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