SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 4, 1998 [ ] 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 (I.R.S. Employer incorporation or organization) 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 [X] No [ ] There were 7,358,590 shares of the Issuer's Common Stock outstanding as of the close of the period covered by this report.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 4, 1998 and December 31, 1997 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 1998 1997 - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 93,627 $ 91,639 Marketable securities 122,430 140,651 Accounts receivable, net 14,420 20,242 Inventories: Finished goods $ 19,232 $ 9,058 Work in process 2,953 1,675 Raw materials 5,073 6,900 Supplies 954 28,212 1,000 18,633 -------- -------- Prepaid expenses 736 918 -------- -------- Total current assets 259,425 272,083 PROPERTY, PLANT AND EQUIPMENT: 22,456 20,008 Less allowance for depreciation 12,511 9,945 11,002 9,006 -------- -------- OTHER ASSETS 10,855 10,781 -------- -------- $280,225 $291,870 ======== ======== </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 4, 1998 and December 31, 1997 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 1998 1997 - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> LIABILITIES CURRENT LIABILITIES: Accounts payable $ 10,985 $ 15,958 Federal and state income taxes 2,268 4,923 Accrued liabilities 23,032 21,791 -------- -------- Total current liabilities 36,285 42,672 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 976 925 Retained earnings 237,687 243,092 -------- -------- 246,104 251,458 Treasury stock, at cost 2,164 2,260 -------- -------- Total stockholders' equity 243,940 249,198 -------- -------- $280,225 $291,870 ======== ======== </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS Three Months and Nine Months ended October 4, 1998 and October 5, 1997 (Unaudited) (In thousands except per share data) <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Net sales $24,306 $24,917 $59,565 $59,734 Cost of sales 16,125 16,646 41,752 42,600 ------- ------- ------- ------- Gross profit 8,181 8,271 17,813 17,134 Selling and general expenses 5,516 6,121 13,589 14,552 ------- ------- ------- ------- Operating profit 2,665 2,150 4,224 2,582 Other income, principally interest 2,153 2,249 6,883 7,037 Other, principally litgation judgments/settlements -- -- -- 550 ------- ------- ------- ------- Earnings before provision for income taxes 4,818 4,399 11,107 10,169 Provision for income taxes 1,083 896 1,802 1,448 ------- ------- ------- ------- Net earnings $ 3,735 $ 3,503 $ 9,305 $ 8,721 ======= ======= ======= ======= Weighted average shares outstanding: Basic 7,357 7,354 7,357 7,354 ======= ======= ======= ======= Diluted 7,358 7,355 7,358 7,355 ======= ======= ======= ======= Net earnings per share: Basic $ 0.50 $ 0.48 $ 1.26 $ 1.19 ======= ======= ======= ======= Diluted $ 0.50 $ 0.48 $ 1.26 $ 1.19 ======= ======= ======= ======= Cash dividends declared and paid per common share $ -- $ -- $ 2.00 $ 2.00 ======= ======= ======= ======= </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months ended October 4, 1998 and October 5, 1997 (Unaudited) (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 9,305 $ 8,721 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for depreciation 1,517 1,357 Stock compensation expense 122 67 Changes in: Accounts receivable 5,822 5,964 Inventories (9,579) (9,793) Prepaid expenses 182 (22) Accounts payable and accrued liabilities (3,732) (794) Federal and state income taxes (2,655) (3,037) -------- -------- Net cash provided by operating activities 982 2,463 -------- -------- Cash flows from investing activities: Marketable securities purchased (76,316) (60,023) Marketable securities - maturities and sales 94,537 73,159 Acquisition of property, plant and equipment (2,456) (2,917) Other (74) 26 -------- -------- Net cash provided by investing activities 15,691 10,245 -------- -------- Cash flows from financing activities: Dividends paid (14,710) (14,706) Other 25 (11) -------- -------- Net cash used in financing activities (14,685) (14,717) -------- -------- Net increase (decrease) in cash and cash equivalents 1,988 (2,009) Cash and cash equivalents at beginning of period 91,639 91,878 -------- -------- Cash and cash equivalents at end of period $ 93,627 $ 89,869 ======== ======== The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - EARNINGS PER SHARE The Company's basic net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. - -------------------------------------------------------------------------------- The foregoing information for the periods ended October 4, 1998, and October 5, 1997, is unaudited; however, in the opinion of management of the Registrant, it reflects all the adjustments, which were of a normal recurring nature, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet as of December 31, 1997, is summarized from audited consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 1997 Annual Report. Interim results for the period are not indicative of those for the year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison Third Quarter 1998 and 1997 Net sales were relatively flat at $24,306,000 versus $24,917,000 in the prior year's comparable quarter. Gross margin as a percentage of sales was comparable to the prior year. The Company accrues unexpended advertising costs budgeted for the year against each quarter's sales. Major advertising commitments are incurred in advance of the expenditures, and the timing of sales through dealers and distributors to the ultimate customer does not permit specific identification of the customers' purchase to the actual time an advertisement appears. Advertising charges included in selling expense in each quarter represent that percentage of the annual advertising budget associated with that quarter's shipments. Revisions to this budget result in periodic changes to the accrued liability for committed advertising expenditures. Earnings before provision for income taxes increased $419,000 from $4,399,000 to $4,818,000. The provision for income taxes increased from $896,000 to $1,083,000 and the effective income tax rate increased from 20% to 22%, as a result of increased earnings subject to tax. Net earnings increased $232,000 from $3,503,000 to $3,735,000, or 7% and earnings per share increased from $.48 to $.50. The Company maintains adequate liquidity for all of its anticipated capital requirements. As of quarter-end, there were no material capital commitments outstanding. Forward looking statements in this Quarterly Report 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 historical results. Investors are cautioned that all forward looking statements involve risks and uncertainty. The 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; competitive pressure on sales and pricing, and increases in material or production cost which cannot be recouped in product pricing. Additional information concerning those and other factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Form 10-K, copies of which are available from the Company without charge.
Comparison First Nine Months 1998 and 1997 Net sales were flat when compared to the prior year's. Gross margins as a percentage of sales increased from 29% to 30%, primarily due to higher efficiencies at the Company's manufacturing facilities. The accrual for unexpended advertising costs discussed in the Third Quarter comparison also applies to the first nine months. Other income, principally interest, decreased from the 1997 level primarily as a result of a lower level of invested funds at approximately the same rate of return. Earnings before provision for income taxes increased $938,000 from $10,169,000 to $11,107,000. The provision for income taxes increased from $1,448,000 to $1,802,000 and the effective income tax rate increased from 14% to 16%, as a result of increased earnings subject to tax. Net earnings increased $584,000 from $8,721,000 to $9,305,000, or 7% and earnings per share increased from $1.19 to $1.26. Year 2000 The year 2000 (Y2K) issue is the result of computer programs using a two-digit format to indicate the year in any date. Computer systems with such software will be unable to interpret dates beyond the year 1999, thus causing computer errors which could lead to disruptions in operations. In 1997 the Company began the work necessary to address its Y2K exposure and focused primarily on two areas: Internal Systems: During 1997 the Company began upgrading or replacing its affected programs or systems to become Y2K compliant, and expects this effort to be completed by March 31, 1999. The conversion costs have been expensed as incurred, and are not considered material. At this time the Company believes it is unnecessary to adopt a contingency plan, but as part of the overall project will continue to assess the need for a contingency plan. External (Supplier) Systems: The Company has contacted critical suppliers of products and services to assess whether the suppliers are Y2K compliant or to monitor their progress toward Y2K compliance. The failure of any key supplier to provide adequate responses as to their Y2K readiness will result in the Company's developing contingency plans at that time, including use of alternate suppliers. However, there can be no absolute assurance that suppliers and others will timely resolve their own Y2K compliance issues.
PART II - OTHER INFORMATION --------------------------- Item 5. Other Information Since publication of the Company's proxy statement for its 1998 Annual Meeting of Stockholders, the Securities and Exchange Commission has amended its Rules 14a-4 and 14a-5(e), which govern the use by the Company of its discretionary voting authority with respect to certain shareholder proposals. Pursuant to these amendments, should the Company receive notice after February 17, 1999, of any such stockholder proposal which will be circulated independent of the Company's proxy statement, the persons named in proxies solicited by the Board of Directors of the Company for its 1999 Annual Meeting of Stockholders may exercise discretionary voting power with respect to any such proposal. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 3 (i) - Restated Articles of Incorporation - incorporated by reference from Exhibit 3 (i) of the Company's quarterly report on Form 10-Q for the quarter ended July 6, 1997 (ii)- By-Laws - incorporated by reference from Exhibit 3 (ii) of the Company's quarterly report on Form 10-Q for the quarter ended July 6, 1997 Exhibit 9 - Voting Trust Agreement - incorporated by reference from Exhibit 9 of the Company's quarterly report on Form 10-Q for the quarter ended July 6, 1997 Exhibit 10.1 - 1988 Stock Option Plan - incorporated by reference from Exhibit 10.1 of the Company's quarterly report on Form 10-Q for the quarter ended July 6, 1997 Exhibit 10.2 - Form of Incentive Stock Option Agreement under the 1988 Stock Option Plan - incorporated by reference from Exhibit 10.2 of the Company's quarterly report on Form 10-Q for the quarter ended July 6, 1997 Exhibit 11 - Statement regarding computation of per share earnings Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL PRESTO INDUSTRIES, INC. ---------------------------------------- Date: November 5, 1998 /S/ M. J. Cohen ---------------------------------------- M. J. Cohen, President (Principal operating officer) Date: November 5, 1998 /S/ R. F. Lieble ---------------------------------------- R. F. Lieble, Treasurer (Principal accounting officer)
National Presto Industries, Inc. Exhibit Index Exhibit Number Exhibit Description ------ ------------------- 11 Computation of Earnings per Share 27 Financial Data Schedule