Annual Report (10-k)

0000080172 NATIONAL PRESTO INDUSTRIES INC false --12-31 FY 2021 1 1 12,000,000 12,000,000 7,440,518 7,440,518 7,042,274 7,025,433 398,244 415,085 1.00 5.00 1.00 5.00 1.00 5.25 0 0 0 0 0 0 7 0 0 0 15,317,000 15,317,000 3,831,000 11,486,000 0 0 0 0 0 2,142,000 2 0 2027 2018 2019 2020 0 1 10 2 1 5 3,832,000 0 0.50 1,247,000 3 5 10 7 Amounts charged to other accounts. Amounts charged to selling and general expenses or provision for income taxes from continuing operations. 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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________________ to __________________________

Commission File Number 1-2451

NATIONAL PRESTO INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Wisconsin	39-0494170
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification Number)

3925 North Hastings Way
Eau Claire, Wisconsin	54703-3703
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (715) 839-2121

Securities registered pursuant to Section 12(b) of the Act:

	Trading	Name of each exchange
Title of each class	Symbol(s)	on which registered
$1.00 par value common stock	NPK	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $514,959,042. The number of shares outstanding of each of the registrant's classes of common stock, as of March 1, 2022 was 7,042,741.

The Registrant has incorporated in Part II and Part III of Form 10-K, by reference, portions of its 2021 Annual Report and portions of its Proxy Statement for its 2022 Annual Meeting of Stockholders.

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TABLE OF CONTENTS

	Page

PART I	3
Item 1 – Business	3
Item 1A – Risk Factors	8
Item 1B – Unresolved Staff Comments	14
Item 2 – Properties	14
Item 3 – Legal Proceedings	14
Item 4 – Mine Safety Disclosures	14

PART II	15
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer purchases of Equity Securities	15
Item 6 – Selected Financial Data	15
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A – Quantitative and Qualitative Disclosures About Market Risk	22
Item 8 – Financial Statements and Supplementary Data	23
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23
Item 9A – Controls and Procedures	23
Item 9B – Other Information	25

PART III	26
Item 10 – Directors, Executive Officers and Corporate Governance	26
Item 11 – Executive Compensation	27
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
Item 13 – Certain Relationships and Related Transactions, and Director Independence	27
Item 14 – Principal Accountant Fees and Services	27

PART IV	28
Item 15 – Exhibits and Financial Statement Schedules	28
Item 16 – Form 10-K Summary	29

Signatures	30

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PART I

ITEM 1. BUSINESS

A. DESCRIPTION OF BUSINESS

The business of National Presto Industries, Inc. (the “Company" or “National Presto”) consists of three business segments. For a further discussion of the Company’s business, the segments in which it operates, and financial information about the segments, please refer to Note L to the Consolidated Financial Statements. The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances that enrich the lives of consumers by making life easier, more productive and more enjoyable. The Defense segment, which protects the lives of the citizens of our nation, as well as the citizens of our nation’s allies, by providing our warfighters with reliable products, manufactures 40mm ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases; performs Load, Assemble and Pack (LAP) operations on ordnance-related products primarily for the U.S. Government and prime contractors; and manufactures detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. The Safety segment, which provides innovative safety technology empowering organizations and individuals to protect what is most important, currently consists of two startup companies. The first is Rusoh, Inc., which designs and markets the Rusoh® Eliminator® fire extinguisher, the first owner-maintained fire extinguisher. The second is OneEvent Technologies, Inc. It offers systems that provide early warning of conditions that could ultimately lead to significant losses. The initial application combines patented machine learning, digital sensors and cloud-based technology to continuously monitor freezers and refrigerators, instantly detecting and alerting users to potential safety issues around pharmaceuticals and food. The OneEvent® system also has the ability to continually measure other factors such as smoke, carbon monoxide, motion, humidity, and moisture.

1. Housewares/Small Appliance Segment

Housewares and electrical appliances sold by the Company include pressure cookers and canners; the Presto Control Master® heat control single thermostatic control line of skillets in several sizes, griddles, woks and multi-purpose cookers; slow cookers; deep fryers of various sizes; air fryers; waffle makers; pizza ovens; slicer/shredders; electric heaters; corn poppers (hot air, oil, and microwave); dehydrators; rice cookers; microwave bacon cookers; egg cookers; coffeemakers and coffeemaker accessories; electric tea kettles; electric knife sharpeners; a line of kitchen gadgets; and timers. Pressure cookers and canners are available in various sizes and are fabricated of aluminum and, in the case of cookers, of stainless steel, as well.

For the year ended December 31, 2021, approximately 13% of consolidated net sales were provided by cast products (griddles, waffle makers, die cast deep fryers, skillets and multi-cookers), and approximately 17% by noncast/thermal appliances (stamped cookers and canners, pizza ovens, corn poppers, coffee makers, microwave bacon cookers, dehydrators, rice cookers, egg cookers, slow cookers, tea kettles, electric stainless steel appliances, non-cast fryers, air fryers and heaters). For the year ended December 31, 2020, approximately 14% of consolidated net sales were provided by cast products, and approximately 17% by noncast/thermal appliances. For the year ended December 31, 2019, approximately 14% of consolidated net sales were provided by cast products, and approximately 17% by noncast/thermal appliances. For the year ended December 31, 2021, this segment had one customer which accounted for 10% or more of the Company’s consolidated net sales. That customer was Amazon, which accounted for 10% of consolidated net sales. For the year ended December 31, 2020, Amazon and Wal-mart Stores, Inc. each accounted for 10% of consolidated net sales. For the year ended December 31, 2019, Wal-mart Stores, Inc. accounted for 12% of consolidated net sales. The loss of either Amazon or Wal-Mart Stores as a customer would have a material adverse effect on the segment.

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Products are sold primarily in the United States and Canada directly to retailers and also through independent distributors. Although the Company has long established relationships with many of its customers, it does not have long-term supply contracts with them. The loss of, or material reduction in, sales to any of the Company's major customers could adversely affect the Company's business. The majority of the housewares and electrical appliances are sourced from vendors in the Orient. (See Note J to the Consolidated Financial Statements.)

The Company has a sales force of seven employees that sell to and service most customers. A few selected accounts are handled by manufacturers' representatives who may also sell other product lines. Sales promotional activities have been conducted primarily through the use of newspaper advertising, in store promotions, and digital advertising. The business is seasonal, with the normal peak sales period occurring in the fourth quarter of the year prior to the holiday season. This segment operates in a highly competitive and extremely price sensitive environment. Increased costs that cannot be fully absorbed into the price of products or passed along in the form of price increases to the retail customer can have a significant adverse impact on operating results. Several companies compete for sales of housewares and small electrical appliances, some of which are larger than the Company’s segment and others which are smaller. In addition, some customers maintain their own private label, as well as purchase brokered product directly from the Orient. Product competition extends to special product features, product pricing, product quality, marketing programs, warranty provisions, service policies and other factors. New product introductions are an important part of the Company's sales 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. Engineering and tooling costs are increasingly expensive, as are finished goods that may not have a ready market or achieve widespread consumer acceptance. High-cost advertising commitments which may accompany such new products or may be required to maintain sales of existing products may not be fully absorbed by ultimate product sales. Initial production schedules, set in advance of introduction, carry the possibility of excess unsold inventories. New product introductions are further subject to delivery delays from supply sources, which can impact availability during the Company's most active selling periods.

Research and development costs related to new product development for the years 2021, 2020, and 2019 were expensed in operations of these years and were not a material element in the aggregate costs incurred by the Company.

Products are generally warranted to the original owner to be free from defects in material and workmanship for a period of one to twelve years from date of purchase, depending on the product. The Company allows a sixty-day over-the-counter initial return privilege through cooperating dealers. Products are serviced through a corporate service repair operation. The Company's service and warranty programs are competitive with those offered by other manufacturers in the industry.

The Company primarily warehouses and distributes its products from distribution centers located in Canton and Jackson, Mississippi. Selective use is made of leased tractors and trailers.

The Company invests funds not currently required for business activities (see Note A(6) to the Consolidated Financial Statements). Income from invested funds is included in Other Income in the accompanying Consolidated Statements of Comprehensive Income.

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Earnings from investments may vary significantly from year to year depending on interest yields on instruments meeting the Company's investment criteria, and the extent to which funds may be needed for internal growth, acquisitions, newly identified business activities, and reacquisition of Company stock.

2. Defense Segment

AMTEC Corporation was acquired on February 24, 2001, and manufactures 40mm ammunition, and precision mechanical and electro-mechanical products for the U.S. Department of Defense (DOD) and DOD prime contractors. AMTEC’s 106,000 square foot manufacturing facility located in Janesville, Wisconsin, is focused on producing niche market ordnance products (such as training ammunition, fuzes, firing devices, and initiators). AMTEC is also the prime contractor for the 40mm ammunition system to the DOD (more fully described below).

Spectra Technologies LLC, a subsidiary of AMTEC, was acquired on July 31, 2003, and is engaged in the manufacture and delivery of munitions and ordnance-related products for the DOD and DOD prime contractors. Spectra maintains 364,000 square feet of space located in East Camden, Arkansas, dedicated primarily to Load, Assemble and Pack (LAP) type work.

Amron, a division of AMTEC, holds the assets that were purchased from Amron LLC on January 30, 2006. Amron manufactures cartridge cases used in medium caliber ammunition (20mm, 25mm, 30mm, 40mm, and 50mm) primarily for the DOD and DOD prime contractors, which includes the 40mm systems program previously mentioned and referenced below. The Amron manufacturing facility is 208,000 square feet and is located in Antigo, Wisconsin.

Tech Ord, a division of AMTEC, holds the assets formerly owned by Chemring Energetic Devices, Inc.’s business located in Clear Lake, South Dakota and all of the real property previously owned by Technical Ordnance Realty, LLC. These assets were acquired on January 24, 2014. The division manufactures in its 98,000 square foot Clear Lake facility detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. Its major customers include US and foreign government agencies, AMTEC Corporation, and other defense contractors.

The Defense segment competes for its business primarily on the basis of technical competence, product quality, manufacturing experience, and price. This segment operates in a highly competitive environment with many other organizations, some of which are larger and others that are smaller.

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On April 25, 2005, AMTEC Corporation was awarded the high volume, five-year prime contract for management and production of the Army’s 40mm Ammunition System. The Army selected AMTEC as one of two prime contractors responsible for supplying all requirements for 40mm practice and tactical ammunition for a period of five years. Deliveries under the contract exceeded $671,000,000, with final deliveries completed in 2013. On February 18, 2010, the Army awarded AMTEC a second five-year contract for the management and production of the 40mm Ammunition System. As in the original five-year contract, AMTEC was awarded the majority share of the 40mm requirement. Deliveries under this contract exceeded $566,000,000, with the final deliveries completed in 2018. In addition, as part of an acquisition of a group of assets from DSE, Inc, a 40mm competitor, which was completed on November 7, 2013, AMTEC acquired through a novation agreement an additional $188,000,000, representing the remaining undelivered portion of the award that had been given to AMTEC’s competitor under the second five-year contract mentioned above. Total deliveries for the systems program under the novated DSE 40mm contract were completed in 2018. The Company submitted its bid for a third contract, and although the FY15 (Army’s fiscal year beginning October 1, 2014) bid request was subsequently cancelled, the 40mm program requirements remained and were subsequently awarded to AMTEC as the Army’s FY16 40mm requirements in a single award valued at $84,750,000. Final deliveries for the FY16 contract were completed in 2019. On August 30, 2017, the Army awarded AMTEC, as the sole prime contractor, a third five-year 40mm system contract covering FY17-21 requirements. The value of awards to date is approximately $539,000,000 for FY17 through FY21, with deliveries scheduled to continue into 2025. The actual annual and cumulative dollar volume with the Army over the balance of the contract will be dependent upon military requirements and funding, as well as government procurement regulations and other factors controlled by the Army and the Department of Defense.

During 2021, almost all of the work performed by this segment directly or indirectly for the DOD was performed on a fixed-price basis. Under fixed-price contracts, the price paid to the contractor is usually awarded based on competition at the outset of the contract and therefore is generally not subject to adjustments reflecting the actual costs incurred by the contractor, with the exception of some limited escalation clauses, which on the 2017 contract applied to only three materials – steel, aluminum and zinc. The Defense segment’s contracts and subcontracts contain the customary provision permitting termination at any time for the convenience of the government, with payment for any work completed, associated profit and inventory/work in progress at the time of termination. The segment’s business does not tend to be seasonal.

3. Safety Segment

The Safety segment was formed in the third quarter of 2019 with the purchase of substantially all of the assets of OneEvent Technologies, Inc. on July 23, 2019. The segment is comprised of OneEvent Technologies, Inc. and Rusoh, Inc., which was previously included in the Company’s Housewares/Small Appliance segment.

OneEvent Technologies, Inc. leases 7,000 square feet in Mount Horeb, Wisconsin. Established in 2014, OneEvent’s cloud-based learning and analytics engine utilizes a series of sensing devices integrated with a cellular gateway to predict and alert in a timely fashion so that the customer has an opportunity to prevent a loss. Sensors measure a variety of environmental data including temperature, smoke, carbon monoxide, humidity, water, motion, and more. The initial application combines patented machine learning, digital sensors and cloud-based technology to continuously monitor freezers and refrigerators, instantly detecting and alerting users to potential mechanical issues which can in turn affect the maintenance of critical temperatures for the safe storage of pharmaceuticals and food. The system detects anomalies in defrost and refrigeration cycles, enabling it to provide notice days or even weeks in advance of a potential malfunction. With these alerts, customers can act proactively to correct the situation and prevent the loss or deterioration of valuable pharmaceuticals or foods well in advance of an equipment failure.

Rusoh, Inc. rents 8,000 square feet of office space located in the Company’s Eau Claire, Wisconsin facility. Formed in 2012, Rusoh designs and markets the Rusoh® Eliminator® fire extinguisher. The fire extinguisher is an owner-maintained, multipurpose, reloadable, dry chemical fire extinguisher and is the first portable owner-maintained fire extinguisher.

The operations of both of the businesses that comprise the Safety segment are startup in nature and have resulted in limited revenues. The segment has a sales force of four employees that sell to and service most customers. It also utilizes several manufacturers' representatives who may also sell other product lines. Product competition extends to product features, product pricing, product quality, marketing programs, service policies and other factors. New product introductions are an important part of the segment's sales to enhance its product offerings. New products entail unusual risks. Engineering and tooling costs are increasingly expensive, as are finished goods that may not have a ready market or achieve widespread commercial acceptance. Securing Underwriters Laboratories (UL) certification is a prerequisite to sales, and the process for securing certification is both expensive and time consuming. It typically takes in excess of a year. Fully tooled products are required prior to the performance of most tests. High-cost advertising commitments which may accompany such products may not be fully absorbed by ultimate product sales. Initial production schedules, set in advance of introduction, carry the possibility of excess unsold inventories. New product introductions are further subject to delivery delays from supply sources, which can impact availability to meet commitments.

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Research and development costs related to new product development for the years 2021, 2020, and 2019 were expensed in operations of these years.

The segment primarily warehouses and distributes its products from Mount Horeb as well as distribution centers located in Canton and Jackson, Mississippi.

B. OTHER COMMENTS

1. Sources and Availability of Materials

See Note J to the Consolidated Financial Statements.

2. Patents, Trademarks, and Licenses

Patents, trademarks and know-how are important to the Company’s segments. Although the Company’s current and future success does not materially depend upon the judicial protection of its intellectual property rights (patents, trademarks, trade dress copyrights and trade secrets), removal of that protection would expose the Company to competitors who seek to take advantage of the Company's innovations and proprietary rights. The Company’s segments hold numerous patents and trademarks registered in the United States and foreign countries related to various products and methods. The Company believes its business is not dependent upon any individual patent, copyright or license, but that the Presto® trademark is material to its business.

3. Effects of Compliance with Environmental and Other Regulations

In May 1986, the Company's Eau Claire, Wisconsin site was placed on the United States Environmental Protection Agency's (EPA) National Priorities List (NPL) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) because of hazardous waste deposited on the property. At year end 1998, all remediation projects at the Eau Claire, Wisconsin site had been installed, were fully operational, and restoration activities had been completed.

Based on factors known as of December 31, 2021, it is believed that the Company's environmental liability reserve will be adequate to satisfy on-going remediation operations and monitoring activities; however, should environmental agencies require additional studies or remediation projects, it is possible the existing accrual could be inadequate.

Management believes that in the absence of any unforeseen future developments, known environmental matters will not have any material effect on the results of operations or financial condition of the Company.

Like other manufacturers, the Company is subject to a broad range of federal, state, local and foreign laws and requirements, including those concerning air emissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s facilities and off-site disposal locations, workplace safety and equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have on the Company in the future. Like other industrial concerns, the Company’s manufacturing operations entail the risk of noncompliance, and there can be no assurance that the Company will not incur material costs or other liabilities as a result thereof.

The Company is also subject to various other federal, state, and local laws affecting its business, as well as a variety of regulations relating to such matters as working conditions, equal employment opportunities, and product safety. These regulations stem from regulatory bodies or laws such as the US Consumer Product Safety Commission, the US Food and Drug Administration, California’s Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65), the US Department of Transportation, and authorities having jurisdiction for fire safety and refrigeration equipment. The Company believes it is currently in material compliance with all such applicable laws and regulations.

In addition, U.S. Government contractors are subject to extensive laws and regulations specific to the defense industry, several of which are delineated in Item 1A Risk Factors under the heading “U.S. Government contractors are subject to extensive laws and regulations applicable to the defense industry and the Company could be adversely affected by changes in and compliance with such laws and regulations, or any negative findings by the U.S. government regarding the Company’s compliance with them.”

4. Human Capital

As of December 31, 2021, the Company and its subsidiaries had 895 employees compared to 955 employees at the end of December 2020.

Approximately 205 employees of Amron are members of the United Steel Workers union. The most recent contract between Amron and the union is effective through February 28, 2025.

The Company provides its employees with competitive salaries and bonuses, opportunities for equity ownership, opportunities for continued learning and growth and a robust employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off.

5. Industry Practices Related to Working Capital Requirements

The major portion of the Company's sales are made with terms of 60 days or shorter.

For the Housewares/Small Appliance segment, inventory levels increase in advance of the selling period for products that are seasonal, such as pressure canners, heaters, and major new product introductions. Inventory build-up also occurs to create stock levels required to support the higher sales that occur in the latter half of each year or to provide a means to delay the impact of potential tariffs. Buying practices of the Company's customers require "just-in-time" delivery, necessitating that the Company carry large finished goods inventories.

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The ability to meet U.S. Department of Defense demands also necessitates the carrying of large inventories in the Defense segment.

Inventory build-up also occurs in the Safety segment to meet potential demand of customers that require delivery with shorter lead times.

6. Order Backlog

Shipment of most of the Company's Housewares/Small Appliance products occurs within a relatively short time after receipt of the order and, therefore, there is usually no substantial order backlog. New product introductions may result in order backlogs that vary from product to product and as to timing of introduction.

The contract backlog of the Defense segment was approximately $460,800,000, $320,214,000, and $310,385,000 at December 31, 2021, 2020, and 2019, respectively. Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders. It is anticipated that the backlog will be produced and shipped during an 18- to 36-month period, after December 31, 2021.

Shipments in the Safety segment typically occur within a relatively short time after receipt of an order, and thus there is usually no long term backlog of orders.

C. AVAILABLE INFORMATION

The Company has a web site at www.gopresto.com. The contents of the Company's web site are not part of, nor are they incorporated by reference into, this annual report.

The Company makes available on its web site its annual reports on Form 10-K or 10-K/A and, beginning with its second quarter filing in 2011, quarterly reports on Form 10-Q or 10-Q/A. It does not provide its current reports on Form 8-K or amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act on its web site. The Company does not do so because these and all other reports it files with the SEC are readily available to the public on the SEC web site at www.sec.gov and can be located with ease using the link provided on the Company’s web site. The Company provides paper copies of its annual report free of charge upon request.

ITEM 1A. RISK FACTORS

The Company’s three business segments described above are all subject to a number of risk factors, the occurrence of any one or more of which could have a significant adverse impact on the business, financial condition, or results of operations of the Company as a whole.

Housewares/Small Appliance Segment:

Increases in the costs for raw materials, energy, transportation and other necessary supplies could adversely affect the results of the Company’s operations.

The Company’s suppliers purchase significant amounts of metals, plastics, and energy to manufacture the Company’s products. Also, the cost of fuel has a major impact on transportation costs as do intermodal shipping rates. Any increased costs that cannot be fully absorbed or passed along in the form of price increases to the retail customer can have a material adverse impact on the Company’s operating results.

Reliance on third-party suppliers in Asia makes this segment vulnerable to supply interruptions and foreign business risks.

The majority of the housewares/small appliance products are manufactured by a handful of third-party suppliers in Asia, primarily in the People’s Republic of China. The Company’s ability to continue to select and develop relationships with reliable vendors who provide timely deliveries of quality parts and products will impact its success in meeting customer demand. Most products are procured on a “purchase order” basis. As a result, the Company may be subject to unexpected changes in pricing or supply of products. There is no assurance that it could quickly or effectively replace any of its vendors if the need arose. Any significant failure to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply may disrupt customer relationships and have a material adverse effect on the Company’s business.

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International manufacturing is subject to significant risks, including, among others, labor unrest, adverse social, political and economic conditions, interruptions in international shipments, tariffs and other trade barriers, legal and regulatory constraints and fluctuations in currency exchange rates. Although China currently enjoys “most favored nation” trading status with the United States, the U.S. Government has in the past proposed to revoke that status and to impose higher tariffs on products imported from China, which could have a material adverse effect on the Company’s business. Currently, it maintains penalty tariffs on some imports and in the past has threatened to impose a penalty tariff on all products. The latter, if imposed, would have a material adverse effect on the Company’s business.

The Housewares/Small Appliance segment is dependent on key customers, and any significant decline in business from one or more of its key customers could adversely affect the segment’s operating results.

Although the Company has a long-established relationship with its major customers, it does not have any long-term supply agreements or guaranties of minimum purchases. As a result, the customers may fail to place anticipated orders, change planned quantities, delay purchases, or change product assortments for reasons beyond the Company’s control, which could prove detrimental to the segment’s operating results.

The sales for this segment are highly seasonal and dependent upon the United States retail markets and consumer spending.

Traditionally, this segment has recognized a substantial portion of its sales during the holiday selling season. Any downturn in the general economy, shift in consumer spending away from its housewares/small appliances, or further deterioration in the financial health of its customer base could adversely affect sales and operating results.

The Company may not be successful in developing and introducing new and improved consumer products.

The development and introduction of new housewares/small appliance products is very important to the Company’s long-term success. The ability to develop new products is affected by, among other things, whether the Company can develop and fund technological innovations and successfully anticipate consumer needs and preferences, as well as the intellectual property rights of others. The introduction of new products may require substantial expenditures for advertising and marketing to gain marketplace recognition or to license intellectual property. There is no guarantee that the Company will be aware of all relevant intellectual property in the industry and may be subject to claims of infringement, which could preclude it from producing and selling a product. Likewise, there is no guarantee that the Company will be successful in developing products necessary to compete effectively in the industry or that it will be successful in advertising, marketing and selling any new products.

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Product recalls or lawsuits relating to defective products could have an adverse effect on the Company, as could the imposition of industry sustainability standards.

As distributors of consumer products in the United States, the Company is subject to the Consumer Products Safety Act, which empowers the U.S. Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the U.S. Consumer Products Safety Commission could require the Company to repair, replace or refund the purchase price of one or more of its products, or the Company may voluntarily do so. Any repurchase or recall of products could be costly and damage the Company’s reputation, as well as subject it to a sizable penalty that the Commission is empowered to impose. If the Company removed products from the market, its reputation or brands could be tarnished and it might have large quantities of finished products that could not be sold.

The Company could also face exposure to product liability claims if one of its products were alleged to have caused property damage, bodily injury or other adverse effects. It is self-insured to specified levels of those claims and maintains product liability insurance for claims above the self-insured levels. The Company may not be able to maintain such insurance on acceptable terms, if at all, in the future. In addition, product liability claims may exceed the amount of insurance coverage. Moreover, many states do not allow insurance companies to provide coverage of punitive damages, in the event such damages were imposed. Additionally, the Company does not maintain product recall insurance. As a result, product recalls or product liability claims could have a material adverse effect on the Company’s business, results of operations and financial condition.

The portable appliance and floor care companies’ industry association has a framework for a sustainability standard for the industry, but has yet to develop specific guidelines for implementation. When and if developed, the standards will do nothing for the environment, but will entail the addition of significant bureaucracy and outside certification fees. As such, compliance will be burdensome and expensive.

The housewares/small appliance industry continues to consolidate, which could ultimately impede the Company’s ability to secure product placement at key customers.

Over the past decade, the housewares/small appliance industry has undergone significant consolidation, and, as a result, the industry primarily consists of a limited number of larger companies. Larger companies do enjoy a competitive advantage in terms of the ability to offer a larger assortment of product to any one customer. As a result, the Company may find it more difficult or lose the ability to place its products with its customers.

Defense Segment:

The Company relies primarily on sales to U.S. Government entities, and the failure to procure or the loss of a significant contract or contracts could have a material adverse effect on its results of operations.

As the Company’s sales in the Defense segment are primarily to the U.S. Government and its prime contractors, it depends heavily on the contracts underlying these programs. The loss or significant reduction of a major program in which the Company participates could have a material adverse effect on the results of operations.

A decline in or a redirection of the U.S. defense budget could result in a material decrease in the Defense segment sales and earnings.

Government contracts are primarily dependent upon the U.S. defense budget. During recent years, the Company’s sales were augmented by increased defense spending, including supplemental appropriations for operations in Iraq and Afghanistan, areas from which the U.S. has withdrawn. Future defense budgets could be negatively affected by several factors, including U.S. Government budget deficits, administration priorities, U.S. national security strategies, a change in spending priorities, and continued reduction of military operations around the world. Any significant decline or redirection of U.S. military expenditures could result in a decrease to the Company’s sales and earnings.

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U.S. Government contracts are also dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take more than one year. As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years. In addition, most U.S. Government contracts are subject to modification if funding is changed. Any failure by Congress to appropriate additional funds to any program in which the Company participates, or any contract modification as a result of funding changes, could materially delay or terminate the program. This could have a material adverse effect on the results of the Company’s operations.

The Company may not be able to react to increases in its costs due to the nature of its U.S. Government contracts.

Substantially all of the Company’s U.S. Government contracts are fixed-price. Under fixed-price contracts, the Company agrees to perform the work for a fixed price, subject to limited escalation provisions on specified raw materials. Thus it bears the risk that any increases or unexpected costs may reduce profits or potentially cause losses on the contract, which could have a material adverse effect on results of operations and financial condition. That risk is potentially compounded by the political actions under consideration by federal and state governments, including climate change and labor regulations, which could have an impact if enacted or promulgated on the availability of affordable labor, energy and ultimately, materials, as the effects of the legislation/regulation ripple throughout the economy. In addition, products are accepted by test firing samples from a production lot. Lots typically constitute a sizable amount of product. Should a sample not fire as required by the specifications, the cost to rework or scrap the entire lot could be substantial.

The Company’s U.S. Government contracts are subject to termination.

All of the Company’s U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if the Company defaults by failing to perform under the contract. Performance failure can occur from a myriad of factors, which include late shipments due to the inability to secure requisite raw materials or components or strikes or other labor unrest, equipment failures or quality issues, which result in products that do not meet specifications, etc. Termination for convenience provisions provide only for recovery of costs incurred and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. If a termination provision is exercised, it could have a material adverse effect on the Company’s business, results of operations and financial condition.

Failure of the Company’s subcontractors to perform their contractual obligations could materially and adversely impact contract performance.

Key components and services are provided by third party subcontractors, several of which the segment is required to work with by government edict. Under the contract, the segment is responsible for the performance of those subcontractors, many of which it does not control. There is a risk that the Company may have disputes with its subcontractors, including disputes regarding the quality and timeliness of work performed by subcontractors. A failure by one or more of the Company’s subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact the Company’s ability to perform its obligations as the prime contractor.

U.S. Government contractors are subject to extensive laws and regulations applicable to the defense industry and the Company could be adversely affected by changes in and compliance with such laws and regulations, or any negative findings by the U.S. government regarding the Company’s compliance with them.

U.S. government contractors must comply with numerous significant procurement regulations and specific legal requirements, including a vast array of federal, state, and local laws, regulations, contract terms and requirements related to the defense industry and the Company’s products and businesses. These laws and regulations include, but are not limited to, the Federal Acquisition Regulation (FAR) and Department of Defense FAR Supplement, Truthful Cost or Pricing Data Act, International Traffic in Arms Regulations/Arms Export Control Act, DOD 4145.26-M, and Bureau of Alcohol, Tobacco, Firearms and Explosives orders, rules and regulations. Although customary in government contracting, these regulations and legal requirements increase the Company’s performance and compliance costs and risks. New laws, regulations or procurement requirements or changes to current ones (for example, regulations related to cybersecurity and related certification requirements, specialty metals, and conflict minerals) can significantly increase the Company’s costs and risks and reduce profitability. Non-compliance with the laws, regulations, contract terms and processes to which the Company is subject could affect its ability to compete and have a material adverse effect on the Company’s financial position, results of operations and/or cash flows.

Safety Segment:

The Safety segment is comprised of businesses that are startup in nature.

The operations that comprise the Safety segment are startup in nature, and like most startups may not ultimately have the potential to be successful.

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Increases in the costs for raw materials, energy, transportation and other necessary supplies could adversely affect the results of the Company’s operations.

The Company’s suppliers purchase significant amounts of metals, plastics, chemicals, and energy to manufacture the Company’s products. Also, the cost of fuel has a major impact on transportation costs, as do intermodal shipping rates. Any increased costs that cannot be fully absorbed or passed along in the form of price increases to the customer can have a material adverse impact on the Company’s operating results.

Reliance on third-party suppliers in Asia makes this segment vulnerable to supply interruptions and foreign business risks.

The major portion of the safety products are manufactured by a handful of third-party suppliers in Asia, primarily in the People’s Republic of China. The Company’s ability to continue to select and develop relationships with reliable vendors who provide timely deliveries of quality parts and products will impact its success in meeting customer demand. Most products are procured on a “purchase order” basis. As a result, the Company may be subject to unexpected changes in pricing or supply of products. There is no assurance that it could quickly or effectively replace any of its vendors if the need arose. Any significant failure to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply may disrupt customer relationships and have a material adverse effect on the Company’s business.

In addition, international manufacturing is subject to significant risks, including, among others, labor unrest, adverse social, political and economic conditions, interruptions in international shipments, tariffs and other trade barriers, legal and regulatory constraints and fluctuations in currency exchange rates. Although China currently enjoys “most favored nation” trading status with the United States, the U.S. Government has in the past proposed to revoke that status and to impose higher tariffs on products imported from China, which could have a material adverse effect on the Company’s business. Currently, it maintains a penalty tariff on some imports and in the past has threatened to impose a penalty tariff on all products. The latter, if imposed, would have a material adverse effect on the Company’s business.

Regulatory constraints and authorities having jurisdiction has impeded and may continue to impede sales of certain of the segment’s products.

The commercial sales of certain of the Safety segment’s products are dependent on the approval of officials that oversee fire safety at state and local levels for use of the products in areas under their jurisdiction. The inability to obtain the approval of these officials has had and may continue to have an adverse impact on the segment’s operating results.

Various products in the Safety segment are reliant upon up-to-date software, hardware, and the wireless communications infrastructure.

The effective operation of various products in the Safety segment depend on software that utilizes data obtained wirelessly via telecommunication network infrastructure. The inability of the Company to maintain software and hardware that can connect to the wireless infrastructure, failure of the wireless infrastructure, or the availability of cloud based data storage, could have a material adverse effect on the efficacy of the segment’s products and in turn on its operating results.

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The segment may not be successful in developing and introducing new and improved products.

The development and introduction of new products is very important to the Company’s long-term success. The ability to develop new products is affected by, among other things, whether the Company can develop and fund technological innovations and successfully anticipate customer needs and preferences, meet Underwriters Laboratories requirements and avoid infringing on the intellectual property rights of others. The introduction of new products may require substantial expenditures for advertising and marketing to gain marketplace recognition or to license intellectual property. There is no guarantee that the Company will be aware of all relevant intellectual property in the industry and may be subject to claims of infringement, which could preclude it from producing and selling a product. Likewise, there is no guarantee that the Company will be successful in developing products necessary to compete effectively in the industry or that it will be successful in advertising, marketing and selling any new products.

Acquisition Risks:

The Company may pursue acquisitions of new product lines or businesses. It may not be able to identify suitable acquisition candidates or, if suitable candidates are identified, it may not be able to complete the acquisition on commercially acceptable terms. Even if the Company is able to consummate an acquisition, the transaction would present many risks, including, among others: failing to achieve anticipated benefits or cost savings; difficulty incorporating and integrating the acquired technologies, services or products; coordinating, establishing or expanding sales, distribution and marketing functions, as necessary; diversion of management’s attention from other business concerns; being exposed to unanticipated or contingent liabilities or incurring the impairment of goodwill; the loss of key employees, customers, or distribution partners; and difficulties implementing and maintaining sufficient controls, policies and procedures over the systems, products and processes of the acquired company. If the Company does not achieve the anticipated benefits of its acquisitions as rapidly or to the extent anticipated by management, or if others do not perceive the same benefits of the acquisition as the Company does, there could be a material, adverse effect on the Company’s business, financial condition or results of operations.

Information Technology System Failure or Security Breach Risks:

The Company relies on its information technology systems to effectively manage its business data, communications, supply chain, logistics, accounting, and other business processes. While the Company endeavors to build and sustain an appropriate technology environment, information technology systems are vulnerable to damage or interruption from circumstances beyond the Company’s control, including systems failures, viruses, security breaches or cyber incidents such as intentional cyber-attacks aimed at theft of sensitive data, or inadvertent cyber-security compromises. A security breach of such systems could result in interruptions of the Company’s operations, negatively impact relations with customers or employees, and expose the Company to liability and litigation, any one of which could have a negative impact on the Company’s business, results of operations or financial condition. The Company’s insurance coverage may not be adequate to cover all the costs related to cyber security attacks or disruptions. Some of the Company's systems have in the past experienced security breaches, and, although to the best of the Company's knowledge as of the date of this filing, the breaches did not have a material adverse effect on its operating results or financial condition, there can be no assurance the Company will not experience material effects from security breaches in the future.

COVID-19 or Other Pandemics, Epidemics, or Similar Public Health Crises Risks:

The Company may be negatively impacted by the fear of exposure to, or actual effects of, pandemics and epidemics or similar public health crises. In response to a public health crisis, national, state and local authorities have implemented a variety of measures intended to limit the spread of a disease, such as travel restrictions, social distancing or imposing quarantine and isolation measures on the population. They may implement other measures. The impacts of a public health crisis may include, but are not limited to:

Significant reductions in demand or significant volatility in demand for the Company's products, which may be caused by, among other things, the temporary inability of consumers to purchase the products due to illness, self-quarantine, travel restrictions, financial hardship, restrictions that limit access to or close customer stores, shifts in demand away from one or more of the Company's more discretionary or higher priced products to lower priced commodity products, or the inability to meet heightened demand stemming from programs like the CARES Act that provide substantial additional purchasing power to consumers;

Inability to meet the Company's customers' needs and achieve cost targets due to disruptions in distribution capabilities or the supply chain caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished products or components, restricted transportation or increased freight costs, reduced workforce, or other manufacturing sources and distribution processes;

Failure of third parties on which the Company relies, including suppliers, customers, distributors, commercial banks, and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact the Company's operations;

Significant changes in the political environment in which the Company manufactures, sells, or distributes products, including quarantines, governmental authority actions, closures or other restrictions that limit or close operating and manufacturing or distribution facilities, restrict employees' ability to travel or perform necessary business functions, or otherwise prevent external business partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of the Company's products, which could adversely impact the Company's results;

Massive government indebtedness resulting from its injection of money into the economy that could result in spiraling inflation, which could in turn affect the Company's liquidity, and could also result in decreases in U.S. and foreign defense budgets, which in turn could have a negative impact on the Company's sales and earnings;

Delays or limits in the ability of the U.S. Government and other customers to perform, including making timely payments and awards to the Company, negotiating contracts and agreeing to appropriate costs for recovery, performing quality inspections, supporting testing, accepting delivery, approving security clearances (for individuals and facilities), and providing necessary personnel, equipment and facilities; or

A prolonged period of generating lower cash from operations that could adversely affect both the Company's financial condition and the achievement of its strategic objectives.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES (Owned Except Where Indicated)

The Company's Eau Claire facility is approximately 522,000 square feet, of which approximately 354,000 square feet was formerly occupied by Presto Absorbent Products, Inc. and subsequently, beginning on January 3, 2017, is leased to Drylock Technologies, Ltd mentioned in Item 1 of this Form 10-K. Rusoh, Inc. rents approximately 8,000 square feet of the Eau Claire facility. The Company's corporate office occupies the balance of the space in Eau Claire. During 2018, the Company completed construction of a 30,000 square foot office building adjacent to its Eau Claire facility, which it also leases to Drylock Technologies, Ltd.

The Company has Defense segment manufacturing facilities located in Janesville and Antigo, Wisconsin; East Camden, Arkansas; and Clear Lake, South Dakota. The Janesville, Wisconsin facility is comprised of approximately 106,000 square feet, which includes the Company’s 2016 construction of 31,000 square feet of manufacturing space. The Antigo, Wisconsin facility is comprised of approximately 208,000 square feet, the East Camden, Arkansas operation leases approximately 364,000 square feet, and the Clear Lake, South Dakota facility is comprised of approximately 98,000 square feet, which includes the Company's 2021 construction of 10,000 square feet of office space.

OneEvent, included in the Company’s Safety segment, leases approximately 7,000 square feet for its operations in Mount Horeb.

There are two warehousing facilities located in Jackson and Canton, Mississippi used in the Housewares/Small Appliance and Safety segments. The Jackson facility contains 252,000 square feet. The Company also leases a 255,000 square foot building in Canton which is used primarily for warehousing and distribution and some activities for product service functions. An additional 72,000 square feet has been leased in adjacent Canton buildings for warehousing.

The facilities in use for each of the Company’s business segments are believed to be adequate for their ongoing business needs.

ITEM 3. LEGAL PROCEEDINGS

See Note I to the Company’s Consolidated Financial Statements.

See Item 1-B-3 of this Form 10-K and Note K to the Consolidated Financial Statements for information regarding certain environmental matters.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Record of Purchases of Equity Securities

Month

Total Shares Purchased

Average Price Paid per Share

Shares Purchased as Part of Publicly Announced Plan or Program

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

Jan. 1 - Jan. 31, 2021

94.08

N/A

Mar. 1 - Apr. 4, 2021

242

104.77

N/A

Total

292

102.94

* Under the Incentive Compensation Plan approved by stockholders on May 18, 2010 and the 2017 Incentive Compensation Plan approved by shareholders on May 16, 2017, the Company has the right to withhold shares from vested restricted stock grants to be delivered to grantees to satisfy all or a portion of federal, state, local, or foreign tax withholding requirements.

On February 11, 2022, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $3.50. The dividend will be payable on March 15, 2022 to the stockholders of record as of March 1, 2022.

The common stock of National Presto Industries, Inc. is traded on the New York Stock Exchange under the symbol “NPK”. As of March 1, 2022, there were 235 holders of record of the Company’s common stock. This number does not reflect stockholders who hold their shares in the name of broker dealers or other nominees. During the fourth quarter of 2021, the Company did not purchase any of its equity securities.

The information under the heading “Equity Compensation Plan Information,” in the Company’s Proxy Statement for its 2022 Annual Meeting of Stockholders, is incorporated by reference.

The line graph and related information set forth under the heading “Performance Graph” in the Company’s 2021 Annual Report is incorporated by reference.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

An overview of the Company’s business and segments in which the Company operates and risk factors can be found in Items 1 and 1A of this Form 10-K. Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-K, in the Company’s 2021 Annual Report to Shareholders, in the Proxy Statement for the annual meeting to be held May 17, 2022, 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, among other things, in 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 and 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 our information technology system. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings.

COVID-19 DISCLOSURE

All of the Company’s businesses are deemed essential and as a result, all operated during the COVID-19 shutdowns. With the ongoing concerns about the potential impact of the COVID-19 virus, many employers have not reopened their offices or have authorized their employees to work from home. As a result, there is continued COVID-related demand for the Housewares/Small Appliance segment’s products. Distribution remains largely intact as most key retail customers' outlets either were deemed essential and were open throughout the shutdowns or reopened once the formal shutdowns ended. Material, components and finished goods have also, for the most part, continued to flow, although were frequently delayed. As a result of heavy demand and a shortage of labor stemming from government COVID-19 policies, material, transportation and labor costs have materially increased. Both internal and external contacts were managed during the shutdown through internet tools like “Zoom.” Most external contacts continue to be managed in this fashion. Due to the Company’s historical conservative practices, it has no debt and has adequate balances to fund its operations.

The Company has complied with the applicable COVID-19 regulations. Until vaccines became available, the six-foot social distancing rule had been in place in the offices and where practical in the factories. Where not practical, barriers were erected between workers. Mask policies have been maintained in a fashion largely consistent with CDC guidelines.

The aftermath of COVID-19 has affected each segment in a variety of ways, which include increased absenteeism; the cancellation of planned trade shows, elimination of most customer/supplier visits; inefficiencies inherent from most customers' and suppliers' decisions to work from home. See “Item 1A. Risk Factors” titled “The COVID-19 or Other Pandemics, Epidemics or Similar Public Health Crises Risks.”

2021 COMPARED TO 2020

Readers are directed to Note L, “Business Segments,” to the Company’s Consolidated Financial Statements for data on the financial results of the Company’s three business segments for the years ended December 31, 2021 and 2020.

On a consolidated basis, sales increased by $3,150,000 (1%), gross profit decreased by $20,526,000 (24%), selling and general expense increased by $5,648,000 (20%), and intangibles amortization decreased by $7,000 (3%). Other income decreased by $1,362,000 (36%), earnings from continuing operations before provision for income taxes decreased by $27,529,000 (46%), and earnings from continuing operations decreased by $21,304,000 (45%). Details concerning these changes can be found in the comments by segment below.

Housewares/Small Appliance net sales decreased by $1,721,000, from $117,645,000 to $115,924,000, or 2%, primarily due to a decrease in shipments, approximately 54% of which was offset by an increase in prices. The decrease was further offset by the partial reversal of prior year charges for estimated refunds related to a product recall, which had a year over year favorable effect of $3,603,000. Defense net sales increased by $4,869,000, from $234,645,000 to $239,514,000, or 2%, reflecting an increase in units shipped.

Housewares/Small Appliance gross profit decreased $14,232,000 from $24,206,000 (21% of sales) in 2020 to $9,974,000 (9% of sales) in 2021, primarily due to increased ocean cargo and product costs and the decreased sales mentioned above, partially offset by the partial reversal of prior year charges for estimated refunds related to a product recall, which had a year over year favorable comparable impact of $4,923,000. Defense gross profit decreased $1,356,000 from $62,561,000 (27% of sales) to $61,205,000 (26% of sales), primarily reflecting the increase in sales mentioned above offset by a less favorable mix and inefficiencies from labor shortages and delays in securing materials. The segment's results were also unfavorably impacted by storm damage that led to the shutdown of one of its lines for several months. Due to the startup nature of both businesses in the Safety segment, gross margins were negative in both years. The write-down of inventory and materials of $5,247,000 at Rusoh, Inc. to reflect realizable values contributed to the comparative decrease in gross margin of $4,938,000.

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Selling and general expenses for the Housewares/Small Appliance segment decreased $1,230,000, primarily reflecting the absence of prior year marketing production and media costs of $2,200,000 and lower product liability costs of $364,000. These decreases were partially offset by higher health and accident and legal and professional expenses of $314,000 and $259,000, respectively and higher insurance costs of $449,000. Defense segment selling and general expenses increased $354,000, approximately a third of which relates to higher health and accident costs with the balance related to miscellaneous general and administrative costs. Safety segment selling and general expenses increased $6,640,000, primarily reflecting Rusoh, Inc.'s, impairment of notes receivable and the related interest of $7,615,000 offset in part by reduced compensation/payroll costs of $422,000 and professional expenses of $517,000.

The above items were responsible for the change in operating profit from continuing operations.

Other income decreased $1,362,000, which was primarily attributable to lower interest earned of $1,255,000 with lower yields on a reduced portfolio of marketable securities.

Earnings from continuing operations before provision for income taxes decreased $27,529,000 from $59,988,000 to $32,459,000. The provision for income taxes from continuing operations decreased from $13,030,000 to $6,805,000, which resulted in an effective income tax rate of 21% and 22% for the years ended December 31, 2021 and 2020, respectively. Earnings from continuing operations and net earnings decreased $21,304,000 from $46,958,000 to $25,654,000.

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2020 COMPARED TO 2019

Readers are directed to Note L, “Business Segments,” to the Company’s Consolidated Financial Statements for data on the financial results of the Company’s two business segments for the years ended December 31, 2020 and 2019.

On a consolidated basis, sales increased by $44,117,000 (14%), gross profit increased by $12,997,000 (18%), selling and general expense increased by $3,043,000 (12%), and intangibles amortization increased by $138,000 (166%). Other income decreased by $2,134,000 (36%), while earnings from continuing operations before provision for income taxes increased by $7,682,000 (15%), and earnings from continuing operations increased by $6,418,000 (16%). Earnings from discontinued operations, net of tax, decreased $1,680,000 (100%). Details concerning these changes can be found in the comments by segment below.

Housewares/Small Appliance net sales increased by $18,244,000, from $99,401,000 to $117,645,000, or 18%, primarily due to an increase in shipments, which was partially offset by charges for estimated refunds related to a product recall of $2,073,000. Defense net sales increased by $25,531,000, from $209,114,000 to $234,645,000, or 12%, reflecting an increase in units shipped, partially offset by the absence of the 2019 proceeds from the negotiated termination of a commercial foreign military supply contract for $9,412,000.

Housewares/Small Appliance gross profit increased $8,848,000 from $15,358,000 (16% of sales) in 2019 to $24,206,000 (21% of sales) in 2020, primarily reflecting the increase in sales mentioned above, augmented by improved product mix and margins, partially offset by the charges for estimated refunds related to a product recall of $2,073,000. Defense gross profit increased $4,788,000 from $57,773,000 (28% of sales) to $62,561,000 (27% of sales), primarily reflecting the increase in sales mentioned above and comparatively more efficient operations on certain programs vis-à-vis 2019, partially offset by the absence of the proceeds from the termination agreement mentioned above. Due to the startup nature of both businesses in the Safety segment, gross margins were negative in both years. As OneEvent was acquired during the third quarter of 2019 (see Note Q to the Company's Consolidated Financial Statements), 2020 was the first full year that its operations were reflected in the segment's earnings, which was the primary contributor to the comparative reduction in gross margins.

Selling and general expenses for the Housewares/Small Appliance segment increased $999,000, primarily reflecting higher marketing production and media costs of $2,200,000, augmented by higher health and accident and product liability costs of $344,000 and $488,000, respectively. These increases were partially offset by lower legal and professional expenses of $459,000, lower compensation costs of $695,000, primarily related to the absence of prior year charges for the vesting of restricted stock upon retirement of long-term employees, lower travel and sales show expenses of $379,000 due to COVID-19 restrictions and lower accruals for doubtful accounts of $237,000. Defense segment selling and general expenses decreased $354,000, primarily reflecting lower travel expense due to COVID-19 restrictions. Safety segment selling and general expenses increased $2,221,000, primarily reflecting for Rusoh, Inc., higher employee compensation and benefit cost accruals of $1,301,000, largely related to health insurance claims, partially offset by lower legal and professional expenses of $288,000 along with a full year of the selling and general expense of OneEvent, which was acquired during third quarter 2019. See Note Q to the Company's Consolidated Financial Statements.

Intangibles amortization increased by $138,000 from $83,000 in 2019 to $221,000 in 2020. The increase reflects the amortization of the OneEvent acquisition-related intangibles.

The above items were responsible for the change in operating profit from continuing operations.

Other income decreased $2,134,000, which was primarily attributable to lower interest earned of $2,293,000 on a reduced portfolio of marketable securities with lower yields partially offset by an increase in rental income of $179,000.

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Earnings from continuing operations before provision for income taxes increased $7,682,000 from $52,306,000 to $59,988,000. The provision for income taxes from continuing operations increased from $11,766,000 to $13,030,000, which resulted in an effective income tax rate of 22% and 23% for the years ended December 31, 2020 and 2019, respectively. Earnings from continuing operations increased $6,418,000 from $40,540,000 to $46,958,000.

On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, Ltd. As a result of this transaction, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. Earnings from discontinued operations decreased $1,680,000, from $1,680,000 to $0. The 2019 earnings stemmed from the settlement of a lawsuit for breach of contract.

Net earnings increased $4,738,000 from $42,220,000 to $46,958,000.

LIQUIDITY AND CAPITAL RESOURCES

2021 COMPARED TO 2020

Cash provided by operating activities was $34,688,000 during 2021 as compared to $40,973,000 during 2020. The principal factors behind the decrease in cash provided can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during 2021 were net earnings of $25,654,000, which included a non-cash provision for doubtful notes and accounts receivable of $7,665,000, total non-cash depreciation and amortization expenses of $2,978,000, a non-cash deferred income tax benefit of $1,612,000, and decreases in deposits made to vendors included in other assets and current assets and accounts receivable. These were partially offset by an increase in inventory levels and a net decrease in payable and accrual levels. Of particular note during 2020 were net earnings of $46,958,000, which included total non-cash depreciation and amortization expenses of $3,005,000; a non-cash deferred income tax benefit of $1,718,000 and a net increase in payable and accrual levels. These were partially offset by an increase in inventory levels; deposits made to vendors included in other assets and current assets; and an increase in accounts receivable levels.

Net cash provided by investing activities was $32,548,000 during 2021 as compared to $7,155,000 during 2020. During 2021 the Company had net sales and maturities of marketable securities of $34,621,000 offset by the purchase of plant and equipment of $2,866,000, which primarily included expenditures to augment the Company’s production facilities in the Defense segment. Of note during 2020 were net sales and maturities of marketable securities of $9,776,000 offset by the purchase of plant and equipment of $2,621,000, which primarily included expenditures to augment the Company's production facilities in the Defense segment.

Based on the accounting profession’s 2005 interpretation of cash equivalents under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 230, the Company’s variable rate demand notes have been classified as marketable securities. This interpretation, which is contrary to the interpretation that the Company’s representative received directly from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cash equivalents), has resulted in a presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’s income portfolio. As of December 31, 2021 and 2020, $25,427,000 and $25,968,000, respectively, of variable rate demand notes are classified as marketable securities. These notes have structural features that allow the Company to tender them at par plus interest within any 7-day period for cash to the notes’ trustees or remarketers and thus provide the liquidity of cash equivalents.

Cash flows from financing activities for 2021 and 2020 were essentially flat and primarily relate to the annual dividend payments. Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan.

As a result of the foregoing factors, cash and cash equivalents increased in 2021 by $23,769,000 to $109,805,000.

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Working capital decreased by $7,478,000 to $294,894,000 at December 31, 2021 for the reasons stated above. The Company’s current ratio was 6.2 to 1.0 at December 31, 2021 and 6.5 to 1.0 at December 31, 2020.

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 these segments per existing authorized projects and for additional projects if the appropriate return on investment is projected. See Item 1-A-2.

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 the variable rate demand notes described above and in municipal bonds that are pre-refunded with escrowed U.S. Treasuries. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings.

The Company's principal commitments consist of purchase and lease obligations. Purchase obligations include outstanding purchase orders issued to the Company's Housewares and Safety segments' manufacturers in the Orient and to material suppliers and contractors in the Defense segment, and as of December 31, 2021 amounted to approximately $236,520,000. The Company can cancel or change many of these purchase orders, but may incur costs if its supplier cannot use the material to manufacture the Company's or other customers' products in other applications or return the material to their supplier. As a result, the actual amount the Company is obligated to pay cannot be reasonably estimated. Lease obligations are described in Note M - Leases to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

2020 COMPARED TO 2019

Cash provided by operating activities was $40,973,000 during 2020 as compared to $9,583,000 during 2019. The principal factors behind the decrease in cash provided can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during 2020 were net earnings of $46,958,000, which included total non-cash depreciation and amortization expenses of $3,005,000; a non-cash deferred income tax benefit of $1,718,000 and a net increase in payable and accrual levels. These were partially offset by an increase in inventory levels; deposits made to vendors included in other assets and current assets; and an increase in accounts receivable levels. Of particular note during 2019 were net earnings of $42,220,000, which included total non-cash depreciation and amortization expenses of $3,689,000; a non-cash income tax expense of $1,370,000 and a decrease in accounts receivable levels. These were partially offset by a gain on a legal settlement of $2,300,000; an increase in inventory levels; an increase in deposits made to vendors included in other assets and current assets; and a decrease in net payable levels. Cash used in discontinued operations was $1,052,000.

Net cash provided by investing activities was $7,155,000 during 2020 as compared to $55,160,000 during 2019. During 2020, the Company had net sales and maturities of marketable securities of $9,776,000 offset by the purchase of plant and equipment of $2,621,000, which primarily included expenditures to augment the Company's production facilities in the Defense segment. During 2019, the Company received net proceeds of $2,146,000 from a note receivable and $2,300,000 from a legal settlement. Also of note during 2019 were net sales and maturities of marketable securities of $56,011,000; the purchase of plant and equipment of $3,138,000, which primarily included expenditures to augment the Company's production facilities in the Defense segment; and the acquisition of substantially all the assets of OneEvent Technologies, Inc. for $3,733,000, net of cash acquired. Cash provided by discontinued operations was $3,107,000.

Based on the accounting profession’s 2005 interpretation of cash equivalents under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 230, the Company’s variable rate demand notes have been classified as marketable securities. This interpretation, which is contrary to the interpretation that the Company’s representative received directly from the FASB (which indicated it would not object to the Company’s classification of variable rate demand notes as cash equivalents), has resulted in a presentation of the Company’s Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company’s income portfolio. As of December 31, 2020 and 2019, $25,968,000 and $39,249,000, respectively, of variable rate demand notes are classified as marketable securities. These notes have structural features that allow the Company to tender them at par plus interest within any 7-day period for cash to the notes’ trustees or remarketers and thus provide the liquidity of cash equivalents.

Cash flows from financing activities for 2020 and 2019 were essentially flat and primarily relate to the annual dividend payment. Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan.

As a result of the foregoing factors, cash and cash equivalents increased in 2020 by $6,457,000 to $86,036,000.

Working capital increased by $3,610,000 to $302,148,000 at December 31, 2020 for the reasons stated above. The Company’s current ratio was 6.5 to 1.0 at December 31, 2020 and 8.6 to 1.0 at December 31, 2019.

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DEFENSE SEGMENT BACKLOG

The Company’s Defense segment contract backlog was approximately $460,800,000 at December 31, 2021, and $320,214,000 at December 31, 2020. Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders. It is anticipated that the backlog will be produced and shipped during an 18- to 36-month period.

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 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.

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 are the most critical accounting policies that could have an effect on the Company’s reported results as they involve the use of significant estimates and assumptions as described above. These critical accounting policies and estimates have 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 this Annual Report on Form 10-K for more detailed information regarding the Company's critical accounting policies.

Inventories

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. In addition, due to fire safety regulations, commercial extinguishers have a limited shelf life, which is based on the date of production. The Safety segment recorded an impairment of $3,090,000 in 2021 in recognition of that fact. There were no other obsolescence issues that had a material effect during the current year. 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.

Self-Insured Product Liability & Health Insurance

The Company is subject to product liability claims in the normal course of business and is self-insured for health care costs, although it does carry stop loss and other insurance to cover claims once a health care claim reaches a specified threshold. The Company’s insurance coverage varies from policy year to policy year, and there are typically limits on all types of insurance coverage, which also vary from policy year to policy year. Accordingly, the Company records an accrual for known claims and incurred but not reported claims, including an estimate for related legal fees in the Company’s Consolidated Financial Statements. The Company utilizes historical trends and other analysis to assist in determining the appropriate accrual. There are no known claims that would have a material adverse impact on the Company beyond the reserve levels that have been accrued and recorded on the Company’s books and records. An increase in the number or magnitude of claims could have a material impact on the Company’s financial condition and results of operations.

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Revenues

Sales are recorded net of discounts and returns for the Housewares/Small Appliance segment. Sales discounts and returns are key aspects of variable consideration, which is a significant estimate utilized in revenue recognition. Sales returns pertain primarily to warranty returns, returns of seasonal items, and returns of those newly introduced products sold with a return privilege. The calculation of warranty returns is based in large part on historical data, while seasonal and new product returns are primarily developed using customer provided information.

Impairment and Valuation of Long-lived Assets and Goodwill

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 a government sales contract, trademarks, trade secrets, and consulting agreements. 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 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.

NEW ACCOUNTING PRONOUNCEMENTS

Please refer to Note A(18) to the Company’s Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on the Company’s Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's interest income on cash equivalents and marketable securities is affected by changes in interest rates in the United States. Cash equivalents primarily consist of money market funds. Based on the accounting profession’s interpretation of cash equivalents under FASB ASC 230, the Company’s seven-day variable rate demand notes are classified as marketable securities rather than as cash equivalents. The demand notes are highly liquid instruments with interest rates set every seven days that can be tendered to the trustee or remarketer upon seven days notice for payment of principal and accrued interest amounts. The seven-day tender feature of these variable rate demand notes is further supported by an irrevocable letter of credit from highly rated U.S. banks. To the extent a bond is not remarketed at par plus accrued interest, the difference is drawn from the bank’s letter of credit. The Company has had no issues tendering these notes to the trustees or remarketers. Other than a failure of a major U.S. bank, there are no known risks of which the Company is aware that relate to these notes in the current market. The balance of the Company’s investments is held primarily in fixed rate municipal bonds with an average life of 0.8 years. Accordingly, changes in interest rates have not had a material effect on the Company, and the Company does not anticipate that future exposure to interest rate market risk will be material. The Company uses sensitivity analysis to determine its exposure to changes in interest rates.

The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments. Most transactions with international customers are entered into in U.S. dollars, precluding the need for foreign currency cash flow hedges. As the majority of the Housewares/Small Appliance segment’s suppliers are located in China, periodic changes in the U.S. dollar and Chinese Renminbi (RMB) exchange rates do have an impact on that segment’s product costs. It is anticipated that any potential material impact from fluctuations in the exchange rate will be to the cost of products secured via purchase orders issued subsequent to the revaluation.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	A.	The Consolidated Financial Statements of National Presto Industries, Inc. and its subsidiaries and the related Report of Independent Registered Public Accounting Firm can be found on pages F-1 through F-22.
	B.	Quarterly financial data is contained in Note N to the Consolidated Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, including the Chief Executive Officer and Treasurer (principal financial officer), conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”) as of December 31, 2021. Based on that evaluation, the Company’s Chief Executive Officer and Treasurer (principal financial officer) concluded that the Company’s disclosure controls and procedures were effective as of that date.

There were no changes to internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of National Presto Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on this assessment and those criteria, management concluded that as of December 31, 2021, the Company's internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the 1934 Act, was effective.

The Company’s independent registered public accounting firm has issued its report on the effectiveness of the Company’s internal control over financial reporting. The report appears below.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of National Presto Industries, Inc.

Opinion on the Internal Control Over Financial Reporting

We have audited National Presto Industries, Inc.'s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 11, 2022 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Milwaukee, Wisconsin

March 11, 2022

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ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following information is provided with regard to the executive officers of the registrant:

(All terms for elected officers are one year or until their respective successors are elected.)

	NAME		TITLE		AGE

Maryjo Cohen		Chair of the Board, President, and Chief Executive Officer		69

Douglas J. Frederick		Chief Operating Officer, Vice President, Secretary and General Counsel		51

Jeffery A. Morgan		Vice President, Engineering		64

Richard L. Jeffers		Vice President of Sales		69

David J. Peuse		Director of Financial Reporting and Treasurer		52

Ms. Cohen became Chair of the Board on January 1, 2002. Prior to that date she had been elected Treasurer in September 1983, Vice President in May 1986, President in May 1989 and Chief Executive Officer in May 1994. She has been associated with the registrant since 1976. Prior to becoming an officer, she was Associate Resident Counsel and Assistant to the Treasurer.

Mr. Frederick was elected Corporate Secretary on November 17, 2009, Vice President on May 15, 2018, and Chief Operating Officer on December 11, 2018. He has been associated with the registrant since 2007 as an in-house attorney with expertise in litigation and intellectual property matters and in the capacity of General Counsel since January 2009. Prior to his employment with the registrant, Mr. Frederick was a litigation attorney with the firm Rider Bennett, LLP.

Mr. Morgan was elected Vice President of Engineering in November 2015. He has been associated with the registrant since 2010. Prior to becoming an officer, he was Director of Engineering and Chief Engineer. Prior to his employment with the registrant, Mr. Morgan had worked 21 years at Hoover Company, a division of Maytag, and three years at Hoover’s successor, Techtronic Industries, in engineering and engineering management capacities.

Mr. Jeffers was elected Vice President of Sales in September 2017. He has almost 40-years of experience in the housewares/small appliance industry, has held executive sales positions at Windmere, Applica, and Salton, and owned and operated a successful manufacturer’s representative firm. Prior to Vice President of Sales, Mr. Jeffers served as National Account Sales Manager for the Company. He has been with the Company for a total of 14 (non-consecutive) years.

Mr. Peuse was elected Treasurer in May 2019. Prior to becoming an officer, he served the registrant as Controller, and in other capacities as Manager of General Accounting, Costing Manager, Business Systems Analyst, and Internal Auditor. Mr. Peuse has been associated with the registrant since 1996.

The information under the headings “Delinquent Section 16(a) Reports,” “Information Concerning Directors and Nominees” and “Corporate Governance” in the Company’s Proxy Statement for its 2021 Annual Meeting of Stockholders is incorporated by reference.

The Company has adopted a code of ethics that applies to all Company employees, entitled the “Corporate Code of Conduct,” which is set forth in the Corporate Governance section of the Company’s website located at www.gopresto.com. The Company intends to make all required disclosures concerning any amendments to, or waivers from, its Corporate Code of Conduct by the posting of such information on that section of its website.

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ITEM 11. EXECUTIVE COMPENSATION

The information under the headings “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Executive Compensation and Other Information” and “Summary Compensation Table” in the Company’s Proxy Statement for its 2022 Annual Meeting of Stockholders is incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The security ownership and related stockholder matters information set forth under the heading “Voting Securities and Principal Holders Thereof” in the Company’s Proxy Statement for its 2022 Annual Meeting of Stockholders is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The certain relationships and related transactions and director independence information set forth under the heading “Corporate Governance” in the Company’s Proxy Statement for its 2022 Annual Meeting of Stockholders is incorporated by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The principal accountant fees and services information set forth under the heading “Independent Registered Public Accountants” in the Company’s Proxy Statement for its 2022 Annual Meeting of Stockholders is incorporated by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	Documents filed as part of this Form 10-K:
				Form 10-K
				Page Reference
	1.	Consolidated Financial Statements:

		a.	Consolidated Balance Sheets - December 31, 2021 and 2020	F-1 & F-2

		b.	Consolidated Statements of Comprehensive Income - Years ended December 31, 2021, 2020 and 2019	F-3

		c.	Consolidated Statements of Cash Flows - Years ended December 31, 2021, 2020 and 2019	F-4

		d.	Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2021, 2020 and 2019	F-5

		e.	Notes to Consolidated Financial Statements	F-6 through F-21

		f.	Reports of Independent Registered Public Accounting Firms	F-22
			RSM US LLP, Milwaukee, Wisconsin, PCAOB ID #49
			BDO USA, LLP, Milwaukee, Wisconsin, PCAOB ID #243

	2.	Consolidated Financial Statement Schedule:

		Schedule II - Valuation and Qualifying Accounts		F-24

	(b) Exhibits:

	Exhibit Number			Description

	Exhibit 3(i)			Restated Articles of Incorporation – incorporated by reference from Exhibit 3(i) of the Company’s report on Form 10-K/A for the year ended December 31, 2005

	Exhibit 3(ii)			By-Laws - incorporated by reference from Exhibit 3(ii) of the Company’s current report on Form 8-K dated July 6, 2007

	Exhibit 4			Description of Registrant’s Securities - Incorporated by reference from Exhibit 4 of the Company's annual report on Form 10-K for the year ended December 31, 2019

	Exhibit 9.1			Voting Trust Agreement - incorporated by reference from Exhibit 9 of the Company’s quarterly report on Form 10-Q for the quarter ended July 6, 1997

	Exhibit 9.2			Voting Trust Agreement Amendment – incorporated by reference from Exhibit 9.2 of the Company’s annual report on Form 10-K for the year ended December 31, 2008

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	Exhibit Number			Description

	Exhibit 10.1*			Incentive Compensation Plan – incorporated by reference from Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended July 4, 2010

	Exhibit 10.2*			Form of Restricted Stock Award Agreement – incorporated by reference from Exhibit 10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended July 4, 2010

	Exhibit 10.3*			2017 Incentive Compensation Plan – incorporated by reference from Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended July 2, 2017

	Exhibit 10.4*			Form of Restricted Stock Award Agreement – 2017 Incentive Compensation Plan - incorporated by reference from Exhibit 10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended July 2, 2017

	Exhibit 21			Subsidiaries of the Registrant

	Exhibit 23.1			Consent of Independent Registered Public Accounting Firm - RSM US LLP

	Exhibit 23.2			Consent of Independent Registered Public Accounting Firm - BDO USA, LLP

	Exhibit 31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	Exhibit 31.2			Certification of the Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	Exhibit 32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	Exhibit 32.2			Certification of the Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	Exhibit 101.INS			Inline XBRL Instance Document.

	Exhibit 101.SCH			Inline XBRL Taxonomy Extension Schema Document.

	Exhibit 101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.

	Exhibit 101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.

	Exhibit 101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.

	Exhibit 101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.

	Exhibit 104			The cover page from this Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL and contained in Exhibit 101.INS

				* Compensatory Plans

	(c) Schedules:

Reference is made to Item 15(a)2 of this Form 10-K.

ITEM 16. FORM 10-K SUMMARY

None.

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SIGNATURES

Pursuant to the Requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL PRESTO INDUSTRIES, INC. (registrant)

	By:	/S/ Maryjo Cohen
		Maryjo Cohen
		President and Chief Executive Officer
Date: March 11, 2022

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/S/ Richard N. Cardozo	By:	/S/ Patrick J. Quinn
	Richard N. Cardozo		Patrick J. Quinn
	Director		Director

By:	/S/ Maryjo Cohen	By:	/S/ Joseph G. Stienessen
	Maryjo Cohen		Joseph G. Stienessen
	Chair of the Board, President,		Director
	Chief Executive Officer (Principal
	Executive Officer), and Director

By:	/S/ Randy F. Lieble	By:	/S/ David J. Peuse
	Randy F. Lieble		David J. Peuse
	Director		Director of Financial Reporting and
			Treasurer (Principal Financial Officer)
Date:	March 11, 2022

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NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share and per share data)

December 31	*2021*				*2020*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	109,805			$	86,036
Marketable securities				34,190				68,981
Accounts receivable	$	53,715			$	53,979
Less allowance for doubtful accounts		338		53,377		312		53,667
Inventories:
Finished goods		40,624				31,440
Work in process		92,437				96,463
Raw materials and supplies		10,800		143,861		7,585		135,488
Notes receivable, current				2,330				2,869
Other current assets				4,490				10,199
Total current assets				348,053				357,240
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements		3,036				3,008
Buildings		49,467				48,706
Machinery and equipment		46,070				44,774
		98,573				96,488
Less allowance for depreciation and amortization		61,850		36,723		59,375		37,113
GOODWILL				15,317				15,317
INTANGIBLE ASSETS, net				2,624				2,838
NOTES RECEIVABLE				-				7,399
RIGHT-OF-USE LEASE ASSETS				10,161				3,363
DEFERRED INCOME TAXES				4,642				2,994
OTHER ASSETS				2,878				6,906
			$	420,398			$	433,170

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-1

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NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share and per share data)

December 31	*2021*				*2020*
LIABILITIES
CURRENT LIABILITIES:
Accounts payable			$	32,759			$	33,474
Federal and state income taxes				3,163				4,777
Lease liabilities				546				573
Accrued liabilities				16,691				16,268
Total current liabilities				53,159				55,092
LEASE LIABILITIES - NON-CURRENT				9,616				2,790
OTHER NON-CURRENT LIABILITIES				-				940
Total liabilities				62,775				58,822
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized: 12,000,000 shares at December 31, 2021 and 2020
Issued: 7,440,518 shares at December 31, 2021 and 2020
Outstanding: 7,042,274 and 7,025,433 shares at December 31, 2021 and 2020, respectively	$	7,441			$	7,441
Paid-in capital		13,743				12,438
Retained earnings		349,198				367,627
Accumulated other comprehensive income		20				154
		370,402				387,660
Less treasury stock, at cost, 398,244 and 415,085 shares at December 31, 2021 and 2020, respectively		12,779				13,312
Total stockholders' equity				357,623				374,348
			$	420,398			$	433,170

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-2

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NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands except per share data)

	*For the years ended December 31,*
	*2021*			*2020*		*2019*
Net sales	$	355,777		$	352,627	$	308,510
Cost of sales		291,381			267,705		236,585
Gross profit		64,396			84,922		71,925
Selling and general expenses		34,153			28,505		25,462
Intangibles amortization		214			221		83
Operating profit		30,029			56,196		46,380
Other income		2,430			3,792		5,926
Earnings from continuing operations before provision for income taxes		32,459			59,988		52,306
Provision for income taxes from continuing operations		6,805			13,030		11,766
Earnings from continuing operations		25,654			46,958		40,540
Earnings from discontinued operations, net of tax		-			-		1,680
Net earnings	$	25,654		$	46,958	$	42,220

Weighted average common shares outstanding:
Basic and diluted		7,060			7,038		7,018

Earnings per share, basic and diluted:
From continuing operations	$	3.63		$	6.67	$	5.78
From discontinued operations		-			-		0.24
Net earnings per share	$	3.63		$	6.67	$	6.02

Comprehensive income:
Net earnings	$	25,654		$	46,958	$	42,220
Other comprehensive income, net of tax:
Unrealized gain (loss) on available-for-sale securities		(134	)		18		115
Comprehensive income	$	25,520		$	46,976	$	42,335

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-3

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NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	*For the years ended December 31,*
	*2021*			*2020*			*2019*
Cash flows from operating activities:
Net earnings	$	25,654		$	46,958		$	42,220
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for depreciation		2,764			2,784			3,606
Intangibles amortization		214			221			83
Deferred income tax (benefit)		(1,612	)		(1,718	)		(224	)
Noncash income tax expense		-			-			1,370
Loss on disposal and impairment of property, plant and equipment		493			2			322
Provision for doubtful notes and accounts receivable		7,665			-			7
Proceeds from insurance claim		823			-			-
Noncash retirement plan expense		752			721			680
Gain on legal settlement		-			-			(2,300	)
Other		100			131			464
Changes in operating accounts, net of effects of acquisition:
Accounts receivable, net		1,083			(12,203	)		10,915
Inventories		(10,139	)		(6,952	)		(34,241	)
Other assets and current assets		9,737			(5,655	)		(2,803	)
Accounts payable and accrued liabilities		(1,232	)		15,706			(11,561	)
Federal and state income taxes receivable/payable		(1,614	)		978			1,045
Net cash provided by operating activities		34,688			40,973			9,583

Cash flows from investing activities:
Marketable securities purchased		(3,918	)		(48,047	)		(105,409	)
Marketable securities - maturities and sales		38,539			57,823			161,420
Proceeds from divestiture of businesses, net of cash paid		-			-			-
Purchase of property, plant and equipment		(2,866	)		(2,621	)		(3,138	)
Proceeds from notes receivable		543			-			2,146
Acquisition of business, net of cash acquired		-			-			(3,733	)
Proceeds from legal settlement		-			-			2,300
Proceeds from insurance claim		250			-			807
Sale of property, plant and equipment		-			-			767
Net cash provided by investing activities		32,548			7,155			55,160

Cash flows from financing activities:
Dividends paid		(44,083	)		(42,172	)		(42,087	)
Proceeds from sale of treasury stock		571			528			518
Other		45			(27	)		(442	)
Net cash used in financing activities		(43,467	)		(41,671	)		(42,011	)

Net increase in cash and cash equivalents		23,769			6,457			22,732
Cash and cash equivalents at beginning of year		86,036			79,579			56,847
Cash and cash equivalents at end of year	$	109,805		$	86,036		$	79,579

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes	$	10,071		$	13,803		$	10,187

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-4

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NATIONAL PRESTO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands except per share data)

	*Shares of Common Stock Outstanding*		*Common Stock*		*Paid-in Capital*		*Retained Earnings*			*Accumulated Comprehensive Income (Loss)*			*Treasury Stock*			*Total*
Balance December 31, 2018		6,981	$	7,441	$	10,360	$	362,709		$	21		$	(14,408	)	$	366,123
Net earnings								42,220									42,220
Unrealized gain on available-for-sale securities, net of tax											115						115
Dividends paid March 15, $1.00 per share regular, $5.00 per share extra								(42,087	)								(42,087	)
Other		25				1,087		-						499			1,586
Balance December 31, 2019		7,006		7,441		11,447		362,842			136			(13,909	)		367,957
Net earnings								46,958									46,958
Unrealized gain on available-for-sale securities, net of tax											18						18
Dividends paid March 13, $1.00 per share regular, $5.00 per share extra								(42,172	)								(42,172	)
Other		19				991		(1	)					597			1,587
Balance December 31, 2020		7,025		7,441		12,438		367,627			154			(13,312	)		374,348
Net earnings								25,654									25,654
Unrealized loss on available-for-sale securities, net of tax											(134	)					(134	)
Dividends paid March 15, $1.00 per share regular, $5.25 per share extra								(44,083	)								(44,083	)
Other		17				1,305								533			1,838
Balance December 31, 2021		7,042	$	7,441	$	13,743	$	349,198		$	20		$	(12,779	)	$	357,623

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-5

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NATIONAL PRESTO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(1) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: In preparation of the Company's Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management.

(2) BASIS OF PRESENTATION: The Consolidated Financial Statements include the accounts of National Presto Industries, Inc. and its subsidiaries, all of which are wholly-owned. All material intercompany accounts and transactions are eliminated. For a further discussion of the Company's business and the segments in which it operates, please refer to Note L.

On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, Ltd. (“Drylock”). As a result, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation. See Note P for further discussion.

(3) GENERAL: Government responses to the COVID-19 virus have impacted worldwide economic activity. The Company continues to monitor the impact of the pandemic on all aspects of its business, including effects on employees, customers, suppliers, and the global economy and will adjust procedures accordingly. All of the Company's businesses are deemed essential and as a result, all have been and are currently operating. The COVID-19 related edicts and guidelines continue to affect each segment in a variety of fashions, which include material and labor shortages, contributing to increased material and labor costs as well as difficulty in securing needed products and components; congestion throughout the supply chain resulting in sizable delays; increased absenteeism; limited opportunities to meet with customers/suppliers; as well as inefficiencies inherent when dealing with suppliers and customers that continue to work from home. The extent to which the COVID-19 pandemic impacts the Company's business in 2022 and beyond will depend on future developments that are highly uncertain and cannot be predicted.

In response to the government mandated COVID-19 shutdowns, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer's social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (QIP). The CARES Act did not have a material impact on the Company's income tax provision for the years ended December 31, 2021 or 2020. Starting May 1, 2020, the Company had deferred employer social security payments as provisioned by the Act.

(4) RECLASSIFICATIONS: Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's financial statement presentation. These reclassifications did not affect net earnings or stockholder' equity as previously reported.

(5) FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company utilizes the methods of determining fair value as described in Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures to value its financial assets and liabilities. ASC 820 utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments. The fair value of marketable securities are discussed in Note A(6).

(6) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES:

Cash and Cash Equivalents: The Company considers all highly liquid marketable securities with an original maturity of three months or less to be cash equivalents. Cash equivalents include money market funds. The Company deposits its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits. Money market funds are reported at fair value determined using quoted prices in active markets for identical securities (Level 1, as defined by FASB ASC 820).

The Company's cash management policy provides for its bank disbursement accounts to be reimbursed on a daily basis. Checks issued but not presented to the bank for payment of $3,378,000 and $4,510,000 at December 31, 2021 and 2020, respectively, are included as reductions of cash and cash equivalents or book overdrafts in accounts payable, as appropriate.

Marketable Securities: The Company has classified all marketable securities as available-for-sale which requires the securities to be reported at fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Highly liquid, tax-exempt variable rate demand notes with put options exercisable in three months or less are classified as marketable securities. Due to the Company's ability to liquidate its available-for-sale securities for potential capital needs, they are classified as current assets.

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At December 31, 2021 and 2020, cost for marketable securities was determined using the specific identification method. A summary of the amortized costs and fair values of the Company's marketable securities at December 31 is shown in the following table. All of the Company’s marketable securities are classified as Level 2, as defined by FASB ASC 820, with fair values determined using significant other observable inputs, which include quoted prices in markets that are not active, quoted prices of similar securities, recently executed transactions, broker quotations, and other inputs that are observable.

	(In thousands)
	*MARKETABLE SECURITIES*

	*Amortized Cost*		*Fair Value*		*Gross Unrealized Gains*		*Gross Unrealized Losses*
December 31, 2021
Tax-exempt Municipal Bonds	$	8,737	$	8,763	$	31	$	5
Variable Rate Demand Notes		25,427		25,427		-		-
Total Marketable Securities	$	34,164	$	34,190	$	31	$	5

December 31, 2020
Tax-exempt Municipal Bonds	$	42,817	$	43,013	$	196	$	-
Variable Rate Demand Notes		25,968		25,968		-		-
Total Marketable Securities	$	68,785	$	68,981	$	196	$	-

Proceeds from sales and maturities of marketable securities totaled $38,539,000 in 2021, $57,823,000 in 2020, and $161,420,000 in 2019. There were no realized gross gains or losses related to sales of marketable securities during the years ended December 31, 2021, 2020 and 2019. Net unrealized gains (losses) included in other comprehensive income were ($170,000), $24,000 and $145,000 before taxes for the years ended December 31, 2021, 2020, and 2019, respectively. No unrealized gains or losses were reclassified out of accumulated other comprehensive income during the same periods.

The contractual maturities of the marketable securities held at December 31, 2021 are as follows: $7,285,000 within one year; $1,478,000 beyond one year to five years; $4,175,000 beyond five years to ten years, and $21,252,000 beyond ten years. All of the instruments in the beyond five year ranges are variable rate demand notes which, as noted above, can be tendered for cash at par plus interest within seven days. Despite the stated contractual maturity date, to the extent a tender is not honored, the notes become immediately due and payable.

(7) ACCOUNTS RECEIVABLE: The Company's accounts receivable is related to sales of products. Credit is extended based on prior experience with the customer and evaluation of customers' financial condition. Accounts receivable are primarily due within 25 to 60 days. The Company does not accrue interest on past due accounts receivable. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and the specific circumstances of the customer. The Company maintains an allowance for estimated expected credit losses resulting from the inability of customers to meet their financial obligations to the Company. The allowance is determined based on the Company's historical collection experience, adverse situations that may affect the customer's ability to pay, and prevailing economic conditions. The Company also maintains an allowance for customer chargebacks, which is determined based on the Company's historical experience with customers.

(8) INVENTORIES: Housewares/Small Appliance segment inventories and certain Safety segment inventory items are stated at the lower of cost or net realizable value with cost being determined principally on the last-in, first-out (LIFO) method. Defense segment inventories are stated at the lower of cost and net realizable value determined principally on the first-in, first-out (FIFO) method. Inventoried costs relating to contracts in progress are stated at actual production costs, including factory overhead, initial tooling, and other related costs incurred to date, reduced by amounts associated with recognized sales, utilizing a standard costing type method. The Company evaluates inventories to determine if there are any excess or obsolete inventories on hand.

(9) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Straight-line depreciation is provided in amounts sufficient to charge the costs of depreciable assets to operations over their service lives which are estimated at 15 to 40 years for buildings, 3 to 10 years for machinery and equipment, and 15 to 20 years for land improvements. The Company reviews long-lived assets consisting principally of property, plant, and equipment, for impairment when material events and changes in circumstances indicate the carrying value may not be recoverable. As of December 31, 2021, net property, plant and equipment included $6,591,000 related to leased manufacturing and office space. See Note M. Approximately $1,398,000 of construction in progress in the Company’s Defense segment is presented on the Consolidated Balance Sheet as Buildings, at December 31, 2020.

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(10) GOODWILL: 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, such as the occurrence of an event that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value. No goodwill impairments were recognized during 2021, 2020, or 2019.

The Company's goodwill as of December 31, 2021 and 2020 was $15,317,000 of which, $3,831,000 relates to the Safety segment and $11,486,000 relates to the Defense segment, both of which had no cumulative impairment charges.

(11) INTANGIBLE ASSETS: Intangible assets are attributable to the Defense and Safety segments, and primarily consist of the value of trademarks and trade secrets, technology software, and patents. The government sales contract intangible asset is amortized based on units fulfilled under the applicable contract, while the other intangible assets are amortized on a straight-line basis that approximates economic use, over periods ranging from 2 to 15 years with the exception of trade secrets which have an indefinite life.

Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no impairments of intangible assets recognized during 2021, 2020, or 2019.

The gross carrying amounts of the intangible assets subject to amortization was $2,142,000 at both December 31, 2021 and 2020. Accumulated amortization was $518,000 and $304,000 at December 31, 2021 and 2020, respectively. Amortization expense was $214,000, $221,000, and $83,000 during the years ended December 31, 2021, 2020, and 2019, respectively. The estimated amortization expense as of December 31, 2021 for each of the five succeeding years is $214,000.

(12) OTHER ASSETS: Other assets includes prepayments that are made from time to time by the Company for certain materials used in the manufacturing process in the Housewares/Small Appliance segment. The Company expects to utilize the prepayments and related materials over an estimated period of two years. As of December 31, 2021 and 2020, $7,624,000 and $15,982,000 of such prepayments, respectively, remained unused and outstanding. At December 31, 2021 and 2020, $4,746,000 and $9,076,000 of these amounts, respectively, are included in Other Current Assets, representing the Company’s best estimate of the expected utilization of the prepayments and related materials during the twelve-month periods following those dates.

(13) REVENUES: The Company’s revenues are derived from short-term contracts and programs that are typically completed within 3 to 24 months and are recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company’s contracts generally contain one or more performance obligations: the physical delivery of distinct ordered product or products. The Company provides an assurance type product warranty on its products to the original owner. In addition, for the Housewares/Small Appliances segment, the Company estimates returns of seasonal products and returns of newly introduced products sold with a return privilege. Stand-alone selling prices are set forth in each contract and are used to allocate revenue to the corresponding performance obligations. For the Housewares/Small Appliances segment, contracts include variable consideration, as the prices are subject to customer allowances, which principally consist of allowances for cooperative advertising, defective product, and trade discounts. Customer allowances are generally allocated to the performance obligations based on budgeted rates agreed upon with customers, as well as historical experience, and yield the Company’s best estimate of the expected value for the variable consideration.

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The Company's contracts in the Defense segment are primarily with the U.S. Department of Defense (DOD) and DOD prime contractors. As a consequence, this segment's business essentially depends on the product needs and governmental funding of the DOD. Substantially all of the work performed by the Defense segment directly or indirectly for the DOD is performed on a fixed-price basis. Under fixed-price contracts, the price paid to the contractor is awarded based on competition or negotiation at the outset of the contract and therefore, with the exception of limited escalation provisions on specific materials, is generally not subject to any adjustments reflecting the actual costs incurred by the contractor.

For the Housewares/Small Appliance segment, revenue is generally recognized as the completed, ordered product is shipped to the customer from the Company’s warehouses. For the relatively few situations in which revenue should be recognized when product is received by the customer, the Company adjusts revenue accordingly. For the year ended December 31, 2020, the Company reduced revenue by $2,073,000 for estimated customer refunds related to a product recall of which $1,530,000 was reversed during the year ended December 31, 2021 as actual refunds were lower than initially expected. For the Defense segment, revenue is primarily recognized when the customer has legal title and formally documents that it has accepted the products. There are also certain termination clauses in Defense segment contracts that may give rise to an over-time pattern of recognition of revenue in the absence of alternative use of the product. During 2019, the Company recognized revenue of $9,412,000 from a negotiated termination of a commercial foreign military supply contract. In some situations, the customer may obtain legal title and accept the products at the Company’s facilities, arranging for transportation at a later date, typically in one to four weeks. The Company does not consider the short-term storage of the customer owned products to be a material performance obligation, and no part of the transaction price is allocated to it.

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the Company’s Consolidated Balance Sheets. For the Defense segment, the Company occasionally receives advances or deposits from certain customers before revenue is recognized, resulting in contract liabilities. These advances or deposits do not represent a significant financing component. As of December 31, 2021 and 2020, $2,211,000 and $4,723,000, respectively, of contract liabilities were included in Accounts Payable on the Company’s Consolidated Balance Sheets. During 2021, 2020, and 2019, the Company recognized revenue of $3,208,000, $0 and $9,574,000, respectively, that was included in the Defense segment contract liability at the beginning of those respective years. The Company monitors its estimates of variable consideration, which includes customer allowances for cooperative advertising, defective product, and trade discounts, and returns of seasonal and newly introduced product, all of which pertain to the Housewares/Small Appliances segment, and periodically makes cumulative adjustments to the carrying amounts of these contract liabilities as appropriate. During 2021 and 2020, there were no material adjustments to the aforementioned estimates. There were no material amounts of revenue recognized during the same periods related to performance obligations satisfied in a previous period. The portion of contract transaction prices allocated to unsatisfied performance obligations, also known as the contract backlog, in the Company’s Defense segment were $460,800,000 and $320,214,000 as of December 31, 2021 and 2020, respectively. The Company anticipates that the unsatisfied performance obligations will be fulfilled in an 18- to 36-month period. The performance obligations in the Housewares/Small Appliances and Safety segments have original expected durations of less than one year.

The Company’s principal sources of revenue are derived from two segments: Housewares/Small Appliance and Defense, as shown in Note L. Management utilizes the performance measures by segment to evaluate the financial performance of and make operating decisions for the Company.

(14) ADVERTISING: The Company's policy is to expense advertising as incurred and include it in selling and general expenses. Advertising expense was $150,000, $2,655,000, and $245,000 in 2021, 2020, and 2019, respectively.

(15) PRODUCT WARRANTY: The Company’s Housewares/Small Appliance segment's products are generally warranted to the original owner to be free from defects in material and workmanship for a period of 1 to 12 years from date of purchase. The Company allows a 60-day over-the-counter initial return privilege through cooperating dealers. The Company services its products through a corporate service repair operation. The Company estimates its product warranty liability based on historical percentages which have remained relatively consistent over the years.

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The product warranty liability is included in accounts payable on the balance sheet. The following table shows the changes in product warranty liability for the period:

	(In thousands)
	*Year Ended December 31*
	*2021*			*2020*
Beginning balance January 1	$	241		$	263
Accruals during the period		814			303
Charges / payments made under the warranties		(837	)		(325	)
Balance December 31	$	218		$	241

(16) STOCK-BASED COMPENSATION: The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, net of estimated forfeitures. As more fully described in Note F, the Company awards non-vested restricted stock to employees and executive officers.

(17) INCOME TAXES: Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax reporting bases of assets and liabilities based on enacted tax rates and laws. The deferred income tax provision or benefit generally reflects the net change in deferred income tax assets and liabilities during the year. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on various income tax returns for the year reported. Valuation allowances are provided for deferred tax assets when it is considered more likely than not that the Company will not realize the benefit of such assets. Income tax contingencies are accounted for in accordance with FASB ASC 740, Income Taxes. See Note H for summaries of the provision, the effective tax rates, and the tax effects of the cumulative temporary differences resulting in deferred tax assets and liabilities. The Company evaluates its uncertain tax positions as new information becomes available.

(18) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, Income Taxes, and providing for simplification in several other areas. The standard became effective for fiscal years beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements.

Other pronouncements issued but not effective until after December 31, 2021, are not expected to have a material impact on the Company's consolidated financial statements.

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B. INVENTORIES:

The amount of inventories valued on the LIFO basis was $35,804,000 and $30,515,000 as of December 31, 2021 and 2020, respectively, and consists of housewares/small appliance finished goods and certain Safety segment inventories. Under LIFO, inventories are valued at approximately $14,174,000 and $4,429,000 below current cost determined on a first-in, first-out (FIFO) basis at December 31, 2021 and 2020, respectively. During the years ended December 31, 2021, 2020, and 2019, $0, $2,215,000, and $85,000, respectively, of a LIFO layer was liquidated. The Company uses the LIFO method of inventory accounting to improve the matching of costs and revenues for the Housewares/Small Appliance and Safety segments.

The following table describes that which would have occurred if LIFO inventories had been valued at current cost determined on a FIFO basis:

*Increase (Decrease) – (In thousands, except per share data)*
Year	*Cost of Sales*			*Net Earnings*			*Earnings Per Share*
2021	$	(9,745	)	$	7,698		$	1.09
2020	$	(447	)	$	349		$	0.05
2019	$	42		$	(34	)	$	-

This information is provided for comparison with companies using the FIFO basis.

Inventory for Defense and raw materials and certain prepaid products of the Housewares/Small Appliance segments are valued under the FIFO method and total $108,057,000 and $104,973,000 at December 31, 2021 and 2020, respectively. At December 31, 2021, the FIFO total was comprised of $4,820,000 of finished goods, $92,437,000 of work in process, and $10,800,000 of raw material. At December 31, 2020, the FIFO total was comprised of $925,000 of finished goods, $96,463,000 of work in process, and $7,585,000 of raw material.

C. ACCRUED LIABILITIES:

At December 31, 2021, accrued liabilities consisted of payroll $7,515,000, product liability $5,713,000, payroll taxes $1,191,000, environmental $1,000,000, and other $1,272,000. At December 31, 2020, accrued liabilities consisted of payroll $7,474,000, product liability $5,618,000, payroll taxes of $1,187,000, environmental $970,000, and other $1,019,000.

The Company is self-insured for health care costs, although it does carry stop loss and other insurance to cover health care claims once they reach a specified threshold. The Company is also subject to product liability claims in the normal course of business. It is partly self-insured for product liability claims, and therefore records an accrual for known claims and estimated incurred but unreported claims in the Company’s Consolidated Financial Statements. The Company utilizes historical trends and other analysis to assist in determining the appropriate accrual. An increase in the number or magnitude of claims could have a material impact on the Company’s financial condition and results of operations. The Company's policy is to accrue for legal fees expected to be incurred in connection with loss contingencies. See Note K for a discussion of environmental remediation liabilities.

D. TREASURY STOCK:

As of December 31, 2021, the Company has authority from the Board of Directors to reacquire an additional 498,091 shares. During 2021, 2020, and 2019, 292, 344, and 4,584 shares, respectively, were acquired from participants in the Company’s Incentive Compensation Plans described in Note F to cover those participants’ tax withholding obligations related to vested stock grants in accordance with the Plans’ rules. Treasury shares have been used for stock based compensation and to fund a portion of the Company's 401(k) contributions.

E. NET EARNINGS PER SHARE:

Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share also includes the dilutive effect of additional potential common shares issuable. Unvested stock awards, which contain non-forfeitable rights to dividends, whether paid or unpaid (“participating securities”), are included in the number of shares outstanding for both basic and diluted earnings per share calculations.

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F. STOCK-BASED COMPENSATION:

The Company, from time to time, enters into separate non-vested share-based payment arrangements with employees and executive officers under the Incentive Compensation Plan approved by stockholders on May 18, 2010 and the 2017 Incentive Compensation Plan approved by shareholders on May 16, 2017, which authorized 50,000 and 150,000 shares, respectively, to be available for grants. The 2017 plan replaced the original 2010 plan, and the shares remaining under the 2010 plan are no longer available for grant. The Compensation Committee of the Company’s Board of Directors approves all stock-based compensation awards for employees and executive officers of the Company. The Company grants restricted stock that is subject to continued employment and vesting conditions, but has dividend and voting rights, and uses the fair-market value of the Company’s common stock on the grant date to measure the fair value of the awards. The fair value of restricted stock is recognized as expense ratably over the requisite service period, net of estimated forfeitures.

During 2021, 2020, and 2019, the Company granted 9,238 shares, 7,310 shares, and 4,138 shares of restricted stock, respectively, to 32 employees and executive officers of the Company. Unless otherwise vested early in accordance with the Incentive Compensation Plans, the restricted stock vests on specified dates in 2022 through 2027, subject to the recipients’ continued employment or service through each applicable vesting date.

The Company recognized pre-tax compensation expense in the Consolidated Statements of Comprehensive Income related to stock-based compensation of $469,000, $366,000, and $830,000 in 2021, 2020, and 2019, respectively. As of December 31, 2021, there was approximately $1,636,000 of unrecognized compensation cost related to the restricted stock awards that is expected to be recognized over a weighted-average period of 3.8 years. There were 2,981, 3,193, and 17,871 shares of restricted stock that vested during 2021, 2020, and 2019, respectively.

The following table summarizes the activity for non-vested restricted stock:

	*2021*					*2020*					*2019*
	*Shares*			*Weighted Average Fair Value at Grant Date*		*Shares*			*Weighted Average Fair Value at Grant Date*		*Shares*			*Weighted Average Fair Value at Grant Date*
Non-vested at beginning of period		22,721		$	96.82		18,604		$	93.23		32,337		$	87.84
Granted		9,238			90.01		7,310			89.84		4,138			98.54
Vested		(2,981	)		88.23		(3,193	)		59.94		(17,871	)		84.71
Forfeited		(44	)		88.41		0			-		0			-
Non-vested at end of period		28,934		$	95.54		22,721		$	96.82		18,604		$	93.23

G. 401(K) PLAN:

The Company sponsors a 401(k) retirement plan that covers substantially all non-union employees. Historically, the Company matched up to 50% of the first 4% of salary contributed by employees to the plan. This matching contribution was made with common stock. Starting in 2004, the Company began to match, in cash, an additional 50% of the first 4% of salary contributed by employees plus 3% of total compensation for certain employees. Contributions made from treasury stock, including the Company's related cash dividends, totaled $1,324,000 in 2021, $1,249,000 in 2020, and $1,197,000 in 2019. In addition, the Company made cash contributions of $859,000 in 2021, $813,000 in 2020, and $802,000 in 2019 to the 401(k) Plan. The Company also contributed $465,000, $443,000, and $387,000 to the 401(k) retirement plan covering its union employees at the Amron Division of the AMTEC subsidiary during the years ended December 31, 2021, 2020, and 2019, respectively.

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H. INCOME TAXES:

The following table summarizes the provision for income taxes from continuing operations:

	*For Years Ended December 31 (in thousands)*
	*2021*			*2020*			*2019*
Current:
Federal	$	6,675		$	12,932		$	11,453
State		1,742			1,816			537
		8,417			14,748			11,990
Deferred:
Federal		(819	)		(1,210	)		(179	)
State		(793	)		(508	)		(45	)
		(1,612	)		(1,718	)		(224	)
Total tax provision	$	6,805		$	13,030		$	11,766

The effective rate of the provision for income taxes on earnings from continuing operations before income taxes as shown in the Consolidated Statements of Comprehensive Income differs from the applicable statutory federal income tax rate for the following reasons:

	*Percent of Pre-tax Income*
	*2021*			*2020*			*2019*
Statutory rate		21.0	%		21.0	%		21.0	%
State tax, net of federal benefit		2.3	%		1.7	%		0.7	%
Tax exempt interest and dividends		(0.1	%)		(0.1	%)		(0.1	%)
Other		(2.2	%)		(0.9	%)		0.9	%
Effective rate		21.0	%		21.7	%		22.5	%

Deferred tax assets and liabilities are recorded based on the differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. The tax effects of the cumulative temporary differences resulting in deferred tax assets and liabilities are as follows at December 31:

	(In thousands)
	*2021*		*2020*
Deferred tax assets
State NOL and tax credit carryforwards	$	2,153	$	825
Doubtful notes and accounts receivable		1,928		69
Insurance (primarily product liability)		1,073		978
Vacation		855		813
Inventory		803		754
Warranty		73		610
Deferred payroll taxes		228		414
Other		1,201		678
Subtotal		8,314		5,141
Less: valuation allowance		1,695		520
Total deferred tax assets		6,619		4,621

Deferred tax liabilities
Goodwill and other intangibles		1,974		1,585
Other		3		42
Total deferred tax liabilities		1,977		1,627

Net deferred tax assets	$	4,642	$	2,994

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. The Company believes it is more likely than not that the benefit from certain state NOL and tax credit carryforwards will not be realized. A significant factor of objective negative evidence evaluated was the cumulative losses incurred in the Safety segment over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider subjective evidence, such as projections for future growth.

On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $1,695,000 has been provided on the deferred tax assets related to these state NOL and tax credit carryforwards, which will expire between 2034 and 2041. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

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The Company establishes tax reserves in accordance with FASB ASC 740, Income Taxes. As of December 31, 2021, the carrying amount of the Company’s gross unrecognized tax benefits included in current liabilities for federal and state income taxes was $2,375,000 which, if recognized, would affect the Company’s effective income tax rate.

The following is a reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2021 and 2020:

	(In thousands)
	*2021*			*2020*
Balance at January 1	$	2,521		$	2,237
Increases for tax positions taken related to the current year		336			944
Increases for tax positions taken related to prior years		30			46
Lapse of statute of limitations		(512	)		(706	)
Balance at December 31	$	2,375		$	2,521

It is the Company’s practice to include tax related interest expense, interest income, and penalties in tax expense. During the years ended December 31, 2021, 2020 and 2019, the Company accrued approximately $169,000, $142,000 and $298,000 in interest expense, respectively.

The Company is subject to U.S. federal income tax as well as income taxes of multiple states. Tax years 2018 through 2020 are currently open for examination. For all states in which it does business, the Company is subject to state audit statutes.

I. COMMITMENTS AND CONTINGENCIES:

The Company is involved in largely routine litigation incidental to its business. Management believes the ultimate outcome of this litigation will not have a material effect on the Company's consolidated financial position, liquidity, or results of operations.

In the state of Mississippi, inventory that is shipped out of state that is held in a licensed Free Port Warehouse is exempt from personal property taxes. One of the Company's subsidiaries operates in Hinds County, Mississippi. That subsidiary has submitted its Hinds County Free Port Warehouse tax filing for nearly 40 years. Each year, the county then assessed the subsidiary in accordance with the Company's filing. However, in June 2020, the Hinds County tax assessor notified the Company that the county had no record of a Free Port Warehouse License and issued an assessment totaling $2,506,000, reflecting personal property tax going back seven years. The Company is vigorously fighting the assessment, and does not consider the ultimate payment of the taxes to be probable. Accordingly, as prescribed by ASC450 - Contingencies, no accrual has been recorded on the Company's consolidated financial statements as of December 31, 2021.

J. CONCENTRATIONS:

In the Housewares/Small Appliance segment, one customer accounted for 10% of consolidated net sales for each of the years ended December 31, 2021 and 2020, while another customer accounted for 10% and 12% of consolidated net sales for the years ended December 31, 2020, and 2019, respectively.

The Company sources most of its housewares/small appliances and certain safety products from vendors in the Orient and, as a result, risks deliveries from the Orient being disrupted by labor or supply problems at the vendors, or transportation delays. Should such problems or delays materialize, products might not be available in sufficient quantities during the prime selling period. The Company has made and will continue to make every reasonable effort to prevent these problems; however, there is no assurance that its efforts will be totally effective. As the majority of the Housewares/Small Appliance segment’s and certain Safety segment’s suppliers are located in China, periodic changes in the U.S. dollar and Chinese Renminbi (RMB) exchange rates do have an impact on the segment’s product costs. To date, any material impact from fluctuations in the exchange rate has been to the cost of products secured via purchase orders issued subsequent to the currency value change. Foreign transaction gains/losses are immaterial to the financial statements for all years presented.

The Company's Defense segment manufactures products primarily for the U.S. Department of Defense (DOD) and DOD prime contractors. As a consequence, this segment's future business essentially depends on the product needs and governmental funding of the DOD. During 2021, 2020, and 2019, substantially all of the work performed by this segment directly or indirectly for the DOD was performed on a fixed-price basis. Under fixed-price contracts, the price paid to the contractor is awarded based on competition or negotiation at the outset of the contract and therefore, with the exception of limited escalation provisions on specific materials, is generally not subject to any adjustments reflecting the actual costs incurred by the contractor. In addition, in the case of the 40mm systems contract, key components and services are provided by third party subcontractors, several of which the segment is required to work with by government edict. Under the contract, the segment is responsible for the performance of those subcontractors, many of which it does not control. The Defense segment's contracts and subcontracts contain the customary provision permitting termination at any time for the convenience of the government, with payment for any work completed, associated profit, and inventory/work in process at the time of termination. Materials used in the Defense segment are available from multiple sources. As of December 31, 2021, 205 employees of Amron, or 23% of the Company’s and its subsidiaries’ total workforce, are members of the United Steel Workers union. The most recent contract between Amron and the union is effective through February 28, 2025.

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K. ENVIRONMENTAL

In May 1986, the Company’s Eau Claire, Wisconsin site was placed on the United States Environmental Protection Agency’s National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 because of hazardous waste deposited on the property. As of December 31, 1998, all remediation projects required at the Company's Eau Claire, Wisconsin site had been installed, were fully operational, and restoration activities had been completed. In addition, the Company is a member of a group of companies that may have disposed of waste into an Eau Claire area landfill in the 1960s and 1970s. After the landfill was closed, elevated volatile organic compounds were discovered in the groundwater. Remediation plans were established, and the costs associated with remediation and monitoring at the landfill are split evenly between the group and the city of Eau Claire. As of December 31, 2021, there does not appear to be exposure related to this site that would have a material impact on the operations or financial condition of the Company.

Based on factors known as of December 31, 2021, it is believed that the Company's existing environmental accrued liability reserve will be adequate to satisfy on-going remediation operations and monitoring activities both on- and off-site; however, should environmental agencies require additional studies, extended monitoring, or remediation projects, it is possible that the existing accrual could be inadequate. Management believes that in the absence of any unforeseen future developments, known environmental matters will not have any material effect on the results of operations or financial condition of the Company. The Company’s environmental accrued liability on an undiscounted basis was $1,000,000 and $970,000 as of December 31, 2021 and 2020, respectively, and is included in accrued liabilities on its balance sheet.

Expected future payments for environmental matters are as follows:

	(In thousands)
Years Ending December 31:
2022	$	230
2023		138
2024		126
2025		115
2026		103
Thereafter		288
	$	1,000

L. BUSINESS SEGMENTS:

The Company operates in three business segments. The Company identifies its segments based on the Company's organization structure, which is primarily by principal products. The principal product groups are Housewares/Small Appliance, Defense, and Safety. Sales for all segments are primarily to customers in North America.

The Housewares/Small Appliance segment designs, markets, and distributes housewares and small appliances. The housewares/small appliance products are sold primarily in the United States and Canada directly to retail outlets and also through independent distributors. As more fully described in Note J, the Company primarily sources its Housewares/Small Appliance products from non-affiliated suppliers located in the Orient. Sales are seasonal, with the normal peak sales period occurring in the fourth quarter of the year prior to the holiday season.

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The Defense segment was started in 2001 with the acquisition of AMTEC Corporation, which manufactures precision mechanical and electromechanical assemblies for the U.S. Government and prime contractors. During 2005, and again during 2010, AMTEC Corporation was one of two prime contractors selected by the Army to supply all requirements for the 40mm family of practice and tactical ammunition cartridges for a period of five years. In 2016, AMTEC was awarded a one-year contract, and in 2017, it was awarded a third five-year contract as the sole prime contractor. AMTEC's manufacturing plant is located in Janesville, Wisconsin. Since the inception of the Defense segment in 2001, the Company has expanded the segment by making several strategic business acquisitions, and has additional facilities located in East Camden, Arkansas; Antigo, Wisconsin; and Clear Lake, South Dakota. During 2003, the segment was expanded with the acquisition of Spectra Technologies, LLC of East Camden, Arkansas. This facility performs Load, Assemble, and Pack (LAP) operations on ordnance-related products for the U.S. Government and prime contractors. During 2006, the segment was expanded again with the acquisition of certain assets of Amron, LLC of Antigo, Wisconsin, which primarily manufactures cartridge cases used in medium caliber (20-50mm) ammunition. In 2011 the segment was further augmented with the purchase of certain assets of ALS Technologies, Inc. of Bull Shoals, Arkansas, which manufactured less lethal ammunitions. The Company subsequently relocated this operation to Perry, Florida, and in October of 2018, divested itself of the less lethal business. During 2014, the Company continued the expansion of the Defense segment with the purchase of substantially all of the assets of Chemring Energetic Devices, Inc. located in Clear Lake, South Dakota, and all of the real property owned by Technical Ordnance Realty, LLC. The Clear Lake facility manufactures detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. The Defense segment’s collection of facilities enables the Company to deliver in virtually all aspects of the manufacture of medium caliber training and tactical rounds. They include the fuze, the metal parts including the cartridge case, the load, assemble and pack of the final round, and the detonator.

On July 23, 2019, the Company purchased substantially all the assets of OneEvent Technologies, Inc., a Mount Horeb, Wisconsin company established in 2014. OneEvent's cloud-based learning and analytics engine utilizes a series of sensing devices integrated with a cellular gateway to predict, alert, and prevent. Sensors measure a variety of environmental data including temperature, smoke, carbon monoxide, motion, humidity, water, and more. See Note Q. Because a major focus of OneEvent is protection for buildings, homes, assets, and occupant, the Company created in 2019 the "Safety" operating segment, combining OneEvent's operations with those of Rusoh, Inc., which designs and markets fire extinguishers. Previously, Rusoh, Inc. had been included in the Company's Housewares/Small Appliance segment.

	(in thousands)
	*Housewares / Small Appliance*			*Defense*		*Safety*			*Total*
Year ended December 31, 2021
External net sales	$	115,924		$	239,514		339		$	355,777
Gross profit (loss)		9,974			61,205		(6,783	)		64,396
Operating profit (loss)		(2,631	)		51,216		(18,556	)		30,029
Total assets		242,456			168,296		9,646			420,398
Depreciation and amortization		1,215			1,530		233			2,978
Capital expenditures		738			1,966		162			2,866

Year ended December 31, 2020
External net sales	$	117,645		$	234,645		337		$	352,627
Gross profit (loss)		24,206			62,561		(1,845	)		84,922
Operating profit (loss)		10,371			52,810		(6,985	)		56,196
Total assets		245,662			164,951		22,557			433,170
Depreciation and amortization		983			1,743		279			3,005
Capital expenditures		828			1,678		115			2,621

Year ended December 31, 2019
External net sales	$	99,401		$	209,114		(5	)	$	308,510
Gross profit (loss)		15,358			57,773		(1,206	)		71,925
Operating profit (loss)		2,522			47,845		(3,987	)		46,380
Total assets		241,992			148,476		19,785			410,253
Depreciation and amortization		1,250			2,138		301			3,689
Capital expenditures		804			2,155		179			3,138

In the above summary, operating profit represents earnings before other income, income taxes, and discontinued operations. The Company's segments operate discretely from each other with no shared owned or leased manufacturing facilities. Costs associated with corporate activities (such as cash and marketable securities management) and the assets associated with such activities are included within the Housewares/Small Appliance segment for all periods presented.

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M. LEASES

The Company accounts for leases under ASC Topic 842, Leases, which was adopted on January 1, 2019. At the time of adoption, the Company recognized right-of-use assets and lease liabilities of $3,832,000. The Company’s leasing activities include roles as both lessee and lessor. As lessee, the Company’s primary leasing activities include buildings and structures to support its manufacturing operations at one location in its Defense segment, and warehouse space and equipment to support its distribution center operations in its Housewares/Small Appliances segment. As lessor, the Company’s primary leasing activity is comprised of manufacturing and office space located adjacent to its corporate offices. All of the Company’s leases are classified as operating leases.

The Company’s leases as lessee in its Defense segment provide for variable lease payments that are based on changes in the Consumer Price Index. As lessor, the Company’s primary lease also provides for variable lease payments that are also based on changes in the Consumer Price Index, as well as on increases in costs of insurance, real estate taxes, and utilities related to the leased space. Generally, all of the Company’s lease contracts provide for options to extend and terminate them. The majority of lease terms of the Company’s lease contracts reflect extension options, while none reflect termination options.

The Company has determined that the rates implicit in its leases are not readily determinable and estimates its incremental borrowing rates utilizing quotes from financial institutions for real estate and equipment, as applicable, over periods of time similar to the terms of its leases. The Company has entered into various short-term leases as lessee and has elected a non-recognition accounting policy, as permitted by ASC Topic 842.

	Year Ended		Year Ended		Year Ended
Summary of Lease Cost (in thousands)	December 31, 2021		December 31, 2020		December 31, 2019
Operating lease cost	$	938	$	729	$	691
Short-term and variable lease cost		252		452		225
Total lease cost	$	1,190	$	1,181	$	916

Rent expense was approximately $1,076,000, $1,182,000, and $1,114,000 for the years ended December 31, 2021, 2020, and 2019, respectively. Operating cash used for operating leases was $1,190,000, $1,181,000, and $916,000 for the years ended December 31, 2021, 2020, and 2019, respectively. The weighted-average remaining lease term was 22.7 years, and the weighted-average discount rate was 4.6% as of December 31, 2021.

Maturities of operating lease liabilities are as follows:

Years ending December 31:	*(In thousands)*
2022	$	807
2023		682
2024		631
2025		625
2026		605
Thereafter		13,972
Total lease payments	$	17,322
Less: future interest expense		7,160
Lease liabilities	$	10,162

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Lease income from operating lease payments was $1,971,000, $1,967,000, $1,788,000 for the years ended December 31, 2021, 2020 and 2019, respectively and is included in Other income on the Consolidated Statements of Comprehensive Income. Undiscounted cash flows provided by lease payments are expected as follows:

Years ending December 31:	*(In thousands)*
2022	$	1,843
2023		1,837
2024		1,837
2025		1,837
2026		1,837
Thereafter		11,022
Total lease payments	$	20,213

The Company considers risk associated with the residual value of its leased real property to be low, given the nature of the long-term lease agreement, the Company’s ability to control the maintenance of the property, and the creditworthiness of the lessee. The residual value risk is further mitigated by the long-lived nature of the property, and the propensity of such assets to hold their value or, in some cases, appreciate in value.

N. INTERIM FINANCIAL INFORMATION (UNAUDITED):

The following represents quarterly unaudited financial information for 2021 and 2020:

	(In thousands, except per share data)
							*Per Share (basic and diluted)*
Quarter	*Net Sales*		*Gross Profit*		*Net Earnings*		*Net Earnings*
2021
First	$	81,027	$	18,361	$	8,993	$	1.28
Second		87,118		17,675		9,292		1.32
Third		87,225		11,230		4,129		0.58
Fourth		100,407		17,130		3,240		0.45
Total	$	355,777	$	64,396	$	25,654	$	3.63

2020
First	$	65,636	$	16,117	$	8,222	$	1.17
Second		87,132		21,743		12,657		1.80
Third		93,937		20,718		12,138		1.72
Fourth		105,922		26,344		13,941		1.98
Total	$	352,627	$	84,922	$	46,958	$	6.67

Fourth quarter sales are impacted by the holiday driven seasonality of the Housewares/Small Appliance segment. This segment typically orders/purchases inventory during the first three quarters to meet the sales demand of the fourth quarter. The Defense and Safety segments are typically non-seasonal.

O. LINE OF CREDIT AND COMMERCIAL LETTERS OF CREDIT

The Company maintained an unsecured line of credit for short term operating cash needs of $5,000,000 as of December 31, 2021 and 2020. There were no amounts outstanding under this line of credit, which expires September 30, 2022. The interest rate on the line of credit is reset monthly to the London Inter-Bank Offered Rate (LIBOR) plus one half of one percent. In addition, the Company had issued commercial letters of credit totaling $1,247,000 as of both December 31, 2021 and 2020, related to performance on certain customer contracts. As of December 31, 2021, the entire balance of the issued letters of credit had not been drawn upon.

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P. DISCONTINUED OPERATIONS

On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, Ltd. ("Drylock"). As a result, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation, and classified the assets and liabilities of its Absorbent Products business as held for sale.

The following table summarizes the results of the Absorbent Products business within discontinued operations for each of the periods presented:

	*For the years ended December 31,*
(in thousands)	*2021*		*2020*		*2019*
Other income (expense)	$	-	$	-	$	2,126
Earnings from discontinued operations before provision for income taxes		-		-		2,126
Provision for income taxes from discontinued operations		-		-		446
Earnings from discontinued operations, net of tax	$	-	$	-	$	1,680

During the third quarter of 2019, the Company recognized Other income from the settlement of a lawsuit for breach of contract.

The Consolidated Statements of Cash Flows do not present the cash flows from discontinued operations separately from cash flows from continuing operations. Cash (used in) operating activities from discontinued operations was $0, $0, and $(1,052,000) for the years ended December 31, 2021, 2020, and 2019, respectively. Cash provided by investing activities related to discontinued operations was $0, $0, and $3,107,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

In connection with the asset purchase agreement discussed above, the Company entered into a 10-year lease agreement with Drylock for a portion of its manufacturing and warehouse facilities. The lease agreement provided for total annual payments of $1,288,000 initially. During the fourth quarter of 2018, the lease agreement was amended to incorporate additional facilities that the Company built for Drylock. The amended lease provides for an initial term of approximately 14 years, and allows for successive three-year renewal periods, as well as options to terminate the lease early after five and ten years. The amended lease also provides for adjustments to the rental payments based on certain price indices, taxes, and space occupied. The Company estimates that annual payments under the lease will total $1,837,000. The amounts received from Drylock for rental income are recorded in Other Income on the Consolidated Statements of Comprehensive Income.

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Q. BUSINESS ACQUISITION

On July 23, 2019, the Company’s wholly-owned subsidiary, OETA, Inc., purchased substantially all the assets of OneEvent Technologies, Inc., a Mount Horeb, Wisconsin company established in 2014 for $6,501,000, including cash of $4,020,000, forgiveness of a note receivable of $2,364,000 and a potential earn out, which is based on earnings over a seven year period. The current estimated value of the earn out is $117,000, however, the value of the earn out will vary depending on actual earnings over the seven year period. OneEvent’s systems provide early warning of conditions that could ultimately lead to significant losses. The initial application combines patented machine learning, digital sensors and cloud-based technology to continuously monitor freezers and refrigerators, instantly detecting and alerting users to potential safety issues around pharmaceuticals and food. The OneEvent® system also has the ability to continually measure other factors such as smoke, carbon monoxide, motion, humidity, and moisture. Pursuant to the terms of the transaction, the seller has subsequently changed its corporate name, and OETA, Inc. has now legally adopted the corporate name, OneEvent Technologies, Inc.

The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities. The following table shows the amounts recorded as of their acquisition date.

	(in thousands)

Cash	$	287
Receivables		14
Inventory		307
Other current assets		105
Property, plant and equipment		35
Intangibles		2,141
Goodwill		3,831
Right-of-Use Lease Assets		59
Total assets acquired		6,779
Less: Current liabilities assumed		255
Lease Liability - Noncurrent		23
Net assets acquired	$	6,501

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The acquired intangibles primarily include technology software and patents that will be amortized over a period of 10-15 years. The amount of goodwill recorded reflects expected earning potential of the acquired technology software and patents. The recorded goodwill is deductible for income tax purposes over a fifteen year period. The Company’s results of operations for 2019 include revenue net of sales deductions of ($38,000) and loss of $1,103,000 from the acquired business from the date of acquisition through December 31, 2019. The following pro forma condensed consolidated results of operations has been prepared as if the acquisition had occurred as of January 1, 2018.

	(unaudited)
	(in thousands, except per share data)
	*Year Ended*
	*December 31, 2019*

Net sales	$	308,561
Net earnings		40,822

Net earnings per share (basic and diluted)	$	5.82
Weighted average shares outstanding (basic and diluted)		7,018

The unaudited pro forma financial information presented above is not intended to represent or be indicative of what would have occurred if the transactions had taken place on the dates presented and is not indicative of what the Company’s actual results of operations would have been had the acquisition been completed at the beginning of the periods indicated above. The pro forma combined results reflect one-time costs to fully merge and operate the combined organization more efficiently, but do not reflect anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future results that the Company will experience.

R. OTHER

The Company has entered into a licensing agreement with another firm that holds intellectual property on the Rusoh® self-service/self-reloadable fire extinguisher. Under the agreement, the Company has advanced the entity funds and has agreed to pay royalties to the entity on the commercial sales of the developed products. As of December 31, 2021 and 2020, notes receivable plus accrued interest of $7,615,000 and $7,399,000, respectively, related to the license agreement were classified as non-current Notes Receivable on the Company’s Consolidated Balance Sheets. The fire extinguisher was introduced to the commercial market in 2017 and the retail market in 2021, and experienced several obstacles in both markets. As the promisor's ability to pay has been hindered by lack of royalties earned and projected to be earned under the agreement, repayment of the notes is doubtful. Accordingly, the Company fully impaired the notes and accrued interest receivable at December 31, 2021. The charge related to the impairment is included in Selling and general expenses on the Consolidated Statements of Comprehensive Income.

S. SUBSEQUENT EVENTS

The Company evaluates events that occur through the filing date and discloses any material events or transactions.

On February 11, 2022, the Company’s Board of Directors announced a regular dividend of $1.00 per share, plus an extra dividend of $3.50, payable on March 15, 2022, to shareholders of record as of March 1, 2022.

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Reports of Independent Registered Public Accounting Firms

To the Shareholders and the Board of Directors of National Presto Industries, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of National Presto Industries, Inc. and its subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of comprehensive income, stockholders' equity and cash flows for the period ended December 31, 2021, and the related notes to the consolidated financial statements and schedule II (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 11, 2022 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Defense Segment Contracts

As described in Note A (13) and L to the financial statements, the Company’s external net sales recognized for its Defense segment amounted to $240 million for the year ended December 31, 2021. The Company's contracts in the Defense segment are primarily with the U.S. Department of Defense (DOD) and DOD prime contractors. The Company generally recognized revenue on these contracts at a point in time when the customer obtains legal title and formally documents that it has accepted the products. There are certain termination clauses in Defense segment contracts that could give rise to an over-time pattern of recognition of revenue in the absence of alternative use of the product. Significant judgment is required by management to conclude whether or not (i) the Company has an enforceable right to payment for its performance to date under the contract and (ii) the asset created by the Company’s performance under the contract has an alternative use to the Company.

We identified the determination whether control in Defense segment sales contracts transfers to the customer at a point in time or over time as a critical audit matter because of the significant assumptions and judgments made by management. Auditing management’s assumptions and judgements regarding when control transfers involved a high degree of auditor judgment and an increased effort, including the use of specialists.

Our audit procedures related to management’s determination of when control transfers to the customer in Defense segment sales contracts included the following, among others:

●

We obtained an understanding of the relevant controls related to the timing of revenue recognition on Defense contracts and tested such controls for design and operating effectiveness, including management review controls related to the evaluation of relevant contract terms and conditions impacting whether revenue is recognized over time or at a point in time.

●

We assessed the reasonableness of the timing of revenue recognition for a sample of revenue contracts through:

Reviewing contract terms, including evaluating whether the Company has an enforceable right to payment for its performance to date under the contract and whether contractual restrictions prohibit the Company from redirecting a completed asset to another customer.

Evaluating evidence that the assets created by the Company’s performance under the contract have an alternative use by verifying sales of the same or similar products to other customers.

●

We utilized personnel with specialized knowledge and experience with revenue recognition of government contracts under ASC 606 to assist in the evaluation of management’s assessment of positive and negative evidence and their conclusions of the timing of when control has been transferred to its customers under the contract.

/s/ RSM US LLP

We have served as the Company's auditor since 2021.

Milwaukee, Wisconsin

March 11, 2022

F-22

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

National Presto Industries, Inc.

Eau Claire, Wisconsin

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of National Presto Industries, Inc. (the “Company”) and subsidiaries as of December 31, 2020, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and schedule listed in Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2020, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We served as the Company's auditor from 2007 to 2021.

Milwaukee, Wisconsin

March 16, 2021

F-23

Table of Contents

NATIONAL PRESTO INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2021, 2020 and 2019

(In thousands)
Column A	Column B		Column C				Column D		Column E
Description	Balance at Beginning of Period		Additions - Charged to Costs and Expenses (A)		Additions - Charged to Other Accounts (B)		Deductions (C)		Balance at End of Period

Deducted from assets:
Allowance for doubtful accounts:
Year ended December 31, 2021	$	312	$	50	$	-	$	24	$	338
Year ended December 31, 2020	$	450	$	-	$	-	$	138	$	312
Year ended December 31, 2019	$	747	$	6	$	-	$	303	$	450

Allowance for doubtful note receivable:
Year ended December 31, 2021	$	-	$	7,615	$	-	$	-	$	7,615
Year ended December 31, 2020	$	-	$	-	$	-	$	-	$	-
Year ended December 31, 2019	$	-	$	-	$	-	$	-	$	-

Valuation allowance for deferred tax assets:
Year ended December 31, 2021	$	520	$	1,175	$	-	$	-	$	1,695
Year ended December 31, 2020	$	-	$	520	$	-	$	-	$	520
Year ended December 31, 2019	$	-	$	-	$	-	$	-	$	-

Notes:

(A) Amounts charged to selling and general expenses or provision for income taxes from continuing operations.

(B) Amounts charged to other accounts.

F-24

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