Summary of PARK ELECTROCHEMICAL CORP

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

General:

Park Electrochemical Corp. ("Park" or the "Company") is a global advanced materials company which develops, manufactures, markets and sells high technology digital and RF/microwave printed circuit materials principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies principally for the aerospace markets. The Company's core capabilities are in the areas of polymer chemistry formulation and coating technology. The Company also specializes in the manufacture of complex composite aircraft and space vehicle parts. The Company's manufacturing facilities are located in Singapore, China, France, Connecticut, Kansas, Arizona, California and Washington. The Company's products are marketed and sold under the Nelco®, Nelcote® and Nova™ names.

The Company's total net sales decreased in both the three-month period and six-month period ended August 30, 2009 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, Asia and Europe. However, primarily as a result of the Company's business development, marketing and sales efforts, the Company's sales of advanced composite materials, parts and assemblies in both the three-month and six-month periods ended August 30, 2009 were substantially the same as such sales in last year's comparable periods.

As a result of the declines in the Company's total net sales in the three-month and six-month periods ended August 30, 2009 compared to the three-month and six-month periods ended August 31, 2008 and the lower interest income earned by the Company in such 2010 fiscal year periods, the Company's net earnings were lower in the 2010 fiscal year periods than in the 2009 fiscal year periods and the Company's earnings from operations in the 2010 fiscal year first six months were also lower than in the 2009 fiscal year first six months.

However, the Company's earnings from operations in the three-month period ended August 30, 2009 were higher than in the three-month period ended August 31, 2008 as the Company's gross profit margins, measured as percentages of sales, improved to 25.7% in the 2010 fiscal year second quarter and to 25.4% in the 2010 fiscal year first six months compared to 19.7% and 22.1%, respectively, in the 2009 fiscal year second quarter and first six months and 25.1% in the 2010 fiscal year first quarter. The Company's operating and earnings performances during the 2010 fiscal year second quarter and first six months benefited from higher percentages of sales of higher margin, high performance printed circuit materials and advanced composite materials, parts and assemblies during the 2010 fiscal year second quarter and first six months and lower costs resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the three-month and six-month periods ended August 30, 2009 were partially offset by costs incurred at the Company's Park Aircraft Technology Corp. business unit in Newton, Kansas in connection with the start-up of its operations.

The markets in North America, Asia and Europe for the Company's printed circuit materials products continued to be weak in the 2010 fiscal year first and second quarters. The markets for the Company's advanced composite materials, parts and assemblies products weakened during the 2009 fiscal year third and fourth quarters, and such weakness continued during the 2010 fiscal year first and second quarters.

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 2010 fiscal year third quarter. Further, the Company is not able to predict the impact the current global economic and financial conditions will have on the markets for its advanced composite materials, parts and assemblies in the 2010 fiscal year third quarter or beyond.

As previously reported, in the first quarter of the Company's 2009 fiscal year, the Company's wholly owned subsidiary, Park Aerospace Structures Corp., acquired substantially all the assets and business of Nova Composites, Inc., a manufacturer of aircraft composite parts and assemblies and the tooling for such parts and assemblies, 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. The Company paid an additional $1.0 million in the 2010 fiscal year second quarter, leaving up to an additional $4.4 million payable over four years depending on the achievement of the earn-out objectives.

In addition, in the fourth quarter of the Company's 2009 fiscal year, the Company completed the construction of a new development and manufacturing facility in Newton, Kansas to produce advanced composite materials principally for the aircraft and space vehicle industries. The Company spent approximately $15 million on the facility and equipment in Kansas. In the second quarter of the Company's 2010 fiscal year, the Company announced plans for the major expansion of its facility in Kansas in order to manufacture composite parts and assemblies for the aircraft and space vehicle industries. The expansion includes approximately 42,000 square feet of manufacturing, office and storage space, and the Company plans to spend approximately $5 million on the expansion.

While the Company continues to invest in its business, it also has recently made adjustments to certain of its operations, which resulted in workforce reductions and plant closures.

In the 2009 fiscal year fourth quarter, the Company's Neltec Europe SAS electronic materials business unit located in Mirebeau, France and its Neltec SA electronic materials business unit located in Lannemezan, France completed restructurings of their operations in response to the continuing serious erosion of the markets for electronic materials in Europe and the continuing migration of such markets to Asia. The market for such products in Europe had eroded to the point where the Company believed it was not possible for the Neltec Europe SAS business to be viable, and as a major component of such restructurings, Neltec Europe SAS closed completely its operations. Although the Company is continuing the operations of its Neltec SA RF/microwave electronic materials business unit, the restructuring included a reorganization of certain of the activities of Neltec SA.

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. electronics circuitry materials business unit located in Tempe, Arizona in the 2009 fiscal year third quarter and a workforce reduction at its Nelco Products Pte. Ltd. electronics circuitry materials and advanced composite materials business unit located in Singapore in the 2009 fiscal year fourth quarter.

Also, in the 2009 fiscal year fourth quarter, the Company's New England Laminates Co., Inc. electronic materials business unit located in Newburgh, New York closed its operations in response to the very serious erosion of the markets for electronic materials in North America.

Since the closures of the Neltec Europe SAS and New England Laminates Co., Inc. business units, the Company has been supplying and supporting customers of such business units from the Company's electronic materials operations in Fullerton, California, Tempe, Arizona and Lannemezan, France.

Three and Six Months Ended August 30, 2009 Compared with Three and Six Months Ended August 31, 2008:

The Company's total net sales and its net sales of printed circuit materials products decreased during the three-month and six-month periods ended August 30, 2009 compared to the three-month and six-month periods ended August 31, 2008 as a result of declines in such sales in North America, Europe and Asia. The Company's net sales of advanced composite materials, parts and assemblies in both the three-month and six-month periods ended August 30, 2009 were substantially the same as such sales in the prior year's comparable periods primarily as a result of the Company's business development, marketing and sales efforts relating to such materials, parts and assemblies for aircraft applications. Net sales of the Company's advanced composite materials, parts and assemblies products were 16% of the Company's total net sales worldwide in each of the three-month and six-month periods ended August 30, 2009 compared to 12% and 11% of the Company's total net sales worldwide in the three-month and six-month periods, respectively, ended August 31, 2008.

While the Company's gross profits in the three months and six months ended August 30, 2009 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, its gross profit margins improved to 25.7% and 25.4% in the three months and six months, respectively, ended August 30, 2009, compared to 19.7% and 22.1% in the prior year's comparable periods, principally as a result of higher percentages of sales of higher margin, high performance printed circuit materials products and advanced composite materials, parts and assemblies in the 2010 fiscal year periods and the benefits resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the three-month and six-month periods ended August 30, 2009 were partially offset by costs incurred at the Company's Park Aircraft Technology Corp. business unit in Newton, Kansas in connection with the start-up of its operations.

The decreased sales of printed circuit materials products and the lower interest income earned in the three months and six months ended August 30, 2009 resulted in lower net earnings compared to the 2009 fiscal year comparable periods.

Results of Operations

The Company's total net sales for the three-month period ended August 30, 2009 decreased 24% to $42.5 million from $55.6 million for last fiscal year's comparable period. The Company's total net sales for the six-month period ended August 30, 2009 decreased 31% to $79.2 million from $115.4 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 sales were $20.6 million and $37.5 million, respectively, or 49% and 47%, respectively, of the Company's total net sales worldwide, during the three-month and six-month periods ended August 30, 2009, compared with $27.8 million and $57.2 million, respectively, of foreign sales, or 50% of total net sales worldwide, during last year's comparable periods. The Company's foreign sales during the three-month and six-month periods ended August 30, 2009 decreased 26% and 34%, respectively, from the 2009 fiscal year comparable periods, as a result of decreases in sales in Asia and Europe in both periods.

For the three-month period ended August 30, 2009, the Company's sales in North America, Asia and Europe were 51%, 39% and 10%, respectively, of the Company's total net sales worldwide compared with 50%, 38% and 12%, respectively, for the three-month period ended August 31, 2008; and for the six-month period ended August 30, 2009, 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 six-month period ended August 31, 2008. The Company's sales in North America decreased 21%, its sales in Asia decreased 23% and its sales in Europe decreased 36% in the three-month period ended August 30, 2009 compared with the three-month period ended August 31, 2008, and its sales in North America decreased 28%, its sales in Asia decreased 31% and its sales in Europe decreased 46% in the six-month period ended August 30, 2009 compared with the six-month period ended August 31, 2008.

The overall gross profits as percentages of net sales for the Company's worldwide operations improved to 25.7% and 25.4%, respectively, for the three months and six months ended August 30, 2009 compared with 19.7% and 22.1% for last fiscal year's comparable periods. The increases in the gross profit margins were attributable mainly to higher percentages of sales of higher margin, high performance printed circuit materials products and advanced composite materials, parts and assemblies in the 2010 fiscal year periods and the benefits resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the three-month and six-month periods ended August 30, 2009 were partially offset by costs incurred at the Company's Park Aircraft Technology Corp. business unit in Newton, Kansas in connection with the start-up of its operations.

During both the three-month and six-month periods ended August 30, 2009, the Company's total net sales worldwide of high temperature printed circuit materials, which include high performance materials (non-FR4 printed circuit materials), were 100% of the Company's total net sales worldwide of printed circuit materials; and during both the three-month and six-month periods ended August 31, 2008, 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 six-month periods ended August 30, 2009, the Company's total net sales worldwide of high performance printed circuit materials (non-FR4 printed circuit materials) were 64% and 65%, respectively, of the Company's total net sales worldwide of printed circuit materials, compared with 57% and 58% for last fiscal year's comparable periods.

The Company's cost of sales as a percentage of net sales decreased to 74.3% in the three-month period ended August 30, 2009 from 80.3% in the three-month period ended August 31, 2008 and to 74.6% in the six-month period ended August 30, 2009 from 77.9% in the six-month period ended August 31, 2008 resulting in gross profit margin increases, which were attributable to higher percentages of sales of higher margin, high performance printed circuit materials products and advanced composite materials, parts and assemblies in the 2010 fiscal year periods and the benefits resulting from the workforce reductions at the Nelco Products, Inc., Neltec, Inc. and Nelco Products Pte. Ltd. business units and the closures of the New England Laminates Co., Inc. and Neltec Europe SAS business units in the 2009 fiscal year, all described elsewhere in this Discussion. Gross profit margin improvements during the three-month and six-month periods ended August 30, 2009 were partially offset by costs incurred at the Company's Park Aircraft Technology Corp. business unit in Newton, Kansas in connection with the start-up of its operations.

Selling, general and administrative expenses decreased by $1.0 million and $1.4 million or by 16% and 11%, respectively, during the three-month period and six-month period, respectively, ended August 30, 2009 compared with last fiscal year's comparable periods. The decreases were attributable primarily to reduced costs for the three-month and six-month periods ended August 30, 2009 compared to the comparable periods in the prior fiscal year resulting from the closure of the Neltec Europe SAS and New England Laminates Co., Inc. business units and the reduction in a reserve in the three-month period ended August 30, 2009. These expenses, measured as percentages of sales, were 12.2% and 14.0%, respectively, during the three-month and six-month periods ended August 30, 2009 compared with 11.1% and 10.8%, respectively, during the last fiscal year's comparable periods. Stock option expenses were $0.3 million and $0.6 million, respectively, for the three-month and six-month periods ended August 30, 2009 and $0.3 million and $0.7 million, respectively, for the three-month and six-month periods ended August 31, 2008.

For the reasons set forth above, the Company's earnings from operations were $5.7 million for the three months ended August 30, 2009 compared to $4.8 million for the three months ended August 31, 2008 and $9.0 million for the six months ended August 30, 2009 compared to $13.0 million for the six months ended August 31, 2008.

Interest and other income, net, principally investment income, was $0.2 million and $0.9 million, respectively, for the three-month and six-month periods ended August 30, 2009 compared with $1.7 million and $3.4 million, respectively, for last fiscal year's comparable periods. The decreases in investment income were attributable principally to lower prevailing interest rates, partially offset by higher levels of cash available for investment, during the 2010 fiscal year first and second quarters than during the 2009 fiscal year first and second 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 six-month periods ended August 30, 2009 were 20.1% and 21.2%, respectively, compared to effective income tax rates of 23.8% for both the three-month and six-month periods ended August 31, 2008. The lower tax provisions for the three-month and six-month periods ended August 30, 2009 were primarily the results of lower taxable income in jurisdictions with higher income tax rates.

The Company's net earnings for the three months ended August 30, 2009 were $4.8 million compared to net earnings of $4.9 million for the three months ended August 31, 2008, and the Company's net earnings for the six months ended August 30, 2009 were $7.8 million compared to net earnings of $12.5 million for the six-months ended August 31, 2008.

Basic and diluted earnings per share were $0.23 and $0.38 for the three months and six months, respectively, ended August 30, 2009 compared to basic and diluted earnings per share of $0.24 and $0.61 for the three-months and six-months, respectively, ended August 31, 2008.

Liquidity and Capital Resources:

At August 30, 2009, the Company's cash and marketable securities were $233.7 million compared to $225.3 million at March 1, 2009, the end of the Company's 2009 fiscal year. The Company's working capital (which includes cash and marketable securities) was $244.8 million at August 30, 2009 compared with $239.6 million at March 1, 2009. The increase in working capital at August 30, 2009 compared with March 1, 2009 was due principally to the increase in cash and marketable securities and the decrease in accrued liabilities only partially offset by the decrease in other current assets and the increases in accounts payable and dividends payable. Accrued liabilities declined by 20% at August 30, 2009 compared to March 1, 2009 primarily as a result of a reduction of $0.8 million in a reserve in the second quarter. The 51% decrease in other current assets at August 30, 2009 compared to March 1, 2009 was attributable primarily to the Company's receipt of an amount due from a foreign taxing authority and lower interest receivable at August 30, 2009. Accounts payable increased by 21% at August 30, 2009 compared to March 1, 2009 principally due to the timing of raw material purchases. The increase in dividends payable was the result of the declaration of the regular quarterly cash dividend in the 2010 fiscal year second quarter payable in the 2010 fiscal year third quarter.

The Company's current ratio (the ratio of current assets to current liabilities) was 10.5 to 1 at August 30, 2009 compared to 10.9 to 1 at March 1, 2009.

During the six months ended August 30, 2009, net earnings from the Company's operations, before depreciation and amortization and stock-based compensation, increased by a net increase in working capital items, resulted in $12.4 million of cash provided by operating activities. During the same six-month period, the Company expended a net amount of $1.2 million for the purchase of property, plant and equipment, primarily for the Company's new development and manufacturing facility in Newton, Kansas, and expended $1.0 million as additional payment for the acquisition of substantially all the assets and business of Nova Composites, Inc., compared to a net amount of $8.1 million for the purchase of property, plant and equipment, primarily for the facility in Kansas, and a total of $4.7 million for the acquisition of substantially all the assets and business of Nova Composites, Inc. in the six-month period ended August 31, 2008. In addition, the Company paid $3.3 million in dividends on its common stock in the six-month period ended August 30, 2009 compared to the same amount in the six-month period ended August 31, 2008. Net expenditures for property, plant and equipment were $12.2 million in the 2009 fiscal year and $4.4 million in the 2008 fiscal year.

In the first quarter of the Company's 2009 fiscal year, the Company's wholly owned subsidiary, Park Aerospace Structures Corp., acquired substantially all the assets and business of Nova Composites, Inc., a manufacturer of aircraft composite parts and assemblies and the tooling for such parts and assemblies, 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 the second quarter of the

2010 fiscal year, the Company paid an additional $1.0 million for such acquisition, leaving an additional $4.4 million payable over four years depending on the achievement of the earn-out objectives.

During the 2009 fiscal year, the Company expended approximately $10.2 million for the construction of its new development and manufacturing facility in Newton, Kansas to produce advanced composite materials and for equipment for such facility.

At August 30, 2009 and at August 31, 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, commitments to purchase equipment for the Company's new development and manufacturing facility in Newton, Kansas and the Company's obligation to pay up to an additional $4.4 million over four years in connection with the acquisition of the assets and business of Nova Composites, Inc., described above. 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 $1.45 million to secure the Company's obligations under its workers' compensation insurance program.

As of August 30, 2009, 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 1, 2009.

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 six-month periods ended August 30, 2009 and August 31, 2008, the Company reversed accruals of approximately $0.8 million and $0.6 million, respectively, for environmental remedial response and clean-up costs, which were recorded as reductions to selling, general and administrative expenses for such periods, as a result of the Company's conclusion that the likelihood of any liability in connection with such accruals was remote. 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 August 30, 2009 and March 1, 2009, the amounts recorded in accrued liabilities for environmental matters were $0.01 million and $0.8 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 . . .