General:



Park Aerospace Corp. ("Park" or the "Company") is an aerospace company which
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 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. 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 SigmaStrut™ and AlphaStrut™ product
lines) are, among others, prototype and development aircraft, special mission
aircraft, spares for legacy military and civilian aircraft and exotic
spacecraft.



The Company's fiscal year is the 52- or 53-week period ending the Sunday nearest
to the last day of February. The 2022, 2021 and 2020 fiscal years ended on
February 27, 2022, February 28, 2021 and March 1, 2020, respectively. The 2022,
2021 and 2020 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.



2022 Financial Overview



In 2019, the Company announced the major expansion of its aerospace
manufacturing, development and design facilities located at the Newton
City-County Airport in Newton, Kansas.  This expansion includes the construction
of a manufacturing facility located adjacent to Park's existing Newton, Kansas
facilities.  This facility, which was constructed in part to support a major
aerospace customer, includes approximately 90,000 square feet of manufacturing
and office space, and essentially doubled the size of Park's existing Newton,
Kansas manufacturing footprint.  The total cost of the expansion will be
approximately $19.5 million. The expansion construction is complete and is
undergoing customer qualifications, which are expected to be complete in the
second half of the 2022 fiscal year.  The expansion includes new resin mixing
and delivery systems, new hot-melt film and tape manufacturing lines, space to
accommodate an additional hot-melt tape line or solution treating line, space to
accommodate a confidential joint development project with a major aerospace
customer, additional slitting capability, significant additional freezer and
storage space, an expanded production lab, a new R&D lab and additional office
space. Through February 27, 2022, the Company had incurred $18.7 million of
costs for the expansion.



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").



                                       23
--------------------------------------------------------------------------------




The COVID-19 Pandemic and resultant global economic crisis had significant
impacts on the Company's results of operations and cash flow for 2021, and to a
lesser degree for 2022. 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.



Even as the COVID-19 Pandemic subsides, 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.



The company’s total net sales worldwide in 2022 were 16% higher than 2021, primarily due to higher sales to commercial aerospace and business aircraft customers due to lower impacts of the pandemic in these markets, partially offset by lower military sales in 2022.



The Company's gross profit margin, measured as a percentage of sales, increased
to 33.4% in 2022 from 28.5% in 2021. Higher sales and production levels combined
with the fixed nature of certain overhead costs led to higher gross margins.



The Company recorded restructuring charges of $259,000 and $1.6 million in 2022
and 2021, respectively, related to the closure of the Company's Park Aerospace
Technologies Asia, Pte, Ltd. facility located in Singapore.



The Company's earnings from continuing operations in 2022 were 107% higher than
in 2021, primarily as a result of the aforementioned increases in sales and
gross profit. The Company's net earnings from continuing operations in 2022 were
63% higher than in 2021, primarily due to higher sales and lower restructuring
charges, partially offset by lower interest income.



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.



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.



Programs that the Company supplies into may also be experiencing supply chain
issues from other suppliers to the programs. The Company's sales could be
impacted by delays and reductions in its customer's production schedules caused
by other suppliers in the chain.



The tight labor market has created challenges in hiring personnel. Although the
Company feels very positive about its workforce, high wage inflation creates
challenges in hiring to add to the Company's employee base. The Company is
making adjustments to pay levels and benefits to stay competitive with the labor
market.  Additionally, the Company has a "Customer Flexibility Program" whereby
employees can cross train on different equipment and processes to earn extra pay
for attaining the added skills.



The war in Ukraine has not had a material impact on the Company's results of
operations, and is not expected to have a material impact. The Company does not
have any significant customers in Russia or Ukraine. The Company continues to
evaluate the impact the war in Ukraine may have on the Company's customers and
on the Company's supply chain.



                                       24
--------------------------------------------------------------------------------




The war in Ukraine has not had a material impact on the Company's results of
operations, and is not expected to have a material impact. The Company does not
have any significant customers in Russia or Ukraine.  The Company continues to
evaluate the impact the war in Ukraine may have on the Company's customers and
on the Company's supply chain.



Results of Operations:



2022 Compared to 2021



                                                   Year Ended
                                         February 27,       February 28,
(Amounts in thousands, except per
share amounts)                               2022               2021              Increase / (Decrease)

Net sales                               $       53,578     $       46,276     $      7,302                16 %
Cost of sales                                   35,661             33,085            2,576                 8 %
Gross profit                                    17,917             13,191            4,726                36 %
Selling, general and administrative
expenses                                         6,249              6,113              136                 2 %
Restructuring charges                              259              1,570           (1,311 )             -84 %
Earnings from continuing operations             11,409              5,508            5,901               107 %
Interest and other income                          375              1,777           (1,402 )             -79 %
Earnings from continuing operations
before income taxes                             11,784              7,285            4,499                62 %
Income tax provision                             3,320              2,093            1,227                59 %
Net earnings from continuing
operations                                       8,464              5,192            3,272                63 %
Loss from discontinued operations,
net of tax                                           -               (328 )            328              -100 %
Net earnings                            $        8,464     $        4,864     $      3,600                74 %

Earnings (loss) per share:
Basic:
Continuing operations                   $         0.41     $         0.25     $       0.16                64 %
Discontinued operations                              -              (0.01 )           0.01              -100 %
Basic earnings per share                $         0.41     $         0.24     $       0.17                71 %

Diluted:
Continuing operations                   $         0.41     $         0.25     $       0.16                64 %
Discontinued operations                              -              (0.01 )           0.01              -100 %
Diluted earnings per share              $         0.41     $         0.24     $       0.17                71 %




Net Sales


The company’s total net sales worldwide in 2022 were 16% higher than 2021, primarily due to higher sales to commercial aerospace and business aircraft customers resulting from reduced impacts from pandemic in these markets, partially offset by lower military sales in 2022.


Gross Profit



The Company's gross profit margin, measured as a percentage of sales, increased
to 33.4% in 2022 from 28.5% in 2021. Higher sales and production levels combined
with the fixed nature of certain overhead costs led to higher gross margins.



                                       25
--------------------------------------------------------------------------------

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $136,000or 2%, in 2022 compared to 2021. These expenses, measured as a percentage of sales, were 11.7% and 13.2% in 2022 and 2021, respectively.

Selling, general and administrative expenses in 2022 included $285,000 stock option expenses compared to $191,000 of these expenses in 2021.


Restructuring Charges


The Company recorded restructuring charges of $259,000 in 2022 compared to $1.6 million in 2021 linked to the closure of the Company’s Park Aerospace Technologies Asia, Pte, Ltd. establishment located in Singapore.

Income from continuing operations



For the reasons set forth above, 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. The Company's earnings
from continuing operations were $5.5 million for 2021, including the pretax
charges of $1.6 million for the closure of the facility located in Singapore.



Interest and Other Income



Interest and other income were $375,000 and $1.8 million for 2022 and 2021,
respectively. The decrease from 2021 was due primarily to lower average invested
cash during the period and lower weighted average interest rates. During 2022
and 2021, the Company earned interest income principally from its investments,
which were primarily in short-term instruments and money market funds.



Income Tax Provision



The Company's effective income tax rate of 28.2% for 2022 was due primarily to
the U.S. Federal rate and state income taxes. The Company's effective income tax
rate was higher in 2021, due to unfavorable adjustments to valuation allowances
on state tax credits and a higher state effective tax rate in 2021.



Net income from continuing operations

The Company’s net income from continuing operations for 2022 was $8.5 millionincluding pre-tax charges of $259,000 for the closure of the establishment located at Singapore. The Company’s net income from continuing operations for 2021 was $5.2 millionincluding pre-tax charges of $1.6 million for the closure of the establishment located at Singapore.


Discontinued Operations



On December 4, 2018, the Company completed the sale of its Electronics Business,
including manufacturing facilities in Singapore, France, California and Arizona
and R&D facilities in Singapore and Arizona, to AGC Inc. for an aggregate
purchase price of $145 million in cash, subject to post-closing adjustments for
changes in working capital compared to the target net working capital, excluding
cash in certain acquired subsidiaries and certain accrued and unpaid taxes of
certain acquired subsidiaries. See Note 12, "Discontinued Operations", of the
Notes to Consolidated Financial Statements elsewhere in this Report for
additional information on the sale.



                                       26
--------------------------------------------------------------------------------




The operating results of the Electronics Business are classified, together with
certain costs related to the sale, as discontinued operations, net of tax, in
the Consolidated Statements of Operations.



The Company's loss from discontinued operations was lower in 2022 compared to
2021 primarily as a result of exiting the facility in Fullerton California,
previously used in the electronics operations, at the beginning of the third
fiscal quarter of 2021.


Basic and diluted earnings per share



Basic and diluted earnings per share from continuing operations for 2022 were
$0.41, including the pretax charges for the closure of the facility located in
Singapore, compared to basic and diluted earnings per share for 2021 of $0.25,
including the pretax charges for the closure of the facility located in
Singapore. The net impact of the items described above was to decrease basic and
diluted earnings per share by $0.01 in 2022 and $0.07 in 2021.





2021 Compared to 2020



                                                    Year Ended
                                            February 28,       March 1,
(Amounts in thousands, except per share
amounts)                                        2021             2020            Increase / (Decrease)

Net sales                                  $       46,276     $   60,014     $      (13,738 )           -23 %
Cost of sales                                      33,085         41,341             (8,256 )           -20 %
Gross profit                                       13,191         18,673             (5,482 )           -29 %
Selling, general and administrative
expenses                                            6,113          7,932             (1,819 )           -23 %
Earnings from continuing operations                 5,508         10,741             (5,233 )           -49 %
Interest and other income                           1,777          3,330             (1,553 )           -47 %
Earnings from continuing operations
before income taxes                                 7,285         14,071             (6,786 )           -48 %
Income tax provision                                2,093          3,866             (1,773 )           -46 %
Net earnings from continuing operations             5,192         10,205             (5,013 )           -49 %
Loss from discontinued operations, net
of tax                                               (328 )         (653 )              325             -50 %
Net earnings                               $        4,864     $    9,552     $       (4,688 )           -49 %

Earnings per share:
Basic:
Continuing operations                      $         0.25     $     0.50     $        (0.25 )           -50 %
Discontinued operations                             (0.01 )        (0.03 )             0.02             -67 %
Basic earnings per share                   $         0.24     $     0.47     $        (0.23 )           -49 %

Diluted:
Continuing operations                      $         0.25     $     0.50     $        (0.25 )           -50 %
Discontinued operations                             (0.01 )        (0.03 )             0.02             -67 %
Diluted earnings per share                 $         0.24     $     0.47     $        (0.23 )           -49 %




Net Sales



The Company's total net sales worldwide in 2021 were 23% lower than in 2020 due
primarily to the lower sales to commercial aerospace and business aircraft
customers as a result of the inverse impact of the COVID-19 Pandemic on those
markets, partially offset by higher military sales during 2021.



                                       27
--------------------------------------------------------------------------------


Gross Profit



The Company's gross profit margin, measured as a percentage of sales, decreased
to 28.5% in 2021 from 31.1% in 2020. Lower sales and production levels combined
with the fixed nature of certain overhead costs lead to lower gross margins.



Selling, general and administrative expenses



Selling, general and administrative expenses decreased by $1.8 million, or 23%,
during 2021 compared to 2020. Such expenses, measured as percentages of sales,
were 13.2% during both the 2021 and 2020 fiscal years. The decrease in such
expenses in 2021 was due primarily to decreased travel and entertainment,
salaries and lower stock option expenses, excluding stock option modification
charges in 2020.


Selling, general and administrative expenses in 2021 included $0.2 million stock option expenses compared to $0.7 million of these expenses in 2020, of which $0.2 million due to the modification of previously granted stock options.



Restructuring Charges



The Company recorded restructuring charges of $1.6 million in 2021 linked to the closure of the Company’s Park Aerospace Technologies Asia, Pte, Ltd.
located facility Singapore.

Income from continuing operations

For the reasons set out above, the Company’s profit from continuing operations was $5.5 million for 2021, including pre-tax charges of $1.6 million for the closure of the establishment located at Singapore. The Company’s profit from continuing operations was $10.7 million in 2020, including a pre-tax stock option change charge of $0.2 million resulting from the exceptional dividend of $1.00 per share paid in February 2020.


Interest and Other Income



Interest and other income were $1.8 million and $3.3 million for 2021 and 2020,
respectively. The decrease from 2020 was due primarily to lower average invested
cash during the period and lower weighted average interest rates. During 2021
and 2020, the Company earned interest income principally from its investments,
which were primarily in short-term instruments and money market funds.



Income Tax Provision



The Company's effective income tax rate of 28.7% for 2021 was due primarily to
the U.S. Federal rate and state income taxes. The Company's effective income tax
rate was lower in 2020, due to favorable adjustments to valuation allowances on
state tax credits and a lower state effective tax rate in 2020.



                                       28
--------------------------------------------------------------------------------

Net income from continuing operations



The Company's net earnings from continuing operations for 2021 were $5.2
million, including the pretax charges of $1.6 million for the closure of the
facility located in Singapore. The Company's net earnings from continuing
operations for 2020 were $10.2 million, including the stock option modification
pre-tax charge of $0.2 million in connection with the special dividend of $1.00
per share paid in February 2020.



Discontinued Operations



On December 4, 2018, Park completed the previously announced sale of its
Electronics Business, including manufacturing facilities in Singapore, France,
California and Arizona and R&D facilities in Singapore and Arizona, to AGC Inc.
for an aggregate purchase price of $145 million in cash, subject to post-closing
adjustments for changes in working capital compared to the target net working
capital, excluding cash in certain acquired subsidiaries and certain accrued and
unpaid taxes of certain acquired subsidiaries. See Note 12, "Discontinued
Operations", of the Notes to Consolidated Financial Statements elsewhere in this
Report for additional information on the sale.



The operating results of the Electronics Business are classified, together with
certain costs related to the sale, as discontinued operations, net of tax, in
the Consolidated Statements of Operations.



The Company's loss from discontinued operations was lower in 2021 compared to
2020 primarily as a result of exiting the facility in Fullerton California,
previously used in the electronics operations, at the beginning of the Company's
third fiscal quarter of 2021.



Basic and diluted earnings per share



Basic and diluted earnings per share from continuing operations for 2021 were
$0.25, including the pretax charges for the closure of the facility located in
Singapore, compared to basic and diluted earnings per share for 2020 of $0.50,
including the stock option modification charge in connection with the special
dividend paid in February 2020. The net impact of the items described above was
to decrease basic and diluted earnings per share by $0.07 in 2021 and $0.01 in
2020.


Cash and capital resources:


(Amounts in thousands)            February 27,       February 28,       Increase /
                                      2022               2021           (Decrease)

Cash and marketable securities $110,361 $116,542 $

 (6,181 )
Working capital                         120,147            124,348           (4,201 )




From continuing
operations                            Fiscal Year Ended
(Amounts in
thousands)              February 27,       February 28,       March 1,     

Increase decrease)

                            2022               2021             2020        

2022 compared to 2021 2021 compared to 2020

Net cash provided by
operating
activities             $        8,201     $       13,340     $    5,871     $        (5,139 )    $         7,469
Net cash (used in)
provided
by investing
activities                    (29,556 )           32,958        (42,511 )           (62,514 )             75,469
Net cash used in
financing activities           (7,429 )           (9,785 )      (28,304 )             2,356               18,519



Cash and negotiable securities

The Company believes that it has sufficient cash to fund its operating activities for the 12 months from the date of filing of this Annual Report on Form 10-K and for the foreseeable future thereafter.

                                       29
--------------------------------------------------------------------------------




The change in cash and marketable securities at February 27, 2022 compared to
February 28, 2021 was primarily the result of positive operating cash flow more
than offset by capital expenditures and regular quarterly dividends paid by the
Company to its shareholders during 2022 and a number of additional factors. The
significant changes in cash provided by operating activities were as follows:



? trade receivables increased by 9% to February 27, 2022 compared to February

28 2021 mainly due to the increase in total net sales in the last month of

    2022;



? inventories decreased by 3% mainly due to lower purchases of raw materials at the

    end of February 2022;



? prepaid expenses and other current assets decreased by 9% mainly due to the

    decrease in income tax receivable;




  ? accounts payable decreased 23% due primarily to the lower raw material
    purchases and lower capital expenditures at the end of February 2022;




  ? accrued liabilities decreased 13% due primarily to the reduction of the

restructuring charge linked to the closure of the establishment in Singapore;

? income taxes payable decreased by 25% to February 27, 2022 compared to February

28 2021 due to current tax provision exceeding tax payments.

In addition, the Company paid $8.2 million cash dividends in 2022 and 2021.



Working Capital



Working capital at February 27, 2022 was lower compared to February 28, 2021.
Decreases in cash and cash equivalents and marketable securities, decreases in
inventories and decreases in prepaid expenses and other current assets were
partially offset by increases in accounts receivable and decreases in accounts
payable, accrued liabilities and income taxes payable.



The Company’s general liquidity ratio (the ratio of current assets to current liabilities) was 20.1 to 1 at February 27, 2022 against 16.6 for 1 to February 28, 2021.



Cash Flows



During 2022, the Company's net earnings from continuing operations, before
depreciation and amortization, stock-based compensation, amortization of bond
premium, gain on sale of fixed assets and non-cash restructuring, were $11.8
million. Such earnings were decreased by changes in operating assets and
liabilities of $3.6 million, resulting in $8.2 million of cash provided by
operating activities from continuing operations. During 2022, the Company
expended $4.4 million for the purchase of property, plant and equipment compared
to $7.5 million during 2021, the Company in 2021 paid $1.6 million for the
repurchase of the Company's stock, and the Company paid $8.2 million in cash
dividends in 2022 and 2021.



                                       30
--------------------------------------------------------------------------------


Other Liquidity Factors



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 tax payable to be
paid in installments over eight years. The remaining balance of these
installment payments, as of February 27, 2022, was approximately $14.3 million
to be paid over the next four years.



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 balance sheet and financial position to be
very strong, and the Company believes it is well positioned to weather the
impact of the Pandemic on its business.



Contractual Obligations:



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 $0.3 million to secure the Company's obligations under its workers'
compensation insurance program.



Environmental Matters:



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.



In 2022, 2021 and 2020, the Company incurred approximately $13,000, $9,000 and
$41,000, 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
$13,000, $9,000 and $38,000, 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 February 27, 2022 and
February 28, 2021, there were no amounts recorded in accrued liabilities for
environmental matters.



                                       31
--------------------------------------------------------------------------------




Management does not expect that environmental matters will have a material
adverse effect on the liquidity, capital resources, business, consolidated
results of operations or consolidated financial position of the Company. See
Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of
Part II of this Report for a discussion of the Company's contingencies,
including those related to environmental matters.



Critical accounting policies and estimates:



The following information is provided regarding critical accounting policies
that are important to the Consolidated Financial Statements and that entail, to
a significant extent, the use of estimates, assumptions and the application of
management's judgment.



General



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.



The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its Consolidated
Financial Statements.


Recently Adopted Accounting Pronouncement



See Note 15 of the Notes to Consolidated Financial Statements included in Item 8
of Part II of this Report for a discussion of the Company's recently adopted
accounting pronouncements.



Revenue Recognition



The Company recognizes revenue when a customer obtains control of promised goods
or services in an amount that reflects the consideration to which the providing
entity expects to be entitled in exchange for those goods or services. We
recognize revenue when all of the following criteria are met: (1) we have
entered into a binding agreement, (2) the performance obligations have been
identified, (3) the transaction price to the customer has been determined, (4)
the transaction price has been allocated to the performance obligations in the
contract, and (5) the performance obligations have been satisfied. The majority
of the Company's shipping terms define the performance obligation to be
satisfied upon shipment.



                                       32
--------------------------------------------------------------------------------

Sales Allowances and Product Warranties



The Company records estimated reductions to revenue for customer returns,
allowances, and warranty claims. Provisions for such reductions are recorded in
the period the sale is recorded and are derived from historical trends and other
relevant information. The Company's products are made to customer specifications
and tested for adherence to such specifications before shipment to customers.
Composite structures and assemblies may be subject to "airworthiness" acceptance
by customers after receipt at the customers' locations. There are no future
performance requirements other than the products' meeting the agreed
specifications. The Company's basis for providing sales allowances for returns
are known situations in which products may have failed due to manufacturing
defects in the products supplied by the Company. The Company is focused on
manufacturing the highest quality advanced composite materials, structures and
assemblies and tooling possible and employs stringent manufacturing process
controls and works with raw material suppliers who have dedicated themselves to
complying with the Company's specifications and technical requirements. The
amounts of returns and allowances resulting from defective or damaged products
have averaged approximately 1.0% of sales for the Company's last three fiscal
years.



Accounts Receivable



The Company's accounts receivable are due from purchasers of the Company's
products. Credit is extended based on evaluation of a customer's financial
condition and, generally, collateral is not required. Accounts receivable are
due within established payment terms and are stated at amounts due from
customers net of an allowance for doubtful accounts. Accounts outstanding longer
than established payment terms are considered past due. The Company determines
its allowance by considering a number of factors, including the length of time
accounts receivable are past due, the Company's previous loss history, the
customer's current ability to pay its obligation to the Company, and the
conditions of the general economy and the aerospace industry. If the financial
condition of the Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. The Company writes off accounts receivable when they become
uncollectible.



Inventories


Inventories are recorded at the lower of cost (first in, first out method) or net realizable value. The Company writes down its inventory for obsolescence or estimated unsaleability based on the age of the inventory and assumptions regarding future demand for the Company’s products and market conditions.

Valuation of long-lived assets



The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value of such assets may not
be recoverable. In addition, the Company assesses the impairment of goodwill at
least annually. Important factors that could trigger an impairment review
include, but are not limited to, significant negative industry or economic
trends and significant changes in the use of the Company's assets or strategy of
the overall business.



                                       33
--------------------------------------------------------------------------------


Income Taxes



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.



Tax benefits are recognized for an uncertain tax position when, in the Company's
judgment, it is more likely than not that the position will be sustained upon
examination by a taxing authority. For a tax position that meets the
more-likely-than-not recognition threshold, the tax benefit is measured as the
largest amount that is judged to have a greater than 50% likelihood of being
realized upon ultimate settlement with a taxing authority. The liability
associated with unrecognized tax benefits is adjusted periodically due to
changing circumstances and when new information becomes available. Such
adjustments are recognized entirely in the period in which they are identified.
The effective tax rate includes the net impact of changes in the liability for
unrecognized tax benefits and subsequent adjustments as considered appropriate
by the Company. While it is often difficult to predict the final outcome or the
timing of resolution of any particular tax matter, the Company believes its
liability for unrecognized tax benefits is adequate. Interest and penalties
recognized on the liability for unrecognized tax benefits are recorded as income
tax expense.



Contingencies and Litigation



The Company is subject to a number of 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.



Employee Benefit Programs



The Company's obligations for workers' compensation claims prior to fiscal year
2019 are effectively self-insured, although the Company maintains individual and
aggregate stop-loss insurance coverage for such claims. Beginning in fiscal year
2019 workers compensation claims were fully insured. The Company accrues its
workers' compensation liability based on estimates of the total exposure of
known claims using historical experience and projected loss development factors
less amounts previously paid out.



The Company has a non-contributory profit sharing retirement plan covering their
regular full-time employees. In addition, the Company has various bonus and
incentive compensation programs, most of which are determined at management's
discretion.


The Company’s reserves associated with these self-insured liabilities and employee benefit programs are reviewed by management to ensure that they are adequate at the end of each reporting period.



                                       34

————————————————– ——————————

© Edgar Online, source Previews