<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 DECEMBER 31, 1994 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)
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)
(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 December 31, 1994:
COMMON STOCK, $.01 PAR VALUE
PER SHARE 4,367,727
- - - ------------------------------- -------------------------------
(Class) (number of shares outstanding)
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
DECEMBER 31, 1994
PAGE
------
PART I - FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
December 31, 1994 and June 30, 1994 3
Condensed Consolidated Statements of
Income for the Six Months Ended
December 31, 1994 and 1993 4
Condensed Consolidated Statements of
Income for the Three Months Ended
December 31, 1994 and 1993 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
December 31, 1994 and 1993 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
-2-
<PAGE> 3
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1994 1994
------ ---------------- ---------------
<S> <C> <C>
Current Assets: (in thousands)
Cash and cash equivalents $ 108 $ 1,335
Accounts receivable, less allowance for
doubtful accounts: December 31, 1994 $410,000
June 30, 1994 $454,000 13,500 14,687
Inventories, net (Note 2) 26,968 23,613
Prepaid expenses and other current assets 516 470
---------------- ---------------
Total current assets 41,092 40,105
---------------- ---------------
Property, Plant and Equipment 19,166 17,184
Less: Accumulated Depreciation and Amortization (Note 3) 7,444 6,824
---------------- ---------------
11,722 10,360
Excess of Cost Over Fair Value of Assets Acquired, net 2,966 3,020
Deferred Financing Costs, net 77 85
Other Assets 271 240
Deferred Tax Benefits, net - -
---------------- ---------------
$ 56,128 $ 53,810
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 3,092 $ 2,596
Accounts payable 5,745 5,876
Accrued and other liabilities 3,868 3,600
---------------- ---------------
Total current liabilities 12,705 12,072
Long-Term Debt 14,972 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 27,674 27,271
Less: Treasury stock, at cost (1,528,875 shares) (1) (1)
---------------- ---------------
Total stockholders' equity 28,451 28,048
---------------- ---------------
$ 56,128 $ 53,810
================ ===============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------------
1994 1993
------------- -------------
(in thousands, except per
share data)
<S> <C> <C>
Net Sales $ 23,214 $ 22,374
Cost of Sales 17,619 16,651
------------- -------------
Gross profit 5,595 5,723
Selling, General and Administrative Expenses 4,445 4,408
------------- -------------
Operating income 1,150 1,315
------------- -------------
Interest Expense, net 582 416
Other Expense, net 82 42
------------- -------------
664 458
------------- -------------
Income before provision for income taxes 486 857
Provision for Income Taxes 83 0
------------- -------------
Net income $ 403 $ 857
============= =============
Earnings Per Share $ 0.09 $ 0.19
============= =============
Weighted Average Number of Shares Outstanding 4,426,501 4,402,463
============= =============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------------
1994 1993
------------- -------------
(in thousands, except per
share data)
<S> <C> <C>
Net Sales $ 12,044 $ 12,177
Cost of Sales 9,143 9,178
------------- -------------
Gross profit 2,901 2,999
Selling, General and Administrative Expenses 2,285 2,197
------------- -------------
Operating income 616 802
------------- -------------
Interest Expense, net 306 205
Other Expense, net 60 11
------------- -------------
366 216
------------- -------------
Income before income taxes 250 586
Provision for Income Taxes 53 0
------------- -------------
Net income $ 197 $ 586
============= =============
Earnings Per Share $ 0.04 $ 0.13
============= =============
Weighted Average Number of Shares Outstanding 4,428,805 4,402,463
============= =============
</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>
Six Months Ended
December 31,
--------------------------------
1994 1993
------------- -------------
(in thousands)
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities $ (952) $ 1,096
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (1,982) (428)
------------- -------------
Net cash used in investing activities (1,982) (428)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from long-term debt borrowings 2,668 0
Principal payments on long-term debt (961) (550)
------------- -------------
Net cash provided by (used in) financing activities 1,707 (550)
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (1,227) 118
Cash and Cash Equivalents at Beginning of Period 1,335 871
------------- -------------
Cash and Cash Equivalents at End of Period $ 108 $ 989
============= =============
Cash Paid During the Period for:
Interest $ 568 $ 392
============= =============
Income taxes $ 60 $ 0
============= =============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<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 six months ended December 31, 1994 and
1993 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 operations of the Company.
The Company has adopted all recently introduced accounting standards which
have an impact on its condensed financial statements.
2.) Inventories
-----------
<TABLE>
<CAPTION>
Inventories consist of: December 31, June 30,
1994 1994
---------------- ---------------
(Unaudited)
(in thousands)
<S> <C> <C>
Component parts $ 11,458 $ 10,471
Work-in-process 7,878 6,022
Finished products 7,632 7,120
---------------- ---------------
$ 26,968 $ 23,613
================ ===============
</TABLE>
3.) Property, Plant and Equipment
-----------------------------
<TABLE>
<CAPTION>
Property, Plant and Equipment consists of: December 31, June 30,
1994 1994
---------------- ---------------
(Unaudited)
(in thousands)
<S> <C> <C>
Land $ 904 $ 904
Building 7,756 6,014
Molds and dies 1,823 1,719
Furniture and fixtures 942 925
Machinery and equipment 7,346 7,229
Leasehold improvements 395 393
---------------- ---------------
19,166 17,184
Less: Accumulated depreciation and amortization 7,444 6,824
---------------- ---------------
$ 11,722 $ 10,360
================ ===============
</TABLE>
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<PAGE> 8
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.) 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 six months of fiscal 1995 increased approximately 3.8% to
$23,214,000 from $22,374,000 for the same period in fiscal 1994. Sales for the
three months ended December 31, 1994 remained relatively constant at
$12,044,000 as compared to $12,177,000 for the same period in fiscal 1994.
The Company was able to achieve this sales level primarily as a result of
continued customer demand of its new and existing products. The increase for
the six months ended December 31, 1994 also occurred despite the continued
sluggish U.S. economy.
The Company's gross profit margin decreased to 24.1% of sales for the first six
months of fiscal 1995 as compared to 25.6% for the first six months of fiscal
1994. For the three months ended December 31, 1994 gross profit margin
decreased to 24.1% from 24.6% 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, currently in process, as discussed herein.
Selling, general and administrative expenses for the first six months of fiscal
1995 remained relatively flat at $4,445,000 as compared to $4,408,000 for the
same period in fiscal 1994. For the three months ended December 31, 1994
selling, general and administrative expenses increased by 4% to $2,285,000 from
$2,197,000 for the same period a year ago. This recent increase is due
primarily to an increase in the Company's sales and marketing efforts as
partially offset by the Company's reduction of its general and administrative
expenses.
Net interest expense increased to $582,000 for the first six months of fiscal
1995 as compared to $416,000 for the same period in fiscal 1994. For the three
months ended December 31, 1994 net interest expense increased to $306,000 from
$205,000 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 six months ended December 31, 1994 as compared to the same periods in
fiscal 1994.
The Company provided for income taxes of $83,000 for the first six months of
fiscal 1995 as compared to no provision for the same period a year ago. For
the three months ended December 31,1994 the provision for income taxes
increased to $53,000 as compared to no provision for same period in fiscal
1994. This increase is primarily the result of taxable domestic income as
partially offset by certain benefits available from non-taxable foreign source
income.
Net income decreased by $454,000 to $403,000 or $.09 per share for the six
months ended December 31, 1994 from $857,000 or $.19 per share for the same
period a year ago. For the three months ended December 31, 1994 net income
decreased by $389,000 to $197,000 from $586,000 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 six months ended December 31, 1994 working capital increased by
$354,000 to $28,387,000 from $28,033,000 at June 30, 1994. This increase is
due primarily to the increase in the Company's long-term debt which was used,
in part, to fund the increased investment in inventory as discussed below.
At December 31, 1994 there were no material items adversely affecting the
financial position of the Company.
Accounts receivable at December 31, 1994 decreased by $1,187,000 to $13,500,000
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 December 31, 1994.
Inventory at December 31, 1994 was $26,968,000, increasing by $3,355,000 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 December 31, 1994, the Company was not in compliance with
certain of these financial covenants for which they anticipate receiving
appropriate waivers from the banks.
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 $600,000 in additional
construction costs to complete this new facility during fiscal 1995.
As of December 31, 1994 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") has 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 comput-
erized security systems. The Company is defending the action and
has brought its own action and counterclaims involving the infrin-
gement by C&K of NAPCO patents. NAPCO believes that it has a com-
plete defense to such action against the Company and that the prob-
ability of an unfavorable outcome is remote. Such action against
the Company relates to certain products representing less than
seven (7%) percent and two (2%) percent of sales for the years
ended June 30, 1994 and 1993, respectively.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) An annual meeting of the stockholders of the Company (the
"Annual Meeting") was held on November 23, 1994.
(b) The names of the directors elected at the Annual Meeting are:
Richard Soloway, Kenneth Rosenberg, Randy B. Blaustein and
Ben Z. Kedem.
(c) A stockholder proposal to expand the Board of Directors from
four (4) directors to six (6) directors, three (3) of which
would be independent, was not passed.
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 December 31, 1994.
-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.
February 10, 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
-----------------
Exhibits PAGE
- - - -------- ------
11 Computation of Earnings Per Share E-1
27 Financial Data Schedule
-14-
<PAGE> 1
Exhibit (11)
NAPCO SECURITY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------
1994 1993
---------- ----------
(in thousands, except per
share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,367
Add: Common Stock Equivalents 59 35
------ ------
Weighted Average Shares Outstanding 4,427 4,402
====== ======
Net Income $ 403 $ 857
====== ======
Earnings Per Share $ 0.09 $ 0.19
====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------
1994 1993
---------- ----------
(in thousands, except per
share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,367
Add: Common Stock Equivalents 61 35
------ ------
Weighted Average Shares Outstanding 4,429 4,402
====== ======
Net Income $ 197 $ 586
====== ======
Earnings Per Share $ 0.04 $ 0.13
====== ======
</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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 108
<SECURITIES> 0
<RECEIVABLES> 13,500
<ALLOWANCES> 410
<INVENTORY> 26,968
<CURRENT-ASSETS> 41,092
<PP&E> 19,166
<DEPRECIATION> 7,444
<TOTAL-ASSETS> 56,128
<CURRENT-LIABILITIES> 12,705
<BONDS> 0
<COMMON> 59
0
0
<OTHER-SE> 28,392
<TOTAL-LIABILITY-AND-EQUITY> 56,128
<SALES> 23,214
<TOTAL-REVENUES> 23,214
<CGS> 17,619
<TOTAL-COSTS> 17,619
<OTHER-EXPENSES> 4,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 664
<INCOME-PRETAX> 486
<INCOME-TAX> 83
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
