PARK AEROSPACE CORP. 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 (undergoing development) 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 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 total net sales from continuing operations in the 13 weeks and 39 weeks endedNovember 28, 2021 were$13.9 million and$41.1 million , respectively, compared to$10.4 million and$31.8 million , respectively, in the 13 weeks and 39 weeks endedNovember 29, 2020 . The increases in sales were primarily due to improving sales for the commercial and business aircraft markets. The Company's gross profit margins from continuing operations, measured as percentages of sales, were 27.7% and 33.4%, respectively, in the 13 weeks and 39 weeks endedNovember 28, 2021 compared to 24.6% and 27.8%, respectively, in the 13 weeks and 39 weeks endedNovember 29, 2020 . The higher gross profit margin for the 13 and 39 weeks endedNovember 28, 2021 was primarily due to the higher sales compared to last year's comparable periods and the partially fixed nature of overhead expenses. The Company's earnings from continuing operations before income taxes and net earnings from continuing operations increased 64.3% and 67.9%, respectively, in the 13 weeks endedNovember 28, 2021 compared to the 13 weeks endedNovember 29, 2020 primarily as a result of higher sales partially offset by lower interest income compared to last year's comparable period. The Company's earnings from continuing operations before income taxes and net earnings from continuing operations increased 58.8% and 56.4%, respectively, in the 39 weeks endedNovember 28, 2021 compared to the 39 weeks endedNovember 29, 2020 primarily as a result of higher sales and a favorable sales mix of high margin products in the first quarter of the current fiscal year, partially offset by lower interest income compared to last year's comparable period. The Company is experiencing inflation in raw material 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 large portion of its sales to pass the impact of inflation through to its customers. 18 -------------------------------------------------------------------------------- With the recovery of the aerospace markets, some companies in the aerospace supply chain may not be fully prepared to ramp up their production as quickly as needed, which may create a risk to the Company of not getting enough raw materials on a timely basis to fully support the Company's customers' demands. Additionally, some shipments from overseas suppliers are experiencing transportation delays due to a lack of available containers and a backlog at incoming ports of entry. Delays of overseas shipments of raw materials are having an impact on the Company's production levels. Delays in raw material shipments continue to represent a risk to the Company. 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. InDecember 2019 , a novel strain of coronavirus was reported inWuhan, China and has since spread worldwide, including tothe United States , posing public health risks that have reached pandemic proportions (the "COVID-19 Pandemic"). The COVID-19 Pandemic and resultant global economic crisis had significant impacts on the Company's results of operations and cash flow for the 13 weeks and 39 weeks endedNovember 29, 2020 . The COVID-19 Pandemic and crisis had significant impacts on the markets the Company sells into, particularly the commercial and business aircraft markets. As a result, the Company had experienced significant reductions in sales and backlog during those periods. The Company continues to experience the impacts related to raw material availability and costs.
Even after the COVID-19 Pandemic has subsided, the Company may continue to experience adverse impacts to its business as a result of the potential continuing impact of the economic crisis on the markets the Company serves.
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Results of Operations:
The following table sets forth the components of the consolidated statements of
operations:
13 Weeks Ended 39 Weeks Ended
(amounts in thousands,
except per share amounts) November 28, November 29, % November 28, November 29, %
2021 2020 Change 2021 2020 Change
Net sales $ 13,864 $ 10,372 34 % $ 41,076 $ 31,835 29 %
Cost of sales 10,028 7,819 28 % 27,357 22,970 19 %
Gross profit 3,836 2,553 50 % 13,719 8,865 55 %
Selling, general and
administrative expenses 1,593 1,536 4 % 4,729 4,718 0 %
Restructuring charges 13 - 0 % 197 - 0 %
Earnings from continuing
operations 2,230 1,017 119 % 8,793 4,147 112 %
Interest and other income 80 389 (79 )% 286 1,570 (82 )%
Earnings from continuing
operations before income
taxes 2,310 1,406 64 % 9,079 5,717 59 %
Income tax provision 569 369 54 % 2,571 1,557 65 %
Net earnings from
continuing operations 1,741 1,037 68 % 6,508 4,160 56 %
Loss from discontinued
operations, net of tax - (116 ) (100 )% - (328 ) (100 )%
Net earnings $ 1,741 $ 921 89 % $ 6,508 $ 3,832 70 %
Earnings per share:
Basic:
Continuing operations $ 0.09 $ 0.05 80 % $ 0.32 $ 0.20 60 %
Discontinued operations - - 0 % - (0.01 ) (100 )%
Basic earnings per share $ 0.09 $ 0.05 80 % $ 0.32 $ 0.19 68 %
Diluted:
Continuing operations $ 0.08 $ 0.05 60 % $ 0.32 $ 0.20 60 % Discontinued operations - - 0 % - (0.01 ) (100 )% Diluted earnings per share $ 0.08 $ 0.05 60 % $ 0.32 $ 0.19 68 % Net Sales The Company's total net sales from continuing operations worldwide in the 13 weeks and 39 weeks endedNovember 28, 2021 increased to$13.9 million and$41.1 million , respectively, from$10.4 million and$31.8 million , respectively, in the 13 weeks and 39 weeks endedNovember 29, 2020 . The increases in sales were principally due to the higher sales to customers servicing the commercial and business aircraft markets. Gross Profit The Company's gross profits from continuing operations in the 13 weeks and 39 weeks endedNovember 28, 2021 were higher than its gross profits from continuing operations in the prior year's comparable periods, and the gross profits from continuing operations as percentages of sales for the Company's worldwide operations in the 13 weeks and 39 weeks endedNovember 28, 2021 increased to 27.7% and 33.4%, respectively, from 24.6% and 27.8%, respectively, in the 13 weeks and 39 weeks endedNovember 29, 2020 . The higher gross profit margin from continuing operations for the 13 and 39 weeks endedNovember 28, 2021 was primarily due to the higher sales compared to last year's comparable periods and the partially fixed nature of overhead expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses from continuing operations increased by$57,000 and$11,000 , respectively, during the 13 weeks and 39 weeks endedNovember 28, 2021 , or by 3.7% and 0.2%, respectively, compared to the prior year's comparable periods, and these expenses, measured as percentages of sales from continuing operations, were 11.5% and 11.5%, respectively, in the 13 weeks and 39 weeks endedNovember 28, 2021 compared to 14.8% and 14.8%, respectively, in the 13 weeks and 39 weeks endedNovember 29, 2020 . 20 -------------------------------------------------------------------------------- Selling, general and administrative expenses from continuing operations included stock option expenses of$73,000 and$211,000 , respectively, for the 13 weeks and 39 weeks endedNovember 28, 2021 , compared to stock option expenses of$49,000 and$142,000 , respectively, for the 13 weeks and 39 weeks endedNovember 29, 2020 . Restructuring Charges
In the 13 weeks and 39 weeks ended
Earnings from Continuing Operations
For the reasons set forth above, the Company's earnings from continuing operations were$2.2 million and$8.8 million , respectively, for the 13 weeks and 39 weeks endedNovember 28, 2021 compared to$1.0 million and$4.1 million , respectively, for the 13 weeks and 39 weeks endedNovember 29, 2020 . Interest and Other Income Interest and other income from continuing operations was$80,000 and$286,000 , respectively, for the 13 weeks and 39 weeks endedNovember 28, 2021 , compared to$389,000 and$1.6 million , respectively, for the prior year's comparable periods. Interest income decreased 79.4% and 81.8%, respectively, for the 13 weeks and 39 weeks endedNovember 28, 2021 primarily as a result of lower average balances of marketable securities held by the Company in the 13 weeks and 39 weeks endedNovember 28, 2021 , compared to the prior year's comparable periods, and lower weighted average interest rates. During the 13 weeks and 39 weeks endedNovember 28, 2021 , 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 endedNovember 28, 2021 , the Company recorded income tax provisions from continuing operations of$569,000 and$2.6 million , respectively, which included discrete income tax provisions of$27,000 and$175,000 , respectively, for the write-off of deferred tax assets and liabilities related to a change in the tax filing basis of the Company'sSingapore entity and the accrual of interest related to unrecognized tax benefits. For the 13 weeks and 39 weeks endedNovember 29, 2020 , the Company recorded income tax provisions from continuing operations of$369,000 and$1.6 million , respectively, which included discrete income tax provisions of$44,000 and$127,000 , respectively, pertaining to the accrual of interest related to unrecognized tax benefits. The Company's effective tax rates for the 13 weeks and 39 weeks endedNovember 28, 2021 were 24.6% and 28.3%, respectively, compared to 26.3% and 27.2%, respectively, in the prior year's comparable periods. The effective tax rates for the 13 weeks and 39 weeks endedNovember 28, 2021 were higher than theU.S. statutory rate of 21% primarily due to state and local taxes, the write-off of deferred tax assets and liabilities and the accrual of interest related to unrecognized tax benefits. The effective rates for the 13 weeks and 39 weeks endedNovember 29, 2020 were higher than theU.S. statutory rate of 21% primarily due to state and local taxes and the accrual of interest related to unrecognized tax benefits. 21
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Net Earnings from Continuing Operations
For the reasons set forth above, the Company's net earnings from continuing operations for the 13 weeks and 39 weeks endedNovember 28, 2021 were$1.7 million and$6.5 million , respectively, compared to net earnings from continuing operations of$1.0 million and$4.2 million , respectively, for the 13 weeks and 39 weeks endedNovember 29, 2020 . Discontinued Operations
On
The operating results of the Electronics Business are classified, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statements of Operations. The Company's net earnings from discontinued operations included expenses pertaining to the sale transaction and costs related to the Company's vacated facility inFullerton, California in the 13 weeks and 39 weeks endedNovember 29, 2020 . The Company vacated theFullerton facility in the third quarter of the 2021 fiscal year and is no longer incurring these discontinued operations costs.
Basic and Diluted Earnings Per Share
In the 13 weeks ended
In the 39 weeks endedNovember 28, 2021 , basic and diluted earnings per share from continuing operations were$0.32 compared to basic and diluted earnings per share from continuing operations of$0.19 in the 39 weeks endedNovember 29, 2020 .
Liquidity and Capital Resources - Continuing Operations:
(amounts in thousands) November 28, February 28,
2021 2021 Change
Cash and cash equivalents and
marketable securities $ 109,628 $ 116,542 $ (6,914 )
Working capital 121,257 124,348 (3,091 )
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39 Weeks Ended
(amounts in thousands) November 28, November 29,
2021 2020 Change
Net cash provided by operating activities
(25,505 ) (2,145 ) (23,360 )
Net cash used in financing activities (5,386 ) (7,758 ) 2,372
Of the$109.6 million of cash and cash equivalents and marketable securities atNovember 28, 2021 ,$29.5 million was owned by one of the Company's wholly owned foreign subsidiaries. The change in cash and cash equivalents and marketable securities atNovember 28, 2021 compared toFebruary 28, 2021 was the result of capital expenditures and dividends paid to shareholders, partially offset by cash provided by operating activities, stock option exercises and a number of additional factors. The significant change in cash provided by operating activities was as follows:
? accounts receivable increased by 27% at
28, 2021 primarily due to timing of sales;
? inventories increased by 8% at
primarily due to the timing of raw material purchases;
? prepaid and other current assets decreased by 5% at
to February 28, 2021 primarily due to receipt of tax refunds;
? accounts payable decreased by 32% at
28, 2021 primarily due to timing of vendor payments; and
? income taxes payable decreased by 16% at November 28, 2021 compared to
February 28, 2021 primarily due to estimated tax payments.
In addition, the Company paid
Working Capital The decrease in working capital atNovember 28, 2021 compared toFebruary 28, 2021 was due principally to the decrease in cash and cash equivalents, marketable securities and prepaid and other current assets, partially offset by an increases in accounts receivable and inventories and decreases in accounts payable and income taxes payable. The Company's current ratio (the ratio of current assets to current liabilities) was 19.8 to 1.0 atNovember 28, 2021 compared to 16.6 to 1.0 atFebruary 28, 2021 . 23
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Cash Flows During the 39 weeks endedNovember 28, 2021 , the Company's net earnings, before depreciation and amortization, deferred income taxes, stock-based compensation, amortization of bond premium and changes in operating assets and liabilities, were$3.3 million . During the same 39-week period, the Company expended$3.6 million for the purchase of property, plant and equipment, compared with$5.3 million during the 39 weeks endedNovember 29, 2020 . The Company paid$6.1 million in cash dividends in each of the 39-week periods endedNovember 28, 2021 andNovember 29, 2020 . 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, including the expansion inKansas .
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$320,000 , 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 Consolidated Financial Statements, which
have been prepared in accordance with US 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.
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The Company's critical accounting policies that are important to the
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 28, 2021 . There have been no significant
changes to such accounting policies during the 2022 fiscal year third 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 endedFebruary 28, 2021 .
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