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Page 1 of 49
Index to Schedules and
Exhibits are at Page 21 and 22
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, 2003
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
any amendment to the Form 10-K __X__
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes __X__ No _____
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter: $208,152,821.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 5, 2004, was 6,817,888.
Page 2 of 49
PART I
------
ITEM 1. BUSINESS
- ----------------
A. DESCRIPTION OF BUSINESS
----------------------------
The business of National Presto Industries, Inc., and its consolidated
subsidiaries (the "Company") consists of three business segments. The
Housewares/Small Appliance segment designs, manufactures and
distributes housewares and small electrical appliances, including
pressure cookers and canners, kitchen electrics, and comfort
appliances. The Defense Products segment manufactures precision
mechanical and electro-mechanical assemblies and performs Load,
Assemble and Pack (LAP) operations on ordnance related products for
the U.S. government and prime contractors. The Absorbent Products
segment manufactures and sells private label diapers, adult
incontinent products and puppy pads.
1. HOUSEWARES/SMALL APPLIANCE SEGMENT
-------------------------------------
Housewares and electrical appliances 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 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.
For the year ended December 31, 2003, approximately 52% of
consolidated net sales were provided by cast products (fry pans,
griddles, grills, deep fryers and multi-cookers), and approximately
29% 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, 2002, approximately 49% of
consolidated net sales were provided by cast products, and
approximately 31% by noncast/thermal appliances. For the year ended
December 31, 2001, approximately 53% of consolidated net sales were
provided by cast products, and approximately 31% by noncast/thermal
appliances.
For the year ended December 31, 2003, Wal-Mart Stores, Inc. accounted
for 33% of consolidated net sales. For the year ended December 31,
2002, Wal-Mart Stores, Inc. accounted for 37% of consolidated net
sales. Wal-Mart Stores, Inc., accounted for 37% and Costco Companies
accounted for 11% of consolidated net sales in 2001.
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 nine 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 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
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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 2003, 2002 and 2001 were absorbed in operations of these
years and were not a material element in the aggregate costs incurred
by the Company.
Products are generally warranted to the original owner to be free from
defects in material and workmanship for a period of two to twelve
years from date of purchase. The Company allows a sixty-day
over-the-counter initial return privilege through cooperating dealers.
Products are serviced 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.
Prior to 2002, many of the Company's products were manufactured in
plants located in Jackson, Mississippi and Alamogordo, New Mexico. In
2003, the Company purchased almost all of its products from
non-affiliated companies primarily located in the Orient. (See
Footnote M to 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.
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, acquisitions, newly identified business activities,
and reacquisition of Company stock.
2. DEFENSE PRODUCTS SEGMENT
---------------------------
The first defense products segment business (AMTEC Corporation) was
acquired on February 24, 2001; accordingly, net sales for this segment
represents approximately ten months of activity in 2001. AMTEC
manufactures precision mechanical and electro-mechanical assemblies
for the U.S. government and prime contractors. During 2002,
construction of a 55,000 square foot building was started and
completed in early 2003. 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. On July 31, 2003, the Company
finalized the acquisition of Spectra Technologies LLC of East Camden,
Arkansas. Spectra is a start-up company that performs Load, Assemble
and Pack (LAP) operations on ordnance related products for the U. S.
Government and prime contractors.
3. ABSORBENT PRODUCTS SEGMENT
-----------------------------
The first absorbent products segment business (Presto Absorbent
Products, Inc.) was acquired on November 21, 2001; accordingly, net
sales for this segment represents approximately one month of activity
in 2001. Presto Absorbent Products manufactures primarily private
label diapers. Additional manufacturing space is available to expand
production to other consumables. On October 6, 2003, the Company
purchased the assets of NCN Hygienic Products, Inc., a Marietta,
Georgia manufacturer of adult incontinence products and training pads
for pets.
B. OTHER COMMENTS
-------------------
1. SOURCES AND AVAILABILITY OF MATERIALS
----------------------------------------
See Footnote J in the Notes to the Consolidated Financial Statements.
Page 4 of 49
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 1998, all remediation
projects at the Eau Claire, Wisconsin, site had been installed, were
fully operational, and restoration activities had been completed.
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, 2003, 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, 2003, the Company had 347 employees compared to 301
employees at the end of December 2002.
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.
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.
Page 5 of 49
D. ACQUISITIONS
-----------------
See Footnote L in the Notes to the Consolidated Financial Statements.
E. 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 does not make available on its web site its annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, or amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act because those reports are
already readily available to the public on the SEC web site at
www.sec.gov. The Company does provide paper copies of those reports
free of charge upon request.
ITEM 2. PROPERTIES (OWNED EXCEPT WHERE INDICATED)
- -------------------------------------------------
The Company's Eau Claire facility is approximately 560,000 square
feet. Presto Absorbent Products, Inc. utilizes 115,000 square feet of
this area. Leases for 52,000 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 2 former manufacturing facilities in Jackson,
Mississippi; Alamogordo, New Mexico; three manufacturing plants in
Janesville, Wisconsin; East Camden, Arkansas; and Marietta, Georgia;
and a warehousing facility in Canton, Mississippi. Manufacturing
ceased at the Alamogordo and Jackson plants during the third and
fourth quarters of 2002 since the Company is outsourcing all of its
housewares/small appliances. (See Note M in the Notes to the
Consolidated Financial Statements).
The Jackson facility contains 283,000 square feet. Modification to
adapt this facility for warehousing and shipping will be completed
during 2004.
The facility at Alamogordo contains 170,700 square feet. This facility
is being held for sale.
The Janesville facility is comprised of 55,000 square feet. The Camden
facility is 17,000 square feet of leased space. The Marietta, Georgia
facility contains 80,000 square feet of leased space.
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.
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
- -----------------------------------------------------------
No matters were submitted for a vote of shareholders during the fourth
quarter of the fiscal year ended December 31, 2003.
The Company announced that the 2004 Annual Meeting of Stockholders
(the "2004 Annual Meeting") has been delayed until October 19, 2004.
The proxy statement for this meeting is expected to be mailed on or
about September 3, 2004. Any proposal intended to be presented for
action at the 2004 Annual Meeting of Stockholders of the Company by
any stockholder of the Company must be received by the Secretary of
the Company at 3925 North Hastings Way, Eau Claire, Wisconsin 54703,
not later than May 6, 2004, in order for such proposal to be included
in the Company's proxy statement and proxy relating to the 2004 Annual
Meeting. Nothing in this paragraph shall be deemed to require the
Company to include in its proxy statement and proxy relating to the
2004 Annual Meeting any stockholder proposal which does not meet all
of the requirements for such inclusion at the time in effect.
Page 6 of 49
Pursuant to Rules 14a-4 and 14a-5(e) of the Securities and Exchange
Commission, as amended, which govern the use by the Company of its
discretionary voting authority with respect to certain shareholder
proposals, should the Company receive notice after July 20, 2004, of
any such stockholder proposal which will be circulated independent of
the Company's proxy statement, the persons named in proxies solicited
by the Board of Directors of the Company for its 2004 Annual Meeting
may exercise discretionary voting power with respect to any such
proposal.
Page 7 of 49
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ---------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
RECORD OF DIVIDENDS PAID AND MARKET PRICE OF COMMON STOCK
------------------------------------------------------------------------------
2003 2002
----------------------------------- ------------------------------------
Applicable Market Price Applicable Market Price
Dividends Paid ------------------- Dividends Paid -------------------
per Share High Low per Share High Low
-------------- ------ ------ -------------- ------ ------
First Quarter $ 0.92 $29.83 $25.88 $ 0.92 $29.06 $26.80
Second Quarter -- 32.63 26.02 -- 34.50 28.75
Third Quarter -- 37.35 31.53 -- 32.00 27.25
Fourth Quarter -- 37.00 34.18 -- 32.00 27.00
------ ------ ------ ------ ------ ------
Full Year $ 0.92 $37.35 $25.88 $ 0.92 $34.50 $26.80
Common stock of National Presto Industries, Inc. is traded on the New York Stock
Exchange under the symbol "NPK". As of March 5, 2004, there were 583 holders of
record of the Company's common stock. This number does not reflect shareholders
who hold their shares in the name of broker dealers or other nominees.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
(in thousands except per share data)
For the years ended December 31, 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net sales $133,835 $133,729 $119,078 $118,955 $115,891
Net earnings 15,477* 8,690* 6,286* 15,158 20,822
Net earnings per share 2.27* 1.27* .92* 2.16 2.84
Total assets 301,393 289,994 284,076 288,530 298,647
Dividends paid per common share
applicable to current year 0.92 .92 2.00 2.10 2.00
* 2003 net earnings reflect after tax charges of $1,137,000 ($.17 per share)
related to plant closing expenses and $817,000 ($.12 per share) related to
converting a defined benefit pension plan into a defined contribution plan,
which were more than offset by the partial reversal of the LIFO reserve
stemming from the shut down of domestic plants, net of tax, $3,122,000 ($.46
per share). 2002 includes $2,843,000 -- $.42 per share versus 2001's
$4,771,000 -- $.70 per share for after-tax expenses relating to plant
closings. 2002 earnings also reflect $1,040,000 or $.15 per share after-tax
charge primarily related to the early retirement of long term employees. The
2002 expenses were largely offset ($3,259,000 or $.48 per share after-tax) by
the partial reversal of the LIFO reserve stemming from the shutdown of the
domestic manufacturing plants.
Page 8 of 49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Forward-looking statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, elsewhere
in this Form 10-K, in the Company's 2003 Annual Report to
Shareholders, in the Proxy Statement for the annual meeting held May
20, 2003, and in the Company's press releases and oral statements made
with the approval of an authorized executive officer are made pursuant
to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. There are certain important factors that could
cause results to differ materially from those anticipated by some of
the statements made herein. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. In addition
to the factors discussed herein and in the notes to consolidated
financial statements, among the other factors that could cause actual
results to differ materially are the following: consumer spending and
debt levels; interest rates; continuity of relationships with and
purchases by major customers; product mix; the benefit and risk of
business acquisitions; competitive pressure on sales and pricing;
increases in material, freight/shipping, or production cost which
cannot be recouped in product pricing; delays or interruptions in
shipping, and the impact of closing certain U.S. production
facilities. Additional information concerning these and other factors
is contained in the Company's Securities and Exchange Commission
filings, copies of which are available from the Company without
charge.
2003 COMPARED TO 2002
---------------------
Readers are directed to Note N, "Business Segments" for data on the
financial results of the Company's three business segments for the
years ended December 31, 2003 and 2002.
Housewares/Small Appliance net sales decreased $3,695,000 from
$116,032,000 to $112,337,000 or 3%. The decrease reflects a
combination of reduced prices and reduced unit volume of
housewares/small appliances. Defense net sales increased by $706,000
from $9,290,000 to $9,996,000 or 8%. The increase reflects a change in
the mix of products shipped - fewer units with higher per unit
pricing. Absorbent products net sales increased by $3,095,000 from
$8,407,000 to $11,502,000 or 37%, primarily reflecting the addition of
approximately three months of revenues stemming from the October
acquisition of the assets of NCN Hygienic Products, Inc.
Housewares/Small Appliance gross profit for 2003 increased $7,866,000
from $33,844,000 to $41,710,000 or 29% versus 37% as a percentage of
net sales. The gross profit percentage increase is largely due to the
cost reductions stemming from the sourcing of products overseas. The
gross profit for both 2003 and 2002 was also favorably impacted by a
partial reversal of the LIFO inventory reserve (as discussed in Notes
B and M) in the amount of $5,035,000 and $5,256,000 for 2003 and 2002
respectively. Defense gross profit increased for 2003 from $2,966,000
to $3,126,000 or 32% versus 31% as a percentage of sales primarily due
to volume. Absorbent products gross profit for 2003 increased $285,000
from $431,000 to $716,000 primarily because of the addition of the
acquisition noted in the previous paragraph.
Housewares/Small Appliance selling and general expenses decreased
$3,218,000, largely attributable to decreased advertising expenses and
the absence of an early retirement charge recorded in 2002. See Note
G. Defense selling and general expenses increased $490,000 largely
attributable to moving expenses associated with AMTEC's new facility
(see PART I, ITEM 1., A., 2.), and expenses related to the purchase of
Spectra Technologies LLC. See Note L.
Fiscal years 2003 and 2002 included plant closing charges of
$1,834,000 and $4,020,000, respectively, relating to closing the
Company's Housewares/Small Appliance manufacturing operations in
Jackson, Mississippi, and Alamogordo, New Mexico. See Note M. Also, in
the third quarter of 2003, the Company announced its decision to
terminate its defined benefit pension plan. See Note G. As a result,
the Company recorded a charge of $1,317,000 for fiscal 2003. An
additional charge estimated at $3,500,000 will be recorded in the
third quarter of 2004 when the defined benefit pension plan
termination is completed. Note G also includes information regarding
assumptions used to value the pension plan. The Company anticipates
making an expected cash contribution of $1,500,000 to the pension plan
in 2004 prior to the settlement of the plan.
Other income, principally interest, decreased $885,000 from $5,119,000
to $4,234,000, primarily due to decreased yields on financial
instruments, partially offset by an increased average daily investment
balance.
Page 9 of 49
Earnings before provision for income taxes increased $11,569,000 from
$11,514,000 to $23,083,000. The provision for income taxes increased
from $2,824,000 to $7,606,000, which resulted in an effective income
tax rate increase from 25% to 33% as a result of increased earnings
subject to tax. Net earnings increased $6,787,000 from $8,690,000 to
$15,477,000, or 78%.
2002 COMPARED TO 2001
---------------------
Readers are directed to Note N, "Business Segments" for data on the
financial results of the Company's three business segments for the
years ended December 31, 2002 and 2001.
During 2002, consolidated net sales increased $14,651,000 from
$119,078,000 to $133,729,000 or 12%. The increase in net sales of the
housewares/small appliance division of $4,768,000 largely reflects the
positive impact of the expansion of 2001's regional TV advertising
program on the Presto(R) Pizzazz(R) pizza oven to a national program
in 2002. The defense products division (purchased at the end of
February 2001) and the absorbent products division (purchased in
mid-November 2001) combined to provide increased net sales of
$9,883,000 during their first full year of operation.
Gross profit for 2002 increased $12,282,000 from $24,959,000 to
$37,241,000. As a percentage of sales, gross margins were 28% in 2002
versus 21% in 2001. The gross profit percentage increase was primarily
attributable to the housewares/small appliance division which recorded
an increase of $10,691,000 from $23,153,000 in 2001 to $33,844,000 in
2002. As a percentage of sales, housewares/small appliance margins
increased to 29% versus 2001's 21%. The gross margin dollar increase
stemmed in largest part from the partial liquidation of the LIFO
inventory reserve, as discussed in Notes B and M, and from increased
sales volume while both 2002 and 2001 gross margin was negatively
impacted by the write-down of inventory related to the plant closing
in the amount of $565,000 and $880,000. The defense products division
gross profit increased $1,199,000 reflecting greater unit sales,
higher margin product sales mix improvement, and a full year of
revenues. The absorbent product division's gross profit increase
reflects a full year of operation versus approximately a month and a
half of operation during 2001. The absorbent products division is
continuing to establish a customer base and working on expanding its
product offerings. There can be no assurance the segment will be
successful in achieving these objectives.
Selling and general expenses increased $6,398,000. A national
television advertising campaign for the Presto(R) Pizzazz(R) pizza
oven accounted for approximately $5,000,000 of this increase. In
addition, during the fourth quarter of 2002 the Company recorded a
pension cost charge related to the Company's offer of early retirement
to long-term employees in the amount of $1,677,000. See Note G.
Fiscal years 2002 and 2001 included charges of $4,585,000 and
$7,653,000, respectively, related to closing the Company's
manufacturing operations in Jackson, Mississippi, and Alamogordo, New
Mexico. See Note M for plant closing discussion.
Other income, principally interest, decreased $3,258,000 from
$8,377,000 to $5,119,000, in largest part due to decreased yields on
financial instruments and in part due to a reduced average daily
investment balance, $189,870,000 in 2002 versus $197,719,000 in 2001,
stemming from the 2001 acquisitions.
Earnings before provision for income taxes increased $5,379,000 from
$6,135,000 to $11,514,000. The provision for income taxes increased
from a tax benefit of $151,000 to a provision of $2,824,000, which
resulted in an effective income tax rate increase from a benefit of
2.5% to a tax rate of 24.5% as a result of increased earnings subject
to tax. Net earnings increased $2,404,000 from $6,286,000 to
$8,690,000, or 38%.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash provided by operating activities for the two years was virtually
identical -- $24,797,000 during 2003 compared to $25,517,000 in the
prior year. A summary of the sources of operating cash provided for
both years can primarily be found in the changes in the components of
working capital in the statement of cash flows. The increased cash
flow in 2003 from the improvement in net earnings was essentially
matched during the prior year as a result of the reduction in
inventory.
Cash flows from investing activities were likewise relatively flat --
$11,040,000 in 2003 versus $11,536,000 in 2002. Of note was the
$10,218,000 of business acquisitions attributable to the purchase of
the assets of
Page 10 of 49
NCN Hygienic Products, Inc. and the additions to property, plant, and
equipment, primarily for AMTEC Corporation.
Cash Flows from financing activities were essentially flat as well -
$6,709,000 in 2003 versus $6,293,000, reflecting in each year the
payment of a dividend and the purchase of treasury stock.
As a result of the foregoing factors, cash and cash equivalents
increased by $29,128,000 to $143,765,000.
Working capital increased by $3,375,000 to $212,736,000 at December
31, 2003. The Company's current ratio was 4.9 to 1.0 at December 31,
2003, compared to 5.0 to 1.0 at the end of fiscal 2002.
As of December 31, 2003, there were no additional material capital
commitments outstanding. In January 2004, the Company entered into an
agreement to purchase approximately $12,000,000 in equipment to expand
the product line in its absorbent products segment. 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 is projected.
The Company has substantial liquidity in the form of cash and
short-term maturity marketable securities to meet all of its
anticipated capital requirements, to make dividend payments, and to
fund future growth through acquisitions and other means. The interest
rate declines over the past several years coupled with the extremely
low interest rate environment currently has resulted in reduced levels
of interest income for the Company. There can be no assurance when
interest rates will begin to move towards more historically normal
levels. The Company intends to continue its investment strategy of
safety and short-term liquidity throughout its investment holdings.
Interest rates are not expected to improve, and may continue to
decline during 2004. The interest rate environment is a function of
national and international monetary policies as well as the growth and
inflation rates of the U.S. and foreign economies, and is not
controllable by the Company.
In connection with the Company's plant closing activity during 2004,
the Company could incur additional losses upon the disposition of
property, plant, and equipment associated with the operations that
were closed. Plant closing activities of this nature are unique and
infrequent for the Company, therefore, these activities possess
inherent risk that errors in the estimation process could occur.
Subject to the foregoing estimation risk, no major plant closing
related expenses are expected in 2004.
CONTRACTUAL OBLIGATIONS
-----------------------
The table below discloses a summary of the Company's specified
contractual obligations at December 31, 2003:
Payments Due By Period
----------------------
(In Thousands)
--------------
Contractual Obligations Total Under 1 Year 1-3 Years 3-5 Years
----------------------- ----- ------------ --------- ---------
Purchase obligations(1) $12,300,000 $12,300,000 $ -- $ --
Earn-out payments(2) 5,060,000 1,250,000 1,250,000 2,560,000
Pension contribution(3) 1,500,000 1,500,000 -- --
----------- ----------- ---------- ----------
Total $18,860,000 $15,050,000 $1,250,000 $2,560,000
=========== =========== ========== ==========
(1)Purchase obligations represent outstanding purchase orders at
December 31, 2003 issued to the Company's housewares manufacturers in
the Orient. The Company can cancel or change many of these purchase
orders, but may incur costs if its supplier cannot use the material to
manufacture the Company's products in other applications or return the
material to their supplier. As a result, the actual amount the Company
is obligated to pay cannot be estimated.
(2)The Company has agreed to make certain earn-outs dependent upon the
future earnings performance of companies acquired. The expected
payments noted above were based upon the anticipated future levels of
earnings of the acquired companies.
(3)The pension contribution represents the cash amounts the Company
anticipates it will pay to the plan in 2004. As the Company announced
it would be terminating the plan as of December 31, 2003, there will
be no further obligations to the plan after December 31, 2004.
Page 11 of 49
CRITICAL ACCOUNTING POLICIES
----------------------------
The preparation of the consolidated financial statements in accordance
with accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions that
affect the amount of reported assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and revenues and expenses during the periods
reported. Actual results may differ from those estimates. The Company
reviewed the development and selection of the critical accounting
policies and believes the following are the most critical accounting
policies that could have an effect on the Company's reported results.
These critical accounting policies and estimates have been reviewed
with the Audit Committee of the Board of Directors.
INVENTORIES
-----------
New housewares/small appliance product introductions are an important
part of the Company's sales to offset the morbidity rate of other
housewares/small appliance products and/or the effect of lowered
acceptance of seasonal products due to weather conditions. New
products entail unusual risks and have occasionally in the past
resulted in losses related to obsolete inventory as a result of low or
diminishing demand for a product. The Company did not have any major
new product introductions or morbidity issues in the current year and,
accordingly, did not record a reserve for obsolete product. In the
future should product demand issues arise, the Company may incur
losses related to the obsolescence of the related inventory.
INSURANCE
---------
The Company is subject to product liability claims in the normal
course of business and is self-insured for health care costs. The
Company insures for product liability claims and health care costs,
and retains a self-insured retention insurance accrual in the
Company's financial statements. The Company utilizes historical trends
and other analysis to assist in determining the appropriate accrual.
An increase in the number or magnitude of claims could have a material
impact on the Company's financial condition.
ENVIRONMENTAL
-------------
In May 1986, the Company's Eau Claire, Wisconsin site was placed on
the United States Environmental Protection Agency's National
Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 because of hazardous waste
deposited on the property. By December 31, 1998, all remediation
projects had been installed, were fully operational, and restoration
activities had been completed and accrued liabilities established for
the expected cost of the activity. The Company believes its accrued
liability reserve will be adequate to satisfy ongoing remediation
operations and monitoring activities; however, should environmental
agencies require additional studies or remediation projects, it is
possible the existing accrual could be inadequate. The Company's
current environmental liability is based upon estimates of the future
cost to maintain and operate remediation projects and monitor their
results based upon historical costs incurred for such activities.
PLANT CLOSING COSTS
-------------------
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 the Orient. This transition
from U.S. plant production to the Orient was completed during late
2002. The Company closed its manufacturing facilities in Alamogordo,
New Mexico during the third quarter of 2002 and is continuing its
efforts to sell the facility. The Company closed its Jackson,
Mississippi plant during the fourth quarter of 2002 and has begun to
modify this plant to serve as a warehousing and shipping facility.
Modification to the Jackson plant should be completed during 2004. See
Note M for a description of plant closing activity.
The estimated accruals for plant closing costs may be subject to
adjustment in the future. Potential cost items include the Company's
success and the length of time required to sell the Alamogordo
building, larger than expected health care claims for separated
employees, and changes in other estimated costs to complete the plant
closings.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
Please refer to Note A (13) for information related to the future
effect of adopting new accounting pronouncements on the Company's
consolidated financial statements.
Page 12 of 49
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 include money market funds and 7-day variable
rate demand notes which are highly liquid instruments with interest
rates set every 7 days that can be tendered to the remarketer upon 7
days notice for payment of principal and accrued interest amounts. The
7-day tender feature of these variable rate demand notes are further
supported by an irrevocable letter of credit from highly rated U.S.
banks. To the extent a bond is not remarketed at par plus accrued
interest, the difference is drawn from the bank's letter of credit.
The Company's investments are held primarily in fixed and variable
rate municipal bonds with an average life of less than one year.
Accordingly, changes in interest rates have not had a material affect
on the Company, and the Company does not anticipate that future
exposure to interest rate market risk will be material. The Company
uses sensitivity analysis to determine its exposure to changes in
interest rates.
The Company has no history of, and does not anticipate in the future,
investing in derivative financial instruments. Most transactions with
international customers are entered into in U.S. dollars, precluding
the need for foreign currency cash flow hedges. The Company's
manufacturing contracts with its foreign suppliers contain provisions
to share the impact of fluctuations in the exchange rate between the
U.S. dollar and the Hong Kong dollar above and below a fixed range
contained in the contracts. All transactions with the foreign
suppliers were within the exchange rate range specified in the
contracts during 2002 and 2003.
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-18 of this report.
B. Quarterly financial data is contained in Note O in Notes to
Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------
The Company's management, including the Chief Executive Officer and
Chief Financial Officer, have conducted an evaluation of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-15 under the Securities
Exchange Act of 1934 (the 1934 Act) within 90 days prior to the filing
date of this annual report. Based on that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in ensuring
that information required to be disclosed by the Company in the
reports it files or submits under the 1934 Act is recorded, processed,
summarized, and reported within the time periods specified in the
SEC's rules and forms.
There have been no significant changes in internal controls, or in
other factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.
Page 13 of 49
PART III
--------
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
- ---------------------------------------------
INFORMATION CONCERNING DIRECTORS
--------------------------------
The following table provides information as to the directors of the
Company.
Principal Occupation; Director's
Business Experience Director Term To
Director Age Past 5 Years Since Expire
------------------- --- ------------------------------------------- -------- ----------
Richard N. Cardozo 68 Adjunct Professor, University of Miami; 1998 2004
Professor Emeritus, Carlson School of
Management, University of Minnesota
Patrick J. Quinn 54 Chairman and President, Ayres Associates; 2001 2004
prior to April 28, 2000, Executive Vice
President
James F. Bartl 63 Executive Vice President and Secretary 1995 2005
of the Company
Michael J. O'Meara 53 Chairman of the Board and Director, 1996 2005
People's National Bank, Eau Claire,
Wisconsin
Melvin S. Cohen 86 Chairman Emeritus of the Board of the 1949 2006
Company; Prior to January 1, 2002,
Chairman
Maryjo Cohen 51 Chairperson of the Board, President and 1988 2006
Chief Executive Officer of the Company(1)
(1) Ms. Cohen is the daughter of Mr. Cohen.
The Company has an Audit Committee consisting of Messrs. O'Meara,
Cardozo, and Quinn, and plans to have nominating/corporate governance
and compensation committees in place by the time of the 2004 annual
stockholders meeting. The Company has not appointed an Audit Committee
financial expert. Based on its relative size and the scope of its
operations, it is not believed that there is a need to make such a
designation at this time.
Directors of the Company, other than those who are also executive
officers, currently receive $1,000 for each Board meeting and $275 for
each Audit Committee meeting attended. Executive officers are not
compensated for services as Board members.
Page 14 of 49
IDENTIFICATION OF EXECUTIVE OFFICERS
------------------------------------
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
---- ----- ---
Maryjo Cohen Chairperson of the Board, 51
President and Chief Executive
Officer
James F. Bartl Executive Vice President 63
and Secretary
Neil L. Brown Vice President, Manufacturing 60
and Purchasing
Donald E. Hoeschen Vice President, Sales 56
Larry Tienor Vice President, Engineering 55
Randy Lieble Chief Financial Officer 50
and Treasurer
Ms. Cohen became Chairperson 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.
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,
the latter position he continues to hold.
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. 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. Tienor was elected Vice President in November 2003. He has been
associated with the registrant since 1971. Prior to becoming an
officer, he was Director of Engineering.
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.
Page 15 of 49
CODE OF ETHICS
--------------
The Company has adopted a code of business conduct and ethics which is
posted on its web site at www.gopresto.com.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
----------------------------------------------
The following table provides certain summary information concerning
annual compensation paid by the Company to the Company's chief
executive officer and each of the four highest paid executive officers
whose salary and bonus exceeded $100,000 for the fiscal year ended
December 31, 2003.
SUMMARY COMPENSATION/PENSION ACCRUED BENEFIT TABLE
--------------------------------------------------
Name and Principal Position Year Salary Bonus 401 (K) Plan(1) Pension Plan(2)
- --------------------------- ---- ------ ----- --------------- ---------------
Maryjo Cohen 2003 $64,000 $225,000 $4,000 $135,000
Chairperson of the board, President, 2002 64,000 216,000 4,000
Chief Executive Officer and Director 2001 64,000 216,000 3,400
James F. Bartl 2003 $44,600 $213,400 $4,000 $330,000
Executive Vice President, Secretary, 2002 44,600 204,400 4,000
and Director 2001 44,600 197,400 3,400
Donald E. Hoeschen 2003 $41,370 $147,500 $3,657 $207,000
Vice President-Sales 2002 41,370 141,500 3,557
2001 41,370 136,500 -0-
Randy F. Lieble 2003 $40,000 $120,000 $2,900 $126,000
Chief Financial 2002 40,000 105,000 2,750
Officer and Treasurer 2001 40,000 97,500 2,600
Lawrence J. Tienor 2003 $37,790 $98,710 $2,629 $201,000
Vice President-Engineering 2002 37,790 92,210 2,392
2001 37,790 81,810 2,300
(1) The amounts shown in this column are matching contributions made by
the Company.
(2) Estimated value of accrued benefit in defined benefit pension plan as
of December 31, 2003 termination date.
AGGREGATE OPTION EXERCISE IN LAST FISCAL YEAR
---------------------------------------------
AND FISCAL YEAR-END OPTION VALUES
---------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options At In-The-Money Options
Acquired On Value Fiscal Year-End (#) At Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
Donald E. Hoeschen -0- -0- 250 / 750 (1)
Randy F. Lieble -0- -0- 250 / 250 (1)
(1) The outstanding options at year-end were not "in the money."
Page 16 of 49
PENSION AND CERTAIN TRANSACTIONS
--------------------------------
As of December 31, 2003, the Company terminated its qualified, defined
benefit pension plan (the "Plan") in which executive officers of the
Company participated. All participants, including the executive
officers listed above, will receive their accrued benefit under the
Plan as of the termination date. The amount of the accrued benefit
will vary based on length of service and age.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
As described below in the report on executive compensation, members of
the Board of Directors determine the compensation of the executive
officers of the Company. This includes the compensation of those
executive officers who also serve as directors, namely, Maryjo Cohen,
Chairperson of the Board, President, and Chief Executive Officer, and
James F. Bartl, Executive Vice President and Secretary. Ms. Cohen and
Mr. Bartl do not participate in any decisions regarding their own
compensation.
Executive officers of the Company, including Ms. Cohen and Mr. Bartl,
also serve as directors and executive officers of the Company's
subsidiaries.
BOARD REPORT ON EXECUTIVE COMPENSATION
--------------------------------------
Decisions on executive compensation are made by the Board of
Directors. There is no separate compensation committee as of this
time. Salaries and bonus compensation are reviewed annually at or near
the end of the Company's fiscal year.
Historically the Company has maintained salaries at a level that is
considered to be below salaries for executives of comparable
companies. This provides a more conservative approach to base
compensation if the Company experiences significant adverse operating
results that the Board of Directors believes should result in a
reduction in total compensation. Salaries historically have been
supplemented by amounts characterized as bonus compensation, which is
paid in cash as described in the above table. The Board considers,
however, salaries and bonuses together to determine if total
compensation, irrespective of how characterized, is reasonably related
to the services provided.
The Company has not relied upon stock incentives as a principal part
of its compensation program for its executives. However, the Company
has made available stock purchase arrangements for executive officers.
The last such arrangement for any of the executive officers named in
the foregoing table was in 1997.
The Board believes that the total salary and bonus compensation paid
to its executives is appropriate in relationship to the size and
nature of the Company's business, total compensation of other
executives of similar businesses, the longevity of such officers'
service with the Company, the limited number of senior executives
employed by the Company and the results that have been achieved by its
management group (bonuses are not based upon a percentage or other
formula utilizing revenues, income or other financial data as
predicates). No compensation or other consultant has been retained by
the Board to evaluate executive compensation. The Board does consider,
however, data generally made available on executive compensation by
such organizations.
The Company has utilized the salary and discretionary bonus approach
described above for more than 25 years and no change in this
compensation approach is currently being considered. Because of their
substantial stock ownership, the interests of Ms. Cohen, the Company's
senior officer, and Mr. Cohen, Chairman Emeritus, are substantially
related to the interests of all stockholders. Mr. Bartl also has
material stock interests in relation to his compensation level.
Further, stock-based compensation is not deemed by the Board to be
necessary or appropriate.
The basis for the compensation of Ms. Cohen as Chairperson of the
Board, President and Chief Executive Officer is determined in the same
manner as the compensation for the other executive officers. The Board
considered, in establishing Ms. Cohen's compensation, her demonstrated
competence over many years, the scope of responsibilities assumed and
her expertise in a variety of significant niches within the business.
No specific weight was assigned to any of these factors and, as in the
case of other executives, no formula is utilized for determining bonus
compensation.
Page 17 of 49
Section 162(m) of the Internal Revenue Code imposes an annual
deduction limitation of $1.0 million on the compensation of certain
executive officers of publicly held companies. The Board of Directors
does not believe that the Section 162(m) limitation will materially
affect the Company in the near future based on the level of the
compensation of the executive officers. If the limitation would
otherwise apply, the Board of Directors could defer payment of a
portion of the bonus to remain under the $1.0 million annual deduction
limitation.
Submitted by the Company's Board of Directors:
Melvin S. Cohen James F. Bartl Richard N. Cardozo
Maryjo Cohen Michael J. O'Meara Patrick J. Quinn
Page 18 of 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- ---------------------------------------------------------------------------
RELATED STOCKHOLDER MATERS.
---------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- -----------------------------------------------
The following table sets forth information provided to the Company as to
beneficial ownership of the Company's common stock, as of February 27, 2004 by
(i) the only shareholders known to the Company to hold 5% or more of such stock,
(ii) each of the directors and executives of the Company named in the Summary
Compensation/Pension Accrued Benefit Table, and (iii) all directors and officers
as a group. Unless otherwise indicated, all shares represent sole voting and
investment power.
AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK
- ---------------- ----------------------- ------------
Maryjo Cohen 1,991,326(1)(2) 29.2%
3925 N. Hastings Way
Eau Claire, WI 54703
Melvin S. Cohen 430,976(1)(3) 6.3%
3925 N. Hastings Way
Eau Claire, WI 54703
Dimensional Fund Advisors, Inc. 386,508(4) 5.7%
1299 Ocean Avenue
Santa Monica, CA 90401
Royce & Associates, LLC 571,600(4) 8.4%
1414 Avenue of the Americas
New York, NY 10019
James F. Bartl 45,904(5) ----(6)
Donald E. Hoeschen 1,002 ----(6)
Randy F. Lieble 1,280 ----(6)
Lawrence J. Tienor ---- ----
Michael J. O'Meara 100 ----(6)
Richard N. Cardozo ---- ----
Patrick J. Quinn 200 ----(6)
All officers and directors as a group 2,122,022(7) 31.1%
(10 persons)
(1)(Includes 108,875 shares owned by the L. E. Phillips Family Foundation, Inc.
(the "Phillips Foundation"), a private charitable foundation of which the
named person is an officer and/or director and as such exercises shared
voting and investment powers.
(2)Includes 1,669,664 shares held in a voting trust described in the section
below captioned "Voting Trust Agreement," for which Ms. Cohen has sole voting
power, and 211,716 shares owned by pension trusts of the Company or
affiliates, and private charitable foundations (other than the Phillips
Foundation) and family member trusts of which Ms. Cohen is a co-trustee,
officer or director, and as such exercises shared voting and investment
powers.
(3)Includes 322,101 shares owned by pension trusts of the Company or affiliates,
charitable trusts and private charitable foundations (other than the Phillips
Foundation) of which Mr. Cohen is a co-trustee, officer or director, and as
such exercises shared voting and investment powers. Does not include shares
held in a voting trust described in the section below captioned "Voting Trust
Agreement," for which Mr. Cohen holds voting trust certificates. Pursuant to
the voting trust, Mr. Cohen does not have the power to vote or dispose of
such shares.
(4)Based on February 2004 Schedule 13-G filing with the Securities and Exchange
Commission.
(5)Includes 29,662 shares held by pension trusts of the Company or affiliates
for which Mr. Bartl is a co-trustee and as such exercises shared voting and
investment powers.
(6)Represents less than 1% of the outstanding shares of common stock of the
Company.
(7)Includes options for 750 shares currently exercisable by three officers under
the National Presto Industries, Inc. 1988 Stock Option Plan.
Page 19 of 49
The information contained in the foregoing footnotes is for
explanatory purposes only, and the persons named in the foregoing
table disclaim beneficial ownership of shares owned or held in trust
for any other person, including family members, trusts, or other
entities with which they may be associated. Stock ownership
information contained in this Form 10-K was obtained from the
Company's shareholder records, filings with governmental authorities,
or from the named directors and officers.
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------
Based upon a review of Forms 3, 4 and 5 and any amendments thereto
pursuant to Section 16 of the Securities and Exchange Act of 1934, the
Company believes all such forms were filed on a timely basis by
reporting persons during the fiscal year ended December 31, 2003.
VOTING TRUST AGREEMENT
----------------------
Maryjo Cohen and Melvin Cohen, and eight other persons comprising
extended family members and related trusts, have entered into a voting
trust agreement with respect to the voting of an aggregate of
1,669,664 shares of common stock of the Company. The voting trust
agreement will terminate on December 4, 2009, unless sooner terminated
by the voting trustee or unanimous written consent of all the parties
to the voting trust agreement, or unless extended by unanimous written
consent by all parties to the agreement. The voting trustee under the
agreement is Maryjo Cohen. Under the agreement, the voting trustee
exercises all rights to vote the shares subject to the voting trust.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
The following table sets forth information with respect to the
Company's equity compensation plans as of December 31, 2003.
(a) (b) (c)
---------------------------------------------------------------------------------------------------------
Plan category Number of securities to Weighted-average exercise Number of securities
be issued upon exercise price of outstanding remaining available for
of outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation
plans (excluding
securities reflected in
column (a))
---------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 3,750 $39.29 -
Equity compensation
plans not approved
by security holders - - -
----- ------ --------
Total 3,750 $39.29 -
===== ====== ========
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Melvin S. Cohen, Chairman Emeritus of the Company, was paid $5,000 per
month for consultation services in 2003. During the year, Mr. Cohen
was consulted on a variety of matters based upon his executive
experience and knowledge of the Company's operations.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- -----------------------------------------------
Grant Thornton LLP, Certified Public Accountants, were the independent
accountants for the Company for the fiscal years ended December 31,
2002 and 2003. They have been selected by the Audit Committee to be
independent accountants for the Company during the fiscal year ending
December 31, 2004. The Audit
Page 20 of 49
Committee meets with representatives of Grant Thornton LLP to review
their comments and plans for future audits.
The following fees have been incurred by the Company:
Audit Fees (1) All Other Fees (2)
-------------- ------------------
Year ended December 31, 2002 $89,000 $48,000
Year ended December 31, 2003 100,000 13,000
(1)Annual financial statement audits, 10Q reviews and related
expenses.
(2)Costs related to tax assistance, SEC comment letter response
consulting, and other projects.
Grant Thornton LLP did not provide any financial information, design
and implementation services for the Company during fiscal years ended
December 31, 2002 and 2003.
Page 21 of 49
PART IV
-------
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
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,
2003 and 2002 F-1 & F-2
b. Consolidated Statements of Earnings - Years
ended December 31, 2003, 2002 and 2001 F-3
c. Consolidated Statements of Cash Flows - Years
ended December 31, 2003, 2002 and 2001 F-4
d. Consolidated Statements of Stockholders'
Equity - Years ended December 31, 2003, 2002
and 2001 F-5
e. Notes to Consolidated Financial Statements F-6 thru F-17
f. Report of Independent Certified Public
Accountants F-18
2. Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts F-19
3. Exhibits:
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
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
Exhibit 21 - Parent and Subsidiaries
Exhibit 23.1 - Consent of Grant Thornton LLP
Page 22 of 49
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 Chief Financial Officer
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 Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
B. Reports on Form 8-K:
On October 27, 2003, the registrant filed a current report under Item
12 furnishing its earnings press release issued on October 24, 2003.
C. Exhibits:
Reference is made to Item 15(A)(3).
D. Schedules:
Reference is made to Item 15(A)(2).
Page 23 of 49
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 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 Chairperson of the Board, President,
Chief Executive Officer and Director
Date: March 10, 2004
- --------------------
Page 24 of 49
F-1
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31, 2003 DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $143,765 $114,637
Marketable securities 69,836 92,578
Accounts receivable $29,384 $ 28,378
Less allowance for doubtful accounts 480 28,904 480 27,898
-------- --------
Inventories:
Finished goods 16,913 17,675
Work in process 4,490 3,355
Raw materials 2,091 2,976
Supplies 1,144 24,638 981 24,987
-------- --------
Other current assets 717 998
-------- --------
Total current assets 267,860 261,098
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 544 163
Buildings 7,432 8,385
Machinery and equipment 19,001 14,119
-------- --------
26,977 22,667
Less allowance for depreciation 9,771 17,206 9,400 13,267
-------- --------
OTHER ASSETS 16,327 15,629
-------- --------
$301,393 $289,994
======== ========
The accompanying notes are an integral part of these financial statements.
Page 25 of 49
F-2
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
DECEMBER 31, 2003 DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 21,341 $ 18,753
Federal and state income taxes 5,662 3,643
Accrued liabilities 28,121 29,341
-------- --------
Total current liabilities 55,124 51,737
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 991 998
Retained earnings 258,506 249,313
Accumulated other comprehensive income (loss) (1,439) (698)
-------- ---------
265,499 257,054
Treasury stock, at cost, 622,365 shares in 2003 and
605,513 shares in 2002 19,230 18,797
-------- ---------
Total stockholders' equity 246,269 238,257
-------- --------
$301,393 $289,994
======== ========
The accompanying notes are an integral part of these financial statements.
Page 26 of 49
F-3
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
For the years ended December 31, 2003 2002 2001
- ---------------------------------------------------------------------------------------------------
Net sales $133,835 $133,729 $119,078
Cost of sales 88,283 96,488 94,119
-------- --------- -------
Gross profit 45,552 37,241 24,959
Selling and general expenses 23,552 26,826 20,428
Plant closing costs 1,834 4,020 6,773
Pension plan termination expense 1,317 - -
-------- --------- -------
Operating profit (loss) 18,849 6,395 (2,242)
Other income, principally interest 4,234 5,119 8,377
-------- --------- -------
Earnings before provision for income taxes 23,083 11,514 6,135
Provision (benefit) for income taxes 7,606 2,824 (151)
-------- --------- -------
Net earnings $ 15,477 $ 8,690 $ 6,286
======== ========= =======
Weighted average shares outstanding:
Basic 6,820 6,839 6,856
===== ===== =====
Diluted 6,821 6,840 6,857
===== ===== =====
Net earnings per share:
Basic $2.27 $1.27 $0.92
===== ===== =====
Diluted $2.27 $1.27 $0.92
===== ===== =====
The accompanying notes are an integral part of these financial statements.
Page 27 of 49
F-4
NATIONAL PRESTO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
--------------------------------------------
For the years ended December 31, 2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net earnings $ 15,477 $ 8,690 $ 6,286
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for depreciation 2,353 1,934 3,436
Deferred income taxes 2,252 311 (2,343)
Pension charges (credits) 322 2,646 (399)
Plant closing and asset impairment charges (950) 685 7,653
Other 584 (49) 212
Changes in:
Accounts receivable (572) 2,723 (18,887)
Inventories 1,804 9,010 605
Prepaid expenses (308) (41) 67
Accounts payable and accrued liabilities 1,816 (980) (2,619)
Federal and state income taxes 2,019 588 (53)
--------- ----------- ----------
Net cash provided by (used in) operating activities 24,797 25,517 (6,042)
--------- ---------- ----------
Cash flows from investing activities:
Marketable securities purchased (18,075) (45,211) (63,553)
Marketable securities - maturities and sales 40,714 60,651 104,144
Acquisition of property, plant and equipment (2,903) (3,408) (2,038)
Acquisition of businesses (10,218) (500) (3,593)
Sale of property, plant, and equipment 1,434 4 11
Other 88 - -
--------- --------- ----------
Net cash provided by investing activities 11,040 11,536 34,971
--------- --------- ----------
Cash flows from financing activities:
Dividends paid (6,284) (6,290) (13,754)
Payment of debt acquired in acquisition - - (5,243)
Purchase of treasury stock (425) (3) (1,301)
--------- --------- ----------
Net cash used in financing activities (6,709) (6,293) (20,298)
--------- --------- ----------
Net increase in cash and cash equivalents 29,128 30,760 8,631
Cash and cash equivalents at beginning of year 114,637 83,877 75,246
--------- --------- ----------
Cash and cash equivalents at end of year $ 143,765 $ 114,637 $ 83,877
========= ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 3,378 $ 1,985 $ 2,423
========= ========= ==========
Supplemental disclosure of non-cash investing and financing activities:
As of December 31, 2003, 2002, and 2001, the unrealized gain (loss) on available for sale securities,
net of tax was $600, $667, and $(251).
The accompanying notes are an integral part of these financial statements.
Page 28 of 49
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, 2003, 2002, 2001
- --------------------------------------------------------------------------------
Accumulated
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
----- ------- -------- ------- -------- -----
Balance January 1, 2001 $7,441 $ 1,027 $ 254,381 $ (177) $(17,689) $ 244,983
Net earnings - - 6,286 - - 6,286
Unrealized loss on available for sale
securities, net of tax - - - (74) - (74)
---------
Total other comprehensive income - - - - - 6,212
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 (251) (18,762) 236,352
Net earnings - - 8,690 - - 8,690
Unrealized gain on available for sale
securities, net of tax - - - 918 - 918
Unrealized loss on net periodic pension
cost, net of tax - - - (1,365) - (1,365)
---------
Total other comprehensive income - - - - - 8,243
Dividends paid, $.92 per share - - (6,290) - - (6,290)
Purchase of treasury stock - 100 shares - - - - (3) (3)
Other - (13) - - (32) (45)
- ------------------------------------------ ------ ------- --------- ------- -------- ---------
Balance December 31, 2002 7,441 998 249,313 (698) (18,797) 238,257
Net earnings - - 15,477 - - 15,477
Unrealized loss on available for sale
securities, net of tax - - - (67) - (67)
Unrealized loss on net periodic
pension cost, net of tax - - - (674) - (674)
---------
Total other comprehensive income - - - - - 14,736
Dividends paid, $.92 per share - - (6,284) - - (6,284)
Purchase of treasury stock - 16,300 shares - - - - (425) (425)
Other - (7) - - (8) (15)
------ ------- --------- ------- -------- ---------
Balance December 31, 2003 $7,441 $ 991 $ 258,506 $(1,439) $(19,230) $ 246,269
====== ======= ========= ======= ======== =========
The accompanying notes are an integral part of these financial statements.
Page 29 of 49
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: CASH AND CASH
EQUIVALENTS: The Company considers all highly liquid marketable
securities with an original maturity of three months or less to be
cash equivalents. Cash equivalents include money market funds and
highly-liquid variable rate demand notes with put options exercisable
in three months or less.
The Company's cash management policy provides for its bank
disbursement accounts to be reimbursed on a daily basis. Checks issued
but not presented to the bank for payment of $821,000 and $788,000 at
December 31, 2003 and 2002, are included as reductions of cash and
cash equivalents.
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.
At December 31, 2003 and 2002, cost for marketable securities was
determined using the specific identification method. A summary of the
amortized costs and fair values of the Company's marketable securities
at December 31 is shown in the following table:
MARKETABLE SECURITIES
--------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED
COST FAIR VALUE GAINS LOSSES
December 31, 2003
-----------------
Tax exempt
government
bonds $67,769,000 $68,626,000 $ 860,000 $ 3,000
Equity securities 1,142,000 1,210,000 194,000 126,000
----------- ----------- ---------- --------
Total marketable
securities $68,911,000 $69,836,000 $1,054,000 $129,000
=========== =========== ========== ========
December 31, 2002
-----------------
Tax exempt
government
bonds $90,409,000 $91,626,000 $1,257,000 $ 40,000
Equity securities 1,142,000 952,000 132,000 322,000
----------- ----------- ---------- --------
Total marketable
securities $91,551,000 $92,578,000 $1,389,000 $362,000
=========== =========== ========== ========
Proceeds from sales of marketable securities totaled $40,714,000 in
2003, $60,651,000 in 2002, and $104,144,000 in 2001. Gross gains
related to sales of marketable securities totaled $0, $16,000, and
$47,000 in 2003, 2002 and 2001. Gross losses related to sales of
marketable securities were $0, $231,000, and $0 in 2003, 2002, and
2001. Net unrealized gains and losses are reported as a separate
component of accumulated other comprehensive income and were gains of
$924,000 and $1,027,000, and a loss of $386,000 before taxes at
December 31, 2003, 2002, and 2001.
The contractual maturities of the marketable securities held at
December 31, 2003 are $40,312,000 in 2004, $13,190,000 in 2005,
$4,215,000 in 2006, $10,909,000 beyond 2006 and $1,210,000 with
indeterminate maturities.
Page 30 of 49
F-7
(4) ACCOUNTS RECEIVABLE: The Company's accounts receivable are related to
sales of products. Credit is extended based on prior experience with
the customer and evaluation of customers' financial condition.
Accounts receivable are primarily due within 30 days. The allowance
for doubtful accounts represents an estimate of amounts considered
uncollectible and is determined based on the Company's historical
collection experience, adverse situations that may affect the
customers' ability to pay, and prevailing economic conditions.
(5) INVENTORIES: Housewares/small appliance segment inventories are stated
at the lower of cost or market with cost being determined principally
on the last-in, first-out (LIFO) method. Inventory for defense and
absorbent products segments are stated at the lower of cost or market
with cost being determined on the first-in-first-out (FIFO) method.
(6) 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.
(7) GOODWILL: The Company recognizes the excess cost of an acquired entity
over the net amount assigned to assets acquired and liabilities
assumed as goodwill. Goodwill is tested for impairment on an annual
basis and between annual tests whenever an impairment is indicated.
Impairment losses will be recognized whenever the implied fair value
of goodwill is less than its carrying value. Prior to January 1, 2002,
goodwill was amortized over 15 years. Beginning January 1, 2002,
goodwill is no longer amortized. The Company's carrying amount, net of
accumulated amortization, for goodwill as of December 31, 2003, 2002
and 2001, was $3,406,000, $3,406,000 and $2,906,000 relating to its
defense products segment. In addition, at December 31, 2003, the
Company had goodwill of $2,148,000 related to its absorbent products
segment as a result of its acquisition of NCN Hygienic Products, Inc.
(see Note L).
The Company adopted the preceding accounting policy on January 1, 2002
as required by Statement of Financial Accounting Standard (SFAS) 141,
"Business Combinations", and SFAS 142, "Goodwill and Other Intangible
Assets".
During 2001, the Company recorded goodwill amortization expense of
$130,000. Without this amortization expense, 2001 adjusted net
earnings would have been $6,416,000 resulting in adjusted basic and
diluted earnings per share of $.94.
No impairment was indicated when the Company performed its annual
impairment test on September 29, 2003, the first day of the Company's
fourth quarter. The Company had no intangible assets on January 1,
2003, other than goodwill.
8) 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 small appliance
sales. Early payment discounts are deducted in arriving at net sales.
(9) ADVERTISING: The Company's policy is to expense advertising as
incurred for the year. Advertising expense, including cooperative
advertising, was $12,859,000, $14,734,000 and $9,605,000 in 2003, 2002
and 2001.
(10) STOCK OPTIONS: The intrinsic value method is used for valuing stock
options issued. The pro forma effect on earnings of accounting for
stock options using the fair value method is not material. See Note F.
(11) ACCUMULATED OTHER COMPREHENSIVE INCOME: At December 31, 2003 and 2002
the accumulated comprehensive loss includes an additional net periodic
pension liability related to the Company's defined benefit pension
plan offset in part by an unrealizable gain on the Company's
available-for-sale marketable security investments. These amounts are
recorded net of tax effect.
Page 31 of 49
F-8
(12) PRODUCT WARRANTY: Company products are generally warranted to the
original owner to be free from defects in material and workmanship for
a period of 2 to 12 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 determines its product warranty liability
based on historical percentages.
The following table shows the changes in product warranty liability
for the period:
(In Thousands)
-------------------
2003 2002
------ ------
Beginning balance January 1, $1,465 $1,492
Accruals during the period 3,398 3,002
Charges / payments made under the warranties (2,748) (3,029)
------ ------
Balance December 31 $2,115 $1,465
====== ======
(13) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In May 2003, the Financial
Accounting Standards Board (FASB) issued Statement 150, "Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". This statement changes the classification of
certain common financial instruments from either equity or mezzanine
presentation to liabilities in the balance sheet and requires an
issuer of those financial instruments to recognize changes in fair
value or redemption amount, as applicable, in earnings. This statement
is effective for financial instruments entered into or modified after
May 31, 2003 for public companies. As the Company has not issued any
financial instruments addressed by this new pronouncement its adoption
did not have a material effect on the Company's financial statements.
In December 2003, The FASB revised and reissued Statement 132,
"Employer's Disclosures about Pensions and Other Postretirement
Benefits" (SFAS 132(R)). This statement retains all of the disclosures
that are required by the original FASB Statement 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits", and
includes several additional disclosures. It also requires certain
disclosures about pension and other postretirement benefit plans in
interim financial statements. The additional annual disclosures in
SFAS 132(R) are required in financial statements with fiscal years
ending after December 15, 2003, except for disclosures about estimated
future benefit payments and additional disclosures for foreign plans,
which are effective for fiscal years ending after June 15, 2004. The
interim-period disclosures are required in interim periods beginning
after December 15, 2003. The annual disclosure requirements for the
Company's pension plan are included in Note G. The Company will adopt
the interim disclosure provisions of SFAS 132(R) during the first
quarter of fiscal 2004.
B. INVENTORIES:
The amount of inventories valued on the LIFO basis was $14,058,000 and
$18,024,000 as of December 31, 2003 and 2002. Under LIFO, inventories are
valued at approximately $688,000 and $5,723,000 below current cost
determined on a first-in, first-out (FIFO) basis at December 31, 2003 and
2002. The significant reduction in the amount of LIFO inventory below
current cost from 2002 to 2003 is attributable to the Company's decision to
outsource manufacturing of its housewares/small appliances. See Note M for
further information related to the effect of this decision on inventory
valuation. The Company uses the LIFO method of inventory accounting to
improve the matching of costs and revenues for the housewares/small
appliance segment.
Page 32 of 49
F-9
The following table describes the effect 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
---- ----- -------- ---------
2003 $5,035,000 $(3,122,000) $(0.46)
2002 5,256,000 (3,259,000) (0.48)
2001 266,000 (165,000) (0.02)
This information is provided for comparison with companies using the FIFO
basis. Inventory for defense and absorbent products, along with service
parts for housewares/small appliances, are valued under the
first-in-first-out method and total $9,588,000 and $6,108,000 at December
31, 2003 and 2002. The 2003 FIFO total is comprised of $2,899,000 of
finished goods, $4,490,000 of work in process, and $2,199,000 of raw
material and supplies. At December 31, 2002 the FIFO total was comprised of
$493,000 of finished goods, $3,336,000 of work in process, and $2,279,000
of raw material and supplies.
C. ACCRUED LIABILITIES:
At December 31, 2003 accrued liabilities consisted of payroll $2,213,000,
insurance $16,015,000, environmental $2,287,000, plant closing costs
$685,000, employee termination $836,000, minimum pension liability
$3,311,000 and other $2,774,000. At December 31, 2002 accrued liabilities
consisted of payroll $2,883,000, insurance $16,854,000, environmental
$2,692,000, plant closing costs $521,000, employee termination $2,148,000,
minimum pension liability $2,713,000 and other $1,530,000.
D. TREASURY STOCK:
As of December 31, 2003, the Company has authority from the Board of
Directors to reacquire an additional 504,600 shares of the Company's common
stock. During 2003 and 2002, 16,300 and 100 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
3,750; 6,250; and 7,500 shares of common stock with a weighted average
exercise price of $39.29, $39.36, and $39.39 were outstanding at December
31, 2003, 2002, and 2001, 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 3,750 shares at
a weighted average price of $39.29 per share were outstanding at December
31, 2003. Stock options for 6,250 shares at a weighted average price of
$39.36 per share were outstanding at December 31, 2002. There were 1,000
shares exercisable at $39.29 at December 31, 2003 and 1,250 shares
exercisable at $39.36 at December 31, 2002. The pro forma effect of
accounting for stock options using the fair value method is not material.
Page 33 of 49
F-10
G. RETIREMENT PLANS:
PENSION PLANS:
Prior to January 1, 2003, the Company had two pension plans which cover the
majority of employees. Effective January 1, 2003, these plans were merged
into one plan. 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. During the third quarter of 2003,
the Company announced its decision to terminate its defined benefit pension
plan and provide enhancements to its 401(k) plan. As a result, the plan was
amended effective December 31, 2003 to freeze benefit accruals. The
amendment eliminated the accrual of future defined benefits for all
employees resulting in a $1,377,000 curtailment charge, which was recorded
in 2003. An additional estimated $3,500,000 settlement charge is expected
in the third quarter of 2004 when final distributions from the plan are
made or annuities are purchased in exchange for participants' rights to
receive benefits under the plan.
(In Thousands)
Pension Benefits
------------------------------------------
2003 2002 2001
------- ------- ------
Net periodic cost:
Service cost $ 361 $ 407 $ 374
Interest cost 724 802 755
Expected return on assets (517) (749) (743)
Amortization of transition amount - (83) (104)
Amortization of prior service cost 167 187 223
Actuarial loss 270 212 157
Settlement charge - 882 -
Curtailment charge 1,317 58 74
------- ------- ------
Net periodic benefit cost $ 2,322 $ 1,716 $ 736
======= ======= ======
Change in benefit obligation:
Benefit obligation at beginning of year $10,684 $10,755
Service cost 361 407
Interest cost 724 802
Special termination benefits - 737
Plan amendments 987 -
Curtailment gain (1,534) (203)
Actuarial loss 1,492 1,018
Benefits and expenses paid (1,142) (2,832)
------- -------
Benefit obligation at end of year $11,572 $10,684
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year $ 8,501 $10,132
Employer contributions 2,000 961
Actual return on plan assets 954 240
Benefits and expenses paid (1,142) (2,832)
------- -------
Fair value of plan assets at end of year $10,313 $ 8,501
======= =======
Employer contributions are expected to total $1,500,000 in 2004.
The Company's pension plan asset target allocations for 2004 and actual asset
allocations are as follows at December 31:
Target Percentage of Plan Assets
2004 2003 2002
------ ------ -------
Asset category:
Equity securities 0.0% 26.5% 25.7%
Debt securities 0.0% 42.7% 67.7%
Short-term liquid investments 100.0% 30.8% 6.6%
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
Page 34 of 49
F-11
Equity securities consist principally of National Presto Industries, Inc.
common stock.
National Presto's investment strategy with respect to pension plan assets
has changed with the decision to freeze benefit accruals and terminate the
pension plan effective December 31, 2003. The investment strategy now in
place is to convert the equity and debt positions to cash prior to the
targeted distribution date in the third quarter of 2004.
The expected rate of return on plan assets assumption is based on a
multi-year stochastic simulation of projected returns, taking into account
the plan's target asset allocation and reasonable expectations of future
economic conditions. The simulation model incorporates the capital market
conditions prevailing at the starting date of the projection, as well as a
wide range of plausible scenarios of future capital market performance.
(In Thousands)
--------------------
2003 2002
------ ------
Reconciliation of funded status:
Funded status $(1,259) $(2,183)
Unrecognized actuarial loss 3,310 4,059
Unrecognized prior service cost - 497
------ ------
Prepaid benefit $2,051 $2,373
====== =======
Statement of financial position:
Prepaid benefit cost $2,051 $2,373
Additional minimum liability (3,310) (2,713)
Intangible asset - 497
Accumulated other comprehensive income 3,310 2,216
------ ------
Recognized amount $2,051 $2,373
====== ======
At December 31, 2003 and 2002, the projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for pension
plans with a projected benefit obligation in excess of plan assets, and
pension plans with an accumulated benefit obligation in excess of plan
assets, were are follows:
(In Thousands)
------------------------------------------------------------------
Projected Benefit Obligation Accumulated Benefit
Exceeds the Fair Value of Obligation Exceeds the Fair
Plan's Assets Value of Plan's Assets
------------- ----------------------
December 31, December 31,
-------------------------------- -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Projected benefit obligation $11,572 $10,684 $11,572 $10,684
Accumulated benefit obligation 11,572 8,841 11,572 8,841
Fair value of plan assets 10,313 8,501 10,313 8,501
The Company's accumulated benefit obligation of $11,572,000 and $8,841,000
at December 31, 2003 and 2002 exceeded the fair value of the plan's assets
at December 31, 2003 and 2002. This caused the Company to recognize an
additional minimum liability in the fourth quarter of 2003 and 2002 of
$3,310,000 and $2,713,000. The recognition of this additional minimum
liability resulted in the Company recognizing an additional intangible
asset of $497,000 at December 31, 2002, which was equal to the unrecognized
prior service cost. There was no unrecognized prior service cost at
December 31, 2003. The difference between the additional minimum liability
and the intangible asset, represents a net loss not yet recognized as net
periodic pension cost and is recorded net of tax in other comprehensive
income as an unrealized loss on net periodic pension cost. When the value
of plan assets exceeds the accumulated benefit obligation, the additional
minimum liability, intangible asset and the unrealized loss recorded in
comprehensive income are no longer required.
The company offered an early retirement window of enhanced retirement
benefits in its pension plan during 2002. The special termination benefit
cost associated with this window was $737,000.
Page 35 of 49
F-12
The combination of the early retirement window and a concurrent layoff,
which were part of the same plant closing plan, resulted in a curtailment.
The effect of the curtailment was a charge of $58,000 in 2002.
The amount of lump sum benefits paid from the plan during 2002 triggered a
settlement. The effect of the settlement was a charge of $882,000.
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC COST FOR THE
YEARS ENDED DECEMBER 31:
2003 2002 2001
---- ---- ----
Discount rate 6.50% 6.50% 7.25%
Expected return on plan assets 6.50% 8.00% 8.00%
Rate of compensation increase 4.00% 4.00% 5.00%
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATIONS AS OF
DECEMBER 31:
2003 2002
---- ----
Discount rate 6.00% 6.50%
Rate of compensation increase N/A 4.00%
401(K) PLAN:
The Company sponsors a 401(k) retirement plan that covers substantially all
employees. The Company will match up to 50% of the first 4% of salary
contributed by employees to the plan. This matching contribution can be
made with either cash or common stock, at the Company's discretion.
Starting in 2004, the Company will match in cash, an additional 50% of the
first 4% of salary contributed by employees plus 3% of total compensation.
Contributions made from the treasury stock, including the Company's cash
dividends, totaled $192,000 in 2003, $213,000 in 2002, and $251,000 in
2001.
H. INCOME TAXES:
The following table summarizes the provision for income taxes:
(In Thousands)
----------------------------------
2003 2002 2001
---- ---- ----
Current:
Federal $4,381 $1,927 $1,790
State 974 586 402
------ ------ ------
5,355 2,513 2,192
====== ====== ======
Deferred:
Federal 1,958 286 (2,013)
State 293 25 (330)
------ ------ ------
2,251 311 (2,343)
------ ------ ------
Total tax provision $7,606 $2,824 $ (151)
====== ====== ======
The effective rate of the provision 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
-----------------------------
2003 2002 2001
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
State tax 3.6% 3.5% 0.8%
Tax exempt interest and dividends (5.2)% (12.3)% (37.3)%
Other (.4)% (1.7)% (1.0)%
---- ----- -----
Effective rate 33.0% 24.5% (2.5)%
==== ===== =====
Page 36 of 49
F-13
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)
---------------------
2003 2002
------ -------
Insurance $6,150 $ 6,472
Environmental 878 1,034
Pension (1,364) (911)
Plant closing 575 3,202
Other 2,032 270
------ -------
$8,271 $10,067
====== =======
I. COMMITMENTS AND CONTINGENCIES:
On July 16, 2002, the Securities and Exchange Commission filed a lawsuit
against National Presto Industries, Inc. alleging the Company operated as
an unregistered investment company. The case does not involve fraud,
deceptive practices, or questionable accounting methods, and the Company
plans to vigorously defend itself. If unsuccessful, the Company may have to
reallocate invested assets which will result in reduced yields, or it might
be required to register as an investment company. In the latter situation,
it would be prohibited from engaging in business in interstate commerce
until registration occurred. The obligations upon registration are many and
could include: 1) possible imposition of significant additional reporting
requirements (a burden which would not be imposed upon its competitors); 2)
potential regard in the market as a closed-end mutual fund which could
result in a trading price sharply discounted from net asset value; 3)
possible limitations on the use of capital and earnings which could inhibit
or terminate commercial business growth. Management is unable to make a
meaningful estimate of the overall impact on the Company's operations, if
any, that would result from an unfavorable final determination of this
matter.
In addition, the Company is involved in other routine litigation incidental
to its business. Management believes the ultimate outcome of this
litigation will not have a material affect on the Company's consolidated
financial position, liquidity, or results of operations.
J. CONCENTRATIONS:
For the year ended December 31, 2003, one customer accounted for 33% of net
sales. One customer accounted for 37% of net sales for the year ended
December 31, 2002. Two customers accounted for 37% and 11% of net sales for
the year ended December 31, 2001. The preceding concentrations related to
housewares/small appliance sales.
The Company sources its housewares/small appliances from the Orient and as
a result risks deliveries from the Orient being 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. In addition, the Company's
manufacturing contracts with its foreign suppliers contain provisions to
share the impact of fluctuations in the exchange rate between the U.S.
dollar and the Hong Kong dollar above and below a fixed range contained in
the contracts. All transactions with the foreign suppliers were within the
exchange rate range specified in the contracts during 2002 and 2003.
Page 37 of 49
F-14
K. 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, 2003, 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 July 31, 2003, the Company finalized the acquisition of Spectra
Technologies LLC (Spectra) of East Camden, Arkansas. Spectra is a start-up
company that performs Load, Assemble and Pack (LAP) operations on ordnance
related products for the U.S. government and prime contractors. Payment of
the Purchase Price will be made in the form of a cumulative earn-out based
upon net income of Spectra over a period of time commencing as of the
closing and ending on December 31, 2007. The earn-out will be 40% of the
first $6.4 million of net income of Spectra and 20% of net income in excess
of $6.4 million. No earn-out amounts were earned in 2003.
On October 6, 2003, the Company purchased the assets of NCN Hygienic
Products, Inc. (NCN), a Marietta, Georgia, manufacturer of adult
incontinence products and training pads for pets. The acquisition was
accounted for as a purchase with all assets recorded at fair market value.
At the date of acquisition, total assets were approximately $10,200,000,
including goodwill of approximately $2,150,000. An additional earn-out
amount of up to $2,500,000 will be paid based upon certain earnings targets
through December 31, 2005. The NCN acquisition contributed net revenue of
$2,900,000 from the date of acquisition to December 31, 2003.
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 earn-out payment of $500,000 was made during
2002 and was recorded as additional goodwill. An additional $150,000 of
purchase consideration is contingently payable to the previous shareholders
of AMTEC based on meeting certain criteria.
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. At the date of the
acquisition, total assets were approximately $7,300,000 with no goodwill
recognized.
Additional disclosures required under SFAS 141, BUSINESS COMBINATIONS,
related to these acquisitions were not considered material.
M. PLANT CLOSING:
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 the Orient. This transition from U.S. plant production to the
Orient was completed during late 2002. The Company closed its manufacturing
facilities in Alamogordo, New Mexico, during the third quarter of 2002 and
is continuing its efforts to sell the facility. The Company closed its
Jackson, Mississippi plant during the fourth quarter of 2002 and has begun
to modify this plant to serve as a warehousing and shipping facility.
Modification to the Jackson plant should be completed during 2004.
Page 38 of 49
F-15
As a result of the Company's transition from U.S. plant production to
Orient sourcing, the Company recorded charges in 2003, 2002 and 2001, which
are summarized in the table below.
Employee Other
Termination Inventory Exit
Benefits Writedown Cost Total
----------- ----------- ----------- -----------
January 1, 2001 $ - $ - $ - $ -
Additions in 2001 637,000 880,000 519,000 2,036,000
----------- ----------- ----------- -----------
Balance December 31, 2001 637,000 880,000 519,000 2,036,000
Additions in 2002 4,654,000 - - 4,654,000
Charges in 2002 (2,156,000) (1,445,000) (299,000) (3,900,000)
Changes in estimates (987,000) 565,000 301,000 (121,000)
----------- ----------- ----------- -----------
Balance December 31, 2002 2,148,000 - 521,000 2,669,000
Additions in 2003 81,000 322,000 1,233,000 1,636,000
Charges in 2003 (1,393,000) (322,000) (1,069,000) (2,784,000)
----------- ----------- ----------- -----------
Balance December 31, 2003 $ 836,000 $ - $ 685,000 $ 1,521,000
=========== =========== =========== ===========
During the fourth quarter of 2003, the Company recorded additional plant
closing charges of $1,834,000 which included $81,000 for health care costs
associated with early retirement, $322,000 for write off of raw material,
$1,233,000 for other exit costs, and $198,000 additional impairment of
machinery and equipment. The additions to the plant closing accrual were
primarily due to lower than expected inventory liquidation proceeds and
higher than expected costs associated with the shutdown of the Jackson,
Mississippi manufacturing facility and disposition efforts associated with
the Alamogordo, New Mexico manufacturing facility.
During the first quarter of 2002, the Company recorded a charge of
$3,953,000 related to involuntary termination benefits. In the fourth
quarter of 2002, the Company recorded an additional charge of $701,000
associated with additional employees identified by the Company for early
retirement and termination as a result of plant closing activities. The
total plant closing charge for 2002 was $.42 per share, net of tax, and
amounted to $4,585,000, of which $565,000 related to the write down of
inventory which was recorded in cost of sales and $52,000 of additional
machinery & equipment impairment.
During the fourth quarter of 2001, the Company recorded a charge of
$7,653,000 or $.70 per share, net of tax. This 2001 fourth quarter charge
included $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. The machinery and equipment impairment charge was computed
using fair values obtained from third party appraisers, equipment price
lists and other suppliers, which were compared to the historical net book
values at the time of the decision to close the plants. The provisions of
SFAS 121 were applied to the impaired assets in determining the amount of
impairment to record. Changes in estimates were recorded in the fourth
quarter of 2002, decreasing the employee termination benefit accrual and
increasing the inventory write-down and other exit cost accruals. The
estimated changes were primarily due to lower than expected health care
costs associated with employee termination benefits and higher than
expected costs associated with the shutdown of U.S. plant manufacturing
activities.
The total outsourcing of all Company housewares/small appliance product
manufacturing results in the creation of a new LIFO inventory category for
the outsourced products. The previous LIFO inventory reserve of
approximately $11,000,000 (Manufactured LIFO Reserve), which is associated
with the manufactured housewares/small appliance inventories prior to plant
closings, has been realized as this inventory category is sold. During 2003
and 2002, the Company recognized $5,000,000 and $5,300,000 (or $.46 and
$.48 per share, net of tax) reduction in cost of goods sold resulting from
the partial liquidation of the Manufactured LIFO Reserve. The Company
expects to largely liquidate the remainder of the Manufactured LIFO Reserve
of approximately $700,000 during 2004.
N. 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 and two acquisitions during 2003. The Company
Page 39 of 49
F-16
identifies its segments based on the Company's organization structure,
which is primarily by principal products. The principal product groups are
housewares/small appliances, defense products and absorbent products.
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. As more fully
described in Note M, the Company has exited U.S. manufacturing during 2001
and 2002 and now primarily sources its housewares/small appliance products
from nonaffiliated companies located in the Orient.
The defense segment was started in February 2001 with the acquisition of
AMTEC Corporation which manufactures precision mechanical and
electro-mechanical assemblies for the U.S. government and prime
contractors. This manufacturing plant is located in Janesville, Wisconsin.
During 2003, this segment was expanded with the acquisition of Spectra
Technologies LLC of East Camden, Arkansas. This facility performs Load,
Assemble and Pack (LAP) operations on ordnance related products for the
U.S. government and prime contractors.
The absorbent products line was started on November 19, 2001, with the
acquisition of certain assets from RMED International, Inc. This company
manufactures diapers at the Company's facilities in Eau Claire, Wisconsin.
The products are sold to retail outlets, distributors, and other absorbent
product manufacturers. During 2003, this segment was expanded with the
purchase of the assets of NCN Hygienic Products, Inc., a Marietta, Georgia,
manufacturer of adult incontinence products and training pads for pets.
In the following summary, operating profit represents earnings before other
income, principally interest income and income taxes.
The Company's segments operate discretely from each other with no shared
manufacturing facilities. Costs associated with corporate activities (such
as cash and marketable securities management) are included within the
housewares/small appliances segment for all periods presented.
Housewares /
Small Defense Absorbent
Appliances Products Products Total
------------ -------- --------- -----
YEAR ENDED DECEMBER 31, 2003
External net sales $112,337 $9,996(2) $11,502(3) $133,835
Gross profit 41,710 3,126 716 45,552
Operating profit 16,554(1)(4) 1,595 700 18,849
Total assets 275,004 13,828 12,561 301,393
Depreciation and amortization 1,164 142 1,047 2,353
Capital expenditures 934 1,389 580 2,903
YEAR ENDED DECEMBER 31, 2002
External net sales $116,032 $9,290 $ 8,407 $133,729
Gross profit 33,844 2,966 431 37,241
Operating profit (loss) 4,601(1)(4) 1,925 (131) 6,395
Total assets 270,042 11,899 8,053 289,994
Depreciation and amortization 954 153 827 1,934
Capital expenditures 1,425 1,771 212 3,408
YEAR ENDED DECEMBER 31, 2001
External net sales $111,264 $6,999(2) $ 815(3) $119,078
Gross profit 23,153 1,767 39 24,959
Operating profit (loss) (3,342)(1) 1,247 (147) (2,242)
Total assets 266,030 10,187 7,859 284,076
Depreciation and amortization 2,896 280 260 3,436
Capital expenditures 1,968 70 - 2,038
Page 40 of 49
F-17
(1)The operating loss in small appliances is after recording a charge for
plant closing costs of $7,653,000 in 2001, $4,585,000 in 2002 and
$1,834,000 in 2003 which is more fully described in Note M.
(2)The defense products segment was acquired on February 24, 2001,
accordingly, external net sales represents approximately ten months of
activity. Net sales in 2003 include five months sales of $250,000
related to the acquisition of Spectra Technologies LLC described in
Note L.
(3)The absorbent products division was acquired on November 19, 2001,
accordingly, external net sales represents approximately one month of
activity. Net sales in 2003 include three months sales of $2,900,000
related to the acquisition of the assets from NCN Hygienic Products,
Inc. described in Note L.
(4)The Company's Manufacturing LIFO Reserve was recognized approximately
$5,000,000 in 2003 and $5,300,000 in 2002 which is more fully
described in Note M.
O. INTERIM FINANCIAL INFORMATION (UNAUDITED):
The following represents unaudited financial information for 2003 and 2002:
(In Thousands)
------------------------------------------------
Net Gross Net Earnings
Quarter Sales Profit Earnings Per Share
----- ------ -------- ---------
2003
First $ 22,054 $ 6,227 $ 2,053 $ 0.30
Second 21,452 5,303 1,918 0.28
Third 26,849 8,870 2,078 0.30
Fourth 63,480 25,152 9,428 1.39
-------- ------- ------- ------
Total $133,835 $45,552 $15,477 $ 2.27
======== ======= ======= ======
2002
First $ 22,596 $ 3,057 $(2,360) $(0.35)
Second 20,378 4,103 1,083 0.16
Third 28,447 5,656 893 0.13
Fourth 62,308 24,425 9,074 1.33
-------- ------- ------- ------
Total $133,729 $37,241 $ 8,690 $ 1.27
======== ======= ======= ======
During the fourth quarter of 2003, the Company recorded plant closing costs
and changes in estimates related to plant closing activities of $1,834,000
and a reduction in cost of goods sold of $1,796,000 resulting from the sale
of products accounted for under the LIFO method which had been manufactured
in the Company's U.S. manufacturing plants which were closed in 2002. (See
Note M.)
During the fourth quarter of 2002, the Company recorded plant closing costs
and changes in estimates related to plant closing activities of $580,000
and a reduction in costs of goods sold of $4,079,000 resulting from the
sale of products accounted for under the LIFO method which had been
manufactured in the Company's U.S. manufacturing plants which were closed
in 2002. (See Note M) In addition, the Company recorded a $1,677,000
pension cost charge during the fourth quarter of 2002 primarily related to
the early retirement of long-term employees. (See Note G)
Page 41 of 49
F-18
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, 2003 and 2002, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2003 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, 2003. 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 13, 2004
Page 42 of 49
F-19
NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2003, 2002 and 2001
(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, 2003 $480 $(239) $(239) $480
==== ===== ===== ====
Year ended December 31, 2002 $480 $ 113 $ 113 $480
==== ===== ===== ====
Year ended December 31, 2001 $450 $ 226 $ 196 $480
==== ===== ===== ====
Notes:
(A) Amounts charged (credited) to selling and general expenses
(B) Principally bad debts written off, net of recoveries