<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
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 (I.R.S. Employer I.D. Number)
incorporation or organization)
</TABLE>
333 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(631) 842-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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 [ ]
As of September 15, 2000, 3,498,901 shares of Common Stock were
outstanding, and the aggregate market value of the stock (based upon the last
sale price of the stock on such date) held by non-affiliates was approximately
$13,558,241.
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement in connection with its 2000 Annual Meeting of Stockholders are
incorporated by reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE> 2
PART I
ITEM 1. BUSINESS.
NAPCO Security Systems, Inc. ("NAPCO") was incorporated in December 1971
in the State of Delaware for the purpose of acquiring National Alarm Products
Co., Inc., a New Jersey corporation founded in 1969 ("National"). In December
1971, NAPCO issued an aggregate of 300,000 shares of its common stock, par value
$.01 per share ("Common Stock"), to the stockholders of National in exchange for
all of the issued and outstanding capital stock of National, after which
National was merged into NAPCO.
NAPCO and its subsidiaries (collectively, the "Company") are engaged in
the development, manufacture, distribution and sale of security alarm products
and door security devices (the "Products") for commercial and residential
installations.
Products
Alarm Systems. Alarm systems usually consist of various detectors, a
control panel, a digital keypad and signaling equipment. When a break-in occurs,
an intrusion detector senses the intrusion and activates a control panel via
hard-wired or wireless transmission that sets off the signaling equipment and,
in most cases, causes a bell or siren to sound. Communication equipment such as
a digital communicator may be used to transmit the alarm signal to a central
station or another person selected by a customer.
The Company manufactures and markets the following products for alarm
systems:
Automatic Communicators. When a control panel is activated by a signal
from an intrusion detector, it activates a communicator that can automatically
dial one or more pre-designated telephone numbers. If programmed to do so, a
digital communicator dials the telephone number of a central monitoring station
and communicates in computer language to a digital communicator receiver, which
prints out an alarm message.
Control Panels. A control panel is the "brain" of an alarm system. When
activated by any one of the various types of intrusion detectors, it can
activate an audible alarm and/or various types of communication devices. For
marketing purposes, the Company refers to its control panels by the trade name,
generally "Magnum AlertTM" followed by a numerical designation.
Combination Control Panels/Digital Communicators and Digital Keypad
Systems. A combination control panel, digital communicator and a digital keypad
(a plate with push button numbers as on a telephone, which eliminates the need
for mechanical keys) has continued to grow rapidly in terms of dealer and
consumer preference. Benefits of the combination format include the cost
efficiency resulting from a single microcomputer function, as well as the
reliability and ease of installation gained from the simplicity and
sophistication of micro-computer technology.
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Door Security Devices. The Company manufactures a variety of exit alarm
locks ranging from simple dead bolt locks to door alarms.
Fire Alarm Control Panel. Multi-zone fire alarm control panels, which
accommodate an optional digital communicator for reporting to a central station,
are also manufactured by the Company.
Area Detectors. The Company's area detectors are both passive infrared
heat detectors and combination microwave/passive infrared detectors that are
linked to alarm control panels. Passive infrared heat detectors respond to the
change in heat patterns caused by an intruder moving within a protected area.
Combination units respond to both changes in heat patterns and changes in
microwave patterns occurring at the same time.
Peripheral Equipment
The Company also markets peripheral and related equipment manufactured by
other companies. Revenues from peripheral equipment have not been significant.
Research and Development
The Company's business involves a high technology element. A substantial
amount of the Company's efforts are expended to develop and improve the
Products. During the fiscal years ended June 30, 2000, 1999, and 1998, the
Company expended approximately $4,234,000, $4,008,000, and $3,817,000,
respectively, on Company-sponsored research and development activities conducted
by its engineering department and outside consultants. Substantially all of the
Company's research and development activities during fiscal 2000, 1999, and 1998
were conducted by its engineering department. The Company intends to continue to
conduct a significant portion of its future research and development activities
internally.
Employees
As of June 30, 2000, the Company had approximately 900 full-time
employees.
Marketing and Major Customers
The Company's staff of 42 sales and marketing support employees located
at the Company's headquarters sells and markets the Products directly to
independent distributors and wholesalers of security alarm and security hardware
equipment. Management estimates that these channels of distribution represented
approximately 90% of the Company's total sales for the fiscal year ended June
30, 2000. The Company's sales representatives periodically contact existing and
potential customers to introduce new products and create demand for those as
well as other Company Products. These sales representatives, together with the
Company's technical personnel, provide training and other services to
wholesalers and distributors so that they can better service the needs of their
customers. In addition to direct sales efforts, the Company advertises in
technical trade publications and participates in trade shows in major
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United States cities. Some of the Company's products are marketed under the
"private label" of certain customers.
Sales to one customer unaffiliated with the Company accounted for
approximately 27%, 27% and 23% of the Company's total sales for the fiscal years
ended June 30, 2000, 1999, and 1998, respectively (see Note 9 to Consolidated
Financial Statements). The loss of this customer could have a material adverse
effect on the Company's business.
Competition
The security alarm products industry is highly competitive. The Company's
primary competitors are comprised of approximately 25 other companies that
manufacture and market security equipment to distributors, dealers, central
stations and original equipment manufacturers. The Company believes that no one
of these competitors is dominant in the industry. Certain of these companies may
have substantially greater financial and other resources than the Company.
The Company competes primarily on the basis of the features, quality,
reliability and price of, and the incorporation of the latest innovative and
technological advances into, its Products. The Company also competes by offering
technical support services to its customers. In addition, the Company competes
on the basis of its expertise, its proven products, reputation and its ability
to provide Products to customers without delay. The inability of the Company to
compete with respect to any one or more of the aforementioned factors could have
an adverse impact on the Company's business. Relatively low-priced
"do-it-yourself" alarm system products have become available in recent years and
are available to the public at retail stores. The Company believes that these
products compete with the Company only to a limited extent because they appeal
primarily to the "do-it-yourself" segment of the market. Purchasers of such
systems do not receive professional consultation, installation, service or the
sophistication that the Company's Products provide.
Raw Materials and Sales Backlog
The Company prepares specifications for component parts used in the
Products and purchases the components from outside sources or fabricates the
components itself. These components, if standard, are generally readily
available; if specially designed for the Company, there is usually more than one
alternative source of supply available to the Company on a competitive basis.
The Company generally maintains inventories of all critical components. The
Company for the most part is not dependent on any one source for its raw
materials.
In general, orders for the Products are processed by the Company from
inventory. A sales backlog of approximately $665,000 existed as of June 30,
2000. This compared to a sales backlog of approximately $918,500 a year ago.
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Government Regulation
The Company's telephone dialers, microwave transmitting devices utilized
in its motion detectors and any new communication equipment that may be
introduced from time to time by the Company must comply with standards
promulgated by the Federal Communications Commission ("FCC") in the United
States and similar agencies in other countries where the Company offers such
products, specifying permitted frequency bands of operation, permitted power
output and periods of operation, as well as compatibility with telephone lines.
Each new Product of the Company that is subject to such regulation must be
tested for compliance with FCC standards or the standards of such similar
governmental agencies. Test reports are submitted to the FCC or such similar
agencies for approval.
Patents and Trademarks
The Company has been granted several patents and trademarks relating to
the Products. While the Company obtains patents and trademarks as it deems
appropriate, the Company does not believe that its current or future success is
dependent on its patents or trademarks.
Foreign Sales
The revenues, operating income and identifiable assets attributable to
the foreign and domestic operations of the Company for its last three fiscal
years, and the amount of export sales in the aggregate, are summarized in the
following tabulation.
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Financial Information Relating to Foreign
and Domestic Operations and Export Sales
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $53,677 $50,573 $50,269
Foreign 0 0 0
Identifiable assets:
United States $32,584 $33,067 $39,783
Foreign 22,945 22,720 18,780
Export sales:
United States(1) $10,143 $10,713 $12,101
</TABLE>
ITEM 2. PROPERTIES.
The Company has executive offices and production and warehousing
facilities at 333 Bayview Avenue, Amityville, New York. This facility consists
of a fully-utilized 90,000 square foot building on a six acre plot. This
six-acre plot provides the Company with space for expansion of office,
manufacturing and storage capacities. The Company completed construction on this
facility in 1988 with the proceeds from industrial revenue bonds that have since
been retired.
The Company's foreign subsidiary, NAPCO/Alarm Lock Grupo International,
S.A. (formerly known as NSS Caribe, S.A.), is located in the Dominican Republic,
where it owns a building of approximately 167,000 square feet of production and
warehousing space. That subsidiary also leases the land associated with this
building under a 99-year lease expiring in the year 2092. As of June 30, 2000,
most of the Company's sales related to labor on assemblies, goods and
subassemblies produced at these sites, utilizing U.S. quality control standards.
Management believes that these facilities are more than adequate to meet
the needs of the Company in the foreseeable future.
--------------------
(1)Export sales from the United States in fiscal year 2000 included sales of
approximately $6,675,000, $741,000, $1,118,000 and $1,609,000 to Europe, North
America, South America and other areas, respectively. Export sales from the
United States in fiscal year 1999 included sales of approximately $6,730,000,
$869,000, $1,653,000, and $1,461,000 to Europe, North America, South America and
other areas, respectively. Export sales from the United States in fiscal year
1998 included sales of approximately $6,966,000, $1,070,000, $2,094,000, and
$1,971,000 to Europe, North America, South America and other areas,
respectively.
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ITEM 3. LEGAL PROCEEDINGS.
There are no pending or threatened material legal proceedings to which
NAPCO or its subsidiaries or any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS.
Principal Market
NAPCO's Common Stock became publicly traded in the over-the-counter
("OTC") market in 1972. In December 1981, the Common Stock was approved for
reporting by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol "NSSC", and in November 1984 the Common Stock
was designated by NASDAQ as a National Market System Security, which has
facilitated the development of an established public trading market for the
Common Stock.
The tables set forth below reflect the range of high and low sales of the
Common Stock in each quarter of the past two fiscal years as reported by the
NASDAQ National Market System.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
Fiscal 2000
--------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock
------------
High $4.00 $4.13 $4.94 $4.63
Low $3.13 $2.88 $3.06 $3.19
</TABLE>
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<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------
Fiscal 1999
-------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock
High $5.88 $4.63 $4.38 $4.13
Low $4.00 $4.00 $2.56 $2.50
</TABLE>
Approximate Number of Security Holders
The number of holders of record of NAPCO's Common Stock as of September
15, 2000 was 183 (such number does not include beneficial owners of stock held
in nominee name).
Dividend Information
NAPCO has declared no cash dividends during the past three years with
respect to its Common Stock, and the Company does not anticipate paying any cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended June 30
---------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Operations
---------
Net Sales $53,677 $50,573 $50,269 $53,302 $49,088
Gross Profit 13,543 12,059 11,785 12,778 11,302
(Benefit) Provision for
Income Taxes (263) (1,925) (525) 605 515
Net Income 2,010 2,493 2,038 1,639 1,014
Earnings per Share:
Basic .57 .71 .48 .38 .23
Diluted .57 .71 .48 .37 .23
Cash Dividends per Share(2) 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
As of June 30
---------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Financial Condition
-------------------
Total Assets $55,729 $55,787 $58,563 $57,244 $57,319
Long-term Debt 16,183 17,241 18,644 13,313 14,150
Working Capital 35,280 34,920 33,942 30,136 28,676
Stockholders' Equity 33,359 31,328 28,833 31,218 29,574
Stockholders' Equity
Per Outstanding Share 9.53 8.98 8.26 7.14 6.77
</TABLE>
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(2)The Company has never declared or paid a cash dividend on its common
stock. It is the policy of the Board of Directors to retain earnings for use in
the Company's business.
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Quarterly Results and Seasonality
The following table sets forth unaudited financial data for each of the
Company's last eight fiscal quarters (in thousands except for per share data):
<TABLE>
<CAPTION>
Year Ended June 30, 2000
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $10,449 $12,214 $14,085 $16,929
Gross Profit 2,591 3,043 3,606 4,303
Income (Loss) from (128) 502 996 1,752
Operations
Net Income (Loss) (396) 145 517 1,744
Net Income (Loss) Per Share
Basic (.11) .04 .15 .49
Diluted (.11) .04 .15 .49
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1999
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $11,090 $10,860 $11,672 $16,951
Gross Profit 2,708 2,601 2,722 4,028
Income (Loss) from 480 106 (525) 1,850
Operations
Net Income 272 132 343 1,746
Net Income Per Share
Basic .08 .04 .10 .49
Diluted .08 .04 .10 .49
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Company's cash on hand combined with proceeds from operating
activities during fiscal 2000 were adequate to meet the Company's capital
expenditure needs and short and long-term debt obligations. The primary source
of financing related to borrowings under a $16,000,000 secured revolving credit
facility. The Company expects that cash generated from operations and cash
available under the Company's bank line of credit will be adequate to meet its
short-term liquidity requirements. The Company's primary internal source of
liquidity is the cash flow generated from operations. As of June 30, 2000, the
Company's unused sources of funds consisted principally of $2,384,000 in cash
and approximately $1,487,000, which represents the unused portion of its secured
revolving credit facility.
On April 26, 1993, the Company's foreign subsidiary entered into a
99-year land lease of approximately 4 acres of land in the Dominican Republic,
at an annual cost of approximately $272,000.
On May 13, 1997, the Company refinanced the majority of its bank debt
with a new primary bank and entered into a $16,000,000 secured revolving credit
agreement and a $3,000,000 line of credit to be used in connection with
commercial and standby letters of credit, and replaced the $2,500,000 standby
letter of credit securing an earlier loan from another bank in connection with
the Company's international operations. The Company restructured its debt to
allow for future growth and expansion as well as to obtain terms more favorable
to the Company. As part of the debt restructuring, the Company retired the
outstanding industrial revenue bonds relating to the financing of the
construction of the Company's Amityville, New York facility. The revolving
credit agreement will expire in July 2001 and any outstanding borrowings are to
be repaid on or before that time.
In addition, a subsidiary of the Company maintained a $4,500,000 line of
credit with another bank, which was fully repaid as of June 30, 2000 (see Note 5
to Consolidated Financial Statements).
In May of 1998 the Company repurchased 889,576 shares of Napco common
stock for $5.00 per share from one of its co-founders, Kenneth Rosenberg. $2.5
million was paid at closing with the balance of the purchase price to be paid
over a four (4) year period pursuant to an interest-bearing note. The portion of
the purchase price paid at closing was financed by the Company's primary bank
and is to be repaid over a five (5) year period. At the closing, Mr. Rosenberg
retired as President and Director of the Company but will be available to the
Company pursuant to a consulting agreement. The repurchase agreement also
provides that Mr. Rosenberg will not compete with the Company for a ten (10)
year period.
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The Company takes into consideration a number of factors in measuring its
liquidity, including the ratios set forth below:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current Ratio 7.2 to 1 6.2 to 1 4.3 to 1
Sales to Receivables 3.0 to 1 3.1 to 1 3.4 to 1
Total Debt to Equity .5 to 1 .8 to 1 1.0 to 1
</TABLE>
As of June 30, 2000, the Company had no material commitments for
purchases or capital expenditures, except as discussed below.
Subsequent Events
On July 27, 2000, the Company signed an Asset Purchase Agreement to
acquire the net assets of Continental Instruments, LLC. ("Continental") for an
initial purchase price of $7,500,000, with additional payments, subject to
adjustment based on a closing balance sheet and certain other contingent events,
of up to $1,700,000 (the "Deferred Payments"). The Company financed the
transaction with borrowings under a term loan of $8,250,000. Continental designs
and sells access control and other security control systems to dealers and
distributors worldwide.
The acquisition described above will be accounted for as a purchase and
was valued based on management's estimate of the fair value of the assets
acquired and liabilities assumed. The estimates of fair value are preliminary
and subject to adjustment for a period of up to one year from the date of
acquisition, and any such adjustments are not expected to be material. Any
increases or decreases in the Deferred Payments will be recorded as adjustments
to the purchase price and related goodwill prospectively from the date of the
change in payment. Costs in excess of net assets acquired of approximately
$6,700,000 will be allocated to goodwill in the first quarter of fiscal 2001.
Working Capital. Working capital increased by $360,000 to $35,280,000 at
June 30, 2000 from $34,920,000 at June 30, 1999. The additional working capital
was generated primarily from the increase in accounts receivable and the
decrease in Income Taxes Payable resulting from the benefit from income taxes,
which was partially offset by the Company's reduction in its inventory, all as
discussed below.
Accounts Receivable. Accounts receivable decreased by $1,581,000 to
$18,027,000 at June 30, 2000 from $16,446,000 at June 30, 1999. This increase
resulted primarily from the 6% increase in net sales during fiscal 2000 as
compared to fiscal 1999, most of which occurred in the second half of fiscal
2000.
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Inventory. Inventory was reduced by $2,017,000 to $19,478,000 at June 30,
2000 as compared to $21,495,000 at June 30, 1999. The Company generated a
significant reduction in its inventory during the year ended June 30, 2000 due
primarily to its efforts at improving various planning and forecasting
techniques.
Accounts Payable and Accrued Expenses. Accounts payable and accrued
expenses decreased by $847,000 to $3,632,000 at June 30, 2000 from $4,479,000 at
June 30, 1999. This decrease was due primarily to the Company reducing its
on-hand inventory through more efficient planning and procurement procedures.
Fiscal 2000 Compared to Fiscal 1999
Net Sales. Net sales in fiscal 2000 increased by 6% to $53,677,000 from
$50,573,000 in fiscal 1999. The Company's sales growth was due primarily to a
significant increase in demand for the Company's door locking products as well
as from the effects of one of the Company's customers being acquired during
fiscal 1999. This acquisition, while impacting the results for fiscal 1999, did
not have any significant effect on the results for fiscal 2000.
Gross Profit. The Company's gross profit increased $1,484,000 to $13,543,000 or
25.2% of net sales as compared to $12,059,000 or 23.8% of net sales in fiscal
1999. The increase both in absolute dollars and as a percentage of net sales was
due primarily to the increase in net sales as well as cost reductions of certain
of the Company's raw material costs.
Expenses. Selling, general and administrative expenses increased by 3% to
$10,421,000 in fiscal 2000 as compared to $10,148,000 in fiscal 1999. The
increase was due primarily to the 6% increase in net sales as discussed above as
well as the Company's increased activities in identifying potential acquisition
candidates.
Other Expenses. Other expenses increased by $32,000 to $1,375,000 in fiscal 2000
as compared to $1,343,000 in fiscal 1999. This slight increase was due primarily
to increased borrowing rates as mostly offset by reductions in the Company's
outstanding debt.
Income Taxes. The benefit for income taxes decreased $1,662,000 to a benefit of
$263,000 as compared to a benefit of $1,925,000 in fiscal 1999. This change was
primarily due to the large benefit in fiscal 1999 that resulted from the
favorable outcome of the IRS audits of fiscal years 1986 through 1997 and the
resulting reduction in related reserve requirements.
Effects of Inflation. During the three-year period ended June 30, 2000,
inflation and changing prices did not have a significant impact on the Company's
operations.
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales in fiscal 1999 increased by 1% to $50,573,000 from
$50,269,000 in fiscal 1998. The Company achieved this sales level in fiscal 1999
mainly through the increased sales in the fourth quarter as compared to the same
quarter of fiscal 1998. Sales in
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the fourth quarter of fiscal 1999 were $16,951,000 as compared to $14,582,000 in
1998. This increase was due primarily to a significant increase in the demand of
the Company's door locking products as well as increased orders from a major
customer who returned to a more normal inventory position of the Company's
products after tightening these levels during their acquisition of another
company. These increases more than offset the decrease in sales during the first
three quarters of fiscal 1999 which were affected, in part, by the major
customer as discussed above.
Gross Profit. The Company's gross profit increased $274,000 to
$12,059,000 or 23.8% of net sales in fiscal 1999 as compared to $11,785,000 or
23.4% of net sales in fiscal 1998. The increase in gross profit margin was
primarily due to the company's improvement in its component costs.
Expenses. Selling, general and administrative expenses in fiscal 1999
increased 9% to $10,148,000 or 20% of net sales from $9,289,000 or 19% of net
sales in fiscal 1998. This increase is primarily due to the increased selling
and marketing expenses relating to the increased sales of the Company's door
security products as well as the introduction of the Company's new fire and
access control products.
Other Expenses. Other Expenses in fiscal 1999 increased by $360,000 to
$1,343,000 as compared to $983,000 in fiscal 1998. This increase was primarily
due to increased interest expense resulting from increased borrowings related to
the repurchase of common shares at the end of fiscal 1998.
Income Taxes. The benefit for income taxes increased $1,400,000 to a
benefit of $1,925,000 during fiscal 1999. This compared to a benefit of $525,000
during fiscal 1998. The increase in the benefit for fiscal 1999 is primarily
attributable to the favorable outcome of the IRS audits of fiscal years 1986
through 1997 and the resulting impact on related reserve requirements.
Effects of Inflation. During the three-year period ended June 30, 1999,
inflation and changing prices did not have a significant impact on the Company's
operations.
Year 2000 Date Conversion
To date, the Company has not experienced any failures or disruptions in
its internal operating systems, in its products or in the services provided by
vendors or suppliers. While management does not expect any adverse effects
relating to the Year 2000 issue, it is possible that the Company could be
affected in the future by this issue. The Company has not incurred any
significant expenses relating to the Year 2000 issue.
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Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instrument is long-term debt
(consisting of a revolving credit and term loan facility) that provides for
interest at a spread above the prime rate. The Company is affected by market
risk exposure primarily through the effect of changes in interest rates on
amounts payable by the Company under this credit facility. A significant rise in
the prime rate could materially adversely affect the Company's business,
financial condition and results of operations. At June 30, 2000, an aggregate
principal amount of approximately $15,000,000 million was outstanding under the
Company's credit facility and term loan with a weighted average interest rate of
7.5%. If principal amounts outstanding under the Company's credit facility
remained at this year-end level for an entire year and the prime rate increased
or decreased, respectively, by 1.25% the Company would pay or save,
respectively, an additional $187,500 in interest that year. The Company does not
utilize derivative financial instruments to hedge against changes in interest
rates or for any other purpose.
Where appropriate, the Company requires that letters of credit be
provided on foreign sales. In addition, a significant number of transactions by
the Company are denominated in U.S. dollars. As such, the Company has shifted
foreign currency exposure onto its foreign customers. As a result, if exchange
rates move against foreign customers, the Company could experience difficulty
collecting unsecured accounts receivable, the cancellation of existing orders or
the loss of future orders. The foregoing could materially adversely affect the
Company's business, financial condition and results of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants
as of June 30, 2000 and 1999 and for
each of the 3 Fiscal Years in the Period
Ended June 30, 2000..................................................16
Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 2000 and 1999..............................................17
Consolidated Statements of Income
for the Fiscal Years Ended June 30,
2000, 1999 and 1998.................................................18
Consolidated Statements of
Stockholders' Equity for the Fiscal
Years Ended June 30, 2000, 1999
and 1998............................................................19
Consolidated Statements of Cash
Flows for the Fiscal Years Ended
June 30, 2000, 1999 and 1998........................................20
Notes to Consolidated Financial
Statements, June 30, 2000, 1999 and 1998............................21
Schedules:
II. Condensed Financial Information on
Parent Company............................................32
II. Valuation and Qualifying Accounts.........................34
</TABLE>
15
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Napco Security Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Napco Security
Systems, Inc. (a Delaware corporation) and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended June 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Napco Security Systems, Inc.
and subsidiaries as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended June 30, 2000 in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index to consolidated financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/S/ ARTHUR ANDERSEN LLP
Melville, New York
September 21, 2000
16
<PAGE> 18
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------- ----------------------------------
(in thousands, except share data)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,384 $ 2,230
Accounts receivable, less reserve for doubtful accounts of $622 and $887,
respectively 18,027 16,446
Inventories 19,478 21,495
Prepaid expenses and other current assets 1,086 809
Deferred income taxes - 716
-------- --------
Total current assets 40,975 41,696
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
and amortization of $13,712 and $12,316, respectively 11,105 11,280
GOODWILL, net of accumulated amortization of $1,363 and
$1,256, respectively 2,379 2,485
DEFERRED INCOME TAXES 716 -
OTHER ASSETS 354 326
-------- --------
$ 55,529 $ 55,787
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,023 $ 1,433
Accounts payable 2,551 3,651
Accrued expenses 1,081 828
Accrued salaries and wages 994 754
Accrued income taxes 46 110
-------- --------
Total current liabilities 5,695 6,776
LONG-TERM DEBT 16,183 17,241
DEFERRED INCOME TAXES 292 442
-------- --------
Total liabilities 22,170 24,459
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 21,000,000 shares authorized;
5,917,352 and 5,908,602 shares issued, respectively; 3,498,901 and
3,490,151 shares outstanding, respectively 59 59
Additional paid-in capital 772 751
Retained earnings 36,977 34,967
Less: Treasury stock, at cost (2,418,451 shares) (4,449) (4,449)
-------- --------
Total stockholders' equity 33,359 31,328
-------- --------
$ 55,529 $ 55,787
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
17
<PAGE> 19
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Fiscal Years Ended June 30,
----------------------------------------------
2000 1999 1998
(in thousands, except share and per share data)
<S> <C> <C> <C>
NET SALES $ 53,677 $ 50,573 $ 50,269
COST OF SALES 40,134 38,514 38,484
------------ ------------ ------------
Gross profit 13,543 12,059 11,785
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,421 10,148 9,289
------------ ------------ ------------
Operating income 3,122 1,911 2,496
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net (1,375) (1,359) (1,130)
Other, net - 16 147
------------ ------------ ------------
(1,375) (1,343) (983)
------------ ------------ ------------
Income before (benefit) for income taxes 1,747 568 1,513
(BENEFIT) FOR INCOME TAXES (263) (1,925) (525)
------------- ------------ ------------
Net income $ 2,010 $ 2,493 $ 2,038
============ ============ ============
EARNINGS PER SHARE (Note 1):
Basic $ .57 $ .71 $ .48
=========== ============ ============
Diluted $ .57 $ .71 $ .48
=========== ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note 1):
Basic 3,495,000 3,493,000 4,263,000
============ ============ ============
Diluted 3,513,000 3,512,000 4,285,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE> 20
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
--------------------------
Number Additional Retained Treasury
of Shares Amount Paid-in Capital Earnings Stock Total
--------- ------ --------------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1997 5,898,602 $ 59 $ 724 $ 30,436 $ (1) $ 31,218
Purchase of treasury stock - - - - (4,448) (4,448)
Exercise of employee stock options 9,500 - 25 - - 25
Net income - - - 2,038 - 2,038
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1998 5,908,102 59 749 32,474 (4,449) 28,833
Exercise of employee stock options 500 - 2 - - 2
Net income - - - 2,493 - 2,493
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1999 5,908,602 59 751 34,967 (4,449) 31,328
Exercise of employee stock options 8,750 - 21 - - 21
Net income - - - 2,010 - 2,010
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 2000 5,917,352 $ 59 $ 772 $ 36,977 $ (4,449) $ 33,359
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE> 21
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30,
---------------------------------------
2000 1999 1998
------ ------ ------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,010 $ 2,493 $ 2,038
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 1,554 1,368 1,289
Provision for doubtful accounts (265) 230 50
Deferred income taxes (150) 143 (259)
Changes in operating assets and liabilities resulting from
increases and decreases in:
Accounts receivable (1,316) (1,916) (873)
Inventories 2,017 3,943 264
Prepaid expenses and other current assets (277) (135) (284)
Other assets (79) 1 109
Accounts payable, accrued expenses, accrued salaries and
wages and accrued income taxes (672) (3,201) (2,441)
---------- ---------- ----------
Net cash provided by (used in) operating activities 2,822 2,926 (107)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property, plant and equipment (1,221) (1,050) (585)
---------- ---------- ----------
Net cash used in investing activities (1,221) (1,050) (585)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank - - 2,500
Principal payments on long-term debt (1,468) (1,637) (900)
Proceeds from long-term debt - - 2,550
Purchase of treasury stock - - (2,500)
Proceeds from exercise of employee stock options 21 2 25
---------- ---------- ----------
Net cash (used in) provided by financing activities (1,447) (1,635) 1,675
---------- ---------- ----------
NET INCREASE IN CASH 154 241 983
CASH, beginning of year 2,230 1,989 1,006
---------- ---------- ----------
CASH, end of year $ 2,384 $ 2,230 $ 1,989
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,123 $ 1,301 $ 1,289
========== ========== ==========
Income taxes paid $ 101 $ 259 $ 108
========== ========== ==========
NON-CASH FINANCING ACTIVITIES:
Issuance of note payable for purchase of treasury stock $ - $ - $ 1,948
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
20
<PAGE> 22
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Napco Security Systems, Inc. and subsidiaries (the "Company") is engaged
principally in the development, manufacture and distribution of security alarm
products and door security devices for commercial and residential use.
Principles of Consolidation
The consolidated financial statements include the accounts of Napco Security
Systems, Inc. and all of its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent gains and losses at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is recorded over
the estimated service lives of the related assets using primarily the
straight-line method. Amortization of leasehold improvements is calculated by
using the straight-line method over the estimated useful life of the asset or
lease term, whichever is shorter.
Goodwill
Goodwill is being amortized on a straight-line basis over 35 years. Subsequent
to an acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life of
the goodwill may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted cash flows
over the remaining life of the goodwill in measuring whether it is recoverable.
In the years ended June 30, 2000, 1999 and 1998, there were no adjustments to
the carrying value of goodwill, other than straight-line amortization.
Revenue Recognition
Revenue is recognized upon shipment of the Company's products to its customers.
The Company reports its sales levels on a net sales basis, with net sales being
computed by deducting from gross sales the amount of actual sales returns and
the amount of reserves established for anticipated sales returns.
Income Taxes
Deferred income taxes are recognized for the expected future tax consequences of
temporary differences between the amounts reflected for financial reporting and
tax purposes. The (benefit) for income taxes represents U.S. Federal and state
taxes on income generated from U.S. operations and local taxes on income
generated from United Kingdom operations. Income generated by the Company's
foreign subsidiary in the Dominican Republic is non-taxable. The Company
accounts for the research and development credit as a reduction of income tax
expense in the year in which such credits are allowable for tax purposes.
21
<PAGE> 23
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
In prior years, the Company did not provide for income taxes on the
undistributed earnings of its Domestic International Sales Corporation ("DISC")
subsidiary because it was the Company's intent to continue the subsidiary's
qualification for tax deferral. Due to the shifting of manufacturing outside the
U.S., management determined in fiscal 1995 that the DISC no longer qualified for
continued tax deferral. As a result, previously deferred earnings of the DISC
totaling $2,031,000 must be reported as taxable income over a ten-year period in
the Company's tax returns, starting with the June 30, 1992 tax year.
The Company does not provide for income taxes on the undistributed earnings of
its foreign subsidiary in the Dominican Republic because such earnings are
reinvested abroad and it is the intention of management that such earnings will
continue to be reinvested abroad. As of June 30, 2000 and 1999, approximately
$20,243,000 and $19,369,000 in cumulative earnings of this foreign subsidiary
are included in consolidated retained earnings.
Earnings Per Share
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Basic net income per common
share ("Basic EPS") is computed by dividing net income by the weighted average
number of common shares outstanding. Diluted net income per common share
("Diluted EPS") is computed by dividing net income by the weighted average
number of common shares and dilutive common share equivalents and convertible
securities then outstanding. SFAS No. 128 requires the presentation of both
Basic EPS and Diluted EPS on the face of the consolidated statements of income.
The following provides a reconciliation of information used in calculating the
per share amounts for the fiscal years ended June 30 (in thousands):
<TABLE>
<CAPTION>
Net Income - Numerator Shares - Denominator Net Income Per Share
------------------------ ------------------------ ----------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
---------
Net income $2,010 $2,493 $2,038 3,495 3,493 4,263 $ .57 $ 0.71 $ 0.48
------ ------ ------ ------ ------ ------ ------- ------- --------
Effect of Dilutive Securities
-----------------------------
Employee stock options - - - 18 19 22 - - -
------ ------ ------ ------ ------ ------ ------- ------- --------
Diluted EPS
-----------
Net income $2,010 $2,493 $2,038 3,513 3,512 4,285 $ .57 $ 0.71 $ 0.48
====== ====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
Options to purchase 90,240, 10,620 and 4,400 shares of common stock for the
three fiscal years ended June 30, 2000, respectively, were not included in the
computation of Diluted EPS because the exercise prices exceeded the average
market price of the common shares for the respective periods because their
inclusion would be anti-dilutive. These options were still outstanding at the
end of the respective periods.
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of SFAS
No. 123 "Accounting for Stock-Based Compensation." Pursuant to SFAS No. 123 the
Company has elected to continue the accounting set forth in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and to provide the necessary pro-forma disclosures (Note 6).
22
<PAGE> 24
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
Comprehensive Income
The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income," which establishes new rules for the reporting of comprehensive income
and its components. The adoption of this statement had no impact on the
Company's net income or stockholders' equity. For the fiscal years ended 2000,
1999 and 1998, the Company's operations did not give rise to items includable in
comprehensive income which were not already included in net income. Accordingly,
the Company's comprehensive income is the same as its net income for all periods
presented.
Segment Reporting
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." Pursuant to this pronouncement, the
reportable operating segments are determined based on the Company's management
approach. The management approach, as defined by SFAS No. 131, is based on the
way that the chief operating decision maker organizes the segments within an
enterprise for making operating decisions and assessing performance. The
Company's results of operations are reviewed by the chief operating decision
maker on a consolidated basis and the Company operates in only one segment. The
Company has presented required geographical segment data in Note 11 and no
additional segment data has been presented.
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements where the fair value
is different than the book value of those financial instruments. When the fair
value approximates book value, no additional disclosure is made. The Company
uses quoted market prices whenever available to calculate these fair values.
When quoted market prices are not available, the Company uses standard pricing
models for various types of financial instruments which take into account the
present value of estimated future cash flows. At June 30, 2000 and 1999,
management of the Company believes the carrying value of all financial
instruments approximated fair value.
SHIPPING AND HANDLING REVENUES AND COSTS - NEW ACCOUNTING PRONOUNCEMENT
In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus with
respect to EITF Issue No. 00-10, "Accounting for Shipping and Handling Revenues
and Costs." The purpose of this issue discussion was to clarify the
classification of shipping and handling revenues and costs. The consensus
reached was that all shipping and handling billed to customers is revenue. No
consensus was reached on the classifications of shipping and handling costs.
This standard will require a restatement of prior periods for changes in
classification. The Company currently nets its shipping and handling revenue
with the related costs and includes the residual amount as selling and marketing
expenses. This consensus is effective for the Company beginning with the fourth
quarter of fiscal 2001. The Company is in the process of quantifying the impact
of its adoption, which will not change reported income from operations or net
income.
2. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following:
June 30,
-----------------------------
2000 1999
----------- -----------
(in thousands)
<S> <C> <C>
Component parts $ 10,231 $ 10,093
Work-in-process 4,063 4,954
Finished products 5,184 6,448
----------- -----------
$ 19,478 $ 21,495
=========== ===========
</TABLE>
23
<PAGE> 25
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, Depreciation/
--------------------------- amortization-
2000 1999 annual rates
---------- ------------ --------------
(in thousands)
<S> <C> <C> <C>
Land $ 904 $ 904 -
Building 8,911 8,911 3%
Molds and dies 3,642 3,180 20% to 33%
Furniture and fixtures 1,022 964 10% to 20%
Machinery and equipment 10,283 9,581 10% to 15%
Leasehold improvements 56 56 Shorter of the lease
---------- --------- term or life of asset
24,818 23,596
Less: Accumulated depreciation and
amortization 13,713 12,316
---------- ---------
$ 11,105 $ 11,280
========== =========
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
approximately $1,397,000, $1,261,000 and $1,182,000 for the three fiscal years
ended June 30, 2000, respectively.
4. INCOME TAXES
In August 1995, the Internal Revenue Service (the "IRS") informed the Company
that it had completed the audit of the Company's Federal tax returns for fiscal
years 1986 through 1993. The IRS had 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 related
to intercompany pricing and royalty charges, DISC earnings and charitable
contributions. The Company disagreed with the IRS and began the process of
vigorously appealing this assessment using all remedies and procedural actions
available under the law. The Company had provided a reserve to reflect its
estimate of the ultimate resolution of this matter, so that the outcome of this
matter would not have a material adverse effect on the Company's consolidated
financial statements.
During fiscal 1998, the Company continued to discuss the assessment with the IRS
Appeals Office and in July 1998 received a revised audit report, which was
subject to final government administrative approval, and which reduced the
original assessment for the years covered by the IRS audit. The Company accepted
the revised audit report and the final government approval was pending as of
June 30, 1998. Accordingly, the Company determined that $900,000 of previously
recorded reserves should be reversed through the 1998 income tax provision to
reflect the expected final settlement with respect to this IRS audit.
In fiscal 1999, the Company received the final government approval on the IRS
audit related to fiscal years 1986 through 1993. In addition, the IRS completed
its audits of fiscal years 1994 through 1997. As a result of the favorable
outcome from the audits, the Company reversed an additional $1,896,000 of
previously recorded reserves through the income tax provision in fiscal 1999.
24
<PAGE> 26
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
(Benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30,
---------------------------------------
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Taxes currently payable:
Federal $ 16 $ (2,271) $ (210)
State 1 (4) (56)
--------- --------- ---------
17 (2,275) (266)
Deferred income tax (benefit) (280) 350 (259)
---------- --------- ---------
(Benefit) for income taxes $ (263) $ (1,925) $ (525)
========= ========= =========
</TABLE>
The difference between the statutory U.S. Federal income tax rate and the
Company's effective tax rate as reflected in the consolidated statements of
income is as follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30,
------------------------------------------ -------------------
2000 1999 1998
------------------ ----------------- -----------------
% of % of % of
Pre-tax pre-tax pre-tax
Amount Income Amount Income Amount Income
-------- ------- ------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal statutory rate $ 594 34.0% $ 193 34.0% $ 514 34.0%
Increases (decreases) in taxes
resulting from:
State income taxes, net of Federal
income tax benefit (155) (8.9) (2) (0.4) 38 2.5
Amortization of non-deductible
goodwill 36 2.1 36 6.3 36 2.4
Non-taxable foreign source income (849) (48.6) (362) (63.7) (257) (17.0)
Adjustment to reflect IRS settlement - - (1,896) (333.8) (900) (59.5)
Other, net 111 6.4 106 18.7 44 2.9
-------- ----- ------- ------ ------- -----
(Benefit) for income taxes $ (263) (15.0)% $(1,925) (338.9)% $ (525) (34.7)%
======== ===== ======= ====== ======= =====
</TABLE>
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
domestic income tax.
Deferred tax assets and deferred tax liabilities at June 30, 2000 and 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
Deferred Net Deferred
Deferred Tax Assets Tax Liabilities Tax Assets (Liabilities)
-------------------- --------------------- -----------------------
2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current:
Accounts receivable $ 300 $ 255 $ - $ - $ 300 $ 255
Inventories 782 392 - - 782 392
Accrued liabilities 198 93 - - 198 93
Net operating loss and
other carryforwards 1,167 - - - 1,167 -
Other 63 15 42 39 21 (24)
--------- --------- --------- --------- --------- ----------
2,510 755 42 39 2,468 716
Noncurrent:
Fixed assets - - 292 442 (292) (442)
--------- --------- --------- --------- --------- ----------
Total deferred taxes 2,510 755 481 2,176 274
Less: Valuation Allowance (1,794) - - - (1,794) -
--------- --------- --------- --------- --------- ---------
Net deferred taxes $ 716 $ 755 $ 334 $ 481 $ 382 $ 274
========= ========= ========= ========= ========= =========
</TABLE>
25
<PAGE> 27
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
As a result of the Company's U.S. operations not generating income in the past
two years, management believes it is more likely than not that the Company will
not realize the benefit of the net deferred tax assets existing at June 30, 2000
and 1999. However the Company has reserved for a portion of deferred income
taxes as of June 30, 2000 due to uncertainty regarding the generation of
sufficient taxable income in the United States to realize deferred taxes
associated with net operating loss carryforwards.
5. LONG-TERM DEBT
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
-------------------------
2000 1999
---------- ----------
(in thousands)
<S> <C> <C>
Revolving credit and term loan facility (a) $ 14,513 $ 14,513
Notes payable (b) 2,693 4,161
---------- ----------
17,206 18,674
Less: Current portion 1,023 1,433
---------- ----------
$ 16,183 $ 17,241
========== ==========
</TABLE>
(a) In 1997, the Company refinanced the majority of its bank debt with a new
primary bank and entered into a $16,000,000 secured revolving credit
agreement and a $3,000,000 line of credit to be used in connection with
commercial and standby letters of credit, and replaced a $2,500,000
standby letter of credit securing an earlier loan from another bank in
connection with the Company's international operations. The revolving
credit agreement and the letters of credit are secured by all the accounts
receivable, inventory and certain other assets of Napco Security Systems,
Inc., a first and second mortgage on the Company's headquarters in
Amityville, New York and common stock of two of the Company's
subsidiaries. The revolving credit agreement bears interest at either the
bank's prime rate (7.84% at June 30, 2000) or an alternate rate based on
LIBOR as described in the agreement. As part of the debt restructuring,
the Company retired the outstanding Industrial Revenue Bonds relating to
the financing of the construction of the Company's Amityville, New York
facility. The revolving credit agreement will expire in July 2001 and any
outstanding borrowings are to be repaid on or before that time. The
agreement contains various restrictions and covenants including, among
others, restrictions on payment of dividends, restrictions on borrowings,
restrictions on capital expenditures, the maintenance of minimum amounts
of tangible net worth, and compliance with other certain financial ratios,
as defined in the agreement. As of June 30, 2000, the Company was in
compliance with all of these financial covenants.
(b) In November 1991, a subsidiary of the Company entered into a $4,500,000
line of credit agreement with a bank in connection with the Company's
international operations. The line is secured by a letter of credit from
the Company's primary bank. Interest on amounts outstanding under this
line is payable quarterly at a rate determined periodically based on a
number of options available to the Company. The balance outstanding under
the line as of December 31, 1994 automatically converted to a term loan
payable in 20 equal quarterly installments commencing on that date. During
fiscal 2000, the Company paid the full outstanding balance of this term
loan.
In connection with the stock purchase agreement described in Note 7, the
Company entered into a term-loan facility in May 1998 with its primary
bank for a $2,500,000 term loan. Under the terms of the note, the loan is
to be repaid in 60 equal monthly installments of $41,667, plus interest at
7.94%, beginning on July 1, 1998.
In addition, the Company issued a four-year term loan in the amount of
$1,947,880 to its former president in connection with the stock purchase
agreement. This note bears interest at 8% and calls for payments to begin
in April 1999, with a final maturity June 2003.
26
<PAGE> 28
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending June 30,
---------------------------
<S> <C>
2001 $ 1,023
2002 15,629
2003 554
----------
$ 17,206
==========
</TABLE>
6. STOCK OPTIONS
In November 1992, the stockholders approved a 10-year extension of the already
existing 1982 Incentive Stock Option Plan (the "1992 Plan"). The 1992 Plan
authorizes the granting of awards, the exercise of which would allow up to an
aggregate of approximately 815,000 shares of the Company's common stock to be
acquired by the holders of such awards. Under the 1992 Plan, the Company may
grant stock options, which are intended to qualify as incentive stock options
("ISOs"), to key employees, officers, and employee directors. Any plan
participant who is granted ISOs and possesses more than 10% of the voting rights
of the Company's outstanding common stock must be granted an option with a price
of at least 110% of the fair market value on the date of grant and the option
must be exercised within five years from the date of grant. Under the 1992 Plan,
stock options have been granted to employees and directors for terms of up to 5
years at an exercise price equal to the fair market value on the date of grant
and are exercisable in whole or in part at 20% per year from the date of grant.
At June 30, 2000, 222,040 stock options granted to employees and directors were
exercisable. The Company accounts for awards granted to employees, directors and
key employees under APB Opinion No. 25, under which compensation cost is
recognized for stock options granted at an exercise price less than the market
value of the options on the grant date.
Had compensation cost for all stock option grants in fiscal years 2000, 1999 and
1998 been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
NET INCOME: As reported $ 2,010 $ 2,493 $ 2,038
Pro forma 1,790 2,279 1,901
BASIC EPS: As reported $ .57 $ 0.71 $ 0.48
Pro forma .51 0.65 0.45
DILUTED EPS: As reported $ .57 $ 0.71 $ 0.48
Pro forma .51 0.65 0.44
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to option awards
granted prior to fiscal year 1996.
27
<PAGE> 29
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
The following table reflects activity under the plan for the fiscal years ended:
<TABLE>
<CAPTION>
June 30,
---------------------- ---------------------- ----------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 438,100 $3.39 236,250 $3.91 75,750 $3.08
Granted 91,000 3.19 251,600 3.12 209,000 4.11
Exercised (8,750) 2.50 (500) 3.88 (9,500) 2.61
Forfeited (20,500) 4.29 (35,500) 4.66 (34,500) 3.76
Canceled/Lapsed - - (13,750) 4.28 (4,500) 2.97
--------- ------ -------- ---- --------
Outstanding at end of year 499,850 3.33 438,100 3.39 236,250 3.91
======= ======= ========
Exercisable at end of year 222,040 3.37 138,570 3.40 72,800 3.71
======= ======= ========
Weighted average fair value of
options granted $1.50 $4.25 $3.04
</TABLE>
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Risk-Free Interest Rates 6.24% 5.22% 6.10%
Expected Lives 5 years 5 years 5 years
Expected Volatility 44% 45% 46%
Expected Dividend Yields 0% 0% 0%
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Range of Exercise Prices 6/30/00 Contractual Life Price 6/30/00 Price
------------------------ ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 2.50 - $ 3.75 341,750 3.60 3.04 132,000 2.97
3.76 - 5.63 158,100 2.23 3.95 90,040 3.94
------- ---- ---- ------ ----
2.50 - 5.63 499,850 3.16 3.33 222,040 3.37
======= ==== ==== ======= ====
</TABLE>
Effective October 1990, the Company established a non-employee stock option plan
(the "1990 Plan") to encourage non-employee directors and consultants of the
Company to invest in the Company's stock. The 1990 Plan provides for the
granting of non-qualified stock options, the exercise of which would allow up to
an aggregate of 50,000 shares of the Company's common stock to be acquired by
the holders of the stock options. The 1990 Plan provides that the option price
will not be less than 100% of the fair market value of the stock at the date of
grant. Options are exercisable at 20% per year and expire five years after the
date of grant. The Company has adopted SFAS No. 123 to account for stock-based
compensation awards granted to non-employee consultants, under which a
compensation cost is recognized for the fair value of the options granted as of
the date of grant. As of June 30, 2000, no shares have been granted under this
plan.
28
<PAGE> 30
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
7. STOCK PURCHASE
On May 28, 1998, the Company entered into a stock purchase agreement with its
former president, which called for the purchase by the Company of all the shares
of the Company's common stock held by the former president (889,576 shares) at a
price of $5 per share, in connection with the former president's retirement. The
agreement also contained a consulting and non-compete agreement each with a
period of ten years. Upon closing, $2,500,000 of the purchase price was paid to
the former president with the proceeds of the term loan described in Note 5 (b).
The remaining purchase price is to be paid over a 4 year period according to the
terms of a note issued to the former president. The common stock purchased is
included in treasury stock as of June 30, 2000.
8. 401(k) PLAN
The Company maintains a 401(k) plan covering all employees with one or more
years of service. The plan is qualified under Sections 401(a) and 401(k) of the
Internal Revenue Code. The Company provides for matching contributions of 50% of
the first 2% of employee contributions. Company contributions to the plan
totaled approximately $55,000, $54,000 and $53,000 for the three fiscal years
ended June 30, 2000, respectively.
9. BUSINESS AND CREDIT CONCENTRATIONS
The Company is engaged in one major line of business - the development,
manufacture and distribution of security alarm products and door security
devices for commercial and residential use. Sales to unaffiliated customers are
primarily shipped from the United States. The Company has customers worldwide
with major concentrations in North America, Europe and South America.
Identifiable assets (net of intercompany receivables and payables) related to
the Company's foreign subsidiaries were approximately $22,945,000 and
$22,720,000 at June 30, 2000 and 1999, respectively.
Export sales amounted to $10,143,000, $10,713,000 and $12,101,000 for the three
fiscal years ended June 30, 2000, respectively.
At June 30, 2000, the Company had two customers (Customer A and B) with accounts
receivable balances that aggregated 55% of the Company's accounts receivable. At
June 30, 1999, the Company had two customers (Customer A and B) with accounts
receivable balances that aggregated 49% of the Company's accounts receivable.
The Company had one customer that accounted for 27%, 27% and 23% of the
Company's net sales in fiscal 2000, 1999 and 1998, respectively. During the past
three fiscal years no other customer represented more than 10% of the Company's
net sales.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company is committed under various operating leases which do not extend
beyond fiscal 2001. Minimum lease payments through the expiration dates of these
leases, with the exception of the land lease referred to below, are as follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending June 30,
---------------------------
<S> <C>
2001 $ 190
2002 84
2003 51
2004 14
Thereafter -
</TABLE>
29
<PAGE> 31
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
Rent expense totaled approximately $859,000, $805,000 and $866,000 for the three
fiscal years ended June 30, 2000, respectively.
Land Lease
On April 26, 1993, one of the Company's foreign subsidiaries entered into a 99
year lease for approximately four acres of land in the Dominican Republic, at an
annual cost of approximately $272,000, on which the Company's main production
facility is located.
Letters of Credit
At June 30, 2000, the Company was committed for approximately $461,170 under
open commercial letters of credit and steamship guarantees.
Litigation
In the normal course of business, the Company is a party to claims and/or
litigation. Management believes that the settlement of such claims and/or
litigation, considered in the aggregate, will not have a material adverse effect
on the Company's financial position and results of operations.
11. SEGMENT DATA
The Company observes the provisions of SFAS No. 131. While the Company's results
of operations are primarily reviewed on a consolidated basis, the chief
operating decision maker also manages the enterprise in two geographic segments:
(i) United States and (ii) Foreign. The following represents selected
consolidated financial information for the Company's segments for the fiscal
years ended June 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $ 53,677 $ 50,573 $ 50,269
Foreign (see Note 9) - - -
Identifiable assets:
United States 32,584 33,067 39,783
Foreign 22,945 22,720 18,780
</TABLE>
12. SUBSEQUENT EVENTS
On July 27, 2000, the Company signed an Asset Purchase Agreement to acquire the
net assets of Continental Instruments, LLC. ("Continental") for an initial
purchase price of $7,500,000, with additional payments, subject to adjustment
based on a closing balance sheet and certain other contingent events, of up to
$1,700,000 (the "Deferred Payments"). The Company financed the transaction with
borrowings under a term loan of $8,250,000. Continental designs and sells access
control and other security control systems to dealers and distributors
worldwide.
30
<PAGE> 32
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
The acquisition described above will be accounted for as a purchase and was
valued based on management's estimate of the fair value of the assets acquired
and liabilities assumed. The estimates of fair value are preliminary and subject
to adjustment for a period of up to one year from the date of acquisition, and
any such adjustments are not expected to be material. Any increases or decreases
in the Deferred Payments will be recorded as adjustments to the purchase price
and related goodwill prospectively from the date of the change in payment. Costs
in excess of net assets acquired of approximately $6,700,000 will be allocated
to goodwill in the first quarter of fiscal 2001.
31
<PAGE> 33
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30
---------------------------
ASSETS 2000 1999
---------- ------------ ------------
(in thousands)
<S> <C> <C>
CASH $ 971 $ 1,452
ACCOUNTS RECEIVABLE, net 13,442 13,311
INVENTORIES 6,412 6,583
PREPAID EXPENSES AND OTHER CURRENT ASSETS 700 489
DEFERRED INCOME TAXES - 716
----------- -----------
Total current assets 21,525 22,551
INVESTMENT IN SUBSIDIARIES, on equity basis 30,369 29,495
PROPERTY, PLANT AND EQUIPMENT, net 4,871 5,777
DEFFERED INCOME TAXES 716 -
OTHER ASSETS 227 214
----------- -----------
$ 57,708 $ 58,037
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 2,958 $ 5,665
DUE TO SUBSIDIARIES 4,916 3,361
LONG-TERM DEBT 16,183 17,241
DEFERRED INCOME TAXES 292 442
--------- ---------
Total liabilities 24,349 26,709
STOCKHOLDERS' EQUITY 33,359 31,328
--------- ---------
$ 57,708 $ 58,037
========= =========
</TABLE>
This schedule should be read in conjunction with the accompanying consolidated
financial statements and notes thereto.
32
<PAGE> 34
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30,
------------------------------------------
2000 1999 1998
-------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
NET SALES $ 33,611 $ 35,733 $ 41,610
COST OF SALES 24,020 26,325 32,022
----------- ----------- -----------
Gross profit 9,591 9,408 9,588
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,318 7,741 7,934
----------- ----------- -----------
Operating income 2,273 1,667 1,654
EQUITY IN EARNINGS OF SUBSIDIARIES 874 284 757
OTHER EXPENSE, net (1,400) (1,383) (898)
------------ ----------- -----------
Income before (benefit) for income taxes 1,747 568 1,513
(BENEFIT) FOR INCOME TAXES (263) (1,925) (525)
------------ ----------- -----------
Net income $ 2,010 $ 2,493 $ 2,038
============ =========== ===========
</TABLE>
This schedule should be read in conjunction with the accompanying consolidated
financial statements and notes thereto.
33
<PAGE> 35
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
---------------------------------------------------- ----------- ---------- ------------- ----------
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions (1) Period
---------------------------------------------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
For the year ended June 30, 1998:
Allowance for doubtful accounts (deducted from
accounts receivable) $ 805 $ 50 $ 100 $ 755
====== ====== ======= ======
For the year ended June 30, 1999:
Allowance for doubtful accounts (deducted from
accounts receivable) $ 755 $ 230 $ 98 $ 887
====== ====== ======= ======
For the year ended June 30, 2000:
Allowance for doubtful accounts (deducted from
accounts receivable) $ 887 $ 110 $ 375 $ 622
====== ====== ======= ======
</TABLE>
(1) Deductions relate to uncollectible accounts charged off to valuation
accounts, net of recoveries.
This schedule should be read in conjunction with the accompanying consolidated
financial statements and notes thereto.
34
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the Company's definitive proxy statement
for the 2000 annual meeting of stockholders which the Company intends to file
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the Company's 2000 fiscal year, and, accordingly,
items 10, 11, 12 and 13 are omitted pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)1. Financial Statements
The following consolidated financial statements of NAPCO Security
Systems, Inc. and its subsidiaries are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants as of
June 30, 2000 and 1999 and for each of the
3 Years in the Period Ended June 30, 2000...........................................16
Consolidated Balance Sheets as of
June 30, 2000 and 1999..............................................................17
Consolidated Statements of Income for the Years
Ended June 30, 2000, 1999 and 1998..................................................18
</TABLE>
35
<PAGE> 37
<TABLE>
<S> <C>
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 2000, 1999
and 1998............................................................................19
Consolidated Statements of Cash Flows for the
Years Ended June 30, 2000, 1999 and 1998............................................20
Notes to Consolidated Financial Statements,
June 30, 2000, 1999 and 1998........................................................21
(a)2. Financial Statement Schedules
The following consolidated financial statement schedules of NAPCO
Security Systems, Inc. and its subsidiaries are included in Part II, Item 8:
I: Condensed Financial Information
on Parent Company..............................................................32
II: Valuation and Qualifying Accounts..............................................34
</TABLE>
Schedules other than those listed above are omitted because of the
absence of the conditions under which they are required or because the required
information is shown in the consolidated financial statements and/or notes
thereto.
(a)3 and (c). Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Title
-------- -----
<S> <C> <C>
Ex-3.(i) Articles of Incorporation, as amended....................Exhibit 3a to Report on
Form 10-K for fiscal year
ended June 30, 1988
Ex-3.(ii) Amended and Restated By-Laws ............................Exhibit 3.(ii) to Report
on Form 10-K for fiscal
year ended June 30, 1999
Ex-10.A Amended and Restated 1992 Incentive
Stock Option Plan ......................................Exhibit 10.A to Report on
Form 10-K for fiscal year
ended June 30, 1999
</TABLE>
36
<PAGE> 38
<TABLE>
<S> <C> <C>
Ex-10.B 1990 Non-Employee Stock Option Plan......................Exhibit 10c to
Report on Form
10-K for fiscal year
ended June 30, 1991
Ex-10.C Defined Contribution Pension Plan
Basic Plan Document......................................Exhibit 10d to Report on
Form 10-K for fiscal year
ended June 30, 1989
Ex-10.D Defined Contribution Pension Plan
401(k) Profit Sharing Plan
Adoption Agreement.......................................Exhibit 10e to Report on
Form 10-K for fiscal year
ended June 30, 1989
Ex-10.E Promissory Note dated as of November 8,
1991 between Citibank, N.A. and
the Company..............................................Exhibit 10-i
to Report on Form 10-K
for fiscal year ended
June 30, 1992
Ex-10.F Credit Agreement dated November 8,
1991 between N.S.S. Caribe S.A. and
Citibank, N.A............................................Exhibit 10.j to
Report on Form 10-K for
fiscal year ended June
30, 1992
Ex-10.G First Amendment dated as of November 5,
1993 to Credit Agreement dated as of
November 8, 1991 with Citibank, N.A......................Exhibit 10-0
to Report on Form 10-K
for fiscal year ended
June 30, 1993
</TABLE>
37
<PAGE> 39
<TABLE>
<S> <C> <C>
Ex-10.H Loan and Security Agreement with
Marine Midland Bank dated as of
May 12, 1997.............................................Exhibit 10.I to Rpt. On
Form 10K for fiscal year
ended June 30, 1997
Ex-10.I Revolving Credit Note #1 to Marine
Midland Bank dated as of May 12, 1997....................Exhibit 10.J to
Report on Form 10-K for
Fiscal year ended June
30, 1997
Ex-10.J Revolving Credit Note #2 to Marine
Midland Bank dated as of May 12, 1997....................Exhibit 10.K to
Report on Form 10-K for
fiscal year ended June
30, 1997
Ex-10.K Promissory Note to Marine Midland Bank
dated as of May 12, 1997.................................Exhibit 10-L to
Report on Form 10-K for
fiscal year ended June
30, 1997
Ex-10.L Amendment No. 1 to the Loan and Security
Agreement with Marine Midland Bank
dated as of May 28, 1998.................................Exhibit 10-M to
Reportin Form 10-K for
fiscal year ended
June 30, 1998.
Ex.-10.M Term Loan Note to Marine Midland Bank dated as of
May 28, 1998 ............................................Exhibit 10-N to
Report in Form 10-K
For fiscal year ended
June 30, 1998.
Ex-10.N Promissory Note to Kenneth Rosenberg dated as of
May 28, 1998 ............................................Exhibit 10.O to Report
in Form 10-K for fiscal
year ended June 30, 1998.
</TABLE>
38
<PAGE> 40
<TABLE>
<S> <C>
Ex-10.O Consulting Agreement with Kenneth Rosenberg
dated as of May 28, 1998.................................Exhibit 10.P to Report
in Form 10-K for fiscal
year ended
June 30, 1998.
Ex-10.P Employment Agreement with Richard Soloway ...............Exhibit 10.Q to
Report in Form 10-Q for
period ended
March 31, 1999.
Ex-10.Q Employment Agreement with Jorge Hevia ..................Exhibit 10.R to
Report in Form 10-Q for
period ended
March 31, 1999.
Ex-10.R Amendment No. 2 to the Loan and Security
Agreement with HSBC Bank
dated as of June 30, 1999................................Exhibit 10.S to
Report on Form 10-K
for fiscal year ended
June 30, 1999
Ex-10.S Employment Agreement with Michael Carrieri ..............Exhibit 10.U to
Report on Form 10-Q
For fiscal quarter
ended September 30, 1999
Ex-10.T Indemnification Agreement dated August 9, 1999...........Exhibit 10.T to
Report on Form 10-K
For fiscal year ended
June 30, 1999
Ex-10.U Asset Purchase Agreement (1) ............................Exhibit 2.1 to
Report on Form 8-K
Filed July 27, 2000
Ex-10.V Amendment No. 4 to Loan and Security Agreement Exhibit 10.V to
Report on Form 8-K
Filed July 27, 2000
Ex-11 Computation of earnings per share.......................................E-1
Ex-12 Computation of ratios...................................................E-2
Ex-21 Subsidiaries of the Registrant..........................................E-3
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C> <C>
Ex-23 Consent of Independent Public Accountants...............................E-4
Ex-27 Financial Data Schedule.................................................E-5
</TABLE>
Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. Stockholders of the registrant will be
provided with copies of these exhibits upon written request to the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30,
2000.
40
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
September 27, 2000
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
<TABLE>
<S> <C>
By: /s/ RICHARD SOLOWAY By: /s/ KEVIN S. BUCHEL
--------------------- -------------------
Richard Soloway Kevin S. Buchel
Chairman of the Board of Senior Vice President of
Directors, President and Secretary Operations and Finance and Treasurer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/RICHARD SOLOWAY Chairman of the September 27, 2000
----------------------
Richard Soloway Board of Directors
/s/ KEVIN S. BUCHEL
--------------------------
Kevin S. Buchel Director September 27, 2000
/s/RANDY B. BLAUSTEIN
--------------------------
Randy B. Blaustein Director September 27, 2000
/s/ANDREW J. WILDER
--------------------------
Andrew J. Wilder Director September 27, 2000
</TABLE>
41
<PAGE> 43
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FOR FISCAL YEAR ENDING JUNE 30, 2000
COMMISSION FILE NUMBER : 0-10004
NAPCO SECURITY SYSTEMS, INC.
EXHIBITS
<PAGE> 44
Index to Exhibits
-----------------
<TABLE>
<S> <C> <C>
Ex-11 Computation of earnings per share .......................... E-1
Ex-12 Computation of ratios ...................................... E-2
Ex-21 Subsidiaries of the Registrant ............................. E-3
Ex-23 Consent of Independent Public Accountants .................. E-4
Ex-27 Financial Data Schedule .................................... E-5
</TABLE>
