| • FORM 10-Q FOR THE QUARTER ENDED APRIL 1, 2012 • CERTIFICATION OF CEO PURSUANT TO SECTION 302 • CERTIFICATION OF CFO PURSUANT TO SECTION 302 • CERTIFICATION OF CEO PURSUANT TO SECTION 906 • CERTIFICATION OF CFO PURSUANT TO SECTION 906 • XBRL INSTANCE FILE • XBRL SCHEMA FILE • XBRL CALCULATION FILE • XBRL LABEL FILE • XBRL PRESENTATION FILE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). There were 6,882,058 shares of the Issuer’s Common Stock outstanding as of May 1, 2012. PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL PRESTO INDUSTRIES, INC. AND
SUBSIDIARIES
The accompanying notes are an integral part of the financial statements. 2 NATIONAL PRESTO
INDUSTRIES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of the financial statements. 3 NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of the financial statements. 4 NATIONAL PRESTO INDUSTRIES,
INC. AND SUBSIDIARIES
The accompanying notes are an integral part of the financial statements. 5 NATIONAL PRESTO INDUSTRIES,
INC. AND SUBSIDIARIES NOTE
A – EARNINGS PER SHARE NOTE
B – BUSINESS SEGMENTS
NOTE
C - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments. NOTE
D - CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES 6 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 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 April 1, 2012 and December 31, 2011, 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. There were no transfers into or out of Level 2 during the three months ended April 1, 2012.
Proceeds from sales of available-for-sale securities totaled $6,372,000 and $35,885,000 for the three month periods ended April 1, 2012 and April 3, 2011, respectively. There were no gross gains or losses related to sales of marketable securities during the same periods. Net unrealized gains, which are reported as a separate component of accumulated other comprehensive income, were $117,000 and $180,000 before taxes as of April 1, 2012 and April 3, 2011, respectively. No unrealized gains or losses were reclassified out of accumulated other comprehensive income during the three month periods ended April 1, 2012 and April 3, 2011. The contractual maturities of the marketable securities held at April 1, 2012 are as follows: $7,082,000 within one year; $18,510,000 beyond one year to five years; $7,850,000 beyond five years to ten years, and $21,174,000 beyond ten years. All of the instruments in the beyond five year ranges, with the exception of two tax-exempt municipal bonds with total fair values of $3,003,000 and maturities between five and six years, 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. 7 NOTE E – COMMITMENTS AND CONTINGENCIES NOTE F – ADOPTION OF NEW ACCOUNTING STANDARDS
The foregoing information for the periods ended April 1, 2012, and April 3, 2011, 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, 2011 is summarized from consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 2011 annual report on Form 10-K. Interim results for the period are not indicative of those for the year. 8 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in the Company’s 2011 Annual Report to Shareholders, in the Proxy Statement for the annual meeting held May 15, 2012, and in the Company’s press releases and oral statements made with the approval of an authorized executive officer 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; 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; development and market acceptance of new products; increases in material, freight/shipping, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized work force; changes in government requirements, military spending, and funding of government contracts, which could result, among other things, in the modification or termination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the efficient start-up and utilization of capital equipment investments; and political actions of federal and state governments which could have an impact on everything from the value of the U.S dollar vis-à-vis other currencies to the availability of affordable labor and energy. Additional information concerning these and other factors is contained in the Company’s Securities and Exchange Commission filings, copies of which are available from the Company without charge. Comparison of First Quarter 2012 and 2011 Readers are directed to Note B to the Consolidated Financial Statements, “Business Segments,” for data on the financial results of the Company’s three business segments for the quarters ended April 1, 2012 and April 3, 2011. On a consolidated basis, sales decreased by $12,113,000 (11%), gross profit decreased by $1,602,000 (7%), selling and general expenses increased by $899,000 (19%), and other income decreased by $427,000 (79%). Earnings before the provision for income taxes decreased by $2,928,000 (17%), as did net earnings by $2,019,000 (18%). Details concerning these changes can be found in the comments by segment below. Housewares/Small Appliance net sales decreased by $2,396,000 from $27,088,000 to $24,692,000, or 9%, primarily reflecting a decrease in unit shipments. Defense net sales decreased by $9,803,000 from $59,484,000 to $49,681,000, or 16%, primarily reflecting a decrease in unit shipments. Absorbent Products net sales were essentially flat, increasing by $86,000 from $22,314,000 to $22,400,000. Housewares/Small Appliance gross profits decreased $737,000 from $5,434,000 to $4,697,000, or 14%, approximately 65% of which related to the decrease in sales mentioned above, with the balance reflecting increased commodity costs. Defense gross profits decreased $1,490,000 from $15,363,000 from the prior year’s quarter to $13,873,000, or 10%, reflecting the sales decrease mentioned above, approximately 40% of which was offset by realized production efficiencies and a more favorable product mix. Absorbent Products gross profits increased $625,000 from $1,157,000 to $1,782,000, or 54%, reflecting a more favorable product mix, cost decreases on certain commodities primarily due to advantageous material purchases made at year-end 2011, partially offset by lower production efficiencies incident to the installation of new equipment. Selling and general expenses for the Housewares/Small Appliance segment increased by $431,000, primarily reflecting increases in self-insured product liability and employee benefit cost accruals. Defense segment selling and general expenses increased by $419,000, primarily reflecting on-going operational costs associated with the acquisition of a less than lethal manufacturing facility during the fourth quarter of 2011. The acquisition is more fully described in the Company’s 2011 annual report on Form 10-K. Absorbent Products selling and general expenses were essentially flat. 9 The above items were responsible for the change in operating profit. Other income decreased $427,000, approximately half of which was due to lower interest income resulting from decreased yields on lower dollars invested, with the remainder attributable to decreased net royalty income. Earnings before provision for income taxes decreased $2,928,000 from $17,679,000 to $14,751,000. The provision for income taxes decreased from $6,316,000 to $5,407,000, primarily reflecting a decrease in earnings. Net earnings decreased $2,019,000 from $11,363,000 to $9,344,000, or 18%. Liquidity and Capital Resources Net cash provided by operating activities was $11,664,000 and $21,734,000 for the three months ended April 1, 2012 and April 3, 2011, respectively. The principal factors contributing to the decrease can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during the first three months of 2012 were net earnings of $9,344,000; a decrease in accounts receivable levels stemming from cash collections on customer sales, partially offset by net decreases in payable and accrual levels. Of particular note during the first three months of 2011 were net earnings of $11,363,000; a decrease in accounts receivable levels stemming from cash collections on customer sales, partially offset by an increase in deposits made with suppliers included in other current assets and decreases in payable and accrual levels. Net cash provided by investing activities during the first three months of 2012 was $256,000, as compared to $9,498,000 provided during the first three months of 2011. The change in investing activity cash flow is primarily attributable to a decrease in net maturities/sales of marketable securities, augmented by an increase in capital expenditures. Cash flows from financing activities for the first three months of 2012 and 2011 primarily differed as a result of the $2.25 per share decrease in the extra dividend paid during those periods. Working capital decreased by $33,418,000 to $229,541,000 at April 1, 2012 for the reasons stated above. The Company’s current ratio was 4.9 to 1.0 at April 1, 2012 and 5.0 to 1.0 at December 31, 2011. The Company expects to continue to evaluate acquisition opportunities that align with its business segments and continue to make capital investments in these segments as well as further acquisitions if the appropriate return on investment is projected. The Company has substantial liquidity in the form of cash and short-term maturity marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund growth through acquisitions and other means. The bulk of its marketable securities are invested in the tax exempt variable rate demand notes described above and in municipal bonds that are pre-refunded with escrowed U.S. Treasuries. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings. Comparative yields during the first three months of 2012 were lower than those in the first three months of the preceding year, reflecting an increase in lower yielding instruments in the Company’s investment holdings as higher yielding instruments have matured and been replaced. The lower yields served to decrease interest income. The interest rate environment is a function of national and international monetary policies as well as the growth and inflation rates of the U.S. and foreign economies and is not controllable by the Company. 10 Critical Accounting Policies The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. The Company reviewed the development and selection of the critical accounting policies and believes the following are the most critical accounting policies that could have an effect on the Company’s reported results. These critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors. Inventories Self-Insured Product Liability and Health
Insurance Sales and Returns New Accounting Pronouncements Please refer to Note F in the Notes to the Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on the Company’s consolidated financial statements. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company’s interest income on cash equivalents and marketable securities is affected by changes in interest rates in the United States. Cash equivalents primarily consist of money market funds. Based on the accounting profession’s 2005 interpretation of cash equivalents under FASB ASC Topic 230, the Company’s seven-day variable rate demand notes are classified as marketable securities rather than as cash equivalents. The demand notes are highly liquid instruments with interest rates set every 7 days that can be tendered to the trustee or remarketer upon 7 days notice for payment of principal and accrued interest amounts. The 7-day tender feature of these variable rate demand notes is further supported by an irrevocable letter of credit from highly rated U.S. banks. To the extent a bond is not remarketed at par plus accrued interest, the difference is drawn from the bank’s letter of credit. The Company has had no issues tendering these notes to the trustees or remarketers. Other than a failure of a major U.S. bank, there are no risks of which the Company is aware that relate to these notes in the current market. The balance of the Company’s investments is held primarily in fixed and variable rate municipal bonds with a weighted average life of 2.8 years. 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. The Company’s manufacturing contracts with its foreign suppliers contain provisions to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Hong Kong dollar above and below a fixed range contained in the contracts. All transactions with the foreign suppliers were within the exchange rate range specified in the contracts during 2011 and through the end of the first quarter of 2012. There is no similar provision applicable to the Chinese Renminbi (RMB), which until 2005 had been tied to the U.S. Dollar. To the extent there are further revaluations of the RMB vis-à-vis the U.S. dollar, it is anticipated that any potential material impact from such revaluations will be to the cost of products secured via purchase orders issued subsequent to the revaluation. ITEM 4. CONTROLS AND PROCEDURES The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “1934 Act”) as of April 1, 2012. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of that date. The Company did make changes to its internal controls over financial reporting in the quarter ended April 1, 2012 to address a fourth quarter 2011 personnel change. That personnel change resulted in a segregation of duties issue, which was a deemed material weakness, in which members of the financial staff in the Company’s Defense segment had access to automated accounting functions and thus the potential ability to administer security over the processing of accounting data. The issue was remedied during the first fiscal quarter of 2012. In addition, a quarterly system access review program was instituted to ensure that proper segregation of duties is maintained. There were no other changes to internal controls over financial reporting during the quarter ended April 1, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings See Note E to the Consolidated Financial Statements set forth under Part I - Item 1 above. Item 6. Exhibits
*The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. 13 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.
14 National Presto Industries, Inc.
*The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. 15 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||