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, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________________ to __________________________
Commission File Number 1-2451
NATIONAL PRESTO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of
incorporation or organization)
3925 North Hastings Way
Eau Claire, Wisconsin
(Address of principal executive offices)
39-0494170
(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
Trading
Symbol(s)
NPK
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 every Interactive Data File required to be submitted 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 such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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:
$462,078,337. The number of shares outstanding of each of the registrant's classes of common stock, as of March 1, 2020 was 7,006,323.
The Registrant has incorporated in Part II and Part III of Form 10-K, by reference, portions of its 2019 Annual Report and portions of its Proxy Statement for its 2020
Annual Meeting of Stockholders.
TABLE OF CONTENTS
PART I
Item 1 – Business
Item 1A – Risk Factors
Item 1B – Unresolved Staff Comments
Item 2 – Properties
Item 3 – Legal Proceedings
Item 4 – Mine Safety Disclosures
PART II
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
purchases of Equity Securities
Item 6 – Selected Financial Data
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
Item 8 – Financial Statements and Supplementary Data
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A – Controls and Procedures
Item 9B – Other Information
PART III
Item 10 – Directors, Executive Officers and Corporate Governance
Item 11 – Executive Compensation
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 – Certain Relationships and Related Transactions, and Director Independence
Item 14 – Principal Accountant Fees and Services
PART IV
Item 15 – Exhibits and Financial Statement Schedules
Item 16 – Form 10-K Summary
Signatures
1
Page
2
2
7
12
12
13
13
14
14
15
16
22
23
23
23
26
28
28
29
29
29
29
30
30
31
32
2
PART I
ITEM 1. BUSINESS
A. DESCRIPTION OF BUSINESS
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 that enrich the lives of consumers by making life easier, more productive and more enjoyable.
The Defense segment, which protects the lives of the citizens of our nation, as well as the citizens of our
nation’s allies, by providing our warfighters with reliable products, 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; and manufactures detonators, booster pellets, release cartridges, lead azide, and other
military energetic devices and materials. The Safety segment, which provides innovative safety technology
empowering organizations and individuals to protect what is more important, currently consists of two
startup companies. The first is Rusoh, Inc., which designs and markets the Rusoh® Eliminator® fire
extinguisher, the first self-service fire extinguisher. The second is OneEvent Technologies, Inc. It offers
systems that provide early warning of conditions that could ultimately lead to significant losses. The initial
application combines patented machine learning, digital sensors and cloud-based technology to continuously
monitor freezers and refrigerators, instantly detecting and alerting users to potential safety issues around
pharmaceuticals and food. The OneEvent® system also has the ability to continually measure other factors
such as smoke, carbon monoxide, motion, humidity, and moisture.
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc.
(“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and
certain liabilities were assigned to Drylock Technologies, Ltd. (“Drylock”) in exchange for $68,448,000.
The asset purchase agreement also provided for additional proceeds of $4,000,000 upon the sale of certain
delayed assets, consisting of machinery and equipment that were the subject of an involuntary conversion.
The sale of the delayed assets was consummated during the second quarter of 2018 and resulted in no gain
or loss. As a result of the aforementioned transactions, the Company classified its results of operations for
all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the
assets and liabilities of its Absorbent Products business as held for sale. See Note P for further discussion.
The operations of PAPI previously comprised the Company’s Absorbent Products segment which
manufactured and sold 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; slow cookers; deep fryers of various sizes; air fryers; waffle makers; pizza ovens;
slicer/shredders; electric heaters; corn poppers (hot air, oil, and microwave); dehydrators; rice cookers;
microwave bacon cookers; egg 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, 2019, approximately 14% of consolidated net sales were provided by cast
products (griddles, waffle makers, die cast deep fryers, skillets and multi-cookers), and approximately 17%
by noncast/thermal appliances (stamped cookers and canners, pizza ovens, corn poppers, coffee makers,
microwave bacon cookers, dehydrators, rice cookers, egg cookers, slow cookers, tea kettles, electric
stainless steel appliances, non-cast fryers, air fryers and heaters). For the year ended December 31, 2018,
3
approximately 11% of consolidated net sales were provided by cast products, and approximately 16% by
noncast/thermal appliances. For the year ended December 31, 2017, approximately 12% of consolidated net
sales were provided by cast products, and approximately 16% by noncast/thermal appliances. For the years
ended December 31, 2019, 2018 and 2017, this segment had one customer which accounted for 10% or
more of the Company’s consolidated net sales. That customer was Wal-Mart Stores, Inc., which accounted
for 12%, 10%, and 10% of consolidated net sales in the years ended December 31, 2019, 2018, and 2017,
respectively. 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. All
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 8 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 have been conducted primarily through the use of newspaper advertising, in store
promotions, and digital advertising. 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, product quality,
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.
Research and development costs related to new product development for the years 2019, 2018, and 2017
were expensed 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.
4
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 106,000 square foot manufacturing facility located in Janesville, Wisconsin,
which includes the Company’s 2016 construction of 31,000 square feet of manufacturing space to meet
anticipated production needs, 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 354,000 square feet of space located in East Camden, Arkansas, dedicated
primarily to Load, Assemble and Pack (LAP) type work.
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.
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.
AMTEC Less Lethal Systems, Inc., a former subsidiary of AMTEC Corporation, held 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 included 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 state-of-the-art less lethal ammunition
manufacturing and training facility, which was completed in 2013, was 54,000 square feet and was located
in Perry, Florida. In October of 2018, the Company divested itself of the less lethal business. See Note Q to
the Consolidated Financial Statements.
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. 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. Deliveries under this contract
exceeded $566,000,000, with the final deliveries completed in 2018. In addition, as part of an acquisition of
a group of assets from DSE, Inc, a 40mm competitor, which was completed on November 7, 2013, 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 second five-year contract
5
mentioned above. Total deliveries for the systems program under the novated DSE 40mm contract were
completed in 2018. The Company submitted its bid for a third contract, and although the FY15 (Army’s
fiscal year beginning October 1, 2014) bid request was subsequently cancelled, the 40mm program
requirements remained and were subsequently awarded to AMTEC as the Army’s FY16 40mm
requirements in a single award valued at $84,750,000. Final deliveries for the FY16 contract were
completed in 2019. On August 30, 2017, the Army awarded AMTEC, as the sole prime contractor, a third
five-year 40mm system contract covering FY17-21 requirements. The value of awards to date is
approximately $253,000,000 for FY17 through FY20, with deliveries scheduled to continue into 2021. The
actual annual and cumulative dollar volume with the Army over the balance of the contract 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.
During 2019, 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 usually
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 2017 contract applied 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. Safety Segment
The Safety segment was formed in the third quarter of 2019 with the purchase of substantially all of the
assets of OneEvent Technologies, Inc. on July 23, 2019. The segment is comprised of OneEvent
Techologies, Inc. and Rusoh, Inc., which was previously included in the Company’s Housewares/Small
Appliance segment.
OneEvent Technologies, Inc. leases 7,000 square feet in Mount Horeb, Wisconsin. Established in
2014, OneEvent’s cloud-based learning and analytics engine utilizes a series of sensing devices integrated
with a cellular gateway to predict and alert in a timely fashion so that the customer has an opportunity to
prevent a loss. Sensors measure a variety of environmental data including smoke, temperature, carbon
monoxide, humidity, water, motion, and more. The initial application combines patented machine learning,
digital sensors and cloud-based technology to continuously monitor freezers and refrigerators, instantly
detecting and alerting users to potential mechanical issues which can in turn affect the maintenance of
critical temperatures for the safe storage of pharmaceuticals and food. The system detects anomalies in
defrost and refrigeration cycles, enabling it to provide notice days or even weeks in advance of a potential
malfunction. With these alerts, customers have time to act proactively to correct the situation and prevent
the loss or deterioration of valuable pharmaceuticals or foods well in advance of an equipment failure.
Rusoh, Inc. rents 8,000 square feet of office space located in the Company’s Eau Claire, Wisconsin facility.
Formed in 2012, Rusoh designs and markets the Rusoh® Eliminator® fire extinguisher. The fire
extinguisher is a self-service, multipurpose, reloadable, dry chemical fire extinguisher and is the first
portable self-service fire extinguisher.
The operations of both of the businesses that comprise the Safety segment are startup in nature and have
resulted in limited revenues. The segment has a sales force of 4 employees that sell to and service most
customers. Product competition extends to product features, product pricing, product quality, marketing
programs, service policies and other factors. New product introductions are an important part of the
Company's sales to enhance its product offerings. 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. Securing Underwriters Laboratories (UL) certification is a prerequisite to
sales, and the process for securing UL is both expensive and time consuming, consuming a year or more.
Fully tooled products are required prior to the performance of most tests. High-cost advertising
commitments which may accompany such new products or may be required to secure sales of existing
products may not be fully absorbed by ultimate product sales. Initial production schedules, set in advance of
6
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.
Research and development costs related to new product development for the years 2019, 2018, and 2017
were expensed in operations of these years.
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.
B. OTHER COMMENTS
1. Sources and Availability of Materials
See Note J to the Consolidated Financial Statements.
2. Patents, Trademarks, and Licenses
Patents, trademarks and know-how are important to the Company’s segments. Although the Company’s
current and future success does not materially depend upon the judicial protection of its intellectual property
rights (patents, trademarks, trade dress copyrights and trade secrets), 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’s segments hold numerous patents and trademarks registered in the United
States and foreign countries related to various products and methods. The Company believes its business is
not dependent upon any individual patent, copyright or license, but that the Presto® trademark is material to
its business.
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 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, 2019, 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.
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, 2019, the Company and its subsidiaries had 919 employees compared to 949 employees
at the end of December 2018.
Approximately 198 employees of Amron are members of the United Steel Workers union. The most recent
contract between Amron and the union is effective through February 28, 2025.
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 or to provide a means to delay the impact of potential tariffs. Buying practices of the
Company's customers require "just-in-time" delivery, necessitating that the Company carry large finished
goods inventories.
7
The ability to meet U.S. Department of Defense demands also necessitates the carrying of large inventories
in the Defense segment.
Inventory build-up also occurs in the Safety segment to meet potential demand of customers that require
delivery with shorter lead times.
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 $310,385,000, $333,592,000, and
$308,173,000 at December 31, 2019, 2018, and 2017, 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 an 18 to 24-month period, after December 31, 2019.
Shipments in the Safety segment typically occur within a relatively short time after 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.
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
8
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.
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. Currently, it has imposed penalty tariffs on
some imports and has threatened to impose a tariff on all products. The latter, if imposed, would have a
material adverse effect on the Company’s business.
In addition, the Wuhan coronavirus, originating in China, has prompted precautionary government-imposed
closures of certain travel and business. It is unknown how long and to what extent global supply chains may
be affected. Expenses or delays relating to such health issues outside of the Company’s control may occur,
which could have a material adverse impact on the Company’s business, operating results and financial
condition.
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 further 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.
9
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 failure to procure or 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.
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 were augmented by increased defense spending, including supplemental appropriations for
operations in Iraq and Afghanistan. However, future defense budgets could be negatively affected by several
10
factors, including U.S. Government budget deficits, administration priorities, U.S. national security
strategies, a change in spending priorities, and the reduction of military operations around 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.
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.
Safety Segment:
The Safety segment is comprised of businesses that are startup in nature.
11
The operations that comprise the Safety segment are startup in nature, and like most startups may not
ultimately have the potential to be successful.
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 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 major portion of the safety 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. Currently, it has imposed a penalty tariff on
some imports and has threatened to impose a tariff on all products. The latter, if imposed, would have a
material adverse effect on the Company’s business.
In addition, the Wuhan coronavirus, originating in China, has prompted precautionary government-imposed
closures of certain travel and business. It is unknown how long and to what extent global supply chains may
be affected. Expenses or delays relating to such health issues outside of the Company’s control may occur,
which could have a material adverse impact on the Company’s business, operating results and financial
condition.
Regulatory constraints and authorities having jurisdiction has impeded and may continue to impede sales of
certain of the segment’s products.
The commercial sales of certain of the Safety segment’s products are dependent on the approval of officials
that oversee fire safety at state and local levels for use of the products in areas under their jurisdiction. The
inability to obtain the approval of these officials has had and may continue to have an adverse impact on the
segment’s operating results.
Various products in the Safety segment are reliant upon up-to-date software, hardware, and the wireless
communications infrastructure.
The effective operation of various products in the Safety segment depend on software that utilizes data
obtained wirelessly via telecommunication network infrastructure. The inability of the Company to maintain
software and hardware that can connect to the wireless infrastructure, or failure of the wireless infrastructure,
could have a material adverse effect on the efficacy of the segment’s products and in turn on its operating
results.
12
The segment may not be successful in developing and introducing new and improved products.
The development and introduction of new 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 customer needs and preferences, meet
Underwriters Laboratories requirements and avoid infringing on 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.
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 one of which could have a negative impact on the
Company’s results of operations or financial condition. The Company’s insurance coverage may not be
adequate to cover all the costs related to cyber security attacks or disruptions.
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 approximately 354,000 square
feet was formerly occupied by Presto Absorbent Products, Inc. and subsequently, beginning on January 3, 2017,
is leased to Drylock Technologies, Ltd mentioned in Item 1 of this Form 10-K. Rusoh, Inc. rents approximately
8,000 square feet of the Eau Claire facility. The Company's corporate office occupies the balance of the space in
13
Eau Claire. During 2018, the Company completed construction of a 30,000 square foot office building adjacent
to its Eau Claire facility, which it also leases to Drylock Technologies, Ltd.
The Company also has Defense manufacturing facilities located in Janesville and Antigo, Wisconsin; East
Camden, Arkansas; and Clear Lake, South Dakota. The Company sold its Perry, Florida facility in October 2018
with its divestiture of Amtec Less Lethal Systems, Inc. See Note Q to the Consolidated Financial Statements.
The Janesville, Wisconsin facility is comprised of approximately 106,000 square feet, which includes the
Company’s 2016 construction of 31,000 square feet of manufacturing space to meet anticipated needs. The
Antigo, Wisconsin facility is comprised of approximately 208,000 square feet and the Perry, Florida facility was
comprised of approximately 54,000 square feet. The East Camden, Arkansas operation leases approximately
354,000 square feet. The Clear Lake, South Dakota facility is comprised of approximately 88,000 square feet.
OneEvent, included in the Company’s Safety segment, leases approximately 7,000 square feet for its operations
in Mount Horeb.
There are two warehousing facilities located in Jackson and Canton, Mississippi used in the Housewares/Small
Appliance and Safety segments. The Jackson facility contains 252,000 square feet. The Company also leases a
255,000 square foot building in Canton 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 facilities in use for each of the Company’s business segments are believed to be adequate for their ongoing
business needs.
ITEM 3. LEGAL PROCEEDINGS
See Note I to the Company’s 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.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Record of Purchases of Equity Securities
Total Shares
Purchased
Average
Price Paid
per Share
Shares Purchased as
Part of Publicly
Announced Plan or
Program
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
2,056 * $
275 *
2,253 *
4,584
$
108.40
92.81
85.95
96.43
N/A
N/A
N/A
N/A
N/A
N/A
Month
Feb. 25 - Mar. 31, 2019
Jul. 29 - Aug. 25, 2019
Aug. 26 - Sept. 29, 2019
Total
* Under the Incentive Compensation Plan approved by stockholders on May 18, 2010 and the 2017 Incentive
Compensation Plan approved by shareholders on May 16, 2017, the Company has the right to withhold shares from
vested restricted stock grants to be delivered to grantees to satisfy all or a portion of federal, state, local, or foreign tax
withholding requirements.
On February 21, 2020, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra
dividend of $5.00. The dividend will be payable on March 13,2020 to the stockholders of record as of March 2, 2020.
The common stock of National Presto Industries, Inc. is traded on the New York Stock Exchange under the symbol
“NPK”. As of March 2, 2020, there were 237 holders of record of the Company’s common stock. This number does not
reflect stockholders who hold their shares in the name of broker dealers or other nominees. During the fourth quarter of
2019, 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
2020 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 2019 Annual
Report is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
15
For the years ended December 31,
Net sales
Earnings from continuing operations
Earnings (loss) from discontinued operations,
net of tax
Net earnings
Earnings (loss) per share - basic and diluted
From continuing operations
From discontinued operations, net of tax
Net earnings per share
(In thousands except per share data)
2017
$ 308,510 $ 323,317 $ 333,633 $ 341,905 $ 355,649
2015
2019
2018
2016
$
40,540 $
39,889 $
43,314 $
41,915 $
42,162
1,680
42,220
51
39,940
9,645
52,959
2,649
44,564
(1,666)
40,496
$
5.77 $
0.24
6.01
5.69 $
0.01
5.70
6.20 $
1.38
7.58
6.01 $
0.38
6.39
6.07
(0.24)
5.83
Total assets
$ 410,253 $ 413,618 $ 411,873 $ 417,594 $ 387,384
Dividends paid per common share applicable to
current year
Regular
Extra
Total
$
$
1.00 $
5.00
6.00 $
1.00 $
5.00
6.00 $
1.00 $
4.50
5.50 $
1.00 $
4.05
5.05 $
1.00
3.05
4.05
16
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 2019 Annual Report to
Shareholders, in the Proxy Statement for the annual meeting to be held May 19, 2020, and in the Company’s press
releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could
cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the
notes to Consolidated Financial Statements, among the other factors that could cause actual results to differ materially are
the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major
customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing;
development and market acceptance of new products; increases in material, freight/shipping, tariffs, or production cost
which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective
product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized
work force; changes in government requirements, military spending, and funding of government contracts which could
result, among other things, in the modification or termination of existing contracts; dependence on subcontractors or
vendors to perform as required by contract; the ability of startup businesses to ultimately have the potential to be
successful; the efficient start-up and utilization of tooling and equipment investments; political actions of federal and state
governments which could have an impact on everything from the value of the U.S. dollar vis-à-vis other currencies to the
availability of affordable labor and energy; and security breaches and disruptions to our information technology system.
Additional information concerning these and other factors is contained in the Company's Securities and Exchange
Commission filings.
DISCONTINUED OPERATIONS
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered
into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to
Drylock Technologies, Ltd. As a result of this transaction, the Company classified its results of operations for all periods
presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of
its Absorbent Products business as held for sale. The operations of PAPI previously comprised the Company’s Absorbent
Products segment.
2019 COMPARED TO 2018
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, 2019 and 2018.
On a consolidated basis, sales decreased by $14,807,000 (5%), gross profit decreased by $3,958,000 (5%), selling and
general expense increased by $2,176,000 (9%), intangibles amortization decreased by $2,084,000 (96%), and loss on
divestiture, net decreased by $2,528,000. Other income increased by $1,489,000 (34%), while earnings from continuing
operations before provision for income taxes decreased by $33,000, and earnings from continuing operations increased by
$651,000 (2%). Earnings from discontinued operations, net of tax, increased $1,629,000. Details concerning these
changes can be found in the comments by segment below.
Housewares/Small Appliance net sales increased by $5,668,000, from $93,733,000 to $99,401,000, or 6%, primarily due
to an increase in shipments. Defense net sales decreased by $20,432,000, from $229,546,000 to $209,114,000, or 9%,
reflecting a decrease in units shipped, partially offset by proceeds from the negotiated termination of a commercial
foreign military supply contract for $9,412,000.
Housewares/Small Appliance gross profit decreased $205,000 from $15,563,000 (17% of sales) in 2018 to $15,358,000
(16% of sales) in 2019, primarily reflecting the increase in sales mentioned above, offset by higher product costs.
Defense gross profit decreased $3,206,000 from $60,979,000 (27% of sales) to $57,773,000 (28% of sales), primarily
17
reflecting the decrease in sales mentioned above, a less favorable product mix, and comparatively less efficient operations
on certain programs vis-à-vis 2018, partially offset by the proceeds from the termination agreement mentioned above.
Due to the startup nature of both businesses in the Safety segment, gross margins were negative in both years.
Selling and general expenses for the Housewares/Small Appliance segment increased $1,752,000, primarily reflecting
higher legal and professional expenses of $805,000, higher health and accident costs of $505,000, and charges related to
the vesting of restricted stock upon retirement of long-term employees of $448,000. Defense segment selling and general
expenses decreased $1,444,000, primarily reflecting the absence of costs associated with the Company’s wholly-owned
subsidiary, AMTEC Less Lethal Systems, Inc., that was divested during the fourth quarter of 2018. See note Q to the
Company’s Consolidated Financial Statements. Safety segment selling and general expenses increased $1,869,000,
primarily reflecting for Rusoh, Inc., higher employee compensation and benefit cost accruals of $509,000 and higher legal
and professional expenses of $398,000 along with the selling and general expense of OneEvent, whose assets were
acquired during third quarter 2019. See note R to the Company’s Consolidated Financial Statements.
Intangible amortization decreased by $2,084,000 from $2,167,000 in 2018 to $83,000 in 2019. The decrease primarily
reflects the Defense segment’s amortization of the value of an acquired government sales contract that was fully
amortized during the second quarter of 2018.
There were no impairments recorded in 2019. In contrast, on October 17, 2018, the Company, through its wholly owned
subsidiary AMTEC Corporation, sold the outstanding stock of its wholly owned subsidiary AMTEC Less Lethal Systems,
Inc. (“ALS”) to PACEM Defense LLC (“PACEM”), a third party, in exchange for cash and promissory notes totaling
$10,636,000, subject to customary post-closing adjustments. The Company tested long-lived assets for recoverability in
the third quarter 2018 and recorded an impairment charge of $3,021,000. The pre-tax loss on divestiture, including the
impairment charge, recorded in 2018 was $2,528,000. See Note Q to the Consolidated Financial Statements.
The above items were responsible for the change in operating profit from continuing operations.
Other income increased $1,489,000, which was primarily attributable to higher interest earned of $1,014,000 on a reduced
portfolio of marketable securities with higher yields and the increase in rental income of $456,000 from the new
additional facility built for Drylock mentioned in Note P to the Company’s Consolidated Financial Statements.
Earnings from continuing operations before provision for income taxes decreased $33,000 from $52,339,000 to
$52,306,000. The provision for income taxes from continuing operations decreased from $12,450,000 to $11,766,000,
which resulted in an effective income tax rate of 23% and 24% for the years ended December 31, 2019 and 2018,
respectively. Earnings from continuing operations increased $651,000 from $39,889,000 to $40,540,000.
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered
into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to
Drylock Technologies, Ltd. As a result of this transaction, the Company classified its results of operations for all periods
presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of
its Absorbent Products business as held for sale. Earnings from discontinued operations increased $1,629,000, from
$51,000 to $1,680,000. The earnings stemmed from the settlement of a lawsuit for breach of contract.
Net earnings increased $2,280,000 from $39,940,000 to $42,220,000.
2018 COMPARED TO 2017
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 two business segments for the years ended December 31, 2018 and 2017.
On a consolidated basis, sales decreased by $10,316,000 (3%), gross profit decreased by $11,351,000 (13%), selling and
general expense increased by $386,000 (2%), and intangibles amortization decreased by $463,000 (18%) and loss on
divestiture, net increased by $2,528,000. Other income increased by $856,000 (24%), while earnings from continuing
operations before provision for income taxes decreased by $12,946,000 (20%), and earnings from continuing operations
decreased by $3,425,000 (8%). Earnings from discontinued operations, net of tax, decreased $9,594,000 (100%). Details
concerning these changes can be found in the comments by segment below.
18
Housewares/Small Appliance net sales decreased by $3,528,000, from $97,261,000 to $93,733,000, or 4%, primarily due
to a decrease in shipments. Defense net sales decreased by $6,788,000, from $236,334,000 to $229,546,000, or 3%,
reflecting a decrease in units shipped.
Housewares/Small Appliance gross profit decreased $1,806,000 from $17,369,000 (18% of sales) in 2017 to $15,563,000
(17% of sales) in 2018, primarily reflecting the decrease in sales mentioned above and higher product costs. Defense
gross profit decreased $9,405,000 from $70,384,000 (30% of sales) to $60,979,000 (27% of sales), primarily reflecting
the decrease in sales mentioned above, a less favorable product mix, and comparatively less efficient operations on certain
programs vis-à-vis 2017.
Selling and general expenses for the Housewares/Small Appliance segment increased $930,000, primarily reflecting
higher employee compensation and benefit costs of $937,000, higher provisions for bad debt of $421,000, partially offset
by lower environmental cost accruals of $201,000. Defense segment selling and general expenses decreased $941,000,
primarily reflecting lower legal and professional costs of $410,000, with the remainder stemming from decreases in a
variety of miscellaneous expense categories.
Intangible assets primarily consist of the value of an acquired government sales contract and the value of trademarks and
trade secrets. The intangible assets are all attributable to the Defense segment. The government sales contract intangible
asset is amortized based on units fulfilled under the applicable contract, while the other intangible assets are amortized on
a straight-line basis that approximates economic use, over periods ranging from 2 to 10 years. As of December 31, 2018,
the Company determined that the trade secrets, which were acquired during 2017, had an indefinite life. The decrease in
amortization is primarily attributable to fewer units shipped under the acquired government sales contract in 2018 than in
2017. The government sales contract intangible asset was fully amortized as of December 31, 2018.
On October 17, 2018, the Company, through its wholly owned subsidiary AMTEC Corporation, sold the outstanding
stock of its wholly owned subsidiary AMTEC Less Lethal Systems, Inc. (“ALS”) to PACEM Defense LLC (“PACEM”),
a third party, in exchange for cash and promissory notes totaling $10,636,000, subject to customary post-closing
adjustments. The Company tested long-lived assets for recoverability in the quarter ending September 30, 2018 and
recorded an impairment charge of $3,021,000. The pre-tax loss on divestiture, including the impairment charge, recorded
in 2018 was $2,528,000. See Note Q to the Consolidated Financial Statements.
The above items were responsible for the change in operating profit.
Other income increased $856,000, which was primarily attributable to interest income on an increase in marketable
securities with higher yields stemming from the Federal Reserve’s ongoing rate increases. The increase in interest
income was partially offset by a $671,000 decrease in transition services income related to the 2017 divestiture of Presto
Absorbent Products, Inc.
Earnings from continuing operations before provision for income taxes decreased $12,946,000 from $65,285,000 to
$52,339,000. In December 2017, the United States enacted changes to its tax laws, which included a reduction of the
corporate income tax rate from 35% to 21%, beginning in 2018. The reduction in the tax rate resulted in a revaluation of
the Company’s deferred tax assets and liabilities held at December 31, 2017, causing an increase in its 2017 income tax
provision of $534,000. The provision for income taxes from continuing operations decreased from $21,971,000 to
$12,450,000, which resulted in an effective income tax rate of 24% and 34% for the years ended December 31, 2018 and
2017, respectively. Earnings from continuing operations decreased $3,425,000 from $43,314,000 to $39,889,000.
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered
into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to
Drylock Technologies, Ltd. As a result of this transaction, the Company classified its results of operations for all periods
presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of
its Absorbent Products business as held for sale. Income from discontinued operations decreased $9,594,000, from
$9,645,000 to $51,000, which was primarily attributable to the 2017 gain recognized on the divestiture of PAPI and a
gain on the involuntary conversion of machinery and equipment. Readers are directed to Note P, “Discontinued
Operations,” to the Company’s Consolidated Financial Statements for further information regarding the divestiture.
19
Net earnings decreased $13,019,000 from $52,959,000 to $39,940,000.
LIQUIDITY AND CAPITAL RESOURCES
2019 COMPARED TO 2018
Cash provided by operating activities was $9,583,000 during 2019 as compared to $76,248,000 during 2018. 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 2019 were net earnings of $42,220,000,
which included total non-cash depreciation and amortization expenses of $3,689,000; a noncash income tax expense of
$1,370,000 and a decrease in accounts receivable levels. These were partially offset by a gain on a legal settlement of
$2,300,000; an increase in inventory levels; an increase in deposits with vendors included in other assets and current
assets; and a decrease in net payable levels. The increase in inventory reflects early purchases from suppliers in China in
an effort to avoid penalty tariffs imposed by the U.S. Government and timing of shipments from the Defense segment’s
backlog. Cash used in discontinued operations was $1,052,000. Of particular note during 2018 were net earnings of
$39,940,000, which included total non-cash depreciation and amortization expenses of $6,219,000 and the net loss and
impairment on divestiture of business of $2,528,000; a decrease in accounts receivable and inventory levels; a decrease in
deposits with vendors included in other assets and current assets; and an increase in net payable levels. Cash used in
discontinued operations was $636,000.
Net cash provided by investing activities was $55,160,000 during 2019 as compared to cash provided of $10,844,000
during 2018. During 2019 the Company received proceeds of $2,146,000 from a note receivable and $2,300,000 from a
legal settlement. Also of note during 2019 were net sales and maturities of marketable securities of $56,011,000; the
purchase of plant and equipment of $3,138,000, which primarily included expenditures to augment the Company’s
production facilities in the Defense segment; and the acquisition of substantially all the assets of OneEvent Technologies,
Inc. for $3,733,000, net of cash acquired. Cash provided by discontinued operations was $3,107,000. During 2018, the
Company received net proceeds of $9,410,000 from the divestiture of its less lethal business, and $2,630,000 from an
insurance settlement. Also of note during 2018 were net sales and maturities of marketable securities of $9,789,000; the
purchase of plant and equipment of $8,686,000, which primarily included expenditures to the Housewares/Small
Appliance segment to build additional facilities related to the amended lease mentioned in Note P to the Consolidated
Financial Statements, and to augment the Company’s production facilities in the Defense segment; and the issuance of a
note receivable of $2,300,000. Cash provided by discontinued operations was $6,290,000.
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,
2019 and 2018, $39,249,000 and $94,416,000, 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 2019 and 2018 primarily differed as a result of the buy back of restricted stock in
2019. Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored
retirement plan.
As a result of the foregoing factors, cash and cash equivalents increased in 2019 by $22,732,000 to $79,579,000.
Working capital decreased by $6,229,000 to $298,538,000 at December 31, 2019 for the reasons stated above. The
Company’s current ratio was 8.6 to 1.0 at December 31, 2019 and 7.4 to 1.0 at December 31, 2018.
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 Item 1-A-2.
20
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 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.
2018 COMPARED TO 2017
Cash provided by operating activities was $76,248,000 during 2018 as compared to $24,278,000 during 2017. 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 2018 were net earnings of $39,940,000,
which included total non-cash depreciation and amortization expenses of $6,219,000 and the net loss and impairment on
divestiture of business of $2,528,000; a decrease in accounts receivable and inventory levels; a decrease in deposits with
vendors included in other assets and current assets; and an increase in net payable levels. Cash used in discontinued
operations was $636,000. Of particular note during 2017 were net earnings of $52,959,000, which included total non-
cash depreciation and amortization expenses of $9,888,000, the deferred income tax provision of $4,001,000, the gain on
divestiture of business of $11,413,000, and the net gain on involuntary conversion of machinery and equipment of
$2,713,000; and a decrease in accounts receivable levels. These were partially offset by decreases in net payables and
increases in inventory levels. Cash used in discontinued operations was $5,447,000.
Net cash provided by investing activities was $10,844,000 during 2018 as compared to cash used of $2,090,000 during
2017. During 2018, the Company received net proceeds of $9,410,000 from the divestiture of its less lethal business, and
$2,630,000 from an insurance settlement. Also of note during 2018 were net sales and maturities of marketable securities
of $9,789,000; the purchase of plant and equipment of $8,686,000, which primarily included expenditures in the
Housewares/Small Appliance segment to build additional facilities related to the amended lease mentioned in Note P to
the Consolidated Financial Statements, and to augment the Company’s production facilities in the Defense segment; and
the issuance of a note receivable of $2,300,000. Cash provided by discontinued operations was $6,290,000. During
2017, the Company received net proceeds of $64,033,000 from the divestiture of its Absorbent Products business, and
$2,104,000 from an insurance settlement. Also of note during 2017 were net purchases of marketable securities of
$59,832,000; the purchase of plant and equipment of $7,396,000, which included expenditures to rebuild impaired
machinery and equipment, improvements to the Company’s Eau Claire, Wisconsin facility, and augmentation of the
Company’s production facilities in the Defense segment; and the acquisition of an intangible asset of $1,000,000. Cash
provided by discontinued operations was $61,891,000.
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,
2018 and 2017, $94,416,000 and $114,258,000, 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 2018 and 2017 primarily differed as a result of the $0.50 per share increase in the
extra dividend paid during those years. Cash flows for both years also reflected the proceeds from the sale of treasury
stock to a Company sponsored retirement plan.
As a result of the foregoing factors, cash and cash equivalents increased in 2018 by $45,625,000 to $56,847,000.
Working capital increased by $11,756,000 to $304,767,000 at December 31, 2018 for the reasons stated above. The
Company’s current ratio was 7.4 to 1.0 at December 31, for both 2018 and 2017.
In December 2017, the United States enacted changes to its tax laws, which included a reduction of the corporate income
tax rate from 35% to 21%, beginning in 2018. The lower tax rate had a positive effect on the Company’s liquidity and
cash flow.
21
DEFENSE SEGMENT BACKLOG
The Company’s Defense segment contract backlog was approximately $310,385,000 at December 31, 2019, and
$333,592,000 at December 31, 2018. 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 an 18 to 24-month
period.
CONTRACTUAL OBLIGATIONS
The table below discloses a summary of the Company’s specified contractual obligations at December 31, 2019:
Payments Due by Period (in thousands)
Contractual Obligations
Lease Obligations
Purchase obligations(1)
Total
$
$
Total
4,344 $
192,453
196,797 $
Under 1 Year 1-3 Years
693 $
192,453
193,146 $
1,296 $
0
1,296 $
3-5 Years
More Than 5
Years
970 $
0
970 $
1,385
0
1,385
(1)Purchase obligations includes outstanding purchase orders at December 31, 2019. Included are purchase orders
issued to the Company’s Housewares and Safety segments’ manufacturers in the Orient and to material suppliers
and building contractors in the Defense segment. 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 and Safety product introductions are an important part of the Company’s sales. In the
case of the Housewares/Small Appliance segment, the introductions are important to offset the morbidity rate of other
products and/or the effect of lowered acceptance of seasonal products due to weather conditions. New products entail
unusual risks and have occasionally, in the past, resulted in losses related to obsolete or excess inventory as a result of low
or diminishing demand for a product. 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 Defense segment 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
22
Company beyond the reserve levels that have been accrued and recorded on the Company’s books and records. An
increase in the number or magnitude of claims could have a material impact on the Company’s financial condition and
results of operations.
Revenues
Sales are recorded net of discounts and returns for the Housewares/Small Appliance segment. Sales discounts and returns
are key aspects of variable consideration, which is a significant estimate utilized in revenue recognition. Sales returns
pertain primarily to warranty returns, returns of seasonal items, and returns of those newly introduced products sold with
a return privilege. The calculation of warranty returns is based in large part on historical data, while seasonal and new
product returns are primarily developed using customer provided information.
Impairment and Valuation of Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. Long-lived assets consist of property, plant and equipment and
intangible assets, including the value of a government sales contract, trademarks, trade secrets, and consulting
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(17) 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 0.8 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.
23
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-23.
B. Quarterly financial data is contained in Note N to the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Treasurer (principal financial officer), conducted
an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”) as of December 31, 2019. Based on
that evaluation, the Company’s Chief Executive Officer and Treasurer (principal financial officer) have concluded that
the Company’s disclosure controls and procedures were not effective as of that date as a result of a material weakness in
internal control over financial reporting described below.
MANAGEMENT’S REPORT ON 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,
2019. 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). Based on this assessment and the
material weakness identified below related to revenue recognition, management concluded that as of December 31, 2019,
the Company did not maintain effective internal control over financial reporting.
The Company did not properly design and maintain effective controls over revenue for its Defense segment, as the
controls failed to demonstrate an appropriate level of precision over the assessment and documentation of the point in
time pattern of revenue recognition, and did not fully consider alternative use and the impact of certain termination
clauses in its contracts with customers that might create a legal right for payment for work completed prior to the contract
termination that would include a reasonable profit margin.
Notwithstanding the material weakness described above, the Company’s management has concluded that the consolidated
financial statements, as included in this Form 10-K, present fairly, in all material respects, the Company’s financial
position, results of operations and cash flows for the periods presented, in conformity with accounting principles
generally accepted in the United States of America (U.S. GAAP).
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Other than the material weakness described above, there were no changes in internal controls over financial reporting
during the quarter ended December 31, 2019 that have materially affected, or are reasonable likely to materially affect,
the Company’s internal control over financial reporting.
24
REMEDIATION PLAN
The Company has designed a remediation plan to address the control deficiencies and strengthen its internal control over
financial reporting, which entails reassessing the design and operating effectiveness of its controls over the review of
Defense segment contracts, including implementing an appropriate level of precision in its reviews to identify significant
key terms and assumptions that could impact the pattern of revenue recognition. The Company expects the remediation
plan to be fully implemented during 2020.
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.
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
National Presto Industries, Inc.
Eau Claire, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited National Presto Industries Inc.’s (the “Company’s”) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company
did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based
on the COSO criteria.
We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions
taken by the Company after the date of management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2019 and 2018, 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, 2019, and the related notes and financial statement schedule listed in Item 15 and our
report dated March 10, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 Report on 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. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. 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 material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will
not be prevented or detected on a timely basis. A material weakness regarding management’s failure to design and maintain
effective controls over revenue for the Defense segment has been identified and described in management’s assessment as
the controls failed to demonstrate an appropriate level of precision over the assessment and documentation of the point in
time pattern of revenue recognition and did not fully consider alternative use and the impact of certain termination clauses
in its contracts with customers that might create a legal right for payment for work completed prior to the contract
termination that would include a reasonable profit margin.
Definition and Limitations of Internal Control over Financial Reporting
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
26
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.
/s/ BDO USA, LLP
Milwaukee, Wisconsin
March 10, 2020
ITEM 9B. OTHER INFORMATION
None.
27
28
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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.)
NAME
TITLE
AGE
Maryjo Cohen
Chair of the Board, President, and Chief Executive Officer
Douglas J. Frederick
Chief Operating Officer, Vice President, Secretary and General Counsel
Jeffery A. Morgan
Vice President, Engineering
Richard L. Jeffers
Vice President of Sales
David J. Peuse
Director of Financial Reporting and Treasurer
67
49
62
67
50
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. Frederick was elected Corporate Secretary on November 17, 2009, Vice President on May 15, 2018, and
Chief Operating Officer on December 11, 2018. 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. Morgan was elected Vice President, Engineering in November 2015. He has been associated with the
registrant since 2010. Prior to becoming an officer, he was Director of Engineering and Chief Engineer. Prior to
his employment with the registrant, Mr. Morgan had worked 21 years at Hoover Company, a division of Maytag,
and three years at Hoover’s successor, Techtronic Industries, in engineering and engineering management
capacities.
Mr. Jeffers was elected Vice President of Sales in September 2017. He has almost 40-years of experience in the
housewares/small appliance industry, has held executive sales positions at Windmere, Applica, and Salton, and
owned and operated a successful manufacturer’s representative firm. Prior to Vice President of Sales, Mr. Jeffers
served as National Account Sales Manager for the Company. He has been with the Company for a total of 14
(non-consecutive) years.
Mr. Peuse was elected Treasurer in May 2019. Prior to becoming an officer, he served the registrant as
Controller, and in other capacities as Manager of General Accounting, Costing Manager, Business Systems
Analyst, and Internal Auditor. Mr. Peuse has been associated with the registrant since 1996.
The information under the headings “Delinquent Section 16(a) Reports,” “Information Concerning Directors and
Nominees” and “Corporate Governance” in the Company’s Proxy Statement for its 2020 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
29
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.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings “Compensation Committee Interlocks and Insider Participation,” “Director
Compensation,” “Executive Compensation and Other Information” and “Summary Compensation Table” in the
Company’s Proxy Statement for its 2020 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 2020 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 2020 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 2020 Annual Meeting of Stockholders is incorporated by
reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this Form 10-K:
1.
Consolidated Financial Statements:
30
Form 10-K
Page Reference
a.
b.
c.
d.
e.
f.
Consolidated Balance Sheets - December 31, 2019 and 2018
F-1 & F-2
Consolidated Statements of Comprehensive Income - Years ended
December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows - Years ended December 31,
2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity - Years ended
December 31, 2019, 2018 and 2017
F-3
F-4
F-5
Notes to Consolidated Financial Statements
F-6 through F-22
Report of Independent Registered Public Accounting Firm
2.
Consolidated Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
F-23
F-24
(b) Exhibits:
Exhibit
Number
Exhibit 3(i)
Exhibit 3(ii)
Description
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
Exhibit 4
Description of Registrant’s Securities
Exhibit 9.1
Exhibit 9.2
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
31
Exhibit
Number
Description
Exhibit 10.1*
Incentive Compensation Plan – incorporated by reference from Exhibit 10.1 of the
Company’s quarterly report on Form 10-Q for the quarter ended July 4, 2010
Exhibit 10.2*
Form of Restricted Stock Award Agreement – incorporated by reference from Exhibit
10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended July 4,
2010
Exhibit 10.3*
2017 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 2, 2017
Exhibit 10.4*
Form of Restricted Stock Award Agreement – 2017 Incentive Compensation Plan -
incorporated by reference from Exhibit 10.2 of the Company’s quarterly report on
Form 10-Q for the quarter ended July 2, 2017
Exhibit 21
Subsidiaries of the Registrant
Exhibit 31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Exhibit 31.2
Certification of the Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Exhibit 32.2
Certification of the Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 101
The following financial information from National Presto Industries, Inc.’s annual
report on Form 10-K for the period ended December 31, 2019, 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.
* Compensatory Plans
(c) Schedules:
Reference is made to Item 15(a)2 of this Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
32
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 10, 2020
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:
/S/ Patrick J. Quinn
Patrick J. Quinn
Director
/S/ Joseph G. Stienessen
Joseph G. Stienessen
Director
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
By:
/S/ Randy F. Lieble
Randy F. Lieble
Director
Date: March 10, 2020
F-1
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
December 31
2019
2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Accounts receivable
Less allowance for doubtful accounts
Inventories:
Finished goods
Work in process
Raw materials and supplies
Assets held for sale
Notes receivable, current
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
NOTES RECEIVABLE
RIGHT-OF-USE LEASE ASSETS
DEFERRED INCOME TAXES
OTHER ASSETS
$
79,579
78,733
$
56,847
134,598
$
41,914
450
41,464
$
53,119
747
52,372
33,495
87,805
7,236
3,008
47,748
43,226
93,982
56,704
$
128,536
-
2,853
6,668
337,833
37,278
15,317
3,059
7,182
3,521
1,281
4,782
410,253
28,791
59,580
5,617
3,008
45,995
47,091
96,094
56,951
$
93,988
375
7,213
6,869
352,262
39,143
11,485
1,000
6,966
-
1,088
1,674
413,618
The accompanying notes are an integral part of the Consolidated Financial Statements.
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
December 31
LIABILITIES
CURRENT LIABILITIES:
Accounts payable
Federal and state income taxes
Lease liabilities
Accrued liabilities
Total current liabilities
LEASE LIABILITIES - NON-CURRENT
Total liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized: 12,000,000 shares at December 31, 2019
and 2018
Issued: 7,440,518 shares at December 31, 2019 and
2018
Outstanding: 7,006,323 and 6,981,080 shares at
December 31, 2019 and 2018, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Less treasury stock, at cost, 434,195 and 459,438 shares
at December 31, 2019 and 2018, respectively
Total stockholders' equity
F-2
2018
$
34,100
1,384
-
12,011
47,495
-
47,495
2019
$
21,652
3,799
520
13,324
39,295
3,001
42,296
$
7,441
11,447
362,842
136
381,866
13,909
$
7,441
10,360
362,709
21
380,531
14,408
367,957
410,253
$
366,123
413,618
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-3
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
Loss on divestiture, net
Operating profit
Other income
Earnings from continuing operations before provision for income
taxes
Provision for income taxes from continuing operations
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Net earnings
Weighted average common shares outstanding:
Basic and diluted
Earnings per share, basic and diluted:
From continuing operations
From discontinued operations
Net earnings per share
$
$
$
$
$
$
For the years ended December 31,
2018
323,317
247,434
75,883
23,286
2,167
2,528
47,902
4,437
2019
308,510
236,585
71,925
25,462
83
-
46,380
5,926
2017
333,633
246,399
87,234
22,900
2,630
-
61,704
3,581
52,306
11,766
40,540
1,680
42,220
$
52,339
12,450
39,889
51
39,940
$
65,285
21,971
43,314
9,645
52,959
7,027
7,005
6,989
5.77
0.24
6.01
$
$
5.69
0.01
5.70
$
$
6.20
1.38
7.58
Comprehensive income:
Net earnings
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities
Comprehensive income
$
42,220
$
39,940
$
52,959
115
42,335
$
107
40,047
$
(39)
52,920
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
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:
Provision for depreciation
Intangibles amortization
Deferred income tax (benefit)
Noncash income tax expense
Net loss (gain) and impairment on divestiture of businesses
Net gain on involuntary conversion of machinery and
equipment
Loss on disposal and impairment of property, plant and
equipment
Provision for doubtful accounts
Noncash retirement plan expense
Gain on legal settlement
Other
Changes in operating accounts, net of effects of acquisition:
Accounts receivable, net
Inventories
Other assets and 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
Proceeds from divestiture of businesses, net of cash paid
Purchase of property, plant and equipment
Notes issued
Proceeds from notes receivable
Acquisition of business, net of cash acquired
Proceeds from legal settlement
Proceeds from insurance settlement
Acquisition of intangible assets
Sale of property, plant and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Dividends paid
Proceeds from sale of treasury stock
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
$
F-4
For the years ended December 31,
2018
2019
2017
$
42,220
$
39,940
$
52,959
3,606
83
(224)
1,370
-
-
322
7
680
(2,300)
464
10,915
(34,241)
(2,803)
(11,561)
1,045
9,583
(105,409)
161,420
-
(3,138)
-
2,146
(3,733)
2,300
807
-
767
55,160
(42,087)
518
(442)
(42,011)
22,732
56,847
79,579
4,052
2,167
(121)
-
2,528
-
163
458
698
-
229
11,546
6,821
4,067
6,066
(2,366)
76,248
(163,271)
173,060
9,410
(8,686)
(2,300)
-
-
-
2,630
-
1
10,844
(41,989)
528
(6)
(41,467)
45,625
11,222
56,847
7,258
2,630
(4,001)
-
(11,413)
(2,713)
248
70
675
-
238
1,848
(8,730)
(806)
(11,462)
(2,523)
24,278
(192,584)
132,752
64,033
(7,396)
-
-
-
-
2,104
(1,000)
1
(2,090)
(38,405)
519
(114)
(38,000)
(15,812)
27,034
11,222
$
$
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes
$
10,187
$
14,968
$
32,837
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-5
F-6
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands except per share data)
Shares of
Common
Stock
Outstanding
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Comprehensive
Income (Loss)
Treasury
Stock Total
Balance December 31, 2016
Net earnings
Unrealized loss on available-for-sale
securities, net of tax
Dividends paid March 15, $1.00 per
share regular, $4.50 per share extra
Other
Balance December 31, 2017
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
Other
Balance December 31, 2018
Net earnings
Unrealized gain on available-for-sale
securities, net of tax
Dividends paid March 15, $1.00 per
share regular, $5.00 per share extra
Other
6,951 $
7,441 $ 7,913 $ 350,203 $
52,959
(47) $ (15,274) $
350,236
52,959
(39)
(39)
17
1,161
(38,405)
(38,405)
1,625
464
6,968
7,441
9,074 364,757
39,940
(86) (14,810)
366,376
39,940
107
107
13
(41,989)
1
1,286
(41,989)
1,689
402
6,981
7,441
10,360 362,709
42,220
21 (14,408)
366,123
42,220
25
1,087
(42,087)
(42,087)
1,586
499
115
115
Balance December 31, 2019
7,006 $
7,441 $
11,447 $ 362,842 $
136 $ (13,909) $
367,957
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-7
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.
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”),
entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities
were assigned to Drylock Technologies, Ltd. (“Drylock”) in exchange for $68,448,000. The asset purchase
agreement also provided for additional proceeds of $4,000,000 upon the sale of certain delayed assets, consisting
of machinery and equipment that were the subject of an involuntary conversion. The sale of the delayed assets
was consummated during the second quarter of 2018 and resulted in no gain or loss. As a result of the
aforementioned transactions, the Company classified its results of operations for all periods presented to reflect
its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its
Absorbent Products business as held for sale. See Note P for further discussion.
(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 $1,308,000 and $3,057,000 at December
31, 2019 and 2018, respectively, are included as reductions of cash and cash equivalents or book 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
F-8
separate component of stockholders' equity. Highly liquid, tax-exempt variable rate demand notes with put
options exercisable in three months or less are classified as marketable securities.
At December 31, 2019 and 2018, cost for marketable securities was determined using the specific identification
method. A summary of the amortized costs and fair values of the Company's marketable securities at 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.
(In thousands)
MARKETABLE SECURITIES
Amortized Cost
Fair Value
$
$
$
$
39,313
39,249
78,562
40,156
94,416
134,572
$
$
$
$
39,484
39,249
78,733
40,182
94,416
134,598
$
$
$
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
176
-
176
44
-
44
$
$
$
$
5
-
5
18
-
18
December 31, 2019
Tax-exempt Municipal Bonds
Variable Rate Demand Notes
Total Marketable Securities
December 31, 2018
Tax-exempt Municipal Bonds
Variable Rate Demand Notes
Total Marketable Securities
Proceeds from sales and maturities of marketable securities totaled $161,420,000 in 2019, $173,060,000 in 2018,
and $132,752,000 in 2017. There were no realized gross gains or losses related to sales of marketable securities
during the years ended December 31, 2019, 2018 and 2017. Net unrealized gains (losses) included in other
comprehensive income were $145,000, $135,000 and $(37,000) before taxes for the years ended December 31,
2019, 2018, and 2017, 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, 2019 are as follows: $30,669,000
within one year; $8,815,000 beyond one year to five years; $4,146,000 beyond five years to ten years, and
$35,103,000 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 is 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 25 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 and certain Safety segment inventory items
are stated at the lower of cost or net realizable value with cost being determined principally on the last-in, first-
out (LIFO) method. Defense segment inventories are stated at the lower of cost and net realizable value
determined principally on the first-in, first-out (FIFO) method. Inventoried costs relating to contracts in progress
are stated at actual production costs, including factory overhead, initial tooling, and other related costs incurred
to date, reduced by amounts associated with recognized sales, utilizing a standard costing type 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. 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
F-9
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. As a result of the divestiture of one of its operating facilities in the
Defense segment during 2018, the Company recorded an impairment of $2,975,000 during the third quarter of
2018. See Note Q for further explanation. Approximately $288,000 of construction in progress in the
Company’s Housewares/Small Appliance segment and approximately $179,000 for the Safety segment is
presented on the Consolidated Balance Sheet as Machinery and Equipment at December 31, 2019, and
approximately $2,413,000 of construction in progress in the Company’s Defense segment is presented on the
Consolidated Balance Sheet as Buildings at December 31, 2019. The construction in progress is expected to be
completed by mid-year 2020. Approximately $1,437,000 of construction in progress in the Company’s Defense
segment is presented on the Consolidated Balance Sheet as Buildings, at December 31, 2018.
(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. No goodwill impairments were recognized during 2019, 2018, or 2017.
The Company's goodwill as of December 31, 2019 and 2018 was $15,317,000 and $11,485,000, respectively.
For 2019, $3,831,000 relates to the recent acquisition in the Safety segment and $11,486,000 relates to the
Defense segment, which had no cumulative impairment charges at December 31, 2019.
(10) INTANGIBLE ASSETS: Intangible assets primarily consist of the value of an acquired government sales
contract, the value of trademarks and trade secrets, technology software, and patents. The intangible assets are
attributable to the Defense and Safety segments. The government sales contract intangible asset is amortized
based on units fulfilled under the applicable contract, while the other intangible assets are amortized on a
straight-line basis that approximates economic use, over periods ranging from 2 to 15 years with the exception of
trade secrets which have an indefinite life.
Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. As a result of the divestiture of one of its operating
facilities in the Defense segment during 2018, the Company recorded an impairment of $46,000 during the third
quarter of 2018. See Note Q for further explanation. There were no impairments of intangible assets recognized
during 2019 or 2017.
The gross carrying amounts of the intangible assets subject to amortization was $2,142,000 at December 31,
2019. There were no unamortized intangible assets subject to amortization at December 31, 2018.
Accumulated amortization was $83,000 and $0 at December 31, 2019 and 2018, respectively. Amortization
expense was $83,000, $2,167,000, and $2,630,000 during the years ended December 31, 2019, 2018, and 2017,
respectively.
(11) OTHER ASSETS: Other assets includes prepayments that are made from time to time by the Company for
certain materials used in the manufacturing process in the Housewares/Small Appliance segment. The
Company expects to utilize the prepayments and related materials over an estimated period of two years. As of
December 31, 2019 and 2018, $9,396,000 and $6,864,000 of such prepayments, respectively, remained unused
and outstanding. At December 31, 2019 and 2018, $4,614,000 and $5,190,000 of these amounts, respectively,
are included in Other Current Assets, representing the Company’s best estimate of the expected utilization of the
prepayments and related materials during the twelve-month periods following those dates.
(12) REVENUES: The Company’s revenues are derived from short-term contracts and programs that are typically
completed within 3 to 24 months and are recognized in accordance with ASC Topic 606, Revenue from
Contracts with Customers. The standard was adopted on January 1, 2018 and did not result in any change to the
Company’s pattern of revenue recognition. The Company’s contracts each contain one or more performance
obligations: the physical delivery of distinct ordered product or products. The Company provides an assurance
type product warranty on its products to the original owner. In addition, for the Housewares/Small Appliances
segment, the Company estimates returns of seasonal products and returns of newly introduced products sold
with a return privilege. Stand-alone selling prices are set forth in each contract and are used to allocate revenue
F-10
to the corresponding performance obligations. For the Housewares/Small Appliances segment, contracts
include variable consideration, as the prices are subject to customer allowances, which principally consist of
allowances for cooperative advertising, defective product, and trade discounts. Customer allowances are
generally allocated to the performance obligations based on budgeted rates agreed upon with customers, as well
as historical experience, and yield the Company’s best estimate of the expected value for the variable
consideration.
The Company's contracts in the Defense segment are primarily with the U.S. Department of Defense (DOD) and
DOD prime contractors. As a consequence, this segment's business essentially depends on the product needs and
governmental funding of the DOD. Substantially all of the work performed by the Defense segment directly or
indirectly for the DOD is performed on a fixed-price basis. Under fixed-price contracts, the price paid to the
contractor is awarded based on competition at the outset of the contract and therefore, with the exception of
limited escalation provisions on specific materials, is generally not subject to any adjustments reflecting the
actual costs incurred by the contractor.
For the Housewares/Small Appliance segment, revenue is generally recognized as the completed, ordered
product is shipped to the customer from the Company’s warehouses. For the relatively few situations in which
revenue should be recognized when product is received by the customer, the Company adjusts revenue
accordingly. For the Defense segment, revenue is primarily recognized when the customer has legal title and
formally documents that it has accepted the products. There are also certain termination clauses in Defense
segment contracts that may give rise to the recognition of revenue, $9,412,000 of which was recognized during
the third quarter of 2019. In some situations, the customer may obtain legal title and accept the products at the
Company’s facilities, arranging for transportation at a later date, typically in one to four weeks. The Company
does not consider the short-term storage of the customer owned products to be a material performance
obligation, and no part of the transaction price is allocated to it.
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, and
customer advances and deposits (contract liabilities) on the Company’s Condensed Consolidated Balance Sheets.
For the Defense segment, the Company occasionally receives advances or deposits from certain customers
before revenue is recognized, resulting in contract liabilities. These advances or deposits do not represent a
significant financing component. As of December 31, 2019 and 2018, $1,847,000 and $9,579,000, respectively,
of contract liabilities were included in Accounts Payable on the Company’s Condensed Consolidated Balance
Sheets. The Company recognized revenue of $9,574,000 during 2019 that was included in the Defense segment
contract liability at the beginning of the year. The Company monitors its estimates of variable consideration,
which includes customer allowances for cooperative advertising, defective product, and trade discounts, and
returns of seasonal and newly introduced product, all of which pertain to the Housewares/Small Appliances
segment, and periodically makes cumulative adjustments to the carrying amounts of these contract liabilities as
appropriate. During 2019 and 2018, there were no material adjustments to the aforementioned estimates. There
were no material amounts of revenue recognized during the same periods related to performance obligations
satisfied in a previous period. The portion of contract transaction prices allocated to unsatisfied performance
obligations, also known as the contract backlog, in the Company’s Defense segment were $310,385,000 and
$333,592,000 as of December 31, 2019 and 2018, respectively. The Company anticipates that the unsatisfied
performance obligations will be fulfilled in an 18 to 24-month period. The performance obligations in the
Housewares/Small Appliances and Safety segments have original expected durations of less than one year.
The Company’s principal sources of revenue are derived from two segments: Housewares/Small Appliance and
Defense, as shown in Note L. Management utilizes the performance measures by segment to evaluate the
financial performance of and make operating decisions for the Company.
(13) ADVERTISING: The Company's policy is to expense advertising as incurred and include it in selling and
general expenses. Advertising expense was $245,000, $181,000, and $174,000 in 2019, 2018, and 2017,
respectively.
(14) 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
F-11
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
2018
2019
$
$
221
416
(374)
263
$
$
383
315
(477)
221
(15) 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.
(16) 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.
(17) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which eliminates the performance of Step 2 from the goodwill
impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair
value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider
income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when
measuring the goodwill impairment loss. The standard is effective for fiscal years beginning after December 15,
2019. Early adoption is permitted for interim or annual impairment tests performed on testing dates after
January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit
losses on certain types of financial instruments, including trade receivables, by introducing an approach based
on expected losses. The expected loss approach will require entities to incorporate considerations of historical
information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the
accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit
deterioration. The guidance is effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. The guidance requires a modified retrospective transition method and early
adoption is permitted. The Company does not expect the adoption of ASU 2016-13 to have a material impact on
its consolidated financial statements.
Other pronouncements issued but not effective until after December 31, 2019, are not expected to have a
material impact on the Company's consolidated financial statements.
F-12
B. INVENTORIES:
The amount of inventories valued on the LIFO basis was $32,744,000 and $27,788,000 as of December 31, 2019 and
2018, respectively, and consists of housewares/small appliance finished goods and certain Safety segment inventories.
Under LIFO, inventories are valued at approximately $3,982,000 and $4,024,000 below current cost determined on a
first-in, first-out (FIFO) basis at December 31, 2019 and 2018, respectively. During the years ended December 31, 2019,
2018, and 2017, $85,000, $26,000, and $64,000, 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 and Safety segments.
The following table describes that which would have occurred if LIFO inventories had been valued at current cost
determined on a FIFO basis:
Year
2019
2018
2017
Increase (Decrease) – (In thousands, except per share data)
Cost of Sales
Net Earnings
$
$
$
42
(189)
(1,250)
$
$
$
(34)
143
830
Earnings Per Share
-
$
0.02
$
0.12
$
This information is provided for comparison with companies using the FIFO basis.
Inventory for Defense and raw materials of the Housewares/Small Appliance segments are valued under the FIFO method
and total $95,792,000 and $66,200,000 at December 31, 2019 and 2018, respectively. At December 31, 2019, the FIFO
total was comprised of $751,000 of finished goods, $87,805,000 of work in process, and $7,236,000 of raw material. At
December 31, 2018, the FIFO total was comprised of $1,003,000 of finished goods, $59,580,000 of work in process, and
$5,617,000 of raw material.
C. ACCRUED LIABILITIES:
At December 31, 2019, accrued liabilities consisted of payroll $6,341,000, product liability $5,055,000, environmental
$1,050,000, and other $878,000. At December 31, 2018, accrued liabilities consisted of payroll $5,130,000, product
liability $4,949,000, environmental $1,120,000, and other $812,000.
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, 2019, the Company has authority from the Board of Directors to reacquire an additional 498,727
shares. During 2019, 2018 and 2017, 4,584, 62, and 1,139 shares, respectively, were acquired from participants in the
Company’s Incentive Compensation Plans described in Note F to cover those participants’ tax withholding obligations
related to vested stock grants in accordance with the Plans’ rules. 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 and the 2017
F-13
Incentive Compensation Plan approved by shareholders on May 16, 2017, which authorized 50,000 and 150,000 shares,
respectively, 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.
During 2019, 2018, and 2017, the Company granted 4,138 shares, 3,886 shares, and 7,837 shares of restricted stock,
respectively, to 25 employees and executive officers of the Company. Unless otherwise vested early in accordance with
the Incentive Compensation Plans, the restricted stock vests on specified dates in 2020 through 2025, 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 $830,000, $469,000, and $545,000 in 2019, 2018, and 2017, respectively. As of
December 31, 2019, there was approximately $986,000 of unrecognized compensation cost related to the restricted stock
awards that is expected to be recognized over a weighted-average period of 3.8 years. There were 17,871, 1,359, and
6,492 shares of restricted stock that vested during 2019, 2018, and 2017, respectively.
The following table summarizes the activity for non-vested restricted stock:
Shares
2019
2018
2017
Weighted
Average
Fair Value
at Grant
Date
Shares
Weighted
Average
Fair Value
at Grant
Date
Shares
Weighted
Average
Fair Value
at Grant
Date
32,337
4,138
(17,871)
0
18,604
$
$
87.84
98.54
84.71
-
93.23
29,810
3,886
(1,359)
0
32,337
$
$
83.40
116.49
72.25
-
87.84
28,465
7,837
(6,492)
0
29,810
$
$
77.93
105.06
85.58
-
83.40
Non-vested at beginning of
period
Granted
Vested
Forfeited
Non-vested at end of period
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 $1,197,000 in 2019, $1,218,000 in 2018, and
$1,194,000 in 2017. In addition, the Company made cash contributions of $802,000 in 2019, $821,000 in 2018, and
$817,000 in 2017 to the 401(k) Plan. The Company also contributed $387,000, $352,000, and $369,000 to the 401(k)
retirement plan covering its union employees at the Amron Division of the AMTEC subsidiary during the years ended
December 31, 2019, 2018, and 2017, respectively.
F-14
H. INCOME TAXES:
The following table summarizes the provision for income taxes from continuing operations:
Current:
Federal
State
Deferred:
Federal
State
Total tax provision
For Years Ended December 31 (in thousands)
2018
2017
2019
$
$
11,453
537
11,990
(179)
(45)
(224)
11,766
$
$
10,996
1,575
12,571
(280)
159
(121)
12,450
$
$
24,200
1,772
25,972
(4,008)
7
(4,001)
21,971
The effective rate of the provision for income taxes on earnings from continuing operations before 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
2019
Percent of Pre-tax Income
2018
2017
21.0%
0.7%
(0.1%)
0.9%
22.5%
21.0%
2.6%
(0.6%)
0.8%
23.8%
35.0%
1.8%
(0.7%)
(2.4%)
33.7%
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
Insurance (primarily product liability)
Vacation
Inventory
Deferred compensation
Environmental
Doubtful accounts
Other
Total deferred tax assets
Deferred tax liabilities
Goodwill and other intangibles
Depreciation
Deferred revenue
Total deferred tax liabilities
(In thousands)
2019
2018
$
$
947
662
642
162
227
97
103
2,840
1,391
131
37
1,559
Net deferred tax assets
$
1,281
$
900
527
339
303
237
158
37
2,501
1,200
213
-
1,413
1,088
In December 2017, the United States enacted changes to its tax laws, which included a reduction of the corporate income
tax rate from 35% to 21%, beginning in 2018. The reduction in the tax rate resulted in a revaluation of the Company’s
deferred tax assets and liabilities held at December 31, 2017, causing an increase in its 2017 income tax provision of
$534,000. The Company believes its accounting assessment for the impact of the enacted changes to the United States
tax laws is complete.
F-15
The Company establishes tax reserves in accordance with FASB ASC 740, Income Taxes. As of December 31, 2019, the
carrying amount of the Company’s gross unrecognized tax benefits was $2,237,000 which, if recognized, would affect the
Company’s effective income tax rate.
The following is a reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2019 and
2018:
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
Lapse of statute of limitations
Settlements
Balance at December 31
(In thousands)
2019
2018
$
$
320
453
1,519
-
(55)
-
2,237
$
$
459
73
-
(54)
(56)
(102)
320
It is the Company’s practice to include tax related interest expense, interest income, and penalties in tax expense. During
the years ended December 31, 2019, 2018 and 2017, the Company accrued approximately $298,000, $14,000 and $17,000
in interest expense, respectively.
The Company is subject to U.S. federal income tax as well as income taxes of multiple states. During 2018, the state of
Wisconsin completed its audits of the tax years 2013 through 2016. During June of 2016, the Internal Revenue Service
completed its audits of the tax years 2012 and 2013. As a result of the audits, the tax amortization period of certain
intangible assets was shortened. 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 12%, 10%, and 10% of consolidated net sales
for the years ended December 31, 2019, 2018, and 2017, respectively.
The Company sources most of its housewares/small appliances and certain safety products 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 and certain Safety 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 2019, 2018, and 2017, substantially 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
F-16
in process at the time of termination. Materials used in the Defense segment are available from multiple sources. As of
December 31, 2019, 198 employees of Amron, or 22% 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 is effective through
February 28, 2025.
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, 2019, 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, 2019, 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
$1,050,000 and $1,120,000 as of December 31, 2019 and 2018, respectively, and is included in accrued liabilities on its
balance sheet.
Expected future payments for environmental matters are as follows:
Years Ending December 31:
2020
2021
2022
2023
2024
Thereafter
(In thousands)
200
156
142
128
114
310
1,050
$
$
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
Appliance, Defense, and Safety. Sales for all segments are primarily to customers in North America. On January 3, 2017,
the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase
agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies,
Ltd. As a result of this transaction, the Company classified its results of operations for all periods presented to reflect its
Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products
business as held for sale. The operations of PAPI previously comprised the Company’s Absorbent Products segment. See
Note P for further discussion.
The Housewares/Small Appliance segment designs, markets, and distributes housewares and small appliances. The
housewares/small appliance 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.
F-17
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. In 2016, AMTEC was awarded
a one-year contract, and in 2017, it was awarded a third five-year contract as the sole prime contractor. 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; and Clear Lake, South Dakota. During 2003, the 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
manufactured less lethal ammunitions. The Company subsequently relocated this operation to Perry, Florida, and in
October of 2018, divested itself of the less lethal business. See Note Q for further explanation. 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. 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. They include the fuze, the metal
parts including the cartridge case, the load, assemble and pack of the final round, and the detonator.
On July 23, 2019, the Company purchased substantially all the assets of OneEvent Technologies, Inc., a Mount Horeb,
Wisconsin company established in 2014. OneEvent offers systems that provide early warning of conditions that could
ultimately lead to significant losses. The initial application combines patented machine learning, digital sensors and
cloud-based technology to continuously monitor freezers and refrigerators, instantly detecting and alerting users to
potential safety issues around pharmaceuticals and food. The system also has the ability to continually measure other
factors such as smoke, carbon monoxide, motion, humidity, and moisture. See Note R. The Company has created a new
operating segment, “Safety,” combining its operations with those of Rusoh, Inc., which designs and markets fire
extinguishers. Previously, Rusoh, Inc. had been included in the Company’s Housewares/Small Appliance segment. Prior
period segment information has been restated to reflect the Company’s current segmentation.
Housewares /
Small Appliance
(in thousands)
Defense
Safety
Assets Held for
Sale
Total
Year ended December 31, 2019
$
External net sales
Gross profit
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
Year ended December 31, 2018
External net sales
Gross profit
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
$
Year ended December 31, 2017
External net sales
Gross profit
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
$
99,401 $
15,358
2,522
241,992
1,250
804
209,114
57,773
47,845
148,476
2,138
2,155
93,733 $
15,563
4,479
268,007
1,161
7,974
229,546
60,979
44,911
132,636
4,835
676
97,261 $
17,369
7,215
232,524
1,150
1,574
236,334
70,384
55,440
162,869
8,511
1,301
$
$
-
$
$
375
$
$
6,189
(5)
(1,206)
(3,987)
19,785
301
179
38
(659)
(1,488)
12,600
223
36
38
(519)
(951)
10,291
178
275
308,510
71,925
46,380
410,253
3,689
3,138
323,317
75,883
47,902
413,618
6,219
8,686
333,633
87,234
61,704
411,873
9,839
3,150
F-18
In the above summary, operating profit represents earnings before other income, income taxes, and discontinued
operations. 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.
M. LEASES
The Company accounts for leases under ASC Topic 842, Leases, which was adopted on January 1, 2019. At the time of
adoption, the Company recognized right of use assets and lease liabilities of $3,832,000. The Company’s leasing
activities include roles as both lessee and lessor. As lessee, the Company’s primary leasing activities include buildings
and structures to support its manufacturing operations at one location in its Defense segment, and warehouse space and
equipment to support its distribution center operations in its Housewares/Small Appliances segment. As lessor, the
Company’s primary leasing activity is comprised of manufacturing and office space located adjacent to its corporate
offices. All of the Company’s leases are classified as operating leases.
The Company’s leases as lessee in its Defense segment provide for variable lease payments that are based on changes in
the Consumer Price Index. As lessor, the Company’s primary lease also provides for variable lease payments that are also
based on changes in the Consumer Price Index, as well as on increases in costs of insurance, real estate taxes, and utilities
related to the leased space. Generally, all of the Company’s lease contracts provide for options to extend and terminate
them. The majority of lease terms of the Company’s lease contracts reflect extension options, while none reflect
termination options.
The Company has determined that the rates implicit in its leases are not readily determinable and estimates its incremental
borrowing rates utilizing quotes from financial institutions for real estate and equipment, as applicable, over periods of
time similar to the terms of its leases. The Company has entered into various short-term leases as lessee and has elected a
non-recognition accounting policy, as permitted by ASC Topic 842.
Summary of Lease Cost (in thousands)
Operating lease cost
Short-term and variable lease cost
Total lease cost
12 Months Ending
December 31, 2019
691
225
916
$
$
Rent expense was approximately $1,114,000, $1,050,000, and $994,000 for the years ended December 31, 2019, 2018,
and 2017, respectively. Operating cash used for operating leases was $916,000 for the twelve months ended December
31, 2019. The weighted-average remaining lease term was 7.55 years, and the weighted-average discount rate was 5.5%
as of December 31, 2019.
Maturities of operating lease liabilities are as follows:
Years ending December 31:
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: future interest expense
Lease liabilities
$
$
$
(In thousands)
693
648
648
531
439
1,385
4,344
823
3,521
F-19
Lease income from operating lease payments for the year ended December 31, 2019, was $1,788,000. Undiscounted cash
flows provided by lease payments are expected as follows:
Years ending December 31:
2020
2021
2022
2023
2024
Thereafter
Total lease payments
(In thousands)
1,839
1,832
1,832
1,832
1,832
14,656
23,823
$
$
The Company considers risk associated with the residual value of its leased real property to be low, given the nature of
the long-term lease agreement, the Company’s ability to control the maintenance of the property, and the creditworthiness
of the lessee. The residual value risk is further mitigated by the long-lived nature of the property, and the propensity of
such assets to hold their value or, in some cases, appreciate in value.
N. INTERIM FINANCIAL INFORMATION (UNAUDITED):
The following represents quarterly unaudited financial information for 2019 and 2018:
(In thousands, except per share data)
Earnings
from
Continuing
Operations
Earnings
(Loss) from
Discontinued
Operations,
net of tax
Net Earnings
Net Sales
Gross Profit
Per Share (basic and diluted)
Earnings
(Loss) from
Discontinued
Operations,
net of tax
Earnings
from
Continuing
Operations
Net Earnings
$
63,850 $
71,745
78,006
94,909
$ 308,510 $
12,492 $
14,676
23,847
20,910
71,925 $
5,951 $
8,153
14,712
11,724
40,540 $
- $
3
1,677
-
1,680 $
5,951 $
8,156
16,389
11,724
42,220 $
0.85 $
1.16
2.09
1.67
5.77 $
- $
-
0.24
-
0.24 $
$
76,826 $
79,227
81,653
85,611
$ 323,317 $
20,277 $
19,445
15,697
20,464
75,883 $
10,994 $
10,776
6,240
11,879
39,889 $
(8) $
(1)
131
(71)
51 $
10,986 $
10,775
6,371
11,808
39,940 $
1.57 $
1.54
0.89
1.69
5.69 $
- $
-
0.02
(0.01)
0.01 $
0.85
1.16
2.33
1.67
6.01
1.57
1.54
0.91
1.68
5.70
Quarter
2019
First
Second
Third
Fourth
Total
2018
First
Second
Third
Fourth
Total
Fourth quarter sales are significantly impacted by the holiday driven seasonality of the Housewares/Small Appliance
segment. This segment orders/purchases inventory during the first three quarters to meet the sales demand of the fourth
quarter. The Defense and Safety segments are typically non-seasonal. As discussed in Note P, the Company recognized
income from the settlement of a lawsuit for breach of contract in discontinued operations in the third quarter of 2019. As
discussed in Note J, Defense segment contracts contain termination clauses that may give rise to the recognition of
revenue for any work completed, associated profit, and inventory/work in process at the time of termination. The
Company recognized $9,412,000 of such revenue during the third quarter of 2019 for an actual termination.
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 normally
renewed each year at the end of the third quarter. However, the Company did not do so in 2019. As a result, as of
December 31, 2019 there was no line of credit. At December 31, 2018, the line of credit limit was set at $5,000,000, with
$0 outstanding. 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 $1,247,000 and
F-20
$1,247,000 as of December 31, 2019 and 2018, respectively, related to performance on certain customer contracts. As of
December 31, 2019, the entire balance of the issued letters of credit had not been drawn upon.
P. DISCONTINUED OPERATIONS
On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”),
entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities
were assigned to Drylock Technologies, Ltd. (“Drylock”) in exchange for $68,448,000. The asset purchase
agreement also provided for additional proceeds of $4,000,000 upon the sale of certain delayed assets, consisting
of machinery and equipment that were the subject of an involuntary conversion. The sale of the delayed assets
was consummated during the second quarter of 2018 and resulted in no gain or loss. As a result of the
aforementioned transactions, the Company classified its results of operations for all periods presented to reflect its
Absorbent Products business as a discontinued operation, and classified the assets and liabilities of its Absorbent
Products business as held for sale. The Company’s pre-tax gain on the sale of $11,413,000, net of one-time
transaction costs, was recorded in 2017 within earnings from discontinued operations.
The following table summarizes the results of the Absorbent Products business within discontinued operations for
each of the periods presented:
(in thousands)
Net sales
Cost of sales
Selling and general expenses
Gain on divestiture, net
Other income (expense)
$
Earnings from discontinued operations before provision for income taxes
Provision for income taxes from discontinued operations
Earnings from discontinued operations, net of tax
$
For the years ended December 31,
2017
2018
2019
-
-
-
-
2,126
2,126
446
1,680
$
$
-
65
-
-
-
65
14
51
$
$
421
(675)
(25)
11,413
2,753
13,887
4,242
9,645
During the third quarter of 2019, the Company recognized Other income from the settlement of a lawsuit for breach
of contract. The following table summarizes the major classes of assets and liabilities of the Absorbent Products
business held for sale for each of the periods presented:
(in thousands)
Accounts receivable, net
Assets held for sale
Year Ended December 31,
2019
2018
$
$
-
-
$
$
375
375
The Consolidated Statements of Cash Flows do not present the cash flows from discontinued operations separately
from cash flows from continuing operations. Cash (used in) operating activities from discontinued operations was
$(1,052,000), $(636,000), and $(5,447,000) for the years ended December 31, 2019, 2018, and 2017, respectively.
Cash provided by investing activities related to discontinued operations was $3,107,000, $6,290,000, and
$61,891,000 for the years ended December 31, 2019, 2018, and 2017, respectively.
In connection with the asset purchase agreement discussed above, the Company entered into a 10-year lease
agreement with Drylock for a portion of its manufacturing and warehouse facilities. The lease agreement provided
for total annual payments of $1,288,000 initially. During the fourth quarter of 2018, the lease agreement was
amended to incorporate additional facilities that the Company built for Drylock. The amended lease provides for an
initial term of approximately 14 years, and allows for successive three-year renewal periods, as well as options to
terminate the lease early after five and ten years. The amended lease also provides for adjustments to the rental
payments based on certain price indices, taxes, and space occupied. The Company estimates that annual payments
under the lease will total $1,832,000. The amounts received from Drylock for rental income are recorded in Other
Income on the Consolidated Statements of Comprehensive Income.
F-21
Q. DIVESTITURE
On October 17, 2018, the Company, through its wholly owned subsidiary AMTEC Corporation, sold the
outstanding stock of its wholly owned subsidiary AMTEC Less Lethal Systems, Inc. (“ALS”) to PACEM Defense
LLC (“PACEM”), a third party, in exchange for cash and promissory notes totaling $10,636,000, subject to
customary post-closing adjustments. The Company tested long-lived assets for recoverability in the quarter ending
September 30, 2018 and recorded an impairment charge of $3,021,000. The pre-tax loss on divestiture, including
the impairment charge, recorded in 2018 was $2,528,000. As of December 31, 2019 and 2018, $2,853,000 and
$4,913,000, respectively, of promissory notes and accrued interest related to the divestiture of ALS are included
on the Company’s balance sheet as Notes Receivable, Current.
The Company determined this transaction did not qualify for discontinued operations treatment, since it did not
represent a strategic shift that had or would have a major effect on the Company’s operations and financial results.
R. BUSINESS ACQUISITION
On July 23, 2019, the Company’s wholly-owned subsidiary, OETA, Inc., purchased substantially all the assets of
OneEvent Technologies, Inc., a Mount Horeb, Wisconsin company established in 2014 for $6,501,000, including cash of
$4,020,000, forgiveness of a note receivable of $2,364,000 and a potential earn out, which is based on earnings over a
seven year period. The current estimated value of the earn out is $117,000, however, the value of the earn out will vary
depending on actual earnings over the seven year period. OneEvent’s systems provide early warning of conditions that
could ultimately lead to significant losses. The initial application combines patented machine learning, digital sensors
and cloud-based technology to continuously monitor freezers and refrigerators, instantly detecting and alerting users to
potential safety issues around pharmaceuticals and food. The OneEvent® system also has the ability to continually
measure other factors such as smoke, carbon monoxide, motion, humidity, and moisture. Pursuant to the terms of the
transaction, the seller has subsequently changed its corporate name, and OETA, Inc. has now legally adopted the
corporate name, OneEvent Technologies, Inc.
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 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 their acquisition date.
(in thousands)
Cash
Receivables
Inventory
Other current assets
Property, plant and equipment
Intangibles
Goodwill
Right-of-Use Lease Assets
Total assets acquired
Less: Current liabilities assumed
Lease Liability - Noncurrent
Net assets acquired
$
$
287
14
307
105
35
2,141
3,831
59
6,779
255
23
6,501
F-22
The acquired intangibles primarily include technology software and patents that will be amortized over a period of 10-15
years. The amount of goodwill recorded reflects expected earning potential of the acquired technology software and
patents. The recorded goodwill is deductible for income tax purposes over a fifteen year period. The Company’s results
of operations for 2019 include revenue net of sales deductions of ($38,000) and loss of $1,103,000 from the acquired
business from the date of acquisition through December 31, 2019. The following pro forma condensed consolidated
results of operations has been prepared as if the acquisition had occurred as of January 1, 2018.
(unaudited)
(in thousands, except per share data)
Year Ended
December 31, 2019
December 31, 2018
Net sales
Net earnings
Net earnings per share (basic and diluted)
Weighted average shares outstanding (basic
and diluted)
$
$
308,561 $
40,822
5.81 $
7,027
323,424
38,391
5.48
7,005
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 acquisition 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.
S. OTHER
The Company has entered into a licensing agreement with another firm that holds intellectual property on the Rusoh®
self-service/self-reloadable fire extinguisher. Under the agreement, the Company has advanced the entity funds and has
agreed to pay royalties to the entity on the commercial sales of the developed products. As of December 31, 2019 and
2018, notes receivable plus accrued interest of $7,182,000 and $6,966,000, respectively, related to the license agreement
were classified as Notes Receivable on the Company’s Consolidated Balance Sheets. The fire extinguisher was
introduced to the commercial market in 2017, and the Company believes that collectability of the notes receivable is
probable.
During the fourth quarter of 2018 the Company issued a promissory note of $2,300,000 related to an option agreement
with OneEvent Technologies, Inc., an unrelated third party. The note was included on the Company’s balance sheet as
Notes Receivable, Current at December 31, 2018. The note was forgiven during 2019 with the acquisition of OneEvent.
See Note R.
T. SUBSEQUENT EVENTS
The Company evaluates events that occur through the filing date and discloses any material events or transactions.
On February 21, 2020, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra
dividend of $5.00. The dividend will be payable on March 13, 2020 to the shareholders of record as of March 2, 2020.
F-23
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
National Presto Industries, Inc.
Eau Claire, Wisconsin
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of National Presto Industries, Inc. (the “Company”) and
subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial
statement schedule listed in Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company and
subsidiaries at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United
States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, 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 10, 2020 expressed an adverse opinion on the Company’s internal
control over financial reporting due to a material weakness.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2007.
Milwaukee, Wisconsin
March 10, 2020
F-24
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2019, 2018 and 2017
Column A
Column B
(In thousands)
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
Balance at
Beginning of
Period
Description
Deducted from assets:
Allowance for doubtful
accounts:
Year ended December 31,
2019
Year ended December 31,
2018
Year ended December 31,
2017
Notes:
$
$
$
747 $
6 $
- $
303 $
1,869 $
458 $
(1,422) $
158 $
450
747
1,816 $
70 $
- $
17 $
1,869
(A) Amounts charged to selling and general expenses.
(B) Amounts charged to other accounts. Charged to the loss on divestiture of AMTEC Less Lethal Systems, Inc. (See
Note Q to the Consolidated Financial Statements.
(C) Principally bad debts written off, net of recoveries.
EXHIBIT 04
DESCRIPTION OF REGISTRANT’S SECURITIES
Description of Capital Stock
The following description of our capital stock summarizes material terms and provisions that apply to our capital
stock. The summary is subject to and qualified in its entirety by reference to our restated articles of incorporation and
our by-laws, as amended, which are filed as exhibits to this Annual Report on Form 10-K, and applicable Wisconsin
law.
General
We are authorized to issue up to 12,000,000 shares of capital stock, consisting of one class designated as common
stock, $1.00 par value per share.
Common Stock
Subject to the Wisconsin Business Corporation Law as described below under “Statutory and By-Law
Provisions,” holders of our common stock are entitled to one vote for each share of common stock held by them on
all matters properly presented to stockholders. Our board of directors may at its discretion declare and pay dividends
on our common stock out of our earnings or assets legally available for the payment of dividends. If we are liquidated,
any amounts remaining after the discharge of outstanding indebtedness will be paid pro rata to the holders of our
common stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights.
Statutory and By-Law Provisions
Provisions of Wisconsin law might also discourage some types of transactions that involve an actual or
threatened change of control of National Presto Industries, Inc.:
• Section 180.1150 of the Wisconsin Business Corporation Law provides that the voting power of shares of
Wisconsin corporations, including National Presto Industries, Inc., held by any person or persons acting as a
group in excess of 20% of the voting power of the corporation is limited to 10% of the full voting power of
those shares. This restriction does not apply to shares acquired directly from the corporation or in other
specified transactions. Stockholders can waive this restriction with a majority vote.
• Sections 180.1140 through 180.1144 of the Wisconsin Business Corporation Law contain limitations and
special voting provisions applicable to specified business combinations involving Wisconsin corporations,
including National Presto Industries, Inc., and an interested shareholder, unless the board of directors of the
corporation approves the business combination or the shareholder’s acquisition of shares before the shares
are acquired.
• Similarly, Sections 180.1130 through 180.1133 of the Wisconsin Business Corporation Law contain special
voting provisions applicable to specified business combinations unless minimum price and procedural
requirements are met.
In addition, certain provisions of our restated certificate of incorporation and our bylaws may tend to delay, defer
or discourage attempts to acquire control of us. These include: advance notice requirements for director nominations
and other business, a staggered board, removal of directors only for cause, supermajority voting requirement for a
merger or other business combination involving a 5% or more stockholder, redemption price restrictions, and a special
meeting of stockholders may be called only by the Chairman or President or by the Board of Directors.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
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 Subsidiary:
Spectra Technologies LLC
East Camden, Arkansas (A Delaware Corporation)
Presto Absorbent Products, Inc.
Eau Claire, Wisconsin (A Wisconsin Corporation)
Rusoh, Inc.
Eau Claire, Wisconsin (A Wisconsin Corporation)
OneEvent Technologies, Inc.
Mount Horeb, Wisconsin (A Wisconsin Corporation)
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. I have reviewed this annual report on Form 10-K of National Presto Industries, Inc.;
2. 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;
3. 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;
4. 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) 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;
b) 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;
c) 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
d) 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) 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
b) 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.
Date: March 10, 2020
/S/ Maryjo Cohen
Maryjo Cohen
Chief Executive Officer
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, David J. Peuse, certify that:
1. I have reviewed this annual report on Form 10-K of National Presto Industries, Inc.;
2. 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;
3. 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;
4. 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) 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;
b) 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;
c) 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
d) 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) 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
b) 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.
Date: March 10, 2020
/S/ David J. Peuse
David J. Peuse
Treasurer
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, 2019 (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 10, 2020
/S/ Maryjo Cohen
Maryjo Cohen,
Chief Executive Officer
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
Treasurer 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, 2019 (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 10, 2020
/S/ David J. Peuse
David J. Peuse
Treasurer