Park Aerospace Corp (PKE) 2009 Q3 法說會逐字稿

Good morning. My name is Carley and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Park Electrochemical Corp third quarter 2009 earnings release conference call. (Operator Instructions) Thank you. At this time, I will turn today's call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Operator. This is Brian. Welcome to Park's third quarter conference call. I have with me, as usual, Matt Farabaugh, VP and Controller. I will start with some introductory remarks and then we'll go into Q & A. Matt, why don't you get started with the financial perspective, please.

Okay, thanks, Brian. Certain statements we may make during the course of this discussion which do not relate to historical financial Information may be deemed 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 fourth in our most recent annual report on Form 10-K for fiscal year ended March 2, 2008, various factors that could affect future results. Those factors are found in Item 1-A and after item 7 of Form 10-K. Any forward-looking statements we may make are subject to those factors.

I would first like to summarize the financial information included in the news release for the third quarter ended November 30, 2008. Net sales for the 2009 fiscal year third quarter ended November 30, 2008, were $49.2 million compared to net sales of $63.7 million for the prior fiscal year's third quarter. Park sales for the first nine months were $164.6 million compared to sales of $181.3 million for last year's first nine months. Net earnings before special items for the 2009 fiscal year third quarter were $3.5 million compared to $8.8 million for the prior year's third quarter. In the third quarter ended November 30, 2008, the Company recorded a charge of $570,000 for restructurings at certain of the Company's North American and European business units. Accordingly, net earnings were $2.9 million for the 2009 fiscal year third quarter compared to $8.8 million for last year's third quarter.

Park's net earnings before special items for the first nine months were $16 million compared to net earnings of $25.3 million for last year's first nine months. During the 2009 first nine months the Company recorded the charge of $570,000 for the restructurings mentioned above. Accordingly, net earnings were $15.4 million for the nine-month period ended November 30, 2008, compared to net earnings of $25.3 million for last year's first nine months.

Park reported basic and diluted earnings per share before special items for the 2009 fiscal year third quarter and first nine months of $0.17 and $0.78 respectively compared to basic and diluted earnings per share of $0.43 and $1.25 for the prior year third quarter and nine-month period. Basic earnings per share after special items for the 2009 fiscal year third quarter and first nine months were $0.14 and $0.76. Diluted earnings per share after special items in 2009 fiscal year third quarter and first nine months were $0.14 and $0.75.

Now I'd like to briefly review some of the other significant items in our third quarter P&L. Comparing the current fiscal year's third quarter sales to last year's third quarter sales, Park's sales volume decreased 14% in North America, 51% in Europe and 24% in Asia. During the fiscal year 2009 third quarter, North American sales were 56% of total sales, European sales were 8% of total sales and Asian sales were 36% of total sales compared with 50%, 13% and 37% respectively for last year's third quarter. Sales of high temperature laminate and prepreg materials comprised 100% of total laminate and prepreg sales during the third quarter of both fiscal year 2009 and fiscal year 2008.

Sales of parks high performance non-FR4 printed circuit materials which are a subset of high temperature printed circuit materials, were 61% of total laminate and prepreg material sales in the third quarter of fiscal year 2009 compared to 54% in the third quarter of the prior year. Sales of Park's advanced composite materials and parts comprise 14% of total sales in the third quarter of fiscal 2009 compared to 9% in the third quarter of the prior year. Gross profit percentage for the third quarter of fiscal 2009 was 19.9% compared to 25.3% for the prior year third quarter. The decrease in the gross profit was attributable mainly to lower sales volumes and substantial losses at our business unit in Mirebeau, France, partially offset by a higher percentage of higher margin, high performance printed circuit materials and advanced composite materials.

Selling, general and administrative expenses were 12.6% of net sales for the 2009 fiscal year third quarter compared to 10.4% for the prior year's comparable period. The increase in these operating expenses as a percentage of sales was primarily due to the decrease in sales volume. Investment income for the third quarter was $1.7 million or 3.3% of net sales compared to $2.2 million or 3.5% of net sales for the third quarter of 2008. The decrease in investment income was attributable to decreases in prevailing interest rates, partially offset by higher average cash invested.

As a result, pre-tax earnings before special items was 10.6% of net sales for the 2009 fiscal year third quarter compared to 18.4% for the prior year third quarter. The effective tax rate before special items was 33% for the 2009 fiscal year third quarter compared to an effective tax rate of 25% for the prior year third quarter. The higher effective tax rate was due to a shift in the mix of taxable income to higher tax jurisdictions and significant losses in Europe with no associated tax benefit.

Turning to Park's balance sheet. Cash and marketable securities were $214.5 million at November 30, 2008, compared to $214 million at the end of the prior fiscal year. Working capital was $241.5 million at the end of the 2009 third quarter compared to a $239.1 million at the end of the prior fiscal year. During the current year's first nine months the Company had capital expenditures of $11.7 million and depreciation expense of $5.9 million compared to capital expenditures of $5.1 million and depreciation expense of $6.1 million for the prior year's first nine months. Stockholders equity was $279.9 million at November 30, 2008, compared to $269.2 million at the end of the prior fiscal year. Finally, stockholders equity per share at November 30, 2008, was $13.67 per share compared to $13.23 per share at the end of the prior fiscal year.

Thanks, Matt. This is Brian again, of course. And, as usual, I just want to remind you that the transcript of Matt's comments are posted on our website. They were posted on our website earlier today, so if you want to go in and get some of the details you can just go on our website and see the transcript of what Matt just told you. My comments as follows.

We've had a lot of news releases in the last few months about restructurings. None of these things really make anybody feel very happy and you could certainly count me in in the not happy category there. Some of these things are very difficult and very emotional, but we have responsibilities to run our business, of course, and we understand that, but I wanted to explain to you that the restructurings had very little impact in Q3, probably maybe a quarter million dollars of most impact positive impact if you want to look at it that way in terms of cost reduction in Q3, because even though they were announced they really in the process of just being implemented now and I'll explain what I mean by that.

France, I need to give you an update on our Mirebeau operation. We announced, I believe, I don't remember but it was probably September time frame that we were proposing to close, proposing to the workforce to close the operation in Mirebeau which is the Dijon area. That's the digital electronic printed circuit material operation and I think you know by now under French law we're required to go into some kind of consultation process and we just completed that really last week and the closure is now being implemented and I believe our last day for operation is some time in the first half of January. We're already scaling back and we would expect to have the operation closed by the middle of January at the latest, but the full brunt of the P&L of that French operation went through our Q3 with no benefit of the closure in Q3.

The New York facility we're closing as well but that was actually announced, I believe, after the end of Q3, so obviously, no impact there. Small impact I believe was the California restructuring earlier in the quarter and that was where we got the [$250 million] from. We announced a lay off in Arizona. That was toward the end of the third quarter and, of course, a lay off in Singapore as well. I believe that was implemented toward the beginning of the fourth quarter. So, again, even though we've been doing a lot of work with layoffs and plant closures and reductions, no benefit P&L-wise in the third quarter.

Once all these things are implemented which I think the last implementation is the French factory closure would be in the first half of January like I said, our New York factory closes, I believe, the first full week in January. Once all these restructurings are implemented and the other three, Singapore, California and Arizona are fully implemented at this time, once the other two are implemented, there is approximately a $17 million per year impact in terms of cost savings, that's $17 million per year going forward in terms of cost savings, so I just wanted you to be aware of that. That's pre-tax, of course, when we talk pre-tax here. So that's the update on the restructurings and plant closures.

Just a few other comments that you may or may not be too interested. I just want to highlight Matt's comment about the high performance percentage, the percentage of the electronic sales represented by high performance product is over 61% now and that number, in my opinion, will continue to go up because our ability to compete or maybe willingness to compete I guess I should say in the lower end more the commoditized end of the electronics market, materials market is really just not very meaningful, so that percentage will continue to go up. As I think I'd explained, the lower technology material has been I guess helpful in paying the light bills, just kind of covering our costs but we don't really make any money with the lower technology materials. The higher performance materials also are higher margin materials. I guess we've got to talk about copper.

In Q3 there was a very significant negative impact because of copper cost increases that went into effect on June 1. Our selling -- corresponding selling price increase went into effect September 1, so basically the whole second quarter was not covered by the increase and we were fully exposed. We talked about that, I'm sure, at the end of the second quarter. As a result, there's a Q3 to Q2 benefit of about $700,000 or $800,000 because of the copper situation principally in the second quarter.

Going forward, you wouldn't -- I wouldn't expect at this point anyway that there would be a Q4 to Q3 anyway any significant impact Q4 over Q3 related to copper costs. Copper costs, copper foil costs, our costs are going down but, as you know, our practice is when our copper costs go down we pass those costs on to the, cost savings I should say, on to our customers.

Just scanning through here, we talked about Mexico I think for a couple quarters now. We had done a lot of planning work, a lot of due diligence regarding building a plant in Mexico to build volume composite parts for the aircraft industry and that plant is on hold. We decided to put that plant on hold a couple months ago. It's not that we're reluctant to invest even in this economy. It's just that we don't see the opportunity being there, not nearly the opportunity that we thought was there several months ago. So we've done all of the work and we just have that put away in a file somewhere and we can reactivate that pretty quickly if we decide we want to because we pretty much are at the end of our due diligence work. That's really a market question so, again, it's not that we have some kind of reluctance to invest. We would be happy to invest even in this economy but we just don't see a market opportunity for a large volume plant at this time to make composite parts for aircraft.

The aircraft productline, let me talk about that for a few minutes because it's a couple different stories. One is that I must say I'm very pleased at the reception that our aircraft productline has had in the aircraft industry. If you could spend a week or two around here, you just see that sometimes we're going through two or three RFQ's a day for aircraft companies which are household names, you would know the names of the companies, so for some reason our productline, our Company has been very well received by the aircraft industry. I said there are two stories.

The other story is that these programs take a long, long time to ramp up because often we're involved in the development work that will lead to a certification maybe two or three years down the road when we're making the parts for development programs the volumes are quite low and it's not until the programs go into production that you really start to see the volume, so that's the good news. I'm very encouraged I think that it was very lucky that we selected the strategy, very lucky, but it's something we're told we just have to be patient and keep at it but I must say that the reception I think is quite good and I'm very pleased about that, and when you look at the current situation with the electronics industry, just the global economy, I don't think there's anything particularly interesting about the electronics industry except it's definitely in a global economy but if you look at the long-term trends of the electronics industry for us, which are not that positive I don't think, I don't think it was a good decision that we made to try to find other productlines for our Company so we could continue to grow long term.

In terms of our M&A efforts, our strategic efforts, it really focuses on the aircraft productline and what we are trying to do is we are trying to find something unique. We don't just want to be a me too competitor. There's something called Build to Print and we don't mind doing that, but we're also trying to find also uniqueness. Build to Print is okay, XYZ OEM, they have an airplane, this is a part, they give you all the specifications of prints and they say can you build this and we say yes we can or no we can't. That's fine and we're doing a lot of that and a lot of the RFQ work, a lot of the quotes we're working on, packages for build to print type things.

We're also trying to focusing on things where we have uniqueness which I think would be good for our future where we could protect our margins better. We have a composite strut where we have a patent on it which seems to have very good reception so far in the industry. Very interested in that. So far it's been used on applications like NASA applications for spacecraft where a very significant amount of money that is willing to be paid to say weight but even with aircraft I think there is a premium that will be paid to save weight and that's where these struts come into play as a replacement for aluminum struts.

We're also looking at expanding our design capabilities so in addition to just building parts for aircraft companies, we're also, we would be in a position to design work for them and that seems to be somewhat of a trend where the aircraft company will give you some kind of general concept as to what they're looking for, but they say now you do the design details. The other thing we're starting to look into and this is something new, we're looking into developing our own productline through STC, Supplemental [Type] Certificates, which we could sell directly to aircraft companies or to aircraft owners. These are after market products and it's something we're interested again because in addition to these products being composite in many cases, also there is uniqueness there would be our productline where once it's our product it's not like somebody can come in and say well we can it's not like somebody can come in and say well we can make it cheaper. Well, maybe they can make it cheaper but it's our product so we have that unique ability to compete and maintain our margins more effectively.

So another comment, our money finally looks like maybe it's starting to have some value significant cash position for a long, long time which I think I've reported many times over the past year that it's a little frustrating because it didn't seem to make any difference because even companies that didn't have any money that we might be competing against, let's say for an acquisition, they bid up the acquisition, because even though they didn't have money, they can get money. Money was being handed out in the street corner. It doesn't seem to be that way anymore and it seems like values are coming down and it seems like people are finding us fairly frequently now because we're a public company and our cash position is a matter of public record. It's also known, I think, that in some circles that we're interested acquiring so that's good.

Our cash investments, we have not been smart enough to invest in very exotic things and creative things and, fortunately, we knew our limitations and that our cash position is about the same as it was, that cash is all very available, very short-term, very liquid, so if we needed to do something with it, it's available to us but, again, we're lucky I think we recognized their limitations and realized we don't invest in things we don't understand. I'm sorry, that we don't do that.

I've been around a while and I've seen a lot of this kind of thing and a lot of foolish people, well actually very smart people doing very foolish things be it greed, laziness, or whatever and we're not in to that thing, so I'm happy to report that our cash is there for us. I think that's a major asset of Park and its shareholders. And having said that, I think we have a cozy little group this morning and the operator said at the beginning of the call we only had 16 people listening so, Operator, why don't we go into our questions and we'll do the best we can to provide some answers.

(Operator Instructions) Your first question comes from Sean Hannan with Needham & Company.

Yes, good morning folks and happy holidays.

Thank you very much. Happy Holidays to you.

Thanks. So, Brian, if I can just follow-up, you had discussed a little bit on the savings that you anticipate from these different cost cutting measures and some of these facility closures over the last couple of months. Is there a way perhaps to talk a little bit around where within the whether it be COGS or OpEx, how do you expect these savings to materialize?

I think it's across-the-board. Now, when you have a plant closure basically all your costs are going to zero, right? With the reductions it's people costs but we aren't the kind of Company that just looks at direct labor people when it's time to do workforce reductions. We look at people up and down the line, so I don't know if that answers your question, but --

Well I think I'd anticipate that this would be the majority within COGS and a lesser degree within OpEx, but I just want to see if there was an order of magnitude of how to think where that cost savings would split.

Yes, you're right about that but of course that's where most of the costs are so that's where the opportunity is. I think that's a correct statement, but other than that we're not going to give any guidance in terms of specific percentages, that kind of thing.

Okay.

But I think your instinct is correct.

Okay. Is it possible, so over the last couple of quarters you've actually been growing your advanced composites group pretty decently year-over-year and you actually even in this quarter you grew it sequentially. Is there a way to provide, you provided actually a little bit of color earlier but was just looking to see if you could elaborate a little bit further, on where you see growth still being supportable in the current environment and then do you ultimately see a point, an inflection point, as you get beyond this longer term [qual] process over the course of the next year or two where you see a pretty sharp snap in revenues?

I think that some of these programs you're quoting on are significant in terms of expected revenues, but I don't think it's a year or two where you see the snap. I think that there is certainly a chance, maybe a good chance, that we will see meaningful significant increase in revenues but I think that some of these programs are really 2012-type programs, 2013 programs where the aircraft actually go into production and they're not all the same. Obviously some will be before others. One will be at one instant in time, of course, which is good for us the leg in. I don't think so much in the next 12 to 18 months. More of these programs are parts rather than pre-print, by the way, just FYI. The growth that you've seen is not as the result of any of these large RFQ's though. It's just continuing to work the streak, the sales guys continuing to be out there. I think we're working hard to continue to improve our performance so I think we're getting a little more visibility but the increase that we seen at this point is not related to any of these RFQs. None of them have hit, if you want to use that term yet, so as I said, I think over the last few quarters we're having to learn a little bit about patience here even working as aggressively as possible.

Now the other thing, of course, that we're looking at is acquisitions and in the same area and, of course, if we do an acquisition or two that would affect our top line revenues in the aircraft productline area as well. As far as the market and how receptive it is at this point to organic growth, I don't know of any -- too many industries that are not affected by the global financial crisis, economic crisis and certainly if there are any such industry the aircraft is not one of them. A lot of the stuff is actually fairly public, plus some guy from some auto company decided to take his to (inaudible) to Washington recently and I don't know how much of a factor that will be but that certainly didn't do any favors for the industry, for the aircraft industry, because now there's kind of a thing in the media anyway that aircraft is considered to be a luxury. Whether it is or not I don't know, but I'm not a philosopher about this, I'm just noting that the that probably didn't help us very much, so you know what? The market is not going to help us grow over the next year.

We're going to continue to work at it but the market is not going to help us grow over the next year and certainly there's no question that we seen programs slowdown, programs postpone existing orders that are or have been reduced significantly, aircraft projections in terms of how many shipments per year have been reduced significantly by some of the aircraft companies and, of course, that's going to affect us, but I can't really quantify that any better than that.

So it actually sounds, Brian, like perhaps there was a little bit of a surprise there in Brian, like perhaps there was a little bit of a surprise there in that you actually grew this group in the November quarter sequentially over August, given the environment?

Well, okay. I don't know that there will be a surprise because we're certainly working on it very hard but I just want to make sure everybody thinks this through, because the third quarter was an interesting quarter. It started before the financial crisis really began in earnest. I think the Lehman Brothers situation is probably the big event and that was, I believe, mid September and it took a little while. Immediately it affected financial institutions and banks but it took a little while for it to filter through to industry to manufacturing, and so by the time you get to November, the industry seems to have tailed off as compared to where it was in September. So just keep that in mind here because we may not, let me put it this way, I'm not sure where things are going with the global economy. There are a lot of opinions out there and maybe we're at the bottom, I don't know, but you really have to talk to frankly people that are smarter than me to figure that out because that's really what we're dealing with here.

We aren't dealing with I don't think, anyway, specifically idiosyncrasies of the electronics industry or the aircraft industry. We're dealing with a global economy and how the global economy will affect those industries. So if anybody could figure out the global economy, has it bottomed yet? Then we'll have a big head start in terms of what our outlook will be for the next couple quarters. In terms of what we do every day it doesn't really matter that much because we're working the productlines as hard as we can no matter what and, as I said earlier, some of these programs are very long-term programs anyway so it's not going to make any difference to our Company or our P&L or our top line in the next couple quarters.

That's helpful, Brian, and then just lastly administratively if I could ask your top customers in the quarter and the relevant percentages.

I think Matt has that information for us. Go ahead, Matt.

Yes, sure. The top customers, our top customer was Sanmina at 14.4% of our sales for the quarter. The second one was TTM at 11% of our sales for the quarter. The other three in the top five were [Petisis], [Tapco] and [Wu's]. Our top five total is 47.6%. Top 10 total is 61.7%. Top 20 is about 71%.

So no big change in terms of the top five players anyway.

Okay, that's very helpful. Thanks so much.

Okay.

Your next question comes from Jiwon Lee with Sidoti & Company.

Good morning.

Hi, Jiwon.

Just sort of going back quickly to the restructuring that you have announced. During the third quarter, there is a New York plant closing and you've also reduced staff at Arizona as well as Singapore, and going back to last quarter there was the Mirebeau operation as well as the Neltec out of California restructuring and I believe at that time you had quantified about $8 million to $9 million in annual cost savings. And now you're quantifying about $[17] million in total, so these incremental restructuring and plant closing is going to add about $7 million to $8 million in annual cost savings and, in your opinion, a lot of it is coming out of obviously if I heard you correctly, the fact that you are closing underutilized plants. Am I understanding this correctly?

The big impacts will be from the closures, although there are meaningful impacts from the layoffs which were done. They aren't complete in Singapore, California, and Arizona. The larger impacts you're quite correct are from the New York plant closing and the Mirebeau, France, plant closing, that's right, and I just want to repeat again that even though those numbers are correct that you're talking about, there's a very minor impact in Q3. I think the impact was maybe about a quarter million dollars total.

Okay. And I for get what the number was. You had a fairly considerable, I think, loss out of Mirebeau in the August quarter. Could you sort of recap what that dollar amount was?

Yes. I think that in the August quarter we were talking about losing money at the rate of about $100,000 a week there , and certainly things have not gotten better. I'm not going to, we don't want to give a specific number at this time. The benefit, if you will, is a little more complicated than that because, remember we're not -- we plan to keep the business so the business that or a large majority of the business from those produced in the New York plant as well as the French plant so in addition to the losses going away based upon the plant closure, there's the benefit that you need to look at if you're doing a financial analysis from transferring that business to other locations and obviously by doing that, the hope is anyway that those locations become better utilized and make more sense because the other locations that to which the business is being transferred haven't been doing very

Okay. And then --

But that's the $17 million number that we came up with, it's actually a fairly complex computation that isn't so easy to just kind of go through on a conference call, but if you take into account all different factors to come up with that number.

Understood. And you didn't update the charge figures that you previously announced. I assume that the charge figures are as they stood?

Yes. That's a good question. The charge in France, we're estimating to be $4 million to $5 million. I think we previously indicated $4 million to $6 million but now that we're pretty much through the process, we can refine that window a little bit to $4 million to $5 million US and I think the other amounts have all been reported in the earnings releases and those amounts which stand by them.

Okay. And a little bit more on the market situation. Quarter-over-quarter, your non-FR4 sales were not quite as bad as how I remember our last conference call. At that time I think you were fairly negative on a bunch of sort of infrastructure market on the commercial side that you thought was in a very bad shape. On the other hand, your FR4 sales quarter-over-quarter declined much more than the non-FR4 so how should we reconcile this? In your opinion, have you gained market shares the non-FR4 to these infrastructure market or are we sort of as you alluded earlier seeing sort of the bottoming out of the market?

We're comparing bad and worse I guess. So the FR-4 market, we really don't have much of a future in the FR-4 market. Every day that goes by, that goes more and more to Asia, although with the global economy being down, even in Asia, the FR-4 market in China is not good. There have been a lot of news out of China about very badly underutilized plants, plant closings even for these kind of volume commodity plants, so China is certainly not unscathed by this thing. It's just that with FR-4, it's very difficult and maybe we should put it another way. We're just not willing to try to compete with FR-4 so our market shares of FR-4 is just naturally going to erode and the other thing I've made this point before and I want to remind you is that it's not even so much always our market share. It might be our customer's market share. We may have a customer that has a mix of they do some higher performance circuit boards and maybe FR-4 type circuit boards. As they lose market share with lower performance, lower technology circuit boards we'll lose that market share as well. So it's kind of a natural process and I think that sometimes when you have this kind of severe economic situation, it accelerates what's going to happen anyway. That's just my opinion, I would be wrong about that but I think we saw that some years ago maybe the beginning of around 2001 and 2002, 2003 time frame.

The trends were in place anyway, Jiwon, but I think when you have a big market downturn of global economic problem it might accelerate those trends. As far as the high performance is concerned, it's still an issue because our high performance product goes into, as we talked about last time, a lot of this IT internet telecom infrastructure type programs and those are not the type of things that are usually where consumers are spending money. Those are more corporations and that's going to run into capital budgets and, guess what, capital budgets aren't what they used to be. You want to talk about Park. I know our IT people would like to upgrade to the next level of whatever it is we have, I guess Oracle, and I'll probably think well, maybe we might want to wait until next year and I don't think I'm not unusual in that reaction. So and that's where the high performance product is going to go by and large, so I think -- I don't know of any productline that's going to let any electronic part of our productline that's going to be unscathed. Well I should say military.

The exception so far has been military and that's been good. I don't know, and then of course with military you have to figure out the political aspects as well and I don't know how to really figure that out. Again you need to talk to smarter people than me about that factor with the change in administration but military has been strong for us. That's a good margin. That's strong but the volumes are usually pretty low, so you really can't make a future based upon just the military programs.

Okay, and finally, Brian on the composite side. Some of these or most of these RFQ's that you're fielding because they are geared toward three plus years sort of growth is sort of $6.5 million to $7 million sales. Is that a good one that you were thinking about for the near term?

I don't understand, $6.5 million to $7 million?

$7 million in quarterly sales. How do we grow this business?

I'm sorry. What's the question?

How do we grow this business until you finally get this RFQs and really start doing meaningful and interesting design work as you discussed.

We're never satisfied, so we're not going to even use an internal number to say okay if we can get to 28 million we will be happy or 30 million. Our targets are always very aggressive and that's the three things we talked about? First of all, it's just continuing to work the existing market, the existing opportunities with sales and marketing and type of guys being out there and being very present, chipping away, chipping away, chipping away. That's the first aspect of it.

The second is these RFQs we're looking at larger programs and in these cases we really can't rush the time frame because it's up to the OEM to decide how long it's going to take for them to get their aircraft in production and then the third thing is acquisitions. I think in terms of any let's talk three years maybe, any significant ramp up in volume the next two or three years, that may be more a function of an acquisition rather than organic growth, so that's my perspective anyway. As I said earlier, it doesn't really matter what my perspective is because no matter what we're just working as hard as we can every day and we'll do the best we can and whatever we achieve we're not going to be satisfied anyway, so I don't have a number for you. Sorry.

Okay. I'm going to hop back into the queue. Thank you very much.

Sure.

Your next question is from [Alvin Hoffman] with Boenning & Scattergood.

Brian, will the Waterbury facility help you in getting business for your Kansas facility?

Absolutely. I mean, the Kansas facility, I guess I should have mentioned , Alvin, since I forgot it, just to update people. That's on track so it should be open next month. It's coming along nicely, but absolutely. Everything we have is a little bit out of Singapore pioneer plant but everything we do is certainly out of the Waterbury plant. Materials and parts, of course, are out of Lynnwood, Washington, so absolutely, and the plan is, and this is not a hard plan let's call it, but the plan is to transition a lot of the aircraft related composite work to the Kansas plant as we open it, as we transfer qualifications and that kind of thing but absolutely, we're not waiting around for the Kansas plant to open.

I think the fact the Kansas plant is being built has helped us in a way, Alvin, because the OEMs are very aware of it and I guess they consider that to be a statement of some kind, let's put it that way and as a result, a lot of the qualification work is currently taking place, but all of the qualification work that's taken place so far relates to the Waterbury plant and then the plan might be in some cases especially related to aircraft type of programs, the transfer of those qualifications

Your Washington engineering group, has that expanded or shrunk?

Expanded. Not as much as I'd like it. We're competing against Boeing and it's very frustrating. Well, we hired them and everything and they call us a day before we're supposed to show up and Boeing called them and it was a little bit disappointing but it has expanded and our objective is to expand it quite a bit further. We have quite a few openings for engineering there. That's really key to our future is in engineering. It goes into the comments made earlier about trying to find uniqueness, not just build a print work.

These engineers there are more or less designing for the smaller aircraft company, not the Boeing?

Oh, well, no, we're looking at some Boeing work and, as I mentioned, there's NASA and Northrop [Grumman], Lockheed, I think they make some big airplanes, too, some of which we are not even allowed to know what they are but it all runs the gamut.

I guess that's where the future is.

For Park, I think you're right. We're not giving up electronics. Always have to remind everybody of that when we talk about these things. We're actually still doing development work with electronics. Hopefully -- we have something we're cooking up. Hopefully in a few months we'll have a new product announcement for electronics, not giving up on that, but I think our future, as you said, really is in aircraft productline.

Would you express how your competition is fairing?

You mean for electronics?

Competitors for your Nelcote division.

Our electronics products. Well, I don't, I think there's really only one competitor left in the western world and that company is called [Isola]. I don't know much about them because they're private. I mean I hear things but I wouldn't repeat them because it's just kind of gossip and stuff like that. Most of the competitors are from Taiwan or China or Japan these days, and they are more than I could possibly count or remember the names of and you could read the news releases like I do as well, but I don't hear any wonderful news in the industry but, again, I think that the electronics industry is going to be tied in to the global economics and global economics are just pretty bad. I haven't read too many real rosey upbeat press releases from companies in the electronics industry in the last couple months.

Do you still have a stock buyback open?

Sorry? Oh, yes, stock buyback. Yes, we do. We still have an authorization to buy stock, that's correct.

About how much?

I don't recall, sorry. Matt, I think it might be a couple million shares. It's been reported but Matt will call you back and let you know. The information is public, but I just don't remember.

Of magnitude of reasonableness, okay. Thank you very much.

Sure.

(Operator Instructions) Your next question comes from Brad Evans with Heartland.

Yes, thank you for taking the questions. Just curious as a follow-up to the buyback question, can you just discuss the merits of actually executing the buyback versus M&A opportunities that are in the marketplace?

By the way, it's 2 million shares? Yes. 2 million shares. In this environment we're looking to hold on to our cash, as I said earlier we feel the cash for finally had some real value and we're hoping to see some very good opportunities in the next six to eight months that could be meaningful for Park for the long-term future, not just looking to buy anything. The stock buyback is approved. It's available and we normally don't comment at what level, obviously that would be foolish of us and we would go in and there isn't really any one level. It depends on what the market is doing and all different factors and considerations that are available at the time and we could do it at any time. We have not purchased any stock recently and, in fact, for many, many years. Our focus for our cash is to preserve our cash, maintain the cash from an operating perspective and to use it in strategic ways that again could have imported back for the future of Park.

So in terms of the opportunities in the M&A pipeline, are the valuations that you're seeing more attractive than the current public value of Park Electrochemical?

The valuations we're seeing are certainly coming in and coming down and more attractive, and we're looking at the long-term future for Park. We're not looking at it on a quarter to quarter let's do some kind of margin analysis or dilution or anti-dilution analysis based on buying stock. We have never run the Company that way and we're not going to do that now. I'm sure that one could make an argument that okay, if we bought X amount of shares that the EPS would go up or down but that's not how we look at it. We're looking at trying to find a long-term future for Park and I think that people have known us for a long tile would know that we're pretty consistent with that point.

I'm sorry, just answer the question then. So are the valuations that the company that you're looking at are they more attractive than the current valuation of your Company?

Okay, I'm not going to answer that question in that way because we don't look at an acquisition based upon what it's going to do in the next quarter. We look at it in terms of the long term strategic value to Park Electrochemical. We don't do that kind of thing. Obviously when we buy anything we'll be looking at its current financial performance. I hope would go without saying, but we're not just looking at it in terms of okay is this accretive or dilutive in the next two quarters. We look at it in terms of how would this strategically enhance Park's ability of the future over the long term.

Is there a price at which you would buy back stock?

I think I just mentioned that it would be foolish of me to ever mention that number publicly. I think that just doesn't make any sense; however, as I also said, there is no one target price. We would consider all facts and circumstances when considering buying back stock. All facts and circumstances that are available to us at the time.

Brian, can you just talk about December revenue trends in terms of what you seen here in the early part of December?

We only have two weeks on the books so I would caution you to not extrapolate too much from the first two weeks. Tomorrow, we have the third week on the books and we don't have that yet but the trend during the quarter, during the third quarter I just want to repeat this was down. It was each month was lower than the prior month and the month of December is consistent with the month of November so far, although like I said be careful of that because you'll only have two weeks on the books for December so I'd caution you about extrapolating too much for that information, but it is consistent with November and also just to remind you, November and December historically even during normal times, are quirky months, November because of the Thanksgiving holiday and then December because of the holidays as well and this year we have two pretty significant holidays. We really have almost two weeks off and many of our customer s are also closing down during the last two weeks, during the Christmas week and New Years week of December, so the last couple of weeks of December will be slow, no question about that. That's my opinion anyway. But that's what I think, so those are the facts that we know and I guess everybody will have to reach their own conclusions as to what those facts mean.

Let me ask a real subjective question in terms of the demand trends you've seen. Could you try to just, what does your gut tell you in terms of how much of the demand shortfall you've seen or softness related to inventory destocking versus true end market demand?

Well, I don't buy this inventory stuff very much. I think the inventories have been pretty lien in the electronic supply chain for a long time. I think it's all about the end market. I don't know if somebody is trying to sell you that but I would caution you against buying that line, that story. I think it's really end market driven and the electronics industry has been pretty lien for a long time. I don't think there's a lot of inventory built up four or five months ago before the market really took another step down. I don't think so.

Okay, thank you for taking the questions.

Sure.

The next question is a follow-up from Sean Hannah with Needham & Company.

Yes, thank you. Brian, just to follow-up you'd mentioned Isola a little bit earlier and I was looking to see, is it possible, can you discuss a little bit around the arrangement that you, that was I believe I don't remember if it was specifically announced by you folks but I think it was at least publicized during the quarter and just wanted to see if I get a sense of the arrangement or how much of your product line do you anticipate this arrangement being subject to as we look forward?

Yes. Actually, there was an announcement from Isola. We did not make the announcement but it was made with our consent of course, so yes, we licensed some technology from Isola and we also entered a non-disclosure agreement under which we're not disclosing the terms of the arrangement and so there really is very little that we're prepared to say about it. I think it was the right thing to do for Park. I think it was in Park's interest. I also expect it was in Isola's interest. Park and Isola, I would say we've had a good relationship for many, many years. We know the people there quite well, really friendly relationship. I don't think it was ever serious risk of being hostile because I don't know much about it but I've read the news releases like you probably did as well. I think Isola did take some hostile positions with respect to some other competitors in Asia regarding our technology. Isola and Park have always found ways to do things on a more friendly level and I think I'll leave it at that because, again, we have a non-disclosure agreement under which neither Isola nor Park are permitted to discuss the specific terms of the agreement. I don't think it has a major impact on Park but I would say it's a good thing.

Okay. Well this relates to basically square weave fabric materials, correct?

Yes.

I guess what I'm trying to determine is as we look forward and this relates to your electronics business, is this a really kind of a minority portion of your overall product?

Yes.

Okay, that's helpful. Thank you.

(Operator Instructions) Your next question is a follow-up from Brad Evans with Heartland.

Brian, you'd mentioned this but just for point of clarification in terms of strengthening of the Yen and how that might affect your competitive position if at all going forward?

I think we're okay. The real issue we've had in currency has been the Euro and that almost was one of the factors that led to the demise of our French business unit if you sell in dollars. The Yen hasn't been a big problem. The copper, we buy copper from Japanese supplier but we buy it in dollars, so we really haven't seen a lot of exposure up or down with the Yen.

Does it not impact your competitors from a competitive position like Mitsubishi, Canon and Mitsubishi Gas?

You know what, it's probably true, I suppose so, but it's not something that I could really quantify for you. Those guys are also not going to be real aggressive competitors, at least not out of Japan, with the lower technology productlines. Some of them have Chinese based operations but they aren't trading in Yen there. And the high performance products, some of these companies you mentioned have high performance products and those are going to be sold in technology I think more than price, so I haven't seen anything there, not yet.

And could I just get your CapEx budget for the full year now with I guess one quarter left for the fiscal year?

What do we have so far for the year, Matt? I think you mentioned about $9 million was it?

$11.7.

Sorry. So we're spending a lot more than we thought. I think it's probably another couple million. I don't believe there's a lot more coming through this fiscal year. The large majority of the spending in Kansas has been completed and, as I mentioned earlier, the Mexico project we were talking about for the last couple quarters is on hold and we don't expect to spend any money on Mexico. If we restart the project it would not affect spending this year. Let's put it that way.

So we could see CapEx come down pretty significantly into fiscal year 2010 for you?

Into 2010? Well, that's an interesting question because we have some other projects that we're considering that we really haven't spoken about openly and they relate to the aircraft product line, not related to Mexico but some other projects and I think it's a little premature for us to discuss those but those could have an impact of maybe even significant impact upon CapEx next year but it's really too early for us to comment I think. Maybe our next quarter conference call we would have a better feel for those things. We're researching one of those projects pretty aggressively right now.

Okay, thank you.

At this time there are no further questions.

Good. Well, this is Brian again. On behalf of Matt and me and Park, thank you very much for listening, especially a couple days before Christmas. I want to wish everybody a wonderful holiday and all of the luck in the 2009 year. You take care. Goodbye now.

Thank you for participating in today's conference. You may now disconnect.