Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

General:

Park is a global advanced materials company which develops, manufactures and markets high technology digital and RF/microwave printed circuit materials principally for the telecommunications and internet infrastructure, high-end computing and aerospace markets and advanced composite materials, structures and components principally for the aerospace markets. The Company's core capabilities are in the areas of polymer chemistry formulation, coating technology and advanced composite structures and component design and fabrication. The Company's manufacturing facilities are located in Singapore, China, France, Connecticut, New York, Kansas, Arizona, California and Washington. The Company's products are marketed and sold under the NelcoŽ, NelcoteŽ and NovaTM names.

The Company's net sales decreased in both the three-month period and nine-month period ended November 30, 2008 compared with last year's comparable periods as a result of decreases in sales of the Company's printed circuit materials products in North America, Europe and Asia. Such decreases in sales of printed circuit materials products were only partially offset by increases in sales of the Company's advanced composite materials products and the addition of sales of the Company's advanced composite parts products as a result of the Company's acquisition of the aircraft composite structures and components business of Nova Composites in Lynnwood, Washington in the 2009 fiscal year first quarter.

The significant decreases in sales of printed circuit materials products, combined with, among other things, substantial losses at the Company's Neltec Europe SAS digital electronic materials business unit in Mirebeau, France, resulted in lower gross profits, lower earnings from operations and lower net earnings in the three-month and nine-month periods ended November 30, 2008 compared to the three-month and nine-month periods ended November 25, 2007. The declines in the Company's operating and earnings performances during the three-month and nine-month periods ended November 30, 2008 compared to the three-month and nine-month periods ended November 25, 2007 were partially ameliorated by higher percentages of sales of higher margin, high performance printed circuit materials and advanced composite materials products during the 2009 fiscal year periods.

The markets in North America, Europe and Asia for the Company's printed circuit materials products were very weak in the 2009 fiscal year third quarter, and the markets for the Company's advanced composite materials products weakened considerably during the 2009 fiscal year third quarter. However, partly as a result of the Company's marketing and sales efforts, sales of the Company's advanced composite materials products increased in the three-months and nine-months ended November 30, 2008 compared to the comparable periods in the prior fiscal year.

The global markets for the Company's printed circuit materials products continue to be very difficult to forecast, and it is not clear to the Company what the condition of the global markets for the Company's printed circuit materials products will be in the 2009 fiscal year fourth quarter. Further, the Company is not able to predict the impact the current global financial and credit crisis will have on the markets for its advanced composite materials and parts products in the 2009 fiscal year fourth quarter or beyond.

As previously reported, in the first quarter of the Company's 2009 fiscal year, the Company's new wholly owned subsidiary, Park Aerospace Structures Corp., acquired substantially all the assets and business of Nova Composites, Inc., a designer and manufacturer of aircraft composite structures and components and the tooling for such structures and components, located in Lynnwood, Washington, for a cash purchase price of $4.5 million paid at the closing of the acquisition and up to an additional $5.5 million payable over five years depending on the achievement of specified earn-out objectives.

In addition, the Company has completed the construction of a new development and manufacturing facility in Newton, Kansas to produce advanced composite materials principally for the aircraft industry. The Company expects to complete equipment installation for such facility in the 2009 fiscal year fourth quarter. As previously reported, the Company plans to spend approximately $15 million on the facility and equipment in Kansas.

While the Company continues to expand and invest in its business, it also continues to make additional adjustments to certain of its operations, which have resulted in workforce reductions and plant closures.

In the 2008 fiscal year fourth quarter, the Company's Neltec Europe SAS digital electronic materials business unit located in Mirebeau, France completed a restructuring of its operations and a reduction of its workforce in response to the continuing erosion of the markets for electronic materials in Europe and the continuing migration of such markets to Asia, and the Company recorded a one-time charge of approximately $1.4 million in such quarter for employment termination benefits and other expenses resulting from such restructuring and workforce reduction. In addition, in the 2006 fiscal year first and second quarters, the Company reduced the size of the workforce at its Neltec Europe SAS business unit as a result of deterioration of the European market for high-technology printed circuit materials, and it recorded an employment termination benefits charge of $0.9 million during the 2006 fiscal year.

Despite the restructurings implemented in the 2006 and 2008 fiscal years, Neltec Europe generated significant operating losses in the second quarter of the 2009 fiscal year. Consequently, in the 2009 fiscal year third quarter, the Company announced that its Neltec Europe SAS and Neltec SA business units were proposing to restructure their operations and that, as a major component of such restructuring, Neltec Europe SAS was proposing to close completely its operations and had commenced an information and consultation process with its employees regarding the proposed closure in accordance with French law. Although the Company intends to continue fully the operations of its Neltec SA RF/microwave electronic materials business unit located in Lannemezan, France, the proposed restructuring includes a reorganization of certain of the activities of Neltec SA. Neltec Europe SAS proposed to close fully its operations in response to the very serious erosion of the markets for digital electronic materials in Europe and the migration of such markets to Asia. The market for such products in Europe has eroded to the point where the Company believes it is not possible for the Neltec Europe SAS business to be viable. Neltec Europe SAS completed the information and consultation process with its employees early in the 2009 fiscal year fourth quarter, and the Company expects the plant closure to be implemented and expects to record a one-time pre-tax charge of approximately $4 million to $5 million in the fourth quarter of the Company's current fiscal year ending March 1, 2009 in connection with this matter. After the closure of Neltec Europe SAS is implemented, the Neltec Europe SAS business will have no further impact on the consolidated financial position or results of operations of the Company and will be treated as a discontinued operation.

In addition to the restructurings of its Neltec Europe SAS and Neltec SA business units in France, the Company implemented workforce reductions at its Nelco Products, Inc. electronic materials business unit located in Fullerton, California and its Neltec, Inc. high-technology electronics circuitry materials business unit located in Tempe, Arizona in the third quarter of its 2009 fiscal year and recorded a charge of $0.6 million in such quarter for such workforce reductions and for the restructuring at its Neltec SA business unit in Lannemezan, France.

In addition, early in the 2009 fiscal year fourth quarter, the Company announced a workforce reduction at its Nelco Products Pte. Ltd. high-technology electronics circuitry materials and advanced composite materials subsidiary located in Singapore and that as a result of this workforce reduction, the Company expects to report a charge of approximately $0.2 million in the fourth quarter of the current fiscal year ending March 1, 2009.

Also, in the 2009 fiscal year fourth quarter, the Company announced that New England Laminates Co., Inc., the Company's electronic materials business unit located in Newburgh, New York, would be closing its operations in January 2009 in response to the very serious erosion of the markets for electronic materials in North America, that as the result of this closure, the Company expects to record a one-time pre-tax charge of approximately $1.3 million in the fourth quarter of the current fiscal year ending March 1, 2009 in connection with this matter and that after the closure of New England Laminates is implemented, the New England Laminates business will have no further impact on the consolidated financial condition or results of operations of the Company.

Three and Nine Months Ended November 30, 2008 Compared with Three and Nine Months Ended November 25, 2007:

The Company's total net sales and its net sales of printed circuit materials products decreased during the three-month and nine-month periods ended November 30, 2008 compared to the three-month and nine-month periods ended November 25, 2007 as a result of declines in such sales in North America, Europe and Asia. Net sales of the Company's advanced composite materials, structures and components products were 14% and 12% of the Company's total net sales worldwide in the three-month and nine-month periods, respectively, ended November 30, 2008 compared to 9% of the Company's total net sales worldwide in each of the 2008 fiscal year comparable periods. The increases in sales of advanced composite materials, structures and components were attributable to increases in sales of advanced composite materials products and the addition of sales of the Company's advanced composite structures and components products as a result of the Company's acquisition of the structures and components business of Nova Composites in Lynnwood, Washington in the 2009 fiscal year first quarter.

The Company's gross profits in the three months and nine months ended November 30, 2008 were lower than its gross profits in the prior year's comparable periods primarily as a result of lower sales volumes of printed circuit materials products, and, among other things, substantial losses at the Company's Neltec Europe SAS digital electronic materials business unit in Mirebeau, France, the impact of currency translation on costs incurred in Singapore dollars and significant increases in raw material and utility costs in the 2009 fiscal year nine-month period, which were only partially offset by higher percentages of sales of higher margin, high performance printed circuit materials and advanced composite materials products in the 2009 fiscal year periods.

The decreased sales of printed circuit materials products and the lower gross profit margins in the three months and nine months ended November 30, 2008 resulted in lower earnings from operations and lower net earnings compared to the 2008 fiscal year comparable periods.

Results of Operations

The Company's total net sales in the three-month period ended November 30, 2008 decreased 23% to $49.2 million from $63.7 million for last fiscal year's comparable period. The Company's total net sales for the nine-month period ended November 30, 2008 decreased 9% to $164.6 million from $181.3 million for last fiscal year's comparable period. The decreases in net sales were the result of lower unit volumes of printed circuit materials products shipped by the Company's operations in North America, Europe and Asia.

The Company's foreign operations accounted for $21.9 million and $77.6 million, respectively, of net sales, or 45% and 47%, respectively, of the Company's total net sales worldwide, during the three-month and nine-month periods ended November 30, 2008, compared with $31.8 million and $89.1 million, respectively, of net sales, or 50% and 49%, respectively, of total net sales worldwide, during last year's comparable periods. Net sales by the Company's foreign operations during the three months and nine months ended November 30, 2008 decreased 31% and 13%, respectively, from the 2008 fiscal year comparable periods primarily as a result of decreases in sales in Europe and Asia during such periods.

For the three-month period ended November 30, 2008, the Company's sales in North America, Asia and Europe were 55%, 36% and 9%, respectively, of the Company's total net sales worldwide compared with 50%, 37% and 13%, respectively, for the three-month period ended November 25, 2007; and for the nine-month period ended November 30, 2008, the Company's sales in North America, Asia and Europe were 53%, 37% and 10% of the Company's total net sales worldwide compared with 51%, 37% and 12%, respectively, for the nine-month period ended November 25, 2007. The Company's sales in North America decreased 14%, its sales in Asia decreased 24% and its sales in Europe decreased 51% in the three-month period ended November 30, 2008 compared with the three-month period ended November 25, 2007, and its sales in North America decreased 6%, its sales in Asia decreased 10% and its sales in Europe decreased 21% in the nine-month period ended November 30, 2008 compared with the nine-month period ended November 25, 2007.

The overall gross profit as a percentage of net sales for the Company's worldwide operations declined to 19.9% and 21.5%, respectively, for the three months and nine months ended November 30, 2008 compared with 25.3% and 25.7% for last fiscal year's comparable periods. The decreases in the gross profit were attributable mainly to lower sales volumes of printed circuit materials products in both 2009 fiscal year periods, substantial losses at the Company's Neltec Europe SAS digital electronic materials business unit in Mirebeau, France, the impact of currency translation on costs incurred in Singapore dollars and significant increases in raw material and utility costs in the 2009 fiscal year nine-month period, which were only partially offset by higher percentages of sales of higher margin, high performance printed circuit materials and advanced composite materials products in the 2009 fiscal year periods.

During both the three-month and nine-month periods ended November 30, 2008, the Company's total net sales worldwide of high temperature printed circuit materials, which include high performance materials (non-FR4 printed circuit materials), were 99% of the Company's total net sales worldwide of printed circuit materials; and during both the three-month and nine-month

periods ended November 25, 2007, the Company's total net sales worldwide of such high temperature printed circuit materials were 99% of the Company's total net sales worldwide of printed circuit materials.

The Company's high temperature printed circuit materials include its high performance materials (non-FR4 printed circuit materials), which consist of high-speed, low-loss materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, bismalimide triazine ("BT") materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, and polytetrafluoroethylene ("PTFE") materials for RF/Microwave systems that operate at frequencies up to 77GHz.

During the three-month and nine-month periods ended November 30, 2008, the Company's total net sales worldwide of high performance printed circuit materials (non-FR4 printed circuit materials) were 61% and 59%, respectively, of the Company's total net sales worldwide of printed circuit materials, compared with 54% and 52% for last fiscal year's comparable periods.

The Company's cost of sales as a percentage of net sales increased to 80.1% in the three-month period ended November 30, 2008 from 74.7% in the three-month period ended November 25, 2007 and to 78.5% in the nine-month period ended November 30, 2008 from 74.3% in the nine-month period ended November 25, 2007 resulting in gross profit margin declines, which were attributable to lower sales volumes in both 2009 fiscal year periods and the impact of currency translation on costs incurred in Singapore dollars and significant increases in raw material and utility costs in the 2009 fiscal year nine-month period, partially offset by higher percentages of sales of higher margin, high performance printed circuit materials and advanced composite materials products in both 2009 fiscal year periods.

Selling, general and administrative expenses decreased by $0.4 million and $1.1 million, respectively, or by 6% and 5%, respectively, during the three-month period and nine-month period, respectively, ended November 30, 2008 compared with last fiscal year's comparable periods. However, these expenses, measured as percentages of sales, were 12.6% and 11.4%, respectively, during the three-month and nine-month periods ended November 30, 2008 compared with 10.4% and 10.9%, respectively, during the last fiscal year's comparable periods. The higher percentages in the 2009 fiscal year periods were the result of lower sales in such periods. Stock option expenses were $0.3 million and $0.9 million, respectively, for the three-month and nine-month periods ended November 30, 2008 compared with $0.4 million and $1.0 million for last fiscal year's comparable periods.

During the three-month period ended November 30, 2008, the Company recorded a pre-tax charge of $0.6 million related to the restructurings at its North American and European business units.

For the reasons set forth above, the Company's earnings from operations were $3.0 million for the three months ended November 30, 2008, including the $0.6 million charge for restructurings described above, compared to $9.5 million for the three months ended November 25, 2007, and its earnings from operations were $16.6 million for the nine months ended November 30, 2008, including the afore-mentioned restructuring charge, compared to $26.8 million for the nine months ended November 25, 2007.

Interest and other income, net, principally investment income, was $1.7 million and $5.0 million, respectively, for the three-month and nine-month periods ended November 30, 2008 compared with $2.2 million and $7.0 million, respectively, for last fiscal year's comparable periods. The decreases in investment income were attributable to lower prevailing interest rates, partially offset by higher levels of cash available for investment, during the 2009 fiscal year first, second and third quarters than during the 2008 fiscal year first, second and third quarters. The Company's investments were primarily in short-term instruments and money market funds.

The Company's effective income tax rates for the three-month and nine-month periods ended November 30, 2008 were 33.0% and 26.0%, respectively, before the $0.6 million charge for restructurings described above compared to effective income tax rates for the three-month and nine-month periods ended November 25, 2007 of 29.6% and 28.2%, respectively, before recognition of tax benefits of $0.5 million in the 2008 fiscal year third quarter relating to reserves previously established in the United States for transfer pricing and tax benefits of $0.5 million in the 2008 fiscal year second quarter relating to reserves previously established in a foreign jurisdiction where the Company no longer operates. The higher tax provisions for the three-month and nine-month periods ended November 30, 2008 were primarily the results of higher taxable income in jurisdictions with higher income tax rates.

The Company's effective income tax rates for the three-months and nine-month periods ended November 30, 2008 after adjusting for the $0.6 million charge for restructurings described above were 37.0% and 26.7%, respectively. The Company's effective income tax rates for the three-month and nine-month periods ended November 25, 2007 after adjusting for the recognition of tax benefits relating to reserves previously established in the United States for transfer pricing and reserves previously established in a foreign jurisdiction where the Company no longer operates were 25.0%.

The Company's net earnings for the three months and nine months ended November 30, 2008 were $2.9 million and $15.4 million, respectively, including the $0.6 million employment termination benefits charge described above, compared to net earnings of $8.8 million and $25.3 million, respectively, for the three months and nine months ended November 25, 2007.

Basic and diluted earnings per share were $0.14 for the three months and $0.76 and $0.75, respectively, for the nine months ended November 30, 2008, including the employment termination benefits charge described above, compared to basic and diluted earnings per share of $0.43 and $1.25 for the three months and nine months, respectively, ended November 25, 2007. The net impact of the charge described above was to reduce basic and diluted earnings per share by $0.03 in the three months ended November 30, 2008 and to reduce basic and diluted earnings per share by $0.02 and $0.03, respectively, in the nine months ended November 30, 2008.

Liquidity and Capital Resources:

At November 30, 2008, the Company's cash and temporary investments (consisting of cash and cash equivalents and marketable securities) were $214.5 million compared with $214.0 million at March 2, 2008, the end of the Company's 2008 fiscal year. The Company's working capital was $241.5 million at November 30, 2008 compared with $239.1 million at March 2, 2008. The increase in working capital at November 30, 2008 compared with March 2, 2008 was due principally to the increase in cash and temporary investments and the increase in other current assets and the decreases in accounts payable, accrued liabilities and income taxes payable only partially offset by decreases in accounts receivable and inventories. The 23% increase in other current assets at November 30, 2008 compared to March 2, 2008 was primarily

the result of increased interest receivable. Accounts payable declined 36%, accounts receivable declined 19% and inventories declined 11% at November 30, 2008 compared to March 2, 2008 principally as a result of lower production and sales volumes during the quarter ended November 30, 2008 compared to the quarter ended March 2, 2008. The 12% decline in accrued liabilities was primarily the result of decreased accruals for compensation programs and professional fees. Income taxes payable declined 52% at November 30, 2008 compared to March 2, 2008 primarily as a result of payments made during the nine-month period. The Company's current ratio (the ratio of current assets to current liabilities) was 11.6 to 1 at November 30, 2008 compared to 8.5 to 1 at March 2, 2008.

During the nine months ended November 30, 2008, net earnings from the Company's operations, before depreciation and amortization and stock option exercise expense, of $22.3 million increased by a net decrease in working capital items, resulted in $22.3 million of cash provided by operating activities. During the same nine-month period, the Company expended a net amount of $11.7 million for the purchase of property, plant and equipment, primarily for the Company's new development and manufacturing facility in Newton, Kansas, and expended a total of $4.7 million for the acquisition of substantially all the assets and business of Nova Composites, Inc., compared with a net amount of $5.0 million during the nine-month period ended November 25, 2007. In addition, the Company paid $4.9 million in dividends on its common stock in the nine-month period ended November 30, 2008 compared to $35.4 million in the nine-month period ended November 25, 2007 as a result of the Company's declaration of a special cash dividend of $1.50 per share payable August 22, 2007 and totaling $30.5 million. Net expenditures for property, plant and equipment were $4.4 million in the 2008 fiscal year and $3.9 million in the 2007 fiscal year.

At November 30, 2008 and at March 2, 2008, the Company had no long-term debt.

The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. Such resources would also be available for purchases of the Company's common stock, appropriate acquisitions and other expansions of the Company's business.

The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity.

The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of operating lease commitments and commitments to purchase plant and equipment for the Company's new development and manufacturing facility currently under construction in Newton, Kansas. The Company has no long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $1.6 million to secure the Company's obligations under its workers' compensation insurance program.

As of November 30, 2008, there were no material changes outside the ordinary course of the Company's business in the Company's contractual obligations disclosed in Item 7 of Part II of its Form 10-K Annual Report for the fiscal year ended March 2, 2008.

Off-Balance Sheet Arrangements:

The Company's liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities.

Environmental Matters:

In the nine-month periods ended November 30, 2008 and November 25, 2007, the Company charged approximately $0.11 million and $0.01 million, respectively, against pretax income for environmental remedial response and voluntary cleanup costs (including legal fees). While annual expenditures have generally been constant from year to year and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At November 30, 2008 and March 2, 2008, the amount recorded in liabilities from discontinued operations for environmental matters related to Dielektra was $2.1 million and the amounts recorded in accrued liabilities for other environmental matters were $0.8 million and $1.6 million, respectively. Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company.

Critical Accounting Policies and Estimates:

In response to financial reporting release, FR-60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies", issued by the Securities and Exchange Commission in December 2001, the following information is provided regarding critical accounting policies that are important to the Consolidated Financial Statements and that entail, to a significant extent, the use of estimates, assumptions and the application of management's judgment.

General

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to sales allowances, allowances for doubtful accounts, inventories, valuation of long-lived assets, income taxes, restructurings, contingencies and litigation, and pensions and other employee benefit programs. The Company bases its estimates on historical experience and . . .