NATIONAL PRESTO INDUSTRIES INC Leases Disclosure

M.   LEASES

The Company accounts for leases under ASC Topic 842, Leases.  The Company’s leasing activities include roles as both lessee and lessor.  As lessee, the Company’s primary leasing activities include buildings and structures to support its manufacturing operations at one location in its Defense segment, warehouse space and equipment to support its distribution center operations in its Housewares/Small Appliances segment, and office space to support its Safety segment's operations.  As lessor, the Company’s primary leasing activity is comprised of manufacturing and office space located adjacent to its corporate offices.  All of the Company’s leases are classified as operating leases.

 

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

 

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

 

		Years Ending
		(In thousands)
Summary of Lease Cost		2025				2024				2023
Operating lease cost		$	1,151			$	1,212			$	1,215
Short-term and variable lease cost			379				265				206
Total lease cost		$	1,530			$	1,477			$	1,421

 

Rent expense was approximately $1,530,000, $1,477,000, and $1,421,000 for the years ended December 31, 2025, 2024, and 2023, respectively.  Operating cash used for operating leases was $1,530,000, $1,477,000, and $1,421,000 for the years ended December 31, 2025, 2024, and 2023, respectively.  The weighted-average remaining lease term was 18.3 years, and the weighted-average discount rate was 4.7% as of December 31, 2025.

 

Maturities of operating lease liabilities are as follows:

 

Years ending December 31:		(In thousands)
2026		$	842
2027			814
2028			812
2029			757
2030			703
Thereafter			11,095
Total lease payments		$	15,023
Less: future interest expense			5,582
Lease liabilities		$	9,441

 

 

Lease income from operating lease payments was $2,351,000, $2,283,000, $2,281,000 for the years ended December 31, 2025, 2024, and 2023, respectively and is included in Other income on the Consolidated Statements of Comprehensive Income.  Undiscounted cash flows provided by lease payments are expected as follows:

 

Years ending December 31:		(In thousands)
2026		$	2,321
2027			2,314
2028			2,314
2029			2,314
2030			2,314
Thereafter			13,884
Total lease payments		$	25,461

 

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