<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, 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 11701
Amityville, New York (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: December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
COMMON STOCK, $.01 PAR VALUE PER SHARE 4,367,727
</TABLE>
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
December 31, 1996
Page
----
PART I: FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
December 31, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Income for the Six
Months Ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1996 and 1995 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 12
INDEX TO EXHIBITS 13
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 1996 1996
--------- ----------
(in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 878 $ 426
Accounts receivable, less allowance for doubtful accounts:
December 31, 1996 $ 582,000
June 30, 1996 $ 662,000 12,124 13,759
Inventories, net (Note 2) 25,619 25,944
Prepaid expenses and other current assets 709 489
Deferred income taxes, net 911 911
--------- ----------
Total current assets 40,241 41,529
Property, Plant and Equipment, net of accumulated depreciation
and amortization (Note 3):
December 31, 1996 $ 9,743,000
June 30, 1996 $ 9,137,000 12,320 12,549
Excess of Cost Over Fair Value of Assets Acquired, net 2,753 2,806
Other Assets 229 435
========= ==========
$ 55,543 $ 57,319
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,575 $ 1,500
Accounts payable 5,017 5,986
Accrued and other current liabilities 1,091 2,216
Accrued taxes 3,463 3,151
--------- ----------
Total current liabilities 12,146 12,853
Long-Term Debt 12,175 14,150
Deferred Income Taxes 742 742
--------- ----------
Total liabilities 25,063 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 29,703 28,797
Less: Treasury stock, at cost (1,528,875 shares) (1) (1)
--------- ----------
Total stockholders' equity 30,480 29,574
========= ==========
$ 55,543 $ 57,319
========= ==========
</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>
Six Months Ended
December 31,
---------------------------
1996 1995
---------- ----------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 24,484 $ 23,276
Cost of Sales 18,193 17,385
---------- ----------
Gross Profit 6,291 5,891
Selling, General and Administrative Expenses 4,386 4,154
---------- ----------
Operating income 1,905 1,737
---------- ----------
Interest Expense, net 558 583
Other Expense, net 118 103
---------- ----------
676 686
---------- ----------
Income before provision for income taxes 1,229 1,051
Provision for Income Taxes 323 425
---------- ----------
Net income $ 906 $ 626
========== ==========
Earnings Per Share $ 0.21 $ 0.14
========== ==========
Weighted Average Number of Shares Outstanding 4,377,489 4,390,646
========== ==========
</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
December 31,
---------------------------
1996 1995
---------- ----------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 12,328 $ 11,507
Cost of Sales 9,172 8,588
---------- ----------
Gross Profit 3,156 2,919
Selling, General and Administrative Expenses 2,104 2,123
---------- ----------
Operating income 1,052 796
---------- ----------
Interest Expense, net 276 229
Other Expense, net 73 63
---------- ----------
349 292
---------- ----------
Income before provision for income taxes 703 504
Provision for Income Taxes 170 216
---------- ----------
Net income $ 533 $ 288
========== ==========
Earnings Per Share $ 0.12 $ 0.07
========== ==========
Weighted Average Number of Shares Outstanding 4,377,379 4,375,136
========== ==========
</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,
----------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Net Cash Provided by Operating Activities $ 1,729 $ 3,212
------- -------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (377) (516)
------- -------
Net cash used in investing activities (377) (516)
------- -------
Cash Flows from Financing Activities:
Principal payments on short-term debt -- (500)
Proceeds from long-term debt borrowings -- --
Principal payments on long-term debt (900) (1,512)
------- -------
Net cash used in financing activities (900) (2,012)
------- -------
Net Increase in Cash and Cash Equivalents 452 684
Cash and Cash Equivalents at Beginning of Period 426 368
------- -------
Cash and Cash Equivalents at End of Period $ 878 $ 1,052
======= =======
Cash Paid During the Period for:
Interest $ 563 $ 640
======= =======
Income taxes $ 17 $ 137
======= =======
</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 six months ended December 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
Inventories consist of:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ --------
<S> <C> <C>
Component parts $17,684 $17,908
Work-in-progress 4,393 4,449
Finished products 3,542 3,587
------- -------
$25,619 $25,944
======= =======
</TABLE>
3.) Property, Plant and Equipment
Property, Plant and Equipment consists of:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ --------
<S> <C> <C>
Land $ 904 $ 904
Building 8,882 8,807
Molds and dies 2,426 2,339
Furniture and fixtures 965 942
Machinery and equipment 8,460 8,268
Building improvements 426 426
------- -------
22,063 21,686
Less: Accumulated depreciation and amortization 9,743 9,137
======= =======
$12,320 $12,549
======= =======
</TABLE>
-7-
<PAGE> 8
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 Appeals division
additional information supporting its position. 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.
-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 six months ended December 31, 1996 increased 5% to $24,484,000 as
compared to $23,276,000 for the same period a year ago. For the three months
ended December 31, 1996 sales increased 7% to $12,328,000 from $11,507,000 a
year ago. These increases were primarily due to the introduction of new products
and increased availability of finished goods due to improvements in production
efficiency.
The Company's gross profit margin for the six months ended December 31, 1996
increased 7% to $6,291,000 or 25.7% of sales as compared to $5,891,000 or 25.3%
of sales for the same period a year ago.
For the three months ended December 31, 1996, gross profit increased 8% to
$3,156,000 as compared to $2,919,000 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 six months ended December
31, 1996 increased by 6% to $4,386,000 as compared to $4,154,000 a year ago. For
the three months ended December 31, 1996, selling, general and administrative
expenses remained relatively constant at $2,104,000 from $2,123,000 last year.
The increase for the six month period was the result of increased sales and
marketing efforts relating to the Company's recently introduced new products.
Interest and other expense for the six months ended December 31, 1996 decreased
to $558,000 from $583,000 for the same period a year ago. This decrease is due
to the continuing decrease in the Company's average outstanding debt as compared
to the same period a year ago.
The effective income tax rate for the six months ended December 31, 1996 was
26.3% as compared to 40.4% for the same period a year ago. The effective income
tax rate for the three months ended December 31, 1996 was 24.2% as compared to
42.9% for the comparable quarter a year ago. This decrease is primarily the
result of lower levels of permanent non-deductible expenses along with lower
reserve requirements.
Net income increased by 45% to $906,000 or $.21 per share for the six months
ended December 31, 1996 from $626,000 or $.14 per share for the same period a
year ago. For the three months ended December 31, 1996 net income increased by
85% to $533,000 or $.12 per share as compared to $288,000 or $.07 per share for
the same quarter a year ago. This increase is primarily the result of 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, 1996 the Company utilized a large
portion of its cash generated from operations to make principal payments on its
debt as well as to purchase property, and equipment. The remaining cash provided
by operations resulted in an increase in cash and cash equivalents to $878,000
at December 31, 1996 from $426,000 as of June 30, 1996.
Accounts receivable at December 31, 1996 decreased by $1,635,000 to $12,124,000
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 December 31, 1996 as well as improved collection
procedures.
Inventory at December 31, 1996 was $25,619,000, decreasing by $325,000 from
$25,944,000 at June 30, 1995. This decrease is predominantly the result of the
completion of the Company's move into its new production facility in the
Dominican Republic as partially offset by increased production to support the
introduction of several new 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
December 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. 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 December 31, 1996 the Company had no material commitments for capital
expenditures.
-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:
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 Appeals division
additional information supporting its position. The Company believes
that it has provided adequate reserves at December 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
(a) An annual meeting of the stockholders of the Company (the "Annual
Meeting") was held on November 21, 1996.
(b) The names of the directors elected at the Annual Meeting are: Richard
Soloway, Kenneth Rosenberg, Randy B. Blaustein, and Andrew J. Wilder.
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 December 31, 1996.
-11-
<PAGE> 12
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 13, 1997
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)
-12-
<PAGE> 13
INDEX TO EXHIBITS
Exhibits Page
- -------- ----
11 Computation of Earnings Per Share E-1
22 Financial Data Schedule
-13-
<PAGE> 1
EXHIBIT (11)
NAPCO SECURITY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1996 1995
------ ------
(in thousands, except per share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,368
Add: Common Stock Equivalents 10 23
------ ------
Weighted Average Shares Outstanding 4,377 4,391
====== ======
Net Income $ 906 $ 626
====== ======
Earnings Per Share $ 0.21 $ 0.14
====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1996 1995
------ ------
(in thousands, except per share data)
<S> <C> <C>
Average Shares Outstanding 4,368 4,368
Add: Common Stock Equivalents 10 7
------ ------
Weighted Average Shares Outstanding 4,377 4,375
====== ======
Net Income $ 533 $ 288
====== ======
Earnings Per Share $ 0.12 $ 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 878
<SECURITIES> 0
<RECEIVABLES> 12,124
<ALLOWANCES> 582
<INVENTORY> 25,619
<CURRENT-ASSETS> 40,211
<PP&E> 12,320
<DEPRECIATION> 9,743
<TOTAL-ASSETS> 55,543
<CURRENT-LIABILITIES> 12,146
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 30,421
<TOTAL-LIABILITY-AND-EQUITY> 55,543
<SALES> 24,484
<TOTAL-REVENUES> 24,484
<CGS> 18,193
<TOTAL-COSTS> 1,905
<OTHER-EXPENSES> 118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 558
<INCOME-PRETAX> 1,229
<INCOME-TAX> 323
<INCOME-CONTINUING> 906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 906
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
