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 27, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to__________ Commission file number 1-4415 PARK ELECTROCHEMICAL CORP. (Exact Name of Registrant as Specified in Its Charter) __________New York___________ _____11-1734643_____ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes[X] No[ ] 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: 20,107,696 as of January 3, 2006. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION: Number Item 1. Financial Statements Condensed Consolidated Balance Sheets November 27, 2005 (Unaudited) and February 27, 2005 3 Consolidated Statements of Earnings 13 weeks and 39 weeks ended November 27, 2005 and November 28, 2004 (Unaudited) 4 Consolidated Statements of Stockholders' Equity 13 weeks and 39 weeks ended November 27, 2005 5 and November 28, 2004 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows 39 weeks ended November 27, 2005 and November 28, 2004 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Factors That May Affect Future Results 24 Item 3. Quantitive and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 25 PART II. OTHER INFORMATION: Item 1. Legal Proceedings 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 26 Item 6. Exhibits 27 SIGNATURES 28 EXHIBIT INDEX 29 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) <TABLE> <CAPTION> November 27, 2005 February 27, (Unaudited) 2005* <s> <c> <c> ASSETS Current assets: Cash and cash equivalents $87,058 $86,071 Marketable securities 119,837 103,507 Accounts receivable, net 36,944 35,722 Inventories (Note 2) 14,155 15,418 Prepaid expenses and other current assets 3,620 2,944 ------- ------- Total current assets 261,614 243,662 Property, plant and equipment, net 58,503 63,251 Other assets 2,484 398 ------- ------- Total assets $322,601 $307,311 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,020 $ 15,121 Accrued liabilities 19,341 20,566 Dividends payable (Note 11) 20,107 - Income taxes payable 7,337 6,474 ------- ------- Total current liabilities 60,805 42,161 Deferred income taxes 5,039 5,042 Liabilities from discontinued operations (Note 4) 17,252 17,251 ------- ------- Total liabilities 83,096 64,454 Stockholders' equity: Common stock 2,037 2,037 Additional paid-in capital 137,145 134,206 Retained earnings 101,672 105,450 Treasury stock, at cost (2,436) (3,441) Accumulated other non-owner changes 1,087 4,605 ------- ------- Total stockholders' equity 239,505 242,857 ------- ------- Total liabilities and stockholer's equity $322,601 $307,311 ======== ======== <FN> *The balance sheet at February 27, 2005 has been derived from the audited financial statements at that date. </TABLE> See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands, except per share amounts) <TABLE> <CAPTION> 13 weeks ended 39 weeks ended (Unaudited) (Unaudited) November November November November 27, 28, 27, 28, 2005 2004 2005 2004 <s> <c> <c> <c> <c> Net sales $57,159 $50,359 $165,277 $159,975 Cost of sales 41,867 40,519 126,360 127,005 ------- ------- -------- -------- Gross profit 15,292 9,840 38,917 32,970 Selling, general and administrative expenses 6,092 6,282 18,314 21,144 Realignment and severance charges (Note 5) - 625 1,059 625 Gain on insurance settlement (Note 10) - (4,745) - (4,745) ------- -------- -------- -------- Profit from operations 9,200 7,678 19,544 15,946 Interest and other income 1,562 971 4,381 2,398 ------- ------ ------- -------- Earnings before income taxes 10,762 8,649 23,925 18,344 Income tax provision, (Note 12) 1,017 957 2,795 1,684 ------- ------- -------- -------- Net earnings $ 9,745 $ 7,692 $ 21,130 $ 16,660 ======= ======= ======== ======== Earnings per share (Note 6): Basic $ 0.48 $ .39 $ 1.06 $ 0.84 Diluted $ 0.48 $ .38 $ 1.05 $ 0.83 Weighted average number of common and common equivalent shares outstanding: Basic shares 20,099 19,901 20,026 19,866 Diluted shares 20,251 20,061 20,183 20,081 Dividends declared per share (Note 11) $ 1.08 $ 1.14 $ 1.24 $ 1.26 </TABLE> See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Amounts in thousands) <TABLE> <CAPTION> 13 weeks ended 39 weeks ended (Unaudited) (Unaudited) November November November November 27, 28, 28, 28, 2005 2004 2005 2004 <s> <c> <c> <c> <c> Common stock and paid-in capital Balance, beginning of period $138,124 $135,909 $136,243 $135,372 Stock option activity 1,058 317 2,939 854 -------- -------- -------- -------- Balance, end of period 139,182 136,226 139,182 136,226 -------- -------- -------- -------- Retained earnings Balance, beginning of period 113,642 115,502 105,450 108,915 Net income 9,745 7,692 21,130 16,660 Dividends (21,715) (22,688) (24,908) (25,069) -------- -------- -------- -------- Balance, end of period 101,672 100,506 101,672 100,506 -------- -------- -------- -------- Accumulated other non-owner changes Balance, beginning of period 2,458 2,985 4,605 3,734 Net unrealized investment gains (losses) (82) (152) (318) (398) Translation adjustments (1,289) 1,915 (3,200) 1,412 -------- -------- -------- -------- Balance, end of period 1,087 4,748 1,087 4,748 -------- -------- -------- -------- Treasury stock Balance, beginning of period (2,204) (3,551) (3,441) (4,125) Stock option activity (232) 95 1,005 669 -------- -------- -------- -------- Balance, end of period (2,436) (3,456) (2,436) (3,456) -------- -------- -------- -------- Total stockholders' equity $239,505 $238,02 $239,505 $238,024 ======== ======= ======== ======== </TABLE> See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) <TABLE> <CAPTION> 39 Weeks Ended (Unaudited) November 27, November 28, 2005 2004 <s> <c> <c> Cash flows from operating activities: Net earnings $ 21,130 $ 16,660 Depreciation and amortization 7,419 7,698 Gain from insurance settlement (4,745) Proceeds from insurance settlement 5,816 (Gain) loss on sale of fixed assets (45) 23 Change in operating assets and liabilities (4,735) (5,479) -------- -------- Net cash provided by operating activities 23,769 19,973 -------- -------- Cash flows from investing activities Purchases of property, plant and equipment, net (3,805) (2,369) Proceeds from sales of fixed assets 64 20 Purchases of marketable securities (30,656) (28,983) Proceeds from sales and maturities of marketable securities 14,000 25,924 -------- -------- Net cash used in investing activities (20,397) (5,408) -------- -------- Cash flows from financing activities: Dividends paid (4,801) (3,575) Proceeds from exercise of stock options 3,945 1,523 -------- -------- Net cash used in financing activities (856) (2,052) -------- -------- Change in cash and cash equivalents before exchange rate changes 2,516 12,513 Effect of exchange rate changes on cash and cash equivalents (1,529) 497 -------- -------- Change in cash and cash equivalents 987 13,010 Cash and cash equivalents, beginning of Period 86,071 129,989 -------- -------- Cash and cash equivalents, end of period $ 87,058 $142,999 ======== ======== Supplemental cash flow information: Cash paid (refunded) during the period for income taxes $ 3,642 $ (541) </TABLE> See accompanying Notes to the Condensed Consolidated Financial Statements. PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Amounts in thousands, except per share amounts) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of November 27, 2005, the consolidated statements of earnings and the consolidated statements of stockholders' equity for the 13 weeks and 39 weeks ended November 27, 2005 and November 28, 2004, and the condensed consolidated statements of cash flows for the 39 weeks then ended have been prepared by 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 27, 2005 and the results of operations, stockholders' equity and cash flows for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 2005. <TABLE> 2. INVENTORIES Inventories consisted of the following: <CAPTION> November 27, February 27, 2005 2005 <s> <c> <c> Raw materials $ 5,869 $ 6,436 Work-in-process 3,157 3,577 Finished goods 4,756 5,068 Manufacturing supplies 373 337 ------- ------- $14,155 $15,418 ======= ======= </TABLE> 3. STOCK OPTIONS As of November 27, 2005, the Company had two fixed stock option plans. All options under the plans had exercise prices equal to the market value of the underlying common stock of the Company on the dates of grants. The Company continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations for the plans. If compensation costs of the grants had been determined based upon the fair market value at the grant dates consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net earnings and earnings per share would have approximated the amounts shown below. <TABLE> <CAPTION> 13 weeks ended 39 weeks ended November November November November 27, 28, 27, 28, 2005 2004 2005 2004 <s> <c> <c> <c> <c> Net earnings $9,745 $7,692 $21,130 $16,660 Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of tax effects 398 462 1,236 1,365 ------ ------ ------- ------- Pro forma net income $9,347 $7,230 $19,894 $15,295 ====== ====== ======= ======= EPS-basic as reported $ 0.48 $ 0.39 $ 1.06 $ 0.84 EPS-basic pro forma $ 0.47 $ 0.36 $ 0.99 $ 0.77 EPS-diluted as reported $ 0.48 $ 0.38 $ 1.05 $ 0.83 EPS-diluted pro forma $ 0.46 $ 0.36 $ 0.99 $ 0.76 </TABLE> 4. DISCONTINUED OPERATIONS On February 4, 2004, the Company announced that it was discontinuing its financial support of its Dielektra GmbH ("Dielektra") subsidiary located in Cologne, Germany, due to the continued erosion of the European market for the Company's high technology products. Without Park's financial support, Dielektra filed an insolvency petition, which may result in the reorganization, sale or liquidation of Dielektra. In accordance with SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets", Dielektra is treated as a discontinued operation. As a result of the discontinuation of financial support for Dielektra, the Company recognized an impairment charge of $22,023 for the write-off of Dielektra assets and other costs during the fourth quarter of the 2004 fiscal year. The liabilities from discontinued operations are reported separately on the consolidated balance sheet. These liabilities from discontinued operations included $12,094 for Dielektra's deferred pension liability. The Company expects to recognize a gain of approximately $17 million related to the reversal of these liabilities when the Dielektra insolvency process is completed, although it is unclear when the process will be completed. Liabilities for discontinued operations as of November 27, 2005 and February 27, 2005 consisted of the following: <TABLE> <CAPTION> November 27, February 27, 2005 2005 <s> <c> <c> Current and other liabilities $ 5,158 $ 5,157 Pension liabilities 12,094 12,094 ------- ------- Total liabilities $17,252 $17,251 </TABLE> 5. REALIGNMENT AND SEVERANCE CHARGES During the 2006 fiscal year first quarter ended May 29, 2005, the Company recorded a $1,059 charge for one-time employment termination benefits for workforce reductions at its Neltec Europe SAS subsidiary in Mirebeau, France. During the 2006 fiscal year third quarter ended November 27, 2005 and during the nine months ended November 27, 2005, $189 and $674, respectively, of these benefits were paid. The remaining portion of these benefits is expected to be paid during the 2006 fiscal year fourth quarter. The related liability balance and activity through November 27, 2005 are set forth below. <TABLE> <CAPTION> 11/27/05 Severance Charges Remaining Charges Paid Reversals Liabilities > <c> <c> <c> <c> Neltec Europe SAS: Termination benefits $1,059 $674 $ - $385 ------ ---- ---- ---- $1,059 $674 $ - $385 ====== ==== ==== ==== </TABLE> The Company recorded pre-tax charges of $1,934 and $6,504 during the first and second quarters, respectively, of fiscal year 2004 related to the realignment of its North American volume printed circuit materials operations in Newburgh, New York and Fullerton, California. During the fourth quarter of fiscal year 2004, the Company recorded pre-tax charges of $112 related to workforce reductions in Europe. The components of these charges and the related liability balances and activity through November 27, 2005 are set forth below. <TABLE> <CAPTION> 11/27/05 Realignment Charges Remaining Charges Paid Reversals Liabilities <s> <c> <c> <c> <c> New York and California and other realignment charges: Lease payments, taxes, utilities and other $7,292 $1,923 $ - $5,369 Severance payments 1,258 1,258 - - ------ ------ ----- ------ $8,550 $3,181 $ - $5,369 ====== ====== ===== ====== </TABLE> The severance payments were for the termination of hourly and salaried, administrative, manufacturing and support employees. Such employees were terminated during the 2004 fiscal year first, second and third quarters. The severance payments were paid to such employees in installments during fiscal year 2004. The lease charges covered one lease obligation payable through December 2004 and a portion of another lease obligation payable through September 2013. For the 13 weeks and 39 weeks ended November 27, 2005, the Company applied $123 and $428, respectively, of payments against the liability. 6. EARNINGS PER SHARE Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potential common stock equivalents outstanding during the period. Stock options are the only common stock equivalents, and the number of dilutive options is computed using the treasury stock method. The following table sets forth the basic and diluted weighted average number of shares of common stock and potential common stock equivalents outstanding during the periods specified: <TABLE> <CAPTION> 13 weeks ended 39 weeks ended November November November November 27, 28, 27, 28, 2005 2004 2005 2004 <s> <c> <c> <c> <c> Weighted average shares outstanding for basic EPS 20,099 19,901 20,026 19,866 Net effect of dilutive options 152 160 157 215 ------ ------ ------ ------ Weighted average shares outstanding for diluted EPS 20,251 20,061 20,183 20,081 ====== ====== ====== ====== </TABLE> Common stock equivalents, which were not included in the computation of diluted earnings per share because either the effect would have been antidilutive or the options' exercise prices were greater than the average market price of the common stock, were 22 and 133 for the 13 weeks ended November 27, 2005 and November 28, 2004, respectively, and 130 and 85 for the 39 weeks ended November 27, 2005 and November 28, 2004, respectively. 7. BUSINESS SEGMENTS The Company considers itself to operate in one business segment because the Company's advanced composite materials business comprises less than 10% of the Company's assets, revenues and profit from operations on an absolute basis. The Company's printed circuit materials products are marketed primarily to leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs") located throughout North America, Europe and Asia. The Company's advanced composite materials customers, the majority of which are located in the United States, include OEMs, independent firms and distributors in the electronics, aerospace, and industrial industries. Sales are attributed to geographic region based upon the region from which the materials were shipped to the customer. Sales between geographic regions were not significant. Financial information concerning the Company's continuing operations by geographic region follows: <TABLE> <CAPTION> 13 weeks ended 39 weeks ended November 27, November 28, November 27, November 28, 2005 2004 2005 2004 <s> <c> <c> <c> <c> Sales: North America $32,651 $28,257 $ 93,298 $90,117 Europe 8,851 8,469 25,100 26,345 Asia 15,657 13,633 46,879 43,513 ------- ------- -------- ------- Total sales $57,159 $50,359 $165,277 $159,975 </TABLE> <TABLE> <CAPTION> November 27, February 27, 2005 2005 <s> <c> <c> Long-lived assets: North America $31,327 $32,610 Europe 9,253 10,856 Asia 20,407 20,183 ------- ------- Total long-lived assets $60,987 $63,649 </TABLE> 8. COMPREHENSIVE INCOME Total comprehensive income for the 13 weeks ended November 27, 2005 and November 28, 2004 was $8,374 and $9,455, respectively. Total comprehensive income for the 39 weeks ended November 27, 2005 and November 28, 2004 was $17,612 and $17,674, respectively. Comprehensive income consisted primarily of net income and foreign currency translation adjustments and unrealized gains and losses on marketable securities. 9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 ("SFAS No. 154"), "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3". SFAS No. 154 requires retrospective application to prior periods financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 further requires a change in depreciation, amortization or depletion method for long-lived, non-financial assets to be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 will become effective for the Company's 2007 fiscal year and is not expected to have a material effect on the Company's Consolidated Financial Statements. FASB Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations", was issued by the FASB in March 2005. FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. FIN 47 requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 is not expected to have a material effect on the Company's Consolidated Financial Statements. In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), and supersedes Accounting Principle Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". SFAS 123R requires all share- based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values for fiscal years beginning after June 15, 2005 (as delayed by the Securities and Exchange Commission), with early adoption encouraged. For years beginning after June 15, 2005, the pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. Under SFAS 123R, a determination must be made regarding the appropriate fair value model to be used for valuing share- based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. SFAS 123R permits a prospective application or two modified versions of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by the original SFAS 123. The Company is required to adopt SFAS 123R in the first quarter of fiscal year 2007, at which time the Company will begin recognizing an expense for all unvested share-based compensation that has been issued. Under the retrospective options, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The Company has not yet finalized its decision concerning the transition option it will utilize to adopt SFAS 123R and is in the process of evaluating the impact of FAS 123R on its financial statements. 10. GAIN ON INSURANCE SETTLEMENT In 2005 fiscal year third quarter, the Company settled an insurance claim for damages sustained by the company in Singapore as the result of an explosion that occurred in November 2002 in one of the four treaters located at its Nelco manufacturing facility in Singapore. During the 2005 fiscal year, the Company received $5,816 related to this insurance claim. The proceeds represent reimbursement for assets destroyed in the accident and for business interruption losses. As a result, the Company recognized a $4,745 gain during the third quarter ended November 28, 2004. 11. DIVIDENDS DECLARED On October 19, 2005, the Company announced that its Board of Directors had declared a special cash dividend of $1.00 per share, which was paid December 15, 2005 to stockholders of record at the close of business on November 15, 2005. This dividend was in addition to the regular quarterly cash dividend of $0.08 per share that the Company announced on September 16, 2005 and paid November 1, 2005. At the quarter ended November 27, 2005, the Company recorded a $20,107 dividend payable for the special dividend of $1.00 paid December 15, 2005. On October 25, 2004, the Company announced that its Board of Directors had declared a special cash dividend of $1.00 per share and an increase in the Company's regular quarterly dividend to $0.08 per share. The special cash dividend of $1.00 per share was paid December 15, 2004 to stockholders of record at the close of business on November 15, 2004. The $0.08 per share dividend was paid February 8, 2005 to stockholders of record at the close of business on January 6, 2005. These dividends were in addition to the regular quarterly cash dividend of $0.06 per share that the Company announced on September 16, 2004 and paid November 2, 2004. At the quarter ended November 28, 2004, the Company recorded a $21,494 dividend payable for the special dividend of $1.00 paid December 15, 2004 and the regular quarterly $0.08 dividend paid February 8, 2005. 12. INCOME TAX PROVISION As part of its quarterly evaluation of deferred tax assets, the Company recognized a tax benefit of $1,512 during the 2006 fiscal year third quarter relating to the reversal of valuation allowances against U.S. deferred tax assets. The Company believes that it is more likely than not that the tax benefits associated with these deferred tax assets will be realized during the next two fiscal years. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: Park is a leading global advanced materials company which develops, manufactures and markets high technology digital and RF/microwave printed circuit materials and advanced composite materials for the electronics, military, aerospace, wireless communication, specialty and industrial markets. The Company's manufacturing facilities are located in Singapore, China (currently under construction), France (two facilities), Connecticut, New York, Arizona and California. The Company operates under the FiberCoteT, Nelcor and Neltecr names. The Company's net sales increased in the three-month and nine-month periods ended November 27, 2005 compared with last year's comparable periods as a result of increases in sales by the Company's printed circuit materials operations in North America and Asia and increases in sales by the Company's advanced composite materials business, and the Company achieved higher operating profits and higher net earnings in the three- month and nine-month periods ended November 27, 2005 compared with last year's comparable periods. The Company's net earnings for the three-month and nine- month periods ended November 27, 2005 were increased by a tax benefit of $1.5 million recognized by the Company in the 2006 fiscal year third quarter relating to the reversal of valuation allowances against deferred tax assets recorded in the United States in prior periods, and the Company's net earnings for the nine months ended November 27, 2005 were reduced by a one-time employment termination benefits charge of $1.1 million related to a workforce reduction at the Company's Neltec Europe SAS subsidiary in Mirebeau, France recorded in the 2006 fiscal year first quarter ended May 29, 2005. The Company's net earnings for the three-month and nine-month periods ended November 28, 2004 were increased by a $4.7 million gain related to insurance proceeds from the November 2002 accident at the Company's Singapore facility and reduced by a one-time employment termination benefits charge of $0.6 million related to workforce reductions at the Company's North American and European volume printed circuit materials operations recorded in the third quarter ended November 28, 2004. The improvements in the Company's operating performances during the three-month and nine-month periods ended November 27, 2005 were attributable principally to increases in sales of the Company's printed circuit materials products and cost reductions resulting primarily from the workforce reductions at the Company's North American and European volume printed circuit materials operations in the 2005 fiscal year and the workforce reduction at the Company's Neltec Europe SAS subsidiary in France during the current fiscal year. Although the condition of the global markets for the Company's printed circuit materials products improved somewhat in the second half of the 2004 fiscal year and the first half of the 2005 fiscal year, those markets weakened in the second half of the 2005 fiscal year and continued to be mixed in the first and second quarters of the 2006 fiscal year but improved somewhat in the third quarter of the 2006 fiscal year. Consequently, sales of the Company's printed circuit materials operations increased in the 2006 fiscal year third quarter and nine months ended November 27, 2005 compared to the comparable periods in the 2005 fiscal year. The military, aerospace, specialty and industrial markets for the Company's advanced composite materials business were healthy during the 2006 fiscal year first, second and third quarters, and, as a result, sales of the Company's advanced composite materials increased in the third quarter and nine months ended November 27, 2005 compared to the comparable periods in the prior fiscal year. Despite mixed conditions in almost all markets for sophisticated printed circuit materials, the Company's operating profits in the 2006 fiscal year third quarter and nine months ended November 27, 2005 were greater than its operating profits in the 2005 fiscal year comparable periods principally as a result of higher total sales, higher percentages of sales of higher margin, high temperature printed circuit materials products and the Company's reductions of its costs and expenses. The global markets for the Company's printed circuit materials continue to be very difficult to forecast, and it is not clear to the Company what the condition of the global markets for the Company's printed circuit materials will be in the 2006 fiscal year fourth quarter. The military, aerospace and specialty applications markets for the Company's advanced composite materials business continued to be healthy during the 2006 fiscal year third quarter, and the Company believes that such markets will continue to be healthy during the 2006 fiscal year fourth quarter. The Company continues to invest its human and financial resources in the higher technology portions of its printed circuit materials business and in its advanced composite materials business. During the 2005 fiscal year, the Company installed one of its latest generation, high technology treaters in its newly expanded facility in Singapore; and during the 2006 fiscal year second quarter, the Company completed the installation of an additional treater at its FiberCote advanced composite materials facility in Waterbury, Connecticut, which has significantly increased FiberCote's treating capacity. While the Company continued to expand and invest in its business in Asia during the 2005 fiscal year, it made additional adjustments to its volume printed circuit materials businesses during that year, particularly in North America, which resulted in workforce reductions at the Company's North American and European volume printed circuit materials operations. As a result of those reductions, the Company recorded a pre-tax employment termination benefits charge of $0.6 million in the Company's 2005 fiscal year third quarter. In addition, in the 2006 fiscal year first and second quarters, the Company reduced the size of the workforce at its Neltec Europe SAS subsidiary in Mirebeau, France, as a result of further deterioration of the European market for high technology printed circuit materials, and it recorded a one-time employment termination benefits charge of $1.1 million during the 2006 fiscal year first quarter ended May 29, 2005. In the 2005 fiscal year third quarter, the Company also settled an insurance claim for property and business interruption losses sustained by the Company in Singapore as a result of an explosion in one of the treaters located at its Nelco manufacturing facility in Singapore and recorded a pre-tax gain of $4.7 million as a result of the settlement. The Company is not engaged in any related party transactions involving relationships or transactions with persons or entities that derive benefits from their non- independent relationship with the Company or the Company's related parties, or in any transactions with parties with whom the Company or its related parties have a relationship that enables the parties to negotiate terms of material transactions that may or would not be available from other, more clearly independent parties on an arm's-length basis, or in any trading activities involving non-exchange traded commodity or other contracts that are accounted for at fair value or otherwise or in any energy trading or risk management activities The Company believes that an evaluation of its ongoing operations would be difficult if the disclosure of its financial results were limited to generally accepted accounting principles ("GAAP") financial measures, which include special items, such as employment termination benefits charges and the gain on the insurance claim settlement. Accordingly, in addition to disclosing its financial results determined in accordance with GAAP, the Company discloses non-GAAP operating results that exclude certain items in order to assist its shareholders and other readers in assessing the Company's operating performance, since the Company's on-going, normal business operations do not include such special items. Such non-GAAP financial measures are provided to supplement the results provided in accordance with GAAP. Three and Nine Months Ended November 27, 2005 Compared with Three and Nine Months Ended November 28, 2004: The Company's total net sales increased in North America, Asia and Europe during the three-month period ended November 27, 2005 compared to the three-month period ended November 28, 2004 and increased in North America and Asia but declined in Europe during the nine-month period ended November 27, 2005 compared to the nine-month period ended November 28, 2004. The Company's net sales of printed circuit materials increased in all regions during the three-month period ended November 27, 2005 compared to the three-month period ended November 28, 2004 and increased in North America and Asia but declined in Europe during the nine- month period ended November 27, 2005 compared to the nine-month period ended November 28, 2004; and the net sales of the Company's advanced composite materials business increased during the three-month and nine-month periods ended November 27, 2005 compared to the three-month and nine-month periods ended November 28, 2004. Sales of advanced composite materials were 8% of the Company's total net sales worldwide in the three-month and nine-month periods ended November 27, 2005 compared to 9% and 8%, respectively, of the Company's total net sales worldwide in the 2005 fiscal year comparable periods. Despite the increased sales in the three-month and nine- month periods ended November 27, 2005, the Company's cost of sales were only slightly higher in the three-month period and were lower in the nine-month period ended November 27, 2005 than in the comparable periods ended November 28, 2004, and the Company realized higher gross profits in the three-month and nine-month periods ended November 27, 2005 than in the comparable periods in the prior fiscal year. The Company's gross profits in the three-month and nine- month periods ended November 27, 2005 were higher than the gross profits in the prior year's comparable periods primarily as a result of higher sales volumes, higher percentages of sales of higher margin, high temperature printed circuit material products and the Company's reduction of its operating costs. In addition, reductions in selling, general and administrative expenses as percentages of sales also enabled the Company to report profits from operations and net earnings for the three- month and nine-month periods ended November 27, 2005 in amounts that were higher than profits from operations and net earnings for the three-month and nine-month periods ended November 28, 2004, although the results for the nine-month period ended November 27, 2005 were negatively affected by the $1.1 million employment termination benefits charge related to a workforce reduction at the Company's Neltec Europe SAS facility in France. Results of Operations The Company's total net sales for the three-month period ended November 27, 2005 increased 14% to $57.2 million from $50.4 million for last fiscal year's comparable period. Sales volumes increased 16% in North America and 15% in Asia and 5% in Europe during the 2006 fiscal year third quarter compared to the sales for the same period in the prior year. The Company's total net sales for the nine-month period ended November 27, 2005 increased 3% to $165.3 million from $160.0 million for last fiscal year's comparable period. Sales volumes increased 8% in Asia and 4% in North America but declined 5% in Europe during the nine-month period ended November 27, 2005 compared to last fiscal year's comparable period. The Company's foreign operations accounted for $24.5 million and $72.0 million, respectively, of net sales, or 43% and 44% of the Company's total net sales worldwide, during the three-month and nine-month periods ended November 27, 2005 compared with $22.1 million and $69.9 million, respectively, of net sales, or 44% and 44%, respectively, of total net sales worldwide, during last year's comparable periods. Net sales by the Company's foreign operations during the three-month and nine- month periods ended November 27, 2005 increased 11% and 3%, respectively, from the 2005 fiscal year comparable periods, as a result of increases in sales in Asia during both periods and as a result of increased sales in Europe during the three-month period. For the three-month period ended November 27, 2005, the Company's sales in North America, Asia and Europe were 57%, 27% and 16%, respectively, of the Company's total net sales worldwide compared with 56%, 27% and 17%, respectively, for the three-month period ended November 28, 2004; and for the nine- month period ended November 27, 2005, the Company's sales in North America, Asia and Europe were 57%, 28% and 15% of the Company's total net sales worldwide compared with 56%, 27% and 17%, respectively, for the nine-month period ended November 28, 2004. The Company's sales in North America increased 16%, its sales in Asia increased 15% and its sales in Europe increased 5% in the three-month period ended November 27, 2005 compared with the three-month period ended November 28, 2004, and its sales in North America and Asia increased 4% and 8%, respectively, and its sales in Europe decreased 5% in the nine-month period ended November 27, 2005 compared with the nine-month period ended November 28, 2004. The overall gross profit as a percentage of net sales for the Company's worldwide operations improved to 26.8% and 23.5%, respectively, for the three months and nine months ended November 27, 2005 compared with 19.5% and 20.6% for last fiscal year's comparable periods. The improvements in the gross profit margins were attributable to increased sales volumes, higher percentages of sales of higher margin, high performance printed circuit materials products, and reductions of the Company's operating costs. During the three-month and nine-month periods ended November 27, 2005, the Company's total net sales worldwide of high temperature printed circuit materials, which include high performance materials (non-FR4 printed circuit materials), were 95% and 96%, respectively, of the Company's total net sales worldwide of printed circuit materials, compared with 95% and 93%, respectively, for last fiscal year's comparable periods; while the Company's net sales of such high temperature printed circuit materials in North America were 97% and 97%, respectively, of the Company's total net sales of printed circuit materials in North America, compared with 96% and 95%, respectively, for last fiscal year's comparable periods; and the Company's net sales of such materials in Asia and Europe combined, were 94% and 94%, respectively, of the Company's total net sales of printed circuit materials in Asia and Europe combined, compared with 93% and 92%, respectively, for last fiscal year's comparable periods. The Company's high temperature printed circuit materials include its high performance materials (non-FR4 printed circuit materials), which consist of high-speed, low-loss materials for digital and RF/microwave applications requiring increased, high bandwidth signal integrity, bismalimide triazine ("BT") materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, and polytetrafluoroethylene ("PTFE") materials for RF/microwave systems that operate at frequencies up to 77GHz. During the three-month and nine-month periods ended November 27, 2005, the Company's total net sales worldwide of high performance printed circuit materials (non-FR4 printed circuit materials) were 42% and 40%, respectively, of the Company's total net sales worldwide of printed circuit materials, compared with 37% and 36%, respectively, for last fiscal year's comparable periods; while the Company's net sales of such high performance printed circuit materials in North America were 48% and 46%, respectively, of the Company's total net sales of printed circuit materials in North America, compared with 45% and 43%, respectively, for last fiscal year's comparable periods; and the Company's net sales of such materials in Asia and Europe combined, were 34% and 32%, respectively, of the Company's total net sales of printed circuit materials in Asia and Europe combined, compared with 28% and 28%, respectively, for last fiscal year's comparable periods. The Company's cost of sales increased by only 3% in the three-months ended November 27, 2005 and decreased by 0.5% in the nine-months ended November 27, 2005 from the comparable periods in the 2005 fiscal year, despite higher sales and higher production volumes in the 2006 fiscal year periods than in the 2005 fiscal year periods. The Company's cost of sales as a percentage of net sales declined to 73.2% and 76.5%, respectively, in the three-month and nine-month periods ended November 27, 2005 from 80.5% and 79.4%, respectively, in the three-month and nine-month periods ended November 28, 2004 resulting in gross profit margin improvements, which were attributable to cost reduction measures implemented by the Company, including workforce reductions. Selling, general and administrative expenses decreased by $0.2 million and $2.8 million, respectively, or by 3% and 13%, during the three-month period and nine-month period, respectively, ended November 27, 2005 compared with last fiscal year's comparable periods, and these expenses, measured as percentages of sales, were 10.7% and 11.0%, respectively, during the three-month and nine-month periods ended November 27, 2005 compared with 12.4% and 13.2%, respectively, during last fiscal year's comparable periods. The decreases in selling, general and administrative expenses in the 2006 fiscal year periods were results of decreases in almost all categories of expenses. The Company recognized a tax benefit of $1.5 million in the 2006 fiscal year third quarter relating to the reversal of valuation allowances against deferred tax assets recorded in the United States in prior periods, and the Company incurred a charge of $1.1 million, for which there was no tax benefit, during the 2006 fiscal year first quarter for employment termination benefits related to a workforce reduction at its Neltec Europe SAS subsidiary in Mirebeau, France. In the 2005 fiscal year third quarter, the Company recorded a pre-tax gain of $4.7 million resulting from the settlement of an insurance claim for property and business interruption losses sustained by the Company in Singapore as a result of an explosion in one of the four treaters located at its Nelco manufacturing facility in Singapore and a pre-tax charge of $0.6 million for employment termination benefits resulting from workforce reductions at the Company's North American and European volume printed circuit materials operations. For the reasons set forth above, the Company's profit from operations was $9.2 million for the three months ended November 27, 2005 compared to profit from operations of $7.7 million for the three months ended November 28, 2004, including the $4.7 million pre-tax gain described above resulting from the insurance settlement and the $0.6 million pre-tax charge described above for employment termination benefits resulting from workforce reductions, and its profit from operations was $19.5 million for the nine months ended November 27, 2005, including the $1.1 million employment termination benefits charge described above, compared with profit from operations of $15.9 million for the nine months ended November 28, 2004, including the pre-tax gain described above resulting from the insurance settlement and the pre-tax charge described above for employment termination benefits resulting from workforce reductions. Interest and other income, net, principally investment income, was $1.6 million and $4.4 million, respectively, for the three-month and nine-month periods ended November 27, 2005 compared with $1.0 million and $2.4 million, respectively, for last fiscal year's comparable periods. The increases in investment income were attributable principally to higher prevailing interest rates and larger amounts of cash available for investment during the 2006 fiscal year periods than during the 2005 fiscal year periods. The Company's investments were primarily in short-term taxable instruments and money market funds. The Company's effective income tax rates for the three- month and nine-month periods ended November 27, 2005 were 9.4% and 11.7%, respectively, compared with effective income tax rates of 11.1% and 9.2% for the three months and nine months ended November 28, 2004. The lower tax provision for the three- month period ended November 27, 2005 was primarily due to the reversal of valuation allowances against U.S. deferred tax assets, the tax benefits of which the Company believes are more likely than not to be realized during the next two fiscal years. The higher provision for the nine-month period ended November 27, 2005 was primarily the result of higher taxable income in jurisdictions with higher income tax rates. The Company's net earnings for the three months ended November 27, 2005 were $9.7 million, including the tax benefit of $1.5 million described above relating to the reversal of valuation allowances against previously recorded deferred tax assets, compared to net earnings of $7.7 million, including the $4.7 million pre-tax gain described above resulting from the insurance settlement and the $0.6 million pre-tax charge described above for employment termination benefits resulting from workforce reductions, for the three months ended November 28, 2004. The Company's net earnings for the nine months ended November 27, 2005 were $21.1 million, including the tax benefit described above and the $1.1 million employment termination benefits charge described above, compared with net earnings of $16.7 million for the nine-month period ended November 28, 2004, including the pre-tax gain described above resulting from the insurance settlement and the pre-tax charge described above for employment termination benefits resulting from workforce reductions. Basic and diluted earnings per share were $0.48, including the tax benefit described above, for the three-month period ended November 27, 2005, compared to basic and diluted earnings per share of $0.39 and $0.38, respectively, including the pre- tax gain resulting from the insurance settlement and the pre-tax charge for employment termination benefits described above, for the three-month period ended November 28, 2004. Basic and diluted earnings per share were $1.06 and $1.05, respectively, including the tax benefit and the employment termination benefits charge described above, for the nine-month period ended November 27, 2005, compared to basic and diluted earnings per share of $0.84 and $0.83, respectively, including the pre-tax gain resulting from the insurance settlement and the pre-tax charges for employment termination benefits described above, for the nine-month period ended November 28, 2004. Liquidity and Capital Resources: At November 27, 2005, the Company's cash and temporary investments were $206.9 million compared with $189.6 million at February 27, 2005, the end of the Company's 2005 fiscal year. The increase in the Company's cash and investment position at November 27, 2005 was attributable to cash generated by operating activities, partially offset by a net decrease in working capital items and by the payment of dividends and purchases of property, plant and equipment. The Company's working capital (which includes cash and temporary investments) was $200.8 million at November 27, 2005 compared with $201.5 million at February 27, 2005. The decrease in working capital at November 27, 2005 compared to February 27, 2005 was due principally to dividends payable and an increase in income taxes payable, which were only partially offset by the increase in cash and temporary investments and an increase in prepaid expenses and other current assets. The dividends payable were attributable to the Company's declaration in the third quarter of a special cash dividend of $1.00 per share payable December 15, 2005, and the increase in income taxes payable was attributable mainly to the increase in the income tax provision, which was primarily the result of higher taxable income in jurisdictions with higher income tax rates. The increase in prepaid expenses and other current assets was primarily attributable to increases in prepaid income taxes, prepaid insurance and prepaid property taxes. The Company's current ratio (the ratio of current assets to current liabilities) was 4.3 to 1 at November 27, 2005 compared to 5.8 to 1 at February 27, 2005. During the nine months ended November 27, 2005, net earnings from the Company's operations, before depreciation and amortization, of $28.5 million reduced by a net decrease in working capital items, resulted in $23.8 million of cash provided by operating activities. During the same nine-month period, the Company expended $3.8 million for the purchase of property, plant and equipment compared with $2.4 million for the nine-month period ended November 28, 2004. In addition, the Company paid $4.8 million in dividends on its common stock in the nine-month period ended November 27, 2005 compared to $3.6 million in the nine-month period ended November 28, 2004. The higher amount in the nine-month period ended November 27, 2005 was the result of an increase in the dividend rate from $0.06 to $0.08 per share declared in the 2005 fiscal year third quarter. Net expenditures for property, plant and equipment were $3.3 million in the 2005 fiscal year, $2.4 million in the 2004 fiscal year and $6.4 million in the 2003 fiscal year. At November 27, 2005 and at February 27, 2005, the Company had no long-term debt. The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. Such resources would also be available for purchases of the Company's common stock, appropriate acquisitions and other expansions of the Company's business. The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity. The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of operating lease commitments. The Company has no long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $2.0 million to secure the Company's obligations under its workers' compensation insurance program and certain limited energy purchase contracts intended to protect the Company from increased utilities costs. As of November 27, 2005, there were no material changes outside the ordinary course of the Company's business in the Company's contractual obligations disclosed in Item 7 of Part II of its Form 10-K Annual Report for the fiscal year ended February 27, 2005. Off-Balance Sheet Arrangements: The Company's liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities. Environmental Matters: In the nine-month periods ended November 27, 2005 and November 28, 2004, the Company charged less than $0.1 million against pretax income for environmental remedial response and voluntary cleanup costs (including legal fees). While annual expenditures have generally been constant from year to year and may increase over time, the Company expects it will be able to fund such expenditures from available cash. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At November 27, 2005 and February 27, 2005, the recorded liability in liabilities from discontinued operations for environmental matters related to Dielektra was $2.1 million and the recorded liability in accrued liabilities for environmental matters was $2.2 million. Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company. Critical Accounting Policies and Estimates: In response to financial reporting release, FR-60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies", issued by the Securities and Exchange Commission in December 2001, the following information is provided regarding critical accounting policies that are important to the Consolidated Financial Statements and that entail, to a significant extent, the use of estimates, assumptions and the application of management's judgment. General The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to sales allowances, allowances for bad debts, inventories, valuation of long-lived assets, income taxes, restructurings, pensions and other employee benefit programs, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Revenue Recognition Sales revenue is recognized at the time title to product is transferred to a customer. All material sales transactions are for the shipment of manufactured prepreg and laminate products and advanced composite materials. The Company ships its products to customers based upon firm orders, with fixed selling prices, when collection is reasonably assured. Sales Allowances The Company provides for the estimated costs of sales allowances at the time such costs can be reasonably estimated. The Company's products are made to customer specifications and tested for adherence to such specifications before shipment to customers. There are no future performance requirements other than the products' meeting the agreed specifications. The Company's bases for providing sales allowances for returns are known situations in which products may have failed due to manufacturing defects in the products supplied by the Company. The Company is focused on manufacturing the highest quality printed circuit materials and advanced composite materials possible and employs stringent manufacturing process controls and works with raw material suppliers who have dedicated themselves to complying with the Company's specifications and technical requirements. The amounts of returns and allowances resulting from defective or damaged products have been approximately 1.0% of sales for each of the Company's last three fiscal years. Allowances for Bad Debts The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company's products and market conditions. Valuation of Long-lived Assets The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Important factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends and significant changes in the use of the Company's assets or strategy of the overall business. Income Taxes Carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly. Restructurings The Company recorded charges in connection with the realignment of its Neltec Europe SAS business in France during the three months ended May 29, 2005 and its North American volume printed circuit materials operations during the fiscal years ended February 29, 2004 and March 2, 2003. The Company also recorded realignment charges in its North American operations during the fiscal year ended February 27, 2005. In addition, during the 2003 fiscal year, the Company recorded charges in connection with the closure of the Company's manufacturing facility in England. Prior to the Company's treating Dielektra GmbH as a discontinued operation, the Company recorded charges in connection with the closure of the mass lamination operation of Dielektra and the realignment of Dielektra during the fiscal years ended February 29, 2004, March 2, 2003 and March 3, 2002. Contingencies and Litigation The Company is subject to a small number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. Pension and Other Employee Benefit Programs Dielektra GmbH has significant pension costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and wage inflation rates. The pension liability of Dielektra has been included in liabilities from discontinued operations on the Company's balance sheet. The Company's obligations for workers' compensation claims are effectively self-insured. The Company uses an insurance company administrator to process all such claims and benefits. The Company accrues its workers' compensation liability based upon the claim reserves established by the third-party administrator and historical experience. The Company and certain of its subsidiaries have a non- contributory profit sharing retirement plan covering their regular full-time employees. In addition, the Company's subsidiaries have various bonus and incentive compensation programs, most of which are determined at management's discretion. The Company's reserves associated with these self-insured liabilities and benefit programs are reviewed by management for adequacy at the end of each reporting period. Factors that May Affect Future Results. Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from Park's expectations or from results which might be projected, forecast, estimated or budgeted by the Company in forward- looking statements. Such factors include, but are not limited to, general conditions in the electronics industry, the Company's competitive position, the status of the Company's relationships with its customers, economic conditions in international markets, the cost and availability of utilities, and the various factors set forth under the caption "Factors That May Affect Future Results" after Item 7 of Park's Annual Report on Form 10-K for the fiscal year ended February 27, 2005. Item 3. Quantitative and Qualitative Disclosure About Market Risk. The Company's market risk exposure at November 27, 2005 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 27, 2005. 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 Accounting Officer (the person currently performing the functions similar to those performed by a principal 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 27, 2005, the end of the quarterly fiscal period covered by this quarterly report. Based on such evaluation, the Company's Chief Executive Officer and Chief Accounting Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. (b) Changes in Internal Control Over Financial Reporting. There has not been any change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the 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 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table provides information with respect to shares of the Company's Common Stock acquired by the Company during each month included in the Company's 2006 fiscal year third quarter ended November 27, 2005. <TABLE> <CAPTION> Total Number Maximum Number of Shares (or (or Approximate Units) Dollar Value) Purchased as of Shares (or Total Average Part of Units) that May Number of Price Publicly yet Be Shares (or paid per Announced Purchased Under Units) Share (or Plan or the Plans or Period Purchased Unit) Programs Programs <s> <c> <c> <c> <c> August 29- September 30 0 - 0 October 1-31 16,065(a) $26.18 0 November 1-28 6,040(a) $25.10 0 Total 22,105(a) $25.88 0 2,000,000(b) </TABLE> (a) Acquired by the Company upon surrender of such shares to the Company in payment of the exercise price of stock options issued pursuant to the Company's 1992 Stock Option Plan. (b) Aggregate number of shares available to be purchased by the Company pursuant to a previous share purchase authorization announced on October 20, 2004. Pursuant to such authorization, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None. Item 6. Exhibits. 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). 31.2 Certification of Chief Accounting Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Park Electrochemical Corp. -------------------------- (Registrant) /s/Brian E. Shore Date: January 5, 2006 ------------------------ Brian E. Shore President and Chief Executive Officer /s/James W. Kelly Date: January 5, 2006 ------------------------ James W. Kelly Vice President, Taxes and Planning Chief Accounting Officer EXHIBIT INDEX Exhibit No. Name Page ----------- ---- ---- 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) 30 31.2 Certification of Chief Accounting Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) 32 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 34 32.2 Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 35