1
Page 1 of 36 Total Pages
Index to Schedules and
Exhibits are at Page 15 and 16
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-2451
NATIONAL PRESTO INDUSTRIES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0494170
------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number
3925 NORTH HASTINGS WAY
-----------------------
EAU CLAIRE, WISCONSIN 54703-3703
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
-------------------------------------------------------
Registrant's telephone number, including area code: (715) 839-2121
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
$1.00 par value common stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___X___ No _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to the Form 10-K. ___X___
The aggregate market value of the voting stock held by non-affiliates of the
registrant computed by reference to the price at which the stock was sold, as of
February 28, 2002, was $183,155,418.
The number of shares outstanding of each of the registrant's classes of common
stock, as of February 28, 2002, was 6,836,588.
2
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into that part of this
Form 10-K designated to the right of the document title.
TITLE PART
----- ----
Proxy Statement dated April 5, 2002 Part III
Except as specifically incorporated herein by reference, the foregoing Proxy
Statement is not deemed filed as part of this report.
3
PART I
ITEM 1. BUSINESS
A. DESCRIPTION OF BUSINESS
The business of National Presto Industries, Inc., and its
consolidated subsidiaries (the "Company") consists of two business
segments. The Housewares/Small Appliance segment manufactures and
distributes small electrical appliances and housewares, including
comfort appliances, pressure cookers and canners, and kitchen
electrics. The Defense Products segment manufactures precision
mechanical, electromechanical and electronic assembly components for
the U.S. government and sub-contractors.
1. HOUSEWARES/SMALL APPLIANCE SEGMENT
Electrical appliances and housewares sold by the Company include
pressure cookers and canners; the Presto Control Master(R) heat
control single thermostatic control line of fry pans in several
sizes, griddles and combination griddle/warmers and multi-purpose
cookers; deep fryers of various sizes; pizza ovens, can openers,
slicer/shredders; electric heaters; corn poppers (hot air and
microwave); microwave bacon cookers; coffeemakers; electric grills;
electric tea kettles; electric knives; bread slicing systems;
electric knife sharpeners; and timers.
Pressure cookers and canners are available in various sizes and are
fabricated of aluminum and, in the case of cookers, of stainless
steel, as well. The Company believes it is one of the principal
manufacturers of pressure cookers in the United States.
For the year ended December 31, 2001, approximately 53% of
consolidated net sales were provided by cast products (fry pans,
griddles, grills, deep fryers and multi- cookers), approximately 5%
by motorized nonthermal appliances (can openers, slicer/shredders,
knife sharpeners, electric knives, and bread slicing systems), and
approximately 31% by noncast/thermal appliances (stamped cookers and
canners, stainless steel cookers, pizza ovens, corn poppers [hot air
and microwave], coffeemakers, microwave bacon cookers, tea kettles,
and heaters). For the year ended December 31, 2000, approximately
58% of consolidated net sales were provided by cast products,
approximately 6% by motorized nonthermal appliances and
approximately 32% by noncast/thermal appliances. For the year ended
December 31, 1999, approximately 61% of consolidated net sales were
provided by cast products, approximately 9% by motorized nonthermal
appliances and approximately 26% by noncast/thermal appliances.
For the year ended December 31, 2001, Wal-Mart Stores, Inc.
accounted for 37% and Costco Companies accounted for 11% of
consolidated net sales. Wal-Mart Stores, Inc., accounted for 41% and
Target, Inc. accounted for 11% of consolidated net sales in 2000.
Wal-Mart Stores, Inc. accounted for 45% and Target, Inc. accounted
for 12% of consolidated net sales for the year ended December 31,
1999.
4
Products are sold directly to retailers throughout the United States
and also through independent distributors. Although the Company has
long established relationships with many of its customers, it does
not have long-term supply contracts with them. The loss of, or
material reduction in, business from any of the Company's major
customers could adversely affect the Company's business (see
Footnote J in the Notes to Consolidated Financial Statements).
The Company has a sales force of approximately ten employees that
sell to and service customers. In selected geographic areas sales
are handled by manufacturers' representatives who may also sell
other product lines. Sales promotional activities are conducted
through the use of television, radio and newspaper advertising. The
Company's business is highly competitive and seasonal, with the
normal peak sales period occurring in the fourth quarter of the year
prior to the holiday season. Many companies compete for sales of
housewares and small electrical appliances, some of which are larger
than the Company and others which are smaller. Product competition
extends to special product features, product pricing, marketing
programs, warranty provisions, service policies and other factors.
New product introductions are an important part of the Company's
sales to offset the morbidity rate of other products and/or the
effect of lowered acceptance of seasonal products due to weather
conditions. New products entail unusual risks. Engineering and
tooling costs are increasingly expensive, as are components and
finished goods that may not have a ready market or achieve
widespread consumer acceptance. High-cost advertising commitments
accompanying such new products or to maintain sales of existing
products may not be fully absorbed by ultimate product sales.
Initial production schedules, set in advance of introduction, carry
the possibility of excess unsold inventories. New product
introductions are further subject to delivery delays from supply
sources, which can impact availability for the Company's most active
selling periods.
Research and development costs related to new product development
for the years 2001, 2000 and 1999 were absorbed in operations of
these years and were not a material element in the aggregate costs
incurred by the Company.
Company products are generally warranted to the original owner to be
free from defects in material and workmanship for a period of two
years from date of purchase. The Company allows a sixty-day
over-the-counter initial return privilege through cooperating
dealers. The Company services its products through independent
service providers throughout the United States and a corporate
service repair operation. The Company's service and warranty
programs are competitive with those offered by other manufacturers
in the industry.
The Company's products are manufactured in plants located at
Jackson, Mississippi and Alamogordo, New Mexico. The Company also
purchased a portion (13% in 2001) of its products from nonaffiliated
companies in the Pacific Rim Countries. The Company plans to
outsource all of its products by the end of 2002 (see Footnote M in
the Notes to Consolidated Financial Statements).
The Company warehouses and distributes its products from a
distribution center located in Canton, Mississippi. Selective use is
made of leased tractors and trailers with back- hauls scheduled on
return trips carrying goods consigned for internal corporate use.
5
The Company invests funds not currently required for business
activities (see Footnote A (3) in the Notes to Consolidated
Financial Statements). Income from invested funds is included in
Other Income in the accompanying financial statements.
Earnings from investments may vary significantly from year to year
depending on interest yields on instruments meeting the Company's
investment criteria, and the extent to which funds may be needed for
internal growth, reacquisition of Company stock, acquisitions and
newly identified business activities.
2. DEFENSE PRODUCTS SEGMENT
The defense products segment (AMTEC Corporation) was acquired on
February 24, 2001; accordingly, net sales for this segment
represents approximately ten months of activity. AMTEC manufactures
precision mechanical, electromechanical and electronic assembly
components for the U.S. government and sub-contractors. The Company
believes that AMTEC has significant growth potential, which will
come from two primary sources, new defense contracts and additional
acquisitions that can be rolled up into AMTEC's operations.
B. OTHER COMMENTS
1. Sources and Availability of Materials
See Footnote J in the Notes to the Consolidated Financial
Statements.
2. Trademarks, Licenses, Franchises and Concessions Held
In recent years, patents on new products have become more meaningful
to operating results. Trademarks and know-how are considered
significant. The Company's current and future success depends upon
judicial protection of its intellectual property rights (patents,
trademarks and trade dress). Removal of that protection would expose
the Company to competitors who seek to take advantage of the
Company's innovations and proprietary rights. To date, the Company
has vigorously protected its rights and enjoyed success in all its
intellectual property suits.
3. Effects of Compliance with Environmental and OSHA
Regulations
In May 1986, the Company's Eau Claire, Wisconsin, site was placed on
the United States Environmental Protection Agency's (EPA) National
Priorities List (NPL) under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) because of
alleged hazardous waste deposited on the property. During July 1986,
the Company entered into an agreement with the EPA and the Wisconsin
Department of Natural Resources to conduct a remedial investigation
and feasibility study at the site. The remedial investigation was
completed in 1992, the feasibility study in 1994, and in May 1996
the final record of decision (ROD) was issued for the site by the
EPA. At year end 2001, all remediation projects at the Eau Claire,
Wisconsin, site had been installed, were fully operational, and
restoration activities had been completed.
6
In February 1988, the Company entered into an agreement with the
Department of the Army (the 1988 agreement), pursuant to which the
Army agreed to fund environmental restoration activities related to
the site. As a result of the 1988 Agreement, a total of $27,000,000
has been appropriated and spent for environmental matters. Based on
factors known as of December 31, 2001, it is believed that the
Company's existing environmental accrued liability reserve will be
adequate to satisfy on-going remediation operations and monitoring
activities; however, should environmental agencies require
additional studies or remediation projects, it is possible the
existing accrual could be inadequate.
Management believes that in the absence of any unforeseen future
developments, known environmental matters will not have any material
effect on the results of operations or financial condition of the
Company.
4. Number of Employees of the Company
As of December 31, 2001, the Company had 846 employees.
5. Industry Practices Related to Working Capital Requirements
The major portion of the Company's sales were made with terms of 90
days or shorter.
Inventory levels increase in advance of the selling period for
products that are seasonal, such as pressure canners, heaters, and
major new product introductions. Inventory build-up also occurs to
create stock levels required to support the higher sales that occur
in the latter half of each year. Buying practices of the Company's
customers require "just-in-time" delivery, necessitating that the
Company carry large finished goods inventories. The Company
purchases components and raw materials in advance of production
requirements where such purchases are necessary to ensure supply or
provide advantageous long-term pricing and/or costing.
6. Backlog
Shipment of most of the Company's products occurs within a
relatively short time after receipt of the order and, therefore,
there is usually no substantial order backlog. New product
introductions may result in order backlogs that vary from product to
product and as to timing of introduction.
C. PLANT CLOSINGS
See Footnote M in the Notes to the Consolidated Financial
Statements.
D. 2001 ACQUISITIONS
See Footnote L in the Notes to the Consolidated Financial
Statements.
7
ITEM 2. PROPERTIES (Owned Except Where Indicated)
The Company's Eau Claire facility is approximately 560,000 square feet.
Presto Absorbent Products, Inc. utilizes 59,000 square feet of this
area. Leases for 135,000 square feet of this area have been entered
into with outside tenants. The Company's corporate office is also
located in Eau Claire.
The Company also has manufacturing facilities in Jackson, Mississippi,
Alamogordo, New Mexico and Janesville, Wisconsin. The Jackson and
Alamogordo plants are scheduled to be closed as the Company is planning
to outsource all of its housewares/small appliances by year end (see
Note M in the Notes to the Consolidated Financial Statements).
The Jackson plant contains 283,000 square feet, of which 119,600 square
feet are used for warehousing.
The facility at Alamogordo contains 170,700 square feet, of which
24,800 square feet are used for warehousing. An additional 15,500
square feet has been leased for warehousing.
The Janesville facility contains 23,000 square feet and is leased.
During the year, an additional 17,500 square foot building adjacent to
the plant was leased for expansion.
The Company has a 191,900 square foot building at Canton, Mississippi
which is used primarily for warehousing and distribution and some
activities for product service functions. An additional 72,200 square
feet has been leased in adjacent buildings for warehousing. During the
peak season, an additional 110,000 square feet has been leased.
ITEM 3. LEGAL PROCEEDINGS
See Footnote I in the Notes to the Consolidated Financial Statements.
See Item 1.B.3. For information regarding certain environmental
matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided with regard to the executive officers of
the registrant: (All terms of office are for one year or until their respective
successors are duly elected.)
NAME TITLE AGE
------------------ ------------------------------ -------
Melvin S. Cohen Chairman, Emeritus 84
Maryjo Cohen Chair of the Board, President 49
and Chief Executive Officer
James F. Bartl Executive Vice President 61
and Secretary
Richard F. Anderl Vice President, Engineering 58
Neil L. Brown Vice President, Manufacturing 58
Larry R. Hoepner Vice President, Purchasing 60
Donald E. Hoeschen Vice President, Sales 54
Randy F. Lieble Chief Financial Officer 48
and Treasurer
Mr. Cohen became Chairman, Emeritus on January 1, 2002. Prior to that
date he was Chairman of the Board, a position he was elected to in May
1975. Prior to that date he was President, a position that he again
held from November 1986 to May 1989. Mr. Cohen is the father of Maryjo
Cohen and has been associated with the registrant since 1944.
Ms. Cohen became Chair of the Board on January 1, 2002. Prior to that
date she had been elected Treasurer in September 1983, to the
additional positions of Vice President in May 1986, President in May
1989 and Chief Executive Officer in May 1994. She has been associated
with the registrant since 1976. Prior to becoming an officer, she was
Associate Resident Counsel and Assistant to the Treasurer. Ms. Cohen is
the daughter of Melvin S. Cohen.
Mr. Bartl was elected Secretary in May 1978 and the additional position
of Executive Vice President in November 1998. He has been associated
with the registrant since 1969. Prior to becoming an officer, he was
Resident Counsel and Director of Industrial Relations, positions he
continues to hold.
Mr. Anderl was elected Vice President in May 1989. He has been
associated with the registrant since 1963 and prior to becoming an
officer, he was Director of Engineering.
9
Mr. Brown was elected Vice President in November 1997. He has been
associated with the registrant since 1966. Prior to becoming an
officer, he was Director of Manufacturing.
Mr. Hoepner was elected Vice President in November 1998. He has been
associated with the registrant since 1966. Prior to becoming an
officer, he was Director of Purchasing.
Mr. Hoeschen was elected Vice President in May 1997. He has been
associated with the registrant since 1971. Prior to becoming an
officer, he was Director of Sales.
Mr. Lieble was elected Treasurer in November 1995 and the additional
position of Chief Financial Officer in November 1999. He has been
associated with the registrant since 1977. Prior to becoming an
officer, he was Manager of Investments and Government Contracts.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
RECORD OF DIVIDENDS PAID AND MARKET PRICE OF COMMON STOCK
2001 2000
------------------------------------- ---------------------------------------
Applicable Market Price Applicable Market Price
Dividends Paid --------------------- Dividends Paid ---------------------
per Share High Low per Share High Low
------------ -------- -------- -------------- -------- --------
First Quarter $ 2.00 $ 34.30 $ 29.60 $ 2.10 $ 35.81 $ 31.00
Second Quarter -- 30.40 26.30 -- 35.19 29.56
Third Quarter -- 29.97 25.80 -- 31.19 29.63
Fourth Quarter -- 29.10 26.42 -- 32.00 29.06
------------------------------------- ---------------------------------------
Full Year $ 2.00 $ 34.30 $ 25.80 $ 2.10 $ 35.81 $ 29.06
Common stock of National Presto Industries, Inc., is traded on the New
York Stock Exchange under the symbol NPK. As of December 31, 2001, there were
681 stockholders of record. There were 678 stockholders of record as of February
28, 2002, the latest practicable date.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data)
For the years ended December 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross sales $ 119,757 $ 119,604 $ 116,405 $ 108,625 $ 111,037
Net earnings 6,286* 15,158 20,822 19,733 16,982
Net earnings per share 0.92 2.16 2.84 2.68 2.31
Total assets 284,900 288,707 299,393 294,762 291,870
Dividends paid per common share
applicable to current year 2.00 2.10 2.00 2.00 2.00
* Note: Net earnings for 2001 includes after tax charges relating to
plant closings of $4,771,000
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed herein and in the notes to consolidated financial
statements, among the other factors that could cause actual results to differ
materially are the following: consumer spending and debt levels; interest rates;
continuity of relationships with and purchases by major customers; product mix;
the benefit and risk of business acquisitions; competitive pressure on sales and
pricing; increases in material or production cost which cannot be recouped in
product pricing, and the impact of closing certain U.S. production facilities.
Additional information concerning those and other factors is contained in the
Company's Securities and Exchange Commission filings, including but not limited
to the Form 10-K, copies of which are available from the Company without charge.
2001 COMPARED TO 2000
Net sales increased by $153,000 from $119,604,000 to $119,757,000 or .1%. This
slight increase was primarily attributable to incremental sales of $6,999,000
associated with the 2001 AMTEC (defense) acquisition, offset by the shipment of
fewer units of housewares/small appliances at reduced prices.
Gross profit for 2001 decreased $10,309,000 from $35,680,000 to $25,371,000 or
30% versus 21% as a percentage of net sales. Gross profit contribution by the
defense segment was $1,767,000 or 25%. The reduction of gross profit percentage
was primarily due to the reduced prices demanded by housewares/small appliance
retailers and the inability to pass on the Company's increased manufacturing
costs for these goods. It is not anticipated that product pricing will increase
- further decreases are possible. The decision to outsource housewares/small
appliances (see Note M) is expected to ultimately decrease manufacturing costs.
However, those decreases are not expected to be realized until at least 2003,
given the need to continue domestic production at reduced rates (and hence
reduced burden absorption) while the new sources tool, manufacture and ship
product. Additional inventory may need to be carried to assure that customer
requirements are met.
Selling and general expenses decreased $6,252,000 largely due to decreased
advertising expenses. This decrease was primarily due to reduced television
advertisement of the Presto Pizzazz(TM) pizza oven which was introduced in 2000.
As a percentage of net sales, selling and general expenses decreased from 22% to
17%. Selling and general expense for defense was $520,000.
The fiscal 2001 fourth quarter includes a $7,653,000 charge related to closing
the Company's manufacturing operations in Jackson, Mississippi and Alamogordo,
New Mexico, and transferring all production of PRESTO brand housewares/small
appliances to manufacturers in the Pacific Rim.
Other income, principally interest, decreased $2,363,000 from $10,328,000 to
$7,965,000. The average daily investment decreased from $209,736,000 to
$197,719,000 primarily as a result of business acquisitions and the purchase of
treasury stock.
12
Earnings before provision for income taxes decreased $13,193,000 from
$19,328,000 to $6,135,000. The provision for income taxes decreased from
$4,170,000 to a benefit of $151,000, which resulted in an effective income tax
rate decrease from 22% to a tax benefit of 3%, as a result of decreased earnings
subject to tax. Net earnings decreased $8,872,000 from $15,158,000 to
$6,286,000, or 59%.
2000 COMPARED TO 1999
Net sales increased by $3,199,000 from $116,405,000 to $119,604,000 or 3%. The
increase was due primarily to the sale of new products offset in part by
decreased unit volume.
Gross profit for 2000 decreased $1,151,000 from $36,831,000 to $35,680,000 or
30% versus 32% as a percentage of net sales. The reduction of gross profit
percentage was largely caused by less favorable manufacturing efficiencies at
the Company's manufacturing facilities.
Selling and general expenses increased $9,613,000 largely due to increased
advertising expenses related to the introduction of the Pizzaz(R) pizza oven. As
a percentage of net sales, selling and general expenses increased from 15% to
22%.
Earnings before provision for income taxes decreased $9,849,000 from $29,177,000
to $19,328,000. The provision for income taxes decreased from $8,355,000 to
$4,170,000, which resulted in an effective income tax rate decrease from 29% to
22%, as a result of decreased earnings subject to tax. Net earnings decreased
$5,664,000 from $20,822,000 to $15,158,000, or 27%.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $12,803,000 to $207,856,000 at December 31, 2001.
The Company's current ratio was 5.3 to 1.0 at fiscal 2001 year-end, compared to
6.1 to 1.0 at the end of fiscal 2000. The decrease is primarily due to business
acquisitions (see Note L), the repurchase of treasury stock, and the payment of
dividends in excess of current year earnings. In 2000, the Company introduced
its Presto Pizzazz(R) pizza oven. The Company experienced disappointing sales of
this product in 2000 which accounted for lower than normal accounts receivable
and higher than normal finished goods inventory. During 2001, sales of the oven
occurred primarily in the fourth quarter at reduced prices in selected test
markets supported by new television commercials. Given the success of this
program, the Company plans to expand it in 2002. Although advertising
expenditures will increase in 2002 to support the pizza oven program, overall
the program is not expected to have a material impact on the Company's
consolidated financial statements.
The Company expects to continue to evaluate acquisition opportunities that align
with its business segments and will make further acquisitions or capital
investments in these segments if the appropriate return on investment for the
associated risk is projected.
In connection with the plant closing discussed above, the Company expects to
make further investments in tooling and incur other costs to initiate the
outsourced manufacturing of products for the housewares/small appliance segment
during 2002.
The Company has substantial liquidity in the form of cash and marketable
securities to meet all of its anticipated capital requirements, to make dividend
payments, and to fund growth through acquisitions and other means. Further, it
has the ability to fund losses, should they occur, in connection with the
transition to outsourced foreign manufacturing of products for the
housewares/small appliance segment. As of December 31, 2001 there were no
material capital commitments outstanding.
13
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest income on cash equivalents and investments is affected by
changes in interest rates in the United States. The Company's investments are
held primarily in municipal bonds, a majority of which earn a fixed rate of
interest, while the remaining bonds earn a variable interest rate. The Company
uses sensitivity analysis to determine its exposure to changes in interest
rates. Through December 31, 2001, changes in these rates have not had a material
effect on the Company, and the Company does not anticipate that future exposure
to interest rate market risk will be material.
The Company has no history of, and does not anticipate in the future, investing
in derivative financial instruments. Most transactions with international
customers are entered into in U.S. dollars, precluding the need for foreign
currency hedges. Any transactions that are currently entered into in foreign
currency are not deemed material to the financial statements. Thus, the exposure
to foreign exchange market risk is not material.
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
Certified Public Accountants are contained on pages F-1 through F-15
of this report.
B. Quarterly financial data is contained in Note P in Notes to
Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A listing of the Executive Officers of the Registrant is included in
Part I. See Note following Item 13 for information relating to
Directors of the Company.
ITEM 11. EXECUTIVE COMPENSATION
See Note following Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
See Note following Item 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note following.
NOTE: Within 120 days after the close of the registrant's fiscal year ended
December 31, 2001, the registrant intends to file a definitive proxy statement
pursuant to regulation 14A. Pursuant to the Rules and Regulations of the
Securities Exchange Act of 1934, the information required for Items 10, 11, 12
and 13 has been omitted and is incorporated herein by reference from the Proxy.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following consolidated financial statements of National Presto
Industries, Inc., and its subsidiaries and the related Report of
Independent Certified Public Accountants are included in this
report:
Form 10-K
Page Reference
--------------
1. Consolidated Balance Sheets - December 31, 2001
and 2000 F-1 & F-2
2. Consolidated Statements of Earnings -
Years ended December 31, 2001, 2000 and 1999 F-3
3. Consolidated Statements of Cash Flows -
Years ended December 31, 2001, 2000 and 1999 F-4
4. Consolidated Statements of Stockholders' Equity -
Years ended December 31, 2001, 2000 and 1999 F-5
5. Notes to Consolidated Financial Statements F-6 thru F-14
6. Report of Independent Certified Public Accountants F-15
B. The following Schedules and Exhibits are included in this report:
Schedule II - Valuation and Qualifying Accounts F-16
Exhibit 3 (i) - Restated Articles of Incorporation -
incorporated by reference from
Exhibit 3 (i) of the Company's
quarterly report on Form 10-Q for
the quarter ended July 6, 1997
(ii) - By-Laws - incorporated by reference
from Exhibit 3 (ii) of the Company's
quarterly report on Form 10-Q for
the quarter ended October 3, 1999
Exhibit 9 - Voting Trust Agreement -
incorporated by reference from
Exhibit 9 of the Company's quarterly
report on Form 10-Q for the quarter
ended July 6, 1997
Exhibit 10.1 - 1988 Stock Option Plan -
incorporated by reference from
Exhibit 10.1 of the Company's
quarterly report on Form 10-Q for
the Quarter ended July 6, 1997
16
Exhibit 10.2 - Form of Incentive Stock Option
Agreement under the 1988 Stock
Option Plan - Incorporated by
reference from Exhibit 10.2 of the
Company's quarterly report on Form
10-Q for the Quarter ended July 6,
1997
Exhibit 11 - Statement Re Computaton of Per Share
Earnings F-17
Exhibit 21 - Parent and Subsidiaries F-18
Exhibit 23.1 - Consent of Grant Thornton LLP F-19
All other Schedules and Exhibits for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted. Columns omitted from
schedules filed have been omitted because the information is not
applicable.
C. Reports on Form 8-K:
On November 30, 2001 a Form 8-K was filed for Item 9 - Regulation FD
Disclosure.
17
SIGNATURE
Pursuant to the Requirements of Section 13 or 14(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL PRESTO INDUSTRIES, INC.
--------------------------------
(registrant)
By: /S/ Randy F. Lieble
-------------------------------------
Randy F. Lieble
Chief Financial Officer
and Treasurer
(Principal Accounting Officer)
By: /S/ Richard N. Cardozo By: /S/ Melvin S. Cohen
-------------------------------- -------------------------------------
Richard N. Cardozo Melvin S. Cohen
Director Director
By: /S/ Patrick J. Quinn By: /S/ James F. Bartl
-------------------------------- -------------------------------------
Patrick J. Quinn James F. Bartl
Director Executive Vice President,
Secretary and Director
By: /S/ Michael J. O'Meara By: /S/ Maryjo Cohen
-------------------------------- -------------------------------------
Michael J. O'Meara Maryjo Cohen
Director Chair of the Board, President,
Chief Executive Officer and Director
Date: March 22, 2002
---------------------
F-1
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83,877 $ 75,246
Marketable securities 106,992 147,583
Accounts receivable $ 31,674 $ 10,473
Less allowance for doubtful accounts 480 31,194 450 10,023
----------- -----------
Inventories:
Finished goods 19,505 21,056
Work in process 5,349 2,416
Raw materials 8,262 6,968
Supplies 881 33,997 867 31,307
----------- -----------
Prepaid expenses 93 47
----------- -----------
Total current assets 256,153 264,206
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 212 212
Buildings 8,369 8,052
Machinery and equipment 10,747 18,014
----------- -----------
19,328 26,278
Less allowance for depreciation 7,483 11,845 12,984 13,294
----------- -----------
OTHER ASSETS 16,902 11,207
----------- -----------
$284,900 $288,707
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-2
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 18,194 $ 16,014
Federal and state income taxes 3,055 3,108
Accrued liabilities 27,048 24,425
----------- -----------
Total current liabilities 48,297 43,547
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized: 12,000,000 shares
Issued: 7,440,518 shares $ 7,441 $ 7,441
Paid-in capital 1,011 1,027
Retained earnings 246,913 254,381
----------- -----------
255,365 262,849
Treasury stock, at cost, 603,654 shares
in 2001 and 562,798 shares in 2000 18,762 17,689
----------- -----------
Total stockholders' equity 236,603 245,160
----------- -----------
$284,900 $288,707
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-3
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
For the years ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------------------------------
Net sales $ 119,757 $ 119,604 $ 116,405
Cost of sales 94,386 83,924 79,574
-------------------------------------------
Gross profit 25,371 35,680 36,831
Selling and general expenses 20,428 26,680 17,067
Plant closing costs 6,773 -- --
-------------------------------------------
Operating profit (loss) (1,830) 9,000 19,764
Other income, principally interest 7,965 10,328 9,413
-------------------------------------------
Earnings before provision for income taxes 6,135 19,328 29,177
Provision (benefit) for income taxes (151) 4,170 8,355
-------------------------------------------
Net earnings $ 6,286 $ 15,158 $ 20,822
===========================================
Weighted average shares outstanding:
Basic 6,856 7,014 7,343
===========================================
Diluted 6,857 7,015 7,344
===========================================
Net earnings per share:
Basic $ 0.92 $ 2.16 $ 2.84
===========================================
Diluted $ 0.92 $ 2.16 $ 2.84
===========================================
The accompanying notes are an integral part of the financial statements.
F-4
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the years ended December 31, 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 6,286 $ 15,158 $ 20,822
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for depreciation 3,436 2,786 2,296
Deferred income taxes (2,343) 198 202
Plant closing and asset impairment charges 7,653 -- --
Other 212 209 187
Changes in:
Accounts receivable (18,887) 9,993 (4,176)
Inventories 605 (13,980) (1,354)
Prepaid expenses 67 25 185
Accounts payable and accrued liabilities (2,619) 2,442 3,856
Federal and state income taxes (53) (2,956) (152)
--------------------------------------------
Net cash provided by (used in) operating activities (5,643) 13,875 21,866
--------------------------------------------
Cash flows from investing activities:
Marketable securities purchased (63,553) (55,125) (92,665)
Marketable securities - maturities and sales 104,144 57,997 68,876
Acquisition of property, plant and equipment (2,038) (3,843) (4,151)
Acquisition of businesses (3,593) -- --
Other (388) (194) (334)
--------------------------------------------
Net cash provided by (used in) investing activities 34,572 (1,165) (28,274)
--------------------------------------------
Cash flows from financing activities:
Dividends paid (13,754) (14,995) (14,719)
Payment of debt acquired in acquisition (5,243) -- --
Purchase of treasury stock (1,301) (10,544) (5,363)
--------------------------------------------
Net cash used in financing activities (20,298) (25,539) (20,082)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 8,631 (12,829) (26,490)
Cash and cash equivalents at beginning of year 75,246 88,075 114,565
--------------------------------------------
Cash and cash equivalents at end of year $ 83,877 $ 75,246 $ 88,075
============================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 2,423 $ 6,930 $ 8,305
============================================
The accompanying notes are an integral part of the financial statements.
F-5
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share and per share data)
For the years ended December 31, 2001, 2000, 1999
--------------------------------------------------------------------------------------------------------------------------
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
----- ------- -------- ----- -----
Balance January 1, 1999 $ 7,441 $ 990 $ 248,115 $ (2,141) $ 254,405
Net earnings -- -- 20,822 -- $ 20,822
Dividends paid, $2.00 per share -- -- (14,719) -- $ (14,719)
Purchase of treasury stock - 155,000 shares -- -- -- (5,363) $ (5,363)
Other -- 43 -- 144 $ 187
---------------------------------------------------------------------------
Balance December 31, 1999 7,441 1,033 254,218 (7,360) 255,332
Net earnings -- -- 15,158 -- 15,158
Dividends paid, $2.10 per share -- -- (14,995) -- (14,995)
Purchase of treasury stock - 338,600 shares -- -- -- (10,544) (10,544)
Other -- (6) -- 215 209
---------------------------------------------------------------------------
Balance December 31, 2000 7,441 1,027 254,381 (17,689) 245,160
Net earnings -- -- 6,286 -- 6,286
Dividends paid, $2.00 per share -- -- (13,754) -- (13,754)
Purchase of treasury stock - 48,200 shares -- -- -- (1,301) (1,301)
Other -- (16) -- 228 212
---------------------------------------------------------------------------
Balance December 31, 2001 $ 7,441 $ 1,011 $ 246,913 $ (18,762) $ 236,603
===========================================================================
F-6
NATIONAL PRESTO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: In
preparation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United
States, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and related
revenues and expenses. Actual results could differ from the estimates
used by management.
(2) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of National Presto Industries, Inc. and its
subsidiaries, all of which are wholly-owned. All material intercompany
accounts and transactions are eliminated.
(3) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES: The Company
considers all highly liquid marketable securities with an original
maturity of one week or less to be cash equivalents. Cash equivalent
securities totaled $83,632,000 and $75,853,000 at December 31, 2001
and 2000. The Company's cash equivalents and marketable securities are
diversely invested, principally in A-rated or higher tax exempt bonds
issued by governmental entities throughout the United States.
The Company has classified all cash equivalents and marketable
securities as available for sale which requires the securities to be
reported at fair value, with unrealized gains and losses reported as a
separate component of stockholders' equity. At December 31, 2001 and
2000, cost approximated market value for all securities using the
specific identification method. The contractual maturities of the
marketable securities held at December 31, 2001 were $53,942,000 in
2002, $18,031,000 in 2003, $7,762,000 in 2004, $25,866,000 beyond 2004
and $1,391,000 with indeterminate maturities.
(4) INVENTORIES: Inventories are stated at the lower of cost or market
with cost being determined principally on the last-in, first-out
(LIFO) method.
(5) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are
stated at cost. For machinery and equipment, all amounts which are
fully depreciated have been eliminated from both the asset and
allowance accounts. Depreciation is provided in amounts sufficient to
relate the costs of depreciable assets to operations over their
service lives which are estimated at fifteen to forty years for
buildings and three to seven years for machinery and equipment.
(6) REVENUE RECOGNITION: The Company recognizes revenue when product is
shipped. The Company provides for its 60-day over-the-counter return
privilege and warranties at the time of shipment for housewares/small
appliance sales. Early payment discounts are deducted in arriving at
net sales.
(7) ADVERTISING: The Company's policy is to expense advertising as
incurred for the year. Advertising expense was $9,605,000, $15,195,000
and $6,876,000 in 2001, 2000 and 1999.
(8) STOCK OPTIONS: The intrinsic value method is used for valuing stock
options issued.
(9) RECLASSIFICATIONS: Certain reclassifications have been made to the
2000 and 1999 financial statements to conform with the 2001 financial
statement presentation. These reclassifications did not effect net
earnings or stockholders' equity as previously reported.
F-7
B. INVENTORIES:
The amount of inventories valued on the LIFO basis was $27,759,000 and
$30,440,000 as of December 31, 2001 and 2000. Under LIFO, inventories are
valued at approximately $10,979,000 and $11,244,000 below current cost
determined on a first-in, first-out (FIFO) basis at December 31, 2001 and
2000. The Company uses the LIFO method of inventory accounting to improve
the matching of costs and revenues.
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)
-------------------
Cost of Net Earnings
Year Sales Earnings Per Share
---- ----- -------- ---------
2001 $ 266,000 $ (164,920) $ (0.02)
2000 (368,000) 228,000 0.03
1999 (286,000) 177,000 0.02
This information is provided for comparison with companies using the FIFO
basis. Inventory for defense and absorbent products are valued under the
first-in-first-out method and total $5,481,000 at December 31, 2001. This
total is comprised of $1,030,000 of finished goods, $3,443,000 of work in
process, and $1,008,000 of raw material and supplies.
C. ACCRUED LIABILITIES:
At December 31, 2001 accrued liabilities consisted of payroll $3,143,000,
insurance $17,230,000, environmental $2,915,000, plant closing costs
$1,399,000, employee termination $637,000 and other $1,724,000. At December
31, 2000 accrued liabilities consisted of payroll $2,767,000, insurance
$15,923,000, environmental $3,320,000 and other $2,415,000.
D. TREASURY STOCK:
As of December 31, 2001, the Company has authority from the Board of
Directors to reacquire an additional 521,000 shares. During 2001 and 2000,
48,200 and 338,600 shares were reacquired. Treasury shares have been used
for the exercise of stock options and to fund the Company's 401(k)
contributions.
E. NET EARNINGS PER SHARE:
Basic net earnings per share amounts have been computed by dividing net
earnings by the weighted average number of outstanding common shares.
Diluted net earnings per share is computed by dividing net earnings by the
weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. Options to purchase
7,500; 8,750; and 10,000 shares of common stock with a weighted average
exercise price of $39.39, $39.41 and $39.43 were outstanding at December
31, 2001, 2000 and 1999, but were excluded from the computation of common
share equivalents because their exercise prices were greater than the
average market price of the common shares.
F. STOCK OPTION PLAN:
The National Presto Industries, Inc. Stock Option Plan reserves 100,000
shares of common stock for key employees. Stock options for 7,500 shares at
a weighted average price of $39.39 per share were outstanding at December
31, 2001. Stock options for 8,750 shares at a weighted average price of
$39.41 per share were outstanding at December 31, 2000. There were 1,250
shares exercisable at $39.39 at December 31, 2001 and 1,250 shares
exercisable at $39.41 at December 31, 2000. The pro forma effect of
accounting for stock options using the fair value method is not material.
F-8
G. RETIREMENT PLANS:
PENSION PLANS:
The Company has pension plans which cover the majority of employees.
Pension benefits are based on an employee's years of service and
compensation near the end of those years of service. The Company's funding
policy has been to contribute such amounts as necessary, computed on an
actuarial basis, to provide the plans with assets sufficient to meet the
benefits to be paid to plan members. Plan assets consist primarily (74%) of
interest bearing securities with the balance in corporate stocks,
principally National Presto Industries, Inc. common stock.
(In Thousands)
Pension benefits
------------------------------------
2001 2000 1999
---- ---- ----
Net periodic benefit cost $ 736 $ 529 $ 713
====================================
Fair value of plan assets $ 10,132 $ 8,656
Benefit obligation 10,755 9,683
-----------------------
Funded status (623) (1,027)
Unrecognized actuarial loss 3,829 2,941
Unrecognized prior service cost 743 1,039
Unrecognized net transition obligation (83) (187)
-----------------------
Prepaid benefit $ 3,866 $ 2,766
=======================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate 7.25% 7.50%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
401(k) PLAN:
The Company sponsors a 401(k) retirement plan that covers substantially all
employees. At its discretion, the Company will match up to 50% of the first
4% contributed by employees to the plan. The matching contribution can be
made with either cash or common stock. Contributions made from the treasury
stock, including the Company's cash dividends, totaled $212,000 in 2001,
$209,000 in 2000, and $187,000 in 1999.
F-9
H. INCOME TAXES:
The following table summarizes the provision for income taxes:
(In thousands)
--------------------------------
2001 2000 1999
---- ---- ----
Current:
Federal $ 1,790 $ 3,345 $ 6,817
State 402 627 1,336
--------------------------------
2,192 3,972 8,153
--------------------------------
Deferred:
Federal (2,013) 170 169
State (330) 28 33
--------------------------------
(2,343) 198 202
--------------------------------
Total tax provision (benefit) $ (151) $ 4,170 $ 8,355
================================
The effective rate of the provision (benefit) for income taxes as shown in
the consolidated statements of earnings differs from the applicable
statutory federal income tax rate for the following reasons:
Percent of Pre-tax Income
--------------------------------
2001 2000 1999
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
State tax 0.8% 2.2% 3.0%
Tax exempt interest and dividends -37.3% -14.9% -9.2%
Other -1.0% -0.7% -0.2%
--------------------------------
Effective rate -2.5% 21.6% 28.6%
================================
Deferred tax assets and liabilities are recorded based on the differences
between the tax basis of assets and liabilities and their carrying amounts
for financial reporting purposes. The tax effects of the cumulative
temporary differences resulting in a net deferred tax asset are as follows
at December 31:
(In thousands)
---------------------
2001 2000
---- ----
Insurance $ 6,616 $ 6,114
Environmental 1,119 1,275
Pension (1,521) (1,368)
Plant Closing 2,939 --
Other 734 1,474
---------------------
$ 9,887 $ 7,495
=====================
I. COMMITMENTS AND CONTINGENCIES
The Company has been investigated by the SEC regarding its status under the
Investment Company Act of 1940. The matter is currently pending before the
SEC's Commissioners for final determination. In addition, the Company is
involved in other routine litigation incidental to its business. Management
believes the ultimate outcome of these matters will not have a material
affect on the Company's consolidated financial position.
F-10
J. CONCENTRATIONS:
For the year ended December 31, 2001, two customers accounted for 37% and
11% of net sales. Two customers accounted for 41% and 11% of net sales for
the year ended December 31, 2000. Two customers accounted for 45% and 12%
of net sales for the year ended December 31, 1999. The preceding
concentrations related to housewares/small appliance sales.
As discussed in Note M, the Company has decided to cease manufacturing
housewares/small appliances in its U.S. plants, close those facilities, and
purchase products from overseas sources. This decision could have an
adverse effect on production of the balance of the products scheduled to be
produced in the U.S. due to possible difficulties with continuity of the
workforce and material supplies. Similarly, deliveries from overseas
sources could be disrupted by labor or supply problems at the vendors, or
transportation delays. As a consequence, products may not be available in
sufficient quantities during the prime selling period. The company has made
and will continue to make every reasonable effort to prevent these
problems; however, there is no assurance that its efforts will be totally
effective.
K. RISKS AND UNCERTAINTIES:
ENVIRONMENTAL:
As of December 31, 1998, all remediation projects required at the Company's
Eau Claire, Wisconsin, site had been installed, were fully operational, and
restoration activities had been completed. Based on factors known as of
December 31, 2001, it is believed that the Company's existing environmental
accrued liability reserve, will be adequate to satisfy on-going remediation
operations and monitoring activities; however, should environmental
agencies require additional studies or remediation projects, it is possible
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 affect on the results of operations or
financial condition of the Company.
L. BUSINESS ACQUISITIONS:
On February 24, 2001 the Company acquired the outstanding stock of AMTEC
Corporation, a supplier to the defense industry, for cash. The acquisition
was accounted for as a purchase with all assets and liabilities recorded at
fair market value. At the date of the acquisition, total assets were
approximately $8,500,000. An additional $650,000 of purchase consideration
is contingently payable to the previous shareholders of AMTEC based on
meeting certain "Earn-Out Amounts" during each of the two (2) remaining
Earn-Out Measurement Periods as defined in the Purchase Agreement.
On November 19, 2001 the Company purchased two state-of-the-art high speed
diaper machines and assumed other liabilities in the acquisition of the
existing customer base of RMED International, Inc. The acquisition was
accounted for as a purchase with no goodwill recognized. At the date of the
acquisition, total assets were approximately $7,300,000.
F-11
M. PLANT CLOSING:
Throughout 2001, the Company continued to experience pricing pressure and
was unable to achieve adequate selling margins. Consequently, the Company
determined it would need to lower its product costs in order to remain
competitive. In November 2001, the Company announced that continued erosion
of product pricing resulted in its decision to cease manufacturing
housewares/small appliances in its U.S. plants, close those facilities, and
purchase products from overseas sources. The Company will close its
manufacturing facilities in Alamogordo, New Mexico and Jackson, Mississippi
during the third and fourth quarters of 2002 as the newly sourced products
are initially received. Accordingly, the Company does not expect to see any
significant gross margin improvement until at least fiscal 2003. See Note
J.
During the fourth quarter of 2001, the Company completed the development of
its exit plan to outsource the U.S. manufacturing of its housewares/small
appliances. In connection with the exit plan the Company recorded total
charges in the fourth quarter in the amount of $7,653,000 or $.70 per
share, net of tax. The charge includes $5,617,000 for impairment of
principally machinery and equipment, $880,000 for the write down of
inventory recorded in cost of sales, $637,000 for involuntary employee
termination benefits and other exit costs of $519,000. In the first quarter
of 2002, the Company expects to record an additional charge of
approximately $4,000,000 related primarily to involuntary termination
benefits. There may be additional charges later in the year. The
outsourcing of product may also have an impact on the Company's method of
accounting for inventory. A study of the possible impact is ongoing.
N. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, "Business
Combinations", and SFAS 142, "Goodwill and Intangible Assets". SFAS 141 is
effective for all business combinations completed after June 30, 2001. SFAS
142 is effective for fiscal years beginning after December 15, 2001.
SFAS 141 requires all business combinations to be accounted for under the
purchase method and certain intangible assets acquired in business
combinations to be recorded separately from goodwill if certain
requirements are met. The Company does not expect SFAS 141 to effect the
Company's consolidated financial statements.
SFAS 142 becomes effective for the Company beginning in January 2002, after
which goodwill will no longer be amortized and will be tested for
impairment annually or whenever an impairment indicator arises. The
statement also requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. The Company does not
expect this statement to have a significant impact on its consolidated
financial statements, other than the cessation of goodwill amortization.
The amount of goodwill amortization for the year ended December 31, 2001
was $210,000, based on an estimated 15 year life. There was no goodwill
amortization in 2000 or 1999.
In September 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 combines the two accounting
models for disposals of long-lived assets from SFAS 121 and APB 30. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company recorded an impairment of certain long-lived assets
associated with its plant closings discussed in Note M, under the provision
of SFAS 121. The Company has reviewed the provisions of SFAS 144 and does
not believe the adoption of this standard on January 1, 2002 will have a
material impact on the Company's consolidated financial statements.
F-12
The Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue
No. 00-25, "Vendor Income Statement Characterization of Consideration to a
Reseller on the Vendor's Products". This Consensus provides guidance on the
recognition and accounting for vendor consideration such as buydowns, and
cooperative advertising. The Company does engage in cooperative advertising
programs and accounts for its cooperative advertising as two separate
transactions (revenue and advertising expense) as the Company receives an
identifiable benefit in return for the consideration, and the Company can
reasonably estimate the fair value of the benefit received. As a result,
EITF 00-25 which is being adopted by the Company on January 1, 2002 is not
anticipated to have a material affect on its consolidated financial
statements.
O. BUSINESS SEGMENTS:
Historically the Company has operated in one business segment,
housewares/small appliances. As described in Note L, the Company completed
two acquisitions during 2001 with one acquisition achieving the level of a
reportable segment. The Company identifies its segments based on the
Company's organization structure, which is primarily by principal products.
The principal product groups are housewares/small appliances and defense.
Housewares/small appliances is the Company's main product line which has
historically manufactured and distributed small electrical appliances and
housewares. These products are sold directly to retail outlets throughout
the United States and also through independent distributors. Many of the
products have been manufactured in Alamogordo, New Mexico and Jackson,
Mississippi while other products are imported from nonaffiliated companies
in the Pacific Rim countries. As more fully described in Note M, the
Company intends to exit U.S. manufacturing and source all housewares/small
appliance products from foreign sources.
The defense segment was acquired in February 2001 and manufactures
precision mechanical, electromechanical and electronic assembly components
for the U.S. government and sub-contractors. The defense segment
manufacturing plant is located in Janesville, Wisconsin.
The absorbent product line was acquired on November 19, 2001. This segment
manufactures diapers at the Company's facilities in Eau Claire, Wisconsin.
The products are sold to retail outlets and distributors. This segment
operated for approximately one month and its minor operating activity and
assets were included with the housewares/small appliance segment in 2001.
In the following summary, operating profit represents earnings before other
income, principally interest income and income taxes.
F-13
The Company's segments operate discretely from each other with no shared
manufacturing facilities. Costs associated with corporate activities (such
as cash and marketable securities management) are included within
housewares/small appliances for all periods presented.
(IN THOUSANDS)
--------------------------------------------
HOUSEWARES/
SMALL DEFENSE
APPLIANCES PRODUCTS TOTAL
---------- -------- -----
YEAR ENDED DECEMBER 31, 2001
External net sales $ 112,758 $ 6,999 (2) $ 119,757
Operating profit (loss) (3,077)(1) 1,247 (1,830)
Total assets 274,713 10,187 284,900
Depreciation and amortization 3,156 280 3,436
Capital expenditures 1,968 70 2,038
YEAR ENDED DECEMBER 31, 2000
External net sales $ 119,604 $ -- $ 119,604
Operating profit 9,000 -- 9,000
Total assets 288,707 -- 288,707
Depreciation and amortization 2,786 -- 2,786
Capital expenditures 3,843 -- 3,843
YEAR ENDED DECEMBER 31, 1999
External net sales $ 116,405 $ -- $ 116,405
Operating profit 19,764 -- 19,764
Total assets 299,393 -- 299,393
Depreciation and amortization 2,296 -- 2,296
Capital expenditures 4,151 -- 4,151
(1) The operating loss in housewares/small appliances is after recording a
charge for plant closing costs of $7,653,000 which is more fully
described in Note M.
(2) The defense product segment was acquired on February 24, 2001.
Accordingly, external net sales represents approximately ten months of
activity.
F-14
P. INTERIM FINANCIAL INFORMATION (UNAUDITED):
The following represents unaudited financial information for 2001 and 2000:
(In thousands)
--------------
Net Gross Net Earnings
Quarter Sales Profit Earnings Per Share
----- ------ -------- ---------
2001
First $ 20,010 $ 2,866 $ 1,250 $ 0.18
Second 17,594 3,162 1,379 0.20
Third 27,081 6,339 2,137 0.31
Fourth (1) 55,072 13,004 1,520 0.23
-----------------------------------------------------
Total $ 119,757 $ 25,371 $ 6,286 $ 0.92
=====================================================
2000
First $ 18,855 $ 4,687 $ 3,018 $ 0.42
Second 20,734 5,658 2,848 0.40
Third 31,241 10,041 3,600 0.52
Fourth 48,774 15,294 5,692 0.82
-----------------------------------------------------
Total $ 119,604 $ 35,680 $ 15,158 $ 2.16
=====================================================
(1) Includes the effect of the plant closing charge, see Note M.
F-15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
National Presto Industries, Inc.
We have audited the accompanying consolidated balance sheets of
National Presto Industries, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Presto Industries, Inc. and subsidiaries as of December 31, 2001 and
2000, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
We have also audited Schedule II for each of the three years in
the period ended December 31, 2001. In our opinion, this schedule, when
considered in relation to the basic financial statements taken as a whole,
represents fairly, in all material respects, the information therein.
/S/ Grant Thornton LLP
Minneapolis, Minnesota
February 15, 2002
F-16
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands)
--------------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Balance at
Beginning End
Description of Period Additions (A) Deductions (B) of Period
----------- --------- ------------- -------------- ---------
Deducted from assets:
Allowance for doubtful accounts:
Year ended December 31, 2001 $ 450 $ 226 $ 196 $ 480
=============================================================
Year ended December 31, 2000 $ 450 $ (41) $ (41) $ 450
=============================================================
Year ended December 31, 1999 $ 450 $ (283) $ (283) $ 450
=============================================================
Notes:
(A) Amounts charged (credited) to selling and general expenses
(B) Principally bad debts written off, net of recoveries