National Presto Industries (NPK) 10-Q 2011 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED  April 3, 2011

o  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

(State or other jurisdiction of incorporation or organization)

3925 NORTH HASTINGS WAY

EAU CLAIRE, WISCONSIN

(Address of principal executive offices)

39-0494170

(I.R.S. Employer Identification No.)

54703-3703

(Zip Code)

(Registrant's telephone number, including area code) 715-839-2121

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes    þ     No    o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   o    No   o

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

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

There were 6,870,579 shares of the Issuer's Common Stock outstanding as of May 1, 2011.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

April 3, 2011 and December 31, 2010

(Unaudited)

(Dollars in thousands)

		2011				2010
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	24,725			$	49,719
	Marketable securities				88,363				101,005
	Accounts receivable, net				65,099				91,115
	Inventories:
	Finished goods	$	37,295			$	37,144
	Work in process		33,711				37,040
	Raw materials		12,489		83,495		8,948		83,132
	Deferred tax assets				6,268				6,268
	Other current assets				25,465				14,301
	Total current assets				293,415				345,540
PROPERTY,  PLANT AND EQUIPMENT			110,130				107,099
	Less allowance for depreciation		51,019		59,111		48,991		58,108
GOODWILL					11,485				11,485
				$	364,011			$	415,133

The accompanying notes are an integral part of the financial statements.

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NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

April 3, 2011 and December 31, 2010

(Unaudited)

(Dollars in thousands)

	2011				2010
LIABILITIES
CURRENT LIABILITIES:
Accounts payable			$	39,572			$	44,298
Federal and state income taxes				5,640				5,859
Accrued liabilities				15,089				16,572
Total current liabilities				60,301				66,729
DEFERRED INCOME TAXES				4,461				4,467
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized: 12,000,000 shares
Issued: 7,440,518 shares	$	7,441			$	7,441
Paid-in capital		3,195				2,738
Retained earnings		306,269				351,571
Accumulated other comprehensive income		117				129
		317,022				361,879
Treasury stock, at cost		17,773				17,942
Total stockholders' equity				299,249				343,937
			$	364,011			$	415,133

The accompanying notes are an integral part of the financial statements.

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NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended April 3, 2011 and April 4, 2010

(Unaudited)

(In thousands except per share data)

		Three Months Ended
		2011		2010
Net sales		$	108,886	$	106,400
Cost of sales			86,932		81,813
Gross profit			21,954		24,587
Selling and general expenses			4,815		4,522
Operating profit			17,139		20,065
Other income			540		753
Earnings before provision for income taxes			17,679		20,818
Income tax provision			6,316		7,619
Net earnings		$	11,363	$	13,199
Weighted average shares outstanding:
	Basic		6,866		6,858
	Diluted		6,869		6,858
Net earnings per share:
	Basic	$	1.65	$	1.92
	Diluted	$	1.65	$	1.92
Cash dividends declared and paid per common share		$	8.25	$	8.15

The accompanying notes are an integral part of the financial statements.

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NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended April 3, 2011 and April 4, 2010

(Unaudited)

(Dollars in thousands)

		2011			2010
Cash flows from operating activities:
Net earnings		$	11,363		$	13,199
Adjustments to reconcile net earnings to net
Cash provided by (used in) operating activities:
Provision for depreciation			2,063			2,181
Other			230			168
Changes in:
Accounts receivable			26,016			32,926
Inventories			(363	)		(6,539	)
Other current assets			(11,104	)		(3,362	)
Accounts payable and accrued liabilities			(6,197	)		(880	)
Federal and state income taxes			(274	)		(387	)
	Net cash provided by operating activities		21,734			37,306
Cash flows from investing activities:
Marketable securities purchased			(23,261	)		(17,019	)
Marketable securities - maturities and sales			35,885			15,299
Acquisition of property, plant and equipment			(3,070	)		(4,659	)
Sale of property, plant and equipment			4			42
Other			(60	)		(1,500	)
	Net cash provided by (used in) investing activities		9,498			(7,837	)
Cash flows from financing activities:
Dividends paid			(56,665	)		(55,889	)
Other			439			408
	Net cash used in financing activities		(56,226	)		(55,481	)
Net decrease in cash and cash equivalents			(24,994	)		(26,012	)
Cash and cash equivalents at beginning of period			49,719			48,974
Cash and cash equivalents at end of period		$	24,725		$	22,962

The accompanying notes are an integral part of the financial statements.

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NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A – EARNINGS PER SHARE

The Company’s basic net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares. The Company’s diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to restricted stock, when dilutive.

NOTE B – RECLASSIFICATIONS

Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s financial statement presentation.  These reclassifications did not affect net earnings or stockholders’ equity as previously reported.

NOTE C – BUSINESS SEGMENTS

In the following summary, operating profit represents earnings before other income, principally interest income and income taxes.  The Company's segments operate discretely from each other with no shared manufacturing facilities.  Costs associated with corporate activities (such as cash and marketable securities management) and the assets associated with such activities are included within the Housewares/Small Appliances segment for all periods presented.

	(in thousands)
	Housewares/
	Small		Defense		Absorbent
	Appliances		Products		Products		Total
Quarter ended April 3, 2011
External net sales	$	27,088	$	59,484	$	22,314	$	108,886
Gross profit		5,434		15,363		1,157		21,954
Operating profit		2,903		13,599		637		17,139
Total assets		211,511		95,246		57,254		364,011
Depreciation		222		907		934		2,063
Capital expenditures		943		408		1,719		3,070
Quarter ended April 4, 2010
External net sales	$	29,008	$	56,808	$	20,584	$	106,400
Gross profit		6,880		14,644		3,063		24,587
Operating profit		4,500		12,892		2,673		20,065
Total assets		218,970		99,828		40,454		359,252
Depreciation		223		915		1,043		2,181
Capital expenditures		481		751		3,427		4,659

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NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company utilizes the methods of fair value as described in Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures to value its financial assets and liabilities. ASC 820 utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments.

NOTE E - CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company considers all highly liquid marketable securities with an original maturity of three months or less to be cash equivalents.  Cash equivalents include money market funds and certificates of deposit.  The Company deposits its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits.  Certificates of deposits are reported at par value, and money market funds are reported at fair value determined using quoted prices in active markets for identical securities (Level 1, as defined by FASB ASC 820).

The Company has classified all marketable securities as available-for-sale, which requires the securities to be reported at fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity.  Highly liquid, tax-exempt variable rate demand notes with put options exercisable in three months or less are classified as marketable securities.  Also included are certificates of deposit.

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At April 3, 2011 and December 31, 2010, cost for marketable securities was determined using the specific identification method.  A summary of the amortized costs and fair values of the Company’s marketable securities at the end of the periods presented is shown in the following table.  All of the Company’s marketable securities are classified as Level 2, as defined by FASB ASC 820, with fair values determined using significant other observable inputs, which include quoted prices in markets that are not active, quoted prices of similar securities, recently executed transactions, broker quotations, and other inputs that are observable.  There were no transfers into or out of Level 2 during the three months ended April 3, 2011.

(In Thousands)
	MARKETABLE SECURITIES
	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
April 3, 2011
Tax-exempt    Municipal Bonds	$	55,029	$	55,209	$	284	$	104
Variable Rate    Demand Notes		33,154		33,154		0		0
Total Marketable    Securities	$	88,183	$	88,363	$	284	$	104
December 31, 2010
Tax-exempt    Municipal Bonds	$	62,339	$	62,537	$	354	$	156
Variable Rate    Demand Notes		37,779		37,779		0		0
Certificates of    Deposit		689		689		0		0
Total Marketable    Securities	$	100,807	$	101,005	$	354	$	156

Proceeds from sales of available-for-sale securities totaled $35,885,000 and $15,299,000 for the three month periods ended April 3, 2011 and April 4, 2010, respectively.  There were no gross gains or losses related to sales of marketable securities during the same periods.  Net unrealized gains included in accumulated other comprehensive income were $180,000 and $672,000 before taxes for the three month periods ended April 3, 2011 and April 4, 2010, respectively.  No unrealized gains (losses) were reclassified out of accumulated other comprehensive income during the same periods.

The contractual maturities of the marketable securities held at April 3, 2011 are as follows: $22,850,000 within one year; $31,300,000 beyond one year to five years; $19,427,000 beyond five years to ten years, and $14,786,000 beyond ten years. All of the instruments in the beyond five year ranges, with the exception of $8,696,000 of tax-exempt municipal bonds with maturities between five and seven years, are variable rate demand notes which can be tendered for cash at par plus interest within seven days.  Despite the stated contractual maturity date, to the extent a tender is not honored, the notes become immediately due and payable.

NOTE F – COMMITMENTS AND CONTINGENCIES

The Company is involved in largely routine litigation incidental to its business.  Management believes the ultimate outcome of the litigation will not have a material effect on the Company's consolidated financial position, liquidity, or results of operations.

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NOTE G – ACCUMULATED OTHER COMPREHENSIVE INCOME

The $117,000 of accumulated comprehensive income at April 3, 2011 reflects the unrealized gain, net of tax, of available-for-sale marketable security investments.  Total comprehensive income net of tax effect was $11,351,000 and $12,993,000 for the three month periods ended April 3, 2011 and April 4, 2010, respectively.

NOTE H – ADOPTION OF NEW ACCOUNTING STANDARDS

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements, to provide amendments to Subtopic 820-10 that require new disclosures about transfers into and out of Level 1 and Level 2 of the fair value hierarchy and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements.  Specifically, for assets and liabilities that are measured at fair value on a recurring basis in periods after initial recognition (e.g., trading securities), this ASU requires: separate disclosure of the amount of significant transfers between Levels 1 and 2 and a description of the reasons for the transfers; and separate information about purchases, sales, issuances, and settlements, on a gross basis, in the reconciliation of Level 3 fair value measurements valued using significant unobservable inputs.  ASU 2010-06 clarifies existing disclosures as follows:

Level of disaggregation: An entity should provide fair value measurement disclosures for each class of assets and liabilities.  A class is often a subset of assets or liabilities within a line item in the statement of financial position.  An entity needs to use judgment in determining the appropriate classes of assets and liabilities.

Disclosures about inputs and valuations techniques: An entity should provide disclosures about the valuation techniques (i.e., the income, market, or cost approaches) and input used to measure fair value for both recurring and nonrecurring fair value measurements.  Those disclosures are required for fair value measurements that fall in either Level 2 of Level 3.

ASU 2010-06 also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets (Subtopic 715-20), which include a change in terminology from major categories of assets to classes of assets and a cross-reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures.  This ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for the separate disclosures about purchases, sales, issuance and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes.  However, comparative disclosures are required for periods ending after initial adoption.  Early adoption is permitted.  Except for the separate disclosures about purchases, sales, issuance and settlements in the roll forward of activity in Level 3 fair value measurements, the Company adopted ASU 2010-06 during the first quarter of 2010, which did not have a material effect on the Company’s consolidated financial statements. The Company adopted the separate disclosures about purchases, sales, issuance and settlements in the roll forward of activity in Level 3 fair value measurements during the first quarter of 2011, which did not have a material effect on the Company’s consolidated financial statements.

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NOTE I – PENSION PLAN

Prior to 2009, the Company contributed to a union-sponsored, multi-employer pension plan on behalf of union employees of the Amron division of its AMTEC subsidiary in accordance with the applicable union labor agreement. In December 2008, the union membership voted in favor of a withdrawal from the plan, and an amendment was made to the labor agreement authorizing the withdrawal. In December 2008, the Company permanently ceased to be obligated to contribute to the multi-employer pension plan, and instead agreed to contribute to a Company 401(k) Plan.

In a letter dated March 30, 2009, the pension plan provided Amron with documentation stating that the cost to withdraw from the plan was $238,509.  In April 2009, a payment representing the settlement of the withdrawal liability was made in the same amount.  However, should all participants in the plan withdraw before the end of 2010, some portion of the plan liability could be reallocated to AMTEC. If that were to occur, AMTEC might be assessed retroactively for an additional withdrawal charge.  No notice of such a withdrawal has been received.  The amount of a potential additional withdrawal charge, if any, cannot be currently estimated.  The Company charged the cost of the withdrawal to operations in 2008.

The foregoing information for the periods ended April 3, 2011, and April 4, 2010, is unaudited; however, in the opinion of management of the Registrant, it reflects all the adjustments, which were of a normal recurring nature, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet as of December 31, 2010 is summarized from consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 2010 annual report on Form 10-K.  Interim results for the period are not indicative of those for the year.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in the Company’s 2010 Annual Report to Shareholders, in the Proxy Statement for the annual meeting held May 17, 2011, and in the Company’s press releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein.  Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the notes to consolidated financial statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and market acceptance of new products; increases in material, freight/shipping, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized work force; changes in government requirements, military spending, and funding of government contracts, which could result, among other things, in the modification or termination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the efficient start-up and utilization of capital equipment investments; and political actions of federal and state governments which could have an impact on everything from the value of the U.S dollar vis-à-vis other currencies to the availability of affordable labor and energy.  Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, copies of which are available from the Company without charge.

Comparison of First Quarter 2011 and 2010

Readers are directed to Note C to the Consolidated Financial Statements, “Business Segments,” for data on the financial results of the Company’s three business segments for the Quarters ended April 3, 2011 and April 4, 2010.

On a consolidated basis, sales increased by $2,486,000 (2%), gross profit decreased by $2,633,000 (11%), selling and general expenses increased by $293,000 (7%), and other income decreased by $213,000 (28%).  Earnings before the provision for income taxes decreased by $3,139,000 (15%), as did net earnings by $1,836,000 (14%).  Details concerning these changes can be found in the comments by segment below.

Housewares/Small Appliance net sales decreased by $1,920,000 from $29,008,000 to $27,088,000, or 7%, primarily as a result of a decrease in unit shipments.  Defense net sales increased by $2,676,000 from $56,808,000 to $59,484,000, or 5%, primarily reflecting an increase in unit shipments.  Absorbent Products net sales increased by $1,730,000 from $20,584,000 to $22,314,000, or 8%, reflecting an increase in shipments, 53% of which related to the adult incontinence line of products, with the balance related to the sale of raw materials to an independent manufacturing facility.

Housewares/Small Appliance gross profits decreased $1,446,000 from $6,880,000 to $5,434,000, or 21%, approximately one-third of which related to the decrease in sales mentioned above, with the balance reflecting increased commodity and freight costs.  Defense gross profits increased $719,000 from $14,644,000 from the prior year's quarter to $15,363,000, or 5%, in largest part due to the sales increase mentioned above.  Absorbent Products gross profits decreased $1,906,000 from $3,063,000 to $1,157,000, or 62%, primarily reflecting increased commodity and freight costs.

Selling and general expenses for the Housewares/Small Appliance segment increased $151,000, primarily reflecting an increase in employee benefit cost accruals. Defense segment selling and general expenses were flat.  Absorbent Products selling and general expenses increased $130,000, primarily reflecting increased compensation costs.

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

Other income decreased $213,000, due primarily to lower interest income resulting from decreased yields.

Earnings before provision for income taxes decreased $3,139,000 from $20,818,000 to $17,679,000.  The provision for income taxes decreased from $7,619,000 to $6,316,000, which resulted in an effective income tax rate decrease from 37% to 36%, primarily reflecting a decrease in earnings subject to tax.  Net earnings decreased $1,836,000 from $13,199,000 to $11,363,000, or 14%.

Liquidity and Capital Resources

Net cash provided by operating activities was $21,734,000 and $37,306,000 for the three months ended April 3, 2011 and April 4, 2010, respectively.  The principal factors contributing to the decrease can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows.  Of particular note during the first three months of 2011 were net earnings of $11,363,000, a decrease in accounts receivable levels stemming from cash collections on customer sales, partially offset by an increase in deposits made with raw material suppliers included in other current assets and decreases in payable and accrual levels.  Of particular note during the first three months of 2010 were net earnings of $13,199,000, a decrease in accounts receivable levels stemming from cash collections on customer sales, partially offset by an increase in inventory levels and deposits with suppliers included in other current assets.

Net cash provided by investing activities during the first three months of 2011 was $9,498,000, as compared to $7,837,000 used in investing activities during the first three months of 2010.  The change in investing activity cash flow is attributable to an increase in net maturities/sales of marketable securities, augmented by a decrease in the acquisition of property, plant and equipment.

Cash flows from financing activities for the first three months of 2011 and 2010 primarily differed as a result of the $0.10 per share increase in the extra dividend paid during those periods.

Working capital decreased by $45,697,000 to $233,114,000 at April 3, 2011 for the reasons stated above.  The Company's current ratio was 4.9 to 1.0 at April 3, 2011 and 5.2 to 1.0 at December 31, 2010.

The Company expects to continue to evaluate acquisition opportunities that align with its business segments and continue to make capital investments in these segments as well as further acquisitions if the appropriate return on investment is projected.

The Company has substantial liquidity in the form of cash and short-term maturity marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund growth through acquisitions and other means.  The bulk of its marketable securities are invested in the tax exempt variable rate demand notes described above and in municipal bonds that are pre-refunded with escrowed U.S. Treasuries. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings. Comparative yields during the first three months of 2011 were lower than those in the first three months of the preceding year, reflecting an increase in lower yielding instruments in the Company’s investment holdings as higher yielding instruments have matured and been replaced.  The lower yields served to decrease interest income.  The interest rate environment is a function of national and international monetary policies as well as the growth and inflation rates of the U.S. and foreign economies and is not controllable by the Company.

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Critical Accounting Policies

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported.  Actual results may differ from those estimates.  The Company reviewed the development and selection of the critical accounting policies and believes the following are the most critical accounting policies that could have an effect on the Company’s reported results.  These critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors.

Inventories

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 other segments is not deemed to be significant, as products are largely built pursuant to customers’ specific orders.

Self-Insured Product Liability and 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 they reach 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 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.

Sales and Returns

Sales are recorded net of discounts and returns.  The latter 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.

New Accounting Pronouncements

Please refer to Note H in the Notes to the Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on the Company's consolidated financial statements.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's interest income on cash equivalents and marketable securities is affected by changes in interest rates in the United States.  Cash equivalents primarily consist of money market funds. Based on the accounting profession’s 2005 interpretation of cash equivalents under FASB ASC Topic 230, the Company’s seven-day variable rate demand notes are classified as marketable securities rather than as cash equivalents.  The demand notes are highly liquid instruments with interest rates set every 7 days that can be tendered to the trustee or remarketer upon 7 days notice for payment of principal and accrued interest amounts.  The 7-day tender feature of these variable rate demand notes is further supported by an irrevocable letter of credit from highly rated U.S. banks.  To the extent a bond is not remarketed at par plus accrued interest, the difference is drawn from the bank’s letter of credit.  The Company has had no issues tendering these notes to the trustees or remarketers.  Other than a failure of a major U.S. bank, there are no risks of which the Company is aware that relate to these notes in the current market. The balance of the Company’s investments is held primarily in fixed and variable rate municipal bonds with a weighted average life of 2.0 years.  Accordingly, changes in interest rates have not had a material effect on the Company, and the Company does not anticipate that future exposure to interest rate market risk will be material.  The Company uses sensitivity analysis to determine its exposure to changes in interest rates.

The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments.  Most transactions with international customers are entered into in U.S. dollars, precluding the need for foreign currency cash flow hedges.  The Company’s manufacturing contracts with its foreign suppliers contain provisions to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Hong Kong dollar above and below a fixed range contained in the contracts.  All transactions with the foreign suppliers were within the exchange rate range specified in the contracts during 2010 and through the end of the first quarter of 2011.  There is no similar provision applicable to the Chinese Renminbi (RMB), which until 2005 had been tied to the U.S. Dollar.  To the extent there are further revaluations of the RMB vis-à-vis the U.S. dollar, it is anticipated that any potential material impact from such revaluations will be to the cost of products secured via purchase orders issued subsequent to the revaluation.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “1934 Act”) as of April 3, 2011.  The Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of that date.

There were no changes in internal controls over financial reporting during the quarter ended April 3, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

See Note F to the Consolidated Financial Statements set forth under Part I - Item 1 above.

ITEM 6.  EXHIBITS

Exhibit 3(i)	Restated Articles of Incorporation - incorporated by reference from Exhibit 3 (i) of the Company's annual report on Form 10-K 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
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 11	Statement regarding computation of per share earnings
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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL PRESTO INDUSTRIES, INC.
Date: May 13, 2011	By:	/s/ Maryjo Cohen
		Maryjo Cohen, Chair of the Board, President, Chief Executive Officer (Principal Executive Officer), Director
	By:	/s/ Randy F. Lieble
		Randy F. Lieble, Director, Vice President, Chief Financial Officer (Principal Financial Officer), Treasurer

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National Presto Industries, Inc.

Exhibit Index

Exhibit Number	Exhibit Description
11	Computation of Earnings per Share
31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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