PARK AEROSPACE CORP

Previous wording

The Company’s fiscal year is the 52- or 53-week period ending the Sunday nearest to the last day of February. The 2024, 2023 and 2022 fiscal years ended on March 3, 2024, February 26, 2023 and February 27, 2022, respectively. The 2024 fiscal year consisted of 53 weeks and the 2023 and 2022 fiscal years each consisted of 52 weeks.Unless otherwise indicated in this Discussion and Analysis, all references to years and quarters in this Discussion and Analysis are to the Company’s fiscal years and fiscal quarters, and all annual and quarterly information in this Discussion and Analysis is for such fiscal years and quarters, respectively.

Current wording

The Company’s fiscal year is the 52- or 53-week period ending the Sunday nearest to the last day of February. The 2025, 2024, and 2023 fiscal years ended on March 2, 2025, March 3, 2024, and February 26, 2023, respectively. The 2025 and 2023 fiscal years each consisted of 52 weeks and the 2024 fiscal year consisted of 53 weeks.Unless otherwise indicated in this Discussion and Analysis, all references to years and quarters in this Discussion and Analysis are to the Company’s fiscal years and fiscal quarters, and all annual and quarterly information in this Discussion and Analysis is for such fiscal years and quarters, respectively.

Previous wording

The Company's total net sales worldwide in 2024 were 4% higher than in 2023. The increase in sales was primarily driven by an increase in military market sales, while sales to each of the other markets the Company serves were relatively even with the prior year sales levels.

Current wording

The Company's total net sales worldwide in 2025 were 11% higher than in 2024. The increase in sales was primarily driven by an increase in sales in the military and commercial aircraft markets and, to a lesser extent, higher sales in the business aircraft market, while sales to each of the other markets the Company serves were relatively even with the prior year sales levels.

Previous wording

The Company’s earnings from operations in 2024 were 16% lower than in 2023, primarily as a result of higher selling, general and administrative expenses, including higher incentive payments, as well as higher legal expenses resulting from shareholder defense actions, costs to settle an insurance claim as the result of the bankruptcy of an insurer and higher recruiting fees. The Company’s net earnings from operations in 2024 were 30% lower than in 2023, primarily due to a higher tax rate in 2024 compared to 2023 and the increased costs described above offset by higher interest income. The increase in the 2024 tax rate compared to the 2023 tax rate resulted from a lower benefit from the reduction in uncertain tax positions in 2024 as compared to 2023.

Current wording

The Company’s earnings from operations in 2025, as a percentage of sales, were 15.1% compared to 15.0% in 2024, primarily as a result of lower selling, general and administrative expenses which offset the lower gross profit margin noted above. The lower selling, general and administrative expenses, as a percentage of sales, were due to higher legal fees in 2024 as a result of shareholder activism defense costs, costs incurred in 2024 to settle an insurance claim as a result of the bankruptcy of the insurer, lower incentive compensation expense and an additional week of expenses included in 2024. The Company’s net earnings from operations in 2025 were 7% higher than in 2024, primarily due to an 11% increase in sales, and higher interest income in 2025 offset by the $1.1 million storm damage charge, higher costs of sales referenced above, higher selling, general and administrative costs and higher tax expense in 2025 due to a provision recorded for undistributed foreign earnings. The increase in the 2025 tax rate compared to the 2024 tax rate primarily resulted from a deferred tax provision recorded in the fourth quarter of fiscal 2025 on unrepatriated foreign earnings offset by a higher benefit from the reduction in uncertain tax positions in 2025 as compared to 2024.

Previous wording

The Company continues to experience inflation in costs of raw materials and supplies, freight costs and other costs and expenses. 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.

Current wording

The Company continues to experience inflation in costs of raw materials and supplies, freight costs and other costs and expenses. 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. The Company may also experience increasing costs resulting from the imposition of duties, tariffs, and similar governmental charges by the United States and certain foreign jurisdictions on the products of its customers and suppliers.

Previous wording

Programs in which the Company participates as a supplier are, in some cases, experiencing supply chain issues from other suppliers to the programs that could result in delays in production for certain customers of the Company. The Company’s sales could be impacted by supply chain challenges its customers are experiencing from other suppliers.

Current wording

Programs in which the Company participates as a supplier are, in some cases, experiencing supply chain issues from other suppliers to the programs that could result in delays in production for certain customers of the Company. These issues may be exacerbated by trade conflicts that restrict the transfer of funds or impose import and export controls on the Company’s products or supply chain inputs. The Company’s sales could also be impacted by these supply chain challenges to the extent that its customers are experiencing them from their other suppliers.

Previous wording

The Company has a number of long-term contracts pursuant to which certain of its customers, some of which represent a substantial portion of the Company’s revenue, place orders. Long-term contracts with the Company’s customers are primarily requirements based and do not guarantee quantities. An order forecast is generally agreed concurrently with pricing for any applicable long-term contract. This order forecast is then typically updated periodically during the term of the underlying contract. Purchase orders are generally received in excess of three months in advance of delivery.

Current wording

The Company has a number of long-term contracts pursuant to which certain of its customers, some of which represent a substantial portion of the Company’s revenue, place orders. Long-term contracts with the Company’s customers are primarily requirements based and do not guarantee quantities. An order forecast is generally agreed concurrently with pricing for any applicable long-term contract. This order forecast is then typically updated periodically during the term of the underlying contract. Purchase orders are generally received more than three months in advance of delivery.

Previous wording

Selling, general and administrative expenses increased by $270,000, or 4%, during 2023 compared to 2022. Such expenses, measured as percentages of sales, were 12.1% and 11.7% during 2023 and 2022, respectively.

Current wording

Selling, general and administrative expenses increased by $0.1 million, or 1%, during 2025 compared to 2024. Such expenses, measured as percentages of sales, were 13.3% and 14.6% during 2025 and 2024, respectively.

Previous wording

For the reasons set forth above, the Company’s earnings from operations were $10.0 million for 2023. The Company’s earnings from continuing operations were $11.4 million for 2022, including the pretax charges of $259,000 for the closure of the facility located in Singapore.

Current wording

For the reasons set forth above, the Company’s earnings from operations were $9.4 million for 2025 compared to earnings from continuing operations of $8.4 million for 2024.

Previous wording

The change in cash and marketable securities at March 3, 2024 compared to February 26, 2023 was primarily the result of the special dividend of $1.00 per share paid in April 2023, which totaled $20.5 million, stock repurchases of $2.9 million in the second and third quarters of 2024, as well as regular dividends of $10.2 million. The significant changes in cash provided by operating activities were as follows:

Current wording

The change in cash and marketable securities at March 2, 2025 compared to March 3, 2024 was primarily the result of stock repurchases of $4.3 million in the second and third quarters of 2025, as well as a transition tax payment of $4.2 million made in the second quarter of 2025. The significant changes in cash provided by operating activities were as follows:

Previous wording

In addition, the Company paid $30.6 million and $8.2 million in cash dividends during 2024 and 2023, respectively.

Current wording

In addition, the Company paid $10.1 million and $30.6 million in cash dividends during 2025 and 2024, respectively.

Previous wording

Working capital at March 3, 2024 was lower compared to February 26, 2023. Decreases in cash and cash equivalents and marketable securities, and inventories and increases in accrued expenses and accrued income taxes were partially offset by higher accounts receivable and lower dividends payable and accounts payable.

Current wording

Working capital at March 2, 2025 decreased $8.2 million compared to March 3, 2024. Decreases in cash and cash equivalents and marketable securities and higher current income taxes payable were partially offset by higher inventories and accounts receivable, as well as lower accounts payable.

Previous wording

The Company's current ratio (the ratio of current assets to current liabilities) was 10.2 to 1 at March 3, 2024 compared to 4.4 to 1 at February 26, 2023.

Current wording

The Company's current ratio (the ratio of current assets to current liabilities) was 9.7 to 1 at March 2, 2025 compared to 10.2 to 1 at March 3, 2024.

Previous wording

During 2024, the Company's net earnings before depreciation and amortization, stock-based compensation, amortization of bond premium and gain on sale of fixed assets, were $11.1 million. Such earnings were decreased by changes in operating assets and liabilities of $6.7 million, resulting in $4.4 million of cash provided by operating activities from continuing operations. During 2024, the Company expended $0.6 million for the purchase of property, plant and equipment compared to $1.0 million during 2023, and the Company paid $30.6 and $8.2 million in cash dividends in 2024 and 2023, respectively. The 2024 dividends paid included a special dividend of $20.5 million paid in the first quarter of 2024.

Current wording

During 2025, the Company's net earnings before non-cash storm damage charges, depreciation and amortization, stock-based compensation, provision for deferred income taxes, loss on sales of marketable securities, amortization of bond premium and gain on sale of fixed assets, were $11.3 million compared to $11.1 million in fiscal 2024 and $12.6 million in fiscal 2023. Such earnings were decreased by changes in operating assets and liabilities of $6.6 million, $6.7 million and $6.1 million in fiscal 2025, 2024 and 2023, respectively. This resulted in $4.7 million, $4.4 million and $6.5 million of cash provided by operating activities from continuing operations in fiscal 2025, 2024 and 2023, respectively. During 2025, the Company expended $0.9 million for the purchase of property, plant and equipment compared to $0.6 million during 2024, and $1.0 million in 2023. Proceeds from the sale and maturities of marketable securities, net of purchases of marketable securities, were $24.9 million, $32.0 million and $(6.0) million in 2025, 2024 and 2023, respectively. The Company paid $10.1 million, $30.6 million and $8.2 million in cash dividends in 2025, 2024 and 2023, respectively. The 2024 dividends paid included a special dividend of $20.5 million paid in the first quarter of that year.

Previous wording

On December 22, 2017, the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA” or “Tax Act”) and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system. As a result of the Tax Act, the Company recorded taxes payable to be paid in installments over eight years. The remaining balance of these installment payments, as of March 3, 2024, was approximately $9.5 million to be paid over the next two years.

Current wording

On December 22, 2017, the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA” or “Tax Act”) and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system. As a result of the Tax Act, the Company recorded taxes payable to be paid in installments over eight years. The remaining balance of these installment payments, as of March 2, 2025, was approximately $5.3 million to be paid in the second quarter of 2026.

Previous wording

The Company believes that its existing cash, cash equivalents and marketable securities, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for at least the next twelve months from the date of the filing of this Form 10-K Annual Report. The Company further believes that its consolidated balance sheet and financial position are very strong.

Current wording

The Company believes that its existing cash, cash equivalents and marketable securities, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for at least the next 12 months from the date of the filing of this Form 10-K Annual Report. The Company further believes that its consolidated balance sheet and financial position are very strong.

Previous wording

The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of operating lease commitments, commitments to purchase raw materials and commitments to purchase equipment, as described in Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Report. 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 $0.1 million to secure the Company's obligations under its workers’ compensation insurance program.

Current wording

The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of operating lease commitments, commitments to purchase raw materials and commitments to purchase equipment, as described in Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this report. In March 2025, the Company entered into an agreement with a supplier, ArianeGroup SAS, under which the Company would advance funds against future purchases. The agreement requires payments of €4,587 over three years, of which €1,376 was paid in April 2025 (actual cost of $1,569), €1,834 (approximately $2,055 based on May 9, 2025 exchange rates) is due in the first quarter of fiscal 2027 and €1,376 (approximately $1,541 based on May 9, 2025 exchange rates) is due in the first quarter of fiscal 2028. 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 $0.1 million to secure the Company's obligations under its workers’ compensation insurance program.

Previous wording

The Company is subject to various Federal, state and local govern‐ment and foreign government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations of the Company’s former Electronics Business and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by govern‐ment agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated.

Current wording

The Company is subject to various federal, state and local government and foreign government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations of the Company’s former Electronics Business and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by government agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated.

Previous wording

In 2024, 2023 and 2022, the Company incurred approximately $29,000, $14,000 and $13,000, respectively, for remedial response and voluntary cleanup costs and related legal fees, and the Company received, or expects to receive, reimbursement pursuant to general liability insurance coverage for approximately $29,000, $14,000 and $13,000, respectively, of such amounts. While annual environmental remedial response and voluntary cleanup expenditures, including legal fees, have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At March 3, 2024 and February 26, 2023, there were no amounts recorded in accrued liabilities for environmental matters.

Current wording

In 2025, 2024 and 2023, the Company incurred approximately $37,000, $29,000 and $14,000, respectively, for remedial response and voluntary cleanup costs and related legal fees, and the Company received, or expects to receive, reimbursement pursuant to general liability insurance coverage for approximately $37,000, $29,000 and $14,000, respectively, of such amounts. While annual environmental remedial response and voluntary cleanup expenditures, including legal fees, have generally been constant from year to year, with increases over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At March 2, 2025 and March 3, 2024, there were no amounts recorded in accrued liabilities for environmental matters.

Previous wording

The Company’s Discussion and Analysis of its Financial Condition and Results of Operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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, restructurings, 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.

Current wording

The Company’s Discussion and Analysis of its Financial Condition and Results of Operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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, inventories, valuation of long-lived assets, income taxes, restructurings, 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.

Previous wording

As part of the processes of preparing its consolidated financial statements, the Company is required to estimate the income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. Deferred income taxes are provided for temporary differences in the reporting of certain items, such as depreciation and undistributed earnings of foreign subsidiaries, for income tax purposes compared to financial accounting purposes. In evaluating the Company’s ability to recover the deferred tax assets within the jurisdiction from which they arise, all positive and negative evidence is considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent acquisitions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets, resulting in additional income tax expense in the Company’s Consolidated Statements of Operations, or conversely to further reduce the existing valuation allowance, resulting in less income tax expense. The Company evaluates the realizability of the deferred tax assets and assesses the need for additional valuation allowances quarterly.

Current wording

As part of the processes of preparing its consolidated financial statements, the Company is required to estimate its income taxes payable in each of the jurisdictions in which it operates. This process involves estimating the actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. Deferred income taxes are provided for temporary differences in the reporting of certain items, such as depreciation and undistributed earnings of foreign subsidiaries, for income tax purposes compared to financial accounting purposes. In evaluating the Company’s ability to recover the deferred tax assets within the jurisdiction from which they arise, all positive and negative evidence is considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent acquisitions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets, resulting in additional income tax expense in the Company’s Consolidated Statements of Operations, or conversely to further reduce the existing valuation allowance, resulting in less income tax expense. The Company evaluates the realizability of the deferred tax assets and assesses the need for additional valuation allowances quarterly.