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| NPK > SEC Filings for NPK > Form 10-Q on 12-Nov-2009 | All Recent SEC Filings |
12-Nov-2009
Quarterly Report
Forward-looking statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in the Company's 2008 Annual Report to Shareholders, in the Proxy Statement for the annual meeting held May 19, 2009, 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; increases in material, freight/shipping, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production from machine issues; work or labor disruptions stemming from a unionized work force; changes in government requirements and funding of government contracts, failure of subcontractors or vendors to perform as required by contract; and the efficient start-up and utilization of capital equipment investments. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, copies of which are available from the Company without charge.
Comparison of Third Quarter 2009 and 2008
Readers are directed to Note C to the Consolidated Financial Statements, "Business Segments" for data on the financial results of the Company's three business segments for the Quarters ended October 4, 2009 and September 28, 2008.
On a consolidated basis, sales increased by $4,419,000 (4%), gross margins increased by $10,002,000 (53%), selling and general expense increased by $320,000 (8%), and other income decreased by $217,000 (23%). Earnings before the provision for income taxes increased by $9,465,000 (60%), as did net earnings by $6,504,000 (64%). Details concerning these changes can be found in the comments by segment below.
Housewares/small appliance net sales increased by $6,146,000 from $29,919,000 to $36,065,000, or 21%, as a result of an increase in unit shipments. Defense net sales were relatively flat, decreasing by $98,000 from $61,664,000 to $61,566,000. Absorbent products net sales decreased by $1,629,000 from $20,390,000 to $18,761,000, or 8%, which stemmed primarily from a decrease in unit shipments.
Housewares/small appliance gross profits increased $4,722,000 from $5,942,000 (20% of sales) to $10,664,000 (30% of sales), or 80%, approximately one quarter of which reflected the sales mentioned above, with the remaining increase attributable to reductions in commodity and freight costs. Defense gross profits increased $1,875,000 from $13,381,000 (22% of sales) from the prior year's quarter to $15,256,000 (25% of sales), stemming from an improved mix of products shipped. Absorbent products gross profits were $3,024,000 in the current quarter versus a loss of $381,000 in the prior period, a favorable change of $3,405,000, primarily reflecting decreased commodity costs, augmented by higher production levels/improved efficiency.
Selling and general expenses for the Housewares/small appliance segment were essentially flat. Defense selling and general expenses increased $292,000, reflecting increased staffing related primarily to the growth of the segment's LAP (Load, Assemble, and Pack) business. Absorbent selling and general expenses increased $123,000, reflecting increased staffing necessary to support the segment's program to further diversify its customer base.
The above items were responsible for the change in operating profit.
Other income decreased $217,000, due primarily to lower interest income resulting from decreased yields which were offset in most part by an increased level of investments.
Comparison of First Nine Months 2009 and 2008
Readers are directed to Note C to the Consolidated Financial Statements, "Business Segments" for data on the financial results of the Company's three business segments for the Nine Months ended October 4, 2009 and September 28, 2008.
On a consolidated basis, sales increased by $28,359,000 (10%), gross margins increased by $23,385,000 (47%), selling and general expense increased by $1,051,000 (9%), and other income decreased by $535,000 (16%). Earnings before the provision for income taxes increased by $21,799,000 (54%), as did net earnings by $14,872,000 (57%). Details concerning these changes can be found in the comments by segment below.
Housewares/small appliance net sales increased by $12,148,000 from $72,623,000 to $84,771,000, or 17%, 68% of which was attributable to an increase in units shipped, with the remaining increase attributable to higher unit prices secured in the first six months of 2009 versus those in effect during the comparable prior year period. Defense net sales increased by $13,174,000 from $173,208,000 to $186,382,000, or 8%, 42% of which stemmed from an increase in sales related to the US Department of the Army 40mm Systems program, with the balance attributable to an increase in shipments of other products. Absorbent products net sales increased by $3,037,000 from $53,289,000 to $56,326,000, or 6%, stemming primarily from an increase in unit shipments.
Housewares/small appliance gross profits increased $7,758,000 from $13,254,000 (18% of sales) to $21,012,000 (25% of sales), or 59%, 71% of which reflected lower commodity and freight costs, with the remaining increase attributable to the increased sales mentioned above. Defense gross profits increased $8,658,000 from $36,766,000 (21% of sales) from the prior year's period to $45,424,000 (24% of sales). One third of the increase reflected the sales increase noted above, with the remaining two thirds attributable to a more favorable mix of product shipments. Absorbent products gross profits were $6,530,000 in the current period versus a loss of $439,000 in the prior period, a favorable change of $6,969,000, primarily reflecting decreased commodity costs, augmented by higher production levels/improved efficiency.
Selling and general expenses for the Housewares/small appliance segment increased $282,000, reflecting, in largest part, partly offsetting adjustments to health and accident and self insurance accruals. Defense selling and general expenses increased $394,000, reflecting increased staffing related primarily to the growth of the segment's LAP (Load, Assemble, and Pack) business. Absorbent selling and general expenses increased $375,000, primarily reflecting losses on the write-off of equipment that was no longer used for operations.
The above items were responsible for the change in operating profit.
Other income decreased $535,000, due primarily to lower interest income resulting from decreased yields which were offset in most part by an increased level of investments.
Earnings before provision for income taxes increased $21,799,000 from $40,533,000 to $62,332,000. The provision for income taxes increased from $14,500,000 to $21,427,000, which resulted in an effective income tax rate decrease from 36% to 34%, reflecting a decrease in the estimated effective income tax rate and the increase in the FIN 48 tax reserve made in the prior period that was not repeated in the current period, both of which were partially offset by an increase in earnings subject to tax. Net earnings increased $14,872,000 from $26,033,000 to $40,905,000, or 57%.
Liquidity and Capital Resources
Net cash provided by operating activities was $26,508,000 and $9,026,000 for the nine months ended October 4, 2009 and September 28, 2008, respectively. The principal factors contributing to the increase can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during the first nine months of 2009 were net earnings of $40,905,000, a decrease in accounts receivable levels stemming from cash collections on customer sales, partially offset by an increase in inventory levels. Of particular note during the first nine months of 2008 were net earnings of $26,033,000 and a decrease in accounts receivable
Net cash provided by investing activities during the first nine months of 2009 was $15,536,000, as compared to $2,528,000 used during the first nine months of 2008. The change in investing activity cash flow is attributable to an increase in net maturities and sales of marketable securities. Effectively, fewer sales were required in 2009 to fund the increased dividend paid, reflecting the increase in cash provided by operating activities. Additionally, fewer purchases were made in 2009 as the yields on available marketable securities were relatively unattractive when compared to yields in the previous year.
Cash flows from financing activities for the first nine months of 2009 and 2008 primarily differed as a result of the $1.30 per share increase in the extra dividend paid during those periods.
Working capital increased by $7,949,000 to $255,576,000 at October 4, 2009 for the reasons stated above. The Company's current ratio was 5.9 to 1.0 at October 4, 2009 and 5.8 to 1.0 at December 31, 2008.
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 if the appropriate return on investment is projected.
The Company has substantial liquidity in the form of cash and short-term maturity marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund growth through acquisitions and other means. The bulk of its marketable securities are invested in the tax exempt 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. Comparative yields during the first nine months of 2009 were lower than those in the first nine months of the preceding year, reflecting the seven federal funds rate reductions made during 2008. The lower yields, which were offset in most part by an increase in the Company's investment holdings, served to decrease interest income. The interest rate environment is a function of national and international monetary policies as well as the growth and inflation rates of the U.S. and foreign economies and is not controllable by the Company.
Critical Accounting Policies
The preparation of the 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. Actual results may differ from those estimates. 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. These critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors.
Inventories
New Housewares/small appliance product introductions are an important part of the Company's sales to offset the morbidity rate of other Housewares/small appliance 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. There were no such obsolescence issues that had a material effect during the current year and, accordingly, the Company did not record a reserve for obsolete product. 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 other segments is not deemed to be significant, as products are largely built pursuant to customers' specific orders.
Product Liability
The Company is subject to product liability claims in the normal course of business. The Company does carry insurance to limit its product liability claims in excess of a self-insured retention. The self-insured retention and excess coverage vary from policy year to policy year. Moreover, there is typically a limit on all types of insurance coverage. The limits also vary from policy year to policy year. The Company records an accrual for known claims, including an estimate for related legal fees in the Company's consolidated financial statements. It utilizes historical trends and other analysis to assist in determining the appropriate accrual. Currently, there are no known claims that
Sales and Returns
Sales are recorded net of discounts and returns. The latter 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.
New Accounting Pronouncements
Please refer to Note H in the Notes to the Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on the Company's consolidated financial statements.
ITEM 3.
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