# Park Aerospace Corp: Form 10-Q for the period ended Nov 26, 2023

- Company: [Park Aerospace Corp](/companies/pke.md) (CIK 76267)
- Form: 10-Q
- Filed: 2024-01-10
- Accepted by EDGAR: Jan 10, 2024, 17:29 ET
- Period: 2023-11-26
- Accession: 0001437749-24-001085
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/76267/000143774924001085/pke20231126_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/76267/000143774924001085/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-11-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-08-28 to 2023-11-26 | $11.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-02-27 to 2023-11-26 | $39.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-08-28 to 2023-11-26 | $8.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-02-27 to 2023-11-26 | $27.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-08-28 to 2023-11-26 | $3.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-02-27 to 2023-11-26 | $12.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-08-28 to 2023-11-26 | $1.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-02-27 to 2023-11-26 | $6.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-08-28 to 2023-11-26 | $1.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-02-27 to 2023-11-26 | $5.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-08-28 to 2023-11-26 | $423.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-02-27 to 2023-11-26 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-08-28 to 2023-11-26 | $1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-02-27 to 2023-11-26 | $4.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-08-28 to 2023-11-26 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-02-27 to 2023-11-26 | $0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-08-28 to 2023-11-26 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-02-27 to 2023-11-26 | $0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-08-28 to 2023-11-26 | 20,355,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-02-27 to 2023-11-26 | 20,406,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-02-27 to 2023-11-26 | −$886.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-02-27 to 2023-11-26 | $481.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-02-27 to 2023-11-26 | $28.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-02-27 to 2023-11-26 | $2.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-11-26 | $4.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-11-26 | $93.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-11-26 | $127.5m | us-gaap:Assets |
| Current liabilities | at 2023-11-26 | $6.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-11-26 | $15.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-11-26 | $112.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,900 characters.

### 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 SigmaStrutTM and AlphaStrutTM 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 39 weeks ended November 26, 2023 were $11.6 million and $39.7 million, respectively, compared to $13.9 million and $40.5 million, respectively, in the 13 weeks and 39 weeks ended November 27, 2022. Sales for the 13 weeks and 39 weeks ended November 26, 2023 were negatively impacted by inventory reduction efforts at the Company’s largest customer, which are not expected to continue in the Company’s fourth quarter, and shipping difficulties to customers in the Middle East due to the war in that region.

The Company’s gross profit margins, measured as percentages of sales, were 27.2% and 30.5%, respectively, in the 13 weeks and 39 weeks ended November 26, 2023 compared to 32.0% and 31.1%, respectively, in the 13 weeks and 39 weeks ended November 27, 2022. The lower gross profit margins for the 13 weeks and 39 weeks ended November 26, 2023 compared to the prior year’s comparable periods were primarily due to lower sales and higher costs and expenses for labor, benefits, depreciation, utilities and other items, partially offset by a favorable sales mix and higher pricing. Gross profits for the 13 weeks and 39 weeks ended November 26, 2023 were negatively impacted by lower sales to the Company’s largest customer due to the customer’s inventory reduction efforts.

The Company’s earnings before income taxes and net earnings decreased 49.5% and 46.1%, respectively, in the 13 weeks ended November 26, 2023 compared to the 13 weeks ended November 27, 2022 primarily as a result of lower sales, and higher costs and expenses for labor, benefits, depreciation, utilities and other items, partially offset by a favorable sales mix and bad debt expense recovery related to a customer bankruptcy in the prior year 13-week period.

The Company’s earnings before income taxes and net earnings decreased 22.1% and 20.3%, respectively, in the 39 weeks ended November 26, 2023 compared to the 39 weeks ended November 27, 2022 primarily as a result of higher costs and expenses for labor, benefits, depreciation, utilities and other items and $570,000 of activist shareholder defense costs, partially offset by a favorable sales mix.

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 customer’s supply chain. The Company is experiencing some delays in shipments to customers in the Middle East due to the ongoing war in that region.

The war in Ukraine has had a small 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. Pricing is agreed upon in the contract.

### Results of Operations:

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

*(Amounts in thousands, except per share*

| amounts) | 13 Weeks Ended November 26, 2023 | November 27,% 2022 | Change | 39 Weeks Ended November 26, 2023 | November 27,% 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $11,639 | $13,867 | (16.1)% | $39,671 | $40,525 | (2.1)% |
| Cost of sales | 8,470 | 9,423 | (10.1)% | 27,590 | 27,903 | (1.1)% |
| **Gross profit** | **3,169** | **4,444** | **(28.7)%** | **12,081** | **12,622** | **(4.3)%** |
| Selling, general and administrative expenses | 1,804 | 1,523 | 18.5% | 6,272 | 4,888 | 28.3% |
| **Earnings from operations** | **1,365** | **2,921** | **(53.3)%** | **5,809** | **7,734** | **(24.9)%** |
| Interest and other income | 261 | 299 | (12.7)% | 724 | 653 | 10.9% |
| **Earnings from operations before income taxes** | **1,626** | **3,220** | **(49.5)%** | **6,533** | **8,387** | **(22.1)%** |
| Income tax provision (Note 9) | 423 | 990 | (57.3)% | 1,730 | 2,362 | (26.8)% |
| **Net earnings** | **$1,203** | **$2,230** | **(46.1)%** | **$4,803** | **$6,025** | **(20.3)%** |
| **Earnings per share (Note 7)** |  |  |  |  |  |  |
| Basic: |  |  |  |  |  |  |
| Basic earnings per share | $0.06 | $0.11 | (45.5)% | $0.24 | $0.29 | (17.2)% |
| Diluted: |  |  |  |  |  |  |
| Diluted earnings per share | $0.06 | $0.11 | (45.5)% | $0.24 | $0.29 | (17.2)% |

#### Net Sales

The Company's net sales in the 13 weeks and 39 weeks ended November 26, 2023 were $11.6 million and $39.7 million, respectively, compared to $13.9 million and $40.5 million, respectively, in the 13 weeks and 39 weeks ended November 27, 2022. Sales for the 13 weeks and 39 weeks ended November 26, 2023 were negatively impacted by inventory reduction efforts at the Company’s largest customer, which are not expected to continue in the Company’s fourth quarter, and shipping difficulties to customers in the Middle East due to the war.

#### Gross Profit

The Company’s gross profit margins, measured as percentages of sales, were 27.2% and 30.5%, respectively, in the 13 weeks and 39 weeks ended November 26, 2023 compared to 32.0% and 31.1%, respectively, in the 13 weeks and 39 weeks ended November 27, 2022. The lower gross profit margins for the 13 weeks and 39 weeks ended November 26, 2023 compared to the prior year’s comparable periods were primarily due to lower sales and higher costs and expenses for labor, benefits, depreciation, utilities and other items, partially offset by a favorable sales mix and higher pricing. Gross profits for the 13 weeks and 39 weeks ended November 26, 2023 were negatively impacted by lower sales to the Company’s largest customer due to the customer’s inventory reduction efforts.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $281,000 and $1.4 million during the 13 weeks and 39 weeks ended November 26, 2023, respectively, or by 18.5% and 28.3%, respectively, compared to the prior year’s comparable periods, and these expenses, measured as percentages of sales, were 15.5% and 15.8%, respectively, in the 13 weeks and 39 weeks ended November 26, 2023 compared to 11.0% and 12.1%, respectively, in the 13 weeks and 39 weeks ended November 27, 2022. The increases in selling, general and administrative expenses were primarily due to $570,000 of activist shareholder defense costs and higher research and development costs.

Selling, general and administrative expenses included stock option expenses of $104,000 and $426,000, respectively, for the 13 weeks and 39 weeks ended November 26, 2023, including $109,000 due to the modification of previously granted stock options, compared to stock option expenses of $95,000 and $274,000, respectively, for the 13 weeks and 39 weeks ended November 27, 2022.

#### Earnings from Operations

For the reasons set forth above, the Company’s earnings from operations were $1.4 million and $5.8 million, respectively, for the 13 weeks and 39 weeks ended November 26, 2023 compared to $2.9 million and $7.7 million, respectively, for the 13 weeks and 39 weeks ended November 27, 2022.

#### Interest and Other Income

Interest and other income was $261,000 and $724,000, respectively, for the 13 weeks and 39 weeks ended November 26, 2023, compared to $299,000 and $653,000, respectively, for the prior year's comparable periods. Interest income decreased 12.7% for the 13 weeks ended November 26, 2023, primarily as a result of lower average available cash to invest in the 13 weeks ended November 26, 2023, compared to the prior year's comparable periods. Interest income increased 10.9% for the 39 weeks ended November 26, 2023, primarily as a result of higher weighted average interest rates partially offset by losses on the sales of marketable securities in the 39 weeks ended November 26, 2023, compared to the prior year's comparable periods. Interest and other income for the 39 weeks ended November 26, 2023 included $65,000 of losses on sales of investments to fund the $1.00 per share special dividend paid on April 6, 2023 to shareholders of record on March 9, 2023. During the 13 weeks and 39 weeks ended November 26, 2023, the Company earned interest income principally from its investments, which consisted primarily of short-term instruments and money market funds.

#### Income Tax Provision

For the 13 weeks and 39 weeks ended November 26, 2023, the Company recorded income tax provisions of $423,000 and $1.7 million, respectively, which included discrete income tax provisions of $25,000 and $78,000, respectively, for the accrual of interest related to unrecognized tax benefits. For the 13 weeks and 39 weeks ended November 27, 2022, the Company recorded income tax provisions of $990,000 and $2.4 million, respectively, which included discrete income tax provisions of $58,000 and $133,000, respectively, for the accrual of interest related to unrecognized tax benefits. Additionally, tax expense was negatively impacted by $153,000 in the 13 weeks and 39 weeks ended November 27, 2022 by tax deductions becoming unavailable due to stock options expiring unexercised.

The Company’s effective tax rates for the 13 weeks and 39 weeks ended November 26, 2023 were 26.0% and 26.5%, respectively, compared to 30.7% and 28.2%, respectively, in the prior year’s comparable periods. The effective tax rates for the 13 weeks and 39 weeks ended November 26, 2023 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and liabilities and the accrual of interest related to unrecognized tax benefits. The effective rates for the 13 weeks and 39 weeks ended November 27, 2022 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and the accrual of interest related to unrecognized tax benefits.

#### Net Earnings

For the reasons set forth above, the Company's net earnings for the 13 weeks and 39 weeks ended November 26, 2023 were $1.2 million and $4.8 million, respectively, compared to net earnings of $2.2 million and $6.0 million, respectively, for the 13 weeks and 39 weeks ended November 27, 2022.

#### Basic and Diluted Earnings Per Share

In the 13 weeks and 39 weeks ended November 26, 2023, basic and diluted earnings per share were $0.06 and $0.24, respectively, compared to basic and diluted earnings per share of $0.11 and $0.29, respectively, in the 13 weeks and 39 weeks ended November 27, 2022.

### Liquidity and Capital Resources - Continuing Operations:

*(Amounts in thousands)*

|  | November 26, 2023 | February 26, 2023 | Change |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents and marketable securities | $73,989 | $105,440 | $(31,451) |
| Working capital | 87,341 | 96,455 | (9,114) |

*(Amounts in thousands)*

|  | 39 Weeks Ended November 26, 2023 | November 27 2022 | Change |
| --- | ---: | ---: | ---: |
| Net cash (used in) provided by operating activities | $(886) | $2,134 | $(3,020) |
| Net cash provided by (used in) investing activities | 31,783 | (4,335) | 36,118 |
| Net cash used in financing activities | (30,961) | (6,000) | (24,961) |

19

#### Cash and Marketable Securities

Of the $74.0 million of cash and cash equivalents and marketable securities at November 26, 2023, $30.6 million was owned by one of the Company’s wholly-owned foreign subsidiaries.

The change in cash and cash equivalents and marketable securities at November 26, 2023 compared to February 26, 2023 was the result of capital expenditures, dividends paid to shareholders and cash used in operating activities and a number of additional factors. The significant change in cash used in operating activities were as follows:

- accounts receivable decreased by 1% at November 26, 2023 compared to February 26, 2023 primarily due to timing of sales;
- inventories increased by 10% at November 26, 2023 compared to February 26, 2023 primarily due to timing of raw materials purchases;
- prepaid expenses and other current assets decreased by 13% at November 26, 2023 compared to February 26, 2023 primarily due to lower deferred tax assets related to a decrease in marketable securities unrealized losses;
- accounts payable decreased by 76% at November 26, 2023 compared to February 26, 2023 primarily due to timing of raw material receipts and vendor payments;
- accrued liabilities increased by 18% at November 26, 2023 compared to February 26, 2023 primarily due to increases in property tax and utility accruals; and
- Income taxes payable decreased by 32% at November 26, 2023 compared to February 26, 2023 due to the recorded tax provision.

In addition, the Company paid $28.1 million in cash dividends in the 39-week period ended November 26, 2023 compared to $6.1 million in the 39-week period ended November 27, 2022.

#### Working Capital

The decrease in working capital at November 26, 2023 compared to February 26, 2023 was due principally to the decreases in cash and cash equivalents, marketable securities, accounts receivable and prepaid expenses and other current assets and increases in accrued liabilities, partially offset by an increase in inventories and decreases in accounts payable and income taxes payable.

The Company's current ratio (the ratio of current assets to current liabilities) was 14.6 to 1.0 at November 26, 2023 compared to 4.4 to 1.0 at February 26, 2023.

#### Cash Flows

During the 39 weeks ended November 26, 2023, the Company's net earnings, adjusted for depreciation and amortization, deferred income taxes, stock-based compensation, amortization of bond premium and changes in operating assets and liabilities, resulted in a $0.9 million operating cash outflow. During the same 39-week period, the Company expended $481,000 for the purchase of property, plant and equipment, compared with $749,000 during the 39 weeks ended November 27, 2022. The Company paid $28.1 million in cash dividends in the 39-week period ended November 26, 2023 compared to $6.1 million in the 39-week period ended November 27, 2022.

#### Other Liquidity Factors

The Company believes its financial resources will be sufficient, through the 12 months following the filing of this Form 10-Q Quarterly Report and for the foreseeable future thereafter, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. The Company’s financial resources are also available for purchases of the Company's common stock, cash dividend payments, appropriate acquisitions and other expansions of the Company's business.

The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity. The Company further believes its balance sheet and financial position to be very strong.

### Contractual Obligations:

The Company’s contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of (i) operating lease commitments and (ii) commitments to purchase raw materials. 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 $140,000, to secure the Company’s obligations under its workers’ compensation insurance program.

### 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.

### Critical Accounting Policies and Estimates:

The foregoing Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed 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, 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’s critical accounting policies that are important to the Condensed Consolidated Financial Statements and that entail, to a significant extent, the use of estimates and assumptions and the application of management’s judgment are described in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, 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 2024 fiscal year second quarter.

### Contingencies:

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.

### Factors That May Affect Future Results.

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 the Company’s expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements. Such factors include, but are not limited to, general conditions in the aerospace industry, the Company’s competitive position, the status of the Company’s relationships with its customers, economic conditions in international markets, the cost and availability of raw materials, transportation and utilities, and the various factors set forth under the caption “Factors That May Affect Future Results” in Item 1 and in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2023.

## Market risk

As filed, 235 characters.

The Company’s market risk exposure at November 26, 2023 is consistent with, and not greater than, the types of market risk and amount of exposures presented in the Annual Report on Form 10-K for the fiscal year ended February 26, 2023.

## Controls and procedures

As filed, 1,649 characters.

(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 November 26, 2023, the end of the quarterly fiscal period covered by this quarterly report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, 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 were 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) 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 fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Jan 10, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-001085. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.