-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KdfrhJQIIAoQqkVIHHdmSfXQ9lyuYkZx35mmcDU+FcF5NnQ+/DGGSZ/fKT8cOEdc WGcDFpzde/ltSDu9KoIhlw== 0000950123-00-005024.txt : 20000516 0000950123-00-005024.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950123-00-005024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAPCO SECURITY SYSTEMS INC CENTRAL INDEX KEY: 0000069633 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 112277818 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10004 FILM NUMBER: 631228 BUSINESS ADDRESS: STREET 1: 333 BAYVIEW AVE CITY: AMITYVILLE STATE: NY ZIP: 11701 BUSINESS PHONE: 5168429400 MAIL ADDRESS: STREET 1: C/O FORCHELLI CURTO SCHWARTZ ET AL, LLP STREET 2: 330 OLD COUNTRY RD. - 3RD FL. CITY: MINEOLA STATE: NY ZIP: 11501 10-Q 1 NAPCO SECURITY SYSTEMS, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2000 ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ . Commission File Number: 0-10004 NAPCO SECURITY SYSTEMS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 11-2277818 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 333 Bayview Avenue Amityville, New York 11701 (Zip Code) (516) 842-9400 (Registrant's telephone number including area code) NONE (Former name, former address and former fiscal year if changed from last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No_____ Number of shares outstanding of each of the issuer's classes of common stock, as of: MARCH 31, 2000 COMMON STOCK, $.01 PAR VALUE PER SHARE 3,496,351 2 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES INDEX MARCH 31, 2000 Page PART I: FINANCIAL INFORMATION (unaudited) Condensed Consolidated Balance Sheets, March 31, 2000 and June 30, 1999 3 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2000 and 1999 4 Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 2000 and 1999 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2000 and 1999 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 -2- 3 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, June 30, ASSETS 2000 1999 -------- -------- (in thousands, except share data) Current Assets: Cash and cash equivalents $ 1,488 $ 2,230 Accounts receivable, less allowance for doubtful accounts: March 31, 2000 $ 650 June 30, 1999 $ 887 14,589 16,446 Inventories, net (Note 2) 23,020 21,495 Prepaid expenses and other current assets 761 809 Deferred income taxes, net 716 716 -------- -------- Total current assets 40,574 41,696 Property, Plant and Equipment, net of accumulated depreciation and amortization (Note 3): March 31, 2000 $13,314 June 30, 1999 $12,316 11,169 11,280 Goodwill, net 2,405 2,485 Other Assets 297 326 -------- -------- $ 54,445 $ 55,787 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,058 $ 1,433 Accounts payable 3,527 3,651 Accrued and other current liabilities 1,335 1,582 Accrued taxes 20 110 -------- -------- Total current liabilities 5,940 6,776 Long-Term Debt 16,454 17,241 Deferred Income Taxes 442 442 -------- -------- Total liabilities 22,836 24,459 Stockholders' Equity: Common stock, par value $.01 per share; 21,000,000 shares authorized, 5,914,802 and 5,908,602 shares issued; 3,496,351 and 3,490,151 shares outstanding, respectively 59 59 Additional paid-in capital 766 751 Retained earnings 35,233 34,967 Less: Treasury stock, at cost (2,418,451 shares) (4,449) (4,449) -------- -------- Total stockholders' equity 31,609 31,328 -------- -------- $ 54,445 $ 55,787 ======== ========
See accompanying notes to Condensed consolidated Financial Statements. -3- 4 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended March 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands, except share and per share data) Net Sales $ 14,085 $ 11,672 Cost of Sales 10,479 8,950 ----------- ----------- Gross profit 3,606 2,722 Selling, General and Administrative Expenses 2,610 3,247 ----------- ----------- Operating income 996 (525) ----------- ----------- Interest Expense, net 337 327 Other Expense, net 15 150 ----------- ----------- 352 477 ----------- ----------- Income (loss) before provision (benefit) for income taxes 644 (1,002) Provision (benefit) for Income Taxes 127 (1,345) ----------- ----------- Net income $ 517 $ 343 =========== =========== Earnings Per Share (Note 5): Basic $ 0.15 $ 0.10 =========== =========== Diluted $ 0.15 $ 0.10 =========== =========== Weighted Average Number of Shares Outstanding (Note 5): Basic 3,495,851 3,480,401 =========== =========== Diluted 3,538,859 3,491,250 =========== ===========
See accompanying notes to Condensed consolidated Financial Statements. -4- 5 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Nine Months Ended March 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands, except share and per share data) Net Sales $ 36,748 $ 33,608 Cost of Sales 27,508 25,591 ----------- ----------- Gross profit 9,240 8,017 Selling, General and Administrative Expenses 7,870 7,970 ----------- ----------- Operating income 1,370 47 ----------- ----------- Interest Expense, net 991 1,047 Other Expense, net 45 59 ----------- ----------- 1,036 1,106 ----------- ----------- Income (loss) before provision (benefit) for income taxes 334 (1,059) Provision (benefit) for Income Taxes 68 (1,906) ----------- ----------- Net income $ 266 $ 847 =========== =========== Earnings Per Share (Note 5): Basic $ 0.08 $ 0.24 =========== =========== Diluted $ 0.08 $ 0.24 =========== =========== Weighted Average Number of Shares Outstanding (Note 5): Basic 3,494,301 3,480,401 =========== =========== Diluted 3,510,189 3,505,824 =========== ===========
See accompanying notes to Condensed consolidated Financial Statements. -5- 6 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended March 31, ---------------------- 2000 1999 ------- ------- (in thousands) Net Cash Provided by Operating Activities $ 1,307 $ 1,790 ------- ------- Cash Flows from Investing Activities: Purchases of property, plant and equipment (887) (745) ------- ------- Net cash used in investing activities (887) (745) ------- ------- Cash Flows from Financing Activities: Principal payments on long-term debt (1,162) (1,051) ------- ------- Net cash (used in) financing activities (1,162) (1,051) ------- ------- Net (Decrease) in Cash and Cash Equivalents (742) (6) Cash and Cash Equivalents at Beginning of Period 2,230 1,989 ------- ------- Cash and Cash Equivalents at End of Period $ 1,488 $ 1,983 ======= ======= Cash Paid During the Period for: Interest $ 1,065 $ 879 ======= ======= Income taxes $ 159 $ 250 ======= =======
See accompanying notes to Condensed consolidated Financial Statements. -6- 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 nine months ended March 31, 2000 and 1999 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:
March 31, June 30, 2000 1999 ------- ------- (in thousands) Component parts $10,809 $10,093 Work-in-process 5,305 4,954 Finished products 6,905 6,448 ======= ======= $23,020 $21,495 ======= =======
3.) Property, Plant and Equipment Property, Plant and Equipment consists of:
March 31, June 30, 2000 1999 ------- ------- (in thousands) Land $ 904 $ 904 Building 8,911 8,911 Molds and dies 3,583 3,180 Furniture and fixtures 1,018 964 Machinery and equipment 10,011 9,581 Building improvements 56 56 ------- ------- 24,483 23,596 Less: Accumulated depreciation and amortization 13,314 12,316 ======= ======= $11,169 $11,280 ======= =======
4.) In August 1995, the Internal Revenue Service ("IRS") informed the Company that it had completed the audit of the Company's Federal tax returns for fiscal years 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 the 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. -7- 8 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5.) Net Income Per Common Share The Company follows the provisions of Statement of Financial Accounting standards ("SFAS") No. 128, "Earnings per share". In accordance with SFAS No. 128, net income per common share amounts ("basic EPS") were computed by dividing net income by the weighted average number of common shares outstanding for the period. Net income per common share amounts, assuming dilution ("diluted EPS"), were computed by reflecting the potential dilution from the exercise of stock options. SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the face of the income statement. A reconciliation between the numerators and denominators of the basic and diluted EPS computations for net income is as follows:
Three Months Ended March 31, 2000 (in thousands, except per share data) --------------------------------------- Net Income Shares Per Share (numerator) (denominator) Amounts Net income $ 517 -- -- ----- ----- ----- BASIC EPS Net income attributable to common stock $ 517 3,496 $0.08 EFFECT OF DILUTIVE SECURITIES Options -- 43 -- ----- ----- ----- DILUTED EPS Net income attributable to common stock and assumed option exercises $ 517 3,539 $0.08 ===== ===== =====
Nine Months Ended March 31, 2000 (in thousands, except per share data) ---------------------------------------- Net Income Shares Per Share (numerator) (denominator) Amounts Net income $ 266 -- -- ----- ----- ----- BASIC EPS Net income attributable to common stock $ 266 3,494 $0.15 EFFECT OF DILUTIVE SECURITIES Options -- 16 -- ----- ----- ----- DILUTED EPS Net income attributable to common stock and assumed option exercises $ 266 3,510 $0.15 ===== ===== =====
Options to purchase 103,040 and 91,040 shares of common stock in the three and nine months ended March 31, 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 this period. These options were still outstanding at the end of the period. -8- 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 three months ended March 31, 2000 increased by 21% to $14,085,000 as compared to $11,672,000 for the same period period a year ago. For the nine months ended March 31, 2000 net sales increased by 9% to $36,748,000 from $33,608,000 for the same period in fiscal 1999. The increase in net sales for the three and nine months ended March 31, 2000 occurred primarily from an increase in overall demand for the Company's products as well as from the effects of one of the Company's customers being acquired in the quarter ended March 31, 1999 which did not affect the three and nine months ended March 31, 2000. The Company's gross margin for the three months ended March 31, 2000 increased by $884,000 to $3,606,000 or 25.6% of sales as compared to $2,722,000 or 23.3% of sales for the same period a year ago. Gross margin for the nine months ended March 31, 2000 was $9,240,000 or 25.1% of sales as compared to $8,017,000 or 23.9% of sales for the same period a year ago. These increases were primarily due to the increased sales as discussed above as well as increased efficiencies in the procurement of component parts. Selling, general and administrative expenses for the three months ended March 31, 2000 decreased by $637,000 to $2,610,000 as compared to $3,247,000 a year ago. For the nine months ended March 31, 2000 selling, general and administrative expenses decreased by $100,000 to $7,870,000 as compared to $7,970,000 for the same period a year ago. The decrease in the three and nine months resulted primarily from the Company's increased reserves related to its Latin America customers in the three and nine months ended March 31, 1999 that did not impact the three and nine months ended March 31, 2000. Interest and other expense for the three months ended March 31, 2000 decreased by $125,000 to $352,000 from $477,000 for the same period a year ago. For the nine months ended March 31, 2000 interest and other expenses decreased by $70,000 to $1,036,000 from $1,106,000 for the same period in fiscal 1999. These decreases were primarily due to the Company's continuing reduction in its outstanding debt. Provision for income taxes for the three months ended March 31, 2000 increased by $1,472,000 to a provision of $127,000 as compared to a benefit of $1,345,000 for the same period a year ago. For the nine months ended March 31, 2000 provision for income taxes increased by $1,974,000 to a provision of $68,000 as compared to a benefit of $1,906,000 for the same period a year ago. These increases were primarily due to the favorable effect in fiscal 1999 of the reversal of previously recorded reserves no longer required with respect to IRS audits of fiscal years 1986 through 1997. Net income increased by $174,000 to $517,000 or $.15 per share for the three months ended March 31, 2000 as compared to $343,000 or $.10 per share for the same period a year ago. For the nine months ended March 31, 2000 net income decreased by $581,000 to $266,000 or $.08 per share as compared to $847,000 or $.24 per share for the same period in fiscal 1999. These changes were primarily due to the items discussed above. Liquidity and Capital Resources During the nine months ended March 31, 2000 the Company utilized all of its cash generated from operations and a portion of its cash on hand to reduce its outstanding borrowings, purchase property and equipment and invest in additional inventory as discussed below. The Company reduced its outstanding debt to $17,512,000 at March 31, 2000 from $18,674,000 at June 30, 1999 while cash and cash equivalents decreased to $1,488,000 from $2,230,000 over the same period. Accounts Receivable at March 31, 2000 decreased $1,857,000 to $14,589,000 as compared to $16,446,000 at June 30, 1999. This decrease is primarily the result of the higher sales volume during the quarter ended June 30, 1999 as compared to the quarter ended March 31, 2000. Inventory at March 31, 2000 increased by $1,525,000 to $23,020,000 as compared to $21,495,000 at June 30, 1999. This increase was primarily the result of the Company increasing production of certain of its existing products as well as preparing for the rollout of several new products during the fiscal year. 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. $2.5 million was paid at closing with the balance of the purchase price to be paid over a four (4) year period. 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. -9- 10 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company's bank debt consists of 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. The revolving credit agreement was amended to expire in May 2001 and any outstanding borrowings are to be repaid on or before that time. As of March 31, 2000 the Company had no material commitments for capital expenditures. 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 its vendors and suppliers. It is possible that the Company's computerized systems could be affected in the future by the Year 2000 issue. The Company has not incurred any significant expenses relating to the Year 2000 issue. Forward-looking Statements This quarterly report, other than historical financial information, contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in Item 1 of the Company's annual report on Form 10-K for the year ended June 30, 1999. These include risks and uncertainties relating to competition and technological change, intellectual property rights, capital spending, international operations, and the Company's acquisition strategies. 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 March 31, 2000 an aggregate amount of approximately $15,000,000 was outstanding under this credit facility with a weighted average interest rate of 7.8%. If principal amounts outstanding under this facility remained at this quarter-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 in 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. -10- 11 PART II: OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 22 Financial Data Schedule (b) No reports on Form 8-K have been filed during the Company's fiscal quarter ended March 31, 2000. -11- 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. May 11, 2000 NAPCO SECURITY SYSTEMS, INC. (Registrant) By: /s/ Richard Soloway ----------------------------------------- Richard Soloway Chairman of the Board of Directors, President and Secretary (Principal Executive Officer) By: /s/ Kevin S. Buchel ----------------------------------------- Kevin S. Buchel Senior Vice President of Operations and Finance and Treasurer (Principal Financial and Accounting Officer) -12- 13 INDEX TO EXHIBITS
Exhibits - -------- 22 Financial Data Schedule
-13- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 1,488 0 14,589 650 23,020 761 24,483 13,314 54,445 5,940 0 0 0 59 31,550 54,445 36,748 36,748 27,508 27,508 7,870 0 1,036 334 68 266 0 0 0 266 0.08 0.08
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