was due principally to the increase in inventory levels.
The Company's current ratio (the ratio of current assets to current liabilities) was 2.4 to 1.0 at November 25, 2018 compared to 2.6 to 1.0 at February 25, 2018.
Cash Flows
During the 39 weeks ended November 25, 2018, the Company's net earnings, before depreciation and amortization, stock-based compensation, amortization of bond premium and changes in operating assets and liabilities, were $5.7 million. During the same 39-week period, the Company expended $158,000 for the purchase of property, plant and equipment, compared with $275,000 during the 39 weeks ended November 26, 2017.
Contractual Obligations:
The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of (i) operating lease commitments and (ii) commitments to purchase raw materials. The Company has no other long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $1.0 million$980,000 to secure the Company's obligations under its workers' compensation insurance program.
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.
Critical Accounting Policies and Estimates:
The foregoing Discussion and Analysis of Financial Condition and Results of OperationsOperations is based upon the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Consolidated Financial Statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities.liabilities as well as the reporting requirements of continuing and discontinued operations. On an ongoing basis, the Company evaluates its estimates, including those related to sales allowances, allowances for doubtful accounts, inventories, valuation of long-lived assets, income taxes, contingencies and litigation, and employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company’sCompany’s critical accounting policies that are important to the Consolidated Financial Statements and that entail, to a significant extent, the use of estimates and assumptions and the application of management’s judgment are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2017.25, 2018. There have been no significant changes to such accounting policies during the 20182019 fiscal year third quarter.
In May 2014, the FASB issued Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. This guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and expands the related disclosure requirements. The new standard was originally scheduled to be effective for fiscal years beginning after December 15, 2016,2017, including interim reporting periods within those fiscal years. In August 2015, the FASB delayed the effective date of this guidance for one year. With the delay, the new standard is effective for fiscal years beginning after December 15, 2017,2018 and the interim periods therein,within those fiscal years, with an option to adopt the standard on the originally scheduled effective date. The Company has concluded thatadopted the guidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this new guidance willdid not have a significant impact on its consolidated results of operations, cash flows, financial position andor disclosures.
Contingencies:
The Company is subject to a number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.
Factors That May Affect Future Results.
Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from the Company’s expectations or from results which might be projected, forecast,forecasted, estimated or budgeted by the Company in forward-looking statements. Such factors include, but are not limited to, general conditions in the electronics and aerospace industries, the Company'sCompany’s competitive position, the status of the Company'sCompany’s relationships with its customers, economic conditions in international markets, the cost and availability of raw materials, transportation and utilities, and the various factors set forth under the caption “Factors That May Affect Future Results” in Item 1 and in Item 1A “Risk Factors” and under the caption "Factors That May Affect Future Results" after Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2017.25, 2018.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's market risk exposure at November 26, 201725, 2018 is consistent with, and not greater than, the types of market risk and amount of exposures presented in the Annual Report on Form 10-K for the fiscal year ended February 26, 2017.25, 2018.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures.
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of November 26, 2017,25, 2018, the end of the quarterly fiscal period covered by this quarterly report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were 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 were 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) Changes in Internal Control Over Financial Reporting.
ThereExcept for the implementation of certain internal controls related to the presentation of discontinued operations, there has not been any change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
There have been no material changes in the risk factors as previously disclosed in the Company’sCompany’s Form 10-K Annual Report for the fiscal year ended February 26, 2017 with the exception of risk factors associated with the Strategic Evaluation.25, 2018.
With respect to the strategic evaluation for our Electronics Business, potential risksItem 2. Unregistered Sales of Equity Securities and uncertainties include: there is no assurance that any transaction or transactions will be consummated in a timely manner or at all (a "Potential Transaction"); the effectUse of the announcement of the consideration of a Potential Transaction on the Company's business relationships (including, without limitation, customers and suppliers) and its employees; that the failure to complete a Potential Transaction could negatively impact the market price of the Company’s common stock and the future business and financial results of the Company; the significant expenses to be incurred by the Company in consideration of a Potential Transaction and contingent expenses if a Potential Transaction is consummated; and the diversion of management's attention from the Company's ongoing business operations during the consideration of a Potential Transaction.Proceeds.
|
|
The following table provides information with respect to shares of the Company's Common Stock acquired by the Company during each month included in the Company’s 20182019 fiscal year third quarter ended November 26, 2017.25, 2018.
Period | Total Number of Shares (or Units) Purchased | Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | Total Number of Shares (or Units) Purchased | Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||
August 28 - September 26 | 0 | $ | - | 0 | ||||||||||||||||||||||
August 27 - September 25 | 0 | $ | - | 0 | ||||||||||||||||||||||
September 27 - October 26 | 0 | $ | - | 0 | ||||||||||||||||||||||
September 26 - October 25 | 0 | $ | - | 0 | ||||||||||||||||||||||
October 27 - November 26 | 0 | $ | - | 0 | ||||||||||||||||||||||
October 26 - November 25 | 0 | $ | - | 0 | ||||||||||||||||||||||
Total | 0 | $ | - | 0 | 1,531,412 (a) | 0 | $ | - | 0 | 1,531,412 (a) | ||||||||||||||||
(a) | Aggregate number of shares available to be purchased by the Company pursuant to share purchase authorizations announced on January 8, 2015 and March 10, 2016. Pursuant to such authorizations, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions. | Aggregate number of shares available to be purchased by the Company pursuant to share purchase authorizations announced on January 8, 2015 and March 10, 2016. Pursuant to such authorizations, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
31.1 | Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). |
31.2 | Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). |
32.1 |
32.2 |
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended November | |
* Filed electronically herewith.
+ Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Park Electrochemical Corp. | ||
(Registrant) | ||
/s/ Brian E. Shore | ||
Brian E. Shore Chief Executive Officer (principal executive officer) | ||
/s/ P. Matthew Farabaugh | ||
Date: January | P. Matthew Farabaugh Senior Vice President and Chief Financial Officer (principal financial officer) (principal accounting officer) |
EXHIBIT INDEX
Exhibit No. | Name |
31.1 | Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). |
31.2 | Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). |
32.1 | |
32.2 | |
101 | The following materials from the |
* | Filed electronically herewith. |
+ | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
3027