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FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2014
10-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________________ to __________________________
or
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
(IRS Employer
Identification Number)
54703-3703
(Zip Code)
Registrant’s telephone number, including area code: (715) 839-2121
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
$1.00 par value common stock
Name of each exchange
on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ☒
No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or any amendment to the Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐
No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second
fiscal quarter: $347,996,185. The number of shares outstanding of each of the registrant’s classes of common stock, as of March 2, 2015 was 6,917,222.
The Registrant has incorporated in Part II and Part III of Form 10-K, by reference, portions of its 2014 Annual Report and portions of its Proxy Statement for its
2015 Annual Meeting of Stockholders.
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ITEM 1. BUSINESS
A. DESCRIPTION OF BUSINESS
PART I
The business of National Presto Industries, Inc. (the “Company” or “National Presto”) consists of three business segments. For a further discussion
of the Company’s business, the segments in which it operates, and financial information about the segments, please refer to Note L to the
Consolidated Financial Statements. The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical
appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances. The Defense segment manufactures 40mm
ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases; performs Load, Assemble and Pack (LAP)
operations on ordnance-related products primarily for the U.S. Government and prime contractors; produces and sells a variety of less lethal
products and support accessories, and provides training for the use of less lethal products; and manufactures detonators, booster pellets, release
cartridges, lead azide, and other military energetic devices and materials. The Absorbent Products segment manufactures and sells private label and
branded adult incontinence products.
1. Housewares/Small Appliance Segment
Housewares and electrical appliances sold by the Company include pressure cookers and canners; the Presto Control Master® heat control single
thermostatic control line of skillets in several sizes, griddles, woks and multi-purpose cookers; deep fryers of various sizes; waffle makers; pizza
ovens; slicer/shredders; electric heaters; corn poppers (hot air, oil, and microwave); dehydrators; rice cookers; microwave bacon cookers;
coffeemakers and coffeemaker accessories; electric tea kettles; electric knife sharpeners; a line of kitchen gadgets; and timers. Pressure cookers and
canners are available in various sizes and are fabricated of aluminum and, in the case of cookers, of stainless steel, as well.
For the year ended December 31, 2014, approximately 11% of consolidated net sales were provided by cast products (griddles, waffle makers, die
cast deep fryers, skillets and multi-cookers), and approximately 18% by noncast/thermal appliances (stamped cookers and canners, pizza ovens,
corn poppers, coffee makers, microwave bacon cookers, dehydrators, rice cookers, tea kettles, electric stainless steel appliances, non-cast fryers and
heaters). For the year ended December 31, 2013, approximately 13% of consolidated net sales were provided by cast products, and approximately
18% by noncast/thermal appliances. For the year ended December 31, 2012, approximately 13% of consolidated net sales were provided by cast
products, and approximately 17% by noncast/thermal appliances. For the years ended December 31, 2014 and 2012, this segment had one customer
which accounted for 10% or more of Company consolidated net sales. That customer was Wal-Mart Stores, Inc. which accounted for 10% of
consolidated net sales in both 2014 and 2012. The loss of Wal-Mart Stores as a customer would have a material adverse effect on the segment.
Products are sold primarily in the United States and Canada directly to retailers and also through independent distributors. Although the Company
has long established relationships with many of its customers, it does not have long-term supply contracts with them. The loss of, or material
reduction in, sales to any of the Company’s major customers could adversely affect the Company’s business. Most housewares and electrical
appliances are sourced from vendors in the Orient. (See Note J to the Consolidated Financial Statements.)
The Company has a sales force of 14 employees that sell to and service most customers. A few selected accounts are handled by manufacturers’
representatives who may also sell other product lines. Sales promotional activities are conducted through the use of newspaper advertising and
television. The business is seasonal, with the normal peak sales period occurring in the fourth quarter of the year prior to the holiday season. This
segment operates in a highly competitive and extremely price sensitive environment. Increased costs that cannot be fully absorbed into the price of
products or passed along in the form of price increases to the retail customer can have a significant adverse impact on operating results. Several
companies compete for sales of housewares and small electrical appliances, some of which are larger than the Company’s segment and others
which are smaller. In addition, some customers maintain their own private label, as well as purchase brokered product directly from the
Orient. Product competition extends to special product features, product pricing, marketing programs, warranty provisions, service policies and
other factors. New product introductions are an important part of the Company’s sales to offset the morbidity rate of other products and/or the
effect of lowered acceptance of seasonal products due to weather conditions. New products entail unusual risks. Engineering and tooling costs are
increasingly expensive, as are finished goods that may not have a ready market or achieve widespread consumer acceptance. High-cost advertising
commitments which may accompany such new products or may be required to maintain sales of existing products may not be fully absorbed by
ultimate product sales. Initial production schedules, set in advance of introduction, carry the possibility of excess unsold inventories. New product
introductions are further subject to delivery delays from supply sources, which can impact availability for the Company’s most active selling
periods.
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Research and development costs related to new product development for the years 2014, 2013, and 2012 were absorbed in operations of these years
and were not a material element in the aggregate costs incurred by the Company.
Products are generally warranted to the original owner to be free from defects in material and workmanship for a period of one to twelve years from
date of purchase, depending on the product. The Company allows a sixty-day over-the-counter initial return privilege through cooperating dealers.
Products are serviced through a corporate service repair operation. The Company’s service and warranty programs are competitive with those
offered by other manufacturers in the industry.
The Company primarily warehouses and distributes its products from distribution centers located in Canton and Jackson, Mississippi. Selective use
is made of leased tractors and trailers.
The Company invests funds not currently required for business activities (see Note A(5) to the Consolidated Financial Statements). Income from
invested funds is included in Other Income in the accompanying Consolidated Financial Statements.
Earnings from investments may vary significantly from year to year depending on interest yields on instruments meeting the Company’s investment
criteria, and the extent to which funds may be needed for internal growth, acquisitions, newly identified business activities, and reacquisition of
Company stock.
2. Defense Segment
AMTEC Corporation was acquired on February 24, 2001, and manufactures 40mm ammunition, and precision mechanical and electro-mechanical
products for the U.S. Department of Defense (DOD) and DOD prime contractors. AMTEC’s 75,000 square foot manufacturing facility located in
Janesville, Wisconsin is focused on producing niche market ordnance products (such as training ammunition, fuzes, firing devices, and
initiators). AMTEC is also the prime contractor for the 40mm ammunition system to the DOD (more fully described below).
Spectra Technologies LLC, a subsidiary of AMTEC, was acquired on July 31, 2003, and is engaged in the manufacture and delivery of munitions
and ordnance-related products for the DOD and DOD prime contractors. Spectra maintains 276,000 square feet of space located in East Camden,
Arkansas, dedicated primarily to Load, Assemble and Pack (LAP) type work and during 2008, completed a facility which enabled it to begin
performance in 2008 of LAP work for the 40mm systems program previously mentioned and referenced below.
Amron, a division of AMTEC, holds the assets that were purchased from Amron LLC on January 30, 2006. Amron manufactures cartridge cases
used in medium caliber ammunition (20mm, 25mm, 30mm and 40mm) primarily for the DOD and DOD prime contractors, which includes the
40mm systems program previously mentioned and referenced below. The Amron manufacturing facility is 208,000 square feet and is located in
Antigo, Wisconsin.
AMTEC Less Lethal Systems, Inc., a subsidiary of AMTEC Corporation, holds the assets that were purchased from ALS Technologies, Inc, a small
Arkansas manufacturer of less lethal ammunition, on November 1, 2011. The subsidiary’s products include smoke and tear gas grenades, specialty
impact munitions, diversionary devices and stun munitions, support accessories like launchers and gas masks, as well as training for the use of its
products. The subsidiary’s new state-of-the-art less lethal ammunition manufacturing and training facility, which was completed in 2013, is 54,000
square feet and is located in Perry, Florida. Previously, the subsidiary operated out of a 15,000 square foot facility in Bull Shoals, Arkansas.
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Tech Ord, a division of AMTEC, holds the assets of Chemring Energetic Devices, Inc.’s business located in Clear Lake, South Dakota and all of the
real property owned by Technical Ordnance Realty, LLC that were acquired on January 24, 2014. The 88,000 square foot Clear Lake facility is a
manufacturer of detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials, and its major
customers include US and foreign government agencies, AMTEC Corporation, and other defense contractors.
The Defense segment competes for its business primarily on the basis of technical competence, product quality, manufacturing experience, and
price. This segment operates in a highly competitive environment with many other organizations, some of which are larger and others that are
smaller.
On April 25, 2005, AMTEC Corporation was awarded the high volume, five-year prime contract for management and production of the Army’s
40mm Ammunition System. The Army selected AMTEC as one of two prime contractors responsible for supplying all requirements for 40mm
practice and tactical ammunition for a period of five years. AMTEC was awarded the majority share of requirements, and the Army estimated the
total for the two contract awards, if all of the options were fully exercised, to be $1.3 billion. Deliveries under the contract exceeded $671,000,000,
with final deliveries completed in 2013. On February 18, 2010, the Army awarded AMTEC a second five-year contract for the management and
production of the 40mm Ammunition System. As in the original five-year contract, AMTEC was awarded the majority share of the 40mm
requirement. The total dollar amount of this contract awarded to AMTEC was $566,000,000. The actual and cumulative dollar volume with the
Army will be dependent upon military requirements and funding, as well as government procurement regulations and other factors controlled by the
Army and the Department of Defense. The Company expects deliveries under this contract to continue through 2017. In addition, as part of an
acquisition of a group of assets from DSE, Inc. completed on November 7, 2013 (see Note Q to the Consolidated Financial Statements), AMTEC
acquired through a novation agreement an additional $188,000,000, representing the remaining undelivered portion of the award that had been
given to AMTEC’s competitor under the most recent five-year contract mentioned above. Total deliveries for the systems program under the most
recent 40mm contract were $124,000,000 during 2014. Additional shipments under the contract will be made during 2015.
On January 29, 2015, AMTEC submitted its proposal to the Army in response to the next five-year contract solicitation for the management and
production of the 40mm Ammunition System. AMTEC has been advised by the Army that a decision on any contract award will be made in the
second quarter of 2015.
During 2014, almost all of the work performed by this segment directly or indirectly for the DOD was performed on a fixed-price basis. Under
fixed-price contracts, the price paid to the contractor is awarded based on competition at the outset of the contract and therefore is generally not
subject to adjustments reflecting the actual costs incurred by the contractor, with the exception of some limited escalation clauses, which on the
2010 contract apply to only three materials – steel, aluminum and zinc. The Defense segment’s contracts and subcontracts contain the customary
provision permitting termination at any time for the convenience of the government, with payment for any work completed, associated profit and
inventory/work in progress at the time of termination. The segment’s business does not tend to be seasonal.
3. Absorbent Products Segment
The Absorbent Products segment business (Presto Absorbent Products, Inc.) was formed on November 21, 2001 to purchase assets from RMED
International, a company that manufactured primarily private label diapers. On October 6, 2003, the segment purchased the assets of NCN
Hygienic Products, Inc., a Marietta, Georgia company which manufactured adult incontinence products and puppy pads, which were likewise
primarily private label products. Focus continues to be on private label, although branded product is produced under the “PRESTO” label. The
absorbent products business is capital intensive. New absorbent product equipment is extremely complex. Not only is considerable time required
to secure and install the equipment, but even more time is required to develop the requisite employee skill sets to utilize the equipment
efficiently. Sales channels must be in place to sell the increased capacity that results from new equipment and improved efficiency in operations.
During the fourth quarter of 2006, in order to enhance the Absorbent Products segment’s long-term manufacturing efficiencies, the Company
decided to consolidate its adult incontinence production capabilities and, as a result, began the process of relocating its adult incontinence
manufacturing equipment from its Marietta, Georgia facility to its Eau Claire, Wisconsin facility. In addition, the Company made a decision to
discontinue the manufacture of puppy pads. This transition was largely completed by the end of the first quarter of 2007.
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Unlike the housewares/small appliance business, the absorbent product business is not seasonal. To the extent there are variations from month to
month, that is primarily a function of customer promotional timing or a change in the customer base. As private label products tend to emulate
branded product, new product development is important, but is largely limited to providing features similar to those found in national branded
product. Research and development costs are absorbed in operations.
The absorbent product industry is a very competitive, high volume-low margin business. There are several competitors, most of which are larger
than this segment of the Company. Product competition is largely based on product pricing, quality, and features.
Product cost is heavily influenced by commodity costs which include wood pulp, as well as many petroleum based products. It is also influenced
by equipment operating speed, efficiency, and utilization.
Advertising is typically the responsibility of the owner of the private label and is thus minimal. Most sales are currently handled through
distributor/broker arrangements.
The segment, which realized its first significantly profitable year in 2009, began experiencing capacity constraints towards the end of that year. To
date, it has ordered four multi-million dollar machines, three of which had been installed in the Eau Claire, Wisconsin facility by the end of
2014. The segment also completed a warehouse addition to the current facility in Eau Claire and installed an automated handling system, both of
which were in operation by the third quarter of 2011. Additional equipment purchases are in process.
B. OTHER COMMENTS
1. Sources and Availability of Materials
See Note J to the Consolidated Financial Statements.
2. Patents, Trademarks, and Licenses
Patents, particularly on new products, trademarks and know-how are considered significant to the Company’s Housewares/Small Appliance
segment. The Company’s current and future success depends upon judicial protection of its intellectual property rights (patents, trademarks and
trade dress). Removal of that protection would expose the Company to competitors who seek to take advantage of the Company’s innovations and
proprietary rights. The Company has dozens of U.S. and foreign patents pending and granted. Of those U.S. patents granted, the following is a
non-exhaustive list of those relevant to current products and their expiration dates, assuming continued payment of maintenance fees (the date is the
latest expiration date of the corresponding patents): Quick Release Appliance Cord Assemblies (US 6,719,576, December 2022, and 6,527,570,
October 2021), Rotatable Cooking Apparatus (US 6,125,740 and 6,354,194, March 2019), Coffee brewer (US D695,064 December 2027), Griddle
w/ folding legs (US 7,635,827 November 2027), Griddle w/ attached warming tray (US D674,656 January 2027), Low profile griddle (US
D575,098 August 2022), Stirring popcorn maker (US D615,797 May, 2024), and Parabolic Heater (US D633,189, February 2025). To date, the
Company has vigorously protected its rights and enjoyed success in all its intellectual property suits. The Defense and Absorbent Products
segments do not currently hold patents, trademarks, and licenses which would be deemed significant to their respective operations.
3. Effects of Compliance with Environmental Regulations
In May 1986, the Company’s Eau Claire, Wisconsin, site was placed on the United States Environmental Protection Agency’s (EPA) National
Priorities List (NPL) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) because of alleged
hazardous waste deposited on the property. At year end 1998, all remediation projects at the Eau Claire, Wisconsin, site had been installed, were
fully operational, and restoration activities had been completed.
Based on factors known as of December 31, 2014, it is believed that the Company’s environmental liability reserve will be adequate to satisfy on-
going remediation operations and monitoring activities; however, should environmental agencies require additional studies or remediation projects,
it is possible the existing accrual could be inadequate.
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Management believes that in the absence of any unforeseen future developments, known environmental matters will not have any material effect on
the results of operations or financial condition of the Company.
4. Number of Employees of the Company
As of December 31, 2014, the Company and its subsidiaries had 1,043 employees compared to 889 employees at the end of December 2013.
Approximately 163 employees of Amron are members of the United Steel Workers union. The most recent contract between Amron and the union
was effective through February 28, 2015. A new contract between Amron and the union has been negotiated and is effective through February 29,
2020.
5. Industry Practices Related to Working Capital Requirements
The major portion of the Company’s sales was made with terms of 60 days or shorter.
For the Housewares/Small Appliance segment, inventory levels increase in advance of the selling period for products that are seasonal, such as
pressure canners, heaters, and major new product introductions. Inventory build-up also occurs to create stock levels required to support the higher
sales that occur in the latter half of each year. Buying practices of the Company’s customers require "just-in-time" delivery, necessitating that the
Company carry large finished goods inventories.
The multiple stock keeping units inherent in the private label absorbent product business, combined with the desire to avoid excessive machine
changeover (which can have a negative impact on efficiency), necessitates the carrying of a large finished goods inventory in the Absorbent Product
segment as well.
The ability to meet U.S. Department of Defense demands also necessitates the carrying of large inventories in the Defense segment.
6. Order Backlog
Shipment of most of the Company’s Housewares/Small Appliance products occurs within a relatively short time after receipt of the order and,
therefore, there is usually no substantial order backlog. New product introductions may result in order backlogs that vary from product to product
and as to timing of introduction.
The contract backlog of the Defense segment was approximately $407,000,000, $452,000,000, and $310,000,000 at December 31, 2014, 2013, and
2012, respectively. Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders. It is
anticipated that the backlog will be produced and shipped during a 24 to 30-month period, after December 31, 2014.
Shipment of Absorbent Products typically occurs within 7 to 30 days from receipt of an order and thus there is usually no substantial long term
backlog of orders.
C. AVAILABLE INFORMATION
The Company has a web site at www.gopresto.com. The contents of the Company’s web site are not part of, nor are they incorporated by reference
into, this annual report.
The Company makes available on its web site its annual reports on Form 10-K or 10-K/A and, beginning with its second quarter filing in 2011,
quarterly reports on Form 10-Q or 10-Q/A. It does not provide its current reports on Form 8-K or amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act on its web site. The Company does not do so because these and all other reports it files with
the SEC are readily available to the public on the SEC web site at www.sec.gov and can be located with ease using the link provided on the
Company’s web site. The Company provides paper copies of its annual report free of charge upon request.
The public also may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330.
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ITEM 1A. RISK FACTORS
The Company’s three business segments described above are all subject to a number of risk factors, the occurrence of any one or more of which
could have a significant adverse impact on the business, financial condition, or results of operations of the Company as a whole.
Housewares/Small Appliance Segment:
Increases in the costs for raw materials, energy, transportation and other necessary supplies could adversely affect the results of the Company’s
operations.
The Company’s suppliers purchase significant amounts of metals, plastics, and energy to manufacture the Company’s products. Also, the cost of
fuel has a major impact on transportation costs. Any increased costs that cannot be fully absorbed or passed along in the form of price increases to
the retail customer can have a material adverse impact on the Company’s operating results.
Reliance on third-party suppliers in Asia makes this segment vulnerable to supply interruptions and foreign business risks.
The majority of the housewares/small appliance products are manufactured by a handful of third-party suppliers in Asia, primarily in the People’s
Republic of China. The Company’s ability to continue to select and develop relationships with reliable vendors who provide timely deliveries of
quality parts and products will impact its success in meeting customer demand. Most products are procured on a “purchase order” basis. As a
result, the Company may be subject to unexpected changes in pricing or supply of products. There is no assurance that it could quickly or
effectively replace any of its vendors if the need arose. Any significant failure to obtain products on a timely basis at an affordable cost or any
significant delays or interruptions of supply may disrupt customer relationships and have a material adverse effect on the Company’s business.
In addition, international manufacturing is subject to significant risks, including, among others, labor unrest, adverse social, political and economic
conditions, interruptions in international shipments, tariffs and other trade barriers, legal and regulatory constraints and fluctuations in currency
exchange rates. Although China currently enjoys “most favored nation” trading status with the United States, the U.S. Government has in the past
proposed to revoke that status and to impose higher tariffs on products imported from China, which could have a material adverse effect on the
Company’s business.
The Housewares/Small Appliance segment is dependent on key customers, and any significant decline in business from one or more of its key
customers could adversely affect the segment’s operating results.
Although the Company has a long-established relationship with its major customers, it does not have any long-term supply agreement or guaranty
of minimum purchases. As a result, the customers may fail to place anticipated orders, change planned quantities, delay purchases, or change
product assortments for reasons beyond the Company’s control, which could prove detrimental to the segment’s operating results.
The sales for this segment are highly seasonal and dependent upon the United States retail markets and consumer spending.
Traditionally, this segment has recognized a substantial portion of its sales during the Holiday selling season. Any downturn in the general
economy, shift in consumer spending away from its housewares/small appliances, or deterioration in the financial health of its customer base could
adversely affect sales and operating results.
The Company may not be successful in developing and introducing new and improved consumer products.
The development and introduction of new housewares/small appliance products is very important to the Company’s long-term success. The ability
to develop new products is affected by, among other things, whether the Company can develop and fund technological innovations and successfully
anticipate consumer needs and preferences, as well as the intellectual property rights of others. The introduction of new products may require
substantial expenditures for advertising and marketing to gain marketplace recognition or to license intellectual property. There is no guarantee that
the Company will be aware of all relevant intellectual property in the industry and may be subject to claims of infringement, which could preclude it
from producing and selling a product. Likewise, there is no guarantee that the Company will be successful in developing products necessary to
compete effectively in the industry or that it will be successful in advertising, marketing and selling any new products.
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Product recalls or lawsuits relating to defective products could have an adverse effect on the Company, as could the imposition of industry
sustainability standards.
As distributors of consumer products in the United States, the Company is subject to the Consumer Products Safety Act, which empowers the U.S.
Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain
circumstances, the U.S. Consumer Products Safety Commission could require the Company to repair, replace or refund the purchase price of one or
more of its products, or it may voluntarily do so. Any repurchase or recall of products could be costly and damage the Company’s reputation, as
well as subject it to a sizable penalty that the Commission is empowered to impose. If the Company removed products from the market, its
reputation or brands could be tarnished and it might have large quantities of finished products that could not be sold.
The Company could also face exposure to product liability claims if one of its products were alleged to have caused property damage, bodily injury
or other adverse effects. It is self-insured to specified levels of those claims and maintains product liability insurance for claims above the self-
insured levels. The Company may not be able to maintain such insurance on acceptable terms, if at all, in the future. In addition, product liability
claims may exceed the amount of insurance coverage. Moreover, many states do not allow insurance companies to provide coverage of punitive
damages, in the event such damages are imposed. Additionally, the Company does not maintain product recall insurance. As a result, product
recalls or product liability claims could have a material adverse effect on the Company’s business, results of operations and financial condition.
The portable appliance and floor care companies’ industry association is in the process of trying to promulgate sustainability standards for the
industry. It has passed an outline for a standard but has not yet developed specific guidelines for implementation. The Sustainability Consortium
(TSC) under the auspices of a Retail Association (RILA) is trying to develop standards for all consumer products. If either the association or TSC
is successful in developing enforceable standards, the standards are expected to ultimately become mandatory. The standards as drafted will do
nothing for the environment, but will entail the addition of significant bureaucracy and outside certification fees. As such, compliance will be
burdensome and expensive.
The housewares/small appliance industry continues to consolidate, which could ultimately impede the Company’s ability to secure product
placement at key customers.
Over the past decade, the housewares/small appliance industry has undergone significant consolidation, and, as a result, the industry primarily
consists of a limited number of larger companies. Larger companies do enjoy a competitive advantage in terms of the ability to offer a larger
assortment of product to any one customer. As a result, the Company may find it more difficult or lose the ability to place its products with its
customers.
Defense Segment:
The Company relies primarily on sales to U.S. Government entities, and the loss of a significant contract or contracts could have a material
adverse effect on its results of operations.
As the Company’s sales in the Defense segment are primarily to the U.S. Government and its prime contractors, it depends heavily on the contracts
underlying these programs. The loss or significant reduction of a major program in which the Company participates could have a material adverse
effect on the results of operations.
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In April 2005, AMTEC Corporation was selected as one of two prime contractors responsible for supplying all requirements for 40mm practice and
tactical ammunition rounds for the Army’s five year 40mm systems program. AMTEC’s deliveries to the Army over the life of the contract
exceeded $671,000,000. In February 2010, the Army awarded AMTEC a new contract for an additional five-year period. As in the original
contract, AMTEC and one other prime contractor were to be responsible for supplying all of the requirements for the 40mm family of ammunition
rounds. In November 2013, AMTEC acquired through a novation agreement as part of an acquisition of a group of assets (see Note Q to the
Consolidated Financial Statements), the remaining undelivered portion of the award that had been given to AMTEC’s competitor under the second
five-year contract mentioned above. The actual annual and cumulative dollar volume with the Army will be dependent on military requirements
and funding. Total deliveries under the systems program for the most recent 40mm contract were $124,000,000 during 2014.
On January 29, 2015, AMTEC submitted its proposal to the Army in response to the next five-year contract solicitation for the management and
production of the 40mm Ammunition System. AMTEC has been advised by the Army that a decision on any contract award will be made in the
second quarter of 2015.
A decline in or a redirection of the U.S. defense budget could result in a material decrease in the Defense segment sales and earnings.
Government contracts are primarily dependent upon the U.S. defense budget. During recent years, the Company’s sales have been augmented by
increased defense spending, including supplemental appropriations for operations in Iraq and Afghanistan. However, future defense budgets could
be negatively affected by several factors, including U.S. Government budget deficits, administration priorities, U.S. national security strategies, a
change in spending priorities, the complete withdrawal from Afghanistan, and the reduction of military operations in other parts of the world. Any
significant decline or redirection of U.S. military expenditures could result in a decrease to the Company’s sales and earnings.
U.S. Government contracts are also dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds
for a given program on a fiscal year basis even though contract performance may take more than one year. As a result, at the outset of a major
program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only
as Congress makes appropriations for future fiscal years. In addition, most U.S. Government contracts are subject to modification if funding is
changed. Any failure by Congress to appropriate additional funds to any program in which the Company participates, or any contract modification
as a result of funding changes, could materially delay or terminate the program. This could have a material adverse effect on the results of the
Company’s operations.
The Company may not be able to react to increases in its costs due to the nature of its U.S. Government contracts.
Substantially all of the Company’s U.S. Government contracts are being performed on fixed-price basis. Under fixed-price contracts, the Company
agrees to perform the work for a fixed price, subject to limited escalation provisions on specified raw materials. Thus it bears the risk that any
increases or unexpected costs may reduce profits or potentially cause losses on the contract, which could have a material adverse effect on results of
operations and financial condition. That risk is potentially compounded by the political actions under consideration by federal and state
governments, including climate change and labor regulations, which could have an impact if enacted or promulgated on the availability of
affordable labor, energy and ultimately, materials, as the effects of the legislation/regulation ripple throughout the economy. In addition, products
are accepted by test firing samples from a production lot. Lots typically constitute a sizable amount of product. Should a sample not fire as
required by the specifications, the cost to rework or scrap the entire lot could be substantial.
The Company’s U.S. Government contracts are subject to termination.
All of the Company’s U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if the Company defaults
by failing to perform under the contract. Performance failure can occur from a myriad of factors, which include late shipments due to the inability
to secure requisite raw materials or components or strikes or other labor unrest, equipment failures or quality issues which result in products that do
not meet specifications, etc. Termination for convenience provisions provide only for recovery of costs incurred and profit on the work completed
prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in
procuring undelivered items from another source. If a termination provision is exercised, it could have a material adverse effect on the Company’s
business, results of operations and financial condition.
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Failure of the Company’s subcontractors to perform their contractual obligations could materially and adversely impact contract performance.
Key components and services are provided by third party subcontractors, several of which the segment is required to work with by government
edict. Under the contract, the segment is responsible for the performance of those subcontractors, many of which it does not control. There is a risk
that the Company may have disputes with its subcontractors, including disputes regarding the quality and timeliness of work performed by
subcontractors. A failure by one or more of the Company’s subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or
perform the agreed-upon services may materially and adversely impact the Company’s ability to perform its obligations as the prime contractor.
Absorbent Products Segment:
The Absorbent Products segment is dependent on key customers, and any significant decline in business from one or more of its key customers
could adversely affect the segment’s operating results.
One customer, Medline Industries Holdings LP, accounted for more than 10% of consolidated net sales in 2011. In fourth quarter 2011, Medline
began operating its own absorbent products facility. As a result, sales to Medline for 2012, 2013, and 2014 declined significantly. During the last
several years, the Absorbent Products segment has been implementing a customer diversification program to reduce its reliance on this customer
and in the process has developed smaller, albeit new key customers whose loss could also adversely affect the segment’s results.
Increases in costs for raw materials, transportation, energy and other supplies could adversely affect the results of its operations.
At times, the Company has experienced significant increases in its raw material, transportation, energy, and other supply costs primarily due to
limited global supply and increased demand. Any increased costs that cannot be fully absorbed or passed along in the form of price increases to its
customers could adversely affect earnings. Global economic conditions, supplier capacity constraints and other factors could affect the availability
of, or prices for, those raw materials. The risk is further compounded by the political actions under consideration by federal and state governments,
including climate change and labor regulations, which could have an impact if enacted or promulgated on the availability of affordable labor,
energy, and ultimately, materials, as the effects of the legislation ripple throughout the economy.
The Company may not be successful in developing and introducing new and improved absorbent products.
The development and introduction of new absorbent products is very important to long-term success. The ability to develop new products is
affected by, among other things, whether the Company can develop and fund technological innovations and successfully anticipate consumer needs
and preferences. The introduction of new products may require substantial expenditures for advertising and marketing to gain marketplace
recognition or to license intellectual property. There is no guarantee that it will be aware of all relevant intellectual property in the industry and may
be subject to claims of infringement, which could preclude it from producing and selling a product. Likewise, there is no guarantee that the
Company will be successful in developing products necessary to compete effectively in the industry or that it will be successful in advertising,
marketing and selling new products it develops.
The inability to operate the Company’s manufacturing facility at or near full capacity could adversely affect the result of operations.
The Absorbent Products segment is a very capital-intensive business, utilizing high cost, high-speed equipment. Since the segment operates in a
market that is highly competitive with relatively low margins, it is essential to operate near full capacity to achieve high efficiencies and profitable
financial results.
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Acquisition Risks:
The Company may pursue acquisitions of new product lines or businesses. It may not be able to identify suitable acquisition candidates or, if
suitable candidates are identified, it may not be able to complete the acquisition on commercially acceptable terms. Even if the Company is able to
consummate an acquisition, the transaction would present many risks, including, among others: failing to achieve anticipated benefits or cost
savings; difficulty incorporating and integrating the acquired technologies, services or products; coordinating, establishing or expanding sales,
distribution and marketing functions, as necessary; diversion of management’s attention from other business concerns; being exposed to
unanticipated or contingent liabilities or incurring the impairment of goodwill; the loss of key employees, customers, or distribution partners; and
difficulties implementing and maintaining sufficient controls, policies and procedures over the systems, products and processes of the acquired
company. If the Company does not achieve the anticipated benefits of its acquisitions as rapidly or to the extent anticipated by management, or if
others do not perceive the same benefits of the acquisition as the Company does, there could be a material, adverse effect on the Company’s
business, financial condition or results of operations.
Information Technology System Failure or Security Breach Risks:
The Company relies on its information technology systems to effectively manage its business data, communications, supply chain, logistics,
accounting, and other business processes. While the Company endeavors to build and sustain an appropriate technology environment, information
technology systems are vulnerable to damage or interruption from circumstances beyond the Company’s control, including systems failures,
viruses, security breaches or cyber incidents such as intentional cyber attacks aimed at theft of sensitive data, or inadvertent cyber-security
compromises. A security breach of such systems could result in interruptions of the Company’s operations, negatively impact relations with
customers or employees, and expose the Company to liability and litigation. Any such damage or interruption could have a material adverse effect
on the Company’s operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES (Owned Except Where Indicated)
The Company’s Eau Claire facility is approximately 522,000 square feet, of which Presto Absorbent Products, Inc. leases approximately 380,000 square
feet. The Company’s corporate office occupies the balance of the space in Eau Claire.
The Company also has Defense manufacturing facilities located in Janesville and Antigo, Wisconsin; East Camden, Arkansas; Perry, Florida; and Clear
Lake, South Dakota.
The Janesville, Wisconsin facility is comprised of approximately 75,000 square feet, and the Antigo, Wisconsin facility is comprised of approximately
208,000 square feet. During 2012, the Company purchased 544 acres of vacant land in Perry, Florida on which approximately 54,000 square feet were
constructed that house the Company’s less lethal ammunition manufacturing and training operations. Those operations were previously located in Bull
Schoals, Arkansas. The move from Bull Schoals, Arkansas to the new facility was completed during 2013. The East Camden operation leases
approximately 276,000 square feet. The Company acquired the 88,000 square foot Clear Lake, South Dakota facility in 2014 as part of a business
combination, which is described in Note P to the Company’s Consolidated Financial Statements.
There are two warehousing facilities located in Jackson and Canton, Mississippi used in the Housewares/Small Appliance segment.
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The Jackson facility contains 252,000 square feet. Additional temporary warehouse space is leased in an adjacent building, based on spaced needed,
which peaked at 33,000 square feet in September 2014. The Company also leases a 184,000 square foot building in Canton, Mississippi which is used
primarily for warehousing and distribution and some activities for product service functions. An additional 72,000 square feet has been leased in
adjacent Canton buildings for warehousing. The Company is considering constructing additional warehouse space to meet changing customer logistical
demands that include smaller case pack sizes and smaller and more frequent shipments.
Except as mentioned above in the Housewares/Small Appliance segment, the facilities in use for each of the segments are believed to be adequate for
their ongoing business needs.
ITEM 3. LEGAL PROCEEDINGS
See Note I to the Consolidated Financial Statements.
See Item 1-B-3 of this Form 10-K and Note K to the Consolidated Financial Statements for information regarding certain environmental matters.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
PART II
Record of Dividends Paid and Market Price of Common Stock
Applicable
Dividends Paid
per Share
2014
High
Market Price
Low
Applicable
Dividends Paid
per Share
2013
High
Market Price
Low
$
$
$
5.05
—
—
—
$
84.00
78.62
75.31
63.44
$
73.24
67.10
61.25
54.07
5.05
$
84.00
$
54.07
$
— $
—
—
—
— $
$
80.62
80.49
77.45
81.00
81.00
$
69.00
70.25
68.60
67.41
67.41
First Quarter*
Second Quarter
Third Quarter
Fourth Quarter
Full Year
* First quarter 2014 includes a regular dividend of $1.00 and an extra dividend of $4.05. An accelerated payment of the annual 2013 dividend, which included a
regular dividend of $1.00 and an extra dividend of $5.50, was made in late December 2012. The acceleration was occasioned by the uncertainty over the federal
income tax rate that would be in effect in 2013.
On February 13, 2015, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $3.05. On March 13, 2015,
a payment of $28,114,000 was made to the shareholders of record as of March 2, 2015.
The common stock of National Presto Industries, Inc. is traded on the New York Stock Exchange under the symbol “NPK”. As of March 2, 2015, there were 295
holders of record of the Company’s common stock. This number does not reflect shareholders who hold their shares in the name of broker dealers or other
nominees. During the fourth quarter of 2014, the Company did not purchase any of its equity securities.
The information under the heading “Equity Compensation Plan Information,” in the Company’s Proxy Statement for its 2015 Annual Meeting of Stockholders, is
incorporated by reference.
The line graph and related information set forth under the heading “Performance Graph” in the Company’s 2014 Annual Report is incorporated by reference.
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ITEM 6. SELECTED FINANCIAL DATA
For the years ended December 31,
Net sales
Net earnings
Net earnings per share - Basic and Diluted
Total assets
Dividends paid per common share applicable to current year
Regular
Extra
2013 Regular
2013 Extra
Total
2014
412,363
26,477
3.82
382,598
1.00
4.05
—
—
5.05
$
$
$
$
$
$
$
$
$
$
$
$
(In thousands except per share data)
2012
2013
2011
420,188
41,252
5.97
393,540
$
$
$
$
— $
—
—*
—*
— $
472,490
38,875
5.64
353,912
1.00
5.00
1.00 *
5.50 *
12.50
$
$
$
$
$
$
431,021
47,968
6.98
411,641
1.00
7.25
—
—
8.25
$
$
$
$
$
$
2010
479,000
63,531
9.26
415,133
1.00
7.15
—
—
8.15
* Fiscal year 2012 reflects the 2012 dividend paid in March, as well as a second accelerated payment made in late December of the annual 2013 dividend. The
acceleration was occasioned by the uncertainty over the federal income tax rate that would be in effect in 2013.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
An overview of the Company’s business and segments in which the Company operates and risk factors can be found in Items 1 and 1A of this Form 10-
K. Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this
Form 10-K, in the Company’s 2014 Annual Report to Shareholders, in the Proxy Statement for the annual meeting to be held May 19, 2015, 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.
2014 COMPARED TO 2013
Readers are directed to Note L, “Business Segments,” to the Company’s Consolidated Financial Statements for data on the financial results of the
Company’s three business segments for the years ended December 31, 2014 and 2013.
On a consolidated basis, sales decreased by $7,825,000 (2%), gross profit decreased by $2,151,000 (3%), selling and general expense increased by
$1,985,000 (9%), and intangibles amortization increased by $11,324,000 (1,699%). Other income, principally interest, decreased by $365,000 (50%),
while earnings before provision for income taxes decreased by $18,048,000 (31%), and net earnings decreased by $14,775,000 (36%). Details
concerning these changes can be found in the comments by segment below.
Housewares/Small Appliance net sales decreased $11,572,000 from $137,225,000 to $125,653,000, or 8%, primarily attributable to a decrease in units
shipped. Defense net sales increased by $15,347,000, from $206,198,000 to $221,545,000, or 7%, primarily reflecting shipments by its new division
acquired during 2014 (“Tech Ord”), which is described in Note P to the Company’s Consolidated Financial Statements. Absorbent Products net sales
decreased by $11,600,000 from $76,765,000 to $65,165,000, or 15%, and was primarily attributable to a decrease in units shipped, reflecting the
ongoing shift in the segment’s customer base.
Housewares/Small Appliance gross profit decreased $1,477,000 from $26,850,000 (20% of sales) in 2013 to $25,373,000 (20% of sales) in 2014,
primarily reflecting the decrease in sales mentioned above. Defense gross profit increased $7,041,000 from $50,168,000 (24% of sales) to $57,209,000
(26% of sales), primarily reflecting the increase in sales mentioned above. Absorbent products gross profit decreased $7,715,000, from $2,334,000 to a
loss of $5,381,000, largely reflecting the decrease in sales mentioned above, costs associated with the installation of new capital equipment and the
absence of the prior year’s insurance settlement of $683,000.
Selling and general expenses for the Housewares/Small Appliance segment were flat. Defense segment selling and general expenses increased
$1,640,000, primarily reflecting increased costs of $1,030,000 associated with its recently acquired Tech Ord division mentioned above and increases in
employee compensation and benefit costs of $827,000. Selling and general expenses for the Absorbent Products segment increased $287,000, primarily
reflecting the absence of the prior year’s gain on the sale of obsolete equipment.
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Intangible assets primarily consist of the value of a government sales contract, product backlogs, and consulting and non-compete agreements
recognized as a result of the acquisition of certain assets of DSE, Inc., more fully described in Note Q to the Company’s Consolidated Financial
Statements, and the value of customer relationships, trademarks and non-compete agreements related to AMTEC Less Lethal Systems, Inc. (“ALS”), a
reporting unit in the Company’s Defense segment. ALS was formed in 2011 following the acquisition of certain assets of ALS Technologies, Inc.,
described in Note P to the Company’s Consolidated Financial Statements. The intangible assets are all attributable to the Defense Products
segment. The government sales contract intangible asset is amortized based on units fulfilled under the three year contract, while the other intangible
assets are amortized on a straight-line basis that approximates economic use, over periods ranging from one to nine years. The increase in amortization
is primarily attributable to the acquired government sales contract, under which significant shipments began in 2014.
Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. During 2014, the Company noted that the carrying amount of the customer relationships, trademarks and non-compete agreements related
to ALS mentioned above exceeded the undiscounted cash flows expected to result from their use. As a result, an impairment loss of $2,063,000 was
recognized based on the Company’s analysis comparing the fair value of the intangible assets and their carrying amounts. The fair value of the
intangible assets was determined using a discounted cash flow model.
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, such as the occurrence of an event that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value. A goodwill impairment of
$2,840,000 was recognized during 2013, related to ALS mentioned above. The impairment was recognized as a result of the Company’s analysis
comparing the implied fair value of the reporting unit’s goodwill to its recorded carrying amount. The fair value used in the evaluation of the goodwill
impairment was determined using a multiple of EBITDA approach and discounted cash flow estimates.
During 2013, the Company adjusted its recorded liability for contingent consideration related to the 2011 acquisition of certain assets of ALS
Technologies, Inc. mentioned above. During the fourth quarter of 2013, the Company estimated that the earnings targets for the three calendar years
following the year of acquisition, upon which the contingent consideration liability was based, would be not be achieved. As a result, the entire
contingent consideration liability of $3,000,000 was reversed.
The above items were responsible for the change in operating profit.
Other income decreased $365,000, which was primarily attributable to lower interest income resulting from decreased yields on lower dollars of
marketable securities invested.
Earnings before provision for income taxes decreased $18,048,000 from $58,345,000 to $40,297,000. The provision for income taxes decreased from
$17,093,000 to $13,820,000, which resulted in an effective income tax rate increase from 29% in 2013 to 34% in 2014. The increase in the tax rate is
primarily attributable to a revision to the filing approach used for one of the states in which the Company files returns, resulting in a tax refund of
$4,000,000, which was recorded in 2013. Net earnings decreased $14,775,000 from $41,252,000 to $26,477,000.
2013 COMPARED TO 2012
Readers are directed to Note L, “Business Segments,” to the Company’s Consolidated Financial Statements for data on the financial results of the
Company’s three business segments for the years ended December 31, 2013 and 2012.
On a consolidated basis, sales decreased by $52,302,000 (11%), gross profit decreased by $15,511,000 (16%), and selling and general expense
decreased by $12,864,000 (38%). Other income, principally interest, increased by $26,000 (4%), while earnings before provision for income taxes
decreased by $2,079,000 (3%), and net earnings increased by $2,377,000 (6%). Details concerning these changes can be found in the comments by
segment found below.
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Housewares/Small Appliance net sales decreased $7,798,000 from $145,023,000 to $137,225,000, or 5%, primarily attributable to a decrease in units
shipped. Defense net sales decreased by $38,800,000, from $244,998,000 to $206,198,000, or 16%, primarily reflecting a decrease in unit shipments, a
significant part of which was attributable to a reduction in shipments of 40mm ammunition to the U.S. government and in cartridge case and loading
plant shipments to prime contractors. Absorbent Products net sales decreased by $5,704,000 from $82,469,000 to $76,765,000, or 7%, and was
primarily attributable to a decrease in unit shipments due in large part to a decline in shipments to a significant customer which opened its own facility
during the fourth quarter of 2011.
Housewares/Small Appliance gross profit decreased $1,008,000 from $27,858,000 (19% of sales) in 2012 to $26,850,000 (20% of sales) in 2013,
primarily reflecting the decrease in sales. Defense gross profit decreased $13,927,000 from $64,095,000 (26% of sales) to $50,168,000 (24% of sales),
primarily reflecting the decrease in sales mentioned above. Absorbent products gross profit decreased $576,000, from $2,910,000 (4% of sales) to
$2,334,000 (3% of sales), largely reflecting the decrease in sales mentioned above. These decreases were partially offset by an insurance settlement of
$683,000 in 2013 and the absence of the prior year’s deferral of revenue recognition on the sales of raw materials of $1,122,000 to an independent
manufacturing facility, which was written off in 2012. A description of the Company’s relationship with the facility can be found in Note S to the
Company’s Consolidated Financial Statements.
Selling and general expenses for the Housewares/Small Appliance segment decreased $2,278,000 from the prior year’s level. Significant items were the
absence of 2012’s litigation costs stemming from lawsuits of a spurious nature and corporate employee health and accident costs of $1,220,000 and
$1,408,000, respectively. Defense segment selling and general expenses increased $1,223,000, primarily reflecting legal and professional costs related
to the acquisition of certain assets. Selling and general expenses for the Absorbent Products segment decreased $11,809,000, which was primarily
related to the 2012 one-time write-down of receivables and equipment attributed to the financial difficulties of a foreign independent manufacturing
facility. During 2012, due to uncertainties attributed to the facility’s government’s legal system and the financial health of the facility, all Company-
owned equipment located at the foreign facility was written off, as well as all note and accounts receivables related to the facility.
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, such as the occurrence of an event that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value. A goodwill impairment of
$2,840,000 was recognized during 2013, related to AMTEC Less Lethal Systems, Inc. (“ALS”), a reporting unit in the Company’s Defense
segment. ALS was formed in 2011 following the acquisition of certain assets of ALS Technologies, Inc., described in Note P to the Company’s
Consolidated Financial Statements. The impairment was recognized as a result of the Company’s analysis comparing the implied fair value of the
reporting unit’s goodwill to its recorded carrying amount. The fair value used in the evaluation of the goodwill impairment was determined using a
multiple of EBITDA approach and discounted cash flow estimates.
During 2013, the Company adjusted its recorded liability for contingent consideration related to the 2011 acquisition of certain assets of ALS
Technologies, Inc. mentioned above. During the fourth quarter of 2013, the Company estimated that the earnings targets for the three calendar years
following the year of acquisition, upon which the contingent consideration liability is based, would be not be achieved. As a result, the entire contingent
consideration liability of $3,000,000 was reversed.
The above items were responsible for the change in operating profit.
Earnings before provision for income taxes decreased $2,079,000 from $60,424,000 to $58,345,000. The provision for income taxes decreased from
$21,549,000 to $17,093,000, which resulted in an effective income tax rate decrease from 36% in 2012 to 29% in 2013. The decrease in the tax rate is
primarily attributable to a revision to the filing approach used for one of the states in which the Company files returns, resulting in a tax refund of
$4,000,000. Net earnings increased $2,377,000 from $38,875,000 to $41,252,000.
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LIQUIDITY AND CAPITAL RESOURCES
2014 COMPARED TO 2013
Cash provided by operating activities was $73,213,000 during 2014 as compared to $24,219,000 during 2013. The principal factors behind the increase
in cash provided can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular
note during 2014 were net earnings of $26,477,000, which included total non-cash depreciation and amortization expenses of $21,819,000 and
impairment of intangible assets charges of $2,063,000; decreases in accounts receivable and inventory levels; and decreases in deposits with vendors
included in other current assets. These were partially offset by decreases in net payables. Of particular note during 2013 were net earnings of
$41,252,000, which included total non-cash depreciation and amortization expenses of $8,944,000, and an increase in net payables. These were
partially offset by increases in deposits with vendors included in other current assets, inventory levels, and account receivable levels.
Net cash used in investing activities was $7,531,000 during 2014 as compared to $38,703,000 used during 2013. During 2014, the Company continued
its expansion of the Absorbent Products segment by purchasing plant and equipment in the amount of $11,287,000. The Company also acquired
substantially all of the assets of Chemring Energetic Devices, Inc.’s business located in Clear Lake, South Dakota, and all of the real property owned by
Technical Ordnance Realty, LLC, which is described in Note P to the Company’s Consolidated Financial Statements, totaling $10,534,000. These were
partially offset by net maturities/sales of marketable securities of $13,983,000. Of note during 2013 were the acquisitions of machinery and equipment
of $14,245,000 and a customer contract of $21,968,000, primarily related to the acquisition of a group of assets described in Note Q to the Company’s
Consolidated Financial Statements; and the acquisition of plant and equipment of $22,011,000, related to the expansion of the Company’s Absorbent
Products and Defense segments. These were partially offset by net maturities/sales of marketable securities of $19,112,000.
Based on the accounting profession’s 2005 interpretation of cash equivalents under Financial Accounting Standards Board (“FASB”) Accounting
Standard Codification (“ASC”) 230, the Company’s variable rate demand notes have been classified as marketable securities. This interpretation, which
is contrary to the interpretation that the Company’s representative received directly from the FASB (which indicated it would not object to the
Company’s classification of variable rate demand notes as cash equivalents), has resulted in a presentation of the Company’s Consolidated Balance
Sheets that the Company believes understates the true liquidity of the Company’s income portfolio. As of December 31, 2014 and 2013, $13,600,000
and $15,579,000, respectively, of variable rate demand notes are classified as marketable securities. These notes have structural features that allow the
Company to tender them at par plus interest within any 7-day period for cash to the notes’ trustees or remarketers and thus provide the liquidity of cash
equivalents.
Cash flows from financing activities for 2014 and 2013 primarily differed as a result of an accelerated payment made in late December 2012 of the
annual 2013 dividend. The acceleration was occasioned by the uncertainty over the federal income tax rates that would be in effect in 2013. In contrast,
the annual 2014 dividend payment was made during the first quarter of 2014.
As a result of the foregoing factors, cash and cash equivalents increased in 2014 by $31,090,000 to $54,043,000.
Working capital decreased by $1,602,000 to $208,241,000 at December 31, 2014 for the reasons stated above. The Company’s current ratio was 5.4 to
1.0 at December 31, 2014, compared to 4.9 to 1.0 at December 31, 2013.
The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions, as well
as continue to make capital investments in these segments per existing authorized projects and for additional projects if the appropriate return on
investment is projected. See Items 1-A-2 and 1-A-3.
The Company has substantial liquidity in the form of cash and cash equivalents and marketable securities to meet all of its anticipated capital
requirements, to make dividend payments, and to fund future growth through acquisitions and other means. The bulk of its marketable securities are
invested in the tax-exempt variable rate demand notes described above and in municipal bonds that are pre-refunded with escrowed U.S. Treasuries. The
Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings.
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2013 COMPARED TO 2012
Cash provided by operating activities was $24,219,000 during 2013 as compared to $62,342,000 during 2012. The principal factors behind the decrease
in cash provided can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular
note during 2013 were net earnings of $41,252,000, which included total non-cash depreciation and amortization expenses of $8,944,000, and an
increase in net payables. These were partially offset by increases in deposits with vendors included in other current assets, inventory levels, and account
receivable levels. Of particular note during 2012 were net earnings of $38,875,000, which included total non-cash depreciation and amortization
expenses of $11,185,000, impairment of equipment of $5,725,000, and provision for doubtful accounts of $5,629,000; and decreases in inventory levels
and deposits with vendors included in other current assets. These were partially offset by a decrease in net payables and an increase in accounts
receivable levels.
Net cash used in investing activities was $38,703,000 during 2013 as compared to $13,578,000 used in investing activities during 2012. Of note during
2013 were the acquisitions of machinery and equipment of $14,245,000 and a customer contract of $21,968,000, primarily related to the acquisition of a
group of assets described in Note Q to the Company’s Consolidated Financial Statements; and the acquisition of plant and equipment of $22,011,000,
related to the expansion of the Company’s Absorbent Products and Defense segments. These were partially offset by net maturities/sales of marketable
securities of $19,112,000. Of note during 2012 were the acquisition of plant and equipment of $13,584,000, primarily to support the expansion of the
Absorbent Products segment, and a note receivable of $3,500,000. The note receivable is described further in Note S to the Consolidated Financial
Statements. These were partially offset by net maturities/sales of marketable securities of $3,744,000.
Based on the accounting profession’s 2005 interpretation of cash equivalents under FASB ASC 230, the Company’s variable rate demand notes have
been classified as marketable securities. This interpretation, which is contrary to the interpretation that the Company’s representative received directly
from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cash equivalents), has resulted in a
presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’s income
portfolio. As of December 31, 2013 and 2012, $15,579,000 and $31,092,000, respectively, of variable rate demand notes are classified as marketable
securities. These notes have structural features that allow the Company to tender them at par plus interest within any 7-day period for cash to the notes’
trustees or remarketers and thus provide the liquidity of cash equivalents.
Cash used in financing activities for 2013 and 2012 differed primarily as a result of the payment of two dividends in 2012. The first was the 2012
dividend paid in March, while the second was an accelerated payment made in late December of the annual 2013 dividend. The acceleration was
occasioned by the uncertainty over the federal income tax rates that would be in effect in 2013. No dividends were paid in 2013.
As a result of the foregoing factors, cash and cash equivalents decreased in 2013 by $14,484,000 to $22,953,000.
Working capital decreased by $4,938,000 to $209,843,000 at December 31, 2013 for the reasons stated above. The Company’s current ratio was 4.9 to
1.0 at December 31, 2013, compared to 4.8 to 1.0 at December 31, 2012.
DEFENSE SEGMENT BACKLOG
The Company’s Defense segment contract backlog was approximately $407,000,000 at December 31, 2014, and $452,000,000 at December 31,
2013. Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders. It is anticipated that the
backlog will be produced and shipped during a 24 to 30-month period.
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CONTRACTUAL OBLIGATIONS
The table below discloses a summary of the Company’s specified contractual obligations at December 31, 2014:
Contractual Obligations
Total
Under 1 Year
1-3 Years
3-5 Years
More Than
5 Years
Payments Due By Period (In thousands)
Operating lease obligations
Purchase obligations(1)
Total
$
$
1,249
198,670
199,919
$
$
476
198,670
199,146
$
$
539
0
539
$
$
221
0
221
$
$
13
0
13
(1)Purchase obligations includes outstanding purchase orders at December 31, 2014. Included are purchase orders issued to the Company’s
housewares manufacturers in the Orient, to equipment manufacturers of absorbent products machinery, and to material suppliers and building
contractors in the Defense and Absorbent Products segments. The Company can cancel or change many of these purchase orders, but may incur costs
if its supplier cannot use the material to manufacture the Company’s or other customers’ products in other applications or return the material to their
supplier. As a result, the actual amount the Company is obligated to pay cannot be estimated.
CRITICAL ACCOUNTING POLICIES
The preparation of the Company’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent
assets and liabilities at the date of the Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results may
differ from those estimates. The Company reviewed the development and selection of the critical accounting policies and believes the following are the
most critical accounting policies that could have an effect on the Company’s reported results. These critical accounting policies and estimates have been
reviewed with the Audit Committee of the Board of Directors.
Inventories
New Housewares/Small Appliance product introductions are an important part of the Company’s sales to offset the morbidity rate of other
Housewares/Small Appliance products and/or the effect of lowered acceptance of seasonal products due to weather conditions. New products entail
unusual risks and have occasionally, in the past, resulted in losses related to obsolete or excess inventory as a result of low or diminishing demand for a
product. There were no such obsolescence issues that had a material effect during the current year and, accordingly, the Company did not record a
reserve for obsolete product. In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related
inventory. Inventory risk for the Company’s other segments is not deemed to be significant, as products are largely built pursuant to customers’ specific
orders.
Self Insured Product Liability & Health Insurance
The Company is subject to product liability claims in the normal course of business and is self-insured for health care costs, although it does carry stop
loss and other insurance to cover claims once a health care claim reaches a specified threshold. The Company’s insurance coverage varies from policy
year to policy year, and there are typically limits on all types of insurance coverage, which also vary from policy year to policy year. Accordingly, the
Company records an accrual for known claims and incurred but not reported claims, including an estimate for related legal fees in the Company’s
Consolidated Financial Statements. The Company utilizes historical trends and other analysis to assist in 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.
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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.
Impairment and Valuation of Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not
be recoverable. Long-lived assets consist of property, plant and equipment and intangible assets, including the value of a government sales contract,
customer relationships, trademarks, product backlogs, and consulting and non-compete agreements. Determining whether an impairment has occurred
typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the
useful life over which cash flows will occur, the amounts of the cash flows and the asset’s residual value, if any. In turn, measurement of an impairment
loss requires a determination of fair value, which is based on the best information available. The Company uses internal discounted cash flows
estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. The Company derives the required
cash flow estimates from its historical experience and its internal business plans.
NEW ACCOUNTING PRONOUNCEMENTS
Please refer to Note A(18) to the Company’s Consolidated Financial Statements for information related to the effect of adopting new accounting
pronouncements on the Company’s Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s interest income on cash equivalents and marketable securities is affected by changes in interest rates in the United States. Cash
equivalents primarily consist of money market funds. Based on the accounting profession’s interpretation of cash equivalents under FASB ASC 230, the
Company’s 7-day variable rate demand notes are classified as marketable securities rather than as cash equivalents. The demand notes are highly liquid
instruments with interest rates set every 7 days that can be tendered to the trustee or remarketer upon 7 days notice for payment of principal and accrued
interest amounts. The 7-day tender feature of these variable rate demand notes is further supported by an irrevocable letter of credit from highly rated
U.S. banks. To the extent a bond is not remarketed at par plus accrued interest, the difference is drawn from the bank’s letter of credit. The Company
has had no issues tendering these notes to the trustees or remarketers. Other than a failure of a major U.S. bank, there are no known risks of which the
Company is aware that relate to these notes in the current market. The balance of the Company’s investments is held primarily in fixed rate municipal
bonds with an average life of 1.5 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A. The Consolidated Financial Statements of National Presto Industries, Inc. and its subsidiaries and the related Report of Independent Registered
Public Accounting Firm can be found on pages F-1 through F-19.
B. Quarterly financial data is contained in Note N to the Consolidated Financial Statements.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the
“1934 Act”) as of December 31, 2014. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of that date.
There were no changes to internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of National Presto Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. The Company’s internal control system was designed to provide reasonable assurance to
the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment,
it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework (2013 framework). Based on our assessment and those criteria, management concluded that, as of December 31, 2014, the Company’s
internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the 1934 Act, was effective. Management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Tech Ord, which was acquired on
January 24, 2014, and which is included in the consolidated balance sheets of the Company as of December 31, 2014, and the related consolidated
statements of comprehensive income, stockholders’ equity, and cash flows for the year then ended. Tech Ord constituted 3% of both total assets and net
assets as of December 31, 2014, and 3% and 5% of net sales and net earnings, respectively, for the year then ended. Management did not assess the
effectiveness of internal control over financial reporting of Tech Ord because of the timing of the acquisition, which was completed on January 24,
2014.
The Company’s independent registered public accounting firm has issued its report on the effectiveness of the Company’s internal control over financial
reporting. The report appears below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
National Presto Industries, Inc.
Eau Claire, Wisconsin
We have audited National Presto Industries, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). National Presto Industries, Inc’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Assessment of
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based
on our audit.
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We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Item 9A, Management’s Assessment of Internal Control over Financial Reporting, management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Tech Ord, which was acquired on
January 24, 2014, and which is included in the consolidated balance sheets of National Presto Industries, Inc. as of December 31, 2014, and the related
consolidated statements of comprehensive income, stockholders’ equity, and cash flows for the year then ended. Tech Ord constituted 3% of both total
assets and net assets as of December 31, 2014, and 3% and 5% of net sales and net earnings, respectively, for the year then ended. Management did not
assess the effectiveness of internal control over financial reporting of Tech Ord because of the timing of the acquisition which was completed on
January 24, 2014. Our audit of internal control over financial reporting of National Presto Industries, Inc. also did not include an evaluation of the
internal control over financial reporting of Tech Ord.
In our opinion, National Presto Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31,
2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance
sheets of National Presto Industries, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014 and our report dated March 16, 2015 expressed
an unqualified opinion thereon.
/s/ BDO USA, LLP
Milwaukee, Wisconsin
March 16, 2015
ITEM 9B. OTHER INFORMATION
None
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE IDENTIFICATION OF
EXECUTIVE OFFICERS
The following information is provided with regard to the executive officers of the registrant:
(All terms for elected officers are one year or until their respective successors are elected.)
PART III
NAME
TITLE
Maryjo Cohen
Chair of the Board, President, and Chief Executive Officer,
Randy F. Lieble
Vice President, Chief Financial Officer, Treasurer, and Director
Lawrence J. Tienor
Vice President, Engineering
Douglas J. Frederick
Secretary and General Counsel
Spencer W. Ahneman
Vice President, Sales
AGE
62
61
66
44
60
Ms. Cohen became Chair of the Board on January 1, 2002. Prior to that date she had been elected Treasurer in September 1983, Vice President in May
1986, President in May 1989 and Chief Executive Officer in May 1994. She has been associated with the registrant since 1976. Prior to becoming an
officer, she was Associate Resident Counsel and Assistant to the Treasurer.
Mr. Lieble was elected Chief Financial Officer, Vice President and Treasurer on September 8, 2008. He has been a member of the Board of Directors
since 2008. Other than a brief hiatus of one year during which he worked as a financial advisor for UBS Financial Services, Mr. Lieble had worked for
the registrant since 1977 in a variety of capacities, including the positions listed above.
Mr. Tienor was elected Vice President, Engineering in November 2003. He has been associated with the registrant since 1971. Prior to becoming an
officer, he was Director of Engineering. After 43 years with the Company and 11 years as Vice President, Engineering, pursuant to personal plans, Mr.
Tienor retired and resigned his officer position as of February 27, 2015.
Mr. Frederick was elected Corporate Secretary on November 17, 2009. He has been associated with the registrant since 2007 as an in-house attorney
with expertise in litigation and intellectual property matters and in the capacity of General Counsel since January 2009. Prior to his employment with
the registrant, Mr. Frederick was a litigation attorney with the firm Rider Bennett, LLP.
Mr. Ahneman was elected Vice President, Sales in May 2013. He has been associated with the registrant since 1977. Prior to becoming an officer, he
was National Account Sales Manager.
The information under the headings “Section 16(a) Beneficial Ownership Reporting Compliance,” “Information Concerning Directors and Nominees”
and “Corporate Governance” in the Company’s Proxy Statement for its 2015 Annual Meeting of Stockholders is incorporated by reference.
The Company has adopted a code of ethics that applies to all Company employees, entitled the “Corporate Code of Conduct,” which is set forth in the
Corporate Governance section of the Company’s website located at www.gopresto.com. The Company intends to make all required disclosures
concerning any amendments to, or waivers from, its Corporate Code of Conduct by the posting of such information on that section of its website.
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ITEM 11. EXECUTIVE COMPENSATION
The information under the headings “Executive Compensation and Other Information,” “Summary Compensation Table,” “Director Compensation” and
“Compensation Committee Interlocks and Insider Participation” in the Company’s Proxy Statement for its 2015 Annual Meeting of Stockholders is incorporated
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The security ownership and related stockholder matters information set forth under the heading “Voting Securities and Principal Holders Thereof” in the
Company’s Proxy Statement for its 2015 Annual Meeting of Stockholders is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The certain relationships and related transactions and director independence information set forth under the heading “Corporate Governance” in the Company’s
Proxy Statement for its 2015 Annual Meeting of Stockholders is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The principal accountant fees and services information set forth under the heading “Independent Registered Public Accountants” in the Company’s Proxy
Statement for its 2015 Annual Meeting of Stockholders is incorporated by reference.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Documents filed as part of this Form 10-K:
1.
Consolidated Financial Statements:
a.
b.
c.
d.
e.
f.
Consolidated Balance Sheets - December 31, 2014 and 2013
Consolidated Statements of Comprehensive Income - Years ended December 31, 2014, 2013 and
2012
Consolidated Statements of Cash Flows - Years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2014, 2013 and
2012
Notes to Consolidated Financial Statements
F-6 through F-18
Report of Independent Registered Public Accounting Firm
Form 10-K
Page Reference
F-1 & F-2
F-3
F-4
F-5
F-19
F-20
2.
Consolidated Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
(b) Exhibits:
Exhibit Number
Description
Exhibit 3(i)
Exhibit 3(ii)
Exhibit 9.1
Exhibit 9.2
Exhibit 10.1*
Exhibit 10.2*
Exhibit 21
Exhibit 23.1
Exhibit 31.1
Restated Articles of Incorporation – incorporated by reference from Exhibit 3(i) of the Company’s report on
Form 10-K/A for the year ended December 31, 2005
By-Laws - incorporated by reference from Exhibit 3(ii) of the Company’s current report on Form 8-K dated July
6, 2007
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
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
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
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
* Compensatory Plans
Subsidiaries of the Registrant
Consent of BDO USA, LLP
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Exhibit Number
Description
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101
(c) Schedules:
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from National Presto Industries, Inc.’s annual report on Form 10-K for the
period ended December 31, 2014, formatted in eXtensible Business Reporting Language (XBRL): (i)
Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated
Statements of Cash Flows, (iv) Consolidated Statements of Stockholders’ Equity, (v) Notes to Consolidated
Financial Statements, and (vi) Schedule II - Valuation and Qualifying Accounts.
Reference is made to Item 15(a)2 of this Form 10-K.
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Pursuant to the Requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SIGNATURES
NATIONAL PRESTO INDUSTRIES, INC.
(registrant)
By:
/S/ Maryjo Cohen
Maryjo Cohen
President and Chief Executive Officer
Date: March 16, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By:
By:
By:
/S/ Richard N. Cardozo
Richard N. Cardozo
Director
/S/ Maryjo Cohen
Maryjo Cohen
Chair of the Board, President,
Chief Executive Officer (Principal
Executive Officer), and Director
/S/ Randy F. Lieble
Randy F. Lieble
Vice President, Chief Financial
Officer (Principal Financial
Officer), Treasurer, and Director
Date: March 16, 2015
By:
By:
/S/ Patrick J. Quinn
Patrick J. Quinn
Director
/S/ Joseph G. Stienessen
Joseph G. Stienessen
Director
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NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
December 31
2014
2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Accounts receivable
$
54,043
$
22,953
22,404
36,404
$
70,171
$
85,400
Less allowance for doubtful accounts
1,419
68,752
1,078
84,322
Inventories:
Finished goods
Work in process
Raw materials and supplies
Deferred tax assets
Income tax receivable
Other current assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements
Buildings
Machinery and equipment
Less allowance for depreciation and amortization
GOODWILL
INTANGIBLE ASSETS, net
NOTE RECEIVABLE
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-1
36,078
49,690
6,746
4,007
37,809
114,056
155,872
66,283
30,308
50,569
8,181
4,757
39,927
126,580
171,264
75,721
89,058
6,623
1,668
14,321
256,869
95,543
11,485
10,644
3,818
92,514
8,083
213
19,584
264,073
89,589
11,485
24,698
3,695
$
378,359
$
393,540
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NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
December 31
2014
2013
LIABILITIES
CURRENT LIABILITIES:
Accounts payable
Accrued liabilities
Total current liabilities
DEFERRED INCOME TAXES
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $1 par value:
$
32,948
$
38,323
15,680
48,628
4,288
15,907
54,230
6,759
Authorized: 12,000,000 shares at December 31, 2014 and 2013
Issued: 7,440,518 shares at December 31, 2014 and 2013
Outstanding: 6,917,222 and 6,902,053 shares at December 31, 2014 and
2013, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Less treasury stock, at cost, 523,296 and 538,465 shares at December 31, 2014
and 2013, respectively
Total stockholders’ equity
$
7,441
5,906
328,417
(3)
341,761
16,318
$
7,441
4,998
336,895
8
349,342
16,791
325,443
332,551
$
378,359
$
393,540
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-2
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NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands except per share data)
Net sales
Cost of sales
Gross profit
Selling and general expenses
Intangibles amortization
Impairment of finite lived intangible assets
Goodwill impairment
Change to contingent consideration liability
Operating profit
Other income, principally interest
Earnings before provision for income taxes
Provision for income taxes
Net earnings
Weighted average common shares outstanding:
Basic and diluted
Net earnings per share:
Basic and diluted
Comprehensive income:
Net earnings
Other comprehensive loss, net of tax:
Unrealized loss on available-for-sale securities
For the years ended December 31,
2013
2012
2014
$
412,363
$
420,188
$
472,490
335,162
340,836
377,627
77,201
23,216
11,991
2,063
—
—
39,931
366
40,297
13,820
79,352
21,231
667
—
2,840
(3,000)
57,614
731
58,345
17,093
94,863
34,095
1,049
—
—
—
59,719
705
60,424
21,549
$
$
26,477
$
41,252
$
38,875
6,930
6,907
6,889
3.82
$
5.97
$
5.64
26,477
41,252
38,875
11
45
19
Comprehensive income
$
26,466
$
41,207
$
38,856
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-3
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NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Intangibles amortization
Provision for depreciation
Deferred income tax provision (benefit)
Impairment of finite lived intangible assets
Change in contingent consideration liability
Goodwill impairment
Loss (gain) on disposal and impairment of property, plant and equipment
Provision for doubtful accounts
Other
Changes in operating accounts:
Accounts receivable, net
Inventories
Other current assets
Accounts payable and accrued liabilities
Federal and state income taxes receivable/payable
Net cash provided by operating activities
Cash flows from investing activities:
Marketable securities purchased
Marketable securities - maturities and sales
Acquisition of property, plant and equipment
Acquisition of customer contract
Notes issued
Sale of property, plant and equipment
Acquisition of businesses, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid
Other
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-4
For the years ended December 31,
2013
2012
2014
$
26,477
$
41,252
$
38,875
11,991
9,828
(1,005)
2,063
—
—
(2)
532
846
16,536
8,144
5,291
(6,033)
(1,455)
73,213
(8,976)
22,959
(11,287)
—
—
307
(10,534)
(7,531)
(34,954)
362
(34,592)
667
8,277
239
—
(3,000)
2,840
(154)
816
608
(8,533)
(9,150)
(10,728)
2,948
(1,863)
24,219
(6,151)
25,263
(36,256)
(21,968)
—
409
—
(38,703)
—
—
—
31,090
22,953
54,043
$
(14,484)
37,437
22,953
$
1,049
10,136
(4,792)
—
—
—
5,843
5,629
568
(6,546)
11,091
10,360
(9,999)
128
62,342
(26,023)
29,767
(13,584)
—
(3,500)
8
(246)
(13,578)
(86,106)
784
(85,322)
(36,558)
73,995
37,437
17,411
$
19,076
$
26,532
$
$
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NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands except per share data)
For the years ended December 31, 2014, 2013, 2012
Balance December 31, 2011
6,875
$
7,441
$
3,539
$
342,873
$
72
$
(17,635) $
336,290
Shares of
Common
Stock
Outstanding
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Comprehensive
Income (Loss)
Treasury
Stock
Total
Net earnings
Unrealized loss on available-for-sale
securities, net of tax
Dividends paid March 15, $1.00 per
share regular, $5.00 per share
extra
Dividends paid December 28, $1.00
per share regular, $5.50 per share
extra
Other
Balance December 31, 2012
Net earnings
Unrealized loss on available-for-sale
securities, net of tax
Other
Balance December 31, 2013
Net earnings
Unrealized loss on available-for-sale
securities, net of tax
Dividends paid March 14, $1.00 per
share regular, $4.05 per share
extra
19
6,894
8
6,902
7,441
7,441
933
4,472
526
4,998
38,875
(41,292)
(44,814)
1
295,643
41,252
336,895
26,477
(34,954)
(19)
38,875
(19)
(41,292)
(44,814)
597
1,531
53
(17,038)
290,571
(45)
247
41,252
(45)
773
8
(16,791)
332,551
(11)
26,477
(11)
(34,954)
Other
15
908
(1)
473
1,380
Balance December 31, 2014
6,917
$
7,441
$
5,906
$
328,417
$
(3) $
(16,318) $
325,443
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-5
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NATIONAL PRESTO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: In preparation of the Company’s Consolidated Financial
Statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates
used by management.
(2) BASIS OF PRESENTATION: The Consolidated Financial Statements include the accounts of National Presto Industries, Inc. and its subsidiaries, all of
which are wholly-owned. All material intercompany accounts and transactions are eliminated. For a further discussion of the Company’s business and
the segments in which it operates, please refer to Note L.
(3) 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.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company utilizes the methods of determining 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. The fair value of marketable securities are discussed in Note A(5).
(5) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES:
Cash and Cash Equivalents: 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’s cash management policy provides for its bank disbursement accounts to be reimbursed on a daily basis. Checks issued but not
presented to the bank for payment of $7,039,000 and $3,389,000 at December 31, 2014 and 2013, respectively, are included as reductions of cash and
cash equivalents or bank overdrafts in accounts payable, as appropriate.
Marketable Securities: 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.
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At December 31, 2014 and 2013, 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 December 31 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 2014 and 2013.
December 31, 2014
Tax-exempt Municipal Bonds
Variable Rate Demand Notes
Total Marketable Securities
December 31, 2013
Tax-exempt Municipal Bonds
Variable Rate Demand Notes
Total Marketable Securities
(In thousands)
MARKETABLE SECURITIES
Gross
Unrealized
Gains
Fair Value
Gross
Unrealized
Losses
8,804
13,600
22,404
20,825
15,579
36,404
$
$
$
$
5
—
5
18
—
18
$
$
$
$
10
—
10
6
—
6
Amortized Cost
$
$
$
$
8,809
13,600
22,409
20,813
15,579
36,392
$
$
$
$
Proceeds from sales and maturities of marketable securities totaled $22,959,000 in 2014, $25,263,000 in 2013, and $29,767,000 in 2012. There were no
realized gross gains or losses related to sales of marketable securities during the years ended December 31, 2014, 2013 and 2012. Net unrealized losses
included in other comprehensive income were $17,000, $70,000 and $30,000 before taxes for the years ended December 31, 2014, 2013, and 2012,
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 December 31, 2014 are as follows: $3,523,000 within one year; $6,152,000 beyond one
year to five years; $8,108,000 beyond five years to ten years, and $4,621,000 beyond ten years. All of the instruments in the beyond five year ranges are
variable rate demand notes which, as noted above, 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.
(6) ACCOUNTS RECEIVABLE: The Company’s accounts receivable are related to sales of products. Credit is extended based on prior experience with
the customer and evaluation of customers’ financial condition. Accounts receivable are primarily due within 30 to 60 days. The Company does not
accrue interest on past due accounts receivable. Receivables are written off only after all collection attempts have failed and are based on individual
credit evaluation and the specific circumstances of the customer. The allowance for doubtful accounts represents an estimate of amounts considered
uncollectible and is determined based on the Company’s historical collection experience, adverse situations that may affect the customer’s ability to pay,
and prevailing economic conditions.
(7) INVENTORIES: Housewares/Small Appliance segment inventories are stated at the lower of cost or market with cost being determined principally on
the last-in, first-out (LIFO) method. Inventories for the Defense and Absorbent Products segments are stated at the lower of cost or market with cost
being determined on the first-in, first-out (FIFO) method. The Company evaluates inventories to determine if there are any excess or obsolete
inventories on hand.
(8) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. For machinery and equipment, all amounts which are
fully depreciated have been eliminated from both the asset and allowance accounts. Straight-line depreciation is provided in amounts sufficient to
charge the costs of depreciable assets to operations over their service lives which are estimated at 15 to 40 years for buildings, 3 to 10 years for
machinery and equipment, and 15 to 20 years for land improvements. The Company reviews long lived assets consisting principally of property, plant,
and equipment, for impairment when material events and changes in circumstances indicate the carrying value may not be recoverable. See Note S for a
discussion of impairment charges recorded in the fourth quarter of 2012. Approximately $8,100,000 of construction in progress in the Company’s
Absorbent Products segment is presented on the Consolidated Balance Sheet as Machinery and Equipment at December 31, 2014.
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(9) GOODWILL: 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, such as the occurrence of an event that would more likely than not reduce the fair value of the reporting unit below its
carrying amount. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value. Goodwill impairments
of $0, $2,840,000, and $0 were recognized during 2014, 2013, and 2012, respectively. The 2013 impairment related to AMTEC Less Lethal Systems,
Inc. (“ALS”), a reporting unit in the Company’s Defense segment. ALS was created in 2011 following the acquisition of certain assets of ALS
Technologies, Inc., described in Note P. The impairment was recognized as a result of the Company’s analysis comparing the implied fair value of the
reporting unit’s goodwill to its recorded carrying amount. The fair value used in the evaluation of the goodwill impairment was determined using a
multiple of EBITDA approach and discounted cash flow estimates. See Note R for a discussion of a contingent consideration liability reversal of
$3,000,000 related to ALS in 2013.
The Company’s goodwill as of December 31, 2014 and 2013 was $11,485,000, relating entirely to its Defense Products segment, which had cumulative
impairment charges at December 31, 2014 of $2,840,000.
(10) INTANGIBLE ASSETS: Intangible assets primarily consist of the value of a government sales contract, product backlogs, and consulting and non-
compete agreements recognized as a result of the acquisition of certain assets of DSE, Inc., more fully described in Note Q, and the value of customer
relationships, trademarks and non-compete agreements related to ALS mentioned above. The intangible assets are all attributable to the Defense
Products segment. The government sales contract intangible asset is amortized based on units fulfilled under the three year contract, while the other
intangible assets are amortized on a straight-line basis that approximates economic use, over periods ranging from one to nine years.
Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. During 2014, the Company noted that the carrying amount of the customer relationships, trademarks and non-compete agreements related
to ALS mentioned above exceeded the undiscounted cash flows expected to result from their use. As a result, an impairment loss of $2,063,000 was
recognized based on the Company’s analysis comparing the fair value of the intangible assets and their carrying amounts. The fair value of the
intangible assets was determined using a discounted cash flow model.
The gross carrying amounts of the government sales contract and other intangible assets subject to amortization were $21,690,000 and $278,000,
respectively, totaling $21,968,000 at December 31, 2014. The gross carrying amounts of the government sales contract and other intangible assets
subject to amortization were $21,690,000 and $4,452,000, respectively, totaling $26,142,000 at December 31, 2013. Accumulated amortization was
$11,324,000 and $1,716,000 at December 31, 2014 and 2013, respectively. Amortization expense was $11,991,000, $667,000, and $1,049,000 during
the years ended December 31, 2014, 2013, and 2012, respectively. Estimated amortization expense as of December 31, 2014 for the succeeding years is
shown in the following table:
Years ending December 31:
2015
2016
(In thousands)
$
5,330
5,314
(11) REVENUE RECOGNITION: For all of its segments, the Company recognizes revenue when product is shipped or title passes pursuant to customers’
orders, the price is fixed and collection is reasonably assured. For the Housewares/Small appliance segment, the Company provides for its 60-day over-
the-counter return privilege and warranties at the time of shipment. Net sales for this segment are calculated by deducting early payment discounts and
cooperative advertising allowances from gross sales. The Company records cooperative advertising allowances when revenue is recognized. See Note
A(12) for a description of the Company’s policy for sales returns.
F-8
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(12) SALES & RETURNS: Sales are recorded net of estimated 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.
(13) SHIPPING AND HANDLING COSTS: In accordance with FASB ASC 605-45, Revenue Recognition, the Company includes shipping and handling
revenues in net sales and shipping costs in cost of sales.
(14) ADVERTISING: The Company’s policy is to expense advertising as incurred and include it in selling and general expenses. Advertising expense was
$202,000, $363,000, and $210,000 in 2014, 2013, and 2012, respectively.
(15) PRODUCT WARRANTY: The Company’s Housewares/Small Appliance segment’s products are generally warranted to the original owner to be free
from defects in material and workmanship for a period of 1 to 12 years from date of purchase. The Company allows a 60-day over-the-counter initial
return privilege through cooperating dealers. The Company services its products through a corporate service repair operation. The Company estimates
its product warranty liability based on historical percentages which have remained relatively consistent over the years.
The product warranty liability is included in accounts payable on the balance sheet. The following table shows the changes in product warranty
liability for the period:
Beginning balance January 1
Accruals during the period
Charges / payments made under the warranties
Balance December 31
(In thousands)
Year Ended December 31
2013
2014
$
$
568
296
(487)
377
$
$
388
840
(660)
568
(16) STOCK-BASED COMPENSATION: The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — Stock
Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense ratably over the requisite service period, net of estimated forfeitures. As more fully described in Note
F, the Company awards non-vested restricted stock to employees and executive officers.
(17) INCOME TAXES: Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax reporting bases
of assets and liabilities based on enacted tax rates and laws. The deferred income tax provision or benefit generally reflects the net change in deferred
income tax assets and liabilities during the year. The current income tax provision reflects the tax consequences of revenues and expenses currently
taxable or deductible on various income tax returns for the year reported. Income tax contingencies are accounted for in accordance with FASB ASC
740, Income Taxes. See Note H for summaries of the provision, the effective tax rates, and the tax effects of the cumulative temporary differences
resulting in deferred tax assets and liabilities.
(18) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT: In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09
establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected
consideration received in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016. Early
adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect
recognized as of the date of initial application. The Company is currently in the process of evaluating the impact of adoption of the ASU on its
consolidated financial statements, but does not expect the impact to be material.
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B. INVENTORIES:
The amount of inventories valued on the LIFO basis was $24,909,000 and $32,090,000 as of December 31, 2014 and 2013, respectively, and consists of
housewares/small appliance finished goods. Under LIFO, inventories are valued at approximately $3,791,000 and $4,434,000 below current cost determined on
a first-in, first-out (FIFO) basis at December 31, 2014 and 2013, respectively. During the years ended December 31, 2014, 2013, and 2012, $7,181,000,
$421,000, and $858,000, respectively, of a LIFO layer was liquidated. The Company uses the LIFO method of inventory accounting to improve the matching of
costs and revenues for the Housewares/Small Appliance segment.
The following table describes that which would have occurred if LIFO inventories had been valued at current cost determined on a FIFO basis:
Year
2014
2013
2012
Increase (Decrease) – (In thousands, except per share data)
Cost of Sales
Net Earnings
$
$
$
$
643
1,941
$
(857) $
(422) $
(1,263) $
$
546
Earnings Per
Share
(0.06)
(0.18)
0.08
This information is provided for comparison with companies using the FIFO basis.
Inventory for Defense, Absorbent Products, and raw materials of the Housewares/Small Appliance segments are valued under the FIFO method and total
$64,149,000 and $60,424,000 at December 31, 2014 and 2013, respectively. The December 31, 2014 FIFO total is comprised of $5,399,000 of finished goods,
$50,569,000 of work in process, and $8,181,000 of raw material and supplies. At December 31, 2013 the FIFO total was comprised of $3,988,000 of finished
goods, $49,690,000 of work in process, and $6,746,000 of raw material and supplies.
C. ACCRUED LIABILITIES:
At December 31, 2014, accrued liabilities consisted of payroll $7,045,000, product liability $5,490,000, environmental $1,390,000, and other $1,755,000. At
December 31, 2013, accrued liabilities consisted of payroll $6,135,000, product liability $6,060,000, environmental $1,650,000, and other $2,062,000.
The Company is self-insured for health care costs, although it does carry stop loss and other insurance to cover health care claims once they reach a specified
threshold. The Company is also subject to product liability claims in the normal course of business. It is partly self-insured for product liability claims, and
therefore records an accrual for known claims and estimated incurred but unreported claims in the Company’s Consolidated Financial Statements. The Company
utilizes historical trends and other analysis to assist in determining the appropriate accrual. An increase in the number or magnitude of claims could have a
material impact on the Company’s financial condition and results of operations. The Company’s policy is to accrue for legal fees expected to be incurred in
connection with loss contingencies. See Note K for a discussion of environmental remediation liabilities.
D. TREASURY STOCK:
As of December 31, 2014, the Company has authority from the Board of Directors to reacquire an additional 504,600 shares. No shares were reacquired in 2014,
2013, or 2012. Treasury shares have been used for stock based compensation and to fund a portion of the Company’s 401(k) contributions.
E. NET 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.
F. STOCK-BASED COMPENSATION:
The Company, from time to time, enters into separate non-vested share-based payment arrangements with employees and executive officers under the Incentive
Compensation Plan approved by stockholders on May 18, 2010, which authorized 50,000 shares to be available for grants. The Compensation Committee of the
Company’s Board of Directors approves all stock-based compensation awards for employees and executive officers of the Company. The Company grants
restricted stock that is subject to continued employment and vesting conditions, but has dividend and voting rights, and uses the fair-market value of the
Company’s common stock on the grant date to measure the fair value of the awards. The fair value of restricted stock is recognized as expense ratably over the
requisite serviced period, net of estimated forfeitures.
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During 2014, 2013, and 2012, the Company granted 7,367, 8,102 and 1,695 shares of restricted stock, respectively, to 20 employees and executive officers of the
Company. Unless otherwise vested early in accordance with the Incentive Compensation Plan, the restricted stock vests on specified dates in 2015 through 2020,
subject to the recipients’ continued employment or service through each applicable vesting date.
The Company recognized pre-tax compensation expense in the Consolidated Statements of Comprehensive Income related to stock-based compensation of
$265,000, $123,000, and $91,000 in 2014, 2013, and 2012, respectively. As of December 31, 2014, there was approximately $1,123,000 of unrecognized
compensation cost related to the restricted stock awards that is expected to be recognized over a weighted-average period of 4.0 years. There were no shares of
restricted stock that vested during 2014, 2013, or 2012.
The following table summarizes the activity for non-vested restricted stock:
Non-vested at beginning of period
Granted
Forfeited
Non-vested at end of period
2014
2013
2012
Weighted
Average
Fair Value
at Grant
Date
84.96
65.87
79.02
Shares
16,301
7,367
0
23,668
$
$
Weighted
Average
Fair Value
at Grant
Date
96.28
73.28
86.97
84.96
Shares
8,393
8,102
(194)
16,301
$
$
Weighted
Average
Fair Value
at Grant
Date
101.26
76.43
93.60
96.28
Shares
6,730
1,695
(32)
8,393
$
$
G. 401(K) PLAN:
The Company sponsors a 401(k) retirement plan that covers substantially all non-union employees. Historically, the Company matched up to 50% of the first 4%
of salary contributed by employees to the plan. This matching contribution was made with common stock. Starting in 2004, the Company began to match, in
cash, an additional 50% of the first 4% of salary contributed by employees plus 3% of total compensation for certain employees. Contributions made from
treasury stock, including the Company’s related cash dividends, totaled $1,066,000 in 2014, $598,000 in 2013, and $1,391,000 in 2012. In addition, the
Company made cash contributions of $887,000 in 2014, $812,000 in 2013, and $781,000 in 2012 to the 401(k) Plan. The Company also contributed $307,000,
$364,000, and $396,000 to the 401(k) retirement plan covering its union employees at the Amron Division of the AMTEC subsidiary during the years ended
December 31, 2014, 2013, and 2012, respectively.
H. INCOME TAXES:
The following table summarizes the provision for income taxes:
For Years Ended December 31 (in thousands)
2013
2014
2012
Current:
Federal
State
Deferred:
Federal
State
Total tax provision
$
$
13,448
1,377
14,825
(651)
(354)
(1,005)
13,820
$
$
20,224
(3,345)
16,879
(531)
745
214
17,093
$
$
22,165
4,187
26,352
(3,938)
(865)
(4,803)
21,549
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The effective rate of the provision for income taxes as shown in the Consolidated Statements of Comprehensive Income differs from the applicable statutory
federal income tax rate for the following reasons:
Statutory rate
State tax, net of federal benefit
Tax exempt interest and dividends
Other
Effective rate
2014
Percent of Pre-tax Income
2013
2012
35.0%
1.6%
(0.1%)
(2.5%)
34.0%
35.0%
(2.9%)
(0.2%)
(2.6%)
29.3%
35.0%
3.6%
(0.3%)
(2.6%)
35.7%
As shown in the preceding table, the effective tax rate for 2013 is lower than rates for the other periods primarily as a result of a revision to the filing approach
used for one of the states in which the Company files returns. The revised filing approach resulted in a tax refund of approximately $4,000,000 related to tax
years 2009, 2010, and 2011, which was recorded during 2013.
Deferred tax assets and liabilities are recorded based on the differences between the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes. The tax effects of the cumulative temporary differences resulting in deferred tax assets and liabilities are as follows at December 31:
Deferred tax assets
Goodwill and other intangibles
Doubtful accounts
Insurance (primarily product liability)
Vacation
Inventory
Other
Total deferred tax assets
Deferred tax liabilities
Depreciation
State tax refunds
Other
Total deferred tax liabilities
(In thousands)
2014
2013
$
$
4,239
3,365
1,994
954
778
905
12,235
8,529
1,371
—
9,900
Net deferred tax assets (liabilities)
$
2,335
$
296
3,202
2,224
907
557
897
8,083
6,755
—
4
6,759
1,324
The Company establishes tax reserves in accordance with FASB ASC 740, Income Taxes. As of December 31, 2014, the carrying amount of the Company’s
gross unrecognized tax benefits was $238,000 which, if recognized, would affect the Company’s effective income tax rate.
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The following is a reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2014 and 2013:
Balance at January 1
Increases for tax positions taken related to the current year
Increases for tax positions taken related to prior years
Decreases for tax positions taken related to prior years
Settlements
Balance at December 31
(In thousands)
2014
2013
$
$
204
66
—
(8)
(24)
238
$
$
209
74
18
—
(97)
204
It is the Company’s practice to include interest and penalties in tax expense. During the years ended December 31, 2014 and 2013, the Company accrued
approximately $9,000 and $7,000 in interest, respectively.
The Company is subject to U.S. federal income tax as well as income taxes of multiple states. The Company is currently under audit by the Internal Revenue
Service for the tax years 2012 and 2013. During January of 2015, the state of Wisconsin completed its audits of the tax years 2009 through 2012. For all states in
which it does business, the Company is subject to state audit statutes.
I. COMMITMENTS AND CONTINGENCIES:
The Company is involved in largely routine litigation incidental to its business. Management believes the ultimate outcome of this litigation will not have a
material effect on the Company’s consolidated financial position, liquidity, or results of operations.
J. CONCENTRATIONS:
In the Housewares/Small Appliance segment, one customer accounted for 10% of consolidated net sales for the years ended December 31, 2014 and 2012. No
customers in the Housewares/Small Appliance or Absorbent Products segments accounted for more than 10% of consolidated net sales for the year ended
December 31, 2013.
The Company sources most of its housewares/small appliances from vendors in the Orient and, as a result, risks deliveries from the Orient being disrupted by
labor or supply problems at the vendors, or transportation delays. Should such problems or delays materialize, products might 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. 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 the segment’s product costs. To date, any material impact from
fluctuations in the exchange rate has been to the cost of products secured via purchase orders issued subsequent to the currency value change. Foreign transaction
gains/losses are immaterial to the financial statements for all years presented.
The Company’s Defense segment manufactures products primarily for the U.S. Department of Defense (DOD) and DOD prime contractors. As a consequence,
this segment’s future business essentially depends on the product needs and governmental funding of the DOD. During 2014, 2013, and 2012, almost all of the
work performed by this segment directly or indirectly for the DOD was performed on a fixed-price basis. Under fixed-price contracts, the price paid to the
contractor is awarded based on competition at the outset of the contract and therefore, 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. In addition, in the case of the 40mm systems contract, key
components and services are provided by third party subcontractors, several of which the segment is required to work with by government edict. Under the
contract, the segment is responsible for the performance of those subcontractors, many of which it does not control. The Defense segment’s contracts and
subcontracts contain the customary provision permitting termination at any time for the convenience of the government, with payment for any work completed,
associated profit, and inventory/work in process at the time of termination. Materials used in the Defense segment are available from multiple sources. As of
December 31, 2014, 163 employees of Amron, or 16% of the Company’s and its subsidiaries’ total workforce, are members of the United Steel Workers
union. The most recent contract between Amron and the union was effective through February 28, 2015. A new contract between Amron and the union has been
negotiated and is effective through February 29, 2020.
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Raw materials for the Absorbent Products segment are commodities that are typically available from multiple sources.
K. ENVIRONMENTAL
In May 1986, the Company’s Eau Claire, Wisconsin site was placed on the United States Environmental Protection Agency’s National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 because of hazardous waste deposited on the property. As of December 31,
1998, all remediation projects required at the Company’s Eau Claire, Wisconsin, site had been installed, were fully operational, and restoration activities had
been completed. In addition, the Company is a member of a group of companies that may have disposed of waste into an Eau Claire area landfill in the 1960s
and 1970s. After the landfill was closed, elevated volatile organic compounds were discovered in the groundwater. Remediation plans were established, and the
costs associated with remediation and monitoring at the landfill are split evenly between the group and the City of Eau Claire. As of December 31, 2014, there
does not appear to be exposure related to this site that would have a material impact on the operations or financial condition of the Company.
Based on factors known as of December 31, 2014, it is believed that the Company’s existing environmental accrued liability reserve will be adequate to satisfy
on-going remediation operations and monitoring activities both on- and off-site; however, should environmental agencies require additional studies, extended
monitoring, or remediation projects, it is possible that the existing accrual could be inadequate. Management believes that in the absence of any unforeseen
future developments, known environmental matters will not have any material effect on the results of operations or financial condition of the Company. The
Company’s environmental accrued liability on an undiscounted basis was $1,390,000 and $1,650,000 as of December 31, 2014 and 2013, respectively, and is
included in accrued liabilities on the balance sheet.
Expected future payments for environmental matters are as follows:
Years Ending December 31:
2015
2016
2017
2018
2019
Thereafter
(In thousands)
$
$
270
205
190
145
130
450
1,390
L. BUSINESS SEGMENTS:
The Company operates in three business segments. The Company identifies its segments based on the Company’s organization structure, which is primarily by
principal products. The principal product groups are Housewares/Small Appliances, Defense Products, and Absorbent Products. Sales for all three segments are
primarily to customers in North America.
The Housewares/Small Appliance segment designs, markets, and distributes housewares and small appliances. These products are sold primarily in the United
States and Canada directly to retail outlets and also through independent distributors. As more fully described in Note J, the Company primarily sources its
Housewares/Small Appliance products from non-affiliated suppliers located in the Orient. Sales are seasonal, with the normal peak sales period occurring in the
fourth quarter of the year prior to the holiday season.
The Defense segment was started in 2001 with the acquisition of AMTEC Corporation, which manufactures precision mechanical and electromechanical
assemblies for the U.S. Government and prime contractors. During 2005, and again during 2010, AMTEC Corporation was one of two prime contractors
selected by the Army to supply all requirements for the 40mm family of practice and tactical ammunition cartridges for a period of five years. AMTEC’s
manufacturing plant is located in Janesville, Wisconsin. Since the inception of the Defense segment in 2001, the Company has expanded the segment by making
several strategic business acquisitions, and has additional facilities located in East Camden, Arkansas; Antigo, Wisconsin; Perry, Florida; and Clear Lake, South
Dakota. During 2003, this segment was expanded with the acquisition of Spectra Technologies, LLC of East Camden, Arkansas. This facility performs Load,
Assemble, and Pack (LAP) operations on ordnance-related products for the U.S. Government and prime contractors. During 2006, the segment was expanded
with the acquisition of certain assets of Amron, LLC of Antigo, Wisconsin, which primarily manufactures cartridge cases used in medium caliber (20-40mm)
ammunition. In 2011 the segment was further augmented with the purchase of certain assets of ALS Technologies, Inc. of Bull Shoals, Arkansas, which
manufactures less lethal ammunitions. The Company subsequently relocated this operation to Perry, Florida. See Note P for further discussion of the relocation.
During 2014, the Company continued the expansion of the Defense segment with the purchase of substantially all of the assets of Chemring Energetic Devices,
Inc. located in Clear Lake, South Dakota, and all of the real property owned by Technical Ordnance Realty, LLC. The Clear Lake facility manufactures
detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. Also see Note P for further discussion of the Clear
Lake acquisition. The Defense segment’s collection of facilities enables the Company to deliver in virtually all aspects of the manufacture of medium caliber
training and tactical rounds and less lethal ammunition. They include the fuze, the metal parts including the cartridge case, the load, assemble and pack of the
final round, and the detonator.
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The Absorbent Products segment was started in 2001 with the Company’s acquisition of certain assets from RMED International, Inc. The assets were placed in
a company called Presto Absorbent Products, Inc, which manufactured diapers. During 2003, this segment was expanded with the purchase of the assets of NCN
Hygienic Products, Inc., a Marietta, Georgia manufacturer of adult incontinence products and puppy pads. Starting in 2004, the company began making adult
incontinence products at the Company’s facilities in Eau Claire, Wisconsin. The segment’s products are sold to distributors and other absorbent product
manufacturers. In 2007, the Company completed the closure of the Georgia facility and consolidated its absorbent products manufacturing in the Eau Claire,
Wisconsin facility. It does not currently manufacture puppy pads or baby diapers.
In the following summary, operating profit represents earnings before other income (loss), 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 Appliance segment for all periods presented.
Year ended December 31, 2014
External net sales
Gross profit
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
Year ended December 31, 2013
External net sales
Gross profit
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
Year ended December 31, 2012
External net sales
Gross profit
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
Housewares /
Small Appliances
Defense Products
Absorbent
Products
Total
(in thousands)
$
$
$
$
$
$
125,653
25,373
15,449
166,101
954
571
137,225
26,850
16,984
171,659
1,072
947
145,023
27,858
15,714
194,214
1,088
1,138
$
$
$
221,545
57,209
32,317
149,466
14,555
1,165
206,198
50,168
40,463
159,775
2,241
23,728
244,998
64,095
55,071
102,406
4,203
2,681
$
$
$
65,165
(5,381)
(7,835)
62,792
6,310
9,551
76,765
2,334
167
62,106
5,631
11,581
82,469
2,910
(11,066)
57,292
5,894
9,765
412,363
77,201
39,931
378,359
21,819
11,287
420,188
79,352
57,614
393,540
8,944
36,256
472,490
94,863
59,719
353,912
11,185
13,584
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M. OPERATING LEASES
The Company leases office, manufacturing, and warehouse facilities and equipment under non-cancelable operating leases, many of which contain renewal
options ranging from one to five years. Rent expense was approximately $825,000, $866,000, and $826,000 for the years ended December 31, 2014, 2013, and
2012, respectively. Future minimum annual rental payments required under operating leases are as follows:
Years ending December 31:
2015
2016
2017
2018
2019
Thereafter
(In thousands)
476
304
235
195
26
13
1,249
$
$
N. INTERIM FINANCIAL INFORMATION (UNAUDITED):
The following represents quarterly unaudited financial information for 2014 and 2013:
Quarter
2014
First
Second
Third
Fourth
Total
2013
First
Second
Third
Fourth
Total
(In thousands, except per share data)
Net Sales
Gross Profit
Net Earnings
Earnings per
Share (Basic &
Diluted)
$
$
$
$
86,554
88,312
95,463
142,034
412,363
83,190
101,396
100,612
134,990
420,188
$
$
$
$
15,720
16,142
16,165
29,174
77,201
16,209
18,411
19,650
25,082
79,352
$
$
$
$
4,690
4,171
5,123
12,493
26,477
6,854
8,301
9,015
17,082
41,252
$
$
$
$
0.68
0.60
0.74
1.80
3.82
0.99
1.20
1.31
2.47
5.97
As shown above, fourth quarter sales are significantly impacted by the holiday driven seasonality of the Housewares/Small Appliance segment. This segment
purchases inventory during the first three quarters to meet the sales demand of the fourth quarter. The other segments are typically non-seasonal.
O. LINE OF CREDIT AND COMMERCIAL LETTERS OF CREDIT
The Company maintains an unsecured line of credit for short term operating cash needs. The line of credit is renewed each year at the end of the third quarter. As
of December 31, 2014 and 2013, the line of credit limit was set at $5,000,000, with $0 outstanding on both dates. The interest rate on the line of credit is reset
monthly to the London Inter-Bank Offered Rate (LIBOR) plus one half of one percent. In addition, the Company had issued commercial letters of credit totaling
$200,000 and $1,868,000 as of December 31, 2014 and 2013, respectively, related to performance on certain customer contracts. As of December 31, 2014, the
entire balance of the issued letters of credit had not been drawn upon.
P. BUSINESS ACQUISITIONS
On January 24, 2014, AMTEC Corporation, a wholly-owned subsidiary of the Company, purchased substantially all of the assets of Chemring Energetic
Devices, Inc.’s business located in Clear Lake, South Dakota, and all of the real property owned by Technical Ordnance Realty, LLC. The Clear Lake facility is
a manufacturer of detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. Its major customers include U.S.
and foreign government agencies, AMTEC Corporation, and other defense contractors. The acquisition of the Clear Lake facility complements the Defense
segment’s existing line of products. The total consideration transferred was $10,534,000, consisting of $10,000,000 of cash paid at closing, and an additional
cash payment of $534,000, which was made during the second quarter of 2014.
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The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration
paid by the Company to complete the acquisition has been recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the
date of acquisition. The fair value of the property, plant and equipment was based upon the assessed value of the land, which was determined to approximate fair
value, as well as the income approach in determining the fair value of building improvements and equipment. The carrying values for current assets and
liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities. The following table shows the amounts
recorded as of the acquisition date.
Receivables
Inventory
Other current assets
Property, plant and equipment
Total assets acquired
Less: Current liabilities assumed
Net assets acquired
(in thousands)
$
$
1,498
4,688
28
4,800
11,014
480
10,534
The amount shown above for receivables represents the gross accounts receivable from the sales of goods, net of an allowance for doubtful accounts of $20,000.
The Company’s results of operations for 2014 includes revenue of $13,732,000 and earnings of $1,268,000 from the acquired facility from the date of acquisition
through December 31, 2014. The following pro forma condensed consolidated results of operations has been prepared as if the acquisition had occurred as of
January 1, 2013.
Net sales
Net earnings
Net earnings per share (basic and diluted)
Weighted average shares outstanding (basic and diluted)
(unaudited)
(in thousands, except per share data)
2014
2013
$
$
$
$
412,998
26,197
3.78
6,930
436,988
40,996
5.94
6,907
The unaudited pro forma financial information presented above is not intended to represent or be indicative of what would have occurred if the transactions had
taken place on the dates presented and is not indicative of what the Company’s actual results of operations would have been had the acquisitions been completed
at the beginning of the periods indicated above. The pro forma combined results reflect one-time costs to fully merge and operate the combined organization
more efficiently, but do not reflect anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future
results that the Company will experience.
On November 1, 2011, the Company purchased the assets of ALS Technologies, Inc., a small Arkansas manufacturer of less lethal ammunition. Products include
smoke and tear gas grenades, specialty impact munitions, diversionary devices and stun munitions, support accessories like launchers and gas masks, as well as
training for the use of its products. The products are sold primarily to law enforcement, corrections, and military. The acquisition was immaterial to the
Company’s 2011 Consolidated Financial Statements. The purchase price allocation included in the Company’s financial statements was finalized during 2012
upon the completion of a business valuation. During the second half of 2012, the Company began the process of relocating this operation to Perry, Florida, which
was completed during 2013.
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Q. ACQUISITION OF COMPETITOR’S ASSETS
On November 7, 2013, AMTEC Corporation, a wholly owned subsidiary of the Company, purchased certain assets from its competitor, DSE, Inc. The
transaction was considered an acquisition of assets. DSE was the minority prime contractor for the 40mm ammunition system to the Department of Defense. At
the time of purchase, DSE had terminated virtually all of its employees and was no longer manufacturing product. The primary assets acquired were a customer
contract intangible of $21,690,000 related to government contract backlog of approximately $188,000,000, inventory valued at $11,590,000, and equipment of
$14,245,000. As it already had the personnel, facilities and production equipment in place to fill the acquired backlog, AMTEC did not purchase any of DSE’s
plants or land and did not acquire or retain DSE’s management, operational, resource management, or distribution processes. It also did not procure any of
DSE’s trademarks or seek to find or hire DSE’s former employees. The purchase consideration was $47,803,000, consisting of $46,465,000 of cash paid and
$1,338,000 liabilities incurred. This amount does include the customary post-closing adjustments and the valuation of certain liabilities incurred.
R. CONTINGENT CONSIDERATION LIABILITY
During 2013, the Company adjusted its recorded liability for contingent consideration related to the 2011 acquisition of the assets of ALS Technologies, Inc.,
which is described in Note P. During the fourth quarter of 2013, the Company estimated that the earnings targets for the three calendar years following the year
of acquisition, upon which the contingent consideration liability was based, would not be achieved. As a result, the entire contingent consideration liability of
$3,000,000 was reversed and resulted in an additional $3,000,000 of pre-tax earnings for 2013. See Note A(9) for a discussion of a goodwill impairment loss of
$2,840,000 in 2013 and Note A(10) for a discussion of the other intangible impairment loss of $2,063,000 in 2014 related to ALS.
S. OTHER
During 2010, the Company entered into a royalty agreement with another absorbent products company. Under the agreement, it received royalties for its
trademarks, technology, know-how, and the use of equipment that embodies that technology and know-how. It also purchased and sold to the other company the
requisite materials for the use of the technology. However, because of ongoing financial issues at the other absorbent products company, sales of the requisite
materials to the facility were discontinued during 2012. During 2012, incident to the royalty agreement, the Company recognized material sales of $598,000
(classified as Net Sales) and royalty income (included in Selling and General Expense) of $247,000. Further, because of the other facility’s financial difficulties,
the Company reserved for all receivables from the other facility by increasing the provision for doubtful accounts by $3,887,000 during 2012. In addition, the
Company fully reserved for a note receivable of $1,592,000 and recorded impairment on equipment of $5,725,000 during the fourth quarter of 2012 (each
classified as Selling and General Expense). Those reserves were written off in 2013. There were no material transactions between the Company and the other
absorbent products company during 2014 or 2013.
The Company has also entered into a licensing agreement with another firm that is developing certain products that would complement the assortment of
products currently sold by the Housewares/Small Appliances segment. Under the agreement, the Company has advanced the entity funds and has agreed to
advance the entity additional funds as certain goals are achieved. In addition, the Company has also agreed to pay royalties to the entity on the commercial sales
of the developed products. As of December 31, 2014, a note receivable plus accrued interest of $3,818,000 related to the license agreement was classified as
Note Receivable on the Company’s Consolidated Balance Sheet.
T. SUBSEQUENT EVENTS
The Company evaluates events that occur through the filing date and discloses any material events or transactions.
On February 13, 2015, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $3.05. On March 13, 2015,
a payment of $28,114,000 was made to the shareholders of record as of March 3, 2015.
As mentioned above in Note J, 163 employees in the Company’s Defense Products segment, or 16% of the Company’s and its subsidiaries’ total workforce, are
members of the United Steel Workers union as of December 31, 2014. The most recent contract between the Company and the union was effective through
February 28, 2015. A new contract between Amron and the union has been negotiated and is effective through February 29, 2020.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
National Presto Industries, Inc.
Eau Claire, Wisconsin
We have audited the accompanying consolidated balance sheets of National Presto Industries, Inc. as of December 31, 2014 and 2013 and the related
consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. In
connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying Schedule II, Valuation
and Qualifying Accounts. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Presto Industries,
Inc. at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in
conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), National Presto Industries, Inc.’s
internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Milwaukee, Wisconsin
March 16, 2015
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NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2014, 2013 and 2012
Column A
Description
(In thousands)
Column B
Balance at
Beginning of
Period
Column C
Additions -
Charged to
Costs and
Expenses
(A)
Column C
Additions -
Charged to
Other
Accounts
(B)
Column D
Column E
Deductions
(C)
Balance at
End of
Period
Deducted from assets:
Allowance for doubtful accounts:
Year ended December 31, 2014
Year ended December 31, 2013
Year ended December 31, 2012
Allowance for doubtful note receivable:
Year ended December 31, 2014
Year ended December 31, 2013
Year ended December 31, 2012
Notes:
$
$
$
$
$
$
1,078
6,111
1,361
$
$
$
1,592
— $
$
— $
532
655
4,037
$
$
$
— $
$
162
$
1,592
19
130
1,122
$
$
$
— $
— $
— $
210
5,818
409
$
$
$
1,754
— $
$
— $
1,419
1,078
6,111
—
—
1,592
(A) Amounts charged to selling and general expenses. See Note S to the Company’s Consolidated Financial Statements for additional information
regarding amounts charged for the year ended December 31, 2012 relating to an independent foreign manufacturing facility.
(B) Amounts charged to other accounts. Deferred revenue related to sales to the independent foreign manufacturing facility mentioned above, which was
deemed uncollectible during the year ended December 31, 2012, was reclassified to the allowance for doubtful accounts during 2012. For the year
ended December 31, 2013, this amount primarily reflects the reclassification of the Allowance for doubtful note receivable balance to Allowance for
doubtful accounts. For the year ended December 31, 2014, this amount reflects the reserve for doubtful accounts recorded in association with a
business acquisition that was completed during 2014, which is described in Note P to the Company’s Consolidated Financial Statements.
(C) Principally bad debts written off, net of recoveries. The amounts shown for the year ended December 31, 2013 were attributable to balances reserved
in prior years related to the independent foreign manufacturing facility mentioned above. The corresponding receivables were written off in 2013.
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EXHIBIT 21
presto150957_ex-21.htm
SUBSIDIARIES OF THE REGISTRANT
EX-21
150957 - PROOF 2
PARENT AND SUBSIDIARIES
(Included in the Consolidated Financial Statements and Wholly-owned)
National Presto Industries, Inc.
Eau Claire, Wisconsin (A Wisconsin Corporation)
Its Subsidiaries:
National Holding Investment Company
Wilmington, Delaware (A Delaware Corporation)
Its Subsidiaries:
Presto Manufacturing Company
Jackson, Mississippi (A Mississippi Corporation)
Jackson Sales and Storage Company
Jackson, Mississippi (A Mississippi Corporation)
Canton Sales & Storage Company
Canton, Mississippi (A Mississippi Corporation)
National Defense Corporation
Eau Claire, Wisconsin (A Wisconsin Corporation)
Its Subsidiaries:
AMTEC Corporation
Janesville, Wisconsin (A Wisconsin Corporation)
Its Divisions:
Amron
Antigo, Wisconsin
Tech Ord
Clear Lake, South Dakota
Its Subsidiaries:
Spectra Technologies LLC
East Camden, Arkansas (A Delaware Corporation)
AMTEC Less Lethal Systems, Inc.
Perry, Florida (A Wisconsin Corporation)
Presto Absorbent Products, Inc.
Eau Claire, Wisconsin (A Wisconsin Corporation)
PEFC, Inc.
Eau Claire, Wisconsin (A Wisconsin Corporation)
presto150957_ex23-1.htm
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
EX-23.1
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EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
National Presto Industries, Inc.
Eau Claire, Wisconsin
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-46711) of National Presto Industries, Inc. of our
reports dated March 16, 2015, relating to the consolidated financial statements and financial statement schedule, and the effectiveness of National Presto
Industries, Inc.’s internal control over financial reporting, which appear in this Form 10-K.
/s/BDO USA, LLP
Milwaukee, Wisconsin
March 16, 2015
presto150957_ex31-1.htm
CERTIFICATION OF CEO PURSUANT TO SECTION
302
EX-31.1
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Maryjo Cohen, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of National Presto Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation;
and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
Date: March 16, 2015
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/S/ Maryjo Cohen
Maryjo Cohen
Chief Executive Officer
presto150957_ex31-2.htm
CERTIFICATION OF CFO PURSUANT TO SECTION
302
EX-31.2
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EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Randy Lieble, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of National Presto Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
Date: March 16, 2015
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/S/ Randy Lieble
Randy Lieble
Chief Financial Officer
presto150957_ex32-1.htm
CERTIFICATION OF CEO PURSUANT TO SECTION
906
EX-32.1
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. §1350 (as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I the undersigned Chief Executive Officer of National Presto
Industries, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-K of the Company for the year ended December 31, 2014 (the “Report”)
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the
SEC or its staff upon request.
Date: March 16, 2015
/S/ Maryjo Cohen
Maryjo Cohen,
Chief Executive Officer
presto150957_ex32-2.htm
CERTIFICATION OF CFO PURSUANT TO SECTION
906
EX-32.2
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. §1350 (as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Financial Officer of National Presto
Industries, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-K of the Company for the year ended December 31, 2014 (the “Report”)
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the
SEC or its staff upon request.
Date: March 16, 2015
/S/ Randy Lieble
Randy Lieble,
Chief Financial Officer