Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - NATIONAL PRESTO INDUSTRIES INC | npk-20190929xex32_2.htm |
EX-32.1 - EX-32.1 - NATIONAL PRESTO INDUSTRIES INC | npk-20190929xex32_1.htm |
EX-31.2 - EX-31.2 - NATIONAL PRESTO INDUSTRIES INC | npk-20190929xex31_2.htm |
EX-31.1 - EX-31.1 - NATIONAL PRESTO INDUSTRIES INC | npk-20190929xex31_1.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 September 29, 2019
☐ 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
______________________________
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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|
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, $1 par value |
NPK |
NYSE |
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
Accelerated filer |
☒ |
Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 7,002,711 shares of the Issuer’s Common Stock outstanding as of September 29, 2019.
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TABLE OF CONTENTS |
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3 |
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3 |
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3 |
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5 |
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6 |
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7 |
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9 |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
21 |
22 |
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23 |
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23 |
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23 |
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24 |
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CERTIFICATIONS |
25 |
3
PART I – FINANCIAL INFORMATION
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29, 2019 and December 31, 2018
(Dollars in thousands)
|
September 29, 2019 (Unaudited) |
December 31, 2018 |
||||||||
ASSETS |
||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ |
59,171 |
$ |
56,847 | ||||||
Marketable securities |
84,781 | 134,598 | ||||||||
Accounts receivable, net |
41,337 | 52,372 | ||||||||
Inventories: |
||||||||||
Finished goods |
$ |
41,927 |
$ |
28,791 | ||||||
Work in process |
84,427 | 59,580 | ||||||||
Raw materials |
7,362 | 133,716 | 5,617 | 93,988 | ||||||
Assets held for sale |
- |
375 | ||||||||
Notes receivable, current |
2,841 | 7,213 | ||||||||
Other current assets |
5,485 | 6,869 | ||||||||
Total current assets |
327,331 | 352,262 | ||||||||
PROPERTY, PLANT AND EQUIPMENT |
$ |
96,417 |
$ |
96,094 | ||||||
Less allowance for depreciation |
56,677 | 39,740 | 56,951 | 39,143 | ||||||
GOODWILL |
15,824 | 11,485 | ||||||||
INTANGIBLE ASSETS, net |
2,988 | 1,000 | ||||||||
NOTES RECEIVABLE |
7,127 | 6,966 | ||||||||
RIGHT-OF-USE LEASE ASSETS |
3,650 |
- |
||||||||
DEFERRED INCOME TAXES |
1,052 | 1,088 | ||||||||
OTHER ASSETS |
6,559 | 1,674 | ||||||||
|
$ |
404,271 |
$ |
413,618 | ||||||
|
||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements. |
4
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29, 2019 and December 31, 2018
(Dollars in thousands)
|
September 29, 2019 (Unaudited) |
December 31, 2018 |
||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||
|
||||||||||
LIABILITIES |
||||||||||
CURRENT LIABILITIES: |
||||||||||
Accounts payable |
$ |
27,701 |
$ |
34,100 | ||||||
Federal and state income taxes |
2,939 | 1,384 | ||||||||
Lease liabilities |
520 |
- |
||||||||
Accrued liabilities |
14,090 | 12,011 | ||||||||
Total current liabilities |
45,250 | 47,495 | ||||||||
LEASE LIABILITIES - NON-CURRENT |
3,130 |
- |
||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||
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STOCKHOLDERS' EQUITY |
||||||||||
Common stock, $1 par value: |
||||||||||
Authorized: 12,000,000 shares |
||||||||||
Issued: 7,440,518 shares |
$ |
7,441 |
$ |
7,441 | ||||||
Paid-in capital |
11,198 | 10,360 | ||||||||
Retained earnings |
351,119 | 362,709 | ||||||||
Accumulated other comprehensive gain |
157 | 21 | ||||||||
|
369,915 | 380,531 | ||||||||
Treasury stock, at cost |
14,024 | 14,408 | ||||||||
Total stockholders' equity |
355,891 | 366,123 | ||||||||
|
$ |
404,271 |
$ |
413,618 | ||||||
|
||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements. |
5
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Nine Months Ended September 29, 2019 and September 30, 2018
(Unaudited)
(In thousands except per share data)
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Three Months Ended |
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Nine Months Ended |
||||||||
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2019 |
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2018 |
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2019 |
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2018 |
||||
Net sales |
|
$ |
78,006 |
|
$ |
81,653 |
|
$ |
213,601 |
|
$ |
237,706 |
Cost of sales |
|
|
54,159 |
|
|
65,956 |
|
|
162,586 |
|
|
182,287 |
Gross profit |
|
|
23,847 |
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15,697 |
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51,015 |
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|
55,419 |
Selling and general expenses |
|
|
6,609 |
|
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5,829 |
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19,092 |
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17,611 |
Intangibles amortization |
|
|
- |
|
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5 |
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|
- |
|
|
2,166 |
Impairment of long-lived assets |
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- |
|
|
3,021 |
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- |
|
|
3,021 |
Operating profit |
|
|
17,238 |
|
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6,842 |
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31,923 |
|
|
32,621 |
Other income |
|
|
1,398 |
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|
1,189 |
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|
4,668 |
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|
3,081 |
Earnings from continuing operations before provision for income taxes |
|
|
18,636 |
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|
8,031 |
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|
36,591 |
|
|
35,702 |
Provision for income taxes from continuing operations |
|
|
3,924 |
|
|
1,791 |
|
|
7,775 |
|
|
7,692 |
Earnings from continuing operations |
|
|
14,712 |
|
|
6,240 |
|
|
28,816 |
|
|
28,010 |
Earnings from discontinued operations, net of tax |
|
|
1,677 |
|
|
131 |
|
|
1,680 |
|
|
122 |
Net earnings |
|
$ |
16,389 |
|
$ |
6,371 |
|
$ |
30,496 |
|
$ |
28,132 |
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|
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Weighted average shares outstanding: |
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Basic and diluted |
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7,020 |
|
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7,007 |
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7,018 |
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7,004 |
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Earnings per share, basic and diluted: |
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From continuing operations |
|
$ |
2.09 |
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$ |
0.89 |
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$ |
4.11 |
|
$ |
4.00 |
From discontinued operations |
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0.24 |
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0.02 |
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0.24 |
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|
0.02 |
Net earnings per share |
|
$ |
2.33 |
|
$ |
0.91 |
|
$ |
4.35 |
|
$ |
4.02 |
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Comprehensive income: |
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Net earnings |
|
$ |
16,389 |
|
$ |
6,371 |
|
$ |
30,496 |
|
$ |
28,132 |
Other comprehensive income, net of tax: |
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|
|
|
|
|
|
|
|
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|
|
Unrealized (loss) gain on available-for-sale securities |
|
|
(23) |
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(31) |
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|
135 |
|
|
34 |
Comprehensive income |
|
$ |
16,366 |
|
$ |
6,340 |
|
$ |
30,631 |
|
$ |
28,166 |
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|
|
|
|
|
|
|
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|
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Cash dividends declared and paid per common share |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
6.00 |
|
$ |
6.00 |
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The accompanying notes are an integral part of the condensed consolidated financial statements. |
6
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 29, 2019 and September 30, 2018
(Unaudited)
(Dollars in thousands)
|
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2019 |
|
2018 |
||
Cash flows from operating activities: |
|
|
|
|
|
|
Net earnings |
|
$ |
30,496 |
|
$ |
28,132 |
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: |
|
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|
|
|
|
Provision for depreciation |
|
|
2,815 |
|
|
3,079 |
Intangibles amortization |
|
|
- |
|
|
2,166 |
Provision for doubtful accounts |
|
|
- |
|
|
18 |
Non-cash retirement plan expense |
|
|
359 |
|
|
527 |
Impairment of long-lived assets |
|
|
- |
|
|
3,021 |
Gain on sale of property, plant, and equipment |
|
|
(160) |
|
|
- |
Gain on legal settlement |
|
|
(2,300) |
|
|
- |
Other |
|
|
670 |
|
|
86 |
Changes in operating accounts, net of effects of acquisition: |
|
|
|
|
|
|
Accounts receivable, net |
|
|
11,049 |
|
|
20,958 |
Inventories |
|
|
(39,421) |
|
|
6,816 |
Other assets and current assets |
|
|
(3,351) |
|
|
2,208 |
Accounts payable and accrued liabilities |
|
|
(5,099) |
|
|
8,666 |
Federal and state income taxes |
|
|
1,372 |
|
|
(5,698) |
Net cash (used in) provided by operating activities |
|
|
(3,570) |
|
|
69,979 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Marketable securities purchased |
|
|
(98,416) |
|
|
(84,753) |
Marketable securities - maturities and sales |
|
|
148,406 |
|
|
126,532 |
Proceeds from divestiture of business, net of cash paid |
|
|
- |
|
|
3,660 |
Proceeds from note receivable |
|
|
2,100 |
|
|
- |
Purchase of property, plant and equipment |
|
|
(4,326) |
|
|
(7,110) |
Acquisition of business, net of cash acquired |
|
|
(3,733) |
|
|
- |
Proceeds from legal settlement |
|
|
2,300 |
|
|
- |
Proceeds from insurance settlement |
|
|
807 |
|
|
2,474 |
Sale of property, plant and equipment |
|
|
767 |
|
|
1 |
Net cash provided by investing activities |
|
|
47,905 |
|
|
40,804 |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Dividends paid |
|
|
(42,087) |
|
|
(41,989) |
Proceeds from sale of treasury stock |
|
|
518 |
|
|
528 |
Other |
|
|
(442) |
|
|
(6) |
Net cash used in financing activities |
|
|
(42,011) |
|
|
(41,467) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
2,324 |
|
|
69,316 |
Cash and cash equivalents at beginning of period |
|
|
56,847 |
|
|
11,222 |
Cash and cash equivalents at end of period |
|
$ |
59,171 |
|
$ |
80,538 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements. |
7
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 29, 2019 and September 30, 2018
(Unaudited)
(In thousands except per share data)
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
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|
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|
|
|
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|
|
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|
|
|
|
Shares of Common Stock Outstanding |
|
|
Common Stock |
|
|
Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Comprehensive Income (Loss) |
|
|
Treasury Stock |
|
|
Total |
Balance July 2, 2018 |
6,978 |
|
$ |
7,441 |
|
$ |
9,889 |
|
$ |
344,529 |
|
$ |
(21) |
|
$ |
(14,491) |
|
$ |
347,347 |
Net earnings |
|
|
|
|
|
|
|
|
|
6,371 |
|
|
|
|
|
|
|
|
6,371 |
Unrealized loss on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
(31) |
|
|
|
|
|
(31) |
Other |
2 |
|
|
|
|
|
229 |
|
|
6 |
|
|
|
|
|
37 |
|
|
272 |
Balance September 30, 2018 |
6,980 |
|
$ |
7,441 |
|
$ |
10,118 |
|
$ |
350,906 |
|
$ |
(52) |
|
$ |
(14,454) |
|
$ |
353,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2019 |
6,997 |
|
$ |
7,441 |
|
$ |
10,914 |
|
$ |
334,730 |
|
$ |
180 |
|
$ |
(14,066) |
|
$ |
339,199 |
Net earnings |
|
|
|
|
|
|
|
|
|
16,389 |
|
|
|
|
|
|
|
|
16,389 |
Unrealized loss on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
(23) |
|
|
|
|
|
(23) |
Other |
6 |
|
|
|
|
|
284 |
|
|
|
|
|
|
|
|
42 |
|
|
326 |
Balance September 29, 2019 |
7,003 |
|
$ |
7,441 |
|
$ |
11,198 |
|
$ |
351,119 |
|
$ |
157 |
|
$ |
(14,024) |
|
$ |
355,891 |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
8
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 29, 2019 and September 30, 2018
(Unaudited)
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock Outstanding |
|
|
Common Stock |
|
|
Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Comprehensive Income (Loss) |
|
|
Treasury Stock |
|
|
Total |
Balance December 31, 2017 |
6,968 |
|
$ |
7,441 |
|
$ |
9,074 |
|
$ |
364,757 |
|
$ |
(86) |
|
$ |
(14,810) |
|
$ |
366,376 |
Net earnings |
|
|
|
|
|
|
|
|
|
28,132 |
|
|
|
|
|
|
|
|
28,132 |
Unrealized gain on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
34 |
Dividends paid March 15, $1.00 per share regular, $5.00 per share extra |
|
|
|
|
|
|
|
|
|
(41,989) |
|
|
|
|
|
|
|
|
(41,989) |
Other |
12 |
|
|
|
|
|
1,044 |
|
|
6 |
|
|
|
|
|
356 |
|
|
1,406 |
Balance September 30, 2018 |
6,980 |
|
$ |
7,441 |
|
$ |
10,118 |
|
$ |
350,906 |
|
$ |
(52) |
|
$ |
(14,454) |
|
$ |
353,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 |
6,981 |
|
$ |
7,441 |
|
$ |
10,360 |
|
$ |
362,709 |
|
$ |
21 |
|
$ |
(14,408) |
|
$ |
366,123 |
Net earnings |
|
|
|
|
|
|
|
|
|
30,496 |
|
|
|
|
|
|
|
|
30,496 |
Unrealized gain on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
|
|
135 |
Dividends paid March 15, $1.00 per share regular, $5.00 per share extra |
|
|
|
|
|
|
|
|
|
(42,087) |
|
|
|
|
|
|
|
|
(42,087) |
Other |
22 |
|
|
|
|
|
838 |
|
|
1 |
|
|
1 |
|
|
384 |
|
|
1,224 |
Balance September 29, 2019 |
7,003 |
|
$ |
7,441 |
|
$ |
11,198 |
|
$ |
351,119 |
|
$ |
157 |
|
$ |
(14,024) |
|
$ |
355,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. |
9
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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, 2018 is summarized from audited consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 2018 Annual Report on Form 10-K/A. Interim results for the period are not indicative of those for the year.
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. (“Drylock”) in exchange for $68,448,000. The asset purchase agreement also provided for additional proceeds of $4,000,000 upon the sale of certain delayed assets, consisting of machinery and equipment that were the subject of an involuntary conversion. The sale of the delayed assets was consummated during the second quarter of 2018 and resulted in no gain or loss. As a result of aforementioned transactions, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. See Note K for further discussion.
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 – REVENUES
The Company’s revenues are derived from short-term contracts and programs that are typically completed within 3 to 24 months and are recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company’s contracts each contain one or more performance obligations: the physical delivery of distinct ordered product or products. The Company provides an assurance type product warranty on its products to the original owner. In addition, for the Housewares/Small Appliances segment, the Company estimates returns of seasonal products and returns of newly introduced products sold with a return privilege. Stand-alone selling prices are set forth in each contract and are used to allocate revenue to the corresponding performance obligations. For the Housewares/Small Appliances segment, contracts include variable consideration, as the prices are subject to customer allowances, which principally consist of allowances for cooperative advertising, defective product, and trade discounts. Customer allowances are generally allocated to the performance obligations based on budgeted rates agreed upon with customers, as well as historical experience, and yield the Company’s best estimate of the expected value for the variable consideration.
The Company's contracts in the Defense segment are primarily with the U.S. Department of Defense (DOD) and DOD prime contractors. As a consequence, this segment's business essentially depends on the product needs and governmental funding of the DOD. Substantially all of the work performed by the Defense segment directly or indirectly for the DOD is performed on a fixed-price basis. Under fixed-price contracts, the price paid to the contractor is awarded based on competition at the outset of the contract and therefore, with the exception of limited escalation provisions on specific materials, is generally not subject to any adjustments reflecting the actual costs incurred by the contractor.
For the Housewares/Small Appliance segment, revenue is generally recognized as the completed, ordered product is shipped to the customer from the Company’s warehouses. For the relatively few situations in which revenue should be recognized when product is received by the customer, the Company adjusts revenue accordingly. For the Defense segment, revenue is primarily recognized when the customer has legal title and formally documents that it has accepted the products. There are also certain termination clauses in Defense segment contracts that may give rise to the recognition of revenue, $9,412,000 of which was recognized during the third quarter of 2019. In some situations, the customer may obtain legal title and accept the products at the Company’s facilities, arranging for transportation at a later date, typically in one to four weeks. The Company does not consider the short-term storage of the customer owned products to be a material performance obligation, and no part of the transaction price is allocated to it.
10
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the Company’s Condensed Consolidated Balance Sheets. For the Defense segment, the Company occasionally receives advances or deposits from certain customers before revenue is recognized, resulting in contract liabilities. These advances or deposits do not represent a significant financing component. As of September 29, 2019 and December 31, 2018, $4,294,000 and $9,579,000, respectively, of contract liabilities were included in Accounts Payable on the Company’s Condensed Consolidated Balance Sheets. The Company recognized revenue of $9,574,000 during the nine-month period ended September 29, 2019 that was included in the Defense segment contract liability at the beginning of that period. The Company monitors its estimates of variable consideration, which includes customer allowances for cooperative advertising, defective product, and trade discounts, and returns of seasonal and newly introduced product, all of which pertain to the Housewares/Small Appliances segment, and periodically makes cumulative adjustments to the carrying amounts of these contract liabilities as appropriate. During the three and nine month periods ended September 29, 2019 and September 30, 2018, the Company reduced its estimate of returns of seasonal and newly introduced product by $265,000 and $421,000, respectively. There were no other material adjustments to the aforementioned estimates during the same periods. There were no amounts of revenue recognized during the same periods related to performance obligations satisfied in a previous period. The portion of contract transaction prices allocated to unsatisfied performance obligations, also known as the contract backlog, in the Company’s Defense segment were $332,810,000 and $333,592,000 as of September 29, 2019 and December 31, 2018, respectively. The Company anticipates that the unsatisfied performance obligations will be fulfilled in an 18 to 24-month period. The performance obligations in the Housewares/Small Appliances segment have original expected durations of less than one year.
The Company’s principal sources of revenue are derived from three segments: Housewares/Small Appliance, Defense, and Safety, as shown in Note E. Management utilizes the performance measures by segment to evaluate the financial performance of and make operating decisions for the Company.
NOTE D – 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 issuable. Unvested 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 E – BUSINESS SEGMENTS
In the following summary, operating profit represents earnings before other income and income taxes. The Company's segments operate discretely from each other with no shared owned or leased 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.
11
On July 23, 2019, the Company purchased substantially all the assets of OneEvent Technologies, Inc., a Mount Horeb, Wisconsin company established in 2014. OneEvent’s cloud-based learning and analytics engine utilizes a series of sensing devices integrated with a cellular gateway to predict, alert, and prevent. Sensors measure a variety of environmental data including smoke, temperature, carbon monoxide, humidity, water, motion, and more. See Note L. Because a major focus of OneEvent is fire protection for buildings, homes, assets, and occupant, the Company has created a new operating segment, “Safety,” combining its operations with those of Rusoh, Inc., which designs and markets fire extinguishers. Previously, Rusoh, Inc. had been included in the Company’s Housewares/Small Appliance segment. Prior period segment information has been restated to reflect the Company’s current segmentation.
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(in thousands) |
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Housewares / Small Appliances |
Defense Products |
Safety |
Assets Held for Sale |
Total |
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Quarter ended September 29, 2019 |
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External net sales |
$ |
21,597 |
$ |
56,395 |
$ |
14 |
$ |
$ |
78,006 | ||||||
Gross profit (loss) |
2,823 | 21,363 | (339) | 23,847 | |||||||||||
Operating profit (loss) |
(865) | 19,161 | (1,058) | 17,238 | |||||||||||
Total assets |
237,071 | 151,455 | 15,745 | 404,271 | |||||||||||
Depreciation and amortization |
320 | 538 | 58 | 916 | |||||||||||
Capital expenditures |
298 | 460 | 36 | 794 | |||||||||||
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Quarter ended September 30, 2018 |
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External net sales |
$ |
22,705 |
$ |
58,939 |
$ |
9 |
$ |
$ |
81,653 | ||||||
Gross profit (loss) |
3,317 | 12,657 | (277) | 15,697 | |||||||||||
Operating profit (loss) |
580 | 6,786 | (524) | 6,842 | |||||||||||
Total assets |
268,885 | 126,937 | 8,022 | 528 | 404,372 | ||||||||||
Depreciation and amortization |
287 | 684 | 56 | 1,027 | |||||||||||
Capital expenditures |
1,757 | 39 | 24 | 1,820 | |||||||||||
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(in thousands) |
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Housewares / Small Appliances |
Defense Products |
Safety |
Assets Held for Sale |
Total |
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Nine Months ended September 29, 2019 |
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External net sales |
$ |
60,415 |
$ |
153,133 |
$ |
53 |
$ |
$ |
213,601 | ||||||
Gross profit (loss) |
7,369 | 44,292 | (646) | 51,015 | |||||||||||
Operating profit (loss) |
(2,623) | 36,708 | (2,162) | 31,923 | |||||||||||
Total assets |
237,071 | 151,455 | 15,745 | 404,271 | |||||||||||
Depreciation and amortization |
943 | 1,701 | 171 | 2,815 | |||||||||||
Capital expenditures |
250 | 3,555 | 214 | 4,019 | |||||||||||
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Nine Months ended September 30, 2018 |
|||||||||||||||
External net sales |
$ |
56,721 |
$ |
180,957 | 28 |
$ |
$ |
237,706 | |||||||
Gross profit (loss) |
7,670 | 48,232 | (483) | 55,419 | |||||||||||
Operating profit (loss) |
14 | 33,738 | (1,131) | 32,621 | |||||||||||
Total assets |
268,885 | 126,937 | 8,022 | 528 | 404,372 | ||||||||||
Depreciation and amortization |
845 | 4,234 | 166 | 5,245 | |||||||||||
Capital expenditures |
6,657 | 417 | 36 | 7,110 |
12
NOTE F - 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 amounts for cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and accrued liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments.
NOTE G - 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 September 29, 2019 and December 31, 2018, 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 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.
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(In Thousands) |
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MARKETABLE SECURITIES |
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Amortized Cost |
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Fair Value |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
||||
September 29, 2019 |
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|
|
|
|
|
|
|
|
|
|
Tax-exempt Municipal Bonds |
|
$ |
45,210 |
|
$ |
45,409 |
|
$ |
199 |
|
$ |
- |
Variable Rate Demand Notes |
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|
39,372 |
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|
39,372 |
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|
- |
|
|
- |
Total Marketable Securities |
|
$ |
84,582 |
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$ |
84,781 |
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$ |
199 |
|
$ |
- |
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December 31, 2018 |
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|
|
|
|
Tax-exempt Municipal Bonds |
|
$ |
40,156 |
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$ |
40,182 |
|
$ |
44 |
|
$ |
18 |
Variable Rate Demand Notes |
|
|
94,416 |
|
|
94,416 |
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|
- |
|
|
- |
Total Marketable Securities |
|
$ |
134,572 |
|
$ |
134,598 |
|
$ |
44 |
|
$ |
18 |
Proceeds from maturities and sales of available-for-sale securities totaled $9,823,000 and $51,866,000 for the three month periods ended September 29, 2019 and September 30, 2018, respectively, and totaled $148,406,000 and $126,532,000 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 (losses) gains included in other comprehensive income were ($28,000) and ($39,000) before taxes for the three month periods ended September 29, 2019 and September 30, 2018, respectively, and were $173,000 and $43,000 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.
13
The contractual maturities of the marketable securities held at September 29, 2019 are as follows: $29,913,000 within one year; $15,496,000 beyond one year to five years; $4,146,000 beyond five years to ten years, and $35,226,000 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 H – 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 two years. As of September 29, 2019 and December 31, 2018, $10,615,000 and $6,864,000 of such prepayments, respectively, remained unused and outstanding. At September 29, 2019 and December 31, 2018, $4,056,000 and $5,190,000, respectively were 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 I – LEASES
The Company accounts for leases under ASC Topic 842, Leases, which was adopted on January 1, 2019. The Company’s leasing activities include roles as both lessee and lessor. As lessee, the Company’s primary leasing activities include buildings and structures to support its manufacturing operations at one location in its Defense segment, and warehouse space and equipment to support its distribution center operations in its Housewares/Small Appliances segment. As lessor, the Company’s primary leasing activity is comprised of manufacturing and office space located adjacent to its corporate offices. All of the Company’s leases are classified as operating leases.
The Company’s leases as lessee in its Defense segment provide for variable lease payments that are based on changes in the Consumer Price Index. As lessor, the Company’s primary lease also provides for variable lease payments that are based on changes in the Consumer Price Index, as well as on increases in costs of insurance, real estate taxes, and utilities related to the leased space. Generally, all of the Company’s lease contracts provide for options to extend and terminate them. The majority of lease terms of the Company’s lease contracts reflect extension options, while none reflect termination options.
The Company has determined that the rates implicit in its leases are not readily determinable and estimates its incremental borrowing rates utilizing quotes from financial institutions for real estate and equipment, as applicable, over periods of time similar to the terms of its leases. The Company has entered into various short-term leases as lessee and has elected a non-recognition accounting policy, as permitted by ASC Topic 842.
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3 Months Ending |
9 Months Ending |
||||
Summary of Lease Cost (in thousands) |
September 29, 2019 |
September 29, 2019 |
||||
Operating lease cost |
$ |
178 |
$ |
514 | ||
Short-term and variable lease cost |
64 | 145 | ||||
Total lease cost |
$ |
242 |
$ |
659 |
Operating cash used for operating leases was $242,000 and $659,000 for the three and nine months ended September 29, 2019, respectively. The weighted-average remaining lease term was 7.72 years, and the weighted-average discount rate was 5.5% as of September 29, 2019.
14
Maturities of operating lease liabilities are as follows:
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Years ending December 31: |
(In thousands) |
|
2019 (remaining three months) |
$ |
175 |
2020 |
693 | |
2021 |
648 | |
2022 |
648 | |
2023 |
531 | |
Thereafter |
1,824 | |
Total lease payments |
$ |
4,519 |
Less: future interest expense |
869 | |
Lease liabilities |
$ |
3,650 |
Lease income from operating lease payments for the quarter ended September 29, 2019 was $444,000. Undiscounted cash flows provided by lease payments are expected as follows:
Years ending December 31: |
(In thousands) |
|
2019 (remaining three months) |
$ |
444 |
2020 |
1,761 | |
2021 |
1,755 | |
2022 |
1,755 | |
2023 |
1,755 | |
Thereafter |
15,795 | |
Total lease payments |
$ |
23,265 |
The Company considers risk associated with the residual value of its leased real property to be low, given the nature of the long-term lease agreement, the Company’s ability to control the maintenance of the property, and the creditworthiness of the lessee. The residual value risk is further mitigated by the long-lived nature of the property, and the propensity of such assets to hold their value or, in some cases, appreciate in value.
NOTE J – 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.
NOTE K – DISCONTINUED OPERATIONS
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. (“Drylock”) in exchange for $68,448,000. The asset purchase agreement also provided for additional proceeds of $4,000,000 upon the sale of certain delayed assets, consisting of machinery and equipment that were the subject of an involuntary conversion. The sale of the delayed assets was consummated during the second quarter of 2018 and resulted in no gain or loss. As a result of the aforementioned transactions, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. The Company’s pre-tax gain on sale of $11,413,000, net of one-time transaction costs, was recorded in 2017 within earnings from discontinued operations.
15
The following table summarizes the results of the Absorbent Products business within discontinued operations for each of the periods presented:
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