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 3, 1999 [ ] 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 7,344,846 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 3, 1999 and December 31, 1998 (Unaudited) <TABLE> <CAPTION> (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 78,374 $114,565 Marketable securities 145,615 126,666 Accounts receivable, net 13,575 15,840 Inventories: Finished goods $ 16,276 $ 7,407 Work in process 2,858 1,822 Raw materials 6,174 5,860 Supplies 1,011 26,319 884 15,973 -------- -------- Prepaid expenses 130 257 -------- -------- Total current assets 264,013 273,301 PROPERTY, PLANT AND EQUIPMENT: 24,465 21,975 Less allowance for depreciation 12,858 11,607 11,411 10,564 -------- -------- OTHER ASSETS 10,897 10,897 -------- -------- $286,517 $294,762 ======== ======== </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 3, 1999 and December 31, 1998 (Unaudited) <TABLE> <CAPTION> (Dollars in thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> LIABILITIES CURRENT LIABILITIES: Accounts payable $ 11,157 $ 11,447 Federal and state income taxes 2,474 6,216 Accrued liabilities 23,542 22,694 -------- -------- Total current liabilities 37,173 40,357 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 1,030 990 Retained earnings 243,552 248,115 -------- -------- 252,023 256,546 Treasury stock, at cost 2,679 2,141 -------- -------- Total stockholders' equity 249,344 254,405 -------- -------- $286,517 $294,762 ======== ======== </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 3, 1999 and October 4, 1998 (Unaudited) <TABLE> <CAPTION> (In thousands except per share data) THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $ 25,071 $ 24,306 $ 65,443 $ 59,565 Cost of sales 17,161 16,125 45,440 41,752 -------- -------- -------- -------- Gross profit 7,910 8,181 20,003 17,813 Selling and general expenses 5,262 5,516 14,004 13,589 -------- -------- -------- -------- Operating profit 2,648 2,665 5,999 4,224 Other income, principally interest 2,331 2,153 6,903 6,883 -------- -------- -------- -------- Earnings before provision for income taxes 4,979 4,818 12,902 11,107 Provision for income taxes 1,235 1,083 2,745 1,802 -------- -------- -------- -------- Net earnings $ 3,744 $ 3,735 $ 10,157 $ 9,305 ======== ======== ======== ======== Weighted average shares outstanding: Basic 7,344 7,357 7,350 7,357 ======== ======== ======== ======== Diluted 7,345 7,358 7,351 7,358 ======== ======== ======== ======== Net earnings per share: Basic $ 0.51 $ 0.50 $ 1.38 $ 1.26 ======== ======== ======== ======== Diluted $ 0.51 $ 0.50 $ 1.38 $ 1.26 ======== ======== ======== ======== 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 3, 1999 and October 4, 1998 (Unaudited) <TABLE> <CAPTION> (Dollars in thousands) 1999 1998 ---- ---- - ------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 10,157 $ 9,305 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for depreciation 1,598 1,517 Stock compensation expense 116 122 Changes in: Accounts receivable 2,265 5,822 Inventories (10,346) (9,579) Prepaid expenses 127 182 Accounts payable and accrued liabilities 558 (3,732) Federal and state income taxes (3,742) (2,655) ---------- ---------- Net cash provided by operating activities 733 982 ---------- ---------- Cash flows from investing activities: Marketable securities purchased (157,271) (76,316) Marketable securities - maturities and sales 138,322 94,537 Acquisition of property, plant and equipment (2,749) (2,456) Other 108 (74) ---------- ---------- Net cash provided by (used in) investing activities (21,590) 15,691 ---------- ---------- Cash flows from financing activities: Dividends paid (14,720) (14,710) Purchase of treasury stock (18,700 shares) (649) -- Other 35 25 ---------- ---------- Net cash used in financing activities (15,334) (14,685) ---------- ---------- Net increase (decrease) in cash and cash equivalents (36,191) 1,988 Cash and cash equivalents at beginning of period 114,565 91,639 ---------- ---------- Cash and cash equivalents at end of period $ 78,374 $ 93,627 ========== ========== </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 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 3, 1999, and October 4, 1998, 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, 1998, is summarized from audited consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 1998 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 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 Third Quarter 1999 and 1998 Net sales increased by $765,000 from $24,306,000 to $25,071,000 due primarily to increased unit volume. Gross profit as a percentage of sales decreased from 34% to 32% largely due to changes in product mix resulting primarily from differences in shipment timing. 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. Other income, principally interest, increased from the 1998 level primarily as a result of a higher level of invested funds at a slightly lower rate of return. Earnings before provision for income taxes increased $161,000 from $4,818,000 to $4,979,000. The provision for income taxes increased from $1,083,000 to $1,235,000 and the effective income tax rate increased from 22% to 25%, as a result of increased earnings subject to tax. Net earnings increased $9,000 from $3,735,000 to $3,744,000 and earnings per share increased from $.50 to $.51. The Company maintains adequate liquidity for all of its anticipated capital requirements. As of quarter-end, there were no material capital commitments outstanding.
Comparison First Nine Months 1999 and 1998 Net sales increased by $5,878,000 from $59,565,000 to $65,443,000 due primarily to increased unit volume. Gross profit as a percentage of sales was comparable to the prior year. The accrual for unexpended advertising costs discussed in the Third Quarter comparison also applies to the first nine months. Earnings before provision for income taxes increased $1,795,000 from $11,107,000 to $12,902,000. The provision for income taxes increased from $1,802,000 to $2,745,000 and the effective income tax rate increased from 16% to 21%, as a result of increased earnings subject to tax. Net earnings increased $852,000 from $9,305,000 to $10,157,000, or 9% and earnings per share increased from $1.26 to $1.38. 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 this effort was completed prior to March 31, 1999. In addition, from March 1999 through September 1999, the Company performed full-scale Y2K simulations to verify the efficacy of the upgrades and replacements. The positive results from these simulations confirmed the success of the upgrades and replacements. 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.
External (Supplier) Systems: The Company has contacted suppliers of products and services to assess whether the suppliers are Y2K compliant or to monitor their progress toward Y2K compliance. The vast majority of the Company's key suppliers have responded that they either are or will be Y2K compliant prior to the year 2000. However, there can be no absolute assurance that suppliers and others will timely resolve their own Y2K compliance issues. Additionally, a small number of the Company's suppliers have provided inadequate responses as to their Y2K readiness, and as a result the Company is implementing a contingency plan to address potential interruption of supplied products or services. The contingency plan includes use of alternate suppliers and / or stockpiling of certain supplied items. Costs to-date for the external compliance program have also been immaterial. The potential effect of the year 2000 issue on the Company and its business partners will not be fully determinable until the year 2000 and thereafter. Notwithstanding the Company's efforts described above, if complications should arise from Y2K modifications already in place by the Company or compliance efforts by entities with whom the Company conducts business, the Company's revenues and financial condition could be adversely impacted. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK While changes in U.S. interest rates could affect the interest earned on the Company's cash equivalents and investments, such changes will not have a material affect on the interest earned on the Company's cash equivalents and investments at this time as these investments are primarily municipal bonds. A majority of these bonds earn a fixed rate of interest while the remaining portion earn interest at a variable rate. The Company uses sensitivity analysis to determine it's exposure to changes in interest rates and does not currently anticipate that exposure to interest rate market risk will have a material adverse impact on the Company.
PART II - OTHER INFORMATION Item 1. Legal Proceedings On July 28, 1999, Kenneth Steiner, a New York resident who owns 250 shares of the Company's stock, filed a derivative stockholder lawsuit against the company and its six directors. This matter is currently pending in Eau Claire County Wisconsin Circuit Court. The plaintiff alleges that the directors have breached their fiduciary duties and seeks unspecified money damages against them. In the opinion of the Company, its directors, and their respective counsel, the allegations of the plaintiff are without merit and ultimately the matter will be disposed of accordingly. On July 30, 1999, the Company was advised that the Midwest regional office of the Securities and Exchange Commission (SEC) initiated an informal investigation regarding the Company. The Company is fully cooperating with the SEC and has furnished all information requested to date. It is the policy of the SEC not to identify the subject matter of its investigations. As of this time, it is not possible to ascertain what, if any, action may be taken as a result of the investigation. 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 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 2, 1999 /S/ M. J. Cohen ------------------------------------- M. J. Cohen, President (Principal operating officer) Date: November 2, 1999 /S/ R. F. Lieble ------------------------------------- R. F. Lieble, Treasurer (Principal accounting officer)
Exhibit Number Exhibit Description ------ ------------------- 3 (ii) By-Laws 11 Computation of Earnings per Share 27 Financial Data Schedule