<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- - --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- - --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File Number 0-10004
---------------------------------------------------------
NAPCO SECURITY SYSTEMS, INC.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 11-2277818
- - ------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
333 BAYVIEW AVENUE
AMITYVILLE, NEW YORK 11701
- - ------------------------------- -----------------------------
(Address of principle (Zip Code)
executive offices)
</TABLE>
(516) 842-9400
- - --------------------------------------------------------------------------------
(Registrant's telephone number including area code)
NONE
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
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 X No
------- -------
Number of shares outstanding of each of the issuer's classes of common
stock, as of March 31, 1995:
<TABLE>
<CAPTION>
COMMON STOCK, $.01 PAR VALUE
PER SHARE 4,367,727
- - ------------------------------- -------------------------------
<S> <C>
(Class) (number of shares outstanding)
</TABLE>
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
MARCH 31, 1995
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I - FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
March 31, 1995 and June 30, 1994 3
Condensed Consolidated Statements of
Income for the Nine Months Ended
March 31, 1995 and 1994 4
Condensed Consolidated Statements of
Income for the Three Months Ended
March 31, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
March 31, 1995 and 1994 6
Notes to Condensed Consolidated
Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 11
SIGNATURE PAGE 13
INDEX TO EXHIBITS 14
Computation of Earnings Per Share E-1
</TABLE>
-2-
<PAGE> 3
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1995 1994
------ ----------------- ---------------
Current Assets: (in thousands)
<S> <C> <C>
Cash and cash equivalents $ 120 $ 1,335
Accounts receivable, less allowance for doubtful
accounts (Note 2): March 31, 1995 $826,000
June 30, 1994 $454,000 11,912 14,687
Inventories, net (Note 3) 27,348 23,613
Prepaid expenses and other current assets 314 470
----------------- ----------------
Total current assets 39,694 40,105
----------------- ----------------
Property, Plant and Equipment 20,221 17,184
Less: Accumulated Depreciation and Amortization (Note 4) 7,710 6,824
----------------- ----------------
12,511 10,360
Excess of Cost Over Fair Value of Assets Acquired, net 2,940 3,020
Deferred Financing Costs, net 74 85
Other Assets 271 240
Deferred Tax Benefits, net - -
----------------- ----------------
$ 55,490 $ 53,810
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 2,612 $ 2,596
Accounts payable 5,812 5,876
Accrued and other liabilities 3,335 3,600
----------------- ----------------
Total current liabilities 11,759 12,072
Long-Term Debt 15,575 13,690
Stockholders' Equity:
Common stock - par value $.01 per share;
authorized 21,000,000 shares, 5,896,602 issued 59 59
Additional paid-in capital 719 719
Retained earnings 27,379 27,271
Less: Treasury stock, at cost (1,528,875 shares) (1) (1)
----------------- ----------------
Total stockholders' equity 28,156 28,048
----------------- ----------------
$ 55,490 $ 53,810
================= ================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 4
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------- --------------
1995 1994
--------------- --------------
(in thousands, except per
share data)
<S> <C> <C>
Net Sales $ 34,375 $ 33,270
Cost of Sales 26,066 24,754
------------ -----------
Gross profit 8,309 8,516
Selling, General and Administrative Expenses 6,648 6,753
Unusual Bad Debt Expense (Note 2) 480 --
------------ -----------
Operating income 1,181 1,763
------------ -----------
Interest Expense, net 947 753
Other Expense, net 93 29
------------ -----------
1,040 782
------------ -----------
Income before provision for income taxes 141 981
Provision for Income Taxes (Note 5) 33 --
------------ -----------
Net income $ 108 $ 981
============ ===========
Earnings Per Share $ 0.02 $ 0.22
============ ==========
Weighted Average Number of Shares Outstanding 4,427,478 4,402,277
============ ==========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 5
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------- --------------
1995 1994
--------------- --------------
(in thousands, except per
share data)
<S> <C> <C>
Net Sales $ 11,161 $ 10,896
Cost of Sales 8,447 8,103
----------- ----------
Gross profit 2,714 2,793
Selling, General and Administrative Expenses 2,203 2,345
Unusual Bad Debt Expense (Note 2) 480 --
----------- ----------
Operating income 31 448
----------- ----------
Interest Expense, net 365 337
Other Expense (Income), net 11 (13)
----------- ----------
376 324
----------- ----------
Income (loss) before income taxes (345) 124
Recovery of Income Taxes (Note 5) 50 --
----------- ----------
Net income (loss) $ (295) $ 124
=========== ==========
Earnings (loss) Per Share $ (0.07) $ 0.03
=========== ==========
Weighted Average Number of Shares Outstanding 4,424,190 4,396,502
=========== ==========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-5-
<PAGE> 6
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------- --------------
1995 1994
--------------- --------------
(in thousands)
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities (80) $ 1,767
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (3,036) (1,025)
----------- ----------
Net cash used in investing activities (3,036) (1,025)
----------- ----------
Cash Flows from Financing Activities:
Proceeds from long-term debt borrowings 3,567 5,615
Principal payments on long-term debt (1,666) (6,622)
Proceeds from issuance of common stock -- 2
----------- ----------
Net cash provided by (used in) financing activities 1,901 (1,005)
----------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (1,215) (263)
Cash and Cash Equivalents at Beginning of Period 1,335 871
----------- ----------
Cash and Cash Equivalents at End of Period $ 120 $ 608
=========== ===========
Cash Paid During the Period for:
Interest $ 1,005 $ 671
=============== ==============
Income taxes $ 188 $ --
=============== ==============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-6-
<PAGE> 7
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) Summary of significant accounting policies
and other disclosures
---------------------
The information for the three and nine months ended March 31, 1995 and
1994 is unaudited, but in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) considered necessary for
a fair presentation of the results of operations for such periods have
been included. The results of operations for the periods may not
necessarily reflect the annual results of the Company.
The Company has adopted all recently effective accounting standards which
have an impact on its condensed financial statements.
2.) Unusual Bad Debt Expense
------------------------
In May 1995, the Company became aware of an unexpected Chapter 7
bankruptcy filing of one of its customers. The Company has therefore reflected
an unusually large bad debt expense of $480,000 in its condensed consolidated
statements of income for the three and nine months ended March 31, 1995. This
expense is net of anticipated future cash collections relating to this
customer.
3.) Inventories
-----------
<TABLE>
<CAPTION>
Inventories consist of: March 31, June 30,
1995 1994
------------------ ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
Component parts $ 11,627 $ 10,471
Work-in-process 7,975 6,022
Finished products 7,747 7,120
------------------ ----------------
$ 27,348 $ 23,613
================== ================
</TABLE>
-7-
<PAGE> 8
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.) Property, Plant and Equipment
-----------------------------
<TABLE>
<CAPTION>
Property, Plant and Equipment consists of: March 31, June 30,
1995 1994
------------------ ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
Land $ 904 $ 904
Building 8,627 6,014
Molds and dies 1,902 1,719
Furniture and fixtures 950 925
Machinery and equipment 7,433 7,229
Leasehold improvements 405 393
------------------ ----------------
20,221 17,184
Less: Accumulated depreciation and amortization 7,710 6,824
------------------ ----------------
$ 12,511 $ 10,360
================== ================
</TABLE>
5.) Income Taxes
------------
Foreign income taxes are not provided on income generated by the Company's
subsidiary in the Dominican Republic, as such income is presently exempt
from local tax. The Company's domestic and foreign operations are both
presently under review by the Internal Revenue Service ("IRS"). To date,
no formal notice of deficiency has been issued by the IRS.
-8-
<PAGE> 9
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- - ---------------------
Sales for the first nine months of fiscal 1995 increased approximately 3.3% to
$34,375,000 from $33,270,000 for the same period in fiscal 1994. Sales for the
three months ended March 31, 1995 increased approximately 2.4% to $11,161,000
as compared to $10,896,000 for the same period in fiscal 1994. The Company
was able to achieve these sales levels primarily as a result of continued
customer demand of its new and existing products. This increase was also
achieved despite the continued pressure and competition within the Company's
industry.
The Company's gross profit margin decreased to 24.2% of sales for the first
nine months of fiscal 1995 as compared to 25.6% for the first nine months of
fiscal 1994. For the three months ended March 31, 1995 gross profit margin
decreased to 24.3% from 25.6% for the same period a year ago. This decrease
was primarily the result of an unfavorable product mix as well as certain
production inefficiencies associated with the Company's move into its new
manufacturing facility, which was operational as of May 1995.
Selling, general and administrative expenses for the first nine months of
fiscal 1995 remained relatively constant at $6,648,000 as compared to
$6,753,000 for the same period in fiscal 1994. For the three months ended
March 31, 1995 selling, general and administrative expenses decreased by 6.1%
to $2,203,000 from $2,345,000 for the same period a year ago. This decrease
is due primarily to the Company's concentrated efforts to increase efficiency
and thus reduce the costs asociated with its selling, general and
administrative overhead.
In addition to the general reserve for bad debts accounted for in Selling,
General and Administrative expenses, the Company recorded an unusual bad debt
expense of $480,000 as a result of an unexpected Chapter 7 bankruptcy filing of
one of its customers.
Net interest expense increased to $947,000 for the first nine months of fiscal
1995 as compared to $753,000 for the same period in fiscal 1994. For the three
months ended March 31, 1995 net interest expense increased to $365,000 from
$337,000 for the same period in fiscal 1994. This increase is due primarily to
the increase in average outstanding debt and effective interest rates for the
three and nine months ended March 31, 1995 as compared to the same periods in
fiscal 1994.
The Company provided for income taxes of $33,000 and a recovery of $50,000 for
the nine and three months ended March 31, 1995 respectively. This compares to
no provision for the same periods in fiscal 1994. The provision for the nine
months is primarily the result of taxable domestic income as partially offset
by certain benefits available from non-taxable foreign source income. The
recovery provided for reflects the effect of tax benefits resulting from the
loss in the three months ended March 31, 1995.
Net income decreased by $873,000 to $108,000 or $.02 per share for the nine
months ended March 31, 1995 from $981,000 or $.22 per share for the same period
a year ago. For the three months ended March 31, 1995 net income decreased by
$419,000 to a loss of $295,000 or $.07 per share from net income of $124,000 or
$.03 per share for the same period in fiscal 1994. This decrease is due
primarily to the items discussed above.
-9-
<PAGE> 10
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
- - -------------------------------
During the nine months ended March 31, 1995 the Company utilized a major
portion of its cash generated from operations and existing cash reserves to
help fund the construction and start-up of its new manufacturing facility in
the Dominican Republic. These costs were also funded by borrowings from the
Company's primary banks. This investment in capital assets resulted in a
decrease in the Company's cash balances to $120,000 as of March 31, 1995 from
$1,335,000 as of June 30, 1994.
Accounts receivable at March 31, 1995 decreased by $2,775,000 to $11,912,000 as
compared to $14,687,000 at June 30, 1994. This decrease is primarily the
result of the higher sales volume during the quarter ended June 30, 1994 as
compared to the quarter ended March 31, 1995 as well as the additional reserve
previously discussed.
Inventory at March 31, 1995 was $27,348,000, increasing by $3,735,000 from
$23,613,000 at June 30, 1994. This increase is predominantly due to the
Company's increased production in anticipation of the possible reduction in
manufacturing output during the current relocation of its offshore facility.
On July 27, 1994, the Company entered into an $11,000,000 secured revolving
credit and term loan facility with two banks, with the Company's primary bank
acting as agent. In conjunction with this agreement, the banks have received
as collateral all accounts receivable and inventory located in the United
States. The revolving credit loan, which bears interest based on a number of
options available to the Company, converts to a term loan on June 30, 1997
payable in sixteen (16) equal quarterly installments beginning on September 30,
1997. The agreement contains various covenants and restrictions on the
Company. As of March 31, 1995 the Company was not in compliance with certain
of these financial covenants for which they anticipate receiving the
appropriate waivers from the banks. On March 31, 1995 the Company entered into
an agreement with its banks to increase this facility to $13,000,000 through
April 1, 1996 at which time it will revert to the original limit of
$11,000,000.
On July 28, 1994 the Company entered into a separate $2,000,000 line of credit
with its primary bank to be used in connection with commercial and standby
letters of credit.
On April 26, 1993, the Company's foreign subsidiary entered into a 99 year land
lease of approximately four acres of land near its present facility in the
Dominican Republic, at an annual cost of approximately $272,000. The foreign
subsidiary is in the process of relocating to this site during final
construction of a new facility pursuant to a separate contract dated May 6,
1993. The Company expects to incur approximately $115,000 in additional
construction costs subsequent to March 31, 1995, to complete this new facility
during fiscal 1995.
As of March 31, 1995 the Company had no material committments for capital
expenditures except for those discussed above.
-10-
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no pending or threatened material legal proceedings
to which NAPCO or its subsidiaries or any of their property is
subject other than as follows:
C&K Systems, Inc. ("C&K") brought a patent infringement
action against the Company, alleging that NAPCO infringes and
induces others to infringe upon a patent on a C&K component
used in computerized security systems. The Company brought
its own action and counterclaims involving the infringement by
C&K of NAPCO patents. Pursuant to a judicial conference, the
parties have reached a settlement agreement in principal that
would permit each company to continue manufacturing and
marketing its existing product lines, subject to execution of
a written agreement between the parties and formal approval by
the court. In the Company's opinion, the proposed settlement
will not have a material adverse effect on its financial
condition.
In May of 1995 the Company was advised of an unexpected
Chapter 7 bankruptcy filing of one of its customers. As a
result, the Company has recorded an unusual bad debt expense
of $480,000 (see Note 2 of the Condensed Consolidated
Financial Statements).
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 5. Other Information
-----------------
None
-11-
<PAGE> 12
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(11) Computation of Earnings Per Share
(b) No reports on Form 8-K have been filed during the
Company's fiscal quarter ended March 31, 1995.
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements 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.
May 18, 1995
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
By:/s/ RICHARD SOLOWAY By:/s/ KENNETH ROSENBERG
------------------------- -------------------------
Richard Soloway Kenneth Rosenberg
Chairman of the Board of President and Treasurer
Directors and Secretary (Co-Principal Executive Officer)
(Co-Principal Executive Officer)
By:/s/ KEVIN S. BUCHEL
--------------------
Kevin S. Buchel
Senior Vice President of
Operations and Finance
(Principal Financial and
Accounting Officer)
-13-
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits PAGE
-------- ----
<S> <C>
11 Computation of Earnings Per Share E-1
27 Exhibit Index
</TABLE>
-14-
<PAGE> 1
Exhibit (11)
NAPCO SECURITY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------- --------------
1995 1994
--------------- --------------
(in thousands, except per
share data)
<S> <C>
Average Shares Outstanding 4,368 4,367
Add: Common Stock Equivalents 59
--------------- --------------
Weighted Average Shares Outstanding 4,427 4,367
=============== ==============
Net Income $ 108 $ 981
=============== ==============
Earnings Per Share $ 0.02 $ 0.22
=============== ==============
Three Months Ended
March 31,
--------------- --------------
1995 1994
--------------- --------------
(in thousands, except per
share data)
Average Shares Outstanding 4,368 4,367
Add: Common Stock Equivalents 56
--------------- --------------
Weighted Average Shares Outstanding 4,424 4,367
=============== ==============
Net Income (loss) $ (295) $ 124
=============== ==============
Earnings (loss) Per Share $ (0.07) $ 0.03
=============== ==============
</TABLE>
Primary earnings per share computations are based on the weighted average
number of shares outstanding plus common stock equivalents calculated at the
monthly average market price per share.
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 11,912
<ALLOWANCES> 526
<INVENTORY> 27,348
<CURRENT-ASSETS> 39,694
<PP&E> 20,221
<DEPRECIATION> 7,710
<TOTAL-ASSETS> 55,490
<CURRENT-LIABILITIES> 11,759
<BONDS> 0
<COMMON> 59
0
0
<OTHER-SE> 28,097
<TOTAL-LIABILITY-AND-EQUITY> 55,490
<SALES> 34,375
<TOTAL-REVENUES> 34,375
<CGS> 26,066
<TOTAL-COSTS> 26,666
<OTHER-EXPENSES> 6,648
<LOSS-PROVISION> 480
<INTEREST-EXPENSE> 1,040
<INCOME-PRETAX> 141
<INCOME-TAX> 33
<INCOME-CONTINUING> 108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
