Company Quick10K Filing
Quick10K
National Presto Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$108.37 7 $757
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-10-04 Quarter: 2015-10-04
10-Q 2015-07-05 Quarter: 2015-07-05
10-Q 2015-04-05 Quarter: 2015-04-05
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-15 Earnings, Exhibits
8-K 2018-12-11 Officers, Exhibits
8-K 2018-10-26 Earnings, Exhibits
8-K 2018-10-17 Other Events, Exhibits
8-K 2018-09-26 Other Events, Exhibits
8-K 2018-07-27 Earnings, Exhibits
8-K 2018-05-15 Shareholder Vote, Exhibits
8-K 2018-04-27 Earnings, Exhibits
8-K 2018-04-19 Other Events, Exhibits
8-K 2018-02-26 Other Events, Exhibits
8-K 2018-02-09 Earnings, Exhibits
AGO Assured Guaranty 4,820
YETI YETI Holdings 2,660
AX Axos Financial 1,940
GCI Gannett 1,170
ITCI Intra-Cellular Therapies 698
NTIP Network 1 Technologies 58
PFI Pelican Financial 24
GRCK Grey Cloak Tech 0
TOMI Tomi Environmental Solutions 0
ELON Echelon 0
NPK 2018-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties (Owned Except Where Indicated)
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
EX-21 npk-20181231xex21.htm
EX-31.1 npk-20181231xex31_1.htm
EX-31.2 npk-20181231xex31_2.htm
EX-32.1 npk-20181231xex32_1.htm
EX-32.2 npk-20181231xex32_2.htm

National Presto Industries Earnings 2018-12-31

NPK 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 npk-20181231x10k.htm 10-K 20181231 10K FY_Taxonomy2018

 





UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549







FORM 10-K







ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

or

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

(IRS Employer

incorporation or organization)

Identification Number)



 

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



Securities registered pursuant to Section 12(b) of the Act:





 

 



 

Name of each exchange

Title of each class

 

on which registered

$1.00 par value common stock

 

New York Stock Exchange



Securities registered pursuant to Section 12(g) of the Act:

NONE







Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  No



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  No



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  No



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or any amendment to the Form 10-K.



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company  Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  No



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  $613,060,092.  The number of shares outstanding of each of the registrant's classes of common stock, as of March 1, 2019 was 6,981,085.



The Registrant has incorporated in Part II and Part III of Form 10-K, by reference, portions of its 2018 Annual Report and portions of its Proxy Statement for its 2019 Annual Meeting of Stockholders.





 


 

1



TABLE OF CONTENTS





Page



 

PART I

2

Item 1 – Business

2

Item 1A – Risk Factors

6

Item 1B – Unresolved Staff Comments

10

Item 2 – Properties

10

Item 3 – Legal Proceedings

11

Item 4 – Mine Safety Disclosures

11



 

PART II

12

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer purchases of Equity Securities

12

Item 6 – Selected Financial Data

13

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 7A – Quantitative and Qualitative Disclosures About Market Risk

20

Item 8 – Financial Statements and Supplementary Data

21

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

21

Item 9A – Controls and Procedures

21

Item 9B – Other Information

23



 

PART III

24

Item 10 – Directors, Executive Officers and Corporate Governance

24

Item 11 – Executive Compensation

25

Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

25

Item 13 – Certain Relationships and Related Transactions, and Director Independence

25

Item 14 – Principal Accountant Fees and Services

25



 

PART IV

26

Item 15 – Exhibits and Financial Statement Schedules

26

Item 16 – Form 10-K Summary

27



 

Signatures

28



 






 

2





PART I



ITEM 1.  BUSINESS



A.  DESCRIPTION OF BUSINESS



The business of National Presto Industries, Inc. (the “Company" or “National Presto”) consists of two business segments.  For a further discussion of the Company’s business, the segments in which it operates, and financial information about the segments, please refer to Note L to the Consolidated Financial Statements.  The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances.  The Defense segment manufactures 40mm ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases; performs Load, Assemble and Pack (LAP) operations on ordnance-related products primarily for the U.S. Government and prime contractors; and manufactures detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. 



On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. (“Drylock”) in exchange for $68,448,000.  The proceeds amount differs from the amount originally disclosed because of the customary post-closing adjustments that were finalized during the second quarter of 2017, totaling $1,448,000.  The asset purchase agreement also provided for additional proceeds of $4,000,000 upon the sale of certain delayed assets, consisting of machinery and equipment that were the subject of an involuntary conversion.  The sale of the delayed assets was consummated during the second quarter of 2018 and resulted in no gain or loss.  As a result of the aforementioned transactions, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale.  See Note P for further discussion. The operations of PAPI previously comprised the Company’s Absorbent Products segment which manufactured and sold private label and branded adult incontinence products. 



1. Housewares/Small Appliance Segment

Housewares and electrical appliances sold by the Company include pressure cookers and canners; the Presto Control Master® heat control single thermostatic control line of skillets in several sizes, griddles, woks and multi-purpose cookers; slow cookers; deep fryers of various sizes; air fryers; waffle makers; pizza ovens; slicer/shredders; electric heaters; corn poppers (hot air, oil, and microwave); dehydrators; rice cookers; microwave bacon cookers; coffeemakers and coffeemaker accessories; electric tea kettles; electric knife sharpeners; a line of kitchen gadgets; and timers.  Pressure cookers and canners are available in various sizes and are fabricated of aluminum and, in the case of cookers, of stainless steel, as well.  Currently, sales include fire extinguishers sold by its subsidiary, Rusoh, Inc.



For the year ended December 31, 2018, approximately 11% of consolidated net sales were provided by cast products (griddles, waffle makers, die cast deep fryers, skillets and multi-cookers), and approximately 16% by noncast/thermal appliances (stamped cookers and canners, pizza ovens, corn poppers, coffee makers, microwave bacon cookers, dehydrators, rice cookers, slow cookers, tea kettles, electric stainless steel appliances, non-cast fryers, air fryers and heaters).  For the year ended December 31, 2017, approximately 12% of consolidated net sales were provided by cast products, and approximately 16% by noncast/thermal appliances.  For the year ended December 31, 2016, approximately 12% of consolidated net sales were provided by cast products, and approximately 18% by noncast/thermal appliances.  For the years ended December 31, 2018, 2017 and 2016, this segment had one customer which accounted for 10% or more of the Company’s consolidated net sales.  That customer was Wal-Mart Stores, Inc., which accounted for 10%, 10%, and 11% of consolidated net sales in the years ended December 31, 2018, 2017, and 2016,  


 

3

respectively.  The loss of Wal-Mart Stores as a customer would have a material adverse effect on the segment. 



Products are sold primarily in the United States and Canada directly to retailers and also through independent distributors.  Although the Company has long established relationships with many of its customers, it does not have long-term supply contracts with them.  The loss of, or material reduction in, sales to any of the Company's major customers could adversely affect the Company's business.  Most housewares and electrical appliances are sourced from vendors in the Orient.  (See Note J to the Consolidated Financial Statements.) 



The Company has a sales force of 12 employees that sell to and service most customers.  A few selected accounts are handled by manufacturers' representatives who may also sell other product lines.  Sales promotional activities are conducted primarily through the use of newspaper advertising, in store promotions, and digital advertising.  The business is seasonal, with the normal peak sales period occurring in the fourth quarter of the year prior to the holiday season.  This segment operates in a highly competitive and extremely price sensitive environment.  Increased costs that cannot be fully absorbed into the price of products or passed along in the form of price increases to the retail customer can have a significant adverse impact on operating results.  Several companies compete for sales of housewares and small electrical appliances, some of which are larger than the Company’s segment and others which are smaller.  In addition, some customers maintain their own private label, as well as purchase brokered product directly from the Orient.  Product competition extends to special product features, product pricing, product quality, marketing programs, warranty provisions, service policies and other factors.  New product introductions are an important part of the Company's sales to offset the morbidity rate of other products and/or the effect of lowered acceptance of seasonal products due to weather conditions.  New products entail unusual risks.  Engineering and tooling costs are increasingly expensive, as are finished goods that may not have a ready market or achieve widespread consumer acceptance.  High-cost advertising commitments which may accompany such new products or may be required to maintain sales of existing products may not be fully absorbed by ultimate product sales.  Initial production schedules, set in advance of introduction, carry the possibility of excess unsold inventories.  New product introductions are further subject to delivery delays from supply sources, which can impact availability for the Company's most active selling periods. 



Research and development costs related to new product development for the years 2018, 2017, and 2016 were expensed in operations of these years and were not a material element in the aggregate costs incurred by the Company.



Products are generally warranted to the original owner to be free from defects in material and workmanship for a period of one to twelve years from date of purchase, depending on the product.  The Company allows a sixty-day over-the-counter initial return privilege through cooperating dealers.  Products are serviced through a corporate service repair operation.  The Company's service and warranty programs are competitive with those offered by other manufacturers in the industry. 



The Company primarily warehouses and distributes its products from distribution centers located in Canton and Jackson, Mississippi.  Selective use is made of leased tractors and trailers.



The Company invests funds not currently required for business activities (see Note A(5) to the Consolidated Financial Statements).  Income from invested funds is included in Other Income in the accompanying Consolidated Financial Statements. 



Earnings from investments may vary significantly from year to year depending on interest yields on instruments meeting the Company's investment criteria, and the extent to which funds may be needed for internal growth, acquisitions, newly identified business activities, and reacquisition of Company stock.



2. Defense Segment 

AMTEC Corporation was acquired on February 24, 2001, and manufactures 40mm ammunition, and precision mechanical and electro-mechanical products for the U.S. Department of Defense (DOD) and DOD prime contractors.  AMTEC’s 106,000 square foot manufacturing facility located in Janesville, Wisconsin, 


 

4

which includes the Company’s 2016 construction of 31,000 square feet of manufacturing space to meet anticipated production needs, is focused on producing niche market ordnance products (such as training ammunition, fuzes, firing devices, and initiators).  AMTEC is also the prime contractor for the 40mm ammunition system to the DOD (more fully described below). 



Spectra Technologies LLC, a subsidiary of AMTEC, was acquired on July 31, 2003, and is engaged in the manufacture and delivery of munitions and ordnance-related products for the DOD and DOD prime contractors.  Spectra maintains 372,000 square feet of space located in East Camden, Arkansas, dedicated primarily to Load, Assemble and Pack (LAP) type work.



Amron, a division of AMTEC, holds the assets that were purchased from Amron LLC on January 30, 2006.  Amron manufactures cartridge cases used in medium caliber ammunition (20mm, 25mm, 30mm and 40mm) primarily for the DOD and DOD prime contractors, which includes the 40mm systems program previously mentioned and referenced below.  The Amron manufacturing facility is 208,000 square feet and is located in Antigo, Wisconsin. 



Tech Ord, a division of AMTEC, holds the assets of Chemring Energetic Devices, Inc.’s business located in Clear Lake, South Dakota and all of the real property owned by Technical Ordnance Realty, LLC that were acquired on January 24, 2014. The 88,000 square foot Clear Lake facility is a manufacturer of detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials, and its major customers include US and foreign government agencies, AMTEC Corporation, and other defense contractors. 



AMTEC Less Lethal Systems, Inc., a subsidiary of AMTEC Corporation, held the assets that were purchased from ALS Technologies, Inc, a small Arkansas manufacturer of less lethal ammunition, on November 1, 2011.  The subsidiary’s products included smoke and tear gas grenades, specialty impact munitions, diversionary devices and stun munitions, support accessories like launchers and gas masks, as well as training for the use of its products.  The subsidiary’s state-of-the-art less lethal ammunition manufacturing and training facility, which was completed in 2013, was 54,000 square feet and was located in Perry, Florida. In October of 2018, the Company divested itself of the less lethal business.  See Note Q to the Consolidated Financial Statements. 



The Defense segment competes for its business primarily on the basis of technical competence, product quality, manufacturing experience, and price.  This segment operates in a highly competitive environment with many other organizations, some of which are larger and others that are smaller.



On April 25, 2005, AMTEC Corporation was awarded the high volume, five-year prime contract for management and production of the Army’s 40mm Ammunition System.  The Army selected AMTEC as one of two prime contractors responsible for supplying all requirements for 40mm practice and tactical ammunition for a period of five years.  Deliveries under the contract exceeded $671,000,000, with final deliveries completed in 2013.  On February 18, 2010, the Army awarded AMTEC a second five-year contract for the management and production of the 40mm Ammunition System.  As in the original five-year contract, AMTEC was awarded the majority share of the 40mm requirement. Deliveries under this contract exceeded $566,000,000, with the final deliveries completed in 2018.  In addition, as part of an acquisition of a group of assets from DSE, Inc, a 40mm competitor, which was completed on November 7, 2013, AMTEC acquired through a novation agreement an additional $188,000,000, representing the remaining undelivered portion of the award that had been given to AMTEC’s competitor under the second five-year contract mentioned above. Total deliveries for the systems program under the novated DSE 40mm contract were completed in 2018.  The Company submitted its bid for a third contract, and although the FY15 (Army’s fiscal year beginning October 1, 2014) bid request was subsequently cancelled, the 40mm program requirements remained and were subsequently awarded to AMTEC as the Army’s FY16 40mm requirements in a single award valued at $84,500,000. Total deliveries for the FY16 contract were $82,000,000 through 2018.    Additional shipments under this contract will be made in 2019.  On August 30, 2017, the Army awarded AMTEC, as the sole prime contractor, a third five-year 40mm system contract covering FY17-21 requirements.  The value to date is approximately $199,000,000 for FY17 and FY18, with deliveries scheduled to continue in 2019.  The actual annual and cumulative dollar volume with the


 

5

Army over the balance of the contract will be dependent upon military requirements and funding, as well as government procurement regulations and other factors controlled by the Army and the Department of Defense.    



During 2018, almost all of the work performed by this segment directly or indirectly for the DOD was performed on a fixed-price basis.  Under fixed-price contracts, the price paid to the contractor is awarded based on competition at the outset of the contract and therefore is generally not subject to adjustments reflecting the actual costs incurred by the contractor, with the exception of some limited escalation clauses, which on the 2017 contract applied to only three materials – steel, aluminum and zinc.  The Defense segment’s contracts and subcontracts contain the customary provision permitting termination at any time for the convenience of the government, with payment for any work completed, associated profit and inventory/work in progress at the time of termination. The segment’s business does not tend to be seasonal.



B.  OTHER COMMENTS



1. Sources and Availability of Materials

See Note J to the Consolidated Financial Statements. 



2. Patents, Trademarks, and Licenses

Patents, particularly on new products, trademarks and know-how are considered significant to the Company’s Housewares/Small Appliance segment.  The Company's current and future success depends upon judicial protection of its intellectual property rights (patents, trademarks and trade dress).  Removal of that protection would expose the Company to competitors who seek to take advantage of the Company's innovations and proprietary rights.  The Company has dozens of U.S. and foreign patents pending and granted.  Of those U.S. patents granted, the following is a non-exhaustive list of those relevant to current products and their expiration dates, assuming continued payment of maintenance fees (the date is the latest expiration date of the corresponding patents):  Quick Release Appliance Cord Assemblies (US 6,719,576, December 2022,  and 6,527,570, October 2021), Coffee Brewer (US D695,064, December 2027), Cooking Apparatus with Safety Device (US 7,635,827, November 2027), Griddle with Attached Warming Tray (US D674,656, January 2027), Low Profile Griddle (US D575,098, August 2022), Stirring Popcorn Maker (US D615,797, May 2024), and Parabolic Heater (US D633,189, February 2025).  The Company also has dozens of U.S. and foreign trademarks pending and granted.  Of those U.S. trademarks granted, the following is a non-exhaustive list of those relevant to current products and their grant dates:  Presto (February 1941), FryDaddy (November 1977), SaladShooter (September 1988), Pizzazz (July 1999), PopLite  (June 1989), ControlMaster (November 1956), Pan Gogh (December 2018), Nomad (August 2018) and HeatDish (November 1989).To date, the Company has vigorously protected its rights and enjoyed success in all its intellectual property suits.  The Defense segment holds a United States patent related to its non-dud signature training round (US 8,640,621, Oct 2029), which would be deemed significant to its respective operations.



3. Effects of Compliance with Environmental Regulations

In May 1986, the Company's Eau Claire, Wisconsin site was placed on the United States Environmental Protection Agency's (EPA) National Priorities List (NPL) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) because of hazardous waste deposited on the property.  At year end 1998, all remediation projects at the Eau Claire, Wisconsin, site had been installed, were fully operational, and restoration activities had been completed.



Based on factors known as of December 31, 2018, it is believed that the Company's environmental liability reserve will be adequate to satisfy on-going remediation operations and monitoring activities; however, should environmental agencies require additional studies or remediation projects, it is possible the existing accrual could be inadequate. 



Management believes that in the absence of any unforeseen future developments, known environmental matters will not have any material effect on the results of operations or financial condition of the Company. 




 

6

4. Number of Employees of the Company

As of December 31, 2018, the Company and its subsidiaries had 949 employees compared to 982 employees at the end of December 2017.



Approximately 170 employees of Amron are members of the United Steel Workers union.  The most recent contract between Amron and the union is effective through February 29, 2020.



5. Industry Practices Related to Working Capital Requirements

The major portion of the Company's sales was made with terms of 60 days or shorter. 



For the Housewares/Small Appliance segment, inventory levels increase in advance of the selling period for products that are seasonal, such as pressure canners, heaters, and major new product introductions.  Inventory build-up also occurs to create stock levels required to support the higher sales that occur in the latter half of each year.  Buying practices of the Company's customers require "just-in-time" delivery, necessitating that the Company carry large finished goods inventories.



The ability to meet U.S. Department of Defense demands also necessitates the carrying of large inventories in the Defense segment.



6. Order Backlog

Shipment of most of the Company's Housewares/Small Appliance products occurs within a relatively short time after receipt of the order and, therefore, there is usually no substantial order backlog.  New product introductions may result in order backlogs that vary from product to product and as to timing of introduction.



The contract backlog of the Defense segment was approximately $333,592,000, $308,173,000, and $358,931,000 at December 31, 2018, 2017, and 2016, respectively.  Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders.  It is anticipated that the backlog will be produced and shipped during an 18 to 24-month period, after December 31, 2018.





C.  AVAILABLE INFORMATION



The Company has a web site at www.gopresto.com.  The contents of the Company's web site are not part of, nor are they incorporated by reference into, this annual report.



The Company makes available on its web site its annual reports on Form 10-K or 10-K/A and, beginning with its second quarter filing in 2011, quarterly reports on Form 10-Q or 10-Q/A.  It does not provide its current reports on Form 8-K or amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act on its web site.  The Company does not do so because these and all other reports it files with the SEC are readily available to the public on the SEC web site at www.sec.gov and can be located with ease using the link provided on the Company’s web site.   The Company provides paper copies of its annual report free of charge upon request.



The public also may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC  20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.





ITEM 1A. RISK FACTORS



The Company’s two business segments described above are all subject to a number of risk factors, the occurrence of any one or more of which could have a significant adverse impact on the business, financial condition, or results of operations of the Company as a whole.




 

7

Housewares/Small Appliance Segment:



Increases in the costs for raw materials, energy, transportation and other necessary supplies could adversely affect the results of the Company’s operations.



The Company’s suppliers purchase significant amounts of metals, plastics, and energy to manufacture the Company’s products.  Also, the cost of fuel has a major impact on transportation costs.  Any increased costs that cannot be fully absorbed or passed along in the form of price increases to the retail customer can have a material adverse impact on the Company’s operating results. 



Reliance on third-party suppliers in Asia makes this segment vulnerable to supply interruptions and foreign business risks.



The majority of the housewares/small appliance products are manufactured by a handful of third-party suppliers in Asia, primarily in the People’s Republic of China.  The Company’s ability to continue to select and develop relationships with reliable vendors who provide timely deliveries of quality parts and products will impact its success in meeting customer demand.  Most products are procured on a “purchase order” basis.  As a result, the Company may be subject to unexpected changes in pricing or supply of products.  There is no assurance that it could quickly or effectively replace any of its vendors if the need arose.  Any significant failure to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply may disrupt customer relationships and have a material adverse effect on the Company’s business.



In addition, international manufacturing is subject to significant risks, including, among others, labor unrest, adverse social, political and economic conditions, interruptions in international shipments, tariffs and other trade barriers, legal and regulatory constraints and fluctuations in currency exchange rates. Although China currently enjoys “most favored nation” trading status with the United States, the U.S. Government has in the past proposed to revoke that status and to impose higher tariffs on products imported from China, which could have a material adverse effect on the Company’s business.  Currently, it has imposed a 10% tariff on some imports and has threatened to impose a 25% tariff on all products.  The latter, if imposed, would have a material adverse effect on the Company’s business.



The Housewares/Small Appliance segment is dependent on key customers, and any significant decline in business from one or more of its key customers could adversely affect the segment’s operating results.



Although the Company has a long-established relationship with its major customers, it does not have any long-term supply agreement or guaranty of minimum purchases.  As a result, the customers may fail to place anticipated orders, change planned quantities, delay purchases, or change product assortments for reasons beyond the Company’s control, which could prove detrimental to the segment’s operating results.



The sales for this segment are highly seasonal and dependent upon the United States retail markets and consumer spending.



Traditionally, this segment has recognized a substantial portion of its sales during the Holiday selling season.  Any downturn in the general economy, shift in consumer spending away from its housewares/small appliances, or deterioration in the financial health of its customer base could adversely affect sales and operating results.



The Company may not be successful in developing and introducing new and improved consumer products.



The development and introduction of new housewares/small appliance products is very important to the Company’s long-term success.  The ability to develop new products is affected by, among other things, whether the Company can develop and fund technological innovations and successfully anticipate consumer needs and preferences, as well as the intellectual property rights of others.  The introduction of new products may require substantial expenditures for advertising and marketing to gain marketplace recognition or to license intellectual property. There is no guarantee that the Company will be aware of all relevant intellectual


 

8

property in the industry and may be subject to claims of infringement, which could preclude it from producing and selling a product. Likewise, there is no guarantee that the Company will be successful in developing products necessary to compete effectively in the industry or that it will be successful in advertising, marketing and selling any new products.



Product recalls or lawsuits relating to defective products could have an adverse effect on the Company, as could the imposition of industry sustainability standards.



As distributors of consumer products in the United States, the Company is subject to the Consumer Products Safety Act, which empowers the U.S. Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous.  Under certain circumstances, the U.S. Consumer Products Safety Commission could require the Company to repair, replace or refund the purchase price of one or more of its products, or it may voluntarily do so. Any repurchase or recall of products could be costly and damage the Company’s reputation, as well as subject it to a sizable penalty that the Commission is empowered to impose.  If the Company removed products from the market, its reputation or brands could be tarnished and it might have large quantities of finished products that could not be sold.



The Company could also face exposure to product liability claims if one of its products were alleged to have caused property damage, bodily injury or other adverse effects. It is self-insured to specified levels of those claims and maintains product liability insurance for claims above the self-insured levels. The Company may not be able to maintain such insurance on acceptable terms, if at all, in the future.  In addition, product liability claims may exceed the amount of insurance coverage.  Moreover, many states do not allow insurance companies to provide coverage of punitive damages, in the event such damages are imposed.  Additionally, the Company does not maintain product recall insurance.  As a result, product recalls or product liability claims could have a material adverse effect on the Company’s business, results of operations and financial condition.



The portable appliance and floor care companies’ industry association is in the process of trying to promulgate sustainability standards for the industry.  It has passed an outline for a standard but has not yet developed specific guidelines for implementation.  The Sustainability Consortium (TSC) under the auspices of a Retail Association (RILA) is trying to develop standards for all consumer products.  If either the association or TSC is successful in developing enforceable standards, the standards are expected to ultimately become mandatory.  The standards as drafted will do nothing for the environment, but will entail the addition of significant bureaucracy and outside certification fees.  As such, compliance will be burdensome and expensive.



The housewares/small appliance industry continues to consolidate, which could ultimately impede the Company’s ability to secure product placement at key customers.



Over the past decade, the housewares/small appliance industry has undergone significant consolidation, and, as a result, the industry primarily consists of a limited number of larger companies.  Larger companies do enjoy a competitive advantage in terms of the ability to offer a larger assortment of product to any one customer.  As a result, the Company may find it more difficult or lose the ability to place its products with its customers.



Defense Segment:



The Company relies primarily on sales to U.S. Government entities, and the failure to procure or the loss of a significant contract or contracts could have a material adverse effect on its results of operations.



As the Company’s sales in the Defense segment are primarily to the U.S. Government and its prime contractors, it depends heavily on the contracts underlying these programs.  The loss or significant reduction of a major program in which the Company participates could have a material adverse effect on the results of operations.




 

9

A decline in or a redirection of the U.S. defense budget could result in a material decrease in the Defense segment sales and earnings. 



Government contracts are primarily dependent upon the U.S. defense budget.  During recent years, the Company’s sales were augmented by increased defense spending, including supplemental appropriations for operations in Iraq and Afghanistan.  However, future defense budgets could be negatively affected by several factors, including U.S. Government budget deficits, administration priorities, U.S. national security strategies, a change in spending priorities, and the reduction of military operations around the world.  Any significant decline or redirection of U.S. military expenditures could result in a decrease to the Company’s sales and earnings.



U.S. Government contracts are also dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take more than one year.  As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years.  In addition, most U.S. Government contracts are subject to modification if funding is changed.  Any failure by Congress to appropriate additional funds to any program in which the Company participates, or any contract modification as a result of funding changes, could materially delay or terminate the program.  This could have a material adverse effect on the results of the Company’s operations. 



The Company may not be able to react to increases in its costs due to the nature of its U.S. Government contracts.



Substantially all of the Company’s U.S. Government contracts are being performed on fixed-price basis.  Under fixed-price contracts, the Company agrees to perform the work for a fixed price, subject to limited escalation provisions on specified raw materials.  Thus it bears the risk that any increases or unexpected costs may reduce profits or potentially cause losses on the contract, which could have a material adverse effect on results of operations and financial condition.  That risk is potentially compounded by the political actions under consideration by federal and state governments, including climate change and labor regulations, which could have an impact if enacted or promulgated on the availability of affordable labor, energy and ultimately, materials, as the effects of the legislation/regulation ripple throughout the economy. In addition, products are accepted by test firing samples from a production lot.  Lots typically constitute a sizable amount of product.  Should a sample not fire as required by the specifications, the cost to rework or scrap the entire lot could be substantial.



The Company’s U.S. Government contracts are subject to termination.



All of the Company’s U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if the Company defaults by failing to perform under the contract.  Performance failure can occur from a myriad of factors, which include late shipments due to the inability to secure requisite raw materials or components or strikes or other labor unrest, equipment failures or quality issues which result in products that do not meet specifications, etc.  Termination for convenience provisions provide only for recovery of costs incurred and profit on the work completed prior to termination.  Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.  If a termination provision is exercised, it could have a material adverse effect on the Company’s business, results of operations and financial condition.



Failure of the Company’s subcontractors to perform their contractual obligations could materially and adversely impact contract performance.



Key components and services are provided by third party subcontractors, several of which the segment is required to work with by government edict.  Under the contract, the segment is responsible for the performance of those subcontractors, many of which it does not control.  There is a risk that the Company may have disputes with its subcontractors, including disputes regarding the quality and timeliness of work performed by subcontractors.  A failure by one or more of the Company’s subcontractors to satisfactorily


 

10

provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact the Company’s ability to perform its obligations as the prime contractor.



Acquisition Risks:



The Company may pursue acquisitions of new product lines or businesses.  It may not be able to identify suitable acquisition candidates or, if suitable candidates are identified, it may not be able to complete the acquisition on commercially acceptable terms. Even if the Company is able to consummate an acquisition, the transaction would present many risks, including, among others: failing to achieve anticipated benefits or cost savings; difficulty incorporating and integrating the acquired technologies, services or products; coordinating, establishing or expanding sales, distribution and marketing functions, as necessary; diversion of management’s attention from other business concerns; being exposed to unanticipated or contingent liabilities or incurring the impairment of goodwill; the loss of key employees, customers, or distribution partners; and difficulties implementing and maintaining sufficient controls, policies and procedures over the systems, products and processes of the acquired company. If the Company does not achieve the anticipated benefits of its acquisitions as rapidly or to the extent anticipated by management, or if others do not perceive the same benefits of the acquisition as the Company does, there could be a material, adverse effect on the Company’s business, financial condition or results of operations.



Information Technology System Failure or Security Breach Risks:



The Company relies on its information technology systems to effectively manage its business data, communications, supply chain, logistics, accounting, and other business processes. While the Company endeavors to build and sustain an appropriate technology environment, information technology systems are vulnerable to damage or interruption from circumstances beyond the Company’s control, including systems failures, viruses, security breaches or cyber incidents such as intentional cyber attacks aimed at theft of sensitive data, or inadvertent cyber-security compromises.  A security breach of such systems could result in interruptions of the Company’s operations, negatively impact relations with customers or employees, and expose the Company to liability and litigation, any one of which could have a negative impact on the Company’s results of operations or financial condition.  The Company’s insurance coverage may not be adequate to cover all the costs related to cyber security attacks or disruptions.





ITEM 1B.  UNRESOLVED STAFF COMMENTS



None.



ITEM 2.  PROPERTIES (Owned Except Where Indicated)



The Company's Eau Claire facility is approximately 522,000 square feet, of which approximately 354,000 square feet was formerly occupied by Presto Absorbent Products, Inc. and subsequently, beginning on January 3, 2017, is leased to Drylock Technologies, LTD mentioned in Item 1 of this Form 10-K.  The Company's corporate office occupies the balance of the space in Eau Claire.  During 2018, the Company completed construction of a 30,000 square foot office building adjacent to its Eau Claire facility, which it also leases to Drylock Technologies, LTD. 



The Company also has Defense manufacturing facilities located in Janesville and Antigo, Wisconsin; East Camden, Arkansas; and Clear Lake, South Dakota.  The Company sold its Perry, Florida facility in October 2018 with its divestiture of Amtec Less Lethal Systems, Inc. See Note Q to the Consolidated Financial Statements.



The Janesville, Wisconsin facility is comprised of approximately 106,000 square feet, which includes the Company’s 2016 construction of 31,000 square feet of manufacturing space to meet anticipated needs.  The Antigo, Wisconsin facility is comprised of approximately 208,000 square feet and the Perry, Florida facility was comprised of approximately 54,000 square feet. The East Camden, Arkansas operation leases approximately 372,000 square feet.  The Clear Lake, South Dakota facility is comprised of approximately 88,000 square feet.


 

11



There are two warehousing facilities located in Jackson and Canton, Mississippi used in the Housewares/Small Appliance segment.  The Jackson facility contains 252,000 square feet.  The Company also leases a 255,000 square foot building in Canton which is used primarily for warehousing and distribution and some activities for product service functions.  An additional 72,000 square feet has been leased in adjacent Canton buildings for warehousing. 



The facilities in use for each of the Company’s business segments are believed to be adequate for their ongoing business needs.





ITEM 3.  LEGAL PROCEEDINGS



See Note I to the Company’s Consolidated Financial Statements.



See Item 1-B-3 of this Form 10-K and Note K to the Consolidated Financial Statements for information regarding certain environmental matters.





ITEM 4.  MINE SAFETY DISCLOSURES



Not applicable.


 

12

PART II



ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Record of Dividends Paid and Market Price of Common Stock







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

2018

 

 

2017

   

 

Applicable

 

 

 

 

 

Applicable

 

 

 



 

Dividends

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 



 

Paid

 

 

Market Price

 

 

Paid

 

 

Market Price

   

 

per Share

 

 

High

 

 

Low

 

 

per Share

 

 

High

 

 

Low

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Quarter*

 

$

6.00 

 

 

$

108.30 

 

 

$

88.95 

 

 

$

5.50 

 

 

$

112.00 

 

 

$

91.85 

Second Quarter

 

 

 

 

 

136.50 

 

 

 

92.00 

 

 

 

 

 

 

112.45 

 

 

 

98.10 

Third Quarter

 

 

 

 

 

140.25 

 

 

 

115.30 

 

 

 

 

 

 

114.70 

 

 

 

95.90 

Fourth Quarter

 

 

 

 

 

133.95 

 

 

 

109.95 

 

 

 

 

 

 

121.00 

 

 

 

95.90 

Full Year

 

$

6.00 

 

 

$

140.25 

 

 

$

88.95 

 

 

$

5.50 

 

 

$

121.00 

 

 

$

91.85 



* First quarter 2018 includes a regular dividend of $1.00 and an extra dividend of $5.00.  First quarter 2017 includes a regular dividend of $1.00 and an extra dividend of $4.50.



On February 15, 2019, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $5.00.  On March 15, 2019, a payment of $42,087,000 was made to the shareholders of record as of March 1, 2019.



The common stock of National Presto Industries, Inc. is traded on the New York Stock Exchange under the symbol “NPK”.  As of March 1, 2019, there were 246 holders of record of the Company’s common stock.  This number does not reflect shareholders who hold their shares in the name of broker dealers or other nominees.  During the fourth quarter of 2018, the Company did not purchase any of its equity securities. 



The information under the heading “Equity Compensation Plan Information,” in the Company’s Proxy Statement for its 2019 Annual Meeting of Stockholders, is incorporated by reference.



The line graph and related information set forth under the heading “Performance Graph” in the Company’s 2018 Annual Report is incorporated by reference.

 


 

13



ITEM 6.  SELECTED FINANCIAL DATA









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(In thousands except per share data)

 

For the years ended December 31,

2018

 

2017

 

2016

 

2015

 

2014

 

Net sales

$

323,317 

 

$

333,633 

 

$

341,905 

 

$

355,649 

 

$

347,198 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

$

39,889 

 

$

43,314 

 

$

41,915 

 

$

42,162 

 

$

30,752 

 

Earnings (loss) from discontinued operations, net of tax

 

51 

 

 

9,645 

 

 

2,649 

 

 

(1,666)

 

 

(4,275)

 

  Net earnings

 

39,940 

 

 

52,959 

 

 

44,564 

 

 

40,496 

 

 

26,477 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  From continuing operations

$

5.69 

 

$

6.20 

 

$

6.01 

 

$

6.07 

 

$

4.44 

 

  From discontinued operations, net of tax

 

0.01 

 

 

1.38 

 

 

0.38 

 

 

(0.24)

 

 

(0.62)

 

     Net earnings per share

 

5.70 

 

 

7.58 

 

 

6.39 

 

 

5.83 

 

 

3.82 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

413,618 

 

$

411,873 

 

$

417,594 

 

$

387,384 

 

$

374,071 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per common share applicable to current year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Regular

$

1.00 

 

$

1.00 

 

$

1.00 

 

$

1.00 

 

$

1.00 

 

     Extra

 

5.00 

 

 

4.50 

 

 

4.05 

 

 

3.05 

 

 

4.05 

 

        Total

$

6.00 

 

$

5.50 

 

$

5.05 

 

$

4.05 

 

$

5.05 

 








 

14

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



An overview of the Company’s business and segments in which the Company operates and risk factors can be found in Items 1 and 1A of this Form 10-K.  Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-K, in the Company’s 2018 Annual Report to Shareholders, in the Proxy Statement for the annual meeting to be held May 21, 2019, 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, tariffs, 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 tooling and equipment investments; 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; and security breaches and disruptions to our information technology system.  Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings.



DISCONTINUED OPERATIONS



On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. As a result of this transaction, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. The operations of PAPI previously comprised the Company’s Absorbent Products segment.



2018 COMPARED TO 2017



Readers are directed to Note L, “Business Segments,” to the Company’s Consolidated Financial Statements for data on the financial results of the Company’s two business segments for the years ended December 31, 2018 and 2017.



On a consolidated basis, sales decreased by $10,316,000 (3%), gross profit decreased by $11,351,000 (13%), selling and general expense increased by $386,000 (2%), intangibles amortization decreased by $463,000 (18%), and loss on divestiture, net increased by $2,528,000.  Other income increased by $856,000 (24%), while earnings from continuing operations before provision for income taxes decreased by $12,946,000 (20%), and earnings from continuing operations decreased by $3,425,000 (8%). Earnings from discontinued operations, net of tax, decreased $9,594,000 (100%). Details concerning these changes can be found in the comments by segment below.



Housewares/Small Appliance net sales decreased by $3,528,000, from $97,299,000 to $93,771,000, or 4%, primarily due to a decrease in shipments. Defense net sales decreased by $6,788,000, from $236,334,000 to $229,546,000, or 3%, reflecting a decrease in units shipped.



Housewares/Small Appliance gross profit decreased $1,946,000 from $16,850,000 (17% of sales) in 2017 to $14,904,000 (16% of sales) in 2018, primarily reflecting the decrease in sales mentioned above and higher product costs.  Defense gross profit decreased $9,405,000 from $70,384,000 (30% of sales) to $60,979,000 (27% of sales), primarily reflecting the decrease in sales mentioned above,  a less favorable product mix, and comparatively less efficient operations on certain programs vis-à-vis 2017.


 

15



Selling and general expenses for the Housewares/Small Appliance segment increased $1,327,000, primarily reflecting higher employee compensation and benefit cost accruals of $1,142,000, higher provisions for bad debt of $421,000, partially offset by lower environmental cost accruals of $201,000.  Defense segment selling and general expenses decreased $941,000, primarily reflecting lower legal and professional costs of $410,000, with the remainder stemming from decreases in a variety of miscellaneous expense categories



Intangible assets primarily consist of the value of an acquired government sales contract and the value of trademarks and trade secrets.  The intangible assets are all attributable to the Defense segment.  The government sales contract intangible asset is amortized based on units fulfilled under the applicable contract, while the other intangible assets are amortized on a straight-line basis that approximates economic use, over periods ranging from 2 to 10 years.  As of December 31, 2018, the Company determined that the trade secrets, which were acquired during 2017, had an indefinite life.  The decrease in amortization is primarily attributable to fewer units shipped under the acquired government sales contract in 2018 than in 2017.  The government sales contract intangible asset was fully amortized as of December 31, 2018.



On October 17, 2018, the Company, through its wholly owned subsidiary AMTEC Corporation, sold the outstanding stock of its wholly owned subsidiary AMTEC Less Lethal Systems, Inc. (“ALS”) to PACEM Defense LLC (“PACEM”), a third party, in exchange for cash and promissory notes totaling $10,636,000, subject to customary post-closing adjustments.  The Company tested long-lived assets for recoverability in the quarter ending September 30, 2018 and recorded an impairment charge of $3,021,000.  The pre-tax loss on divestiture, including the impairment charge, recorded in 2018 was $2,528,000.  See Note Q to the Consolidated Financial Statements.



The above items were responsible for the change in operating profit. 



Other income increased $856,000, which was primarily attributable to interest earned on an increase in marketable securities with higher yields stemming from the Federal Reserve’s ongoing rate increases.  The increase in interest income was partially offset by a $671,000 decrease in transition services income mentioned in Note P to the Company’s Consolidated Financial Statements.



Earnings from continuing operations before provision for income taxes decreased $12,946,000 from $65,285,000 to $53,339,000.  In December 2017, the United States enacted changes to its tax laws, which included a reduction of the corporate income tax rate from 35% to 21%, beginning in 2018.  The reduction in the tax rate resulted in a revaluation of the Company’s deferred tax assets and liabilities held at December 31, 2017, causing an increase in its 2017 income tax provision of $534,000.  The provision for income taxes from continuing operations decreased from $21,971,000 to $12,450,000, which resulted in an effective income tax rate of 24% and 34% for the years ended December 31, 2018 and 2017, respectively.  Earnings from continuing operations decreased $3,425,000 from $43,314,000 to $39,889,000. 



On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. As a result of this transaction, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. Income from discontinued operations decreased $9,594,000, from $9,645,000 to $51,000, which was primarily attributable to the 2017 gain recognized on the divestiture of PAPI and a gain on the involuntary conversion of machinery and equipment.  Readers are directed to Note P, “Discontinued Operations,” to the Company’s Consolidated Financial Statements for further information regarding the divestiture.



Net earnings decreased $13,019,000 from $52,959,000 to $39,940,000.



2017 COMPARED TO 2016



Readers are directed to Note L, “Business Segments,” to the Company’s Consolidated Financial Statements for data on the financial results of the Company’s two business segments for the years ended December 31, 2017 and 2016.



On a consolidated basis, sales decreased by $8,272,000 (2%), gross profit increased by $1,572,000 (2%), selling and general expense increased by $471,000 (2%), and intangibles amortization increased by $1,909,000 (265%).  Other income increased by $2,771,000 (342%), while earnings from continuing operations before provision for income taxes


 

16

increased by $1,963,000 (3%), and earnings from continuing operations increased by $1,399,000 (3%). Earnings from discontinued operations, net of tax, increased $6,996,000 (264%). Details concerning these changes can be found in the comments by segment below.



Housewares/Small Appliance net sales decreased by $10,829,000, from $108,128,000 to $97,299,000, or 10%, primarily due to a decrease in shipments. Defense net sales increased by $2,557,000, from $233,777,000 to $236,334,000, or 1%, reflecting an increase in units shipped.



Housewares/Small Appliance gross profit decreased $4,113,000 from $20,963,000 (19% of sales) in 2016 to $16,850,000 (17% of sales) in 2017, primarily reflecting the decrease in sales mentioned above.  Defense gross profit increased $5,685,000 from $64,699,000 (28% of sales) to $70,384,000 (30% of sales), primarily reflecting the increase in sales mentioned above and an improved product mix and increased efficiency.



Selling and general expenses for the Housewares/Small Appliance segment decreased $700,000, primarily reflecting lower employee compensation and benefit costs of $443,000 and legal costs of $314,000.  Defense segment selling and general expenses increased $1,171,000, primarily reflecting increased employee compensation-related costs totaling $983,000. 



Intangible assets primarily consist of the value of an acquired government sales contract and the value of trademarks and trade secrets.  The intangible assets are all attributable to the Defense segment.  The government sales contract intangible asset is amortized based on units fulfilled under the applicable contract, while the other intangible assets are amortized on a straight-line basis that approximates economic use, over periods ranging from 2 to 10 years.  As of December 31, 2017, the Company determined that the trade secrets, which were acquired during 2017, had an indefinite life.  The increase in amortization is primarily attributable to more units shipped under the acquired government sales contract in 2017 than in 2016.



The above items were responsible for the change in operating profit. 



Other income increased $2,771,000, approximately a third of which was attributable to interest income, reflecting increased interest rates and funds invested.  The balance of the increase was primarily attributable to lease and transition services income mentioned in Note P to the Company’s Consolidated Financial Statements.



Earnings from continuing operations before provision for income taxes increased $1,963,000 from $63,322,000 to $65,285,000.  In December 2017, the United States enacted changes to its tax laws, which included a reduction of the corporate income tax rate from 35% to 21%, beginning in 2018.  The reduction in the tax rate resulted in a revaluation of the Company’s deferred tax assets and liabilities held at December 31, 2017, causing an increase in its 2017 income tax provision of $534,000.  The provision for income taxes from continuing operations increased from $21,407,000 to $21,971,000, which resulted in an effective income tax rate of 34% for both years.  Earnings from continuing operations increased $1,399,000 from $41,915,000 to $43,314,000. 



On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. As a result of this transaction, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. Income from discontinued operations increased $6,996,000, from $2,649,000 to $9,645,000, which was primarily attributable to the gain recognized on the divestiture of PAPI and a gain on the involuntary conversion of machinery and equipment.  Readers are directed to Note P, “Discontinued Operations,” to the Company’s Consolidated Financial Statements for further information regarding the divestiture.



Net earnings increased $8,395,000 from $44,564,000 to $52,959,000.




 

17

LIQUIDITY AND CAPITAL RESOURCES



2018 COMPARED TO 2017



Cash provided by operating activities was $76,248,000 during 2018 as compared to $24,278,000 during 2017.  The principal factors behind the increase in cash provided can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows.  Of particular note during 2018 were net earnings of $39,940,000, which included total non-cash depreciation and amortization expenses of $6,219,000 and the net loss and impairment on divestiture of business of $2,528,000; a decrease in accounts receivable and inventory levels; a decrease in deposits with vendors included in other assets and current assets; and an increase in net payable levelsCash used in discontinued operations was $636,000.  Of particular note during 2017 were net earnings of $52,959,000, which included total non-cash depreciation and amortization expenses of $9,888,000, the deferred income tax benefit of $4,001,000, the gain on divestiture of business of $11,413,000, and the net gain on involuntary conversion of machinery and equipment of $2,713,000; and a decrease in accounts receivable levels.  These were partially offset by decreases in net payables and increases in inventory levels. Cash used in discontinued operations was $5,447,000.    



Net cash provided by investing activities was $10,844,000 during 2018 as compared to cash used of $2,090,000 used during 2017. During 2018 the Company received net proceeds of $9,410,000 from the divestiture of it less lethal business, and $2,630,000 from an insurance settlement. Also of note during 2018 were net sales and maturities of marketable securities of $9,789,000; the purchase of plant and equipment of $8,686,000, which primarily included expenditures in the Housewares/Small Appliance segment to build additional facilities related to the amended lease mentioned in Note P to the consolidated Financial Statements, and to augment the Company’s production facilities in the Defense segment; and the issuance of a note receivable of $2,300,000. Cash provided by discontinued operations was $6,290,000. During 2017, the Company received net proceeds of $64,033,000 from the divestiture of its Absorbent Products business, and $2,104,000 from an insurance settlement.  Also of note during 2017 were net purchases of marketable securities of $59,832,000; the purchase of plant and equipment of $7,396,000, which included expenditures to rebuild impaired machinery and equipment, improvements to the Company’s Eau Claire, Wisconsin facility, and augmentation of the Company’s production facilities in the Defense segment; and the acquisition of an intangible asset of $1,000,000. Cash provided by discontinued operations was $61,891,000.



Based on the accounting profession’s 2005 interpretation of cash equivalents under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 230, the Company’s variable rate demand notes have been classified as marketable securities. This interpretation, which is contrary to the interpretation that the Company’s representative received directly from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cash equivalents), has resulted in a presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’s income portfolio.  As of December 31, 2018 and 2017, $94,416,000 and $114,258,000, respectively, of variable rate demand notes are classified as marketable securities.  These notes have structural features that allow the Company to tender them at par plus interest within any 7-day period for cash to the notes’ trustees or remarketers and thus provide the liquidity of cash equivalents.



Cash flows from financing activities for 2018 and 2017 primarily differed as a result of the $0.50 per share increase in the extra dividend paid during those years.  Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan.



As a result of the foregoing factors, cash and cash equivalents increased in 2018 by $45,625,000 to $56,847,000. 



Working capital increased by $11,756,000 to $304,767,000 at December 31, 2018 for the reasons stated above.  The Company’s current ratio was 7.4 to 1.0 at both December 31, 2018 and 2017



In December 2017, the United States enacted changes to its tax laws, which included a reduction of the corporate income tax rate from 35% to 21%, beginning in 2018.  The lower tax rate had a positive effect on the Company’s liquidity and cash flow.



The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions, as well as continue to make capital investments in these segments per existing authorized projects and for additional projects if the appropriate return on investment is projected.  See Item 1-A-2.


 

18



The Company has substantial liquidity in the form of cash and cash equivalents and marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund future 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.



2017 COMPARED TO 2016



Cash provided by operating activities was $24,278,000 during 2017 as compared to $66,376,000 during 2016.  The principal factors behind the decrease in cash provided can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows.  Of particular note during 2017 were net earnings of $52,959,000, which included total non-cash depreciation and amortization expenses of $9,888,000, the deferred income tax benefit of $4,001,000, the gain on divestiture of business of $11,413,000, and the net gain on involuntary conversion of machinery and equipment of $2,713,000; and a decrease in accounts receivable levels.  These were partially offset by decreases in net payables and increases in inventory levels. Cash used in discontinued operations was $5,447,000.  Of particular note during 2016 were net earnings of $44,564,000, which included total non-cash depreciation and amortization expenses of $14,683,000 and the deferred income tax provision of $6,360,000; increases in net payables; and a decrease in deposits with vendors included in other assets and current assets. These were partially offset by increases in accounts receivable and inventory levels.  Cash provided by discontinued operations was $4,477,000. 



Net cash used in investing activities was $2,090,000 during 2017 as compared to $60,846,000 used during 2016. During 2017, the Company received net proceeds of $64,033,000 from the divestiture of its Absorbent Products business, and $2,104,000 from an insurance settlement.  Also of note during 2017 were net purchases of marketable securities of $59,832,000, the purchase of plant and equipment of $7,396,000, which included expenditures to rebuild impaired machinery and equipment, improvements to the Company’s Eau Claire, Wisconsin facility, and augmentation of the Company’s production facilities in the Defense segment, and the acquisition of an intangible asset of $1,000,000. Cash provided by discontinued operations was $61,891,000.    During 2016, the Company expanded its Defense segment’s Janesville, Wisconsin facility, as noted in Item 2 of this 10-K, and continued its expansion of its Absorbent Products business by purchasing plant and equipment, in the combined amount of $6,950,000.  Also of significance were net purchases of marketable securities of $52,256,000; the issuance of a note receivable of $2,419,000; and the acquisition of intangible assets in the Defense segment of $211,000. These cash outflows were partially offset by proceeds from an insurance settlement of $987,000. Cash used in discontinued operations was $1,139,000.



Based on the accounting profession’s 2005 interpretation of cash equivalents under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 230, the Company’s variable rate demand notes have been classified as marketable securities. This interpretation, which is contrary to the interpretation that the Company’s representative received directly from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cash equivalents), has resulted in a presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’s income portfolio.  As of December 31, 2017 and 2016, $114,258,000 and $46,306,000, respectively, of variable rate demand notes are classified as marketable securities.  These notes have structural features that allow the Company to tender them at par plus interest within any 7-day period for cash to the notes’ trustees or remarketers and thus provide the liquidity of cash equivalents.



Cash flows from financing activities for 2017 and 2016 primarily differed as a result of the $0.45 per share increase in the extra dividend paid during those years.  Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan.



As a result of the foregoing factors, cash and cash equivalents decreased in 2017 by $15,812,000 to $11,222,000. 



Working capital increased by $16,870,000 to $293,011,000 at December 31, 2017 for the reasons stated above.  The Company’s current ratio was 7.4 to 1.0 at December 31, 2017, compared to 5.3 to 1.0 at December 31, 2016. 




 

19

DEFENSE SEGMENT BACKLOG



The Company’s Defense segment contract backlog was approximately $333,592,000 at December 31, 2018, and $308,173,000 at December 31, 2017.  Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders.  It is anticipated that the backlog will be produced and shipped during an 18 to 24-month period. 



CONTRACTUAL OBLIGATIONS



The table below discloses a summary of the Company’s specified contractual obligations at December 31, 2018:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Payments Due by Period (in thousands)

Contractual Obligations

 

Total

 

Under 1 Year

 

1-3 Years

 

3-5 Years

 

More Than 5 Years

Lease Obligations

 

$

1,729 

 

$

610 

 

$

686 

 

$

393 

 

$

40 

Purchase obligations(1)

 

 

219,689 

 

 

219,689 

 

 

 

 

 

 

    Total

 

$

221,418 

 

$

220,299 

 

$

686 

 

$

393 

 

$

40 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(1)Purchase obligations includes outstanding purchase orders at December 31, 2018.  Included are purchase orders issued to the Company’s housewares manufacturers in the Orient and to material suppliers and building contractors in the Defense segment and discontinued operations of the Company’s Absorbent Products business (see Note P to the Company’s Consolidated Financial Statements).  The amount related to discontinued operations is approximately $183,000.  The Company can cancel or change many of these purchase orders, but may incur costs if its supplier cannot use the material to manufacture the Company’s or other customers’ products in other applications or return the material to their supplier.  As a result, the actual amount the Company is obligated to pay cannot be estimated.



Critical accounting policies



The preparation of the Company’s 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    

New Housewares/Small Appliance product introductions are an important part of the Company’s sales to offset the morbidity rate of other Housewares/Small Appliance products and/or the effect of lowered acceptance of seasonal products due to weather conditions.  New products entail unusual risks and have occasionally, in the past, resulted in losses related to obsolete or excess inventory as a result of low or diminishing demand for a product.  There were no such obsolescence issues that had a material effect during the current year and, accordingly, the Company did not record a reserve for obsolete product.  In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related inventory.  Inventory risk for the Company’s Defense segment is not deemed to be significant, as products are largely built pursuant to customers’ specific orders.



Self Insured Product Liability & Health Insurance 

The Company is subject to product liability claims in the normal course of business and is self-insured for health care costs, although it does carry stop loss and other insurance to cover claims once a health care claim reaches a specified threshold.  The Company’s insurance coverage varies from policy year to policy year, and there are typically limits on all types of insurance coverage, which also vary from policy year to policy year. Accordingly, the Company records an accrual for known claims and incurred but not reported claims, including an estimate for related legal fees in the Company’s Consolidated Financial Statements.  The Company utilizes historical trends and other analysis to assist in


 

20

determining the appropriate accrual.  There are no known claims that would have a material adverse impact on the Company beyond the reserve levels that have been accrued and recorded on the Company’s books and records.  An increase in the number or magnitude of claims could have a material impact on the Company’s financial condition and results of operations. 



Revenues

Sales are recorded net of discounts and returns for the Housewares/Small Appliance segment.  Sales discounts and returns are key aspects of variable consideration, which is a significant estimate utilized in revenue recognition.  Sales returns pertain primarily to warranty returns, returns of seasonal items, and returns of those newly introduced products sold with a return privilege.  The calculation of warranty returns is based in large part on historical data, while seasonal and new product returns are primarily developed using customer provided information.



Impairment and Valuation of Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Long-lived assets consist of property, plant and equipment and intangible assets, including the value of a government sales contract, trademarks, trade secrets, and consulting agreements. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, the amounts of the cash flows and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company uses internal discounted cash flows estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. The Company derives the required cash flow estimates from its historical experience and its internal business plans.



NEW ACCOUNTING PRONOUNCEMENTS



Please refer to Note A(19) to the Company’s Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on the Company’s Consolidated Financial Statements. 



ITEM 7A.    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 interpretation of cash equivalents under FASB ASC 230, the Company’s 7-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 known 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 rate municipal bonds with an average life of 1.3 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.  As the majority of the Housewares/Small Appliance segment’s suppliers are located in China, periodic changes in the U.S. dollar and Chinese Renminbi (RMB) exchange rates do have an impact on that segment’s product costs.  It is anticipated that any potential material impact from fluctuations in the exchange rate will be to the cost of products secured via purchase orders issued subsequent to the revaluation.




 

21

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



A.

The Consolidated Financial Statements of National Presto Industries, Inc. and its subsidiaries and the related Report of Independent Registered Public Accounting Firm can be found on pages F-1 through F-20.

B.

Quarterly financial data is contained in Note N to the Consolidated Financial Statements.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A.    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 under the Securities Exchange Act of 1934 (the “1934 Act”) as of December 31, 2018.  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date.



There were no changes to internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 



MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING



The management of National Presto Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act.  The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. 



All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 



Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment and those criteria, management concluded that, as of December 31, 2018, the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the 1934 Act, was effective.



The Company’s independent registered public accounting firm has issued its report on the effectiveness of the Company’s internal control over financial reporting.  The report appears below.


 

22



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

National Presto Industries, Inc.

Eau Claire, Wisconsin

Opinion on Internal Control over Financial Reporting

We have audited National Presto Industries Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.  

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in Item 15 and our report dated March 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.




 

23

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ BDO USA, LLP



Milwaukee, Wisconsin

March 15, 2019



ITEM 9B.  OTHER INFORMATION



None.


 

24

PART III



ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The following information is provided with regard to the executive officers of the registrant:

(All terms for elected officers are one year or until their respective successors are elected.)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NAME

 

 

 

 TITLE

 

 

 

 AGE

 

 

 

 

 

 

Maryjo Cohen

 

Chair of the Board, President, and Chief Executive Officer

 

66

 

 

 

 

 

Randy F. Lieble

 

Vice President, Chief Financial Officer, Treasurer, and Director

 

65

 

 

 

 

 

Douglas J. Frederick

 

Chief Operating Officer, Vice President, Secretary and General Counsel

 

48

 

 

 

 

 

Jeffery A. Morgan

 

Vice President, Engineering

 

61



 

 

 

 

Richard  L. Jeffers

 

Vice President of Sales

 

66





Ms. Cohen became Chair of the Board on January 1, 2002.  Prior to that date she had been elected Treasurer in September 1983, Vice President in May 1986, President in May 1989 and Chief Executive Officer in May 1994.  She has been associated with the registrant since 1976.  Prior to becoming an officer, she was Associate Resident Counsel and Assistant to the Treasurer.



Mr. Lieble was elected Chief Financial Officer, Vice President and Treasurer on September 8, 2008.   He has been a member of the Board of Directors since 2008. Other than a brief hiatus of one year during which he worked as a financial advisor for UBS Financial Services, Mr. Lieble has worked for the registrant since 1977 in a variety of capacities, including the positions listed above.



Mr. Frederick was elected Corporate Secretary on November 17, 2009,  Vice President on May 15, 2018,  and Chief Operating Officer on December 11, 2018.  He has been associated with the registrant since 2007 as an in-house attorney with expertise in litigation and intellectual property matters and in the capacity of General Counsel since January 2009.  Prior to his employment with the registrant, Mr. Frederick was a litigation attorney with the firm Rider Bennett, LLP. 



Mr. Morgan was elected Vice President, Engineering in November 2015.  He has been associated with the registrant since 2010.  Prior to becoming an officer, he was Director of Engineering and Chief Engineer.  Prior to his employment with the registrant, Mr. Morgan had worked 21 years at Hoover Company, a division of Maytag, and three years at Hoover’s successor, Techtronic Industries, in engineering and engineering management capacities.



Mr. Jeffers was elected Vice President of Sales in September 2017.  He has almost 40-years of experience in the housewares/small appliance industry, has held executive sales positions at Windmere, Applica, and Salton, and owned and operated a successful manufacturer’s representative firm. Prior to Vice President of Sales, Mr. Jeffers served as National Account Sales Manager for the Company. He has been with the Company for a total of 14 (non-consecutive) years.



The information under the headings “Section 16(a) Beneficial Ownership Reporting Compliance,” “Information Concerning Directors and Nominees” and “Corporate Governance” in the Company’s Proxy Statement for its 2019 Annual Meeting of Stockholders is incorporated by reference.



The Company has adopted a code of ethics that applies to all Company employees, entitled the “Corporate Code of Conduct,” which is set forth in the Corporate Governance section of the Company’s website located at


 

25

www.gopresto.com.  The Company intends to make all required disclosures concerning any amendments to, or waivers from, its Corporate Code of Conduct by the posting of such information on that section of its website.



ITEM 11.  EXECUTIVE COMPENSATION



The information under the headings “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Executive Compensation and Other Information” and “Summary Compensation Table” in the Company’s Proxy Statement for its 2019 Annual Meeting of Stockholders is incorporated by reference.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The security ownership and related stockholder matters information set forth under the heading “Voting Securities and Principal Holders Thereof” in the Company’s Proxy Statement for its 2019 Annual Meeting of Stockholders is incorporated by reference.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 



The certain relationships and related transactions and director independence information set forth under the heading “Corporate Governance” in the Company’s Proxy Statement for its 2019 Annual Meeting of Stockholders is incorporated by reference.



ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES 



The principal accountant fees and services information set forth under the heading “Independent Registered Public Accountants” in the Company’s Proxy Statement for its 2019 Annual Meeting of Stockholders is incorporated by reference.






 

26

PART IV



ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





 

 

 

 

 

   

   

   

   

   

   

   

(a)

Documents filed as part of this Form 10-K:

   

   

   

   

   

   

Form 10-K

   

   

   

   

   

Page Reference

   

   

1.

Consolidated Financial Statements:

   

   

   

   

   

   

   

   

   

   

a.

Consolidated Balance Sheets - December 31, 2018 and 2017

F-1 & F-2

   

   

   

   

   

   

   

   

   

b.

Consolidated Statements of Comprehensive Income - Years ended December 31, 2018, 2017 and 2016

F-3

   

   

   

   

   

   

   

   

   

c.

Consolidated Statements of Cash Flows - Years ended December 31, 2018, 2017 and 2016

F-4

   

   

   

   

   

   

   

   

   

d.

Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2018, 2017 and 2016

F-5

   

   

   

   

   

   

   

   

   

e.

Notes to Consolidated Financial Statements

F-6 through F-19

   

   

   

   

   

   

   

   

   

f.

Report of Independent Registered Public Accounting Firm

F-20

   

   

   

   

   

   

   

   

2.

Consolidated Financial Statement Schedule:

   

   

   

   

   

   

   

   

   

   

Schedule II - Valuation and Qualifying Accounts

F-21







 

 

 

 

 

 

(b)     Exhibits:

 

 

 

   

 

   

 

Exhibit Number

 

 

Description

 

 

   

 

   

 

Exhibit 3(i)

 

Restated Articles of Incorporation – incorporated by reference from Exhibit 3(i) of the Company’s report on Form 10-K/A for the year ended December 31, 2005

 

   

 

   

 

Exhibit 3(ii)

 

By-Laws - incorporated by reference from Exhibit 3(ii) of the Company’s current report on Form 8-K dated July 6, 2007

 

   

 

   

 

Exhibit 9.1

 

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 9.2

 

Voting Trust Agreement Amendment – incorporated by reference from Exhibit 9.2 of the Company’s annual report on Form 10-K for the year ended December 31, 2008

 

   

 

   






 

27





 

 

 

 

 

 

Exhibit Number

 

 

Description

 

 

   

 

   



Exhibit 10.1*

 

Incentive Compensation Plan – incorporated by reference from Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended July 4, 2010



 

 

 



Exhibit 10.2*

 

Form of Restricted Stock Award Agreement – incorporated by reference from Exhibit 10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended July 4, 2010



 

 

 



Exhibit 10.3*

 

2017 Incentive Compensation Plan – incorporated by reference from Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended July 2, 2017



 

 

 



Exhibit 10.4*

 

Form of Restricted Stock Award Agreement – 2017 Incentive Compensation Plan - incorporated by reference from Exhibit 10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended July 2, 2017



 

 

 

 

Exhibit 21

 

Subsidiaries of the Registrant

 

   

 

   

 

Exhibit 31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



 

 

 



Exhibit 31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



 

 

 



Exhibit 32.1

 

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



 

 

 



Exhibit 32.2

 

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



 

 

 



Exhibit 101

 

The following financial information from National Presto Industries, Inc.’s annual report on Form 10-K for the period ended December 31, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Stockholders’ Equity, (v) Notes to Consolidated Financial Statements, and (vi) Schedule II - Valuation and Qualifying Accounts.



 

 

 



 

 

* Compensatory Plans



 

 

 



(c)     Schedules:

 

 



            Reference is made to Item 15(a)2 of this Form 10-K.





ITEM 16.  FORM 10-K SUMMARY



None.








 

28

SIGNATURES



Pursuant to the Requirements of Section 13 or 15 (d) 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.
(registrant)

 

 

 

 

 

 

By:

/S/ Maryjo Cohen

 

 

 

Maryjo Cohen

 

 

 

President and Chief Executive Officer

 

Date: March 15, 2019

 

 

 



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





 

 

 

 

 

 

 

 

 

 

 

By:

/S/ Richard N. Cardozo 

 

By:

/S/ Patrick J. Quinn

 

 

Richard N. Cardozo

 

 

Patrick J. Quinn

 

 

Director

 

 

Director

 

 

 

 

 

 

 

By:

/S/ Maryjo Cohen  

 

By:

/S/ Joseph G. Stienessen

 

 

Maryjo Cohen 

 

 

Joseph G. Stienessen

 

 

Chair of the Board, President,

 

 

Director

 

 

Chief Executive Officer (Principal

 

 

 

 

 

Executive Officer), and Director

 

 

 

 



 

 

 

 

 

By:

/S/ Randy F. Lieble

 

 

 

 



Randy F. Lieble

 

 

 

 



Vice President, Chief Financial

 

 

 

 



Officer (Principal Financial

 

 

 

 



Officer), Treasurer, and Director

 

 

 

 



 

 

 

 

 

Date:

March 15, 2019

 

 

 

 





 


 

F-1





NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS



 

 

 

 

 

 

 

 

 

 

(Dollars in thousands except share and per share data)

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

December 31

 

2018

 

2017

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

56,847 

 

 

 

$

11,222 

Marketable securities

 

 

 

 

134,598 

 

 

 

 

144,252 

Accounts receivable

 

$

53,119 

 

 

 

$

67,089 

 

 

Less allowance for doubtful accounts

 

 

747 

 

52,372 

 

 

1,869 

 

65,220 

Inventories:

 

 

 

 

 

 

 

 

 

 

Finished goods

 

 

28,791 

 

 

 

 

27,242 

 

 

Work in process

 

 

59,580 

 

 

 

 

72,219 

 

 

Raw materials and supplies

 

 

5,617 

 

93,988 

 

 

4,978 

 

104,439 

Assets held for sale

 

 

 

 

375 

 

 

 

 

6,189 

Notes receivable, current

 

 

 

 

7,213 

 

 

 

 

 -

Other current assets

 

 

 

 

6,869 

 

 

 

 

7,186 

Total current assets

 

 

 

 

352,262 

 

 

 

 

338,508 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

 

 

 

Land and land improvements

 

 

3,008 

 

 

 

 

4,985 

 

 

Buildings

 

 

45,995 

 

 

 

 

47,412 

 

 

Machinery and equipment

 

 

47,091 

 

 

 

 

51,141 

 

 



 

 

96,094 

 

 

 

 

103,538 

 

 

Less allowance for depreciation and amortization

 

 

56,951 

 

39,143 

 

 

58,370 

 

45,168 

GOODWILL

 

 

 

 

11,485 

 

 

 

 

11,485 

INTANGIBLE ASSETS, net

 

 

 

 

1,000 

 

 

 

 

3,330 

NOTES RECEIVABLE

 

 

 

 

6,966 

 

 

 

 

6,750 

DEFERRED INCOME TAXES

 

 

 

 

1,088 

 

 

 

 

995 

OTHER ASSETS

 

 

 

 

1,674 

 

 

 

 

5,637 



 

 

 

$

413,618 

 

 

 

$

411,873 

The accompanying notes are an integral part of the Consolidated Financial Statements.






 

F-2

NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS



 

 

 

 

 

 

 

 

 

 

(Dollars in thousands except share and per share data)

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

December 31

 

2018

 

2017

LIABILITIES

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

34,100 

 

 

 

$

28,445 

Federal and state income taxes

 

 

 

 

1,384 

 

 

 

 

3,750 

Accrued liabilities

 

 

 

 

12,011 

 

 

 

 

13,092 

Liabilities held for sale

 

 

 

 

 -

 

 

 

 

210 

Total current liabilities

 

 

 

 

47,495 

 

 

 

 

45,497 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value:

 

 

 

 

 

 

 

 

 

 

Authorized: 12,000,000 shares at December 31, 2018 and 2017

 

 

 

 

 

 

 

 

 

 

Issued: 7,440,518 shares at December 31, 2018 and 2017

 

 

 

 

 

 

 

 

 

 

Outstanding: 6,981,080 and 6,968,120 shares at December 31, 2018 and 2017, respectively

 

$

7,441 

 

 

 

$

7,441 

 

 

Paid-in capital

 

 

10,360 

 

 

 

 

9,074 

 

 

Retained earnings

 

 

362,709 

 

 

 

 

364,757 

 

 

Accumulated other comprehensive income (loss)

 

 

21 

 

 

 

 

(86)

 

 



 

 

380,531 

 

 

 

 

381,186 

 

 

Less treasury stock, at cost, 459,438 and 472,398 shares at December 31, 2018 and 2017, respectively

 

 

14,408 

 

 

 

 

14,810 

 

 

  Total stockholders' equity

 

 

 

 

366,123 

 

 

 

 

366,376 



 

 

 

$

413,618 

 

 

 

$

411,873 

The accompanying notes are an integral part of the Consolidated Financial Statements.



 

 

 

 

 

 

 

 

 

 


















 

F-3







NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



 

 

 

 

 

 

 

 

(In thousands except per share data)

 

 

 

 

 

 

 

 



For the years ended December 31,



2018

 

2017

 

2016

Net sales

$

323,317 

 

$

333,633 

 

$

341,905 

Cost of sales

 

247,434 

 

 

246,399 

 

 

256,243 

Gross profit

 

75,883 

 

 

87,234 

 

 

85,662 

Selling and general expenses

 

23,286 

 

 

22,900 

 

 

22,429 

Intangibles amortization

 

2,167 

 

 

2,630 

 

 

721 

Loss on divestiture, net

 

2,528 

 

 

 -

 

 

 -

Operating profit

 

47,902 

 

 

61,704 

 

 

62,512 

Other income

 

4,437 

 

 

3,581 

 

 

810 

Earnings from continuing operations before provision for income taxes

 

52,339 

 

 

65,285 

 

 

63,322 

Provision for income taxes from continuing operations

 

12,450 

 

 

21,971 

 

 

21,407 

Earnings from continuing operations

 

39,889 

 

 

43,314 

 

 

41,915 

Earnings from discontinued operations, net of tax

 

51 

 

 

9,645 

 

 

2,649 

Net earnings

$

39,940 

 

$

52,959 

 

$

44,564 



 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

7,005 

 

 

6,989 

 

 

6,970 



 

 

 

 

 

 

 

 

Earnings per share, basic and diluted:

 

 

 

 

 

 

 

 

From continuing operations

$

5.69 

 

$

6.20 

 

$

6.01 

From discontinued operations

 

0.01 

 

 

1.38 

 

 

0.38 

Net earnings per share

$

5.70 

 

$

7.58 

 

$

6.39 



 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

Net earnings

 

39,940 

 

 

52,959 

 

 

44,564 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

107 

 

 

(39)

 

 

(38)

Comprehensive income

$

40,047 

 

$

52,920 

 

$

44,526 



 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.



 

 

 

 

 

 

 

 
















 

F-4





NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



For the years ended December 31,



2018

 

2017

 

2016

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings

$

39,940 

 

$

52,959 

 

$

44,564 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for depreciation

 

4,052 

 

 

7,258 

 

 

13,962 

Intangibles amortization

 

2,167 

 

 

2,630 

 

 

721 

Deferred income tax provision (benefit)

 

(121)

 

 

(4,001)

 

 

6,360 

Net loss (gain) and impairment on divestiture of businesses

 

2,528 

 

 

(11,413)

 

 

 -

Net gain on involuntary conversion of machinery and equipment

 

 -

 

 

(2,713)

 

 

(968)

Loss on disposal and impairment of property, plant and equipment

 

163 

 

 

248 

 

 

434 

Provision for doubtful accounts

 

458 

 

 

70 

 

 

Noncash retirement plan expense

 

698 

 

 

675 

 

 

782 

Other

 

229 

 

 

238 

 

 

217 

Changes in operating accounts:

 

 

 

 

 

 

 

 

Accounts receivable

 

11,546 

 

 

1,848 

 

 

(13,539)

Inventories

 

6,821 

 

 

(8,730)

 

 

(7,528)

Other assets and current assets

 

4,067 

 

 

(806)

 

 

5,148 

Accounts payable and accrued liabilities

 

6,066 

 

 

(11,462)

 

 

12,145 

Federal and state income taxes receivable/payable

 

(2,366)

 

 

(2,523)

 

 

4,077 

Net cash provided by operating activities

 

76,248 

 

 

24,278 

 

 

66,376 



 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Marketable securities purchased

 

(163,271)

 

 

(192,584)

 

 

(86,119)

Marketable securities - maturities and sales

 

173,060 

 

 

132,752 

 

 

33,863 

Proceeds from divestiture of businesses, net of cash paid

 

9,410 

 

 

64,033 

 

 

 -

Purchase of property, plant and equipment

 

(8,686)

 

 

(7,396)

 

 

(6,950)

Notes issued

 

(2,300)

 

 

 -

 

 

(2,419)

Proceeds from insurance settlement

 

2,630 

 

 

2,104 

 

 

987 

Acquisition of intangible assets

 

 -

 

 

(1,000)

 

 

(211)

Sale of property, plant and equipment

 

 

 

 

 

Net cash provided by (used in) investing activities

 

10,844 

 

 

(2,090)

 

 

(60,846)



 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Dividends paid

 

(41,989)

 

 

(38,405)