FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-2451
NATIONAL PRESTO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0494170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3925 NORTH HASTINGS WAY
EAU CLAIRE, WISCONSIN 54703-3703
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 715-839-2121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___
There were 6,840,103 shares of the Issuer's Common Stock outstanding as of the
close of the period covered by this report.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Unaudited)
(Dollars in thousands)
2002 2001
==============================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $103,803 $ 83,877
Marketable securities 91,988 106,992
Accounts receivable, net 13,377 31,194
Inventories:
Finished goods $ 19,729 $ 19,505
Work in process 5,602 5,349
Raw materials 6,859 8,262
Supplies 403 32,593 881 33,997
-------- --------
Prepaid expenses 366 93
-------- --------
Total current assets 242,127 256,153
PROPERTY, PLANT AND EQUIPMENT 19,932 19,328
Less allowance for depreciation 7,915 12,017 7,483 11,845
-------- --------
OTHER ASSETS 16,902 16,902
-------- --------
$271,046 $284,900
======== ========
The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Unaudited)
(Dollars in thousands)
2002 2001
==============================================================================================
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 13,084 $ 18,194
Federal and state income taxes - 3,055
Accrued liabilities 29,916 27,048
--------- ---------
Total current liabilities 43,000 48,297
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized: 12,000,000 shares
Issued: 7,440,518 shares $ 7,441 $ 7,441
Paid-in capital 1,002 1,011
Retained earnings 238,263 246,913
--------- ---------
246,706 255,365
Treasury stock, at cost 18,660 18,762
--------- ---------
Total stockholders' equity 228,046 236,603
--------- ---------
$ 271,046 $ 284,900
========= =========
The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months ended March 31, 2002 and April 1, 2001
(Unaudited)
(In thousands except per share data)
THREE MONTHS ENDED
---------------------
2002 2001
================================================================================
Net sales $ 22,760 $ 20,010
Cost of sales 19,609 17,144
-------- --------
Gross profit 3,151 2,866
Selling and general expenses 5,129 4,544
Plant closing costs 3,953 --
-------- --------
Operating loss (5,931) (1,678)
Other income, principally interest 1,400 2,518
-------- --------
Earnings (loss) before provision for income taxes (4,531) 840
Income tax benefit (2,171) (410)
-------- --------
Net earnings (loss) $ (2,360) $ 1,250
======== ========
Weighted average shares outstanding:
Basic 6,837 6,878
======== ========
Diluted 6,837 6,879
======== ========
Net earnings (loss) per share:
Basic $ (0.35) $ 0.18
======== ========
Diluted $ (0.35) $ 0.18
======== ========
Cash dividends declared and paid per common share $ 0.92 $ 2.00
======== ========
The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31, 2002 and April 1, 2001
(Unaudited)
(Dollars in thousands)
2002 2001
===============================================================================================
Cash flows from operating activities:
Net earnings (loss) $ (2,360) $ 1,250
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Provision for depreciation 432 1,276
Plant closing charges 3,953 --
Other 93 63
Changes in (net of acquisition):
Accounts receivable 17,817 5,800
Inventories 1,404 (215)
Prepaid expenses (273) (101)
Accounts payable and accrued liabilities (6,195) (9,607)
Federal and state income taxes (3,055) (1,232)
--------- ---------
Net cash provided by (used in) operating activities 11,816 (2,766)
--------- ---------
Cash flows from investing activities (net of acquisition):
Marketable securities purchased (6,463) (5,073)
Marketable securities - maturities and sales 21,467 11,843
Acquisition of property, plant and equipment (604) (1,126)
Acquisition of business -- (4,750)
Other -- 250
--------- ---------
Net cash provided by investing activities 14,400 1,144
--------- ---------
Cash flows from financing activities:
Dividends paid (6,290) (13,755)
Other -- 59
--------- ---------
Net cash used in financing activities (6,290) (13,696)
--------- ---------
Net increase (decrease) in cash and cash equivalents 19,926 (15,318)
Cash and cash equivalents at beginning of period 83,877 80,895
--------- ---------
Cash and cash equivalents at end of period $ 103,803 65,577
========= =========
The accompanying notes are an integral part of the financial statements.
NATIONAL PRESTO INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - EARNINGS PER SHARE
The Company's basic net earnings (loss) per share amounts have been computed by
dividing net earnings (loss) by the weighted average number of outstanding
common shares. The Company's diluted net earnings per share is computed by
dividing net earnings by the weighted average number of outstanding common
shares and common share equivalents relating to stock options, when dilutive.
NOTE B - BUSINESS SEGMENTS
In the following summary, operating profit (loss) represents earnings (loss)
before other income, principally interest income and income taxes.
The Company's segments operate discretely from each other with no shared
manufacturing facilities. Costs associated with corporate activities (such as
cash and marketable securities management) are included within housewares/small
appliances for all periods presented.
(IN THOUSANDS)
------------------------------------------------------------
HOUSEWARES/
SMALL DEFENSE ABSORBENT
APPLIANCES PRODUCTS PRODUCTS *** TOTAL
---------- -------- ------------ -----
QUARTER ENDED MARCH 31, 2002
External net sales $ 19,298 $ 2,147 $ 1,315 $ 22,760
Operating profit (loss) (6,111)* 344 (164) (5,931)
Total assets 253,414 9,855 7,777 271,046
Depreciation and amortization 213 23 196 432
Capital expenditures 451 134 19 604
QUARTER ENDED APRIL 1, 2001
External net sales $ 19,495 $ 515** $ -- $ 20,010
Operating profit (loss) (1,681) 3 -- (1,678)
Total assets 260,801 8,278 -- 269,079
Depreciation and amortization 1,269 7 -- 1,276
Capital expenditures 1,125 1 -- 1,126
* The operating loss of the Housewares/small appliance division is
after recording a charge for plant closing costs of $3,953,000 more
fully described in Note C.
** The Defense Products division was acquired on February 24, 2001.
Accordingly, operations for the quarter ended April 1, 2001
represents the operations after acquisition.
*** The Absorbent Products division was acquired on November 19, 2001.
Accordingly, there were no operations for the quarter ended April 1,
2001.
NOTE C - PLANT CLOSING
In November 2001, the Company announced that continued erosion of product
pricing resulted in its decision to cease manufacturing housewares/small
appliances in its U.S. plants, close those facilities, and purchase products
from overseas sources. The Company will close its manufacturing facilities in
Alamogordo, New Mexico and Jackson, Mississippi during the third and fourth
quarters of 2002. This decision could have an adverse effect on production of
the balance of the products scheduled to be produced in the U.S. due to possible
difficulties with continuity of the workforce and material supplies. Similarly,
deliveries from overseas sources could be disrupted by labor or supply problems
at the vendors, or transportation delays. As a consequence, products may not be
available in sufficient quantities during the prime selling period. The Company
has made and will continue to make every reasonable effort to prevent these
problems; however, there is no assurance that its efforts will be totally
effective.
The principal activity during the first quarter was the accrual of $3,953,000 of
additional employee termination benefits following the communication of these
benefits to the production workforce of the manufacturing facilities that will
be closed. As of quarter end, the balance in the accrual consisted of $4,590,000
of employee termination benefits and $1,399,000 of plant closing costs. There
may be additional charges later in the year. The outsourcing of product may also
have an impact on the Company's method of accounting for inventory. A study of
the possible impact is ongoing.
NOTE D - COMMITMENTS AND CONTINGENCIES
The Company is the subject of an SEC Investment Company Act of 1940
investigation. Currently, it is exploring resolution of issues with the SEC
Staff. In addition, the Company is involved in other routine litigation
incidental to its business. Management believes the ultimate outcome of these
matters will not have a material affect on the Company's consolidated financial
position.
NOTE E - ADOPTION OF NEW ACCOUNTING STANDARDS
On January 1, 2002 the Company adopted Statement of Financial Accounting
Standard (SFAS) 141, BUSINESS COMBINATIONS, SFAS 142 GOODWILL AND INTANGIBLE
ASSETS AND SFAS 144 ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS. The adoption of SFAS 142 caused the Company to cease amortization of its
goodwill on January 1, 2002 and evaluate goodwill for impairment a least on an
annual basis thereafter. The Company's goodwill of approximately $3,556,000
relates to its Defense Products segment which is a separate reporting unit. The
Company has completed the transitional goodwill impairment test required by SFAS
142 and no impairment was identified. Goodwill amortization recorded during the
first quarter of 2001 was $21,000. The Company had no recorded goodwill prior to
the first quarter of 2001. The adoption of SFAS 141 and 144 did not have a
material effect on the Company's consolidated financial statements or reporting
of financial information.
In addition, the Company adopted Emerging Issues Task Force (EITF) Issue No.
00-25 VENDOR INCOME STATEMENT CHARACTERIZATION OF CONSIDERATION TO A RESELLER ON
THE VENDORS PRODUCTS, effective January 1, 2002. The adoption of EITF Issue
00-25 did not have a material affect on the Company's consolidated financial
statements.
- --------------------------------------------------------------------------------
The foregoing information for the periods ended March 31, 2002, and April 1,
2001, is unaudited; however, in the opinion of management of the Registrant, it
reflects all the adjustments, which were of a normal recurring nature, necessary
for a fair statement of the results for the interim periods. The condensed
consolidated balance sheet as of December 31, 2001, is summarized from audited
consolidated financial statements, but does not include all the disclosures
contained therein and should be read in conjunction with the 2001 Annual Report.
Interim results for the period are not indicative of those for the year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AN RESULTS OF OPERATIONS
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. There
are certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed herein and in the notes to consolidated financial
statements, among the other factors that could cause actual results to differ
materially are the following: consumer spending and debt levels; interest rates;
continuity of relationships with and purchases by major customers; product mix;
the benefit and risk of business acquisitions; competitive pressure on sales and
pricing; increases in material or production cost which cannot be recouped in
product pricing, and the impact of closing certain U.S. production facilities.
Additional information concerning those and other factors is contained in the
Company's Securities and Exchange Commission filings, including but not limited
to the Form 10-K, copies of which are available from the Company without charge.
Comparison First Quarter 2002 and 2001
Net sales increased by $2,750,000 from $20,010,000 to $22,760,000 or
14%. The increase was primarily attributable to the incremental sales of the
2001 acquisitions offset in part by a slight decrease in housewares/small
appliance sales.
Gross profit for 2002 increased $285,000 from $2,866,000 to $3,151,000
or 14% as a percentage of net sales in both periods. The increase in gross
profit reflected the increased sales from the Company's 2001 acquisitions offset
in part by reduced prices demanded by housewares/small appliance retailers and
the inability to pass on the Company's increased costs for these goods.
Selling and general expenses increased primarily because of the 2001
acquisitions The Company accrues unexpended advertising costs budgeted for the
year against each quarter's sales. Major advertising commitments are incurred in
advance of the expenditures, and the timing of sales through dealers and
distributors to the ultimate customer does not permit specific identification of
the customers' purchase to the actual time an advertisement appears. Advertising
charges included in selling expense in each quarter represent that percentage of
the annual advertising budget associated with that quarter's shipments.
Revisions to this budget result in periodic changes to the accrued liability for
committed advertising expenditures.
The first quarter of 2002 includes a $3,953,000 estimated charge
related to involuntary termination benefits stemming from the announced closing
of the Company's
Housewares/Small Appliance manufacturing operations in Jackson, Mississippi and
Alamogordo, New Mexico. See Note C to the Consolidated Financial Statements.
Based on the foregoing factors the operating loss increased $4,253,000 from
$1,678,000 to $5,931,000.
Other income, principally interest, decreased $1,118,000 from
$2,518,000 to $1,400,000. The average daily investment decreased from
$220,233,000 to $195,460,000 primarily as a result of business acquisitions and
the purchase of treasury stock during 2001.
Earnings before provision for income taxes decreased $5,371,000 from
$840,000 to a loss of $4,531,000. The income tax benefit increased from $410,000
to $2,171,000, which resulted in an effective income tax benefit rate of 49% in
2001 and 48% in 2002. Net earnings decreased $3,610,000 from $1,250,000 to a
loss of $2,360,000, or 289%.
Working capital decreased by $8,729,000 to $199,127,000 at March 31,
2002. The Company's current ratio was 5.6 to 1.0 at March 31, 2002 compared to
5.3 to 1.0 at the end of fiscal 2001. The decrease in working capital is
primarily due to the payment of dividends of $6,290,000 and the current period
loss of $2,360,000.
The Company expects to continue to evaluate acquisition opportunities
that align with its business segments and will make further acquisitions or
capital investments in these segments if the appropriate return on investment is
projected.
In connection with the plant closing and related outsourcing of
products, the Company has placed tooling and initial product orders. Completion
of the transition is expected during the 4th quarter 2002.
The Company has substantial liquidity in the form of cash and
marketable securities to meet all of its anticipated capital requirements, to
make dividend payments, and to fund growth through acquisitions and other means.
Further, it has the ability to fund losses, should they occur, in connection
with the transition to outsourced foreign manufacturing of products for the
housewares/small appliance segment. As of March 31, 2002, there were no material
capital commitments outstanding.
Item 7A.
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest income on cash equivalents and investments is
affected by changes in interest rates in the United States. Cash equivalents
include 7-day variable rate demand notes - highly liquid instruments with
interest rates set every 7 days that can be tendered to the remarketer upon 7
days notice for payment of principal and accrued interest. The 7 day tender
feature is further supported by an irrevocable letter of credit from a strongly
rated U.S. bank. To the extent a bond is not remarketed at par plus accrued
interest, the difference is drawn from the letter of credit. The Company's
investments are held primarily in fixed and variable rate municipal bonds with
an average life of less than one year. The Company uses sensitivity analysis to
determine its exposure to changes in interest rates. Through March 31, 2002,
changes in these rates have not had a material effect on the Company, and the
Company does not anticipate that future exposure to interest rate market risk
will be material.
The Company has no history of, and does not anticipate in the future,
investing in derivative financial instruments. Most transactions with
international customers are entered into in U.S. dollars, precluding the need
for foreign currency hedges. Any transactions that are currently entered into in
foreign currency are not deemed material to the financial statements.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3(i) - Restated Articles of Incorporation
- incorporated by reference from Exhibit 3
(i) of the Company's quarterly report on
Form 10-Q for the quarter ended July 6,
1997
(ii) - By-Laws - incorporated by reference from
Exhibit 3 (ii) of the Company's
quarterly report on Form 10-Q for the
quarter ended October 3, 1999
Exhibit 9 - Voting Trust Agreement - incorporated by
reference from Exhibit 9 of the Company's
quarterly report on Form 10-Q for the
quarter ended July 6, 1997
Exhibit 10.1 - 1988 Stock Option Plan - incorporated by
reference from Exhibit 10.1 of the
Company's quarterly report on Form 10-Q
for the quarter ended July 6, 1997
Exhibit 10.2 - Form of Incentive Stock Option Agreement
under the 1988 Stock Option Plan -
incorporated by reference from Exhibit
10.2 of the Company's quarterly report on
Form 10-Q for the quarter ended July 6,
1997
Exhibit 11 - Statement regarding computation of per
share earnings
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NATIONAL PRESTO INDUSTRIES, INC.
Date: May 14, 2002 /S/ M. J. Cohen
-----------------------------------------
M. J. Cohen, Chair of the Board and
President (Principal operating officer)
Date: May 14, 2002 /S/ R. F. Lieble
-----------------------------------------
R. F. Lieble, Chief Financial Officer and
Treasurer (Principal accounting officer)
National Presto Industries, Inc.
Exhibit Index
Exhibit
Number Exhibit Description
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11 Computation of Earnings per Share