Park Aerospace Corp (PKE) 2007 Q2 法說會逐字稿

Good day and welcome to the second quarter 2007 results conference call for Park Electrochemical Corporation. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Brian Shore. Please go ahead, sir.

Thank you, operator. This is Brian Shore, as the operator said, I'm the President and CEO of Park. Welcome to our second quarter 2007 conference call. I have with me as usual Jim Kelly, who is our Vice President of Taxes and Planning, and we'll use our normal procedure for a conference call, which is that Jim Kelly will start by giving you some financial commentary, I'll add a little bit of commentary as well, and then we'll take some time to answer your questions. Go ahead, Jim, please.

Thank you, Brian. Good morning, everyone. Certain statements we may make during the course of this discussion which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent annual report on form 10-K for the fiscal year ended February 26, 2006 various factors that could affect future results. Those factors are found in item 1A and after item 7 of that form 10-K. Any forward-looking statements we may make are subject to those factors. In this discussion I will describe results of operations based on non-GAAP financial measures, as well as financial results determined in accordance with GAAP. We believe that the disclosure of non-GAAP operating results as a supplement to GAAP financial results will assist the listener in assessing the Company's performance and prospects. I would first like to summarize the financial information included in the news release for the second quarter and six-month period ended August 27, 2006 or Park's 2007 fiscal year ending February 25, 2007.

Net sales for the 2007 fiscal year second quarter ended August 27, 2006, was 66.5 million compared to net sales of 52.4 million for the prior fiscal year second quarter. Park sales for the first six months were 129.4 million compared to sales of 108.1 million for last year's first six months. Net earnings before special items for the 2007 fiscal year second quarter ended August 27, 2006 were 8.5 million compared to net earnings of 6.1 million for last year's second quarter ended August 28, 2005. During the current year second quarter the Company recorded a pre-tax charge of 1.3 million in connection with the termination of an insurance arrangement with Jerry Shore, Park's Founder and former Chairman,and recognized $0.5 million tax benefit relating to this insurance termination charge. During the quarter Park also recognized a tax benefit of 3.5 million relating to the elimination of certain valuation allowances previously established relating to deferred tax assets in the United States and a tax benefit of 1.4 million relating to the elimination of reserves no longer required as the result of the completion of a tax audit.

Accordingly, net earnings were 12.5 million for the second quarter ended August 27, 2006 compared to net earnings of 6.1 million for last year' second quarter ended August 28, 2005. Net earnings before special items for the 2007 fiscal year's first six months were 17.4 million, compared to net earnings of 12.4 million for the prior year's first six months. As previously mentioned the Company recorded a pre-tax charge of 1.3 million in connection with the termination of an insurance arrangement and recognized a tax benefit of $0.5 million relating to the insurance termination charge, a tax benefit of $3.5 million related to the elimination of valuation allowances and a tax benefit of 1.4 million relating to the elimination of reserves no longer required. Last year's six month period included an after tax charge of 1.1 million for employment termination benefits relating to the reduction in work force at the Company's Neltec Europe SAS subsidiary in Mirebeau, France, which the Company recorded in the first quarter ended May 29, 2005.

Accordingly, net earnings for the 2007 fiscal year's first six months were 21.4 million, compared to net earnings of 11.4 million for the prior year's first six months. Diluted earnings per share for the 2007 fiscal year second quarter before special items were $0.42 compared to diluted earnings per share of $0.30 for the prior year's second quarter. Diluted earnings per share for the 2007 fiscal year second quarter was $0.62 compared to diluted earnings per share of $0.30 for the prior year's second quarter. For the six month period ended August 27, 2006, Park recorded earnings per share before special items of $0.86 compared to diluted earnings per share before special items of $0.62 for the first six months of last year. Diluted earnings per share were $1.06 for the six months ended August 27, 2006 compared to $0.57 for last year's second quarter and first six month period.

Now I'd like to review some significant items in our second quarter P&L. Comparing the current fiscal year second quarter sales to last year's second quarter sales, Park sales volumes increased 12% in North America, 24% in Europe, and 58% in Asia during the fiscal year 2007 second quarter. During the fiscal 2007 second quarter, North American sales were 50% of total sales, European sales were 15% of total sales, and Asian sales were 35% of total sales compared with 57%, 15% and 28% respectively for last year's second quarter. Sales of high temperature laminate and prepreg materials comprise 97% of total North American laminate and prepreg sales during the second quarter of fiscal 2007, compared to 97% for the prior year's second quarter. The high temperature portion of foreign laminate and prepreg material sales was 96% of total foreign laminate and prepreg sales for the 2007 second quarter compared to 94% for the same period in the prior year.

On a worldwide basis high temperature material sales were 97% of total laminate and prepreg material sales for the second quarter of fiscal 2007, compared to 96% for the prior year's second quarter. Sales of Park's North American high performance non-FR-4 printed circuit materials, which are a subset of high temperature printed circuit materials, were 44% of total North American laminate and prepreg material sales in the second quarter of fiscal 2007, compared to 44% in the second quarter of the prior year. Foreign high performance printed circuit material sales were 38% of total foreign laminate and prepreg sales in the 2007 year's second quarter, compared to 29% in the second quarter of the prior year. On a worldwide basis, sales of high performance printed circuit materials were 41% of total laminate and prepreg material sales in the 2007 year's second quarter compared to 37% in the second quarter of the prior year. Some of the foregoing percentages are different from percentages previously reported by the Company because the Company has reclassified certain products as high performance or as FR-4.

The gross profit percentage for the second quarter of fiscal 2007 was 24.1%, compared to 22.1% for the last year's comparable period. This improvement in gross profit is attributable to higher sales volumes and a higher margin of product -- higher margin product mix sales -- sorry, higher margin product sales mix. This improvement incurred in spite of the significant quarter to quarter increase in the cost of copper foil, one of the Company's primary raw materials. Selling, general, and administrative expenses were 10.3% of net sales for the current year's second quarter compared to 11.3% for the prior year's comparable period. The decrease in these expenses as a percentage of sales was the result of higher sales volumes achieved during the current year's second quarter. Investment income for the second quarter was 1.8 million or 2.7% of net sales compared to 1.4 million or 2.8% of net sales for the second quarter of 2006. The increase in investment income was attributable to an increase in prevailing interest rates. We continue to invest the available funds on a conservative basis in highly rated fixed income securities and money market funds. As a result of all of the above, pre-tax operating profit was 16.5% of net sales for the 2007 second quarter, compared to 13.6% for the prior year's second quarter pre-tax operating profits.

The effective tax rate before adjusting for the tax benefit from the insurance termination charge, the elimination of certain valuation allowances in the U.S. and the elimination of certain tax reserves no longer required was 23% for the 2007 second quarter and 23% in the 2007 first quarter. Turning to Park's balance sheet, cash and marketable securities decreased to 192.5 million at August 27, 2006 from 199.6 million at February 26, 2006, the end of the prior fiscal year. During the 2007 second quarter, Park paid a special dividend of $1.00 per share which resulted in the cash balance decrease for the six month period. Working capital was 215.2 million at the end of the 2007 second quarter, compared to 214.9 million at the end of the prior fiscal year. During the current year's first six months the Company had capital expenditures of 2 million and depreciation of 4.5 million. Stockholders equity was 246.7 million at August 27, 2006, compared to 245 million at the end of the prior fiscal year. Finally stockholders equity per share increased to $12.22 at August 27, 2006, compared to 12.20 at the end of the prior fiscal year.

Okay. Thank you very much, Jim. And it's Brian, again. I have a few items I would like to tick off for-- for everybody and then we can go on to our questions. First of all, the markets continue to be relatively healthy during the second quarter. The markets for our laminate product and our advanced composite product line, and in case anybody is interested, we have three weeks in the books in the third quarter and the-- the markets continue to be healthy during those three weeks based upon our bookings. So far, anyway, in the third quarter. Let's talk about the copper situation, because that tends to be big news these days and I will try to put everything in perspective. In the first quarter, remember we indicated that there was an approximately $1 million negative net impact in the first quarter. That's not an annualized number, that's the number for the quarter, and that related to significant increases in our cost of copper foil, which is a -- the major component of our raw material buy. As a matter of fact I think it's the largest-- the largest category of raw material that we purchase as a corporation.

Now, at the time of our first quarter conference call, I believe that we indicated that we were adjusting our selling prices to -- to accommodate for the significant increases in copper foil costs, and that did happen. And especially related to FR-4 product, and I think my comment at the time was that we really have, in terms of our laminate product line, we -- we have-- it's like two businesses, the tale of two cities, the high -- high-tech, high performance product line is a good margin product line, which we're happy about. We certainly don't want to apologize for that. The FR-4 product line is really a fairly thin product line when it comes to margin. And as you know the percentage of FR-4 in terms of our total sales dollars has declined over years as the percentage of high performance goes up. That's not an accident. I think I made it clear to you as well-- of course our customers understand us as well, that it makes no sense for us to absorb any kind of significant cost into our FR-4 product line. At that point it doesn't make any sense for us to continue.

So we really wouldn't have entertained with any kind of serious consideration the -- the prospect of absorbing those significant copper costs into our FR-4 product line. However, we do have lag effects because we try to treat our customers with respect. Meaning that we don't go over to our customers and say, well, we have an adjustment to our prices two days before we intend to make those effective. Normally we would give at least a month, maybe two months notice. So when costs are going up, raw material costs are going up, we're going to have that lag, we're always playing catch up. What we didn't really understand when we did our first quarter conference call was that we did have these plans in place to adjust our prices to accommodate for the increase in copper cost which already had occurred, but then we had another significant copper foil increase cost which was effective on July 1. Now we're just playing catch-up with that and the adjustments are being made now. Again, we're not going to just go to our customers two days later and say, okay, well, we're adjusting our prices. We're going to give them a couple of months to kind of sort through things and make their own adjustments, if they believe it's appropriate. So we're just dealing with that increase now.

We haven't really done very much with our high performance product, we will get to that at some point, but the thing to us that was more urgent was to deal with the FR-4 product line, because if we didn't it just would become a product line that would make no sense continuing with. So let me go through the impacts quarter to quarter. Again, first quarter the impact was negative 1 million. Okay. That's pre-- these are all pre-tax numbers for the quarter. These are not annualized numbers. The net negative impact in Q2 $3 million. 3 million. Okay. That's for the quarter. That's not annualized. That's just for the quarter. $3 million net negative impact pre-tax. Since we are making these adjustments based upon things we already have in place, the net negative impact in Q3 would be expected to be 1.4 million, which obviously would be 1.6 million better than the situation in Q2, if you follow what I am talking about. And the same kind of thing in Q4, assuming there is no change, additional change in copper price and assuming we take no additional action. I'm not saying we will not take any other additional action, I'm just trying to give you perspective based upon what is in place already.

In terms of the annualized total impact to our cost dollar from the copper increases, which we have absorbed this year, copper foil, $21 million. $21 million. Okay? So I just want you to understand that these are big numbers. The-- by the way, the impact to our second quarter in terms -- the top-line of our second quarter was 1.4 million positive, and that's based upon the changes, adjustments which we made to our selling prices, which were made based upon the prior copper increases. Okay. So throwing a lot of numbers at you, but the impact to our top-line in the second quarter was about $1.4 million positive. The annualized number is $21 million. That's what we-- that's what we have absorbed into our-- our cost. And that's obviously that's on a net number -- that's a gross number, because the net number would then have to be adjusted for the-- for the changes we-- we have made and are making towards selling prices. The net numbers I already give to you. 1 million first quarter, 3 million second quarter, 1.4 million third quarter.

The other thing I just wanted to share with you is if you look at the third -- sorry, second quarter results, and you took out all the impact of the cooper increases and all the impact of our selling price adjustments, the gross margin would be over 29%. So I just wanted to give you some perspective on that logical question, I'll anticipate it, is what is going to happen with copper going forward? And we really don't want to speculate about that, we just don't know. Copper trades as a commodity and that affects our -- we don't buy commodity copper, we buy specialty copper foil, but the commodity trading of copper on the commodity exchange and the London metal exchange have a major impact, of course, upon the price we pay for copper foil. So tax provision, that's always a rough one for us to communicate intelligently to you folks. After all of the adjustments, which were significant, of course, in the second quarter, Jim noted that our normalized tax rate was 23%, and I think that was the same as the tax rate-- the tax provision in the first quarter. Guidance on that, we think we have gotten a lot of special items out of the way, but we-- we're not sure. The best we can do is not guide higher or lower than 23%. We're just not sure, but we don't have any basis to guide you above or below 23%. It's 23% is the normalized rate in Q1 and Q2, and I'm sorry, but that's the best we can do with that.

Just a couple other items we want to update you on. We did actually sign an agreement to purchase a plant in Singapore. This is going to be our new advance composite material plant. We have not closed on that purchase yet, and it's not over until-- you know what kind of lady sings. So we haven't actually closed on this property yet, but we did sign a contract to purchase a plant in Singapore. And this again is for our advanced composite product line. We're going forward with that expansion in Singapore. We're also doing a lot of development work to install hot melt coating capability for advanced composites in the U.S. at this point. We're looking at either Arizona or California as the most likely location for those installations. A lot of development work is being done with -- with respect to that kind of manufacturing capability. And in terms of development work, there is quite a lot of development work that we're involved with with respect to developing our advanced composite product line for aerospace and it's mostly overseas, mostly in Asia, even some in Europe, not very much in North America. We're spending a lot of time in Asia, in China and elsewhere doing development work for advanced composite product line for aerospace, for aircraft.

This is a detail that I think we covered at some point in the past, maybe one of the conference calls or maybe the annual report, but I think we mentioned that we're upgrading -- we're upgrading our treating operation in Singapore so that the Singapore treating operation is capable of producing our full product line except for PTFE and that's essentially completed, that-- that project. We have a lot of other projects that are ongoing, which we shared with you in the first quarter, I believe. But we don't have any important updates on them at this point. And I think that covers it in terms of introductory remarks, sorry it went on for so long, but there were a number of things to cover. Operator, we're ready to take some questions.

[OPERATOR INSTRUCTIONS] And our first question comes from Rich Kugele with Needham & Company.

Thank you. Good morning. I guess first just-- just to make sure I have this right. Is it fair to say, then, in the second quarter, that the up -- up revenue, even backing out the extra costs for copper and the ASP changes, is just then stronger demand from your customers? And then secondly, when you look into the November quarter, I guess, normal historical seasonality would be a roughly flat quarter. Is-- is that a fair sense for what-- what should happen here in November?

You are talking about flat as compared to the second quarter.

Yes.

Let me answer the first question first. You can do the math. I think you want to back out about 1.4 million from the top-line in the second quarter. So it is up to some extent over the first quarter, which is a little unusual because of the seasonality expectations. I have a feeling that with the globalization of the market for products that whole seasonality thing is kind of ending up going out the window, it's just not what it used to be. So I guess you would have to say yes, the markets were-- were a little stronger for our products. I also sense that we may be picking up a little market share as well, to be honest with you, so maybe we would have to look at those two different considerations. And I'm not able to break it down between market share and market, though. So the-- the quarter was-- in terms of top-line, I think that's a correct observation.

It did come in a little stronger than we normally would expect, and again, the two comments I would make would be that the markets were a little stronger for the programs that we-- we supply into. Maybe not generally but the programs we supply into and maybe there was some market share gain at play as well. As far as the third quarter is concerned, we told you that in the first three weeks of the third quarter, which is all we have on the books, the-- the trend continues. So I really don't know where to guide you, but I don't-- I wouldn't guide you significantly up or down, top-line we're talking, of course, as compared to the second quarter, for instance. I guess that's the best we can do.

And then-- and in terms of the gross margin is it fair to say that if the copper increase should be, as it flows through, somewhat less here, should the gross margins improve just if everything else is constant.

That's what we were saying before, again, you could do the math, but the big if there is is everything else going to be constant. But we want to just talk almost theoretically and assume everything else is exactly the same and we mentioned that there is a 3. -- sorry, a $3 million negative impact in Q2 and a $1.4 million negative impact expected in Q3. So obviously you can do the arithmetic on that one, that's not too hard. The key question is whether everything else is going to be the same? Of course we don't know that. Probably not, but we don't know what is going to be different.

In terms of the Nelco business it has been running roughly 8 to 9% of revenue for some time. Can you just repeat then how much that was here in the second quarter, and I'm assuming that some of these expansions you were talking about are for that business as well and how much do you think that that will be especially now that you're not going to do any acquisitions? Do you think that that could be of your business as you look out the next few years?

The percentage in the second quarter, Jim, I forgot -- .

Percentage is around 7%.

7%. So let's just start with where we are now with the Nelco product line, 7%, and we're not really very happy with that and as I mentioned in the first quarter. So a couple things at play here and let me just go through them. Strategically, I think we're more convinced than we ever were that this is where we want to grow our business, but it's taking a little longer than we thought. And one reason is that I think we maybe we're not completely realistic about the robustness of our small business in that area up in Waterbury, that we're addressing that, because it's really key because that's really the kind of launching off point for the growth this business.

The other thing that I think we misjudged is that it's a fairly -- the advance composites for aerospace, that's where we are focusing aerospace, why, because the margins are better. It's a very conservative risk adverse industry, aerospace is, so it's very difficult to get in on programs which are legacy programs. So basically what we need to do is try to get in on the new programs. But the key to our strategy here is Asia and I think that's our wild card, because I believe that what will happen -- we believe that what will happen to that industry will be very similar to what happened to the electronics industry, which is that there will be massive transition to Asia. When that happens all-- all of the -- many of the barriers to entry just collapse, they just disappear. So we think our -- the wild card and our real opening here is to keep pushing the business in Asia.

Going out three years or so, Rich, I don't have a percentage for you, but we intend to make this a significant part of our business, and you are correct in much of the investment that we're talking about now is for the advanced composite product line. It's going to take a little longer than we expected, but as a strategic decision, I think we're more-- we feel more strongly than we ever did that that's the right way to go, not only in terms of investment for manufacturing equipment, investment in development work as well.

Okay. Just one last question for Jim. In terms of the second quarter, the $0.42, I'm including that that includes options, correct?

Yes, it does.

So can you give us a sense on how much that was in the quarter, and what your expectations are for that item.

Well on a pre-tax basis it was about $288,000.

And do we have any feeling about Q3 and 4.

It is going to go up in Q3 to around $350,000.

All right. So it probably be going up a little bit, Jim is saying. I don't think you want to -- don't hold us to that number, but it looks like it's going up a little bit in Q3 and Q4 and the reason is we issued options in Q2, but that was in the middle of the quarter so it only -- it only had partial impact on the quarter.

Okay. Thank you very much.

You're welcome.

And we have one more question in queue at this time. [OPERATOR INSTRUCTIONS] Moving on we will hear from Jiwon Lee with Sidoti & Co.

Good morning.

Good morning.

Quick question on your pricing. Now Brian, you mentioned that copper foil pricing went up again in July. Now in terms of your pricing for non-FR-4, did your price increase that you were hoping for, did it already happen for the third quarter or-- a little more color that you can add on that.

Could you repeat the question because I'm not sure I really understand what you are asking?

I'm trying to understand your pricing strategy, sort of countering the July second increase in copper foil.

I see.

Pricing increase.

Yes.

Where you are in terms of your pricing.

Okay. So what we're saying is things are in place to-- to completely adjust for the July 1 copper increase with respect to our FR-4 product line. With respect to our high performance, high tech product line, we haven't taken any action with respect to that product line yet, but we plan to do so. We haven't decided exactly what and when, but we plan to do so at some point in the future. And I just want again review that we felt it was more urgent, frankly, to deal with our FR-4 product line because if we didn't we would have to shrug our shoulders and say why are we doing this? We just didn't feel it would be appropriate or proper for us to absorb any significant cost into our FR-4 product line.

Okay, that helps, thanks. And couple of housekeeping items. Your top customers during the quarter and who they were, the percentage of sales?

Jim, could you help us with that?

The top three during the quarter were [Samena], Altech and Tyco. Samena was the only one over 10%, they were at about 17%. Or top -- rounding out the top five would be [Pettis] and [Zemboze]. The top five customers as total percent was 53%, our top 10 comes up to about 75% and then when you get to the top 20 we're at 83%.

Okay. Great. In terms of your segment sales, Brian, did you see during the quarter any particular strength? And I mean, either it is telecom or datacom, or maybe your defense, anything you could sort of add a color to this.

Yes, Jiwon. I would say it is pretty much across the board. I don't think there's any one end market that we're seeing that-- that is really standing out. So there seems to be some broad-based health in the electronics market at this time, datacom, telecom, defense. Yes, I don't think it's from any one segment.

And last couple of questions, this plant in Singapore that you are hoping to purchase for composite materials what is the size of that plant?

It's about 20,000 square feet. Obviously we got to do all the equipment installations. We actually need to expand the building a little bit. The building is a pretty-- it's pretty suited for our needs. We're going to have to expand it by about 3,000 square feet, and that will actually bring it up to 20 ,000 square feet. And that should be just fine to get us started with a real nice advanced composite manufacturing -- a advanced composite manufacturing line in Singapore.

So once assume that you signed the purchase agreement in the near future, and put the equipment, there should be some lead time on it, is there any target in your mind that you want this plant to be up and running?

I think it's probably conservative to say a year. Maybe we can do it a little bit better. It has been a little frustrating getting -- just getting this property. We have been working on it for several months. Singapore is a very good place to do business, it's very business friendly. But we have had to jump through a few extra hoops here and we are just going through that process. I would have wished, Jiwon, to be honest, that we would have already owned the property, but not quite there yet. I think it's going to be another three or four weeks before we'll know, and hopefully it will go well, and then we can start doing the work we need to do to modify the plant and install equipment. All the plans are done, we just need to have access to the building so we can get started with the work.

How does this plant, Brian, compare to the size or the number of treaters that is in Connecticut?

The Connecticut plant has two treaters and this plant would start with one. But we're going to have space to accommodate a second treater. The plant in Connecticut -- these treaters that are running Connecticut are certainly not run anywhere near close to -- anything close to at full capacity utilization. Our people in Singapore -- we know how to drive capacity, so we can get a lot of output out of that one machine that we're going to be installing to begin with in-- in Singapore. Remember, Jiwon, that the market is really emerging in Asia, so we don't expect to fill this factory up right away. We want to kind of get ahead of the market, get the plant there and then start transitioning some of the business that we are handling out of Connecticut for Asia to the manufacturing plant in Singapore. But we would like to have a problem with capacity, but we probably won't. It will take a little while to ramp that plant up. But, again, the plan is to get into Asia ahead of the market rather than be a me too supplier in Asia.

Finally on the composite, up until now, I guess, recently, you were doing a lot of sort of composite materials for replacement parts and all of this development work that you are doing in Asia and Europe are you sort of angling more for sort of a new design so that your materials could be designed into this aerospace?

Absolutely. I guess you are probably talking about repair and maintenance work.

Yes.

Compared to being an original, qualified original programs on a QPL. Absolutely, the repair and maintenance work is not -- it's small quantities. The volumes are not that great. Singapore is one of the most significant sites in the word for MRO activities, maintenance and repair operations. But nevertheless, notwithstanding that, the volumes are still not that significant. What we want to do is you want to get on -- we want to get on programs. We are on some programs, we want to get on more programs, aircraft programs. We also do believe, and this is what we have been saying for the last few quarters, that aerospace companies, aviation companies, aircraft companies are going to be doing more and more manufacturing in Asia. The plan is not to manufacture in Singapore to export back to the western markets. The plan is to manufacture in Singapore for the Asian markets.

Okay. And last question for you, Brian, the competitive landscape for printed circuit board materials, is that a little more favorable, about the same, or a little more competitive both domestically and internationally? How do you think you are faring especially in the non-FR-4 business?

Oh, that's a difficult question for me to answer. There-- there-- as you know there's been a lot of consolidation among the-- the competition in the laminate business in the last couple of years and that's had some impact, I-- I guess, but we're-- I think we would see that impact more on the FR-4 business because that's where the-- the suppliers, in theory any way, could be more interchangeable. In other words a circuit board company would probably be entitled to switch off suppliers if it's a FR-4 type material. So that's maybe where we're seeing some things loosening up, but that's not the type of business we're normally anxious to chase. In the high performance business I really don't know what the impact is because that really is very print related and our high performance business has been growing very nicely and that's really critical for our success, so we continue to drive and push our high performance business.

I'm not sure how the competitive landscape has changed with respect to high performance, because, as we usually say in response to that kind of question, we really try to focus on what we're doing and what we need to do rather than what the other guy is doing. We probably will come out in the next couple of weeks with a couple of nice announcements, though, relating to new high performance products in the -- for the laminate product line. So that's good. That's what we want to do, we want to keep driving our high performance product line in terms of the laminate products.

Okay, great, thank you. And final question was on your investment income. Given the high level of cash position that you hold, seems like the inside plan rate that you are getting on your cash is kind of low. What kind of instrument are you using and what kind of returns are you getting on this?

Well, we're not getting very good returns. We invest the cash very conservatively.

Okay.

Talking about governments and money market type securities. We-- we are just not -- we don't speculate on our cash. We've always invested conservatively. And we would really rather focus our attention on the business rather than focusing our attention on the investment income. The thing with that is once you start to broaden your horizons, let's say, relating to your investment portfolio, you naturally take more risk and then you have to put more time and effort into managing it and you have to watch it every day, and we would rather not focus our attention there. We would rather put the investments in things that we know are safe. We're not going long either. So no longer -- not only we're not taking credit risk, we're not taking really very much interest rate risk, either. We just want the cash to be available when we need it. So you are right, our-- our yields are not that wonderful. And you could kind of do the math yourself. You know how much cash we have and you see what our investment income is. So you can kind of back into our yields.

Fair enough. Thank you very much.

Sure.

And we have one more question in queue. [OPERATOR INSTRUCTIONS] Moving on we will hear from Shawn Severson with Raymond James.

Hi. This is actually David Nazaret for Shawn. Just a quick question, it's a bit of a followup on the competitive question asked before in light of the increased amount of production you have had in Asia, what steps are you taking to protect your intellectual property there?

Well that is something that we're very concerned about, of course, and you note that our -- the main part of our business is in Singapore and Singapore is-- is considered to be the country which protects intellectual property the best in Asia. We have a new plant in China, but I don't know if you -- if we made this clear, but we're not doing any treating in China. We're doing all the treating in Singapore and we ship the prepreg up to China and then we just do lamination in China. And the reason for that, or one of the main reasons for that is that the treating operations, where most of our important technology is going to reside, and the lamination operation, there's some know how and tricks of the trade that we have learned over the last 40 some odd years, but the formulations in particular, that's going to be where the treating operation is. The Singapore government is very, very vigilant about helping companies that are based in Singapore protect its technology. So I feel pretty comfortable at this point. We'll have to see what happens in the future. So, I think we haven't had any significant issues in the past relating to protecting our technology either.

Okay. Thanks very much.

Okay. Operator?

And we have no further questions in queue, Mr. Shore. I'll turn the call back over to you for any additional or closing remarks.

Okay. Thank you very much, operator, and thank you everybody for listening in. It has been nice checking in with you again. And we'll be around for the next day or two, so if you have any followup questions, please give us a call. And otherwise have a great fall and we're look forward to talking to you again soon. Take care, have a good day. Good-bye.

Once again this does conclude today's conference call. Thank you for your participation, and have a great day.