Park Aerospace
Annual Report 2020

Plain-text annual report

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 March 1, 2020 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 (State or Other Jurisdiction of Incorporation of Organization) 1400 Old Country Road, Westbury, New York (Address of Principal Executive Offices) 11-1734643 (I.R.S. Employer Identification No.) 11590 (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) Common Stock, par value $.10 per share PKE Name of Each Exchange on Which Registered 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 Emerging Growth Company Smaller Reporting Company Non-Accelerated Filer Accelerated Filer 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. Common Stock, par value $.10 per share $346,705,646 Title of Class Aggregate Market Value As of Close of Business On August 30, 2019 Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock, par value $.10 per share Title of Class Shares Outstanding 20,518,823 As of Close of Business On May 1, 2020 DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Shareholders to be held July 16, 2020 incorporated by reference into Part III of this Report. 2 TABLE OF CONTENTS PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Business............................................................................................ Risk Factors...................................................................................... Unresolved Staff Comments............................................................. Properties.......................................................................................... Legal Proceedings............................................................................. Mine Safety Disclosures.................................................................... Executive Officers of the Registrant.................................................. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities...................................................................................... Selected Financial Data.................................................................... Management’s Discussion and Analysis of Financial Condition and Results of Operations.................................................................... Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................................................................................... Financial Statements and Supplementary Data................................ Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................... Controls and Procedures................................................................... Other Information.............................................................................. Item 8. Item 9. Item 9A. Item 9B. PART III Page 4 11 16 16 17 17 18 20 23 25 40 41 74 74 75 Item 10. Directors, Executive Officers and Corporate Item 11. Item 12. Governance................................................................................... Executive Compensation................................................................... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.................................................. 76 76 76 Item 13. Certain Relationships and Related Transactions, and Director Independence............................................................................... Principal Accountant Fees and Services.......................................... 76 76 Item 14. PART IV Item 15. Exhibits and Financial Statement Schedule.................................... 77 FINANCIAL STATEMENT SCHEDULE Schedule II – Valuation and Qualifying Accounts............................................... EXHIBIT INDEX……………………………………………………………………………. SIGNATURES............................................................................................................ 78 79 82 3 PART I ITEM 1. BUSINESS. 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 Strut and Alpha Strut 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. 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 been deemed essential by the Federal Government of the United States 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 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 COVID-19 will impact its business, results of operations and cash flows. 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. 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. 4 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 trademarks of Park Aerospace Corp., and AIRCRAFT WORKS® are ALPHASTRUT™, PEELCOTE™, RADARWAVE™ and SIGMASTRUT™ are common law trademarks of Park Aerospace Corp. A trademark application for RADARWAVE™ is pending. registered 5 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. 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. 6 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 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. 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. Radomes includes military aircraft, unmanned aerial vehicles (“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. 7 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. The Company sells composite materials for use in RF electrical applications. Customers buying these materials typically fabricate antennas and radomes engineered to preserve electrical signal integrity. A radome is a protective cover over an electrical antenna or signal generator. The radome is designed to minimize signal loss and distortion. 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 include the construction of a redundant manufacturing facility located adjacent to the existing facility. The 90,000 square feet expansion will essentially double 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 will also support additional manufacturing capacity. The expansion will include 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 11 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 8 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. 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 the 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 Supply 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, 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 9 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, the unfilled portion of all purchase orders received by the Company, and believed by it to be firm, was $18,935,709, compared to $24,171,828 at May 1, 2019. A major portion of the Company’s backlog consists of composite materials. Various factors contribute to the size of the Company’s backlog. Accordingly, the foregoing information may not be indicative of the Company’s results of operations for any period subsequent to the fiscal year ended March 1, 2020. Patents and Trademarks The Company holds several patents and trademarks or licenses thereto. In the Company’s opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new; or to defend existing, patents and trademarks would have a material adverse effect on the Company. Employees At March 1, 2020, the Company had 136 employees. Of these employees, 96 were engaged in the Company’s manufacturing operations, and 40 consisted of executive, sales and marketing, research and development personnel and general administrative staff. Environmental Matters 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 10 subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries has been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or financial position of the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Environmental Matters” included in Item 7 of Part II of this Report and Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report. Factors That May Affect Future Results The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward- looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from Park's expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements. Generally, forward-looking statements can be identified by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. Such forward-looking statements are based on current expectations that involve a number of uncertainties and risks that may cause actual events or results to differ materially from the Company’s expectations. The factors described under “Risk Factors” in Item 1A of this Report 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. The recent coronavirus outbreak likely will have an adverse effect on our business. The COVID-19 Pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis by mandating restrictions on social activity. These impacts include, but are not limited to, the potential adverse effect of the COVID-19 Pandemic on the economy, the Company’s vendors, employees, customers and OEMs, as well as end-users of the Company’s products, including the commercial and business aircraft industries. Continued impacts of the pandemic could materially adversely impact global economic conditions, the Company’s business, results of operations and cash flows, and may require actions in response, including but not limited to expense reductions, in an effort to 11 mitigate such impacts. The extent of the impact of the COVID-19 Pandemic on the Company’s business and financial results will depend largely on future developments, including the duration of the spread of the outbreak, the impact on capital and financial markets and the related impact on the financial circumstances of the Company’s customers and OEMs, as well as end-users of the Company’s products, including the commercial and business aviation industries, 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. The Company's business could suffer if the Company is unable to develop new products on a timely basis. The Company's operating results could be negatively affected if the Company were unable to maintain and increase its technological and manufacturing capability and expertise 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. Changes in the cost or availability of gas or electricity could materially increase the Company's cost of operations. The Company's production processes require the use of substantial amounts of gas and electricity, the cost and available supply of which are beyond the control of the Company. The Company is vulnerable to disruptions and shortages in the supply of, and increases in the prices of, certain raw materials. There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of aerospace composite materials and composite structures and assemblies. The Company has qualified alternate sources of supply for many, but not all, of its raw materials, but certain raw materials are produced by only one supplier. In some cases, substitutes for certain raw materials are not always readily available, and in the past there have been shortages in the market for certain of these materials. Raw material substitutions for certain aircraft related products may require governmental (such as Federal Aviation Administration) approval. While the Company considers its relationships with its suppliers to be strong, a shortage of these materials or a disruption of the supply of these materials caused by a natural disaster 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 12 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 could negatively impact the Company’s suppliers. If, due to the 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 March 1, 2020, March 3, 2019 and February 25, 2018, the Company's ten largest customers accounted for approximately 76%, 74% and 72%, 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 could negatively impact the Company’s customers. If one or more of the Company’s customers is negatively impacted by the COVID-19 Pandemic the Company’s customer base could become more concentrated. The Company's business is dependent on the aerospace 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 is negatively impacting the aerospace industry, and the commercial aerospace industry in particular. Commercial airlines are already instituting cost reduction initiatives including limiting capacity, reducing workforces, limiting discretionary operational expenditures and delaying capital expenditures. If commercial airlines continue to be negatively impacted by the COVID-19 Pandemic, including due to temporary or permanent reductions in commercial airline passenger traffic, orders for Company products could be negatively impacted. The Company relies on short-term orders from its customers. A variety of conditions, both specific to the individual customer and generally affecting the customer’s industry, can cause a customer to reduce or delay orders previously anticipated by the Company, which could negatively impact the Company’s business 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. 13 The Company’s customers may require the Company to undergo a lengthy and expensive qualification process with respect to its products, with no assurance of sales. Any delay or failure in such qualification process could negatively affect the Company’s business and operating results. The Company’s customers frequently require that the Company’s products undergo an extensive qualification process, which may include testing for performance, structural integrity and reliability. This qualification process may be lengthy and does not assure any sales of the product to that customer. The Company devotes substantial resources, including design, engineering, sales, marketing and management efforts, and often substantial expense, to qualifying the Company’s products with customers in anticipation of sales. Any delay or failure in qualifying any of its products with a customer may preclude or delay sales of those products to the customer, which may impede the Company’s growth and cause its business to suffer. In addition, the Company engages in product development efforts with OEMs. The Company will not recover the cost of this product development directly even if the Company actually produces and sells any resulting product. There can be no guarantee that such efforts will result in any sales. Consolidation among the Company’s customers could negatively impact the Company’s business. A number of the Company’s customers have combined in recent years and consolidation of other customers may occur. If an existing customer is not the controlling entity following a combination, the Company may not be retained as a supplier. While there is potential for increasing the Company’s position with the combined customer, the Company’s revenues may decrease if the Company is not retained as a supplier. The COVID-19 Pandemic could result in further consolidation among the Company’s customers. One or more of the Company’s customers could be acquired due to financial difficulty, distress or insolvency, fluctuations in the market price of its securities, or other factors resulting from the COVID-19 Pandemic. The Company faces extensive capital expenditure costs. The Company’s business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company’s capital expenditures. In order to remain competitive, the Company must continue to make significant investments in capital equipment, 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. 14 If the Company’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’s ability to operate effectively. The Company’s success depends, to a certain extent, on the continued availability of its senior management team and key technical employees. Each of the Company’s executive officers, key technical personnel and other employees could terminate his or her employment at any time. The loss of any member of the Company’s senior management team might significantly delay or prevent the achievement of the Company’s business objectives and could materially harm the Company’s business and customer relationships. In addition, because of the highly technical nature of the Company’s business, the loss of any significant number of the Company’s key technical personnel could have a material adverse effect on the Company. The Company competes for manufacturing and engineering talent in a competitive labor market. Personnel turnover and training costs could negatively impact the Company’s operations. The COVID-19 Pandemic could place the continued availability of its senior management team and key employees at risk. Certain members of the Company’s senior management team and key employees do not reside near their place of work and rely heavily on commercial airline travel, which is currently restricted. The Company’s business and operations may be adversely affected by cybersecurity breaches or other information technology system or network intrusions. to introducing malware impersonating authorized users, stealing, corrupting or restricting The Company depends on information technology and computerized systems to communicate and operate effectively. The Company stores sensitive data including proprietary business information, intellectual property and confidential employee or other personal data on our servers and databases. Attempts by others to gain unauthorized access to the Company’s information technology system have become more sophisticated. These attempts, which might be related to industrial or foreign government espionage, activism or other motivations, include the Company’s computers and networks, performing covertly reconnaissance, the Company’s access to data, among other activities. The Company continues to update its infrastructure, security tools, employee training and processes to protect against security incidents, including both external and internal threats and to prevent their recurrence. While Company personnel have been tasked to detect and investigate such incidents, cybersecurity attacks could still occur and may lead to potential data corruption and exposure of proprietary and confidential information. The unauthorized use of the Company’s intellectual property and/or confidential business information could harm its competitive position, reduce the value of the Company’s investment in research and development and other strategic initiatives or otherwise adversely affect the Company’s business or results of operations. Any intrusion may also cause operational stoppages, fines, penalties, litigation of governmental investigations and proceedings, diminished competitive advantages through reputational damages and increased operational costs. Additionally, the Company may incur additional costs to comply with its 15 customers’, standards. including the U.S. Government’s, increased cybersecurity protections and Acquisitions, mergers, business combinations or joint ventures may entail certain operational and financial risks. The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. It may also enter into mergers, business combinations or joint ventures for similar purposes. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one-time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations. The Company’s securities may fluctuate in value. The market price of the Company’s securities can be subject to fluctuations in response to quarter-to-quarter variations in operating results, changes in analyst earnings estimates, market conditions in the aerospace composite materials and composite structures and assemblies industries, as well as general economic conditions and other factors external to the Company. The COVID-19 Pandemic has exacerbated fluctuations in the market price of most securities, including aerospace companies. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. Set forth below are the locations of the significant properties owned and leased by the Company, the businesses which use the properties and the size of each such property. Such properties, except for the Westbury, New York property, are used principally as manufacturing and warehouse facilities. Location Westbury, NY Newton, KS Singapore Owned or Leased Leased Leased Leased Use Administrative Offices Advanced Composite Materials, Parts and Assemblies Advanced Composite Materials Size (Square Footage) 2,000 89,000 21,000 The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. Most of the Company’s manufacturing facilities have the capacity to substantially increase their production levels. During the 2019 fiscal year, the Company sold its dormant facility in Newburgh, New York. The Company’s Nelco Products, Inc. business unit located in California and its Neltec, Inc. business unit located in Arizona, as well as the properties leased by those business units, were transferred to AGC Inc. in connection with the Sale, except that the dormant Fullerton facility was transferred to, and is retained by, a newly organized subsidiary of the Company. Prior to the Company’s sale of its Electronics Business, aerospace composite materials were also manufactured by the Company’s Nelco Products Pte. Ltd. business unit in Singapore at a 16 facility that was transferred to a subsidiary of the Company in connection with the Sale, and is currently idle. ITEM 3. LEGAL PROCEEDINGS. No material pending legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES. None. 17 EXECUTIVE OFFICERS OF THE REGISTRANT. Name Title Age Brian E. Shore Stephen E. Gilhuley P. Matthew Farabaugh Benjamin W. Shore Mark A. Esquivel Constantine Petropoulos Chief Executive Officer and Chairman of the Board of Directors 68 Executive Vice President – Administration and Secretary Senior Vice President and Chief Financial Officer Senior Vice President – Sales, Marketing and Business Development Executive Vice President and Chief Operating Officer Senior Vice President and General Counsel 75 59 32 47 42 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 Shore was elected Senior Vice President – Sales, Marketing and Business Development of the Company in December 2018, after having served as Senior Vice President – Business Development of the Company since October 2017. Prior to joining the Company, he 18 was employed by athenahealth, Inc. located in Watertown, Massachusetts, through September 2017, where most recently he was Manager, Corporate Development, working on mergers and acquisitions, strategic partnerships and investments. From 2011 to 2014, he was an Investment Analyst and subsequently a Senior Investment Analyst at Prudential Capital Group in New York, New York, where he invested capital in middle market companies in many different industries; and in 2010 and 2011, he was an Associate in Economic and Valuation Services at KPMG LLP in New York, New York, working on financial and tax consulting projects. He is a CFA Charterholder. Mr. Esquivel was promoted to Executive Vice President and Chief Operating Officer of the Company on May 7, 2019 after having been elected Senior Vice President and Chief Operating Officer in December 2018. He had been Senior Vice President – Aerospace of the Company 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. Each executive officer of the Company serves at the pleasure of the Board of Directors of the Company. 19 PART II ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The Company’s Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Chicago Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock. For the Fiscal Year Ended March 1, 2020 First Quarter Second Quarter Third Quarter Fourth Quarter Stock Price High Low $ 17.48 19.16 18.90 17.45 $ 14.94 15.09 15.78 13.91 For the Fiscal Year Ended March 3, 2019 Stock Price High Low First Quarter Second Quarter Third Quarter Fourth Quarter $ 20.64 24.16 21.63 23.30 $ 16.45 19.84 17.30 16.90 Dividends Declared $ 0.10 0.10 0.10 1.10 Dividends Declared $ 0.10 0.10 0.10 4.35 (a) (b) (a) (b) During the 2020 fiscal year fourth quarter, the Company declared its regular cash dividend of $0.10 per share in December 2019, payable February 4, 2020 to shareholders of record on January 2, 2020, and declared a special cash dividend of $1.00 per share in January 2020, payable February 20, 2020 to shareholders of record on January 21, 2020. During the 2019 fiscal year fourth quarter, the Company declared its regular cash dividend of $0.10 per share in December 2018, payable February 5, 2019 to shareholders of record on January 2, 2019, and declared a special cash dividend of $4.25 per share in January 2019, payable February 26, 2019 to shareholders of record on February 5, 2019. As of April 24, 2020, there were 496 holders of record of Common Stock. The Company expects, for the foreseeable future, to continue to pay regular cash dividends. 20 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 2020 fiscal year fourth quarter ended March 1, 2020. 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 0 $ - 0 0 0 $ - $ - $ - 0 0 0 0 1,531,412 (a) Period December 2 - January 1 January 2 - February 1 February 2 - March 1 Total (a) Aggregate number of shares available to be purchased by the Company pursuant to share purchase authorizations announced on January 8, 2015 and March 10, 2016. Pursuant to such authorizations, the Company is authorized to purchase its shares from time to time on the open market or in privately negotiated transactions. As a result of the authorizations announced on January 8, 2015 and March 10, 2016, the Company is authorized to purchase up to a total of 1,531,412 shares of its common stock, representing approximately 7.5% of the Company’s 20,518,823 total outstanding shares as of the close of business on March 1, 2020. As previously announced by the Company, shares purchased by the Company will be retained as treasury stock and will be available for use under the Company’s stock option plan and for other corporate purposes. 21 Stock Performance Graph The graph set forth below compares the annual cumulative total return for the Company’s five fiscal years ended March 1, 2020 among the Company, the New York Stock Exchange Market Index (the “NYSE Index”), the Nasdaq US Small Cap Aerospace and Defense Index (the “Nasdaq Index”) and a Zachs Investment Research, Inc. (formerly Morningstar Inc., formerly Hemscott, Inc.) index for electronic components and accessories manufacturers (the “Group Index”) comprised of the Company and 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, 2015 and the reinvestment of dividends (where applicable). $180.00 $180.00 $160.00 $160.00 $140.00 $140.00 $120.00 $120.00 $100.00 $100.00 $80.00 $80.00 $60.00 $60.00 $40.00 $40.00 $20.00 $20.00 $- $- 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 Park Aerospace Corp. NYSE Index NASDAQ US Small Cap Aerospace and Defense Index Park Aerospace Corp. NYSE Index NASDAQ US Small Cap Aerospace and Defense Index Park Aerospace Corp. NYSE Index NASDAQ US Small Cap Aerospace and Defense Index 2015 100.00 100.00 100.00 $ $ $ 2016 2017 2018 $ $ $ 66.59 89.34 78.86 $ $ $ 92.64 110.10 105.06 $ $ $ 98.05 126.07 123.97 2019 125.39 127.79 154.82 $ $ $ 2020 108.87 127.77 151.47 $ $ $ 22 ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, related Notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the 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 financial statements, but such February 28, 2016 are based on previously audited reclassifications for discontinued operations have not been audited for such periods. 23 CONSOLIDATED STATEMENT OF EARNINGS INFORMATION Net sales Cost of sales Gross profit Selling, general and administative expenses Restructuring charges Earnings (loss) from continuing operations Interest expense Interest and other income Loss on sale of marketable securities Earnings (loss) from continuing operations before income taxes Income tax provision (benefit) Net earnings (loss) from continuing operations (Loss) earnings from discontinued operations, net of tax Net earnings Earnings per share: Basic earnings per share: Basic earnings (loss) per share from continuing operations Basic (loss) earnings per share from discontinued operations Basic earnings per share Diluted earnings per share: Diluted earnings (loss) per share from continuing operations Diluted (loss) earnings per share from discontinued operations Diluted earnings per share Fiscal Year Ended (Amounts in thousands, except per share amounts) March 1, 2020 March 3, 2019 February 25, 2018 February 26, 2017 February 28, 2016 $ 60,014 41,341 18,673 $ 51,116 34,932 16,184 $ 40,230 28,942 11,288 $ 31,837 23,538 8,299 $ 38,763 29,900 8,863 7,932 - 10,741 - 3,330 - 14,071 3,866 10,205 8,968 - 7,216 - 2,379 (1,498) 8,097 1,791 6,306 9,862 146 1,280 2,269 2,641 (1,342) 310 (18,162) 18,472 10,309 - (2,010) 1,432 1,637 - (1,805) (711) (1,094) 10,944 - (2,081) 1,657 1,078 - (2,660) (1,679) (981) $ (653) 9,552 107,239 113,545 $ 2,123 20,595 $ 10,377 9,283 $ 19,010 18,029 $ $ 0.50 $ 0.31 $ 0.91 $ (0.05) $ (0.05) $ $ (0.03) 0.47 $ $ 5.29 5.60 $ $ 0.11 1.02 $ $ 0.51 0.46 $ $ 0.94 0.89 $ 0.50 $ 0.31 $ 0.91 $ (0.05) $ (0.05) $ $ (0.03) 0.47 $ 5.26 5.57 $ 0.11 1.02 $ $ 0.51 0.46 $ $ 0.94 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 Diluted BALANCE SHEET INFORMATION 20,507 20,595 20,288 20,385 20,237 20,267 20,235 20,239 20,347 20,352 Working capital Total assets Long-term debt Shareholders' equity $ 136,487 171,786 $ 156,778 188,851 $ 129,041 170,146 - 141,675 - 159,011 - 135,261 $ 255,007 315,616 68,500 182,826 $ 255,507 321,376 72,000 180,867 24 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General: the (“Park” or “Company”) Park Aerospace Corp. 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 Strut and Alpha Strut 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, 2019 and 2018 fiscal years ended on March 1, 2020, March 3, 2019 and February 25, 2018, respectively. The 2019 fiscal year consisted of 53 weeks. The 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’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. 2020 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 25 adjacent to Park’s existing Newton, Kansas facilities. This facility, which is being constructed in part to support a major aerospace customer, will include approximately 90,000 square feet of manufacturing and office space, and will essentially double the size of Park’s existing Newton, Kansas manufacturing footprint. The total cost of the expansion is expected to be approximately $21 million, and the expansion is expected to be completed in the second half of the 2020 calendar year. The expansion includes new resin mixing and delivery systems, new hot-melt film and tape manufacturing lines, space to accommodate an additional hot-melt tape line or solution treating line, space to accommodate a confidential joint development project with a major aerospace customer, additional slitting capability, significant additional freezer and storage space, an expanded production lab, a new R&D lab and additional office space. Through March 1, 2020, the Company had incurred $7.6 million on the expansion. During 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 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. 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. 26 The COVID-19 Pandemic did not have a significant impact on our results of operations and financial position or cash flow 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 aerospace industry. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 Pandemic. Currently, Park’s manufacturing operations have been deemed essential by the Federal Government of the U.S. and by the State of Kansas, and we are actively working with federal, state and local government officials to ensure that we continue to satisfy their requirements for continuing our manufacturing operations. 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. Results of Operations: 2020 Compared to 2019 (Amounts in thousands, except per share amounts) Net sales Cost of sales Gross profit Selling, general and administrative expenses Earnings from continuing operations Interest and other income Loss on sale of marketable securities Earnings from continuing operations before income taxes Income tax provision Net earnings from continuing operations (Loss) earnings from discontinued operations, net of tax Net earnings Earnings (loss) per share: Basic: Continuing Operations Discontinued Operations Basic earnings per share Diluted: Continuing Operations Discontinued Operations Diluted earnings per share Net Sales Year Ended March 1, 2020 March 3, 2019 Increase / (Decrease) $ 60,014 $ 51,116 $ 8,898 41,341 18,673 7,932 10,741 3,330 - 14,071 3,866 10,205 34,932 16,184 8,968 7,216 2,379 (1,498) 8,097 1,791 6,306 6,409 2,489 (1,036) 3,525 951 1,498 5,974 2,075 3,899 17% 18% 15% -12% 49% 40% -100% 74% 116% 62% (653) 9,552 $ 107,239 113,545 $ (107,892) (103,993) $ -101% -92% $ $ $ $ $ $ 0.31 5.29 5.60 0.31 5.26 5.57 0.19 (5.32) (5.13) 0.19 (5.29) (5.10) 61% -101% -92% 61% -101% -92% $ $ $ $ $ $ 0.50 (0.03) 0.47 0.50 (0.03) 0.47 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 to an increase in military sales during 2020. 27 Gross Profit 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 the partially fixed nature of overhead expenses were more than offset by the increased labor and supplies expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by $1.0 million, or 12%, during 2020 compared to 2019. Such expenses, measured as percentages of sales, were 13.2% during 2020 compared to 17.5% during 2019. The decrease in such expenses in 2019 was due primarily to decreased legal and professional fees and lower stock option expenses, excluding the stock option modification charges in each period. Selling, general and administrative expenses in 2020 included $0.7 million of stock option expenses, including $0.2 million due to the modification of previously granted stock options, compared to $1.2 million of such expenses in 2019, including $0.5 million due to the modification of previously granted stock options. Earnings from Continuing Operations For the reasons set forth above, the Company’s earnings from continuing operations were $10.7 million for 2020, including a pre-tax stock option modification charge of $0.2 million resulting from the special dividend of $1.00 per share paid in February 2020. The Company’s earnings from continuing operations were $7.2 million in 2019, including a pre-tax stock option modification charge of $0.5 million resulting from the special dividend of $4.25 per share paid in February 2019. Loss on Sales of Marketable Securities Loss on sales of marketable securities was $0 in 2020 and $1.5 million in 2019 in connection with the liquidation of securities to fund the special cash dividend of $4.25 per share paid in February 2019. Interest and Other Income Interest and other income were $3.3 million and $2.4 million for 2020 and 2019, respectively. The increase from 2019 was primarily the result of higher average invested cash during the period and higher weighted average interest rates. As mentioned above, the Company paid a special cash dividend of $4.25 per share in February 2019. During 2020 and 2019, the Company earned interest income principally from its investments, which were primarily in short-term instruments and money market funds. Income Tax Provision The Company’s effective income tax rate of 27.5% for 2020 was due primarily to the U.S. Federal rate and state income taxes and lost tax deductions from expiring unexercised non-qualified stock options. The Company’s effective income tax rate was lower in 2019, due to favorable adjustments to valuation allowances on state tax credits and a lower state effective tax rate in 2019. 28 Net Earnings from Continuing Operations The Company’s net earnings from continuing operations for 2020 were $10.2 million, including the stock option modification pre-tax charge of $0.2 million in connection with the special dividend of $1.00 per share paid in February 2020. The Company’s net earnings from continuing operations for 2019 were $6.3 million, including the stock option modification pre-tax charge of $0.5 million in connection with the special dividend of $4.25 per share paid in February 2019. Discontinued Operations On December 4, 2018, Park completed the previously announced sale of its Electronics Business, including manufacturing facilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to the target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the sale. The operating results of the Electronics Business are classified, together with certain costs related to the sale, as discontinued operations, net of tax, in the Consolidated Statements of Operations. The Company’s net earnings from discontinued operations were lower in 2020 compared to 2019 primarily as a result of the gain recognized on the sale of the electronics business of $102,145 in 2019 and the gain of $2,945 recognized on the sale of its New England Laminates Co., Inc. facility located in Newburgh, New York in 2019. Basic and Diluted Earnings Per Share Basic and diluted earnings per share from continuing operations for 2020 were $0.50, including the stock option modification charge in connection with the special dividend paid in February 2020, compared to basic and diluted earnings per share for 2019 of $0.31, including the stock option modification charge in connection with the special dividend paid in February 2019 and the pre-tax loss on the sales of marketable securities described above. The net impact of the items described above was to decrease basic and diluted earnings per share by $0.01 in 2020 and decrease basic and diluted earnings per share by $0.08 in 2019. 29  2019 Compared to 2018 (Amounts in thousands, except per share amounts) Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring charges Earnings from continuing operations Interest expense Interest and other income Loss on sale of marketable securities Earnings from continuing operations before income taxes Income tax provision (benefit) Net earnings from continuing operations Earnings from discontinued operations, net of tax Net earnings Earnings per share: Basic: Continuing Operations Discontinued Operations Basic earnings per share Diluted: Continuing Operations Discontinued Operations Diluted earnings per share Net Sales Year Ended March 3, 2019 February 25, 2018 Increase / (Decrease) $ 51,116 $ 40,230 $ 10,886 34,932 16,184 8,968 - 7,216 - 2,379 (1,498) 8,097 1,791 6,306 28,942 11,288 9,862 146 1,280 2,269 2,641 (1,342) 310 (18,162) 18,472 5,990 4,896 (894) (146) 5,936 (2,269) (262) (156) 7,787 19,953 (12,166) 107,239 113,545 $ 2,123 20,595 $ 105,116 92,950 $ $ $ $ $ $ $ 0.91 0.11 1.02 0.91 0.11 1.02 (0.60) 5.18 4.58 (0.60) 5.15 4.55 $ $ $ $ $ $ 0.31 5.29 5.60 0.31 5.26 5.57 27% 21% 43% -9% -100% 464% -100% -10% 12% 2512% -110% -66% 4951% 451% -66% 4709% 449% -66% 4682% 446% The Company's total net sales worldwide in 2019 were 27% higher than in 2018 due primarily to the “end customer” of a major Company customer ramping up commercial jet production and the Company’s customer restocking depleted inventory, particularly in the fourth quarter, and to an increase in military sales during 2019. Gross Profit The Company’s gross profit margin, measured as a percentage of sales, increased to 31.7% in 2019, from 28.1% in 2018, due primarily to higher sales and the partially fixed nature of overhead expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by $0.9 million, or 9%, during 2019 compared to 2018. Such expenses, measured as percentages of sales, were 17.5% during 2019 compared to 24.5% during 2018. The decrease in such expenses in 2019 was due primarily to decreases in salary and related expenses, lower travel and entertainment expenses, lower legal fees and lower stock option expenses, excluding the stock option modification charges in each period. Selling, general and administrative expenses in 2019 included $1.2 million of stock option expenses, including $0.5 million due to the modification of previously granted stock options, compared to $1.4 million of such expenses in 2018, including $0.5 million due to the modification of previously granted stock options. 30 Earnings from Continuing Operations For the reasons set forth above, the Company’s earnings from continuing operations were $7.2 million for 2019, including a pre-tax stock option modification charge of $0.5 million resulting from the special dividend of $4.25 per share paid in February 2019. The Company’s earnings from continuing operations were $1.3 million in 2018, including a pre-tax stock option modification charge of $0.5 million resulting from the special dividend of $3.00 per share paid in February 2019. 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 million and $2.6 million for 2019 and 2018, respectively. The decrease from 2018 was primarily the result of lower average invested cash during the period, partially offset by higher weighted average interest rates. As mentioned above, the Company prepaid all outstanding debt under the Credit Agreement in the amount of $68.5 million of principal and paid a special cash dividend of $3.00 per share in February 2018. During 2019 and 2018, 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% for 2019 was due primarily to the U.S. Federal rate and state income taxes partially offset by favorable adjustments to valuation allowances on state tax credits and a decrease in 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. 31 Net Earnings from Continuing Operations The Company’s net earnings from continuing operations for 2019 were $6.3 million, including the stock option modification pre-tax charge of $0.5 million in connection with the special dividend of $4.25 per share paid in February 2019 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. Discontinued Operations On December 4, 2018, Park completed the previously announced sale of its Electronics Business, including manufacturing facilities in Singapore, France, California and Arizona and R&D facilities in Singapore and Arizona, to AGC Inc. for an aggregate purchase price of $145 million in cash, subject to post-closing adjustments for changes in working capital compared to the target net working capital, excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries. See Note 13, “Discontinued Operations”, of the Notes to Consolidated Financial Statements elsewhere in this Report for additional information on the sale. The operating results of the Electronics Business are classified, together with certain costs related to the sale, as discontinued operations, net of tax, in the Consolidated Statements of Operations. The Company’s net earnings from discontinued operations were higher in 2019 compared to 2018 primarily as a result of the gain recognized on the sale of the electronics business of $102,145 and the gain of $2,945 recognized on the sale of its New England Laminates Co., Inc. facility located in Newburgh, New York. Basic and Diluted Earnings Per Share Basic and diluted earnings per share from continuing operations for 2019 were $0.31, including the stock option modification charge in connection with the special dividend paid in February 2019 and the pre-tax loss on the sales of marketable securities described above, 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. 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 in 2018. 32 Liquidity and Capital Resources: (Amounts in thousands) March 1, 2020 March 3, 2019 Increase / (Decrease) Cash and marketable securities Working capital $ 122,355 136,487 $ 151,624 156,778 $ (29,269) (20,291) From continuing operations (Amounts in thousands) Net cash provided by (used in) operating activities Net cash (used in) provided by investing activities Net cash used in financing activities March 1, 2020 Fiscal Year Ended March 3, 2019 February 25, 2018 Increase / (Decrease) 2020 vs. 2019 2019 vs. 2018 $ 5,871 $ 8,060 $ (6,264) $ (2,189) $ 14,324 (42,511) 8,898 42,364 (51,409) (33,466) (28,304) (105,519) (130,710) 77,215 25,191 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, 2020 compared to March 3, 2019 was primarily the result of positive operating cash flow more than offset by capital expenditures and the special dividend paid by the Company to its shareholders in February 2020 and a number of additional factors. The significant changes in cash provided by operating activities were as follows:  accounts receivable increased by 17% at March 1, 2020 compared to March 3, 2019 due primarily to the increase in total net sales in the last month of 2019;  inventory increased 21% due primarily to raw material purchased at the end of February 2020 for use in future production;  prepaid expenses and other current assets increased 228% due primarily to the increase in income tax receivable;  accounts payable increased 49% due to the raw material purchases and capital expenditures at the end of February 2020;  accrued liabilities decreased 41% at March 1, 2020 compared to March 3, 2019 due primarily to decreased accruals for restructuring; and  income taxes payable decreased 58% at March 1, 2020 compared to March 3, 2019 due to tax payments in excess of the current tax provision. In addition, the Company paid $28.7 million and $95.0 million in cash dividends during 2020 and 2019, respectively, including special dividends of $20.5 million and $86.8 million paid in 2020 and 2019, respectively. 33 Working Capital Working capital at March 1, 2020 was lower compared to March 3, 2019. Decreases in cash and cash equivalents and marketable securities and increases in accounts payable were offset by increases in accounts receivable, inventories and prepaid and other assets and decreases in accrued liabilities and taxes payable. The Company's current ratio (the ratio of current assets to current liabilities) was 16.7 to 1 at March 1, 2020 compared to 15.1 to 1 at March 3, 2019. Cash Flows During 2020, the Company's net earnings from continuing operations, before depreciation and amortization, stock-based compensation, amortization of bond premium and gain on sale of fixed assets, were $13.3 million. Such earnings were decreased by changes in operating assets and liabilities of $7.4 million, resulting in $5.9 million of cash provided by operating activities from continuing operations. During 2020, the Company expended $6.8 million for the purchase of property, plant and equipment compared to $2.8 million during 2019, and the Company paid $28.7 million and $95.1 million in cash dividends in 2020 and 2019, respectively. Other Liquidity Factors In December 2018, the Company’s wholly-owned subsidiary Park Aerospace Technologies Corp. (“PATC”) entered into a Development Agreement with the City of Newton, Kansas and the Board of County Commissioners of Harvey County, Kansas. Pursuant to this agreement, PATC agreed to construct and operate an additional manufacturing facility approximately 90,000 square feet in size for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace. PATC further agreed to equip the facility through the purchase of machinery, equipment and furnishings and to create additional new full-time employment of specified levels during a five- year period. In exchange for these agreements, the City and the County agreed to lease to PATC three acres of land at the Newton City/County Airport, in addition to the eight acres previously leased to PATC by the City and County. The City and the County further agreed to provide financial and other assistance toward the construction of the additional facility as set forth in the Development Agreement. The Company estimates the total cost of the additional facility to be approximately $20.6 million, and the Company expects to complete the construction of the additional facility in the second half of the 2020 calendar year. As of March 1, 2020, the Company had $997 in equipment purchase obligations and $7,647 of construction-in- progress related to the additional facility. On July 16, 2019, PATC was merged into the Company and ceased to exist, and the Company assumed the rights and obligations of PATC, including the rights and obligations of PATC under the Development Agreement. (See Note 1, Consolidated Financial Statements) On December 22, 2017, the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA” or “Tax Act”) and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system. As a result of the Tax Act, the Company recorded tax payable to be paid in installments over eight years. The remaining balance of these installment payments, as of March 1, 2020, was approximately $17 million to be paid over the next six years. 34 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 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. Contractual Obligations: The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of operating lease commitments, commitments to purchase raw materials and commitments to purchase equipment, as described in Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this Report. The Company has no other long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $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) Operating lease obligations Equipment purchase obligations Total Total 2021 2022-2023 2024-2025 2026 and Thereafter $ 828 997 1,825 $ $ 616 997 1,613 $ $ $ 151 - 151 $ 61 - $ 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 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 35 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, 2019 and 2018, the Company incurred approximately $41,000, $70,000 and $99,000, respectively, for remedial response and voluntary cleanup costs and related legal fees, and the Company received, or expects to receive, reimbursement pursuant to general liability insurance coverage for approximately $38,000, $68,000 and $92,000, respectively, of such amounts. While annual environmental remedial response and voluntary cleanup expenditures, including legal fees, have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At March 1, 2020 and March 3, 2019, there were no amounts recorded in accrued liabilities for environmental matters. Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or consolidated financial position of the Company. See Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for a discussion of the Company's contingencies, including those related to environmental matters. Critical 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 Adopted Accounting Pronouncement See Note 16 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. 36 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 to revenue The Company records estimated reductions 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 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. the Company’s specifications and to complying with themselves 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. 37 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 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. is adjusted periodically due tax benefits 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 38 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. 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. 39 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk – The exposure to market risks for changes in interest rates relates to the Company's short-term investment portfolio. The Company does not use derivative financial instruments in its investment portfolio. The Company’s short-term investment portfolio is managed in accordance with guidelines issued by the Company. These guidelines are designed to establish a high quality fixed income portfolio of government and highly rated corporate debt securities with a maximum weighted maturity of less than one year. Based on the average anticipated maturity of the investment portfolio at the end of the 2020 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. 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's Financial Statements begin on the next page. 41 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, 2020 and March 3, 2019, and the related consolidated statements of operations, comprehensive earnings, shareholders’ equity, and cash flows for each of the years in the three-year period ended March 1, 2020 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 financial statements present fairly, in all material respects, the financial position of the Company as of March 1, 2020 and March 3, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended March 1, 2020, 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’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of the our audits, we are required to obtain an understanding of internal control over financial report, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ CohnReznick LLP We have served as the Company’s auditor since 2014. Roseland, New Jersey May 14, 2020 42 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) ASSETS Current assets: Cash and cash equivalents Marketable securities (Note 2) Accounts receivable, less allowance for doubtful accounts of $73 and $32, respectively Inventories (Note 3) Prepaid expenses and other current assets Total current assets March 1, 2020 March 3, 2019 $ 5,410 116,945 $ 71,007 80,617 10,925 6,379 5,535 145,194 9,352 5,267 1,690 167,933 Property, plant and equipment, net (Note 3) Operating right-of-use assets (Note 11) Goodwill and other intangible assets, net (Note 3) Other assets (Note 4) Total assets 16,100 420 9,804 268 171,786 $ 10,791 - 9,811 316 188,851 $ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable Operating lease liabilities (Note 11) Accrued liabilities (Note 3) Income taxes payable Total current liabilities Long-term operating lease liabilities (Note 11) Non-current income taxes payable (Note 4) Deferred income taxes (Note 4) Other liabilities (Note 4) Total liabilities Commitments and contingencies (Notes 11 and 12) Shareholders' equity (Note 6): Preferred stock, $1 par value per shares-authorized, 500,000 shares; issued, none Common stock, $0.10 par value per shares-authorized, 60,000,000 shares; issued, 20,965,144 shares Additional paid-in capital Accumulated deficit Accumulated other comprehensive earnings (loss) $ 4,735 152 1,709 2,111 8,707 $ 3,169 - 2,920 5,066 11,155 268 15,986 834 4,316 30,111 - 17,669 - 1,016 29,840 - - 2,096 169,862 (21,774) 668 150,852 2,096 169,395 (2,605) (22) 168,864 Less treasury stock, at cost, 446,321 and 479,191 shares, respectively Total shareholders' equity Total liabilities and shareholders' equity (9,177) 141,675 171,786 $ (9,853) 159,011 188,851 $ See Notes to Consolidated Financial Statements. 43 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) Fiscal Year Ended March 1, 2020 March 3, 2019 February 25, 2018 $ 60,014 41,341 18,673 $ 51,116 34,932 16,184 $ 40,230 28,942 11,288 7,932 - 10,741 - 3,330 - 14,071 3,866 10,205 8,968 - 7,216 - 2,379 (1,498) 8,097 1,791 6,306 9,862 146 1,280 2,269 2,641 (1,342) 310 (18,162) 18,472 $ (653) 9,552 107,239 113,545 $ 2,123 20,595 $ $ $ $ $ $ $ 0.50 (0.03) 0.47 20,507 0.50 (0.03) 0.47 20,595 0.31 5.29 5.60 20,288 0.31 5.26 5.57 20,385 $ $ $ $ $ $ 0.91 0.11 1.02 20,237 0.91 0.11 1.02 20,267 Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring charges (Note 8) Earnings from continuing operations Interest expense (Note 10) Interest and other income Loss on sale of marketable securities Earnings from continuing operations before income taxes Income tax provision (benefit) (Note 4) Net earnings from continuing operations (Loss) earnings from discontinued operations, net of tax (Note 13) Net earnings Earnings (loss) per share (Note 7) Basic: Continuing Operations Discontinued Operations Basic earnings per share Basic weighted average shares Diluted: Continuing Operations Discontinued Operations Diluted earnings per share Diluted weighted average shares See Notes to Consolidated Financial Statements. 44 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Amounts in thousands) Fiscal Year Ended March 1, 2020 March 3, 2019 February 25, 2018 Net earnings $ 9,552 $ 113,545 $ 20,595 Other comprehensive earnings (loss), net of tax: Foreign currency translation Unrealized gains on marketable securities: Unrealized holding gains arising during the period Less: reclassification adjustment for gains included in net earnings Unrealized losses on marketable securities: - 990 (49) (1,310) 41 - (50) - (17) Unrealized holding losses arising during the period (291) (87) (2,189) Less: reclassification adjustment for losses included in net earnings Other comprehensive earnings (loss) Total comprehensive earnings 40 1,203 1,361 690 10,242 $ (153) 113,392 $ (895) 19,700 $ See Notes to Consolidated Financial Statements. 45 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in thousands, except share and per share amounts) Common Stock Shares Amount Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Earnings (Loss) Treasury Stock Shares Amount Balance, February 26, 2017 20,965,144 $ 2,096 $ 167,612 $ 27,112 $ 1,026 730,473 $ (15,020) Net earnings Foreign currency translation Unrealized loss on marketable securities, net of tax Stock options exercised Stock-based compensation Cash dividends ($3.40 per share) - - - - - - Balance, February 25, 2018 20,965,144 Net earnings Foreign currency translation adjustment for sale of business Unrealized gain on marketable securities, net of tax Stock options exercised Stock-based compensation Cash dividends ($4.65 per share) - - - - - - - - - - - - 2,096 - - - - - - - - - (46) 1,445 - 169,011 - - - (1,157) 1,541 - Balance, March 3, 2019 20,965,144 2,096 169,395 Net earnings Unrealized gain on marketable securities, net of tax Stock options exercised Stock-based compensation Cash dividends ($1.40 per share) - - - - - - - - - - - - (259) 726 - 20,595 - - - - (68,806) (21,099) 113,545 - - - - (95,051) (2,605) 9,552 - - - (28,721) - (50) (845) - - - 131 - (1,310) 1,157 - - - (22) - 690 - - - - - - (6,900) - - 723,573 - - - (244,382) - - 479,191 - - (32,870) - - - - - 142 - - (14,878) - - - 5,025 - - (9,853) - - 676 - - Balance, March 1, 2020 20,965,144 $ 2,096 $ 169,862 $ (21,774) $ 668 446,321 $ (9,177) See Notes to Consolidated Financial Statements. 46 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Cash flows from operating activities: Net earnings from continuing operations Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Stock-based compensation Provision for deferred income taxes Amortization of bond premium (Gain) loss on sale of marketable securities Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets Other assets and liabilities Accounts payable Accrued liabilities Income taxes payable Net cash provided by (used in) operating activities - continuing operations Net cash (used in) provided by operating activities - discontinued operations Net cash provided by operating activities Cash flows from investing activities: Purchase of property, plant and equipment Purchases of marketable securities Proceeds from sales and maturities of marketable securities Net cash (used in) provided by investing activities - continuing operations Net cash provided by (used in) investing activities - discontinued operations Net cash (used in) provided by investing activities Cash flows from financing activities: Dividends paid Decrease in restricted cash Proceeds from exercise of stock options Intercompany capital contributions Payments of long-term debt Net cash used in financing activities - continuing operations Net cash used in financing activities - discontinued operations Net cash used in financing activities Decrease in cash and cash equivalents before effect of exchange rate changes - continuing operations (Decrease) increase in cash and cash equivalents before effect of exchange rate changes - discontinued operations (Decrease) increase in cash and cash equivalents before effect of exchange rate changes Effect of exchange rate changes on cash and cash equivalents - continuing operations Effect of exchange rate changes on cash and cash equivalents - discontinued operations Effect of exchange rate changes on cash and cash equivalents (Decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See Notes to Consolidated Financial Statements. 47 March 1, 2020 Fiscal Year Ended March 3, 2019 February 25, 2018 $ 10,205 $ 6,306 $ 18,472 1,544 726 849 27 (15) (1,573) (1,112) 490 3,348 1,566 (1,211) (8,973) 5,871 (653) 5,218 1,784 1,249 (1,147) (52) 1,498 (2,392) (1,312) (452) (1,580) 1,344 1,898 916 8,060 (517) 7,543 (6,846) (104,600) (2,764) (113,860) 68,935 (42,511) - (42,511) (28,721) - 417 - - (28,304) - (28,304) 125,522 8,898 144,951 153,849 (95,051) - (3,868) (6,600) - (105,519) - 1,833 1,445 (47,991) 287 1,342 (2,502) (542) 91 346 652 (198) 20,501 (6,264) 9,605 3,341 (571) (164,099) 207,034 42,364 (315) 42,049 (68,806) 10,000 96 - (72,000) (130,710) - (105,519) (130,710) (64,944) (88,561) (94,610) (653) 144,434 9,290 (65,597) 55,873 (85,320) - - - (170) (2,950) (3,120) 250 886 1,136 (65,597) 71,007 5,410 $ 52,753 18,254 71,007 $ (84,184) 102,438 18,254 $ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three years ended March 1, 2020 (Amounts in thousands, except share (unless otherwise stated), per share and option amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. b. c. d. e. Principles of Consolidation – The consolidated financial statements include the accounts of Park and its subsidiaries. All significant intercompany balances and transactions have been eliminated. 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. (See Note 13). 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, in accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations. (See Note 13). Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America to make estimates and requires management assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. (“U.S. GAAP”) Accounting Period – The Company’s fiscal year is the 52- or 53-week period ending the Sunday nearest to the last day of February. The 2020, 2019 and 2018 fiscal years ended on March 1, 2020, March 3, 2019 and February 25, 2018, respectively. Fiscal years 2020, 2019 and 2018 consisted of 52, 53 and 52 weeks, respectively. 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. 48 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. Due to the variable interest rates periodically adjusting with the current LIBOR, the carrying value of outstanding borrowings under the Company’s long-term debt approximated its fair value (See Note 10). Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or non-recurring basis. On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs. (See Note 2). 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 2020, 2019 or 2018 fiscal years. 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 $2,496 and $49,707 in debt securities included in cash equivalents at March 1, 2020 and March 3, 2019, respectively, which were valued based on Level 2 inputs. Certain of the Company’s cash and cash equivalents are in excess of U.S. government insurance. $29,265 of the $126,196 of cash and marketable securities at March 49 g. h. i. j. 1, 2020 were owned by certain of the Company’s wholly-owned foreign subsidiaries. Supplemental cash flow information: 2020 Fiscal Year 2019 2018 Cash paid during the year for: Income taxes, net of refunds Interest $ 8,296 - $ 14,451 - $ 2,040 2,127 At March 1, 2020 and March 3, 2019, the Company held $21 and $65,144, respectively, of cash and cash equivalents in foreign financial institutions. 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, amortization of premiums and discounts, and interest and dividend income are included in interest and other income, net. The cost of securities sold is based on the specific identification method. 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. 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. Shipping and handling costs are treated as fulfillment costs. 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 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. The Company is focused on manufacturing the highest quality products and employs stringent manufacturing process controls and works with raw material suppliers which have dedicated themselves to complying with the Company's specifications and technical requirements. The locations. There are no the customers’ 50 k. l. m. n. o. amounts of returns and allowances resulting from defective or damaged products have been less than 1.0% of sales for each of the Company's last three fiscal years. Accounts Receivable – The Company’s accounts receivable are due from purchasers of the Company’s products. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within established payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than established payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the conditions of the general economy and the 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. 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. $67 of impairments of long-lived assets was recognized in the 2018 fiscal year, and no impairments of long-lived assets were recognized in the 2020 or 2019 fiscal years. 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 one-step goodwill impairment test is performed. The Company assesses the impairment of goodwill at least annually. The Company conducts its annual goodwill impairment test as of the first day of the fourth quarter. The Company concluded that there was no impairment in the 2020 or 2019 fiscal years. Shipping Costs – Most of the costs for third-party shippers for transporting products to customers are paid for or reimbursed by customers. The Company records minimal shipping costs in selling, general and administrative expenses. 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 51 p. q. r. amortization expenses associated with property, plant and equipment were $1,544, $1,784 and $1,833 for the 2020, 2019 and 2018 fiscal years, respectively. 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 4). 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, if any, recognized on the liability for unrecognized tax benefits are recorded as income tax expense. 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. Stock-Based Compensation – The Company accounts for employee stock options, the only form of equity compensation issued by the Company, as compensation expense based on the fair value of the options on the date of grant and recognizes such expense on a straight-line basis over the four-year service period during which the options become exercisable. The Company determines the fair value of such options using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions relating to risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate. 52 s. t. u. 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 are held in treasury at cost. Reclassification – Certain amounts in the consolidated financial statements of the Company have been reclassified to conform to classifications used in the current year as a result of the discontinued operations presentation. The reclassifications had no effect on previously reported results of consolidated operations or retained earnings. (See Note 13). Leases - 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 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 ten 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. 2. MARKETABLE SECURITIES 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. The following is a summary of available-for-sale securities: 53 U.S. Treasury and other government securities U.S. corporate debt securities Total marketable securities U.S. Treasury and other government securities U.S. corporate debt securities Total marketable securities Total Level 1 Level 2 Level 3 March 1, 2020 $ $ 101,390 15,555 116,945 $ $ 101,390 15,555 116,945 - $ - $ - - $ - $ - Total Level 1 Level 2 Level 3 March 3, 2019 $ $ 68,718 11,899 80,617 $ $ 68,718 11,899 80,617 $ - - $ - $ - - $ - 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: March 1, 2020: U.S. Treasury and other government securities Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses $ 100,626 $ 764 $ - U.S. corporate debt securities Total marketable securities 15,473 116,099 $ $ 82 846 - $ - March 3, 2019: U.S. Treasury and other government securities $ 68,727 $ 44 $ 53 U.S. corporate debt securities Total marketable securities 11,924 80,651 $ $ 7 51 $ 32 85 2020 Fiscal Year 2019 2018 Gross realized gains on sale Gross realized losses on sale $ 90 $ - $ - $ 75 $ 1,498 $ 1,342 The estimated fair values of such securities at March 1, 2020, by contractual maturity, are shown below: $ 43,498 73,447 116,945 $ Due in one year or less Due after one year through five years 54 3. OTHER CONSOLIDATED BALANCE SHEET DATA Other consolidated balance sheet data consisted of the following: March 1, 2020 March 3, 2019 Inventories: Raw materials Work-in-process Finished goods Property, plant and equipment: Land, buildings and improvements Machinery, equipment, furniture and fixtures Less: accumulated depreciation and amortization Goodwill and other intangible assets: Goodwill Other intangibles Accrued liabilities: Payroll and payroll related Employee benefits Workers' compensation Professional fees Restructuring (Notes 8 and 13) Other 4. INCOME TAXES $ $ $ $ $ $ $ $ $ $ $ $ 5,319 254 806 6,379 13,642 35,182 48,824 32,724 16,100 9,776 28 9,804 578 1 111 467 432 120 1,709 4,556 232 479 5,267 13,187 56,961 70,148 59,357 10,791 9,776 35 9,811 823 6 122 451 1,324 194 2,920 $ $ $ $ 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. 55 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: Current: Federal State and local Foreign Deferred: Federal State and local Foreign 2020 Fiscal Year 2019 2018 $ 2,556 40 383 2,979 $ 1,776 164 258 2,198 899 (12) - 887 3,866 $ (71) (362) 26 (407) $ 1,791 $ 22,968 51 481 23,500 (41,624) (21) (17) (41,662) (18,162) $ The income tax provision (benefit) for discontinued operations includes the following: Current: Federal State and local Foreign Deferred: Federal State and local Foreign 2020 Fiscal Year 2019 2018 $ (183) (15) - (198) $ 11,198 1,455 1,397 14,050 - (38) - (38) (236) $ 686 564 (617) 633 14,683 $ $ (1,400) 168 327 (905) (430) (31) 63 (398) (1,303) $ 56 State income tax benefits from loss carryforwards to future years were recognized as deferred tax assets in the 2020, 2019 and 2018 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, and $135,300 in cash from its Singapore and French subsidiaries in the 2020, 2019 and 2018 fiscal years, respectively. The Company’s pre-tax earnings (loss) from continuing operations in the United States and foreign locations are as follows: 2020 Fiscal Year 2019 2018 United States Foreign Earnings before income taxes $ $ 11,676 2,395 14,071 $ $ 6,661 1,436 8,097 $ $ (652) 962 310 The Company’s pre-tax earnings (loss) from discontinued operations in the United States and foreign locations are as follows: 2020 Fiscal Year 2019 2018 United States Foreign (Loss) earnings before income taxes $ $ (887) - (887) $ 7,485 114,437 121,922 $ $ (7,512) 8,332 820 $ The Company’s effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following: Statutory U.S. Federal tax rate State and local taxes, net of Federal benefit Foreign tax rate differentials Valuation allowance on deferred tax assets Adjustment on tax accruals ASC 740-10 change Foreign tax credits U.S. Tax Reform Subpart F Permanent differences and other 2020 21.0% 0.1% (0.6%) (0.1%) (17.6%) 23.5% (2.7%) - 4.0% (0.1%) 27.5% Fiscal Year 2019 21.0% 1.6% (0.8%) (2.8%) 2.9% 0.4% (3.2%) - 4.0% (1.0%) 22.1% 2018 32.9% (41.4%) (117.6%) - 56.8% 104.7% (118.0%) (5,944.2%) 281.1% (104.0%) (5,849.7%) The Company had state net operating loss carryforwards of approximately $2,515 and $3,161 in the 2020 and 2019 fiscal years, respectively, and total net foreign operating loss carryforwards of approximately $7,798 and $7,862 in the 2020 and 2019 fiscal years, 57 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 2021 through 2039. The Company had available Kansas tax credits of $45 and $236 at the end of the 2020 and 2019 fiscal years, respectively. Kansas credits of $191 were utilized in 2020 and a corresponding tax benefit was recognized. The Company had Arizona tax credits of $576 and $135 in the 2020 and 2019 fiscal years, respectively, for which no benefit has been provided. The deferred tax asset valuation allowance of $3,175 as of March 1, 2020 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 2020 fiscal year, the valuation allowance increased by $420, primarily related to the recognition of the Arizona tax credits. 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 and March 3, 2019 were as follows: March 3, 2019 March 1, 2020 Deferred tax assets: Net operating loss carryforwards Tax credits carryforward Stock options Other, net Valuation allowance on deferred tax assets Total deferred tax assets, net of valuation allowance Deferred tax liabilities: Depreciation Undistributed earnings Other Total deferred tax liabilities Net deferred tax asset (liability) $ 2,608 621 1,120 478 4,827 $ 2,709 135 1,206 574 4,624 (3,175) 1,652 (2,755) 1,869 (1,743) (2) (699) (2,444) (792) $ (1,368) (333) (154) (1,855) 14 $ At March 1, 2020 and March 3, 2019, the Company had gross unrecognized tax benefits and related interest of $4,356 and $1,016, respectively, included in other liabilities. If any portion of the unrecognized tax benefits at March 1, 2020 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: Balance, beginning of year Tax positions - Discontinued Ops in prior period Gross decreases - tax positions in prior period Gross increases - current period tax positions Audit settlements Balance, end of year March 1, 2020 Unrecognized Tax Benefits March 3, 2019 February 25, 2018 $ 937 $ 314 $ - - (32) 187 (256) - - 3,259 - 4,164 $ 784 (92) 937 $ 314 - 314 $ 58 A reconciliation of the beginning and ending amounts of unrecognized tax benefits for discontinued operations is as follows: Balance, beginning of year Tax positions - Discontinued Ops in prior period Gross decreases - tax positions in prior period Gross increases - current period tax positions Lapse of statute of limitations Balance, end of year March 1, 2020 Unrecognized Tax Benefits March 3, 2019 February 25, 2018 $ - $ 187 $ 1,024 - - (187) - - (688) - - $ - - - $ - 6 (155) 187 $ 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 California New York France Singapore 2018-2020 2017-2020 2018-2020 2017-2020 2016-2020 The Company had approximately $193 and $79 of accrued interest and penalties as of March 1, 2020 and March 3, 2019, 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 or state tax returns. The Internal Revenue Service completed its examination of the 2016 fiscal year tax returns in June 2018. 5. STOCK-BASED COMPENSATION As of March 1, 2020, the Company had a 2018 Stock Option Plan (the “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 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, 692,100 59 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 was $408, which is expected to be recognized ratably over a weighted average vesting period of 3.15 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, 2019 and 2018 fiscal years: 2020 Fiscal Year 2019 2018 Weighted average fair value per share of option grants Risk-free interest rates Expected stock price volatility Expected dividend yields Estimated option terms $3.75 - $4.03 2.24% - 2.26% $3.66 2.83% 30.4% - 31.5% 2.43% 4.3 - 5.8 Years 24.7% 2.32% 5.2 Years - - - - - 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. 60 Information with respect to stock option activity follows: Balance, February 26, 2017 Granted Exercised Terminated or expired Balance, February 25, 2018 Granted Exercised Terminated or expired Balance, March 3, 2019 Granted Exercised Terminated or expired Balance, March 1, 2020 Vested and exercisable, March 1, 2020 Expected to vest, March 1, 2020 Outstanding Options 1,070,529 - (6,900) (178,075) 885,554 2,650 (244,382) (103,113) 540,709 114,450 (32,873) (111,652) 510,634 400,659 479,996 Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value $ 21.08 - 13.36 22.55 $ 17.55 13.50 12.18 18.75 $ $ $ $ 13.49 15.44 11.64 15.95 12.45 12.64 12.45 $ 227 5.21 4.12 5.21 $ $ $ 746 509 701 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, 2019 and 2018 fiscal years were $124, $1,157 and $44, respectively. A summary of the status of the Company’s non-vested options at March 1, 2020, and changes during the fiscal year then ended, is presented below: Non-vested, beginning of year Granted Vested Terminated or expired Shares Subject to Options Weighted Average Grant Date Fair Value 25,600 114,450 (22,960) (7,114) $ 3.50 3.97 3.48 3.92 Non-vested, end of year 109,976 $ 3.96 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. As a result, the Company is authorized to purchase up to a total of 1,531,412 shares of its common stock, representing approximately 7.5% of the Company’s 20,518,823 total outstanding shares as of the close of business on March 1, 2020. 61 Reserved Common Shares – At March 1, 2020, 692,100 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 Unrealized gains (losses) on investments, net of taxes of $690 and $1,157, respectively Accumulated balance $ $ 668 668 $ $ (22) (22) 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: (Amounts in thousands, except per share amounts) 2020 Fiscal Year 2019 2018 Net earnings - continuing operations Net (loss) earnings - discontinued operations Net earnings Weighted average common shares outstanding for basic EPS Net effect of dilutive options Weighted average shares outstanding for diluted EPS Basic earnings per share - continuing operations Basic (loss) earnings per share - discontinued operations Basic earnings per share Diluted earnings per share - continuing operations Diluted (loss) earnings per share - discontinued operations Diluted earnings per share $ $ $ 10,205 (653) 9,552 6,306 107,239 113,545 $ $ $ 18,472 2,123 20,595 20,507 88 20,595 20,288 97 20,385 20,237 30 20,267 $ $ $ 0.50 (0.03) 0.47 0.50 (0.03) 0.47 $ $ $ $ $ $ $ $ $ 0.31 5.29 5.60 0.31 5.26 5.57 0.91 0.11 1.02 0.91 0.11 1.02 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, 213,893 and 606,357 for the 2020, 2019 and 2018 fiscal years, respectively. 8. RESTRUCTURING CHARGES The Company recorded restructuring charges of $0, $0 and $146 in the 2020, 2019 and 2018 fiscal years, respectively, related to the closure, in the 2012 fiscal year, of the Company’s Park Advanced Composite Materials, Inc. business unit located in Waterbury, Connecticut. 62 9. EMPLOYEE BENEFIT PLANS 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 and $73 for fiscal years 2019 and 2018, respectively. The contribution for fiscal year 2020 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) retirement savings plan but has no financial obligations to plan participants in the form of matching contributions or otherwise. 10. LONG-TERM DEBT 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. 11. 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, 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. 63 Future minimum lease payments under non-cancellable operating leases as of March 1, 2020 are as follows: Fiscal Year: 2021 2022 2023 2024 2025 Thereafter Total undiscounted operating lease payments Less imputed interest Present value of operating lease payments $ 152 90 61 61 - 161 525 (105) 420 $ 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 in 2021 for the Company’s idle facility in Fullerton, California that have been accrued on the consolidated balance sheets in accrued liabilities. During the 2020 fiscal year, the Company’s operating lease expense was $318. Cash payments of $309, 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: Operating right-of-use assets $ 420 Operating lease liabilities Long-term operating lease liabilities Total operating lease liabilities $ $ 152 268 420 The Company’s weighted average remaining lease term for its operating leases is 5.87 years. These non-cancelable leases have the following payment schedule: Fiscal Year Amount 2021 2022 2023 2024 2025 Thereafter $ $ 152 90 61 61 - - 364 The above payment schedule does not include renewal options that have not been committed to. An additional $161 would be included in the period after 2024 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 and $432 for the 2020, 2019 and 2018 fiscal years, respectively. 64 In December 2018, 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 of approximately 90,000 square feet 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, Kansas Airport, in addition to the eight acres previously leased to PATC 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, 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) 12. 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. 65 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 two 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, three 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. 13. DISCONTINUED OPERATIONS 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, 2019 and 2018 fiscal years were negative 26.4%, 12.0% and negative 158.9%, respectively. 66 The following table shows the summary operating results of the discontinued operations: Fiscal Year Ended March 1, 2020 March 3, 2019 February 25, 2018 - $ - - $ 57,492 44,361 13,131 $ 70,966 55,794 15,172 234 941 (1,175) 288 8,826 636 3,669 118,253 (887) (234) 121,922 14,683 9,510 4,876 786 34 820 (1,303) $ (653) $ 107,239 $ 2,123 Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring charges (Loss) earnings from discontinued operations Other income (Loss) earnings from discontinued operations before income taxes Income tax (benefit) provision Net (loss) earnings from discontinued operations 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: Facility Lease Costs Severance Costs Equipment Removal Other Total Restructuring Charges Accrual March 3, 2019 $ 1,324 - - - 1,324 $ Current Period Charges $ 99 - 586 148 833 $ Cash Payments $ (991) - (586) (148) (1,725) $ Non-Cash Charges $ - - - - $ - Accrual March 1, 2020 $ 432 - - - $ 432 Total Expense Accrued to Date Total Expected Costs $ $ 2,929 1,081 586 927 5,523 3,000 1,081 586 950 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. 14. 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. 67 Financial information regarding the Company’s continuing operations by geographic region is as follows: 2020 Fiscal Year 2019 2018 Sales: North America Asia Europe Total sales Long-lived assets: North America Asia Europe Total long-lived assets $ $ $ $ $ $ 47,505 1,070 2,541 51,116 19,372 1,546 - 20,918 38,641 563 1,026 40,230 18,313 1,680 - 19,993 $ $ $ $ $ $ 56,264 1,378 2,372 60,014 24,942 1,650 - 26,592 15. CUSTOMER AND SUPPLIER CONCENTRATIONS 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%, 42.8% and 30.5% of the Company’s total worldwide sales in the 2020, 2019 and 2018 fiscal years, respectively. Net sales to AAE Aerospace were 10.6% of the Company’s total worldwide sales in the 2018 fiscal year. While no other customer accounted for 10% or more of the Company's total worldwide net sales in the 2020, 2019 or 2018 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. 16. ACCOUNTING PRONOUNCEMENTS Recently Adopted In February 2016, 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 12 months regardless of their classification. An accounting policy 68 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 69 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): 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 2019-12 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) public business entities for periods for which financial statements have not yet been issued, and (2) all other entities for periods for which financial statements have not yet been made available for issuance. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements and disclosures. 17. SUSEQUENT EVENTS Subsequent events were evaluated through May 14, 2020, which is the date of issuance of the audit report. 70 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. 71 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. 72 PARK AEROSPACE CORP. AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Amounts in thousands, except per share amounts) Fiscal 2020: Net sales Gross profit Net earnings from continuing operations Net (loss) earnings from discontinued operations Net earnings Basic earnings (loss) per share: Basic net earnings per share from continuing operations Basic net earnings (loss) per share from discontinued operations Basic earnings per share Diluted earnings (loss) per share: Diluted net earnings per share from continuing operations Diluted net earnings (loss) per share from discontinued operations Diluted earnings per share Weighted average common shares outstanding: Basic Diluted Fiscal 2019: Net sales Gross profit Net earnings from continuing operations Net earnings from discontinued operations Net earnings First Second Third Fourth Quarter $ 14,950 4,804 $ 13,723 3,813 $ 15,847 5,022 $ 15,494 5,034 2,714 (127) 2,587 2,052 83 2,135 2,806 (360) 2,446 2,633 (249) 2,384 $ 0.13 - $ 0.10 - $ 0.14 (0.02) $ 0.13 (0.01) 0.13 0.10 0.12 0.12 $ 0.13 - $ 0.10 - $ 0.14 (0.02) $ 0.13 (0.01) 0.13 0.10 0.12 0.12 20,492 20,586 20,499 20,601 20,518 20,617 20,519 20,578 $ 10,393 2,852 $ 11,211 3,145 $ 12,853 4,284 $ 16,659 5,903 816 2,352 3,168 1,824 876 2,700 2,078 1,613 3,691 1,588 102,398 103,986 Basic Earnings per share: Basic net earnings per share from continuing operations Basic net earnings per share from discontinued operations $ 0.04 0.12 $ 0.09 0.04 $ 0.10 0.08 $ 0.08 5.02 Basic earnings per share 0.16 0.13 0.18 5.10 Diluted Earnings per share: Diluted net earnings per share from continuing operations Diluted net earnings per share from discontinued operations $ 0.04 0.12 $ 0.09 0.04 $ 0.10 0.08 $ 0.08 4.99 Diluted earnings per share 0.16 0.13 0.18 5.07 Weighted average common shares outstanding: Basic Diluted 20,242 20,296 20,253 20,382 20,278 20,352 20,370 20,501 Earnings per share are computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for each year. 73 ITEM 9. ACCOUNTING AND FINANCIAL DISCLOSURE. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON None. ITEM 9A. CONTROLS AND PROCEDURES. (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, 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 management 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. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal 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. 74 (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. 75 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 2020 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 2020 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2020 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2020 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 2020 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. 76 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IV (a) Documents filed as a part of this Report: (1) Consolidated Financial Statements: The following Consolidated Financial Statements of the Company are included in Part II, Item 8: Report of Independent Registered Public Accounting Firm 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 (1-16) (2) Financial Statement Schedule: 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) Exhibits: The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index beginning on page 77 hereof. Page 42 43 44 45 46 47 48 78 77 PARK AEROSPACE CORP. AND SUBSIDIARIES SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Additions Column D Column E Description DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE: 52 weeks ended March 1, 2020 53 weeks ended March 3, 2019 52 weeks ended February 25, 2018 Balance at Beginning of Period Costs and Expenses Other Reductions Balance at End of Period $ $ $ 2,755,000 2,981,000 2,982,000 420,000 $ $ - $ - $ - $ - $ - $ - $ $ (226,000) (1,000) $ $ $ 3,175,000 2,755,000 2,981,000 Column A Column B Column C Column D Other Column E Description ALLOWANCE FOR DOUBTFUL ACCOUNTS: 52 weeks ended March 1, 2020 53 weeks ended March 3, 2019 52 weeks ended February 25, 2018 (A) Uncollectible amounts, net of recoveries Balance at Beginning of Period Charged to Cost and Expenses Accounts Written Off (A) Translation Adjustment Balance at End of Period $ $ $ 32,000 32,000 32,000 41,000 $ $ - $ - $ - $ - $ - $ - $ - $ - $ $ $ 73,000 32,000 32,000 78 Exhibit Numbers 3.1 3.2 3.3 3.4 10.3 10.4 EXHIBIT INDEX Description Restated Certificate of Incorporation, dated March 28, 1989, filed with the Secretary of State of the State of New York on April 10, 1989, as amended by Certificate of Amendment of the Certificate of Incorporation, increasing the number of authorized shares of Common stock from 15,000,000 to 30,000,000 shares, dated July 12, 1995, filed with the Secretary of State of the State of New York on July 17, 1995, and by Certificate of Amendment of the Certificate of Incorporation, amending certain provisions relating to the rights, preferences and limitations of the shares of a series of Preferred Stock, dated August 7, 1995, filed with the Secretary of State of the State of New York on August 16, 1995 (Reference is made to Exhibit 3.01 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2002, Commission File No. 1-4415, which is incorporated herein by reference.).................................... Certificate of Amendment of the Certificate of Incorporation, increasing the number of authorized shares of Common Stock from 30,000,000 to 60,000,000 shares, dated October 10, 2000, filed with the Secretary of State of the State of New York on October 11, 2000 (Reference is made to Exhibit 3.02 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2003, Commission File No. 1-4415, which is incorporated herein by reference.)............................................................... Certificate of Amendment of the Certificate of Incorporation, changing the name of the Company from “Park Electrochemical Corp.” to “Park Aerospace Corp.” filed with the New York Department of State on July 16, 2019 (Reference is made to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated July 22, 2019 Commission File No. 1-4415, which is incorporated herein by reference.)…………….......................................... By-Laws, amended and restated as of July 16, 2019 (Reference is made to Exhibit 3.2 of the Company’s Current Report on Form 8-K dated July 22, 2019 Commission File No. 1-4415, which is incorporated herein by reference.)………………………………………………………………………. 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 2002 Stock Option Plan of the Company (Reference is made to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2005, Commission File No.1-4415, which is incorporated herein by reference.)……….................... 2018 Stock Option Plan of the Company (Reference is made to Exhibit 99.1 of the Company’s Current Report on Form 8-K dated July 30, 2018, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.).......................................................................................... 79 Exhibit Numbers 10.5 Description 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 Code of Ethics for Chief Executive Officer and Senior Financial Officers adopted on May 6, 2004 (Reference is made to Exhibit 14.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2004, Commission File No. 1-4415, which is incorporated herein by reference.).................................................................................... 21.1 Subsidiaries of the Company....................................................................... 23.1 Consent of Independent Registered Public Accounting Firm………………. 31.1 31.2 32.1 32.2 101 Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)................................................................................ Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)................................................................................ Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002............................................................................................................ Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002............................................................................................................ The following materials from the Company’s Annual Report on Form 10-K for the year ended March 1, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 1, 2020 and March 3, 2019, (ii) Consolidated Statements of Operations for the years ended March 1, 2020, March 3, 2019 and February 25, 2018, (iii) Consolidated Statements of Comprehensive Earnings for the years ended March 1, 2020, March 3, 2019 and February 25, 2018, (iv) Consolidated Statements of Shareholders’ Equity for the years ended March 1, 2020, March 3, 2019 and February 25, 2018 and (v) Consolidated Statements of Cash Flows for the years ended March 1, 2020, March 3, 2019 and February 25, 2018 .*+ * 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 80 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. 81 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 14, 2020 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) /s/ P. Matthew Farabaugh P. Matthew Farabaugh Senior Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) /s/ Dale Blanchfield Dale Blanchfield /s/ Emily J. Groehl Emily J. Groehl /s/ Carl W. Smith Carl W. Smith /s/ Steven T. Warshaw Steven T. Warshaw Director Director Director Director 82 May 14, 2020 May 14, 2020 May 14, 2020 May 14, 2020 May 14, 2020 May 14, 2020 EXHIBIT 21.1 SUBSIDIARIES OF PARK AEROSPACE CORP. The following table lists all of Park's directly and indirectly owned subsidiaries and the jurisdiction in which each such subsidiary is organized. Name Neluk, Inc. New England Laminates Co., Inc. ParkNelco SNC Park Sales Corp. Tin City Aircraft Works, Inc. Park Aerospace Technologies Asia Pte. Ltd. NW Orangethorpe, Inc. Jurisdiction of Incorporation Delaware New York France Delaware Kansas Singapore New York 83 Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement on Forms S-8 (No. 333-231986) of our report dated May 14, 2020, on our audits of the consolidated financial statements and financial statement schedule of Park Aerospace Corp. and subsidiaries as of March 1, 2020 and March 3, 2019 and for each of the years in the three-year period ended March 1, 2020, which report is included in the Annual Report on Form 10-K of Park Aerospace Corp. for the year ended March 1, 2020. /s/ CohnReznick LLP Roseland, New Jersey May 14, 2020 EXHIBIT 31.1 84 Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) I, Brian E. Shore, as Chief Executive Officer of Park Aerospace Corp., certify that: 1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended March 1, 2020 of Park Aerospace Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in accordance with generally accepted accounting principles; the preparation of financial statements for external purposes (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and this report our conclusions about in (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 85 (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2020 /s/ Brian E. Shore Name: Brian E. Shore Title: Chief Executive Officer EXHIBIT 31.2 86 Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) I, P. Matthew Farabaugh, as Senior Vice President and Chief Financial Officer of Park Aerospace Corp., certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K for the fiscal year ended March 1, 2020 of Park Aerospace Corp.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's 87 auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) (b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2020 /s/ P. Matthew Farabaugh Name: P. Matthew Farabaugh Title: Senior Vice President and Chief Financial Officer EXHIBIT 32.1 88 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K of Park Aerospace Corp. (the "Company") for the fiscal year ended March 1, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Brian E. Shore, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Brian E. Shore Name: Brian E. Shore Title: Chief Executive Officer Date: May 14, 2020 EXHIBIT 32.2 89 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K of Park Aerospace Corp. (the "Company") for the fiscal year ended March 1, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), P. Matthew Farabaugh, as Senior Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ P. Matthew Farabaugh Name: P. Matthew Farabaugh Title: Senior Vice President and Chief Financial Officer Date: May 14, 2020 90 

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