Park Aerospace Corp (PKE) 2011 Q2 法說會逐字稿

Good morning, my name is Maryanne, and I will be your conference operator today. At this time I would like to welcome everyone to the Park Electrochemical Corporation second-quarter 2011 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator instructions). At this time I will turn today's call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin.

Thank you, operator. This is Brian Shore. Welcome, everybody, to Park's second quarter conference call. I have with me, as usual, Dave Dahlquist, who is our CFO, or Vice President and CFO. We will begin with some introductory remarks. Dave, why don't you get us started with some financial commentary.

Sure. Good morning, everyone. Certain statements we 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 28, 2010, various factors that could affect future results. Those factors are found in Item 1-A and after Item 7 of that 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 second quarter ended August 29, 2010. Net sales for the 2010 full-year second quarter ended August 29, 2010 were $54.5 million compared to net sales of $42.5 million for the prior fiscal year's second quarter. Park's sales for the first six months were $113.5 million compared to sales of $79.2 million for the prior fiscal year's first six months. Net earnings for the 2011 fiscal year's second quarter were $9.4 million compared to $4.8 million for prior fiscal year's second quarter. Park's net earnings for the first six months were $19.3 million compared to net earnings of $7.8 million for the prior fiscal year's first six months.

Park's basic and diluted earnings per share were $0.46 for the 2011 fiscal year second quarter and $0.94 for the first six months, compared to basic and diluted earnings per share of $0.23 and $0.38 for the prior fiscal year's second quarter and six-month period.

Now I would like to briefly review some of the other significant items in our second-quarter P&L. During the fiscal year 2011 second quarter, North American sales were 45% of total sales. , European sales were 9% of total sales, and Asian sales were 46% of total sales, compared to 51%, 10% and 39%, respectively, for the second quarter of the prior fiscal year. Sales of high temperature laminate and prepreg materials comprised 100% of total laminate and prepreg material sales during the second quarter of both fiscal year 2011 and fiscal year 2010. Sales of Park's high-performance non-FR-4 printed circuit materials, which are a subset of high-temperature printed circuit materials, were 76% total laminate and prepreg material sales in the second quarter of the fiscal year 2011, 63% in the second quarter of the prior year and 73% in the first quarter of fiscal year 2011.

Sales of Park's advanced composite materials and parts were $5.9 million in the second quarter of the 2011 fiscal year compared to $6.8 million in the second quarter of the prior fiscal year. Sales of advanced composite materials and parts were $12.4 million for the first six months of the current fiscal year compared to $13.0 million for the prior year's comparable period. The gross profit percentage for the second quarter of fiscal 2011 was 33.6% compared to 25.7% for the prior-year second quarter. Selling, general and administrative expenses were 13.3% of net sales for the 2011 fiscal-year second quarter, compared to 12.2% for the prior year's comparable period. Investment income for the second quarter was $218,000 compared to $205,000 for the second quarter of 2010.

As a result, pre-tax operating profit was 20.7% of net sales for the 2011 fiscal year second quarter compared to 14.0% for the prior year's second quarter. The effective tax rate was 16.4% for the 2011 fiscal year second quarter compared to an effective tax rate of 20.1% for the prior fiscal year second quarter.

Turning to Park's balance sheet, cash and marketable securities were $252.2 million at August 29, 2010, compared to $237.8 million at the end of the prior fiscal year. Working capital was $279 million at the end of the 2011 second quarter compared to $261 million at the end of the prior fiscal year.

During the current year's first six months, the Company had capital expenditures of $1.9 million and depreciation expenses of $3.5 million compared to capital expenditures of $1.2 million and depreciation expense of $3.4 million for the prior year's first six-month period.

Stockholders equity was $334.4 million at August 29, 2010, compared to $316.1 million at the end of the prior fiscal year. Finally, stockholders equity per share at August 29, 2010 was $16.23 compared to $15.40 per share at the end of the prior fiscal

Thank you very much, Dave. That was concise, to the point and, as always, a transcript of Dave's remarks are posted on our website. There's a lot of detail covered there, so you can pick that up off the website, if you like.

And this is Brian, again, of course, so let me add a few more comments. Let's see. One thing I want to cover with all of you that may or may not the obvious if you look at some of the footnotes of our financial statements, I think it could be figured out. I think we should explain so everybody understands that the cash position -- it's obviously something that people were -- I think we reported, what, about $252 million at the end of the quarter, and the cash has grown over the last few years.

We have between $95 million and $100 million of that available in the US. I just wanted you to be aware of that. We had about $252 million, as I recall, at the end of the quarter, but $95 million to $100 million of that is available in the US. The rest, obviously, is overseas. And the reason for that is obvious, I think. First of all, our tax rates are much lower overseas, especially in Asia, and we have made more and more investment overseas. The electronics markets have migrated overseas, especially to Asia. So that's where a lot of our business opportunities are, especially in electronics.

We continue to struggle in Kansas. We have another approximately $1 million, maybe a little a less than that, loss in Kansas for the quarter. And I know from your perspective it probably sounds like a broken record, although I do think we are making some progress. We've made management changes. I think we're finally getting our arms around the equipment problems, but it's been a real struggle.

I also should let you know that we do have a couple of lawsuits that we are prosecuting. One is actually against the equipment supplier. And we have a policy of never litigating anything in an open forum; we don't discuss litigation. But I think you should know about that. There are two litigations, actually, we are prosecuting.

And one of the reasons you should know about it is that we are spending money with legal fees at about $300,000 the quarter. That's over and above the normal legal expenditures, legal fee expenditures that we incur. And that's going to continue for a while, I suspect. So you might just keep that in mind when you are thinking about, the analysts in particular, thinking about earnings models. About $300,000 -- this is over and above our normal rate, which is not insignificant, on these two litigations. In the second quarter, in fact, probably not any end in sight in the near future.

Our tax rate is something that jumps out, of course, 16.4%. The explanation is very simple. We are making more money overseas, and our tax rates are quite a bit lower overseas, and the 16.4% is just the math. When you compute everything and add it up, that's what you get.

What that means for the future -- boy, we just don't know. It's very unpredictable because it really depends. One of the big drivers of our tax rate, as you know how -- where -- the mix of our earnings, where the money is made. The trend is that more and more money is made overseas, and I don't think that's a trend that's going to reverse. However, on a quarter-to-quarter basis it's very difficult and complex to predict that, very unpredictable. As you know, we have mentioned this -- I don't know how many conference calls we've had, but probably almost every other conference call that, and particularly with electronics, our visibility is very poor. So we really don't know what's going to happen next week, no less next month or next quarter. And for that reason it's very difficult to predict our tax provision going forward.

It's certainly possible that in the rest of the year that the tax provisioning would be higher than 16.4%, but we really don't -- we're not in a position to tell you that with any degree of certainty. So, unfortunately, all we can do is do the best we can, and that's about it for now in terms of our tax provision.

As Dave noted, high performance percentage continues to increase. And that's not a new trend, but it's a continuing trend, something that is very impactive to our bottom line, something very important for our bottom line trend.

So advanced composite materials and parts Dave talked about. The revenue is actually down this year's second quarter as compared to last year's second quarter. I think I should explain that a little bit because I don't think we want to draw the wrong conclusion from that. For some reason, the aerospace markets, at least for Park, hung in there after the global economy collapsed about two years ago, I guess, and hung in there for another maybe nine months, at least for us, the markets that we were supplying into. And then it really fell off of a cliff after last year's second quarter.

So through last year's second quarter, actually the aerospace markets for us were relatively strong. So you see this year's second quarter actually being lower than last year's second quarter. But actually, the revenues are growing back now. And that continues to be the strategic area for Park for growth. As you know, we made this decision maybe about 4.5 years ago to develop a new market for Park. And if you ask me personally, I still think it's one of the best things we've ever done. It was a very important strategic decision. We stuck by it, and I feel good about it.

The economy is unpredictable, of course. The aerospace industry really collapsed with the economy over the last year, and certain segments more than others. But it's not that we are dissuaded at all or discouraged because the strategy was always a long-term strategy from the beginning, and we think it's the right strategy. I believe we made significant inroads into aerospace.

As I've commented a few times in the last year or two in the conference calls, one thing I've had to learn is that patience is an operative principle with aerospace, because aerospace is kind of, maybe by its nature, more conservative, more risk-adverse. So it takes longer to become established again on programs. But the progress, I think, is very clear and very good and very positive, and I feel good about that.

The other comment I made, I just want to -- or re-emphasize, maybe, I made in the annual report letter of last year, is that over this last few years, this journey with aerospace, we've had to adjust our thinking as to where to focus our attention. We started it out with certain beliefs and certain attitudes about which aspects of the markets, which customers, which OEMs were the ones to go after and partner with. And we've adjusted that thinking over the last year, especially as things have changed.

We've seen different segments and different OEMs respond differently to the downturn, the economic downturn. Some seem to be struggling and may be paralyzed, even, and some seem to be moving forward. And obviously we wish them all well, but we want to partner with the companies which we feel are the companies who have a future and have the best future. We also have spent more time with space and military and UAV, the UAV market, than we originally intended to do. But that's a little bit of a good thing for us. So those are my comments on the aerospace area.

Copper not a factor Q1 versus Q2. We don't believe it will be a major factor Q3 versus Q2, but it's something, I know, that's on your mind from time to time. So we thought we'd mention that.

I've talked about the litigation. I know you're going to ask about the first three weeks of the third quarter because you always do, and we have three weeks in the books. And what I can tell you is that it's very difficult to draw any conclusions for us, anyway. The reason for that is the first couple of weeks were off. The [third] week was back at what we would consider to be proper levels. So that could be a lot of things. It could be that the market is fundamentally weakening, or it could mean that there's some kind of seasonal thing with summer and people coming back from summer. And it's too early for us to say. It's really difficult for us to give you any kind of intelligent insight based upon three weeks of bookings and revenues. And, as you know, the bookings and revenues normally dovetail pretty well because the lead times in electronics are so short that you can really talk about either and there will be very similar trends, equally meaningful or not meaningful.

And the last thing I wanted to mention -- we just declared a dividend. Maybe you saw that, and that was our 101st dividend, quarterly dividend, regular quarterly dividend, which we declared in a row. That means 25 years, I guess, plus one quarter. So we've declared and paid a regular cash dividend, Park has, for 25 years now, never missed a quarter, never reduced a dividend. The dividend has increased, I guess, over the years, six or seven times, the regular dividend I'm referring to, to the point where it is now. But we have a record of 25 years with cash dividends -- never skipped one, never reduced it. That doesn't predict anything for the future. I'm just reporting the facts, just thought that would be something worth noting.

And I think that will conclude my introductory comments for now. Operator, I think we are ready for the questions.

(Operator instructions). Sean Hannan.

Brian, if you can just help to clarify some of the commentary you just provided around what you saw for the first three weeks, really, if there is a way to indicate what you saw as the order flowed through the quarter and then how that played into the first three weeks now of September?

August was off. August was the weakest month of the second quarter in terms of top-line bookings and revenues, and what that means I really don't know. It takes awhile to figure this out, you know. It could be a normal seasonal pattern, summer trend, that kind of thing, but we don't know.

And the first three weeks -- I don't think I'm going to offer any more specific comment on it because I think it would be inappropriate, except to say, again, that the first couple of weeks were really kind of spotty and the third week of this, which is the third week of the quarter, was back to more normal levels, at the kind of average levels of the second quarter.

Okay, and so I guess what I was just trying to get a better sense of is, when you say returning to more normal levels, what exactly you mean by that.

The average levels of the second quarter.

All right, that's fair. And then is there anything that you are seeing from a pricing standpoint, any trends or indications there?

Could you explain what you mean by that? I'm not sure I understand. You mean for our pricing, or pricing (multiple speakers)?

Yes, from an environmental or a competitive perspective, is there anything you're seeing from a trend standpoint within -- for pricing?

I don't think we noticed anything very dramatic. We've heard over the last six months that in Asia prices were coming up. But we're talking about companies that we don't really compete with directly so much because that would be especially on more commodity product. With high-end product, I don't think we've heard anything, really, that clear and consistent. We've heard -- you know, you hear miscellaneous things, little pieces of data, but I'm not really aware of any important trend.

Okay, and then I suppose this question is for David a little bit more. SG&A was a little bit lower than I anticipated. And of course, given that you have these two litigations that should be continuing for a while, even still, is this level something that's generally sustainable from a spend the standpoint, at around the 7.2, 7.3?

Well, a component of that is going to be freight out; right? So that's going to vary somewhat. That's probably the most variable piece of the SG&A. The rest of it isn't terribly variable.

There really were no other sort of structural changes in the SG&A. We commented last quarter that we are looking particularly in technical areas that we might be adding some people in the SG&A category. So that could have some impact. But generally speaking, I think the SG&A kind of is where it is right now.

Okay, that's helpful. And then, my last question -- is there a way you folks can provide the percentages for your top five customers, and then also what was the top five, 10 and 20?

Yes, I can comment on the customers. We had three customers this quarter that made up 10% or more of sales. Those three customers were TTM, Sanmina and ISU Petasys. Our top five customers combined represented 57.6% of sales, the other two customers in the top five being Multek and [Woose]. Top 10 customers represented 70.0% of sales, and top 20 customers represented 78.7% of total sales.

Thanks, Dave, and I think, in the past, you guys have given at least the percentages for those that are above 10%. Is there a way to get a sense of those, TTM, Sanmina and ISU?

We're going to change our policy on that based upon requests we've received from customers, especially the public ones. There's no reporting requirement to do that except annually, so I think we're going to tell you who's above 10%, who's in the top five, as Dave just did. But some of our customers have asked us not to disclose the exact percentages every quarter because they are concerned that people are listening to our call to figure out what they are doing.

There was a question on the last call that was a little unnerving because it was pretty obvious that the caller wasn't so interested in us but wanted to get the inside track on one of our customers, and it's not a good thing. So I apologize because I know that some people use that information in a good way, in a proper way. But unfortunately, once that information is out there, it also can be used in a way it's not intended.

Fair enough, all right, thanks very much for your help.

Jiwon Lee.

Several questions -- first of all, I wanted to go back to the Asian side of the business, Brian. I'm wondering, specifically compared to the springtime, have things in Asia picked up relatively or more slowed down so far in the third quarter, about the same?

You know what? I really don't want to get into resolution on the third quarter. I think that's very dangerous. I'd tell you that Asia in the second quarter was wrong as compared to the first quarter, at the levels -- more or less the levels of the first quarter. As you saw, the second quarter top line was off from the first quarter top line on a consolidated basis. That was more about not Asia than Asia. So Asia continued to be at the stronger levels during the second quarter, whereas if you saw any weakness in top line, it was really a non-Asia story.

And I think, again, to get into resolution on the first three weeks is just really uncalled for because it just leads to all kinds of discussions that are not helpful.

Okay, well, that's helpful. And talking about the product lines, with your product lineup now, how do you feel about your competitive position especially when thinking about the networking equipment side, as well as the telecom infrastructure, the 3G and the 4G sort of heading out to 2011?

Well, we like our Mercurywave product line, but that's really more of an RF product. In digital, we don't feel so good about our product line, and we need to do some work on that, and we are. If you've looked at some of the announcements recently, we've made changes to R&D. But I don't think we are very happy with where we are into our digital product line.

We have some legacy products that are very strong and very powerful and have done very well for Park, but I think, Jiwon, you're really asking about the product for the future; right?

Yes.

And I think we need to do better there, and we're putting a lot of effort and work in that area as well.

Okay, well, I think that's candid. And, Brian, you highlighted your cash position and sort of, kind of where those cash is located and have been growing. But I wonder whether or not there has been some updated thoughts about how you might use some of this cash.

Really not too many updates. It's like the comment about Kansas, that we think we're getting our arms around it. It's the same kind of comment. We talk about acquisitions, we talk about things we are doing to grow our business. We haven't done a big acquisition. It's not a good thing for the US economy, but this reality forces us to look at investment more overseas than the US. I'm not making political statements; it's just a fact of life. Anybody can do this math, regardless as to what political persuasion you subscribe to. If your money is overseas and your money is growing overseas and you have less money in the US and you have to pay dividends with the US money and taxes and everything else, you say maybe I should think more about investing overseas. And that's the type of thing we're looking at.

It's unfortunate that that's the way it is, but that is the way it is, fact of life.

Is there any will for perhaps hiking dividends or paying some of the money back to investors?

In dividends, you mean?

Yes.

The answer we will provide to that is our standard answer, which is we review our dividend policy a couple times a year. It's not a static thing. We look at it all the time. Obviously, we'll be paying attention to what happens with taxes, and particularly the taxes, US tax rate on dividends going forward. And that will be one of the things we will keep in mind and consider. But other than that, I don't know what else I could -- what other information I could provide you which would be useful.

And lastly from me -- the lawsuits, are both of them against the equipment supplier? Are they sort of related lawsuits?

No, they are not. The other one we're not going to talk about because it has not been filed yet and it's confidential. The lawsuit by the equipment supplier -- it relates to the comments we've made previously about the difficulties we're having in Kansas. So we thought we would indicate at least who the lawsuit was against because we feel it's relevant. We're not going to disclose the name of the party and we're not going to give any details of the lawsuit; we're not disclosing it for that reason.

The other lawsuit has not been filed yet and obviously -- and it's not filed until it's filed. But there's a lot of preparation work, and these things are expensive.

When we litigate, it has always been our policy that if we are going to litigate, we do it 100%. We don't litigate very often, but if we're going to go down that path, we don't hold back, and these litigations are expensive.

And one more thing, if I could just put that in -- your composite side of the business, even as you adjust your thinking or how you could go after certain customers, have the thoughts towards growing the component side of things with the composites changed, or is that still how you want to focus and grow?

You said component side; you mean like the composite parts?

Correct.

Okay. No, that hasn't changed. It's really a holistic approach and strategy. We work with the OEMs, with aerospace OEMs. We are interested in providing them materials and parts. But the best kind of thing for us is if we should sell them parts made with our own materials, and sometimes that even happens as well. That's when all the stars line up, you know?

Brad Evans.

As you sit here today and talk to your sales force around the world, what kind of feedback are you getting relative to the environment today versus what you were getting back in the second quarter or third quarter of fiscal year 2009?

You mean a year ago?

No, maybe two years ago, right before the economy kind of hit the fan.

Oh, boy, I don't know; I have to think about that. That's so long ago it's hard to remember, really, Brad. What kind of feedback --? Well, you know --

Let me ask the question a different way. Are you getting feedback from the sales force that there's an underlying demand problem, or is there some feedback that perhaps we are seeing an inventory adjustment within the channel that has caused maybe the month of August to maybe be a little bit softer?

Okay. Well, that's really an important question, but I don't have any answer for it. It also could be just kind of a seasonal thing as well. Every now and then, we see that. Look, I'll just answer the question from my personal perspective. I've spent a lot of time trying to figure that out, trying to see through to the end markets, trying to understand what the OEMs are doing and then listening to the supply chain, the customers, the companies that make circuit boards, the contract manufacturing companies.

And I can't come up -- I don't have any kind of meaningful conclusion as to what's going on. So it could be, what are the three possibilities, are the ones you mentioned; right? It could be something fundamental, it could be some kind of inventory adjustment. I'm normally very cautious about that term because often that's -- people say before they realize it's something fundamental. It means you have to ask, well, why is there inventory adjustment? Or, it could be some kind of seasonal thing that doesn't really mean anything.

And we have these situations at Park over the years where there's three or four weeks where it's up or down, and we don't understand it, and then we never understand it. We look back, and we're not sure what happened. And then the revenues return, the bookings return to the prior level. And I think that's the situation we're in now.

Okay, that's helpful. What is your full-year CapEx budget for 2011?

Dave, do you have an answer for that?

It's going to be driven by the Kansas expansion and the timing of that. So our spend through the first half of the year, as I reported out, was $1.9 million.

For the quarter or --?

That's for the half year. For the first six months of the year it was (multiple speakers) $[1.9] million.

Very low, yes.

And most of the rest of Kansas is going to hit in the second -- of the expansion is going to hit, so it could be another --

Another few million in Kansas before the end of the year?

Maybe $3 million, maybe.

Yes. The building is finished in Kansas, the building expansion, but the equipment is still coming in. So we could have another few million, maybe, by the end of the year in Kansas, and then the regular sustaining capital.

We also have a project in Singapore to install the other treater. We reported that last quarter. That's ongoing.

So maybe call it $4 million to $5 million on the back half of the year. Is that good enough, close enough for government work?

For government work, I agree. The reason we are kind of struggling with this is there's a lot of timing issues because some of these things may overlap into the next year, and it's hard to predict whether some of the money will be spent or the capital will be incurred in a February versus a March time frame.

Needless to say, it looks like you should continue to generate some pretty attractive free cash flow here in the back half of the year. Is that a fair statement?

Yes.

I mean, the company is a cash machine. About how much of the $100 million in the US do you think you need just to run day-to-day operations in North America?

Very little, very little. So why is that $100 million of interest to us, Brad? First of all, we pay dividends out of the US cash, we pay taxes, and tax rates in the US are high, probably getting higher. We have our corporate costs in the US. And, to the extent we want to do any more expansions in the US or do acquisitions in the US -- we are still looking at acquisitions in the US -- we are interested in that portion of the cash position, as result.

Great. And obviously, I realize, Brian, you have acted in the shareholders' best interests in the past in terms of returning capital. So we'll leave it to you to decide what is best. But clearly, a modest dividend increase or a small share buyback at this level -- we would support that, notwithstanding the other uses of capital you articulated.

And then just one last question. I think you made a comment that the revenue trends in Kansas are improving. Did I catch that correctly?

I don't think I made that comment, but it actually is true to a small degree. But remember, the big thing is getting these machines up and running and qualified so we can transfer the work from Waterbury, Connecticut, to Kansas. And, when that happens, the floodgates will open, because there's still a lot of work that's being held at Waterbury because we're trying to get these machines in Kansas to the point where we feel we have a repeatable process. Of course, it's very frustrating and upsetting. I think we have the right people in place now, but I know you've heard that before.

But the key thing is, Brad, we don't want to transfer the work and then do a poor job. When we transfer the work, we want it to be invisible; we want the customers to feel good about it. So that's the issue. The increase in revenue is small and that relates to actually new business brought in. The big thing, again, would be the transfer of the existing business that's in Waterbury, Connecticut.

So, I realize this is a long-term investment for the Company, and so don't mistake the question. So help us understand. So we are losing a little bit of money right now in this business, but we are expanding capacity. So you must really be excited by what you are seeing there in terms of the longer-term opportunity?

What do you mean by we're expanding capacity? I'm not sure I understand that comment.

Well, you are deploying additional capital into the business, where we currently are making a little bit of red ink.

Okay, I understand now. I just wanted to clarify your question. Yes; it's an important distinction because that $5 million that we were just talking about, the expansion is not to expand the existing operations. That's to move into manufacturing composite parts. The existing operation produces composite materials. That's (multiple speakers) [what we do] in [Waterbury], Connecticut.

Once we get the existing, especially the two treaters running to our satisfaction, then we'll transfer a significant portion of the work that's being handled in Waterbury to Kansas; that's materials. Now, the parts that are being produced in Lynnwood, Washington. That's the result of the acquisition which we did about 2.5 years ago. The expansion relates to the parts, and that's more of a commitment on our part to producing parts, and not only producing them, but doing the design work as well.

I believe acquisition we did 2.5 years ago in Lynnwood, Washington was a very good acquisition for Park. It was very strategic. But nevertheless, that facility is small and the capability of the equipment is really not at the level we would want. So that's the reason for the expansion in Kansas, to produce parts but to produce it in a more serious and robust way. We are not expanding our capacity to make materials in Kansas. That part of the factory was completed a year and a half ago, actually.

Okay, thank you for that clarification. Would you be able to maybe just talk about your longer-term expectations for that business in terms of if you looked out three years, how big of a business should this be and what type of contribution could it make to the operating line?

To quantify it is difficult. If you asked me that question three years ago, I would have said, we would have been ahead of where we are now. The reasons for that -- one is that it took me and, I think, some others at Park, but I'll just speak for myself and my own kind of miscomprehension, or lack of comprehension. It took me awhile to really understand how conservative and risk-adverse the aerospace industry is. Coming from electronics, it's almost the opposite.

And the other thing is that the global economy has really slowed the progress down. There have been programs which have been canceled. Just a couple of days ago, one of the aircraft OEMs announced another layoff. So there are certain aspects, certain segments of aerospace, which really have not begun to recover yet.

Now, if you ask me where we are now, where we would like to be three years from now, my belief is that we've made significant inroads into the OEMs, that we are a known quantity, we are on the map. So that has been accomplished. If the economy gets a little bit better, and especially the global economy, and it doesn't backslide, my hope would be that we would see significant top-line growth over the next three years in our aerospace activities, say, three years from now because of those two reasons. One, I think we have paid our dues. Now we are entrenched, whereas three years ago we were still somewhat of an outsider. And the other thing is that the economy (inaudible) gets a little bit better, not worse. And I would think we would see and I hope we would see significant top-line growth.

For me to quantify that, I'd just be -- doing a kind of wild guess, and I don't think that's useful to do in the context of a conference call.

Would your expectation be that the margin of that business would be comparable to the electronics business?

I think it should be better in the long-term. And the reason for that is, the strategy is similar, actually. We are focusing only, trying to focus only in areas where we have some uniqueness, where we have some kind of specialty capability, where we have some technology. But we are not looking to be a volume supplier of materials or parts into the aerospace industry; (inaudible), we are not looking to do that in electronics. But aerospace, in my opinion, is a growth industry. Electronics, to me, is a mature industry. I think there's much more upside for us in aerospace than there is in electronics. For electronics we have to protect where we are. Aerospace -- that's our growth outlet.

So, as I said, I think this is a very good strategy. It's taken longer than I thought, but I still think it's a very good strategy. And this is our growth opportunity for Park. And I don't (multiple speakers) --

Okay, thank you for taking the questions. I appreciate it.

Yes. I don't know of anything in particular, Brad, which should dissuade us from that belief.

Operator, do we have any more questions?

[Len Cooper].

I have three questions. One, is Park ever a target of other firms looking for acquisitions? Two, do the lawsuits cause delays in the work that you're trying to complete in Kansas? And, do the lawyers have any idea how long these suits may be going on from their experience?

As far as Park being a target, I think over the last -- we've been public forever. I think we've had overtures many, many years ago and not something that I'm recently aware of. Park is not looking to be sold. Park is independent-minded and we are also long-term oriented. We are not looking to do something which is a two-year plan. So I guess that's the best way I can answer that question.

I understand I think what you're asking in the second question, is the fact that we have litigation, is that actually posing a problem because we lose access to the supplier in terms of support? And I think, if that's a problem at all, it's a very, very minor problem. I don't think it's significant.

And the last question -- how long will litigations last? I don't have an answer for that. I'm really not sure. I think you know, litigation is one of those areas of life that is fraught with uncertainty. It's hard to know how litigation will go. Like I say, we very rarely get involved in these things. And when we do, we take them seriously and we don't hold back. We don't like these kind of things, so when we do it, we figure we should take them seriously.

Okay, thank you very much.

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Okay, thank you very much, operator, and this is Brian again. Thank you, everybody, for listening in; thank you for your questions. Dave and I will be here the rest of the day if there are any follow-up questions. And we'll talk to you soon. Have a good day. Good bye.

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