UNITED
STATESSECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-K





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


For the
fiscal year ended December 31, 2009





or




o 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 PRESTOINDUSTRIES, INC.(Exact
      name of registrant as specified in its
charter)
 
 Wisconsin
              
              39-0494170(State or
      other jurisdiction of incorporation or organization)
              
              (IRS
      Employer Identification Number)
 
 3925 North Hastings WayEau 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:




Title of each
      class
            
            Name of each exchangeon whichregistered$1.00 par
      value common stock
            
            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 o   No
      þ




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 o  No
      þ




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 þ   No
      o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorted period that the
registrant was required to submit and post such files).


Yes o   No
      o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or any
amendment to the


Form
      10-K þ




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


Large
      accelerated filer oAccelerated
      filer þ Non-accelerated
      filer oSmaller
      reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes o   No
      þ




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:  $515,902,412.  The number of shares outstanding of
each of the registrant's classes of common stock, as of March 4, 2010 was
6,857,540.





The Registrant has incorporated in Part
III of Form 10-K, by reference, portions of its Proxy Statement for its 2010
Annual Meeting of Stockholders.










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 M 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.  The Defense Products segment manufactures 40mm
ammunition, precision mechanical and electro-mechanical assemblies, medium
caliber cartridge cases, and performs Load, Assemble and Pack (LAP) operations
on ordnance related products primarily for the U.S. government and prime
contractors.  The Absorbent Products segment manufactures and sells
primarily private label adult incontinent products and diapers.





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 fry pans in several sizes, griddles, woks and multi-purpose cookers;
deep fryers of various sizes; hamburger cookers; waffle makers; pizza ovens,
slicer/shredders; electric heaters; corn poppers (hot air and microwave);
microwave bacon cookers; coffeemakers and coffeemaker accessories; electric tea
kettles; electric peelers; electric knife sharpeners; shoe polishers; 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, 2009, approximately 16% of consolidated net sales were
provided by cast products (griddles, waffle makers, hamburger cookers and die
cast deep fryers, skillets, and multi-cookers), and approximately 14% by
noncast/thermal appliances (stamped cookers and canners, stainless steel
cookers, pizza ovens, corn poppers [hot air and microwave], coffeemakers,
microwave bacon cookers, tea kettles, electric stainless steel appliances,
non-die cast fryers, and heaters).  For the year ended December 31,
2008, approximately 16% of consolidated net sales were provided by cast
products, and approximately 14% by noncast/thermal appliances.  For
the year ended December 31, 2007, approximately 16% of consolidated net sales
were provided by cast products, and approximately 14% by noncast/thermal
appliances.





For the
years ended December 31, 2009, 2008, and 2007, this segment had one customer
which accounted for 10% or more of Company consolidated net
sales.  That customer was Wal-Mart Stores, Inc. which accounted for
11% of consolidated net sales in 2009, 2008, and 2007.  The loss of
Wal-Mart Stores as a customer would have a material adverse effect on the
segment.





Products
are sold directly to retailers throughout the United States and Canada 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,
business from any of the Company's major customers could adversely affect the
Company's business.  Most housewares and electrical appliances are
sourced from vendors in the Orient.  (See Note I to the Consolidated
Financial Statements).





The
Company has a sales force of 11 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 are conducted through the use of newspaper advertising
and television.  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.  Product competition extends to
special product features, product pricing, 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 for the Company's most active selling
periods.




2





Research
and development costs related to new product development for the years 2009,
2008, and 2007 were absorbed 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(5) to the Consolidated Financial Statements).  Income from invested
funds is included in Other Income in the accompanying consolidated financial
statements.





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
Products Segment







AMTEC
Corporation was acquired on February 24, 2001, and manufactures precision
mechanical and electro-mechanical products for the U.S. Department of Defense
(DOD) and DOD prime contractors.  AMTEC’s 72,000 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).  It also is a prime contractor for
the 40mm System program described more fully 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
309,000 square feet of space located in East Camden, Arkansas, dedicated
primarily to the performance of Load, Assemble, and Pack (LAP) type work and
during 2008 completed a facility which enabled it to begin performance in 2008
of the LAP work for the 40mm systems program referenced below.  Amron,
a division of AMTEC, holds the assets that were purchased from Amron, LLC on
January 30, 2006.  It manufactures cartridge cases used in medium
caliber (20-40 mm) ammunition primarily for the DOD and DOD prime contractors,
which include cartridge cases used in the 40mm systems program referenced
below.  The Amron manufacturing facility is 179,000 square-feet and is
located in Antigo, Wisconsin.  For further information regarding the
asset acquisition, see Note K to the Consolidated Financial
Statements.





The
Defense Products 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.





On April
29, 2005, AMTEC Corporation was awarded the high-volume, prime contract for the
Army’s five year 40mm systems program.  The Army selected AMTEC as one
of two prime contractors responsible for supplying all requirements for 40mm
practice and tactical ammunition rounds for a period of five
years.  The Army estimated the total for the two contract awards, if
all of the options were fully exercised, to be $1.3 billion.  AMTEC
projects that its deliveries to the Army over the five year period will exceed
$664,000,000.  Deliveries under the systems program were $149,000,000
during 2009.  On February 18, 2010, the Army awarded AMTEC a contract
for a five year period.  AMTEC received 60% of the initial contract,
valued at $33.7 million, with the remaining 40% awarded to another
contractor.  The actual annual and cumulative dollar volume with the
Army over the five year period as a result of the award, 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.




3





During
2009, 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 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, in the case of the original contract,
applied to only two materials – steel and aluminum.  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.




3. Absorbent Products
Segment


The first
Absorbent Products segment business (Presto Absorbent Products, Inc.) was formed
on November 21, 2001 to purchase assets from Rmed International, a company that
manufactured primarily private label diapers.  On October 6, 2003, the
Company purchased the assets of NCN Hygienic Products, Inc., a Marietta, Georgia
company which manufactured adult incontinence products and pads for dogs, which
were likewise primarily private label products. The absorbent products business
is capital intensive and substantial investment in new equipment was made during
2004 and 2005.  New absorbent product equipment is extremely
complex.  Not only is considerable time required to secure and install
the equipment, but even more time is required to develop the requisite employee
skill sets to utilize the equipment efficiently.  Sales channels must
be in place to sell the increased production that results from improved
efficiency in operations.





During
the fourth quarter of 2006, in order to enhance the absorbent segment’s
long-term manufacturing efficiencies, the Company decided to consolidate its
adult incontinence production capabilities and, as a result, began the process
of relocating its adult incontinence manufacturing equipment from its Marietta,
Georgia facility to its Eau Claire, Wisconsin facility.  In addition,
the Company made a decision to discontinue the manufacture of dog pads, a
business which did not fit the long-term Absorbent Segment
strategy.  This transition was largely completed by the end of the
first quarter of 2007.  See Note L to the Consolidated Financial
Statements.





Unlike
the housewares/small appliance business, the absorbent product business is not
seasonal.  To the extent there are variations from month to month,
that is primarily a function of customer promotional timing.  As
private label products tend to emulate branded product as much as possible, new
product development is important, but is largely limited to providing features
similar to those found in national branded product.  Research and
development costs are absorbed in operations.





The
absorbent product industry is a very competitive, high volume-low margin
business.  There are several competitors, most of which are larger
than this segment of the Company.  Product competition is largely
based on product pricing, quality, and features.





Product
cost is heavily influenced by commodity costs which include wood pulp, as well
as many petroleum based products, and by equipment operating speed, efficiency,
and utilization.





Advertising
is typically the responsibility of the owner of the private label and is thus
minimal.  Most sales are currently handled through distributor/broker
arrangements.  Production for the most part is done to
order.





For the
years ended December 31, 2008 and 2007, this segment had one customer, Medline
Industries Holdings LP, which accounted for 12% and 13%, respectively, of
consolidated net sales.  The loss of Medline Industries Holdings LP as
a customer would have a material adverse effect on the segment.  On
July 31, 2009, the term of the contract with Medline
expired.  Subsequently, the Company entered into a two year private
label manufacturing agreement, which provides a framework for the ongoing
relationship with Medline.  The Company also has implemented a program
to further diversify its Absorbent Products customer base.





The
segment, which enjoyed its first truly profitable year in 2009, has been
experiencing capacity constraints and has received Board authorization for a $30
million expansion.  To date, it has ordered one machine, which is
slated to be installed in the Eau Claire, Wisconsin facility.




4





B.   OTHERCOMMENTS





1. Sources and Availability
of Materials


See Note
I to the Consolidated Financial Statements.





2. Patents, Trademarks, and
Licenses


Patents,
particularly on new products, trademarks and know-how are considered
significant.  The Company's current and future success depends upon
judicial protection of its intellectual property rights (patents, trademarks and
trade dress).  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 has dozens of U.S. and foreign
patents pending and granted.  Of those U.S. patents granted, the
following is a non-exclusive list of those relevant to current products and
their expiration dates, assuming continued payment of maintenance fees (the date
is the latest expiration date of the corresponding patents):  Quick
Release Appliance Cord Assemblies (US 6,719,576 and 6,527,570, December 2022 and
October 2021, respectively), Rotatable Cooking Apparatus (US 6,125,740 and
6,354,194, March 2019), Food Processor (5,680,997, October 2014), Microwave Corn
Popper Device and Methods (5,397,879, November 2013), Heater (D456,500, April
2016), and Parabolic Heater (D456,067, April 2016).  To date, the
Company has vigorously protected its rights and enjoyed success in all its
intellectual property suits.  The Defense and Absorbent Products
segments do not currently hold patents, trademarks, and licenses which would be
deemed significant to their respective operations.





3. Effects of Compliance
with Environmental 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 alleged 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, 2009, it is believed that the Company's
existing environmental accrued 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.





4.Number of
Employees of the Company


As of
December 31, 2009, the Company had 1,060 employees compared to 996 employees at
the end of December 2008.  The increase was in largest part due to an
increase in LAP type work done at the Defense segment’s Spectra
facility.





Approximately
246 employees of Amron are members of the United Steel Workers
union.  The contract between Amron and the union is effective through
March 30, 2010.





5. Industry Practices
Related to Working Capital Requirements


The major
portion of the Company's sales was 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.  Buying practices of the Company's
customers require "just-in-time" delivery, necessitating that the Company carry
large finished goods inventories.





The
multiple stock keeping units inherent in the private label absorbent product
business, combined with the desire to avoid excessive machine changeover (which
can have a negative impact on efficiency), necessitates the carrying of a large
finished goods inventory in the Absorbent Product segment as well.





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




5





6.OrderBacklog


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 $274,000,000,
$265,000,000, and $230,000,000 at December 31, 2009, 2008, and 2007,
respectively, net of intercompany sales.  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 performed
during a 12 to 14-month period, after December 31, 2009.





Shipment
of Absorbent Products typically occurs within 15 to 30 days from receipt of an
order and thus there is usually no substantial long term backlog of
orders.




C. DISPOSALACTIVITIES





See Note
L to the Consolidated Financial Statements.





D. ACQUISITIONS





See Note
K to the Consolidated Financial Statements.





E. AVAILABLEINFORMATION





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 does make available on its web site its annual reports on Form 10-K or
10-K/A.  It does not provide its quarterly reports on Form 10-Q,
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.  These reports are already 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 also does
provide paper copies of its annual report free of charge upon
request.





ITEM
1A. RISKFACTORS





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 its products.  Also, the cost of fuel has a major
impact on transportation costs.  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 interruptionsand foreign business
risks.




6





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, it may be subject to unexpected changes in
pricing or supply of products.  In addition, the current worldwide
economic downturn may affect the financial condition of its vendors. 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.





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.




Wal-Mart has accounted for more than 10% of consolidated
net sales in each of the last 3 fiscal years.  Although the Company
has a long-established relationship with this customer, it does not have any
long-term supply agreement or guaranty of minimum purchases.  As a
result, the customer may fail to place planned orders, change planned quantities
or delay purchases for reasons beyond its control.  Similarly, the
loss of or material reduction in, business from any of this segment’s other key
customers 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 or a
shift in consumer spending away from its housewares/small appliances 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 it 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.





Product recalls or lawsuits relating to defective
products could have an adverse effect on the Company.





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 it 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 are
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.




7





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 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.





In April 2005, AMTEC Corporation was selected as one of
two prime contractors responsible for supplying all requirements for 40mm
practice and tactical ammunition rounds for the Army’s five year 40mm systems
program.  AMTEC projects that its deliveries to the Army over the
five-year period will exceed $664,000,000.  Deliveries under the
systems program were $149,000,000 during 2009.  In February 2010 the
Army awarded AMTEC a new contract for an additional five-year period. As in the
original contract, AMTEC and one other prime contractor will be responsible for
supplying all of the requirements for the 40mm family of ammunition
rounds.  The actual annual and cumulative dollar volume with the Army
will be dependent on military requirements and funding.





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 have
been augmented by increased defense spending, including supplemental
appropriations for operations in Iraq and Afghanistan.  However,
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 the cost of
the U.S. military operations in Iraq, Afghanistan and other parts of the
world.  Any significant decline or redirection of U.S. military
expenditures could result in a decrease to the Company’s sales and
earnings.





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.




8





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 being performed on fixed-price basis.  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 thepolitical actions under consideration by
federal and state governments, including climate change legislation, 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
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
terminations.





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.




Absorbent Products
Segment:





The Absorbent Products 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.





One customer, Medline Industries, Inc., has accounted
for more than 10% of consolidated net sales in two of the last 3
years.  In September of 2009, the Company entered a two-year private
label manufacturing agreement with Medline.  The agreement provides a
framework for an ongoing relationship between the parties.  The loss
of this customer, as well as the loss of other key customers, could have a
material adverse effect on the segment’s results of operations and financial
condition.





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





At times, the Company has experienced significant
increases in its raw material, transportation, energy, and other supply costs
primarily due to limited global supply and increased demand.  Any
increased costs that cannot be fully absorbed or passed along in the form of
price increases to its customers could adversely affect
earnings.  Global economic conditions, supplier capacity constraints
and other factors could affect the availability of, or prices for, those raw
materials.  The risk is further compounded by the political actions
under consideration by federal and state governments, including climate change
legislation, 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 ripple throughout the economy.




9





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





The development and introduction of new absorbent
products is very important to 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.  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 it
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 new
products it develops.





The inability to operate the Company’s manufacturing
facility at or near full capacity could adversely affect the result of
operations.





The Absorbent Products segment is a very
capital-intensive business, utilizing high cost, high-speed
equipment.  Since the segment operates in a market that is highly
competitive with relatively low margins, it is essential to operate near full
capacity to achieve high efficiencies and profitable financial
results.




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.




ITEM 1B.UNRESOLVEDSTAFF COMMENTS





None





ITEM
2.  PROPERTIES (OWNED EXCEPT WHERE INDICATED)





The
Company's Eau Claire facility is approximately 470,000 square
feet.  Presto Absorbent Products, Inc. leases approximately 328,000
square feet of this area.  The Company's corporate office occupies the
balance of the space in Eau Claire.





The
Company also has Defense manufacturing facilities located in Janesville and
Antigo, Wisconsin and East Camden, Arkansas and two warehousing facilities
located in Jackson and Canton, Mississippi used in the Housewares/Small
Appliance segment.





The
Janesville, Wisconsin facility is comprised of approximately 72,000 square feet
and the Antigo, Wisconsin facility is comprised of approximately 179,000 square
feet. The East Camden, Arkansas operation leases approximately 309,000 square
feet.





The
Jackson facility contains 252,000 square feet. The Company leases a 184,000
square foot building in Canton, Mississippi 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 buildings for warehousing.




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




10





ITEM 3.  LEGALPROCEEDINGS





See Note
H to the Consolidated Financial Statements.





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




ITEM 4.RESERVED


11





PART
II




ITEM 5.  MARKET FOR REGISTRANT'S COMMONEQUITY, RELATED STOCKHOLDERMATTERS AND ISSUERPURCHASESOF EQUITY SECURITIES





Record of Dividends Paid and Market Price of Common
Stock




2009
            
            
            2008Applicable
            
            
            Market
      Price
            
            
            Applicable
            
            
            Market
      PriceDividends Paid
            
            
            
            
            
            Dividends Paidper
      Share
            
            
            High
            
            
            Low
            
            
            Per
      Share
            
            
            High
            
            
            LowFirst
      Quarter
            
            $
            5.55
            
            
            $
            80.95
            
            
            $
            46.60
            
            
            $
            4.25
            
            
            $
            59.57
            
            
            $
            46.00Second
      Quarter
            
            
            -
            
            
            
            85.50
            
            
            
            60.17
            
            
            
            -
            
            
            
            68.54
            
            
            
            48.60Third
      Quarter
            
            
            -
            
            
            
            87.99
            
            
            
            72.33
            
            
            
            -
            
            
            
            80.59
            
            
            
            59.97Fourth
      Quarter
            
            
            -
            
            
            
            111.85
            
            
            
            84.26
            
            
            
            -
            
            
            
            78.91
            
            
            
            44.95Full
      Year
            
            $
            5.55
            
            
            $
            111.85
            
            
            $
            46.60
            
            
            $
            4.25
            
            
            $
            80.59
            
            
            $
            44.95





The
common stock of National Presto Industries, Inc. is traded on the New York Stock
Exchange under the symbol “NPK”.  As of March 4, 2010, there were 362
holders of record of the Company’s common stock.  This number does not
reflect shareholders who hold their shares in the name of broker dealers or
other nominees.  During the fourth quarter of 2009, the Company did
not purchase any of its equity securities.




ITEM 6. SELECTEDFINANCIAL DATA




(In
      thousands except per share data)For
      the years ended December 31,
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Net
      sales
            
            $
            478,468
            
            
            $
            448,253
            
            
            $
            421,287
            
            
            $
            304,587
            
            
            $
            184,759Net
      earnings
            
            $
            62,576
            
            
            $
            44,183
            
            
            $
            38,623
            
            
            $
            27,960
            
            
            $
            16,417Net
      earnings per share - Basic
            
            $
            9.13
            
            
            $
            6.45
            
            
            $
            5.65
            
            
            $
            4.09
            
            
            $
            2.41Net
      earnings per share - Diluted
            
            $
            9.13
            
            
            $
            6.45
            
            
            $
            5.65
            
            
            $
            4.09
            
            
            $
            2.40Total
      assets
            
            $
            402,405
            
            
            $
            365,883
            
            
            $
            374,676
            
            
            $
            344,976
            
            
            $
            307,415Dividends
      paid per common share applicable to current yearRegular
            
            $
            1.00
            
            
            $
            1.00
            
            
            $
            0.95
            
            
            $
            0.92
            
            
            $
            0.92Special
            
            
            4.55
            
            
            
            3.25
            
            
            
            2.85
            
            
            
            1.20
            
            
            
            0.75Total
            
            $
            5.55
            
            
            $
            4.25
            
            
            $
            3.80
            
            
            $
            2.12
            
            
            $
            1.67




2006 net
earnings reflect a research and development tax credit which served to increase
net earnings by $1,201,000 ($.18 per share) covering the period 2002 through
2006.  It was offset in part by a goodwill write off stemming from its
Absorbent Products segment of $309,000 ($.05 per share), net of
tax.  For 2005, goodwill for the Absorbent Segment was deemed impaired
because of the declining profitability experienced by one of the reporting units
in the segment.  This resulted in a reduction of earnings
of  $2,550,000 ($.37 per basic share), net of tax.


12


ITEM 7. MANAGEMENT’SDISCUSSIONAND ANALYSIS OF FINANCIAL CONDITIONANDRESULTSOF
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 2009 Annual Report to Shareholders, in the Proxy
Statement for the annual meeting to be held May 18, 2010, 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; the
efficient start-up and utilization of capital equipment investments; and
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.  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.





2009 COMPARED TO
2008





Readers
are directed to Note M, “Business Segments” for data on the financial results of
the Company’s three business segments for the years ended December 31, 2009 and
2008.





On a
consolidated basis, sales increased by $30,215,000 (7%), gross margins increased
by $29,852,000 (37%), and selling and general expense increased by $1,786,000
(11%).  Other income, principally interest, decreased by $1,220,000,
while earnings before provision for income taxes increased by $26,846,000 (40%),
and net earnings increased by $18,393,000 (42%).  Details concerning
these changes can be found in the comments by segment found below.





Housewares/Small
Appliances net sales increased $13,176,000 from $136,840,000 to $150,016,000, or
10%, approximately 78% of which was attributable to an increase in units
shipped, with the remaining increase attributable to an increase in
prices.  Defense net sales increased by $15,037,000, from $238,752,000
to $253,789,000, or 6%, which was largely attributable to an increase in
shipments.  Absorbent Products net sales increased by $2,002,000 from
$72,661,000 to $74,663,000, or 3%, approximately 42% of which stemmed from an
increase in unit shipments, with the balance primarily attributable to a
one-time negotiated adjustment.





Housewares/Small
Appliance gross profit increased $10,013,000 from $30,323,000 (22% of sales) in
2008 to $40,336,000 (27% of sales) in 2009, 71% of which reflected lower
commodity and freight costs, with the remaining increase attributable to the
increased sales mentioned above.  A sizable portion ($2,082,000) of
the reduced commodity and freight costs is reflected in the change in the LIFO
reserve.  Defense gross profit dollars increased $11,634,000 from
$50,232,000 to $61,866,000, while the gross profit percentage increased from 21%
to 24%.  One fourth of the increase reflected the sales increase noted
above, with the balance largely attributable to a more favorable mix of product
shipments.  Absorbent products gross profit was $7,890,000 in 2009
versus a negative $315,000 in 2008, an improvement of $8,205,000, primarily
reflecting decreased commodity costs, augmented by higher production
levels/improved efficiency and the one-time negotiated adjustment mentioned
above.  As the year closed, it was apparent that commodity and freight
costs were rising.  Further increases are anticipated during the
upcoming year, in particular the second half of the period.  Effects
of the increases are expected to have a deleterious impact on all three business
segments, but in particular Housewares/Small Appliance and Absorbent
Products.




13





Selling
and general expenses for the Housewares/Small Appliance segment increased
$619,000 from the prior year’s levels, reflecting, in largest part, an increase
in employee compensation and benefit costs.  Defense segment selling
and general expenses increased $361,000, primarily reflecting an increase in
compensation of $599,000 commensurate with the continued growth of the segment,
partly offset by the absence of the prior year’s provision of $348,000 for the
Amron division’s withdrawal from a multi-employer pension plan.  (See
Note F to the Consolidated Financial Statements.)  Selling and general
expenses for the Absorbent Products segment increased $806,000, primarily
reflecting increased compensation of $230,000 related to an augmented sales
force and losses of $294,000 on the write-off of equipment that was no longer
used for operations.





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





Earnings
before provision for income taxes increased $26,846,000 from $67,551,000 to
$94,397,000.  The provision for income taxes increased from
$23,368,000 to $31,821,000, which resulted in an effective income tax rate
decrease from 35% to 34% reflecting, in largest part, both a decrease in the
ratio of tax exempt earnings to taxable earnings, as well as a decrease in
actual tax exempt earnings incident to reduced yields.  Net earnings
increased $18,393,000 from $44,183,000 to $62,576,000.




2008 COMPARED TO
2007





Readers
are directed to Note M to the Consolidated Financial Statements for data on the
financial results of the Company’s three business segments for the years ended
December 31, 2008 and 2007.





On a
consolidated basis, sales increased by $26,966,000 (6%), gross margins increased
by $3,314,000 (4%), and selling and general expense decreased by $6,007,000
(26%).  Other income, principally interest, increased by $23,000,
while earnings before provision for income taxes increased by $9,344,000 (16%),
and net earnings increased by $5,560,000 (14%).  Details concerning
these changes can be found in the comments by segment found below.





Housewares/Small
Appliances net sales increased $5,002,000 from $131,838,000 to $136,840,000, or
4%, primarily resulting from an increase in prices which had a positive effect
of $10,668,000, offset by a reduction in units shipped.  Defense net
sales increased by $14,368,000, from $224,384,000 to $238,752,000, or 6%,
attributable to an increase in shipments.  Absorbent Products net
sales increased by $7,596,000 from $65,065,000 to $72,661,000, or 12%, which
stemmed primarily from an increase in unit shipments.




Housewares/Small
Appliance gross profit increased a nominal $94,000 from $30,229,000 (23% of
sales) in 2007 to $30,323,000 (22% of sales) in 2008, reflecting cost increases
of product purchased from China that virtually offset the benefit of the price
increases referenced above. The majority of the Segment’s products are purchased
from China.  Between the depreciation of the U.S. dollar vis-à-vis the
Chinese RMB and general increases in commodity costs during the majority of the
year, product costs continued to increase over prior year levels. Commodity
costs were declining at year-end 2008.  Defense gross profit dollars
increased $1,938,000 from $48,294,000 to $50,232,000, while the gross profit
percentage decreased from 22% to 21%.  The increase in gross profit
dollars is primarily attributable to the increased volume referenced above,
while the decline in the gross margin percentage was due to a change in the
product mix, reflecting the increase in revenues related to the 40mm system
program which carry a slightly lower margin.  Absorbent products gross
profit was a negative $315,000 in 2008 versus a negative $1,597,000 in 2007, an
improvement of $1,282,000, reflecting higher production levels and improved
efficiency, offset by increased material costs.





Selling
and general expenses for the Housewares/Small Appliance segment decreased
$871,000 from the prior year’s levels, primarily as a result of timing of
reserve provisions.   The prior year’s selling and general
expense costs were impacted by the $1,466,000 augmentation of the Company’s
environmental reserve. A similar such increase was not required in 2008. The
comparative favorable year-to-year difference stemming from the absence of the
bulk of this charge of $1,264,000 was augmented by the absence of professional
fees of $558,000 incurred in the prior year attributable to the reaudit of
financial statements for 2003 through 2005.  These reaudits were
necessitated by a chain of events stemming from the investment company case
brought by the Securities and Exchange Commission on which the Company
ultimately prevailed.  The aforementioned decreases were partially
offset by increases in other reserves, primarily the bad debt provision of
$358,000 in recognition of the financial difficulties of retail customers and
the products liability provision of $541,000.  Defense segment selling
and general expenses decreased $4,912,000, reflecting in largest part the
absence of performance based accruals pertaining to the four-year earnout of the
Spectra Technologies, LLC purchase price and an incentive program for key
executives to promote the rapid growth of the defense
segment.  Selling and general expenses for the Absorbent Products
segment decreased $224,000, related to miscellaneous items of a non-recurring
nature.





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





Earnings
before provision for income taxes increased $9,344,000 from $58,207,000 to
$67,551,000.  The provision for income taxes increased from
$19,584,000 to $23,368,000, which resulted in an effective income tax rate
increase from 34% to 35% largely due to a decrease in tax exempt
earnings.  Net earnings increased $5,560,000 from $38,623,000 to
$44,183,000.




14




LIQUIDITY AND CAPITAL
RESOURCES





2009 COMPARED TO
2008


Cash
provided by operating activities was $62,145,000 during 2009 compared to
$35,328,000 during the comparable period in the prior year.  The
principal factors behind the increase in cash provided can be found in the
changes in the components of working capital within the Consolidated Statement
of Cash Flows.  Of particular note during 2009 were net earnings of
$62,576,000 and an increase in payable levels, reflecting an increase in
purchases near the end of the current year.  These were partially
offset by an increase in accounts receivable levels stemming from increased
sales on account recognized near the end of 2009 as compared to the end of 2008,
and an increase in inventory levels.  Of particular note during 2008
were net earnings of $44,183,000 and a decrease in accounts receivable levels,
which stemmed from cash collections on customer sales.  These
increases were partially offset by a decrease in payable levels and an increase
in inventory levels.





Net cash
used in investing activities was $98,000 during 2009 compared to $8,474,000
during 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 short term marketable securities, within the desired maturity
range, were relatively unattractive.





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 sheet that the Company believes understates the
true liquidity of the Company’s income portfolio.  As of December 31,
2009 and 2008, $43,314,000 and $43,795,000, 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.





The
Company increased its dividends in 2009 by $1.30, which accounted for the
increase in cash used in financing activities.





As a
result of the foregoing factors, cash and cash equivalents increased in 2009 by
$24,282,000 to $48,974,000.





Working
capital increased by $33,392,000 to $281,019,000 at December 31, 2009 for the
reasons stated above.  The Company’s current ratio was 5.6 to 1.0 at
fiscal 2009 year-end, compared to 5.8 to 1.0 at the end of fiscal
2008.





2008 COMPARED TO
2007


Cash
provided by operating activities was $35,328,000 during 2008 compared to
$38,032,000 during the comparable period in the prior year.  The
principal factors behind the decrease in cash provided can be found in the
changes in the components of working capital within the Consolidated Statement
of Cash Flows, combined with the increase in net earnings of
$5,560,000.  Of particular note was a decrease in accounts receivable
of $12,324,000 in 2008 which stemmed from lesser shipments near the end of 2008,
as compared to greater shipments near the end of 2007.  This increase
in receipts was more than offset by the decrease in accounts payable of
$23,308,000 which primarily reflected cash payments made during 2008 for
performance based accruals pertaining to the four-year earnout of the Spectra
Technologies, LLC purchase price and an incentive program for key executives to
promote the rapid growth of the defense segment.  In addition,
inventories did not increase as dramatically during 2008 as they did during 2007
($6,235,000 v. $9,993,000, respectively), reflecting a higher rate of growth in
2007 as compared to 2008.




15





Cash used
in investing activities was $8,474,000 during 2008 compared to $32,096,000
during 2007.  The change in investment activity cash flow is primarily
attributable to a large net withdrawal from the Company’s money market funds
which was used to purchase marketable securities during 2007.  Also
contributing to the decrease in cash used were the absence in 2008 of the 2007
earnout payments made in connection with the 2006 and 2003 acquisitions of
certain assets of Amron, LLC by the Company’s Defense segment and of NCN
Hygienic Products, Inc. by the Company’s Absorbent Products segment,
respectively, and the completion of leasehold improvements that were begun in
2007.





Based on
the accounting profession’s 2005 interpretation of cash equivalents under FASB
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 sheet that the Company believes understates the
true liquidity of the Company’s income portfolio.  As of December 31,
2008 and 2007, $43,795,000 and $67,471,000, 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.





The
Company increased its dividends in 2008 by $.45 ($.05 regular and $.40 extra),
which accounted for the increase in cash used in financing
activities.





As a
result of the foregoing factors, cash and cash equivalents decreased in 2008 by
$2,023,000 to $24,692,000.





Working
capital increased by $20,623,000 to $247,627,000 at December 31, 2008 for the
reasons stated above.  The Company’s current ratio was 5.8 to 1.0 at
fiscal 2008 year-end, compared to 4.0 to 1.0 at the end of fiscal
2007.




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.  See Item 1-A-3 for information regarding
the planned expansion for the Absorbent Products segment.





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 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 2009 were lower than
those in 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. There can be no assurance that interest rates will not continue to
decline.  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.




16




DEFENSE SEGMENT
BACKLOG





The
Company’s Defense segment contract backlog was approximately $274,000,000 at
December 31, 2009, and $265,000,000 at December 31, 2008.  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 performed during a 12 to 14-month period.





CONTRACTUAL
OBLIGATIONS





The below
table discloses a summary of the Company’s specified contractual obligations at
December 31, 2009:




Payments
      Due By Period (In Thousands)Contractual
      Obligations
            
            Total
            
            
            Under
      1 Year
            
            
            1-3
      Years
            
            
            3-5
      Years
            
            
            More
      Than5
      YearsOperating
      lease obligations
            
            $
            977
            
            
            $
            409
            
            
            $
            420
            
            
            $
            148
            
            
            $
            0Purchase
      obligations(1)
            
            
            174,204
            
            
            
            174,204
            
            
            
            0
            
            
            
            0
            
            
            
            0Total
            
            $
            175,181
            
            
            $
            174,613
            
            
            $
            420
            
            
            $
            148
            
            
            $
            0





(1)Purchase obligations includes outstanding purchase orders at
      December 31, 2009.  Included are purchase orders issued to the
      Company’s housewares manufacturers in the Orient, and to material
      suppliers in the Defense and Absorbent Products segment.  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
      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
estimated.





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.





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 they reach 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.





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 A(17) to the Consolidated Financial Statements for information
related to the future effect of adopting new accounting pronouncements on the
Company’s consolidated financial statements.




17





ITEM7A.QUANTITATIVE ANDQUALITATIVEDISCLOSURES 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 2005 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 7 days that can be
tendered to the trustee or remarketer upon 7 days notice for payment of
principal and accrued interest amounts.  The 7-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 1.3 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.  The Company’s manufacturing
contracts with its foreign suppliers contain provisions to share the impact of
fluctuations in the exchange rate between the U.S. dollar and the Hong Kong
dollar above and below a fixed range contained in the contracts.  All
transactions with the foreign suppliers were within the exchange rate range
specified in the contracts during 2009, 2008 and 2007.  There is no
similar provision applicable to the Chinese Renminbi (RMB), which until 2005 had
been tied to the U.S. Dollar. To the extent there are further revaluations of
the RMB vis-à-vis the U.S. Dollar, it is anticipated that any potential material
impact from such revaluations will be to the cost of products secured via
purchase orders issued subsequent to the revaluation.




ITEM 8.FINANCIALSTATEMENTS AND SUPPLEMENTARY
DATA





A.  The
      consolidated financial statements of National Presto Industries, Inc. and
      its subsidiaries and the related Reports of Independent Registered Public
      Accountants can be found on pages F-1 through
  F-18.




B.  Quarterly
      financial data is contained in Note O to the Consolidated Financial
      Statements.





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





None





ITEM 9A.CONTROLSAND PROCEDURES





The
Company's management, including the Chief Executive Officer and Chief Financial
Officer, have 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, 2009.  Based on that evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures are effective.





There
were no changes in internal controls over financial reporting during the quarter
and year ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




18




MANAGEMENT’S
ASSESSMENT OF 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
Rule 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, 2009.  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. Based on our assessment and those criteria, management
believes that, as of December 31, 2009, the Company’s internal control over
financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) of the 1934 Act,
is effective.





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




19





Report
of Independent Registered Public Accounting Firm
  Board of
Directors and Stockholders
 National
Presto Industries, Inc.
 Eau
Claire, Wisconsin
  We have
audited National Presto Industries, Inc.’s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). National Presto Industries, Inc.’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, included in the accompanying “Item 9A,
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
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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.
  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.
  In our
opinion, National Presto Industries, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on the COSO criteria.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of National
Presto Industries, Inc. as of December 31, 2009 and 2008, and the related
consolidated statements of earnings, stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2009 and our report
dated March 16, 2010 expressed an unqualified opinion thereon.
  /s/
      BDO Seidman, LLPMilwaukee,
      WisconsinMarch
      16,
2010




20




ITEM 9B. OTHER
INFORMATION
  
  PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCEIDENTIFICATIONOF EXECUTIVE
OFFICERS 
 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
            
            AGEMaryjo
      Cohen
            
            Chair
      of the Board, President, And
      Chief Executive Officer,
            
            57Donald
      E. Hoeschen
            
            Vice
      President, Sales
            
            62Larry
      J. Tienor
            
            Vice
      President, Engineering
            
            61Randy
      F. Lieble
            
            Vice
      President, Chief FinancialOfficer,
      Treasurer, and Director
            
            56Douglas
      J. Frederick
            
            Secretary
      and General Counsel
            
            39





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.
Hoeschen was elected Vice President in May 1997.  He has been
associated with the registrant since 1971.  Prior to becoming an
officer, he was Director of Sales.





Mr.
Tienor was elected Vice President in November 2003.  He has been
associated with the registrant since 1971.  Prior to becoming an
officer, he was Director of Engineering.





Mr.
Lieble was elected Chief Financial Officer, Vice President and Treasurer on
September 8, 2008.   He was also appointed to the Board of
Directors on December 22, 2008 to fill the term of Melvin S. Cohen, who died on
December 16, 2008. Other than a brief hiatus of one year during which he worked
as a financial advisor for UBS Financial Services, Mr. Lieble had worked for the
registrant since 1977 in a variety of capacities, including the positions listed
above.





Mr.
Frederick was elected Corporate Secretary on November 17, 2009.  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.





The
information under the headings “Section 16(a) Beneficial Ownership Reporting
Compliance,” “Information Concerning Directors and Nominees” and “Corporate
Governance” in the Company’s Proxy Statement for its 2010 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.




21





ITEM 11.  EXECUTIVECOMPENSATION





The
information under the headings “Executive Compensation and Other Information,”
“Director Compensation” and “Compensation Committee Interlocks and Insider
Participation” in the Company’s Proxy Statement for its 2010 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 2010 Annual Meeting of Stockholders is
incorporated by reference.





ITEM13.  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 2010 Annual Meeting of Stockholders is incorporated by
reference.





ITEM 14.PRINCIPALACCOUNTANT 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 2010 Annual Meeting of Stockholders is incorporated by
reference.


22





PART IV





ITEM
15. EXHIBITSAND FINANCIAL STATEMENT
SCHEDULES





(a)  Documents
filed as part of this Form 10-K:




Form
      10-K
              PageReference1.
            Consolidted FinancialStatements:a.
            Consolidated
      Balance Sheets - December 31, 2009 and 2008
            F-1 &
      F-2b.
            Consolidated
      Statements of Earnings -  Years
      ended December 31, 2009, 2008 and
      2007
            F-3c.
            Consolidated
      Statements of Cash Flows -Years
      ended December 31, 2009, 2008 and 2007
            F-4d.
            Consolidated
      Statements of Stockholders' Equity -Years
      ended December 31, 2009, 2008 and 2007
            F-5e.
            Notes to
      Consolidated Financial Statements
            F-6 through
      F-19f.
            Report of
      Independent Registered Public Accounting
      Firm
            F-202.
            Consolidated FinancialStatement Schedule:Schedule
      II - Valuation and Qualifying Accounts
            F-21




(b)  Exhibits:





Exhibit
      Number
              
              DescriptionExhibit
      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,
      2005Exhibit
      3(ii) –
              
              By-Laws
      - incorporated by reference from Exhibit 3(ii) of the Company's current
      report on Form 8-K dated July 6, 2007Exhibit
      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,
      1997Exhibit
      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,
      2008Exhibit
      10.1*
              
              1988
      Stock Option Plan – incorporated by reference to Exhibit 10.1 of the
      Company’s quarterly report on Form 10-Q for the fiscal Quarter ended July
      6, 1997Exhibit
      10.2*
              
              Form
      of Incentive Stock Option Agreement under the 1988 Stock Option Plan –
      incorporated by reference to Exhibit 10.2 of the Company’s quarterly
      report on Form 10-Q for the fiscal Quarter ended July 6,
    1997*
      Compensatory PlansExhibit
      10.3
              
              Material
      Contract for Retired Executive Officer – incorporated by reference to
      Exhibit 10.3 of the Company’s report on Form 10-K for the year ended
      December 31, 2006Exhibit
      11 –
              
              Statement
      Re Computation of Per Share Earnings
  23
  Exhibit
      Number
              
              DescriptionExhibit
      16 -
              
              Letter
      Re Change in Certifying Accountant, incorporated by reference to Exhibit
      16.1 of Form 8-K filed November 14, 2007Exhibit
      21 -
              
              Subsidiaries
      of the RegistrantExhibit
      23.1 -
              
              Consent
      of BDO Seidman, LLPExhibit
      31.1 -
              
              Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002Exhibit
      31.2 -
              
              Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002Exhibit
      32.1 –
              
              Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002Exhibit
      32.2 –
              
              Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




(c)  Schedules:




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


24


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/MaryjoCohenMaryjo
      CohenPresident
      and Chief Executive Officer
   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. QuinnRichard
      N. Cardozo
                
                
                Patrick
      J. QuinnDirector
                
                
                Director
  By:      /S/
      Maryjo
      Cohen
                  
                  
                  By:      /S/
      Joseph
      G. StienessenMaryjo
      Cohen
                  
                  
                  Joseph
      G. StienessenChair of the Board, President, Chief Executive Officer (Principal
      Executive Officer), and Director
                  
                  
                  Director
  By:      /S/ Randy
      F. LiebleRandy
      F. LiebleVice
      President, Chief FinancialOfficer
      (Principal FinancialOfficer),
      Treasurer, and Director
 
  
 25
  NATIONAL
PRESTO INDUSTRIES, INC.
 CONSOLIDATED
BALANCE SHEETS
  (Dollars
      in thousands except share and per share data)December
      31
                    
                    2009
                    
                    
                    2008ASSETSCURRENT
      ASSETS:Cash and cash equivalents
                    
                    
                    
                    
                    $
                    48,974
                    
                    
                    
                    
                    
                    $
                    24,692Marketable
      securities
                    
                    
                    
                    
                    
                    118,442
                    
                    
                    
                    
                    
                    
                    121,217Accounts
      receivable
                    
                    $
                    92,826
                    
                    
                    
                    
                    
                    
                    $
                    76,074Less allowance for doubtful accounts
                    
                    
                    467
                    
                    
                    
                    92,359
                    
                    
                    
                    480
                    
                    
                    
                    75,594Inventories:Finished
      goods
                    
                    
                    30,361
                    
                    
                    
                    
                    
                    
                    
                    30,222Work
      in process
                    
                    
                    31,229
                    
                    
                    
                    
                    
                    
                    
                    33,976Raw materials
                    
                    
                    13,622
                    
                    
                    
                    75,212
                    
                    
                    
                    7,522
                    
                    
                    
                    71,720Deferred
      tax assets
                    
                    
                    
                    
                    
                    
                    6,605
                    
                    
                    
                    
                    
                    
                    
                    4,539Other
      current assets
                    
                    
                    
                    
                    
                    
                    480
                    
                    
                    
                    
                    
                    
                    
                    1,754Total current assets
                    
                    
                    
                    
                    
                    
                    342,072
                    
                    
                    
                    
                    
                    
                    
                    299,516PROPERTY,
      PLANT AND EQUIPMENT:Land and land improvements
                    
                    
                    1,946
                    
                    
                    
                    
                    
                    
                    
                    1,905Buildings
                    
                    
                    21,805
                    
                    
                    
                    
                    
                    
                    
                    19,971Machinery and equipment
                    
                    
                    71,217
                    
                    
                    
                    
                    
                    
                    
                    72,12294,968
                    
                    
                    
                    
                    
                    
                    
                    93,998Less
      allowance for depreciation and amortization
                    
                    
                    46,120
                    
                    
                    
                    48,848
                    
                    
                    
                    39,266
                    
                    
                    
                    54,732GOODWILL
                    
                    
                    
                    
                    
                    
                    11,485
                    
                    
                    
                    
                    
                    
                    
                    11,485OTHER
      ASSETS
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    150$
                    402,405
                    
                    
                    
                    
                    
                    
                    $
                    365,883
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-1
  NATIONAL
PRESTO INDUSTRIES, INC.
 CONSOLIDATED
BALANCE SHEETS (continued)
 (Dollars
      in thousands except share and per share data)December
      31
                      
                      2009
                      
                      
                      2008LIABILITIESCURRENT
      LIABILITIES:Accounts
      payable
                      
                      
                      
                      
                      $
                      37,903
                      
                      
                      
                      
                      
                      $
                      32,325Federal
      and state income taxes
                      
                      
                      
                      
                      
                      6,291
                      
                      
                      
                      
                      
                      
                      4,217Accrued
      liabilities
                      
                      
                      
                      
                      
                      16,859
                      
                      
                      
                      
                      
                      
                      15,347Total
      current liabilities
                      
                      
                      
                      
                      
                      61,053
                      
                      
                      
                      
                      
                      
                      51,889DEFERRED
      INCOME TAXES
                      
                      
                      
                      
                      
                      5,480
                      
                      
                      
                      
                      
                      
                      3,389COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYCommon
      stock, $1 par value:Authorized:
      12,000,000 shares at December31,
      2009 and 2008Issued:
      7,440,518 shares at December 31,2009
      and 2008Outstanding:
      6,857,540 and 6,848,252 sharesat
      December 31, 2009 and 2008, respectively
                      
                      $
                      7,441
                      
                      
                      
                      
                      
                      
                      $
                      7,441Paid-in
      capital
                      
                      
                      2,037
                      
                      
                      
                      
                      
                      
                      
                      1,735Retained earnings
                      
                      
                      343,930
                      
                      
                      
                      
                      
                      
                      
                      319,362Accumulated other comprehensive income
                      
                      
                      643
                      
                      
                      
                      
                      
                      
                      
                      536354,051
                      
                      
                      
                      
                      
                      
                      
                      329,074Treasury stock, at cost, 582,978 and 592,266 sharesat
      December 31, 2009 and 2008, respectively
                      
                      
                      18,179
                      
                      
                      
                      
                      
                      
                      
                      18,469Total
      stockholders' equity
                      
                      
                      
                      
                      
                      
                      335,872
                      
                      
                      
                      
                      
                      
                      
                      310,605$
                      402,405
                      
                      
                      
                      
                      
                      
                      $
                      365,883
   
 F-2
  NATIONAL
PRESTO INDUSTRIES, INC.
 CONSOLIDATED
STATEMENTS OF EARNINGS
 (In
      thousands except per share data)For
      the years ended December 31,
                      
                      2009
                      
                      
                      2008
                      
                      
                      2007Net
      sales
                      
                      $
                      478,468
                      
                      
                      $
                      448,253
                      
                      
                      $
                      421,287Cost
      of sales
                      
                      
                      368,376
                      
                      
                      
                      368,013
                      
                      
                      
                      344,361Gross
      profit
                      
                      
                      110,092
                      
                      
                      
                      80,240
                      
                      
                      
                      76,926Selling
      and general expenses
                      
                      
                      18,745
                      
                      
                      
                      16,959
                      
                      
                      
                      22,966Operating
      profit
                      
                      
                      91,347
                      
                      
                      
                      63,281
                      
                      
                      
                      53,960Other
      income, principally interest
                      
                      
                      3,050
                      
                      
                      
                      4,270
                      
                      
                      
                      4,247Earnings
      before provision for income taxes
                      
                      
                      94,397
                      
                      
                      
                      67,551
                      
                      
                      
                      58,207Provision
      for income taxes
                      
                      
                      31,821
                      
                      
                      
                      23,368
                      
                      
                      
                      19,584Net
      earnings
                      
                      $
                      62,576
                      
                      
                      $
                      44,183
                      
                      
                      $
                      38,623Weighted
      average common shares outstanding:Basic
      and diluted
                      
                      
                      6,854
                      
                      
                      
                      6,845
                      
                      
                      
                      6,836Net
      earnings per share:Basic
      and diluted
                      
                      $
                      9.13
                      
                      
                      $
                      6.45
                      
                      
                      $
                      5.65
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-3
 NATIONAL
PRESTO INDUSTRIES, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 For
      the years ended December 31,
                  
                  In
      Thousands2009
                  
                  
                  2008
                  
                  
                  2007Cash
      flows from operating activities:Net
      earnings
                  
                  $
                  62,576
                  
                  
                  $
                  44,183
                  
                  
                  $
                  38,623Adjustments
      to reconcile net earnings to net cashprovided
      by (used in) operating activities:Provision
      for depreciation
                  
                  
                  8,738
                  
                  
                  
                  8,794
                  
                  
                  
                  8,485Deferred
      income taxes
                  
                  
                  (33
                  )
                  
                  
                  1,060
                  
                  
                  
                  3,350Other
                  
                  
                  682
                  
                  
                  
                  1,059
                  
                  
                  
                  1,085Changes in operating accounts, net of acquisitions:Accounts
      receivable, net
                  
                  
                  (16,765
                  )
                  
                  
                  12,324
                  
                  
                  
                  (22,871
                  )Inventories
                  
                  
                  (3,492
                  )
                  
                  
                  (6,235
                  )
                  
                  
                  (9,993
                  )Other
      current assets
                  
                  
                  1,275
                  
                  
                  
                  (346
                  )
                  
                  
                  (371
                  )Accounts payable and accrued liabilities
                  
                  
                  7,090
                  
                  
                  
                  (23,308
                  )
                  
                  
                  19,897Federal and state income taxes
                  
                  
                  2,074
                  
                  
                  
                  (2,203
                  )
                  
                  
                  (173
                  )Net
      cash provided by operating activities
                  
                  
                  62,145
                  
                  
                  
                  35,328
                  
                  
                  
                  38,032Cash
      flows from investing activities:Marketable
      securities purchased
                  
                  
                  (78,486
                  )
                  
                  
                  (138,113
                  )
                  
                  
                  (93,965
                  )Marketable
      securities - maturities and sales
                  
                  
                  81,426
                  
                  
                  
                  134,009
                  
                  
                  
                  74,630Acquisition
      of property, plant and equipment
                  
                  
                  (3,337
                  )
                  
                  
                  (4,370
                  )
                  
                  
                  (6,224
                  )Acquisition
      of businesses and earn-out payments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,748
                  )Sale
      of property, plant and equipment
                  
                  
                  71
                  
                  
                  
                  -
                  
                  
                  
                  211Other
                  
                  
                  228
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (98
                  )
                  
                  
                  (8,474
                  )
                  
                  
                  (32,096
                  )Cash
      flows from financing activities:Dividends
      paid
                  
                  
                  (38,008
                  )
                  
                  
                  (29,067
                  )
                  
                  
                  (25,958
                  )Other
                  
                  
                  243
                  
                  
                  
                  190
                  
                  
                  
                  41Net
      cash used in financing activities
                  
                  
                  (37,765
                  )
                  
                  
                  (28,877
                  )
                  
                  
                  (25,917
                  )Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  24,282
                  
                  
                  
                  (2,023
                  )
                  
                  
                  (19,981
                  )Cash
      and cash equivalents at beginning of year
                  
                  
                  24,692
                  
                  
                  
                  26,715
                  
                  
                  
                  46,696Cash
      and cash equivalents at end of year
                  
                  $
                  48,974
                  
                  
                  $
                  24,692
                  
                  
                  $
                  26,715-Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Income
      taxes
                  
                  $
                  30,663
                  
                  
                  $
                  23,930
                  
                  
                  $
                  16,586
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
 
 F-4
 NATIONAL
PRESTO INDUSTRIES, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 (In
      thousands except share and per share data)For
      the years ended December 31, 2009, 2008, 2007
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  AccumulatedCommon
                  
                  
                  Paid-in
                  
                  
                  Retained
                  
                  
                  Comprehensive
                  
                  
                  TreasuryStock
                  
                  
                  Capital
                  
                  
                  Earnings
                  
                  
                  Income
      (Loss)
                  
                  
                  Stock
                  
                  
                  TotalBalance
      December 31, 2006
                  
                  $
                  7,441
                  
                  
                  $
                  1,277
                  
                  
                  $
                  290,519
                  
                  
                  $
                  (22
                  )
                  
                  $
                  (18,873
                  )
                  
                  $
                  280,342Cumulative
      effect of adopting FASB Interpretation No. 48
                  
                  
                  
                  
                  
                  
                  
                  1,062
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,062Net
      earnings
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  38,623
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  38,623Unrealized
      gain on available-for-sale securities, net of tax
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  198
                  
                  
                  
                  
                  
                  
                  
                  198Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  38,821Dividends
      paid, $3.80 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (25,958
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (25,958
                  )Other
                  
                  
                  
                  
                  
                  
                  219
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  125
                  
                  
                  
                  344Balance
      December 31, 2007
                  
                  
                  7,441
                  
                  
                  
                  1,496
                  
                  
                  
                  304,246
                  
                  
                  
                  176
                  
                  
                  
                  (18,748
                  )
                  
                  
                  294,611Net
      earnings
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  44,183
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  44,183Unrealized
      gain on available-for-sale securities, net of tax
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  360
                  
                  
                  
                  
                  
                  
                  
                  360Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  44,543Dividends
      paid, $4.25 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (29,067
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (29,067
                  )Other
                  
                  
                  
                  
                  
                  
                  239
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  279
                  
                  
                  
                  518Balance
      December 31, 2008
                  
                  
                  7,441
                  
                  
                  
                  1,735
                  
                  
                  
                  319,362
                  
                  
                  
                  536
                  
                  
                  
                  (18,469
                  )
                  
                  
                  310,605Net
      earnings
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  62,576
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  62,576Unrealized
      gain on available-for-sale securities, net of tax
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  107
                  
                  
                  
                  
                  
                  
                  
                  107Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  62,683Dividends
      paid, $5.55 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (38,008
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (38,008
                  )Other
                  
                  
                  
                  
                  
                  
                  302
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  290
                  
                  
                  
                  592Balance
      December 31, 2009
                  
                  $
                  7,441
                  
                  
                  $
                  2,037
                  
                  
                  $
                  343,930
                  
                  
                  $
                  643
                  
                  
                  $
                  (18,179
                  )
                  
                  $
                  335,872
 The
accompanying notes are an integral part of the consolidated financial
statements.
 F-5





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)
            PRINCIPLES
      OF CONSOLIDATION:  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 M.





(3)
            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 stockholders’ equity as previously
  reported.





(4)
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS:  The Company utilizes the
      methods of 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.





(5)
            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 and
certificates of deposit.  The Company deposits its cash in high
quality financial institutions. The balances, at times, may exceed federally
insured limits.  Certificates of deposits are reported at par value,
and 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 $6,161,000 and $7,356,000 at December 31, 2009 and 2008,
are included as reductions of cash and cash equivalents or bank 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.  Also included are certificates
of deposit.





F-6





At
December 31, 2009 and 2008, 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.  Fair values are determined using significant
other observable inputs (Level 2, as defined by FASB ASC 820), which include
quoted prices in markets that are not active, quoted prices of similar
securities, or other inputs that are observable.





(In
      Thousands)MARKETABLE
      SECURITIESAmortized
      Cost
            
            
            Fair
      Value
            
            
            Gross
      Unrealized Gains
            
            
            Gross
      Unrealized
              LossesDecember 31, 2009Tax-exemptGovernmentBonds
            
            $
            114,754
            
            
            $
            115,744
            
            
            $
            1,015
            
            
            $
            25Certificates
      of Deposit
            
            
            2,698
            
            
            
            2,698
            
            
            
            0
            
            
            
            0Total
      MarketableSecurities
            
            $
            117,452
            
            
            $
            118,442
            
            
            $
            1,015
            
            
            $
            25December 31, 2008Tax-exemptGovernmentBonds
            
            $
            120,392
            
            
            $
            121,217
            
            
            $
            833
            
            
            $
            8




Proceeds
from sales of marketable securities totaled $81,426,000 in 2009, $134,009,000 in
2008, and $74,630,000 in 2007.  Gross gains related to sales of
marketable securities totaled $0, $118,000, and $0 in 2009, 2008 and 2007,
respectively.  There were no gross losses related to sales of
marketable securities in 2009, 2008, or 2007.  Net unrealized gains
and losses are reported as a separate component of accumulated other
comprehensive income and were gains of $990,000, $825,000 and $271,000 before
taxes at December 31, 2009, 2008, and 2007, respectively. Unrealized gains of
$0, $74,000, and $0 were reclassified out of accumulated other comprehensive
income (loss) during the years ended December 31, 2009, 2008, and 2007,
respectively.





The
contractual maturities of the marketable securities held at December 31, 2009
are as follows: $35,345,000 within one year; $46,902,000 beyond one year to five
years; $14,207,000 beyond five years to ten years, and $21,988,000 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.





(6)
            ACCOUNTS
      RECEIVABLE:  The Company's accounts receivable are 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 30 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
      allowance for doubtful accounts represents an estimate of amounts
      considered uncollectible and 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.





(7)
            INVENTORIES:  Housewares/Small
      Appliance segment inventories are stated at the lower of cost or market
      with cost being determined principally on the last-in, first-out (LIFO)
      method.  Inventories for the Defense and Absorbent Products
      segments are stated at the lower of cost or market with cost being
      determined on the first-in, first-out (FIFO)
  method.





(8)
            PROPERTY,
      PLANT AND EQUIPMENT:  Property, plant and equipment are stated
      at cost.  For machinery and equipment, all amounts which are
      fully depreciated have been eliminated from both the asset and allowance
      accounts.  Straight-line depreciation is provided in amounts
      sufficient to relate 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.




F-7




(9)
            GOODWILL:  The
      Company recognizes the excess cost of an acquired entity 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 2009,
      2008, or 2007.  The Company's goodwill as of December 31, 2009
      and 2008 was $11,485,000 relating entirely to its Defense Products
      segment, which had zero cumulative impairment charges at December 31,
      2009.  The Absorbent Products segment value of goodwill was $0,
      with cumulative impairment charges of $4,648,000, at both December 31,
      2009 and 2008.





The
Company's annual impairment testing dates were October 5, 2009, September 29,
2008, and October 1, 2007.  For the defense segment, no impairment was
indicated.  The Company has no recorded intangible assets, other than
goodwill.





(10)
            REVENUE
      RECOGNITION: For all of its segments, the Company generally recognizes
      revenue when product is shipped or title passes pursuant to customers'
      orders, the price is fixed and collection is reasonably
      assured.  For the Housewares/Small appliance segment, the
      Company provides for its 60-day over-the-counter return privilege and
      warranties at the time of shipment. Net sales for this segment are
      calculated by deducting early payment discounts and cooperative
      advertising from gross sales.  The Company records cooperative
      advertising when revenue is recognized.  During 2007,
      certain warranty claims were reclassified and accounted for as returns and
      allowances.  See Note A(11) for a description of the Company’s
      policy for sales returns.





(11)
            SALES
      & RETURNS: Sales are recorded net of estimated 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.





(12)
            SHIPPING
      AND HANDLING COSTS:  In accordance with FASB ASC 605-45, Revenue Recognition,
      the Company includes shipping and handling revenues in net sales and
      shipping costs in cost of sales.





(13)
            ADVERTISING:  The
      Company's policy is to expense advertising as incurred for the year and
      include it in selling and general expenses.  Advertising expense
      was $237,000, $4,000, and $13,000 in 2009, 2008 and 2007,
      respectively.





(14)
            ACCUMULATED
      OTHER COMPREHENSIVE INCOME:  The $643,000 and $536,000 of
      accumulated comprehensive income at December 31, 2009 and 2008,
      respectively, relate to the unrealized gain on the Company's
      available-for-sale marketable security investments.  These
      amounts are recorded net of tax effect of $346,000 and $289,000 for 2009
      and 2008, 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's service and warranty programs are
      competitive with those offered by other manufacturers in the
      industry.  The Company estimates its product warranty liability
      based on historical percentages which have remained relatively consistent
      over the years.




F-8





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 312009
            
            
            2008Beginning
      balance January 1
            
            $
            308
            
            
            $
            429Accruals
      during the period
            
            
            802
            
            
            
            140Charges
      / payments made under the warranties
            
            
            (705
            )
            
            
            (261
            )Balance
      December 31
            
            $
            405
            
            
            $
            308




(16)
            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.  Income tax
      contingencies are accounted for in accordance with FASB ASC 740, Income
      Taxes.  See Note G 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.





(17)
            RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS:





In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) – Measuring Liabilities at Fair
Value.ASU 2009-05 amends ASC Subtopic 820-10, Fair Value Measurements and
Disclosures – Overall with respect to the fair value measurement of
liabilities and provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
following techniques: (1) the quoted price of the identical liability when
traded as an asset, (2) the quoted prices for similar liabilities or similar
liabilities when traded as assets, and (3) another valuation technique (e.g., a
market approach or income approach including a technique based on the amount an
entity would pay to transfer the identical liability, or a technique based on
the amount an entity would receive to enter into an identical liability). ASU
2009-05 is effective for the first interim or annual period beginning after
August 2009. The adoption of ASU 2009-5 did not have a material effect on the
Company’s consolidated financial statements or related disclosures.





In June
2009, the FASB issued ASU No. 2009-01, Topic 105 - Generally Accepted
Accounting Principles - amendments based on - Statement of Financial Accounting
Standards No. 168 - TheFASB Accounting Standards Codificationä and the Hierarchy of Generally
Accepted Accounting Principles.  ASU 2009-01 defines the FASB
Accounting Standards Codification, which was launched on July 1, 2009, as the
single source of authoritative nongovernmental U.S. GAAP. The Codification is
effective for interim and annual periods ending after September 15,
2009.  All existing accounting standard documents are superseded, and
all other accounting literature not included in the Codification will be
considered nonauthoritative. The Codification reorganizes the thousands of U.S.
GAAP pronouncements into roughly 90 accounting topics and displays all topics
using a consistent structure and also includes relevant Securities and Exchange
Commission (“SEC”) guidance that follows the same topical structure in separate
sections in the Codification. As a result of the adoption of ASU 2009-1, the
Company is now disclosing codification references.





In
December 2007, the FASB issued ASC 805,Business
Combinations.  ASC 805 requires that the purchase method be
used for all business combinations, defines the acquirer as the entity that
obtains control of one or more businesses in the business combination,
establishes the acquisition date as the date that the acquirer achieves control
and requires the acquirer to recognize the assets acquired, liabilities assumed
and any non-controlling interest at their fair values as of the acquisition
date.  ASC 805 also requires that acquisition-related costs be
recognized separately from the acquisition as expense.  ASC 805 is
effective for fiscal years beginning after December 15, 2008.  The
adoption of ASC 805 did not have a material impact on the Company’s consolidated
financial position and results of operations.  However, depending upon
the size, nature and complexity of future acquisition transactions, the adoption
of ASC 805 could materially impact the Company’s consolidated financial
statements.




F-9





In April
2009, the FASB issued ASC 805-20-25-18A through 20B, which amends and clarifies
ASC 805 to address application issues raised by preparers, auditors, and members
of the legal profession on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. ASC 805-20-25-18A through 20B is
effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The adoption of ASC 805-20-25-18A through 20B did not have a
material impact on the Company’s consolidated financial position and results of
operations.  However, depending upon the size, nature and complexity
of future acquisition transactions, the adoption of ASC 805-20-25-18A through
20B could materially impact the Company’s consolidated financial
statements.





In
December 2007, the FASB issued ASC 810, Transition Related to FASB Statement
No. 160, Noncontrolling Interests in Consolidated Financial Statements -
an amendment of ARB No.
51, which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent's ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. ASC 810
also establishes reporting requirements that provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. ASC 810 is effective as of the beginning
of an entity's fiscal year that begins after December 15, 2008.  The
Company does not have any noncontrolling interests, and, accordingly, the
adoption of ASC 810 did not have a material impact on the Company’s consolidated
financial position or results of operations.





In March
2008, the FASB issued ASC 815, Transition and Effective Date
Related to FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133, to
enhance disclosures about an entity’s derivative and hedging activities and
improve the transparency of financial reporting. Entities will be required to
provide enhanced disclosures about (a) how and why derivative instruments are
used, (b) how derivative instruments are accounted for, and (c) how derivative
instruments affect the entities’ financial position, financial performance and
cash flows. These disclosures better convey the purpose of derivative use in
terms of the risks that the entity is intending to manage by requiring fair
value disclosures in a tabular format, providing more information about an
entity’s liquidity and requiring cross-referencing within the footnotes. ASC 815
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early adoption
encouraged.  The Company does not hold the applicable derivative
instruments and therefore the adoption of ASC 815 did not have a material impact
on the Company’s consolidated financial statements.





In
September 2006, the FASB issued a new standard now codified in ASC 820, Fair Value Measurements and
Disclosures(formerly Statement No. 157, Fair Value Measurements),
which defines fair value, establishes a framework for measuring fair value and
requires enhanced disclosures about fair value measurements. ASC 820 requires
companies to disclose the fair value of their financial instruments according to
a fair value hierarchy that distinguishes between (a) market participant
assumptions developed based on market data obtained from sources independent of
the reporting entity (observable inputs) and (b) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). ASC 820
requires companies to provide additional disclosures based on that hierarchy.
ASC 820 was to be effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years.  In February 2008, the FASB issued FASB Staff Position (“FSP”)
No. 157-2, Effective Date of
FASB Statement No. 157, which delayed for one year the applicability of
ASC 820’s fair-value measurements to certain nonfinancial assets and
liabilities. The Company adopted ASC 820 as of January 1, 2008, except as it
applies to those nonfinancial assets and liabilities affected by the one-year
delay.  The Company adopted ASC 820 for certain nonfinancial assets
and liabilities as of January 1, 2009.  The financial assets of the
Company are primarily comprised of cash equivalents, whose fair value was
measured using Level 1 observable inputs, and marketable securities, whose fair
value was measured using Level 2 observable inputs.  The adoption of
ASC 820 did not have a material impact on the Company's consolidated financial
position or results of operations.





In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, codified in
ASC 820, Fair Value
Measurements and Disclosures, which provides additional guidance for
estimating fair value in accordance with ASC 820 when the volume and level of
activity for the asset or liability have significantly decreased. This
pronouncement also includes guidance on identifying circumstances that indicate
a transaction is not orderly.  This pronouncement is effective for
interim and annual reporting periods ending after June 15, 2009, and is to be
applied prospectively. Early adoption is permitted for periods ending after
March 15, 2009.  The Company adopted this pronouncement during the
first quarter of 2009, which did not have a material impact on the Company’s
consolidated financial statements.




F-10





In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, codified in ASC 320, Investments – Debt and Equity
Securities.  The objective of an other-than-temporary
impairment analysis under existing U.S. generally accepted accounting principles
(GAAP) is to determine whether the holder of an investment in a debt or equity
security for which changes in fair value are not regularly recognized in
earnings (such as securities classified as held-to-maturity or
available-for-sale) should recognize a loss in earnings when the investment is
impaired. A debt investment is impaired if the fair value of the investment is
less than its amortized cost basis.  This pronouncement amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. This pronouncement does not amend existing recognition
and measurement guidance related to other-than-temporary impairments of equity
securities.  This pronouncement is effective for interim and annual
reporting periods ending after June 15, 2009, and is to be applied
prospectively.  Early adoption is permitted for periods ending after
March 15, 2009.  The Company adopted this pronouncement during the
first quarter of 2009, which did not result in a cumulative effect adjustment
and did not have a material impact on the Company’s consolidated financial
statements.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, codified in ASC 825, Financial Instruments, which
requires disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. This pronouncement also requires disclosure of the method(s) and
significant assumptions used to estimate the fair value of financial instruments
and changes in method(s) and significant assumptions, if any, during the
period.  This pronouncement is effective for interim and annual
reporting periods ending after June 15, 2009, and is to be applied
prospectively.  Early adoption is permitted for periods ending after
March 15, 2009.  The Company adopted this pronouncement during the
first quarter of 2009, which did not have a material impact on the Company’s
consolidated financial statements.





In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820) – Improving Disclosures about Fair Value
Measurements, to provide amendments to Subtopic 820-10 that require new
disclosures about transfers into and out of Level 1 and Level 2 of the fair
value hierarchy and separate disclosures about purchases, sales, issuances, and
settlements relating to Level 3 measurements.  Specifically, for
assets and liabilities that are measured at fair value on a recurring basis in
periods after initial recognition (e.g., trading securities), this ASU requires:
separate disclosure of the amount of significant transfers between Levels 1 and
2 and a description of the reasons for the transfers; and separate information
about purchases, sales, issuances, and settlements, on a gross basis, in the
reconciliation of Level 3 fair value measurements valued using significant
unobservable inputs.  ASU 2010-06 clarifies existing disclosures as
follows:





Level of
disaggregation: An entity should provide fair value measurement disclosures for
each class of assets and liabilities.  A class is often a subset of
assets or liabilities within a line item in the statement of financial
position.  An entity needs to use judgment in determining the
appropriate classes of assets and liabilities.





Disclosures
about inputs and valuations techniques: An entity should provide disclosures
about the valuation techniques (i.e., the income, market, or cost approaches)
and input used to measure fair value for both recurring and nonrecurring fair
value measurements.  Those disclosures are required for fair value
measurements that fall in either Level 2 of Level 3.





ASU
2010-06 also includes conforming amendments to the guidance on employers’
disclosures about postretirement benefit plan assets (Subtopic 715-20), which
include a change in terminology from major categories of assets to
classes of assets and a
cross-reference to the guidance in Subtopic 820-10 on how to determine
appropriate classes to present fair value disclosures.  This ASU is
effective for interim and annual reporting periods beginning after December 15,
2009, except for the separate disclosures about purchases, sales, issuance and
settlements in the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.  In the period of initial adoption, entities will not be
required to provide the amended disclosures for any previous periods presented
for comparative purposes.  However, comparative disclosures are
required for periods ending after initial adoption.  Early adoption is
permitted.  The Company does not expect the adoption of ASU 2010-06 to
have a material effect on the Company’s consolidated financial
statements.




F-11




B.   
INVENTORIES:


The
amount of inventories valued on the LIFO basis was $26,860,000 and $27,303,000
as of December 31, 2009 and 2008, respectively, and consists of housewares/small
appliance finished goods.  Under LIFO, inventories are valued at
approximately $2,355,000 and $4,437,000 below current cost determined on a
first-in, first-out (FIFO) basis at December 31, 2009 and 2008,
respectively.  During the years ended December 31, 2009, 2008, and
2007, $2,082,000, $0, and $0, 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
segment.





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)Cost
      of
            
            
            Net
            
            
            EarningsYear
            
            Sales
            
            
            Earnings
            
            
            Per
      Share2009
            
            $
            2,082
            
            
            $
            (1,357
            )
            
            $
            (0.20
            )2008
            
            $
            (2,018
            )
            
            $
            1,297
            
            
            $
            0.192007
            
            $
            (1,425
            )
            
            $
            933
            
            
            $
            0.14





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





Inventory
for Defense, Absorbent Products, and raw materials of the Housewares/Small
Appliance segments are valued under the first-in-first-out method and total
$48,352,000 and $44,417,000 at December 31, 2009 and 2008,
respectively.  The December 31, 2009 FIFO total is comprised of
$3,501,000 of finished goods, $31,229,000 of work in process, and $13,622,000 of
raw material and supplies.  At December 31, 2008 the FIFO total was
comprised of $2,919,000 of finished goods, $33,976,000 of work in process, and
$7,522,000 of raw material and supplies.





C.   ACCRUED
LIABILITIES:


At
December 31, 2009, accrued liabilities consisted of payroll $7,179,000, product
liability $6,064,000, environmental $2,580,000, and other
$1,036,000.  At December 31, 2008, accrued liabilities consisted of
payroll $4,814,000, product liability $6,030,000, environmental $2,700,000,
plant closing costs $70,000, and other $1,733,000.





The
Company is self-insured for health care costs, although it does carry stop loss
and other insurance to cover 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 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 J for a discussion of
environmental remediation liabilities.





D.   TREASURY
STOCK:


As of
December 31, 2009, the Company has authority from the Board of Directors to
reacquire an additional 504,600 shares.  No shares were reacquired in
2009, 2008, or 2007.   Treasury shares have been used for the
exercise of stock options and to fund a portion of the Company's 401(k)
contributions.





E.   
NET EARNINGS PER SHARE:


Basic net
earnings per share amounts have been computed by dividing net earnings by the
weighted average number of outstanding common shares.  Diluted net
earnings per share is computed by dividing net earnings by the weighted average
number of outstanding common shares and common share equivalents relating to the
potential issuance of common shares, when dilutive.  There were no
dilutive shares outstanding at December 31, 2009, 2008, or 2007.





F-12





F.  
 RETIREMENT PLANS:


Pension Plan: Prior to 2009,
the Company contributed to a union-sponsored, multi-employer pension plan on
behalf of union employees of the Amron division of its AMTEC subsidiary in
accordance with the applicable union labor agreement. In December 2008, the
union membership voted in favor of a withdrawal from the plan, and an amendment
was made to the labor agreement authorizing the withdrawal. In December 2008,
the Company permanently ceased to be obligated to contribute to the
multi-employer pension plan, and instead agreed to contribute to a Company
401(k) Plan.  (See 401(k) Plan below.)  It is possible in
the future under the amendment to the labor agreement, if certain conditions are
met, that contributions may be made once again to a pension plan rather than to
the 401(k) Plan.





In a
letter dated March 30, 2009, the pension plan provided Amron with documentation
stating that the cost to withdraw from the plan was $238,509.  In
April 2009, a payment representing the settlement of the withdrawal liability
was made in the same amount.  However, should all participants in the
plan withdraw within the next year, some portion of the plan liability could be
reallocated to AMTEC. If that were to occur, AMTEC might be assessed
retroactively for an additional withdrawal charge.  The amount of a
potential additional withdrawal charge, if any, cannot be currently
estimated.  The Company charged the cost of the withdrawal to
operations in 2008.





The
Company's contributions to the union pension plan were $272,000, $402,000, and
$362,000 during the years ended December 31, 2009, 2008, and 2007,
respectively.





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 the treasury
stock, including the Company's related cash dividends, totaled $592,000 in 2009,
$517,000 in 2008, and $475,000 in 2007. In addition, the Company made cash
contributions of $634,000 in 2009, $604,000 in 2008, and $583,000 in 2007 to the
401(k) Plan.  The Company also contributed $472,000, $0, and $0 to the
401(k) retirement plan covering its union employees at the Amron Division of the
AMTEC subsidiary during the years ended December 31, 2009, 2008, and 2007,
respectively.




G.   
INCOME TAXES:


The
following table summarizes the provision for income taxes:




For
      Years Ended December 31 (in thousands)2009
            
            
            2008
            
            
            2007Current:Federal
            
            $
            29,267
            
            
            $
            20,213
            
            
            $
            13,693State
            
            
            2,383
            
            
            
            2,205
            
            
            
            3,14031,650
            
            
            
            22,418
            
            
            
            16,833Deferred:Federal
            
            
            (34
            )
            
            
            973
            
            
            
            2,974State
            
            
            205
            
            
            
            (23
            )
            
            
            (223
            )171
            
            
            
            950
            
            
            
            2,751Total
      tax provision
            
            $
            31,821
            
            
            $
            23,368
            
            
            $
            19,584





The
effective rate of the provision for income taxes as shown in the consolidated
statements of earnings differs from the applicable statutory federal income tax
rate for the following reasons:




Percent
      of Pre-tax Income2009
            
            
            2008
            
            
            2007Statutory
      rate
            
            
            35.0
            %
            
            
            35.0
            %
            
            
            35.0
            %State
      tax, net of federal benefit
            
            
            1.8
            %
            
            
            2.1
            %
            
            
            3.3
            %Tax
      exempt interest and dividends
            
            
            (1.1
            %)
            
            
            (2.0
            %)
            
            
            (3.0
            %)Other
            
            
            (2.0
            %)
            
            
            (0.5
            %)
            
            
            (1.7
            %)Effective
      rate
            
            
            33.7
            %
            
            
            34.6
            %
            
            
            33.6
            %




F-13





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.  A valuation allowance for deferred tax assets was
deemed necessary at December 31, 2008 and 2007 for certain state attribute
carryforwards.  The net increase (decrease) in the valuation allowance
during 2009, 2008, and 2007 was ($709,000), $111,000, and $598,000,
respectively.  At December 31, 2009, the valuation allowance was no
longer deemed necessary, due in part to a change in state income tax laws. The
tax effects of the cumulative temporary differences resulting in deferred tax
assets and liabilities are as follows at December 31:





(In
      thousands)2009
            
            
            2008Deferred
      tax assetsInsurance
      (primarily product liability)
            
            $
            2,398
            
            
            $
            2,080Goodwill
            
            
            1,799
            
            
            
            1,499Environmental
            
            
            1,022
            
            
            
            1,083Vacation
            
            
            871
            
            
            
            715State
      attribute carryforwards
            
            
            420
            
            
            
            870Other
            
            
            95
            
            
            
            950Total
      deferred tax assets
            
            
            6,605
            
            
            
            7,197Valuation
      allowance
            
            
            0
            
            
            
            (709
            )Net
      deferred tax assets
            
            $
            6,605
            
            
            $
            6,488Deferred
      tax liabilitiesDepreciation
            
            $
            (5,134
            )
            
            $
            (5,049
            )Other
            
            
            (346
            )
            
            
            (289
            )Net
      deferred tax liabilities
            
            $
            (5,480
            )
            
            $
            (5,338
            )Net
      deferred tax assets
            
            $
            1,125
            
            
            $
            1,150





The
Company establishes tax reserves in accordance with FASB ASC 740, Income Taxes.  As
of December 31, 2009, the carrying amount of the Company’s gross unrecognized
tax benefits was $1,447,000 which, if recognized, would affect the Company’s
effective income tax rate.  The Company cannot estimate when the
unrecognized tax benefits will be settled.





The
following is a reconciliation of the Company’s unrecognized tax benefits for the
years ended December 31, 2009 and 2008:





(In
      thousands)2009
            
            
            2008Balance
      at January 1
            
            $
            1,143
            
            
            $
            551Additions
      for tax positions taken related to the current year
            
            
            205
            
            
            
            106Additions
      for tax positions taken related to prior years
            
            
            99
            
            
            
            486Balance
      at December 31
            
            $
            1,447
            
            
            $
            1,143





It is the
Company’s practice to include interest and penalties in tax
expense.  During the years ended December 31, 2009 and 2008, the
Company accrued approximately $72,000 and $230,000 in interest,
respectively.





The
Company is subject to U.S. federal income tax as well as income taxes of
multiple states.  The Company is currently under audit by the Internal
Revenue Service for the tax years 2002 through 2006, as well as a single state
for the same period. For all other states in which it does business, the Company
is subject to state audit statutes.  At
December 31, 2009, the Company had state net operating loss carryforwards of
approximately $3,029,000 and state tax credit carryforwards of approximately
$414,000.  The net operating loss and state tax credit carryforwards
expire on various dates through December 31, 2024.





H.  
 COMMITMENTS AND CONTINGENCIES


The
Company is involved in 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.





F-14





I.    
CONCENTRATIONS:


In the
Housewares/Small Appliance segment, one customer accounted for 11% of
consolidated net sales for each of the three years ended December 31, 2009, 2008
and 2007.  In the Absorbent Products segment, one customer accounted
for 12% and 13% of consolidated net sales for the years ended December 31, 2008
and 2007, respectively.





The
Company sources most of its Housewares/Small Appliances 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.  In addition, the Company's manufacturing contracts with
its foreign suppliers contain provisions to share the impact of fluctuations in
the exchange rate between the U.S. dollar and the Hong Kong dollar above and
below a fixed range contained in the contracts.  All transactions with
the foreign suppliers were within the exchange rate range specified in the
contracts during 2009, 2008 and 2007.  There is no similar provision
applicable to the Chinese Yuan, which until 2005 had been
tied to the U.S. Dollar, but which has since been allowed to float and has
appreciated in value.  To date, any material impact from the change in
the value of the currency has been to the cost of products secured via purchase
orders issued subsequent to the currency value change.  Foreign
translation 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 2009, 2008, and
2007, 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 awarded based on competition 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,
with the award 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.  Approximately 246 employees of Amron, or 23% of the
Company’s total workforce, are members of the United Steel Workers
union.  The contract between Amron and the union is effective through
March 30, 2010.





Raw
materials for the Absorbent Products segment are commodities that are available
from multiple sources.





J.    
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 and at this time, 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, 2009, 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 affect on the results of operations or financial condition of the
Company.  The Company’s environmental accrued liability on an
undiscounted basis was $2,580,000 and $2,700,000 as of December 31, 2009 and
2008, respectively, and is included in accrued liabilities on the balance
sheet.




F-15





Expected
future payments for environmental matters are as follows:





(In
      Thousands)Years Ending December 31:2010
            
            $
            3702011
            
            
            3082012
            
            
            2972013
            
            
            2852014
            
            
            213Thereafter
            
            
            1,107$
            2,580




K.   
BUSINESS ACQUISITION:


On
January 30, 2006, the Company purchased certain assets of Amron, LLC, an Antigo,
Wisconsin defense manufacturer of cartridge cases used in medium caliber
(20-40mm) ammunition.  The acquisition enhanced the Company's position
as a viable competitive force in medium caliber ammunition programs of the U.S.
Department of Army.  The original purchase price was $24,000,000,
consisting of a $16,000,000 payment at closing and an $8,000,000 earn-out
amount, which was to be paid based upon certain earnings targets through
December 31, 2010.  Based on 2006 earnings, a $4,000,000 earn-out was
accrued at December 31, 2006 and paid during the 1st quarter of
2007.  On April 13, 2007, the Company reached an agreement with the
seller, whereby the remaining $4,000,000 earnout obligation was settled by a
payment of $2,400,000.  Accordingly, the adjusted purchase price is
$22,400,000.  The accrued earn-out at December 31, 2006 was added to
goodwill.  Likewise, the earn-out settlement payment made during the
second quarter of 2007 was also added to goodwill.





The
acquisition was accounted for as a purchase with all identifiable assets
recorded at fair value.  The excess of the purchase price over the net
identifiable assets has been recorded as goodwill and is included as part of the
Company's defense products segment.  The amounts allocated to goodwill
are deductible for income tax purposes.  Based upon the purchase price
and fair value of the assets acquired, the following represents the allocation
of the aggregate purchase price to the acquired net assets of Amron,
LLC.





(in
      000's)Receivables
            
            $
            224Inventory
            
            
            1,909Prepaids
            
            
            68Fixed
      Assets
            
            
            13,748Goodwill
            
            
            1,529Total
      Assets Acquired
            
            $
            17,478Less:
      Current Liabilities Assumed
            
            
            (1,478
            )Net
      Assets Acquired
            
            $
            16,000





L.   
DISPOSAL ACTIVITIES:


On
October 9, 2006, the Company decided to consolidate its adult incontinence
production capabilities in its Absorbent Products segment and, as a result,
began the process of relocating its adult incontinence manufacturing equipment
from its Marietta, Georgia facility to its Eau Claire, Wisconsin
facility.  This consolidation, which began during the 4th quarter of
2006, was completed during the 1st quarter of 2007 and served to improve the
segment's long-term manufacturing efficiencies.  As a result of the
consolidation, the Georgia facility has been closed.  The Company
issued a W.A.R.N. (Worker Adjustment and Retraining Notification) notice on
October 9, 2006.  The total cost of the relocation activities was
$950,000, including $760,000 for the disassembly, transportation, installation
of machinery and equipment and other related costs and $190,000 for one-time
termination benefits to affected employees.  During 2007, $320,000 was
incurred for the disassembly, transportation, installation of machinery and
equipment and other related costs, and $180,000 was incurred for one-time
termination benefits to affected employees.  Expenses related to the
above disposal activities are included in Cost of Sales for 2007 and
2006.  With the exception of one time termination benefits and capital
expenditures related to the shut-down of the Georgia facility, costs were
expensed as incurred, consistent with the requirements of FASB ASC 420, Exit or Disposal Cost
Obligations, as employee services were performed and other associated
costs were incurred.





At
December 31, 2006, the Company had accrued $79,000 related to the one-time
termination benefit, all of which was paid during 2007.




F-16





M.   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 Appliances, Defense Products, and Absorbent
Products.  Sales for all three segments are primarily to customers in
North America.





The
Housewares/Small Appliances Segment designs, markets, and distributes housewares
and small appliances.  These products are sold directly to retail
outlets throughout the United States and Canada and also through independent
distributors.  As more fully described in Note I, the Company
primarily sources its Housewares/Small Appliance products from nonaffiliated
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.





The
Defense Segment was started in February 2001 with the acquisition of AMTEC
Corporation which manufactures precision mechanical and electromechanical
assemblies for the U.S. government and prime contractors.  During
2005, 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.  AMTEC's manufacturing plant is
located in Janesville, Wisconsin.  During 2003, this 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.  The segment was further augmented with the acquisition
of certain assets of Amron, LLC of Antigo, Wisconsin during 2006.This facility
primarily manufactures cartridge cases used in medium caliber (20-40mm)
ammunition.  See Note K.





The
Absorbent Product Segment was started on November 19, 2001 with the acquisition
of certain assets from RMED International, Inc, forming Presto Absorbent
Products, Inc.  This company manufactures diapers and, starting in
2004, adult incontinence products at the Company's facilities in Eau Claire,
Wisconsin.  The products are sold to distributors and other absorbent
product manufacturers.  During 2003, this segment was expanded with
the purchase of the assets of NCN Hygienic Products, Inc., a Marietta, Georgia
manufacturer of adult incontinence products and training pads for
dogs.  The Company has since decided to close the Georgia facility and
consolidate the absorbent products manufacturing in the Eau Claire, Wisconsin
facility.  It no longer manufactures dog pads.  See Note
L.




F-17




In the
following summary, operating profit represents earnings before other income,
principally interest income, and income taxes.  The Company's segments
operate discretely from each other with no shared 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 Appliances segment for all
periods presented.





(in
      thousands)Housewares
      /Small
            
            
            Defense
            
            
            AbsorbentAppliances
            
            
            Products
            
            
            Products
            
            
            TotalYear
      ended December 31, 2009External
      net sales
            
            $
            150,016
            
            
            $
            253,789
            
            
            $
            74,663
            
            
            $
            478,468Gross
      profit (loss)
            
            
            40,336
            
            
            
            61,866
            
            
            
            7,890
            
            
            
            110,092Operating
      profit (loss)
            
            
            30,290
            
            
            
            54,823
            
            
            
            6,234
            
            
            
            91,347Total
      assets
            
            
            260,854
            
            
            
            107,907
            
            
            
            33,644
            
            
            
            402,405Depreciation
      and amortization
            
            
            925
            
            
            
            3,570
            
            
            
            4,243
            
            
            
            8,738Capital
      expenditures
            
            
            1,240
            
            
            
            1,275
            
            
            
            822
            
            
            
            3,337Year
      ended December 31, 2008External
      net sales
            
            $
            136,840
            
            
            $
            238,752
            
            
            $
            72,661
            
            
            $
            448,253Gross
      profit
            
            
            30,323
            
            
            
            50,232
            
            
            
            (315
            )
            
            
            80,240Operating
      profit
            
            
            20,896
            
            
            
            43,550
            
            
            
            (1,165
            )
            
            
            63,281Total
      assets
            
            
            218,783
            
            
            
            106,837
            
            
            
            40,263
            
            
            
            365,883Depreciation
      and amortization
            
            
            792
            
            
            
            3,211
            
            
            
            4,791
            
            
            
            8,794Capital
      expenditures
            
            
            788
            
            
            
            2,603
            
            
            
            979
            
            
            
            4,370Year
      ended December 31, 2007External
      net sales
            
            $
            131,838
            
            
            $
            224,384
            
            
            $
            65,065
            
            
            $
            421,287Gross
      profit
            
            
            30,229
            
            
            
            48,294
            
            
            
            (1,597
            )
            
            
            76,926Operating
      profit
            
            
            19,931
            
            
            
            36,700
            
            
            
            (2,671
            )
            
            
            53,960Total
      assets
            
            
            223,115
            
            
            
            103,653
            
            
            
            47,908
            
            
            
            374,676Depreciation
      and amortization
            
            
            790
            
            
            
            2,729
            
            
            
            4,966
            
            
            
            8,485Capital
      expenditures
            
            
            916
            
            
            
            4,821
            
            
            
            487
            
            
            
            6,224




N.   OPERATING
LEASES:


The
Company leases office, manufacturing, and warehouse facilities and equipment
under noncancelable operating leases, many of which contain renewal options
ranging from one to five years.  Rent expense was approximately
$836,000, $1,133,000, and $1,113,000 for the years ended December 31, 2009,
2008, and 2007, respectively.  Future minimum annual rental payments
required under operating leases are as follows:





Years
      ending December 31:
            
            (In
      Thousands)2010
            
            $
            4092011
            
            
            2462012
            
            
            1742013
            
            
            1482014
            
            
            0$
            977




F-18





O.   
INTERIM FINANCIAL INFORMATION (UNAUDITED):




The
following represents quarterly unaudited financial information for 2009 and
2008:





(In
      Thousands)Quarter
            
            Net
      Sales
            
            
            Gross
      Profit
            
            
            Net
      Earnings
            
            
            Earnings
      per Share (Basic & Diluted)2009First
            
            $
            107,926
            
            
            $
            19,658
            
            
            $
            10,854
            
            
            $
            1.58Second
            
            
            103,161
            
            
            
            24,364
            
            
            
            13,346
            
            
            $
            1.95Third
            
            
            116,392
            
            
            
            28,944
            
            
            
            16,705
            
            
            $
            2.44Fourth
            
            
            150,989
            
            
            
            37,126
            
            
            
            21,671
            
            
            $
            3.16Total
            
            $
            478,468
            
            
            $
            110,092
            
            
            $
            62,576
            
            
            $
            9.132008First
            
            $
            77,145
            
            
            $
            12,938
            
            
            $
            6,250
            
            
            $
            0.91Second
            
            
            110,002
            
            
            
            17,701
            
            
            
            9,582
            
            
            $
            1.40Third
            
            
            111,973
            
            
            
            18,942
            
            
            
            10,201
            
            
            $
            1.49Fourth
            
            
            149,133
            
            
            
            30,659
            
            
            
            18,150
            
            
            $
            2.65Total
            
            $
            448,253
            
            
            $
            80,240
            
            
            $
            44,183
            
            
            $
            6.45





As shown
above, fourth quarter sales are significantly impacted by the holiday driven
seasonality of the Housewares/Small Appliance segment.  This segment
builds inventory during the first three quarters to meet the sales demand of the
fourth quarter.  The other segments are typically
non-seasonal.





P.   
LINE OF CREDIT:


The
Company maintains an unsecured line of credit for short term operating cash
needs. The line of credit is renewed each year at the end of the third quarter.
As of December 31, 2009 and 2008, the line of credit limit was set at $5,000,000
and $10,000,000, respectively, with $0 outstanding on both dates. 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.





Q.  
 SUBSEQUENT EVENTS:


On
February 18, 2010, the Army awarded AMTEC Corporation, the Company’s defense
subsidiary, a new contract for an additional five year period.  AMTEC
and one other prime contractor will be responsible for supplying all of the
requirements for the 40mm family of practice and tactical ammunition
rounds.  The initial award is for $33,700,000, and an additional award
is expected later in 2010.  The actual annual and cumulative dollar
volume with the Army as a result of the award 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.





On
February 19, 2010, the Company’s Board of Directors announced a regular dividend
of $1.00 per share, plus an extra dividend of $7.15.  On March 15,
2010, a payment of $55,889,000 was made to the shareholders of record as of
March 4, 2010.




F-19




Report
of Independent Registered Public Accounting Firm
  
  Board of
Directors and Stockholders
 National
Presto Industries, Inc.
 Eau
Claire, Wisconsin
  We have
audited the accompanying consolidated balance sheets of National Presto
Industries, Inc. as of December 31, 2009 and 2008 and the related consolidated
statements of earnings, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2009.  In connection with
our audits of the financial statements, we have also audited the accompanying
Schedule II, Valuation and Qualifying Accounts for the year ended December 31,
2009 and 2008.  These financial statements and schedules are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and schedules.  We
believe that our audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of National Presto Industries,
Inc. at December 31, 2009 and 2008, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
2009, in conformity with
accounting principles generally accepted in the United States of
America.
  Also, in
our opinion, the financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), National Presto Industries, Inc.’s internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal
Control – Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 16,
2010 expressed an unqualified opinion thereon.
  /s/
      BDO Seidman, LLPMilwaukee,
      WisconsinMarch
      16, 2010







F-20
  NATIONAL
      PRESTO INDUSTRIES, INC. AND SUBSIDIARIESSCHEDULE
      II - VALUATION AND QUALIFYING ACCOUNTSFor
      the Years Ended December 31, 2009, 2008 and
2007
  (In
      thousands)Column
      A
                    
                    Column
      B
                    
                    
                    Column
      C
                    
                    
                    Column
      D
                    
                    
                    Column
      EBalance
      at
                    
                    
                    
                    
                    
                    
                    
                    
                    Balance
      atBeginning
                    
                    
                    
                    
                    
                    
                    
                    
                    EndDescription
                    
                    of
      Period
                    
                    
                    Additions
      (A)
                    
                    
                    Deductions
      (B)
                    
                    
                    of
      PeriodDeducted
      from assets:Allowance
      for doubtful accounts:Year
      ended December 31, 2009
                    
                    $
                    480
                    
                    
                    $
                    -
                    
                    
                    $
                    13
                    
                    
                    $
                    467Year
      ended December 31, 2008
                    
                    $
                    703
                    
                    
                    $
                    253
                    
                    
                    $
                    476
                    
                    
                    $
                    480Year
      ended December 31, 2007
                    
                    $
                    703
                    
                    
                    $
                    2
                    
                    
                    $
                    2
                    
                    
                    $
                    703
  Notes:(A) Amounts
      charged (credited) to selling and general expenses(B)  Principally
      bad debts written off, net of recoveries
  (In
      thousands)Column
      A
                  
                  Column
      B
                  
                  
                  Column
      C
                  
                  
                  Column
      D
                  
                  
                  Column
      EBalance
      at
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Balance
      atBeginning
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  EndDescription
                  
                  of
      Period
                  
                  
                  Additions
                  
                  
                  Deductions
                  
                  
                  of
      PeriodValuation
      allowance for deferred tax assetsYear
      ended December 31, 2009
                  
                  $
                  709
                  
                  
                  $
                  -
                  
                  
                  $
                  709
                  
                  
                  $
                  0Year
      ended December 31, 2008
                  
                  $
                  598
                  
                  
                  $
                  111
                  
                  
                  $
                  -
                  
                  
                  $
                  709Year
      ended December 31, 2007
                  
                  $
                  -
                  
                  
                  $
                  598
                  
                  
                  $
                  -
                  
                  
                  $
                  598
  F-21