<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: SEPTEMBER 30, 1996 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.
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(Exact name of Registrant as specified in its charter)
DELAWARE 11-2277818
- --------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
333 Bayview Avenue
Amityville, New York 11701
- --------------------------------- --------------------------
(Zip Code)
(516) 842-9400
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(Registrant's telephone number including area code)
NONE
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(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 and Exchange Act
of 1934 during the preceding 12 months (or 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: SEPTEMBER 30, 1996
COMMON STOCK, $.01 PAR VALUE PER SHARE 4,367,727
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I: FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
September 30, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Income for the Three Months ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Three Months ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II: OTHER INFORMATION 10
SIGNATURE PAGE 11
INDEX TO EXHIBITS 12
Computation of Earnings Per Share E-1
</TABLE>
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<PAGE> 3
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1996 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 309 $ 426
Accounts receivable, less allowance for doubtful accounts:
September 30, 1996 $ 897,000
June 30, 1996 $ 864,000 12,918 13,759
Inventories, net (Note 2) 25,469 25,944
Prepaid expenses and other current assets 601 489
Deferred income taxes, net 911 911
-------- --------
Total current assets 40,208 41,529
Property, Plant and Equipment, net of accumulated depreciation
and amortization (Note 3):
September 30, 1996 $ 9,438,000
June 30, 1996 $ 9,137,000 12,401 12,549
Excess of Cost Over Fair Value of Assets Acquired, net 2,779 2,806
Other Assets 239 435
-------- --------
$ 55,627 $ 57,319
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,188 $ 1,500
Accounts payable 5,516 5,986
Accrued and other current liabilities 1,071 2,216
Accrued taxes 3,301 3,151
-------- --------
Total current liabilities 12,076 12,853
Long-Term Debt 12,862 14,150
Deferred Income Taxes 742 742
-------- --------
Total liabilities 25,680 27,745
Stockholders' Equity:
Common stock: par value $.01 per share; 21,000,000 shares
authorized, 5,896,602 shares issued 59 59
Additional paid-in capital 719 719
Retained earnings 29,170 28,797
Less: Treasury stock, at cost (1,528,875 shares) (1) (1)
-------- --------
Total stockholders' equity 29,947 29,574
-------- --------
$ 55,627 $ 57,319
======== ========
</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>
Three Months Ended
September 30,
---------------------------
1996 1995
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(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 12,156 $ 11,769
Cost of Sales 9,021 8,797
---------- ----------
Gross Profit 3,135 2,972
Selling, General and Administrative Expenses 2,282 2,031
---------- ----------
Operating income 853 941
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Interest Expense, net 282 354
Other Expense, net 45 40
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327 394
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Income before provision for income taxes 526 547
Provision for Income Taxes 153 209
---------- ----------
Net income $ 373 $ 338
========== ==========
Earnings Per Share $ 0.09 $ 0.08
========== ==========
Weighted Average Number of Shares Outstanding 4,375,014 4,402,727
========== ==========
</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 CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1996 1995
-------- -------
(in thousands)
<S> <C> <C>
Net Cash Provided by Operating Activities $ 636 $ 1,892
----- -------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (153) (349)
----- -------
Net cash used in investing activities (153) (349)
----- -------
Cash Flows from Financing Activities:
Principal payments on long-term debt (600) (305)
----- -------
Net cash used in financing activities (600) (305)
----- -------
Net Increase (Decrease) in Cash and Cash Equivalents (117) 1,238
Cash and Cash Equivalents at Beginning of Period 426 368
----- -------
Cash and Cash Equivalents at End of Period $ 309 $ 1,606
===== =======
Cash Paid During the Period for:
Interest $ 284 $ 361
===== =======
Income taxes $ 9 $ 21
===== =======
</TABLE>
See accompanying notes to Condensed consolidated Financial Statements.
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<PAGE> 6
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 months ended September 30, 1996 and
1995 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.) Inventories
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<TABLE>
<CAPTION>
Inventories consist of: September 30, June 30,
1996 1996
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<S> <C> <C>
Component parts $17,580 $17,908
Work-in-process 4,368 4,449
Finished products 3,521 3,587
======= =======
$25,469 $25,944
======= =======
<CAPTION>
3.) Property, Plant and Equipment
----------------------------------------------------------------
Property, Plant and Equipment consists of: September 30, June 30,
1996 1996
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<S> <C> <C>
Land $ 904 $ 904
Building 8,852 8,807
Molds and dies 2,362 2,339
Furniture and fixtures 958 942
Machinery and equipment 8,337 8,268
Building improvements 426 426
------- -------
21,839 21,686
Less: Accumulated depreciation and amortization 9,438 9,137
======= =======
$12,401 $12,549
======= =======
</TABLE>
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<PAGE> 7
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.) The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", effective
July 1, 1993. SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the estimated future tax effects of events
that have been recognized in the Company's financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse.
In August 1995, the Internal Revenue Service ("IRS") informed the
Company that it is proposing adjustments to the Company's Federal tax
returns for fiscal years 1987 through 1992. The IRS has issued a report
to the Company that the proposed adjustments would result in taxes due
of approximately $4.3 million excluding interest charges. The primary
adjustments presented by the IRS relate to intercompany pricing and
royalty charges, DISC earnings and charitable contributions. The
Company disagrees with the IRS and intends to vigorously appeal this
assessment using all remedies and procedural actions available under
the law. In October 1996, the Company gave the IRS additional
information supporting its position. As a result, the Appeals Division
of the IRS has advised the Company that the case will be returned to
the Audit Division for further consideration. The Company believes that
it has provided adequate reserves at September 30, 1996 to address the
ultimate resolution of this matter, so that it will not have a material
adverse effect on the Company's consolidated financial statements.
-7-
<PAGE> 8
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Sales for the three months ended September 30, 1996 increased by 3% to
$12,156,000 as compared to $11,769,000 for the same period a year ago. This
increase is primarily attributable to the introduction of several new products
during the fiscal quarter.
The Company's gross profit for the three months ended September 30, 1996
increased 5% to $3,135,000 or 25.8% of sales as compared to $2,972,000 or 25.3%
of sales for the same period a year ago. The Company's increases in both gross
profit and gross profit percentage are primarily attributable to cost savings
being generated by the Company's offshore facility in the Dominican Republic.
These savings are a direct result of improved production efficiencies resulting
from its manufacturing operations now being under one roof.
Selling, general and administrative expenses for the three months ended
September 30, 1996 increased by 12.4% to $2,282,000 as compared to $2,031,000 a
year ago. This increase is primarily the result of increased sales and marketing
efforts related to the Company's introduction of several new product during the
fiscal quarter.
Interest and other expense for the three months ended September 30, 1996
decreased by 17% to $327,000 from $394,000 for the same period in fiscal 1996.
This decrease is primarily the result of a reduction of approximately $2,000,000
in the Company's average outstanding debt as compared to the same period in
fiscal 1996.
The effective income tax rate for the three months ended September 30, 1996 was
29.1% as compared to 38.2% for the comparable quarter in fiscal 1996. This
decrease is primarily the result of lower levels of permanent non-deductible
expenses along with lower reserve requirements.
Net income increased to $373,000 or $.09 per share for the three months ended
September 30, 1996 from $338,000 or $.08 per share for the same period a year
ago. This increase is primarily the result of the items discussed above.
-8-
<PAGE> 9
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 three months ended September 30, 1996 the Company utilized a large
portion of its cash generated from operations to make principal payments on its
debt.
Accounts Receivable at September 30, 1996 decreased by $841,000 to $12,918,000
as compared to $13,759,000 at June 30, 1996. This decrease is primarily the
result of the higher sales volume during the quarter ended June 30, 1996 as
compared to the quarter ended September 30, 1996.
Inventory at September 30, 1996 was $25,469,000, decreasing by $475,000 from
$25,944,000 at June 30, 1996. This decrease is predominantly the result of the
Company's initial shipments of its recently introduced products.
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
September 30, 1996 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 amended its existing revolving
credit and term loan facility to provide for an additional $2,000,000 secured
line of credit. The balance under this line was fully paid in October 1995.
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 in the Dominican Republic, at an
annual cost of approximately $272,000. The foreign subsidiary relocated its
operations to this site at the end of fiscal 1995.
As of September 30, 1996 the Company had no material committments for capital
expenditures.
-9-
<PAGE> 10
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:
In August 1995, the Internal Revenue Service ("IRS") informed the
Company that it is proposing adjustments to the Company's Federal
tax returns for fiscal years 1987 through 1992. The IRS has issued a
report to the Company that the proposed adjustments would result in
taxes due of approximately $4.3 million excluding interest charges.
The primary adjustments presented by the IRS relate to intercompany
pricing and royalty charges, DISC earnings and charitable
contributions. The Company disagrees with the IRS and intends to
vigorously appeal this assessment using all remedies and procedural
actions available under the law. In October 1996, the Company gave
the IRS additional information supporting its position. As a
result, the Appeals Division of the IRS has advised the Company that
the case will be returned to the Audit Division for further
consideration. The Company believes that it has provided adequate
reserves at September 30, 1996 to address the ultimate resolution of
this matter, so that it will not have a material adverse effect on
the Company's consolidated financial statements.
Item 2. Changes in Securities
On October 24, 1996 the Company registered the 814,733 shares and
related options under its 1992 Incentive Stock Option Plan, as
amended, on Form S-8 with the Securities and Exchange Commission.
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 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 September 30, 1996.
-10-
<PAGE> 11
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.
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
November 15, 1996
By: /s/ Richard Soloway By: /s/ Kenneth Rosenberg
----------------------------------- ---------------------------------
Richard Soloway Kenneth Rosenberg
Chairman of the Board of Directors President and Treasurer
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)
-11-
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Page
- -------- ----
<C> <C>
11 Computation of Earnings Per Share E-1
27 Financial Data Schedule
</TABLE>
-12-
<PAGE> 1
Exhibit (11)
NAPCO SECURITY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1996 1995
--------- ---------
(in thousands, except per share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,368
Add: Common Stock Equivalents 7 59
------ ------
Weighted Average Shares Outstanding 4,375 4,427
====== ======
Net Income $ 373 $ 338
====== ======
Earnings Per Share $ 0.09 $ 0.08
====== ======
</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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 12,918
<ALLOWANCES> 897
<INVENTORY> 25,469
<CURRENT-ASSETS> 40,208
<PP&E> 21,839
<DEPRECIATION> 9,438
<TOTAL-ASSETS> 55,627
<CURRENT-LIABILITIES> 12,076
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 29,888
<TOTAL-LIABILITY-AND-EQUITY> 55,627
<SALES> 12,156
<TOTAL-REVENUES> 12,156
<CGS> 9,021
<TOTAL-COSTS> 9,021
<OTHER-EXPENSES> 2,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282
<INCOME-PRETAX> 526
<INCOME-TAX> 153
<INCOME-CONTINUING> 373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
