<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, 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.
---------------------------------------------------------
(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
-----------------------------------------------------
(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 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: MARCH 31, 1996
COMMON STOCK, $.01 PAR VALUE PER SHARE 4,367,727
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
MARCH 31, 1996
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I: FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
March 31, 1996 and June 30, 1995 3
Condensed Consolidated Statements of Income for the Nine
Months Ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
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>
-2-
<PAGE> 3
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1996 1995
------ ------------- ------------
(in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 167 $ 368
Accounts receivable, less allowance for doubtful accounts:
March 31, 1996 $617,000
June 30, 1995 $662,000 12,612 13,647
Inventories, net (Note 2) 25,546 24,178
Prepaid expenses and other current assets 368 445
Deferred income taxes, net 1,278 1,278
------------ ------------
Total current assets 39,971 39,916
Property, Plant and Equipment, net of accumulated depreciation
and amortization (Note 3):
March 31, 1996 $8,914,000
June 30, 1995 $8,013,000 12,522 12,503
Excess of Cost Over Fair Value of Assets Acquired, net 2,833 2,913
Deferred Financing Costs, net 58 70
Other Assets 199 337
------------ ------------
$ 55,583 $ 55,739
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 1,275 $ 2,182
Notes payable to bank 0 500
Accounts payable 5,118 4,001
Accrued and other current liabilities 1,144 1,365
Accrued taxes 3,578 3,208
------------ ------------
Total current liabilities 11,115 11,256
Long-Term Debt 14,525 15,275
Deferred Income Taxes 648 648
Total liabilities 26,288 27,179
------------ ------------
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 28,518 27,783
Less: Treasury stock, at cost (1,528,875 shares) (1) (1)
------------ ------------
Total stockholders' equity 29,295 28,560
------------ ------------
$ 55,583 $ 55,739
============ ============
</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,
-------------------------------------
1996 1995
---------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 35,360 $ 34,375
Cost of Sales 26,511 26,066
---------------- ----------------
Gross Profit 8,849 8,309
Selling, General and Administrative Expenses 6,539 7,128
---------------- ----------------
Operating income 2,310 1,181
---------------- ----------------
Interest Expense, net 938 947
Other Expense, net 137 93
---------------- ----------------
1,075 1,040
---------------- ----------------
Income before provision for income taxes 1,235 141
Provision for Income Taxes 500 33
---------------- ----------------
Net income $ 735 $ 108
================ ================
Earnings Per Share $ 0.17 $ 0.02
================ ================
Weighted Average Number of Shares Outstanding 4,386,960 4,427,478
================ ================
</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,
--------------------------------------
1996 1995
---------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 12,084 $ 11,161
Cost of Sales 9,126 8,447
---------------- -----------------
Gross Profit 2,958 2,714
Selling, General and Administrative Expenses 2,385 2,683
---------------- -----------------
Operating income 573 31
---------------- -----------------
Interest Expense, net 355 365
Other Expense, net 34 11
---------------- -----------------
389 376
---------------- -----------------
Income (loss) before provision for (recovery of)
income taxes 184 (345)
Provision for (recovery of) Income Taxes 75 (50)
---------------- -----------------
Net income (loss) $ 109 $ (295)
================ =================
Earnings (Loss) Per Share $ 0.02 $ (0.07)
================ =================
Weighted Average Number of Shares Outstanding 4,392,103 4,424,190
================ =================
</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,
------------------------------------
1996 1995
--------------- ----------------
(in thousands)
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities $ 2,876 $ (952)
--------------- ----------------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (920) (1,982)
--------------- ----------------
Net cash used in investing activities (920) (1,982)
--------------- ----------------
Cash Flows from Financing Activities:
Principle payments on short-term debt (500) -
Proceeds from long-term debt borrowings - 2,668
Principle payments on long-term debt (1,657) (961)
--------------- ----------------
Net cash provided by (used in) financing activities (2,157) 1,707
--------------- ----------------
Net Decrease in Cash and Cash Equivalents (201) (1,227)
Cash and Cash Equivalents at Beginning of Period 368 1,335
--------------- ----------------
Cash and Cash Equivalents at End of Period $ 167 $ 108
=============== ================
Cash Paid During the Period for:
Interest $ 952 $ 568
=============== ================
Income taxes $ 129 $ 60
=============== ================
</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, 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
<TABLE>
<CAPTION>
Inventories consist of: March 31, June 30,
1996 1995
---------------- --------------
<S> <C> <C>
Component parts $ 10,555 $ 9,706
Work-in-process 7,009 6,539
Finished products 7,982 7,933
---------------- --------------
$ 25,546 $ 24,178
================ ==============
</TABLE>
3.) Property, Plant and Equipment
<TABLE>
<CAPTION>
Property, Plant and Equipment consists of: March 31, June 30,
1996 1995
---------------- --------------
<S> <C> <C>
Land $ 904 $ 904
Building 8,781 8,595
Molds and dies 2,235 1,971
Furniture and fixtures 1,029 1,005
Machinery and equipment 8,061 7,633
Building improvements 426 408
---------------- --------------
21,436 20,516
Less: Accumulated depreciation and amortization 8,914 8,013
---------------- --------------
$ 12,522 $ 12,503
================ ==============
</TABLE>
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 had completed the audit of the Company's Federal tax returns for
fiscal years 1987 through 1992. The IRS has issued a report to the
Company proposing adjustments that 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 assess- ment
using all remedies and procedural actions available under the law. The
Company believes that it has provided adequate reserves at March 31, 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 nine months ended March 31, 1996 increased approximately 3% to
$35,360,000 as compared to $34,375,000 for the same period a year ago. For the
three months ended March 31, 1996 sales increased 8% to 12,084,000 from
$11,161,000 a year ago. This increase is primarily attributable to the
delivery of orders from the prior quarter which were held up at that time due
to a delay in delivery of a component critical to the manufacturing process of
one of the Company's primary products. The backlog due to this delay has since
been completely filled.
The Company's gross profit margin for the nine months ended March 31, 1996
increased 6% to $8,849,000 or 25.0% of sales as compared to $8,309,000 or 24.2%
of sales for the same period a year ago. For the three months ended March 31,
1996, gross profit increased by 9% to $2,958,000 or 24.5% of sales as compared
to $2,714,000 or 24.3% of sales for the same period a year ago. These 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 nine months ended March
31, 1996 decreased by 8% to $6,539,000 as compared to $7,128,000 a year ago.
For the three months ended March 31, 1996, selling, general and administrative
expenses decreased by 11% to $2,385,000 from $2,683,000 last year. These
decreases are due to the Company's continuing efforts towards cost containment.
Interest and other expense for the nine months ended March 31, 1996 remained
relatively flat at $1,075,000 as compared to $1,040,000 for the same period a
year ago. For the three months ended March 31, 1996, interest and other
expenses remained relatively constant at $389,000 as compared to $376,000 for
the same period in fiscal 1995.
Provision for income taxes increased $467,000 to $500,000 for the nine months
ended March 31, 1996 as compared to $33,000 a year ago. For the three months
ended March 31, 1996 the provision for income taxes increased by $125,000 to
$75,000 as compared to a recovery of $50,000 for the same period a year ago.
These increases reflect the relative increase in taxable income of the
Company's domestic operations in comparison to its foreign subsidiary.
Net income increased by $627,000 to $735,000 or $.17 per share for the nine
months ended March 31, 1996 from $108,000 or $.02 per share for the same period
a year ago. For the three months ended March 31, 1996 net income increased by
$404,000 to $109,000 or $.02 per share as compared to a loss of $295,000 or
$.07 per share for the same quarter 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 nine months ended March 31, 1996 the Company utilized its
cash generated from operations to make principle payments on its debt as well
as to purchase property, plant, and equipment. The utilization of these
resources as well as certain existing resources resulted in a decrease in
cash and cash equivalents to $167,000 at March 31, 1996 from $368,000 as of
June 30, 1995.
Accounts Receivable at March 31, 1996 decreased by $1,035,000 to $12,612,000 as
compared to $13,647,000 at June 30, 1995. This decrease is primarily the
result of the higher sales volume during the quarter ended June 30, 1995 as
compared to the quarter ended March 31, 1996 as well as improved collection
procedures.
Inventory at March 31, 1996 was $25,546,000, increasing by $1,368,000 from
$24,178,000 at June 30, 1995. This increase is predominantly the result of the
Company's build-up of resources in preparation for production of several new
product lines including new products relating to a large sales contract
received at the end of the quarter.
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, 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. All borrowings arising from this additional
line have been repaid in full as of the expiration date of April 1, 1996. As
of March 31, 1996 there were no outstanding borrowings under this line.
Subsequent to the expiration of this $2,000,000 secured line of credit, the
Company negotiated a new $2,000,000 secured line of credit with its primary
bank which expires on November 30, 1996. To date there are no outstanding
borrowings under this new facility.
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 March 31, 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 had completed the audit of the Company's Federal
tax returns for fiscal years 1987 through 1992. The IRS has issued a
report to the Company proposing adjustments that would result in taxes
due af 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. The Company believes that it has provided adequate reserves
at March 31, 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
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 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, 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.
May 13, 1996
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
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
- - -------- --------
<S> <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>
Nine Months Ended
March 31,
-------------------------------------
1996 1995
---------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,368
Add: Common Stock Equivalents 19 59
---------------- ----------------
Weighted Average Shares Outstanding 4,387 4,427
================ ================
Net Income $ 735 $ 108
================ ================
Earnings Per Share $ 0.17 $ 0.02
================ ================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1996 1995
---------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,368
Add: Common Stock Equivalents 24 56
---------------- ----------------
Weighted Average Shares Outstanding 4,392 4,424
================ ================
Net Income (Loss) $ 109 $ (295)
================ ================
Earnings (Loss) Per Share $ 0.02 $ (0.07)
================ ================
</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-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 167
<SECURITIES> 0
<RECEIVABLES> 12,612
<ALLOWANCES> 617
<INVENTORY> 25,546
<CURRENT-ASSETS> 39,971
<PP&E> 21,436
<DEPRECIATION> 914
<TOTAL-ASSETS> 55,583
<CURRENT-LIABILITIES> 11,115
<BONDS> 0
59
0
<COMMON> 0
<OTHER-SE> 29,295
<TOTAL-LIABILITY-AND-EQUITY> 55,583
<SALES> 35,360
<TOTAL-REVENUES> 35,360
<CGS> 26,511
<TOTAL-COSTS> 26,511
<OTHER-EXPENSES> 6,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938
<INCOME-PRETAX> 1,235
<INCOME-TAX> 500
<INCOME-CONTINUING> 735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 735
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
