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EX-32.1 - EX-32.1 - NATIONAL PRESTO INDUSTRIES INCnpk-20151004xex321.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

 

 

FORM 10-Q

______________________________

 

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED October 4, 2015

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____

 

Commission file number 1-2451

______________________________

 

 

NATIONAL PRESTO INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

WISCONSIN

39-0494170

(State or other jurisdiction of incorporation

or organization)

(I.R.S. Employer Identification No.)

 

 

3925 NORTH HASTINGS WAY

 

EAU CLAIRE, WISCONSIN

54703-3703

(Address of principal executive offices)

(Zip Code)

 

(Registrant’s telephone number, including area code) 715-839-2121

______________________________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No

 

There were 6,933,221 shares of the Issuer’s Common Stock outstanding as of November 1, 2015.

 

 

 

 

 


 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

October 4, 2015 and December 31, 2014

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

40,058 

 

 

 

$

54,043 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

24,579 

 

 

 

 

22,404 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

 

 

50,885 

 

 

 

 

68,752 

 

 

 

 

 

 

 

 

 

 

 

Inventories:

 

 

 

 

 

 

 

 

 

 

Finished goods

 

$

44,452 

 

 

 

$

30,308 

 

 

 

 

 

 

 

 

 

 

 

 

 

Work in process

 

 

62,831 

 

 

 

 

50,569 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials and supplies

 

 

8,940 

 

116,223 

 

 

8,181 

 

89,058 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

6,623 

 

 

 

 

6,623 

 

 

 

 

 

 

 

 

 

 

 

Income tax receivable

 

 

 

 

317 

 

 

 

 

1,668 

 

 

 

 

 

 

 

 

 

 

 

Other current assets

 

 

 

 

9,005 

 

 

 

 

9,671 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

 

 

247,690 

 

 

 

 

252,219 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

176,308 

 

 

 

 

171,264 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less allowance for depreciation

 

 

82,908 

 

93,400 

 

 

75,721 

 

95,543 

 

 

 

 

 

 

 

 

 

 

 

GOODWILL

 

 

 

 

11,485 

 

 

 

 

11,485 

 

 

 

 

 

 

 

 

 

 

 

INTANGIBLE ASSETS, net

 

 

 

 

7,005 

 

 

 

 

10,644 

 

 

 

 

 

 

 

 

 

 

 

NOTE RECEIVABLE

 

 

 

 

3,911 

 

 

 

 

3,818 

 

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

10,566 

 

 

 

 

4,650 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

374,057 

 

 

 

$

378,359 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

2


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

October 4, 2015 and December 31, 2014

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

  CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

31,141 

 

 

 

$

32,948 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

 

 

14,799 

 

 

 

 

15,680 

 

 

 

 

 

 

 

 

 

 

 

  Total current liabilities

 

 

 

 

45,940 

 

 

 

 

48,628 

 

 

 

 

 

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

 

 

 

4,288 

 

 

 

 

4,288 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value:

 

 

 

 

 

 

 

 

 

 

  Authorized: 12,000,000 shares

 

 

 

 

 

 

 

 

 

 

  Issued: 7,440,518 shares

 

$

7,441 

 

 

 

$

7,441 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid-in capital

 

 

6,572 

 

 

 

 

5,906 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

325,642 

 

 

 

 

328,417 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

(4)

 

 

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

339,651 

 

 

 

 

341,761 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock, at cost

 

 

15,822 

 

 

 

 

16,318 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Total stockholders' equity

 

 

 

 

323,829 

 

 

 

 

325,443 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

374,057 

 

 

 

$

378,359 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

 

3


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

Three and Nine Months Ended October 4, 2015 and September 28, 2014

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands except per share data)

 

Three Months Ended

 

Nine Months Ended

 

 

2015

 

2014

 

2015

 

2014

Net sales

 

$

90,901 

 

$

95,463 

 

$

294,271 

 

$

270,329 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

71,780 

 

 

79,298 

 

 

233,838 

 

 

222,302 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Gross profit

 

 

19,121 

 

 

16,165 

 

 

60,433 

 

 

48,027 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and general expenses

 

 

6,624 

 

 

5,625 

 

 

18,567 

 

 

18,360 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles amortization

 

 

356 

 

 

2,692 

 

 

3,638 

 

 

8,516 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Operating profit

 

 

12,141 

 

 

7,848 

 

 

38,228 

 

 

21,151 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

236 

 

 

41 

 

 

412 

 

 

353 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Earnings before provision for income taxes

 

 

12,377 

 

 

7,889 

 

 

38,640 

 

 

21,504 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

4,266 

 

 

2,766 

 

 

13,300 

 

 

7,520 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Net earnings

 

$

8,111 

 

$

5,123 

 

$

25,340 

 

$

13,984 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

6,953 

 

 

6,932 

 

 

6,948 

 

 

6,927 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

1.17 

 

$

0.74 

 

$

3.65 

 

$

2.02 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net earnings

 

$

8,111 

 

$

5,123 

 

$

25,340 

 

$

13,984 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

     Unrealized gain (loss) on available-for-sale securities

 

 

(7)

 

 

(3)

 

 

(1)

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

8,104 

 

$

5,120 

 

$

25,339 

 

$

13,984 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared and paid per common share

 

$

0.00 

 

$

0.00 

 

$

4.05 

 

$

5.05 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

 

 

 

 

4


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

Nine Months Ended October 4, 2015 and September 28, 2014

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

25,340 

 

$

13,984 

Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisition related assets:

 

 

 

 

 

 

  Provision for depreciation

 

 

7,700 

 

 

7,198 

  Intangibles amortization

 

 

3,638 

 

 

8,516 

  Provision for doubtful accounts

 

 

279 

 

 

424 

  Noncash retirement plan expense

 

 

586 

 

 

363 

  Other

 

 

156 

 

 

107 

  Changes in:

 

 

 

 

 

 

     Accounts receivable

 

 

17,588 

 

 

35,131 

     Inventories

 

 

(27,165)

 

 

(16,307)

     Other assets and current assets

 

 

(5,250)

 

 

3,096 

     Accounts payable and accrued liabilities

 

 

(2,678)

 

 

(6,703)

     Federal and state income taxes

 

 

1,329 

 

 

(6,277)

        Net cash provided by operating activities

 

 

21,523 

 

 

39,532 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Marketable securities purchased

 

 

(9,871)

 

 

(2,833)

Marketable securities - maturities and sales

 

 

7,695 

 

 

18,613 

Purchase of property, plant and equipment

 

 

(5,559)

 

 

(8,154)

Acquisition of businesses, net of cash acquired

 

 

 -

 

 

(10,534)

Sale of property, plant and equipment

 

 

23 

 

 

304 

  Net cash used in investing activities

 

 

(7,712)

 

 

(2,604)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Dividends paid

 

 

(28,114)

 

 

(34,954)

Proceeds from sale of treasury stock

 

 

323 

 

 

362 

Other

 

 

(5)

 

 

 -

  Net cash used in financing activities

 

 

(27,796)

 

 

(34,592)

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(13,985)

 

 

2,336 

Cash and cash equivalents at beginning of period

 

 

54,043 

 

 

22,953 

Cash and cash equivalents at end of period

 

$

40,058 

 

$

25,289 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

 

 

5


 

 

 

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE A – BASIS OF PRESENTATION 

The consolidated interim financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management of the Company, the consolidated interim financial statements reflect all the adjustments which were of a normal recurring nature necessary for a fair presentation of the results of the interim periods.  The condensed consolidated balance sheet as of December 31, 2014 is summarized from consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 2014  Annual Report on Form 10-K.  Interim results for the period are not indicative of those for the year.

 

NOTE B – RECLASSIFICATIONS

Certain reclassifications have been made to the prior periods’ financial statements to conform to the current period’s financial statement presentation.  These reclassifications did not affect net earnings or stockholders’ equity as previously reported.

 

NOTE C – EARNINGS PER SHARE 

Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period.  Diluted earnings per share also includes the dilutive effect of additional potential common shares issuableUnvested stock awards, which contain non-forfeitable rights to dividends whether paid or unpaid (“participating securities”), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. 

 

NOTE D – BUSINESS SEGMENTS 

In the following summary, operating profit represents earnings before other income, principally interest income and income taxes.  The Company's segments operate discretely from each other with no shared manufacturing facilities.  Costs associated with corporate activities (such as cash and marketable securities management) and the assets associated with such activities are included within the Housewares/Small Appliances segment for all periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Housewares / Small Appliances

 

Defense Products

 

Absorbent Products

 

Total

Quarter ended October 4, 2015

 

 

 

 

 

 

 

 

 

 

 

 

External net sales

 

$

27,704 

 

$

44,621 

 

$

18,576 

 

$

90,901 

Gross profit

 

 

6,224 

 

 

12,700 

 

 

197 

 

 

19,121 

Operating profit (loss)

 

 

3,040 

 

 

9,654 

 

 

(553)

 

 

12,141 

Total assets

 

 

166,894 

 

 

144,239 

 

 

62,924 

 

 

374,057 

Depreciation and amortization

 

 

219 

 

 

1,050 

 

 

1,758 

 

 

3,027 

Capital expenditures

 

 

2,400 

 

 

(3)

 

 

307 

 

 

2,704 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended September 28, 2014

 

 

 

 

 

 

 

 

 

 

 

 

External net sales

 

$

28,264 

 

$

52,657 

 

$

14,542 

 

$

95,463 

Gross profit (loss)

 

 

5,166 

 

 

13,084 

 

 

(2,085)

 

 

16,165 

Operating profit (loss)

 

 

2,841 

 

 

7,678 

 

 

(2,671)

 

 

7,848 

Total assets

 

 

152,414 

 

 

151,867 

 

 

62,997 

 

 

367,278 

Depreciation and amortization

 

 

236 

 

 

3,326 

 

 

1,615 

 

 

5,177 

Capital expenditures

 

 

172 

 

 

291 

 

 

2,738 

 

 

3,201 

6


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Housewares / Small Appliances

 

Defense Products

 

Absorbent Products

 

Total

Nine Months ended October 4, 2015

 

 

 

 

 

 

 

 

 

 

 

 

External net sales

 

$

72,960 

 

$

166,945 

 

$

54,366 

 

$

294,271 

Gross profit (loss)

 

 

15,477 

 

 

45,253 

 

 

(297)

 

 

60,433 

Operating profit (loss)

 

 

6,998 

 

 

33,830 

 

 

(2,600)

 

 

38,228 

Total assets

 

 

166,894 

 

 

144,239 

 

 

62,924 

 

 

374,057 

Depreciation and amortization

 

 

688 

 

 

5,667 

 

 

4,983 

 

 

11,338 

Capital expenditures

 

 

3,379 

 

 

121 

 

 

2,059 

 

 

5,559 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 28, 2014

 

 

 

 

 

 

 

 

 

 

 

 

External net sales

 

$

69,576 

 

$

151,313 

 

$

49,440 

 

$

270,329 

Gross profit (loss)

 

 

13,363 

 

 

37,589 

 

 

(2,925)

 

 

48,027 

Operating profit (loss)

 

 

5,223 

 

 

20,724 

 

 

(4,796)

 

 

21,151 

Total assets

 

 

152,414 

 

 

151,867 

 

 

62,997 

 

 

367,278 

Depreciation and amortization

 

 

721 

 

 

10,454 

 

 

4,539 

 

 

15,714 

Capital expenditures

 

 

491 

 

 

1,180 

 

 

6,483 

 

 

8,154 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company utilizes the methods of fair value as described in Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures, to value its financial assets and liabilities. ASC 820 utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

The carrying amount for cash and cash equivalents, accounts receivable, note receivable, accounts payable, and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments. 

 

NOTE F - CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES 

The Company considers all highly liquid marketable securities with an original maturity of three months or less to be cash equivalents.  Cash equivalents include money market funds.  The Company deposits its cash in high quality financial institutions.  The balances, at times, may exceed federally insured limits.  Money market funds are reported at fair value determined using quoted prices in active markets for identical securities (Level 1, as defined by FASB ASC 820).

 

The Company has classified all marketable securities as available-for-sale which requires the securities to be reported at estimated fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity.  Highly liquid, tax-exempt variable rate demand notes with put options exercisable in three months or less are classified as marketable securities.

 

At October 4, 2015 and December 31, 2014, cost for marketable securities was determined using the specific identification method.  A summary of the amortized costs and fair values of the Company’s marketable securities at the end of the periods presented is shown in the following table.  All of the Company’s marketable securities are

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classified as Level 2, as defined by FASB ASC 820, with fair values determined using significant other observable inputs, which include quoted prices in markets that are not active, quoted prices of similar securities, recently executed transactions, broker quotations, and other inputs that are observable.  There were no transfers into or out of Level 2 during the nine months ended October 4, 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

MARKETABLE SECURITIES

 

 

Amortized Cost

 

Fair Value

 

Gross Unrealized Gains

 

Gross Unrealized Losses

October 4, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Tax-exempt Municipal Bonds

 

$

11,969 

 

$

11,963 

 

$

 

$

13 

Variable Rate Demand Notes

 

 

12,616 

 

 

12,616 

 

 

 -

 

 

 -

Total Marketable Securities

 

$

24,585 

 

$

24,579 

 

$

 

$

13 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Tax-exempt Municipal Bonds

 

$

8,809 

 

$

8,804 

 

$

 

$

10 

Variable Rate Demand Notes

 

 

13,600 

 

 

13,600 

 

 

 -

 

 

 -

Total Marketable Securities

 

$

22,409 

 

$

22,404 

 

$

 

$

10 

 

 

Proceeds from maturities and sales of available-for-sale securities totaled $3,346,000 and $4,225,000 for the three month periods ended October 4, 2015 and September 28, 2014,  respectively, and totaled $7,695,000 and $18,613,000 for the nine month periods then ended, respectively.  There were no gross gains or losses related to sales of marketable securities during the same periods.  Net unrealized gains (losses) included in other comprehensive income were $(10,000) and $(5,000) before taxes for the three month periods ended October 4, 2015 and September 28, 2014,  respectively, and were $(1,000) and $1,000 before taxes for the nine month periods then ended, respectively.  No unrealized gains or losses were reclassified out of accumulated other comprehensive income during the same periods.

 

The contractual maturities of the marketable securities held at October 4, 2015 are as follows: $9,011,000 within one year; $3,642,000 beyond one year to five years; $7,376,000 beyond five years to ten years, and $4,550,000 beyond ten years. All of the instruments in the beyond five year ranges are variable rate demand notes which can be tendered for cash at par plus interest within seven days.  Despite the stated contractual maturity date, to the extent a tender is not honored, the notes become immediately due and payable.

 

NOTE G – OTHER ASSETS

Other Assets includes prepayments that are made from time to time by the Company for certain materials used in the manufacturing process in the Housewares/Small Appliances segment.  The Company expects to utilize the prepayments and related materials over an estimated period of up to three years.  As of October 4, 2015 and December 31, 2014, $17,868,000 and $13,018,000 of such prepayments, respectively, remained unused and outstanding.    At October 4, 2015 and December 31, 2014, $7,302,000 and $8,369,000 of these amounts, respectively, are included in Other Current Assets, representing the Company’s best estimate of the expected utilization of the prepayments and related materials during the twelve-month periods following those dates.

 

NOTE H – COMMITMENTS AND CONTINGENCIES

The Company is involved in largely routine litigation incidental to its business.  Management believes the ultimate outcome of the litigation will not have a material effect on the Company's consolidated financial position, liquidity, or results of operations.

 

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NOTE I – BUSINESS ACQUISITION

On January 24, 2014, AMTEC Corporation, a wholly-owned subsidiary of the Company, purchased substantially all of the assets of Chemring Energetic Devices, Inc.’s business located in Clear Lake, South Dakota, and all of the real property owned by Technical Ordnance Realty, LLC.  The Clear Lake facility is a manufacturer of detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials.  Its major customers include U.S. and foreign government agencies, AMTEC Corporation, and other defense contractors.  The acquisition of the Clear Lake facility complements the Defense segment’s existing line of products.  The total consideration transferred was $10,534,000, consisting of $10,000,000 of cash paid at closing, and an additional cash payment of $534,000, which was made during the second quarter of 2014.

 

The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity.  Accordingly, the consideration paid by the Company to complete the acquisition has been recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities.  The following table shows the amounts recorded as of the acquisition date.

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Receivables

$

1,498 

Inventory

 

4,688 

Other current assets

 

28 

Property, plant and equipment

 

4,800 

  Total assets acquired

 

11,014 

Less: Current liabilities assumed

 

480 

Net assets acquired

$

10,534 

 

The amount shown above for receivables represents the gross accounts receivable from the sales of goods, net of an allowance for doubtful accounts of $20,000.

 

The Company’s statement of comprehensive income includes revenue and earnings from the acquired facility of $5,294,000 and $171,000, respectively, for the third quarter of 2014, and  $11,301,000 and $876,000, respectively, for the period starting from the date of acquisition through the end of the third quarter of 2014.  The following unaudited pro forma condensed consolidated results of operations has been prepared as if the acquisition had occurred as of the first day of the fiscal year prior to the fiscal year in which the acquisition was completed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

(in thousands, except per share data)

 

Quarter Ended

 

Nine Months Ended

 

September 28, 2014

 

September 28, 2014

 

 

 

 

 

 

Net sales

$

95,463 

 

$

270,964 

Net earnings

 

5,123 

 

 

13,704 

 

 

 

 

 

 

Net earnings per share (basic and diluted)

$

0.74 

 

$

1.98 

Weighted average shares outstanding (basic and diluted)

 

6,932 

 

 

6,927 

 

 

 

 

 

 

 

The unaudited pro forma financial information presented above is not intended to represent or be indicative of what would have occurred if the transactions had taken place on the dates presented and is not indicative of what the Company’s actual results of operations would have been had the acquisitions been completed at the beginning of

9


 

 

 

the periods indicated above. Further, the pro forma combined results reflect one-time costs to fully merge and operate the combined organization more efficiently, but do not reflect anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future results that the Company will experience.

 

NOTE J – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.  ASU 2015-16 requires the acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015.  Early adoption is permitted for financial statements that have not been previously issued.  The Company does not expect the adoption of ASU 2015-16 to have a material impact on its consolidated financial statements.

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory.  ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  ASU 2015-11 does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method, but applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost.  ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2015-11 to have a material impact on its consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. The amendment may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application.  The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, but does not expect the impact to be material.

 

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in the Company’s 2014 Annual Report to Shareholders, in the Proxy Statement for the annual meeting held May 19, 2015, and in the Company’s press releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein.  Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the Notes to Consolidated Financial Statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and market acceptance of new products; increases in material, freight/shipping, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; reliance on third-party suppliers in Asia; ship