National Presto Industries Inc. Annual Report 2022

Plain-text annual report

PCAOB 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 1934For the fiscal year ended December 31, 2022or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ____________________________ to __________________________ Commission File Number 1-2451 NATIONAL PRESTO INDUSTRIES, INC.(Exact name of registrant as specified in its charter) Wisconsin39-0494170(State or other jurisdiction of(IRS Employerincorporation or organization)Identification Number) 3925 North Hastings Way Eau Claire, Wisconsin54703-3703(Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (715) 839-2121 Securities registered pursuant to Section 12(b) of the Act: Trading Name of each exchangeTitle of each class Symbol(s) on which registered$1.00 par value common stock NPK 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 thischapter) 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. Seedefinitions 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 accountingstandards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting underSection 404(b) of the Sarbanes-Oxley Act (15 USC 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of anerror to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’sexecutive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 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 theaverage bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $336,537,245. The number of sharesoutstanding of each of the registrant's classes of common stock, as of March 1, 2023 was 7,065,047. The Registrant has incorporated in Part II and Part III of Form 10-K, by reference, portions of its 2022 Annual Report and portions of its Proxy Statement for its 2023 Annual Meetingof Stockholders. Table of Contents TABLE OF CONTENTS Page PART I3Item 1 – Business3Item 1A – Risk Factors8Item 1B – Unresolved Staff Comments14Item 2 – Properties14Item 3 – Legal Proceedings14Item 4 – Mine Safety Disclosures14 PART II15Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer purchases of Equity Securities15Item 6 – Selected Financial Data15Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations16Item 7A – Quantitative and Qualitative Disclosures About Market Risk22Item 8 – Financial Statements and Supplementary Data23Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure23Item 9A – Controls and Procedures23Item 9B – Other Information25 PART III26Item 10 – Directors, Executive Officers and Corporate Governance26Item 11 – Executive Compensation27Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters27Item 13 – Certain Relationships and Related Transactions, and Director Independence27Item 14 – Principal Accountant Fees and Services27 PART IV28Item 15 – Exhibits and Financial Statement Schedules28Item 16 – Form 10-K Summary29 Signatures30 2Table of Contents 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 ofthe Company’s business, the segments in which it operates, and financial information about the segments, please refer to Note L to the ConsolidatedFinancial Statements. The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical appliances, includingpressure cookers and canners, kitchen electrics, and comfort appliances that enrich the lives of consumers by making life easier, more productive and moreenjoyable. 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 ourwarfighters with reliable products. It manufactures 40mm ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridgecases and metal parts; performs Load, Assemble and Pack (LAP) operations on ordnance-related products primarily for the U.S. Government and primecontractors; and manufactures detonators, booster pellets, release cartridges, lead azide, other military energetic devices and materials, andassemblies. The Safety segment, which provides innovative safety technology empowering organizations and individuals to protect what ismost important, currently consists of three startup companies. The first is Rusoh, Inc., which designs and markets the Rusoh® Eliminator® fireextinguisher, the first owner-maintained fire extinguisher. The second is OneEvent Technologies, Inc. It offers systems that provide early warning ofconditions that could ultimately lead to significant losses. The initial application combines patented machine learning, digital sensors and cloud-basedtechnology to continuously monitor freezers and refrigerators, instantly detecting and alerting users to potential safety issues around pharmaceuticals andfood. The OneEvent® system also has the ability to continually measure other factors such as smoke, carbon monoxide, motion, humidity, and moisture. The third is Rely Innovations, Inc., which offers carbon monoxide alarms with large digital displays and an array of voice messages that clearly inform ofincipient danger. 1. Housewares/Small Appliance Segment Housewares and electrical appliances sold by the Company include pressure cookers and canners; the Presto Control Master® heat control line of skilletsin 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 andcanners 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, 2022, approximately 11% of consolidated net sales were provided by cast products (griddles, waffle makers, die cast deepfryers, skillets and multi-cookers), and approximately 24% by noncast/thermal appliances (stamped cookers and canners, pizza ovens, corn poppers, coffeemakers, microwave bacon cookers, dehydrators, rice cookers, egg cookers, slow cookers, tea kettles, electric stainless steel appliances, non-cast fryers, airfryers and heaters). For the year ended December 31, 2021, approximately 13% of consolidated net sales were provided by cast products, andapproximately 17% by noncast/thermal appliances. For the year ended December 31, 2020, approximately 14% of consolidated net sales were provided bycast products, and approximately 17% by noncast/thermal appliances. For the year ended December 31, 2022, this segment had no one customerthat accounted for 10% or more of the Company’s consolidated net sales. For the year ended December 31, 2021, Amazon accounted for 10% ofconsolidated net sales. For the year ended December 31, 2020, Amazon and Wal-mart Stores, Inc. each accounted for 10% of consolidated net sales. Theloss of either Amazon or Wal-Mart Stores, Inc. as a customer would have a material adverse effect on the segment. 3Table of Contents Products are sold primarily in the United States and Canada directly to retailers and also through independent distributors. Although the Company haslong 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. The majority of the housewares and electrical appliancesare sourced from vendors in the Orient. (See Note J to the Consolidated Financial Statements.) The Company has a sales force of seven 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 in storepromotions and digital advertising. The business is seasonal, with the normal peak sales period occurring in the fourth quarter of the year prior to theholiday season. This segment operates in a highly competitive and extremely price sensitive environment. Increased costs that cannot be fully absorbedinto the price of products or passed along in the form of price increases to the retail customer can have a significant adverse impact on operatingresults. Several companies compete for sales of housewares and small electrical appliances, some of which are larger than the Company’s segment andothers which are smaller. In addition, some customers maintain their own private label, as well as purchase brokered product directly from theOrient. Product competition extends to special product features, product pricing, product quality, marketing programs, warranty provisions, servicepolicies and other factors. New product introductions are an important part of the Company's sales to offset the morbidity rate of other products and/orthe effect of lowered acceptance of seasonal products due to weather conditions. New products entail unusual risks. Engineering and tooling costs areincreasingly expensive, as are finished goods that may not have a ready market or achieve widespread consumer acceptance. High-cost advertisingcommitments which may accompany such new products or may be required to maintain sales of existing products may not be fully absorbed by ultimateproduct sales. Initial production schedules, set in advance of introduction, carry the possibility of excess unsold inventories. New product introductionsare further subject to delivery delays from supply sources, which can impact availability during the Company's most active selling periods. Research and development costs related to new product development for the years 2022, 2021, and 2020 were expensed in operations of these years andwere 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 ofpurchase, depending on the product. The Company allows a sixty-day over-the-counter initial return privilege through cooperating dealers. Products areserviced through a corporate service repair operation. The Company's service and warranty programs are competitive with those offered by othermanufacturers in the industry. The Company primarily warehouses and distributes its products from distribution centers located in Canton and Jackson, Mississippi. Selective use ismade of leased tractors and trailers. The Company invests funds not currently required for business activities (see Note A(6) to the Consolidated Financial Statements). Income from investedfunds is included in Other Income in the accompanying Consolidated Statements of Comprehensive Income. 4Table of Contents Earnings from investments may vary significantly from year to year depending on interest yields on instruments meeting the Company's investmentcriteria, and the extent to which funds may be needed for internal growth, acquisitions, newly identified business activities, and reacquisition of Companystock. 2. Defense SegmentEach of the segment’s operating companies are subsidiaries of National Defense Corporation. AMTEC Corporation was acquired on February 24, 2001, and manufactures 40mm ammunition, and precision mechanical and electro-mechanical productsfor the U.S. Department of Defense (DOD) and DOD prime contractors. AMTEC’s 106,000 square foot manufacturing facility located in Janesville,Wisconsin, is focused on producing niche market ordnance products (such as training ammunition, fuzes, firing devices, and initiators). AMTEC is alsothe 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 andordnance-related products for the DOD and DOD prime contractors. Spectra maintains 364,000 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 inmedium caliber ammunition (20mm, 25mm, 30mm, 40mm, and 50mm) primarily for the DOD and DOD prime contractors, which includes the 40mm systemsprogram 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 formerly owned by Chemring Energetic Devices, Inc.’s business located in Clear Lake, South Dakota andall of the real property previously owned by Technical Ordnance Realty, LLC. These assets were acquired on January 24, 2014. The division manufacturesin its 98,000 square foot Clear Lake facility detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. Itsmajor customers include US and foreign government agencies, AMTEC Corporation, and other defense contractors. The equity interests of Woodlawn Manufacturing, Ltd., a subsidiary of National Defense Corporation and its newly formed subsidiary, WoodlawnManufacturing LLC, were acquired on October 26, 2022. Woodlawn is engaged in the manufacture of metal parts and assemblies primarily for the DOD andDOD prime contractors. The Woodlawn manufacturing facility is 56,500 square feet and is located in Marshall, Texas. The Defense segment competes for its business primarily on the basis of technical competence, product quality, manufacturing experience, and price. Thissegment operates in a highly competitive environment with many other organizations, some of which are larger and others that are smaller. 5Table of Contents On April 25, 2005, AMTEC Corporation was awarded the high volume, five-year prime contract for management and production of the Army’s 40mmAmmunition System. The Army selected AMTEC as one of two prime contractors responsible for supplying all requirements for 40mm practice andtactical ammunition for a period of five years, with AMTEC receiving the majority share of the business. 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 managementand 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 assetsfrom 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 mentionedabove. Total deliveries for the systems program under the novated DSE 40mm contract were completed in 2018. The Company submitted its bid for a thirdcontract, and although the FY15 (Army’s fiscal year beginning October 1, 2014) bid request was subsequently cancelled, the 40mm program requirementsremained and were subsequently awarded to AMTEC as the Army’s FY16 40mm requirements in a single award valued at $84,750,000. Final deliveries forthe FY16 contract were completed in 2019. On August 30, 2017, the Army awarded AMTEC, as the sole prime contractor, a third five-year 40mm systemcontract covering FY17-21 requirements. The value of awards to date is approximately $539,600,000 for FY17 through FY21, with deliveries scheduled tocontinue into 2025. On September 23, 2022, the Army awarded AMTEC, as the sole prime contractor, a fourth five-year 40mm system contract coveringFY22-26. The initial award value was $69,800,000, with deliveries scheduled to commence in late 2023. The maximum ceiling value of the contract is$826,800,000. Actual annual and cumulative dollar volume with the Army over the course of the contract will be dependent upon military requirements andfunding, as well as government procurement regulations and other factors controlled by the Army and the Department of Defense. During 2022, almost all of the work performed by this segment directly or indirectly for the DOD was performed on a fixed-price basis. Under fixed-pricecontracts, the price paid to the contractor is usually awarded based on competition at the outset of the contract and therefore is generally not subject toadjustments reflecting the actual costs incurred by the contractor, with the exception of some limited escalation clauses, which on the 2017 and 2022contracts apply to only three materials – steel, aluminum and zinc. The Defense segment’s contracts and subcontracts contain the customary provisionpermitting termination at any time for the convenience of the government, with payment for any work completed, associated profit and inventory/work inprogress 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 Technologies, Inc., Rely Innovations, Inc., and Rusoh, Inc. The latter was previously included in theCompany’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 analyticsengine 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 opportunityto prevent a loss. Sensors measure a variety of environmental data including temperature, smoke, carbon monoxide, humidity, water, motion, andmore. The initial application combines patented machine learning, digital sensors and cloud-based technology to continuously monitor freezers andrefrigerators, instantly detecting and alerting users to potential mechanical issues which can in turn affect the maintenance of critical temperatures for thesafe storage of pharmaceuticals and food. The system detects anomalies in defrost and refrigeration cycles, enabling it to provide notice days or evenweeks in advance of a potential malfunction. With these alerts, customers can act proactively to correct the situation and prevent the loss or deteriorationof 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 theRusoh® Eliminator® fire extinguisher. The fire extinguisher is an owner-maintained, multipurpose, reloadable, dry chemical fire extinguisher and is the firstportable owner-maintained fire extinguisher. The Company purchased certain assets and assumed certain liabilities of Knox Safety, Inc. on July 29, 2022, forming Rely Innovations, Inc. Rely leases4,300 square feet in Chapel Hill, North Carolina and 3,700 square feet in Lisle, Illinois. Established in 2019, Rely designs and sells carbon monoxidedetectors for residential use. The operations of the three businesses that comprise the Safety segment are startup in nature and have resulted in limited revenues. The segment has asales force of three employees that sell to and service most customers. It also utilizes several manufacturers' representatives who may also sell otherproduct lines. Product competition extends to product features, product pricing, product quality, marketing programs, service policies and otherfactors. New product introductions are an important part of the segment's sales to enhance its product offerings. New products entail unusualrisks. Engineering and tooling costs are increasingly expensive, as are finished goods that may not have a ready market or achieve widespreadcommercial acceptance. Securing Underwriters Laboratories (UL) certification is a prerequisite to sales, and the process for securing certification is bothexpensive and time consuming. For fire extinguishers, it typically takes in excess of a year. Fully tooled products are required prior to the performance ofmost tests. High-cost advertising commitments which may accompany such products may not be fully absorbed by ultimate product sales. Initialproduction schedules, set in advance of introduction, carry the possibility of excess unsold inventories. New product introductions are further subject todelivery delays from supply sources, which can impact availability to meet commitments. 6Table of Contents Research and development costs related to new product development for the years 2022, 2021, and 2020 were expensed in operations of these years. The segment primarily warehouses and distributes its products from distribution centers located in Canton and Jackson, Mississippi, as well as, MountHoreb, Wisconsin and a third party warehouse in Grand Prairie, Texas. B. OTHER COMMENTS 1. Sources and Availability of MaterialsSee 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 materiallydepend upon the judicial protection of its intellectual property rights (patents, trademarks, trade dress copyrights and trade secrets), removal of thatprotection would expose the Company to competitors who seek to take advantage of the Company's innovations and proprietary rights. The Company’ssegments hold numerous patents, trademarks, and copyrights registered in the United States and foreign countries related to various products andmethods. The Company believes its business is not dependent upon any individual patent, copyright or license, but that the Presto® trademark is materialto its business. 3. Effects of Compliance with Environmental and Other RegulationsIn 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 onthe property. At year end 1998, all remediation projects at the Eau Claire, Wisconsin site had been installed, were fully operational, and restorationactivities had been completed. Based on factors known as of December 31, 2022, it is believed that the Company's environmental liability reserve will be adequate to satisfy on-goingremediation operations and monitoring activities; however, should environmental agencies require additional studies or remediation projects, it is possiblethe 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 theresults of operations or financial condition of the Company. Like other manufacturers, the Company is subject to a broad range of federal, state, local and foreign laws and requirements, including those concerning airemissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastematerials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s facilities and off-site disposallocations, workplace safety and equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict withaccuracy the effect that changes to such laws and regulations may have on the Company in the future. Like other industrial concerns, the Company’smanufacturing operations entail the risk of noncompliance, and there can be no assurance that the Company will not incur material costs or other liabilitiesas a result thereof. The Company is also subject to various other federal, state, and local laws affecting its business, as well as a variety of regulations relating to such mattersas working conditions, equal employment opportunities, and product safety. These regulations stem from regulatory bodies or laws such as the USConsumer Product Safety Commission, the US Food and Drug Administration, California’s Safe Drinking Water and Toxic Enforcement Act of 1986(Proposition 65), the US Department of Transportation, and authorities having jurisdiction for fire safety and refrigeration equipment. The Companybelieves it is currently in material compliance with all such applicable laws and regulations. In addition, U.S. Government contractors are subject to extensive laws and regulations specific to the defense industry, several of which are delineated inItem 1A Risk Factors under the heading “U.S. Government contractors are subject to extensive laws and regulations applicable to the defense industry andthe Company could be adversely affected by changes in and compliance with such laws and regulations, or any negative findings by the U.S. governmentregarding the Company’s compliance with them.” 4. Human CapitalAs of December 31, 2022, the Company and its subsidiaries had 973 employees compared to 895 employees at the end of December 2021. Approximately 192 employees of Amron are members of the United Steel Workers union. The most recent contract between Amron and the union iseffective through February 28, 2025. The Company provides its employees with competitive salaries and bonuses, opportunities for equity ownership, opportunities for continued learning andgrowth and a robust employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paidtime off. 5. Industry Practices Related to Working Capital Requirements The major portion of the Company's sales are 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 pressurecanners, heaters, and major new product introductions. Inventory build-up also occurs to create stock levels required to support the higher sales thatoccur in the latter half of each year. Buying practices of the Company's customers require "just-in-time" delivery, necessitating that the Company carrylarge finished goods inventories. 7Table of Contents 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 both for seasonal products like carbon monoxide alarms and to meet potential demand of customersthat require delivery with shorter lead times. 6. Order BacklogShipment 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 timingof introduction. The contract backlog of the Defense segment was approximately $505,069,000, $460,800,000, and $320,214,000 at December 31, 2022, 2021, and 2020,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 thebacklog will be produced and shipped during an 18- to 36-month period, after December 31, 2022. Shipments in the Safety segment typically occur within a relatively short time after receipt of an order, and thus there is usually no long-term backlog oforders. New product introductions may result in order backlogs that vary from product to product and as to timing of introduction. 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, quarterlyreports 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 Section13(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 readilyavailable 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. TheCompany 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 havea 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’soperations. The Company’s suppliers purchase significant amounts of metals, plastics, and energy to manufacture the Company’s products. Also, the cost of fuel hasa major impact on transportation costs as do intermodal shipping rates. Any increased costs that cannot be fully absorbed or passed along in the form ofprice 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 Republicof China. The Company’s ability to continue to select and develop relationships with reliable vendors who provide timely deliveries of quality parts andproducts will impact its success in meeting customer demand. Most products are procured on a “purchase order” basis. As a result, the Company may besubject 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 theneed arose. Any significant failure to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply maydisrupt customer relationships and have a material adverse effect on the Company’s business. 8Table of Contents 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 thatstatus and to impose higher tariffs on products imported from China, which could have a material adverse effect on the Company’s business. Currently, itmaintains penalty tariffs on some imports and in the past has threatened to impose a penalty tariff on all products. The latter, if imposed, would have amaterial adverse effect on the Company’s business. The Housewares/Small Appliance segment is dependent on key customers, and any significant decline in business from one or more of its key customerscould 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 agreements or guaranties ofminimum purchases. As a result, the customers may fail to place anticipated orders, change planned quantities, delay purchases, or change productassortments 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, shiftin consumer spending away from its housewares/small appliances, or further deterioration in the financial health of its customer base could adversely affectsales 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 todevelop new products is affected by, among other things, whether the Company can develop and fund technological innovations and successfullyanticipate consumer needs and preferences, as well as the intellectual property rights of others. The introduction of new products may require substantialexpenditures for advertising and marketing to gain marketplace recognition or to license intellectual property. There is no guarantee that the Company willbe aware of all relevant intellectual property in the industry and may be subject to claims of infringement, which could preclude it from producing andselling a product. Likewise, there is no guarantee that the Company will be successful in developing products necessary to compete effectively in theindustry or that it will be successful in advertising, marketing and selling any new products. 9Table of Contents Product recalls or lawsuits relating to defective products could have an adverse effect on the Company, as could the imposition of industry sustainabilitystandards. 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, theU.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 theCompany 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 asizable penalty that the Commission is empowered to impose. If the Company removed products from the market, its reputation or brands could betarnished 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 otheradverse effects. It is self-insured to specified levels of those claims and maintains product liability insurance for claims above the self-insured levels. TheCompany 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 amountof insurance coverage. Moreover, many states do not allow insurance companies to provide coverage of punitive damages, in the event such damageswere imposed. Additionally, the Company does not maintain product recall insurance. As a result, product recalls or product liability claims could have amaterial adverse effect on the Company’s business, results of operations and financial condition. The portable appliance and floor care companies’ industry association has a framework for a sustainability standard for the industry, but has yetto develop specific guidelines for implementation. When and if developed, the standards will do nothing for the environment, but will entail the addition ofsignificant 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 atkey customers. Over the past decade, the housewares/small appliance industry has undergone significant consolidation, and, as a result, the industry primarily consists ofa limited number of larger companies. Larger companies do enjoy a competitive advantage in terms of the ability to offer a larger assortment of product toany 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 havea 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 contractsunderlying these programs. The loss or significant reduction of a major program in which the Company participates could have a material adverse effect onthe 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 increaseddefense spending, including supplemental appropriations for operations in Iraq and Afghanistan, areas from which the U.S. has withdrawn. Currently, theyare being augmented by the Ukraine Security Assistance Initiative. Future defense budgets could be negatively affected by several factors, including U.S.Government budget deficits, administration priorities, U.S. national security strategies, a change in spending priorities, and continued reduction of militaryoperations around the world. Any significant decline or redirection of U.S. military expenditures could result in a decrease to the Company’s sales andearnings. 10Table of Contents U.S. Government contracts are also dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for agiven 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, thecontract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makesappropriations for future fiscal years. In addition, most U.S. Government contracts are subject to modification if funding is changed. Any failure byCongress 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 fixed-price. Under fixed-price contracts, the Company agrees to perform the work for afixed price, subject to limited escalation provisions on specified raw materials. Thus it bears the risk that any increases or unexpected costs may reduceprofits or potentially cause losses on the contract, which could have a material adverse effect on results of operations and financial condition. That risk ispotentially 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 thelegislation/regulation ripple throughout the economy. In addition, products are accepted by test firing samples from a production lot. Lots typicallyconstitute 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 besubstantial. 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 failingto perform under the contract. Performance failure can occur from a myriad of factors, which include late shipments due to the inability to secure requisiteraw 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. Terminationfor default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from anothersource. If a termination provision is exercised, it could have a material adverse effect on the Company’s business, results of operations and financialcondition. 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 governmentedict. Under the contract, the segment is responsible for the performance of those subcontractors, many of which it does not control. There is a risk thatthe Company may have disputes with its subcontractors, including disputes regarding the quality and timeliness of work performed by subcontractors. Afailure by one or more of the Company’s subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-uponservices may materially and adversely impact the Company’s ability to perform its obligations as the prime contractor. U.S. Government contractors are subject to extensive laws and regulations applicable to the defense industry and the Company could be adverselyaffected by changes in and compliance with such laws and regulations, or any negative findings by the U.S. government regarding the Company’scompliance with them. U.S. government contractors must comply with numerous significant procurement regulations and specific legal requirements, including a vast array offederal, state, and local laws, regulations, contract terms and requirements related to the defense industry and the Company’s products and businesses. These laws and regulations include, but are not limited to, the Federal Acquisition Regulation (FAR) and Department of Defense FAR Supplement, TruthfulCost or Pricing Data Act, International Traffic in Arms Regulations/Arms Export Control Act, DOD 4145.26-M, and Bureau of Alcohol, Tobacco, Firearmsand Explosives orders, rules and regulations. Although customary in government contracting, these regulations and legal requirements increase theCompany’s performance and compliance costs and risks. New laws, regulations or procurement requirements or changes to current ones (for example,regulations related to cybersecurity and related certification requirements, specialty metals, and conflict minerals) can significantly increase the Company’scosts and risks and reduce profitability. Non-compliance with the laws, regulations, contract terms and processes to which the Company is subject couldaffect its ability to compete and have a material adverse effect on the Company’s financial position, results of operations and/or cash flows. Safety Segment: The Safety segment is comprised of businesses that are startup in nature. The operations that comprise the Safety segment are startup in nature, and like most startups may not ultimately have the potential to be successful. 11Table of Contents Increases in the costs for raw materials, energy, transportation and other necessary supplies could adversely affect the results of the Company’soperations. The Company’s suppliers purchase significant amounts of metals, plastics, chemicals, and energy to manufacture the Company’s products. Also, the costof fuel has a major impact on transportation costs, as do intermodal shipping rates. Any increased costs that cannot be fully absorbed or passed along inthe 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 and Mexico makes this segment vulnerable to supply interruptions and foreign business risks. A major portion of the safety products are manufactured by a handful of third-party suppliers, some of which are in Asia, primarily in the People’s Republicof China, and some in Mexico. The Company’s ability to continue to select and develop relationships with reliable vendors who provide timely deliveries ofquality parts and products will impact its success in meeting customer demand. Most products are procured on a “purchase order” basis. As a result, theCompany may be subject to unexpected changes in pricing or supply of products. There is no assurance that it could quickly or effectively replace any ofits 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 ofsupply 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 economicconditions, interruptions in international shipments, tariffs and other trade barriers, legal and regulatory constraints and fluctuations in currency exchangerates. Although China currently enjoys “most favored nation” trading status with the United States, the U.S. Government has in the past proposed torevoke 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 maintains a penalty tariff on some imports and in the past has threatened to impose a penalty tariff on all products. The latter, if imposed,would have a material adverse effect on the Company’s business. 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 levelsfor 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 adverseimpact 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 networkinfrastructure. The inability of the Company to maintain software and hardware that can connect to the wireless infrastructure, failure of the wirelessinfrastructure, or the availability of cloud based data storage, could have a material adverse effect on the efficacy of the segment’s products and in turn onits operating results. 12Table of Contents 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 affectedby, among other things, whether the Company can develop and fund technological innovations and successfully anticipate customer needs andpreferences, meet Underwriters Laboratories requirements and avoid infringing on the intellectual property rights of others. The introduction of newproducts may require substantial expenditures for advertising and marketing to gain marketplace recognition or to license intellectual property. There is noguarantee that the Company will be aware of all relevant intellectual property in the industry and may be subject to claims of infringement, which couldpreclude it from producing and selling a product. Likewise, there is no guarantee that the Company will be successful in developing products necessary tocompete 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 suitablecandidates are identified, it may not be able to complete the acquisition on commercially acceptable terms. Even if the Company is able to consummate anacquisition, the transaction would present many risks, including, among others: failing to achieve anticipated benefits or cost savings; difficultyincorporating and integrating the acquired technologies, services or products; coordinating, establishing or expanding sales, distribution and marketingfunctions, as necessary; diversion of management’s attention from other business concerns; being exposed to unanticipated or contingent liabilities orincurring the impairment of goodwill; the loss of key employees, customers, or distribution partners; and difficulties implementing and maintaining sufficientcontrols, policies and procedures over the systems, products and processes of the acquired company. If the Company does not achieve the anticipatedbenefits 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 theCompany 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 technologysystems are vulnerable to damage or interruption from circumstances beyond the Company’s control, including systems failures, viruses, security breachesor cyber incidents such as intentional cyber-attacks aimed at theft of sensitive data, or inadvertent cyber-security compromises. A security breach of suchsystems could result in interruptions of the Company’s operations, negatively impact relations with customers or employees, and expose the Company toliability and litigation, any one of which could have a negative impact on the Company’s business, results of operations or financial condition. TheCompany’s insurance coverage may not be adequate to cover all the costs related to cyber security attacks or disruptions. Some of the Company's systemshave in the past experienced security breaches, and, although to the best of the Company's knowledge as of the date of this filing, the breaches did nothave a material adverse effect on its operating results or financial condition, there can be no assurance the Company will not experience material effectsfrom security breaches in the future. COVID-19 or Other Pandemics, Epidemics, or Similar Public Health Crises Risks: The Company may be negatively impacted by the fear of exposure to, or actual effects of, pandemics and epidemics or similar public health crises. Inresponse to a public health crisis, national, state and local authorities have implemented a variety of measures intended to limit the spread of a disease, suchas travel restrictions, social distancing or imposing quarantine and isolation measures on the population. They may implement other measures. Theimpacts of a public health crisis may include, but are not limited to: Significant reductions in demand or significant volatility in demand for the Company's products, which may be caused by, among other things, thetemporary inability of consumers to purchase the products due to illness, self-quarantine, travel restrictions, financial hardship, restrictions that limitaccess to or close customer stores, shifts in demand away from one or more of the Company's more discretionary or higher priced products to lowerpriced commodity products, or the inability to meet heightened demand stemming from programs like the CARES Act that provide substantialadditional purchasing power to consumers; Inability to meet the Company's customers' needs and achieve cost targets due to disruptions in distribution capabilities or the supply chain caused bythe loss or disruption of essential manufacturing and supply elements such as raw materials or other finished products or components, restrictedtransportation or increased freight costs, reduced workforce, or other manufacturing sources and distribution processes; Failure of third parties on which the Company relies, including suppliers, customers, distributors, commercial banks, and external business partners, tomeet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operationaldifficulties and may adversely impact the Company's operations; Significant changes in the political environment in which the Company manufactures, sells, or distributes products, including quarantines,governmental authority actions, closures or other restrictions that limit or close operating and manufacturing or distribution facilities, restrictemployees' ability to travel or perform necessary business functions, or otherwise prevent external business partners, suppliers, or customers fromsufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of the Company's products, whichcould adversely impact the Company's results; Massive government indebtedness resulting from its injection of money into the economy that could result in spiraling inflation, which could in turnaffect the Company's liquidity, and could also result in decreases in U.S. and foreign defense budgets, which in turn could have a negative impact onthe Company's sales and earnings; Delays or limits in the ability of the U.S. Government and other customers to perform, including making timely payments and awards to the Company,negotiating contracts and agreeing to appropriate costs for recovery, performing quality inspections, supporting testing, accepting delivery, approvingsecurity clearances (for individuals and facilities), and providing necessary personnel, equipment and facilities; or A prolonged period of generating lower cash from operations that could adversely affect both the Company's financial condition and the achievementof its strategic objectives. 13 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 is leased to Drylock Technologies, Ltd. 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 EauClaire. During 2018, the Company completed construction of a 30,000 square foot office building adjacent to its Eau Claire facility, which it also leases toDrylock Technologies, Ltd. The Company has Defense segment manufacturing facilities located in Janesville and Antigo, Wisconsin; East Camden, Arkansas; Clear Lake, South Dakota;and Marshall, Texas. The Janesville, Wisconsin facility is comprised of approximately 106,000 square feet. The Antigo, Wisconsin facility is comprised ofapproximately 208,000 square feet, the East Camden, Arkansas operation leases approximately 364,000 square feet, the Clear Lake, South Dakota facility iscomprised of approximately 98,000 square feet which includes the Company's 2021 construction of 10,000 square feet of office space, and the Marshall, Texasfacility is comprised of approximately 56,500 square feet. The Company's Safety segment leases space in Mount Horeb, Wisconsin; Chapel Hill, North Carolina; and Lisle, Illinois. OneEvent Technologies, Inc. leasesapproximately 7,000 square feet for its operations in Mount Horeb and Rely Innovations, Inc. leases approximately 4,300 and 3,700 square feet for its operationsin Chapel Hill, North Carolina and Lisle, Illinois, respectively. There are two warehousing facilities located in Jackson and Canton, Mississippi used in the Housewares/Small Appliance and Safety segments. The Jacksonfacility contains 252,000 square feet. The Company also leases a 255,000 square foot building in Canton which is used primarily for warehousing anddistribution 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. 14Table of Contents 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 Month Total SharesPurchased Average PricePaid per Share SharesPurchased asPart of PubliclyAnnounced Planor Program MaximumNumber ofShares that MayYet BePurchasedUnder the Plansor Programs Feb. 28 - Apr. 4, 2022 510* $79.62 N/A N/A Total 510 $79.62 * 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, orforeign tax withholding requirements. On February 17, 2022, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $3.00. The dividend will be payableon March 15, 2023 to the stockholders of record as of March 1, 2023. The common stock of National Presto Industries, Inc. is traded on the New York Stock Exchange under the symbol “NPK”. As of March 1, 2023, there were 235 holdersof 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. Duringthe fourth quarter of 2022, 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 2023 Annual Meeting of Stockholders, isincorporated by reference. The line graph and related information set forth under the heading “Performance Graph” in the Company’s 2022 Annual Report is incorporated by reference. 15Table of Contents 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’s2022 Annual Report to Shareholders, in the Proxy Statement for the annual meeting to be held May 16, 2023, and in the Company’s press releases and oral statementsmade 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. Thereare certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that allforward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the notes to Consolidated Financial Statements, among theother factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with andpurchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and marketacceptance of new products; increases in material, freight/shipping, tariffs, or production cost which cannot be recouped in product pricing; delays or interruptions inshipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized workforce; changes in government requirements, military spending, and funding of government contracts which could result, among other things, in the modification ortermination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the ability of startup businesses to ultimately have thepotential to be successful; the efficient start-up and utilization of capital and equipment investments; political actions of federal and state governments which couldhave 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 anddisruptions to our information technology system. Additional information concerning these and other factors is contained in the Company's Securities and ExchangeCommission filings. COVID-19 DISCLOSURE All of the Company’s businesses were deemed essential and as a result, all operated during the COVID-19 shutdowns. Distribution systems of customers that survivedthe shutdowns are largely intact as most key retail customers' outlets have been open since third quarter 2020. Most customer offices are now open, although some maynot reopen until 2023. Trade shows, albeit with reduced attendance, have resumed. Material, components, and finished goods continue to be delayed due to the supplychain congestion. As a result of government COVID-19 policies, material, transportation and labor costs have materially increased. Labor shortages continue. Due tothe Company's historical conservative practices, it has no debt and has adequate balances to fund its operations. For historical information about the impact of the government responses to COVID-19, please see “Item 1A. Risk Factors” titled “The COVID-19 or Other Pandemics,Epidemics or Similar Public Health Crises Risks” included in this Form 10-K for year ended December 31, 2022. 2022 COMPARED TO 2021 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 threebusiness segments for the years ended December 31, 2022 and 2021. On a consolidated basis, sales decreased by $34,154,000 (10%), gross profit decreased by $9,271,000 (14%), selling and general expense decreased by $7,032,000(21%), intangibles amortization increased by $368,000 (172%) and Impairments - goodwill and intangible assets increased $5,295,000. Other income increased by$1,387,000 (57%), earnings before provision for income taxes decreased by $6,515,000 (20%), and net earnings decreased by $4,955,000 (19%). Details concerning thesechanges can be found in the comments by segment below. Housewares/Small Appliance net sales increased by $2,424,000, from $115,924,000 to $118,348,000, or 2%, primarily attributable to an increase in pricing and changes inmix. Approximately 85% of the increase from price and mix changes were offset by a decrease in units shipped. The increase was further offset by the absence of theprior year's partial reversal of $1,530,000 of a reserve for estimated refunds related to a product recall of indoor smokers. Defense net sales decreased by $37,031,000,from $239,514,000 to $202,483,000, or 15%, reflecting a decrease in units shipped. Housewares/Small Appliance gross profit increased $7,039,000 from $9,974,000 (9% of sales) in 2021 to $17,013,000 (14% of sales) in 2022, primarily reflecting thechanges in pricing and mix mentioned above, augmented by decreased ocean cargo and inland freight costs, partially offset by the decrease in unit shipments, as well asadjustments related to obsolete or excess inventory levels of $3,613,000, and decreases in standard unit costs of $3,108,000 that were not offset by decreases in thesegment's LIFO inventory reserve. Defense gross profit decreased $18,567,000 from $61,205,000 (26% of sales) to $42,638,000 (21% of sales), primarily reflecting thedecrease in sales mentioned above, a less favorable mix, inefficiencies from labor shortages, delays in securing materials and other supply chain issues. Due to thestartup nature of the businesses in the Safety segment, gross margins were negative in both years. A reduction in the amount of write-downs of inventory and materialsat Rusoh, Inc. to reflect realizable values contributed to the comparative increase in gross margin of $1,848,000. 16Table of Contents Selling and general expenses for the Housewares/Small Appliance segment decreased $446,000, primarily reflecting lower health and accident expenses of $699,000,product liability costs of $383,000, and insurance costs of $164,000. These decreases were partially offset by higher legal and professional expenses of $567,000 andcompensation expenses of $175,000. Defense segment selling and general expenses increased $680,000, primarily due to increased legal and professional expenses of$302,000, increased compensation/payroll costs of $209,000, and increased marketing costs of $121,000. Safety segment selling and general expenses decreased$7,267,000, primarily reflecting the absence of prior year impairment of $7,615,000 of notes receivable and related interest held by Rusoh, Inc., augmented by the bargainpurchase gain of $492,000 recognized upon the acquisition of Knox Safety, Inc. See Note P. These were offset in part by increased compensation expenses of$311,000 and legal and professional expenses of $383,000, both largely related to the acquisition of Knox Safety, Inc. Intangibles amortization increased as a result of the acquisition of contracts/customer relationship and intellectual property intangibles in the acquisitions of KnoxSafety, Inc. and Woodlawn Manufacturing, Ltd. See Note P to the Consolidated Financial Statements. Impairment – goodwill and intangible assets increased as a result of impairments of goodwill and technology intangibles in the Safety segment. See Note A (10) andNote A (11) to the Consolidated Financial Statements. The above items were responsible for the change in operating profit from continuing operations. Other income increased $1,387,000, which was primarily attributable to higher interest earned with higher yields, offset in part by a reduced portfolio of marketablesecurities. Earnings before provision for income taxes decreased $6,515,000 from $32,459,000 to $25,944,000. The provision for income taxes decreased from $6,805,000 to$5,245,000, which resulted in an effective income tax rate of 20% and 21% for the years ended December 31, 2022 and 2021, respectively. Net earnings decreased$4,955,000 from $25,654,000 to $20,699,000. 17Table of Contents 2021 COMPARED TO 2020 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 twobusiness segments for the years ended December 31, 2021 and 2020. On a consolidated basis, sales increased by $3,150,000 (1%), gross profit decreased by $20,526,000 (24%), selling and general expense increased by $5,648,000 (20%),and intangibles amortization decreased by $7,000 (3%). Other income decreased by $1,362,000 (36%), earnings from continuing operations before provision for incometaxes decreased by $27,529,000 (46%), and earnings from continuing operations decreased by $21,304,000 (45%). Details concerning these changes can be found in thecomments by segment below. Housewares/Small Appliance net sales decreased by $1,721,000, from $117,645,000 to $115,924,000, or 2%, primarily due to a decrease in shipments, approximately 54% ofwhich was offset by an increase in prices. The decrease was further offset by the partial reversal of prior year charges for estimated refunds related to a product recall,which had a year over year favorable effect of $3,603,000. Defense net sales increased by $4,869,000, from $234,645,000 to $239,514,000, or 2%, reflecting an increase inunits shipped. Housewares/Small Appliance gross profit decreased $14,232,000 from $24,206,000 (21% of sales) in 2020 to $9,974,000 (9% of sales) in 2021, primarily due to increasedocean cargo and product costs and the decreased sales mentioned above, partially offset by the partial reversal of prior year charges for estimated refunds related to aproduct recall, which had a year over year favorable comparable impact of $4,923,000. Defense gross profit decreased $1,356,000 from $62,561,000 (27% of sales) to$61,205,000 (26% of sales), primarily reflecting the increase in sales mentioned above offset by a less favorable mix and inefficiencies from labor shortages and delays insecuring materials. The segment's results were also unfavorably impacted by storm damage that led to the shutdown of one of its lines for several months. Due to thestartup nature of both businesses in the Safety segment, gross margins were negative in both years. The write-down of inventory and materials of $5,247,000 at Rusoh,Inc. to reflect realizable values contributed to the comparative decrease in gross margin of $4,938,000. Selling and general expenses for the Housewares/Small Appliance segment decreased $1,230,000, primarily reflecting the absence of prior year marketing production andmedia costs of $2,200,000 and lower product liability costs of $364,000. These decreases were partially offset by higher health and accident and legal and professionalexpenses of $314,000 and $259,000, respectively and higher insurance costs of $449,000. Defense segment selling and general expenses increased $354,000,approximately a third of which relates to higher health and accident costs with the balance related to miscellaneous general and administrative costs. Safety segmentselling and general expenses increased $6,640,000, primarily reflecting Rusoh, Inc.'s, impairment of notes receivable and the related interest of $7,615,000 offset in part byreduced compensation/payroll costs of $422,000 and professional expenses of $517,000. The above items were responsible for the change in operating profit from continuing operations. Other income decreased $1,362,000, which was primarily attributable to lower interest earned of $1,255,000 with lower yields on a reduced portfolio of marketablesecurities. 18Table of Contents Earnings from continuing operations before provision for income taxes decreased $27,529,000 from $59,988,000 to $32,459,000. The provision for income taxes fromcontinuing operations decreased from $13,030,000 to $6,805,000, which resulted in an effective income tax rate of 21% and 22% for the years ended December 31, 2021and 2020, respectively. Earnings from continuing operations and net earnings decreased $21,304,000 from $46,958,000 to $25,654,000. LIQUIDITY AND CAPITAL RESOURCES 2022 COMPARED TO 2021 Cash provided by operating activities was $8,768,000 during 2022 as compared to $34,688,000 during 2021. The principal factors behind the decrease in cash providedcan be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during 2022 were net earningsof $20,699,000, which included a non-cash loss on impairment of goodwill and intangible assets of $5,295,000 and total non-cash depreciation and amortization expensesof $3,347,000. These were partially offset by a non-cash deferred income tax benefit of $2,311,000 and increases in accounts receivable and inventory levels. Ofparticular note during 2021 were net earnings of $25,654,000, which included a non-cash provision for doubtful notes and accounts receivable of $7,665,000, total non-cash depreciation and amortization expenses of $2,978,000, a non-cash deferred income tax benefit of $1,612,000, and a net decreases in deposits made to vendorsincluded in other assets and current assets and accounts receivable. These were partially offset by an increase in inventory levels and a net decrease in payable andaccrual levels. Net cash used in investing activities was $16,436,000 during 2022 as compared to $32,548,000 provided by investing activities during 2021. During 2022 the Companyacquired two businesses for $24,683,000 net of cash acquired, and purchased plant and equipment for $1,030,000. These were partially offset by net sales and maturitiesof marketable securities of $9,171,000. Of note during 2021 were net sales and maturities of marketable securities of $34,621,000 offset by the purchase of plant andequipment of $2,866,000, which primarily included expenditures to augment the Company's production facilities in the Defense segment. 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 theCompany’s representative received directly from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cashequivalents), has resulted in a presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’sincome portfolio. As of December 31, 2022 and 2021, $3,638,000 and $25,427,000, respectively, of variable rate demand notes are classified as marketablesecurities. 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 orremarketers and thus provide the liquidity of cash equivalents. Cash flows from financing activities for 2022 and 2021 primarily differed as a result of the $1.75 per share decrease in the extra dividend paid during these years. Cashflows 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 decreased in 2022 by $39,094,000 to $70,711,000. 19Table of Contents Working capital decreased by $21,903,000 to $272,991,000 at December 31, 2022 for the reasons stated above. The Company’s current ratio was 6.1 to 1.0 at December 31,2022 and 6.6 to 1.0 at December 31, 2021. The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions, as well as continue tomake 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. 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 makedividend payments, and to fund future growth through acquisitions and other means. The bulk of its marketable securities are invested in the variable rate demandnotes described above, in municipal bonds that are pre-refunded with escrowed U.S. Treasuries, and certificates of deposit. The Company intends to continue itsinvestment strategy of safety and short-term liquidity throughout its investment holdings. The Company's principal commitments consist of purchase and lease obligations. Purchase obligations include outstanding purchase orders issued to the Company'sHousewares and Safety segments' manufacturers in the Orient and to material suppliers and contractors in the Defense segment, and as of December 31, 2022 amountedto approximately $277,378,000. The Company can cancel or change many of these purchase orders, but may incur costs if its supplier cannot use the material tomanufacture 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 isobligated to pay cannot be reasonably estimated. Lease obligations are described in Note M - Leases to the consolidated financial statements included in Part II, Item 8of this Annual Report on Form 10-K. 2021 COMPARED TO 2020 Cash provided by operating activities was $34,688,000 during 2021 as compared to $40,973,000 during 2020. The principal factors behind the decrease in cash providedcan be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during 2021 were net earningsof $25,654,000, which included a non-cash provision for doubtful notes and accounts receivable of $7,665,000, total non-cash depreciation and amortization expenses of$2,978,000, a non-cash deferred income tax benefit of $1,612,000, and decreases in deposits made to vendors included in other assets and current assets and accountsreceivable. These were partially offset by an increase in inventory levels and a net decrease in payable and accrual levels. Of particular note during 2020 were netearnings of $46,958,000, which included total non-cash depreciation and amortization expenses of $3,005,000; a non-cash deferred income tax benefit of $1,718,000 and anet increase in payable and accrual levels. These were partially offset by an increase in inventory levels; deposits made to vendors included in other assets and currentassets; and an increase in accounts receivable levels. Net cash provided by investing activities was $32,548,000 during 2021 as compared to $7,155,000 during 2020. During 2021 the Company had net sales and maturities ofmarketable securities of $34,621,000 offset by the purchase of plant and equipment of $2,866,000, which primarily included expenditures to augment the Company’sproduction facilities in the Defense segment. Of note during 2020 were net sales and maturities of marketable securities of $9,776,000 offset by the purchase of plant andequipment of $2,621,000, which primarily included expenditures to augment the Company's production facilities in the Defense segment. 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 theCompany’s representative received directly from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cashequivalents), has resulted in a presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’sincome portfolio. As of December 31, 2021 and 2020, $25,427,000 and $25,968,000, respectively, of variable rate demand notes are classified as marketablesecurities. 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 orremarketers and thus provide the liquidity of cash equivalents. Cash flows from financing activities for 2021 and 2020 were essentially flat and primarily relate to the annual dividend payments. Cash flows for both years also reflectedthe 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 2021 by $23,769,000 to $109,805,000. Working capital decreased by $7,478,000 to $294,894,000 at December 31, 2021 for the reasons stated above. The Company’s current ratio was 6.6 to 1.0 at December 31,2021 and 6.5 to 1.0 at December 31, 2020. 20Table of Contents DEFENSE SEGMENT BACKLOG The Company’s Defense segment contract backlog was approximately $505,069,000 at December 31, 2022, and $460,800,000 at December 31, 2021. Backlog is defined asthe 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 an18- to 36-month period. CRITICAL ACCOUNTING ESTIMATES The Company's discussion and analysis of financial condition and results of operations are based upon its Consolidated Financial Statements. The preparation of theCompany’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States requires management to make certainestimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the ConsolidatedFinancial Statements and revenues and expenses during the periods reported. The estimates are based on experience and other assumptions that the Company believesare reasonable under the circumstances, and these estimates are evaluated on an ongoing basis. Actual results may differ from those estimates. The Company's critical accounting policies are those that materially affect its Consolidated Financial Statements and involve difficult, subjective, or complex judgmentsby management. The Company reviewed the development and selection of the critical accounting policies and believes the following are the most critical accountingpolicies that could have an effect on the Company’s reported results as they involve the use of significant estimates and assumptions as described above. These criticalaccounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors. See Note A - Summary of Significant Accounting Policies tothe Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more detailed information regarding the Company's criticalaccounting policies. Inventories New Housewares/Small Appliance and Safety product introductions are an important part of the Company’s sales. In the case of the Housewares/Small Appliancesegment, the introductions are important to offset the morbidity rate of other products and/or the effect of lowered acceptance of seasonal products due to weatherconditions. 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 ordiminishing demand for a product. During 2022, the Housewares/Small Appliance segment recorded an impairment related to such losses of $3,613,000. In addition, dueto fire safety regulations, commercial extinguishers have a limited shelf life, which is based on the date of production. The Safety segment recorded impairments of$1,807,000 and $3,090,000 in 2022 and 2021, respectively, in recognition of that fact. There were no other obsolescence issues that had a material effect during the currentyear. In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related inventory. Inventory risk for theCompany’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 otherinsurance 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 thereare 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 claimsand incurred but not reported claims, including an estimate for related legal fees in the Company’s Consolidated Financial Statements. The Company utilizes historicaltrends and other analysis to assist in determining the appropriate accrual. There are no known claims that would have a material adverse impact on the Companybeyond 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 amaterial impact on the Company’s financial condition and results of operations. 21Table of Contents 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 newlyintroduced 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 areprimarily developed using customer provided information. Impairment and Valuation of Long-lived Assets and Goodwill The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.Long-lived assets consist of property, plant and equipment and intangible assets, including the value of contracts/customer relationships, trademarks and safetycertifications, trade secrets, and technology software. Determining whether an impairment has occurred typically requires various estimates and assumptions, includingdetermining 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 theasset’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. TheCompany uses internal discounted cash flows estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. TheCompany derives the required cash flow estimates from its historical experience and its internal business plans. The Company recognizes the excess cost of acquired entities over the net amount assigned to the fair value of assets acquired and liabilities assumed as goodwill.Goodwill is tested for impairment on an annual basis at the start of the fourth quarter and between annual tests whenever an impairment is indicated. The impairment testfor goodwill requires the determination of fair value of the reporting unit. The Company uses multiples of earnings before interest, taxes, depreciation, and amortization("EBITDA"), sales, and discounted cash flow models, which are described above, to determine the reporting unit's fair value, as appropriate. NEW ACCOUNTING PRONOUNCEMENTS Please refer to Note A(18) to the Company’s Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on theCompany’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 primarilyconsist of money market funds. Based on the accounting profession’s interpretation of cash equivalents under FASB ASC 230, the Company’s seven-day variable ratedemand notes are classified as marketable securities rather than as cash equivalents. The demand notes are highly liquid instruments with interest rates set everyseven days that can be tendered to the trustee or remarketer upon seven days notice for payment of principal and accrued interest amounts. The seven-day tenderfeature 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 atpar 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 orremarketers. 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. Thebalance of the Company’s investments is held primarily in fixed rate municipal bonds and certificates of deposits with an average life of 0.8 years. Accordingly, changesin 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 bematerial. 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 areentered 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 arelocated 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 anticipatedthat any potential material impact from fluctuations in the exchange rate will be to the cost of products secured via purchase orders issued subsequent to therevaluation. 22Table of Contents 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 PublicAccounting Firm can be found on pages F-1 through F-22. 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 designand 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 December31, 2022. Based on that evaluation, the Company’s Chief Executive Officer and Treasurer (principal financial officer) concluded that the Company’s disclosure controlsand procedures were effective as of that date. There were no changes to internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely tomaterially affect, the Company's internal control over financial reporting. 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 Rules13a-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 andBoard 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 onlyreasonable 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, 2022. In making this assessment, it used thecriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based onthis assessment and those criteria, management concluded that as of December 31, 2022, the Company's internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the 1934 Act, was effective.For purposes of evaluating the Company’s internal control over financial reporting, management’s assessment of and conclusion on the effectiveness of internal controlover financial reporting did not include the internal controls of Woodlawn Manufacturing, Ltd., which the Company acquired on October 26, 2022 and is included in theConsolidated Financial Statements of the Company as of and for the year ended December 31, 2022. Woodlawn comprised 5% of the Company’s total assets as ofDecember 31, 2022. Woodlawn’s net income, for the year ended December 31, 2022, was less than 1% of the Company’s net income for the same period. The Company’s independent registered public accounting firm has issued its report on the effectiveness of the Company’s internal control over financial reporting. Thereport appears below. 23Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of National Presto Industries, Inc. Opinion on the Internal Control Over Financial Reporting We have audited National Presto Industries, Inc.'s (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financialstatements of the Company and our report dated March 13, 2023 expressed an unqualified opinion. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Woodlawn Manufacturing, Ltd. from its assessment ofinternal control over financial reporting as of December 31, 2022, because it was acquired by the Company in a purchase business combination in the fourth quarter of2022. We have also excluded Woodlawn Manufacturing, Ltd. from our audit of internal control over financial reporting. Woodlawn Manufacturing, Ltd. is a whollyowned subsidiary whose total assets and net income represent approximately 5% and less than 1%, respectively, of the related consolidated financial statement amountsas of and for the year ended December 31, 2022. 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 internalcontrol over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion onthe 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 beindependent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controlbased on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. 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 thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations 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 effectivenessto 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 orprocedures may deteriorate. /s/ RSM US LLP Milwaukee, Wisconsin March 13, 2023 24Table of Contents ITEM 9B. OTHER INFORMATION None. 25Table of Contents 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 70 Douglas J. Frederick Chief Operating Officer, Vice President, Secretary and General Counsel 52 Jeffery A. Morgan Vice President, Engineering 65 David J. Peuse Director of Financial Reporting and Treasurer 53 John R. MacKenzie Vice President of Sales 52 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 wasAssociate 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. Hehas been associated with the registrant since 2007 as an in-house attorney with expertise in litigation and intellectual property matters and in the capacity ofGeneral 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 of 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, adivision of Maytag, and three years at Hoover’s successor, Techtronic Industries, in engineering and engineering management capacities. 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 ofGeneral Accounting, Costing Manager, Business Systems Analyst, and Internal Auditor. Mr. Peuse has been associated with the registrant since 1996. Mr. MacKenzie was elected Vice President of sales on February 17, 2023. He has over 20-years of experience in the housewares/small appliance industry, andhas held sales and management positions at Applica (Black & Decker), Focus Products, and Joseph Joseph. Prior to becoming an officer, he had most recentlyserved the Company as its Director of Sales and in other capacities as its National Sales Manager and District Sales Manager. Mr. MacKenzie has beenassociated with the Company since 2016. The information under the headings “Delinquent Section 16(a) Reports,” “Information Concerning Directors and Nominees” and “Corporate Governance” in theCompany’s Proxy Statement for its 2022 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 CorporateGovernance section of the Company’s website located at www.gopresto.com. The Company intends to make all required disclosures concerning any amendments to, orwaivers from, its Corporate Code of Conduct by the posting of such information on that section of its website. 26Table of Contents ITEM 11. EXECUTIVE COMPENSATION The information under the headings “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Executive Compensation and OtherInformation” and “Summary Compensation Table” in the Company’s Proxy Statement for its 2023 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’sProxy Statement for its 2023 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 ProxyStatement for its 2023 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 forits 2023 Annual Meeting of Stockholders is incorporated by reference. 27Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)Documents filed as part of this Form 10-K: Form 10-K Page Reference 1.Consolidated Financial Statements: a.Consolidated Balance Sheets - December 31, 2022 and 2021F-1 & F-2 b.Consolidated Statements of Comprehensive Income - Years ended December 31, 2022, 2021 and 2020F-3 c.Consolidated Statements of Cash Flows - Years ended December 31, 2022, 2021 and 2020F-4 d.Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2022, 2021 and 2020F-5 e.Notes to Consolidated Financial StatementsF-6 through F-20 f.Reports of Independent Registered Public Accounting FirmsF-21 RSM US LLP, Milwaukee, Wisconsin, PCAOB ID #49 BDO USA, LLP, Milwaukee, Wisconsin, PCAOB ID #243 2.Consolidated Financial Statement Schedule: Schedule II - Valuation and Qualifying AccountsF-23 (b) Exhibits: Exhibit Number Description Exhibit 3(i) 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 Exhibit 3(ii) 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 - Incorporated by reference from Exhibit 4 of the Company's annual report onForm 10-K for the year ended December 31, 2019 Exhibit 9.1 Voting Trust Agreement - incorporated by reference from Exhibit 9 of the Company’s quarterly report on Form 10-Q forthe quarter ended July 6, 1997 Exhibit 9.2 Voting Trust Agreement Amendment – incorporated by reference from Exhibit 9.2 of the Company’s annual report onForm 10-K for the year ended December 31, 2008 28Table of Contents Exhibit Number Description Exhibit 10.1* Incentive Compensation Plan – incorporated by reference from Exhibit 10.1 of the Company’s quarterly report on Form10-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 quarterlyreport 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 onForm 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 Exhibit10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended July 2, 2017 Exhibit 21 Subsidiaries of the Registrant Exhibit 23.1 Consent of Independent Registered Public Accounting Firm - RSM US LLP Exhibit 23.2 Consent of Independent Registered Public Accounting Firm - BDO USA, LLP 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.INS Inline XBRL Instance Document. Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document. Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. Exhibit 104 The cover page from this Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRLand contained in Exhibit 101.INS * Compensatory Plans (c) Schedules: Reference is made to Item 15(a)2 of this Form 10-K. ITEM 16. FORM 10-K SUMMARY None. 29Table of Contents SIGNATURES 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 theundersigned, thereunto duly authorized. NATIONAL PRESTO INDUSTRIES, INC.(registrant) By:/S/ Maryjo Cohen Maryjo Cohen President and Chief Executive Officer Date: March 13, 2023 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 thecapacities and on the dates indicated. By:/S/ Richard N. Cardozo By:/S/ Patrick J. Quinn Richard N. Cardozo Patrick J. Quinn Director Director By:/S/ Maryjo Cohen By:/S/ Joseph G. Stienessen Maryjo Cohen Joseph G. Stienessen Chair of the Board, President, Director Chief Executive Officer (Principal Executive Officer), and Director By:/S/ Randy F. Lieble By:/S/ David J. Peuse Randy F. Lieble David J. Peuse Director Director of Financial Reporting and Treasurer (Principal Financial Officer) Date:March 13, 2023 30Table of Contents NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands except share and per share data) December 31 2022 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $70,711 $109,805 Marketable securities 24,863 34,190 Accounts receivable $71,362 $53,715 Less allowance for doubtful accounts 338 71,024 338 53,377 Inventories: Finished goods 36,249 40,624 Work in process 105,564 92,437 Raw materials and supplies 10,324 152,137 10,800 143,861 Notes receivable, current 2,226 2,330 Other current assets 5,671 4,490 Total current assets 326,632 348,053 PROPERTY, PLANT AND EQUIPMENT: Land and land improvements 4,542 3,036 Buildings 50,904 49,467 Machinery and equipment 49,979 46,070 105,425 98,573 Less allowance for depreciation and amortization 63,634 41,791 61,850 36,723 GOODWILL 18,573 15,317 INTANGIBLE ASSETS, net 6,926 2,624 RIGHT-OF-USE LEASE ASSETS 10,731 10,161 DEFERRED INCOME TAXES 5,506 4,642 OTHER ASSETS 1,688 2,878 $411,847 $420,398 The accompanying notes are an integral part of the Consolidated Financial Statements. F-1Table of Contents NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands except share and per share data) December 31 2022 2021 LIABILITIES CURRENT LIABILITIES: Accounts payable $34,604 $32,759 Federal and state income taxes 2,552 3,163 Lease liabilities 577 546 Accrued liabilities 15,908 16,691 Total current liabilities 53,641 53,159 LEASE LIABILITIES - NON-CURRENT 10,154 9,616 Total liabilities 63,795 62,775 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $1 par value: Authorized: 12,000,000 shares at December 31, 2022 and 2021 Issued: 7,440,518 shares at December 31, 2022 and 2021 Outstanding: 7,062,872 and 7,042,274 shares at December 31, 2022 and 2021,respectively $7,441 $7,441 Paid-in capital 14,799 13,743 Retained earnings 338,071 349,198 Accumulated other comprehensive income (103) 20 360,208 370,402 Less treasury stock, at cost, 377,646 and 398,244 shares at December 31, 2022 and2021, respectively 12,156 12,779 Total stockholders' equity 348,052 357,623 $411,847 $420,398 The accompanying notes are an integral part of the Consolidated Financial Statements. F-2Table of Contents NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands except per share data) For the years ended December 31, 2022 2021 2020 Net sales $321,623 $355,777 $352,627 Cost of sales 266,498 291,381 267,705 Gross profit 55,125 64,396 84,922 Selling and general expenses 27,121 34,153 28,505 Intangibles amortization 582 214 221 Impairments - goodwill and intangible assets 5,295 - - Operating profit 22,127 30,029 56,196 Other income 3,817 2,430 3,792 Earnings before provision for income taxes 25,944 32,459 59,988 Provision for income taxes 5,245 6,805 13,030 Net earnings $20,699 $25,654 $46,958 Weighted average common shares outstanding: Basic and diluted 7,081 7,060 7,038 Earnings per share, basic and diluted: Net earnings per share $2.92 $3.63 $6.67 Comprehensive income: Net earnings $20,699 $25,654 $46,958 Other comprehensive income, net of tax: Unrealized gain (loss) on available-for-sale securities (123) (134) 18 Comprehensive income $20,576 $25,520 $46,976 The accompanying notes are an integral part of the Consolidated Financial Statements. F-3Table of Contents NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For the years ended December 31, 2022 2021 2020 Cash flows from operating activities: Net earnings $20,699 $25,654 $46,958 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for depreciation 2,765 2,764 2,784 Intangibles amortization 582 214 221 Deferred income tax (benefit) (2,311) (1,612) (1,718)Provision for doubtful notes and accounts receivable - 7,665 - Loss on disposal of property, plant and equipment 463 493 2 Loss on impairment 5,295 - - Proceeds from insurance claim 151 823 - Noncash retirement plan expense 803 752 721 Gain on bargain purchase (492) - - Other 514 100 131 Changes in operating accounts, net of effects of acquisition: Accounts receivable, net (12,903) 1,083 (12,203)Inventories (5,620) (10,139) (6,952)Other assets and current assets 147 9,737 (5,655)Accounts payable and accrued liabilities (676) (1,232) 15,706 Federal and state income taxes receivable/payable (649) (1,614) 978 Net cash provided by operating activities 8,768 34,688 40,973 Cash flows from investing activities: Marketable securities purchased (20,024) (3,918) (48,047)Marketable securities - maturities and sales 29,195 38,539 57,823 Purchase of property, plant and equipment (1,030) (2,866) (2,621)Proceeds from notes receivable 106 543 - Acquisition of businesses, net of cash acquired (24,683) - - Proceeds from insurance claim - 250 - Net cash provided by (used in) investing activities (16,436) 32,548 7,155 Cash flows from financing activities: Dividends paid (31,826) (44,083) (42,172)Proceeds from sale of treasury stock 436 571 528 Other (36) 45 (27)Net cash used in financing activities (31,426) (43,467) (41,671) Net increase (decrease) in cash and cash equivalents (39,094) 23,769 6,457 Cash and cash equivalents at beginning of year 109,805 86,036 79,579 Cash and cash equivalents at end of year $70,711 $109,805 $86,036 Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $8,208 $10,071 $13,803 The accompanying notes are an integral part of the Consolidated Financial Statements. F-4Table of Contents NATIONAL PRESTO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands except per share data) Shares ofCommonStockOutstanding CommonStock Paid-inCapital RetainedEarnings AccumulatedComprehensiveIncome (Loss) TreasuryStock Total Balance December 31, 2019 7,006 $7,441 $11,447 $362,842 $136 $(13,909) $367,957 Net earnings 46,958 46,958 Unrealized gain on available-for-sale securities,net of tax 18 18 Dividends paid March 13, $1.00 per share regular,$5.00 per share extra (42,172) (42,172)Other 19 991 (1) 597 1,587 Balance December 31, 2020 7,025 7,441 12,438 367,627 154 (13,312) 374,348 Net earnings 25,654 25,654 Unrealized loss on available-for-sale securities, netof tax (134) (134)Dividends paid March 15, $1.00 per share regular,$5.25 per share extra (44,083) (44,083)Other 17 1,305 - 533 1,838 Balance December 31, 2021 7,042 7,441 13,743 349,198 20 (12,779) 357,623 Net earnings 20,699 20,699 Unrealized loss on available-for-sale securities, netof tax (123) (123)Dividends paid March 15, $1.00 per share regular,$3.50 per share extra (31,826) (31,826)Other 21 1,056 623 1,679 Balance December 31, 2022 7,063 $7,441 $14,799 $338,071 $(103) $(12,156) $348,052 The accompanying notes are an integral part of the Consolidated Financial Statements. F-5Table of Contents 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 inconformity with accounting principles generally accepted in the United States, management is required to make estimates and assumptions that affect thereported 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 whichare wholly-owned. All material intercompany accounts and transactions are eliminated. For a further discussion of the Company's business and the segmentsin which it operates, please refer to Note L. The purchase accounting for the acquisition of Woodlawn Manufacturing, Ltd., described in Note P, is provisional.Therefore, the fair value estimates of the assets acquired and the liabilities assumed are pending completion of several elements, including the final review bythe Company.(3) GENERAL: The after-effects of the government responses to the COVID-19 virus have impacted worldwide economic activity. The Company continues tomonitor the impact on all aspects of its business, including effects on employees, customers, suppliers, and the global economy and will adjust proceduresaccordingly. The after-effects of the COVID-19 related edicts and guidelines also continue to affect each segment in a variety of fashions, which includematerial and labor shortages, contributing to increased material and labor costs as well as difficulty in securing needed products and components andpersonnel; congestion throughout the supply chain resulting in sizable delays; increased absenteeism; limited opportunities to meet with customers/suppliers;as well as inefficiencies inherent when dealing with suppliers and customers that continue to work from home. The extent to which these after-effects from thevarious responses to the COVID-19 pandemic impact the Company’s business in 2023 and beyond will depend on future developments that are highlyuncertain and cannot be predicted. (4) RECLASSIFICATIONS: Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's financial statementpresentation. These reclassifications did not affect net earnings or stockholder' equity as previously reported. (5) FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company utilizes the methods of determining fair value as described in Financial Accounting StandardBoard (“FASB”) Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures to value its financial assets and liabilities. ASC 820utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs suchas quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; andLevel 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 immediateor short-term maturity of these financial instruments. The fair value of marketable securities are discussed in Note A(6). (6) 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 cashequivalents. Cash equivalents include money market funds. The Company deposits its cash in high quality financial institutions. The balances, at times, mayexceed 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 tothe bank for payment of $5,454,000 and $3,378,000 at December 31, 2022 and 2021, respectively, are included as reductions of cash and cash equivalents or bookoverdrafts in accounts payable, as appropriate. Marketable Securities: The Company has classified all marketable securities as available-for-sale which requires the securities to be reported at fair value,with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Highly liquid, tax-exempt variable rate demand noteswith put options exercisable in three months or less are classified as marketable securities. Due to the Company's ability to liquidate its available-for-salesecurities for potential capital needs, they are classified as current assets. F-6Table of Contents At December 31, 2022 and 2021, cost for marketable securities was determined using the specific identification method. A summary of the amortized costs andfair 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 asLevel 2, as defined by FASB ASC 820, with fair values determined using significant other observable inputs, which include quoted prices in markets that are notactive, quoted prices of similar securities, recently executed transactions, broker quotations, and other inputs that are observable. (In thousands) MARKETABLE SECURITIES Amortized Cost Fair Value GrossUnrealizedGains GrossUnrealizedLosses December 31, 2022 Fixed Rate Municipal Bonds $11,460 $11,405 $- $58 Certificates of Deposit 9,895 9,820 22 94 Variable Rate Demand Notes 3,638 3,638 - - Total Marketable Securities $24,993 $24,863 $22 $152 December 31, 2021 Fixed Rate Municipal Bonds $8,737 $8,763 $31 $5 Variable Rate Demand Notes 25,427 25,427 - - Total Marketable Securities $34,164 $34,190 $31 $5 Proceeds from sales and maturities of marketable securities totaled $29,195,000 in 2022, $38,539,000 in 2021, and $57,823,000 in 2020. There were no realizedgross gains or losses related to sales of marketable securities during the years ended December 31, 2022, 2021 and 2020. Net unrealized gains (losses) includedin other comprehensive income were ($156,000), ($170,000) and $24,000 before taxes for the years ended December 31, 2022, 2021, and 2020, respectively. Nounrealized 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, 2022 are as follows: $15,911,000 within one year; $5,444,000 beyond one year to fiveyears; and $3,638,000 beyond five years to ten years. All of the instruments in the beyond five year range are variable rate demand notes which, as notedabove, 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, thenotes become immediately due and payable. (7) ACCOUNTS RECEIVABLE: The Company's accounts receivable is related to sales of products. Credit is extended based on prior experience with the customerand evaluation of customers' financial condition. Accounts receivable are primarily due within 25 to 60 days. The Company does not accrue interest on pastdue accounts receivable. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and the specificcircumstances of the customer. The Company maintains an allowance for estimated expected credit losses resulting from the inability of customers to meet theirfinancial obligations to the Company. The allowance is determined based on the Company's historical collection experience, adverse situations that may affectthe customer's ability to pay, and prevailing economic conditions. The Company also maintains an allowance for customer chargebacks, which is determinedbased on the Company's historical experience with customers. (8) INVENTORIES: Housewares/Small Appliance segment inventories and certain Safety segment inventory items are stated at the lower of cost or net realizablevalue with cost being determined principally on the last-in, first-out (LIFO) method. Defense segment inventories are stated at the lower of cost and netrealizable value determined principally on the first-in, first-out (FIFO) method. Inventoried costs relating to contracts in progress are stated at actualproduction 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. (9) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Straight-line depreciation is provided in amounts sufficient to chargethe 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 andequipment, and 15 to 20 years for land improvements. The Company reviews long-lived assets consisting principally of property, plant, and equipment, forimpairment when material events and changes in circumstances indicate the carrying value may not be recoverable. As of December 31, 2022, net property,plant and equipment included $6,446,000 related to leased manufacturing and office space. See Note M. Approximately $180,000 of construction in progress inthe Company’s Defense segment is presented on the Consolidated Balance Sheet as Buildings, at December 31, 2022. F-7Table of Contents (10) GOODWILL: The Company recognizes the excess cost of acquired entities over the net amount assigned to the fair value of assets acquired and liabilitiesassumed as goodwill. Goodwill is tested for impairment on an annual basis at the start of the fourth quarter and between annual tests whenever an impairmentis indicated, such as the occurrence of an event that would more likely than not reduce the fair value of the reporting unit below its carryingamount. Impairment losses are recognized when the carrying value of the reporting unit is greater than the fair value of the reporting unit. During the fourthquarter of 2022, the Company assessed the poor historical performance and outlook for one of the reporting units in its Safety segment and opted to perform aquantitative assessment for impairment. The Company utilized discounted cash flow models to determine the reporting unit’s fair value. As a result of theassessment, a goodwill impairment of $3,832,000 was recognized during 2022. No goodwill impairments were recognized during 2021 or 2020. The Company's goodwill as of December 31, 2022 was $18,573,000 all of which related to the Defense segment. As of December 31, 2021, the Company’sgoodwill was $15,317,000, of which 3,832,000 related to the Safety segment, with the balance of the goodwill attributable to the Defense segment. During 2022,all of the Safety segment's goodwill was deemed impaired. (In thousands) GOODWILL Amtec Amron Woodlawn OneEvent Total Balance as of December 31, 2021 $3,556 $7,929 $- $3,832 $15,317 Additions 7,088 7,088 Less: Impairments (3,832) (3,832)Balance as of December 31, 2022 $3,556 $7,929 $7,088 $- $18,573 (11) INTANGIBLE ASSETS: Intangible assets are attributable to the Defense and Safety segments, primarily consist of the value of contracts/customerrelationships, trademarks and safety certifications, trade secrets, and technology software, and are amortized on a straight-line basis that approximateseconomic 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 berecoverable. The potential goodwill impairment that was ultimately recognized during the fourth quarter of 2022 mentioned above was such an indicator forcertain technology software in the Safety segment. The Company utilized discounted cash flow models to determine its fair value. During 2022, the Companyrecognized an impairment of technology software of $1,463,000. There were no impairments of intangible assets recognized during 2021 or 2020. The following shows the gross carrying amounts of the intangible assets and accumulated amortization at December 31, 2022 and 2021: (In thousands) INTANGIBLE ASSETS TechnologySoftware andOther Contracts/CustomerRelationships Trade Secrets Total December 31, 2022 Gross Carrying Amount $290 $6,058 $1,000 $7,348 Accumulated Amortization (97) (325) - (422)Net intangible assets $193 $5,733 $1,000 $6,926 December 31, 2021 Gross Carrying Amount $2,141 $- $1,000 $3,141 Accumulated Amortization (517) - - (517)Net intangible assets $1,624 $- $1,000 $2,624 The Company estimates it will record amortization expense for the succeeding years as follows: Years ending December 31: (In thousands) 2023 $1,708 2024 1,515 2025 1,515 2026 1,188 2027 - $5,926 Amortization expense was $582,000, $214,000, and $221,000 during the years ended December 31, 2022, 2021, and 2020, respectively. (12) OTHER ASSETS: Other assets includes prepayments that are made from time to time by the Company for certain materials used in the manufacturing process inthe Housewares/Small Appliance segment. The Company expects to utilize the prepayments and related materials over an estimated period of two years. Asof December 31, 2022 and 2021, $7,065,000 and $7,624,000 of such prepayments, respectively, remained unused and outstanding. At December 31, 2022 and2021, $5,377,000 and $4,746,000 of these amounts, respectively, are included in Other Current Assets, representing the Company’s best estimate of the expectedutilization of the prepayments and related materials during the twelve-month periods following those dates. (13) REVENUES: The Company’s revenues are derived from short-term contracts and programs that are typically completed within 3 to 24 months and arerecognized in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company’s contracts generally contain one or more performanceobligations: the physical delivery of distinct ordered product or products. The Company provides an assurance type product warranty on its products to theoriginal owner. In addition, for the Housewares/Small Appliances segment, the Company estimates returns of seasonal products and returns of newlyintroduced products sold with a return privilege. Stand-alone selling prices are set forth in each contract and are used to allocate revenue to thecorresponding performance obligations. For the Housewares/Small Appliances segment, contracts include variable consideration, as the prices are subject tocustomer allowances, which principally consist of allowances for cooperative advertising, defective product, and trade discounts. Customer allowances aregenerally allocated to the performance obligations based on budgeted rates agreed upon with customers, as well as historical experience, and yield theCompany’s best estimate of the expected value for the variable consideration. F-8Table of Contents 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, thissegment's business essentially depends on the product needs and governmental funding of the DOD. Substantially all of the work performed by the Defensesegment 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 oncompetition or negotiation at the outset of the contract and therefore, with the exception of limited escalation provisions on specific materials, is generally notsubject 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 theCompany’s warehouses. For the situations in which revenue should be recognized when product is received by the customer, the Company adjusts revenueaccordingly. For the year ended December 31, 2020, the Company reduced revenue by $2,073,000 for estimated customer refunds related to a product recall ofwhich $1,530,000 was reversed during the year ended December 31, 2021 as actual refunds were lower than initially expected. For the Defense segment, revenueis primarily recognized when the customer has legal title and formally documents that it has accepted the products. There are also certain termination clauses inDefense segment contracts that may give rise to an over-time pattern of recognition of revenue in the absence of alternative use of the product. 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 Consolidated Balance Sheets. For the Defense segment, the Company occasionally receives advances or deposits from certain customersbefore revenue is recognized, resulting in contract liabilities. These advances or deposits do not represent a significant financing component. As of December31, 2022 and 2021, $4,401,000 and $2,211,000, respectively, of contract liabilities were included in Accounts Payable on the Company’s Consolidated BalanceSheets. During 2022, 2021, and 2020, the Company recognized revenue of $0, $3,208,000 and $0, respectively, that was included in the Defense segmentcontract liability at the beginning of those respective years. The Company monitors its estimates of variable consideration, which includes customerallowances for cooperative advertising, defective product, and trade discounts, and returns of seasonal and newly introduced product, all of which pertain tothe Housewares/Small Appliances segment, and periodically makes cumulative adjustments to the carrying amounts of these contract liabilities asappropriate. During 2022, 2021, and 2020, there were no material adjustments to the aforementioned estimates. There were no material amounts of revenuerecognized during the same periods related to performance obligations satisfied in a previous period. The portion of contract transaction prices allocated tounsatisfied performance obligations, also known as the contract backlog, in the Company’s Defense segment were $505,069,000 and $460,800,000 as ofDecember 31, 2022 and 2021, respectively. The Company anticipates that the unsatisfied performance obligations will be fulfilled in an 18- to 36-monthperiod. 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. Managementutilizes the performance measures by segment to evaluate the financial performance of and make operating decisions for the Company. (14) ADVERTISING: The Company's policy is to expense advertising as incurred and include it in selling and general expenses. Advertising expense was $209,000,$150,000, and $2,655,000 in 2022, 2021, and 2020, respectively. (15) PRODUCT WARRANTY: The Company’s Housewares/Small Appliance segment's products are generally warranted to the original owner to be free fromdefects 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 privilegethrough cooperating dealers. The Company services its products through a corporate service repair operation. The Company estimates its product warrantyliability based on historical percentages which have remained relatively consistent over the years. F-9Table of Contents The product warranty liability is included in accounts payable on the balance sheet. The following table shows the changes in product warranty liability forthe period: (In thousands) Year Ended December 31 2022 2021 Beginning balance January 1 $218 $241 Accruals during the period 3,026 814 Charges / payments made under the warranties (2,723) (837)Balance December 31 $521 $218 (16) STOCK-BASED COMPENSATION: The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — StockCompensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair valueof the award and is recognized as expense ratably over the requisite service period, net of estimated forfeitures. As more fully described in Note F, theCompany awards non-vested restricted stock to employees and executive officers. (17) INCOME TAXES: Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax reporting bases of assetsand liabilities based on enacted tax rates and laws. The deferred income tax provision or benefit generally reflects the net change in deferred income tax assetsand liabilities during the year. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible onvarious income tax returns for the year reported. Valuation allowances are provided for deferred tax assets when it is considered more likely than not that theCompany will not realize the benefit of such assets. Income tax contingencies are accounted for in accordance with FASB ASC 740, Income Taxes. See Note Hfor summaries of the provision, the effective tax rates, and the tax effects of the cumulative temporary differences resulting in deferred tax assets and liabilities.The Company evaluates its uncertain tax positions as new information becomes available. (18) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS: The Company assesses the impacts of adopting recently issued accounting standards by the Financial Accounting Standards Board on the Company'sfinancial statements, and updates previous assessments, as necessary, from the Company's Quarterly Report on Form 10-Q for the fiscal quarter endedOctober 2, 2022. There were no new accounting standards issued or adopted in the quarter ended December 31, 2022 that would have a material impact on theCompany's consolidated financial statements F-10Table of Contents B. INVENTORIES:The amount of inventories valued on the LIFO basis was $32,994,000 and $35,804,000 as of December 31, 2022 and 2021, respectively, and consists of housewares/smallappliance finished goods and certain Safety segment inventories. Under LIFO, inventories are valued at approximately $9,249,000 and $14,174,000 below current costdetermined on a first-in, first-out (FIFO) basis at December 31, 2022 and 2021, respectively. During the years ended December 31, 2022, 2021, and 2020, $2,810,000, $0,and $2,215,000, respectively, of a LIFO layer was liquidated. The Company uses the LIFO method of inventory accounting to improve the matching of costs andrevenues 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: Increase (Decrease) – (In thousands, except per share data) Year Cost of Sales Net Earnings Earnings Per Share 2022 $4,925 $(3,925) $(0.55)2021 $(9,745) $7,698 $1.09 2020 $(447) $349 $0.05 This information is provided for comparison with companies using the FIFO basis. Inventory for the Defense segment, certain products for the Safety segment, and raw materials and certain prepaid products of the Housewares/Small Appliancesegment are valued under the FIFO method and total $119,144,000 and $108,057,000 at December 31, 2022 and 2021, respectively. At December 31, 2022, the FIFO totalwas comprised of $3,255,000 of finished goods, $105,564,000 of work in process, and $10,324,000 of raw material. At December 31, 2021, the FIFO total was comprised of$4,820,000 of finished goods, $92,437,000 of work in process, and $10,800,000 of raw material. C. ACCRUED LIABILITIES:At December 31, 2022, accrued liabilities consisted of payroll $7,631,000, product liability $5,407,000, payroll taxes $309,000, environmental $921,000, and other$1,640,000. At December 31, 2021, accrued liabilities consisted of payroll $7,515,000, product liability $5,713,000, payroll taxes of $1,191,000, environmental $1,000,000,and other $1,272,000. 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 specifiedthreshold. 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 thereforerecords an accrual for known claims and estimated incurred but unreported claims in the Company’s Consolidated Financial Statements. The Company utilizes historicaltrends 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 theCompany’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, 2022, the Company has authority from the Board of Directors to reacquire an additional 497,581 shares. During 2022, 2021, and 2020, 510, 292, and344 shares, respectively, were acquired from participants in the Company’s Incentive Compensation Plans described in Note F to cover those participants’ taxwithholding obligations related to vested stock grants in accordance with the Plans’ rules. Treasury shares have been used for stock based compensation and to fund aportion 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 pershare 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-11Table of Contents 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 IncentiveCompensation Plan approved by stockholders on May 18, 2010 and the 2017 Incentive Compensation Plan approved by shareholders on May 16, 2017, whichauthorized 50,000 and 150,000 shares, respectively, to be available for grants. The 2017 plan replaced the original 2010 plan, and the shares remaining under the 2010plan are no longer available for grant. The Compensation Committee of the Company’s Board of Directors approves all stock-based compensation awards for employeesand executive officers of the Company. The Company grants restricted stock that is subject to continued employment and vesting conditions, but has dividend andvoting 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 stockis recognized as expense ratably over the requisite service period, net of estimated forfeitures. During 2022, 2021, and 2020, the Company granted 7,271 shares, 9,238 shares, and 7,310 shares of restricted stock, respectively, to 39 employees and executive officers ofthe Company. Unless otherwise vested early in accordance with the Incentive Compensation Plans, the restricted stock vests on specified dates in 2023 through 2028,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 $476,000,$469,000, and $366,000 in 2022, 2021, and 2020, respectively. As of December 31, 2022, there was approximately $1,673,000 of unrecognized compensation cost related tothe restricted stock awards that is expected to be recognized over a weighted-average period of 3.6 years. There were 3,482, 2,981, and 3,193 shares of restricted stockthat vested during 2022, 2021, and 2020, respectively. The following table summarizes the activity for non-vested restricted stock: 2022 2021 2020 Shares WeightedAverage FairValue at GrantDate Shares WeightedAverage FairValue at GrantDate Shares WeightedAverage FairValue at GrantDate Non-vested at beginning of period 28,934 $95.54 22,721 $96.82 18,604 $93.23 Granted 7,271 70.72 9,238 90.01 7,310 89.84 Vested (3,482) 100.05 (2,981) 88.23 (3,193) 59.94 Forfeited (387) 93.91 (44) 88.41 0 - Non-vested at end of period 32,336 $89.49 28,934 $95.54 22,721 $96.82 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% ofsalary contributed by employees to the plan. This matching contribution was made with common stock. Starting in 2004, the Company began to match, in cash, anadditional 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 $1,238,000 in 2022, $1,324,000 in 2021, and $1,249,000 in 2020. In addition, the Company made cash contributionsof $884,000 in 2022, $859,000 in 2021, and $813,000 in 2020 to the 401(k) Plan. The Company also contributed $427,000, $465,000, and $443,000 to the 401(k) retirementplan covering its union employees at the Amron Division of the AMTEC subsidiary during the years ended December 31, 2022, 2021, and 2020, respectively. F-12Table of Contents H. INCOME TAXES:The following table summarizes the provision for income taxes: For Years Ended December 31 (in thousands) 2022 2021 2020 Current: Federal $7,389 $6,675 $12,932 State 167 1,742 1,816 7,556 8,417 14,748 Deferred: Federal (2,157) (819) (1,210)State (154) (793) (508) (2,311) (1,612) (1,718)Total tax provision $5,245 $6,805 $13,030 The effective rate of the provision for income taxes on earnings before income taxes as shown in the Consolidated Statements of Comprehensive Income differs from theapplicable statutory federal income tax rate for the following reasons: Percent of Pre-tax Income 2022 2021 2020 Statutory rate 21.0% 21.0% 21.0%State tax, net of federal benefit 0.0% 2.3% 1.7%Research and development credit (2.1%) (2.0%) (1.0%)Adjustment for prior year estimates 1.2% 0.1% (0.1%)Tax exempt interest and dividends (0.1%) (0.1%) (0.1%)Other 0.2% (0.3%) 0.2%Effective rate 20.2% 21.0% 21.7% 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 reportingpurposes. The tax effects of the cumulative temporary differences resulting in deferred tax assets and liabilities are as follows at December 31: (In thousands) 2022 2021 Deferred tax assets State NOL and tax credit carryforwards $2,336 $2,153 Doubtful accounts 1,933 1,928 Research and development expenses 1,284 - Insurance (primarily product liability) 1,142 1,073 Inventory 1,095 803 Vacation 908 855 Other 1,457 1,502 Subtotal 10,155 8,314 Less: valuation allowance 1,960 1,695 Total deferred tax assets 8,195 6,619 Deferred tax liabilities Goodwill and other intangibles 2,157 1,974 Depreciation 532 - Deferred revenue - 3 Total deferred tax liabilities 2,689 1,977 Net deferred tax assets $5,506 $4,642 Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existingdeferred tax assets. The Company believes it is more likely than not that the benefit from certain state NOL and tax credit carryforwards will not be realized. A significantfactor of objective negative evidence evaluated was the cumulative losses incurred in the Safety segment over the three-year period ended December 31, 2022. Suchobjective evidence limits the ability to consider subjective evidence, such as projections for future growth. On the basis of this evaluation, as of December 31, 2022 and 2021, valuation allowances of $1,960,000 and $1,695,000, respectively, have been provided on the deferredtax assets related to these state NOL and tax credit carryforwards, which will expire between 2034 and 2042. The amount of the deferred tax asset considered realizable,however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form ofcumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth. F-13Table of Contents The Company establishes tax reserves in accordance with FASB ASC 740, Income Taxes. As of December 31, 2022, the carrying amount of the Company’s grossunrecognized tax benefits included in current liabilities for federal and state income taxes was $2,458,000 which, if recognized, would affect the Company’s effectiveincome tax rate. The following is a reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2022 and 2021: (In thousands) 2022 2021 Balance at January 1 $2,375 $2,521 Increases for tax positions taken related to the current year 628 336 Increases for tax positions taken related to prior years 32 30 Lapse of statute of limitations (577) (512)Balance at December 31 $2,458 $2,375 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, 2022, 2021 and2020, the Company accrued approximately $169,000, $169,000 and $142,000 in interest expense, respectively. The Company is subject to U.S. federal income tax as well as income taxes of multiple states. Tax years 2019 through 2021 are currently open for examination. For allstates 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 materialeffect on the Company's consolidated financial position, liquidity, or results of operations. In the state of Mississippi, inventory that is shipped out of state that is held in a licensed Free Port Warehouse is exempt from personal property taxes. One of theCompany's subsidiaries operates in Hinds County, Mississippi. That subsidiary has submitted its Hinds County Free Port Warehouse tax filing for nearly 40 years. Each year, the county then assessed the subsidiary in accordance with the Company's filing. However, in June 2020, the Hinds County tax assessor notified theCompany that the county had no record of a Free Port Warehouse License and issued an assessment totaling $2,506,000, reflecting personal property tax going backseven years. The Company is vigorously fighting the assessment, and does not consider the ultimate payment of the taxes to be probable. Accordingly, as prescribedby ASC 450 - Contingencies, no accrual has been recorded on the Company's consolidated financial statements as of December 31, 2022. J. CONCENTRATIONS:In the Housewares/Small Appliance segment, there were no customer concentrations over 10% for the year ended December 31, 2022. There was one customer thataccounted for 10% of consolidated net sales for the year ended December 31, 2021, while the same customer and another customer accounted for 10% of consolidatednet sales each for the year ended December 31, 2020. 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 Orientbeing disrupted by labor or supply problems at the vendors, or transportation delays. Should such problems or delays materialize, products might not be available insufficient quantities during prime selling periods. The Company has made and will continue to make every reasonable effort to prevent these problems; however, thereis 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 locatedin 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 materialimpact from fluctuations in the exchange rate has been to the cost of products secured via purchase orders issued subsequent to the currency value change. Foreigntransaction 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, thissegment's future business essentially depends on the product needs and governmental funding of the DOD. During 2022, 2021, and 2020, substantially all of the workperformed 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 isawarded based on competition or negotiation at the outset of the contract and therefore, with the exception of limited escalation provisions on specific materials, isgenerally not subject to any adjustments reflecting the actual costs incurred by the contractor. In addition, in the case of the 40mm systems contract, key componentsand 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 isresponsible for the performance of those subcontractors, many of which it does not control. The Defense segment's contracts and subcontracts contain the customaryprovision permitting termination at any time for the convenience of the government, with payment for any work completed, associated profit, and inventory/work inprocess at the time of termination. Materials used in the Defense segment are available from multiple sources. As of December 31, 2022, 192 employees of Amron, or20% 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 iseffective through February 28, 2025. F-14Table of Contents K. ENVIRONMENTALIn May 1986, the Company’s Eau Claire, Wisconsin site was placed on the United States Environmental Protection Agency’s National Priorities List under theComprehensive Environmental Response, Compensation and Liability Act of 1980 because of hazardous waste deposited on the property. As of December 31, 1998, allremediation projects required at the Company's Eau Claire, Wisconsin site had been installed, were fully operational, and restoration activities had been completed. Inaddition, 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 landfillwas closed, elevated volatile organic compounds were discovered in the groundwater. Remediation plans were established, and the costs associated with remediationand monitoring at the landfill are split evenly between the group and the city of Eau Claire. As of December 31, 2022, there does not appear to be exposure related to thissite that would have a material impact on the operations or financial condition of the Company. Based on factors known as of December 31, 2022, it is believed that the Company's existing environmental accrued liability reserve will be adequate to satisfy on-goingremediation operations and monitoring activities both on- and off-site; however, should environmental agencies require additional studies, extended monitoring, orremediation 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 environmentalaccrued liability on an undiscounted basis was $921,000 and $1,000,000 as of December 31, 2022 and 2021, respectively, and is included in accrued liabilities on itsbalance sheet. Expected future payments for environmental matters are as follows: (In thousands) Years Ending December 31: 2023 $190 2024 129 2025 119 2026 108 2027 97 Thereafter 278 $921 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 byprincipal products. The principal product groups are Housewares/Small Appliance, Defense, and Safety. Sales for all segments are primarily to customers in NorthAmerica. The Housewares/Small Appliance segment designs, markets, and distributes housewares and small appliances. The housewares/small appliance products are soldprimarily in the United States and Canada directly to retail outlets and also through independent distributors. As more fully described in Note J, the Company primarilysources its Housewares/Small Appliance products from non-affiliated suppliers located in the Orient. Sales are seasonal, with the normal peak sales period occurring inthe fourth quarter of the year prior to the holiday season. F-15Table of Contents The Defense segment was started in 2001 with the acquisition of AMTEC Corporation, which manufactures precision mechanical and electromechanical assemblies forthe 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 supplyall 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 in2017 and 2022, it was awarded third and fourth five-year contracts, respectively 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 hasadditional facilities located in East Camden, Arkansas; Antigo, Wisconsin; Clear Lake, South Dakota, and Marshall, Texas. During 2003, the segment was expanded withthe acquisition of Spectra Technologies, LLC of East Camden, Arkansas. This facility performs Load, Assemble, and Pack (LAP) operations on ordnance-relatedproducts for the U.S. Government and prime contractors. During 2006, the segment was expanded again with the acquisition of certain assets of Amron, LLC of Antigo,Wisconsin, which primarily manufactures cartridge cases used in medium caliber (20-50mm) ammunition. In 2011 the segment was further augmented with the purchaseof certain assets of ALS Technologies, Inc. of Bull Shoals, Arkansas, which manufactured less lethal ammunitions. The Company subsequently relocated this operationto Perry, Florida, and in October of 2018, divested itself of the less lethal business. During 2014, the Company continued the expansion of the Defense segment with thepurchase 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 TechnicalOrdnance Realty, LLC. The Clear Lake facility manufactures detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials.During 2022, the Company again expanded the Defense segment by acquiring the equity interests of Woodlawn Manufacturing, Ltd. Woodlawn Manufacturing, Ltd, is ahigh volume manufacturer of precision metal parts and assemblies primarily for the defense and aerospace industry. See Note P. The Defense segment’s collection offacilities enables the Company to deliver in virtually all aspects of the manufacture of medium caliber training and tactical rounds. Those aspects include the fuze, thedetonator, the metal parts (including the cartridge case), and load, assemble and pack of the final round. The Safety segment was started in 2019 with the acquisition of OneEvent Technologies, Inc., which focuses on protection for buildings, homes, assets, and occupants. The company is located in Mount Horeb, Wisconsin and was established in 2014. OneEvent's cloud-based learning and analytics engine utilizes a series of sensingdevices integrated with a cellular gateway to predict, alert, and prevent. Sensors measure a variety of environmental data including temperature, smoke, carbonmonoxide, motion, humidity, water, and more. On purchase, it was combined with Rusoh, Inc, which designs and markets fire extinguishers. Previous to 2019, Rusoh,Inc. had been included in the Company's Housewares/Small Appliance segment. On July 29, 2022, certain assets were purchased and certain liabilities were assumed ofKnox Safety, Inc., a company formed in 2019 with operations in Illinois and North Carolina. Knox Safety is a startup company that designs and sells carbon monoxidedetectors for residential use. Subsequent to the acquisition, the company legally adopted the corporate name Rely Innovations, Inc. See Note P. (in thousands) Housewares /Small Appliance Defense Safety Total Year ended December 31, 2022 External net sales $118,347 $202,483 793 $321,623 Gross profit (loss) 17,422 42,638 (4,935) 55,125 Operating profit (loss) 5,262 31,644 (14,779) 22,127 Total assets 211,804 194,422 5,621 411,847 Depreciation and amortization 975 1,613 391 2,979 Capital expenditures 527 393 110 1,030 Year ended December 31, 2021 External net sales $115,924 $239,514 339 $355,777 Gross profit (loss) 9,974 61,205 (6,783) 64,396 Operating profit (loss) (2,631) 51,216 (18,556) 30,029 Total assets 242,456 168,296 9,646 420,398 Depreciation and amortization 1,215 1,530 233 2,978 Capital expenditures 738 1,966 162 2,866 Year ended December 31, 2020 External net sales $117,645 $234,645 337 $352,627 Gross profit (loss) 24,206 62,561 (1,845) 84,922 Operating profit (loss) 10,371 52,810 (6,985) 56,196 Total assets 245,662 164,951 22,557 433,170 Depreciation and amortization 983 1,743 279 3,005 Capital expenditures 828 1,678 115 2,621 In the above summary, operating profit represents earnings before other income, income taxes. The Company's segments operate discretely from each other with noshared owned or leased manufacturing facilities. Costs associated with corporate activities (such as cash and marketable securities management) and the assetsassociated with such activities are included within the Housewares/Small Appliance segment for all periods presented. F-16Table of Contents M. LEASESThe Company accounts for leases under ASC Topic 842, Leases. The Company’s leasing activities include roles as both lessee and lessor. As lessee, the Company’sprimary leasing activities include buildings and structures to support its manufacturing operations at one location in its Defense segment, and warehouse space andequipment to support its distribution center operations in its Housewares/Small Appliances segment. As lessor, the Company’s primary leasing activity is comprised ofmanufacturing 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, theCompany’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 ofinsurance, real estate taxes, and utilities related to the leased space. Generally, all of the Company’s lease contracts provide for options to extend and terminatethem. The majority of lease terms of the Company’s lease contracts recognized on the balance sheet reflect extension options, while none reflect early terminationoptions. The Company has determined that the incremental borrowing rates implicit in its leases are not readily determinable and estimates those rates utilizing quotes fromfinancial 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-termleases as lessee and has elected a non-recognition accounting policy, as permitted by ASC Topic 842. 12 Months Ending 12 Months Ending 12 Months Ending Summary of Lease Cost (in thousands) December 31, 2022 December 31, 2021 December 31, 2020 Operating lease cost $1,079 $938 $729 Short-term and variable lease cost 169 252 452 Total lease cost $1,248 $1,190 $1,181 Rent expense was approximately $1,129,000, $1,076,000, and $1,182,000 for the years ended December 31, 2022, 2021, and 2020, respectively. Operating cash used foroperating leases was $1,248,000, $1,190,000, and $1,181,000 for the years ended December 31, 2022, 2020, and 2019, respectively. The weighted-average remaining leaseterm was 20.6 years, and the weighted-average discount rate was 4.6% as of December 31, 2022. Maturities of operating lease liabilities are as follows: Years ending December 31: (In thousands) 2023 $873 2024 808 2025 796 2026 782 2027 782 Thereafter 13,626 Total lease payments $17,667 Less: future interest expense 6,936 Lease liabilities $10,731 F-17Table of Contents Lease income from operating lease payments was $2,195,000, $1,971,000, $1,967,000 for the years ended December 31, 2022, 2021, and 2020, respectively and is includedin Other income on the Consolidated Statements of Comprehensive Income. Undiscounted cash flows provided by lease payments are expected as follows: Years ending December 31: (In thousands) 2023 $2,055 2024 2,055 2025 2,055 2026 2,055 2027 2,055 Thereafter 10,275 Total lease payments $20,550 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’sability 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 theproperty, 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 2022 and 2021: (In thousands, except per share data) Per Share(basic anddiluted) Quarter Net Sales Gross Profit Net Earnings Net Earnings 2022 First $60,754 $9,711 $2,915 $0.41 Second 77,138 15,038 6,684 0.94 Third 69,683 17,062 8,927 1.26 Fourth 114,048 13,314 2,173 0.31 Total $321,623 $55,125 $20,699 $2.92 2021 First $81,027 $18,361 $8,993 $1.28 Second 87,118 17,675 9,292 1.32 Third 87,225 11,230 4,129 0.58 Fourth 100,407 17,130 3,240 0.45 Total $355,777 $64,396 $25,654 $3.63 Fourth quarter sales are impacted by the holiday driven seasonality of the Housewares/Small Appliance segment. This segment typically orders/purchases inventoryduring the first three quarters to meet the sales demand of the fourth quarter. The Defense and Safety segments are typically non-seasonal. O. LINE OF CREDIT AND COMMERCIAL LETTERS OF CREDIT The Company maintained an unsecured line of credit for short term operating cash needs of $5,000,000 as of December 31, 2022 and 2021. There were no amountsoutstanding under this line of credit, which expires September 30, 2023. The interest rate on the line of credit is reset monthly to the 30-day Secured Overnight FinancingRate (SOFR) plus one half of one percent. In addition, the Company had issued commercial letters of credit totaling $0 and $1,247,000 as of December 31, 2022 and 2021,respectively, primarily related to performance on certain customer contracts. F-18Table of Contents P. BUSINESS ACQUISITIONS On July 29, 2022, the Company’s wholly owned subsidiary, UESCO, Inc., purchased with cash on hand of $3,125,000 certain assets and assumed certain liabilities ofKnox Safety, Inc., a company formed in 2019 with operations in Illinois and North Carolina. In addition, upon closing the Company paid a deposit of $500,000 to a vendorthat had previously been a supplier of Knox Safety. Knox Safety is a startup company that designs and sells carbon monoxide detectors for residential use, theacquisition of which should complement the product lines currently offered by the Company’s Safety segment. Subsequent to the acquisition of Knox Safety,UESCO legally adopted the corporate name Rely Innovations, Inc. The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paidby 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 ofacquisition. 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) Accounts receivable 1,832 Inventories 1,274 Other current assets 7 Property, plant and equipment 868 Intangible assets 290 Right-of-use lease assets 1,126 Total assets acquired 5,397 Less: Current liabilities assumed (776)Less: Lease liability - noncurrent (1,004)Net assets acquired $3,617 F-19Table of Contents The acquired intangibles primarily included trademarks and safety certifications that will be amortized over a period of two years. Due to its startup nature and history ofoperating losses, the acquisition of Knox Safety resulted in a bargain purchase gain of $492,000, which was included with Selling and general expenses in theConsolidated Statements of Comprehensive Income. There was no material tax impact from the acquisition on the Company’s Consolidated Financial Statements. TheCompany’s results of operations for 2022 includes revenue of $265,000 and loss of ($1,546,000) from the acquired facility from the date of acquisition through December31, 2022. On October 26, 2022, the Company’s wholly owned subsidiary, National Defense Corporation, and newly formed subsidiary Woodlawn Manufacturing, LLC, acquiredwith cash on hand of $21,558,000 the equity interests of Woodlawn Manufacturing, Ltd. Woodlawn Manufacturing, Ltd, is a high volume manufacturer of precisionmetal parts and assemblies primarily for the defense and aerospace industry. The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paidby 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 ofacquisition. 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. The fair value estimates are pending completion of several elements, including the finalreview by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, includingchanges to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives,among other adjustments. (in thousands) Accounts receivable 2,136 Inventories 2,309 Other current assets 130 Property, plant and equipment 6,400 Intangible assets 6,058 Goodwill 7,088 Total assets acquired 24,121 Less: Current liabilities assumed (1,084)Less: Deferred tax liability (1,479)Net assets acquired $21,558 The acquired intangible assets primarily include customer contracts and will be amortized over a period of four years. The amount of goodwill recorded reflects expectedearning potential and synergies with other operations in the Defense segment. The recorded goodwill is not deductible for income tax purposes. The Company’sresults of operations for 2022 includes revenue of $3,219,000 and net earnings of $101,000 from the acquired facility from the date of acquisition through December 31,2022. The following pro forma condensed consolidated results of operations has been prepared as if the acquisitions had occurred as of January 1, 2021. (unaudited) (unaudited) (in thousands, exceptper share data) (in thousands, exceptper share data) Year Ended Year Ended 12/31/2022 12/31/2021 Net sales $340,140 $371,058 Net earnings 19,299 24,088 Net earnings per share (basic and diluted) $2.92 $3.63 Weighted average shares outstanding (basic and diluted) 7,081 7,060 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 takenplace 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 thebeginning 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 Companywill experience. Q. OTHERThe Company had entered into a licensing agreement with another firm that holds intellectual property in the Rusoh® self-service/self-reloadable fireextinguisher. Under the agreement, the Company had advanced the entity funds and agreed to pay royalties to the entity on the commercial sales of the developedproducts. The fire extinguisher was introduced to the commercial market in 2017 and the retail market in 2021, and experienced several obstacles in both markets. As thepromisor's ability to pay had been hindered by lack of royalties earned and projected to be earned under the agreement, repayment of the notes was doubtful. Accordingly, the Company fully reserved the notes and accrued interest receivable at December 31, 2021. Notes receivable plus accrued interest of $7,615,000 related tothe license agreement were previously classified as non-current Notes Receivable on the Company’s Consolidated Balance Sheets. The charge related to the impairmentwas included in the Selling and general expenses on the Consolidated Statements of Comprehensive Income for the year ended December 31, 2021. R. SUBSEQUENT EVENTSThe Company evaluates events that occur through the filing date and discloses any material events or transactions. On February 17, 2023, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $3.00, payable on March 15, 2023, toshareholders of record as of March 1, 2023. F-20Table of Contents Reports of Independent Registered Public Accounting Firms To the Shareholders and the Board of Directors of National Presto Industries, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of National Presto Industries, Inc. and its subsidiaries (the Company) as of December 31, 2022 and 2021,the related consolidated statements of comprehensive income, stockholders' equity and cash flows for the periods ended December 31, 2022 and 2021, and the relatednotes to the consolidated financial statements and schedule II (collectively, the financial statements). In our opinion, the financial statements present fairly, in all materialrespects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the periods ended December31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal controlover financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission in 2013, and our report dated March 13, 2023 expressed an unqualified opinion on the effectiveness of the Company'sinternal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statementsbased 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 withU.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 audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks ofmaterial misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide areasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to becommunicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especiallychallenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as awhole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures towhich they relate. Revenue Recognition – Defense Segment Contracts As described in Note A (13) and L to the financial statements, the Company’s external net sales recognized for its Defense segment amounted to $202 million for the yearended December 31, 2022. The Company's contracts in the Defense segment are primarily with the U.S. Department of Defense (DOD) and DOD prime contractors. TheCompany generally recognized revenue on these contracts at a point in time when the customer obtains legal title and formally documents that it has accepted theproducts. There are certain termination clauses in Defense segment contracts that could give rise to an over-time pattern of recognition of revenue in the absence ofalternative use of the product. Significant judgment is required by management to conclude whether or not (i) the Company has an enforceable right to payment for itsperformance to date under the contract and (ii) the asset created by the Company’s performance under the contract has an alternative use to the Company. We identified the determination of whether control in Defense segment sales contracts transfers to the customer at a point in time or over time as a critical audit matterbecause of the significant assumptions and judgments made by management. Auditing management’s assumptions and judgements regarding when control transfersinvolved a high degree of auditor judgment and an increased effort, including the use of specialists. Our audit procedures related to management’s determination of when control transfers to the customer in Defense segment sales contracts included the following,among others: ●We obtained an understanding of the relevant controls related to the timing of revenue recognition on Defense contracts and tested such controls fordesign and operating effectiveness, including management review controls related to the evaluation of relevant contract terms and conditions impactingwhether revenue is recognized over time or at a point in time. ●We assessed the reasonableness of the timing of revenue recognition for a sample of revenue contracts through: -Reviewing contract terms, including evaluating whether the Company has an enforceable right to payment for its performance to date under the contractand whether contractual restrictions prohibit the Company from redirecting a completed asset to another customer. -Evaluating evidence that the assets created by the Company’s performance under the contract have an alternative use by verifying sales of the same orsimilar products to other customers. ●We utilized personnel with specialized knowledge and experience with revenue recognition of government contracts under ASC 606 to assist in theevaluation of management’s assessment of positive and negative evidence and their conclusions of the timing of when control has been transferred to itscustomers under the contract. Acquisition of Woodlawn Manufacturing, Ltd. – Valuation of Customer Relationships As described in Note P to the consolidated financial statements, the Company completed the acquisition of the equity interests of Woodlawn Manufacturing, Ltd.for $21.6 million on October 26, 2022. The Company accounted for this transaction under the acquisition method of accounting for business combinations. TheCompany is in the process of analyzing the estimated values of assets acquired and liabilities assumed, and therefore, the allocation of the purchase price is preliminaryas of December 31, 2022. Accordingly, the preliminary purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values,including identified intangible assets of $6.1 million, which consisted entirely of customer relationships, and resulting goodwill of $7.1 million. To value the identifiedintangible asset, the Company used the income approach, which is a method of using discounted cash flows to value intangibles assets. The process requiresmanagement to make significant assumptions regarding the estimates that would be used by a market participant, which include, forecast of future cash flows and pre-tax income, forecasted revenue growth rates, customer attrition rates, and discount rates. We identified the Company’s preliminary valuation of the customer relationships due to of the acquisition of Woodlawn Manufacturing, Ltd. as a critical audit matter asthere was a high degree of auditor judgment, subjectivity, and audit effort, including the use of our fair value specialist, involved in performing procedures andevaluating audit evidence related to the significant estimates and assumptions utilized by management, including sales, operating margins, attrition rates, growth rates,and discount rates, when calculating the preliminary fair value of the acquired customer relationships. Our audit procedures related to the Company’s preliminary valuation of acquired customer relationships as part of the Woodlawn Manufacturing, Ltd. acquisitionincluded the following, among others: ●We obtained an understanding of the relevant controls related to the preliminary valuation of acquired customer relationships and tested such controls fordesign and operating effectiveness, including management controls related to the development of the significant assumptions including sales, operatingmargins, attrition rates, growth rates, and discount rates. ●We evaluated the reasonableness of management’s sales and operating margin forecasts, attrition rates and growth rates by comparing the projections tohistorical results as well as industry benchmarks, and tested the underlying data for accuracy and completeness. ●With the assistance of our fair value specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptionsby: -Testing the source information underlying the determination of the discount rates and verifying the mathematical accuracy of the calculation. -Developing an analysis of the preliminary discount rates and compared that analysis to the discount rates selected by management. Goodwill and Long-Lived Asset Impairment Assessment – OneEvent Technologies, Inc. As described in Notes A (10) and A (11) to the consolidated financial statements, the Company’s consolidated goodwill and intangible asset balances were $18.6 millionand $6.9 million, respectively as of December 31, 2022. Goodwill, at the reporting unit level, is tested by the Company for impairment at least annually. Definite-livedintangible assets, at the unit of account, are tested by the Company for impairment upon identification of a triggering event that indicates potential impairment. It wasdetermined in the current year that there were indicators of impairment related to the OneEvent Technologies, Inc. (OneEvent) reporting unit and asset group. The fairvalues of the reporting unit for the goodwill impairment assessment and the asset group for the long-lived asset impairment analysis are determined using an incomeapproach, through a discounted cash flow model. The determination of the fair values of the reporting unit and the asset group require management to make significantestimates and assumptions related to the specific circumstances of the reporting unit and asset group such as revenue projections and projected operating cash flowmargins. We identified the OneEvent goodwill and the long-lived asset impairment assessments as a critical audit matter because of the significant assumptions managementused in the impairment assessments. Auditing management’s judgments, used in the impairment assessments, regarding revenue projections and projected operatingcash flow margins involved a high degree of auditor judgment and increased audit effort. Our audit procedures related to the Company’s goodwill and long-lived asset impairment assessments for the OneEvent reporting unit and asset group included thefollowing, among others: ●We obtained an understanding of the relevant controls related to the Company’s goodwill and long-lived asset impairment assessments and tested suchcontrols for design and operating effectiveness, including management controls related to revenue and operating cash flow margin projections. ●We evaluated the reasonableness of management’s revenue and operating cash flow projections by comparing them to actual results and historical trends. ●We utilized personnel with specialized knowledge and experience with impairment of goodwill and intangible assets to assist in the evaluation ofmanagement’s assessment. /s/ RSM US LLP We have served as the Company's auditor since 2021. Milwaukee, Wisconsin March 13, 2023 F-21 Report of Independent Registered Public Accounting FirmShareholders and Board of DirectorsNational Presto Industries, Inc.Eau Claire, Wisconsin Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of comprehensive income, stockholders’ equity, and cash flows of National Presto Industries, Inc. (the“Company”) for the year ended December 31, 2020, and the related notes and schedule listed in Item 15 (collectively referred to as the “consolidated financialstatements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and cash flows for theyear ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. 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’sconsolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (“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 theSecurities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in theconsolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, LLP We served as the Company's auditor from 2007 to 2021. Milwaukee, WisconsinMarch 16, 2021F-22Table of Contents NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2022, 2021 and 2020 (In thousands) Column A Column B Column C Column D Column E Description Balance atBeginning ofPeriod Additions -Charged toCosts andExpenses (A) Additions -Charged toOther Accounts(B) Deductions (C) Balance at Endof Period Deducted from assets: Allowance for doubtful accounts: Year ended December 31, 2022 $338 $- $- $- $338 Year ended December 31, 2021 $312 $50 $- $24 $338 Year ended December 31, 2020 $450 $- $- $138 $312 Allowance for doubtful note receivable: Year ended December 31, 2022 $7,615 $- $- $- $7,615 Year ended December 31, 2021 $- $7,615 $- $- $7,615 Year ended December 31, 2020 $- $- $- $- $- Valuation allowance for deferred tax assets: Year ended December 31, 2022 $1,695 $265 $- $- $1,960 Year ended December 31, 2021 $520 $1,175 $- $- $1,695 Year ended December 31, 2020 $- $520 $- $- $520 Notes: (A) Amounts charged to selling and general expenses or provision for income taxes from continuing operations.(B) Amounts charged to other accounts. (C) Principally bad debts written off, net of recoveries.F-23

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