PARK AEROSPACE CORP 10-Q

Item 1. Financial Statements. PARK AEROSPACE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) September 1, 2024 (unaudited) March 3, 2024* ASSETS Current assets Cash and cash equivalents $ 8,153 $ 6,567 Marketable securities (Note 3) 63,831 70,644 Accounts receivable, less allowance for credit losses of $ 136 and $ 128 , respectively 10,914 12,381 Inventories (Note 4) 7,630 6,404 Prepaid expenses and other current assets 2,499 2,849 Total current assets 93,027 98,845 Property, plant and equipment, net 21,891 23,499 Operating right-of-use assets (Note 5) 334 95 Goodwill and other intangible assets 9,776 9,776 Other assets 87 94 Total assets $ 125,115 $ 132,309 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,700 $ 3,514 Operating lease liability (Note 5) 40 53 Accrued liabilities 1,348 1,986 Income taxes payable 5,121 4,105 Total current liabilities 10,209 9,658 Long-term operating lease liability (Note 5) 339 82 Non-current income taxes payable (Note 9) - 5,259 Deferred income taxes (Note 9) 3,087 3,222 Other liabilities 1,222 1,174 Total liabilities 14,857 19,395 Commitments and contingencies (Note 12) Shareholders' equity (Note 8) Common stock 2,096 2,096 Additional paid-in capital 170,626 170,445 Accumulated deficit ( 47,379 ) ( 45,374 ) Accumulated other comprehensive loss ( 1,250 ) ( 2,271 ) 124,093 124,896 Less treasury stock, at cost ( 13,835 ) ( 11,982 ) Total shareholders' equity 110,258 112,914 Total liabilities and shareholders' equity $ 125,115 $ 132,309 * The balance sheet at March 3, 2024 has been derived from the audited consolidated financial statements at that date. See Notes to Condensed Consolidated Financial Statements (Unaudited). 4 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) 13 Weeks Ended (Unaudited) 26 Weeks Ended (Unaudited) September 1, August 27, September 1, August 27, 2024 2023 2024 2023 Net sales $ 16,709 $ 12,481 $ 30,679 $ 28,032 Cost of sales 11,952 8,402 21,823 19,120 Gross profit 4,757 4,079 8,856 8,912 Selling, general and administrative expenses 2,140 1,853 4,157 4,468 Earnings from operations 2,617 2,226 4,699 4,444 Storm damage charge (Note 11) ( 46 ) - ( 1,098 ) - Interest and other income 245 139 584 463 Earnings from operations before income taxes 2,816 2,365 4,185 4,907 Income tax provision (Note 9) 750 619 1,126 1,307 Net earnings $ 2,066 $ 1,746 $ 3,059 $ 3,600 Earnings per share (Note 7) Basic: Basic earnings per share $ 0.10 $ 0.09 $ 0.15 $ 0.18 Basic weighted average shares 20,216 20,256 20,234 20,359 Diluted: Diluted earnings per share $ 0.10 $ 0.09 $ 0.15 $ 0.18 Diluted weighted average shares 20,291 20,338 20,331 20,432 See Notes to Condensed Consolidated Financial Statements (Unaudited). 5 PARK AEROSPACE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Amounts in thousands) 13 Weeks Ended (Unaudited) 26 Weeks Ended (Unaudited) September 1, August 27, September 1, August 27, 2024 2023 2024 2023 Net earnings $ 2,066 $ 1,746 $ 3,059 $ 3,600 Other comprehensive earnings (loss), net of tax: Unrealized gains on marketable securities: Unrealized holding gains arising during the period 758 109 1,016 701 Unrealized losses on marketable securities: Unrealized holding losses arising during the period - ( 107 ) ( 35 ) ( 107 ) Less: reclassification adjustment for losses included in net earnings 40 108 40 232 Other comprehensive earnings 798 110 1,021 826 Total comprehensive earnings $ 2,864 $ 1,856 $ 4,080 $ 4,426 See Notes to Condensed Consolidated Financial Statements (Unaudited). 6 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, March 3, 2024 20,965,144 $ 2,096 $ 170,445 $ ( 45,374 ) $ ( 2,271 ) 711,783 $ ( 11,982 ) Net earnings - - - 993 - - - Unrealized gain on marketable securities, net of tax - - - - 223 - - Stock-based compensation - - 89 - - - - Cash dividends ($ 0.125 per share) - - - ( 2,532 ) - - - Balance, June 2, 2024 20,965,144 $ 2,096 $ 170,534 $ ( 46,913 ) $ ( 2,048 ) 711,783 $ ( 11,982 ) Net earnings - - - 2,066 - - - Unrealized gain on marketable securities, net of tax - - - - 798 - - Stock options exercised - - ( 9 ) - - ( 2,062 ) 35 Stock-based compensation - - 101 - - - - Repurchase of treasury shares - - - - - 149,633 ( 1,888 ) Cash dividends ($ 0.125 per share) - - - ( 2,532 ) - - - Balance, September 1, 2024 20,965,144 $ 2,096 $ 170,626 $ ( 47,379 ) $ ( 1,250 ) 859,354 $ ( 13,835 ) 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 ) See Notes to Condensed Consolidated Financial Statements (Unaudited). 7 PARK AEROSPACE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) 26 Weeks Ended (Unaudited) September 1, August 27, 2024 2023 Cash flows from operating activities: Net earnings $ 3,059 $ 3,600 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Non-cash storm damage charge 887 - Depreciation and amortization 927 644 Stock-based compensation 190 322 Provision for credit losses 8 8 Deferred income taxes ( 135 ) ( 52 ) Amortization of bond premium 84 408 Loss on sale of marketable securities 55 184 Changes in operating assets and liabilities ( 4,052 ) ( 7,759 ) Net cash provided by (used in) operating activities 1,023 ( 2,645 ) Cash flows from investing activities: Purchase of property, plant and equipment ( 206 ) ( 374 ) Purchases of marketable securities ( 7,772 ) ( 3,329 ) Proceeds from sales and maturities of marketable securities 15,467 37,915 Net cash provided by investing activities 7,489 34,212 Cash flows from financing activities: Dividends paid ( 5,064 ) ( 25,561 ) Proceeds from exercise of stock options 26 - Purchase of treasury stock ( 1,888 ) ( 2,880 ) Net cash used in financing activities ( 6,926 ) ( 28,441 ) Increase in cash and cash equivalents: 1,586 3,126 Cash and cash equivalents, beginning of period 6,567 4,237 Cash and cash equivalents, end of period $ 8,153 $ 7,363 Supplemental disclosure of non-cash activities: Addition to operating right-of-use asset from new operating lease liability $ 267 $ - Supplemental cash flow information: Cash paid during the period for income taxes, net of refunds $ 5,199 $ 5,107 See Notes to Condensed Consolidated Financial Statements (Unaudited). 8 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 Statement of Shareholders’ Equity as of September 1, 2024, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Earnings for the 13 weeks and 26 weeks ended September 1, 2024 and August 27, 2023, 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 September 1, 2024 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 March 3, 2024. There have been no significant changes to such accounting policies during the 26 weeks ended September 1, 2024. 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. 9 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 September 1, 2024. 3. MARKETABLE SECURITIES All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive earnings. Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in interest and other income in the Consolidated Statements of Operations. The costs of securities sold are based on the specific identification method. The following is a summary of available-for-sale securities: September 1, 2024 Total Level 1 Level 2 Level 3 U.S. Treasury and other government securities $ 63,831 $ 63,831 $ - $ - Total marketable securities $ 63,831 $ 63,831 $ - $ - March 3, 2024 Total Level 1 Level 2 Level 3 U.S. Treasury and other government securities $ 67,210 $ 67,210 $ - $ - U.S. corporate debt securities 3,434 3,434 - - Total marketable securities $ 70,644 $ 70,644 $ - $ - 10 The following table shows the amortized cost basis of, and gross unrealized gains and losses on, the Company’s available-for-sale securities: Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses September 1, 2024: U.S. Treasury and other government securities $ 65,543 $ 43 $ 1,755 U.S. corporate debt securities - - - Total marketable securities $ 65,543 $ 43 $ 1,755 March 3, 2024: U.S. Treasury and other government securities $ 70,320 $ - $ 3,110 U.S. corporate debt securities 3,435 - 1 Total marketable securities $ 73,755 $ - $ 3,111 The estimated fair values of such securities at September 1, 2024 by contractual maturity are shown below: Due in one year or less $ 32,607 Due after one year through five years 31,224 $ 63,831 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: September 1, March 3, 2024 2024 Inventories: Raw materials $ 5,406 $ 5,047 Work-in-process 541 397 Finished goods 1,683 960 $ 7,630 $ 6,404 11 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 September 1, 2024 are as follows: Fiscal Year: 2025 $ 28 2026 57 2027 59 2028 61 2029 65 Thereafter 202 Total undiscounted operating lease payments 472 Less imputed interest ( 93 ) Present value of operating lease payments $ 379 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 September 1, 2024, the Company’s operating lease expenses were $ 15 and $ 31 , respectively. Cash payments of $ 27 , pertaining to operating leases, are reflected in the cash flow statement under cash flows from operating activities. The following table sets forth the right-of-use assets and operating lease liabilities as of September 1, 2024: Operating right-of-use assets $ 334 Operating lease liabilities $ 40 Long-term operating lease liabilities 339 Total operating lease liabilities $ 379 The Company’s weighted average remaining lease term for its operating leases is 6.5 years. 12 6. STOCK-BASED COMPENSATION As of September 1, 2024, 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, approved by the shareholders of the Company at the Annual Meeting of Shareholders of the Company on July 24, 2018, and amended by the shareholders of the Company on July 18, 2024 and provides for the grant of options to purchase up to 1,550,000 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 September 1, 2024, the Company granted options under the 2018 Plan to purchase a total of 135,100 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 $ 434 and will be recorded on a straight-line basis over the requisite service period. The weighted average fair value of the granted options was $ 3.21 per share using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 4.23 %- 4.24 %; expected volatility factor of 28.7 %- 29.1 %; expected dividend yield of 3.77 %; and estimated option term of 5.8 - 8.6 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 September 1, 2024. 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 future compensation expense to be recognized in earnings before income taxes for options outstanding at September 1, 2024 was $ 895 , which is expected to be recognized ratably over a weighted average vesting period of 1.53 years. 13 The following is a summary of option activity for the 26 weeks ended September 1, 2024: Outstanding Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Balance, March 3, 2024 708,325 $ 11.53 Granted 135,100 13.26 Exercised ( 2,062 ) 11.97 Terminated or expired ( 4,688 ) 12.71 Balance, September 1, 2024 836,675 $ 11.80 6.17 $ 1,498 Vested and exercisable, September 1, 2024 518,988 $ 11.22 4.60 $ 1,258 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 September 1, 2024 August 27, 2023 September 1, 2024 August 27, 2023 Net earnings $ 2,066 $ 1,746 $ 3,059 $ 3,600 Weighted average common shares outstanding for basic EPS 20,216 20,256 20,234 20,359 Net effect of dilutive options 75 82 97 73 Weighted average shares outstanding for diluted EPS 20,291 20,338 20,331 20,432 Basic earnings per share $ 0.10 $ 0.09 $ 0.15 $ 0.18 Diluted earnings per share $ 0.10 $ 0.09 $ 0.15 $ 0.18 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 84,000 and 148,000 for the 13 weeks ended September 1, 2024 and August 27, 2023, respectively, and 42,000 and 152,000 for the 26 weeks ended September 1, 2024 and August 27, 2023, respectively. 14 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 149,633 and 221,099 shares of its common stock during the 26 weeks ended September 1, 2024 and August 27, 2023, respectively. As a result, the Company is authorized to purchase up to a total of 1,129,268 shares of its common stock, representing approximately 5.7 % of the Company’s 19,961,792 total outstanding shares as of the close of business on October 7, 2024. 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 September 1, 2024, the Company recorded income tax provisions from operations of $ 750 and $ 1,126 , respectively, which included discrete income tax provisions of $ 22 and $ 41 , respectively. 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. The Company’s effective tax rates for the 13 weeks and 26 weeks ended September 1, 2024 were income tax provisions of 26.6 % and 26.9 %, respectively, compared to income tax provisions of 26.2 % and 26.6 % in the comparable prior periods. The effective tax rates for the 13 weeks and 26 weeks ended September 1, 2024 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 27, 2023 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 September 1, 2024 August 27, 2023 September 1, 2024 August 27, 2023 Sales: North America $ 15,284 $ 11,338 $ 27,270 $ 24,957 Asia 176 412 895 542 Europe 1,249 731 2,514 2,533 Total sales $ 16,709 $ 12,481 $ 30,679 $ 28,032 15 11. STORM DAMAGE CHARGE The Company recorded a charge of $ 46 and $ 1,098 , respectively, for storm damage in the 13 weeks and 26 weeks ended September 1, 2024. On May 19, 2024, the Company’s manufacturing facilities in Newton, Kansas were damaged by a strong storm which transitioned the area. None of the Company’s manufacturing lines or equipment were damaged by the storm. Although the building structures are secure, the roofs on all three buildings in the Company’s Newton, Kansas campus will ultimately need to be replaced. Also, multiple specialty HVAC units were damaged or destroyed. These specialty HVAC units are necessary to control the temperature and humidity in certain manufacturing areas, quality laboratories and R&D laboratories, which is required by certain specifications and certifications the Company is subject to. The Company is currently working with multiple contractors on site to remediate the damage. Although the Company is still in the process of remediating the damage, the Company’s production lines were returned to full production within two weeks of the storm. The Company is employing certain temporary measures in order to return its production lines to full service, including the use of temporary HVAC equipment, but it will take the Company several months to permanently repair or replace all of the damaged facilities and infrastructure equipment. The Company does not anticipate the loss of any sales for the 2025 fiscal year. The Company paid its employees for the days immediately following the storm despite many not being able to work while others worked on the clean-up of the storm damage to the facilities. The Company incurred $ 78 of payroll and related costs for lost production time and employees working on clean-up. The charge recorded by the Company includes an asset damage charge, emergency services by outside contractors, rental of temporary HVAC units and the cost of employee downtime or time spent on the clean-up of the storm damage to the facilities. Additional costs will be recorded in future periods as additional work is needed and performed. The Company has insurance coverage for wind damage with a deductible of approximately $ 2.5 million. Under the insurance policy, the Company expects to recover all costs and damages incurred in excess of the deductible. The costs will be in part based on replacement costs, which will be in excess of the charge. Any insurance recovery will be recorded when realization can be determined and is assured. 12. 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. 16 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 during 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. 17