# National Presto Industries Inc: Form 10-Q for the period ended Sep 29, 2024

- Company: [National Presto Industries Inc](/companies/npk.md) (CIK 80172)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 8, 2024, 16:00 ET
- Period: 2024-09-29
- Accession: 0001437749-24-034199
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/80172/000143774924034199/npk20240930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/80172/000143774924034199/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-29 | $91.8m | us-gaap:Revenues |
| Revenue | 9 months, 2024-01-01 to 2024-09-29 | $253.5m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-29 | $74.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-29 | $207.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-29 | $17.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-29 | $45.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-29 | $7.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-29 | $22.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-29 | $9.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-29 | $21.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-29 | $2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-29 | $5.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-29 | $8.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-29 | $20.7m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-29 | $1.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-29 | $2.91 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-29 | −$45.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-07-01 to 2024-09-29 | $2.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-29 | $3.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-29 | $32.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-09-29 | $16.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-29 | $349.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-29 | $428.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-29 | $70.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-29 | $82.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-29 | $346.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,127 characters.

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 2023 Annual Report to Stockholders, in the Proxy Statement for the annual meeting held on May 21, 2024, and in the Company’s press releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the Notes to Consolidated Financial Statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and market acceptance of new products; increases in material, freight/shipping, tariffs, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized work force; changes in government requirements, military spending, and funding of government contracts, which could result in, among other things, the modification or termination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the ability of startup businesses to ultimately have the potential to be successful; the efficient start-up and utilization of capital equipment investments; political actions of federal and state governments which could have an impact on everything from the value of the U.S dollar vis-à-vis other currencies to the availability of affordable labor and energy; and security breaches and disruptions to the Company’s information technology systems. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings.

### Health Epidemics, Pandemics, or Similar Public Health Crises Risks:

The Company faces a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases. A global health crisis, COVID-19 pandemic contributed to business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, changes in demand for products and services, inflationary pressures and market volatility. If a health epidemic, pandemic or similar outbreak were to occur or worsen, the Company will likely experience broad and varied impacts, including potentially labor shortages, supply chain disruptions, inflationary pressures and increased costs (which may or may not be fully recoverable or insured), contracting, production and/or distribution delays, market volatility and other financial impacts. If any or all of these items were to occur, the Company could experience material adverse impacts on its business, financial condition, and results of operations and/or cash flows.

### Comparison of Third Quarter 2024 and 2023

Readers are directed to Note D to the Consolidated Financial Statements, “Business Segments,” for data on the financial results of the Company’s three business segments for the quarters ended September 29, 2024 and October 1, 2023.

On a consolidated basis, net sales increased by $8,682,000 (10%), gross profit increased by $1,824,000 (12%), selling and general expenses decreased by $283,000 (4%), and amortization decreased by $48,000 (11%). Other income decreased by $625,000 (35%), earnings before provision for income taxes increased by $1,530,000 (17%), and net earnings increased by $1,064,000 (15%). Details concerning these changes can be found in the comments by segment below.

Housewares/Small Appliance net sales increased by $3,271,000 from $21,545,000 to $24,816,000, or 15%, which was primarily attributable to an increase in units shipped. Defense net sales increased by $5,483,000 from $61,311,000 to $66,794,000 or 9%, primarily reflecting an increase in shipments from the segment's backlog.

Housewares/Small Appliance gross profit increased $1,077,000 from $3,920,000 to $4,997,000, primarily reflecting the increase in sales mentioned above, partially offset by increases in the cost of ocean shipping, as well as higher repair costs at its main facility. Defense gross profit increased $707,000 from $12,740,000 to $13,447,000, primarily reflecting the increase in sales mentioned above, impacted by changes to the product mix, and improved efficiencies. Due to the startup nature of the businesses in the Safety segment and the resulting limited revenues, gross margins were negative in both years.

Selling and general expenses for the Housewares/Small Appliance and the Defense segment were relatively flat. Selling and general expenses for the Safety segment decreased $339,000, primarily reflecting the decreased personnel costs of $260,000 and decreased legal and professional costs of $69,000.

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

The $625,000 decrease in other income was primarily attributable to a decrease in interest income on marketable securities largely stemming from a lower average daily investment.

Earnings before provision for income taxes increased $1,530,000 from $8,843,000 to $10,373,000. The provision for income taxes increased from $1,824,000 to $2,290,000. The effective income tax rate was 22% and 21% for the quarters ended September 29, 2024 and October 1, 2023, respectively. Net earnings increased $1,064,000 from $7,019,000 to $8,083,000, or 15%.

### Comparison of First Nine Months 2024 and 2023

Readers are directed to Note D to the Consolidated Financial Statements, “Business Segments,” for data on the financial results of the Company’s three business segments for the first nine months ended September 29, 2024 and October 1, 2023.

On a consolidated basis, net sales increased by $11,040,000 (5%), gross profit decreased by $1,024,000 (2%), selling and general expenses decreased by $1,027,000 (4%), and amortization decreased by $120,000 (10%). Other income decreased by $792,000 (14%), earnings before provision for income taxes decreased by $669,000 (3%), and net earnings decreased by $672,000 (3%). Details concerning these changes can be found in the comments by segment below.

Housewares/Small Appliance net sales increased by $3,217,000 from $61,533,000 to $64,750,000, or 5%, primarily attributable to the increase in units shipped, approximately one-fourth of which was offset by decreases in pricing. Defense net sales increased by $8,086,000 from $179,874,000 to $187,960,000 or 5%, primarily reflecting an increase in shipments from the segment's backlog.

Housewares/Small Appliance gross profit decreased $1,248,000 from $12,814,000 to $11,566,000, primarily reflecting the sales increase mentioned above, offset by increases in the cost of ocean shipping, higher repair costs at its main facility, and changes in various accruals. Defense gross profit increased $1,158,000 from $36,992,000 to $38,150,000, primarily reflecting the increase in sales mentioned above, impacted by changes to the product mix, and improved efficiencies. Due to the startup nature of the businesses in the Safety segment and the resulting limited revenues, gross margins were negative in both years.

Selling and general expenses for the Housewares/Small Appliance decreased $657,000, primarily reflecting decreased accruals relating to legal and professional costs of $518,000 and bad debts of $285,000, offset by an increase in software expense of $88,000. Selling and general expenses for the Defense segment increased $638,000, primarily reflecting increased personnel and recruiting costs of $613,000, and the absence of a prior year adjustment of $313,000 related to the purchase of Woodlawn Manufacturing LTD., which was acquired on October 26, 2022. These were partially offset by the absences of prior year legal settlement costs of $288,000, and one-time insurance related costs of $250,000. Selling and general expenses for the Safety segment decreased $1,008,000, primarily reflecting the decreased personnel costs of $655,000 and decreased legal and professional costs of $312,000.

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

The $792,000 decrease in other income was primarily attributable to a decrease in interest income on marketable securities largely stemming from a lower average daily investment, partially offset by higher yields.

Earnings before provision for income taxes decreased $669,000 from $27,240,000 to $26,571,000. The provision for income taxes increased slightly from $5,840,000 to $5,843,000. The effective income tax rate was 22% and 21% for the first nine months ended September 29, 2024 and October 1, 2023, respectively. Net earnings decreased $672,000 from $21,400,000 to $20,728,000, or 3%.

### Liquidity and Capital Resources

Net cash used in operating activities was $45,793,000 during the first nine months of 2024 compared to $28,790,000 provided by operating activities during the first nine months of 2023. The principal factors contributing to the change 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 nine months of 2024 were net earnings of $20,728,000, which included non-cash depreciation and amortization expenses of $3,877,000. Contributing to the cash used were increases in inventory levels, as well as a decrease in payable and accrual levels. These were partially offset by decreases in accounts receivable levels stemming from cash collections on customer sales and deposits made to vendors included in other current assets. Of particular note during the first nine months of 2023 were net earnings of $21,400,000, which included non-cash depreciation and amortization expenses of $4,144,000. Contributing to the cash provided were decreases in accounts receivable levels stemming from cash collections on customer sales and deposits made to vendors included in other assets and current assets, and increases in payable and accrual levels, partially offset by increases in inventory levels.

Net cash provided by investing activities was $5,981,000 for the first nine months of 2024, and net cash used in investing activities was $1,134,000 for the first nine months of 2023. Significant factors contributing to the change were net maturities and sales of marketable securities of $9,624,000 in 2024, in contrast with net marketable securities purchased of $68,000 in 2023; and purchases of property, plant and equipment of $3,873,000 in 2024, as opposed to $1,693,000 in 2023.

Net cash used in financing activities was $31,516,000 and $27,956,000, for the first nine months of 2024 and 2023, respectively, and primarily relates to the annual dividend payments. The extra dividend increased from $3.00 per share in 2023 to $3.50 per share in 2024. Cash flows for both nine month periods also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan. In addition, the Company drew on and repaid its line of credit during 2024, incurring interest expense of $2,000.

Working capital decreased by $9,608,000 during the first nine months of 2024 to $278,483,000 at September 29, 2024 for the reasons stated above. The Company's current ratio was 5.0 to 1.0 at both September 29, 2024 and December 31, 2023.

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

The Company has substantial liquidity in the form of cash and cash equivalents and marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means. The bulk of its marketable securities are invested in certificates of deposit and the variable rate demand notes described in Item 3 of Part I of this quarterly report on Form 10-Q. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings.

### Critical Accounting Estimates

The Company's discussion and analysis of financial condition and results of operations are based upon its Consolidated Financial Statements. The preparation of the Company's Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and revenues and expenses during the periods reported. The estimates are based on experience and other assumptions that the Company believes are reasonable under the circumstances, and these estimates are evaluated on an ongoing basis. Actual results may differ from those estimates.

The Company's critical accounting policies are those that materially affect its Consolidated Financial Statements and involve difficult, subjective, or complex judgments by management. 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 as they involve the use of significant estimates and assumptions as described above. These critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors. See Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of the Annual Report on Form 10-K for the year-ended December 31, 2023 filed on March 15, 2024 for more detailed information regarding the Company's critical accounting policies.

#### Inventories

New Housewares/Small Appliance and Safety product introductions are an important part of the Company’s sales. In the case of the Housewares/Small Appliance segment, the introductions are important to offset the morbidity rate of other products and/or the effect of lowered acceptance of seasonal products due to weather conditions. New products entail unusual risks 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. The Housewares/Small Appliance segment recorded impairments related to such losses of $1,216,000 during the year ended 2023. There were no other obsolescence issues that had a material effect during the nine months ended September 29, 2024. In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related inventory. Inventory risk for the Company’s Defense segment is not deemed to be significant, as products are largely built pursuant to customers’ specific orders.

#### Self-Insured Product Liability 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 a health care claim reaches a specified threshold. The Company’s insurance coverage varies from policy year to policy year, and there are typically limits on all types of insurance coverage, which also vary from policy year to policy year. Accordingly, the Company records an accrual for known claims and incurred but not reported claims, including an estimate for related legal fees in the Company’s Consolidated Financial Statements. The Company utilizes historical trends and other analysis to assist in determining the appropriate accrual. There are no known claims that would have a material adverse impact on the Company beyond the reserve levels that have been accrued and recorded on the Company’s books and records. An increase in the number or magnitude of claims could have a material impact on the Company’s financial condition and results of operations.

#### Revenues

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

#### Impairment and Valuation of Long-lived Assets

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

The Company recognizes the excess cost of acquired entities over the net amount assigned to the fair value of assets acquired and liabilities assumed as goodwill. Goodwill is tested for impairment on an annual basis at the start of the fourth quarter and between annual tests whenever an impairment is indicated. The impairment test for goodwill requires the determination of fair value of the reporting unit. The Company uses multiples of earnings before interest, taxes, depreciation, and amortization ("EBITDA"), sales, and discounted cash flow models, which are described above, to determine the reporting unit's fair value, as appropriate.

## Market risk

As filed, 2,254 characters.

The Company's interest income on cash equivalents and marketable securities is affected by changes in interest rates in the United States. Cash equivalents primarily consist of money market funds. Based on the accounting profession’s interpretation of cash equivalents under FASB ASC 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 seven days that can be tendered to the trustee or remarketer upon seven days notice for payment of principal and accrued interest amounts. The seven-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 certificates of deposits and other fixed rate securities, with a weighted average life of 0.5 years. Accordingly, changes in interest rates have not had a material effect on the Company, and the Company does not anticipate that future exposure to interest rate market risk will be material. The Company uses sensitivity analysis to determine its exposure to changes in interest rates.

The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments. Most transactions with international customers are entered into in U.S. dollars, precluding the need for foreign currency cash flow hedges. As the majority of the Housewares/Small Appliance segment’s suppliers are located in China, periodic changes in the U.S. dollar and Chinese Renminbi (RMB) exchange rates do have an impact on that segment’s product costs. It is anticipated that any potential material impact from fluctuations in the exchange rate will be to the cost of products secured via purchase orders issued subsequent to the revaluation.

## Controls and procedures

As filed, 846 characters.

#### 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 September 29, 2024. Based on that evaluation, the Company’s Chief Executive Officer and Treasurer (principal financial officer) concluded that the Company’s disclosure controls and procedures were effective as of that date.

There were no changes to internal controls over financial reporting during the quarter ended September 29, 2024 that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-034199. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.