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 2024 Annual Report to Stockholders, in the Proxy Statement for the annual meeting to be held on May 20, 2025, 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 2024 Annual Report to Stockholders, in the Proxy Statement for the annual meeting held on May 20, 2025, 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

On a consolidated basis, net sales increased by $26,986,000 (35%), gross profit increased by $4,258,000 (31%), selling and general expenses increased by $1,465,000 (20%), and amortization was consistent. Other income decreased by $1,337,000 (64%), earnings before provision for income taxes increased by $1,456,000 (17%), and net earnings increased by $1,042,000 (16%). Details concerning these changes can be found in the comments by segment below.

Current wording

On a consolidated basis, net sales increased by $35,389,000 (42%), gross profit increased by $3,847,000 (26%), selling and general expenses increased by $1,411,000 (18%), impairment of vendor deposit increased $2,701,000, and amortization was consistent. Other income decreased by $968,000 (65%), earnings before provision for income taxes decreased by $1,233,000 (16%), and net earnings decreased by $925,000 (15%). Details concerning these changes can be found in the comments by segment below.

Previous wording

Housewares/Small Appliance net sales increased by $659,000 from $21,267,000 to $21,926,000, or 3%, which was primarily attributable to an increase in units shipped. Defense net sales increased by $25,898,000 from $55,040,000 to $80,938,000 or 47%, primarily reflecting an increase in shipments from the segment's backlog.

Current wording

Housewares/Small Appliance net sales increased by $1,679,000 from $18,667,000 to $20,346,000, or 9%, 72% of which was attributable to an increase in units shipped, with the balance of the increase related to increases in pricing. Defense net sales increased by $33,687,000 from $66,126,000 to $99,813,000 or 51%, primarily reflecting an increase in shipments from the segment's backlog.

Previous wording

The $1,337,000 decrease in other income was primarily attributable to a decrease in interest income on marketable securities largely stemming from a lower average daily investment as a result of larger investments in inventory required to support augmented defense segment awards.

Current wording

The $968,000 decrease in other income was primarily attributable to a decrease in interest income on marketable securities largely stemming from a lower average daily investment as a result of larger investments in inventory required to support augmented Defense segment awards.

Previous wording

Earnings before provision for income taxes increased $1,456,000 from $8,352,000 to $9,808,000. The provision for income taxes increased from $1,784,000 to $2,198,000, which resulted in an effective income tax rate of 22% and 21% for the quarters ended March 30, 2025 and March 31, 2024, respectively. Net earnings increased $1,042,000 from $6,568,000 to $7,610,000, or 16%.

Current wording

Earnings before provision for income taxes decreased $1,233,000 from $7,846,000 to $6,613,000. The provision for income taxes decreased from $1,769,000 to $1,461,000, which resulted in an effective income tax rate of 22% and 23% for the quarters ended June 29, 2025 and June 30, 2024, respectively. Net earnings decreased $925,000 from $6,077,000 to $5,152,000, or 15%.

Previous wording

Housewares/Small Appliance gross profit decreased $1,648,000 from $3,108,000 to $1,460,000, primarily reflecting the increase in sales mentioned above, offset by a less favorable mix of products and higher material costs. The Trump administration's tariffs that went into effect on goods deemed to have been shipped from the Orient after January 31, 2025 also unfavorably affected earnings. Those tariffs are treated as period costs at the time they are incurred. Defense gross profit increased $5,706,000 from $11,924,000 to $17,630,000, primarily reflecting the increase in sales mentioned above. 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

Notwithstanding the increase in sales mentioned above, Housewares/Small Appliance gross profit decreased $4,629,000 from $6,569,000 to $1,940,000, primarily reflecting the Trump administration's tariffs that went into effect on goods deemed to have been shipped from the Orient after January 31, 2025. Those tariffs are generally treated as period costs and expensed as they are incurred, reflecting the segment’s LIFO inventory cost valuation method. To a lesser degree, increases in the cost of materials and a less favorable product mix had a negative effect on the segment’s gross profit, which were partially offset by lower repair costs at its main facility. Defense gross profit increased $12,127,000 from $24,703,000 to $36,830,000, primarily reflecting the increase in sales mentioned above. 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 segment increased $737,000, primarily due to the increase in legal and professional costs of $253,000, the absence of the favorable adjustment to the reserve for bad debts of $285,000 from the prior year, and an increase health care cost accruals of $202,000. Selling and general expenses for the Defense segment increased $832,000, primarily attributed to the increases in personnel costs of $609,000, legal and professional costs of $163,000, and repairs and maintenance of $107,000. Selling and general expenses for the Safety segment decreased $104,000, primarily reflecting reduced personnel costs.

Current wording

Selling and general expenses for the Housewares/Small Appliance segment increased $1,374,000, primarily due to an increase in self-insurance accruals of $756,000, an increase in legal and professional costs of $253,000, and the absence of the favorable adjustment to the reserve for bad debts of $285,000 that occurred in the prior year. Selling and general expenses for the Defense segment increased $1,664,000, primarily attributed to the increases in personnel costs of $1,334,000, repairs and maintenance of $192,000, and legal and professional costs of $139,000. Selling and general expenses for the Safety segment decreased $162,000, primarily reflecting reduced personnel costs of $126,000 and travel expenses of $112,000.

Previous wording

Net cash provided by operating activities was $12,460,000 during the first three months of 2025 compared to $5,555,000 during the first three months of 2024. 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 2025 were net earnings of $7,610,000, which included non-cash depreciation and amortization expenses of $1,220,000. 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. These were partially offset by increases in inventory levels and deposits made to vendors included in other current assets. 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.

Current wording

Net cash provided by operating activities was $1,542,000 during the first six months of 2025 as compared to $28,328,000 cash used during the first six months of 2024. 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 2025 were net earnings of $12,762,000, which included the non-cash impairment of a vendor deposit of $2,701,000 and depreciation and amortization expenses of $2,460,000. Contributing to the cash provided was a decrease in accounts receivable levels stemming from cash collections on customer sales. These were partially offset by a decrease in payable and accrual levels and increases in inventory levels and deposits made to vendors included in other current assets. 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.

Previous wording

Net cash used in investing activities was $22,083,000 for the first three months of 2025, and net cash provided by investing activities was $1,868,000 for the first three months of 2024. Significant factors contributing to the change were net maturities and sales of marketable securities of $497,000 in 2025, and $2,083,000 in 2024; and purchases of property, plant and equipment of $22,983,000 in 2025, as opposed to $389,000 in 2024.

Current wording

Net cash used in investing activities was $23,062,000 for the first six months of 2025, and net cash provided by investing activities was $4,758,000 for the first six months of 2024. Significant factors contributing to the change were net maturities and sales of marketable securities of $1,983,000 in 2025, and $5,576,000 in 2024; and purchases of property, plant and equipment of $25,449,000 in 2025, as opposed to $1,048,000 in 2024.

Previous wording

Net cash used in financing activities was $7,022,000 and $31,534,000, for the first three months of 2025 and 2024, respectively, and primarily relates to the annual dividend payments. There was no extra dividend payment during 2025. In 2024, the extra dividend was $3.50 per share. Cash flows for both three month periods also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan. In addition, the Company drew on and repaid its line of credit during 2025, incurring interest expense of $4,000.

Current wording

Net cash provided by financing activities was $5,614,000 for the first six months of 2025, and net cash used in financing activities was $31,516,000 for the first six months of 2024. The change primarily relates to the annual dividend payments. There was no extra dividend payment during 2025. In 2024, the extra dividend was $3.50 per share. Also contributing to the change were net proceeds from the Company’s line of credit of $12,636,000 in 2025. Cash flows for both six month periods also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan. During 2025, the Company incurred interest expense of $75,000 related to its line of credit.

Previous wording

Working capital decreased by $20,770,000 during the first three months of 2025 to $271,455,000 at March 30, 2025 for the reasons stated above. The Company's current ratio was 4.6 to 1.0 and 4.9 to 1.0 at March 30, 2025 and December 31, 2024, respectively.

Current wording

Working capital decreased by $13,866,000 during the first six months of 2025 to $278,359,000 at June 29, 2025 for the reasons stated above. The Company's current ratio was 4.2 to 1.0 and 4.9 to 1.0 at June 29, 2025 and December 31, 2024, respectively.

Previous wording

The Company's discussion and analysis of financial condition and results of operations are based upon its Consolidated Financial Statements. The preparation of the Company's 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. The estimates are based on experience and other assumptions that the Company believes are reasonable under the circumstances, and these estimates are evaluated on an ongoing basis. Actual results may differ from those estimates.

Current wording

The Company's discussion and analysis of financial condition and results of operations are based upon its Consolidated Financial Statements. The preparation of the Company's 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 as of the date of the Consolidated Financial Statements and revenues and expenses during the periods reported. The estimates are based on experience and other assumptions that the Company believes are reasonable under the circumstances, and these estimates are evaluated on an ongoing basis. Actual results may differ from those estimates.