National Presto Industries : Quarterly Report for Quarter Ending July 5, 2026 (Form 10-Q)

About this update from National Presto Industries, Inc.

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-Q, in the Company's 2025 Annual Report to Stockholders, in the Proxy Statement for the annual meeting 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. Comparison of Second Quarter 2026 and 2025 Readers are directed to Note D to the Consolidated Financial Statements, "Business Segments," for data on the financial results of the Company's three business segments for the quarters ended July 5, 2026 and June 29, 2025. On a consolidated basis, net sales increased by $26,147,000 (22%), gross profit increased by $10,001,000 (54%), selling and general expenses decreased by $698,000 (7%), impairment of vendor deposit decreased $2,701,000, and amortization increased by $82,000 (22%). Other income increased by $284,000 (55%), earnings before provision for income taxes increased by $13,602,000 (206%), and net earnings increased by $10,710,000 (208%). Details concerning these changes can be found in the comments by segment below. Housewares/Small Appliance net sales decreased by $1,263,000 from $20,346,000 to $19,083,000, or 6%, which was attributable to a decrease in units shipped, approximately 58% was offset in part by increases in pricing. Defense net sales increased by $27,144,000 from $99,813,000 to $126,957,000 or 27%, primarily reflecting an increase in shipments from the segment's backlog. Notwithstanding the decrease in sales mentioned above, Housewares/Small Appliance gross profit increased $4,228,000 from $480,000 to $4,708,000, primarily reflecting a refund of a portion of the tariffs the segment had paid that the Supreme Court declared unauthorized in its February 2026 decision. By contrast, a portion of the declared unauthorized tariffs were paid during the second quarter of 2025. Tariffs are generally recognized as they are refunded or incurred, reflecting the segment's LIFO inventory cost valuation method. The balance of the change in gross profit was attributable to an increase in costs incident to the startup of the segment's new warehousing facility of approximately $450,000. Defense gross profit increased $5,741,000 from $19,200,000 to $24,941,000, 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. Selling and general expenses for the Housewares/Small Appliance segment decreased $1,384,000, primarily reflecting an increased allocation of corporate overhead to the Defense segment of $642,000 and decreased cost accruals for self insurance of $770,000. Selling and general expenses for the Defense segment increased $788,000, primarily attributable to the increase in the allocation of corporate overhead. Selling and general expenses for the Safety segment decreased $102,000, primarily reflecting reduced personnel costs. During the first quarter of 2025, the Company made deposits totaling $2,701,000 with a vendor in its Housewares/Small Appliances segment. On May 29, 2025, the vendor filed for protection in the U.S. Bankruptcy Court in the Northern District of Texas. As recovery of the deposit was deemed unlikely, the Company recorded an impairment of the full deposit during the second quarter of 2025. Intangibles amortization increased $82,000, reflecting amortization of a trade secret intangible asset used in in the fulfillment of certain contracts in the Defense segment. The above items were responsible for the change in operating profit. The $284,000 increase in other income was primarily attributable to an increase in interest income on marketable securities of $125,000 and a decrease in interest expense related to the Company's revolving line of credit of $71,000. Earnings before provision for income taxes increased $13,602,000 from $6,613,000 to $20,215,000. The provision for income taxes increased from $1,461,000 to $4,353,000, which resulted in an effective income tax rate of 22% for both quarters ended July 5, 2026 and June 29, 2025. Net earnings increased $10,710,000 from $5,152000 to $15,862,000, or 208%. Comparison of First Six Months 2026 and 2025 Readers are directed to Note D to the Consolidated Financial Statements, "Business Segments," for data on the financial results of the Company's three business segments for the first six months ended July 5, 2026 and June 29, 2025. The Company reports its operations on a fiscal quarter basis in which each quarter contains approximately thirteen weeks and ends on a Sunday, with the exception of the fourth quarter, which ends on December 31. Occasionally, the end dates of the fiscal quarters are adjusted to account for differences that accumulate between the end of the fiscal year and the end of the subsequent first quarter. One such adjustment occurred during the quarter ended April 5, 2026. On a consolidated basis, net sales increased by $41,157,000 (18%), gross profit increased by $9,368,000 (26%), selling and general expenses increased by $1,380,000 (8%), gain on sale of property, plant and equipment increased $1,707,000, impairment of vendor deposit decreased $2,701,000, and amortization increased by $116,000 (15%). Other income increased by $127,000 (10%), earnings before provision for income taxes increased by $12,407,000 (76%), and net earnings increased by $9,726,000 (76%). Details concerning these changes can be found in the comments by segment below. Housewares/Small Appliance net sales decreased by $4,691,000 from $42,272,000 to $37,581,000, or 11%, which was attributable to a decrease in units shipped, approximately 45% 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 first quarter. Defense net sales increased by $45,778,000 from $180,751,000 to $226,529,000 or 25%, primarily reflecting an increase in shipments from the segment's backlog. Notwithstanding the decrease in sales mentioned above, Housewares/Small Appliance gross profit increased $405,000 from $1,940,000 to $2,345,000, primarily reflecting a refund of a portion of the tariffs the segment had paid that the Supreme Court declared unauthorized in its February 2026 decision. By contrast, a portion of the declared unauthorized tariffs were paid during the first six months of 2025. Tariffs are generally recognized as they are refunded or incurred, reflecting the segment's LIFO inventory cost valuation method. The balance of the change in gross profit was attributable to an increase in costs incident to the startup of the segment's new warehousing facility of approximately $2,359,000. Defense gross profit increased $8,901,000 from $36,830,000 to $45,731,000, 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. Selling and general expenses for the Housewares/Small Appliance segment decreased $1,199,000, primarily reflecting the increased allocation of corporate overhead to the Defense segment of $1,569,000 and decreased accruals for self-insurance of $114,000, partially offset by increased compensation of $327,000 and legal and professional costs of $159,000. Selling and general expenses for the Defense segment increased $2,825,000, primarily attributable to increases in the allocation of corporate overhead of $1,569,000, personnel costs of $704,000, repairs and maintenance costs of $137,000, and a write off of a note receivable of $208,000. Selling and general expenses for the Safety segment decreased $246,000, primarily reflecting reduced personnel costs of $192,000 and legal and professional costs of $74,000. The gain on sale of property, plant and equipment stemmed from the February 10, 2026 sale of the Company's warehousing facility in Canton, Mississippi that mainly served the Housewares/Small Appliance segment. Subsequent to the sale, the Company entered into a short-term lease agreement with the buyer, as it completes its warehousing operations transfer to the new warehousing facility in Nettleton, Mississippi. During the first quarter of 2025, the Company made deposits totaling $2,701,000 with a vendor in its Housewares/Small Appliances segment. On May 29, 2025, the vendor filed for protection in the U.S. Bankruptcy Court in the Northern District of Texas. As recovery of the deposit was deemed unlikely, the Company recorded an impairment of the full deposit during the second quarter of 2025. Intangibles amortization increased $116,000, reflecting amortization of a trade secret intangible asset used in the fulfillment of certain contracts in the Defense segment. The above items were responsible for the change in operating profit. The $127,000 increase in other income was primarily attributable to an increase in interest income on marketable securities of $40,000, an increase in rental income of $52,000, and a decrease in interest expense related to the Company's revolving line of credit of $31,000. Earnings before provision for income taxes increased $12,407,000 from $16,421,000 to $28,828,000. The provision for income taxes increased from $3,659,000 to $6,340,000, which resulted in an effective income tax rate of 22% for both six month periods ended July 5, 2026 and June 29, 2025. Net earnings increased $9,726,000 from $12,762,000 to $22,488,000, or 76%. Liquidity and Capital Resources Net cash provided by operating activities was $44,144,000 during the first six months of 2026 as compared to $1,542,000 during the first six 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 six months of 2026 were net earnings of $22,488,000, which included the non-cash depreciation and amortization expenses of $2,980,000 and book gain on the sale of property plant and equipment of $1,707,000. Contributing to the cash provided were a decrease in accounts receivable stemming from cash collections on customer sales and an increase in payable and accrual levels, partially offset by increases in inventory levels and deposits made to vendors included in other current assets. 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. Net cash used in investing activities was $933,000 for the first six months of 2026, and $23,062,000 for the first six months of 2025. Significant factors contributing to the change were purchases of property, plant and equipment of $5,449,000 in 2026, as opposed to $25,449,000 in 2025, and proceeds from the sale of property, plant and equipment of $4,510,000 in 2026. Also contributing to the change were net maturities and sales of marketable securities of $6,000 in 2026, in contrast to $1,983,000 in 2025. Net cash used in financing activities was $30,671,000 for the first six months of 2026, as compared to $5,614,000 cash provided by financing activities for the first six 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 net proceeds from the line of credit of $12,636,000 in 2025. Cash flows for both six 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 $75,000 related to its line of credit, respectively. Working capital increased by $16,500,000 during the first six months of 2026 to $324,611,000 at July 5, 2026 for the reasons stated above. The Company's current ratio was 5.2 to 1.0 and 4.2 to 1.0 at July 5, 2026 and December 31, 2025, respectively. The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions, as well as continue to make capital investments in its business segments per existing authorized projects and for additional projects, if the appropriate return on investment is projected. The Company has sufficient liquidity in the form of operating activities cash flows and a credit facility to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means. Critical Accounting Estimates 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. The Company's critical accounting policies are those that materially affect its Consolidated Financial Statements and involve difficult, subjective, or complex judgments by management. The Company reviewed the development and selection of the critical accounting policies and believes the following is the most critical accounting policy that could have an effect on the Company's reported results as it involves the use of significant estimates and assumptions as described above. This critical accounting policy and estimate has been reviewed with the Audit Committee of the Board of Directors. See Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of the Annual Report on Form 10-K for the year-ended December 31, 2025 filed on March 13, 2026 for more detailed information regarding the Company's critical accounting policies. Impairment and Valuation of Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Long-lived assets consist of property, plant and equipment and intangible assets, including the value of contracts/customer relationships, trademarks and safety certifications, trade secrets, and technology software. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, the amounts of the cash flows and the asset's residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company uses internal discounted cash flows estimates, quoted market prices when available, and independent appraisals, as appropriate, to determine fair value. The Company derives the required cash flow estimates from its historical experience and its internal business plans. 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.

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