NATIONAL PRESTO INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION



The following unaudited pro forma condensed consolidated financial information is based upon the historical financial statements of National Presto Industries, Inc. (the “Company”), including certain pro forma adjustments, and has been prepared to illustrate the pro forma effect of the sale of substantially all assets and assignment of certain liabilities of the Company’s Absorbent Products business to Drylock Technologies Ltd. (“Drylock”) in exchange for $67,000,000, subject to customary post-closing adjustments. The sales transaction also provides for additional proceeds of $4,000,000 upon the sale of certain delayed assets at a future date.  As a result of this transaction, effective in the fourth quarter of 2016, the Company will classify its results of operations for all periods presented to reflect the Absorbent Products business as a discontinued operation.

The unaudited pro forma condensed consolidated statements of earnings for the nine months ended October 2, 2016 and the years ended December  31, 2015, 2014, and 2013 are presented as if the sales transaction had occurred as of January 1, 2013. The unaudited pro forma condensed consolidated balance sheet as of October 2, 2016 is presented as if the sales transaction had occurred as of October 2, 2016.

The historical financial information on which the pro forma statements are based is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 15, 2016 and the Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2016 filed with the Securities and Exchange Commission on November 14, 2016.  The pro forma condensed consolidated financial statements and the notes thereto should be read in conjunction with these historical consolidated financial statements.

The unaudited pro forma condensed consolidated financial information has been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the financial position or results of operations that might have occurred had the sale occurred as of the dates stated above or for any period following the sale of the Absorbent Products business. The pro forma adjustments are described in the notes and the unaudited pro forma condensed consolidated financial information should be read in conjunction with the related notes.































































































NATIONAL PRESTO INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION



NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed consolidated financial statements give effect to the pro forma adjustments necessary to reflect the sale of substantially all assets and assignment of certain liabilities of the Company’s Absorbent Products business to Drylock Technologies, Ltd. (“Drylock”) in exchange for $67,000,000 as if it occurred as of January 1, 2013 in the pro forma condensed consolidated statements of earnings for the nine months ended October 2, 2016 and the years ended December  31, 2015, 2014, and 2013, and as of October 2, 2016 in the pro forma condensed consolidated balance sheet. The additional proceeds of $4,000,000 for the sale of certain delayed assets at a future date are not reflected in the pro forma condensed consolidated financial statements. As a result of the transaction described above, effective in the fourth quarter of 2016, the Company will classify its results of operations for all periods presented to reflect the Absorbent Products business as a discontinued operation.

In accordance with SEC Regulation S-X, the pro forma statements of operations disclose earnings from continuing operations and therefore exclude historical earnings (loss) from discontinued operations of $1,578,000 for the nine months ended October 2, 2016 and $(1,409,000), $(3,870,000), and $1,435,000 for the years ended December  31, 2015, 2014, and 2013, respectively.



NOTE 2. PRO FORMA ADJUSTMENTS

The unaudited pro forma condensed consolidated statements of earnings and balance sheet reflect the effect of the following pro forma adjustments:

(1) Reduction of revenue and expenses as a result of the sale of substantially all of the assets and certain liabilities of the Absorbent Products business to Drylock. These amounts do not consider an allocation of general corporate overhead costs not specifically related to the Absorbent Products business and therefore, selling, general and administrative expenses do not reflect any potential reductions in corporate costs in response to this change in the Company. The Company also expects to receive cost reimbursements of approximately $600,000 for services provided pursuant to a transition services agreement. This activity is nonrecurring and has not been adjusted within the pro forma condensed consolidated statements of earnings. Estimated tax rates for the Absorbent Products business used for the nine months ended October 2, 2016 and the years ended December  31 2015, 2014, and 2013 were 33.5%, 33.9%, 34.4%, and 34.9%, respectively, and are based on the application of the intraperiod tax allocation model in Accounting Standards Codification 740, Income Taxes.

(2) Other adjustments.  In connection with the sale, the Company entered into a 10-year lease agreement with Drylock for a portion of its manufacturing/warehouse facility.  The lease agreement provides for annual payments of $1,288,000 and also provides Drylock an option for early termination of the lease after the initial 5 years and an option to modify the space subject to the agreement.  In addition, the lease agreement allows for adjustments to the rental payments based on certain price indices. Rental income is included in Other Income of the Company’s continuing operations in the pro forma condensed consolidated statements of earnings for all periods presented.

(3) The elimination of assets and liabilities associated with the Absorbent Products business included in the Company’s historical condensed consolidated financial statements subject to the terms of the sales transaction. The increase in cash and cash equivalents of $67,000,000 represents the proceeds received from Drylock upon closing of the sales transaction.  The decrease in income tax receivable of $4,562,000 reflects the increase in income taxes currently payable related to the sale. The increase to retained earnings of $9,056,000 approximates the estimated after-tax gain on the sale, which has not been adjusted within the pro forma condensed consolidated statements of earnings.   The gain does not reflect the proceeds from the sale of the delayed assets described above.  The accounting for the gain on sale of the Absorbent Products business has not been finalized, as the estimated gain does not reflect final net income tax liability relating to the transaction, and other adjustments, as necessary, to account for the other concurrent transactions.

(4)  Other adjustments. At closing, the net deferred tax liabilities related to the Absorbent Products business subject to the terms of the sales transaction of $7,926,000 were reclassified as current liabilities.  As a result, deferred income taxes and income tax payable were also reclassified under their proper balance sheet captions.  The

pro forma condensed consolidated balance sheet also reflects the after-tax effect of costs resulting directly from the transaction of $2,884,000.