Park Aerospace Corp. (PKE) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Derrick, and I will be your conference operator for today’s call. At this time, I would like to welcome everyone to the Park Electrochemical Corp. Third Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] Thank you. At this time, I will turn today’s call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, operator. Welcome everybody to our third quarter conference call. I have with me Matt Farabaugh, our CFO, as usual. So Matt and I will start with some introductory remarks regarding the quarter and our business. And then we’ll go into our normal Q&A session. So Matt, why don't you get it started with financial commentary?

Okay, very good. Thanks, 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 on Form 10-K for 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 financial information included in the news release for the third quarter ended November 25, 2012, and in some cases and a comparison to the second quarter of the 2013 fiscal year. Net sales for the 2013 fiscal year third quarter ended November 25, 2012 were $41.3 million compared to net sales of $47.3 million for the prior fiscal year’s third quarter and compared to net sales of $46.4 million in the second quarter of the 2013 fiscal year. Park sales for the first 9 months were $133.7 million compared to sales of $149.6 million for the prior fiscal year’s first 9 months. Net earnings before special items for the 2013 fiscal year third quarter were $5.1 million compared to net earnings of $5.4 million for the prior fiscal year’s third quarter and compared to net earnings before special items of $5.8 million in the second quarter of the 2013 fiscal year. During the current year’s third quarter, the company recorded pretax charges of $600,000 in connection with the closure of its Nelco Technology (Zhuhai FTZ) Ltd. facility located in the Free Trade Zone in Zhuhai, China and its Park Advanced Composite Materials, Inc. facility located in Waterbury, Connecticut. Accordingly, net earnings were $4.7 million for the third quarter ended November 25, 2012. Park’s net earnings before special items for the first 9 months were $15.8 million compared to net earnings before special items of $19.2 million for the prior fiscal year’s first 9 months. The current year 9-month period includes pretax charges of $3.1 million primarily related to the facility closures mentioned above. The prior fiscal year’s 9-month period included other pretax income of $1.6 million related to the settlement of certain lawsuits. Accordingly, net earnings were $12.9 million for the 9-month period ended November 25, 2012 compared to $20.3 million for the 9-month period ended November 27, 2011. Park’s diluted earnings per share before special items were $0.25 for the 2013 fiscal year third quarter compared to diluted earnings per share of $0.26 for the prior fiscal year’s third quarter and diluted earnings per share before special items of $0.28 for the second quarter of the 2013 fiscal year. Diluted earnings per share were $0.23 for the third quarter ended November 25, 2012. Park’s diluted earnings per share before special items were $0.76 for the 9 months ended November 25, 2012, compared to diluted earnings per share before special items of $0.93 for the prior fiscal year’s 9-month period. Diluted earnings per share were $0.62 for the 9 months ended November 25, 2012 compared to $0.98 for the 9 months ended November 27, 2011. Now, I would like to briefly review some of the other significant items in our third quarter P&L. During the fiscal year 2013 third quarter, North American sales were 46% of total sales, European sales were 8% of total sales, and Asian sales were 46% of total sales, compared to 46%, 15%, and 39% respectively for the third quarter of the prior fiscal year, and 42%, 9%, and 49% respectively for the second quarter of fiscal year 2013. Sales of Park’s high-performance non-FR4 printed circuit materials were 82% of total laminate and prepare [ph] material sales in the third quarter of the fiscal year 2013, 79% in the third quarter of the prior fiscal year and 82% in the second quarter of fiscal year 2013. Sales of Park’s aerospace, materials, and parts were $5.5 million in the third quarter of the 2013 fiscal year compared to $7 million in the third quarter of the prior fiscal year and compared to $5.8 million in the second quarter of the 2013 fiscal year. Sales of aerospace materials and parts were $18.9 million for the first 9 months of the current fiscal year compared to $19.8 million for the prior year’s comparable period. The gross profit percentage for the third quarter of the 2013 was 30.4% compared to 27.5% for the prior fiscal year’s third quarter and 28.4% in the second quarter of the 2013 fiscal year. Selling, general and administrative expenses were 15.4% of net sales for the 2013 fiscal year third quarter compared to 14.8% for the prior year’s third quarter and 14.2% in the second quarter of the 2013 fiscal year. Selling, general and administrative expenses include net foreign exchange gains of $53,000 in the third quarter of fiscal year 2013, and foreign exchange losses of $94,000 in the prior fiscal year’s third quarter and $75,000 in the second quarter of fiscal year 2013. Prior Park reported earnings before income taxes and special items of $6.3 million for the third quarter ended November 25, 2012 compared to earnings before income taxes of $6.2 million for the prior fiscal year third quarter and earnings before income taxes and special items of $6.8 million in the second quarter of the 2013 fiscal year. Park recorded no special items during the 2012 fiscal year third quarter. Investment income for the third quarter was $143,000 compared $188,000 for the third quarter of the prior fiscal year, and $179,000 in the second quarter of the 2013 fiscal year. As a result, pretax operating profit before special items was 15.3% of net sales for the 2013 year third quarter compared to 13.1% for the prior fiscal year third quarter and 14.6% in the second quarter of the 2013 fiscal year. Pretax operating profit was 14.0% for the 2013 fiscal year third quarter. The effective tax rate before special items was 19.1% for the 2013 fiscal year third quarter compared to an effective tax rate of 13.1% for the prior fiscal year’s third quarter and 15.0% in the second quarter of the 2013 fiscal year. The effective tax rate for the fiscal year 2013 third quarter was 18.2%. Turning to Park’s balance sheet, cash and marketable securities were $273.5 million at November 25, 2012 compared to $268.8 million at the end of the prior fiscal year. Working capital was $301.7 million at the end of 2013 fiscal year or third quarter compared to $290.1 million at the end of the prior fiscal year. During the current fiscal year’s 9 months, the company had capital expenditures of $1.2 million and depreciation expense of $3.2 million compared to capital expenditures of $3.4 million and depreciation expense of $4.3 million for the prior fiscal year’s first 9-month period. Stockholders’ equity was $349.5 million at November 25, 2012, compared to $343.2 million at the end of the prior fiscal year. Finally stockholders’ equity per share at November 25, 2012, was $16.80 compared to $16.50 per share at the end of the prior fiscal year.

Well, thanks a lot Matt, I appreciate it. By the way everybody, Matt and I are not in the same location right now. So we’ll try to coordinate as best as we can, we’ve done this before, of course. Just one other introductory comment, Matt's comments or a transcript of Matt’s comments are posted on the web early this morning, and I just want you to be aware that. I have a question for you all, which you can let us know later on if you want, I'm not suggesting you answer right now, but it’s been at least raised that maybe some of you would rather not have Matt go through these comments at the beginning of the call since these comments are posted on the web, but let us know whether you like Matt to actually read the comments or whether you would rather defer that for the conference call and just read them off the website. So if you have any opinion about that, feel free to let us know. Thank you. So let’s see. Before we get into the quarter, I wanted to talk a little bit about the dividend declared yesterday. So and put that in context a little bit, because there is some additional commentary in the press release, which is a little unusual for a dividend news release for us and I want to explain. By the way, also my comments might be a little bit longer today because we're covering a lot of territory here. So please bear with us. So the dividend that was announced yesterday will probably end up being a return on capital rather than it’s actually distribution, which will be treated as a return on capital rather than as a taxable dividend that’s because our accumulated earnings and profits are now have been depleted with all the dividends that have been paid over the years. So at this point until that accumulated earnings and profit that’s a U.S. number by the way go into the positive territory, all the future distributions will be return on capital, treated as return on capital rather than as taxable dividends. That’s important for you to understand. We won’t have a final word on that until at the end of the fiscal year when everything is kind of netted up, because that’s the point at which these questions are determined. But we’re pretty sure that the last dividend and the one that was just declared yesterday, I mean and even maybe some prior dividends of Park will be return on capital. Now there’s been a lot of questions for us and also a lot of discussion generally about large dividends being paid by other companies, special dividends. But I know some of you are wondering of what we’re doing, because we haven't paid a lot of special dividends in the past. I think since 2005, 2006 I think we paid over $175 million in cash dividends, something like that. And obviously that’s mostly because of the special dividends. The regular dividend is only about $8 million a year at this point. So there are these questions, and for most companies, the key date for payment of a special dividend to avoid any tax increase in dividend would be December 31. So some people wondering what happen to us. For us, that date is irrelevant. For us, any date for any kind of special action that would really be meaningful, be the end of fiscal year, which is the end of February. Why is that? Because any kind of payment, any kind of distribution that’s return on capital is taxable as a dividend. It reduces the basis in the stock. So it really doesn’t matter. Even if capital gains go up next year, what we’d have to have done if we were going to declare a special distribution and pay it before the end of the year, we did that. And we paid it before the end of the year in order to take advantage of the lower capital gains rates this year as compared to next year if they go up. The shareholder would have to sell its stock, his old stock and that’s not really realistic especially considering the way our stock trades. We were not going to make any decision about this after at the election, because we felt the election could dramatically affect the landscape for taxes and tax treatment in the U.S. Right now, we’re still quite concerned about the fiscal cliff, so we’re not making any decisions until we figure out whether we’re going to go over that proverbial fiscal cliff, and we feel as lot amount of uncertainty as a result. I know a lot of people just assuming that a deal will be made, but I think that’s not necessarily a sure thing, so I think we’re going to sit tight and see what happens with the fiscal cliff. But for us if we did a distribution, a special distribution, the key date for us would be payment before the end of fiscal year and it’s very complex why that is and I won’t go into the explanation of that. But that distribution if there was one would be a return on capital, therefore, there would be no taxes paid on the distribution until such time as the stock was sold. And there would be a capital gains tax to be paid. The return on capital distribution reduces that the share's basis, and our stock it does not, there is no current taxable event unless their basis is less than the distribution and then the extent which it’s less is capital gain at that time. Obviously, you have to defer to your own tax advisors. I'm no tax expert. Matt's a little bit of tax expert, but we're not giving you tax advice. We're just trying to explain to you our thinking and the dynamics that are at play for Park right now. The other thing I need to say, I need to underline this with a lots of underline is we’re just talking about our situation in our scenario and there is absolutely no assurance, no guarantee, whatsoever, whatsoever that we’re going to do anything in terms of special distribution. I just want to make sure you understand that and you hear that loudly and clearly. But like usual, we’re very willing and have to talk hopefully about our situation. So that’s what we’ve done, but we are not predicting anything and not saying what we would do or not do at this point we don’t know. And we have not made a decision and we are not going to even consider this really, seriously until we understand where we’re going with the fiscal cliff situation. Okay. That’s nothing to do with this specific quarter, but I wanted to cover that for you because the news release yesterday with the dividend to try to address it, but I think it required a little bit more discussion, so you understand the dynamics of that situation. I also want to talk, changing gears. I’d like to talk to you now a little bit about our business. I’m not going to focus in the quarter. I will get to the quarter a little later on, so bear with me. There is a number of things I want to cover here. I had a phone discussion with one of our largest shareholders, I guess a couple months ago or so, I don’t remember exactly. It was a very useful discussion for me, a very informative discussion because the shareholder, these are people known for long time and I think I have a quite good relationship with them that’s my opinion anyway, said some things to me. Which I was glad they said because I didn’t think they were correct and it gave me an opportunity to think, boy, I want to get record corrected straight because other shareholders may be, may have the same misunderstanding. There was a comment about aerospace that we’ve been working in aerospace for 7 years now or something like that, and we’ve lost money for 7 years. And I really don’t know where that concept came from, and somehow something was said or whatever that was misunderstood, but that’s not true, that’s not the case. In aerospace, we lost money for 2 years, we had an operating loss for 2 years in fiscal 2012, and probably in fiscal 2013, and that was a part of the plan and we discussed numerous times about while we’re ramping up Kansas, why we continue to have these other operations in Connecticut and Washington. We are dealing with duplicate costs and also significant qualification costs to transfer business from Connecticut, in particular to Kansas. So that’s not really a surprise at all. But of course, we did close our Washington operation, I think earlier this year. We closed our Waterbury operation in September. So the news is, in the third quarter, aerospace had a positive operating profit. There was a positive profit from operations here for aerospace in the third quarter. And that’s consistent with what we said all along that when we closed the Waterbury plant, it would be different. Now it’s not a big profit, and we’re not going to quantify it, because we don’t segment aerospace. So we’ve never quantified the losses or profits in aerospace for electronics separately. We haven’t done that. But we have talked about the difficulty with aerospace, with the start-up, not only it was really something we didn’t anticipate, but nevertheless, it doesn’t make it any easier going through it. But there has been a lot of difficulty with the start-up of aerospace, start-up of our Kansas operation in particular, but I just want to say again, as of this quarter, the quarter just ended, aerospace had a positive profit from operations. So even though, we probably will lose money in fiscal 2013, it’s already turned positive and we expect it to be positive in Q4 as well. So we lost money in fiscal 2012, we probably will lose money in 2013 by the time everything is added up. While the third and fourth quarter of 2013 are positive, not by any great degree, we’re not declaring victory here, we’re just reporting facts, because I just want to make sure you have the facts, because there is this misunderstanding, and I felt very badly about it. And I’m sure that the shareholder was sincere, and I really appreciated them, if they’ve been sharing this with me, because I have no idea of people or we’re thinking these thoughts that we lost money for 5 or 7 years in the aerospace, they’re just not the facts. And I want you to be aware of it and this is according to plan. The one thing that didn’t go according to the plan is, I think that we are hoping and planning to close our Waterbury operation at the end of the last fiscal year, and it was about 6 months late. But we’ve explained that not that it’s a good thing, but we’ve explained the reasons anyway. And if we did a better job, I guess, maybe it would have closed at the end of the last fiscal year. But we’re 6 months late with that. And everything else that has happened is exactly, I think what we said would happen exactly. So it’s not like things aren’t going according to plan here. I must say a day-to-day basis, it can be quite difficult, but we should have expected that and we did expect it. So I just wanted to explain that, because I think it’s real important that that’d be understood, because obviously was not understood. Kansas plan, a long way to go, we have a long way to go, but it’s getting better, all the businesses are over to Kansas now. All the aerospace businesses are being handled in Kansas. We also have upgraded the organization quite a bit. We have some very good talent in Kansas now, quite a bit different than it had been a year ago, even 6 months ago. So, a very nice talent in Kansas. So we’re not there yet. Oh my goodness, we have long, long way to go, a long way to go. But things are I think, going pretty well when you pull back to look at it, you said things are going pretty well. The things are really going according to plan I would say, as well, nothing really surprising there. And I think some good news and some very, very good significant opportunities for us. The other thing that I wanted to comment on is in last conference call, the second quarter conference call, I mentioned there were 3 opportunities that we are working on with aerospace and that they were significant in size and scale. They were $100 million plus or minus $25 million. I think that was a comment we made. All right, I said there are 3 opportunities. The same shareholder said well, Brian, the things aren’t going well in Kansas and now, you’re going to throw more money after that to solve the problem in Kansas. And I said, well; go ahead with second, that’s first of all talk about Kansas. So we’ve just discussed that, the reality in Kansas. But I said, these $100 million opportunities nothing to do with Kansas. They are so significant. There wouldn’t be handled in Kansas. There are 3 of them. One was an acquisition and that we worked on that, it was an exclusive discussion for a couple of months. And it is a very good company, we really liked the management, but we just couldn’t make the numbers work. So we discontinued those discussions. And I think that would be evidence of our discipline. We’re not people who just throw big money up for things. We think we have significant opportunities to invest in the future, but we’re not going to do that irresponsibly, we’re not going to do widely. So here is an example, we felt really good about the company, the management, but we just couldn’t make the numbers work. So we ended the discussions. So that was one of the 3, we crossed it off the list. There were 2 other major joint ventures with aircraft OEMs. One program, there’s new aircraft programs, one OEM informed us that they’re putting off the development of their aircraft for a couple of years for their own reasons, which is fine. And these would be aircraft with significant composite structure. And the third -- so that that’s the second one, and that’s I guess you’d call on hold maybe for a couple of years anyway. And the third one is still active. And this again, relates to the development of a new aircraft, which would have significant composite structure. So my comment is that these opportunities are so special, so unusual that I really should be fired, if I didn’t pursue these seriously and carefully, because I wouldn’t be doing my job for the Company. So I just wanted to put that in perspective for you. These are very, very special opportunities for Park. And I think the back end story is that the term we use these days is that the reason we’re even talking about these opportunities in these discussions seriously, especially the joint ventures, is because of all the work we’ve done in the last 5, 6 years in the aerospace. These companies are major companies. And it’s not just the financial investment they’re interested in. they’re interested in the partnership on these aircraft. These are significant components of the aircraft. So this is the thing. If we went forward with one of these joint ventures, and we were not able to deliver with fairly complex design capability and manufacturing capability, the OEM would be screwed, because they would lose years and years, start all over again. And that’s basically death for an aircraft OEM to lose years and years. So the reason we’re in the discussion and these are exclusive discussions is, because of the fact that these OEMs obviously see capability in Park where we had no capability really 6 or 7 years ago. So I would say that that’s probably a good sign. Now maybe this story will not work either, I don’t know. But like I said, for me not to consider that seriously, you should call up somebody and have me fired right away, because I would not be doing my job, I would not be doing my job. These opportunities are potentially so wonderful for Park that I would not be doing my job. Now this last one may not come through, either. Obviously, we’re going to use our same financial discipline, we’re not going to just throw money after anything. It’s going to have to work; the numbers are going to have to work. If they do great, if not, we’ll move on to something else. I mention also -- so that’s the other thing I wanted to kind of correct the record on. And again, I want to say I really appreciated this investor make this comments to me because I had no idea what people are thinking and until he made those comments, I wasn’t aware that there were these perceptions about what we are doing which I just think are just not true. So I’m taking the opportunity to correct the record. If there is anybody else is thinking the same thing out there, you just -- these things are distorted just not correct. I mentioned last time as well that we have an M&A program of aerospace and that is ongoing. That’s more of a kind of formal discipline[ph]program where we start with a specification and go through the field. You partied up with about 2,000 companies and then you narrow it down, narrow it down, narrow it down until you have a few and then you approach them. So that’s ongoing and I think I said that these other 3 opportunities were kind of all or nothing opportunities and we don’t want to do that and not look at more traditional M&A as well. And if you're afraid that, maybe all 3 of them will come to fruition and we will be back to the drawing board. So we are doing all of them at the same time. But again I just want to say that $100 million concept has nothing to do with Kansas, has nothing to do with making Kansas better. They are so large that these opportunities would have to be -- they would be somewhere other than Kansas, I'm quite sure. Okay, so you talked about that some of the background information about our company. So I talked about those 3 situations, sorry and also the M&A part, I'm just going through my notes, bear with me. I apologize again for the lengthy introductory comments. So anyway just to review little bit more in aerospace, so about 6, 7 years ago which tied to invest in aerospace and make aerospace a major product line, major emphasis to Park. And I would say that in my opinion it’s very, very lucky and fortunate we did that. 6, 7 years ago the company was making good money. We could have sat on our laurels, sat on our rear ends and done nothing, went to play golf. And we saw that aerospace -- we saw the electronics was going to become more competitive and more difficult, and we are right. So we had the foresight and guts to do something which I think was very important for Park because if we didn’t do then and we were now at this point where we're a single dimensional company with electronics only, it's really too late. If you look at my annual report, I commented on that. And we are very lucky to be in aerospace, but we had to make a 6, 7 year investment to get to where we are now so that we could be considered seriously as a joint venture partner with a major OEM on our new aircraft program for instance. And like I said, if we hadn't made that decision and made a commitment and had a conviction and the guts to carry that out, we would really be a company that would be a single dimensional company in electronics in a field that’s become more and more competitive and more crowded. So I just wanted you to know my perspective on aerospace and how important and how wonderful decision it was that we will decided to go into aerospace in a major way, and how I think Park would be in a much more difficult situation if we have not done that. Electronics, I think Park will continue to be able to do well in electronics. But we’re never going to really own the high end space again which I think we did maybe 8, 9 years ago. We owned that space. We are very dominant in this space and we’ve attracted a lot of very significant competition. We saw our earnings profiles and margins as compared to theirs and realized that we had a secret and they didn’t which was the high end--is focusing the high end. So we’ve attracted serious competition, companies like Panasonic, Hitachi Chemical, even Rogers has done into digital through relationship with Hitachi Chemical. Mysola [ph], in my opinion, they have done a nice job of reinventing themselves into a high end company, the company focused on high end. So these are all credible competitors. There were dozens of them that are no longer in existence but the ones that remain are good competitors and they’ve come into our space. If you want to look at it that way, there are plenty of others I won't mention here but there are plenty of credible companies that we need to take seriously. So I think that there is-- Park could continue to do well in electronics. So I’m glad that’s not their only product line. Where we have going for us is electronics with our 2 new products that came out about a year ago, -20. I think it’s a very, very solid follow-on to our -30 product line which was introduced in 1996. It’s been around long time. We are very happy about that. -22, my opinion that’s the best high end product in the market today, that’s my opinion. And I have some reason to believe that but those are good things right. Even though we are in a competitive, crowded space, I think we have a lot to offer with the new products and was also to offer partners in attitude that we want to do everything we can to provide the customer with a wonderful experience. Sometimes we do, sometimes we don’t, sometimes we will exceed, sometimes we fail but that’s really the special thing about Park. It’s the desire to provide a customer with very, very good experience. So with those 2 things, with our product or our technology, our culture, I think Park will continue to do well in electronics. But like I said I’m very glad that we had the foresight and maybe guts to decide to go into another market 6, 7 years ago when things were going very well and we could have sat on our laurels, our rear end and done nothing. That’s my perspective anyway. Okay, so let’s talk a little bit about the quarter and I appreciate your patience in listening to my discussion about the company and also the special dividend. By Q4, I know the analysts always want to know how we are doing in the first 3 weeks, we are 3 weeks and books in Q4, how we are doing. About the same as Q3, no real -- nothing interesting there, the trend continues as was the trend in Q3. I also know the analysts want to know how Q3 work in terms of quarter-to-quarter distribution. September was actually okay. September was -- the revenue in September was consistent with the revenue in Q2 on a weekly average basis, but October and November were very weak, both October and November very weak months. Why I don’t know, but my guess is that part of it anyway has to do with the global economy, concerns about elections, fiscal cliffs and the debt crisis and recessions in Europe, at least part. And that’s my opinion but the facts are that our business in electronics was slow and slower in October, November, and aerospace as well. I think the problem with aerospace is that, especially with biz jets, there is a lot of nervousness that is based upon the political environment. The election didn’t help that because it’s well known that the current administration is not very friendly to biz jets. It’s commonly known. I think it took a while for people to get over that but I don’t think that was great news for the biz jet industry. Couple of more points, gross margins, as Matt pointed out, back over 30% at least for now. And I think that’s quite good considering the top line is way off, I would say. What’s contributed to that some of the things are what Matt said the closure of Waterbury, the closure of Zhuhai, but also aerospace improving quite a bit, where it’s now positive from an operating profit perspective. So those 3 things are quite significant in contributing to the gross margins jumping back over 30% when revenues are way off. SG&A, little higher than we like, the lot of what that is about is all the sampling activity for new products, for electronics and aerospace. And I just wanted you to note something, the pretax earnings before special items in Q3 were actually higher than they were in Q3 of the prior year even though the revenues were $6 million less. So I just want to make sure you picked up on that, you can reach your own conclusions about that of course but that is the fact. And I guess with all those introductory comments, again, I appreciate you listening. Operator, why don’t we go right into the questions and answers now?

[Operator Instructions] Our first question will be coming from the line of Sean Hannan, Needham & Company.

So first, if I can follow up on some of your commentary, Brian, around the advanced composite, the aerospace business there. The opportunity that remains active, can you give us a little bit more clarity around your thinking for timing of that? And how far along are you within that process? You had commented there was an earlier opportunity you looked at where the numbers didn't work out. Are you at a point with this activity where you're able to be partially through the numbers? Any color around how we should interpret progress and expectations. Thanks.

No. I don’t really have much of an update. These discussions have been ongoing for a while at the highest level, but I don’t really have much of an update on whether the numbers are going to work or not. And obviously, when we have something, we’ll let you know, but it would be premature at this point. But I guess my comments, Sean, were just based upon the scale and dimension of the opportunity. And the other aspects of the opportunity, which I won’t go into, it would be highly inappropriate for me to do that, which would also point to the opportunity being very -- a very exciting potential opportunity for Park. And I will say again it may not pan out, but the opportunity for lot of reasons is quite -- has quite a lot of potential.

Okay. All right, then to switch over to the electronics side, just to get a little bit more color from you, I think that geographically, you certainly had some variations of performance, North America versus Asia. I'm not really as focused around Europe. I don't think that there's any surprise in terms of what's going on there. And it's obviously a much smaller piece of your business, but to get a better understanding -- or could you help us to get a better understanding of the decline that you saw in Asia quarter to quarter versus the activity you saw in North America?

Well, as you noted, Asia was the weakest market relatively speaking for us over the prior quarter. Other than just stating the fact that you’ve already noted, I don’t really know what else to say. It’s hard to really understand the whys of that, sometimes it don’t make sense to us because we look at our market very much as a global market. There has been some -- I don’t want anybody to get too excited about this, but there has been some movement back in the U.S. from Asia. That could be a temporary thing. There were a couple of special situations where business that was being sourced and manufactured in Asia came back to the U.S. And I don’t know if we should get excited about that. I mean from an American perspective like, while the U.S. markets going to really start to grow, I wouldn’t say it’s a trend, but there were some instances. As a general matter where people talking about maybe bringing a little bit business back. And there were special situation or 2 where a large contract manufacture moved some of its own business from Asia back to the U.S. for maybe their own particular reasons. That may or may not have anything to do with global trends. So I don’t know, Sean, you probably more intelligent about that question than I am, as the facts are noted and you are correct about the facts.

Okay. Well, that color is helpful. Then in terms of the new products, you're certainly encouraged around the -20 and -22, particularly the -22. Just trying to get an understanding of where you are with customers at present with the kind of qualitative ramp for those products, number one. And then, number two, any perspective that you might be able to share around perhaps the customers' requirements to move to that next-generation material, and perhaps if there are any risks around the actual need to move to that next-generation material. There is sometimes thoughts or speculation around extending the life and the usability of existing lines, and just wanted to get some perspective around that.

Well, those are really good questions. It actually happened with our -13, it was longer than when we might have thought of 5 years ago just because what you said. The major investment to upgrade technology and sometimes the OEMs want to squeeze as much out of the old technologies as they can. Our -20 product is really a follow-on to -13, it’s not a -- it’s not a departure product, it improved the electrical to some extent, improves the thermals reliability to a significant extent. That’s one of the weak points of -13. When it was first introduced they were strong in that regard, but as technology advanced, -13 started to have to have an Achilles' heel in terms of some of its reliability properties, which are measured by different tests that I won't go into now. So -20 is not an earth shaking new product that is a leading technology. -22, I made the comment and I believe this, I’m sure people disagree, that I think that’s a best product in a high-market at this time. But it’s an interesting question you ask about the speed at which the new technology will be embraced. The new technologies were more expensive usually at least it is a part. And then the question is, are people going to try to squeeze out a couple of extra programs with the old technology or design around the new technology so they can still kind of get what they want almost or get by with the old technology. But after the first of the year, we plan to go out with more aggressive marketing campaign I believe and I will see we get done. At this point, there has been extensive sampling activity with both products and that’s good news, that’s what we want to see. And I commented, that’s one of the reason our SG&A is a little higher than we’d like is because of all the sampling activity because we usually provide our samples for qualification with no charge and that goes through our sales line. So I don’t know the answer. Again you are raising good questions and I guess the good news I would say is if you want to think long-term, I feel quite good about -22 because it’s clear the industry is moving in a direction of needing higher speed materials. I don’t think anybody would debate that. The question you are raising, which is a good one, is the timing for it, and will it go quickly, will it go little clump’s, will certain programs switch over, some not. But the timing will be interesting. But from our end, of course, we can’t affect the world. We are a little company. We are not going to be able to affect what the world does. From our end, though we intend to get out and market the product more aggressively and see what we get done.

[Operator Instructions] Your next question is from the line of Jiwon Lee, Sidoti & Company.

Brian, I just wanted to kind of circle back on the aerospace components again. The joint venture opportunities that you have, those are, I believe, targeting new OEM programs, so how far are we, roughly, from at least any initial introduction of these OEM programs, as far as you can see?

Well, let me just talk generally about aircraft development, I don’t really think we should get into anything specific about either of these 2 programs that we return to joint venture on, one as I said has been deferred for 2 years anyway. But normally you would expect about 5 years from the point at which a program is designated a go program. That means there is a commitment to develop and introduce an aircraft and until they get the aircraft--until the aircraft is certified to certify and you have your first sale in that point, the revenue would spike up, because these programs usually are very well known the OEMs start selling these aircraft and anticipation of the certification date. The key thing for us is to partner with OEMs who had very good track records, and they vary, some OEMs have done terrible jobs, I mean these programs are get to be hundreds of millions dollars of over budget, years and years and years late and some of those OEMs don’t do well to all and maybe don’t last. Some OEMs have very excellent track records of getting programs done on budget on time. Obviously we would rather go with the latter, but when I say 5 years that’s assuming that the OEM is doing a good job of executing that that’s not a late program, that isn’t clean sheet program would normally take 5 years. So for our company like Park, if you are just looking at the revenue ,there will be some revenue for prototypes during that period, but most, but not-- but the real revenue would be like year 5 to year 25 or year 35 probably often in many cases. So when we look at these kinds of programs, we do very careful return on investment discount, the investment as well as the return, and the numbers are going to speak for themselves. So, the one thing I guess, I’m trying to convey is that both these programs are quite significant and scale for Park.

Are there any prototyping activities going on with any of these programs right now?

No.

Okay, it’s a little early. Okay.

If there were then we probably would've announced it because that would mean that the program was-- we had formed a joint venture.

Okay. And just switching gears onto the PCB side, that level of revenue was quite deep, especially since your commentary on the September order trends last quarter. So wonder whether this is purely on the demand side or whether, perhaps, you are sort of kind of resetting at least the PCB side of the revenue expectation?

Can you ask that question again, I’m not sure, I understand the first part, there was 2 choices, one demand side, what’s the second option?

You sort of perhaps -- let's just put it simply. Are you sort of, perhaps, letting go of some businesses in pursuit of the composites or the profits or the competition? You have certainly done that in the past.

Yes, so market share, I think that probably a market share out limit, but I can’t tell you something that would have been a factor in the third quarter. I think that’s been something which has happened over a long period of time. I mean for one thing, Matt talked about high performance we have very, very little FR-4 business left, so we’ve lost lot of market share in FR-4 and I think that was a good decision. We also have had a little bit of a gap, I think we’re kind of that let’s say [indiscernible] right now, because our existing product line electronics, we still think it’s a good product line, but it’s a mature product line, and a new products haven't legged in yet. So there is a little bit of kind of gap were the existing product line is not going to see a lot of upside, I think it’s still a good product, but it's mature so it's not going to see a lot of upside. The upside will come with the new products, but I think we’re kind of in between right now a little bit and that’s affecting our revenues as well. So if we can go back and play it over again, you would say these, we should have introduced these new products a couple of years ago or couple of years earlier and that would probably been the right decision. So, but that didn’t happen for a lot of reasons, and one of them was maybe we touched on a little bit is that we’re a small company and our focus has been to some extent in aerospace, because with the new market like that you really have to -- for us we had to give it all, if we just did a half baked effort, it would have been worth nothing. So we have to give enough effort to kind of break through and become somebody if you will, go from a nobody to somebody and if we did anything less than that the whole effort would have been wasted, it wouldn't have been a percentage thing, we do wasted our whole effort. So that probably affected our timing of introducing new products just from our company focus perspective. But we're talking -22, and just taking our route here, we are saying well maybe it's too early, maybe recently or maybe it's too early, so I don't know. But right now, I think your observation is correct that our existing product line is mature and our new products haven't legged in yet, so we're kind of in between a little bit in terms of revenues. Again I want to say that I have no idea whether that’s a factor in the third quarter though, I'm not saying that it is, and I don't know that it is.

Where there any share buybacks during the quarter?

Not, very, very little I think right after we announced it that is the buyback we get into a blackout period and Matt do you remember the number ,it’s very small?

Yes, it was less than 4000 shares, very little.

I think, we are on the market for couple of days and then we had us get out for certain reasons though we got until the blackout so we never got very far.

Okay. And then lastly for Matt, if we could discuss the top 5, 10 and 20 please?

Sure. We had 2 customers have more than 10% customers, CTM and Sanmina, rounding out the top 5 was WUS, Viasystems, and EC Petasys. The top 5 made up 50% of our total sales, top 10 made up 60%, just about 67% of our total sales, and the top 20 made up about 77% of our total sales.

Your next question is coming from the line of Morris Ajzenman, Griffin Securities.

Just kind of a follow-up, kind of alluding that you were kind of late in introducing new products, specifically on the electronics side. Any comment, any thoughts to where you might be during the interim losing market share?

Yes, that's what we have been talking about, I think we’ve lost a lot of market share with lower-end product, the FR-4, and if you look at the market for high-end, what 7, 8 years ago we were very dominant in that market and lot of companies have come into the market, now the market is growing as well, so our market share has gone down over the last 7 or 8 years, but the market has grown. And I don't think that’s a result of the timing of the new products as I commented that whenever new products might be earlier rather than late. It just the reality that we have some significant and serious, companies have come into this high-end market. So I don't know what we could have done to prevent them from coming into the market, I don't think that Park would have been in position to prevent that so the loss of market share, I think was going to happen. For me the question is, do we have a future in electronics, and I think we do, I think we can continue to be successful in electronics. We have to work harder, because we have some serious competitors and again we have to work harder with having very good and maybe even the best products, and also we have to have relationships with our customers and service to our customers, at least they'd want to do business with us maybe more than Brand X.

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

Thank you very much, operator. Thank you all for listening, appreciated and thank you for indulging me with the comments about our business and general rather in just a third quarter. Appreciated, I thought those comments have been made. And the only other order business for today is I want to wish you all a very Merry Christmas, Happy Hanukkah, Happy Holidays and wish you all the very best of luck in 2013. Please give us a call if you have any questions, and we’ll talk to you soon. Good day.

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