What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-09 compared with 2021-01-07 · 57 added, 64 removed, 76 unchanged (61% of the section changed)

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(“Park” or the “Company”) develops and manufactures solution and hot-melt advanced composite materials used to produce composite structures for the global aerospace markets.

These materials include lightning strike protection materials.

Park’s advanced composite materials include film adhesives (undergoing qualification) and lightning strike materials.

Park offers an array of composite materials specifically designed for hand lay-up or automated fiber placement (“AFP”) manufacturing applications.

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Financial Overview

The Company's total net sales from continuing operations in the 13 weeks and 39 weeks ended November 29, 2020 were $10.4 million and $31.8 million, respectively, compared to $15.8 million and $44.5 million, respectively, in the 13 weeks and 39 weeks ended December 1, 2019.

The Company’s gross profit margins from continuing operations, measured as percentages of sales, were 24.6% and 27.8%, respectively, in the 13 weeks and 39 weeks ended November 29, 2020 compared to 31.7% and 30.6%, respectively, in the 13 weeks and 39 weeks ended December 1, 2019.

The Company’s earnings from continuing operations before income taxes and net earnings from continuing operations decreased 63.7% and 63.0%, respectively, in the 13 weeks ended November 29, 2020 compared to the 13 weeks ended December 1, 2019 primarily as a result of lower sales and lower interest income, partially offset by lower selling, general and administrative expenses and a lower tax provision compared to last year’s comparable period.

The Company’s earnings from continuing operations before income taxes and net earnings from continuing operations decreased 45.4% and 45.1%, respectively, in the 39 weeks ended November 29, 2020 compared to the 39 weeks ended December 1, 2019 primarily as a result of lower sales and lower interest income, partially offset by lower selling, general and administrative expenses and a lower tax provision compared to last year’s comparable period.

The Company's total net sales from continuing operations in the 13 weeks ended May 30, 2021 were $13.6 million compared to $12.2 million in the 13 weeks ended May 31, 2020.

The increase in sales is 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 40.3% in the 13 weeks ended May 30, 2021 compared to 30.1% in the 13 weeks ended May 31, 2020.

Gross profit margins for the 13 weeks ended May 30, 2021 benefitted from a favorable sales mix of high margin products.

The Company’s earnings from continuing operations before income taxes and net earnings from continuing operations increased 45.4% and 39.2%, respectively, in the 13 weeks ended May 30, 2021 compared to the 13 weeks ended May 31, 2020 primarily as a result of higher sales and a favorable sales mix of high margin products, 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 mitigated by the Company’s ability to adjust pricing for most of its sales to pass the impact of inflation through to its customers.

Additionally, the Company is experiencing challenges in finding and retaining employees as it ramps up production to meet customers’ increasing demand.

The Company has been able to meet its production needs through overtime due to the benefit of the Company’s “Customer Flexibility Program”, which is a cross training program that enables employees to move between production processes as needed.

Additionally, the Company did not layoff any of its workforce during the pandemic helping it to be better prepared for a rebound in production levels.

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 potential risk to the Company of getting enough raw materials on a timely basis to fully support our 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.

The Company has put safety stocks in place for many components, but potential delays of overseas shipments of raw materials still 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.

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Purchase orders generally are received by the Company in excess of three months in advance of delivery by the Company to the customer.

In December 2019, a novel strain of coronavirus was reported in Wuhan, China and has since spread worldwide, including to the 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 quarter ended November 29, 2020.

In December 2019, a novel strain of coronavirus was reported in Wuhan, China and has since spread worldwide, including to the United States (the “U.S.”), posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”).

The COVID-19 Pandemic and resultant global economic crisis had significant impacts on the Company’s results of operations and cash flow for the quarter ended May 31, 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 has experienced a significant reduction in sales and backlog.

As a result, the Company had experienced significant reductions in sales and backlog.

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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13 Weeks Ended

39 Weeks Ended

(amounts in thousands, except per

share amounts)

(amounts in thousands, except per share amounts)

Cost of sales

Selling, general and administrative expenses

Restructuring charges

Earnings from continuing operations

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Loss from discontinued operations, net of tax

Earnings (loss) per share:

Earnings per share:

Continuing operations

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Diluted earnings per share

The Company’s total net sales from continuing operations worldwide in the 13 weeks and 39 weeks ended November 29, 2020 decreased to $10.4 million and $31.8 million, respectively, from $15.8 million and $44.5 million, respectively, in the 13 weeks and 39 weeks ended December 1, 2019.

The decrease in sales was principally due to the lower sales to customers servicing the commercial and business aircraft markets.

The sharp decrease in air travel due to the COVID-19 Pandemic has significantly impacted both the commercial airline manufacturers and business aircraft manufacturers.

As a result, the Company’s customers are experiencing order delays and cancellations from their commercial airline and business aircraft customers.

Consequently, the programs the Company’s materials feed into have experienced reduced manufacturing rates and the Company has also experienced order push-outs and cancellations.

The Company’s gross profit from continuing operations in the 13 weeks ended November 29, 2020 was lower than its gross profit from continuing operations in the prior year’s comparable period.

The Company’s gross profit from continuing operations as a percentage of sales for the Company’s worldwide operations in the 13 weeks ended November 29, 2020 decreased to 24.6% from 31.7% in the 13 weeks ended December 1, 2019.

The lower gross profit margin from continuing operations for the 13 weeks ended November 29, 2020 compared to the 13 weeks ended December 1, 2019 was principally a result of lower sales, an unfavorable sales mix and the partially fixed nature of overhead expenses in the 13 weeks ended November 29, 2020 compared to the 13 weeks ended December 1, 2019.

The Company’s gross profit from continuing operations in the 39 weeks ended November 29, 2020 was lower than its gross profit from continuing operations in the prior year’s comparable period, and gross profit from continuing operations as a percentage of sales of the Company’s worldwide operations in the 39 weeks ended November 29, 2020 decreased to 27.8% from 30.6%, in the 39 weeks ended December 1, 2019.

The lower gross profit margin from continuing operations for the 39 weeks ended November 29, 2020 compared to the 39 weeks ended December 1, 2019 was principally a result of lower sales, and the partially fixed nature of overhead expenses in the 39 weeks ended November 29, 2020 compared to the 39 weeks ended December 1, 2019, partially offset by decreased direct labor and supplies expenses.

The Company’s total net sales from continuing operations worldwide in the 13 weeks ended May 30, 2021 increased to $13.6 million from $12.2 million in the 13 weeks ended May 31, 2020.

The increase in sales was principally due to the higher sales to customers servicing the commercial and business aircraft markets.

The Company’s gross profit from continuing operations in the 13 weeks ended May 30, 2021 was higher than its gross profit from continuing operations in the prior year’s comparable period, and the gross profit from continuing operations as a percentage of sales for the Company’s worldwide operations in the 13 weeks ended May 30, 2021 increased to 40.3% from 30.1% in the 13 weeks ended May 31, 2020.

The higher gross profit margin from continuing operations for the 13 weeks ended May 30, 2021 compared to the 13 weeks ended May 31, 2020 was a result of higher sales, a favorable mix of higher margin sales and the partially fixed nature of overhead expenses in the 13 weeks ended May 30, 2021 compared to the 13 weeks ended May 31, 2020.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations decreased by $413,000 and $1.1 million, respectively, during the 13 weeks and 39 weeks ended November 29, 2020, or by 21.2% and 18.4%, respectively, compared to last fiscal year's comparable periods, and these expenses, measured as a percentage of sales from continuing operations, were 14.8% in both the 13 weeks and 39 weeks ended November 29, 2020 compared to 12.3% and 13.0%, respectively, in the 13 weeks and 39 weeks ended December 1, 2019.

The decreases in such expenses during the 13 weeks and 39 weeks ended November 29, 2020 were primarily the result of lower payroll, travel and entertainment, tradeshow and stock option expenses.

Selling, general and administrative expenses from continuing operations included stock option expenses of $49,000 and $142,000, respectively, for the 13 weeks and 39 weeks ended November 29, 2020 compared to stock option expenses of $139,000 and $404,000, respectively, for the 13 weeks and 39 weeks ended December 1, 2019.

Selling, general and administrative expenses from continuing operations increased by $18,000 during the 13 weeks ended May 30, 2021, or by 1.1%, compared to the prior year’s comparable period, and these expenses, measured as a percentage of sales from continuing operations, were 12.1% in the 13 weeks ended May 30, 2021 compared to 13.3% in the 13 weeks ended May 31, 2020.

Selling, general and administrative expenses from continuing operations included stock option expenses of $64,000 for the 13 weeks ended May 30, 2021, compared to stock option expenses of $43,000 for the 13 weeks ended May 31, 2020.

Earnings from Continuing Operations

For the reasons set forth above, the Company’s earnings from continuing operations were $1.0 million and $4.1 million, respectively, for the 13 weeks and 39 weeks ended November 29, 2020 compared to $3.1 million and $7.9 million, respectively, for the 13 weeks and 39 weeks ended December 1, 2019.

For the reasons set forth above, the Company’s earnings from continuing operations were $3.8 million for the 13 weeks ended May 30, 2021 compared to $2.0 million for the 13 weeks ended May 31, 2020.

Interest and Other Income

Interest and other income from continuing operations was $389,000 and $1.6 million, respectively, for the 13 weeks and 39 weeks ended November 29, 2020 compared to $802,000 and $2.6 million, respectively, for last fiscal year's comparable periods.

Interest income decreased 51.5% and 39.9%, respectively, for the 13 weeks and 39 weeks ended November 29, 2020 primarily as a result of lower average balances of marketable securities held by the Company in the 13 weeks and 39 weeks ended November 29, 2020 compared to last fiscal year's comparable periods, and lower weighted average interest rates.

During the 13 weeks and 39 weeks ended November 29, 2020, the Company earned interest income principally from its investments, which consisted primarily of short-term instruments and money market funds.

Interest and other income from continuing operations was $117,000 for the 13 weeks ended May 30, 2021, compared to $656,000 for the prior year's comparable period.

Interest income decreased 82.2% for the 13 weeks ended May 30, 2021 primarily as a result of lower average balances of marketable securities held by the Company in the 13 weeks ended May 30, 2021, compared to the prior year's comparable period, and lower weighted average interest rates.

During the 13 weeks ended May 30, 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 ended November 29, 2020, the Company recorded income tax provisions from continuing operations of $369,000 and $1.6 million, respectively, which included a discrete income tax provision of $126,000 pertaining to the accrual of interest related to unrecognized tax benefits.

For the 13 weeks and 39 weeks ended December 1, 2019, the Company recorded income tax provisions from continuing operations of $1.1 million and $2.9 million, respectively, which included a discrete income tax provision of $223,000 pertaining to expired stock options of former employees who transferred to AGC Inc.

in the sale of the Company’s Electronics Business.

The Company’s effective tax rates for the 13 weeks and 39 weeks ended November 29, 2020 were 26.3% and 27.2%, respectively, compared to 27.6% and 27.7%, respectively, in the comparable prior year periods.

The effective tax rates for the 13 weeks and 39 weeks ended November 29, 2020 were higher than the U.S.

For the 13 weeks ended May 30, 2021, the Company recorded an income tax provision from continuing operations of $1.2 million, which included a discrete income tax provision of $143,000 for the write-off of deferred tax assets and liabilities related to a change in the tax filing basis of the Company’s Singapore entity and the accrual of interest related to unrecognized tax benefits.

For the 13 weeks ended May 31, 2020, the Company recorded an income tax provision from continuing operations of $728,000, which included a discrete income tax provision of $41,000 pertaining to the accrual of interest related to unrecognized tax benefits.

The Company’s effective tax rate for the 13 weeks ended May 30, 2021 was 30.0% compared to 27.0% in the prior year’s comparable period.

The effective tax rate for the 13 weeks ended May 30, 2021 was higher than the U.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 rate for the 13 weeks ended May 31, 2020 was 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.

The effective tax rates for the 13 weeks and 39 weeks ended December 1, 2019 were higher than the U.S.

statutory rate of 21% primarily due to state and local taxes, discrete income tax provisions for stock compensation and the accrual of interest related to unrecognized tax benefits.

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 ended November 29, 2020 were $1.0 million and $4.1 million, respectively, compared to net earnings from continuing operations of $2.8 million and $7.6 million, respectively, for the 13 weeks and 39 weeks ended December 1, 2019.

For the reasons set forth above, the Company's net earnings from continuing operations for the 13 weeks ended May 30, 2021 were $2.7 million compared to net earnings from continuing operations of $2.0 million for the 13 weeks ended May 31, 2020.

Discontinued Operations

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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 costs in connection with the Company’s vacated facility in Fullerton, California in the 13 weeks and 39 weeks ended November 29, 2020.

The Company’s net earnings from discontinued operations included expenses pertaining to the sale transaction and costs related to the Company’s vacated facility in Fullerton, California in the 13 weeks and 39 weeks ended December 1, 2019.

The Company vacated the Fullerton 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 and 39 weeks ended November 29, 2020, basic and diluted earnings per share from continuing operations were $0.05 and $0.20, respectively.

This compared to basic and diluted earnings per share from continuing operations of $0.14 and $0.37, respectively, in the 13 weeks and 39 weeks ended December 1, 2019.

The net impact of the tax benefit described above decreased basic and diluted earnings per share by $0.02 for the 39 weeks ended December 1, 2019.

In the 13 weeks ended May 30, 2021, basic and diluted earnings per share from continuing operations were $0.13 compared to basic and diluted earnings per share from continuing operations of $0.10 in the 13 weeks ended May 31, 2020.

Liquidity and Capital Resources - Continuing Operations:

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Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

Cash and Marketable Securities

Of the $117.0 million of cash and cash equivalents and marketable securities at November 29, 2020, $29.7 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 29, 2020 compared to March 1, 2020 was the result of capital expenditures and dividends paid to shareholders partially offset by cash provided by operating activities and a number of additional factors.

The significant changes in cash provided by operating activities were as follows:

accounts receivable decreased by 23% at November 29, 2020 compared to March 1, 2020 primarily due to lower sales in the quarter ended November 29, 2020 compared to the fourth quarter of the 2020 fiscal year;

inventories decreased by 26% at November 29, 2020 compared to March 1, 2020 primarily due to lower sales and the timing of raw material purchases;

prepaid expenses and other current assets decreased by 31% at November 29, 2020 compared to March 1, 2020 primarily due to a reduction of tax refunds;

accounts payable decreased by 30% at November 29, 2020 compared to March 1, 2020 primarily due to the timing of vendor payments, raw material purchases from suppliers and lower construction in progress;

accrued liabilities decreased by 12% at November 29, 2020 compared to March 1, 2020 primarily due to decreases in restructuring accruals and bonus accruals;

income taxes payable increased by 6% at November 29, 2020 compared to March 1, 2020 primarily due to the income tax provision for the 39 weeks ended November 29, 2020.

In addition, the Company paid $6.1 million in cash dividends in each of the 39-week periods ended November 29, 2020 and December 1, 2019.

Of the $116.8 million of cash and cash equivalents and marketable securities at May 30, 2021, $29.4 million was owned by one of the Company’s wholly owned foreign subsidiaries.

The change in cash and cash equivalents and marketable securities at May 30, 2021 compared to February 28, 2021 was the result of capital expenditures and dividends paid to shareholders partially offset by cash provided by operating activities and a number of additional factors.

The significant change in cash provided by operating activities was as follows:

income taxes payable increased by 94% at May 30, 2021 compared to February 28, 2021 primarily due to the income tax provision for the 13 weeks ended May 30, 2021.

In addition, the Company paid $2.0 million in cash dividends in each of the 13-week periods ended May 30, 2021 and May 31, 2020.

Working Capital

The decrease in working capital at November 29, 2020 compared to March 1, 2020 was due principally to the decreases in accounts receivable, inventories, and prepaid expenses and other current assets, an increase in income taxes payable and a decrease in cash and cash equivalents and marketable securities, partially offset by the decrease in accounts payable.

The Company's current ratio (the ratio of current assets to current liabilities) was 18.6 to 1.0 at November 29, 2020 compared to 16.7 to 1.0 at March 1, 2020.

During the 39 weeks ended November 29, 2020, the Company's net earnings, before depreciation and amortization, stock-based compensation, amortization of bond premium and changes in operating assets and liabilities, were $8.6 million.

During the same 39-week period, the Company expended $5.3 million for the purchase of property, plant and equipment, compared with $4.4 million during the 39 weeks ended December 1, 2019.

The Company paid $6.1 million in cash dividends in each of the 39-week periods ended November 29, 2020 and December 1, 2019.

The decrease in working capital at May 30, 2021 compared to February 28, 2021 was due principally to the increase in income taxes payable.

The Company's current ratio (the ratio of current assets to current liabilities) was 12.5 to 1.0 at May 30, 2021 compared to 16.6 to 1.0 at February 28, 2021.

During the 13 weeks ended May 30, 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 $4.1 million.

During the same 13-week period, the Company expended $1.6 million for the purchase of property, plant and equipment, compared with $2.5 million during the 13 weeks ended May 31, 2020.

The Company paid $2.0 million in cash dividends in each of the 13-week periods ended May 30, 2021 and May 31, 2020.

Other Liquidity Factors

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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, and the Company believes it is well positioned to not only withstand the impact of the COVID-19 Pandemic on its business, but also to take advantage of the opportunities presented by it.

The Company further believes its balance sheet and financial position to be very strong.

Contractual Obligations:

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Actual results may differ from these estimates under different assumptions or conditions.

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 March 1, 2020.

There have been no significant changes to such accounting policies during the 2021 fiscal year third quarter.

There have been no significant changes to such accounting policies during the 2022 fiscal year first quarter.

Contingencies:

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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 March 1, 2020.

Quantitative and Qualitative Disclosure s About Market Risk .

The Company’s market risk exposure at November 29, 2020 is consistent with, and not greater than, the types of market risk and amount of exposures presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 1, 2020.

Quantitative and Qualitative Disclosures About Market Risk .

The Company’s market risk exposure at May 30, 2021 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 28, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis