UNITED STATES 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 June 30, 2002 [ ] 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 6,841,071 shares of the Issuer's Common Stock outstanding as of August 9, 2002.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2002 and December 31, 2001 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 2002 2001 - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 111,517 $ 83,877 Marketable securities 80,605 106,992 Accounts receivable, net 11,571 31,194 Inventories: Finished goods $ 26,423 $ 19,505 Work in process 6,178 5,349 Raw materials 5,683 8,262 Supplies 516 38,800 881 33,997 --------- --------- Prepaid expenses 368 93 --------- --------- Total current assets 242,861 256,153 PROPERTY, PLANT AND EQUIPMENT 20,551 19,328 Less allowance for depreciation 8,387 12,164 7,483 11,845 --------- --------- OTHER ASSETS 17,402 16,902 --------- --------- $ 272,427 $ 284,900 ========= ========= </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2002 and December 31, 2001 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 2002 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> LIABILITIES CURRENT LIABILITIES: Accounts payable $ 13,259 $ 18,194 Federal and state income taxes -- 3,055 Accrued liabilities 30,002 27,048 --------- --------- Total current liabilities 43,261 48,297 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 1,002 1,011 Retained earnings 239,346 246,913 --------- --------- 247,789 255,365 Treasury stock, at cost 18,623 18,762 --------- --------- Total stockholders' equity 229,166 236,603 --------- --------- $ 272,427 $ 284,900 ========= ========= </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS Three Months and Six Months ended June 30, 2002 and July 1, 2001 (Unaudited) (In thousands except per share data) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $ 20,555 $ 17,594 43,315 37,604 Cost of sales 16,336 14,432 35,945 31,576 ---------- ---------- ---------- ---------- Gross profit 4,219 3,162 7,370 6,028 Selling and general expenses 4,497 4,183 9,626 8,727 Plant closing costs -- -- 3,953 -- ---------- ---------- ---------- ---------- Operating loss (278) (1,021) (6,209) (2,699) Other income, principally interest 1,347 2,131 2,747 4,649 ---------- ---------- ---------- ---------- Earnings (loss) before provision for income taxes 1,069 1,110 (3,462) 1,950 Income tax benefit (14) (269) (2,185) (679) ---------- ---------- ---------- ---------- Net earnings (loss) $ 1,083 $ 1,379 $ (1,277) $ 2,629 ========== ========== ========== ========== Weighted average shares outstanding: Basic 6,840 6,861 6,839 6,869 ========== ========== ========== ========== Diluted 6,841 6,862 6,839 6,870 ========== ========== ========== ========== Net earnings (loss) per share: Basic $ 0.16 $ 0.20 $ (0.19) $ 0.38 ========== ========== ========== ========== Diluted $ 0.16 $ 0.20 $ (0.19) $ 0.38 ========== ========== ========== ========== Cash dividends declared and paid per common share $ -- $ -- $ 0.92 $ 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 Six Months ended June 30, 2002 and July 1, 2001 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 2002 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings (loss) $ (1,277) $ 2,629 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 905 2,109 Plant closing charges 3,953 -- Other 130 87 Changes in (net of acquisition): Accounts receivable 19,623 3,578 Inventories (4,803) (4,191) Prepaid expenses (275) (175) Accounts payable and accrued liabilities (5,934) (9,920) Federal and state income taxes (3,055) (1,954) ------------ ------------ Net cash provided by (used in) operating activities 9,267 (7,837) ------------ ------------ Cash flows from investing activities (net of acquisition): Marketable securities purchased (11,713) (19,852) Marketable securities - maturities and sales 38,100 46,616 Acquisition of property, plant and equipment (1,224) (1,968) Acquisition of business (500) (3,494) Other -- 251 ------------ ------------ Net cash provided by investing activities 24,663 21,553 ------------ ------------ Cash flows from financing activities: Dividends paid (6,290) (13,755) Purchase of treasury stock -- (908) Other -- 59 ------------ ------------ Net cash used in financing activities (6,290) (14,604) ------------ ------------ Net increase (decrease) in cash and cash equivalents 27,640 (888) Cash and cash equivalents at beginning of period 83,877 79,624 ------------ ------------ Cash and cash equivalents at end of period $ 111,517 $ 78,736 ============ ============ </TABLE> 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 (loss) per share amounts have been computed by dividing net earnings (loss) 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. NOTE B - PLANT CLOSING In November 2001, the Company announced that continued erosion of product pricing resulted in its decision to cease manufacturing housewares/small appliances in its U.S. plants, close those facilities, and purchase products from overseas sources. The Company will close its manufacturing facilities in Alamogordo, New Mexico and Jackson, Mississippi during the third and fourth quarters of 2002. This decision could have an adverse effect on production of the balance of the products scheduled to be produced in the U.S. due to possible difficulties with continuity of the workforce and material supplies. Similarly, deliveries from overseas sources could be disrupted by labor or supply problems at the vendors, or transportation delays. As a consequence, products may not be available in sufficient quantities during the prime selling period of third and fourth quarters. The Company has made and will continue to make every reasonable effort to prevent these problems; however, there is no assurance that its efforts will be totally effective. The principal activity during the first six months was the accrual of $3,953,000 of additional employee termination benefits following the communication of these benefits to the production workforce of the manufacturing facilities that will be closed. During the fourth quarter of 2001, the Company recorded plant closing costs of $7,653,000, principally related to the impairment of fixed assets. As of quarter end, the balance in the plant closing accruals consisted of $4,590,000 of employee termination benefits and $1,399,000 of plant closing costs. Charges against these accruals will commence in the third and fourth quarters, however, additional accruals may be required later in the year. The outsourcing of product may also have an impact on the Company's method of accounting for inventory. A study of the possible impact is ongoing. The results of the study to date indicate that a portion, or all, of the Company's LIFO reserve of approximately $11,000,000 could be realized in future periods.
NOTE C - BUSINESS SEGMENTS In the following summary, operating profit (loss) represents earnings (loss) before other income, principally interest income and income taxes. The Company's segments operate discretely from each other with no shared manufacturing facilities. Costs associated with corporate activities (such as cash and marketable securities management) are included within housewares/small appliances for all periods presented. <TABLE> <CAPTION> (IN THOUSANDS) ---------------------------------------------------------------------- HOUSEWARES/ SMALL DEFENSE ABSORBENT APPLIANCES PRODUCTS PRODUCTS *** TOTAL ------------ ---------- -------------- ---------- <S> <C> <C> <C> <C> QUARTER ENDED JUNE 30, 2002 External net sales $ 17,353 $ 2,040 $ 1,162 $ 20,555 Operating profit (loss) (651) 628 (255) (278) Total assets 253,954 11,250 7,223 272,427 Depreciation 250 25 198 473 Capital expenditures 500 77 43 620 QUARTER ENDED JULY 1, 2001 External net sales $ 16,221 $ 1,373 $ -- $ 17,594 Operating profit (loss) (1,280) 259 -- (1,021) Total assets 259,912 8,627 -- 268,539 Depreciation and amortization 813 20 -- 833 Capital expenditures 811 31 -- 842 SIX MONTHS ENDED JUNE 30, 2002 External net sales $ 36,651 $ 4,187 $ 2,477 $ 43,315 Operating profit (loss) (6,762)* 972 (419) (6,209) Total assets 253,954 11,250 7,223 272,427 Depreciation 463 48 394 905 Capital expenditures 951 211 62 1,224 SIX MONTHS ENDED JULY 1, 2001 External net sales $ 35,716 $ 1,888 $ -- $ 37,604 Operating profit (loss) (2,961) 262 ** -- (2,699) Total assets 259,912 8,627 -- 268,539 Depreciation and amortization 2,082 27 -- 2,109 Capital expenditures 1,936 32 -- 1,968 </TABLE> * The 2002 six month operating loss of the Housewares/small appliance division includes a charge for plant closing costs of $3,953,000, more fully described in Note B, which was recorded in the first quarter 2002. ** The Defense Products division was acquired on February 24, 2001. Accordingly, operations for the six months ended July 1, 2001 represents the operations after acquisition. *** The Absorbent Products division was acquired on November 19, 2001. Accordingly, there were no operations for the quarter or six months ended July 1, 2001.
NOTE D - COMMITMENTS AND CONTINGENCIES On July 16, 2002, the Securities and Exchange Commission filed a lawsuit against National Presto Industries, Inc. alleging the company operated as an unregistered investment company. The case doesn't involve fraud, deceptive practices or accounting methods, and the Company plans to vigorously defend itself (see Form 8-K filed on July 15, 2002). If unsuccessful, the Company may have to reallocate invested assets which will result in reduced yields. In addition, the Company is involved in other routine litigation incidental to its business. Management believes the ultimate outcome of these matters will not have a material affect on the Company's consolidated financial position. NOTE E - ADOPTION OF NEW ACCOUNTING STANDARDS On January 1, 2002 the Company adopted Statement of Financial Accounting Standard (SFAS) 141, BUSINESS COMBINATIONS, SFAS 142 GOODWILL AND INTANGIBLE ASSETS AND SFAS 144 ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. The adoption of SFAS 142 caused the Company to cease amortization of its goodwill on January 1, 2002 and evaluate goodwill for impairment at least on an annual basis thereafter. The Company's goodwill of approximately $3,556,000 relates to its Defense Products segment which is a separate reporting unit. The Company has completed the transitional goodwill impairment test required by SFAS 142 and no impairment was identified. Goodwill amortization recorded during the three months and six months ended June 30, 2001 was $63,000 and $84,000. The Company had no recorded goodwill prior to the first quarter of 2001. The adoption of SFAS 141 and 144 did not have a material effect on the Company's consolidated financial statements or reporting of financial information. - -------------------------------------------------------------------------------- The foregoing information for the periods ended June 30, 2002, and July 1, 2001, 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, 2001, is summarized from audited consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 2001 Annual Report. Interim results for the period are not indicative of those for the year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AN RESULTS OF OPERATIONS Forward-looking statements in this 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 those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the notes to consolidated financial statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; customer acceptance of or delays in the development of new products; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; exchange rate fluctuations, changes in foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which National Presto Industries, Inc. buys or sells products; product liability , regulatory actions or other litigation, warranty claims or returns of products; increases in material or production cost which cannot be recouped in product pricing; the impact of closing certain U.S. production facilities; and uncertainties the September 11, 2001 terrorist activities may have on supplies and finished goods deliveries, consumer confidence, or the economy in general. 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 Second Quarter 2002 and 2001 Readers are directed to Note C - Business Segments for data on the unaudited financial results of our three business segments for the three months ended June 30, 2002 and July 1, 2001. Net sales increased by $2,961,000 from $17,594,000 to $20,555,000 or 17%. The Housewares / Small Appliance Division net sales increased due to increased volume and product mix. Likewise the Defense Products Division net sales increased primarily due to increased volume. The Absorbent Products Division was acquired during the fourth quarter of 2001, therefore, no comparative period net sales is available. Gross profit for 2002 increased $1,057,000 from $3,162,000 to $4,219,000. For the Housewares / Small Appliance Division the gross profit increased primarily as a result of more favorable manufacturing efficiencies experienced at the Company's manufacturing facilities. For the Defense Products Division the gross profit increase reflected greater unit sales and sales mix improvement. The Absorbent Products Division was acquired during the fourth quarter of 2001, therefore, no comparative period gross profit is available.
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. In addition, general expenses increased primarily because of the 2001 acquisitions. Other income, principally interest, decreased $784,000 from $2,131,000 to $1,347,000 primarily due to reduced yields. Earnings before provision for income taxes decreased $41,000 from $1,110,000 to 1,069,000. The income tax benefit decreased from $269,000 to $14,000, which resulted in an effective income tax benefit rate of 24% in 2001 and 1% in 2002. The Company's effective income tax rate is significantly affected by non-taxable interest income. Net earnings decreased $296,000 from $1,379,000 to $1,083,000, or 22%. Comparison First Six Months 2002 and 2001 Readers are directed to Note C - Business Segments for data on the unaudited financial results of our three business segments for the six months ended June 30, 2002 and July 1, 2001. Net sales increased by $5,711,000 from $37,604,000 to $43,315,000 or 15%. The Housewares / Small Appliance Division net sales increased primarily due to product mix. The Defense Products Division net sales increased primarily due to increased volume. This Division was acquired at the end of February 2001, therefore, the comparative period of 2001 only contains four months of operations. The Absorbent Products Division was acquired during the fourth quarter of 2001, therefore, no comparative period net sales is available. Gross profit for 2002 increased $1,342,000 from $6,028,000 to $7,370,000 or 16% versus 17% as a percentage of net sales. For the Housewares / Small Appliance Division the gross profit increased primarily as result of more favorable manufacturing efficiencies experienced at the Company's manufacturing facilities. For the Defense Products Division the gross profit increase reflected greater unit sales and sales mix improvement. This Division was acquired at the end of February 2001, therefore, the comparative period of 2001 only contains four months of operations. The Absorbent Products Division was acquired during the fourth quarter of 2001, therefore, no comparative period gross profit is available. The accrual for unexpended advertising costs discussed in the Second Quarter comparison also applies to the first six months.
Other income, principally interest, decreased $1,902,000 from $4,649,000 to $2,747,000. The average daily investment decreased from $208,820,000 to $194,549,000 primarily as a result of business acquisitions and the purchase of treasury stock during 2001. Earnings before provision for income taxes decreased $5,412,000 from earnings of $1,950,000 to a loss of $3,462,000. The income tax benefit increased from $679,000 to $2,185,000, which resulted in an effective income tax benefit rate of 35% in 2001 and 63% in 2002. The Company's income tax rate is significantly affected by non-taxable interest income. Net earnings decreased $3,906,000 from earnings of $2,629,000 to a loss of $1,277,000, or 149%. Liquidity and Capital Resources Working capital decreased by $8,256,000 to $199,600,000 at June 30, 2002. The Company's current ratio was 5.6 to 1.0 at June 30, 2002 compared to 5.3 to 1.0 at the end of fiscal 2001. The decrease in working capital is primarily due to the payment of dividends of $6,290,000 and the current year-to-date loss of $1,277,000. The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions or capital investments in these segments if the appropriate return on investment is projected. In connection with the plant closing and related outsourcing of products, more fully described in Note B, the Company has placed tooling and initial product orders. Completion of the transition to off shore manufacturing is expected during the 4th quarter 2002. The Company has substantial liquidity in the form of cash and marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund growth through acquisitions and other means. Further, it has the ability to fund losses, should they occur, in connection with the transition to outsourced foreign manufacturing of products for the housewares/small appliance segment. As of June 30, 2002, there were no material capital commitments outstanding. NEW ACCOUNTING PRONOUNCEMENTS Please refer to Note E for information related to the effect of adopting new accounting pronouncements on the Company's consolidated financial statements.
Item 3 QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's interest income on cash equivalents and investments is affected by changes in interest rates in the United States. Cash equivalents include 7-day variable rate demand notes - highly liquid instruments with interest rates set every 7 days that can be tendered to the remarketer upon 7 days notice for payment of principal and accrued interest. The 7 day tender feature is further supported by an irrevocable letter of credit from a highly rated U.S. bank. To the extent a bond is not remarketed at par plus accrued interest, the difference is drawn from the letter of credit. The Company's investments are held primarily in fixed and variable rate municipal bonds with an average life of less than one year. Accordingly, changes in interest rates have not had a material effect on the Company, and the Company does not anticipate that future exposure to interest rate market risk will be material. The Company uses sensitivity analysis to determine its exposure to changes in interest rates. The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments. Most transactions with international customers are entered into in U.S. dollars, precluding the need for foreign currency cash flow hedges. Any transactions that are currently entered into in foreign currency are not deemed material to the financial statements.
PART II - OTHER INFORMATION Item 1. Legal Proceedings Please refer to Note D for information on legal proceedings. 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 October 3, 1999 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 99.1 - Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 - Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (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: August 13, 2002 /S/ M. J. Cohen -------------------------------------------- M. J. Cohen, Chair of the Board and President (Principal operating officer) Date: August 13, 2002 /S/ R. F. Lieble -------------------------------------------- R. F. Lieble, Chief Financial Officer and Treasurer (Principal accounting officer)
Exhibit Number Exhibit Description ------ ------------------- 11 Computation of Earnings per Share 99.1 Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002