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EX-32.2 - EX-32.2 - NATIONAL PRESTO INDUSTRIES INCnpk-20190929xex32_2.htm
EX-32.1 - EX-32.1 - NATIONAL PRESTO INDUSTRIES INCnpk-20190929xex32_1.htm
EX-31.2 - EX-31.2 - NATIONAL PRESTO INDUSTRIES INCnpk-20190929xex31_2.htm
EX-31.1 - EX-31.1 - NATIONAL PRESTO INDUSTRIES INCnpk-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:



 

 

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.



 

 

 

 

 

 

 



 

 

 

 

 

 

 

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.



 


 

 

 



 

 


 

 

 















3


 

 

 



PART I – FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



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

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

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)





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

2019

 

2018

 

2019

 

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 

 

 

15,697 

 

 

51,015 

 

 

55,419 

Selling and general expenses

 

 

6,609 

 

 

5,829 

 

 

19,092 

 

 

17,611 

Intangibles amortization

 

 

 -

 

 

 

 

 -

 

 

2,166 

Impairment of long-lived assets

 

 

 -

 

 

3,021 

 

 

 -

 

 

3,021 

  Operating profit

 

 

17,238 

 

 

6,842 

 

 

31,923 

 

 

32,621 

Other income

 

 

1,398 

 

 

1,189 

 

 

4,668 

 

 

3,081 

  Earnings from continuing operations before provision for income taxes

 

 

18,636 

 

 

8,031 

 

 

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 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

  Basic and diluted

 

 

7,020 

 

 

7,007 

 

 

7,018 

 

 

7,004 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

  From continuing operations

 

$

2.09 

 

$

0.89 

 

$

4.11 

 

$

4.00 

  From discontinued operations

 

 

0.24 

 

 

0.02 

 

 

0.24 

 

 

0.02 

     Net earnings per share

 

$

2.33 

 

$

0.91 

 

$

4.35 

 

$

4.02 



 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

  Net earnings

 

$

16,389 

 

$

6,371 

 

$

30,496 

 

$

28,132 

  Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(23)

 

 

(31)

 

 

135 

 

 

34 

Comprehensive income

 

$

16,366 

 

$

6,340 

 

$

30,631 

 

$

28,166 



 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared and paid per common share

 

$

0.00 

 

$

0.00 

 

$

6.00 

 

$

6.00 



 

 

 

 

 

 

 

 

 

 

 

 

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)













 

 

 

 

 

 



 

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:

 

 

 

 

 

 

  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 

 

 

  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)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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

 

 

 

 

 

229 

 

 

 

 

 

 

 

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

 

 

 

 

 

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 

 

 

 

 

 

 

 

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 

 

 

 

 

 

 

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 2019In 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.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)



 

Housewares / Small Appliances

 

Defense Products

 

Safety

 

Assets Held for Sale

 

Total

Quarter ended September 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External net sales

 

$

22,705 

 

$

58,939 

 

$

 

$

 

 

$

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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)



 

Housewares / Small Appliances

 

Defense Products

 

Safety

 

Assets Held for Sale

 

Total

Nine Months ended September 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

MARKETABLE SECURITIES



 

Amortized Cost

 

Fair Value

 

Gross Unrealized Gains

 

Gross Unrealized Losses

September 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Tax-exempt  Municipal Bonds

 

$

45,210 

 

$

45,409 

 

$

199 

 

$

 -

Variable Rate Demand Notes

 

 

39,372 

 

 

39,372 

 

 

 -

 

 

 -

Total Marketable Securities

 

$

84,582 

 

$

84,781 

 

$

199 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Tax-exempt Municipal Bonds

 

$

40,156 

 

$

40,182 

 

$

44 

 

$

18 

Variable Rate Demand Notes

 

 

94,416 

 

 

94,416 

 

 

 -

 

 

 -

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, respectivelyNo 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.







 

 

 

 

 

 



 

 

 

 

 

 



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:





 

 



 

 

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: