PARK AEROSPACE CORP Income Taxes Disclosure

4.	INCOME TAXES

 

The income tax provision for continuing operations includes the following:

 

		Fiscal Year
		2026				2025				2024
Current:
Federal		$	2,118			$	802			$	309
State and local			802				603				310
Foreign			146				138				113
			3,066				1,543				732
Deferred:
Federal			566				1,623				975
State and local			139				459				253
Foreign			-				-				-
			705				2,082				1,228
		$	3,771			$	3,625			$	1,960

 

State income tax benefits from loss carryforwards to future years were recognized as deferred tax assets in the 2026, 2025 and 2024 fiscal years.

 

In the fourth quarter of fiscal 2025, the Company recorded a deferred tax provision for undistributed foreign earnings that were previously considered indefinitely reinvested. The Company recorded a deferred tax charge of $2,147 related to these undistributed earnings. While the Company has pursued, and continues to pursue, investment opportunities overseas for these funds, the Company no longer considers the funds to be indefinitely reinvested.

 

The Company’s pre-tax earnings from continuing operations in the United States and foreign locations are as follows:

 

		Fiscal Year
		2026				2025				2024
United States		$	14,107			$	8,619			$	8,693
Foreign			936				888				740
Earnings before income taxes		$	15,043			$	9,507			$	9,433

 

A reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate is as follows:

 

		Fiscal Year 2026
		Amount				Rate
Statutory U.S. federal tax rate		$	3,159				21.0	%
State and local taxes, net of federal income tax effect (a)			827				5.5	%
Foreign tax rate effects - Singapore			(51	)			(0.3%	)
Effect of cross border tax laws
Subpart F income			197				1.3	%
Foreign derived intangible income			(41	)			(0.3%	)
Unrepatriated foreign earnings			4				0.0	%
Foreign tax credits			(146	)			(1.0%	)
Nontaxable or nondeductible items			(29	)			(0.2%	)
Tax credits - research & development			(51	)			(0.3%	)
Change in uncertain tax positions			(32	)			(0.2%	)
Other adjustments			(66	)			(0.4%	)
		$	3,771				25.1	%

 

(a)	State taxes in Kansas made up the majority (greater than 50%) of the tax effect in this category

 

		Fiscal Year
		2025				2024
Statutory U.S. federal tax rate			21.0	%			21.0	%
State and local taxes, net of federal benefit			5.9	%			5.8	%
Foreign tax rate differentials			(0.3	%)			(0.4	%)
NQSO expirations and cancellations			0.9	%			1.8	%
Adjustment on tax accruals			(0.7	%)			(1.0	%)
Change in unrecognized tax benefits			(11.1	%)			(6.1	%)
Foreign tax credits			(1.5	%)			0.0	%
Deferred tax liability on undistributed foreign earnings			22.6	%			0.0	%
Subpart F			2.0	%			0.0	%
Permanent differences and other			(0.7	%)			(0.3	%)
			38.1	%			20.8	%

 

The Company had state net operating loss carryforwards of $1,611 and $386 as of March 1, 2026 and March 2, 2025, respectively, and total net foreign operating loss carryforwards of $7,791 as of both March 1, 2026 and March 2, 2025. The Company had valuation allowances against the remaining carryforwards as of March 1, 2026 and March 2, 2025. The state net operating loss carryforwards will expire in 2026 through 2041.

 

The Company had Arizona tax credits of $990 in both the 2026 and 2025 fiscal years for which there were valuation allowances as of March 1, 2026 and March 2, 2025.

 

The deferred tax asset valuation allowance of $2,938 as of March 1, 2026 relates to the above foreign net operating losses and state tax credit carryforwards from continuing operations for which the Company does not expect to realize any tax benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.

 

Significant components of the Company's deferred tax assets and liabilities from continuing operations as of March 1, 2026 and March 2, 2025 were as follows:

 

		March 1,				March 2,
		2026				2025
Deferred tax assets:
Net operating loss carryforwards		$	1,949			$	1,948
Tax credits carryforward			990				990
Stock options			346				446
Other, net			511				953
			3,796				4,337
Valuation allowance on deferred tax assets			(2,938	)			(2,938	)
Total deferred tax assets, net of valuation allowance			858				1,399
Deferred tax liabilities:
Depreciation			(4,118	)			(4,036	)
Undistributed earnings			(2,220	)			(2,147	)
Other			(529	)			(520	)
Total deferred tax liabilities			(6,867	)			(6,703	)
Net deferred tax liability		$	(6,009	)		$	(5,304	)

 

The amount of cash taxes paid, net of refunds, by the Company during 2026 is as follows:

 

United States Federal		$	7,151
United States State and Local
Kansas			475
Other			49
Total income tax payments, net of refunds		$	7,675

 

As of March 1, 2026 and March 2, 2025, the Company had gross unrecognized tax benefits and related interest of $39 and $71, respectively, included in other liabilities.  If any portion of the unrecognized tax benefits as of March 1, 2026 were recognized, the Company’s effective tax rate would decrease. The change as of March 1, 2026 was due to a reduction in uncertain tax positions of $32 related to expiring statutes of limitations on tax positions taken in prior years regarding certain state tax related items.

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for continuing operations is as follows:

 

		Unrecognized Tax Benefits
		March 1,				March 2,				March 3,
		2026				2025				2024
Balance, beginning of year		$	52			$	918			$	1,424
Gross decreases - tax positions in prior period			(23	)			(866	)			(535	)
Gross increases - current period tax positions			-				-				29
Balance, end of year		$	29			$	52			$	918

 

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding or subtracting amounts for current year tax positions, expiration of statutes of limitations on open income tax years, changes in the Company’s judgment about the level of uncertainty, status of tax examinations, and legislative changes. Changes in prior period tax positions are the result of a re-evaluation of the probability of realizing the benefit of a particular tax position based on new information.

 

A list of open tax years by major jurisdiction follows:

 

U.S. Federal			2024	-	2026
California			2023	-	2026
New York			2024	-	2026
Kansas			2024	-	2026
France			2024	-	2026
Singapore			2023	-	2026

 

The Company had $11 and $19 of accrued interest and penalties as of March 1, 2026 and March 2, 2025, respectively. The Company’s policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of current income tax expense.

 

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, "Income Taxes", requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. The Company completed its assessment of the OBBBA corporate tax provisions which were enacted on July 4, 2025. OBBBA contained a number of U.S. corporate tax provisions, of which the Company elected to expense U.S. incurred research or experimental expenditures immediately and full bonus depreciation for certain assets placed into service after January 19, 2025. As a result of the Company’s elections, the Company’s U.S. cash taxes decreased in 2026 with no material impact to its effective tax rate.

 

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. The Company incurred research and development expenses in the U.S. in 2025 and 2024 and, as such, the research and development expense addback is in the U.S. tax return for those years. This provision was eliminated by the OBBBA and the Company has elected to expense U.S. incurred research and development expenditures immediately in 2026.

 

The Company has no ongoing examinations of its federal returns.