UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q/A
Amendment No. 1
______________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2019
☐ 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 incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
3925 NORTH HASTINGS WAY |
|
EAU CLAIRE, WISCONSIN | 54703-3703 |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code) 715-839-2121
______________________________
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
|
|
|
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1 par value | NPK | NYSE |
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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 Exchange Act). Yes ☐ No ☒
There were 6,995,045 shares of the Issuer’s Common Stock outstanding as of May 1, 2019.
* The Form 10-Q report for the quarters ending June 30, 2019 and September 29, 2019, and related interactive data files have not been filed.
EXPLANATORY NOTE
National Presto, Inc. (the “Company”) is filing this Amendment No. 1 to its Form 10-Q for the quarter ended March 31, 2019 to revise its conclusion on the effectiveness of the Company’s disclosure controls and procedures and internal controls over financial reporting following an inspection by the Public Company Accounting Oversight Board (“PCAOB”) of BDO USA LLP’s (“BDO”) audit of the Company’s financial statements for the year ended December 31, 2018, as further explained in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 23, 2019. The revised conclusions did not result in any material adjustments to the Company’s consolidated financial statements for the quarter ended March 31, 2019 originally filed with the SEC on May 10, 2019 (the “Original Form 10-Q”), with the exception of some language in Note C to the Company’s Consolidated Financial Statements, remains unchanged. Note C has been revised solely to indicate that for the Defense Segment, revenue is primarily recognized when the customer has legal title and formally documents that it has accepted the products.
Except as described above and the inclusion of new certifications of management, this Amendment does not amend, update or change the financial statements or any other disclosures in the Original Form 10-Q and does not reflect events occurring after the filing of the Original Form 10-Q. Accordingly, this Amendment No. 1 should be read in conjunction with the Original 10-Q and the Company’s filings with the SEC subsequent to the date of the Original Form 10-Q.
3
z |
|
TABLE OF CONTENTS | |
4 | |
4 | |
4 | |
6 | |
7 | |
8 | |
9 | |
15 | |
|
|
16 | |
16 | |
|
|
17 | |
|
|
CERTIFICATIONS | 18 |
4
PART I – FINANCIAL INFORMATION
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2019 and December 31, 2018
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2019 (Unaudited) |
| December 31, 2018 | ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
| $ | 61,735 |
|
|
| $ | 56,847 |
Marketable securities |
|
|
|
| 97,767 |
|
|
|
| 134,598 |
Accounts receivable, net |
|
|
|
| 36,511 |
|
|
|
| 52,372 |
Inventories: |
|
|
|
|
|
|
|
|
|
|
Finished goods |
| $ | 26,169 |
|
|
| $ | 28,791 |
|
|
Work in process |
|
| 67,690 |
|
|
|
| 59,580 |
|
|
Raw materials |
|
| 6,309 |
| 100,168 |
|
| 5,617 |
| 93,988 |
Assets held for sale |
|
|
|
| - |
|
|
|
| 375 |
Notes receivable, current |
|
|
|
| 7,245 |
|
|
|
| 7,213 |
Other current assets |
|
|
|
| 6,850 |
|
|
|
| 6,869 |
Total current assets |
|
|
|
| 310,276 |
|
|
|
| 352,262 |
PROPERTY, PLANT AND EQUIPMENT |
| $ | 98,601 |
|
|
| $ | 96,094 |
|
|
Less allowance for depreciation |
|
| 57,900 |
| 40,701 |
|
| 56,951 |
| 39,143 |
GOODWILL |
|
|
|
| 11,485 |
|
|
|
| 11,485 |
INTANGIBLE ASSETS, net |
|
|
|
| 1,000 |
|
|
|
| 1,000 |
NOTES RECEIVABLE |
|
|
|
| 7,019 |
|
|
|
| 6,966 |
RIGHT-OF-USE LEASE ASSETS |
|
|
|
| 3,832 |
|
|
|
| - |
DEFERRED INCOME TAXES |
|
|
|
| 1,069 |
|
|
|
| 1,088 |
OTHER ASSETS |
|
|
|
| 1,159 |
|
|
|
| 1,674 |
|
|
|
| $ | 376,541 |
|
|
| $ | 413,618 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements. |
| |||||||||
5
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2019 and December 31, 2018
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2019 (Unaudited) |
| December 31, 2018 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
| $ | 26,510 |
|
|
| $ | 34,100 |
Federal and state income taxes |
|
|
|
| 3,113 |
|
|
|
| 1,384 |
Lease liabilities |
|
|
|
| 539 |
|
|
|
| - |
Accrued liabilities |
|
|
|
| 12,417 |
|
|
|
| 12,011 |
Total current liabilities |
|
|
|
| 42,579 |
|
|
|
| 47,495 |
LEASE LIABILITIES - NON-CURRENT |
|
|
|
| 3,293 |
|
|
|
| - |
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 |
|
| 10,692 |
|
|
|
| 10,360 |
|
|
Retained earnings |
|
| 326,574 |
|
|
|
| 362,709 |
|
|
Accumulated other comprehensive income |
|
| 90 |
|
|
|
| 21 |
|
|
|
|
| 344,797 |
|
|
|
| 380,531 |
|
|
Treasury stock, at cost |
|
| 14,128 |
|
|
|
| 14,408 |
|
|
Total stockholders' equity |
|
|
|
| 330,669 |
|
|
|
| 366,123 |
|
|
|
| $ | 376,541 |
|
|
| $ | 413,618 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements. |
| |||||||||
6
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2019 and April 1, 2018
(Unaudited)
(In thousands except per share data)
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| 2019 |
| 2018 | ||
Net sales |
| $ | 63,850 |
| $ | 76,826 |
Cost of sales |
|
| 51,358 |
|
| 56,549 |
Gross profit |
|
| 12,492 |
|
| 20,277 |
Selling and general expenses |
|
| 6,444 |
|
| 6,151 |
Intangibles amortization |
|
| - |
|
| 745 |
Operating profit |
|
| 6,048 |
|
| 13,381 |
Other income |
|
| 1,632 |
|
| 895 |
Earnings from continuing operations before provision for income taxes |
|
| 7,680 |
|
| 14,276 |
Provision for income taxes from continuing operations |
|
| 1,729 |
|
| 3,282 |
Earnings from continuing operations |
| $ | 5,951 |
| $ | 10,994 |
Loss from discontinued operations, net of tax |
|
| - |
|
| 8 |
Net earnings |
| $ | 5,951 |
| $ | 10,986 |
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
Basic and diluted |
|
| 7,014 |
|
| 6,999 |
|
|
|
|
|
|
|
Earnings per share, basic and diluted: |
|
|
|
|
|
|
From continuing operations |
| $ | 0.85 |
| $ | 1.57 |
From discontinued operations |
|
| 0.00 |
|
| 0.00 |
Net earnings per share |
| $ | 0.85 |
| $ | 1.57 |
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
Net earnings |
| $ | 5,951 |
| $ | 10,986 |
Other comprehensive income, net of tax: |
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
| 69 |
|
| 44 |
Comprehensive income |
| $ | 6,020 |
| $ | 11,030 |
|
|
|
|
|
|
|
Cash dividends declared and paid per common share |
| $ | 6.00 |
| $ | 6.00 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements. | ||||||
7
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2019 and April 1, 2018
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
Cash flows from operating activities: |
|
|
|
|
|
|
Net earnings |
| $ | 5,951 |
| $ | 10,986 |
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
Provision for depreciation |
|
| 949 |
|
| 1,052 |
Intangibles amortization |
|
| - |
|
| 745 |
Non-cash retirement plan expense |
|
| 185 |
|
| 201 |
Other |
|
| 69 |
|
| 114 |
Changes in operating accounts: |
|
|
|
|
|
|
Accounts receivable, net |
|
| 15,638 |
|
| 21,660 |
Inventories |
|
| (6,180) |
|
| 3,059 |
Other assets and current assets |
|
| 534 |
|
| 256 |
Accounts payable and accrued liabilities |
|
| (7,184) |
|
| 657 |
Federal and state income taxes |
|
| 1,708 |
|
| 3,236 |
Net cash provided by operating activities |
|
| 11,670 |
|
| 41,966 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Marketable securities purchased |
|
| (46,345) |
|
| (51,583) |
Marketable securities - maturities and sales |
|
| 83,264 |
|
| 63,313 |
Purchase of property, plant and equipment |
|
| (2,507) |
|
| (1,790) |
Proceeds from insurance settlement |
|
| 598 |
|
| 1,925 |
Net cash provided by investing activities |
|
| 35,010 |
|
| 11,865 |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Dividends paid |
|
| (42,087) |
|
| (41,989) |
Proceeds from sale of treasury stock |
|
| 518 |
|
| 528 |
Other |
|
| (223) |
|
| (6) |
Net cash used in financing activities |
|
| (41,792) |
|
| (41,467) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
| 4,888 |
|
| 12,364 |
Cash and cash equivalents at beginning of period |
|
| 56,847 |
|
| 11,222 |
Cash and cash equivalents at end of period |
| $ | 61,735 |
| $ | 23,586 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements. | ||||||
8
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares of Common Stock Outstanding |
|
| Common Stock |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total |
Balance December 31, 2017 | 6,968 |
| $ | 7,441 |
| $ | 9,074 |
| $ | 364,757 |
| $ | (86) |
| $ | (14,810) |
| $ | 366,376 |
Net earnings |
|
|
|
|
|
|
|
|
| 10,986 |
|
|
|
|
|
|
|
| 10,986 |
Unrealized gain on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
| 44 |
|
|
|
|
| 44 |
Dividends paid March 15, $1.00 per share regular, $5.00 per share extra |
|
|
|
|
|
|
|
|
| (41,989) |
|
|
|
|
|
|
|
| (41,989) |
Other | 9 |
|
|
|
|
| 566 |
|
|
|
|
|
|
|
| 275 |
|
| 841 |
Balance April 1, 2018 | 6,977 |
| $ | 7,441 |
| $ | 9,640 |
| $ | 333,754 |
| $ | (42) |
| $ | (14,535) |
| $ | 336,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 | 6,981 |
| $ | 7,441 |
| $ | 10,360 |
| $ | 362,709 |
| $ | 21 |
| $ | (14,408) |
| $ | 366,123 |
Net earnings |
|
|
|
|
|
|
|
|
| 5,951 |
|
|
|
|
|
|
|
| 5,951 |
Unrealized gain on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
| 69 |
|
|
|
|
| 69 |
Dividends paid March 15, $1.00 per share regular, $5.00 per share extra |
|
|
|
|
|
|
|
|
| (42,087) |
|
|
|
|
|
|
|
| (42,087) |
Other | 14 |
|
|
|
|
| 332 |
|
| 1 |
|
|
|
|
| 280 |
|
| 613 |
Balance March 31, 2019 | 6,995 |
| $ | 7,441 |
| $ | 10,692 |
| $ | 326,574 |
| $ | 90 |
| $ | (14,128) |
| $ | 330,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. | |||||||||||||||||||
9
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A – BASIS OF PRESENTATION
The consolidated interim financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management of the Company, the consolidated interim financial statements reflect all the adjustments which were of a normal recurring nature necessary for a fair presentation of the results of the interim periods. The condensed consolidated balance sheet as of December 31, 2018 is summarized from audited consolidated financial statements, but does not include all the disclosures contained therein and should be read in conjunction with the 2018 Annual Report on Form 10-K. Interim results for the period are not indicative of those for the year.
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 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 K for further discussion.
NOTE B – RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods’ 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 – REVENUES
The Company’s revenues are derived from short-term contracts and programs that are typically completed within 3 to 24 months and are recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company’s contracts each contain one or more performance obligations: the physical delivery of distinct ordered product or products. The Company provides an assurance type product warranty on its products to the original owner. In addition, for the Housewares/Small Appliances segment, the Company estimates returns of seasonal products and returns of newly introduced products sold with a return privilege. Stand-alone selling prices are set forth in each contract and are used to allocate revenue to the corresponding performance obligations. For the Housewares/Small Appliances segment, contracts include variable consideration, as the prices are subject to customer allowances, which principally consist of allowances for cooperative advertising, defective product, and trade discounts. Customer allowances are generally allocated to the performance obligations based on budgeted rates agreed upon with customers, as well as historical experience, and yield the Company’s best estimate of the expected value for the variable consideration.
The Company's contracts in the Defense segment are primarily with the U.S. Department of Defense (DOD) and DOD prime contractors. As a consequence, this segment's business essentially depends on the product needs and governmental funding of the DOD. Substantially all of the work performed by the Defense segment directly or indirectly for the DOD is 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, with the exception of limited escalation provisions on specific materials, is generally not subject to any adjustments reflecting the actual costs incurred by the contractor.
For the Housewares/Small Appliance segment, revenue is generally recognized as the completed, ordered product is shipped to the customer from the Company’s warehouses. For the relatively few situations in which revenue should be recognized when product is received by the customer, the Company adjusts revenue accordingly. For the Defense segment, revenue is primarily recognized when the customer has legal title and formally documents that it has accepted the products. In some situations, the customer may obtain legal title and accept the products at the Company’s facilities, arranging for transportation at a later date, typically in one to four weeks. The Company does not consider the short-term storage of the customer owned products to be a material performance obligation, and no part of the transaction price is allocated to it.
10
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the Company’s Condensed Consolidated Balance Sheets. For the Defense segment, the Company occasionally receives advances or deposits from certain customers before revenue is recognized, resulting in contract liabilities. These advances or deposits do not represent a significant financing component. As of March 31, 2019 and December 31, 2018, $8,547,000 and $9,579,000, respectively, of contract liabilities were included in Accounts Payable on the Company’s Condensed Consolidated Balance Sheets. The Company recognized revenue of $1,067,000 during the three-month period ended March 31, 2019 that was included in the Defense segment contract liability at the beginning of that period. The Company monitors its estimates of variable consideration, which includes customer allowances for cooperative advertising, defective product, and trade discounts, and returns of seasonal and newly introduced product, all of which pertain to the Housewares/Small Appliances segment, and periodically makes cumulative adjustments to the carrying amounts of these contract liabilities as appropriate. During the three month periods ended March 31, 2019 and April 1, 2018, there were no material adjustments to the aforementioned estimates. There were no amounts of revenue recognized during the same periods related to performance obligations satisfied in a previous period. The portion of contract transaction prices allocated to unsatisfied performance obligations, also known as the contract backlog, in the Company’s Defense segment were $345,399,000 and $333,592,000 as of March 31, 2019 and December 31, 2018, respectively. The Company anticipates that the unsatisfied performance obligations will be fulfilled in an 18 to 24-month period. The performance obligations in the Housewares/Small Appliances segment have original expected durations of less than one year.
The Company’s principal sources of revenue are derived from two segments: Housewares/Small Appliance and Defense, as shown in Note E. Management utilizes the performance measures by segment to evaluate the financial performance of and make operating decisions for the Company.
NOTE D – EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share also includes the dilutive effect of additional potential common shares issuable. Unvested stock awards, which contain non-forfeitable rights to dividends whether paid or unpaid (“participating securities”), are included in the number of shares outstanding for both basic and diluted earnings per share calculations.
NOTE E – BUSINESS SEGMENTS
In the following summary, operating profit represents earnings before other 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 Appliance |
| Defense |
| Assets Held for Sale |
| Total | ||||
Quarter ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
External net sales |
| $ | 19,709 |
| $ | 44,141 |
| $ |
|
| $ | 63,850 |
Gross profit |
|
| 2,184 |
|
| 10,308 |
|
|
|
|
| 12,492 |
Operating profit (loss) |
|
| (1,529) |
|
| 7,577 |
|
|
|
|
| 6,048 |
Total assets |
|
| 240,490 |
|
| 136,051 |
|
| - |
|
| 376,541 |
Depreciation and amortization |
|
| 367 |
|
| 582 |
|
|
|
|
| 949 |
Capital expenditures |
|
| 229 |
|
| 2,278 |
|
|
|
|
| 2,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended April 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
External net sales |
| $ | 16,057 |
| $ | 60,769 |
| $ |
|
| $ | 76,826 |
Gross profit |
|
| 1,899 |
|
| 18,378 |
|
|
|
|
| 20,277 |
Operating profit (loss) |
|
| (875) |
|
| 14,256 |
|
|
|
|
| 13,381 |
Total assets |
|
| 231,875 |
|
| 149,399 |
|
| 4,417 |
|
| 385,691 |
Depreciation and amortization |
|
| 336 |
|
| 1,461 |
|
|
|
|
| 1,797 |
Capital expenditures |
|
| 1,709 |
|
| 81 |
|
|
|
|
| 1,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NOTE F - 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 amounts for cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and accrued liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments.
NOTE G - 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. The Company deposits its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits. 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 estimated fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Highly liquid, tax-exempt variable rate demand notes with put options exercisable in three months or less are classified as marketable securities.
At March 31, 2019 and December 31, 2018, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In Thousands) | ||||||||||
|
| MARKETABLE SECURITIES | ||||||||||
|
| Amortized Cost |
| Fair Value |
| Gross Unrealized Gains |
| Gross Unrealized Losses | ||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt Municipal Bonds |
| $ | 47,700 |
| $ | 47,814 |
| $ | 120 |
| $ | 6 |
Variable Rate Demand Notes |
|
| 49,953 |
|
| 49,953 |
|
| - |
|
| - |
Total Marketable Securities |
| $ | 97,653 |
| $ | 97,767 |
| $ | 120 |
| $ | 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt Municipal Bonds |
| $ | 40,156 |
| $ | 40,182 |
| $ | 44 |
| $ | 18 |
Variable Rate Demand Notes |
|
| 94,416 |
|
| 94,416 |
|
| - |
|
| - |
Total Marketable Securities |
| $ | 134,572 |
| $ | 134,598 |
| $ | 44 |
| $ | 18 |
Proceeds from maturities and sales of available-for-sale securities totaled $83,264,000 and $63,313,000 for the three month periods ended March 31, 2019 and April 1, 2018, respectively. There were no gross gains or losses related to sales of marketable securities during the same periods. Net unrealized gains included in other comprehensive income were $88,000 and $55,000 before taxes for the three month periods ended March 31, 2019 and April 1, 2018, respectively. No unrealized gains or losses were reclassified out of accumulated other comprehensive income during the same periods.
The contractual maturities of the marketable securities held at March 31, 2019 are as follows: $27,644,000 within one year; $27,242,000 beyond one year to five years; $6,503,000 beyond five years to ten years, and $36,378,000 beyond ten years. All of the instruments in the beyond five year ranges are variable rate demand notes which can be tendered for cash at par plus
12
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 H – OTHER ASSETS
Other Assets includes prepayments that are made from time to time by the Company for certain materials used in the manufacturing process in the Housewares/Small Appliances segment. The Company expects to utilize the prepayments and related materials over an estimated period of up to two years. As of March 31, 2019 and December 31, 2018, $6,349,000 and $6,864,000 of such prepayments, respectively, remained unused and outstanding. At both March 31, 2019 and December 31, 2018, $5,190,000 of these amounts were included in Other Current Assets, representing the Company’s best estimate of the expected utilization of the prepayments and related materials during the twelve-month periods following those dates.
NOTE I – LEASES
The Company accounts for leases under ASC Topic 842, Leases, which was adopted on January 1, 2019. The Company’s leasing activities include roles as both lessee and lessor. As lessee, the Company’s primary leasing activities include buildings and structures to support its manufacturing operations at one location in its Defense segment, and warehouse space and equipment to support its distribution center operations in its Housewares/Small Appliances segment. As lessor, the Company’s primary leasing activity is comprised of manufacturing and office space located adjacent to its corporate offices. All of the Company’s leases are classified as operating leases.
The Company’s leases as lessee in its Defense segment provide for variable lease payments that are based on changes in the Consumer Price Index. As lessor, the Company’s primary lease also provides for variable lease payments that are based on changes in the Consumer Price Index, as well as on increases in costs of insurance, real estate taxes, and utilities related to the leased space. Generally, all of the Company’s lease contracts provide for options to extend and terminate them. The majority of lease terms of the Company’s lease contracts reflect extension options, while none reflect termination options.
The Company has determined that the rates implicit in its leases are not readily determinable and estimates its incremental borrowing rates utilizing quotes from financial institutions for real estate and equipment, as applicable, over periods of time similar to the terms of its leases. The Company has entered into various short-term leases as lessee and has elected a non-recognition accounting policy, as permitted by ASC Topic 842.
|
|
|
|
|
|
| Quarter Ending | |
Summary of Lease Cost (in thousands) | March 31, 2019 | |
Operating lease cost | $ | 168 |
Sort-term and variable lease cost |
| 23 |
Total lease cost | $ | 191 |
Operating cash used for operating leases was $191,000 for the quarter ended March 31, 2019. The weighted-average remaining lease term was 8.2 years, and the weighted-average discount rate was 5.5% as of March 31, 2019.
Maturities of operating lease liabilities are as follows:
|
|
|
|
|
|
Years ending December 31: | (In thousands) | |
2019 (remaining nine months) | $ | 501 |
2020 |
| 655 |
2021 |
| 644 |
2022 |
| 648 |
2023 |
| 531 |
Thereafter |
| 1,823 |
Total lease payments | $ | 4,802 |
Less: future interest expense |
| 970 |
Lease liabilities | $ | 3,832 |
13
Lease income from operating lease payments for the quarter ended March 31, 2019 was $444,000. Undiscounted cash flows provided by lease payments are expected as follows:
|
|
|
Years ending December 31: | (In thousands) | |
2019 (remaining nine months) | $ | 1,331 |
2020 |
| 1,761 |
2021 |
| 1,755 |
2022 |
| 1,755 |
2023 |
| 1,755 |
Thereafter |
| 15,795 |
Total lease payments | $ | 24,152 |
The Company considers risk associated with the residual value of its leased real property to be low, given the nature of the long-term lease agreement, the Company’s ability to control the maintenance of the property, and the creditworthiness of the lessee. The residual value risk is further mitigated by the long-lived nature of the property, and the propensity of such assets to hold their value or, in some cases, appreciate in value.
NOTE J – 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.
NOTE K – 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. (“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. The Company’s pre-tax gain on sale of $11,413,000, net of one-time transaction costs, was recorded in 2017 within earnings from discontinued operations. This amount differs from the gain previously reported as a result of the post-closing adjustments mentioned above that were finalized in the second quarter of 2017.
The following table summarizes the results of the Absorbent Products business within discontinued operations for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
(in thousands) | March 31, 2019 |
| April 1, 2018 | ||
Cost of sales |
| - |
|
| (11) |
Earnings (loss) from discontinued operations before provision for income taxes |
| - |
|
| (11) |
Provision for (benefit from) income taxes from discontinued operations |
| - |
|
| (3) |
Earnings (loss) from discontinued operations, net of tax | $ | - |
| $ | (8) |
14
The following table summarizes the major classes of assets and liabilities of the Absorbent Products business held for sale for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(in thousands) | March 31, 2019 (Unaudited) |
| December 31, 2018 | ||
Accounts receivable, net | $ | - |
| $ | 375 |
Assets held for sale | $ | - |
| $ | 375 |
The Consolidated Statements of Cash Flows do not present the cash flows from discontinued operations separately from cash flows from continuing operations. Cash used in operating activities from discontinued operations was $0 and $353,000 for the three months ended March 31, 2019 and April 1, 2018, respectively. Cash provided by investing activities related to discontinued operations was $598,000 and $1,925,000 for the three months ended March 31, 2019 and April 1, 2018, respectively.
In connection with the asset purchase agreement discussed above, the Company entered into a 10-year lease agreement with Drylock for a portion of its manufacturing and warehouse facilities. The lease agreement provided for total annual payments of $1,288,000 initially. During the fourth quarter of 2018, the lease agreement was amended to incorporate additional facilities that the Company built for Drylock. The amended lease provides for an initial term of approximately 14 years, and allows for successive three-year renewal periods, as well as options to terminate the lease early after five and ten years. The amended lease also provides for adjustments to the rental payments based on certain price indices, taxes, and space occupied. The Company estimates that annual payments under the lease will total $1,755,000. The Company also had entered into a transition services agreement with Drylock, which terminated at the end of 2017. The amounts received from Drylock for rental income are recorded in Other Income on the Consolidated Statements of Comprehensive Income.
NOTE L – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance requires a modified retrospective transition method and early adoption is permitted. The Company is in the early stages of evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.
15
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer and Treasurer (principal financial officer), 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 March 31, 2019. The Company’s Chief Executive Officer and Treasurer (principal financial officer) have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2019, as a result of a material weakness in internal control over financial reporting described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. 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.
In Item 9A of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2018 filed with the SEC on November 15, 2019, management identified a material weakness in its internal controls over financial reporting related to revenue recognition. The Company did not properly design and maintain effective controls over revenue for its Defense segment, as the controls failed to demonstrate an appropriate level of precision over the assessment and documentation of the point in time pattern of revenue recognition, and did not fully consider alternative use and the impact of certain termination clauses in its contracts with customers that might create a legal right for payment for work completed prior to the contract termination that would include a reasonable profit margin.
Notwithstanding the material weakness described above, the Company’s management has concluded that the consolidated financial statements as originally filed, and as included in this Form 10-Q/A, present fairly, in all material respects, the Company’s financial position, results of operations and cash flow for the periods presented, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Remediation Plan
The Company has designed a remediation plan to address the control deficiencies and strengthen its internal control over financial reporting, which entails reassessing the design and operating effectiveness of its controls over the review of Defense segment contracts, including implementing an appropriate level of precision in its reviews to identify significant key terms and assumptions that could impact the pattern of revenue recognition.
Changes in Internal Control over Financial Reporting
Other than the material weakness described above, there were no changes in internal controls over financial reporting during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
16
|
|
Exhibit 3(i) | |
Exhibit 3(ii) | |
Exhibit 9.1 | |
Exhibit 9.2 | |
Exhibit 31.1 | |
Exhibit 31.2 | Certification of the Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 32.1 | |
Exhibit 32.2 | Certification of the Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Exhibit 101 | The following financial information from National Presto Industries, Inc.’s Quarterly Report on Form 10‑Q/A for the period ended March 31, 2019, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements. |
17
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. |
|
|
|
|
| /s/ Maryjo Cohen |
| Maryjo Cohen, Chair of the Board, |
| President, Chief Executive Officer |
| (Principal Executive Officer), Director |
|
|
|
|
| /s/ David J. Peuse |
| David J. Peuse, Treasurer |
| (Principal Financial Officer) |
|
|
|
|
| Date: November 15, 2019 |
18
