NATIONAL PRESTO INDUSTRIES INC

Previous wording

Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in the Company’s 2023 Annual Report to Stockholders, in the Proxy Statement for the annual meeting to be held on May 21, 2024, and in the Company’s press releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the Notes to Consolidated Financial Statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and market acceptance of new products; increases in material, freight/shipping, tariffs, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized work force; changes in government requirements, military spending, and funding of government contracts, which could result in, among other things, the modification or termination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the ability of startup businesses to ultimately have the potential to be successful; the efficient start-up and utilization of capital equipment investments; political actions of federal and state governments which could have an impact on everything from the value of the U.S dollar vis-à-vis other currencies to the availability of affordable labor and energy; and security breaches and disruptions to the Company’s information technology systems. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings.

Current wording

Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in the Company’s 2023 Annual Report to Stockholders, in the Proxy Statement for the annual meeting held on May 21, 2024, and in the Company’s press releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the Notes to Consolidated Financial Statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and market acceptance of new products; increases in material, freight/shipping, tariffs, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized work force; changes in government requirements, military spending, and funding of government contracts, which could result in, among other things, the modification or termination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the ability of startup businesses to ultimately have the potential to be successful; the efficient start-up and utilization of capital equipment investments; political actions of federal and state governments which could have an impact on everything from the value of the U.S dollar vis-à-vis other currencies to the availability of affordable labor and energy; and security breaches and disruptions to the Company’s information technology systems. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings.

Previous wording

The Company faces a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases. A global health crisis like the COVID-19 pandemic has contributed to business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, reductions in demand for products and services, inflationary pressures and market volatility. If a health epidemic, pandemic or similar outbreak were to occur or worsen, the Company will likely experience broad and varied impacts, including potentially labor shortages, supply chain disruptions, inflationary pressures and increased costs (which may or may not be fully recoverable or insured), contracting, production and/or distribution delays, market volatility and other financial impacts. If any or all of these items were to occur, the Company could experience material adverse impacts on its business, financial condition, results of operations and/or cash flows.

Current wording

The Company faces a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases. A global health crisis, COVID-19 pandemic contributed to business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, changes in demand for products and services, inflationary pressures and market volatility. If a health epidemic, pandemic or similar outbreak were to occur or worsen, the Company will likely experience broad and varied impacts, including potentially labor shortages, supply chain disruptions, inflationary pressures and increased costs (which may or may not be fully recoverable or insured), contracting, production and/or distribution delays, market volatility and other financial impacts. If any or all of these items were to occur, the Company could experience material adverse impacts on its business, financial condition, and results of operations and/or cash flows.

Previous wording

Housewares/Small Appliance gross profit decreased $1,598,000 from $4,706,000 to $3,108,000, primarily reflecting changes in the product mix, as well as higher repair costs at its main facility. Defense gross profit decreased $2,135,000 from $14,059,000 to $11,924,000, primarily reflecting the decrease in sales mentioned above and changes to the product mix. Due to the startup nature of the businesses in the Safety segment and the resulting limited revenues, gross margins were negative in both years.

Current wording

Housewares/Small Appliance gross profit decreased $727,000 from $4,188,000 to $3,461,000, primarily reflecting increases in the cost of ocean shipping, as well as higher repair costs at its main facility. Defense gross profit increased $2,586,000 from $10,193,000 to $12,779,000, primarily reflecting the increase in sales mentioned above, changes to the product mix, and improved efficiencies. Due to the startup nature of the businesses in the Safety segment and the resulting limited revenues, gross margins were negative in both years.

Previous wording

Selling and general expenses for the Housewares/Small Appliance decreased $702,000, primarily reflecting decreased accruals mainly relating to legal and professional costs of $382,000, and bad debts of $285,000. Selling and general expenses for the Defense segment were relatively flat**.** Selling and general expenses for the Safety segment decreased $319,000,** **primarily reflecting the decreased personnel costs of $189,000 and decreased legal and professional cost of $110,000.

Current wording

Selling and general expenses for the Housewares/Small Appliance were relatively flat. Selling and general expenses for the Defense segment increased $664,000, primarily reflecting increased personnel and recruiting costs of $281,000 and the absence of a prior year adjustment of $313,000 related to the purchase of Woodlawn manufacturing, LTD., which was acquired on October 26, 2022.** **Selling and general expenses for the Safety segment decreased $351,000, primarily reflecting the decreased personnel costs of $173,000 and decreased legal and professional costs of $132,000.

Previous wording

The $222,000 increase in other income was primarily attributable to an increase in interest income on marketable securities largely stemming from higher yields on a lower average daily investment.

Current wording

The $389,000 decrease in other income was primarily attributable to a decrease in interest income on marketable securities largely stemming from higher yields on a lower average daily investment.

Previous wording

On a consolidated basis, net sales decreased by $3,756,000 (5%), gross profit decreased by $4,167,000 (23%), selling and general expenses decreased by $1,024,000 (13%), and amortization was flat. Other income increased by $222,000 (12%), earnings before provision for income taxes decreased by $2,921,000 (26%), and net earnings decreased by $2,310,000 (26%). Details concerning these changes can be found in the comments by segment below.

Current wording

On a consolidated basis, net sales increased by $2,358,000 (2%), gross profit decreased by $2,848,000 (9%), selling and general expenses decreased by $744,000 (5%), and amortization decreased by $72,000 (9%).** **Other income decreased by $167,000 (5%), earnings before provision for income taxes decreased by $2,199,000 (12%), and net earnings decreased by $1,736,000 (12%). Details concerning these changes can be found in the comments by segment below.

Previous wording

Housewares/Small Appliance net sales were relatively flat, increasing by $215,000 from $21,052,000 to $21,267,000, or 1%. Increases in volume of $1,240,000 were essentially offset by decreases in product pricing.** **Defense net sales decreased by $3,818,000 from $58,858,000 to $55,040,000 or 7%, primarily reflecting an decrease in shipments from the segment's backlog.

Current wording

Housewares/Small Appliance net sales were relatively flat, decreasing by $54,000 from $39,988,000 to $39,934,000.** Increases in volume of $1,177,000 were essentially offset by decreases in product pricing. **Defense net sales increased by $2,603,000 from $118,563,000 to $121,166,000 or 2%, primarily reflecting an increase in shipments from the segment's backlog.

Previous wording

Earnings before provision for income taxes decreased $2,921,000 from $11,273,000 to $8,352,000. The provision for income taxes decreased from $2,395,000 to $1,784,000. The effective income tax rate was 21% for the quarters ended March 31, 2024 and April 2, 2023. Net earnings decreased $2,310,000 from $8,878,000 to $6,568,000, or 26%.

Current wording

Earnings before provision for income taxes decreased $2,199,000 from $18,397,000 to $16,198,000. The provision for income taxes decreased from $4,016,000 to $3,553,000. The effective income tax rate was 22% for the first six months ended June 30, 2024 and July 2, 2023. Net earnings decreased $1,736,000 from $14,381,000 to $12,645,000, or 12%.

Previous wording

Net cash provided by operating activities was $5,555,000 and $37,471,000 during the first three months of 2024 and 2023, respectively. The principal factors contributing to the change can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during the first three months of 2024 were net earnings of $6,568,000, which included non-cash depreciation and amortization expenses of $1,474,000. Contributing to the cash provided were decreases in accounts receivable levels stemming from cash collections on customer sales, offset by increases in inventory levels, as well as prepayments included in other current assets. Of particular note during the first three months of 2023 were net earnings of $8,878,000, which included non-cash depreciation and amortization expenses of $1,707,000. Contributing to the cash provided were a large decrease in accounts receivable levels stemming from cash collections on customer sales and increases in payable and accrual levels, partially offset by increases in inventory levels and increases in deposits made to vendors included in other assets and current assets.

Current wording

Net cash used in operating activities was $28,328,000 during the first six months of 2024 compared to $33,001,000 provided by operating activities during the first six months of 2023. The principal factors contributing to the change can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during the first six months of 2024 were net earnings of $12,645,000, which included non-cash depreciation and amortization expenses of $2,684,000. Contributing to the cash used were increases in accounts receivable and inventory levels, as well as a decrease in federal and state taxes due. Of particular note during the first six months of 2023 were net earnings of $14,381,000, which included non-cash depreciation and amortization expenses of $2,951,000. Contributing to the cash provided were a decrease in accounts receivable levels stemming from cash collections on customer sales and increases in payable and accrual levels, partially offset by increases in inventory levels.

Previous wording

Net cash provided by investing activities was $1,868,000 for the first three months of 2024, and net cash used in investing activities was $4,601,000 for the first three months of 2023. Significant factors contributing to the change were net maturities and sales of marketable securities of $2,083,000 in 2024, in contrast with net marketable securities purchased of $4,132,000 in 2023.

Current wording

Net cash provided by investing activities was $4,758,000 for the first six months of 2024, and net cash used in investing activities was $2,394,000 for the first six months of 2023. Significant factors contributing to the change were net maturities and sales of marketable securities of $5,576,000 in 2024, in contrast with net marketable securities purchased of $1,472,000 in 2023.

Previous wording

Net cash used in financing activities was $31,534,000 and $27,956,000, for the first three months of 2024 and 2023, respectively, and primarily relates to the annual dividend payments. The extra dividend increased from $3.00 per share in 2023 to $3.50 per share in 2024. Cash flows for both three month periods also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan.

Current wording

Net cash used in financing activities was $31,516,000 and $27,956,000, for the first six months of 2024 and 2023, respectively, and primarily relates to the annual dividend payments. The extra dividend increased from $3.00 per share in 2023 to $3.50 per share in 2024. Cash flows for both six month periods also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan.

Previous wording

Working capital decreased by $23,524,000 during the first three months of 2024 to $264,567,000 at March 31, 2024 for the reasons stated above. The Company's current ratio was 4.6 to 1.0 and 5.0 to 1.0 at March 31, 2024 and December 31, 2023, respectively.

Current wording

Working capital decreased by $16,524,000 during the first six months of 2024 to $271,567,000 at June 30, 2024 for the reasons stated above. The Company's current ratio was 5.0 to 1.0 at both June 30, 2024 and December 31, 2023.

Previous wording

The Company has substantial liquidity in the form of cash and cash equivalents and marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means. The bulk of its marketable securities are invested in certificates of deposit and the variable rate demand notes described in Item 3 of Part I of this quarterly report on Form 10-Q, fixed rate municipal notes and bonds. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings.

Current wording

The Company has substantial liquidity in the form of cash and cash equivalents and marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means. The bulk of its marketable securities are invested in certificates of deposit and the variable rate demand notes described in Item 3 of Part I of this quarterly report on Form 10-Q. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings.

Previous wording

New Housewares/Small Appliance and safety product introductions are an important part of the Company’s sales. In the case of the Housewares/Small Appliance segment, the introductions are important to offset the morbidity rate of other products and/or the effect of lowered acceptance of seasonal products due to weather conditions. New products entail unusual risks and have occasionally, in the past, resulted in losses related to obsolete or excess inventory as a result of low or diminishing demand for a product. The Housewares/Small Appliance segment recorded impairments related to such losses of $1,216,000 during the year ended 2023. There were no other obsolescence issues that had a material effect during the three months ended March 31, 2024 . In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related inventory. Inventory risk for the Company’s Defense segment is not deemed to be significant, as products are largely built pursuant to customers’ specific orders.

Current wording

New Housewares/Small Appliance and safety product introductions are an important part of the Company’s sales. In the case of the Housewares/Small Appliance segment, the introductions are important to offset the morbidity rate of other products and/or the effect of lowered acceptance of seasonal products due to weather conditions. New products entail unusual risks and have occasionally, in the past, resulted in losses related to obsolete or excess inventory as a result of low or diminishing demand for a product. The Housewares/Small Appliance segment recorded impairments related to such losses of $1,216,000 during the year ended 2023. There were no other obsolescence issues that had a material effect during the six months ended June 30, 2024. In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related inventory. Inventory risk for the Company’s Defense segment is not deemed to be significant, as products are largely built pursuant to customers’ specific orders.