Park Electrochemical (PKE) Reports Q3 Results, Announces Special Dividend and Plans to Evaluate Strategic Alternative of Electronics Business

Park Electrochemical Corp. (NYSE: PKE) reported net sales of $26,139,000 for the 2018 fiscal year’s third quarter ended November 26, 2017 compared to net sales of $26,462,000 for last fiscal year’s third quarter ended November 27, 2016 and net sales of $29,836,000 for the 2018 fiscal year’s second quarter ended August 27, 2017. Park’s net sales for the nine months ended November 26, 2017 were $83,392,000 compared to net sales of $87,010,000 for the nine months ended November 27, 2016. Net earnings for the current year’s third quarter were $716,000 compared to $1,875,000 for last year’s third quarter and $520,000 for the current year’s second quarter. Net earnings were $2,630,000 for the current year’s nine-month period compared to $6,806,000 for last year’s nine-month period.

Park reported net earnings before special items of $1,131,000 for the current fiscal year’s third quarter compared to net earnings before special items of $1,944,000 for last year’s third quarter and net earnings before special items of $2,343,000 for the current year’s second quarter. Pre-tax earnings before special items were $1,508,000 for the current fiscal year’s third quarter compared to pre-tax earnings before special items of $2,117,000 for last year’s third quarter and pre-tax earnings before special items of $2,882,000 for the current year’s second quarter. In the current fiscal year’s third quarter, the Company recorded pre-tax restructuring charges of $472,000 related to the consolidation of its Nelco Products, Inc. electronics Business Unit located in Fullerton, California, and its Neltec Inc. electronics Business Unit located in Tempe, Arizona and the closure, in fiscal year 2009, of its New England Laminates Co., Inc. electronics facility located in Newburgh, New York and advisory fees related to the strategic evaluation discussed below of $190,000 included in selling, general and administrative expenses. In the 2017 fiscal year’s third quarter, the Company recorded pre-tax restructuring charges of $113,000 in connection with the Newburgh facility closure. In the current fiscal year’s second quarter, the Company recorded pre-tax restructuring charges of $2,902,000 in connection with the consolidation of its Nelco Products, Inc. and its Neltec Inc. electronics Business Units and the closure of the Newburgh facility.

For the nine-month period ended November 26, 2017, Park reported net earnings before special items of $5,958,000 compared to net earnings before special items of $6,932,000 for last fiscal year’s first nine-month period. Pre-tax earnings before special items were $6,599,000 for the nine-month period ended November 26, 2017 compared to pre-tax earnings before special items of $7,771,000 for last fiscal year’s first nine-month period. The current year’s nine-month period included pre-tax charges of $4,925,000 related to the consolidation, facility closure, the advisory fees mentioned above and a one-time pretax litigation expense of $375,000 included in the selling, general and administrative expenses. Last year’s nine-month period included pre-tax charges of $206,000 related to the Newburgh facility closure mentioned above.

Park reported basic and diluted earnings per share of $0.04 for the 2018 fiscal year’s third quarter compared to $0.09 for the 2017 fiscal year’s third quarter and $0.03 for the 2018 fiscal year’s second quarter. Basic and diluted earnings per share before special items were $0.06 for the 2018 fiscal year’s third quarter compared to $0.10 for the 2017 fiscal year’s third quarter and $0.12 for the 2018 fiscal year’s second quarter.

Park reported basic and diluted earnings per share of $0.13 for the 2018 fiscal year’s first nine months compared to $0.34 for the 2017 fiscal year’s first nine-month period and basic and diluted earnings per share before special items of $0.29 for the 2018 fiscal year’s first nine months compared to $0.34 for the 2017 fiscal year’s first nine-month period.

Park believes that an evaluation of its ongoing operations would be difficult if the disclosure of its financial results were limited to accounting principles generally accepted in the United States of America (“GAAP”) financial measures, which include special items, such as restructuring charges, advisory fees and one-time litigation expense. Accordingly, in addition to disclosing its financial results determined in accordance with GAAP, Park discloses non-GAAP operating results that exclude special items in order to assist its shareholders and other readers in assessing the Company’s operating performance, since the Company’s on-going, normal business operations do not include such special items. The detailed operating information presented below reconciles the non-GAAP operating results before special items to earnings determined in accordance with GAAP. Such non-GAAP financial measures are provided to supplement the results provided in accordance with GAAP.

REPAYMENT OF OUTSTANDING DEBT

Park announced the voluntary repayment of all outstanding debt under the Credit Agreement, dated as of January 15, 2016, between the Company and HSBC Bank USA, in the amount of approximately $69 million, including principal and accrued interest, effective January 3, 2018. The Company also announced the termination of the Credit Agreement.

The repayment of the outstanding debt was funded from the Company’s cash balances. The change in the U.S. tax code, as provided by the Tax Cuts and Jobs Act (“Act”), has allowed the Company to repatriate its foreign accumulated income at a lower effective tax rate. The Act, which was passed 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. The estimated income tax expense and related liability associated with the repatriation is approximately $20 million compared to an estimated $60 million in income tax expense that the Company would have incurred if it had repatriated the accumulated foreign income before the effectiveness of the Act. The repatriation of accumulated foreign income will be reported in the fourth quarter of the 2018 fiscal year.

SPECIAL CASH DIVIDEND

Park announced that its Board of Directors has declared a special cash dividend of $3.00 per share payable February 13, 2018 to shareholders of record at the close of business on January 23, 2018. The special cash dividend will be funded from the Company’s cash balances.

This special dividend, together with the Company’s regular quarterly dividend of $0.10 per share payable February 6, 2018 to shareholders of record on January 2, 2018, brings the total amount of dividends paid to shareholders to $20.10 per share, a total of approximately $412 million, since the Company’s 2005 fiscal year.

STRATEGIC EVALUATION OF ELECTRONICS BUSINESS

Park announced that it is conducting a strategic evaluation, including the potential sale, of its iconic high-technology digital and radio frequency/microwave printed circuit materials business, collectively the Electronics Business. Park has retained Greenhill & Co., LLC to assist it in the strategic evaluation of the Electronics Business, which includes manufacturing locations in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona. Under any strategic alternative for the Electronics Business, Park would retain its aerospace manufacturing operations in Kansas, its headquarters in New York and its aerospace composite materials manufacturing facility in Singapore.

Park is evaluating whether there may be a new owner of the Electronics Business who can apply focus, capability and resources to allow the Electronics Business to realize its full potential and provide it with the future it deserves. Park is conducting this strategic evaluation while keeping in mind the best interests of our investors, our Electronics Business people, and the customers and OEMs we serve.

Park expects to conclude its strategic evaluation of the Electronics Business in the second quarter of its 2019 fiscal year ending March 3, 2019. However, no specific timetable has been set, and there can be no assurance that any transaction will take place as a result of the strategic evaluation.

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