FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 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 6,840,103 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 March 31, 2002 and December 31, 2001 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 2002 2001 ============================================================================================== <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $103,803 $ 83,877 Marketable securities 91,988 106,992 Accounts receivable, net 13,377 31,194 Inventories: Finished goods $ 19,729 $ 19,505 Work in process 5,602 5,349 Raw materials 6,859 8,262 Supplies 403 32,593 881 33,997 -------- -------- Prepaid expenses 366 93 -------- -------- Total current assets 242,127 256,153 PROPERTY, PLANT AND EQUIPMENT 19,932 19,328 Less allowance for depreciation 7,915 12,017 7,483 11,845 -------- -------- OTHER ASSETS 16,902 16,902 -------- -------- $271,046 $284,900 ======== ======== </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2002 and December 31, 2001 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 2002 2001 ============================================================================================== <S> <C> <C> LIABILITIES CURRENT LIABILITIES: Accounts payable $ 13,084 $ 18,194 Federal and state income taxes - 3,055 Accrued liabilities 29,916 27,048 --------- --------- Total current liabilities 43,000 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 238,263 246,913 --------- --------- 246,706 255,365 Treasury stock, at cost 18,660 18,762 --------- --------- Total stockholders' equity 228,046 236,603 --------- --------- $ 271,046 $ 284,900 ========= ========= </TABLE> The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS Three Months ended March 31, 2002 and April 1, 2001 (Unaudited) (In thousands except per share data) THREE MONTHS ENDED --------------------- 2002 2001 ================================================================================ Net sales $ 22,760 $ 20,010 Cost of sales 19,609 17,144 -------- -------- Gross profit 3,151 2,866 Selling and general expenses 5,129 4,544 Plant closing costs 3,953 -- -------- -------- Operating loss (5,931) (1,678) Other income, principally interest 1,400 2,518 -------- -------- Earnings (loss) before provision for income taxes (4,531) 840 Income tax benefit (2,171) (410) -------- -------- Net earnings (loss) $ (2,360) $ 1,250 ======== ======== Weighted average shares outstanding: Basic 6,837 6,878 ======== ======== Diluted 6,837 6,879 ======== ======== Net earnings (loss) per share: Basic $ (0.35) $ 0.18 ======== ======== Diluted $ (0.35) $ 0.18 ======== ======== Cash dividends declared and paid per common share $ 0.92 $ 2.00 ======== ======== The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months ended March 31, 2002 and April 1, 2001 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 2002 2001 =============================================================================================== <S> <C> <C> Cash flows from operating activities: Net earnings (loss) $ (2,360) $ 1,250 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Provision for depreciation 432 1,276 Plant closing charges 3,953 -- Other 93 63 Changes in (net of acquisition): Accounts receivable 17,817 5,800 Inventories 1,404 (215) Prepaid expenses (273) (101) Accounts payable and accrued liabilities (6,195) (9,607) Federal and state income taxes (3,055) (1,232) --------- --------- Net cash provided by (used in) operating activities 11,816 (2,766) --------- --------- Cash flows from investing activities (net of acquisition): Marketable securities purchased (6,463) (5,073) Marketable securities - maturities and sales 21,467 11,843 Acquisition of property, plant and equipment (604) (1,126) Acquisition of business -- (4,750) Other -- 250 --------- --------- Net cash provided by investing activities 14,400 1,144 --------- --------- Cash flows from financing activities: Dividends paid (6,290) (13,755) Other -- 59 --------- --------- Net cash used in financing activities (6,290) (13,696) --------- --------- Net increase (decrease) in cash and cash equivalents 19,926 (15,318) Cash and cash equivalents at beginning of period 83,877 80,895 --------- --------- Cash and cash equivalents at end of period $ 103,803 65,577 ========= ========= </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 - 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 MARCH 31, 2002 External net sales $ 19,298 $ 2,147 $ 1,315 $ 22,760 Operating profit (loss) (6,111)* 344 (164) (5,931) Total assets 253,414 9,855 7,777 271,046 Depreciation and amortization 213 23 196 432 Capital expenditures 451 134 19 604 QUARTER ENDED APRIL 1, 2001 External net sales $ 19,495 $ 515** $ -- $ 20,010 Operating profit (loss) (1,681) 3 -- (1,678) Total assets 260,801 8,278 -- 269,079 Depreciation and amortization 1,269 7 -- 1,276 Capital expenditures 1,125 1 -- 1,126 </TABLE> * The operating loss of the Housewares/small appliance division is after recording a charge for plant closing costs of $3,953,000 more fully described in Note C. ** The Defense Products division was acquired on February 24, 2001. Accordingly, operations for the quarter ended April 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 ended April 1, 2001.
NOTE C - 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. 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 quarter 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. As of quarter end, the balance in the accrual consisted of $4,590,000 of employee termination benefits and $1,399,000 of plant closing costs. There may be additional charges 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. NOTE D - COMMITMENTS AND CONTINGENCIES The Company is the subject of an SEC Investment Company Act of 1940 investigation. Currently, it is exploring resolution of issues with the SEC Staff. 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 a 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 first quarter of 2001 was $21,000. 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.
In addition, the Company adopted Emerging Issues Task Force (EITF) Issue No. 00-25 VENDOR INCOME STATEMENT CHARACTERIZATION OF CONSIDERATION TO A RESELLER ON THE VENDORS PRODUCTS, effective January 1, 2002. The adoption of EITF Issue 00-25 did not have a material affect on the Company's consolidated financial statements. - -------------------------------------------------------------------------------- The foregoing information for the periods ended March 31, 2002, and April 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; 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; increases in material or production cost which cannot be recouped in product pricing, and the impact of closing certain U.S. production facilities. 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 Quarter 2002 and 2001 Net sales increased by $2,750,000 from $20,010,000 to $22,760,000 or 14%. The increase was primarily attributable to the incremental sales of the 2001 acquisitions offset in part by a slight decrease in housewares/small appliance sales. Gross profit for 2002 increased $285,000 from $2,866,000 to $3,151,000 or 14% as a percentage of net sales in both periods. The increase in gross profit reflected the increased sales from the Company's 2001 acquisitions offset in part by reduced prices demanded by housewares/small appliance retailers and the inability to pass on the Company's increased costs for these goods. Selling and general expenses increased primarily because of the 2001 acquisitions 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. The first quarter of 2002 includes a $3,953,000 estimated charge related to involuntary termination benefits stemming from the announced closing of the Company's
Housewares/Small Appliance manufacturing operations in Jackson, Mississippi and Alamogordo, New Mexico. See Note C to the Consolidated Financial Statements. Based on the foregoing factors the operating loss increased $4,253,000 from $1,678,000 to $5,931,000. Other income, principally interest, decreased $1,118,000 from $2,518,000 to $1,400,000. The average daily investment decreased from $220,233,000 to $195,460,000 primarily as a result of business acquisitions and the purchase of treasury stock during 2001. Earnings before provision for income taxes decreased $5,371,000 from $840,000 to a loss of $4,531,000. The income tax benefit increased from $410,000 to $2,171,000, which resulted in an effective income tax benefit rate of 49% in 2001 and 48% in 2002. Net earnings decreased $3,610,000 from $1,250,000 to a loss of $2,360,000, or 289%. Working capital decreased by $8,729,000 to $199,127,000 at March 31, 2002. The Company's current ratio was 5.6 to 1.0 at March 31, 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 period loss of $2,360,000. 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, the Company has placed tooling and initial product orders. Completion of the transition 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 March 31, 2002, there were no material capital commitments outstanding. Item 7A. 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 strongly 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. The Company uses sensitivity analysis to determine its exposure to changes in interest rates. Through March 31, 2002, changes in these 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 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 hedges. Any transactions that are currently entered into in foreign currency are not deemed material to the financial statements.
PART II - OTHER INFORMATION 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 (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: May 14, 2002 /S/ M. J. Cohen ----------------------------------------- M. J. Cohen, Chair of the Board and President (Principal operating officer) Date: May 14, 2002 /S/ R. F. Lieble ----------------------------------------- R. F. Lieble, Chief Financial Officer and Treasurer (Principal accounting officer)
National Presto Industries, Inc. Exhibit Index Exhibit Number Exhibit Description ------- ------------------- 11 Computation of Earnings per Share