pke20210829_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 29, 2021

☐ 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.

(Exact Name of Registrant as Specified in Its Charter)

New York	11-1734643
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1400 Old Country Road, Westbury, NY	11590
(Address of Principal Executive Offices)	(Zip Code)

(631) 465-3600

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which

Registered

Common Stock, par value $.10 per share

PKE

New York Stock Exchange

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 definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☒ Smaller Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,458,210 as of October 1, 2021.

PARK AEROSPACE CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION:	Page Number

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets August 29, 2021 (Unaudited) and February 28, 2021	4

	Consolidated Statements of Operations 13 weeks and 26 weeks ended August 29, 2021 and August 30, 2020 (Unaudited)	5

	Consolidated Statements of Comprehensive Earnings 13 weeks and 26 weeks ended August 29, 2021 and August 30, 2020 (Unaudited)	6

	Consolidated Statements of Shareholders’ Equity August 29, 2021 and August 30, 2020 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows 26 weeks ended August 29, 2021 and August 30, 2020 (Unaudited	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Factors That May Affect Future Results	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	28

Item 6.	Exhibits	28

EXHIBIT INDEX		29

SIGNATURES		30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	August 29, 2021 (unaudited)			February 28, 2021*

ASSETS
Current assets
Cash and cash equivalents	$	19,701		$	41,595
Marketable securities (Note 3)		93,141			74,947
Accounts receivable, less allowance for doubtful accounts of $96 and $89, respectively		8,481			7,633
Inventories (Note 4)		4,821			4,794
Prepaid expenses and other current assets		3,122			3,372
Total current assets		129,266			132,341

Property, plant and equipment, net		23,212			21,130
Operating right-of-use assets (Note 5)		76			103
Goodwill and other intangible assets		9,797			9,797
Other assets		145			141
Total assets	$	162,496		$	163,512

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,515		$	3,300
Operating lease liability (Note 5)		8			33
Accrued liabilities		1,395			1,708
Income taxes payable		3,002			2,952
Total current liabilities		6,920			7,993

Long-term operating lease liability (Note 5)		89			86
Non-current income taxes payable (Note 10)		12,623			14,303
Deferred income taxes (Note 10)		1,168			778
Other liabilities		4,478			4,411
Total liabilities		25,278			27,571

Commitments and contingencies (Note 13)

Shareholders' equity (Note 8)
Common stock		2,096			2,096
Additional paid-in capital		169,779			170,038
Accumulated deficit		(24,373	)		(25,063	)
Accumulated other comprehensive loss		(345	)		(336	)
		147,157			146,735
Less treasury stock, at cost		(9,939	)		(10,794	)
Total shareholders' equity		137,218			135,941
Total liabilities and shareholders' equity	$	162,496		$	163,512

* The balance sheet at February 28, 2021 has been derived from the audited consolidated financial statements at that date.

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

	13 Weeks Ended (Unaudited)					26 Weeks Ended (Unaudited)
	August 29,		August 30,			August 29,		August 30,
	2021		2020			2021		2020

Net sales	$	13,618	$	9,250		$	27,212	$	21,463
Cost of sales		9,207		6,612			17,329		15,151
Gross profit		4,411		2,638			9,883		6,312
Selling, general and administrative expenses		1,488		1,552			3,136		3,182
Restructuring charges (Note 9)		170		-			184		-
Earnings from continuing operations		2,753		1,086			6,563		3,130
Interest and other income		89		525			206		1,181
Earnings from continuing operations before income taxes		2,842		1,611			6,769		4,311
Income tax provision (Note 10)		820		460			2,002		1,188
Net earnings from continuing operations		2,022		1,151			4,767		3,123
Loss from discontinued operations, net of tax (Note 12)		-		(197	)		-		(212	)
Net earnings	$	2,022	$	954		$	4,767	$	2,911

Earnings per share (Note 7)
Basic:
Continuing operations	$	0.10	$	0.06		$	0.23	$	0.15
Discontinued operations		-		(0.01	)		-		(0.01	)
Basic earnings per share	$	0.10	$	0.05		$	0.23	$	0.14
Basic weighted average shares		20,397		20,381			20,390		20,392

Diluted:
Continuing operations	$	0.10	$	0.06		$	0.23	$	0.15
Discontinued operations		-		(0.01	)		-		(0.01	)
Diluted earnings per share	$	0.10	$	0.05		$	0.23	$	0.14
Diluted weighted average shares		20,485		20,433			20,597		20,447

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Amounts in thousands)

	13 Weeks Ended (Unaudited)						26 Weeks Ended (Unaudited)
	August 29,			August 30,			August 29,			August 30,
	2021			2020			2021			2020

Net earnings	$	2,022		$	954		$	4,767		$	2,911
Other comprehensive earnings, net of tax:
Unrealized gains on marketable securities:
Unrealized holding gains arising during the period		10			109			104			397
Less: reclassification adjustment for gains included in net earnings		(5	)		(37	)		(9	)		(54	)
Unrealized losses on marketable securities:
Unrealized holding losses arising during the period		(66	)		(275	)		(104	)		(342	)
Less: reclassification adjustment for losses included in net earnings		-			-			-			-
Other comprehensive (loss) earnings		(61	)		(203	)		(9	)		1
Total comprehensive earnings	$	1,961		$	751		$	4,758		$	2,912

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

											Accumulated
					*Additional*						*Other*
	*Common Stock*				*Paid-in*			*Accumulated*			*Comprehensive*			*Treasury Stock*
	*Shares*		*Amount*		*Capital*			*Deficit*			*(Loss) Earnings*			*Shares*			*Amount*

Balance, February 28, 2021		20,965,144	$	2,096	$	170,038		$	(25,063	)	$	(336	)		582,268		$	(10,794	)

Net earnings		-		-		-			2,745			-			-			-
Unrealized gain on marketable securities, net of tax		-		-		-			-			52			-			-
Stock-based compensation		-		-		64			-			-			-			-
Cash dividends ($0.10 per share)		-		-		-			(2,038	)		-			-			-

Balance, May 30, 2021		20,965,144		2,096		170,102			(24,356	)		(284	)		582,268			(10,794	)

Net earnings		-		-		-			2,022			-			-			-
Unrealized loss on marketable securities, net of tax		-		-		-			-			(61	)		-			-
Stock options exercised		-		-		(397	)		-			-			(46,134	)		855
Stock-based compensation		-		-		74			-			-			-			-
Cash dividends ($0.10 per share)		-		-		-			(2,039	)		-			-			-

Balance, August 29, 2021		20,965,144	$	2,096	$	169,779		$	(24,373	)	$	(345	)		536,134		$	(9,939	)

										Accumulated
					*Additional*					*Other*
	*Common Stock*				*Paid-in*		*Accumulated*			*Comprehensive*			*Treasury Stock*
	*Shares*		*Amount*		*Capital*		*Deficit*			*Earnings*			*Shares*		*Amount*

Balance, March 1, 2020		20,965,144	$	2,096	$	169,862	$	(21,774	)	$	668			446,321	$	(9,177	)

Net earnings		-		-		-		1,957			-			-		-
Unrealized gain on marketable securities, net of tax		-		-		-		-			204			-		-
Stock-based compensation		-		-		43		-			-			-		-
Repurchase of treasury shares		-		-		-		-			-			137,397		(1,644	)
Cash dividends ($0.10 per share)		-		-		-		(2,038	)		-			-		-

Balance, May 31, 2020		20,965,144		2,096		169,905		(21,855	)		872			583,718		(10,821	)

Net earnings		-		-		-		954			-			-		-
Unrealized loss on marketable securities, net of tax		-		-		-		-			(203	)		-		-
Stock-based compensation		-		-		50		-			-			-		-
Cash dividends ($0.10 per share)		-		-		-		(2,038	)		-			-		-

Balance, August 30, 2020		20,965,144	$	2,096	$	169,955	$	(22,939	)	$	669			583,718	$	(10,821	)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	26 Weeks Ended (Unaudited)
	August 29,			August 30,
	2021			2020
Cash flows from operating activities:
Net earnings	$	4,767		$	2,911
Loss from discontinued operations, net of tax		-			212
Net earnings from continuing operations		4,767			3,123
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		451			556
Stock-based compensation		138			93
Deferred income taxes		390			(96	)
Amortization of bond premium		515			120
Changes in operating assets and liabilities		(3,285	)		2,525
Net cash provided by operating activities - continuing operations		2,976			6,321
Net cash used in operating activities - discontinued operations		-			(212	)
Net cash provided by operating activities		2,976			6,109

Cash flows from investing activities:
Purchase of property, plant and equipment		(2,533	)		(3,935	)
Purchases of marketable securities		(30,888	)		(32,909	)
Proceeds from sales and maturities of marketable securities		12,170			33,332
Net cash used in investing activities - continuing operations		(21,251	)		(3,512	)
Net cash used in investing activities - discontinued operations		-			-
Net cash used in investing activities		(21,251	)		(3,512	)

Cash flows from financing activities:
Dividends paid		(4,077	)		(4,076	)
Proceeds from exercise of stock options		458			-
Purchase of treasury stock		-			(1,644	)
Net cash used in financing activities - continuing operations		(3,619	)		(5,720	)
Net cash used in financing activities - discontinued operations		-			-
Net cash used in financing activities		(3,619	)		(5,720	)

Decrease in cash and cash equivalents:		(21,894	)		(3,123	)
Cash and cash equivalents, beginning of period		41,595			5,410
Cash and cash equivalents, end of period	$	19,701		$	2,287


Supplemental cash flow information:
Cash paid during the period for income taxes, net of refunds	$	3,049		$	254

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share (unless otherwise stated), per share and option amounts)

1. CONSOLIDATED FINANCIAL STATEMENTS

The Condensed Consolidated Balance Sheet and the Consolidated Statements of Shareholders’ Equity as of August 29, 2021, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Earnings for the 13 weeks and 26 weeks ended August 29, 2021 and August 30, 2020, and the Condensed Consolidated Statements of Cash Flows for the 26 weeks then ended have been prepared by Park Aerospace Corp. (the “Company”), without audit. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at August 29, 2021 and the results of operations and cash flows for all periods presented. The Consolidated Statements of Operations are not necessarily indicative of the results to be expected for the full fiscal year or any subsequent interim period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2021. There have been no significant changes to such accounting policies during the 26 weeks ended August 29, 2021.

2. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

Fair value measurements are broken down into three levels based on the reliability of inputs as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to their short-term nature. 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 3).

The Company’s non-financial assets measured at fair value on a non-recurring basis 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. With respect to goodwill, the Company first assesses qualitative factors to determine whether it is more likely than not that fair value is less than carrying value. If, based on that assessment, the Company believes it is more likely than not that fair value is less than carrying value, a goodwill impairment test is performed. There have been no changes in events or circumstances which required impairment charges to be recorded during the 13 weeks and 26 weeks ended August 29, 2021.

3. 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 in the Consolidated Statements of Operations. The costs of securities sold are based on the specific identification method.

The following is a summary of available-for-sale securities:

	August 29, 2021
	Total		Level 1		Level 2		Level 3

U.S. Treasury and other government securities	$	55,630	$	55,630	$	-	$	-
U.S. corporate debt securities		37,511		37,511		-		-
Total marketable securities	$	93,141	$	93,141	$	-	$

	February 28, 2021
	Total		Level 1		Level 2		Level 3

U.S. Treasury and other government securities	$	56,906	$	56,906	$	-	$	-
U.S. corporate debt securities		18,041		18,041		-		-
Total marketable securities	$	74,947	$	74,947	$	-	$	-

The following table shows the amortized cost basis of, and gross unrealized gains and losses on, the Company’s available-for-sale securities:

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses
August 29, 2021:
U.S. Treasury and other government securities	$	56,111	$	75	$	556

U.S. corporate debt securities		37,503		28		20
Total marketable securities	$	93,614	$	103	$	576

February 28, 2021:
U.S. Treasury and other government securities	$	57,400	$	153	$

SEC Form 10-Q filed by Park Aerospace Corp.