UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to _______ |
Commission file number 1-4415
PARK AEROSPACE CORP.,
FORMERLY PARK ELECTROCHEMICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
New York | 11-1734643 |
(State or Other Jurisdiction of Incorporation of Organization) | (I.R.S. Employer Identification No.) |
1400 Old Country Road, Westbury, New York | 11590 |
| (Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number, including area code (631) 465-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | |
Common Stock, par value $.10 per share | PKE |
| New York Stock Exchange |
| Securities registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☒ Smaller Reporting Company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
Title of Class | Aggregate Market Value | As of Close of Business On |
Common Stock, par value $.10 per share | $ | August |
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Title of Class | Shares Outstanding | As of Close of Business On |
Common Stock, par value $.10 per share |
| May |
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held July 16, 202019, 2022 incorporated by reference into Part III of this Report.
TABLE OF CONTENTS | ||
Page | ||
PART I | ||
Item 1. | Business | 4 |
| Item 1A. | Risk Factors | |
| Item 1B. | Unresolved Staff Comments | |
Item 2. | Properties |
|
Item 3. | Legal Proceedings |
|
Item 4. | Mine Safety Disclosures |
|
Executive Officers of the Registrant | 18 | |
PART II | ||
Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 20 |
Item 6. | Selected Financial Data |
|
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
|
Item 8. | Financial Statements and Supplementary Data |
|
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
|
Item 9A. | Controls and Procedures |
|
Item 9B. | Other Information |
|
PART III | ||
Item 10. | Directors, Executive Officers and Corporate Governance |
|
Item 11. | Executive Compensation |
|
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
|
Item 14. | Principal Accountant Fees and Services |
|
PART IV | ||
Item 15. | Exhibits and Financial Statement Schedule |
|
| Item 16. | Form 10-K Summary | 66 |
FINANCIAL STATEMENT SCHEDULE | ||
Schedule II – Valuation and Qualifying |
| |
EXHIBIT INDEX |
| |
SIGNATURES |
| |
PART I
ITEM 1. |
|
General
Park Aerospace Corp. (“Park”), and its subsidiaries, formerly known as Park Electrochemical Corp. and its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the “Company”), is an aerospace company which develops and manufactures solution and hot-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-volume tooling for the aerospace industry. Target markets for Park’s composite parts and structures (which include Park’s proprietary composite Sigma StrutSigmaStrut™ and Alpha StrutAlphaStrut™ product lines) are, among others, prototype and development aircraft, special mission aircraft, spares for legacy military and civilian aircraft and exotic spacecraft. Park’s core capabilities are in the areas of polymer chemistry formulation and coating technology.
On January 5, 2022 Park announced that it entered into a Business Partner Agreement with ArianeGroup SAS of Les Mureaux, France. Under the Business Partner Agreement, ArianeGroup SAS appointed Park as its exclusive North American distributor of ArianeGroup’s RAYCARB C2®B NG proprietary product. RAYCARB C2®B NG is used to produce ablative composite materials for critical rocketry and missile systems.
Park is a long-term customer of ArianeGroup and uses ArianeGroup’s RAYCARB C2®B NG product in the production of many of Park’s key ablative materials which Park supplies into critical rocket and missile programs. Park will continue to purchase RAYCARB C2®B NG for its own programs, and, through the Business Partner Agreement, Park is now taking on the new role of ArianeGroup’s exclusive North American distributor for its RAYCARB C2®B product.
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the United States (the “U.S.”), posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of the Company’s employees, suppliers, customers and original equipment manufacturers (“OEMs”), as well as the end users of aircraft manufactured by OEMs served by the Company. Currently, Park’s manufacturing operations have beenwere deemed essential by the Federal Government of the United States and by the State of Kansas, and we arethe Company continued to actively workingwork with federal, state and local government officials to ensure that we continue to satisfy their requirements for continuing our manufacturing operations. The continued operation of the Company’s Kansas facility is critically dependent on maintaining the wellbeing of the employees that staff the facility. The Company has provided all employees at its manufacturing facility with detailed health and safety literature on COVID-19. In addition, the Company’s procurement and safety teams have updated and developed new safety-oriented guidelines to support daily operations, and the Company is in the process of providingprovides appropriate personal protection equipment to its employees. The Company has implemented work from home policies at its office in the State of New York. The COVID-19 Pandemic will likely impactimpacted Park financially; however, the Company cannot presently predict the scopefinancially. See “Management’s Discussion and severity with which COVID-19 will impact its business, resultsAnalysis of operationsFinancial Condition and cash flows.Results of Operations” included in Item 7 of Part II of this Report. The Company believes its balance sheet and financial condition to be very strong, and the Company believes it is well positioned to weather the impact of the Pandemic as a result.Pandemic. As a result of the pandemic, year to date global passenger air travel has decreased dramatically, precipitating production rate cuts for many commercial aerospace programs and business jet/general aviation programs which the Company supports. The military aerospace end market has not experienced this same production rate decline but would also be at risk as it relates to uncertainty about suppliers and employee health.
On December 4, 2018, Park completed the previously announced sale of its digital and radio frequency/microwave printed circuit materials business (collectively, the “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. Therefore, the results of operations for the Electronics Business are reported as discontinued operations. Continuing operations discussed below refer to Park’s aerospace business unless otherwise indicated, and prior periods in such discussion have been restated to reflect results excluding the Electronics Business. See Note 13, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the sale.
The Company's manufacturing and research and development facilities are located in Kansas. The Company also maintains dormant facilities in California and Singapore.
Park was founded in 1954 by Jerry Shore, who was the Company’s Chairman of the Board until July 14, 2004.
The Company makes available free of charge on its website, www.parkaerospace.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. None of the information on the Company's website shall be deemed to be a part of this Report.
AEROGLIDE®, COREFIX®, EASYCURE E-710®, ELECTROGLIDE®, and TIN CITY AIRCRAFT WORKS®RADARWAVE® are registered trademarks of Park Aerospace Corp., and ALPHASTRUT™, PEELCOTE™, RADARWAVE™ and SIGMASTRUT™ are common law trademarks of Park Aerospace Corp. A trademark applicationTrademark applications for RADARWAVE™ isAEROADHERE™ and ELECTROVEIL™ are pending.
Operations
The Company designs, develops and manufactures engineered, advanced composite materials and advanced composite structures and assemblies and low-volume tooling for the aerospace markets and prototype tooling for such structures and assemblies.
The Company’s aerospace composite materials are designed, developed and manufactured at its facility located at the Newton, Kansas Airport. 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 in Singapore at a facility that was transferred to a subsidiary of the Company in connection with the sale and is currently idle. The Company’s aerospace composite structures and assemblies and low-volume tooling are also developed and manufactured at its facility located in Newton, Kansas.
Park offers a wide range of aerospace composite materials manufacturing capability, as well as composite structures design, assembly and production capability, all in its Newton facility. Park offers composite aircraft and space vehicle structures design and assembly services, in addition to “build-to-print” services. The Company believes that the ability to manufacture and develop both composite materials and structures at a single location can facilitate the needs of the aircraft and space vehicle industries.
Park is the exclusive North American distributor of ArianeGroup’s RAYCARB C2®B NG proprietary product. RAYCARB C2®B NG is used to produce ablative composite materials for critical rocketry and missile systems.
Industry Background
The aerospace composite materials manufactured by the Company and its competitors are used primarily to fabricate light-weight, high-strength structures with specifically designed performance properties. Composite materials are typically highly specified combinations of resin formulations and reinforcements. Reinforcements can be unidirectional fibers, woven fabrics, or non-woven goods such as mats or felts. Resin formulations are typically highly proprietary, and include various chemical and physical mixtures. The Company produces resin formulations using various epoxies, polyesters, phenolics, cyanate esters, polyimides and other complex matrices. The reinforcement combined with the resin is referred to as a “prepreg”. Aerospace composite materials can be broadly categorized as either thermosets or thermoplastics. While both material types require the addition of heat to form a consolidated laminate, thermoplastics can be reformed using additional heat. Once fully cured, thermoset materials cannot be further reshaped. The Company believes that the demand for thermoset advanced materials is greater than that for thermoplastics due to the fact that parts fabrication processes for continuous fiber reinforced thermoplastics require much higher temperatures and pressures and are, therefore, typically more capital intensive than parts fabrication processes for most thermoset materials.
The Company works with aerospace OEMs, such as general aviation aircraft manufacturers and commercial aircraft manufacturers, and certain tier 1 suppliers to qualify its aerospace composite materials or structures and assemblies for use on current and upcoming programs. The Company’s customers typically design and specify a material specifically to meet the requirements of the customer’s application and processing methods. Such customers sometimes work with a supplier to develop the specific resin system and reinforcement combination to match the application. Composite structure fabrication methods may include hand lay-up, resin infusion or more advanced automated lay-up processes. Automated lay-up processes include automated tape lay-up, automated fiber placement and filament winding. These automated fabrication processes required different material formats but similar materials to hand lay-up. After the lay-up process is completed, the material is cured by the addition of heat and pressure. Cure and consolidation processes typically include vacuum bag/oven curing, high pressure autoclave and press forming. After the structure has been cured, final finishing and trimming, and assembly of the structure, is performed by the fabricator or the Company.
Products
The aerospace composite materials products manufactured by the Company are primarily thermoset curing prepregs. The Company has developed proprietary resin formulations to suit the needs of the markets in which it participates by analyzing the needs of the markets and working with its customers. The complex process of developing resin formulations and selecting the proper reinforcement is accomplished through a collaborative effort of the Company’s research and development, materials and process engineering and technical sales and marketing resources working with the customers’ technical staff. The Company focuses on developing a thorough understanding of its customers’ businesses, product lines, processes and technical challenges. The Company develops innovative solutions which utilize technologically advanced materials and concepts for its customers.
The Company’s aerospace composite materials products include prepregs manufactured from proprietary formulations using modified epoxies, phenolics, polyesters, cyanate esters and polyimides combined with woven, non-woven and unidirectional reinforcements. Reinforcement materials used to produce the Company’s products include polyacrylonitrile (“PAN”) based carbon fiber, E-glass (fiberglass), S2 glass, quartz, aramids, such as Kevlar® (“Kevlar” is a registered trademark of E.I. du Pont de Nemours & Co.), Twaron® (“Twaron” is a registered trademark of Teijin Twaron B.V. LLC), polyester and other synthetic materials. The Company also sells certain specialty fabrics and prepregs with carbonized rayon fabric reinforcements that are used mainly in the rocket motor industry.
The Company’s composite structures and assemblies are manufactured with carbon, fiberglass and other reinforcements impregnated with formulated resins. The Company also provides low-volume tooling in connection with its manufacture and sale of composite structures and assemblies.
Park is the exclusive North American distributor of ArianeGroup’s RAYCARB C2®B NG proprietary product. RAYCARB C2®B NG is used to produce ablative composite materials for critical rocketry and missile systems.
Customers and End Markets
The Company’s aerospace composite materials, structures and assemblies customers include manufacturers of turbofan engines, aircraft primary and secondary structures and radomes. A radome is a protective cover over an electrical antenna or signal generator, designed to minimize signal loss and distortion. Radomes includesare used in military aircraft, unmanned aerial vehicles (“UAVs”),UAVs, business jets and turboprops, large and regional transport aircraft and helicopters, space vehicles, rocket motors and specialty industrial products.
The Company’s aerospace composite materials are marketed primarily by sales personnel and, to a lesser extent, by independent distributors. The Company’s aerospace composite structures and assemblies are marketed primarily by sales personnel.
During the Company’s 2020, 2019 and 2018 fiscal years, 48.2%, 42.8% and 30.5%, respectively, of the Company’s total worldwide net sales were to affiliate and non-affiliate subtier suppliers of General Electric Company, a leading manufacturer of aerospace engines. Sales to AAE Aerospace were 10.6% of the Company’s total worldwide sales in the 2018 fiscal year. During the 2020, 2019 and 2018 fiscal years, sales to no other customer of the Company equaled or exceeded 10% of the Company’s total worldwide sales. In April 2019, Middle River Aircraft Systems, the General Electric Company subsidiary that used the Company’s products to manufacture aircraft nacelles, was sold to ST Engineering Aerospace. The aircraft nacelles manufactured with the Company’s products continue to be sold by ST Engineering Aerospace to affiliates of General Electric Company. 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 aerospace customers include fabricators of aircraft composite structures and assemblies. The Company’s aerospace composite materials are used by such fabricators and by the Company to produce primary and secondary structures, aircraft interiors and various other aircraft components. The Company’s customers for aerospace materials, and the Company itself, produce structures and assemblies for commercial aircraft and for the general aviation and business aviation, kit aircraft, special mission, UAVs and military markets. Many of the Company’s composite materials are used in the manufacture of aircraft certified by the Federal Aviation Administration (the “FAA”).
Customers for the Company’s rocket motor materials include United States defense prime contractors and subcontractors. These customers fabricate rocket motors for heavy lift space launchers, strategic defense weapons, tactical motors and various other applications. The Company’s materials are used to produce heat shields, exhaust gas management devices and insulative and ablative nozzle components. Rocket motors are primarily used for commercial and military space launch, and for tactical and strategic weapons. The Company also has customers for these materials outside of the United States.
End markets include military aircraft, UAVs, business jets and turboprops, large and regional transport aircraft and helicopters, space vehicles, rocket motors and specialty industrial products. The Company sellsCompany’s aerospace composite materials for use in RF electrical applications. Customers buying these materials typically fabricate antennasare marketed primarily by sales personnel and, radomes engineered to preserve electrical signal integrity. A radome is a protective cover over an electrical antenna or signal generator.lesser extent, by independent distributors. The radome is designed to minimize signal lossCompany’s aerospace composite structures and distortion.assemblies are marketed primarily by sales personnel.
During the Company’s 2022, 2021 and 2020 fiscal years, 49.5%, 27.9% and 48.2%, respectively, of the Company’s total worldwide net sales were to affiliate and non-affiliate subtier suppliers of General Electric Company, a leading manufacturer of aerospace engines. Sales to AAE Aerospace were 20.7% of the Company’s total worldwide sales in the 2021 fiscal year. During the 2022, 2021 and 2020 fiscal years, sales to no other customer of the Company equaled or exceeded 10% of the Company’s total worldwide sales. In April 2019, Middle River Aircraft Systems, the General Electric Company subsidiary that used the Company’s products to manufacture aircraft nacelles, was sold to ST Engineering Aerospace. The aircraft nacelles manufactured with the Company’s products continue to be sold by ST Engineering Aerospace to affiliates of General Electric Company. 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.
Manufacturing
The Company’s manufacturing facilities for aerospace composite materials and for composite structures and assemblies are currently located in Newton, Kansas. On August 19, 2019, the Company broke ground on the expansion of its facilities located in Newton, Kansas, which will includeincluded the construction of a redundant manufacturing facility located adjacent to the existing facility. The 90,000 square feet expansion will essentially doubledoubled the size of the Company’s existing Newton, Kansas facilities. The new facility was originally conceived of as a redundant manufacturing facility for Park’s major aerospace customer and the large aerospace OEMs it supports, but it will also support additional manufacturing capacity. The expansion will includeincludes enhanced and upgraded hot-melt film and tape lines and mixing and delivery systems, an expanded production lab, a new R&D lab, additional freezer and storage space and additional infrastructure to support the expanded operation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Liquidity Factors” included in Item 7 of Part II of this Report and Note 1110 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report. 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 in Singapore at a facility that was transferred to a subsidiary of the Company in connection with the Sale, and is currently idle. See “Operations” elsewhere in this Report.
The process for manufacturing composite materials, structures and assemblies is capital intensive and requires sophisticated equipment, significant technical know-how and very tight process controls. The key steps used in the manufacturing process include resin mixing, resin film casting and reinforcement impregnation via hot-melt process or a solution process.
Prepreg is manufactured by the Company using either solvent (solution) coating methods on a treater or by hot-melt impregnation. A solution treater is a roll-to-roll continuous process machine which sequences reinforcement through tension controllers and combines solvated resin with the reinforcement. The reinforcement is dipped in resin, passed through a drying oven which removes most of the solvent and advances (or partially cures) the resin. The prepreg material is interleafed with a carrier and cut to the roll lengths desired by the customer. The Company also manufactures prepreg using hot-melt impregnation methods which use no solvent. Hot-melt prepreg manufacturing is achieved by mixing a resin formulation in a heated resin vessel, casting a thin film on a carrier paper, and laminating the reinforcement with the resin film.
The Company also completes additional processing services, such as slitting, sheeting, biasing, sewing and cutting, if needed by the customer. Many of the products manufactured by the Company also undergo extensive testing of the chemical, physical and mechanical properties of the product. These testing requirements are completed in the laboratories and facilities located at the Company’s manufacturing facilities.
Once the manufacturing process has been completed, the product is tested and packaged for shipment to the customer. The Company typically supplies final product to the customer in roll form.
The Company’s laboratories have been approved by several aerospace OEMs, and the Company has achieved certification pursuant to the National Aerospace and Defense Contractors Accreditation Program (“NADCAP”) for both non-metallic materials manufacturing and testing and composites fabrication. Once the process has been completed, the product is tested and packaged for shipment to the customer. The Company typically supplies final product to the customer in roll form. The Company’s Kansas facility has received accreditation by NADCAP for composite structures manufacturing and for composite materials manufacturing, and the Company believes that theits Newton Kansas facility is one of the few facilities in the world with NADCAP accreditation for manufacturing both composite materials and composite structures. The Company has also received AS9100C certification for its quality management system for the manufacture of advanced composite materials and design and manufacturing of structures for aircraft and aerospace industries.
Materials and Sources of SupplySupply
The Company designs and manufactures its aerospace composite materials to its own specifications and to the specifications of its customers. Product development efforts are focused on developing prepreg materials that meet the specifications of the customers. The materials used in the manufacture of these engineered materials include graphite and carbon fibers and fabrics, carbonized rayon, aramids, such as Kevlar® ("Kevlar" is a registered trademark of E.I. du Pont de Nemours & Co.) and Twaron® (“Twaron” is a registered trademark of Teijin Twaron B.V. LLC), quartz, fiberglass, polyester, specialty chemicals, resins, films, plastics, adhesives and certain other synthetic materials. The Company purchases these materials from several suppliers. Substitutes for many of these materials are not readily available. The qualification and certification of aerospace composite materials for certain FAA certified aircraft typically include specific requirements for raw material supply and may restrict the Company’s flexibility in qualifying alternative sources of supply for certain key raw materials. The Company continues to work to determine acceptable alternatives for several raw materials.
The Company manufactures composite structures and assemblies primarily to its customers’ specifications using its own composite materials or composite materials supplied by third parties, based on the specific requirements of the Company’s customers.
Competition
The Company has many competitors in the aerospace composite materials, structures and assemblies markets, ranging in size from large international corporations to small regional producers. Several of the Company’s largest competitors are vertically integrated, producing raw materials, such as carbon fiber and woven fabric, as well as composite structures and assemblies. Some of the Company’s competitors may also serve as a supplier to the Company. The Company competes for business primarily on the basis of responsiveness, product performance and consistency, product qualification, FAA data base design allowables and innovative new product development.
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 April 26, 2020,25, 2022, the unfilled portion of all purchase orders received by the Company, and believed by it to be firm, was $18,935,709,$25,895,809, compared to $24,171,828$21,326,751 at May 1, 2019.April 26, 2021. 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 March 1, 2020.February 27, 2022.
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.
EmployeesThe Company’s Workforce
At March 1, 2020,February 27, 2022, the Company had 136110 employees. Of theseThe Company’s success and future depends on the skills, experience, industry knowledge, passion and dedication of its work force. The Company places significant focus and attention on attracting, developing and retaining its employees, 96 were engaged inas well as ensuring its work force reflects Park’s principles of integrity and humility. These principles ensure that every Park employee is held to his or her word, and that every Park employee continuously strives to excel. These two principles guide Park’s actions, and the Company believes, foster a healthy work environment where all Park employees are treated with dignity and respect, irrespective of their backgrounds. The Company also believes that its principles are critical to fostering and maintaining what it calls Park’s “niche” culture of doing what others are unwilling or unable to do.
Employee health and safety is a top priority. Park’s safety performance has been an important focus of the Company. Safety performance is maintained by the Company ensuring appropriate safety equipment is installed and operational at all times and undertaking thorough reviews of any safety incidents that do occur.
The Company takes a comprehensive approach to developing its workforce, including by striving to use a fair recruiting process to select talented individuals. Park also believes that fair compensation, opportunities for career development, employee engagement, and a singular focus on the principles of integrity and humility, have organically cultivated a workforce that is diverse at all levels. Park believes that principle-based approach to hiring and retention makes the Company a desirable workplace for employees of all backgrounds while improving business performance by maintaining the Company’s manufacturing operations, and 40 consisted of executive, sales and marketing, research and development personnel and general administrative staff.“niche” culture.
Environmental Matters
Aviation is one of the fastest growing sources of the greenhouse gas emissions. Air travel is also considered to be one of the most carbon intensive activity an individual can make. As air travel rebounds from the COVID-19 Pandemic and gradually returns to its aggressive pre-pandemic growth trajectory, aircraft fuel efficiency will return to being an increasingly important factor in addressing the reduction of greenhouse gas. Park’s composite material products and the aircraft parts that are crafted using such products, enable aircraft to operate on substantially less fuel than would be the case using comparable aluminum-crafted aircraft parts. This reduced fuel consumption creates economic savings for end-users of applicable aircraft, while also substantially reducing the carbon based emissions of such aircraft.
The Company is subject to stringent environmental regulation of its use, storage, treatment, 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 three 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 1211 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 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.
ITEM 1A. | RISK FACTORS. |
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.
COVID-19 Pandemic
The recent coronavirus outbreak likely willhave an adverse effect on our business.
The COVID-19 Pandemic is havingcontinues to have 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.economy. 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 theThe pandemic could materiallyhas adversely impactimpacted global economic conditions, the Company’s business, results of operations and cash flows,flows. Continued impacts of the pandemic may further adversely impact the same, 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 willcontinues to depend largely on future developments, including the duration of the spread of the outbreak, re-emergence of variants, 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, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that the Company is not aware of currently. Although it is not possible
Geopolitical Events
The Company's operating results could be negatively affected if the Company were unable to predictattain the extent or lengthraw materials required in its manufacturing process. The Company’s suppliers of raw material, supplies and equipment could be impacted by geopolitical events, such as the impact, it is almost certainwar in Ukraine, thus interrupting the Company’s salessupply chain. Additionally, the Company’s customers may experience interruptions from other suppliers that could cause a customer to the commercial and business aircraft industries will be negatively impacted.delay or cancel orders.
The Company's business could suffer if the Company is unable to develop new products on a timely basisbasis..
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 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 necessary to maintain such competitive advantages or that the Company can recover major research and 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 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.inflation.
Changes in the cost raw materials, supplies, labor, utilities or availability of gas or electricityservices could materially increase the Company's cost of operations. The Company's production processes requireCompany is experiencing inflation in raw material and other costs. The impact of inflation on the useCompany’s profits has been partially mitigated by the Company’s ability to adjust pricing for a large portion of substantial amountsits sales to pass the impact of gas and electricity,inflation through to its customers. Significant increases in the cost of materials, supplies, labor, utilities or services purchased by the Company could also materially increase the Company’s cost of operations and available supplycould have a material adverse effect on the Company’s business and results of which are beyondoperations if the control of the Company.Company were unable to pass such increases through to its customers.
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 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)FAA) 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 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. The COVID-19 Pandemic couldand other factors have negatively impacted, and may continue to negatively impact, the Company’s suppliers. If, due to thesuch impact, one or more of the Company’s suppliers is required to temporarily close manufacturing facilities, the Company’s ability to procure raw materials for its manufacturing processes may become limited and this could ultimately limit the Company’s ability to manufacture its 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 February 27, 2022, February 28, 2021 and March 1, 2020, March 3, 2019 and February 25, 2018, the Company's ten largest customers accounted for approximately 76%77%, 74%71% and 72%76%, respectively, of net sales. The Company expects the sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. “Customers and End Markets” in Item 1 of Part I of this Report. The COVID-19 Pandemic couldhas negatively impacted, and may continue to negatively impact, the Company’s customers. If one or more of the Company’s customers is further negatively impacted by the COVID-19 Pandemic the Company’s customer base could become more concentrated.
The Company's business is dependent on the aerospace industry,industry, which is cyclical in nature.
The aerospace industry is cyclical and has experienced 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 a recovery. Deterioration in the market for aerospace products has often reduced demand for, and prices of, advanced composite materials, structures and assemblies. A potential future reduction in demand and prices could have a negative impact on the Company’s 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 ishas negatively impactingimpacted, and may continue to negatively impact, the aerospace industry, and the commercial aerospace industry in particular. Commercial airlines are already institutinghave instituted 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 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 must 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’sCompany’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’sCompany’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’sCompany’s customers could negatively impact the Company’sCompany’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, 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 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 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’sCompany’s efforts to protect its proprietary 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 suppliers 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’sCompany’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 currentlymay be restricted.
The Company’sCompany’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.effectively, some of which are connected to networks of third parties that are not under the Company’s direct control. The Company stores sensitive data on its servers and databases including proprietary business information, intellectual property and confidential employee or other personal data on our serverspertaining to the Company’s business, customers, suppliers, OEMs, employees and databases.other third parties. Attempts by others to gain unauthorized access to the Company’s information technology systemsystems and data have become more frequent and sophisticated. These attempts, which might be related to industrial or foreign government espionage, activism, or other motivations, include covertly introducing malware and “ransomware” to the Company’s computers and networks, performing reconnaissance, impersonating authorized users, and stealing, corrupting or restricting the Company’s access to data, among other activities.
As with most companies, the Company has experienced cyber-attacks, attempts to breach the Company’s systems and other similar incidents, none of which, has resulted in loss of data or materially affected the Company’s business, operations or financial results. The Company has addressed past cybersecurity breaches by working with leading providers of incident response, risk management and digital forensics services. In coordination with such service providers, Park also continues to update its infrastructure, security tools (including firewalls and anti-virus software), and 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 stilland other data security breaches can and are expected to occur in the future and the Company may leadbe unable to potential data corruptionimplement adequate preventive or remediation measures, as breach and exposure of proprietarydisruption techniques change frequently and confidential information. are generally not detected until after an incident has occurred.
The unauthorized use of the Company’s intellectual property and/or confidential businessor personal information or any material disruption in the systems that store such information could materially harm itsthe Company’s competitive position, reduce the value of the Company’s investment in research and development (through the loss of trade secrets or other proprietary and competitively sensitive information) and other strategic initiatives, compromise personally identifiable information regarding customers or employees, delay the Company’s ability to access its information systems at critical times, cause operational disruptions and delays, jeopardize the security of the Company’s facilities or otherwise materially and adversely affect the Company’s business or results of operations.financial results. Any intrusion may also cause operational stoppages,result in material fines, penalties, litigation of governmental investigations and proceedings, litigation, diminished competitive advantages through reputational damages and increased operational costs.expenses (including remediation and damage expenses). Many victims of cyber-attacks also are forced to pay significant ransoms or incur significant expenses to recover critical business systems and data. Additionally, the Company may incur additional costs to comply with its customers’, including the U.S. Government’s, requirements for data security and increased cybersecurity protections and standards. The Company may be similarly harmed if any of the foregoing incidents occur at third parties that are connected to the Company’s networks and that are not under the Company’s direct control.
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’sCompany’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.
ITEM 1B. | UNRESOLVED STAFF |
None.
ITEM 2. | PROPERTIES. |
Set forth below are the locations of the significant properties owned and leased by the Company, the businesses whichbusiness use of the properties and the size of each such property. Such properties, except for the Westbury, New YorkThe Newton, Kansas property areis used principally as a manufacturing and warehouse facilities.facility. The lease for our Newton, Kansas location is a ground lease.
Location | Owned or Leased | Use | Size (Square Footage) | |||||
Westbury, NY | Leased | Administrative Offices | 2,000 | |||||
Newton, KS | Leased | Advanced Composite Materials, Parts and Assemblies | 183,500 | |||||
|
|
|
The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. Most of theThe Company’s manufacturing facilities have the capacity to substantially increase their production levels.
During the 2022 fiscal year, the Company completed the closure of its dormant Park Aerospace Technologies Asia PTE, LTD facility located in Singapore.
In December 2018, the Company 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, the Company agreed to construct and operate a redundant manufacturing facility of approximately 90,000 square feet for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace. The Company 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 the Company three acres of land at the Newton, Kansas Airport, in addition to the eight acres previously leased to the Company by the City and County. The City and 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 $19.5 million. The expansion construction is complete and is undergoing customer qualifications, which are expected to be completed in the second half of the calendar year 2022. As of February 27, 2022, the Company had $635,000 in equipment purchase obligations and $18.7 million of construction-in-progress related to the additional facility.
ITEM 3. | LEGAL PROCEEDINGS. |
No material pending legal proceedings.
ITEM 4. |
|
None.
Executive Officers of the RegistrantEXECUTIVE OFFICERS OF THE REGISTRANT.
Name | Title | Age | |||
| |||||
Brian E. Shore | Chief Executive Officer and Chairman of the Board of Directors | 70 | |||
|
| ||||
P. Matthew Farabaugh | Senior Vice President and Chief Financial Officer | 61 | |||
|
| ||||
Mark A. Esquivel |
| 49 | |||
|
Senior Vice President and General Counsel
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. Mr. Shore also served as General Counsel of the Company from April 1988 until April 1994.
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 Aerospace Corp. from 1989 to 2000. Prior to joining Park in 1989, Mr. Farabaugh had been a senior accountant with KPMG.
Mr. Benjamin ShoreEsquivel was elected Senior Vicepromoted to President – Sales, Marketing and Business DevelopmentChief Operating Officer of the Company in December 2018,on November 2, 2020, 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 tobeen elected Executive Vice President and Chief Operating Officer of the Company on May 7, 2019, afterand having been elected Senior Vice President and Chief Operating Officer in December 2018. He had been Senior Vice President – Aerospace of the Company since October 2017 and Vice President – Aerospace of the Company and President of the Company’s Park Aerospace Technologies Corp. business unit in Newton, 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 Park Aerospace Technologies Corp. from March 2012 to April 2015 and President of Park Aerospace Technologies Corp. from June 2010 to March 2012. Prior to June 2010, Mr. Esquivel was Vice President and General Manager of the Company’s former 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, having held various positions since he originally joined Neltec, Inc. in 1994.”
Mr. Petropoulos was promoted to Senior Vice President and General Counsel of the Company on May 7, 2019. He had been Vice President and General Counsel since September 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.Company.
Each executive officer of the Company serves at the pleasure of the Board of Directors of the Company.
PART II
ITEM 5. | MARKET FOR THE |
The Company’s Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (TheThe 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.
For the Fiscal Year Ended | Stock Price | Dividends | ||||||||||
March 1, 2020 | High | Low | Declared | |||||||||
First Quarter | $ | 17.48 | $ | 14.94 | $ | 0.10 | ||||||
Second Quarter | 19.16 | 15.09 | 0.10 | |||||||||
Third Quarter | 18.90 | 15.78 | 0.10 | |||||||||
Fourth Quarter | 17.45 | 13.91 | 1.10 | (a) | ||||||||
For the Fiscal Year Ended | Stock Price | Dividends | Stock Price | Dividends | ||||||||||||||||||||
March 3, 2019 | High | Low | Declared | |||||||||||||||||||||
February 27, 2022 | High | Low | Declared | |||||||||||||||||||||
First Quarter | $ | 20.64 | $ | 16.45 | $ | 0.10 | $ | 15.57 | $ | 13.03 | $ | 0.10 | ||||||||||||
Second Quarter | 24.16 | 19.84 | 0.10 | 16.20 | 14.40 | 0.10 | ||||||||||||||||||
Third Quarter | 21.63 | 17.30 | 0.10 | 15.11 | 12.74 | 0.10 | ||||||||||||||||||
Fourth Quarter | 23.30 | 16.90 | 4.35 | (b) | 13.74 | 12.73 | 0.10 | |||||||||||||||||
|
| |||||||
|
| |||||||
For the Fiscal Year Ended | Stock Price | Dividends | ||||||||||
February 28, 2021 | High | Low | Declared | |||||||||
First Quarter | $ | 14.49 | $ | 9.14 | $ | 0.10 | ||||||
Second Quarter | 13.78 | 10.51 | 0.10 | |||||||||
Third Quarter | 13.85 | 10.55 | 0.10 | |||||||||
Fourth Quarter | 15.01 | 12.63 | 0.10 | |||||||||
As of April 24, 2020,May 4, 2022, there were 496471 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 20202022 fiscal year fourth quarter ended March 1, 2020.February 27, 2022:
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) | ||||||||
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 29 - December 27 | 0 | $ | - | 0 | |||||||||
December 28 - January 27 | 0 | $ | - | 0 | |||||||||
January 28 - February 27 | 0 | $ | - | 0 | |||||||||
Total | 0 | $ | - | 0 | 1,394,015 (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. | |||||||
In 2021, the Company purchased 137,397 shares at an aggregate purchase price of $1,644,000. 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 1,531,4121,394,015 shares of its common stock, representing approximately 7.5%6.8% of the Company’s 20,518,82320,458,210 total outstanding shares as of the close of business on March 1, 2020.February 27, 2022.
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.
Stock Performance Graph
The graph set forth below compares the annual cumulative total return for the Company’s five fiscal years ended March 1, 2020February 27, 2022 among the Company, the New York Stock Exchange Market Index (the “NYSE Index”), and 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 202 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 February 28, 201526, 2017 and the reinvestment of dividends (where applicable).
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||||||||||||||||||||||||
Park Aerospace Corp. | $ | 100.00 | $ | 66.59 | $ | 92.64 | $ | 98.05 | $ | 125.39 | $ | 108.87 | $ | 100.00 | $ | 105.84 | $ | 135.36 | $ | 117.52 | $ | 121.37 | $ | 122.52 | ||||||||||||||||||||||||
NYSE Index | $ | 100.00 | $ | 89.34 | $ | 110.10 | $ | 126.07 | $ | 127.79 | $ | 127.77 | $ | 100.00 | $ | 114.51 | $ | 116.08 | $ | 116.05 | $ | 144.05 | $ | 161.00 | ||||||||||||||||||||||||
NASDAQ US Small Cap Aerospace and Defense Index | $ | 100.00 | $ | 78.86 | $ | 105.06 | $ | 123.97 | $ | 154.82 | $ | 151.47 | $ | 100.00 | $ | 118.00 | $ | 147.36 | $ | 144.17 | $ | 178.60 | $ | 171.52 | ||||||||||||||||||||||||
ITEM 6. |
|
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 three fiscal years ended March 1, 2020 and is as of the end of the fiscal years ended March 1, 2020 and March 3, 2019, it is derived from the Consolidated Financial Statements for each of the three fiscal years in the period ended March 1, 2020 and as of the fiscal years ended March 1, 2020 and March 3, 2019 audited by the Company’s independent registered public accounting firm. The Consolidated Financial Statements as of March 1, 2020 and March 3, 2019 and for the three fiscal years ended March 1, 2020, March 3, 2019 and February 25, 2018, 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, appear in Item 8 of Part II of this Report.
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.
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 | |||||||||||||||
ITEM 7. |
|
General:
Park Aerospace Corp. (“Park” or the “Company”) formerly known as Park Electrochemical Corp. is an aerospace company which develops and manufactures solution and hot-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 volume tooling for the aerospace industry. Target markets for Park’s composite parts and structures (which include Park’s proprietary composite Sigma StrutSigmaStrut™ and Alpha StrutAlphaStrut™ product lines) are, among others, prototype and development aircraft, special mission aircraft, spares for legacy military and civilian aircraft and exotic spacecraft.
The Company’s fiscal year is the 52- or 53-week period ending the Sunday nearest to the last day of February. The 2020, 20192022, 2021 and 20182020 fiscal years ended on February 27, 2022, February 28, 2021 and March 1, 2020, March 3, 2019 and February 25, 2018, respectively. The 2019 fiscal year consisted of 53 weeks. The2022, 2021 and 2020 and 2018 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’sCompany’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.
20202022 Financial Overview
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 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. As a result, the discussion below is of the Company’s continuing operations, which is comprised of the aerospace business.
The Company paid a special cash dividend of $1.00 per share on February 20, 2020 to shareholders of record at the close of business on 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 2, 2020 to shareholders of record on January 3, 2020, brings the total amount of dividends paid to shareholders to $26.15 per share, a total of approximately $536 million, since the Company’s 2005 fiscal year.
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 beingwas constructed in part to support a major aerospace customer, will includeincludes approximately 90,000 square feet of manufacturing and office space, and will essentially doubledoubled the size of Park’s existing Newton, Kansas manufacturing footprint. The total cost of the expansion will be approximately $19.5 million. The expansion construction is complete and is undergoing customer qualifications, which are expected to be approximately $21 million, and the expansion is expected to be completedcomplete in the second half of the 2020 calendar2022 fiscal 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,February 27, 2022, the Company had incurred $7.6 million on the expansion.
During 2020, the Company recorded a non-cash charge of $0.2 million in connection with the modification of previously granted employee stock options resulting from the $1.00 per share special cash dividend paid by the Company in February 2020. Selling, general and administrative expenses in 2020 included $0.7$18.7 million of stock option expense.
The Company's total net sales worldwide in 2020 were 17% higher than in 2019 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 2020.
The Company’s gross profit margin, measured as a percentage of sales, decreased to 31.1% in 2020 from 31.7% in 2019. Higher sales and production levels combined with the fixed nature of certain overhead costs were more than offset by increased direct labor and supplies expenses.
The Company’s earnings from continuing operations in 2020 were 49% higher than in 2019, primarily as a result of the aforementioned increases in sales and gross profit and a 12% reduction in selling, general and administrative expenses, which included the additional stock option modification charge of $0.2 million. The Company’s net earnings from continuing operations in 2020 were 62% higher than in 2019, primarily due to higher sales and lower selling, general and administrative expenses and to a loss on sales of marketable securities of $1.5 million incurred in 2019 to raise funds for the special cash dividend of $4.25 per share paid in February 2019.
The Company has a number of long-term contracts pursuant to which certain of its customers, some of which represent a substantial portion of the Company’s revenue, place orders. Long-term contracts with the Company’s customers 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.expansion.
In December 2019, a novel strain of coronavirus was reported in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the United States, (the “U.S.”), posing 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 impact of the COVID-19 Pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which the COVID-19 Pandemic may impact our financial performance or results of operations is uncertain.
The COVID-19 Pandemic did not have aand resultant global economic crisis had significant impactimpacts on ourthe Company’s results of operations and financial position or cash flow for the fiscal year ended March 1, 2020. Subsequent2021, and to our fiscal year end thea lesser degree for 2022. The COVID-19 Pandemic hasand crisis had significant impactimpacts on variousthe markets and industries including industries the Company sells into, most notablyparticularly the commercial aerospace industry.and business aircraft markets. As ofa result, the date of this filing,Company has experienced a significant uncertainty exists concerning the magnitude of the impactreduction in sales 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 satisfy their requirements for continuing our manufacturing operations. backlog.
Even afteras the COVID-19 Pandemic has subsided,subsides, the Company may continue to experience adverse impacts to its business as a result of anythe potential continuing impact of the economic recession or depression that has occurred or may occur incrisis on the future or specific economic recovery in the industriesmarkets the Company serves.
Results of Operations:The Company's total net sales worldwide in 2022 were 16% higher than in 2021 due primarily to the higher sales to commercial aerospace and business aircraft customers due to the decreasing impacts of the Pandemic on those markets partially offset by lower military sales during 2022.
The Company’s gross profit margin, measured as a percentage of sales, increased to 33.4% in 2022 from 28.5% in 2021. Higher sales and production levels combined with the fixed nature of certain overhead costs led to higher gross margins.
The Company recorded restructuring charges of $259,000 and $1.6 million in 2022 and 2021, respectively, related to the closure of the Company’s Park Aerospace Technologies Asia, Pte, Ltd. facility located in Singapore.
The Company’s earnings from continuing operations in 2022 were 107% higher than in 2021, primarily as a result of the aforementioned increases in sales and gross profit. The Company’s net earnings from continuing operations in 2022 were 63% higher than in 2021, primarily due to higher sales and lower restructuring charges, partially offset by lower interest income.
The Company is experiencing inflation in raw material and other costs. The impact of inflation on the Company’s profits has been partially mitigated by the Company’s ability to adjust pricing for a large portion of its sales to pass the impact of inflation through to its customers.
With the recovery of the aerospace markets, some companies in the aerospace supply chain may not be fully prepared to ramp up their production as quickly as needed, which may create a risk to the Company of not getting enough raw materials on a timely basis to fully support the Company’s customers’ demands. Additionally, some shipments from overseas suppliers are experiencing transportation delays due to a lack of available containers and a backlog at incoming ports of entry. Delays of overseas shipments of raw materials are having an impact on the Company’s production levels. Delays in raw material shipments continue to represent a risk to the Company.
Programs that the Company supplies into may also be experiencing supply chain issues from other suppliers to the programs. The Company’s sales could be impacted by delays and reductions in its customer’s production schedules caused by other suppliers in the chain.
The tight labor market has created challenges in hiring personnel. Although the Company feels very positive about its workforce, high wage inflation creates challenges in hiring to add to the Company’s employee base. The Company is making adjustments to pay levels and benefits to stay competitive with the labor market. Additionally, the Company has a “Customer Flexibility Program” whereby employees can cross train on different equipment and processes to earn extra pay for attaining the added skills.
The war in Ukraine has not had a material impact on the Company’s results of operations, and is not expected to have a material impact. The Company does not have any significant customers in Russia or Ukraine. The Company continues to evaluate the impact the war in Ukraine may have on the Company’s customers and on the Company’s supply chain.
The war in Ukraine has not had a material impact on the Company’s results of operations, and is not expected to have a material impact. The Company does not have any significant customers in Russia or Ukraine. The Company continues to evaluate the impact the war in Ukraine may have on the Company’s customers and on the Company’s supply chain.
Results of Operations:
20202022 Compared to 20120219
Year Ended | Year Ended | |||||||||||||||||||||||||||||||
March 1, | March 3, | February 27, | February 28, | |||||||||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | 2020 | 2019 | Increase / (Decrease) | 2022 | 2021 | Increase / (Decrease) | ||||||||||||||||||||||||||
Net sales | $ | 60,014 | $ | 51,116 | $ | 8,898 | 17 | % | $ | 53,578 | $ | 46,276 | $ | 7,302 | 16 | % | ||||||||||||||||
Cost of sales | 41,341 | 34,932 | 6,409 | 18 | % | 35,661 | 33,085 | 2,576 | 8 | % | ||||||||||||||||||||||
Gross profit | 18,673 | 16,184 | 2,489 | 15 | % | 17,917 | 13,191 | 4,726 | 36 | % | ||||||||||||||||||||||
Selling, general and administrative expenses | 7,932 | 8,968 | (1,036 | ) | -12 | % | 6,249 | 6,113 | 136 | 2 | % | |||||||||||||||||||||
Restructuring charges | 259 | 1,570 | (1,311 | ) | -84 | % | ||||||||||||||||||||||||||
Earnings from continuing operations | 10,741 | 7,216 | 3,525 | 49 | % | 11,409 | 5,508 | 5,901 | 107 | % | ||||||||||||||||||||||
Interest and other income | 3,330 | 2,379 | 951 | 40 | % | 375 | 1,777 | (1,402 | ) | -79 | % | |||||||||||||||||||||
Loss on sale of marketable securities | - | (1,498 | ) | 1,498 | -100 | % | ||||||||||||||||||||||||||
Earnings from continuing operations before income taxes | 14,071 | 8,097 | 5,974 | 74 | % | 11,784 | 7,285 | 4,499 | 62 | % | ||||||||||||||||||||||
Income tax provision | 3,866 | 1,791 | 2,075 | 116 | % | 3,320 | 2,093 | 1,227 | 59 | % | ||||||||||||||||||||||
Net earnings from continuing operations | 10,205 | 6,306 | 3,899 | 62 | % | 8,464 | 5,192 | 3,272 | 63 | % | ||||||||||||||||||||||
| (Loss) earnings from discontinued operations, net of tax | (653 | ) | 107,239 | (107,892 | ) | -101 | % | |||||||||||||||||||||||||
Loss from discontinued operations, net of tax | - | (328 | ) | 328 | -100 | % | ||||||||||||||||||||||||||
Net earnings | $ | 9,552 | $ | 113,545 | $ | (103,993 | ) | -92 | % | $ | 8,464 | $ | 4,864 | $ | 3,600 | 74 | % | |||||||||||||||
Earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.50 | $ | 0.31 | $ | 0.19 | 61 | % | ||||||||||||||||||||||||
Discontinued Operations | (0.03 | ) | 5.29 | (5.32 | ) | -101 | % | |||||||||||||||||||||||||
Continuing operations | $ | 0.41 | $ | 0.25 | $ | 0.16 | 64 | % | ||||||||||||||||||||||||
Discontinued operations | - | (0.01 | ) | 0.01 | -100 | % | ||||||||||||||||||||||||||
Basic earnings per share | $ | 0.47 | $ | 5.60 | $ | (5.13 | ) | -92 | % | $ | 0.41 | $ | 0.24 | $ | 0.17 | 71 | % | |||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.50 | $ | 0.31 | $ | 0.19 | 61 | % | ||||||||||||||||||||||||
Discontinued Operations | (0.03 | ) | 5.26 | (5.29 | ) | -101 | % | |||||||||||||||||||||||||
Continuing operations | $ | 0.41 | $ | 0.25 | $ | 0.16 | 64 | % | ||||||||||||||||||||||||
Discontinued operations | - | (0.01 | ) | 0.01 | -100 | % | ||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.47 | $ | 5.57 | $ | (5.10 | ) | -92 | % | $ | 0.41 | $ | 0.24 | $ | 0.17 | 71 | % | |||||||||||||||
Net Sales
The Company's total net sales worldwide in 20202022 were 17%16% higher than in 20192021 due primarily to the “end customer”higher sales to commercial aerospace and business aircraft customers resulting from the decreasing impacts of a major Company customer ramping up commercial jet production and to an increase inthe Pandemic on those markets, partially offset by lower military sales during 2020.2022.
Gross Profit
The Company’s gross profit margin, measured as a percentage of sales, decreasedincreased to 31.1%33.4% in 2020,2022 from 31.7%28.5% in 2019.2021. Higher sales and production levels combined with the partially fixed nature of certain overhead expenses were more than offset by the increased labor and supplies expenses.costs led to higher gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreasedincreased by $1.0 million,$136,000, or 12%2%, during 20202022 compared to 2019.2021. Such expenses, measured as percentages of sales, were 11.7% and 13.2% during 2020 compared to 17.5% during 2019. The decrease in such expenses in 2019 was due primarily to decreased legal2022 and professional fees and lower stock option expenses, excluding the stock option modification charges in each period.2021, respectively.
Selling, general and administrative expenses in 20202022 included $0.7 million$285,000 of stock option expenses including $0.2 million due to the modification of previously granted stock options, compared to $1.2 million$191,000 of such expenses in 2019, including $0.52021.
Restructuring Charges
The Company recorded restructuring charges of $259,000 in 2022 compared to $1.6 million duein 2021 related to the modificationclosure of previously granted stock options.the Company’s Park Aerospace Technologies Asia, Pte, Ltd. facility located in Singapore.
Earnings from Continuing Operations
For the reasons set forth above, the Company’s earnings from continuing operations were $10.7$11.4 million for 2020,2022, including a pre-tax stock option modification chargethe pretax charges of $0.2 million resulting from$259,000 for the special dividendclosure of $1.00 per share paidthe facility located in February 2020.Singapore. The Company’s earnings from continuing operations were $7.2$5.5 million for 2021, including the pretax charges of $1.6 million for the closure of the facility located 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.Singapore.
Interest and Other Income
Interest and other income were $3.3 million$375,000 and $2.4$1.8 million for 20202022 and 2019,2021, respectively. The increasedecrease from 20192021 was due primarily the result of higherto lower average invested cash during the period and higherlower weighted average interest rates. As mentioned above, the Company paid a special cash dividend of $4.25 per share in February 2019. During 20202022 and 2019,2021, 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%28.2% for 20202022 was due primarily to the U.S. Federal rate and state income taxes and lost tax deductions from expiring unexercised non-qualified stock options.taxes. The Company’s effective income tax rate was lowerhigher in 2019,2021, due to favorableunfavorable adjustments to valuation allowances on state tax credits and a lowerhigher state effective tax rate in 2019.2021.
Net Earningsfrom Continuing Operations
The Company’s net earnings from continuing operations for 20202022 were $10.2$8.5 million, including the stock option modification pre-tax chargepretax charges of $0.2 million$259,000 for the closure of the facility located in connection with the special dividend of $1.00 per share paid in February 2020.Singapore. The Company’s net earnings from continuing operations for 20192021 were $6.3$5.2 million, including the stock option modification pre-tax chargepretax charges of $0.5$1.6 million for the closure of the facility located in connection with the special dividend of $4.25 per share paid in February 2019. Singapore.
Discontinued Operations
On December 4, 2018, Parkthe 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 the target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13,12, “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 earningsloss from discontinued operations werewas lower in 20202022 compared to 20192021 primarily as a result of exiting the gain recognized onfacility in Fullerton California, previously used in the saleelectronics operations, at the beginning of the electronics businessthird fiscal quarter 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 2019.2021.
Basic and Diluted Earnings Per Share
Basic and diluted earnings per share from continuing operations for 20202022 were $0.50,$0.41, including the stock option modification chargepretax charges for the closure of the facility located in connection with the special dividend paid in February 2020,Singapore, compared to basic and diluted earnings per share for 20192021 of $0.31,$0.25, including the stock option modification chargepretax charges for the closure of the facility located in connection with the special dividend paid in February 2019 and the pre-tax loss on the sales of marketable securities described above.Singapore. The net impact of the items described above was to decrease basic and diluted earnings per share by $0.01 in 20202022 and decrease basic and diluted earnings per share by $0.08$0.07 in 2019.2021.
20192021 Compared to 20120208
Year Ended | Year Ended | |||||||||||||||||||||||||||||||
March 3, | February 25, | February 28, | March 1, | |||||||||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | 2019 | 2018 | Increase / (Decrease) | 2021 | 2020 | Increase / (Decrease) | ||||||||||||||||||||||||||
Net sales | $ | 51,116 | $ | 40,230 | $ | 10,886 | 27 | % | $ | 46,276 | $ | 60,014 | $ | (13,738 | ) | -23 | % | |||||||||||||||
Cost of sales | 34,932 | 28,942 | 5,990 | 21 | % | 33,085 | 41,341 | (8,256 | ) | -20 | % | |||||||||||||||||||||
Gross profit | 16,184 | 11,288 | 4,896 | 43 | % | 13,191 | 18,673 | (5,482 | ) | -29 | % | |||||||||||||||||||||
Selling, general and administrative expenses | 8,968 | 9,862 | (894 | ) | -9 | % | 6,113 | 7,932 | (1,819 | ) | -23 | % | ||||||||||||||||||||
Restructuring charges | - | 146 | (146 | ) | -100 | % | ||||||||||||||||||||||||||
| Earnings from continuing operations | 7,216 | 1,280 | 5,936 | 464 | % | 5,508 | 10,741 | (5,233 | ) | -49 | % | |||||||||||||||||||||
Interest expense | - | 2,269 | (2,269 | ) | -100 | % | ||||||||||||||||||||||||||
Interest and other income | 2,379 | 2,641 | (262 | ) | -10 | % | 1,777 | 3,330 | (1,553 | ) | -47 | % | ||||||||||||||||||||
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 | % | 7,285 | 14,071 | (6,786 | ) | -48 | % | |||||||||||||||||||||
Income tax provision (benefit) | 1,791 | (18,162 | ) | 19,953 | -110 | % | ||||||||||||||||||||||||||
Income tax provision | 2,093 | 3,866 | (1,773 | ) | -46 | % | ||||||||||||||||||||||||||
| Net earnings from continuing operations | 6,306 | 18,472 | (12,166 | ) | -66 | % | 5,192 | 10,205 | (5,013 | ) | -49 | % | ||||||||||||||||||||
Earnings from discontinued operations, net of tax | 107,239 | 2,123 | 105,116 | 4951 | % | |||||||||||||||||||||||||||
Loss from discontinued operations, net of tax | (328 | ) | (653 | ) | 325 | -50 | % | |||||||||||||||||||||||||
Net earnings | $ | 113,545 | $ | 20,595 | $ | 92,950 | 451 | % | $ | 4,864 | $ | 9,552 | $ | (4,688 | ) | -49 | % | |||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.31 | $ | 0.91 | $ | (0.60 | ) | -66 | % | |||||||||||||||||||||||
Discontinued Operations | 5.29 | 0.11 | 5.18 | 4709 | % | |||||||||||||||||||||||||||
Continuing operations | $ | 0.25 | $ | 0.50 | $ | (0.25 | ) | -50 | % | |||||||||||||||||||||||
Discontinued operations | (0.01 | ) | (0.03 | ) | 0.02 | -67 | % | |||||||||||||||||||||||||
Basic earnings per share | $ | 5.60 | $ | 1.02 | $ | 4.58 | 449 | % | $ | 0.24 | $ | 0.47 | $ | (0.23 | ) | -49 | % | |||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||
Continuing Operations | $ | 0.31 | $ | 0.91 | $ | (0.60 | ) | -66 | % | |||||||||||||||||||||||
Discontinued Operations | 5.26 | 0.11 | 5.15 | 4682 | % | |||||||||||||||||||||||||||
Continuing operations | $ | 0.25 | $ | 0.50 | $ | (0.25 | ) | -50 | % | |||||||||||||||||||||||
Discontinued operations | (0.01 | ) | (0.03 | ) | 0.02 | -67 | % | |||||||||||||||||||||||||
Diluted earnings per share | $ | 5.57 | $ | 1.02 | $ | 4.55 | 446 | % | $ | 0.24 | $ | 0.47 | $ | (0.23 | ) | -49 | % | |||||||||||||||
Net Sales
The Company's total net sales worldwide in 20192021 were 27% higher23% lower than in 20182020 due primarily to the “end customer”lower sales to commercial aerospace and business aircraft customers as a result of a major Company customer ramping up commercial jet production and the Company’s customer restocking depleted inventory, particularly ininverse impact of the fourth quarter, and to an increase inCOVID-19 Pandemic on those markets, partially offset by higher military sales during 2019.2021.
Gross Profit
The Company’s gross profit margin, measured as a percentage of sales, increaseddecreased to 31.7%28.5% in 2019,2021 from 28.1%31.1% in 2018, due primarily to higher2020. Lower sales and production levels combined with the partially fixed nature of certain overhead expenses.costs lead to lower gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $0.9$1.8 million, or 9%23%, during 20192021 compared to 2018.2020. Such expenses, measured as percentages of sales, were 17.5%13.2% during 2019 compared to 24.5% during 2018.both the 2021 and 2020 fiscal years. The decrease in such expenses in 20192021 was due primarily to decreases in salary and related expenses, lowerdecreased travel and entertainment, expenses, lower legal feessalaries and lower stock option expenses, excluding the stock option modification charges in each period.2020.
Selling, general and administrative expenses in 20192021 included $1.2$0.2 million of stock option expenses including $0.5 million due to the modification of previously granted stock options, compared to $1.4$0.7 million of such expenses in 2018,2020, including $0.5$0.2 million due to the modification of previously granted stock options.
Restructuring Charges
The Company recorded restructuring charges of $1.6 million in the 2021 related to the closure of the Company’s Park Aerospace Technologies Asia, Pte, Ltd. facility located Singapore.
Earnings from Continuing Operations
For the reasons set forth above, the Company’s earnings from continuing operations were $7.2$5.5 million for 2019,2021, including the pretax charges of $1.6 million for the closure of the facility located in Singapore. The Company’s earnings from continuing operations were $10.7 million in 2020, including a pre-tax stock option modification charge of $0.5$0.2 million resulting from the special dividend of $4.25$1.00 per share paid in February 2019. The Company’s earnings from continuing operations were $1.3 million in 2018, including a pre-tax stock option modification charge of $0.5 million resulting from the special dividend of $3.00 per share paid in February 2019.2020.
Loss on Sales of Marketable Securities
The Company recorded losses on the sales of marketable securities of $1.5 million in connection with the liquidation of securities to fund the special cash dividend of $4.25 per share paid in February 2019. 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 2019 was $0, compared to $2.3 million in 2018. The decrease in interest expense in 2019 was primarily due 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. 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 $2.4$1.8 million and $2.6$3.3 million for 20192021 and 2018,2020, respectively. The decrease from 20182020 was due primarily the result ofto lower average invested cash during the period partially offset by higherand lower 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 principalDuring 2021 and paid a special cash dividend of $3.00 per share in February 2018. During 2019 and 2018,2020, 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 22.1%28.7% for 20192021 was due primarily to the U.S. Federal rate and state income taxes partially offset bytaxes. The Company’s effective income tax rate was lower in 2020, due to favorable adjustments to valuation allowances on state tax credits and a decrease inlower state apportionment percentages. The Company’s effective income tax rate was significantly different for 2018, due to the discrete tax benefit of $17.8 million recorded in the fourth quarter of 2018 pertaining to 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.2020.
Net Earningsfrom Continuing Operations
The Company’s net earnings from continuing operations for 20192021 were $6.3$5.2 million, including the pretax charges of $1.6 million for the closure of the facility located in Singapore. The Company’s net earnings from continuing operations for 2020 were $10.2 million, including the stock option modification pre-tax charge of $0.5$0.2 million in connection with the special dividend of $4.25$1.00 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 Tax Act, the stock option modification pre-tax charge of $0.5 million in connection with the special dividend of $3.00 per share paid in February 2018, 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. The net impact of the items described above was to decrease net earnings by $2.0 million in 2019 and to increase net earnings by $16.0 million in 2018.2020.
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 13,12, “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 earningsloss from discontinued operations were higherwas lower in 20192021 compared to 20182020 primarily as a result of exiting the gain recognized onfacility in Fullerton California, previously used in the saleelectronics operations, at the beginning of the electronics businessCompany’s third fiscal quarter 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.2021.
Basic and Diluted Earnings Per Share
Basic and diluted earnings per share from continuing operations for 20192021 were $0.31,$0.25, including the pretax charges for the closure of the facility located in Singapore, compared to basic and diluted earnings per share for 2020 of $0.50, 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, compared to basic and diluted earnings per share for 2018 of $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 described above.2020. The net impact of the items described above was to increase basic and diluted earnings per share by $0.08 in 2019 and decrease basic and diluted earnings per share by $0.81$0.07 in 2018.2021 and $0.01 in 2020.
LiquidityLiquidity and Capital Resources:Resources:
(Amounts in thousands) | March 1, | March 3, | Increase / | February 27, | February 28, | Increase / | ||||||||||||||||||
2020 | 2019 | (Decrease) | 2022 | 2021 | (Decrease) | |||||||||||||||||||
Cash and marketable securities | $ | 122,355 | $ | 151,624 | $ | (29,269 | ) | $ | 110,361 | $ | 116,542 | $ | (6,181 | ) | ||||||||||
Working capital | 136,487 | 156,778 | (20,291 | ) | 120,147 | 124,348 | (4,201 | ) | ||||||||||||||||
From continuing operations | Fiscal Year Ended | Fiscal Year Ended | ||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | March 1, | March 3, | February 25, | Increase / (Decrease) | February 27, | February 28, | March 1, | Increase / (Decrease) | ||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 5,871 | $ | 8,060 | $ | (6,264 | ) | $ | (2,189 | ) | $ | 14,324 | ||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 8,201 | $ | 13,340 | $ | 5,871 | $ | (5,139 | ) | $ | 7,469 | |||||||||||||||||||||||||||||
Net cash (used in) provided by investing activities | (42,511 | ) | 8,898 | 42,364 | (51,409 | ) | (33,466 | ) | (29,556 | ) | 32,958 | (42,511 | ) | (62,514 | ) | 75,469 | ||||||||||||||||||||||||
Net cash used in financing activities | (28,304 | ) | (105,519 | ) | (130,710 | ) | 77,215 | 25,191 | (7,429 | ) | (9,785 | ) | (28,304 | ) | 2,356 | 18,519 | ||||||||||||||||||||||||
Cash and Marketable Securities
The Company believes it has sufficient liquidity to fund its operating activities for the 12 months from the date of the filing of this Form 10-K Annual Report and for the foreseeable future thereafter.
The change in cash and marketable securities at March 1, 2020February 27, 2022 compared to March 3, 2019February 28, 2021 was primarily the result of positive operating cash flow more than offset by capital expenditures and the special dividendregular quarterly dividends paid by the Company to its shareholders in February 2020during 2022 and a number of additional factors. The significant changes in cash provided by operating activities were as follows:
● | accounts receivable increased by |
● | inventory |
● | prepaid expenses and other current assets |
● | accounts payable |
● | accrued liabilities decreased |
● | income taxes payable decreased |
In addition, the Company paid $28.7 million and $95.0$8.2 million in cash dividends during 20202022 and 2019, respectively, including special dividends of $20.5 million and $86.8 million paid in 2020 and 2019, respectively.2021.
Working Capital
Working capital at March 1, 2020February 27, 2022 was lower compared to March 3, 2019.February 28, 2021. Decreases in cash and cash equivalents and marketable securities, decreases in inventories and increasesdecreases in accounts payableprepaid expenses and other current assets were partially offset by increases in accounts receivable inventories and prepaid and other assets and decreases in accounts payable, accrued liabilities and income taxes payable.
The Company's current ratio (the ratio of current assets to current liabilities) was 16.720.1 to 1 at March 1, 2020February 27, 2022 compared to 15.116.6 to 1 at March 3, 2019.February 28, 2021.
Cash Flows
Cash Flows
During 2020,2022, 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 and non-cash restructuring, were $13.3$11.8 million. Such earnings were decreased by changes in operating assets and liabilities of $7.4$3.6 million, resulting in $5.9$8.2 million of cash provided by operating activities from continuing operations. During 2020,2022, the Company expended $6.8$4.4 million for the purchase of property, plant and equipment compared to $2.8$7.5 million during 2019,2021, the Company in 2021 paid $1.6 million for the repurchase of the Company’s stock, and the Company paid $28.7 million and $95.1$8.2 million in cash dividends in 20202022 and 2019, respectively.2021.
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,February 27, 2022, was approximately $17$14.3 million to be paid over the next sixfour years.
The Company believes that ourits 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 Report. The Company further believes that its balance sheet and financial position to be very strong, and the Company believes it is well positioned to weather the impact of the Pandemic on its business as a result.business.
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 1110 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 $0.3 million to secure the Company's obligations under its workers’ compensation insurance program.
As of March 1, 2020 the Company’s significant contractual obligations, including payments due by fiscal year, were as follows:
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 March 1, 2020, the Company had unrecognized tax benefits and related interest of $4.4 million. A reasonable estimate of the timing of the payment of these liabilities is not possible.
Off-Balance Sheet Arrangements:
The Company's liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities.
Environmental Matters:
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 former 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.
In 2020, 20192022, 2021 and 2018,2020, the Company incurred approximately $41,000, $70,000$13,000, $9,000 and $99,000,$41,000, 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 $38,000, $68,000$13,000, $9,000 and $92,000,$38,000, 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 March 1, 2020February 27, 2022 and March 3, 2019,February 28, 2021, 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 1211 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 Accounting Policies and 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 AdoptedAdopted Accounting Pronouncement
See Note 1615 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for a discussion of the Company's recently adopted accounting pronouncements.
Revenue Recognition
The Company recognizes revenue when a 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 met: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of the Company’s shipping terms define the performance obligation to be satisfied upon shipment.
Sales Allowances and Product Warranties
The Company records estimated reductions to revenue for customer returns, allowances, and warranty claims. Provisions for such reductions are recorded in the period the 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 basis 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 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 averaged approximately 1.0% of sales for 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 aerospace 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 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.
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.
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. Beginning in fiscal year 2019 workers compensation claims were fully insured. 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 has a non-contributory profit sharing retirement plan covering their regular full-time employees. In addition, the Company 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.
|
|
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.two years. Based on the average anticipated maturity of the investment portfolio at the end of the 20202022 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 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 “Materials and Sources of Supply” in Item 1 of this Report.
Item
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
The Company's Financial Statements begin on the next page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Park Aerospace Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Park Aerospace Corp. and subsidiaries (the “Company”) as of March 1, 2020February 27, 2022 and March 3, 2019,February 28, 2021 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 March 1, 2020February 27, 2022, and the related notes and financial statement schedule listed in the index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 1, 2020February 27, 2022 and March 3, 2019,February 28, 2021, and the results of its operations and its cash flows for each of the three years in the three-year period ended March 1, 2020,February 27, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sthese financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) ("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,reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sentity’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.
Roseland,Parsippany, New Jersey
May 14, 202012, 2022
PARK AEROSPACE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
March 1, 2020 | March 3, 2019 | |||||||||||||||
February 27, 2022 | February 28, 2021 | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,410 | $ | 71,007 | $ | 12,811 | $ | 41,595 | ||||||||
Marketable securities (Note 2) | 116,945 | 80,617 | 97,550 | 74,947 | ||||||||||||
Accounts receivable, less allowance for doubtful accounts of $73 and $32, respectively | 10,925 | 9,352 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $104 and $89, respectively | 8,339 | 7,633 | ||||||||||||||
Inventories (Note 3) | 6,379 | 5,267 | 4,657 | 4,794 | ||||||||||||
Prepaid expenses and other current assets | 5,535 | 1,690 | 3,082 | 3,372 | ||||||||||||
Total current assets | 145,194 | 167,933 | 126,439 | 132,341 | ||||||||||||
| Property, plant and equipment, net (Note 3) | 16,100 | 10,791 | 24,333 | 21,130 | ||||||||||||
Operating right-of-use assets (Note 11) | 420 | - | ||||||||||||||
Operating right-of-use assets (Note 10) | 203 | 103 | ||||||||||||||
Goodwill and other intangible assets, net (Note 3) | 9,804 | 9,811 | 9,790 | 9,797 | ||||||||||||
Other assets (Note 4) | 268 | 316 | 122 | 141 | ||||||||||||
Total assets | $ | 171,786 | $ | 188,851 | $ | 160,887 | $ | 163,512 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 4,735 | $ | 3,169 | $ | 2,534 | $ | 3,300 | ||||||||
Operating lease liabilities (Note 11) | 152 | - | ||||||||||||||
Operating lease liabilities (Note 10) | 53 | 33 | ||||||||||||||
Accrued liabilities (Note 3) | 1,709 | 2,920 | 1,494 | 1,708 | ||||||||||||
Income taxes payable | 2,111 | 5,066 | 2,211 | 2,952 | ||||||||||||
Total current liabilities | 8,707 | 11,155 | 6,292 | 7,993 | ||||||||||||
Long-term operating lease liabilities (Note 11) | 268 | - | ||||||||||||||
Long-term operating lease liabilities (Note 10) | 174 | 86 | ||||||||||||||
Non-current income taxes payable (Note 4) | 15,986 | 17,669 | 12,621 | 14,303 | ||||||||||||
Deferred income taxes (Note 4) | 834 | - | 1,671 | 778 | ||||||||||||
Other liabilities (Note 4) | 4,316 | 1,016 | 4,497 | 4,411 | ||||||||||||
Total liabilities | 30,111 | 29,840 | 25,255 | 27,571 | ||||||||||||
Commitments and contingencies (Notes 11 and 12) | ||||||||||||||||
Commitments and contingencies (Notes 10 and 11) | ||||||||||||||||
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 | ||||||||||||||
Preferred stock, $1 par value per shares-authorized, 500,000 shares; issued, none | 0 | 0 | ||||||||||||||
Common stock, $0.10 par value per shares-authorized, 60,000,000 shares; issued, 20,965,144 shares | 2,096 | 2,096 | ||||||||||||||
Additional paid-in capital | 169,862 | 169,395 | 169,665 | 170,038 | ||||||||||||
Accumulated deficit | (21,774 | ) | (2,605 | ) | (24,767 | ) | (25,063 | ) | ||||||||
Accumulated other comprehensive earnings (loss) | 668 | (22 | ) | |||||||||||||
Accumulated other comprehensive loss | (1,965 | ) | (336 | ) | ||||||||||||
| 150,852 | 168,864 | 145,029 | 146,735 | |||||||||||||
Less treasury stock, at cost, 446,321 and 479,191 shares, respectively | (9,177 | ) | (9,853 | ) | ||||||||||||
Less treasury stock, at cost, 506,934 and 582,268 shares, respectively | (9,397 | ) | (10,794 | ) | ||||||||||||
Total shareholders' equity | 141,675 | 159,011 | 135,632 | 135,941 | ||||||||||||
Total liabilities and shareholders' equity | $ | 171,786 | $ | 188,851 | $ | 160,887 | $ | 163,512 | ||||||||
See Notes to Consolidated Financial Statements.
PARK AEROSPACE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
March 1, | March 3, | February 25, | February 27, | February 28, | March 1, | |||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Net sales | $ | 60,014 | $ | 51,116 | $ | 40,230 | $ | 53,578 | $ | 46,276 | $ | 60,014 | ||||||||||||
Cost of sales | 41,341 | 34,932 | 28,942 | 35,661 | 33,085 | 41,341 | ||||||||||||||||||
Gross profit | 18,673 | 16,184 | 11,288 | 17,917 | 13,191 | 18,673 | ||||||||||||||||||
Selling, general and administrative expenses | 7,932 | 8,968 | 9,862 | 6,249 | 6,113 | 7,932 | ||||||||||||||||||
Restructuring charges (Note 8) | - | - | 146 | 259 | 1,570 | 0 | ||||||||||||||||||
Earnings from continuing operations | 10,741 | 7,216 | 1,280 | 11,409 | 5,508 | 10,741 | ||||||||||||||||||
Interest expense (Note 10) | - | - | 2,269 | |||||||||||||||||||||
Interest and other income | 3,330 | 2,379 | 2,641 | 375 | 1,777 | 3,330 | ||||||||||||||||||
Loss on sale of marketable securities | - | (1,498 | ) | (1,342 | ) | |||||||||||||||||||
Earnings from continuing operations before income taxes | 14,071 | 8,097 | 310 | 11,784 | 7,285 | 14,071 | ||||||||||||||||||
Income tax provision (Note 4) | 3,866 | 1,791 | (18,162 | ) | 3,320 | 2,093 | 3,866 | |||||||||||||||||
Net earnings from continuing operations | 10,205 | 6,306 | 18,472 | 8,464 | 5,192 | 10,205 | ||||||||||||||||||
(Loss) earnings from discontinued operations, net of tax (Note 13) | (653 | ) | 107,239 | 2,123 | ||||||||||||||||||||
Loss from discontinued operations, net of tax (Note 12) | 0 | (328 | ) | (653 | ) | |||||||||||||||||||
Net earnings | $ | 9,552 | $ | 113,545 | $ | 20,595 | $ | 8,464 | $ | 4,864 | $ | 9,552 | ||||||||||||
Earnings (loss) per share (Note 7) | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||
Continuing Operations | $ | 0.50 | $ | 0.31 | $ | 0.91 | ||||||||||||||||||
Discontinued Operations | (0.03 | ) | 5.29 | 0.11 | ||||||||||||||||||||
Continuing operations | $ | 0.41 | $ | 0.25 | $ | 0.50 | ||||||||||||||||||
Discontinued operations | 0 | (0.01 | ) | (0.03 | ) | |||||||||||||||||||
Basic earnings per share | $ | 0.47 | $ | 5.60 | $ | 1.02 | $ | 0.41 | $ | 0.24 | $ | 0.47 | ||||||||||||
Basic weighted average shares | 20,507 | 20,288 | 20,237 | 20,422 | 20,387 | 20,507 | ||||||||||||||||||
Diluted: | ||||||||||||||||||||||||
Continuing Operations | $ | 0.50 | $ | 0.31 | $ | 0.91 | ||||||||||||||||||
Discontinued Operations | (0.03 | ) | 5.26 | 0.11 | ||||||||||||||||||||
Continuing operations | $ | 0.41 | $ | 0.25 | $ | 0.50 | ||||||||||||||||||
Discontinued operations | 0 | (0.01 | ) | (0.03 | ) | |||||||||||||||||||
Diluted earnings per share | $ | 0.47 | $ | 5.57 | $ | 1.02 | $ | 0.41 | $ | 0.24 | $ | 0.47 | ||||||||||||
Diluted weighted average shares | 20,595 | 20,385 | 20,267 | 20,551 | 20,478 | 20,595 | ||||||||||||||||||
See Notes to Consolidated Financial Statements.
PARK AEROSPACE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts in thousands)
Fiscal Year Ended | ||||||||||||||||||||||||
Fiscal Year Ended | ||||||||||||||||||||||||
March 1, | March 3, | February 25, | February 27, | February 28, | March 1, | |||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Net earnings | $ | 9,552 | $ | 113,545 | $ | 20,595 | $ | 8,464 | $ | 4,864 | $ | 9,552 | ||||||||||||
Other comprehensive earnings (loss), net of tax: | ||||||||||||||||||||||||
Foreign currency translation | - | (1,310 | ) | (50 | ) | |||||||||||||||||||
Other comprehensive (loss) earnings, net of tax: | ||||||||||||||||||||||||
Unrealized gains on marketable securities: | ||||||||||||||||||||||||
Unrealized holding gains arising during the period | 990 | 41 | - | 108 | 421 | 990 | ||||||||||||||||||
Less: reclassification adjustment for gains included in net earnings | (49 | ) | - | (17 | ) | (36 | ) | (272 | ) | (49 | ) | |||||||||||||
Unrealized losses on marketable securities: | ||||||||||||||||||||||||
Unrealized holding losses arising during the period | (291 | ) | (87 | ) | (2,189 | ) | (1,713 | ) | (1,176 | ) | (291 | ) | ||||||||||||
Less: reclassification adjustment for losses included in net earnings | 40 | 1,203 | 1,361 | 12 | 23 | 40 | ||||||||||||||||||
Other comprehensive earnings (loss) | 690 | (153 | ) | (895 | ) | |||||||||||||||||||
Other comprehensive (loss) earnings | (1,629 | ) | (1,004 | ) | 690 | |||||||||||||||||||
Total comprehensive earnings | $ | 10,242 | $ | 113,392 | $ | 19,700 | $ | 6,835 | $ | 3,860 | $ | 10,242 | ||||||||||||
See Notes to Consolidated Financial Statements.
PARK AEROSPACE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS' EQUITY
(Amounts in thousands, except share and per share amounts)
Retained | Accumulated | |||||||||||||||||||||||||||
Additional | Earnings | Other | ||||||||||||||||||||||||||
Common Stock | Paid-in | (Accumulated | Comprehensive | Treasury Stock | ||||||||||||||||||||||||
Shares | Amount | Capital | Deficit) | Earnings (Loss) | Shares | Amount | ||||||||||||||||||||||
Balance, February 26, 2017 | 20,965,144 | $ | 2,096 | $ | 167,612 | $ | 27,112 | $ | 1,026 | 730,473 | $ | (15,020 | ) | |||||||||||||||
Net earnings | - | - | - | 20,595 | - | - | - | |||||||||||||||||||||
Foreign currency translation | - | - | - | - | (50 | ) | - | - | ||||||||||||||||||||
Unrealized loss on marketable securities, net of tax | - | - | - | - | (845 | ) | - | - | ||||||||||||||||||||
Stock options exercised | - | - | (46 | ) | - | - | (6,900 | ) | 142 | |||||||||||||||||||
Stock-based compensation | - | - | 1,445 | - | - | - | - | |||||||||||||||||||||
Cash dividends ($3.40 per share) | - | - | - | (68,806 | ) | - | - | - | ||||||||||||||||||||
Balance, February 25, 2018 | 20,965,144 | 2,096 | 169,011 | (21,099 | ) | 131 | 723,573 | (14,878 | ) | |||||||||||||||||||
Net earnings | - | - | - | 113,545 | - | - | - | |||||||||||||||||||||
Foreign currency translation adjustment for sale of business | - | - | - | - | (1,310 | ) | - | - | ||||||||||||||||||||
Unrealized gain on marketable securities, net of tax | - | - | - | - | 1,157 | - | - | |||||||||||||||||||||
Stock options exercised | - | - | (1,157 | ) | - | - | (244,382 | ) | 5,025 | |||||||||||||||||||
Stock-based compensation | - | - | 1,541 | - | - | - | - | |||||||||||||||||||||
Cash dividends ($4.65 per share) | - | - | - | (95,051 | ) | - | - | - | ||||||||||||||||||||
Balance, March 3, 2019 | 20,965,144 | 2,096 | 169,395 | (2,605 | ) | (22 | ) | 479,191 | (9,853 | ) | ||||||||||||||||||
Net earnings | - | - | - | 9,552 | - | - | - | |||||||||||||||||||||
Unrealized gain on marketable securities, net of tax | - | - | - | - | 690 | - | - | |||||||||||||||||||||
Stock options exercised | - | - | (259 | ) | - | - | (32,870 | ) | 676 | |||||||||||||||||||
Stock-based compensation | - | - | 726 | - | - | - | - | |||||||||||||||||||||
Cash dividends ($1.40 per share) | - | - | - | (28,721 | ) | - | - | - | ||||||||||||||||||||
Balance, March 1, 2020 | 20,965,144 | $ | 2,096 | $ | 169,862 | $ | (21,774 | ) | $ | 668 | 446,321 | $ | (9,177 | ) | ||||||||||||||
See Notes to Consolidated Financial Statements.
PARK AEROSPACE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Fiscal Year Ended | ||||||||||||
March 1, | March 3, | February 25, | ||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net earnings from continuing operations | $ | 10,205 | $ | 6,306 | $ | 18,472 | ||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 1,544 | 1,784 | 1,833 | |||||||||
Stock-based compensation | 726 | 1,249 | 1,445 | |||||||||
Provision for deferred income taxes | 849 | (1,147 | ) | (47,991 | ) | |||||||
Amortization of bond premium | 27 | (52 | ) | 287 | ||||||||
(Gain) loss on sale of marketable securities | (15 | ) | 1,498 | 1,342 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (1,573 | ) | (2,392 | ) | (2,502 | ) | ||||||
Inventories | (1,112 | ) | (1,312 | ) | (542 | ) | ||||||
Prepaid expenses and other current assets | 490 | (452 | ) | 91 | ||||||||
Other assets and liabilities | 3,348 | (1,580 | ) | 346 | ||||||||
Accounts payable | 1,566 | 1,344 | 652 | |||||||||
Accrued liabilities | (1,211 | ) | 1,898 | (198 | ) | |||||||
Income taxes payable | (8,973 | ) | 916 | 20,501 | ||||||||
Net cash provided by (used in) operating activities - continuing operations | 5,871 | 8,060 | (6,264 | ) | ||||||||
Net cash (used in) provided by operating activities - discontinued operations | (653 | ) | (517 | ) | 9,605 | |||||||
Net cash provided by operating activities | 5,218 | 7,543 | 3,341 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchase of property, plant and equipment | (6,846 | ) | (2,764 | ) | (571 | ) | ||||||
Purchases of marketable securities | (104,600 | ) | (113,860 | ) | (164,099 | ) | ||||||
Proceeds from sales and maturities of marketable securities | 68,935 | 125,522 | 207,034 | |||||||||
Net cash (used in) provided by investing activities - continuing operations | (42,511 | ) | 8,898 | 42,364 | ||||||||
Net cash provided by (used in) investing activities - discontinued operations | - | 144,951 | (315 | ) | ||||||||
Net cash (used in) provided by investing activities | (42,511 | ) | 153,849 | 42,049 | ||||||||
Cash flows from financing activities: | ||||||||||||
Dividends paid | (28,721 | ) | (95,051 | ) | (68,806 | ) | ||||||
Decrease in restricted cash | - | - | 10,000 | |||||||||
Proceeds from exercise of stock options | 417 | (3,868 | ) | 96 | ||||||||
Intercompany capital contributions | - | (6,600 | ) | - | ||||||||
Payments of long-term debt | - | - | (72,000 | ) | ||||||||
Net cash used in financing activities - continuing operations | (28,304 | ) | (105,519 | ) | (130,710 | ) | ||||||
Net cash used in financing activities - discontinued operations | - | - | - | |||||||||
Net cash used in financing activities | (28,304 | ) | (105,519 | ) | (130,710 | ) | ||||||
Decrease in cash and cash equivalents before effect of exchange rate changes - continuing operations | (64,944 | ) | (88,561 | ) | (94,610 | ) | ||||||
(Decrease) increase in cash and cash equivalents before effect of exchange rate changes - discontinued operations | (653 | ) | 144,434 | 9,290 | ||||||||
(Decrease) increase in cash and cash equivalents before effect of exchange rate changes | (65,597 | ) | 55,873 | (85,320 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents - continuing operations | - | (170 | ) | 250 | ||||||||
Effect of exchange rate changes on cash and cash equivalents - discontinued operations | - | (2,950 | ) | 886 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | - | (3,120 | ) | 1,136 | ||||||||
(Decrease) increase in cash and cash equivalents | (65,597 | ) | 52,753 | (84,184 | ) | |||||||
Cash and cash equivalents, beginning of year | 71,007 | 18,254 | 102,438 | |||||||||
Cash and cash equivalents, end of year | $ | 5,410 | $ | 71,007 | $ | 18,254 | ||||||
Accumulated | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Common Stock | Additional Paid-in | Accumulated | Comprehensive Earnings | Treasury Stock | ||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | (Loss) | Shares | Amount | ||||||||||||||||||||||
Balance, March 3, 2019 | 20,965,144 | $ | 2,096 | $ | 169,395 | $ | (2,605 | ) | $ | (22 | ) | 479,191 | $ | (9,853 | ) | |||||||||||||
Net earnings | - | 0 | 0 | 9,552 | 0 | - | 0 | |||||||||||||||||||||
Unrealized gain on marketable securities, net of tax | - | 0 | 0 | 0 | 690 | - | 0 | |||||||||||||||||||||
Stock options exercised | 0 | 0 | (259 | ) | 0 | 0 | (32,870 | ) | 676 | |||||||||||||||||||
Stock-based compensation | - | 0 | 726 | 0 | 0 | - | 0 | |||||||||||||||||||||
Cash dividends ($1.40 per share) | - | 0 | 0 | (28,721 | ) | 0 | - | 0 | ||||||||||||||||||||
Balance, March 1, 2020 | 20,965,144 | 2,096 | 169,862 | (21,774 | ) | 668 | 446,321 | (9,177 | ) | |||||||||||||||||||
Net earnings | - | 0 | 0 | 4,864 | 0 | - | 0 | |||||||||||||||||||||
Unrealized gain on marketable securities, net of tax | - | 0 | 0 | 0 | (1,004 | ) | - | 0 | ||||||||||||||||||||
Stock options exercised | 0 | 0 | (15 | ) | 0 | 0 | (1,450 | ) | 27 | |||||||||||||||||||
Stock-based compensation | - | 0 | 191 | 0 | 0 | - | 0 | |||||||||||||||||||||
Purchase of treasury stock | 0 | 0 | 0 | 0 | 0 | 137,397 | (1,644 | ) | ||||||||||||||||||||
Cash dividends ($.40 per share) | - | 0 | 0 | (8,153 | ) | 0 | - | 0 | ||||||||||||||||||||
Balance, February 28, 2021 | 20,965,144 | 2,096 | 170,038 | (25,063 | ) | (336 | ) | 582,268 | (10,794 | ) | ||||||||||||||||||
Net earnings | - | 0 | 0 | 8,464 | 0 | - | 0 | |||||||||||||||||||||
Unrealized loss on marketable securities, net of tax | - | 0 | 0 | 0 | (1,629 | ) | - | 0 | ||||||||||||||||||||
Stock options exercised | 0 | 0 | (658 | ) | 0 | 0 | (75,334 | ) | 1,397 | |||||||||||||||||||
Stock-based compensation | - | 0 | 285 | 0 | 0 | - | 0 | |||||||||||||||||||||
Cash dividends ($.40 per share) | - | 0 | 0 | (8,168 | ) | 0 | - | 0 | ||||||||||||||||||||
Balance, February 27, 2022 | 20,965,144 | $ | 2,096 | $ | 169,665 | $ | (24,767 | ) | $ | (1,965 | ) | 506,934 | $ | (9,397 | ) | |||||||||||||
See Notes to Consolidated Financial Statements.
PARK AEROSPACE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Fiscal Year Ended | ||||||||||||
February 27, | February 28, | March 1, | ||||||||||
2022 | 2021 | 2020 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net earnings | $ | 8,464 | $ | 4,864 | $ | 9,552 | ||||||
Loss from discontinued operations, net of tax | 0 | 328 | 653 | |||||||||
Net earnings from continuing operations | 8,464 | 5,192 | 10,205 | |||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 1,136 | 1,150 | 1,544 | |||||||||
Stock-based compensation | 285 | 191 | 726 | |||||||||
Allowance for bad debt | 16 | 16 | 41 | |||||||||
Provision for deferred income taxes | 894 | (56 | ) | 849 | ||||||||
Amortization of bond premium | 956 | 543 | 27 | |||||||||
Loss (gain) on sale of marketable securities | 10 | (10 | ) | (15 | ) | |||||||
Loss on sale of fixed assets | 27 | 0 | 0 | |||||||||
Non-cash restructuring | 0 | 1,318 | 0 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (722 | ) | 3,276 | (1,614 | ) | |||||||
Inventories | 137 | 1,585 | (1,112 | ) | ||||||||
Prepaid expenses and other current assets | (550 | ) | 157 | 490 | ||||||||
Other assets and liabilities | 111 | 250 | 3,348 | |||||||||
Accounts payable | (766 | ) | (1,435 | ) | 1,566 | |||||||
Accrued liabilities | (214 | ) | (1 | ) | (1,211 | ) | ||||||
Income taxes payable | (1,583 | ) | 1,164 | (8,973 | ) | |||||||
Net cash provided by operating activities - continuing operations | 8,201 | 13,340 | 5,871 | |||||||||
Net cash used in operating activities - discontinued operations | 0 | (328 | ) | (653 | ) | |||||||
Net cash provided by operating activities | 8,201 | 13,012 | 5,218 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property, plant and equipment | (4,372 | ) | (7,493 | ) | (6,846 | ) | ||||||
Proceeds from sales of property, plant and equipment | 14 | 0 | 0 | |||||||||
Purchases of marketable securities | (59,422 | ) | (83,941 | ) | (104,600 | ) | ||||||
Proceeds from sales and maturities of marketable securities | 34,224 | 124,392 | 68,935 | |||||||||
Net cash (used in) provided by investing activities - continuing operations | (29,556 | ) | 32,958 | (42,511 | ) | |||||||
Net cash provided by investing activities - discontinued operations | 0 | 0 | 0 | |||||||||
Net cash (used in) provided by investing activities | (29,556 | ) | 32,958 | (42,511 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Dividends paid | (8,168 | ) | (8,153 | ) | (28,721 | ) | ||||||
Proceeds from exercise of stock options | 739 | 12 | 417 | |||||||||
Purchase of treasury stock | 0 | (1,644 | ) | 0 | ||||||||
Net cash used in financing activities - continuing operations | (7,429 | ) | (9,785 | ) | (28,304 | ) | ||||||
Net cash used in financing activities - discontinued operations | 0 | 0 | 0 | |||||||||
Net cash used in financing activities | (7,429 | ) | (9,785 | ) | (28,304 | ) | ||||||
(Decrease) increase in cash and cash equivalents before effect of exchange rate changes - continuing operations | (28,784 | ) | 36,513 | (64,944 | ) | |||||||
(Decrease) in cash and cash equivalents before effect of exchange rate changes - discontinued operations | 0 | (328 | ) | (653 | ) | |||||||
(Decrease) increase in cash and cash equivalents before effect of exchange rate changes | (28,784 | ) | 36,185 | (65,597 | ) | |||||||
(Decrease) increase in cash and cash equivalents | (28,784 | ) | 36,185 | (65,597 | ) | |||||||
Cash and cash equivalents, beginning of year | 41,595 | 5,410 | 71,007 | |||||||||
Cash and cash equivalents, end of year | $ | 12,811 | $ | 41,595 | $ | 5,410 | ||||||
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended March 1, 2020February 27, 2022
(Amounts in thousands, except share (unless otherwise stated), per share and option amounts)
1. |
|
Park Aerospace Corp. and its subsidiaries (collectively, “Park” or the “Company”) formerly known as Park Electrochemical Corp. and subsidiaries,, is a global advanced materials company which develops and manufactures advanced composite materials, primary and secondary structures and assemblies and low-volume tooling for the aerospace markets.
On July 16, 2019, the Company filed with the State of New York Department of State a Certificate of Amendment of its Restated Certificate of Incorporation, as amended, changing its name to “Park Aerospace Corp.” after the Board of Directors of the Company approved such amendment and the shareholders of the Company approved such amendment at the Annual Meeting of Shareholders. On July 16, 2019, the Company also filed with the Secretary of State of the State of Kansas, a Certificate of Ownership and Merger whereby the Company’s wholly-owned subsidiary, Park Aerospace Technologies Corp. (“PATC”), located at the Newton, Kansas Airport was merged into the Company and ceased to exist.
a. | Principles of Consolidation – The consolidated financial statements include the accounts of Park and its subsidiaries. All significant intercompany balances and transactions have been eliminated. |
b. | Basis of Presentation – On July 25, 2018, the Company entered into a definitive agreement to sell its Electronics Business for $145,000 in cash. This transaction was completed on December 4, 2018. |
The Company has classified the operating results of its Electronics Business, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, in accordance with Accounting Standards Codification (“ASC”) |
c. | Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. |
d. | Accounting Period – The Company’s fiscal year is the |
e. | Fair Value Measurements– Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. |
Fair value measurements are broken down into three levels based on the reliability of inputs as follows: | ||
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures. |
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. | ||
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and current liabilities approximate their carrying value due to their short-term nature. | ||
The Company’s non-financial assets measured at fair value on a non-recurring basis, for purposes of calculating impairment, include goodwill and any long-lived assets written down to fair value. To measure fair value of such assets, the Company uses Level 3 inputs consisting of techniques including an income approach and a market approach. The income approach is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the discounted cash flow analysis require the exercise of significant judgment, including judgment about appropriate discount rates, terminal values, growth rates and the amount and timing of expected future cash flows. There were no transfers between levels within the fair value hierarchy during the |
f. | Cash and Cash Equivalents– The Company considers all money market securities and investments with contractual maturities at the date of purchase of 90 days or less to be cash equivalents. The Company had |
Supplemental cash flow information: |
Fiscal Year | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes, net of refunds | $ | 8,296 | $ | 14,451 | $ | 2,040 | ||||||
Interest | - | - | 2,127 | |||||||||
Fiscal Year | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes, net of refunds | $ | 3,924 | $ | 782 | $ | 8,296 | ||||||
At | ||
g. | Marketable Securities – All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive earnings. Realized gains and losses, |
h. | Inventories – Inventories are stated at the lower of cost |
i. | Revenue Recognition – The Company recognizes revenue when a 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 met: |
j. | Sales Allowances and Product Warranties – The Company records estimated reductions to revenue for customer returns, allowances, and warranty claims. Provisions for such reductions are recorded in the period the 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 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 basis for providing sales allowances for returns are known situations in which products may have failed due to manufacturing defects in products supplied by the Company. |
k. | 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 aerospace 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. |
l. | 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. 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. |
m. | Goodwill and Other Intangible Assets – Goodwill is not amortized. Other intangible assets are amortized over the useful lives, which is 15 years, of the assets on a straight-line basis. The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. With respect to goodwill, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value is less than the carrying value. If, based on that assessment, the Company believes it is more likely than not that the fair value is less than the carrying value, a |
n. | Shipping Costs – Most of the costs for |
o. | Property, Plant and Equipment – Property, plant and equipment are stated at cost less accumulated depreciation and amortization. The Company capitalizes additions, improvements and major renewals and expenses maintenance, repairs and minor renewals as incurred. Depreciation and amortization are computed principally by the straight-line method over the estimated useful lives of the assets. Machinery, equipment, furniture and fixtures are generally depreciated over 10 years. Building and leasehold improvements are generally depreciated over 25-30 years or the term of the lease, if shorter. The depreciation and amortization expenses associated with property, plant and equipment were |
p. | Income Taxes – 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. (See Note |
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 |
q. | Foreign Currency Translation – Assets and liabilities of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency are translated into U.S. dollars at period-end exchange rates or historical exchange rates, where applicable, and income and expense items are translated at average exchange rates for the period. Gains and losses resulting from translation are recorded as currency translation adjustments in comprehensive earnings and are eliminated when foreign operations are sold or otherwise disposed of. |
r. | Stock-Based Compensation – The Company accounts for |
s. | Treasury Stock – The Company considers all shares of the Company’s common stock purchased by the Company as authorized but unissued shares on the trade date. The aggregate purchase price of such shares is reflected as a reduction to Shareholders’ Equity, and such shares |
t. |
|
| Leases |
|
|
In the 2019 fiscal year, The Company recorded losses on the sales of marketable securities of $1,498 in connection with the funding of a special cash dividend of $4.25 per share paid in February 2019. The change in the U.S. tax code, as provided by the Tax Cuts and Jobs Act (“Tax Act”), has 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 fourth quarter of the 2018 fiscal year. As a result, the Company recorded losses on the sales of marketable securities of $1,342 in connection with the repatriation of cash, the prepayment of all outstanding debt under the Credit Agreement, dated as of January 15, 2016, between the Company and HSBC Bank USA, in the amount of approximately $68,500 of principal and the funding of a special cash dividend of $3.00 per share paid in February 2018.
2. | MARKETABLE SECURITIES |
The following is a summary of available-for-sale securities:
March 1, 2020 | ||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | February 27, 2022 | ||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||
U.S. Treasury and other government securities | $ | 101,390 | $ | 101,390 | $ | - | $ | - | $ | 62,612 | $ | 62,612 | $ | 0 | $ | 0 | ||||||||||||||||
U.S. corporate debt securities | 15,555 | 15,555 | - | - | 34,938 | 34,938 | 0 | 0 | ||||||||||||||||||||||||
Total marketable securities | $ | 116,945 | $ | 116,945 | $ | - | $ | - | $ | 97,550 | $ | 97,550 | $ | 0 | $ | 0 | ||||||||||||||||
March 3, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
U.S. Treasury and other government securities | $ | 68,718 | $ | 68,718 | $ | - | $ | - | ||||||||
U.S. corporate debt securities | 11,899 | 11,899 | - | - | ||||||||||||
Total marketable securities | $ | 80,617 | $ | 80,617 | $ | - | $ | - | ||||||||
February 28, 2021 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
U.S. Treasury and other government securities | $ | 56,906 | $ | 56,906 | $ | 0 | $ | 0 | ||||||||
U.S. corporate debt securities | 18,041 | 18,041 | 0 | 0 | ||||||||||||
Total marketable securities | $ | 74,947 | $ | 74,947 | $ | 0 | $ | 0 | ||||||||
The following tables show the amortized cost basis, gross unrealized gains and losses and gross realized gains and losses on the Company’s available-for-sale securities:
Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | |||||||||||||||||||
March 1, 2020: | ||||||||||||||||||||||||
February 27, 2022: | ||||||||||||||||||||||||
U.S. Treasury and other government securities | $ | 100,626 | $ | 764 | $ | - | $ | 65,177 | $ | 5 | $ | 2,570 | ||||||||||||
U.S. corporate debt securities | 15,473 | 82 | - | 35,064 | 5 | 131 | ||||||||||||||||||
Total marketable securities | $ | 116,099 | $ | 846 | $ | - | $ | 100,241 | $ | 10 | $ | 2,701 | ||||||||||||
March 3, 2019: | ||||||||||||||||||||||||
February 28, 2021: | ||||||||||||||||||||||||
U.S. Treasury and other government securities | $ | 68,727 | $ | 44 | $ | 53 | $ | 57,400 | $ | 153 | $ | 647 | ||||||||||||
U.S. corporate debt securities | 11,924 | 7 | 32 | 18,008 | 52 | 19 | ||||||||||||||||||
Total marketable securities | $ | 80,651 | $ | 51 | $ | 85 | $ | 75,408 | $ | 205 | $ | 666 | ||||||||||||
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Gross realized gains on sale | $ | 90 | $ | - | $ | - | $ | 26 | $ | 155 | $ | 90 | ||||||||||||
Gross realized losses on sale | $ | 75 | $ | 1,498 | $ | 1,342 | $ | 36 | $ | 145 | $ | 75 | ||||||||||||
The estimated fair values of such securities at March 1, 2020, February 27, 2022, by contractual maturity, are shown below:
Due in one year or less | $ | 43,498 | $ | 58,582 | ||||
Due after one year through five years | 73,447 | 38,968 | ||||||
| $ | 116,945 | $ | 97,550 |
|
|
Other consolidated balance sheet data consisted of the following:
March 1, | March 3, | |||||||||||||||
2020 | 2019 | February 27, | February 28, | |||||||||||||
2022 | 2021 | |||||||||||||||
Inventories: | ||||||||||||||||
Raw materials | $ | 5,319 | $ | 4,556 | $ | 4,026 | $ | 3,490 | ||||||||
Work-in-process | 254 | 232 | 253 | 147 | ||||||||||||
Finished goods | 806 | 479 | 378 | 1,157 | ||||||||||||
| $ | 6,379 | $ | 5,267 | $ | 4,657 | $ | 4,794 | |||||||||
Property, plant and equipment: | ||||||||||||||||
Land, buildings and improvements | $ | 13,642 | $ | 13,187 | $ | 16,054 | $ | 14,236 | ||||||||
Machinery, equipment, furniture and fixtures | 35,182 | 56,961 | 33,581 | 37,446 | ||||||||||||
| 48,824 | 70,148 | 49,635 | 51,682 | |||||||||||||
Less: accumulated depreciation and amortization | 32,724 | 59,357 | 25,302 | 30,552 | ||||||||||||
| $ | 16,100 | $ | 10,791 | $ | 24,333 | $ | 21,130 | |||||||||
Goodwill and other intangible assets: | ||||||||||||||||
Goodwill | $ | 9,776 | $ | 9,776 | $ | 9,776 | $ | 9,776 | ||||||||
Other intangibles | 28 | 35 | 14 | 21 | ||||||||||||
| $ | 9,804 | $ | 9,811 | $ | 9,790 | $ | 9,797 | |||||||||
Accrued liabilities: | ||||||||||||||||
Payroll and payroll related | $ | 578 | $ | 823 | $ | 688 | $ | 596 | ||||||||
Employee benefits | 1 | 6 | 3 | 2 | ||||||||||||
Workers' compensation | 111 | 122 | 96 | 138 | ||||||||||||
Professional fees | 467 | 451 | 512 | 451 | ||||||||||||
Restructuring (Notes 8 and 14) | 432 | 1,324 | ||||||||||||||
Restructuring (Notes 8 and 12) | 8 | 260 | ||||||||||||||
Other | 120 | 194 | 187 | 261 | ||||||||||||
| $ | 1,709 | $ | 2,920 | $ | 1,494 | $ | 1,708 | |||||||||
|
|
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”). The Tax Act made comprehensive changes to the U.S. Tax Code, including, but not limited to, (i) reducing the U.S. corporate tax rate from 35% to 21%, (ii) changing the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, (iii) immediate expensing of certain qualified property, (iv) eliminating certain deductions, (v) repealing the corporate minimum tax, and (vi) changing the manner in which international operations are taxed in the U.S., including a mandatory one-time transition tax on the accumulated untaxed earnings of foreign subsidiaries of U.S. shareholders. The majority of the changes resulting from the Tax Act are effective for tax years beginning in calendar 2018. However, U.S. GAAP requires that certain impacts of the Tax Act be recognized in the income tax provision in the period of enactment. The corporate tax rate reduction was effective on January 1, 2018. The Company’s Federal statutory tax rate is 21% for the 2019 and 2020 fiscal years and a blended rate of 32.9% for the 2018 fiscal year.
In response to the enactment of the Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 118, which provided guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”) 740. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but able to determine a reasonable estimate, the company must record the estimate in its financial statements.
During the 2018 fiscal year, under the mandatory one-time transition tax provision, the Company incurred a current income tax expense of approximately $23,139 on its untaxed foreign earnings. In accordance with the guidelines provided by the Tax Act, the Company aggregated untaxed foreign earnings and profits and utilized participation exemption deductions and foreign tax credits in arriving at a provisional transition tax liability. Companies are permitted to pay this one-time transition tax over an eight-year period.
The provisional one-time transition tax liability of $21,887, calculated after utilizing current year domestic losses, was recorded as a current income tax payable and a non-current income tax payable of $1,751 and $20,136, respectively, and is payable over an eight-year period. The Company concurrently reversed $44,309 of deferred tax liability previously accrued for untaxed foreign earnings and profits. The net impact was an income tax benefit of $18,456 recorded in the continuing operations income tax (benefit) provision for fiscal 2018 in the Consolidated Statements of Operations.
In connection with the enactment of the Tax Act, the Company re-measured its U.S. deferred tax assets and liabilities based on the rates at which they are expected to be realized in future tax years. During the fourth quarter of the 2018 fiscal year, the Company recorded a provisional income tax provision and corresponding reduction in the net U.S. deferred tax asset of approximately $1,963.
During the fourth quarter of the 2019 fiscal year, the Company finalized its accounting for the tax effects of the Tax Act with no material change to the provisional estimates recorded in the prior period.
The Tax Act establishes global intangible low-taxed income (“GILTI”) provisions that impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company made a policy election to treat the income tax due on the U.S. inclusion of GILTI provisions as a period expense when incurred.
The income tax provision (benefit) for continuing operations includes the following:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Current: | Current: | |||||||||||||||||||||||
Federal | $ | 2,556 | $ | 1,776 | $ | 22,968 | $ | 1,912 | $ | 1,662 | $ | 2,556 | ||||||||||||
State and local | 40 | 164 | 51 | 484 | 447 | 40 | ||||||||||||||||||
Foreign | 383 | 258 | 481 | 4 | 10 | 383 | ||||||||||||||||||
| 2,979 | 2,198 | 23,500 | 2,400 | 2,119 | 2,979 | |||||||||||||||||||
Deferred: | Deferred: | |||||||||||||||||||||||
Federal | 899 | (71 | ) | (41,624 | ) | 565 | 132 | 899 | ||||||||||||||||
State and local | (12 | ) | (362 | ) | (21 | ) | 88 | 109 | (12 | ) | ||||||||||||||
Foreign | - | 26 | (17 | ) | 267 | (267 | ) | 0 | ||||||||||||||||
| 887 | (407 | ) | (41,662 | ) | 920 | (26 | ) | 887 | ||||||||||||||||
| $ | 3,866 | $ | 1,791 | $ | (18,162 | ) | $ | 3,320 | $ | 2,093 | $ | 3,866 | ||||||||||||
The income tax provision (benefit) for discontinued operations includes the following:
Fiscal Year | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Current: | ||||||||||||
Federal | $ | (183 | ) | $ | 11,198 | $ | (1,400 | ) | ||||
State and local | (15 | ) | 1,455 | 168 | ||||||||
Foreign | - | 1,397 | 327 | |||||||||
| (198 | ) | 14,050 | (905 | ) | ||||||||
Deferred: | ||||||||||||
Federal | - | 686 | (430 | ) | ||||||||
State and local | (38 | ) | 564 | (31 | ) | |||||||
Foreign | - | (617 | ) | 63 | ||||||||
| (38 | ) | 633 | (398 | ) | ||||||||
| $ | (236 | ) | $ | 14,683 | $ | (1,303 | ) | |||||
Fiscal Year | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Current: | ||||||||||||
Federal | $ | 0 | $ | (84 | ) | $ | (183 | ) | ||||
State and local | 0 | (23 | ) | (15 | ) | |||||||
Foreign | 0 | 0 | 0 | |||||||||
| 0 | (107 | ) | (198 | ) | ||||||||
Deferred: | ||||||||||||
Federal | 0 | 0 | 0 | |||||||||
State and local | 0 | 0 | (38 | ) | ||||||||
Foreign | 0 | 0 | 0 | |||||||||
| 0 | 0 | (38 | ) | |||||||||
| $ | 0 | $ | (107 | ) | $ | (236 | ) | |||||
State income tax benefits from loss carryforwards to future years were recognized as deferred tax assets in the 2020, 20192022,2021 and 20182020 fiscal years.
Notwithstanding the U.S. taxation of the deemed repatriated foreign earnings as a result of the transition tax, the Company intends to indefinitely invest approximately $25 million of undistributed earnings outside of the U.S. If these future earnings are repatriated to the U.S., or if the Company determines that such earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred taxes. In connection with sale of the Electronics Business and the enactment of the Tax Act, the Company repatriated $100,216, $113,600,$0, $0, and $135,300$100,216 in cash from its Singapore and French subsidiaries in the 2020, 20192022,2021 and 20182020 fiscal years, respectively.
The Company’s pre-tax earnings (loss) from continuing operations in the United States and foreign locations are as follows:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
United States | $ | 11,676 | $ | 6,661 | $ | (652 | ) | $ | 11,987 | $ | 8,732 | $ | 11,676 | |||||||||||
Foreign | 2,395 | 1,436 | 962 | (203 | ) | (1,447 | ) | 2,395 | ||||||||||||||||
Earnings before income taxes | $ | 14,071 | $ | 8,097 | $ | 310 | $ | 11,784 | $ | 7,285 | $ | 14,071 | ||||||||||||
The Company’s pre-tax earnings (loss) from discontinued operations in the United States and foreign locations are as follows:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
United States | $ | (887 | ) | $ | 7,485 | $ | (7,512 | ) | $ | 0 | $ | (435 | ) | $ | (887 | ) | ||||||||
Foreign | - | 114,437 | 8,332 | 0 | 0 | 0 | ||||||||||||||||||
(Loss) earnings before income taxes | $ | (887 | ) | $ | 121,922 | $ | 820 | $ | 0 | $ | (435 | ) | $ | (887 | ) | |||||||||
The Company’s effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Statutory U.S. Federal tax rate | 21.0 | % | 21.0 | % | 32.9 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||
State and local taxes, net of | 0.1 | % | 1.6 | % | (41.4 | %) | 4.3 | % | 5.9 | % | 0.1 | % | ||||||||||||
Federal benefit | ||||||||||||||||||||||||
Foreign tax rate differentials | (0.6 | %) | (0.8 | %) | (117.6 | %) | 2.7 | % | 0.7 | % | (0.6 | %) | ||||||||||||
Valuation allowance on deferred tax assets | (0.1 | %) | (2.8 | %) | - | 0.0 | % | 0.0 | % | (0.1 | %) | |||||||||||||
Adjustment on tax accruals | (17.6 | %) | 2.9 | % | 56.8 | % | (0.3 | %) | 0.0 | % | (17.6 | %) | ||||||||||||
ASC 740-10 change | 23.5 | % | 0.4 | % | 104.7 | % | 0.5 | % | 0.9 | % | 23.5 | % | ||||||||||||
Foreign tax credits | (2.7 | %) | (3.2 | %) | (118.0 | %) | 0.0 | % | (0.1 | %) | (2.7 | %) | ||||||||||||
U.S. Tax Reform | - | - | (5,944.2 | %) | ||||||||||||||||||||
Subpart F | 4.0 | % | 4.0 | % | 281.1 | % | (1.0 | %) | 1.1 | % | 4.0 | % | ||||||||||||
Permanent differences and other | (0.1 | %) | (1.0 | %) | (104.0 | %) | 1.0 | % | (0.8 | %) | (0.1 | %) | ||||||||||||
| 27.5 | % | 22.1 | % | (5,849.7 | %) | 28.2 | % | 28.7 | % | (27.5 | %) | |||||||||||||
The Company had state net operating loss carryforwards of approximately $2,515$2,030 and $3,161$2,160 in the 20202022 and 20192021 fiscal years, respectively, and total net foreign operating loss carryforwards of approximately $7,798$7,790 and $7,862$7,798 in the 20202022 and 20192021 fiscal years, respectively. The Company utilized $64 of net operating loss in the 2020 fiscal year. The Company has a valuation allowance against the remaining carryforwards. The state net operating loss carryforwards will expire in 20212023 through 2039.
The Company had available Kansas tax credits of $45 and $236$0 at the end of both the 20202022 and 20192021 fiscal years, respectively.years. Kansas credits of $191 were utilized in 2020 and a corresponding tax benefit was recognized. The Company had Arizona tax credits of $576$991 in both the 2022 and $135 in the 2020 and 20192021 fiscal years, respectively, for which no benefit has been provided.
The deferred tax asset valuation allowance of $3,175$3,587 as of March 1, 2020 February 27, 2022 relates to foreign net operating losses and state tax credit carryforwards from continuing operations for which the Company does not expect to realize any tax benefit. During the 20202022 fiscal year, the valuation allowance increased by $420, primarily related to the recognition of the Arizona tax credits.did not change. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities from continuing operations as of March 1, 2020 February 27, 2022 and March 3, 2019 February 28, 2021 were as follows:
March 3, | February 25, | February 27, | February 28, | |||||||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
Deferred tax assets: | Deferred tax assets: | |||||||||||||||
Net operating loss carryforwards | $ | 2,608 | $ | 2,709 | $ | 2,598 | $ | 2,602 | ||||||||
Tax credits carryforward | 621 | 135 | 991 | 991 | ||||||||||||
Stock options | 1,120 | 1,206 | 977 | 1,235 | ||||||||||||
Other, net | 478 | 574 | 174 | 774 | ||||||||||||
| 4,827 | 4,624 | 4,740 | 5,602 | |||||||||||||
Valuation allowance on deferred tax assets | (3,175 | ) | (2,755 | ) | (3,587 | ) | (3,587 | ) | ||||||||
Total deferred tax assets, net of valuation allowance | 1,652 | 1,869 | 1,153 | 2,015 | ||||||||||||
Deferred tax liabilities: | Deferred tax liabilities: | |||||||||||||||
Depreciation | (1,743 | ) | (1,368 | ) | (2,492 | ) | (2,045 | ) | ||||||||
Undistributed earnings | (2 | ) | (333 | ) | (2 | ) | (4 | ) | ||||||||
Other | (699 | ) | (154 | ) | (556 | ) | (702 | ) | ||||||||
Total deferred tax liabilities | (2,444 | ) | (1,855 | ) | (3,050 | ) | (2,751 | ) | ||||||||
Net deferred tax asset (liability) | $ | (792 | ) | $ | 14 | $ | (1,897 | ) | $ | (736 | ) | |||||
At March 1, 2020 February 27, 2022 and March 3, 2019, February 28, 2021, the Company had gross unrecognized tax benefits and related interest of $4,356$4,537 and $1,016,$4,452, respectively, included in other liabilities. If any portion of the unrecognized tax benefits at March 1, 2020 February 27, 2022 were recognized, the Company’s effective tax rate would decrease.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for continuing operations is as follows:
Unrecognized Tax Benefits | ||||||||||||
March 1, | March 3, | February 25, | ||||||||||
2020 | 2019 | 2018 | ||||||||||
Balance, beginning of year | $ | 937 | $ | 314 | $ | - | ||||||
Tax positions - Discontinued Ops in prior period | - | 187 | - | |||||||||
Gross decreases - tax positions in prior period | (32 | ) | (256 | ) | - | |||||||
Gross increases - current period tax positions | 3,259 | 784 | 314 | |||||||||
Audit settlements | - | (92 | ) | - | ||||||||
Balance, end of year | $ | 4,164 | $ | 937 | $ | 314 | ||||||
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for discontinued operations is as follows:
Unrecognized Tax Benefits | Unrecognized Tax Benefits | |||||||||||||||||||||||
March 1, | March 3, | February 25, | February 27, | February 28, | March 1, | |||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Balance, beginning of year | $ | - | $ | 187 | $ | 1,024 | $ | 4,117 | $ | 4,164 | $ | 937 | ||||||||||||
Tax positions - Discontinued Ops in prior period | - | (187 | ) | - | 0 | (47 | ) | 0 | ||||||||||||||||
Gross decreases - tax positions in prior period | - | - | (688 | ) | (39 | ) | 0 | (32 | ) | |||||||||||||||
Gross increases - current period tax positions | - | - | 6 | 0 | 0 | 3,259 | ||||||||||||||||||
Lapse of statute of limitations | - | - | (155 | ) | ||||||||||||||||||||
Audit settlements | 0 | 0 | 0 | |||||||||||||||||||||
Balance, end of year | $ | - | $ | - | $ | 187 | $ | 4,078 | $ | 4,117 | $ | 4,164 | ||||||||||||
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding or subtracting amounts for current year tax positions, expiration of statutes of limitations on open income tax years, changes in the Company’s judgment about the level of uncertainty, status of tax examinations, and legislative changes. Changes in prior period tax positions are the result of a re-evaluation of the probability of realizing the benefit of a particular tax position based on new information. It is reasonably possible that none of the unrecognized tax benefits will be recognized within the next 12 months.
A list of open tax years by major jurisdiction follows:
U.S. Federal | 2018 | - | 2020 | 2020 | - | 2022 | |||
California | 2017 | - | 2020 | 2018 | - | 2022 | |||
New York | 2018 | - | 2020 | 2020 | - | 2022 | |||
Kansas | 2018 | - | 2022 | ||||||
France | 2017 | - | 2020 | 2018 | - | 2022 | |||
Singapore | 2016 | - | 2020 | 2017 | - | 2022 | |||
The Company had approximately $193$460 and $79$335 of accrued interest and penalties as of March 1, 2020 February 27, 2022 and March 3, 2019, February 28, 2021, respectively. The Company’s policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of current income tax expense.
The Company has no ongoing examinations of its Federal orreturns. The audit of the New York state tax returns. The Internal Revenue Service completed its examination ofreturns for the 20162018 and 2019 fiscal year tax returns in June 2018.years has been completed.
5. STOCK-BASED COMPENSATION5. STOCK-BASED COMPENSATION
As of March 1, 2020, February 27, 2022, the Company had a 2018 Stock Option Plan (the “2018“2018 Plan”) and no other stock-based compensation plan. The 2018 Plan was adopted by the Board of Directors of the Company on May 8, 2018 and approved by the shareholders of the Company at the Annual Meeting of Shareholders of the Company on July 24, 2018. Prior to the 2018 Plan, the Company had the 2002 Stock Option Plan (the “2002“2002 Plan”) which had been approved by the Company’s shareholders and provided for the grant of stock options to directors and key employees of the Company. All options granted under the 2018 Plan and 2002 Plan have exercise prices equal to the fair market value of the underlying common stock of the Company at the time of grant, which, pursuant to the terms of such Plans, is the reported closing price of the common stock on the New York Stock Exchange on the date preceding the date an option is granted. Options granted under the Plans become exercisable 25% one year after the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant, and expire 10 years after the date of grant. Options to purchase a total of 800,000 shares of common stock were authorized for grant under the 2018 Plan. At March 1, 2020, 692,100February 27, 2022, 475,150 shares of common stock of the Company were reserved for issuance upon exercise of stock options under the 2018 Plan.
The compensation expense for stock options includes an estimate for forfeitures and is recognized on a straight-line basis over the requisite service period.
The future compensation expense to be recognized in earnings before income taxes for options outstanding at March 1, 2020 February 27, 2022 was $408,$607, which is expected to be recognized ratably over a weighted average vesting period of 3.152.60 years.
The Company records its stock-based compensation at fair value. The weighted average fair value for options was estimated at the dates of grants, using the Black-Scholes option pricing model.
The following table represents the weighted average fair value and valuation assumptions used for options granted in the 2020, 20192022,2021 and 20182020 fiscal years:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||||
Weighted average fair value per share of option grants | $3.75 | - | $4.03 | $3.66 | - | $2.76 | $2.12 | $3.97 | ||||||||||||||||||
Risk-free interest rates | 2.24% | - | 2.26% | 2.83% | - | 0.74% | - | 1.85% | 0.23% | - | 0.42% | 2.24% | - | 2.26% | ||||||||||||
Expected stock price volatility | 30.4% | - | 31.5% | 24.7% | - | 27.8% | - | 29.2% | 26.9% | - | 30.0% | 30.4% | - | 31.5% | ||||||||||||
Expected dividend yields | 2.43% | 2.32% | - | 2.73% | - | 3.07% | 3.18% | - | 3.49% | 2.43% | ||||||||||||||||
Estimated option terms (Years) | 4.3 | - | 5.8 | 5.2 | - | |||||||||||||||||||||
Estimated option terms (in years) | 4.4 | - | 7.6 | 4.3 | - | 7.6 | 4.3 | - | 5.8 | |||||||||||||||||
The risk-free interest rates are based on U.S. Treasury rates at the date of grant with maturity dates approximately equal to the estimated term of the options at the date of grant. Volatility factors are based on historical volatility of the Company’s common stock. The expected dividend yields are based on the regular quarterly cash dividend per share most recently declared by the Company and on the exercise price of the options granted during the 2020 fiscal year. The estimated terms of the options are based on evaluations of the historical and expected future employee exercise behavior.
During the 2020 fiscal year, the Company recorded non-cash charges of $208 related to the modification of previously granted employee stock options resulting from the $1.00 per share special cash dividend paid by the Company in February 2020. During the 2019 fiscal year, the Company recorded non-cash charges of $528 related to the modification of previously granted employee stock options resulting from the $4.25 per share special cash dividend paid by the Company in February 2019. Selling, general and administrative expenses in the 2020 fiscal year included $726 of stock option expenses compared to $1,249 of such expenses in the 2019 fiscal year.
Information with respect to stock option activity follows:
Outstanding Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | Outstanding Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Balance, February 26, 2017 | 1,070,529 | $ | 21.08 | |||||||||||||||||||||||||||||
Granted | - | - | ||||||||||||||||||||||||||||||
Exercised | (6,900 | ) | 13.36 | |||||||||||||||||||||||||||||
Terminated or expired | (178,075 | ) | 22.55 | |||||||||||||||||||||||||||||
Balance, February 25, 2018 | 885,554 | $ | 17.55 | |||||||||||||||||||||||||||||
Granted | 2,650 | 13.50 | ||||||||||||||||||||||||||||||
Exercised | (244,382 | ) | 12.18 | |||||||||||||||||||||||||||||
Terminated or expired | (103,113 | ) | 18.75 | |||||||||||||||||||||||||||||
Balance, March 3, 2019 | 540,709 | $ | 13.49 | $ | 227 | 540,709 | $ | 13.49 | $ | 70 | ||||||||||||||||||||||
Granted | 114,450 | 15.44 | 114,450 | 15.44 | ||||||||||||||||||||||||||||
Exercised | (32,873 | ) | 11.64 | (32,873 | ) | 11.64 | ||||||||||||||||||||||||||
Terminated or expired | (111,652 | ) | 15.95 | (111,652 | ) | 15.95 | ||||||||||||||||||||||||||
Balance, March 1, 2020 | 510,634 | $ | 12.45 | 5.21 | $ | 746 | 510,634 | $ | 12.45 | $ | 597 | |||||||||||||||||||||
Vested and exercisable, March 1, 2020 | 400,659 | $ | 12.64 | 4.12 | $ | 509 | ||||||||||||||||||||||||||
Expected to vest, March 1, 2020 | 479,996 | $ | 12.45 | 5.21 | $ | 701 | ||||||||||||||||||||||||||
Granted | 132,100 | 12.55 | ||||||||||||||||||||||||||||||
Exercised | (1,450 | ) | 8.02 | |||||||||||||||||||||||||||||
Terminated or expired | (6,750 | ) | 13.01 | |||||||||||||||||||||||||||||
Balance, February 28, 2021 | 634,534 | $ | 12.47 | $ | 730 | |||||||||||||||||||||||||||
Granted | 147,750 | 13.82 | ||||||||||||||||||||||||||||||
Exercised | (75,334 | ) | 9.81 | |||||||||||||||||||||||||||||
Terminated or expired | (58,650 | ) | 13.96 | |||||||||||||||||||||||||||||
Balance, February 27, 2022 | 648,300 | $ | 12.96 | 5.38 | $ | 428 | ||||||||||||||||||||||||||
Vested and exercisable, February 27, 2022 | 391,275 | $ | 12.47 | 3.32 | $ | 450 | ||||||||||||||||||||||||||
Expected to vest, February 27, 2022 | 609,402 | $ | 12.47 | 5.38 | $ | 701 | ||||||||||||||||||||||||||
The aggregate intrinsic values realized (the market value of the underlying shares on the date of exercise, less the exercise price, times the number of shares acquired) from the exercise of options during the 2020, 20192022,2021 and 20182020 fiscal years were $124, $1,157$358, $8 and $44,$124, respectively.
A summary of the status of the Company’s non-vested options at March 1, 2020, February 27, 2022, and changes during the fiscal year then ended, is presented below:
Shares Subject to Options | Weighted Average Grant Date Fair Value | Shares Subject to Options | Weighted Average Grant Date Fair Value | |||||||||||||
Non-vested, beginning of year | 25,600 | $ | 3.50 | 208,375 | $ | 2.80 | ||||||||||
Granted | 114,450 | 3.97 | 147,750 | 2.78 | ||||||||||||
Vested | (22,960 | ) | 3.48 | (60,400 | ) | 2.91 | ||||||||||
Terminated or expired | (7,114 | ) | 3.92 | (38,700 | ) | 2.86 | ||||||||||
Non-vested, end of year | 109,976 | $ | 3.96 | 257,025 | $ | 2.75 | ||||||||||
| 6. | SHAREHOLDERS’ EQUITY |
6. SHAREHOLDERS’ EQUITY
Treasury Stock – On January 8, 2015, the Company announced that its Board of Directors had authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,250,000 shares of its common stock, representing approximately 6% of the Company’s 20,945,634 total outstanding shares as of the close of business on January 7, 2015. This authorization superseded all prior Board of Directors’ authorizations to purchase shares of the Company’s common stock.
On March 10, 2016, the Company announced that its Board of Directors authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,000,000 additional shares of its common stock, in addition to the unused prior authorization to purchase shares of the Company’s common stock announced on January 8, 2015. During the 2016 fiscal year, the Company purchased 599,832 shares pursuant to the above authorizations at an aggregate purchase price of $12,187. In 2021, the Company purchased 137,397 shares pursuant to the above authorization at an aggregate purchase price of $1,644. As a result, the Company is authorized to purchase up to a total of 1,531,4121,394,015 shares of its common stock, representing approximately 7.5%6.8% of the Company’s 20,518,82320,458,210 total outstanding shares as of the close of business on March 1, 2020.February 27, 2022.
Reserved Common Shares – At March 1, 2020, 692,100February 27, 2022, 1,123,450 shares of common stock were reserved for issuance upon exercise of stock options.
Accumulated Other Comprehensive Earnings (Loss) – Accumulated balances related to each component of other comprehensive earnings were as follows:
March 1, 2020 | March 3, 2019 | February 27, 2022 | February 28, 2021 | |||||||||||||
Unrealized gains (losses) on investments, net of taxes of $690 and $1,157, respectively | $ | 668 | $ | (22 | ) | |||||||||||
Unrealized losses on investments, net of taxes of $1,629 and $1,004, respectively | $ | (1,965 | ) | $ | (336 | ) | ||||||||||
Accumulated balance | $ | 668 | $ | (22 | ) | $ | (1,965 | ) | $ | (336 | ) | |||||
7. | EARNINGS PER SHARE |
Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potential common stock equivalents outstanding during the period. Stock options are the only common stock equivalents, and the number of dilutive options is computed using the treasury stock method.
The following table sets forth the calculation of basic and diluted earnings per share:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | 2020 | 2019 | 2018 | 2022 | 2021 | 2020 | ||||||||||||||||||
Net earnings - continuing operations | $ | 10,205 | $ | 6,306 | $ | 18,472 | $ | 8,464 | $ | 5,192 | $ | 10,205 | ||||||||||||
Net (loss) earnings - discontinued operations | (653 | ) | 107,239 | 2,123 | 0 | (328 | ) | (653 | ) | |||||||||||||||
Net earnings | $ | 9,552 | $ | 113,545 | $ | 20,595 | $ | 8,464 | $ | 4,864 | $ | 9,552 | ||||||||||||
Weighted average common shares outstanding for basic EPS | 20,507 | 20,288 | 20,237 | |||||||||||||||||||||
Weighted average common shares | 20,422 | 20,387 | 20,507 | |||||||||||||||||||||
outstanding for basic EPS | ||||||||||||||||||||||||
Net effect of dilutive options | 88 | 97 | 30 | 129 | 91 | 88 | ||||||||||||||||||
Weighted average shares outstanding for diluted EPS | 20,595 | 20,385 | 20,267 | 20,551 | 20,478 | 20,595 | ||||||||||||||||||
Basic earnings per share - continuing operations | $ | 0.50 | $ | 0.31 | $ | 0.91 | $ | 0.41 | $ | 0.25 | $ | 0.50 | ||||||||||||
Basic (loss) earnings per share - discontinued operations | (0.03 | ) | 5.29 | 0.11 | 0 | (0.01 | ) | (0.03 | ) | |||||||||||||||
Basic earnings per share | $ | 0.47 | $ | 5.60 | $ | 1.02 | $ | 0.41 | $ | 0.24 | $ | 0.47 | ||||||||||||
Diluted earnings per share - continuing operations | $ | 0.50 | $ | 0.31 | $ | 0.91 | $ | 0.41 | $ | 0.25 | $ | 0.50 | ||||||||||||
Diluted (loss) earnings per share - discontinued operations | (0.03 | ) | 5.26 | 0.11 | 0 | (0.01 | ) | (0.03 | ) | |||||||||||||||
Diluted earnings per share | $ | 0.47 | $ | 5.57 | $ | 1.02 | $ | 0.41 | $ | 0.24 | $ | 0.47 | ||||||||||||
Potentially dilutive stock options, which were not included in the computation of diluted earnings per share because either the effect would have been antidilutive or the options’ exercise prices were greater than the average market price of the common stock, were 132,000, 213,893263,744, 387,975 and 606,357132,000 for the 2020, 20192022,2021 and 20182020 fiscal years, respectively.
|
|
The Company recorded restructuring charges of $0, $0$259, $1,570 and $146$0 in the 2020, 20192022,2021 and 20182020 fiscal years, respectively, related to the closure in the 2012 fiscal year, of the Company’s Park Advanced Composite Materials, Inc. business unitAerospace Technologies Asia PTE, LTD facility located in Waterbury, Connecticut.Singapore.
The following table sets forth the charges and accruals related to the restructuring:
Accrual 2021 | Current Period Charges | Cash Payments | Non-Cash Charges | Accrual 2022 | Total Expense Accrued to Date | |||||||||||||||||||
Facility lease costs | $ | 252 | $ | (194 | ) | $ | (82 | ) | $ | 24 | $ | 0 | $ | 252 | ||||||||||
Asset impairment | 0 | 0 | 0 | 0 | 0 | 1,318 | ||||||||||||||||||
Asset removal | 0 | 381 | (381 | ) | 0 | 0 | 154 | |||||||||||||||||
Other | 0 | 72 | (72 | ) | 0 | 0 | 43 | |||||||||||||||||
Total restructuring charges | $ | 252 | $ | 259 | $ | (535 | ) | $ | 24 | $ | 0 | $ | 1,767 | |||||||||||
|
|
Profit Sharing Plan – The Company has a non-contributory profit sharing retirement plan covering substantially all full-time employees in the United States. The plan may be modified or terminated at any time, but in no event may any portion of the contributions revert back to the Company. The Company's estimated contributions are accrued at the end of each fiscal year and paid to the plan in the subsequent fiscal year. The Company’s contributions to the plan were $160$170 and $73$168 for fiscal years 20192021 and 2018,2020, respectively. The contribution for fiscal year 20202022 has not been determined or paid. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code.
Savings Plan – The Company also sponsors a 401(k)401(k) retirement savings plan but has no financial obligations to plan participants in the form of matching contributions or otherwise.
|
|
On January 15, 2016, the Company entered into a three-year revolving credit facility agreement (the “Credit Agreement”) with HSBC Bank USA, National Association (“HSBC Bank”). The Credit Agreement provided for loans up to $75,000 and letters of credit up to $2,000.
On January 3, 2018, in connection with the Company’s prepayment of the entire loan balance, the Company 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 $144 in the fourth quarter of the fiscal year ended February 28, 2018.
Interest expense recorded under the Credit Agreement was approximately $0, $0 and $2,269 during the 2020, 2019 and 2018 fiscal years, respectively, which is included in interest expense on the Consolidated Statements of Operations.
| LEASES AND COMMITMENTS |
The Company has operating leases related to land, office space, warehouse space and equipment. All of the Company’s leases have been assessed to be operating leases. Renewal options are included in the lease terms to the extent the Company is reasonably certain to exercise the option. The exercise of lease renewal options is at the Company’s sole discretion. The amounts disclosed in our consolidated balance sheet as of March 1, 2020, February 27, 2022, pertaining to the right-of-use assets and lease liabilities, are measured on our current expectations of exercising our available renewal options. The incremental borrowing rate represents the Company’s ability to borrow on a collateralized basis over a term similar to the lease term. The leases typically contain renewal options for periods ranging from one year to 10 years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2068 assuming exercise of all applicable renewal options by the Company. The Company’s existing leases are not subject to any restrictions or covenants which preclude its ability to pay dividends, obtain financing or exercise its available renewal options.
Future minimum lease payments under non-cancellable operating leases as of March 1, 2020 February 27, 2022 are as follows:
Fiscal Year: | ||||||||
2021 | $ | 152 | ||||||
2022 | 90 | |||||||
2023 | 61 | $ | 53 | |||||
2024 | 61 | 53 | ||||||
2025 | - | 36 | ||||||
2026 | 0 | |||||||
2027 | 0 | |||||||
Thereafter | 161 | 162 | ||||||
Total undiscounted operating lease payments | 525 | 304 | ||||||
Less imputed interest | (105 | ) | (77 | ) | ||||
Present value of operating lease payments | $ | 420 | $ | 227 | ||||
The above payment schedule includes renewal options that the Company is reasonably likely to exercise. Leases with an initial term of 12 months or less are not recorded on the Company’s balance sheet. The Company recognizes lease expense for leases on a straight-line basis over the terms of the leases. The above payment schedule does not include lease payments of $334$119 in 2021 for the Company’s idle facility in Fullerton, CaliforniaSingapore that have beenwere previously accrued on the consolidated balance sheets in accrued liabilities.liabilities, this lease was terminated as of February 27, 2022.
During the 20202022 fiscal year, the Company’s operating lease expense was $318.$62. Cash payments of $309,$51, pertaining to operating leases, are reflected in the consolidated cash flow statement under cash flows from operating activities.
The following table sets forth the right-of-use assets and operating lease liabilities as of March 1, 2020:February 27, 2022:
Operating right-of-use assets | $ | 420 | $ | 203 | ||||
Operating lease liabilities | $ | 152 | $ | 53 | ||||
Long-term operating lease liabilities | 268 | 174 | ||||||
Total operating lease liabilities | $ | 420 | $ | 227 | ||||
The Company’s weighted average remaining lease term for its operating leases is 5.877.22 years.
These non-cancelable leases have the following payment schedule:
Fiscal Year | Amount | Amount | |||||||
2021 | $ | 152 | |||||||
2022 | 90 | ||||||||
2023 | 61 | $ | 36 | ||||||
2024 | 61 | 0 | |||||||
2025 | - | 0 | |||||||
2026 | 0 | ||||||||
2027 | 0 | ||||||||
Thereafter | - | 0 | |||||||
| $ | 364 | $ | 36 | ||||||
The above payment schedule does not include renewal options that have not been committed to. An additional $161$112 would be included in the period after 20242023 to 2025 if the Company included renewal periods that the Company deems likely to renew.
Rental expenses, inclusive of real estate taxes and other costs, were $368, $346$267, $328 and $432$368 for the 2020, 20192022,2021 and 20182020 fiscal years, respectively.
In December 2018, PATCthe Company 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, PATCthe Company agreed to construct and operate an additionala redundant manufacturing facility of approximately 90,000 square feet for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace. PATCThe Company 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-yearfive-year period. In exchange for these agreements, the City and the County agreed to lease to PATC the Company three acres of land at the Newton, Kansas Airport, in addition to the eight acres previously leased to PATCthe Company by the City and County. The City and 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 $21 million,$19.5 million. The expansion construction is complete and the Company expectsis undergoing customer qualifications, which are expected to complete the construction of the additional facilitybe completed in the second half of the 20202022 calendar year. As of March 1, 2020, February 27, 2022, the Company had $997$635,000 in equipment purchase obligations and $7,647$18.7 million 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)
| CONTINGENCIES |
Litigation
The Company is subject to a small number of immaterial 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. The Company believes that the ultimate disposition of such proceedings, lawsuits and claims will not have a material adverse effect on the liquidity, capital resources, business or consolidated results of operations or financial position of the Company.
Environmental Contingencies
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 three 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 waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have 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.
The insurance carriers which provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company’s subsidiaries’ waste was disposed at these sites have in the past reimbursed the Company and its subsidiaries for 100% of their legal defense and remediation costs associated with two2 of these sites.
The Company does not record environmental liabilities and related legal expenses for which the Company believes that it and its subsidiaries have general liability insurance coverage for the years during which the Company’s subsidiaries’ waste was disposed at two sites for which certain subsidiaries of the Company have been named as potentially responsible parties. Pursuant to such general liability insurance coverage, three3 insurance carriers reimburse the Company and its subsidiaries for 100% of the legal defense and remediation costs associated with the two sites.
Included in selling, general and administrative expenses are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters will not have a material adverse effect on the Company’s results of operations, cash flows or financial position.
|
|
On July 25, 2018, the Company entered into a definitive agreement to sell its Electronics Business to AGC Inc. for $145,000 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. The net cash proceeds from the sale were approximately $124,156, net of transaction costs of approximately $7,657 and taxes of approximately $13,187. The net gain on the Sale was estimated to be $102,145. The net gain on the sale was calculated as the sum of the gains on the sale of each of the Electronics Business subsidiaries as determined by the total consideration allocation between the subsidiaries, less the respective tax bases and deductible transaction costs for each of the subsidiaries. The total consideration allocation for Nelco Products Pte. Ltd (Singapore), Neltec, Inc. (US), and Neltec SA (France), was 82%, 16%, and 2%, respectively, as agreed upon by the Company and AGC Inc. The Company completed this transaction on December 4, 2018.
The Company has classified the operating results of its former Electronics Business, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statements of Operations. The Company has income in the U.S., Singapore and France, the blended tax rates for discontinued operations for the 2020, 20192021 and 20182020 fiscal years were negative 26.4%, 12.0%24.7% and negative 158.9%,26.4% respectively. The Company had 0 income from discontinued operations in the 2022 fiscal year.
The following table shows the summary operating results of the discontinued operations:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
March 1, | March 3, | February 25, | February 27, | February 28, | March 1, | |||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Net sales | $ | - | $ | 57,492 | $ | 70,966 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Cost of sales | - | 44,361 | 55,794 | 0 | 0 | 0 | ||||||||||||||||||
Gross profit | - | 13,131 | 15,172 | 0 | 0 | 0 | ||||||||||||||||||
Selling, general and administrative expenses | 234 | 8,826 | 9,510 | 0 | 8 | 234 | ||||||||||||||||||
Restructuring charges | 941 | 636 | 4,876 | 0 | 427 | 941 | ||||||||||||||||||
(Loss) earnings from discontinued operations | (1,175 | ) | 3,669 | 786 | 0 | (435 | ) | (1,175 | ) | |||||||||||||||
Other income | 288 | 118,253 | 34 | 0 | 0 | 288 | ||||||||||||||||||
(Loss) earnings from discontinued operations before income taxes | (887 | ) | 121,922 | 820 | 0 | (435 | ) | (887 | ) | |||||||||||||||
Income tax (benefit) provision | (234 | ) | 14,683 | (1,303 | ) | 0 | (107 | ) | (234 | ) | ||||||||||||||
Net (loss) earnings from discontinued operations | $ | (653 | ) | $ | 107,239 | $ | 2,123 | $ | 0 | $ | (328 | ) | $ | (653 | ) | |||||||||
The restructuring expenses for discontinued operations were $108, $262 and $4,876 in the 2020, 2019 and 2018 fiscal years, respectively.
The following table sets forth the charges and accruals related to the consolidation:
Accrual March 3, 2019 | Current Period Charges | Cash Payments | Non-Cash Charges | Accrual March 1, 2020 | Total Expense Accrued to Date | Total Expected Costs | ||||||||||||||||||||||
Facility Lease Costs | $ | 1,324 | $ | 99 | $ | (991 | ) | $ | - | $ | 432 | $ | 2,929 | $ | 3,000 | |||||||||||||
Severance Costs | - | - | - | - | - | 1,081 | 1,081 | |||||||||||||||||||||
Equipment Removal | - | 586 | (586 | ) | - | - | 586 | 586 | ||||||||||||||||||||
Other | - | 148 | (148 | ) | - | - | 927 | 950 | ||||||||||||||||||||
Total Restructuring Charges | $ | 1,324 | $ | 833 | $ | (1,725 | ) | $ | - | $ | 432 | $ | 5,523 | $ | 5,617 | |||||||||||||
The Company recorded additional restructuring charges for discontinued operations of $833 and $374 during the 2020 and 2019 fiscal years, respectively, related to the closure of its electronics manufacturing plant located in Fullerton California in the 2018 fiscal year. The accrual balance of $432 is included in the consolidated balance sheets as the Company has assumed these obligations.
| GEOGRAPHIC REGIONS |
The Company’s products are sold to customers in North America, Asia and Europe. The Company’s manufacturing facilities are located in Kansas. Sales are attributed to geographic regions based upon the region in which the materials were delivered to the customer. Sales between geographic regions were not significant.
Financial information regarding the Company’s continuing operations by geographic region is as follows:
Fiscal Year | Fiscal Year | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2022 | 2021 | 2020 | |||||||||||||||||||
Sales: | ||||||||||||||||||||||||
North America | $ | 56,264 | $ | 47,505 | $ | 38,641 | $ | 51,307 | $ | 43,874 | $ | 56,264 | ||||||||||||
Asia | 1,378 | 1,070 | 563 | 700 | 625 | 1,378 | ||||||||||||||||||
Europe | 2,372 | 2,541 | 1,026 | 1,571 | 1,777 | 2,372 | ||||||||||||||||||
Total sales | $ | 60,014 | $ | 51,116 | $ | 40,230 | $ | 53,578 | $ | 46,276 | $ | 60,014 | ||||||||||||
Long-lived assets: | ||||||||||||||||||||||||
North America | $ | 24,942 | $ | 19,372 | $ | 18,313 | $ | 34,448 | $ | 31,170 | $ | 24,942 | ||||||||||||
Asia | 1,650 | 1,546 | 1,680 | 0 | 1 | 1,650 | ||||||||||||||||||
Europe | - | - | - | 0 | 0 | 0 | ||||||||||||||||||
Total long-lived assets | $ | 26,592 | $ | 20,918 | $ | 19,993 | $ | 34,448 | $ | 31,171 | $ | 26,592 | ||||||||||||
|
|
As a result of the sale of the Electronics Business, the Company now operates in a single segment. As such, segment reporting is no longer provided.
Customers – Net sales to affiliate and non-affiliate subtier suppliers of General Electric Company were 48.2%49.5%, 42.8%27.9% and 30.5%48.2% of the Company’s total worldwide sales in the 2020, 20192022,2021 and 20182020 fiscal years, respectively. Net sales to AAE Aerospace were 10.6%20.7% of the Company’s total worldwide sales in the 20182021 fiscal year.
While no other customer accounted for 10% or more of the Company's total worldwide net sales in the 2020, 20192022,2021 or 20182020 fiscal years, the loss of a major customer or of a group of customers could have a material adverse effect on the Company's business or consolidated results of operations or financial position.
Sources of Supply – The principal materials used in the manufacture of the Company's advanced composite materials, aerospace grade reinforcements, thermoset resins and base chemicals. Although there is a limited number of qualified suppliers of these materials, the Company has nevertheless identified alternate sources of supply for many of such materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from a principal supplier could adversely affect the Company's business. Furthermore, substitutes for these materials are not readily available, and an inability to obtain essential materials, if prolonged, could materially adversely affect the Company’s business.
| ACCOUNTING PRONOUNCEMENTS |
Recently Adopted
In February 2016, December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease (i.e., lessees and lessors). The new standard requires lessees to classify leases as either finance leases or operating leases and record a right-of-use asset and a lease liability for all leases with terms greater than 2019-12, months regardless of their classification. An accounting policy election may be made to account for leases with a term of 12 months or less similar to existing guidance for operating leases today. ASU No. 2016-02 supersedes the existing guidance on accounting for leases. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for an optional transition method for the adoption of Topic 842. The two permitted transition methods are now the modified retrospective approach, which applies the new lease requirements at the beginning of the earliest period presented, and the optional transition method, which applies the new lease requirements through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2016-02 is effective for the Company’s fiscal year ending March 1, 2020 and the interim periods within that year. The Company adopted this standard in the first quarter of the 2020 fiscal year using the optional transition method. The optional transition method enables the Company to adopt the new standard as of the beginning of the period of adoption and does not require restatement of prior period financial information. As a result, prior period financial information has not been restated and continues to be reported under the accounting guidance that was effective during those periods. The Company also elected the practical expedients that allow the Company to carry forward the historical lease classification. At adoption, the Company elected the following practical expedients: (1) the “package of practical expedients”, pursuant to which the Company did not need to reassess its prior conclusions about lease identification, lease classification and initial direct costs, (2) creation of an accounting policy for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term, and (3) to account separately for lease and non-lease components for all leases. The Company has established an inventory of existing leases and implemented a new process of evaluating the classification of each lease. The financial impact of the adoption of the new standard in the 2020 fiscal year increased total assets and total liabilities by approximately $551 as of adoption. The financial impact of the adoption primarily relates to the capitalization of right-of-use assets and recognition of lease liability related to operating leases. See Note 11, Leases and Commitments, for additional information with respect to the impact of the adoption of the lease accounting guidance and the disclosures required by ASU 2016-02 and the related amendments.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. This ASU is effective for public business entities that are SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted this ASU in the fourth quarter of its 2020 fiscal year. As a result of that election, the adoption of ASU 2017-04 did not have an impact on the Company’s consolidated financial statements. See Note 1, Summary of Significant Accounting Practices, for additional information with respect to the adoption of the goodwill guidance and the disclosures required by ASU 2017-04.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows for reclassification of stranded tax effects resulting from U.S. Tax Reform from accumulated other comprehensive loss to retained earnings, but it does not require this reclassification. This ASU is effective for the Company’s fiscal year ended March 1, 2020 and the interim periods within that year. The Company adopted this ASU in the first quarter of its 2020 fiscal year and elected to reclassify the stranded tax effects resulting from U.S. Tax Reform. As a result of that election, the adoption of ASU 2018-02 did not have an impact on the Company’s consolidated financial statements and disclosures.
Recently Issued
In June 2018, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). For public companies that are not SEC filers, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other organizations, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021. The adoption of ASU 2016-13 will not have an impact on the Company’s consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. This ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This ASU is effective for the Company’s fiscal year ending February 28, 2021 and for the interim periods within that year. Early adoption is permitted. ASU 2018-13 is generally required to be applied retrospectively to all periods presented upon their effective date with the exception of certain amendments, which should be applied prospectively to the most recent interim or annual period presented in the year of adoption. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)740): Simplifying the Accounting for Income Taxes. The changes simplify the accounting for a number of topics, some of which are narrow. Some of the proposed amendments eliminate specific exceptions to the general principles of income tax accounting while other changes clarify a handful of narrow issues within the broad topic of income tax accounting. The amendments in ASU 2019-122019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the requirements are effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for: (1)(1) public business entities for periods for which financial statements have not yet been issued, and (2)(2) all other entities for periods for which financial statements have not yet been made available for issuance. The Company is currently evaluatingadopted this ASU in the potentialfirst quarter of the 2022 fiscal year. The adoption of ASU 2019-12 did not have a material impact of adopting this guidance on itsthe Company’s consolidated financial statements and disclosures.
|
|
Subsequent events were evaluated through May 14, 2020, which is the date of issuance of the audit report.
In December 2019, a novel strain of coronavirus was reported in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the United States (the “U.S.”), posing 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 impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain.
The COVID-19 Pandemic did not have a significant impact on our results of operations and financial position or cash flow as of and for the fiscal 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 and business aircraft industries. 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 satisfy their requirements for continuing our manufacturing operations.
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 industry. 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 aircraft industry, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that the Company 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 business aircraft industries will be negatively impacted.
Even after the COVID-19 Pandemic has subsided, the Company may 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 future or specific economic recovery in the industries the Company serves.
The continued operation of the Company’s Kansas facility is critically dependent on maintaining the wellbeing of the employees that staff the facility. The Company has provided all employees at its manufacturing facility with detailed health and safety literature on COVID-19. In addition, the Company’s procurement and safety teams have updated and developed new safety-oriented guidelines to support daily operations, and the Company is in the process of providing appropriate personal protection equipment to its employees. The Company has implemented work from home policies at its office in the State of New York. The COVID-19 Pandemic will likely impact Park financially; however, the Company cannot presently predict the scope and severity with which the COVID-19 Pandemic will impact its business, results of operations and cash flows.
The Company believes that 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 12 months from the date of the filing of this Form 10-K Annual Report. The Company further believes that its balance sheet and financial position to be very strong, and the Company believes it is well positioned to weather the impact of the Pandemic on its business as a result.
On March 27, 2020 the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and implements certain tax legislation, among which modifies the carryback period and limitation on utilization of net operating losses and temporarily increases the interest expense limitation pursuant to Section 163(j). The Company will evaluate the impact of the CARES Act on its financial statements in subsequent periods.
PARK AEROSPACE CORP. AND SUBSIDIARIES
Selected Quarterly Financial Data (Unaudited)SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Amounts in thousands, except per share amounts)
Quarter | Quarter | |||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | |||||||||||||||||||||||||
Fiscal 2020: | ||||||||||||||||||||||||||||||||
Fiscal 2022: | ||||||||||||||||||||||||||||||||
Net sales | $ | 14,950 | $ | 13,723 | $ | 15,847 | $ | 15,494 | $ | 13,594 | $ | 13,618 | $ | 13,864 | $ | 12,502 | ||||||||||||||||
Gross profit | 4,804 | 3,813 | 5,022 | 5,034 | 5,472 | 4,411 | 3,836 | 4,198 | ||||||||||||||||||||||||
Net earnings from continuing operations | 2,714 | 2,052 | 2,806 | 2,633 | 2,745 | 2,022 | 1,741 | 1,956 | ||||||||||||||||||||||||
Net (loss) earnings from discontinued operations | (127 | ) | 83 | (360 | ) | (249 | ) | |||||||||||||||||||||||||
Net loss from discontinued operations | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Net earnings | 2,587 | 2,135 | 2,446 | 2,384 | 2,745 | 2,022 | 1,741 | 1,956 | ||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Basic net earnings per share from continuing operations | $ | 0.13 | $ | 0.10 | $ | 0.14 | $ | 0.13 | $ | 0.13 | $ | 0.10 | $ | 0.09 | $ | 0.10 | ||||||||||||||||
Basic net earnings (loss) per share from discontinued operations | - | - | (0.02 | ) | (0.01 | ) | ||||||||||||||||||||||||||
Basic net loss per share from discontinued operations | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Basic earnings per share | 0.13 | 0.10 | 0.12 | 0.12 | 0.13 | 0.10 | 0.09 | 0.10 | ||||||||||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Diluted net earnings per share from continuing operations | $ | 0.13 | $ | 0.10 | $ | 0.14 | $ | 0.13 | $ | 0.13 | $ | 0.10 | $ | 0.08 | $ | 0.10 | ||||||||||||||||
Diluted net earnings (loss) per share from discontinued operations | - | - | (0.02 | ) | (0.01 | ) | ||||||||||||||||||||||||||
Diluted net loss per share from discontinued operations | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Diluted earnings per share | 0.13 | 0.10 | 0.12 | 0.12 | 0.13 | 0.10 | 0.08 | 0.10 | ||||||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 20,492 | 20,499 | 20,518 | 20,519 | 20,383 | 20,397 | 20,450 | 20,458 | ||||||||||||||||||||||||
Diluted | 20,586 | 20,601 | 20,617 | 20,578 | 20,710 | 20,485 | 20,503 | 20,508 | ||||||||||||||||||||||||
Fiscal 2019: | ||||||||||||||||||||||||||||||||
Fiscal 2021: | ||||||||||||||||||||||||||||||||
Net sales | $ | 10,393 | $ | 11,211 | $ | 12,853 | $ | 16,659 | $ | 12,213 | $ | 9,250 | $ | 10,372 | $ | 14,441 | ||||||||||||||||
Gross profit | 2,852 | 3,145 | 4,284 | 5,903 | 3,674 | 2,638 | 2,553 | 4,326 | ||||||||||||||||||||||||
Net earnings from continuing operations | 816 | 1,824 | 2,078 | 1,588 | 1,972 | 1,151 | 1,037 | 1,032 | ||||||||||||||||||||||||
Net earnings from discontinued operations | 2,352 | 876 | 1,613 | 102,398 | ||||||||||||||||||||||||||||
Net (loss) earnings from discontinued operations | (15 | ) | (197 | ) | (116 | ) | 0 | |||||||||||||||||||||||||
Net earnings | 3,168 | 2,700 | 3,691 | 103,986 | 1,957 | 954 | 921 | 1,032 | ||||||||||||||||||||||||
Basic Earnings per share: | ||||||||||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Basic net earnings per share from continuing operations | $ | 0.04 | $ | 0.09 | $ | 0.10 | $ | 0.08 | $ | 0.10 | $ | 0.06 | $ | 0.05 | $ | 0.05 | ||||||||||||||||
Basic net earnings per share from discontinued operations | 0.12 | 0.04 | 0.08 | 5.02 | ||||||||||||||||||||||||||||
Basic net (loss) earnings per share from discontinued operations | 0 | (0.01 | ) | 0 | 0 | |||||||||||||||||||||||||||
Basic earnings per share | 0.16 | 0.13 | 0.18 | 5.10 | 0.10 | 0.05 | 0.05 | 0.05 | ||||||||||||||||||||||||
Diluted Earnings per share: | ||||||||||||||||||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Diluted net earnings per share from continuing operations | $ | 0.04 | $ | 0.09 | $ | 0.10 | $ | 0.08 | $ | 0.10 | $ | 0.06 | $ | 0.05 | $ | 0.05 | ||||||||||||||||
Diluted net earnings per share from discontinued operations | 0.12 | 0.04 | 0.08 | 4.99 | ||||||||||||||||||||||||||||
Diluted net (loss) earnings per share from discontinued operations | 0 | (0.01 | ) | 0 | 0 | |||||||||||||||||||||||||||
Diluted earnings per share | 0.16 | 0.13 | 0.18 | 5.07 | 0.10 | 0.05 | 0.05 | 0.05 | ||||||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 20,242 | 20,253 | 20,278 | 20,370 | 20,402 | 20,381 | 20,381 | 20,382 | ||||||||||||||||||||||||
Diluted | 20,296 | 20,382 | 20,352 | 20,501 | 20,460 | 20,433 | 20,434 | 20,587 | ||||||||||||||||||||||||
Earnings per share are computed separately for each quarter. Therefore,There‐fore, the sum of such quarterly per share amounts may differ from the total for each year.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9A. |
|
(a) Disclosure Controls and Procedures.
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of March 1, 2020,February 27, 2022, the end of the fiscal year covered by this annual report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such fiscal year, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control Over Financial Reporting.
The managementManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 1, 2020.February 27, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control–Control–Integrated Framework (2013). Based on management’s assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of March 1, 2020.February 27, 2022.
(c) Changes in Internal Control Over Financial Reporting.
There has not been any change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter of the fiscal year to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION. |
None.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information called for by this Item (except for information as to the Company's executive officers, which information appears elsewhere in this Report) is incorporated by reference to the Company's definitive proxy statement for the 20202022 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 11. | EXECUTIVE COMPENSATION. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20202022 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENTAND RELATED STOCKHOLDER MATTERS. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20202022 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, ANDDIRECTORINDEPENDENCE. |
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20202022 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
This information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 20202022 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
|
Page | ||||
(a) Documents filed as a part of this Report: | ||||
| (1) |
| |||
The following Consolidated Financial Statements of the Company are included in Part II, Item 8: | ||||
Report of Independent Registered Public Accounting Firm (PCAOB ID 596) |
| |||
Consolidated Balance Sheets |
| |||
Consolidated Statements of Operations |
| |||
Consolidated Statements of Comprehensive Earnings |
| |||
Consolidated Statements of Shareholders' Equity |
| |||
Consolidated Statements of Cash Flows |
| |||
Notes to Consolidated Financial Statements |
| |||
| (2) |
| |||
The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant described in Item 15(a)(1) above: | ||||
Schedule II – Valuation and Qualifying Accounts |
| |||
All other schedules have been omitted because they are not applicable or not required, or the information is included elsewhere in the financial statements or notes thereto. | ||||
| (3) |
| |||
The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index beginning on page | ||||
ITEM 16. | FORM 10-K SUMMARY |
Not Applicable
PARK AEROSPACE CORP. AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Column C | Column C | |||||||||||||||||||||||||||||||||||||||
Column A | Column B | Additions | Column D | Column E | Column B | Additions | Column D | Column E | ||||||||||||||||||||||||||||||||
Description | Balance at Beginning of Period | Costs and Expenses | Other | Reductions | Balance at End of Period | Balance at Beginning of Period | Costs and Expenses | Other | Reductions | Balance at End of Period | ||||||||||||||||||||||||||||||
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE: | ||||||||||||||||||||||||||||||||||||||||
52 weeks ended February 27, 2022 | $ | 3,587,000 | $ | 0 | $ | 0 | $ | 0 | $ | 3,587,000 | ||||||||||||||||||||||||||||||
52 weeks ended February 28, 2021 | $ | 3,175,000 | $ | 412,000 | $ | 0 | $ | 0 | $ | 3,587,000 | ||||||||||||||||||||||||||||||
52 weeks ended March 1, 2020 | $ | 2,755,000 | $ | 420,000 | $ | - | $ | - | $ | 3,175,000 | $ | 2,755,000 | $ | 420,000 | $ | 0 | $ | 0 | $ | 3,175,000 | ||||||||||||||||||||
53 weeks ended March 3, 2019 | $ | 2,981,000 | $ | - | $ | - | $ | (226,000 | ) | $ | 2,755,000 | |||||||||||||||||||||||||||||
52 weeks ended February 25, 2018 | $ | 2,982,000 | $ | - | $ | - | $ | (1,000 | ) | $ | 2,981,000 | |||||||||||||||||||||||||||||
Column D | ||||||||||||||||||||
Column A | Column B | Column C | Other | Column E | ||||||||||||||||
Description | Balance at Beginning of Period | Charged to Cost and Expenses | Accounts Written Off (A) | Translation Adjustment | Balance at End of Period | |||||||||||||||
ALLOWANCE FOR DOUBTFUL ACCOUNTS: | ||||||||||||||||||||
52 weeks ended March 1, 2020 | $ | 32,000 | $ | 41,000 | $ | - | $ | - | $ | 73,000 | ||||||||||
53 weeks ended March 3, 2019 | $ | 32,000 | $ | - | $ | - | $ | - | $ | 32,000 | ||||||||||
52 weeks ended February 25, 2018 | $ | 32,000 | $ | - | $ | - | $ | - | $ | 32,000 | ||||||||||
Column D | ||||||||||||||||||||
Column A | Column B | Column C | Other | Column E | ||||||||||||||||
Description | Balance at Beginning of Period | Charged to Cost and Expenses | Accounts Written Off (A) | Translation Adjustment | Balance at End of Period | |||||||||||||||
ALLOWANCE FOR DOUBTFUL ACCOUNTS: | ||||||||||||||||||||
52 weeks ended February 27, 2022 | $ | 89,000 | $ | 15,000 | $ | 0 | $ | 0 | $ | 104,000 | ||||||||||
52 weeks ended February 28, 2021 | $ | 73,000 | $ | 16,000 | $ | 0 | $ | 0 | $ | 89,000 | ||||||||||
52 weeks ended March 1, 2020 | $ | 32,000 | $ | 41,000 | $ | 0 | $ | 0 | $ | 73,000 | ||||||||||
(A) Uncollectible amounts, net of recoveries |
EXHIBIT INDEX
Exhibit Numbers | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
10.3 |
| ||
10.4 |
Exhibit Numbers | Description | |
10.5 | Forms of Incentive Stock Option Contract for employees, Non-Qualified Stock Option Contract for employees and Non-Qualified Stock Option Contract for directors under the 2018 Stock Option Plan of the Company (Reference is made to Exhibit 10.1 and 10.2 of the Company’s Current Report on Form 8-K dated April 30, 2019, Commission File No. 1-4415, which is incorporated herein by reference.) | |
14.1 | ||
21.1 | ||
23.1 | ||
31.1 | Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) | |
31.2 | Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) | |
32.1 | ||
32.2 | ||
101 | The following materials from the Company’s Annual Report on Form 10-K for the year ended | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
* Filed electronically herewith. | ||
+ Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May | PARK AEROSPACE CORP. | |
| By: | /s/ Brian E. Shore | |
Brian E. Shore, | ||
Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date | |
/s/ Brian E. Shore Brian E. Shore | Chairman of the Board, Chief Executive Officer and Director (principal executive officer) | May | |
/s/ P. Matthew Farabaugh P. Matthew Farabaugh | Senior Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) | May | |
/s/ Dale Blanchfield Dale Blanchfield | Director | May | |
/s/ Emily J. Groehl Emily J. Groehl | Director | May | |
/s/ Yvonne Julian Yvonne Julian | Director | May 12, 2022 | |
/s/ Carl W. Smith Carl W. Smith | Director | May | |
/s/ D. Bradley Thress D. Bradley Thress | Director | May 12, 2022 | |
/s/ Steven T. Warshaw Steven T. Warshaw | Director | May |