The printed circuit board fabricator processes copper-clad laminates to form the inner layers of a multilayer printed circuit board. The fabricator photo images these laminates with a dry film or liquid photoresist. The photoresist is then developed with the circuit pattern.  The unexposed areas are stripped, leaving a cured photoresist circuit pattern protecting the copper. The copper surfaces of the laminate are etched to form the circuit pattern, and the remaining photoresist is stripped. The fabricator then assembles these etched laminates by inserting one or more plies of dielectric prepreg between each of the inner layer etched laminates and also between an inner layer etched laminate and the outer layer copper plane, and then laminating the entire assembly in a press. Prepreg serves as the insulator and bond between the multiple layers of copper circuitry patterns found in the multilayer circuit board. When the multilayer configuration is laminated, these plies of prepreg form an insulating dielectric substrate supporting and separating the multiple inner and outer planes of copper circuitry. The fabricator drills vertical through-holes or vias in the multilayer assembly and then plates the through-holes or vias to form vertical conductors between the multiple layers of circuitry patterns. These through-holes or vias combine with the conductor paths on the horizontal circuitry planes to create a three-dimensional electronic interconnect system. In specialized applications, an additional set of microvia layers may be added through a series of lamination processes to provide increased density and functionality to the design. The outer two layers of copper foil are then imaged and etched to form the finished multilayer printed circuit board. The completed multilayer board is a three-dimensional interconnect system with electronic sig-nals traveling in the horizontal planes of multiple layers of copper circuitry patterns, as well as in the vertical planes through the plated holes or vias.

Semiconductor manufacturers have introduced successive generations of more powerful microprocessors and memory and logic devices. Electronic equipment manufacturers have designed these advanced semiconductors into more compact products. High performance computing devices in these smaller platforms require greater reliability, faster signal speeds, closer tolerances, higher component and circuit density and increased overall complexity. As a result, the interconnect industry has developed smaller, lighter, faster and more cost-effective interconnect systems, including advanced multilayer printed circuit boards.

Today’s interconnect systems require advanced technology printed circuit materials to ensure the performance and reliability of the electronic system and to improve the manufacturability of the interconnect platform. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced and stable electrical properties in order to support high-speed computing in a miniaturized and often portable environment. Temperature tolerance was further emphasized by the advent of lead-free assemblies.

The uniformity, purity, consistency, performance predictability, dimensional stability and production tolerances of printed circuit materials have become successively more critical due to the very high density circuit demands of miniaturized high performance interconnect systems. High density printed circuit boards and interconnect systems often involve higher layer count multilayer circuit boards where the multiple planes of circuitry and dielectric insulating substrates are very thin (dielectric insulating substrate layers may be 0.002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (0.002 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very small plated through-holes or vias which electrically connect the multiple layers of circuitry planes, and these interconnect systems frequently make use of multiple lamination cycles and/or laser drilled vias. High density interconnect systems must utilize printed circuit materials whose dimensional characteristics and purity are consistently manufactured to very high tolerance levels in order for the printed circuit board fabricator to attain and sustain acceptable product yields.

Shorter product life cycles and competitive pressures have induced electronic equipment manufacturers to bring new products to market and increase production volume to commercial levels more quickly. These trends have highlighted the importance of front-end engineering of electronic products and have increased the level of collaboration among system designers, fabricators and printed circuit materials suppliers. As the complexity of electronic products increases, materials suppliers must provide greater technical support to interconnect systems fabricators on a timely basis regarding manufacturability and performance of new materials systems.

Electronics Materials – Products and Services

The Company produces a broad line of advanced electronics materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, including backplanes, high speed/low loss multilayers and high density interconnects (“HDIs”). The Company’s diverse advanced electronics materials product line is designed to address a wide array of end-use applications and performance requirements.

The Company’s electronics materials products have been developed internally and through long-term development projects with its principal suppliers and, to a lesser extent, through licensing arrangements. The Company focuses its research and development efforts on developing industry leading product technology to meet the most demanding product requirements and has designed its product line with a focus on the higher performance, higher technology end of the materials spectrum.

The Company’s products utilize, among other things, high-speed, low-loss, engineered formulations, high-temperature modified epoxies, phenolics, BT epoxies, MDA-free polyimides, enhanced polyimides, APPE, SI® (Signal Integrity) products, cyanate esters and PTFE formulations for RF/microwave applications.

The Company’s high performance electronics materials consist of high-speed, low-loss Cathodic Anodic Filament (“CAF”) resistant materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, BT materials, polyimides for applications that demand extremely high thermal performance, cyanate esters, quartz reinforced materials, and PTFE and modified epoxy materials for RF/microwave systems that operate at frequencies up to at least 79 GHz.

The Company has developed long-term relationships with select customers through broad-based technical support and service, as well as manufacturing proximity and responsiveness at multiple levels of the customer’s organization. The Company focuses on developing a thorough understanding of its customers’ businesses, product lines, processes and technological challenges. The Company seeks customers which are industry leaders committed to maintaining and improving their industry leadership positions and which are committed to long-term relationships with their suppliers. The Company also seeks business opportunities with the more advanced printed circuit fabricators and electronic equipment manufacturers who are interested in maximizing the full value of the products and services provided by their suppliers. The Company believes its proactive and timely support in assisting its customers with the integration of advanced materials technology into new product designs further strengthens its relationships with its customers.

The Company’s emphasis on service and close relationships with its customers is reflected in its short lead times. The Company has developed its manufacturing processes and customer service organizations to provide its customers with printed circuit materials products on a just-in-time basis. The Company believes that its ability to meet its customers' customized manufacturing and quick-turn-around ("QTA") requirements is one of its unique strengths.

Electronics Materials – Customers and End Markets

The Company’s customers for its advanced electronics materials include the leading independent printed circuit board fabricators, electronic manufacturing service (“EMS”) companies, electronic contract manufacturers (“ECMs”) and major electronic OEMs in the computer, networking, telecommunications, wireless communications, aerospace, military, instrumentation and automotive industries located throughout North America, Europe and Asia. The Company seeks to align itself with the larger, more technologically-advanced and better capitalized independent printed circuit board fabricators and major electronic equipment manufacturers which are industry leaders committed to maintaining and improving their industry leadership positions and to building long-term relationships with their suppliers. The Company’s selling effort typically involves several stages and relies on the talents of Company personnel at different levels, from management to sales personnel and quality engineers. The Company augments its sales personnel with an OEM marketing team and process and product technology specialists.

During the Company’s 2018 fiscal year, 14.9% of the Company's total worldwide sales were to TTM Technologies, Inc., a leading manufacturer of printed circuit boards. During the Company’s 2017 fiscal year, approximately 16.2% of the Company's total worldwide sales were to TTM Technologies, Inc. During the Company’s 2016 fiscal year, approximately 13.8% of the Company's total worldwide sales were to TTM Technologies, Inc. During the Company’s 2018, 2017 and 2016 fiscal years, sales to no other electronics materials customer of the Company equaled or exceeded 10% of the Company’s total worldwide sales.

Although the Company’s electronics materials business is not dependent on any single customer, the loss of a major customer or of a group of customers could have a material adverse effect on the Company’s business or its consolidated results of operations or financial position.

The Company’s electronics materials products are marketed primarily by sales personnel and, to a lesser extent, by independent distributors and independent sales representatives in Europe and Asia.

Electronics Materials – Manufacturing

The process for manufacturing multilayer printed circuit materials is capital intensive and requires sophisticated equipment as well as clean-room environments. The key steps in the Company’s manufacturing process include: the impregnation of specially designed fiberglass cloth with a specially designed resin system and the partial curing of that resin system; the assembling of laminates consisting of single or multiple plies of prepreg and copper foil in a clean-room environment; the vacuum lamination of the copper-clad assemblies under simultaneous exposure to heat, pressure and vacuum; and the finishing of the laminates to customer specifications.

Prepreg is manufactured in a treater. A treater is a roll-to-roll continuous machine which sequences specially designed fiberglass cloth or other reinforcement fabric into a resin tank and then sequences the resin-coated cloth through a series of ovens which partially cure the resin system into the cloth. This partially cured product or prepreg is then sheeted or paneled and packaged by the Company for sale to customers, or used by the Company to construct its copper-clad laminates.

The Company manufactures copper-clad laminates by first setting up in a clean room an assembly of one or more plies of prepreg stacked together with a sheet of specially manufactured copper foil on the top and bottom of the assembly. This assembly, together with a large quantity of other laminate assemblies, is then inserted into a large, multiple opening vacuum lamination press. The laminate assemblies are then laminated under simultaneous exposure to heat, pressure and vacuum. After the press cycle is complete, the laminates are removed from the press and sheeted, sheared and finished to customer specifications. The product is then inspected and packaged for shipment to the customer.

The Company manufactures multilayer printed circuit materials at fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its Arizona facility in 1984, its Singapore facility in 1986 and its France facility in 1992. The Company services the North American market principally through its United States manufacturing facilities, the European market principally through its manufacturing facilities in the United States and in France, and the Asian market principally through its Singapore manufacturing facility. By maintaining technical and engineering staffs at each of its manufacturing facilities, the Company is able to deliver fully-integrated products and services on a timely basis. During the 2018 fiscal year, the Company consolidated its Nelco Products, Inc. business unit located in California and its Neltec, Inc. business unit located in Arizona, and all manufacturing at the California facilities ceased, except for treating operations, which continue as part and under the supervision of the Neltec, Inc. business unit. 

Electronics Materials – Materials and Sources of Supply

The principal materials used in the manufacture of the Company’s electronics materials products are specially manufactured copper foil, fiberglass and quartz cloth and synthetic reinforcements, and specially formulated resins and chemicals. The Company develops and maintains close working relationships with suppliers of these materials who have dedicated themselves to complying with the Company’s stringent specifications and technical requirements. While the Company’s philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for many, but not all, of these materials. However, there are a limited number of qualified suppliers of these materials, in some cases substitutes for these materials are not always readily available, and, in the past, the industry has experienced shortages in the market for certain of these materials. While the Company considers its relationships with its suppliers to be strong, a shortage of these materials or a disruption of the supply of materials caused by a natural disaster, such as the temporary disruption caused by the earthquake and tsunami in Japan in March 2011, or otherwise, could materially increase the Company’s cost of operations and could materially adversely affect the business and results of operations of the Company.

Significant increases in the cost of materials purchased by the Company could also have a material adverse effect on the Company’s business and results of operations if the Company were unable to pass such increases through to its customers. During the 2018, 2017 and 2016 fiscal years, the Company experienced significant volatility in the cost of copper foil, one of the Company’s primary raw materials. The Company generally passes changes in the costs of its raw materials through to its customers.

Electronics Materials – CompetitionBacklog

The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company’s competitors are primarily divisions or subsidiaries of very large, diversified multinational manufacturers which are substantially larger and have greater financial resources than the Company and, to a lesser degree, smaller regional producers. Because the Company focuses on the higher technology segment of the electronics materials market, technological innovation, quality and service, as well as price, are significant competitive factors.

The Company believes that there are several significant multilayer printed circuit materials manufacturers in the world and many of these competitors have significant presences in the three major global markets of North America, Europe and Asia. The Company believes that it is one of only a few significant independent manufacturers of multilayer printed circuit materials in the world today.

The markets in which the Company’s electronics materials operations compete are characterized by rapid technological advances, and the Company’s position in these markets depends largely on its continued ability to develop technologically advanced and highly specialized products. Although the Company believes it is an industry technology leader and directs a significant amount of its time and resources toward maintaining its technological competitive advantage, there is no assurance that the Company will be technologically competitive in the future, or that the Company will continue to develop new products that are technologically competitive.

Electronics Materials – Strategic Evaluation

On January 4, 2018, the Company announced that it is conducting a strategic evaluation, including the potential sale, of its electronics materials business and that it has retained Greenhill & Co., LLC, as its financial advisor, to assist it in the strategic evaluation of the electronics business, which includes manufacturing locations in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona.  Under any strategic alternative for its electronics business, the Company would retain its aerospace manufacturing operations in Kansas, its headquarters in New York and its aerospace composite materials manufacturing facility in Singapore.  The Company expects to conclude its strategic evaluation of its electronics business in the second quarter of its 2019 fiscal year ending March 3, 2019.  However, no specific timetable has been set, and there can be no assurance that a sale or any other transaction will take place as a result of the strategic evaluation.

Backlog

The Company considers an item as backlog when it receives a purchase order specifying the number of units to be purchased, the purchase price, specifications and other customary terms and conditions. At May 1, 2018,April 26, 2020, the unfilled portion of all purchase orders received by the Company, and believed by it to be firm, was $18,151,314,$18,935,709, compared to $14,642,952$24,171,828 at May 1, 2017.2019. A major portion of the Company’s backlog consists of composite materials.

Various factors contribute to the size of the Company’s backlog. Accordingly, the foregoing information may not be indicative of the Company’s results of operations for any period subsequent to the fiscal year ended February 25, 2018.March 1, 2020.

Patents and Trademarks

The Company holds several patents and trademarks or licenses thereto. In the Company’s opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new; or to defend existing, patents and trademarks would have a material adverse effect on the Company.

Employees

At February 25, 2018,March 1, 2020, the Company had 387136 employees. Of these employees, 34296 were engaged in the Company’s manufacturing operations, and 4540 consisted of executive, sales and marketing, and research and development personnel and general administrative staff.

Environmental Matters

The Company is subject to stringent environmental regulation of its use, storage, treatment, and disposal of hazardous materials and the release of emissions into the environment. The Company believes that it currently is in substantial compliance with the applicable Federal, state and local and foreign environmental laws and regulations to which it is subject and that continuing compliance therewith will not have a material effect on its capital expenditures, earnings or competitive position. The Company does not currently anticipate making material capital expenditures for environmental control facilities for its existing manufacturing operations during the remainder of its current fiscal year or its succeeding fiscal year. However, developments, such as the enactment or adoption of even more stringent environmental laws and regulations, could conceivably result in substantial additional costs to the Company.

The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the “EPA”) or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the “Superfund Act”) or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at fourthree sites.

Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company’s subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at the waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries has been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or financial position of the Company.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Environmental Matters” included in Item 7 of Part II of this Report and Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.

Factors That May Affect Future Results

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from Park's expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements.

Generally, forward-looking statements can be identified by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. Such forward-looking statements are based on current expectations that involve a number of uncertainties and risks that may cause actual events or results to differ materially from the Company’s expectations.

The factors described under “Risk Factors” in Item 1A of this Report as well as the following additional factors, could cause the Company's actual results to differ materially from any such results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements.

On January 4, 2018, the Company announced that it is conducting a strategic evaluation, including the potential sale, of its electronics materials business and that it has retained Greenhill & Co., LLC, as its financial advisor, to assist it in such strategic evaluation. The Company expects to conclude the strategic evaluation of its electronics business in the second quarter of the 2019 fiscal year ending March 3, 2019. However, no specific timetable has been set, and potential risks and uncertainties of the strategic evaluation include that (i) there can be no assurance that a sale or any other transaction will take place or be consummated as a result of such strategic evaluation, (ii) the announcement of a potential transaction may negatively affect the Company’s business relationships (including, without limitation, customers and suppliers) and its employees, (iii) failure to complete a potential transaction could negatively impact the market price of the Company’s common stock and the future business and financial results of the Company, (iv) significant expenses may be incurred by the Company in consideration of a potential transaction and contingent expenses may result if a potential transaction is consummated, and (v) management’s attention may be diverted from the Company’s ongoing business operations during consideration of a potential transaction. In the event that a sale of the Company’s electronics business is consummated, the Company would be subject to the following additional risks and uncertainties that may cause actual events or results to differ materially from the Company’s expectations:

The business of the Company faces numerous risks, including those set forth below or those described elsewhere in this Form 10-K Annual Report or in the Company's other filings with the Securities and Exchange Commission. The risks described below are not the only risks that the Company faces, nor are they necessarily listed in order of significance. Other risks and uncertainties may also affect the Company’s business. Any of these risks may have a material adverse effect on the Company's business, financial condition, results of operations or cash flow.

The recent coronavirus outbreak likely willhave an adverse effect on our business.

The COVID-19 Pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis by mandating restrictions on social activity. These impacts include, but are not limited to, the potential adverse effect of the COVID-19 Pandemic on the economy, the Company’s vendors, employees, customers and OEMs, as well as end-users of the Company’s products, including the commercial and business aircraft industries. Continued impacts of the pandemic could materially adversely impact global economic conditions, the Company’s business, results of operations and cash flows, and may require actions in response, including but not limited to expense reductions, in an effort to mitigate such impacts. The extent of the impact of the COVID-19 Pandemic on the Company’s business and financial results will depend largely on future developments, including the duration of the spread of the outbreak, the impact on capital and financial markets and the related impact on the financial circumstances of the Company’s customers and OEMs, as well as end-users of the Company’s products, including the commercial and business aviation industries, inall of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that the Company operates are undergoing technological changes,is not aware of currently. Although it is not possible to predict the extent or length of the impact, it is almost certain the Company’s sales to the commercial and thebusiness aircraft industries will be negatively impacted.

The Company's business could suffer if the Company is unable to adjust to these changes.develop new products on a timely basis.

The Company's operating results could be negatively affected if the Company were unable to maintain and increase its technological and manufacturing capability and expertise. Rapidexpertise to develop new products on a timely basis. Although the Company believes that it has certain technological and other advantages over its competitors, maintaining such advantages will require the Company to continue investing in research and development and sales and marketing. There can be no assurance that the Company will be able to make the technological advances in semiconductors and electronic equipment have placed rigorous demands on the electronics materials manufactured bynecessary to maintain such competitive advantages or that the Company can recover major research and used in printed circuit board production.development expenses.

The industries in which the Company operates are very competitive.

Certain of the Company's principal competitors are substantially larger and have greater financial resources than the Company, and the Company's operating results will be affected by its ability to maintain its competitive positions in these industries. The electronics materials, aerospace composite materials and composite structures and assemblies industries are intensely competitive, and the Company competes worldwide in the markets for such products.

The Company is vulnerable to an increase in the cost of gas or electricity.

Changes in the cost or availability of gas or electricity could materially increase the Company's cost of operations. The Company's production processes require the use of substantial amounts of gas and electricity, the cost and available supply of which are beyond the control of the Company.

The Company is vulnerable to disruptions and shortages in the supply of, and increases in the prices of, certain raw materials.

There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of electronics materials, aerospace composite materials and composite structures and assemblies. The Company has qualified alternate sources of supply for many, but not all, of its raw materials, but certain raw materials are produced by only one supplier. In some cases, substitutes for certain raw materials are not always readily available, and in the past there have been shortages in the market for certain of these materials. Raw material substitutions for certain aircraft related products may require governmental (such as Federal Aviation Administration) approval. While the Company considers its relationships with its suppliers to be strong, a shortage of these materials or a disruption of the supply of these materials caused by a natural disaster such as the earthquake and tsunami in Japan in March 2011, or otherwise could materially increase the Company’s cost of operations and could materially adversely affect the business and results of operations of the Company. Likewise, significant increases in the cost of materials purchased by the Company could also materially increase the Company’s cost of operations and could have a material adverse effect on the Company’s business and results of operations if the Company were unable to pass such increases through to its customers.

During The COVID-19 Pandemic could negatively impact the 2018, 2017 and 2016 fiscal years,Company’s suppliers. If, due to the Company experienced significant volatility in the cost of copper foil,impact, one or more of the Company’s primary raw materials. The Company generally passes changes insuppliers is required to temporarily close manufacturing facilities, the costs of itsCompany’s ability to procure raw materials throughfor its manufacturing processes may become limited and this could ultimately limit the Company’s ability to manufacture its customers. See “Business—Electronics Materials—Materials and Sources of Supply” in Item 1 of Part I of this Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Report.products.

The Company's customer base is highly concentrated, and the loss of one or more customers could adversely affect the Company's business.

A loss of one or more key customers could adversely affect the Company's profitability. The Company's customer base is concentrated, in part, because the Company's business strategy has been to develop long-term relationships with a select group of customers. During the Company's fiscal years ended March 1, 2020, March 3, 2019 and February 25, 2018, February 26, 2017 and February 28, 2016, the Company's ten largest customers accounted for approximately 53%76%, 48%74% and 51%72%, respectively, of net sales. The Company expects thatthe sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. See "Business—Electronics Materials—Customers and End Markets” and “Business—Aerospace Composite Materials, Structures and Assemblies—Customers“Customers and End Markets” in Item 1 of Part I of this Report. The COVID-19 Pandemic could negatively impact the Company’s customers. If one or more of the Company’s customers is negatively impacted by the COVID-19 Pandemic the Company’s customer base could become more concentrated.

The Company's business is dependent on the electronics and aerospace industriesindustry,, which areis cyclical in nature.

The electronics and aerospace industries areindustry is cyclical and havehas experienced recurring cycles.downturns. The downturns can occur at any time as a result of events that are industry specific or macroeconomic, and in the event of a downturn, the Company may have no way of knowing if, when and to what extent there might be unexpected and havea recovery. Deterioration in the market for aerospace products has often reduced demand for, and prices of, printed circuit materials and advanced composite materials, structures and assemblies. ThisA potential future reduction in demand and prices could have a negative impact on the Company’s business.business and operating results.

In addition, the Company is subject to the effects of general regional and global economic and financial conditions. The COVID-19 Pandemic is negatively impacting the aerospace industry, and the commercial aerospace industry in particular. Commercial airlines are already instituting cost reduction initiatives including limiting capacity, reducing workforces, limiting discretionary operational expenditures and delaying capital expenditures. If commercial airlines continue to be negatively impacted by the COVID-19 Pandemic, including due to temporary or permanent reductions in commercial airline passenger traffic, orders for Company products could be negatively impacted.

The Company relies on short-term orders from its customers.

A variety of conditions, both specific to the individual customer and generally affecting the customer’s industry, can cause a customer to reduce or delay orders previously anticipated by the Company, which could negatively impact the Company’s business. In the printed circuit materials market,business and operating results. While some customers place orders based on long-term pricing agreements, such agreements are typically requirements-based and do not set forth minimum purchase obligations. As a result, the Company typically does not obtain long-term purchase orders or commitments. Instead, it relies primarily on continual communicationmust continually communicate with its customers to validate forecasts and anticipate the future volume of purchase orders. The COVID-19 Pandemic could negatively impact short-term orders of the Company’s products.

The Company’s customers may require the Company to undergo a lengthy and expensive qualification process with respect to its products, with no assurance of sales. Any delay or failure in such qualification process could negatively affect the Company’s business and operating results.

The Company’s customers frequently require that the Company’s products undergo an extensive qualification process, which may include testing for performance, structural integrity and reliability. This qualification process may be lengthy and does not assure any sales of the product to that customer. The Company devotes substantial resources, including design, engineering, sales, marketing and management efforts, and often substantial expense, to qualifying the Company’s products with customers in anticipation of sales. Any delay or failure in qualifying any of its products with a customer may preclude or delay sales of those products to the customer, which may impede the Company’s growth and cause its business to suffer.

In addition, the Company engages in product development efforts with OEMs. The Company will not recover the cost of this product development directly even if the Company actually produces and sells any resulting product. There can be no guarantee that such efforts will result in any sales.

Consolidation among the Company’s customers could negatively impact the Company’s business.

A number of the Company’s customers have combined in recent years and consolidation of other customers may occur. If an existing customer is not the controlling entity following a combination, the Company may not be retained as a supplier. While there is potential for increasing the Company’s position with the combined customer, the Company’s revenues may decrease if the Company is not retained as a supplier. The COVID-19 Pandemic could result in further consolidation among the Company’s customers. One or more of the Company’s customers could be acquired due to financial difficulty, distress or insolvency, fluctuations in the market price of its securities, or other factors resulting from the COVID-19 Pandemic.

The Company faces extensive capital expenditure costs.

The Company’s business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company’s capital expenditures. In order to remain competitive, the Company must continue to make significant investments in capital equipment, and expansion of operations, which could adversely affect the Company’s results of operations. The Company is in the process of expanding its Newton, Kansas manufacturing facilities. The anticipated costs of this and any other expansion cannot be determined with precision and may vary materially from those budgeted. In addition, any expansion will increase the Company's fixed costs. The Company's future profitability depends upon its ability to utilize its manufacturing capacity in an effective manner.

The Company’s international operations are subject to different and additional risks than the Company’s domestic operations.

The Company’s international operations are subject to various risks, including unexpected changes in regulatory requirements, foreign currency exchange rates, tariffs and other barriers, political and economic instability, potentially adverse tax consequences, and any impact on economic and financial conditions around the world resulting from geopolitical conflicts or acts of terrorism, all of which could negatively impact the Company’s business. A portion of the sales and costs of the Company’s international operations are denominated in currencies other than the U.S. dollar and may be affected by fluctuations in currency exchange rates.

The Company is subject to a variety of environmental regulations.

The Company’s production processes require the use, storage, treatment and disposal of certain materials which are considered hazardous under applicable environmental laws, and the Company is subject to a variety of regulatory requirements relating to the handling of such materials and the release of emissions and effluents into the environment, non-compliance with which could have a negative impact on the Company’s business or consolidated results of operations. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company.

If the Company’s efforts to protect its trade secretsproprietary information are not sufficient, the Company may be adversely affected.

The Company’s business relies upon proprietary information, trade secrets and know-how in its product formulations and its manufacturing and research and development activities. The Company takes steps to protect its proprietary rights and information, including the use of confidentiality and other agreements with employees and consultants and in commercial relationships, including with distributorssuppliers and customers. If these steps prove to be inadequate or are violated, the Company’s competitors might gain access to the Company’s trade secrets, and there may be no adequate remedy available to the Company.

The Company depends upon the experience and expertise of its senior management team and key technical employees, and the loss of any key employee may impair the Company’s ability to operate effectively.

The Company’s success depends, to a certain extent, on the continued availability of its senior management team and key technical employees. Each of the Company’s executive officers, key technical personnel and other employees could terminate his or her employment at any time. The loss of any member of the Company’s senior management team might significantly delay or prevent the achievement of the Company’s business objectives and could materially harm the Company’s business and customer relationships. In addition, because of the highly technical nature of the Company’s business, the loss of any significant number of the Company’s key technical personnel could have a material adverse effect on the Company.

The Company competes for manufacturing and engineering talent in a competitive labor market. Personnel turnover and training costs could negatively impact the Company’s operations. The COVID-19 Pandemic could place the continued availability of its senior management team and key employees at risk. Certain members of the Company’s senior management team and key employees do not reside near their place of work and rely heavily on commercial airline travel, which is currently restricted.

ITEM 1B. The Company’s business and operations may be adversely affected by cybersecurity breaches or other information technology system or network intrusions.

The Company depends on information technology and computerized systems to communicate and operate effectively. The Company stores sensitive data including proprietary business information, intellectual property and confidential employee or other personal data on our servers and databases. Attempts by others to gain unauthorized access to the Company’s information technology system have become more sophisticated. These attempts, which might be related to industrial or foreign government espionage, activism or other motivations, include covertly introducing malware to the Company’s computers and networks, performing reconnaissance, impersonating authorized users, stealing, corrupting or restricting the Company’s access to data, among other activities. The Company continues to update its infrastructure, security tools, employee training and processes to protect against security incidents, including both external and internal threats and to prevent their recurrence. While Company personnel have been tasked to detect and investigate such incidents, cybersecurity attacks could still occur and may lead to potential data corruption and exposure of proprietary and confidential information. The unauthorized use of the Company’s intellectual property and/or confidential business information could harm its competitive position, reduce the value of the Company’s investment in research and development and other strategic initiatives or otherwise adversely affect the Company’s business or results of operations. Any intrusion may also cause operational stoppages, fines, penalties, litigation of governmental investigations and proceedings, diminished competitive advantages through reputational damages and increased operational costs. Additionally, the Company may incur additional costs to comply with its customers’, including the U.S. Government’s, increased cybersecurity protections and standards.

Acquisitions, mergers, business combinations or joint ventures may entail certain operational and financial risks.

The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. It may also enter into mergers, business combinations or joint ventures for similar purposes. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one-time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations.

The Company’s securities may fluctuate in value.

The market price of the Company’s securities can be subject to fluctuations in response to quarter-to-quarter variations in operating results, changes in analyst earnings estimates, market conditions in the aerospace composite materials and composite structures and assemblies industries, as well as general economic conditions and other factors external to the Company. The COVID-19 Pandemic has exacerbated fluctuations in the market price of most securities, including aerospace companies.

None.

Set forth below are the locations of the significant properties owned and leased by the Company, the businesses which use the properties and the size of each such property. All of suchSuch properties, except for the Melville,Westbury, New York property, are used principally as manufacturing and warehouse facilities.

The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. Most of the Company’s manufacturing facilities have the capacity to substantially increase their production levels.

During the 20182019 fiscal year, the Company consolidatedsold its dormant facility in Newburgh, New York.  The Company’s Nelco Products, Inc. business unit located in California and its Neltec, Inc. business unit located in Arizona, as well as the properties leased by those business units, were transferred to AGC Inc. in connection with the Sale, except that the dormant Fullerton facility was transferred to, and all manufacturing at the California facilities ceased, except for treating operations at the Anaheim facility, which continue as part and under the supervisionis retained by, a newly organized subsidiary of the Neltec, Inc.Company. Prior to the Company’s sale of its Electronics Business, aerospace composite materials were also manufactured by the Company’s Nelco Products Pte. Ltd. business unit.unit in Singapore at a facility that was transferred to a subsidiary of the Company in connection with the Sale, and is currently idle.  

ITEM 3. LEGAL PROCEEDINGS.

No material pending legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

Executive Officers of the Registrant.

Mr. Brian Shore has served as a Director of the Company since 1983 and as Chairman of the Board of Directors since July 2004. He was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994, President in March 1996, and Chief Executive Officer in November 1996. He was President until July 28, 2014, when he was succeeded by Mr. Mastrogiacomo.2014. Mr. Shore also served as General Counsel of the Company from April 1988 until April 1994.

Mr. Mastrogiacomo was elected President and Chief Operating Officer on July 28, 2014 after having served as Executive Vice President and Chief Operating Officer since June 1, 2011 and as Senior Vice President of Strategic Marketing since December 8, 2010. Prior to joining the Company as Vice President of Strategic Marketing in September 2010, Mr. Mastrogiacomo held senior management positions with Sanmina-SCI Corporation, a leading electronics contract manufacturing services company, and its predecessor, Hadco Corporation, a major manufacturer of advanced electronic interconnect systems. Since 2008, Mr. Mastrogiacomo was Senior Vice President, Printed Wiring Board (USA) of Sanmina-SCI Corporation; from 2004 to 2008, he was Senior Vice President of Operations, the Americas Enclosures Systems of Sanmina-SCI; and from 2000 to 2004, he was Senior Vice President, Printed Wiring Board Operations of Sanmina-SCI. During the twelve years prior to 1997, he held several management positions with Hadco Corporation.

Mr. Gilhuley was elected Executive Vice President – Administration on April 5, 2012, and he has been Secretary of the Company since July 1996.  Prior to April 5, 2012, he had been Executive Vice President of the Company since October 2006 and Senior Vice President from March 2001 to October 2006.  He also was General Counsel of the Company from April 1994 to October 2011, when he was succeeded by Stephen M. Banker, who was Vice President and General Counsel from October 2011 to May 2014 and who was succeeded by Mr. Petropoulos.  Mr. Gilhuley resigned as Executive Vice President – Administration effective as of January 3, 2020.  In connection with his retirement, Mr. Gilhuley entered into a Consulting Agreement with the Company, pursuant to which he is paid a monthly fee for advisory and consulting services that he may provide the Company from time to time.

Mr. Farabaugh was elected Senior Vice President and Chief Financial Officer on March 10, 2016.  He had been Vice President and Chief Financial Officer of the Company since April 2012 and Vice President and Controller of the Company since October 2007. Prior to joining the Company, Mr. Farabaugh was Corporate Controller of American Technical Ceramics, a publicly traded international company and a manufacturer of electronic components, located in Huntington Station, New York, from 2004 to September 2007 and Assistant Controller from 2000 to 2004. Prior thereto, Mr. Farabaugh was Assistant Controller of Park ElectrochemicalAerospace Corp. from 1989 to 2000. Prior to joining Park in 1989, Mr. Farabaugh had been a senior accountant with KPMG. 

Mr. Benjamin Shore was elected Senior Vice President – Sales, Marketing and Business Development of the Company in December 2018, after having served as Senior Vice President – Business Development of the Company since October 2017. Prior to joining the Company, he was employed by athenahealth, Inc. located in Watertown, Massachusetts, through September 2017, where most recently he was Manager, Corporate Development, working on mergers and acquisitions, strategic partnerships and investments. From 2011 to 2014, he was an Investment Analyst and subsequently a Senior Investment Analyst at Prudential Capital Group in New York, New York, where he invested capital in middle market companies in many different industries; and in 2010 and 2011, he was an Associate in Economic and Valuation Services at KPMG LLP in New York, New York, working on financial and tax consulting projects. He is a CFA Charterholder.

Mr. Esquivel was promoted to Executive Vice President and Chief Operating Officer of the Company on May 7, 2019 after having been elected Senior Vice President and Chief Operating Officer in December 2018. He had been Senior Vice President – Aerospace of the Company insince October 2017. He had been2017 and Vice President – Aerospace of the Company since April 2015 and was also appointed as President of the Company’s Park Aerospace Technologies Corp. business unit in Newton, Kansas.Kansas since April 2015. Mr. Esquivel has been employed by the Company and its subsidiaries in various positions since 1994. He was Vice President of Aerospace Composite Structures of PATCPark Aerospace Technologies Corp. from March 2012 to April 2015 and President of PATCPark Aerospace Technologies Corp. from June 2010 to March 2012. Prior to June 2010, Mr. Esquivel was Vice President and General Manager of Neltec, Inc., the Company’s high-technology circuitry materialsformer Neltec, Inc. business unit located in Tempe, Arizona, and was responsible for the day-to-day operations of Neltec, Inc., since his appointment to that position in September 2008. He served as Manufacturing Manager of Neltec, Inc. from August 2004 to September 2008, and as Materials Manager from February 2001 to August 2004, and hehaving held various positions since he originally joined Neltec, Inc. in 1994.”

Mr. Petropoulos was electedpromoted to Senior Vice President and General Counsel of the Company on May 7, 2019. He had been Vice President and General Counsel since September 4, 2014. Prior to joining the Company, Mr. Petropoulos had been Managing Attorney at Scientific Games Corporation in New York City since November 2011. From September 2007 to October 2011, he was Senior Corporate Counsel, Finance & Strategic Development at Coca-Cola HBC SA in Attica, Greece; and from October 2002 to September 2007 he was an attorney at Latham & Watkins LLP in New York City.  

There are no family relationships between the directors or executive officers of the Company, except that Benjamin Shore is the nephew of Brian Shore.

Each executive officer of the Company serves at the pleasure of the Board of Directors of the Company.

PART II

The Company’s Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Chicago Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock.

As of May 4, 2018,April 24, 2020, there were 539496 holders of record of Common Stock.

The Company expects, for the foreseeable future, to continue to pay regular cash dividends.

The following table provides information with respect to shares of the Company’s Common Stock acquired by the Company during each month included in the Company’s 20182020 fiscal year fourth quarter ended February 25, 2018.March 1, 2020.

Period		Total Number of Shares (or Units) Purchased				Average Price Paid Per Share (or Unit)				Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs				Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
November 27 - December 25			0			$	-				0
December 26 - January 25			0			$	-				0
January 26 - February 25			0			$	-				0
Total			0			$	-				0				1,531,412	(a)

Period		Total Number of Shares (or Units) Purchased				Average Price Paid Per Share (or Unit)				Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs			Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
December 2 - January 1			0			$	-				0
January 2 - February 1			0			$	-				0
February 2 - March 1			0			$	-				0
Total			0			$	-				0		1,531,412 (a)

 

(a)

Aggregate number of shares available to be purchased by the Company pursuant to share purchase authorizations announced on January 8, 2015 and March 10, 2016. Pursuant to such authorizations, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions.

 

As a result of the authorizations announced on January 8, 2015 and March 10, 2016, the Company is authorized to purchase up to a total of 1,531,412 shares of its common stock, representing approximately 7.6%7.5% of the Company’s 20,241,57120,518,823 total outstanding shares as of the close of business on May 4, 2018.March 1, 2020.

 

As previously announced by the Company, shares purchased by the Company will be retained as treasury stock and will be available for use under the Company’s stock option plan and for other corporate purposes.

 

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Stock Performance Graph

 

The graph set forth below compares the annual cumulative total return for the Company’s five fiscal years ended February 25, 2018March 1, 2020 among the Company, the New York Stock Exchange Market Index (the “NYSE Index”), the Nasdaq US Small Cap Aerospace and Defense Index (the “Nasdaq Index”) and a Zachs Investment Research, Inc. (formerly Morningstar Inc., formerly Hemscott, Inc.) index for electronic components and accessories manufacturers (the “Group Index”) comprised of the Company and 222202 other companies. The companies in the Group Index are classified in the same three-digit industry group in the Standard Industrial Classification Code system and are described as companies primarily engaged in the manufacture of electronic components and accessories. The returns of each company in the Group Index and the Nasdaq Index have been weighted according to the company’s stock market capitalization. The Company is transitioning from the Group Index to the Nasdaq Index, because the Company sold its Electronics Business in December 2018 and is now engaged only in the aerospace business. The graph has been prepared based on an assumed investment of $100 on March 1, 2013February 28, 2015 and the reinvestment of dividends (where applicable).

 

 

		2013				2014				2015				2016				2017				2018
Park Electrochemical Corp		$	100.00			$	125.50			$	103.73			$	69.08			$	96.10			$	101.71
Group Index		$	100.00			$	122.93			$	162.02			$	146.70			$	211.77			$	286.93
NYSE Index		$	100.00			$	120.53			$	131.07			$	117.09			$	144.30			$	165.24

		2015				2016				2017				2018				2019				2020
Park Aerospace Corp.		$	100.00			$	66.59			$	92.64			$	98.05			$	125.39			$	108.87
NYSE Index		$	100.00			$	89.34			$	110.10			$	126.07			$	127.79			$	127.77
NASDAQ US Small Cap Aerospace and Defense Index		$	100.00			$	78.86			$	105.06			$	123.97			$	154.82			$	151.47

 

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ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.

 

The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, related Notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the fivethree fiscal years ended February 25, 2018March 1, 2020 and is as of the end of such periods,the fiscal years ended March 1, 2020 and March 3, 2019, it is derived from the Consolidated Financial Statements for each of the fivethree fiscal years in the period ended February 25, 2018March 1, 2020 and as of such datesthe fiscal years ended March 1, 2020 and March 3, 2019 audited by the Company’s independent registered public accounting firms.firm. The Consolidated Financial Statements as of February 25, 2018March 1, 2020 and February 26, 2017March 3, 2019 and for the three fiscal years ended March 1, 2020, March 3, 2019 and February 25, 2018, February 26, 2017 and February 28, 2016, together with the report of the independent registered public accounting firm for the fiscal years ended March 1, 2020, March 3, 2019 and February 25, 2018, February 26, 2017 and February 28, 2016, appear in Item 8 of Part II of this Report.

 

		Fiscal Year Ended
		(Amounts in thousands, except per share amounts)
		February 25,				February 26,				February 28,				March 1,				March 2,
		2018				2017				2016				2015				2014
STATEMENT OF EARNINGS INFORMATION
Net sales		$	111,196			$	114,609			$	145,855			$	162,086			$	165,764
Cost of sales			84,737				84,568				103,103				113,133				117,664
Gross profit			26,459				30,041				42,752				48,953				48,100
Selling, general and administative expenses			19,371				19,739				21,211				24,373				25,168
Restructuring charges			5,022				313				535				1,179				546
Earnings from operations			2,066				9,989				21,006				23,401				22,386
Interest expense			2,269				1,432				1,657				1,438				764
Interest and other income			2,675				1,704				1,149				827				460
Loss on sale of marketable securities			(1,342	)			-				-				-				-
Earnings before income taxes			1,130				10,261				20,498				22,790				22,082
Income tax (benefit) provision			(19,465	)			978				2,469				2,747				64,411
Net earnings (loss)		$	20,595			$	9,283			$	18,029			$	20,043			$	(42,329	)
Earnings per share:
Basic earnings (loss) per share		$	1.02			$	0.46			$	0.89			$	0.96			$	(2.03	)
Diluted earnings (loss) per share		$	1.02			$	0.46			$	0.89			$	0.96			$	(2.03	)
Cash dividends per common share		$	3.40			$	0.40			$	0.40			$	1.90			$	2.90
Weighted average number of common shares outstanding:
Basic			20,237				20,235				20,347				20,912				20,849
Diluted			20,267				20,239				20,352				20,986				20,849
BALANCE SHEET INFORMATION
Working capital		$	129,041			$	255,007			$	255,507			$	283,535			$	286,997
Total assets			169,023				308,578				314,777				350,682				377,093
Long-term debt			-				68,500				72,000				84,000				94,000
Shareholders' equity			135,261				182,826				180,867				181,599				200,543

On December 4, 2018, the Company completed the previously announced sale of its Electronics Business, including manufacturing facilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the Sale.  All periods presented in the following selected consolidated financial data have been adjusted to reflect the Electronics Business results as discontinued operations. Fiscal year ended February 28, 2016 and information as of February 26, 2017 and February 28, 2016 are based on previously audited financial statements, but such reclassifications for discontinued operations have not been audited for such periods. 

 

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		Fiscal Year Ended
		(Amounts in thousands, except per share amounts)
		March 1,				March 3,				February 25,				February 26,				February 28,
		2020				2019				2018				2017				2016
CONSOLIDATED STATEMENT OF EARNINGS INFORMATION
Net sales		$	60,014			$	51,116			$	40,230			$	31,837			$	38,763
Cost of sales			41,341				34,932				28,942				23,538				29,900
Gross profit			18,673				16,184				11,288				8,299				8,863
Selling, general and administative expenses			7,932				8,968				9,862				10,309				10,944
Restructuring charges			-				-				146				-				-
Earnings (loss) from continuing operations			10,741				7,216				1,280				(2,010	)			(2,081	)
Interest expense			-				-				2,269				1,432				1,657
Interest and other income			3,330				2,379				2,641				1,637				1,078
Loss on sale of marketable securities			-				(1,498	)			(1,342	)			-				-
Earnings (loss) from continuing operations before income taxes			14,071				8,097			��	310				(1,805	)			(2,660	)
Income tax provision (benefit)			3,866				1,791				(18,162	)			(711	)			(1,679	)
Net earnings (loss) from continuing operations			10,205				6,306				18,472				(1,094	)			(981	)
(Loss) earnings from discontinued operations, net of tax			(653	)			107,239				2,123				10,377				19,010
Net earnings		$	9,552			$	113,545			$	20,595			$	9,283			$	18,029
Earnings (loss) per share:
Basic earnings per share:
Basic earnings (loss) per share from continuing operations		$	0.50			$	0.31			$	0.91			$	(0.05	)		$	(0.05	)
Basic (loss) earnings per share from discontinued operations			(0.03	)			5.29				0.11				0.51				0.94
Basic earnings per share		$	0.47			$	5.60			$	1.02			$	0.46			$	0.89
Diluted earnings per share:
Diluted earnings (loss) per share from continuing operations		$	0.50			$	0.31			$	0.91			$	(0.05	)		$	(0.05	)
Diluted (loss) earnings per share from discontinued operations			(0.03	)			5.26				0.11				0.51				0.94
Diluted earnings per share		$	0.47			$	5.57			$	1.02			$	0.46			$	0.89
Cash dividends per common share		$	1.40			$	4.65			$	3.40			$	0.40			$	0.40
Weighted average number of common shares outstanding:
Basic			20,507				20,288				20,237				20,235				20,347
Diluted			20,595				20,385				20,267				20,239				20,352
BALANCE SHEET INFORMATION
Working capital		$	136,487			$	156,778			$	129,041			$	255,007			$	255,507
Total assets			171,786				188,851				170,146				315,616				321,376
Long-term debt			-				-				-				68,500				72,000
Shareholders' equity			141,675				159,011				135,261				182,826				180,867

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ITEM 7.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

General:

 

Park ElectrochemicalAerospace Corp. (“Park” or the “Company”) formerly known as Park Electrochemical Corp. is a global advanced materialsan aerospace company which designs, develops and manufactures marketssolution and sellshot-melt advanced composite materials used to produce composite structures for the global aerospace markets.  Park’s advanced composite materials include film adhesives (undergoing qualification) and lightning strike materials.  Park offers an array of composite materials specifically designed for hand lay-up or automated fiber placement (AFP) manufacturing applications.  Park’s advanced composite materials are used to produce primary and secondary structures for jet engines, large and regional transport aircraft, military aircraft, Unmanned Aerial Vehicles (UAVs commonly referred to as “drones”), business jets, general aviation aircraft and rotary wing aircraft.  Park also offers specialty ablative materials for rocket motors and nozzles and specially designed materials for radome applications.  As a complement to Park’s advanced composite materials offering, Park designs and fabricates composite parts, structures and assemblies and low-volumelow volume tooling for the aerospace industry.  Target markets for Park’s composite parts and high-technology digitalstructures (which include Park’s proprietary composite Sigma Strut and RF/microwave printed circuit materials principally for the telecommunications and internet infrastructure, enterprise and military/aerospace markets. The Company’s manufacturing facilitiesAlpha Strut product lines) are, located in Kansas, Singapore, France, Arizona and California. The Company also maintains researchamong others, prototype and development facilities in Arizona, Kansasaircraft, special mission aircraft, spares for legacy military and Singapore.civilian aircraft and exotic spacecraft.

 

The Company’s fiscal year is the 5252- or 53 week53-week period ending the Sunday nearest to the last day of February. The 2018, 20172020, 2019 and 20162018 fiscal years ended on March 1, 2020, March 3, 2019 and February 25, 2018, February 26, 2017 and February 28, 2016, respectively. The 2018, 20172019 fiscal year consisted of 53 weeks. The 2020 and 20162018 fiscal years each consisted of 52 weeks. Unless otherwise indicated in this Discussion and Analysis, all references to years and quarters in this Discussion and Analysis are to the Company’s fiscal years and fiscal quarters and all annual and quarterly information in this Discussion and Analysis is for such fiscal years and quarters, respectively.

 

20182020 Financial Overview

 

In 2018, the Company consolidated its Nelco Products, Inc. Business Unit located in Fullerton, California and its Neltec, Inc. Business Unit located in Tempe, Arizona and recorded pre-tax restructuring charges of $4.4 million related to the consolidation. The Company estimates the remaining pre-tax charge related to the consolidation to be approximately $1.1 million and expects to incur this remaining charge primarily during the fiscal year ending February 28, 2021.

On January 3, 2018, the Company voluntarily prepaid its remaining loan balance of $68.5 million under the Credit Agreement, dated as of January 16, 2016, between the Company and HSBC Bank USA (the “Credit Agreement”) and terminated the Credit Agreement. The prepayment was made with the Company’s cash and cash equivalents, marketable securities and restricted cash. In connection with the termination of the Credit Agreement, the Company expensed the remaining deferred financing costs of $0.1 million in the fourth quarter of 2018.

On JanuaryDecember 4, 2018, Park completed the Companypreviously announced that it is conducting a strategic evaluation, including the potential sale of its electronics business and that it has retained Greenhill & Co., LLC as its financial advisor to assist it in the strategic evaluation of the electronics business, which includesElectronics Business, including manufacturing locationsfacilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona. During 2018,Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13, “Discontinued Operations”, of the Company recorded $0.4 millionNotes to Consolidated Financial Statements elsewhere in this Report for additional information on the Sale. As a result, the discussion below is of advisory fees in connection with the strategic evaluation.Company’s continuing operations, which is comprised of the aerospace business.

 

The Company paid a special cash dividend of $3.00$1.00 per share on February 13, 201820, 2020 to shareholders of record at the close of business on January 23, 2018.February 3, 2020. The special cash dividend was funded from the Company’s cash balances. This special dividend, together with the Company’s regular quarterly dividend of $0.10 per share paid February 6, 20182, 2020 to shareholders of record on January 2, 2018,3, 2020, brings the total amount of dividends paid to shareholders to $20.10$26.15 per share, a total of approximately $412$536 million, since the Company’s 2005 fiscal year.

 

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In 2019, the Company announced the major expansion of its aerospace manufacturing, development and design facilities located at the Newton City-County Airport in Newton, Kansas.  This expansion includes the construction of a redundant manufacturing facility located adjacent to Park’s existing Newton, Kansas facilities.  This facility, which is being constructed in part to support a major aerospace customer, will include approximately 90,000 square feet of manufacturing and office space, and will essentially double the size of Park’s existing Newton, Kansas manufacturing footprint.  The total cost of the expansion is expected to be approximately $21 million, and the expansion is expected to be completed in the second half of the 2020 calendar year.  The expansion includes new resin mixing and delivery systems, new hot-melt film and tape manufacturing lines, space to accommodate an additional hot-melt tape line or solution treating line, space to accommodate a confidential joint development project with a major aerospace customer, additional slitting capability, significant additional freezer and storage space, an expanded production lab, a new R&D lab and additional office space. Through March 1, 2020, the Company had incurred $7.6 million on the expansion.

During 2018,2020, the Company recorded a non-cash charge of $0.5$0.2 million in connection with the modification of previously granted employee stock options resulting from the $3.00$1.00 per share special cash dividend paid by the Company in February 2018.2020. Selling, general and administrative expenses in 20182020 included $1.4$0.7 million of stock option expense.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system.

In the fourth quarter of 2018, the Company recorded a discrete tax benefit of $17.8 million due to the reduction of liabilities previously recorded, partially offset by the one-time transition tax on deemed repatriated earnings of certain non-U.S. subsidiaries. This one-time transition tax and the previously recorded liabilities are based on the Company’s post-1986 earnings and profits not previously subjected to U.S. taxation.

In the fourth quarter of 2018, as a result of the Tax Act, the Company recorded a discrete non-cash tax benefit of $0.2 million due to the re-measurement of U.S. deferred tax assets and liabilities. The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for Federal income tax purposes.

The changes in the U.S. tax code, enacted by the Tax Act, allowed the Company to repatriate its foreign accumulated income at a lower effective tax rate. In response to the Tax Act, the Company liquidated certain marketable securities and repatriated cash held by foreign subsidiaries during the 13-week period ended February 25, 2018. As a result, the Company recorded losses on the sales of marketable securities of $1.3 million in connection with the repatriation of cash and the prepayment of all outstanding debt under the Credit Agreement in the amount of $68.5 million of principal and the funding of a special cash dividend of $3.00 per share paid in February 2018.

 

The Company's total net sales worldwide in 20182020 were 3% lower17% higher than in 20172019 due primarily due to lower salesthe “end customer” of a major Company customer ramping up commercial jet production and the Company’s electronics products in Asia and North America, partially offset by higher sales of the Company’s aerospace composite materials, structures and assemblies and low-volume tooling. The lower sales in Asia were primarily due to a slowdown in demand for the Company’s products which are used by original equipment manufacturers (“OEMs”)customer restocking depleted inventory, particularly in the manufacture of equipment for the internetfourth quarter, and telecommunications infrastructure in developing countries and certain legacy materials coming to end-of-program life at OEMs. Thean increase in aerospacemilitary sales was primarily due to higher sales to a major customer following completion of that customer’s inventory correction.during 2020.

 

The Company’s gross profit margin, measured as a percentage of sales, decreased to 23.8%31.1% in 20182020 from 26.2%31.7% in 2017 due primarily to lower2019. Higher sales and production levels of the Company’s electronics products in Asia and North America in 2018 and operating inefficiencies and duplicate costs in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units located in California and Arizona, respectively, combined with the fixed nature of certain overhead costs which were partiallymore than offset by higher sales of the Company’s aerospace composite materials, structuresincreased direct labor and assemblies.supplies expenses.

 

The Company’s earnings from continuing operations in 20182020 were 79% lower49% higher than in 2017,2019, primarily as a result of the aforementioned decreasesincreases in sales and gross profit margin and the higher restructuring charges, partially offset by a 2%12% reduction in selling, general and administrative expenses, which included the additional stock option modification charge the one-time litigation expense and the advisory fees.of $0.2 million. The Company’s net earnings from continuing operations in 20182020 were 122%62% higher than in 2017,2019, primarily due to the tax benefit resulting from the Tax Act, partially offset by the aforementioned decrease in net earnings, thehigher sales and lower selling, general and administrative expenses and to a loss on sales of marketable securities andof $1.5 million incurred in 2019 to raise funds for the deferred financing costs. Earnings from operationsspecial cash dividend of $4.25 per share paid in 2017 included pre-tax restructuring charges of $0.4 million in connection with the closure, in 2009, of the New England Laminates Co., Inc. facility in Newburgh, New York.February 2019.

 

DueThe Company has a number of long-term contracts pursuant to changing economic characteristicswhich certain of its customers, some of which represent a substantial portion of the Company’s electronics and aerospace product lines, as well as howrevenue, place orders. Long-term contracts with the Company’s chief operating decision makercustomers are primarily requirements based and do not guarantee quantities. An order forecast is generally agreed concurrently with pricing for any applicable long-term contract. This order forecast is then typically updated periodically during the term of the underlying contract. Purchase orders generally are received in excess of three months in advance of delivery.

In December 2019, a novel strain of coronavirus was reported in Wuhan, China (“CODM”COVID-19”) and has since spread worldwide, including to the United States (the “U.S.”), whoposing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic is disrupting supply chains and affecting production and sales across a range of industries. The extent of the Company’s Chief Executive Officer, reviewedimpact of the COVID-19 Pandemic on our operational and managedfinancial performance will depend on certain developments, including the Company’s business induration and spread of the fourth quarteroutbreak, impact on our customers, employees and vendors all of 2018,which are uncertain and cannot be predicted. At this point, the Company has divided its product lines into two reportable business segments: Aerospace and Electronics.  The Aerospace segment designs, develops and manufactures advanced composite materials, primary and secondary structures and assemblies and low-volume tooling forextent to which the aerospace markets.  The Electronics segment designs, develops and manufactures high-technology digital and RF/microwave printed circuit materials principally for the telecommunications and internet infrastructure, enterprise and military/aerospace markets.COVID-19 Pandemic may impact our financial performance or results of operations is uncertain.

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The global marketsCOVID-19 Pandemic did not have a significant impact on our results of operations and financial position or cash flow for the Company’s productsfiscal year ended March 1, 2020. Subsequent to our fiscal year end the COVID-19 Pandemic has had significant impact on various markets and industries including industries the Company sells into, most notably the commercial aerospace industry. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 Pandemic. Currently, Park’s manufacturing operations have been deemed essential by the Federal Government of the U.S. and by the State of Kansas, and we are actively working with federal, state and local government officials to ensure that we continue to be very difficult to forecast, and it is not clear tosatisfy their requirements for continuing our manufacturing operations. 

Even after the COVID-19 Pandemic has subsided, the Company whatmay continue to experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the demand forfuture or specific economic recovery in the Company’s products will be in 2019 or beyond.industries the Company serves.

 

Results of Operations:

 

Fiscal Year 20120820 Compared to Fiscal Year 20179

 

		Fiscal Year Ended																Year Ended
		February 25,				February 26,												March 1,				March 3,
(Amounts in thousands, except per share amounts)		2018				2017				Increase / (Decrease)								2020				2019				Increase / (Decrease)
Net sales		$	111,196			$	114,609			$	(3,413	)			-3	%		$	60,014			$	51,116			$	8,898				17	%
Cost of sales			84,737				84,568				169				0	%			41,341				34,932				6,409				18	%
Gross profit			26,459				30,041				(3,582	)			-12	%			18,673				16,184				2,489				15	%
Selling, general and administrative expenses			19,371				19,739				(368	)			-2	%			7,932				8,968				(1,036	)			-12	%
Restructuring charges			5,022				313				4,709				1504	%
Earnings from operations			2,066				9,989				(7,923	)			-79	%
Interest expense			2,269				1,432				837				58	%
Earnings from continuing operations																			10,741				7,216				3,525				49	%
Interest and other income			2,675				1,704				971				57	%			3,330				2,379				951				40	%
Loss on sale of marketable securities			(1,342	)			-				(1,342	)			100	%			-				(1,498	)			1,498				-100	%
Earnings before income taxes			1,130				10,261				(9,131	)			-89	%
Income tax (benefit) provision			(19,465	)			978				(20,443	)			-2090	%
Earnings from continuing operations before income taxes																			14,071				8,097				5,974				74	%
Income tax provision																			3,866				1,791				2,075				116	%
Net earnings from continuing operations																			10,205				6,306				3,899				62	%
(Loss) earnings from discontinued operations, net of tax																			(653	)			107,239				(107,892	)			-101	%
Net earnings		$	20,595			$	9,283			$	11,312				122	%		$	9,552			$	113,545			$	(103,993	)			-92	%
Earnings per share:
Earnings (loss) per share:
Basic:
Continuing Operations																		$	0.50			$	0.31			$	0.19				61	%
Discontinued Operations																			(0.03	)			5.29				(5.32	)			-101	%
Basic earnings per share		$	1.02			$	0.46			$	0.56				122	%		$	0.47			$	5.60			$	(5.13	)			-92	%
Diluted:
Continuing Operations																		$	0.50			$	0.31			$	0.19				61	%
Discontinued Operations																			(0.03	)			5.26				(5.29	)			-101	%
Diluted earnings per share		$	1.02			$	0.46			$	0.56				122	%		$	0.47			$	5.57			$	(5.10	)			-92	%

Net Sales

 

The Company's total net sales worldwide in 20182020 were 3% lower17% higher than in 20172019 due primarily due to lower salesthe “end customer” of the Company’s electronics products in Asiaa major Company customer ramping up commercial jet production and North America partially offset by higher sales of the Company’s aerospace composite materials, structures and assemblies and low-volume tooling. The lower sales in Asia were primarily due to a slowdown in demand for the Company’s products which are used by OEMs in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries and certain legacy materials coming to end-of-program life at OEMs. Thean increase in aerospacemilitary sales was primarily due to higher sales to a major customer following completion of that customer’s inventory correction.during 2020.

The Company’s total net sales of its electronics products were $71.0 million and $82.5 million in 2018 and 2017, respectively, or 64% and 72%, respectively, of the Company’s total net sales worldwide in such periods. The Company’s total net sales of its aerospace composite materials, structures and assemblies products were $40.2 million and $32.1 million in 2018 and 2017, respectively, or 36% and 28%, respectively, of the Company’s total net sales worldwide in such periods.

27

The Company's foreign sales were $43.9 million, or 39% of the Company's total net sales worldwide, during 2018 compared to $53.7 million of sales, or 47% of total net sales worldwide, during 2017. The decrease in 2018 was primarily due to the lower sales in Asia for reasons described above.

The Company’s sales in North America, Asia and Europe were 61%, 32% and 7%, respectively, of the Company’s total net sales worldwide in 2018 compared to 53%, 39% and 8%, respectively, in 2017. The Company’s sales in North America increased 10%, while its sales in Asia decreased 20% and its sales in Europe decreased 11% in 2018 compared to 2017.

During both 2018 and 2017, 93% of the Company’s total net sales worldwide of electronics consisted of high performance electronics.

The Company’s high performance electronics (non-FR4 electronics) include high-speed, low-loss materials for digital and RF/microwave applications requiring lead-free compatibility and high bandwidth signal integrity, allylated polyphenylene ether (“APPE”) materials, bismalimide triazine (“BT”) materials, polyimides for applications that demand extremely high thermal performance and reliability, cyanate esters, quartz reinforced materials, and polytetrafluoroethylene (“PTFE”) and modified epoxy materials for RF/microwave systems that operate at frequencies up to at least 79GHz.

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Gross Profit

 

The Company’s gross profit margin, measured as a percentage of sales, decreased to 23.8%31.1% in 20182020, from 26.2%31.7% in 2017 due primarily to lower2019. Higher sales and production levels of the Company’s electronics products in Asia and North America in 2018, and operating inefficiencies and duplicate costs in connection with the consolidation of the Company’s Nelco Products, Inc. and Neltec, Inc. electronics Business Units located in California and Arizona, respectively, combined with thepartially fixed nature of certain overhead costs, whichexpenses were partiallymore than offset by higher sales of the Company’s aerospace products.increased labor and supplies expenses.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses decreased by $0.4$1.0 million, or 2%12%, during 20182020 compared to 2017.2019. Such expenses, measured as percentages of sales, were 17.4%13.2% during 20182020 compared to 17.2%17.5% during 2017.2019. The decrease in such expenses in 20182019 was due primarily due to decreases in salarydecreased legal and related expenses,professional fees and lower stock option expenses, excluding the stock option modification charge and favorable foreign exchange rates partially offset by unfavorable shipping expenses, advisory fees, one-time litigation expense and the stock option modification charge.charges in each period.

 

Selling, general and administrative expenses in 2020 included $0.7 million of stock option expenses, including $0.2 million due to the modification of previously granted stock options, compared to $1.2 million of such expenses in 2019, including $0.5 million due to the modification of previously granted stock options.

Earnings from Continuing Operations

For the reasons set forth above, the Company’s earnings from continuing operations were $10.7 million for 2020, including a pre-tax stock option modification charge of $0.2 million resulting from the special dividend of $1.00 per share paid in February 2020. The Company’s earnings from continuing operations were $7.2 million in 2019, including a pre-tax stock option modification charge of $0.5 million resulting from the special dividend of $4.25 per share paid in February 2019.

Loss on Sales of Marketable Securities

Loss on sales of marketable securities was $0 in 2020 and $1.5 million in 2019 in connection with the liquidation of securities to fund the special cash dividend of $4.25 per share paid in February 2019.

Interest and Other Income

Interest and other income were $3.3 million and $2.4 million for 2020 and 2019, respectively. The increase from 2019 was primarily the result of higher average invested cash during the period and higher weighted average interest rates. As mentioned above, the Company paid a special cash dividend of $4.25 per share in February 2019. During 2020 and 2019, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds.

Income Tax Provision

The Company’s effective income tax rate of 27.5% for 2020 was due primarily to the U.S. Federal rate and state income taxes and lost tax deductions from expiring unexercised non-qualified stock options. The Company’s effective income tax rate was lower in 2019, due to favorable adjustments to valuation allowances on state tax credits and a lower state effective tax rate in 2019.

Net Earningsfrom Continuing Operations

The Company’s net earnings from continuing operations for 2020 were $10.2 million, including the stock option modification pre-tax charge of $0.2 million in connection with the special dividend of $1.00 per share paid in February 2020. The Company’s net earnings from continuing operations for 2019 were $6.3 million, including the stock option modification pre-tax charge of $0.5 million in connection with the special dividend of $4.25 per share paid in February 2019. 

28

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Discontinued Operations

On December 4, 2018, Park completed the previously announced sale of its Electronics Business, including manufacturing facilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to the target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the sale. 

The operating results of the Electronics Business are classified, together with certain costs related to the sale, as discontinued operations, net of tax, in the Consolidated Statements of Operations.

The Company’s net earnings from discontinued operations were lower in 2020 compared to 2019 primarily as a result of the gain recognized on the sale of the electronics business of $102,145 in 2019 and the gain of $2,945 recognized on the sale of its New England Laminates Co., Inc. facility located in Newburgh, New York in 2019.

Basic and Diluted Earnings Per Share

Basic and diluted earnings per share from continuing operations for 2020 were $0.50, including the stock option modification charge in connection with the special dividend paid in February 2020, compared to basic and diluted earnings per share for 2019 of $0.31, including the stock option modification charge in connection with the special dividend paid in February 2019 and the pre-tax loss on the sales of marketable securities described above. The net impact of the items described above was to decrease basic and diluted earnings per share by $0.01 in 2020 and decrease basic and diluted earnings per share by $0.08 in 2019.

29

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2019 Compared to 2018

		Year Ended
		March 3,				February 25,
(Amounts in thousands, except per share amounts)		2019				2018				Increase / (Decrease)
Net sales		$	51,116			$	40,230			$	10,886				27	%
Cost of sales			34,932				28,942				5,990				21	%
Gross profit			16,184				11,288				4,896				43	%
Selling, general and administrative expenses			8,968				9,862				(894	)			-9	%
Restructuring charges			-				146				(146	)			-100	%
Earnings from continuing operations			7,216				1,280				5,936				464	%
Interest expense			-				2,269				(2,269	)			-100	%
Interest and other income			2,379				2,641				(262	)			-10	%
Loss on sale of marketable securities			(1,498	)			(1,342	)			(156	)			12	%
Earnings from continuing operations before income taxes			8,097				310				7,787				2512	%
Income tax provision (benefit)			1,791				(18,162	)			19,953				-110	%
Net earnings from continuing operations			6,306				18,472				(12,166	)			-66	%
Earnings from discontinued operations, net of tax			107,239				2,123				105,116				4951	%
Net earnings		$	113,545			$	20,595			$	92,950				451	%
Earnings per share:
Basic:
Continuing Operations		$	0.31			$	0.91			$	(0.60	)			-66	%
Discontinued Operations			5.29				0.11				5.18				4709	%
Basic earnings per share		$	5.60			$	1.02			$	4.58				449	%
Diluted:
Continuing Operations		$	0.31			$	0.91			$	(0.60	)			-66	%
Discontinued Operations			5.26				0.11				5.15				4682	%
Diluted earnings per share		$	5.57			$	1.02			$	4.55				446	%

Net Sales

The Company's total net sales worldwide in 2019 were 27% higher than in 2018 due primarily to the “end customer” of a major Company customer ramping up commercial jet production and the Company’s customer restocking depleted inventory, particularly in the fourth quarter, and to an increase in military sales during 2019.

Gross Profit

The Company’s gross profit margin, measured as a percentage of sales, increased to 31.7% in 2019, from 28.1% in 2018, due primarily to higher sales and the partially fixed nature of overhead expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.9 million, or 9%, during 2019 compared to 2018. Such expenses, measured as percentages of sales, were 17.5% during 2019 compared to 24.5% during 2018. The decrease in such expenses in 2019 was due primarily to decreases in salary and related expenses, lower travel and entertainment expenses, lower legal fees and lower stock option expenses, excluding the stock option modification charges in each period.

Selling, general and administrative expenses in 2019 included $1.4$1.2 million of stock option expenses, including $0.5 million due to the modification of previously granted stock options, compared to $1.2$1.4 million of such expenses in 2017.

Restructuring Charges

During 2018, including $0.5 million due to the Company recorded pre-tax restructuring chargesmodification of $5.0 million in connection with the consolidation of its electronics Business Units in California and Arizona, the closure, in 2009, of its facility in Newburgh, New York and the closure, in 2012, of its facility in Waterbury, Connecticut, compared to pre-tax restructuring charges of $0.3 million in 2017 in connection with the aforementioned facility closure in Newburgh, New York.previously granted stock options.

 

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Earnings from Continuing Operations

 

For the reasons set forth above, the Company’s earnings from continuing operations were $2.1$7.2 million for 2019, including a pre-tax stock option modification charge of $0.5 million resulting from the special dividend of $4.25 per share paid in February 2019. The Company’s earnings from continuing operations were $1.3 million in 2018, including a pre-tax restructuring charges of $5.0 million associated with the consolidation of its electronics Business Units in California and Arizona, the closure of its facilities in Newburgh, New York and Waterbury, Connecticut, the stock option modification charge of $0.5 million resulting from the special dividend of $3.00 per share paid in February 2018 and advisory fees of $0.4 million paid in connection with the strategic evaluation of the electronics business. The Company’s earnings from operations were $10.0 million in 2017, including pre-tax restructuring charges of $0.3 million associated with the closure, in 2009, of the facility in Newburgh, New York.2019.

 

Loss on Sales of Marketable Securities

 

The changes inCompany recorded losses on the U.S. tax code, enacted by the Tax Act, allowed the Company to repatriate its foreign accumulated income at a lower effective tax rate. In response to the Tax Act, the Company liquidated certainsales of marketable securities and repatriatedof $1.5 million in connection with the liquidation of securities to fund the special cash held by foreign subsidiaries during the 13-week period endeddividend of $4.25 per share paid in February 25, 2018. As a result, the2019. The Company recorded losses on the sales of marketable securities of $1.3 million in connection with the repatriation of cash and the prepayment of all outstanding debt under the Credit Agreement in the amount of $68.5 million of principal and the funding of a special cash dividend of $3.00 per share paid in February 2018.

 

Interest Expense

 

Interest expense in 20182019 was $0, compared to $2.3 million compared to $1.4 million in 2017.2018. The increasedecrease in interest expense in 20182019 was primarily due to higher average interest rates and the pre-tax deferred financing costs of $0.1 million related to the termination of the Credit Agreement, dated as of January 16, 2016, between the Company and HSBC Bank USA (the “Credit Agreement”) in 2018, partially offset by lower average outstanding debt.2018. As previously reported, the Company voluntarily prepaid the remaining loan balance of $68.5 million with HSBC Bank and terminated the Credit Agreement. The prepayment was made with the Company’s cash and cash equivalents, marketable securities and restricted cash. In connection with the termination of the Credit Agreement, the Company expensed the remaining deferred financing costs of $0.1 million in the fourth quarter of 2018. See Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Report and “Liquidity and Capital Resources” elsewhere in this Item 7 for additional information.

Interest and Other Income

 

Interest and other income were $2.7$2.4 million and $1.7$2.6 million for 20182019 and 2017,2018, respectively. The 57% increase indecrease from 2018 was primarily the result of higher weighted average interest rates based on longer average maturities of marketable securities held by the Company in 2018 compared to last year's comparable period, partially offset by lower average invested cash during the period.period, partially offset by higher weighted average interest rates. As mentioned above, the Company prepaid all outstanding debt under the Credit Agreement in the amount of $68.5 million of principal and paid a special cash dividend of $3.00 per share in February 2018. During 20182019 and 2017, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds.

Income Tax Provision

On December 22, 2017, the Tax Act was enacted and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system.

In the fourth quarter of 2018, the Company recorded a discrete tax benefit of $17.8 million due to the reduction of liabilities previously recorded, partially offset by the one-time transition tax on deemed repatriated earnings of certain non-U.S. subsidiaries. This one-time transition tax and the previously recorded liabilities are based on the Company’s post-1986 earnings and profits (“E&P”) not previously subjected to U.S. taxation.

In the fourth quarter of 2018, as a result of the Tax Act, the Company recorded a discrete non-cash tax benefit of $0.2 million due to the remeasurement of U.S. deferred tax assets and liabilities. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for Federal income tax purposes.

The Company’s effective income tax rate of negative 1,722% for 2018 was primarily due to the impact of the Tax Act. The Company’s effective income tax rate was 9.5% for 2017.  See “Results of Operations – Fiscal Year 2017 Compared to Fiscal Year 2016 – Income Tax Provision” elsewhere in this Item 7.

Net Earnings

The Company’s net earnings for 2018 were $20.6 million, including the tax benefit of $17.8 million related to the Tax Act, the pre-tax restructuring charges of $5.0 million associated with the consolidation of its electronics Business Units in California and Arizona, the closure of its facilities in Newburgh, New York and Waterbury, Connecticut, the stock option modification charge of $0.5 million in connection with the special dividend of $3.00 per share paid in February 2018, the advisory fees of $0.4 million paid in connection with the strategic evaluation of the electronics business, the pre-tax loss of $1.3 million on the sales of marketable securities and the pre-tax deferred financing costs of $0.1 million related to the termination of the Credit Agreement in 2018, compared to $9.3 million for 2017, including the pre-tax charges of $0.3 million related to the facility closure in Newburgh, New York mentioned above. The net impact of the items described above was to increase net earnings by $16.0 million in 2018 and to reduce net earnings by $0.2 million in 2017.

Basic and Diluted Earnings Per Share

Basic and diluted earnings per share for 2018 were $1.02, including the tax benefit related to the Tax Act, the pre-tax restructuring charges associated with the consolidation of the Company’s electronics Business Units in California and Arizona, the closure of the facilities in Newburgh, New York and Waterbury, Connecticut, the stock option modification charge in connection with the special dividend paid in February 2018, the advisory fees paid in connection with the strategic evaluation of the Company’s electronics business, the pre-tax loss on the sales of marketable securities and the pre-tax deferred financing costs related to the early termination of the Credit Agreement in 2018, compared to basic and diluted earnings per share for 2017 of $0.46, including the facility closure mentioned above, The net impact of the items described above was to increase basic and diluted earnings per share by $0.63 and $0.01 in 2018 and 2017, respectively.

Fiscal Year 2017 Compared to Fiscal Year 2016

		Fiscal Year Ended
(Amounts in thousands, except per share amounts)		February 26, 2017				February 28, 2016				Increase / (Decrease)
Net sales		$	114,609			$	145,855			$	(31,246	)			-21	%
Cost of sales			84,568				103,103				(18,535	)			-18	%
Gross profit			30,041				42,752				(12,711	)			-30	%
Selling, general and administrative expenses			19,739				21,211				(1,472	)			-7	%
Restructuring charges			313				535				(222	)			-41	%
Earnings from operations			9,989				21,006				(11,017	)			-52	%
Interest expense			1,432				1,657				(225	)			-14	%
Interest and other income			1,704				1,149				555				48	%
Earnings before income taxes			10,261				20,498				(10,237	)			-50	%
Income tax provision			978				2,469				(1,491	)			-60	%
Net earnings		$	9,283			$	18,029			$	(8,746	)			-49	%
Earnings per share:
Basic earnings per share		$	0.46			$	0.89			$	(0.43	)			-48	%
Diluted earnings per share		$	0.46			$	0.89			$	(0.43	)			-48	%

Net Sales

The Company's total net sales worldwide in 2017 were 21% lower than in 2016 primarily due to lower sales of the Company’s electronics products in Asia and North America and lower sales of the Company’s aerospace composite materials, structures and assemblies and low-volume tooling. The lower sales in Asia were primarily due to a slowdown in demand for the Company’s products which are used by OEMs in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries and certain legacy materials coming to end-of-program life at OEMs.

The Company’s total net sales of its electronics products were $82.5 million and $106.7 million in 2017 and 2016, respectively, or 72% and 73%, respectively, of the Company’s total net sales worldwide in such periods. The Company’s total net sales of its aerospace composite materials, structures and assemblies products were $32.1 million and $39.1 million in 2017 and 2016, respectively, or 28% and 27%, respectively, of the Company’s total net sales worldwide in such periods.

The Company's foreign sales were $53.7 million, or 47% of the Company's total net sales worldwide, during 2017 compared to $70.6 million of sales, or 48% of total net sales worldwide, during 2016. The decrease in 2017 was primarily due to the lower sales in Asia for reasons described above.

The Company’s sales in North America, Asia and Europe were 53%, 39% and 8%, respectively, of the Company’s total net sales worldwide in 2017 compared to 52%, 42% and 6%, respectively, in 2016. The Company’s sales in North America decreased 19%, while its sales in Asia decreased 27% and its sales in Europe decreased 4% in 2017 compared to 2016.

During both 2017 and 2016, 93% of the Company’s total net sales worldwide of electronics consisted of high performance electronics.

Gross Profit

The Company’s gross profit margin, measured as a percentage of sales, decreased to 26.2% in 2017 from 29.3% in 2016 due primarily to lower sales and production levels of the Company’s electronics products in Asia and North America in 2017 and lower sales of the Company’s aerospace products combined with the fixed nature of certain overhead costs, which were partially offset by an improvement in its electronics production processes in North America. The gross profit in 2017 also benefited from a growing percentage of sales of the Company’s more technically advanced high performance electronics products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $1.5 million, or 7%, during 2017 compared to 2016. Such expenses measured as percentages of sales were 17.2% during 2017 compared to 14.5% during 2016. The decrease in such expenses in 2017 was primarily due to decreases in shipping expenses commensurate with the sales reduction in 2017, and lower salary expenses, incentive compensation, stock option expenses and professional fees, partially offset by unfavorable foreign exchange rates.

Selling, general and administrative expenses in 2017 included $1.2 million of stock option expenses compared to $1.5 million of such expenses in 2016.

Restructuring Charges

During 2017, the Company recorded pre-tax restructuring charges of $0.3 million in connection with the closure in 2009 of its facility located in Newburgh, New York, compared to pre-tax restructuring charges of $0.5 million in 2016 in connection with the aforementioned facility closure and the closure in 2013 of its facility located in Zhuhai, China.

Earnings from Operations

For the reasons set forth above, the Company’s earnings from operations were $10.0 million for 2017, including pre-tax charges of $0.3 million associated with the closure in 2009 of the facility in Newburgh, New York, compared to $21.0 million for 2016, including the pre-tax charges of $0.5 million associated with the closures in prior years of facilities in Zhuhai, China and Newburgh, New York.

Interest Expense

Interest expense in 2017 was $1.4 million, compared to $1.7 million in 2016. The decrease in interest expense in 2017 was primarily due to lower average outstanding debt and the pre-tax deferred financing costs of $0.3 million related to the early termination of the PNC Bank credit agreement in 2016 that did not recur in 2017. As previously reported, the Company entered into a three-year revolving credit facility agreement with HSBC Bank USA in January 2016, which replaced the credit facility agreement that the Company entered into with PNC Bank in February 2014. See Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Report and “Liquidity and Capital Resources” elsewhere in this Item 7 for additional information.

Interest and Other Income

Interest and other income were $1.7 million and $1.1 million for 2017 and 2016, respectively. The 48% increase in 2017 was primarily the result of higher weighted average interest rates based on longer average maturities of marketable securities held by the Company in 2017 compared to last year's comparable period. During 2017 and 2016, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds.

 

Income Tax Provision

 

The Company’s effective income tax rate of 9.5%22.1% for 20172019 was lower thandue primarily to the statutory U.S. Federal rate and state income taxes partially offset by favorable adjustments to valuation allowances on state tax rate because portions of the Company’s taxable incomecredits and a decrease in 2017 were derived in foreign jurisdictions with lower effective income tax rates.state apportionment percentages. The Company’s effective income tax rate was 12.0%significantly different for 2016.  See “Results2018, due to the discrete tax benefit of Operations – Fiscal Year 2016 Compared$17.8 million recorded in the fourth quarter of 2018 pertaining to Fiscal Year 2015 – Income Tax Provision” elsewhere in this Item 7.U.S. tax law changes enabling the reduction of deferred tax liabilities previously recorded, partially offset by the one-time transition tax on deemed repatriated earnings of certain non-U.S. subsidiaries.

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Net Earningsfrom Continuing Operations

 

The Company’s net earnings from continuing operations for 20172019 were $9.3$6.3 million, including the stock option modification pre-tax chargescharge of $0.3$0.5 million in connection with the special dividend of $4.25 per share paid in February 2019 and the pre-tax loss of $1.5 million on the sales of marketable securities. The Company’s net earnings from continuing operations for 2018 were $18.5 million, including the tax benefit of $17.8 million related to the facility closure mentioned above, compared to $18.0Tax Act, the stock option modification pre-tax charge of $0.5 million for 2016, includingin connection with the special dividend of $3.00 per share paid in February 2018, the pre-tax chargesloss of $0.8$1.3 million on the sales of marketable securities and the pre-tax deferred financing costs of $0.1 million related to deferred financing costs and the facility closures described above.termination of the Credit Agreement in 2018. The net impact of the items described above was to reducedecrease net earnings by $0.2$2.0 million in 20172019 and to reduceincrease net earnings by $0.6$16.0 million in 2016.2018.

Discontinued Operations

On December 4, 2018, Park completed the previously announced sale of its Electronics Business, including manufacturing facilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to the target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the sale. 

The operating results of the Electronics Business are classified, together with certain costs related to the sale, as discontinued operations, net of tax, in the Consolidated Statements of Operations.

The Company’s net earnings from discontinued operations were higher in 2019 compared to 2018 primarily as a result of the gain recognized on the sale of the electronics business of $102,145 and the gain of $2,945 recognized on the sale of its New England Laminates Co., Inc. facility located in Newburgh, New York.

 

Basic and Diluted Earnings Per Share

 

Basic and diluted earnings per share from continuing operations for 20172019 were $0.46,$0.31, including the facility closure mentionedstock option modification charge in connection with the special dividend paid in February 2019 and the pre-tax loss on the sales of marketable securities described above, compared to basic and diluted earnings per share for 2018 of $0.89 for 2016,$0.91, including the tax benefit related to the Tax Act, the stock option modification charge in connection with the special dividend paid in February 2018, the pre-tax loss on the sales of marketable securities and the deferred financing costs and the facility closures described above. The net impact of the items described above was to reduceincrease basic and diluted earnings per share by $0.01$0.08 in 2019 and $0.02decrease basic and diluted earnings per share by $0.81 in 2017 and 2016, respectively.

Business Segment Results of Operations:

The Company operates in two business segments: Electronics and Aerospace. Operating profit for each business segment includes corporate expenses that are directly allocable to such segment.

(Amounts in thousands)		Fiscal Year Ended
		February 25, 2018				February 26, 2017				February 28, 2016
Net Sales:
Electronics		$	70,966			$	82,517			$	107,009
Aerospace			40,230				32,092				38,846
Total Sales			111,196				114,609				145,855
Segment Operating Income:
Electronics		$	8,171			$	14,020			$	25,573
Aerospace			10,229				6,893				7,358
Total Segment Operating Income			18,400				20,913				32,931
Corporate and Other Expenses			(7,113	)			(7,301	)			(7,832	)
Depreciation - Electronics			(1,091	)			(1,413	)			(1,635	)
Depreciation - Aerospace			(1,764	)			(1,751	)			(1,745	)
Depreciation - Other			(104	)			(146	)			(178	)
Non-recurring Costs			(7,748	)			(313	)			(827	)
Net Interest Income (Expense)			550				272				(216	)
			(17,270	)			(10,652	)			(12,433	)
Income Before Income Taxes		$	1,130			$	10,261			$	20,498

Electronics:

The electronics segment designs, develops and manufactures high-technology digital and RF/microwave electronics materials principally for the telecommunications and internet infrastructure, enterprise and military/aerospace markets.

(Amounts in thousands)		Fiscal Year Ended
		February 25, 2018				February 26, 2017				February 28, 2016
Electronics
Net Sales		$	70,966			$	82,517			$	107,009
Operating Income			8,171				14,020				25,573

Fiscal Year 2018 Compared to Fiscal Year 20172018.

 

Electronics materials sales in 2018 declined $11.6 million or 14% from 2017. The decline in sales was due to a slowdown in demand for the Company’s products which are used by OEMs in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries and certain legacy materials coming to end-of-program life at OEMs.

Electronics operating income in 2018 declined $5.8 million, or 42%, from 2017. The decline in operating profit was primarily due to lower sales.

Fiscal Year 2017 Compared to Fiscal Year 2016

Electronics materials sales in 2017 declined $24.5 million, or 23%, from 2016. The decline in sales was due to a slowdown in demand for the Company’s products which are used by OEMs in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries and certain legacy materials coming to end-of-program life at OEMs.

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Electronics operating income in 2017 declined $11.6 million, or 45%, from 2016. The decline in operating profit was primarily due to the lower electronics sales.

Aerospace:

The aerospace segment designs, develops and manufactures advanced composite materials, primary and secondary structures and assemblies and low-volume tooling for the aerospace markets.

(Amounts in thousands)		Fiscal Year Ended
		February 25, 2018				February 26, 2017				February 28, 2016
Aerospace
Net Sales		$	40,230			$	32,092			$	38,846
Operating Income			10,229				6,893				7,358

Fiscal Year 2018 Compared to Fiscal Year 2017

Aerospace composite materials, structures and assemblies sales in 2018 increased $8.1 million, or 25%, from 2017. The increase in aerospace sales was primarily due to higher sales to a major customer following completion of that customer’s inventory correction.

Aerospace operating income in 2018 increased $3.3 million, or 48%, from 2017. The increase in operating profit was primarily due to increased sales and a favorable product mix.

Fiscal Year 2017 Compared to Fiscal Year 2016

Aerospace composite materials, structures and assemblies sales in 2017 declined $6.8 million, or 17%, from 2016. The decline in sales was due to lower sales to a major customer in an effort by that customer to correct inventory levels.

Aerospace operating income in 2017 declined $0.4 million, or 6%, from 2016. The decline in operating profit was primarily due to lower sales, partially offset by production efficiencies and a more favorable product mix.

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Liquidity and Capital Resources:

 

(Amounts in thousands)		February 25,				February 26,				Increase /				March 1,				March 3,				Increase /
		2018				2017				(Decrease)				2020				2019				(Decrease)
Cash and marketable securities		$	108,231			$	238,590			$	(130,359	)		$	122,355			$	151,624			$	(29,269	)
Restricted cash			-				10,000				(10,000	)
Working capital			129,041				255,007				(125,966	)			136,487				156,778				(20,291	)

 

		Fiscal Year Ended
(Amounts in thousands)		February 25,				February 26,				February 28,				Increase / (Decrease)
		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net cash provided by operating activities		$	3,341			$	13,167			$	13,948			$	(9,826	)		$	(781	)
Net cash provided by (used in) investing activities			42,049				2,478				(8,017	)			39,571				10,495
Net cash used in financing activities			(130,710	)			(11,093	)			(49,495	)			(119,617	)			38,402

From continuing operations		Fiscal Year Ended
(Amounts in thousands)		March 1,				March 3,				February 25,				Increase / (Decrease)
		2020				2019				2018				2020 vs. 2019				2019 vs. 2018
Net cash provided by (used in) operating activities		$	5,871			$	8,060			$	(6,264	)		$	(2,189	)		$	14,324
Net cash (used in) provided by investing activities			(42,511	)			8,898				42,364				(51,409	)			(33,466	)
Net cash used in financing activities			(28,304	)			(105,519	)			(130,710	)			77,215				25,191

 

Cash and Marketable Securities and Restricted Cash

 

The Company believes it has sufficient liquidity to fund its operating activities for the twelve12 months from the date of the filing of this Form 10-K Annual Report and for the foreseeable future thereafter.

 

The change in cash restricted cash and marketable securities at February 25, 2018March 1, 2020 compared to February 26, 2017March 3, 2019 was primarily the result of lowerpositive operating cash providedflow more than offset by operating activitiescapital expenditures and the special dividend paid by the Company to its shareholders in February 2020 and a number of additional factors. The significant changes in cash provided by operating activities were as follows:

 

●

accounts receivable increased by 15%17% at February 25, 2018March 1, 2020 compared to February 26, 2017March 3, 2019 due primarily due to the increase in total net sales and production levels in the last month of 2018;2019;

●

inventory increased 21% due primarily to raw material purchased at the end of February 2020 for use in future production;

●

prepaid expenses and other current assets increased 228% due primarily to the increase in income tax receivable;

●

accounts payable increased 49% due to the raw material purchases and capital expenditures at the end of February 2020;

●

accrued liabilities increased 57%decreased 41% at February 25, 2018March 1, 2020 compared to February 26, 2017March 3, 2019 due primarily due to increaseddecreased accruals for restructuring related to the Company’s consolidation of its electronics material business units in Californiarestructuring; and Arizona;

	●
	●	income taxes payable increased 667%decreased 58% at February 25, 2018March 1, 2020 compared to February 26, 2017March 3, 2019 due to the impactstax payments in excess of the Tax Act.current tax provision.

 

In addition, the Company paid $68.8$28.7 million and $8.1$95.0 million in cash dividends during 20182020 and 2017,2019, respectively, including a special dividenddividends of $60.7$20.5 million and $86.8 million paid in 2018. During 2018, the Company made $72.0 million of principal payments on its long-term debt, representing the entire outstanding balance,2020 and terminated the Credit Agreement. As a result the Company had no restricted cash as of February 25, 2018. The Company incurred $1.3 million of losses on sales of marketable securities in order to pay down the debt and pay the special cash dividend.2019, respectively.

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Working Capital

 

Working capital at February 25, 2018March 1, 2020 was lower compared to February 26, 2017.March 3, 2019. Decreases in cash and cash equivalents and marketable securities and increases in accrued liabilitiesaccounts payable were offset by increases in accounts receivable, inventories and prepaid and other assets and decreases in current portion of long-term debt.accrued liabilities and taxes payable.

 

The Company's current ratio (the ratio of current assets to current liabilities) was 11.616.7 to 1 at February 25, 2018March 1, 2020 compared with decreased 19.1to 15.1 to 1 at February 26, 2017.March 3, 2019.

Cash Flows

 

During 2018,2020, the Company's net earnings from continuing operations, before depreciation and amortization, stock-based compensation, amortization of bond premium and gain on sale of fixed assets, were $25.4$13.3 million. Such earnings reflected a decrease in deferred income taxes of $42.1 million and non-cash restructuring charges of $2.2 million and were increaseddecreased by changes in operating assets and liabilities of $17.8$7.4 million, resulting in an increase in taxes payable of $20.2 million primarily related to the tax law change mentioned above, resulting in $3.3$5.9 million of cash provided by operating activities.activities from continuing operations. During 2018,2020, the Company expended $886,000$6.8 million for the purchase of property, plant and equipment compared to $242,000$2.8 million during 2017,2019, and the Company paid $68.8$28.7 million and $8.1$95.1 million in cash dividends in 20182020 and 2017,2019, respectively. In addition, during 2018, the Company made $72.0 million of principal payments on its long-term debt.

Long-Term Debt

During 2018, the Company made $72.0 million of principal payments on its long-term debt, representing the entire outstanding balance, and terminated the Credit Agreement. As a result, the Company had no outstanding debt at February 25, 2018.  At February 26, 2017, the Company had $72.0 million of bank debt. For additional information, see Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Report.

 

Other Liquidity Factors

In December 2018, the Company’s wholly-owned subsidiary Park Aerospace Technologies Corp. (“PATC”) entered into a Development Agreement with the City of Newton, Kansas and the Board of County Commissioners of Harvey County, Kansas.  Pursuant to this agreement, PATC agreed to construct and operate an additional manufacturing facility approximately 90,000 square feet in size for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace. PATC further agreed to equip the facility through the purchase of machinery, equipment and furnishings and to create additional new full-time employment of specified levels during a five-year period.  In exchange for these agreements, the City and the County agreed to lease to PATC three acres of land at the Newton City/County Airport, in addition to the eight acres previously leased to PATC by the City and County.  The City and the County further agreed to provide financial and other assistance toward the construction of the additional facility as set forth in the Development Agreement. The Company estimates the total cost of the additional facility to be approximately $20.6 million, and the Company expects to complete the construction of the additional facility in the second half of the 2020 calendar year. As of March 1, 2020, the Company had $997 in equipment purchase obligations and $7,647 of construction-in-progress related to the additional facility. On July 16, 2019, PATC was merged into the Company and ceased to exist, and the Company assumed the rights and obligations of PATC, including the rights and obligations of PATC under the Development Agreement. (See Note 1, Consolidated Financial Statements)

On December 22, 2017, the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA” or “Tax Act”) and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system. As a result of the Tax Act, the Company recorded tax payable to be paid in installments over eight years. The remaining balance of these installment payments, as of March 1, 2020, was approximately $17 million to be paid over the next six years.

 

The Company believes its financial resourcesthat our existing cash, cash equivalents and marketable securities, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for at least the next twelve months from the date of the filing of this Form 10-K Annual ReportReport. The Company further believes that its balance sheet and forfinancial position to be very strong, and the foreseeable future thereafter,Company believes it is well positioned to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. The Company’s financial resources are also available for purchasesweather the impact of the Company's common stock, appropriate acquisitions and other expansions of the Company's business.Pandemic on its business as a result. 

 

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

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Contractual Obligations:

 

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 raw materials and commitments to purchase equipment, as described in Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this Report. The Company has no other 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 $980,000$0.3 million to secure the Company's obligations under its workers’ compensation insurance program.

 

As of February 25, 2018March 1, 2020 the Company’s significant contractual obligations, including payments due by fiscal year, were as follows:

 

Contractual Obligations (Amounts in thousands)		Total				2019					2020-2021				2022-2023			2024 and Thereafter
Operating lease obligations		$	8,164			$	1,939			$	3,144			$	542			$	2,539
Total		$	8,164			$	1,939			$	3,144			$	542			$	2,539

Contractual Obligations (Amounts in thousands)		Total				2021				2022-2023				2024-2025				2026 and Thereafter
Operating lease obligations		$	828			$	616			$	151			$	61			$	-
Equipment purchase obligations			997				997				-				-				-
Total		$	1,825			$	1,613			$	151			$	61			$	-

 

At February 25, 2018,March 1, 2020, the Company had unrecognized tax benefits and related interest of $1.0$4.4 million. A reasonable estimate of the timing of the payment of these liabilities is not possible.

Off-Balance Sheet Arrangements: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:Matters:

 

The Company is subject to various Federal, state and local government and foreign government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations of the Company’s Electronics Business and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by government agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated.

 

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In 2018, 20172020, 2019 and 2016,2018, the Company incurred approximately $99,000, $84,000$41,000, $70,000 and $113,000,$99,000, respectively, for remedial response and voluntary cleanup costs and related legal fees, and the Company received, or expects to receive, reimbursement pursuant to general liability insurance coverage for approximately $92,000, $84,000$38,000, $68,000 and $111,000,$92,000, respectively, of such amounts. While annual environmental remedial response and voluntary cleanup expenditures, including legal fees, 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 February 25, 2018March 1, 2020 and February 26, 2017,March 3, 2019, there were no amounts recorded in accrued liabilities for environmental matters.

 

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. See Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for a discussion of the Company's contingencies, including those related to environmental matters.

 

Critical AccountingAccounting Policies and Estimates:Estimates:

 

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 Consolidated 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 ongoing 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 employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its Consolidated Financial Statements.

 

Recently Adopted Accounting Pronouncement

 

In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, as partSee Note 16 of the FASB’s Simplification InitiativeNotes to identify, evaluate, and improve areasConsolidated Financial Statements included in Item 8 of US GAAPPart II of this Report for which cost and complexity can be reduced while maintaining or improving the usefulnessa discussion of the information provided to users. The ASU simplifies the presentation of deferred income taxes under US GAAP by requiring that all deferred tax assets and liabilities be classified as non-current. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim reporting periods within those fiscal years. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company elected to early adopt this guidance retrospectively in the fourth quarter of the Company’s 2016 fiscal year, and the early adoption of this guidance did not impact the Company’s results of operations, cash flows or financial condition.Company's recently adopted accounting pronouncements.

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Revenue Recognition

 

The Company recognizes revenuesrevenue when productsa customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. We recognize revenue when all of the following criteria are shipped and titlemet: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been transferreddetermined, (4) the transaction price has been allocated to a customer, the sales price is fixedperformance obligations in the contract, and determinable, and collection is reasonably assured. All material sales transactions are for(5) the shipmentperformance obligations have been satisfied. The majority of the Company’s products.shipping terms define the performance obligation to be satisfied upon shipment.

Sales Allowances and Product Warranties

 

The Company providesrecords estimated reductions to revenue for customer returns, allowances, and warranty claims. Provisions for such reductions are recorded in the estimated costs of sales allowances atperiod the time such costs can be reasonably estimated.sale is recorded and are derived from historical trends and other relevant information. The Company’s products are made to customer specifications and tested for adherence to such specifications before shipment to customers. Composite structures and assemblies may be subject to “airworthiness” acceptance by customers after receipt at the customers’ locations. There are no future performance requirements other than the products’ meeting the agreed specifications. The Company’s basesbasis for providing sales allowances for returns are known situations in which products may have failed due to manufacturing defects in the products supplied by the Company. The Company is focused on manufacturing the highest quality printed circuit materials and advanced composite materials, structures and assemblies and tooling possible and employs stringent manufacturing process controls and works with raw material suppliers who have dedicated themselves to complying with the Company’s specifications and technical requirements. The amounts of returns and allowances resulting from defective or damaged products have beenaveraged approximately 1.0% of sales for each of the Company’s last three fiscal years.

 

Accounts Receivable

 

The Company’s accounts receivable are due from purchasers of the Company’s products. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within established payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than established payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the conditions of the general economy and the electronics and aerospace industries.industry. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company writes off accounts receivable when they become uncollectible.

 

Inventories

 

Inventories are stated at the lower of cost (first-in, first-out method) or market.net realizable value. The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company's products and market conditions.

 

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Valuation of Long-Lived Assets

 

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. In addition, the Company assesses the impairment of goodwill at least annually. Important factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends and significant changes in the use of the Company’s assets or strategy of the overall business.

Income Taxes

 

As part of the processes of preparing its consolidated financial statements, the Company is required to estimate the income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. Deferred income taxes are provided for temporary differences in the reporting of certain items, such as depreciation and undistributed earnings of foreign subsidiaries, for income tax purposes compared to financial accounting purposes. In evaluating the Company’s ability to recover the deferred tax assets within the jurisdiction from which they arise, all positive and negative evidence is considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent acquisitions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets, resulting in additional income tax expense in the Company's Consolidated Statements of Operations, or conversely to further reduce the existing valuation allowance, resulting in less income tax expense. The Company evaluates the realizability of the deferred tax assets and assesses the need for additional valuation allowances quarterly.

 

Tax benefits are recognized for an uncertain tax position when, in the Company’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by the Company. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. Interest and penalties recognized on the liability for unrecognized tax benefits are recorded as income tax expense.

 

Contingencies and Litigation

 

The Company is subject to a number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.

 

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Employee Benefit Programs

 

The Company's obligations for workers' compensation claims prior to fiscal year 2019 are effectively self-insured, although the Company maintains individual and aggregate stop-loss insurance coverage for such claims. The Company accrues its workers’ compensation liability based on estimates of the total exposure of known claims using historical experience and projected loss development factors less amounts previously paid out.

 

The Company and certain of its subsidiaries havehas a non-contributory profit sharing retirement plan covering their regular full-time employees. In addition, the Company's subsidiaries haveCompany has various bonus and incentive compensation programs, most of which are determined at management's discretion.

 

The Company's reserves associated with these self-insured liabilities and benefit programs are reviewed by management for adequacy at the end of each reporting period.

 

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Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

 

Foreign Exchange Risk - The Company's primary foreign currency exchange exposure relates to the translation of the financial statements of foreign subsidiaries using currencies other than the U.S. dollar as their functional currencies. The Company does not believe that a hypothetical 10% fluctuation in foreign exchange rates would have had a material impact on its consolidated results of operations or financial position.

Interest Rate Risk -– The exposure to market risks for changes in interest rates relates to the Company's short-term investment portfolio. The Company does not use derivative financial instruments in its investment portfolio. The Company’s short-term investment portfolio is managed in accordance with guidelines issued by the Company. These guidelines are designed to establish a high quality fixed income portfolio of government and highly rated corporate debt securities with a maximum weighted maturity of less than one year. Based on the average anticipated maturity of the investment portfolio at the end of the 20182020 fiscal year, the Company does not believe that a hypothetical 10% fluctuation in short-term interest rates would have had a material impact on the consolidated results of operations or financial position of the Company.

 

Commodities Risk – The Company is subject to fluctuations in the cost of raw materials used to manufacture its materials and products. In particular, the Company is exposed to market fluctuations in commodity pricing as the Company utilizes certain materials such as copper, that are key materials in certain of its products. The Company generally passes changes in the costs of its raw material costs through to its customers. The Company currently does not use hedging strategies to minimize the risk of price fluctuations on commodity-based raw materials; however, the Company regularly reviews such strategies on an ongoing basis. See “Business – Aerospace Composite Materials, Structures and Assemblies – Materials and Sources of Supply” and “Business – Electronics Materials – Materials“Materials and Sources of Supply” in Item 1 of this Report.

 

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Item 8.     Financial Statements and Supplementary Data.

 

The Company's Financial Statements begin on the next page.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Shareholders of
Park ElectrochemicalAerospace Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Park ElectrochemicalAerospace Corp. and subsidiaries (the “Company”) as of February 25, 2018March 1, 2020 and February 26, 2017,March 3, 2019, and the related consolidated statements of operations, comprehensive earnings, shareholders’ equity, and cash flows for each of the years in the three-year period ended February 25, 2018March 1, 2020 and the related notes and financial statement schedule listed in the index at itemItem 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 25, 2018March 1, 2020 and February 26, 2017,March 3, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended February 25, 2018,March 1, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the Company’s internal control over financial reporting as of February 25, 2018, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 11, 2018, expressed an unqualified opinion.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of the our audits, we are required to obtain an understanding of internal control over financial report, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ CohnReznick LLP

 

We have served as the Company’s auditor since 2014.

 

Jericho,Roseland, New YorkJersey

May 11, 201814, 2020

 

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PARK ELECTROCHEMICALAEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)

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										March 1, 2020				March 3, 2019
		February 25, 2018				February 26, 2017
ASSETS
Current assets:
Cash and cash equivalents		$	18,254			$	102,438			$	5,410			$	71,007
Marketable securities (Note 2)			89,977				136,152				116,945				80,617
Accounts receivable, less allowance for doubtful accounts of $259 and $294, respectively			19,762				17,238
Accounts receivable, less allowance for doubtful accounts of $73 and $32, respectively											10,925				9,352
Inventories (Note 3)			11,156				11,105				6,379				5,267
Prepaid expenses and other current assets			2,119				2,197				5,535				1,690
Total current assets			141,268				269,130				145,194				167,933
Property, plant and equipment, net (Note 3)			16,532				18,638				16,100				10,791
Goodwill and other intangible assets (Note 3)			9,818				9,825
Restricted cash			-				10,000
Operating right-of-use assets (Note 11)											420				-
Goodwill and other intangible assets, net (Note 3)											9,804				9,811
Other assets (Note 4)			1,405				985				268				316
Total assets		$	169,023			$	308,578			$	171,786			$	188,851
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 10)		$	-			$	3,500
Accounts payable			4,025				4,183			$	4,735			$	3,169
Operating lease liabilities (Note 11)											152				-
Accrued liabilities (Note 3)			5,381				3,417				1,709				2,920
Income taxes payable			2,821				3,023				2,111				5,066
Total current liabilities			12,227				14,123				8,707				11,155
Long-term debt (Note 10)			-				68,500
Long-term operating lease liabilities (Note 11)											268				-
Non-current income taxes payable (Note 4)			20,364				-				15,986				17,669
Deferred income taxes (Note 4)			628				42,088				834				-
Other liabilities (Note 4)			543				1,041				4,316				1,016
Total liabilities			33,762				125,752				30,111				29,840
Commitments and contingencies (Notes 11 and 12)
Shareholders' equity (Note 6):
Preferred stock, $1 par value per shares-authorized, 500,000 shares; issued, none			-				-				-				-
Common stock, $0.10 par value per shares-authorized, 60,000,000 shares; issued, 20,965,144 shares			2,096				2,096				2,096				2,096
Additional paid-in capital			169,011				167,612				169,862				169,395
(Accumulated deficit) retained earnings			(21,099	)			27,112
Accumulated other comprehensive earnings			131				1,026
Accumulated deficit											(21,774	)			(2,605	)
Accumulated other comprehensive earnings (loss)											668				(22	)
			150,139				197,846				150,852				168,864
Less treasury stock, at cost, 723,573 and 730,473 shares, respectively			(14,878	)			(15,020	)
Less treasury stock, at cost, 446,321 and 479,191 shares, respectively											(9,177	)			(9,853	)
Total shareholders' equity			135,261				182,826				141,675				159,011
Total liabilities and shareholders' equity		$	169,023			$	308,578			$	171,786			$	188,851