pke20230827_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 27, 2023

☐ 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		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

1400 Old Country Road, Westbury, N.Y.		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: 20,250,111 as of October 3, 2023.

PARK AEROSPACE CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION:	Page Number

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets August 27, 2023 (Unaudited) and February 26, 2023	3

	Consolidated Statements of Operations 13 weeks and 26 weeks ended August 27, 2023 and August 28, 2022 (Unaudited)	4

	Consolidated Statements of Comprehensive Earnings 13 weeks and 26 weeks ended August 27, 2023 and August 28, 2022 (Unaudited)	5

	Consolidated Statements of Shareholders’ Equity August 27, 2023 and August 28, 2022 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows 26 weeks ended August 27, 2023 and August 28, 2022 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Factors That May Affect Future Results	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

EXHIBIT INDEX		26

SIGNATURES		27

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	August 27, 2023 (unaudited)			February 26, 2023*
ASSETS
Current assets
Cash and cash equivalents	$	7,363		$	4,237
Marketable securities (Note 3)		66,851			101,203
Accounts receivable, less allowance for doubtful accounts of $128 and $120, respectively		9,374			9,989
Inventories (Note 4)		8,457			6,768
Prepaid expenses and other current assets		2,587			2,844
Total current assets		94,632			125,041

Property, plant and equipment, net		23,980			24,251
Operating right-of-use assets (Note 5)		123			150
Goodwill and other intangible assets		9,783			9,783
Other assets		101			108
Total assets	$	128,619		$	159,333

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,535		$	4,545
Operating lease liability (Note 5)		53			53
Accrued liabilities		1,167			1,346
Dividend payable		-			20,471
Income taxes payable		4,033			2,171
Total current liabilities		6,788			28,586

Long-term operating lease liability (Note 5)		106			129
Non-current income taxes payable (Note 9)		5,259			10,938
Deferred income taxes (Note 9)		1,942			1,995
Other liabilities		1,812			1,751
Total liabilities		15,907			43,399

Commitments and contingencies (Note 11)

Shareholders' equity (Note 8)
Common stock		2,096			2,096
Additional paid-in capital		170,254			169,932
Accumulated deficit		(44,184	)		(42,694	)
Accumulated other comprehensive loss		(3,418	)		(4,244	)
		124,748			125,090
Less treasury stock, at cost		(12,036	)		(9,156	)
Total shareholders' equity		112,712			115,934
Total liabilities and shareholders' equity	$	128,619		$	159,333

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 27,		August 28,		August 27,		August 28,
	2023		2022		2023		2022

Net sales	$	12,481	$	13,875	$	28,032	$	26,658
Cost of sales		8,402		9,789		19,120		18,480
Gross profit		4,079		4,086		8,912		8,178
Selling, general and administrative expenses		1,853		1,732		4,468		3,365
Earnings from operations		2,226		2,354		4,444		4,813
Interest and other income		139		221		463		354
Earnings from operations before income taxes		2,365		2,575		4,907		5,167
Income tax provision (Note 9)		619		690		1,307		1,372
Net earnings	$	1,746	$	1,885	$	3,600	$	3,795

Earnings per share (Note 7)
Basic:
Basic earnings per share	$	0.09	$	0.09	$	0.18	$	0.19
Basic weighted average shares		20,256		20,461		20,359		20,460

Diluted:
Diluted earnings per share	$	0.09	$	0.09	$	0.18	$	0.19
Diluted weighted average shares		20,338		20,503		20,432		20,504

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 27,			August 28,			August 27,			August 28,
	2023			2022			2023			2022

Net earnings	$	1,746		$	1,885		$	3,600		$	3,795
Other comprehensive (loss) earnings, net of tax:
Unrealized gains on marketable securities:
Unrealized holding gains arising during the period		109			24			701			33
Less: reclassification adjustment for gains included in net earnings		-			-			-			(7	)
Unrealized losses on marketable securities:
Unrealized holding losses arising during the period		(107	)		(696	)		(107	)		(1,634	)
Less: reclassification adjustment for losses included in net earnings		108			5			232			8
Other comprehensive earnings (loss)		110			(667	)		826			(1,600	)
Total comprehensive earnings	$	1,856		$	1,218		$	4,426		$	2,195

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 26, 2023		20,965,144	$	2,096	$	169,932	$	(42,694	)	$	(4,244	)		493,934	$	(9,156	)
Net earnings		-		-		-		1,854			-			-		-
Unrealized gain on marketable securities, net of tax		-		-		-		-			716			-		-
Stock-based compensation		-		-		218		-			-			-		-
Repurchase of treasury shares		-		-		-		-			-			129,654		(1,669	)
Cash dividends ($0.125 per share)		-		-		-		(2,559	)		-			-		-
Balance, May 28, 2023		20,965,144	$	2,096	$	170,150	$	(43,399	)	$	(3,528	)		623,588	$	(10,825	)

Net earnings		-		-		-		1,746			-			-		-
Unrealized gain on marketable securities, net of tax		-		-		-		-			110			-		-
Stock-based compensation		-		-		104		-			-			-		-
Repurchase of treasury shares		-		-		-		-			-			91,445		(1,211	)
Cash dividends ($0.125 per share)		-		-		-		(2,531	)		-			-		-
Balance, August 27, 2023		20,965,144	$	2,096	$	170,254	$	(44,184	)	$	(3,418	)		715,033	$	(12,036	)

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

Balance, February 27, 2022		20,965,144	$	2,096	$	169,665		$	(24,767	)	$	(1,965	)		506,934		$	(9,397	)
Net earnings		-		-		-			1,910			-			-			-
Unrealized loss on marketable securities, net of tax		-		-		-			-			(933	)		-			-
Stock-based compensation		-		-		85			-			-			-			-
Cash dividends ($0.10 per share)		-		-		-			(2,046	)		-			-			-
Balance, May 29, 2022		20,965,144	$	2,096	$	169,750		$	(24,903	)	$	(2,898	)		506,934		$	(9,397	)

Net earnings		-		-		-			1,885			-			-			-
Unrealized loss on marketable securities, net of tax		-		-		-			-			(667	)		-			-
Stock options exercised		-		-		(102	)		-			-			(13,000	)		241
Stock-based compensation		-		-		94			-			-			-			-
Cash dividends ($0.10 per share)		-		-		-			(2,046	)		-			-			-
Balance, August 28, 2022		20,965,144	$	2,096	$	169,742		$	(25,064	)	$	(3,565	)		493,934		$	(9,156	)

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 27,			August 28,
	2023			2022
Cash flows from operating activities:
Net earnings	$	3,600		$	3,795
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		644			521
Stock-based compensation		322			179
Provision for doubtful accounts		8			-
Deferred income taxes		(52	)		368
Amortization of bond premium		408			(5	)
Loss on sale of marketable securities		184			-
Changes in operating assets and liabilities		(7,759	)		(6,561	)
Net cash used in operating activities		(2,645	)		(1,703	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(374	)		(644	)
Purchases of marketable securities		(3,329	)		(27,141	)
Proceeds from sales and maturities of marketable securities		37,915			24,466
Net cash provided by (used in) investing activities		34,212			(3,319	)

Cash flows from financing activities:
Dividends paid		(25,561	)		(4,092	)
Proceeds from exercise of stock options		-			139
Purchase of treasury stock		(2,880	)		-
Net cash used in financing activities		(28,441	)		(3,953	)

Increase (decrease) in cash and cash equivalents:		3,126			(8,975	)
Cash and cash equivalents, beginning of period		4,237			12,811
Cash and cash equivalents, end of period	$	7,363		$	3,836


Supplemental cash flow information:
Cash paid during the period for income taxes, net of refunds	$	5,107		$	1,732

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Condensed Consolidated Balance Sheet and the Consolidated Statements of Shareholders’ Equity as of August 27, 2023, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Earnings for the 13 weeks and 26 weeks ended August 27, 2023 and August 28, 2022, 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 27, 2023 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 (“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 26, 2023. There have been no significant changes to such accounting policies during the 26 weeks ended August 27, 2023.

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 27, 2023.

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 Condensed 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 27, 2023
	Total		Level 1		Level 2		Level 3

U.S. Treasury and other government securities	$	63,522	$	63,522	$	-	$	-
U.S. corporate debt securities		3,329		3,329		-		-
Total marketable securities	$	66,851	$	66,851	$	-	$	-

	February 26, 2023
	Total		Level 1		Level 2		Level 3

U.S. Treasury and other government securities	$	83,859	$	83,859	$	-	$	-
U.S. corporate debt securities		17,344		17,344		-		-
Total marketable securities	$	101,203	$	101,203	$	-	$	-

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost Basis		Gains		Losses

August 27, 2023:
U.S. Treasury and other government securities	$	68,195	$	-	$	4,673
U.S. corporate debt securities		3,338		-		9
Total marketable securities	$	71,533	$	-	$	4,682

February 26, 2023:
U.S. Treasury and other government securities	$	89,603	$	-	$	5,744
U.S. corporate debt securities		17,414		-		70
Total marketable securities	$	107,017	$	-	$	5,814

The estimated fair values of such securities at August 27, 2023 by contractual maturity are shown below:

Due in one year or less	$	10,718
Due after one year through five years		56,133
	$	66,851

4.	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. Work-in-process and finished goods inventories cost valuations include direct material costs as well as a portion of the Company’s overhead expenses. The Company’s overhead expenses that are applied to its finished goods inventories are based on actual expenses related to the procurement, storage, shipment and production of the finished goods. Inventories consisted of the following:

	August 27,		February 26,
	2023		2023

Inventories:
Raw materials	$	6,960	$	5,376
Work-in-process		348		536
Finished goods		1,149		856
	$	8,457	$	6,768

5.	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 term 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.

Future minimum lease payments under non-cancellable operating leases as of August 27, 2023 are as follows:

Fiscal Year:
2024	$	26
2025		36
2026		-
2027		-
2028		-
Thereafter		162
Total undiscounted operating lease payments		224
Less imputed interest		(65	)
Present value of operating lease payments	$	159

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 condensed consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the terms of the leases.

For the 13 weeks and 26 weeks ended August 27, 2023, the Company’s operating lease expenses were $16 and $31, respectively. Cash payments of $27, pertaining to operating leases, are reflected in the cash flow statement under cash flows from operating activities.

Operating right-of-use assets	$	123

Operating lease liabilities	$	53
Long-term operating lease liabilities		106
Total operating lease liabilities	$	159

The Company’s weighted average remaining lease term for its operating leases is 8.2 years.

In December 2018, the Company entered into a Development Agreement with the City of Newton (“City”), Kansas and the Board of County Commissioners of Harvey County (“County”), Kansas. Pursuant to this agreement, the Company agreed to construct and operate a redundant manufacturing facility of approximately 90,000 square feet for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace. The Company further agreed to equip the facility through the purchase of machinery, equipment and furnishings and to create additional new full-time employment of specified levels during a five-year period. In exchange for these agreements, the City and the County agreed to lease to the Company three acres of land at the Newton, Kansas Airport, in addition to the eight acres previously leased to the Company by the City and County. The City and County further agreed to provide financial and other assistance toward the construction of the additional facility as set forth in the Development Agreement. The total cost of the additional facility was $19,800 and the expansion is complete. As of August 27, 2023, the Company had $30 in equipment purchase obligations related to the additional facility.

6.	STOCK-BASED COMPENSATION

As of August 27, 2023, 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 and provides for the grant of options to purchase up to 800,000 shares of common stock of the Company. 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 the 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. Upon termination of employment or service as a director, all options held by the optionee that have not previously become exercisable shall terminate and all other options held by such optionee may be exercised, to the extent exercisable on the date of such termination, for a limited time after such termination. Any shares of common stock subject to an option under the 2018 Plan, which expires or is terminated unexercised as to such shares, shall again become available for issuance under the 2018 Plan.

During the 26 weeks ended August 27, 2023, the Company granted options under the 2018 Plan to purchase a total of 133,300 shares of common stock to its directors and certain of its employees. The future compensation expense to be recognized in earnings before income taxes is $387 and will be recorded on a straight-line basis over the requisite service period. The weighted average fair value of the granted options was $3.01 per share using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3.61%-3.85%; expected volatility factor of 28.5%-29.6%; expected dividend yield of 3.82%; and estimated option term of 4.9-8.3 years.

The risk-free interest rates were based on U.S. Treasury rates at the date of grant with maturity dates approximately equal to the estimated terms of the options at the date of the grant. Volatility factors were based on historical volatility of the Company’s common stock. The expected dividend yields were 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 13 weeks and 26 weeks ended August 27, 2023. The estimated term of the options was based on evaluations of the historical and expected future employee exercise behavior.

During the 2024 fiscal year, the Company recorded non-cash charges of $109 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 April 2023.

The following is a summary of option activity for the 26 weeks ended August 27, 2023:

				Weighted		Weighted Average		Aggregate
	Outstanding			Average		Remaining Contractual		Intrinsic
	Options			Exercise Price		Term (in years)		Value

Balance, February 26, 2023		670,425		$	11.80			$	838
Granted		133,300			13.08
Exercised		-			-
Terminated or expired		(2,450	)		12.14
Balance, August 27, 2023		801,275		$	12.01		6.03	$	833
Vested and exercisable, August 27, 2023		481,350		$	11.81		4.24	$	597

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 potentially dilutive securities outstanding during the period. Stock options are the only potentially dilutive securities; 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:

	13 Weeks Ended				26 Weeks Ended
	August 27, 2023		August 28, 2022		August 27, 2023		August 28, 2022

Net earnings	$	1,746	$	1,885	$	3,600	$	3,795

Weighted average common shares outstanding for basic EPS		20,256		20,461		20,359		20,460
Net effect of dilutive options		82		42		73		44
Weighted average shares outstanding for diluted EPS		20,338		20,503		20,432		20,504

Basic earnings per share	$	0.09	$	0.09	$	0.18	$	0.19
Diluted earnings per share	$	0.09	$	0.09	$	0.18	$	0.19

Potentially dilutive securities, which were not included in the computation of diluted earnings per share, because either the effect would have been anti-dilutive or the options’ exercise prices were greater than the average market price of the common stock, were 148,000 and 501,000 for the 13 weeks ended August 27, 2023 and August 28, 2022, respectively, and 152,000 and 449,000 for the 26 weeks ended August 27, 2023 and August 28, 2022, respectively.

8.	SHAREHOLDERS’ EQUITY

On May 23, 2022, 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 1,500,000 additional shares of its common stock. This authorization supersedes any unused prior Board of Directors’ authorizations to purchase shares of the Company’s common stock. The Company purchased 221,099 and 0 shares of its common stock during the 26 weeks ended August 27, 2023 and August 28, 2022, respectively. As a result, the Company is authorized to purchase up to a total of 1,278,901 shares of its common stock, representing approximately 6.3% of the Company’s 20,250,111 total outstanding shares as of the close of business on October 3, 2023. There is no assurance the Company will purchase any shares pursuant to this Board of Directors’ authorization. Shares purchased by the Company, if any, will be retained as treasury stock and will be available for use under the Company’s stock option plan and for other corporate purposes.

9.	INCOME TAXES

For the 13 weeks and 26 weeks ended August 27, 2023, the Company recorded income tax provisions from operations of $619 and $1,307, respectively, which included discrete income tax provisions of $16 and $53, respectively. For the 13 weeks and 26 weeks ended August 28, 2022, the Company recorded income tax provisions from operations of $690 and $1,372, respectively, which included discrete income tax provisions of $48 and $75, respectively.

The Company’s effective tax rates for the 13 weeks and 26 weeks ended August 27, 2023 were income tax provisions of 26.2% and 26.6%, respectively, compared to income tax provisions of 26.8% and 26.6% in the comparable prior periods. The effective tax rates for the 13 weeks and 26 weeks ended August 27, 2023 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and a discrete income tax provision for the accrual of interest related to unrecognized tax benefits. The effective rates for the 13 weeks and 26 weeks ended August 28, 2022 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and discrete income tax provisions for the accrual of interest related to unrecognized tax benefits.

Notwithstanding the U.S. taxation of the deemed repatriated earnings as a result of the mandatory one-time transition tax on the accumulated untaxed earnings of foreign subsidiaries of U.S. shareholders included in the 2017 Tax Cuts and Jobs Act, 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 such earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred taxes on such earnings.

10.

GEOGRAPHIC REGIONS

The Company’s products are sold to customers in North America, Asia and Europe. The Company’s manufacturing facility is located in Kansas. Sales are attributed to geographic regions based upon the region in which the materials were delivered to the customer. All of the Company’s long-lived assets are located in North America.

Financial information regarding the Company’s continuing operations by geographic region is as follows:

	13 Weeks Ended				26 Weeks Ended
	August 27, 2023		August 28, 2022		August 27, 2023		August 28, 2022

Sales:

North America	$	11,338	$	12,739	$	24,957	$	24,888
Asia		412		153		542		277
Europe		731		983		2,533		1,493
Total sales	$	12,481	$	13,875	$	28,032	$	26,658

11.

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, 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 sub‐sidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program.

The insurance carriers which provided general liability insurance coverage to the Company and its subsidiaries for the years dur‐ing which the Company’s subsidiaries’ waste was disposed at these three 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 mat‐ters described above. The Company accrues estimated costs asso‐ciated 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.

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

General:

Park Aerospace Corp. (“Park” or the “Company”) 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 (Aeroadhere®) and lightning strike protection materials (Electroglide®). 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 SigmaStrut^TM and AlphaStrut^TM product lines) are, among others, prototype and development aircraft, special mission aircraft, spares for legacy military and civilian aircraft and exotic spacecraft.

Financial Overview

The Company's net sales in the 13 weeks and 26 weeks ended August 27, 2023 were $12.5 million and $28.0 million, respectively, compared to $13.9 million and $26.7 million, respectively, in the 13 weeks and 26 weeks ended August 28, 2022. Sales for the 13 weeks and 26 weeks ended August 27, 2023 were negatively impacted by inventory reduction efforts at our largest customer.

The Company’s gross profit margins, measured as percentages of sales, were 32.7% and 31.8%, respectively, in the 13 weeks and 26 weeks ended August 27, 2023 compared to 29.4% and 30.7%, respectively, in the 13 weeks and 26 weeks ended August 28, 2022. The higher gross profit margin for the 13 and 26 weeks ended August 27, 2023 compared to last year’s comparable periods was primarily due to a favorable sales mix, reduced production waste and higher pricing partially offset by higher costs for raw materials, supplies, freight, and labor resulting from inflationary trends. Gross profit for the 13 weeks and 26 weeks ended August 27, 2023 was negatively impacted by lower sales to our largest customer due to the customers inventory reduction efforts.

The Company’s earnings before income taxes and net earnings decreased 8.2% and 7.4%, respectively, in the 13 weeks ended August 27, 2023 compared to the 13 weeks ended August 28, 2022 primarily as a result of lower sales, and higher costs for raw materials, supplies, freight, and labor resulting from inflationary trends, partially offset by a favorable sales mix, reduced production waste and bad debt expense related to a customer bankruptcy in the prior year 13 weeks period.

The Company’s earnings before income taxes and net earnings decreased 5.0% and 5.1%, respectively, in the 26 weeks ended August 27, 2023 compared to the 26 weeks ended August 28, 2022 primarily as a result of higher costs for raw materials, supplies, freight, and labor resulting from inflationary trends, partially offset by higher sales (despite the Company’s largest customer’s inventory reduction efforts), a favorable sales mix, reduced production waste and bad debt expense related to a customer bankruptcy in the prior year 26 weeks period.

The Company is experiencing inflation in costs of raw materials, supplies, freight, labor and other costs. The impact of inflation on the Company’s profits has been partially mitigated by the Company’s ability to adjust pricing for a portion of its sales to pass the impact of inflation through to its customers.

Programs that the Company supplies into may be experiencing supply chain issues from other suppliers to the programs. The Company’s sales could be impacted by delays and reductions in its customers’ production schedules caused by other suppliers in the chain.

The tight labor market has created challenges in hiring personnel. Although the Company feels very positive about its workforce, staffing to proper levels continues to pose challenges for the Company. The Company’s cross-training “Customer Flexibility Program” continues to help the Company deal with the staffing shortages.

The war in Ukraine has not had a material impact on the Company’s results of operations, but the Company has the potential for an increase in future sales due to increases in spending worldwide on missile defense systems and other defense programs. The Company does not have any significant customers in Russia or Ukraine. The Company has experienced some increases to raw material costs from overseas suppliers due to the impacts of the war in Ukraine.

The Company has a long-term contract pursuant to which one of its customers, which represents a substantial portion of the Company’s revenue, places orders. The long-term contract with the customer is requirements based and does not guarantee quantities. An order forecast and pricing were agreed upon in the contract. However, this order forecast is updated periodically during the term of the contract. Purchase orders generally are received by the Company in excess of three months in advance of delivery by the Company to the customer.

Results of Operations:

The following table sets forth the components of the consolidated statements of operations:

	13 Weeks Ended							26 Weeks Ended
	August 27,		August 28,		%			August 27,		August 28,		%
(Amounts in thousands, except per share amounts)	2023		2022		Change			2023		2022		Change

Net sales	$	12,481	$	13,875		(10.0	)%	$	28,032	$	26,658		5.2	%
Cost of sales		8,402		9,789		(14.2	)%		19,120		18,480		3.5	%
Gross profit		4,079		4,086		(0.2	)%		8,912		8,178		9.0	%
Selling, general and administrative expenses		1,853		1,732		7.0	%		4,468		3,365		32.8	%
Earnings from operations		2,226		2,354		(5.4	)%		4,444		4,813		(7.7	)%

SEC Form 10-Q filed by Park Aerospace Corp.