Park Aerospace Corp (PKE) 2013 Q2 法說會逐字稿

Good morning. My name is Ann and I'll be your conference operator today. At this time I would like to welcome everyone to the Park Electrochemical Corporation second-quarter fiscal year 2013 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) 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 Shore. With me, as usual, is Matt Farabaugh, our VP and CFO. And we'll begin with some introductory remarks and then go into Q&A. Matt will start with financial commentary. I'll add a few comments of my own. I just want to mention a couple things, though. First of all, Matt will be giving some comparisons to the prior quarter rather than just last year's comparable quarter. Or, I should say in addition to last year's comparable quarter just because sometimes the prior quarter comparisons are even more relevant. And the other thing is, I want to remind you that a transcript of Matt's comments are already posted on our website. There's a lot of numbers and detailed information in Matt's comments so you may want to also refer to the transcript of his comments on the website.

Go ahead, Matt.

Thank you, Brian. 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 and Form 10-K, the fiscal year ended February 26, 2012 various factors that could affect future results. Those factors are found in Item 1a and after Item 7 of that Form 10-K. Any forward-looking statements we may make are subject to those factors.

I would first like to summarize the financial information included in the news release for the second quarter ended August 26, 2012. And in some cases add a comparison to the first quarter of the 2013 fiscal year. Net sales for the 2013 fiscal year second quarter ended August 26, 2012 were $46.4 million compared to net sales of $50.4 million for the prior fiscal year second quarter, and compared to net sales of $46.0 million for the first quarter of the 2013 fiscal year. Park's sales for the first six months were $92.5 million compared to sales of $102.3 million for the prior fiscal year's first six months. Net earnings before special items, before the 2013 fiscal year second quarter, were $5.8 million. Compared to net earnings before special items of $6.6 million for the prior fiscal year second quarter, and compared to net earnings before special items of $4.9 million in the first quarter of the 2013 fiscal year.

During the current year second quarter, the Company recorded a pre-tax charge of $2.5 million in connection with the planned closure of the Nelco Technology Zhuhai facility located in the Free Trade Zone in Zhuhai, China. During the prior year's second quarter, the Company recorded other pre-tax income of $1.6 million related to the settlement of certain lawsuits during the quarter. Accordingly, net earnings were $3.2 million for the second quarter ended August 26, 2012, compared to $7.7 million for the second quarter ended August 28, 2011.

Park's net earnings before special items for the six months were $10.7 million, compared to earnings of $13.9 million for the prior year's first six months. The current year six-month period includes pre-tax charges of $2.5 million primarily related to the facility closure mentioned above. The prior fiscal year six-month period included the other pre-tax income of $1.6 million related to the settlement of certain lawsuits mentioned above. Accordingly, net earnings were $8.2 million for the six-month period ended August 26, 2012, compared to $14.9 million for the six-month period ended August 26, 2011.

Park's diluted earnings per share before special items were $0.28 for the 2013 fiscal year second quarter compared to diluted earnings per share before special items of $0.32 for the prior fiscal year second quarter, and diluted earnings per share before special items of $0.24 for the first quarter of the 2013 fiscal year. Diluted earnings per share were $0.16 for the second quarter ended August 26, 2012, compared to $0.37 for the second quarter ended August 28, 2011. Park's diluted earnings per share before special items were $0.51 for the first six months ended August 26, 2012, compared to diluted earnings per share before special items of $0.67 for the prior fiscal year's six-month period. Diluted earnings per share were $0.39 for the six months ended August 26, 2012, compared to $0.72 for the six months ended August 28, 2011.

Now I'd like to briefly review some of the other significant items in our second quarter P&L. During the fiscal year 2013 second quarter, North American sales were 42% of total sales, European sales were 9% of total sales, and Asian sales were 49% of total sales. Compared to 44%, 13%, and 43%, respectively, for the second quarter of the prior fiscal year. And 47%, 11% and 42%, respectively, for the first quarter of fiscal year 2013. Sales of Park's high performance non-FR4 printed circuit materials were 82% of total laminate and prepreg material sales in the second quarter of fiscal year 2013. 79% in the second quarter of the prior fiscal year and 81% in the first quarter of fiscal year 2013.

Sales of Park's aerospace materials and parts were $5.8 million in the second quarter of the 2013 fiscal year compared to $7.1 million in the second quarter of the prior fiscal year, and compared to $7.6 million in the first quarter of the 2013 fiscal year. Sales of aerospace materials and parts were $13.4 million for the first six months of the current fiscal year and compared to $12.8 million for the prior year's comparable period.

The gross profit percentage for the second quarter of fiscal 2013 was 28.4% compared to 28.8% for the prior fiscal year second quarter and 28.2% in the first quarter of the 2013 fiscal year. Selling, general and administrative expenses were 14.2% of net sales for the 2013 fiscal year second quarter compared to 13.7% for the prior year's second quarter, and 15.3% in the first quarter of the 2013 fiscal year. Selling, general and Administrative expenses include net foreign exchange losses of $75,000 in the second quarter of fiscal year 2013, $42,000 in the prior fiscal year second quarter, and $219,000 in the first quarter of fiscal year 2013.

Investment income for the second quarter was $179,000 compared to $196,000 for the second quarter of fiscal year 2012 and $198,000 in the first quarter of 2013 fiscal year. As a result, pre-tax operating profit, before special items, was 14.6% of net sales for the 2013 fiscal year second quarter compared to 15.5% for the prior fiscal year second quarter, and 13.3% in the first quarter of the 2013 fiscal year. Pre-tax operating profit was 9.2% for the 2013 fiscal year second quarter, compared to 18.7% for the 2012 fiscal year second quarter. The effective tax rate before special items was 15.8% for the 2013 fiscal year second quarter compared to an effective tax rate before special items of 15.5% for the prior year second quarter, and 19.3% in the first quarter of the 2013 fiscal year. The effective tax rate for the fiscal year 2013 second quarter was 23.8% compared to 18.6% for the prior year second quarter.

Turning to Park's balance sheet. Cash and marketable securities were $269.6 million at August 26, 2012, compared to $268.8 million at the end of the prior fiscal year. Working capital was $298.3 million at the end of the 2013 fiscal year second quarter, compared to $290.1 million at the end of the prior fiscal year. During the current fiscal year's six months, the Company had capital expenditures of $600,000, and depreciation expense of $2.2 million compared to capital expenditures of $2.6 million, and depreciation expense of $2.9 million for the prior year's first six-month period. Stockholders equity was $346.5 million at August 26, 2012 compared to $343.2 million at the end of the prior fiscal year. Finally, stockholders' equity per share at August 26, 2012 was $16.66 compared to $16.50 per share at the end of the prior fiscal year.

Thank you, Matt. This is Brian again, and with some additional comments on the quarter. So let's break it down here. Fairly straightforward when you compare it to Q1, especially. The top line was essentially flat in Q2 versus Q1. And the bottom line, the gross margin was very similar, essentially flat Q2 compared to Q1. So the difference, obviously, is in SG&A and the tax rate, tax provision. The SG&A was lower in Q2 than in Q1. And that relates to both the S-line sales as well as the G&A lines. That's a reflection of our attempt to keep our operating costs under control and reduce them where possible. So I guess we had some little success in that regard.

I did mention in our last quarter that we were unhappy with the legal expenses. And, unfortunately, we were not very successful with bringing those down. Of course that's in the G&A line. So we're still working on that. Legal expenses are difficult because, of course, when there are major legal matters that have to be dealt with, that drives the expenses up, they spike up. And sometimes those matters are unpredictable. And our tax rate is lower, as Matt noted, in Q2 versus Q1. And that's really just a function of doing the math based upon the revenue mix, more of the income being overseas than in the US.

So, let's see. I think Matt already covered this but in Q2 versus Q1 again, revenues were up in Asia, flat in Europe, down in the US. And down in the US mostly attributable to aerospace. As Matt commented, aerospace is quite a bit down in Q2 compared to Q1. And that also drove the bottom line quite a bit worse in Q2 versus Q1 by about $700,000. We don't break it out in segments so we don't give the results for aerospace as compared to electronics. But we have given you quarter-to-quarter sequential comparison, just to give you perspective. Obviously, with the top line being off by just shy of, what is it, $2 million, that would affect the bottom line. Also, we had a significant inventory write-off in June which affected the bottom line in aerospace. And my comment about that is that this is not something we're happy about but not surprising or shocking considering we're really somewhat of a start up and we're going through some of those growing pains. Every time, in my experience, when we do something new, you have these growing pains and we always try to do the best to minimize them but they do occur. I do believe that the practices, let's say, that led to that adjustment have been brought under control and corrected.

I think at this point, our management team in Kansas, in particular, is really coming along. I'm not saying it's perfect but it's a lot better than it has been in the past. And that's been a real effort to build the right kind of management team in Kansas. That has not been easy, I can assure you, but I think we have a pretty good team right now. So I would expect that those basic operating issues will not recur, at least not to that degree.

The other item about the top line is our belief, with the benefit of hindsight now, is that some of our customers in aerospace were over-ordering at the end of Q1 because of the anticipation of the closure of the Connecticut facility. And I think that actually happened. So we saw a fall off in Q2 because some of the customers, obviously, brought some of their orders in, in Q1, to get their orders in at the Connecticut facility before it closed. So I'm not sure we're seeing any long-term trend at play there. I think it might be a function of what we're doing with our facilities in the US that impacted the top line being off for aerospace in Q2 compared to Q1. As Matt noted, high performance continues to move up, but that's really not a surprise. I think that's probably what everybody would expect.

Balance sheet. The other item we talked about in our first quarter conference call that we were unhappy about in our financial statements was our inventory we thought was way too high. And that has come down quite a bit in Q2 compared to Q1. So we had some degree of success with getting our inventory at a level where we felt more comfortable. As I said, legal fees was the other item we highlighted. We didn't have so much success with bringing legal fees down, although we did bring SG&A down.

The foreign exchange losses, I just want you to note that's something Matt is including now in his commentary. It's something to be aware of because it does affect our bottom line and our SG&A line, as well. I know some of you are always interested in how we're doing in the existing quarter, that would be our Q3. We have three weeks on the books. And the bookings and sales are essentially flat with Q2. So Q2 was really flat with Q1, and the first three weeks of Q3 are flat with Q2. Nothing significant there. I know some of you also would ask what kind of pattern we saw during the second quarter when you look at the three months. And it was fairly flat across the three months of June, July, and August. So that's some of the housekeeping stuff.

Let's talk about some of the big opportunities we comment on sometimes. I thought we might want to give you a little more perspective on some of the big opportunities we've been looking at. There really have been three of them, three major opportunities. And they're all in the $100 million plus or minus $25 million range in terms of the investment. That's an estimate but that's our best guess. One was an acquisition, a straightforward acquisition in the aerospace area. About a month ago we decided to discontinue discussions regarding that particular acquisition because just the numbers weren't working out for us.

There are two other major joint ventures that we're working on and in discussions with two aircraft OEMs on two major joint ventures. We won't comment any further but they're both in that range of investment of $100 million plus or minus $25 million. So they're significant. And if they happen, they would be significant opportunities for Park for a long time for the future. These are the development of new aircraft. They may or may not happen, of course. But we talk about these big opportunities sometimes, so we thought we would give you a little more perspective on them.

But we also decided that we should initiate more of a formal M&A program. And the reason we felt that is because some of these big opportunities are all-or-nothing type opportunities. So if they happen that's good for us, but they may not And if they don't, then we're back to the drawing board. So we initiated about a month ago a more formalized M&A program at Park. We have a team of about five people working on that and we're just really starting that program. But we're going to work on that front, as well.

Let's talk a minute about our plant closures in China. We announced in Q2, we're closing our plant in China, Zhuhai, China. So, let's discuss that for a minute or two. Zhuhai was really somewhat of an experiment for Park. We had a small plant. It was really just a warehouse kind of operation in Wuxi, China. I don't remember the time frame but my guess is we started that probably 10 years ago. And then we moved our operation down to Zhuhai and put in more of a manufacturing operation for laminate, for high-tech printed circuit materials.

But we decided to keep our investment fairly low on the theory that we wanted to have a walk-away strategy because we really didn't know how it would work. We were concerned about a lot of the mixed signals. There was a lot of indicators we should move into China, we should have an operation in China. We were encouraged, in some cases, with a lot of enthusiasm by the market to set up an operation in China. But we were a little skeptical. So we decided to go in but not go in with a full-fledged effort, a $40 million, $50 million type plant. Which would be more than a walk-away situation, of course. So we built a $5 million to $7 million plant. I think we started as $5 million and then we added a couple of upgrades, so maybe a $7 million investment. On a theory that, that's a lot of money but if it didn't work we could walk away. And we were never confident that we would be able to remove equipment from China because China is a very different kind of country to operate in. So we felt we really had to have a walk-away scenario.

It really didn't work out. We never got any additional business from being in China. And that was the key for us. We never went to China for low cost. As a matter of fact, the irony is, it's higher cost to manufacture in China for us than it is in Singapore. So that was never the objective. The objective was how to plant in a China market to develop new incremental business. That never happened, it never did. And it never had an impact. Our ability to do business in China was not benefited. China is a very large market for Park, and it has been for many years. But we service China, and we continue to service China, mostly through Singapore. So the decision to close the Chinese plant was really more of a tactical decision because it had no strategic value after everything was said and done. So we took a write-off.

We don't expect to lose any -- and I underline it -- any business as a result of the closure. Whatever we were producing in China, which was really minimal, will be produced in Singapore going forward. The product coming from China we produced in China was on OEM programs where we were specified in, and I don't believe we're going to lose any of that business. I really doubt we would, although it was a minimal amount of business.

So it ends up being a fairly tactical decision. And with a bit of hindsight, I'm glad we didn't go into China with the $40 million major investment. I think we would have regretted it. Of course, just another comment, one of the discussions you end up having pretty quickly is, okay, now you're in China, so now you should lower your prices. Well, of course, that would be suicide for Park because our pricing is global, and we have the same product line whether it's being produced in North America, Singapore, or China. So if we reduced our prices for the product coming from China, that would have undermined very badly our pricing in the rest of the world and would have had a devastating impact. So that was not going to be the way we were going to get business in China. If we want to do that, we can do that from Singapore. It's not really our business strategy but if we wanted to get more business by reducing prices, we didn't need to go to China to do that. So that was the irony of the Chinese investment.

Waterbury, we've spoken about this for the last few quarters. I think last quarter we indicated that the closure was going to be the end of October. We're actually a little bit ahead of schedule. And we believe that the manufacturing operation -- plant and manufacturing operation -- at this point will end at the end of this month, the end of September. And then the next two or three months will be cleaning up the facility and transferring equipment, putting some equipment in storage. So Waterbury is basically closed from an operating perspective. Which, again, was part of our plan.

In case there are questions about our cash, what we're going to do with our cash, we've covered the main purpose of our cash which is to invest in our business. And we take that very seriously. Our effort has always been there. Hopefully we'll deliver some results, which we haven't delivered, we know, the last few years in terms of major acquisition to joint ventures using a large amount of our cash. As you know, a large portion of our cash is overseas. I think we have about $270 million of cash and marketable securities, as reported by Matt. And about, I think, only $65 million is in the US. So the rest is in Asia.

We're watching the election pretty carefully. We don't have any axe to grind with the election, but the election as it might impact our business and what we could do with it. Especially with respect to our overseas cash. And that would tie into any repatriation opportunity. And the other thing we're watching is the election from the perspective of what might happen to the tax rate for dividends and capital gains. So we're paying attention to that. And we're putting contingency plans in place, or we're working on. I should say we're working on contingency plans based on what happens with the election so that we can think about any action we might want to take as a result of the election. And take within a time frame that would be appropriate considering the changes that might take place, especially in tax rates.

Okay, those are my introductory comments. Operator, can we go to questions now, please?

(Operator Instructions) Sean Hannan with Needham & Company.

Brian and Matt, thanks for all of your color today. The decision to close the facility over in China, is there a way perhaps to give us a little perspective around what the drag was in terms of the operating profile and the benefits we should expect to see from the closure? I'm not sure if I caught details on that. Thank you.

We think on an annualized basis it's a really small amount, about $500,000 to $750,000 a year. Positive, of course. And that would be pretax. It's not a significant amount. And that impact, that will be fully impactive in the third quarter. That's an annualized amount.

Right, terrific. And then when you look at the results that you had this quarter, was there anything unique? Aside from some of the cost actions in management that you've been taking internally, was there anything that was unique that may have kept SG&A down? Or is this a sustainable level and how do we think about that?

There's nothing unusual about SG&A in this quarter. One thing we didn't get burdened with was this big FX loss. It was much less in Q2 than in Q1. We really have no control of that. That's really a function of the euro. There were inner-Company loans to our European operations and as Europe bounces up and down, it affects our foreign exchange loss or gain. And in some cases fairly significantly. That problem was significantly reduced, and that goes right to the SG&A line in Q2. But there's nothing about the second quarter which is unusual in terms of SG&A. As I commented, we didn't succeed in bringing our legal costs down, and that's still something we're working on.

Okay. And last quarter I think you'd explained that as being $400,000, something like that, that was incrementally above the normal spend for some of your legal costs. Is that correct? Is that still what we should be thinking about?

In Q2 I think we brought it down by maybe $75,000 from Q1. So we're still at a level that we think is pretty high for a company of our size.

Okay. And then on the advanced composite side, I got a sense coming out of last quarter that you folks felt fairly optimistic that there could be some material press releases for that business. Is that what we should now think about as the opportunities you're considering that are joint ventures? Or are there other types of business development activities that are underway that would be in addition to that?

There's one that comes to mind that's quite significant. It's not a joint venture but it just would be a very big program. And that certainly could be the level of an item we would want to announce. It could be significant. It also could require additional investment on Park's part to service that opportunity if we're successful. The decision was supposed to be made already but the company involved has had some delays, for reasons I won't get into because if I told you, you'd probably figure out who the Company is and I don't want to do that. But it's a major OEM company.

And are we hopeful on that or are we still very optimistic on that activity, or on that business?

I think we're hopeful. I don't believe we've received anything, any negative news. But it's a bake off. We're not the only one they're looking at. But from what we're told, we've done well in the bake off. We've put a lot of money into the screening effort, it's called. And we'll see. There's nothing else for us to do. They have all of their data. They have all of the information. This company just needs to make a decision as to what they want to do going forward.

Okay. And then last question, if I can switch over to the electronics side. You have some new products, which we've talked about for a good while. And realizing, of course, that takes time for there to be some material uptake. What have you continued to see in terms of feedback from customers or potential customers? And then as Part B to that, are there any changes within your sales process, or have there been any changes within the relationships for your sales management team with them, that may impact this uptake? Thank you.

As far as new products are concerned, I don't think we have anything really significant or earthshaking to announce. The [Dig]-20 product line, lots and lots of sampling activity. It seems like there's a high degree of interest in both Dig-20 and Dig-20 SI. So I think the news is good there. With Dig-22 and Dig-22 SI, that's the more esoteric product. And I have gotten nothing but uniformly positive feedback in terms of the testing their product. I think a question that's emerging a little bit in my mind is whether that product is a little ahead of the market, though. Especially the Dig-22 SI. Whether we need to let the market catch up with that technology just a little bit. But I can't think of one negative piece of feedback we've received on that, on the Dig-20, Dig-22 SI product line.

As far as our sales organization, I don't know what you are really talking about or referring to. I don't understand that question exactly. But if you're asking if there's any changes to the organization, there's none at all. I can't think of one change we've had to our sales organization last, I don't know, six months or so. If there's something else you're asking that I'm not understanding, then please let me know. But that's the best way that I know to answer that question.

That's very helpful, Brian, thank you.

Morris Ajzenman with Griffin Securities.

Just as a follow-up on the electronics side, the printed circuit materials. Clearly worldwide, a lethargic environment. Many economies, things slowing down, impacting you guys and having some new products out there. Is there anything we can hang our hat on if we remain in this lethargic environment, that things can pick up top line? Any market share gains? Anything out there? Or in that environment, should we expect the sluggish trends that we have been experiencing here?

Morris, Brian here. My feeling about that is there's two different factors to consider. The most significant factor, especially short-term quarter-over-quarter, is going to be the global economy. I think there's almost no doubt about that. That's the real driver here, is the global economy. It seems like things are a little bit stronger in Asia in the last couple of month, but I don't know what to make of that. It's hard to say it's a trend. And, really, the market is so global that what would that mean? I'm not sure. But if you noted, our revenues were about the same in Q2 as compared to Q1, but our aerospace revenues were down. That was really made up by electronics in Asia. So a little bit more strength of electronics in Asia but I have no idea why that is and it could just be some kind a blip that doesn't mean anything. So there's going to be the global economy, no doubt.

And then the other factor is going to be technology change, and technology advancement and technology introduction. I'm not talking about new materials. I'm talking about, with the OEMs and the systems, what kind of technology levels they will require in order to support their new systems. I mentioned, in response to a prior question, that I'm starting to wonder whether our most elegant product, Dig-22 SI is a little ahead of the market. I'm not sure about that but I'm just starting to entertain that thought a little bit. So obviously if it is, then it will be a function of waiting for technology to catch up with it. There's no doubt in our minds that that will happen. As a matter of fact, the new development work that we're working on now is one step further past our most elegant product. So not only are we expecting the world to catch up with our most elegant product, if in fact it's a little ahead of the world, we're expecting to surpass it at some point. So that probably is going to be less of a short-term quarter-over-quarter impact. But if the global economy changes in a significant way, then you see some short-term changes in Park's business. So there's two factors. One a little more long term, or middle term, let's call it. The other one will be shorter term.

Thank you.

Lynn Cooper with Park Electrochemical.

Hi, Brian.

Hi, Lynn, how are you doing? Are you from Park Electrochemical?

Yes.

Okay, good. Glad you're here. Go ahead, Lynn.

I have to have a few questions related to Kansas, I guess. In prior conversations, you discussed the aircraft inventory. That is, private planes. You said you could buy a used one for much less than a new one. Therefore, considering the big inventory of planes, the business was not going well for the Kansas manufacturers. Do you have any insight on what's going on with that market?

You're talking about doing business jets -- that's one of our principal markets for general aviation?

Yes.

At this point my feeling is there has been no significant recovery since the 2008 recession when things really fell off a cliff actually. Not a significant recovery, maybe clawing its way back a little bit. I've heard some talk about it'll be 2014 before the business jet industry really recovers. And there's other people say 2013. But you never know, that could be wishful thinking. At this point, I think anybody who would say that there's a significant recovery in place is probably living in a world of wishful thinking. Our business model is not going to be dependent upon a significant recovery. We're also working in military and UAVs, as well -- helicopters. So we're not only focused with biz jets. Our opportunity, though, Lynn, because we are really new kid on the block still, is business opportunities not just based upon the market but based upon penetration, based upon joint ventures, based upon taking market share away from other companies that may have been doing this a long time, have more experience than us but may also be a little complacent about their position in the world.

Okay, thank you on that. This Kansas operation management, it would seem to me there'd be a lot of people looking for work. Is it so difficult getting the managers? Are these such special requirements that make it difficult to get the right management?

Yes, that's exactly what my thinking was, our thinking was, over the last couple years. But it's been surprisingly difficult to find the right people for Park. A lot of the people that have worked in the aircraft industry, the big aircraft companies, the OEMs, in Kansas, may not be suited for our kind of business culture. Some are and some are not. And that's been a little bit of a struggle. But we have pretty special requirements, not only in terms of technical ability but also in terms of attitude, cultural perspective, if you will. In response to your prior question I commented that we may be looking to take market share away from others based upon maybe being the new kid on the block, being more responsive, having a higher sense of urgency, being more flexible. Whereas the other companies, some of our competitors have been doing it a long time. They have more experience than we do but they also may feel entrenched and may not be as motivated. So, we need to hire people that are highly motivated, have a high sense of urgency, a strong sense of belonging, willing to be flexible, willing to work in multiple departments based upon what the customer needs are. That's what we're looking to create. And it's not been as easy as I thought it would be, based upon the same kind of reasoning you just expressed, actually.

Just to complete the answer, Lynn, I think that we've made some good progress, are very happy with the Vice President of Aerospace for Park. I think he's done a wonderful job. Very happy with him. We're very lucky to have him. And we're building a pretty good team there. Not too many open slots right now. Not too many. And maybe look for some announcements that might be coming. Could be one or two other key people that may be joining our Company from that area.

Okay. Could you refresh my memory on that legal action that's absorbing the money?

We don't really want to comment on them. We resolve a couple and then there's something else that pops up. And we really don't want to comment on the specific legal actions at this point. But there are a couple we're working on. It would be nice if we could resolve them and move on, but that is not something that is a certainty, that's for sure.

Okay, thank you.

Jiwon Lee with Sidoti & Company.

Just a couple of quick questions, if I may. Brian, you mentioned so far in the third quarter, the orders are tracking similar to the second quarter. Given your mix change, I wanted to make sure that the mixes, the PCB versus composites, are similar to second quarter, as well, not just the total order.

Jiwon, we've been asked this question before and we declined to comment specifically when we're looking just at three weeks. We're concerned about too much information. But, nevertheless, I would say that the trend between aerospace and electronics continues in Q3 as we saw in Q2.

Great. And these revenue opportunities that you highlighted, if you can put your arms around, in terms of the joint venture, what will be the required capital investment to get this revenue at least on the first phase of it.

The capital investment?

Yes.

Okay, so remember we said these are significant opportunities in the $100 million plus or minus $25 million range. So that's what we're talking about. And that would be everything. That would be the total investment.

So that's the investment side, okay.

Yes. So that would include doing development work. That would include maybe building a factory. Equipment, tooling, working capital. The enchilada, you know?

So then what would be the revenue opportunities that come from that?

Extremely significant. Over a long period of time.

Terrific. Any idea when we would have a little more insight into this development?

No, but I think these are at the level where if we had something in hand we would announce it. And I just want to always caution you that these may or may not happen. And that's why I made the comment that these are all-or-nothing type opportunities. And we don't want to bank on them. So that's why we started also, at the same time, more of a formal process-oriented M&A program. What we're doing is looking at the whole universe. We designed a specification looking at the universe of possibilities, which probably are hundreds of companies, and starting to break it down, break it down, and shorten the list and shorten the list. And at some point we'll be contacting companies. So we'll do those things in parallel. And, again the reason is, what? Because we can't count on these all-or-nothing opportunities to come through. They may not. I should say, the discussions are at the CEO level. These are not casual discussions.

So did you previously ever have this type of discussions with these potential joint venture partners? Or is that fresh opportunities that arose as a result of your own initiative?

These are recent developments.

Okay, terrific. And for Matt, can we discuss the top 5, 10 and 20, and the makeup of it?

Sure. We have one customer for the quarter that was over 10%. That was TTM 13.6%. The remaining top 5 were Sanmina, WUS, Viasystems and Multek. Top 5 totaled almost 48% of sales. Top 10 were 65%; top 20 were 77%.

Excellent, thank you.

(Operator Instructions) There being no further questions, this concludes today's question-and-answer session. I'd now like to turn the call back over to Mr. Brian Shore for closing remarks.

Thank you, Operator. This is Brian. Thank everybody for joining our second quarter conference call. We appreciate you taking the time to listen in. Matt and I will be around the rest of the day so if you have any follow-up questions, please feel free to give us a call. You all have a good day. Goodbye now.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect. Have a good day.