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 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 2025 Annual Report to Stockholders, in the Proxy Statement for the annual meeting to be held on May 19, 2026, 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 $86,015,000 (34%), gross profit increased by $6,894,000 (15%), selling and general expenses increased by $4,476,000 (20%), impairment of vendor deposit increased $2,701,000, and amortization was consistent. Other income decreased by $3,007,000 (64%), earnings before provision for income taxes decreased by $3,290,000 (12%), and net earnings decreased by $2,649,000 (13%). Details concerning these changes can be found in the comments by segment below.

Current wording

On a consolidated basis, net sales increased by $15,010,000 (15%), gross profit decreased by $633,000 (4%), selling and general expenses increased by $2,078,000 (24%), gain on sale of property, plant and equipment increased $1,707,000, and amortization increased by $34,000. Other income decreased by $157,000 (21%), earnings before provision for income taxes decreased by $1,195,000 (12%), and net earnings decreased by $984,000 (13%). Details concerning these changes can be found in the comments by segment below.

Previous wording

Housewares/Small Appliance net sales decreased by $2,274,000 from $24,816,000 to $22,542,000, or 9%, which was attributable to a decrease in units shipped, approximately 53% of which was offset by increases in pricing. Defense net sales increased by $25,794,000 from $66,794,000 to $92,588,000 or 39%, primarily reflecting an increase in shipments from the segment's backlog.

Current wording

Housewares/Small Appliance net sales decreased by $3,428,000 from $21,926,000 to $18,498,000, or 16%, which was attributable to a decrease in units shipped, approximately 40% of which was offset by increases in pricing. The decrease in units shipped was due in large part to startup issues at the segment’s new warehousing facility and a resulting inability to ship during a portion of the quarter. Defense net sales increased by $18,634,000 from $80,938,000 to $99,572,000 or 23%, primarily reflecting an increase in shipments from the segment's backlog.

Previous wording

Housewares/Small Appliance gross profit decreased $4,692,000 from $4,997,000 to $305,000, primarily reflecting decrease in sales mentioned above and the impact of the various tariffs imposed under the second Trump term. Those tariffs are generally treated as period costs and expensed as they are incurred, reflecting the segment’s LIFO inventory cost valuation method. Defense gross profit increased $3,414,000 from $13,447,000 to $16,861,000, primarily reflecting the increase in sales mentioned above, partially offset by differences in product mix, efficiencies, and material costs. 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 $3,823,000 from $1,460,000 to a loss of $2,363,000, primarily reflecting decrease in sales mentioned above, augmented by a less favorable product mix, as well as an increase in costs incident to the startup of the segment’s new warehousing facility of approximately $1,909,000. Defense gross profit increased $3,160,000 from $17,630,000 to $20,790,000, primarily reflecting the increase in sales mentioned above, partially offset by a less favorable mix of products. 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 $339,000, primarily due to increases in legal and professional cost accruals of $197,000, and compensation related expenses of $197,000, offset by decreases in self-insurance accruals of $81,000. Selling and general expenses for the Defense segment increased $1,701,000, primarily attributed to the increases in personnel costs of $1,434,000, computer and software expense of $89,000, repairs and maintenance of $76,000, and legal and professional costs of $66,000. Selling and general expenses for the Safety segment decreased $440,000, primarily reflecting reduced personnel costs of $91,000, legal and professional costs of $91,000, and the gain recognized on the sale of OneEvent's refrigeration monitoring business that occurred on July 31, 2025 of $253,000.

Current wording

Selling and general expenses for the Housewares/Small Appliance segment increased $185,000, primarily reflecting increased cost accruals for health care of $656,000 and legal and professional of $286,000, and increased compensation costs of $191,000. These were offset by an increased allocation of corporate overhead to the Defense segment of $928,000. Selling and general expenses for the Defense segment increased $2,037,000, primarily attributable to increases in the allocation of corporate overhead of $928,000 and personnel costs of $618,000, and a write off of a note receivable of $208,000. Selling and general expenses for the Safety segment decreased $145,000, primarily reflecting reduced personnel costs of $87,000, and legal and professional costs of $78,000.

Previous wording

The $702,000 decrease in other income was attributable to a decrease in interest income of $553,000 on marketable securities and an increase in interest expense of $225,000 related to the outstanding balance of the Company's revolving line of credit during the third quarter of 2025. Both stem from the increased investments in inventory required to support augmented Defense segment awards.

Current wording

The $157,000 decrease in other income was attributable to a decrease in interest income on marketable securities of $85,000and an increase in interest expense related to the Company's revolving line of credit of $40,000. Both stem from the increased investments in inventory required to support augmented Defense segment awards.

Previous wording

Earnings before provision for income taxes decreased $3,513,000 from $10,373,000 to $6,860,000. The provision for income taxes decreased from $2,290,000 to $1,543,000, which resulted in an effective income tax rate of 23% and 22% for the quarters ended September 28, 2025 and September 29, 2024, respectively. Net earnings decreased $2,766,000 from $8,083,000 to $5,317,000, or 34%.

Current wording

Earnings before provision for income taxes decreased $1,195,000 from $9,808,000 to $8,613,000. The provision for income taxes decreased from $2,198,000 to $1,987,000, which resulted in an effective income tax rate of 23% and 22% for the quarters ended April 5, 2026 and March 30, 2025, respectively. Net earnings decreased $984,000 from $7,610,000 to $6,626,000, or 13%.

Previous wording

Net cash used in operating activities was $23,054,000 during the first nine months of 2025 as compared to $45,793,000 cash used during the first nine 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 nine months of 2025 were net earnings of $18,079,000, which included the non-cash impairment of a vendor deposit of $2,701,000 and depreciation and amortization expenses of $3,747,000. Contributing to the cash used were increases in accounts receivable and inventory levels, partially offset by net increases in payable and accrual levels. Of particular note during the first nine months of 2024 were net earnings of $20,728,000, which included non-cash depreciation and amortization expenses of $3,877,000. Contributing to the cash used were increases in inventory levels, as well as a net decrease in payable and accrual levels. These were partially offset by decreases in accounts receivable levels stemming from cash collections on customer sales and deposits made to vendors included in other current assets.

Current wording

Net cash provided by operating activities was $31,347,000 during the first three months of 2026 as compared to $12,460,000 during the first three months of 2025. 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 2026 were net earnings of $6,626,000, which included the non-cash depreciation and amortization expenses of $1,294,000 and book gain on the sale of property plant and equipment of $1,707,000. Contributing to the cash provided was a decrease in accounts receivable stemming from cash collections on customer sales, partially offset by a decrease in payable and accrual levels and increases in inventories and deposits made to vendors included in other current assets. 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.

Previous wording

Net cash used in investing activities was $22,398,000 for the first nine months of 2025, while net cash provided by investing activities was $5,981,000 for the first nine months of 2024. Significant factors contributing to the change were net maturities and sales of marketable securities of $2,476,000 in 2025, and $9,624,000 in 2024; and purchases of property, plant and equipment of $25,555,000 in 2025, as opposed to $3,873,000 in 2024.

Current wording

Net cash provided by investing activities was $2,560,000 for the first three months of 2026, while net cash used in investing activities was $22,083,000 for the first three months of 2025. Significant factors contributing to the change were purchases of property, plant and equipment of $1,950,000 in 2026, as opposed to $22,983,000 in 2025, and proceeds from the sale of property. plant and equipment of $4,510,000 in 2026.

Previous wording

Net cash provided by financing activities was $29,878,000 for the first nine months of 2025, while net cash used in financing activities was $31,516,000 for the first nine months of 2024. The change primarily relates to net proceeds from the Company's line of credit in 2025 of $36,900,000, as well as 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 nine month periods also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan. During 2025 and 2024, the Company incurred interest expense of $299,000 and $2,000 related to its line of credit, respectively.

Current wording

Net cash used in financing activities was $30,671,000 for the first three months of 2026, as compared to $7,022,000 cash used in financing activities for the first three months of 2025. The change primarily relates to net payments on the Company's line of credit in 2026 of $23,624,000, as opposed to $0 in 2025. Cash flows for both three month periods also reflected the payment of the $1.00 per share regular dividend and the proceeds from the sale of treasury stock to a Company sponsored retirement plan. During 2026 and 2025, the Company incurred interest expense of $44,000 and $4,000 related to its line of credit, respectively.

Previous wording

Working capital decreased by $6,828,000 during the first nine months of 2025 to $285,397,000 at September 28, 2025 for the reasons stated above. The Company's current ratio was 3.5 to 1.0 and 4.9 to 1.0 at September 28, 2025 and December 31, 2024, respectively.

Current wording

Working capital decreased by $2,179,000 during the first three months of 2026 to $310,257,000 at April 5, 2026 for the reasons stated above. The Company's current ratio was 5.9 to 1.0 and 4.2 to 1.0 at April 5, 2026 and December 31, 2025, respectively.

Previous wording

The Company recognizes the excess cost of acquired entities over the net amount assigned to the fair value of assets acquired and liabilities assumed as goodwill. Goodwill is tested for impairment on an annual basis at the start of the fourth quarter and between annual tests whenever an impairment is indicated. The impairment test for goodwill requires the determination of fair value of the reporting unit. The Company uses multiples of earnings before interest, taxes, depreciation, and amortization ("EBITDA"), sales, and discounted cash flow models, which are described above, to determine the reporting unit's fair value, as appropriate. The Company also uses qualitative analysis to assess goodwill impairment.

Current wording

The Company recognizes the excess cost of acquired entities over the net amount assigned to the fair value of assets acquired and liabilities assumed as goodwill. Goodwill, at the reporting unit level, is tested for impairment on an annual basis at the start of the fourth quarter and between annual tests whenever an impairment is indicated. The impairment test for goodwill requires the determination of fair value of the reporting units. The Company uses multiples of earnings before interest, taxes, depreciation, and amortization ("EBITDA"), sales, and discounted cash flow models, which are described above, to determine the reporting unit's fair value, as appropriate. The Company uses internal discounted cash flows estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. A number of assumptions and estimates are involved in the application of the discounted cash flow model including revenue projections, projected operating cash flow margins, and discount rates. The Company derives the required cash flow estimates from its historical experience and its internal business plans. The Company also utilizes qualitative analyses to assess goodwill impairment.