Park Aerospace Corp (PKE) 2012 Q2 法說會逐字稿

Good morning. My name is Derek, and I will be your conference operator for today. At this time I would like to welcome everyone to the Park Electrochemical Corporation second-quarter fiscal year 2012 earnings release conference call. (Operator Instructions). Thank you. At this time I would like to turn today's call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Derek. This is Brian Shore. Good morning, everybody. Welcome to our second-quarter call. I have with me Dave Dahlquist, our VP and CFO, of course. I will begin with some introductory remarks, Dave with some financial perspective, I'll add a few more comments as well, I guess, and then we'll get into the questions.

I just want to remind everybody that a transcript of Dave's comments are posted on our website. There's some detail in Dave's comments. So if you want, you can check on our website as well.

So, Dave, why don't we get started?

Okay. Good. 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 27, 2011 various factors that could affect future results. Those factors are found in Item 1A and after Item 7 on 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 28, 2011. Net sales for the 2012 fiscal year second quarter ended August 28, 2011 were $50.4 million compared to net sales of $54.5 million for the prior fiscal year second quarter. Park sales for the first six months were $102.3 million compared to sales of $113.5 million for the prior fiscal year's first six months. Net earnings before special items for the 2012 fiscal year second quarter were $6.6 million compared to net earnings of $9.4 million for the prior fiscal year second quarter.

During the current fiscal year second quarter, the Company recorded other pretax income of $1.6 million relating to the settlement of certain lawsuits during the quarter. Accordingly, net earnings were $7.7 million for the second quarter ended August 28, 2011. Park's net earnings before special items for the first six months were $13.9 million compared to net earnings of $19.3 million for the prior fiscal year's first six months. As mentioned above, the current fiscal year six-month period included other pretax income of $1.6 million relating to the settlement of certain lawsuits during the second quarter.

Accordingly, net earnings were $14.9 million for the six-month period ended August 28, 2011. Park's basic and diluted earnings per share before special items were $0.32 for the 2012 fiscal year second quarter and $0.67 for the first six months compared to basic and diluted earnings per share of $0.46 and $0.94 for the prior fiscal year second quarter and six-month period respectively. Basic and diluted earnings per share were $0.37 and $0.72 for the second quarter and six months ended August 28, 2011 respectively.

Now I would like to briefly review some of the other significant items in our second-quarter P&L. During the fiscal year 2012 second quarter, North American sales were 44% of total sales, European sales were 13% of total sales, and Asian sales were 43% of total sales compared to 45%, 9%, and 46% respectively for the second quarter of the prior fiscal year. Sales of Park's high-performance non-FR-4 printed circuit materials were 79% of total laminate and prepreg material sales in the second quarter of the fiscal year 2012, 76% in the second quarter of the prior year, and 78% in the first quarter of fiscal year 2012.

Sales of Park's advanced composite materials and parts were $7.1 million in the second quarter of the 2012 fiscal year compared to $5.9 million in the second quarter of the prior fiscal year. Sales of advanced composite materials and parts were $12.8 million in the first six months of the current fiscal year compared to $12.4 million for the prior year's comparable period. The gross profit percentage for the second quarter of fiscal 2012 was 28.8% compared to 33.6% for the prior fiscal year second quarter. Selling, general and administrative expenses were 13.7% of net sales for the 2012 fiscal year second quarter compared to 13.3% for the prior year's comparable period. Investment income for the second quarter was $196,000 compared to $218,000 for the second quarter of fiscal year 2011.

As a result, pretax operating profit before special items was 15.5% of net sales for the 2012 fiscal year second quarter compared to 20.7% for the prior year second quarter. Pretax operating profit was 18.7% for the 2012 fiscal year second quarter. The effective tax rate before special items was 15.5% for the 2012 fiscal year second quarter compared to an effective tax rate of 16.4% for the prior fiscal year second quarter. The effective tax rate for the fiscal year 2012 second-quarter was 18.6%.

Turning to Park's balance sheet, cash and marketable securities were $257.7 million at August 28, 2011, compared to $250.4 million at the end of the prior fiscal year. Working capital was $282.6 million at the end of the 2012 second quarter compared to $271.7 million at the end of the prior fiscal year.

During the current year's first six months, the Company had capital expenditures of $2.6 million and depreciation expense of $2.9 million compared to capital expenditures of $1.9 million and depreciation expense of $3.5 million for the prior year's first six month period. Stockholders equity was $363.4 million at August 28, 2011, compared to $353.8 million at the end of the prior fiscal year. Finally, stockholders equity per share at August 28, 2011, was $16.27 compared to $15.70 per share at the end of the prior fiscal year.

Okay. Thanks, Dave. It's Brian again. I'll add a few additional comments.

First of all, let's talk about Q2, the bottom line Q2 versus Q1. It was off. Why? First of all, the top line was off, and that is going to translate the bottom line pretty directly. There is a very clear correlation between our top and bottom lines, especially on a short-term basis.

So, then there is Kansas. Kansas, the losses in Kansas were about $500,000 more in Q2 than Q1. That's what we think we indicated in Q1, what we were expecting that is according to our plan. So it's significant, but it is -- according to our plan, we are right in the middle of the transition at this point.

So, as far as SG&A is concerned, you might have noticed that's actually down from Q1 and Q2. It was down from Q1. There are a couple of explanations for that. One is legal fees. Legal fees were $300,000 less in Q2 than Q1. These are actual numbers unannualized, and remember we settled a couple of lawsuits. That's the principle explanation for the difference in legal fees, and in Q1 we also had made the $250,000 donation through the Japan relief fund. As you remember, that one is SG&A.

A couple of other comments just ticking through. Copper, not significant in terms of its acute Q2 to Q1 or Q2 to prior year's Q2. There's a lot going on with copper. It's hard to track. It's just unbelievable. It was at 450. Now it's, I don't know, 340. I haven't looked. I actually did look this morning, but I forgot. I think it's moving back up again. And that's just in a couple of months or so.

But there isn't the economic difference in terms of our bottom line is negligible Q2 compared to Q1 and, again, Q2 to Q2.

Let's talk about Japan. We talked about that in the last couple of conference calls. There is one major customer that was affected pretty significantly by the earthquake and the tsunami, and we did have significant supply interruption. As you know, we put people in allocation. That's a high technology product where pretty much Park is the major game in town, maybe the only game in town. It's a very important product for Park.

So the good news is that we are in the next week going to tell people we are taking them off allocation. One reason is the market is a little softer than we expected. The other reason is that the Japanese company has done a very nice job at bringing their capacity back online.

The bad news is we've lost some market share because some of the OEMs really had to go to another technology. They just couldn't sit and wait. That is unfortunate, but I don't know what we could have done about it.

The flipside of that is that, interestingly, I think this technology was taken for granted for a long time in the industry. But this situation and crisis, what have you, has certainly put it on the front burner in the eyes of a lot of OEMs and OEM designers. So it's gotten a lot of visibility, a lot of attention. We are actually seeing increased from companies, and there is technology that previously we hadn't spoken to about this technology.

So the other good news is we've become very close with this supplier. We've always been close, but we've been especially close at the high executive level with multiple meetings in Tokyo and US.

So I think that's a good thing. It's brought us closer together, and we are thinking that this technology will be an important technology for Park in the future. So, that's that story.

So, let's talk a little bit about Q3, what to expect. First of all, Kansas, I want to cover that. Kansas should be $400,000 worse in Q3 than in Q2, but, again, this is all according to plan. Remember we are going through a major transition with aerospace in the US where all the aerospace materials prepreg work is being recited from Waterbury to Kansas. At the same time, all the parts that are being made in Washington, [limited with] Washington are being recited in Kansas. So we've brought a lot of cost on in advance of the actual revenue and business coming over, which I get you would say it's unfortunate, but I also think it was necessarily the right thing to do.

There's a very significant amount of qualification work. Even though we already might be qualified as the plant recite qualification work is quite significant, and in order to get qualified, you have to bring your resources on and have the systems in place and have a lab setup in place so that we can not only produce the product, but do all the testing and generate the data in order for the customer to say, yes, we're ready to move over. Plus, we've had to move our AGATE qualification from Waterbury over to Kansas.

By the way, Kansas was just I think we did an announcement about this just given the NADCAP certification for materials. That's -- NADCAP is kind of what you expect for parts, but for aerospace materials, that's a new thing. There's another company, a foreign company that was, I guess, given that approval in the same day that we were. They announced that they were the first, but I don't think that it was actually quite true. They may be tied for first, but actually in the US, Park is still not only the first but the only company as far as we understand, which has that NADCAP approval or certification for prepreg materials for aerospace. That's a good thing, I would say.

How about the first three weeks? We have first three weeks in the books. Last week, week four of September, which is now we're talking Q3 again, right? We don't have it on the books yet. We will add it tonight, but we have anecdotal information. We have got to report, so we don't have it all, kind of consolidated in a nice package. So let's talk about the first three weeks.

The revenues are tracking. The revenues in the first three weeks of Q3 or September are tracking almost exactly with the revenues of Q2. Bookings are off in the first three weeks. Also, you probably are going to ask about this. I know you do, so let me just cover it.

In Q2, June was strongest. July was a little bit off from June, and then August was quite a bit off. So it trended down during the three month period. The beginning was the strongest. The end was the weakest. You could say, well, maybe August is a summer thing. I don't know.

That is for the people to comment on. I'm not sure what it is. But the August revenues were off quite a bit from June and July.

So, oh, yes, just one other comment -- no, let me finish on Q3 and the outlook. So there is a lot of anecdotal input that of market weakness that we are hearing right now from OEMs and customers in particular. And particularly in Asia, which is interesting, in the past year or so, I think it was the opposite story where North America and the West was weaker, and Asia was hanging in there fairly strongly. But now it seems like it's almost the opposite. That maybe North America is kind of so-so and not so not terrible, but Asia seems to be quite weak right now.

Go figure as they say, but these relate to mostly Western OEM programs, mostly Western OEM programs that are being sourced in Asia.

So, what does that mean? I don't know. The overall economy -- I'm surprised that things are going as well as they are considering how much difficulty the global economy seems to be be dealing with Europe and the debt crisis, and I mean, I'm just not sure what the good news is in terms of the overall economy. I'm not an economist, as you all know, so I'm just telling you that the overall economy doesn't seem to be so great right now. And I'm actually surprised that business has been as good as it has been under the circumstances, but I have this funny feeling that maybe things are the economy is really catching up with business now. I don't know, but there's some not so great indications we're getting from important OEMs and customers of how they are seeing their business for the next few months. I'm talking about electronics and particularly related to Asia, which is -- I don't know -- I'm not sure what to say about that, except that's what we're hearing.

I guess I should just mention aerospace. You'll probably notice from Dave's comments, aerospace was up in Q2 versus Q1 several million dollar level. So that's a little higher than we've seen, but that's not because some of the programs we've been working on have started to really lag in in a big way. It's more just because the aerospace industry seems to be getting moving again. Why is that kind of strange, except maybe it's been down for so long, the OEMs have been not making airplanes for so long, that they really had to get back in the business or they wouldn't have a business left.

So we are starting to see some of the fundamental -- some of our basic core accounts come back with more business. That's not really a function of no programs lagging on. As we mentioned in the past, those are longer-term in nature.

Let's see if -- going through my notes. I think I covered most of the things I wanted to cover. So I'll tell you what. Operator, why don't we go to the questions at this time?

(Operator Instructions). Sean Hannan, Needham & Co.

Brian, if I could follow-up on some of the comments you made a little bit earlier, this is in regards to the high-tech product where over in Asia you were really having some customers on allocation during that time period. It looks like some OEMs may have turned to find another supplier to address their needs and that you may have lost a little bit of share. And I just wanted to make sure that I understood that this is what we're talking OEMs based in Asia, and then does this correlate to any of the weakness that you are seeing that you commented on through the current quarter?

Okay. First of all, we had everybody's allocation, not just in Asia. We purchased the product from Japan, but it's a product that's used in our products around the world, okay? So the whole world was an allocation, not just Asia.

I think the two things are not related. I think the market share is pretty identifiable. We know what it is. We know which programs went elsewhere. We could add it up. But what's going on in the market I think is unrelated to that. Those are two different issues. I didn't mean to tie them in my comments. If I did, I didn't mean to do that.

That's fine. That's helpful. Is there a way perhaps if you can discuss the pricing environment on the electronic side, and given some of the dynamics perhaps that you're seeing in Asia or then other areas of the world, is there any color you can provide on a regional basis of what you're experiencing? And then to what degree do you have to take steps or have you had to take steps to defend some of your share?

We never do that. We never have. It's called totally against our policy. That's not who we are. I think that the pricing -- I mean there's always pricing pressure on electronics. Let's face it. But I think that it ends up being much more significant -- you read these things, these press items from I don't know Taiwan or wherever much more significant in the commodity area where there really is a commodity mentality kind of a supply and demand, pork bellies, whatever. And when business is weak, a lot of the supply chain starts really dumping prices hard. And then when business comes back, they start really raising prices hard, and we don't do that. I think we've been clear about that for years. It is just we don't do it at all. When business is very strong, we don't raise prices. When business is weak, we don't lower prices. The price adjustments that we do get involved with relate to our raw material costs, and that's our policy. I think the world knows it very well. And that's a good thing because, frankly, they are probably not even going to ask us with any kind of seriousness to, let's say, lower our prices in a down environment. And I don't think it's -- I don't think we -- as much as you hear about it, you can say -- I don't really think that's been a factor in losing market share or gaining market share. And I am glad we haven't gotten into that game over the years.

That's helpful, Brian. I have one more question on the electronic side and then a follow-up on the aerospace side. On the electronics, we talked for a little bit about around a few projects I think two to three that you are looking to introduce this year. And just wanted to see if we can get an update around that, when you expect you get the products into customers' hands, and then perhaps through the sample and commercial shipment phase?

Yes, these are two R&D projects. There is a third one, which is probably more, let's say, next year if it happens at all.

So, the thing is, the products were really developed as a couple of months ago. We're going for the commercialization steps and working supply chains and making sure the supply chain is intact. I don't think we've done a very good job about it, and I think it has been a little disappointing. So, we didn't want this to happen, but we just really didn't do the job we should have.

So we're kind of in a scramble mode now. We've got people over in India working with one of our suppliers on supply-chain issues and things like that. This should have been done months ago. So shame on us. I feel the products are -- I'm pleased I feel the products are very good products. We're happy with them, but we certainly are in the Chinese fire drill -- pardon the expression, if you don't mind -- at this point going through all the supply-chain logistics in detail before we can feel comfortable announcing the product.

One of the things -- a part we just don't like doing is announcing product and then we can't -- we have to give people three-month lead times or that kind of stuff because we don't have the manufacturing plant approved and qualified. We don't have the supply-chain intact, and we don't have all our ducks in a row.

We just hate that kind of stuff. So we are in a scramble mode. The commercialization targets are November. If they slip, it will be not because from my perspective anything with the products themselves. It's just getting all our ducks in a row. So we're pressed too hard not to slip, but I'm not happy with this part of the effort. I don't think any of us are.

Long-term, I would say okay fine, probably not significant what I'm talking about, but it is -- I don't feel we've done a good job with the commercialization.

Okay. Thank you for that. And going back to the aerospace side just very quickly, is there a way if you can just provide some color around where you think you stand with your current efforts today on new business awards and how that position or momentum may differ from, say, a year ago?

My feeling about it -- let's say, it's just kind of almost a gut feeling based upon lots and lots of input and data is that we've come a long, long way in this last year. We probably thought we were further along a year ago than maybe we were because we just didn't understand as much as we do now. I think that we are looking at key programs at this point. We're being taken quite seriously on key programs.

So I would say we are a player at this point. We always have to caveat that these are long-term things, and it takes a long time for these programs to ramp up. But I think a year ago we probably wouldn't have been able to be involved in the programs that we are involved in now. We may not have fully appreciated that, but, of course, we've learned by experience. Hopefully a year from now I won't say the same thing, you know, but I don't think so. I don't think that will happen.

The plant in Kansas that's where we are really sticking our ground for the future for aerospace in North America. It has been a lot of effort I'll tell you that. It's just been a huge effort getting that plant up and running, getting it recited on. It's an extremely demanding situation now because there's so many things that are happening all at once in terms of the recites. It's really forcing the issue. We didn't want that to be a two or three-year transition. I don't think -- we don't feel that's a very -- it's narrow. You know, when you have a long transition because things kind of languish and get out of focus and everything else. So, once you start, we feel it's good to try to force the issue to get it done as quickly as possible. I don't know if that helps Sean or that is the kind of input you're looking for. Is there something else that -- some other kind of comment you would like us to make about aerospace?

I think that's helpful right now, Brian. Thanks very much.

Morris Ajzenman, Griffin Securities.

Just a couple of quick follow-ups. This one major customer impacting you guys again into the second quarter from Japan, and I know we're not going to talk about the customers specifically and I'm not asking you to, but can you give us some idea of what the revenue difference was year over year or quarter to quarter from this one customer just so we have some idea of what the impact was to the top line?

What do you mean customer? This is a supplier.

Well, you spoke about there was one major customer who is impacted materially. I'm not sure if you meant you are a customer of theirs or they are a customer of yours, and you said you've taken off allocation.

I guess Dave said -- I misspoke, I apologize. So I'm sorry. Let me go over that, again.

So there is a major supplier in Japan of a technology product that we use for electronics, for high-tech electronics, and they were affected by the earthquake and tsunami, and their ability to produce the product at the levels we needed was affected. All right? So I'm sorry. I obviously misspoke. I apologize for that.

So, as a result of the fact that we couldn't get as much of the product as we needed from the supplier, we put our customers and OEMs on allocation. We said to our customers around the world, sorry about this, but we just -- we can't get any more of this product. So we're going to put everybody on allocation until we can get more product.

And, as a result, we lost market share with one or two OEMs in particular because they needed more product. These are existing programs. See they get existing programs with this material designed in. Okay. And they had orders, more orders for these programs, and they couldn't satisfy their customers, their end customers because they couldn't get this product from us.

So what they did was they did a redesign -- this is one or two OEMs -- a redesign not for everything they buy. But for one or two of their programs, they did a redesign so they could use a different kind of material for this program. So I'm sorry I didn't speak clearly. That's how we lost market share because in those programs, those two and three programs, the OEM decided that we can't wait any longer. We've been as open and honest and transparent as we possibly could, and we have been indicating November before we would be able to really get more -- a higher level, a higher quantity of product for them. They thought we can't wait. Are these OEMs thought -- they're going to lose too much market share with their customers. So they went through a very painful process of redesigning a couple of their programs, redesigning using somebody's else material so they could continue somebody else's products, somebody else's product that's a competitor of Park's so the OEM could continue to supply their customers at the increased needs.

So now what's happening is we're going to go back to the market next week and say, okay, allocation is over. Everybody is off allocation. Now the Japanese supplier has done a very nice job of bringing up their capacity more quickly than planned, and maybe we are like a little -- maybe a month ahead of plan, and also, the market is soft anyway. So now we're going to tell the world and I guess to the extent the world is listening now, they will know it, that allocation is over. So there is no longer going to be restriction in terms of how much product our customers can buy based upon the product we source from Japan. We make these products with a product resource in Japan. Maybe it's confusing, but that's kind of the best I can do.

So we've lost market share as a result of that. Now the fact that we are going to go back and say, yes, allocation is over. These OEMs, they are not going to switch back. It's very difficult, very time-consuming, very expensive and painful to do a redesign. It's unlikely they are going to go back now. It just doesn't make sense for them to do that. On those programs, they are probably lost maybe forever. The good news -- (Multiple Speakers). Go ahead.

My question, therefore -- thanks for the clarity -- is, can you give us some estimate of what your revenue shortfall was from this disruption versus either first quarter or second quarter a year ago? Just so we have some sort of idea of the revenue decline, how much was due to this versus other?

No, I will -- we won't do that. What we can say is that these programs are worth to us about $5 million on an annualized basis. Okay? That was quantified, but we're not going to get into how it affected Q1, Q2, Q4, etc. That's, I think, a little bit too much refinement for this.

Another question. You touched on the first three weeks of this current quarter in the first fiscal quarter is exactly tracking the second quarter. Then you gave us details. June was the strongest month in the previous quarter, softening into July and further into August. Does that mean the exact tracking referring to June being the strongest is tracking those first three weeks of the second quarter?

No. Good question. We're talking about taking the average for the second quarter. We have got 13 weeks in the second quarter, divide the second quarter revenue by 13, and then that's our weekly average in terms of revenue. I'm saying in the first three weeks, we are saying the first weeks of the third quarter of September, our revenues are at that level.

Understand. So it's tracking the average weekly rate of the second quarter. Got you.

And the last question, the first quarter, excuse me, the second quarter Kansas lost you about $0.5 million more than the first quarter. I think that is what you said. And then I think you said into the third quarter, I think it's going to be a $400,000 incremental loss over the second quarter. Did I pick that up correctly?

Yes.

Can you give us -- when does that peak? Does that continue to rise into the fourth quarter and the first fiscal quarter of the next year? How does that kind of ramp continue, or are we reaching a peak in that sort of increasing loss for the transition for the Kansas plant?

So some of it's going to be a matter of timing, when things happen week to week. But the plan is that all the transition work will be done by the end of the fiscal year, right, by the end of the fourth quarter. At that point, Kansas -- the plan is that Kansas should be in the black.

Okay. So the fourth quarter, will that be a further increment to the third quarter at this point, or is it going to moderate?

We don't know. We're not indicating. Again, it's a matter of timing when things come and when things happen. The fourth quarter is going to be a very interesting quarter, but the plan is that fourth quarter should moderate, you know, kind of moving back down toward a positive or breakeven and positive in the black situation by the end of the fiscal year. That's the plan.

Jiwon Lee, Sidoti & Co.

Some of my questions were answered, but just kind of wanting to stay on the aerospace business. Brian, how many long-term programs are you currently involved now that you are getting some revenue stream? And the second part of the question is, did you feel that you can sustain this elevated level of revenue, and how would that translate to your growth expectation for fiscal 2012 related to the aerospace business?

None of our current -- no significant portion of our current revenues relate to major programs we've been working on in the last 12 months. There are certain programs we've been on for several years, and of course, those programs do impact our revenues. So -- sorry, the rest of the question was the expectation next year?

Yes, I wanted to know your growth expectation and whether or not you can sustain this $7 million plus of quarterly run rate and grow from there in fiscal 2012?

Okay. Good question. My feeling about that is it's going to be very dependent upon the market. We continue to work on new programs, but the new programs, again, I say this 100 times, I'll say it 101. The long-term programs are probably not going to -- let's say the market gets soft. It's gets really soft in the next couple of quarters. The new programs aren't going to offset this, you know.

So, in the short-term, you've got to think about the market. In the long term, you got to think about -- (technical difficulty). When do some of these new programs start to really impact revenue? Next year, maybe toward the end of next year. I would say maybe in the second half of next year with some of the new programs we are looking in. But I can't quantify that either. I can't quantify that. Sorry. Go ahead.

And the new programs, Brian, you are involved now, are they mainly new OEMs, or are they largely extension of your existing customers? Like on the PCB side, you have some customer concentrations. So give us some color as to how they play out on the aerospace side.

Okay. Very different because in electronics, we've been in this thing forever, and we're very well-established. People know who we are. Not too much new under the sun.

In aerospace we're still the new kid on the block, so a lot of the programs we're working on are with the OEMs we have not worked with before, probably just because we wouldn't have had the capability really to work with them, and they wouldn't have taken us seriously until recently.

Okay. Fair enough. And talking of customer concentration, Dave, could you give us the top five list, as well as the percentage of revenue top 10 and 20?

Sure. We had three customers that fell into the 10% or more of revenue for the quarter. That was TTM, Sanmina, and Multek or Flextronics. Rounding out the top five were ISU Petasys and [Wooz]. Together the top five represented 51.4% of sales, the top 10 63.9%, and the top 20 75.4%.

Brad Evans, Heartland.

Brian, how much stock did you buy back in the quarter?

We didn't buy any stock back.

Can you maybe just maybe amplify that a little bit? I mean I realize business conditions are less than you'd like to see them. However, with the stock down where it is today, I guess the Company is being valued at substantially less than five times debt adjusted cash flow. It would just seem like -- and I do realize a good portion of the cash is offshore -- but it would just seem like your stock is a very, very good investment considering the fact that the cash is yielding, well, zero.

We haven't been buying stock for a long, long time. But I think we have an open authorization, but it's just not something we've been actively doing.

Over the last five, six years, we've been more inclined to issue special dividends rather than buy stock back. If we want to do something unusual or extraordinary with our cash, maybe it's partly a philosophical thing.

It doesn't mean we won't buy stock. But when we buy stock, we are looking at some very unusual bargains for our shareholders, and we don't just go into a market and buy stock. That's not been our practice. We don't try to support the stock by buying stock -- stock price by buying stock. So -- (Multiple Speakers)

I guess I wouldn't argue that you're supporting the stock price. I'm thinking about it from the perspective of with 20.8 million shares outstanding, that you can actually have a meaningful impact in terms of driving earnings accretion when business does improve. You know, the denominator would shrink so you would be able to, in fact, actually accelerate your earnings growth into some type of recovery that may or may not happen.

Right. So we understand the math, It is pretty straightforward as you mentioned. It's not been our philosophical inclination to buy stock over the years and at least not in the sense that other companies might do it. We have purchased a lot of stock from many years ago, but that's when the stock had really tanked, and it was at crisis levels, and we went in and bought a lot of stuff very quickly and then got out. We felt good about that. But it's not something we choose to do as an ongoing thing.

Notwithstanding that, we understand and the management are talking about our philosophy is that we should be really trying to use our cash to grow our business, rather than just buying back stock.

Again, I have to say that doesn't mean we won't do it. We have an open authorization, but it's not our philosophical inclination.

You mentioned also that most of this cash or a large portion of the cash remains overseas. I think there is still about $70 million left in the US.

You know, for better or for worse, when we look at some of the investment opportunities acquisitions, a lot of them end up in the US. It's kind of -- I don't know, peculiar almost, I guess, and when we start looking at even a small acquisition -- small for us, $40 million, $50 million, we start to say think, jeez, you know we're going to be almost out of money pretty quickly here.

So, I think we would be pretty reluctant to pay additional special dividends or buy back stock. And then, of course, if there is an opportunity for us to repatriate some money, that would change the equation. I have made that comment before actually. So from that perspective as well, Brad, it's not something that we're looking to jump in and do.

Now that doesn't mean we won't. If there are some unusual events, some unusual opportunity, the stock takes a serious dip. We watched the stock every day. Obviously it's our responsibility. We try to pay attention to what's going on in the market. But, again, it's not just just not our philosophical preference, number one, and under the circumstances with our limited US cash, as a practical matter, we would be reluctant to do it, number two.

Right. Just as a patient shareholder, we would -- I think it would be a positive development to maybe reassess the buyback. Just the markets are somewhat -- some might say that they are not acting totally rationally. Some would say that maybe they are, but one thing for sure is liquidity is tight across the market, and you never know when you're going to run across a distressed seller that might impact the stock and provide you an opportunity to materially lower your float and drive earnings accretion. We support you and your efforts to grow, and you know the aerospace effort is a reflection of that. And, quite frankly, we are going to bearing down here on about $11 million of cumulative losses on that effort here over the last three years. So shareholders have been patient as you've been investing on the aerospace side. So it would be a fig leaf for those who have been patient notwithstanding as you mentioned the special dividends, which we do appreciate as well.

So let me just shift gears here. So the takeaway from your commentary is that if September -- the first three weeks are tracking to the second-quarter average, then you have clearly seen a fairly nice rebound from September from August. And I'm wondering whether is that with the normal seasonal bands that you would expect that type of bounce that you've seen?

I'm really glad you're asking that question because I think that you missed one part of the comment, which is that our bookings in September are off from the second order. Our revenues in September are tracking the second quarter. Our bookings are off. And I also made a comment that anecdotally we are hearing some concerning things about, especially in Asia from OEMs and customers over there, so I wasn't trying to give encouragement. I wasn't trying to say, boy, things are going well. Factually you're correct, that you look at the revenues in September, the first three weeks, they would be up from August. That would be a factually correct statement, but I report the facts. Good; you have the facts.

My comment is, I wasn't trying to encourage anybody that, boy, things are going well. I feel the opposite, and I think the bookings are a little more inconsistent sometimes because we can get a booking for two or three weeks out at one time. So sometimes the bookings aren't as reflective of the current trends as the revenues are. But bookings are off, but we're not going to comment on the amount of bookings. Bookings were off in September. The anecdotal input we are getting is negative in September.

So I'm glad you asked that question because if anybody felt I was trying to tell the world that, boy, we are doing well and things have really recovered from August, I wasn't trying to send that message. And I'm glad you asked that question.

Thank you for that clarification. Thank you.

And I just wanted to add, Brad, look as far as the other topic is concerned, we understand that your Company has been loyal and it's appreciated, and we sincerely mean that. Those are not just words. We appreciate the input we get from our investors. We don't always agree, and we'll have open discussions with them.

But the other comment you made is interesting because that is the type of situation we have taken advantage of when there was somebody, frankly, desperate. I think the margin calls or something like that, and they just really had to sell and sell quickly. We did take advantage of that, and that was some years ago. It was a lot of stock, and I think it was a good deal for the Company.

[Leonard Cooper], private investor.

Being an ex-engineer, I guess I'm always an engineer. But I heard some words here that I put in quotes, and that's technology in relation to R&D products. Are you able to tell me what that technology is, and what those products are -- (Multiple Speakers)?

We used the word technology in this call you mean?

No, you said there was no interest. Previously there wasn't much interest in this technology, but now people are suddenly taking an interest in this technology. And I don't know what the technology is.

Okay. It's a technology. Again, we source a product from Japan, and we are a very important supplier in Japan that's used for our most advanced product line. Right? It's a necessary component for our most advanced new product line where there was no substitute for it, right? That's what I meant by the technology. The technology of this product we buy in Japan as it is incorporated into our product line, and it is an essential component to some of our most high technology products. So it's a technology product being sourced in Japan that's used in our -- some of our most high technology products. These are high-speed low loss products. Right?

Okay. So it is a product as compared to, say, a material that has been used to make some other product?

We source this product from Japan, and we incorporate it into some of our higher tech materials.

And you put that product in a box when you ship it -- I mean is it a physical object?

No, we get a new box, I guess, but it's incorporated into our products, into our laminates and prepregs. It's used to make our laminate prepregs.

Okay. Thank you. Another question I have I think it looks very interesting, and I notice in the data today that the cash and marketable securities are up over the corresponding quarter by about $7 million, okay? Since that prior-year second quarter, you've given a special dividend of about $20 million. Business is, in fact, good. The market where those securities are invested isn't wonderful. How do you do it? What did it? Did you have good investments or what? How did you get it so that you gave away over $20 million and yet you have more money?

Well, it's certainly not investments. I mean Dave comments every quarter we basically make nothing on our money because our money is invested so conservatively. What did we make on it? We had $0.25 billion of cash. We earned what, about $100,000 last quarter, $150,000? I don't know.

So it's not that. It's just the basics of the business. You know, it is our cash flow from our earnings. It's depreciation. It's capital. You add everything up and there you go. So we try to run our business fairly tightly. That's always been our objective. We try to have a real clean balance sheet, no nonsense. And, maybe every now and then you get some good results from watching your blocking and tackling carefully and paying attention to what you're doing and not getting off in a cloud somewhere. So thank you for recognizing this, but it's nothing important.

Yes, I think it's rather remarkable. My comment is that, while the surface may look rough and bumpy, somehow underneath the currents seem to be flowing in the right direction.

Well, thank you for mentioning that. You know unfortunately -- I don't know, whatever, it's the way the world is, is, most of these calls end up what's going to happen next month, next quarter. And that's fine, and we're happy to talk about that. As much as we know, we are happy to share, you know, within reason. We're not going to speculate so much, but we are happy to talk about what we think or what happened last quarter, what we know and what we think might happen going forward.

But when we do our quarterly conference calls, we get into a different kind of mindset mode because the rest of the time we are looking at building the Company for the future.

Now we do run our Company -- we try to run our business on a day-to-day basis tightly, effectively, and that's where you see the cash flow, and that's not smoke and mirrors. That is just hard work and staying on top of things. But most of our focus is building for the long-term, and that's not something that seems -- it's not a major focus on our conference calls, but it's what we do everyday.

Yes, we lost a lot of money in Kansas, but what we are going to do, we sit around doing nothing, and we stay with our electronics product line? We had an opportunity to grow our product line, and I don't apologize for it. And I know it cost a lot of money, but it was money well spent.

So there are a lot of opportunities we are working on every day. We work pretty hard, but it's exciting. We don't mind working hard because we see the opportunities that we're working on, and that's what keeps us going really. We've got to grind it every day. That's part of earning a business. But what keeps us going is the opportunities and the excitement for the future. That's why we're here. That's why I am still here. I'll be 60-years-old in a couple of months. That's why I stay on.

You are a baby.

Yes, I know. I don't feel like a baby I will tell you. That's all.

Okay. Well, thank you for your answers.

Thank you for your question.

At this time I'm showing no further questions in queue. I would like to turn the call back over to Mr. Shore for any closing remarks.

Okay. Thank you very much, Operator. Thank you very much, everybody, for tuning in and for all your good questions. Very nice to talk to you as usual. Dave and I will be around the rest of the day. If you have any follow-up questions, feel free to give us a call. So have a good afternoon, and we'll talk to you soon. Thank you, again. Good-bye.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.