-----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, GRZonJ51IlrO0NKg2UfLSUnytGkoxjunngjg4IwxEKAgYWi9bJKy1qpjFchvdQ7M yY3aOl/7YLx7i8HYAzdiwQ== 0000950123-97-004440.txt : 19970520 0000950123-97-004440.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950123-97-004440 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-10004 FILM NUMBER: 97609613 BUSINESS ADDRESS: STREET 1: 333 BAYVIEW AVE CITY: AMITYVILLE STATE: NY ZIP: 11701 BUSINESS PHONE: 5168429400 MAIL ADDRESS: STREET 1: C/O CURTO BARTON & ALESI, PC STREET 2: ONE HUNTINGTON QUADRANGLE STE 1 NORTH 5 CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 FORM 10-Q 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, 1997 - --- 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, 1997 4,367,727 COMMON STOCK, $.01 PAR VALUE PER SHARE 2 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES INDEX MARCH 31, 1997
Page ---- PART I: FINANCIAL INFORMATION (unaudited) Condensed Consolidated Balance Sheets, March 31, 1997 and June 30, 1996 3 Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 1997 and 1996 4 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II: OTHER INFORMATION 10 SIGNATURE PAGE 11 INDEX TO EXHIBITS 12 Computation of Earnings Per Share E-1
-2- 3 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, June 30, ASSETS 1997 1996 ------ --------- --------- (in thousands) Current Assets: Cash and cash equivalents $ 1,456 $ 426 Accounts receivable, less allowance for doubtful accounts: March 31, 1997 $ 628,000 June 30, 1996 $ 662,000 12,169 13,759 Inventories, net (Note 2) 26,919 25,944 Prepaid expenses and other current assets 678 489 Deferred income taxes, net 911 911 -------- -------- Total current assets 42,133 41,529 Property, Plant and Equipment, net of accumulated depreciation and amortization (Note 3): March 31, 1997 $10,057,000 June 30, 1996 $ 9,137,000 12,160 12,549 Excess of Cost Over Fair Value of Assets Acquired, net 2,726 2,806 Other Assets 186 435 -------- -------- $ 57,205 $ 57,319 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 2,575 $ 1,500 Accounts payable 6,559 5,986 Accrued and other current liabilities 1,176 2,216 Accrued taxes 3,578 3,151 -------- -------- Total current liabilities 13,888 12,853 Long-Term Debt 11,875 14,150 Deferred Income Taxes 742 742 -------- -------- Total liabilities 26,505 27,745 Stockholders' Equity: Common stock: par value $.01 per share; 21,000,000 shares authorized, 5,896,602 shares issued 59 59 Additional paid-in capital 724 719 Retained earnings 29,918 28,797 Less: Treasury stock, at cost (1,528,875 shares) (1) (1) -------- -------- Total stockholders' equity 30,700 29,574 -------- -------- $ 57,205 $ 57,319 ======== ========
See accompanying notes to Condensed consolidated Financial Statements -3- 4 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Nine Months Ended March 31, --------------------------- 1997 1996 ---------- ---------- (in thousands, except per share data) Net Sales $ 38,067 $ 35,360 Cost of Sales 28,621 26,511 ---------- ---------- Gross Profit 9,446 8,849 Selling, General and Administrative Expenses 6,873 6,539 ---------- ---------- Operating income 2,573 2,310 ---------- ---------- Interest Expense, net 820 938 Other Expense, net 181 137 ---------- ---------- 1,001 1,075 ---------- ---------- Income before provision for income taxes 1,572 1,235 Provision for Income Taxes 451 500 ---------- ---------- Net income $ 1,121 $ 735 ========== ========== Earnings Per Share $ 0.26 $ 0.17 ========== ========== Weighted Average Number of Shares Outstanding 4,383,616 4,386,960 ========== ==========
See accompanying notes to Condensed consolidated Financial Statements. -4- 5 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended March 31, -------------------------- 1997 1996 ---------- ---------- (in thousands, except per share data) Net Sales $ 13,583 $ 12,084 Cost of Sales 10,428 9,126 ---------- ---------- Gross Profit 3,155 2,958 Selling, General and Administrative Expenses 2,487 2,385 ---------- ---------- Operating income 668 573 ---------- ---------- Interest Expense, net 262 355 Other Expense, net 63 34 ---------- ---------- 325 389 ---------- ---------- Income before provision for income taxes 343 184 Provision for Income Taxes 128 75 ---------- ---------- Net income $ 215 $ 109 ========== ========== Earnings Per Share $ 0.05 $ 0.02 ========== ========== Weighted Average Number of Shares Outstanding 4,386,859 4,392,103 ========== ==========
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, ---------------------- 1997 1996 ------- ------- (in thousands) Net Cash Provided by Operating Activities $ 2,706 $ 2,876 ------- ------- Cash Flows from Investing Activities: Purchases of property, plant and equipment (476) (920) ------- ------- Net cash used in investing activities (476) (920) ------- ------- Cash Flows from Financing Activities: Principal payments on short-term debt -- (500) Proceeds from long-term debt borrowings -- -- Principal payments on long-term debt (1,200) (1,657) ------- ------- Net cash used in financing activities (1,200) (2,157) ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents 1,030 (201) Cash and Cash Equivalents at Beginning of Period 426 368 ------- ------- Cash and Cash Equivalents at End of Period $ 1,456 $ 167 ======= ======= Cash Paid During the Period for: Interest $ 793 $ 952 ======= ======= Income taxes $ 30 $ 129 ======= =======
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 three and nine months ended March 31, 1997 and 1996 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, 1997 1996 ------- ------- (in thousands) Component parts $18,281 $17,908 Work-in-process 4,516 4,449 Finished products 4,122 3,587 ------- ------- $26,919 $25,944 ======= =======
3.) Property, Plant and Equipment Property, Plant and Equipment consists of:
March 31, June 30, 1997 1996 (in thousands) ------- ------- Land $ 904 $ 904 Building 8,882 8,807 Molds and dies 2,506 2,339 Furniture and fixtures 970 942 Machinery and equipment 8,474 8,268 Building improvements 426 426 ------- ------- 22,162 21,686 Less: Accumulated depreciation and amortization 10,002 9,137 ------- ------- $12,160 $12,549 ======= =======
4.) The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", effective July 1, 1993. SFAS No. 109 requires recognition of deferred tax liabilities and assets for the estimated future tax effects of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. In August 1995, the Internal Revenue Service ("IRS") informed the Company that it is proposing adjustments to the Company's Federal tax returns for fiscal years 1987 through 1992. The IRS has issued a report to the Company that the proposed adjustments would result in taxes due of approximately $4.3 million excluding interest charges. The primary adjustments presented by the IRS relate to intercompany pricing and royalty charges, DISC earnings and charitable contributions. The Company disagrees with the IRS and intends to vigorously appeal this assessment using all remedies and procedural actions available under the law. In October 1996, the Company gave the IRS additional information supporting its position. As a result, the Appeals Division of the IRS has advised the Company that the case will be returned to the Audit Division for further consideration. The Company believes that it has provided adequate reserves at March 31, 1997 to address the ultimate resolution of this matter, so that it will not have a material adverse effect on the Company's consolidated financial statements. -7- 8 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Sales for the nine months ended March 31, 1997 increased 8% to $38,067,000 as compared to $35,360,000 for the same period a year ago. For the three months ended March 31, 1997 sales increased 12% to $13,583,000 from $12,084,000 a year ago. These increases were primarily due to the introduction of new products and increased availability of finished goods due to improvements in production efficiency. The Company's gross profit margin for the nine months ended March 31, 1997 increased to $9,446,000 or 24.8% of sales as compared to $8,849,000 or 25.0% of sales for the same period a year ago. For the three months ended March 31, 1997, gross profit increased to $3,155,000 or 23.2% of sales as compared to $2,958,000 or 24.5% of sales for the same period a year ago. These increases are primarily the result of increased net sales and cost savings being generated by the Company's offshore facility in the Dominican Republic. The decrease in the gross profit percentage during the three months ended March 31, 1997 is primarily the result of general pricing pressures in the industry. Selling, general and administrative expenses for the nine months ended March 31, 1997 increased by 5% to $6,873,000 as compared to $6,539,000 a year ago. For the three months ended March 31, 1997, selling, general and administrative expenses increased by 7% to $2,487,000 from $2,385,000 last year. These increases are due to the Company's aggresive marketing of its recently introduced product lines as partially offset by its continued efforts towards cost containment. Interest and other expense for the nine months ended March 31, 1997 decreased slightly to $1,001,000 from $1,075,000 for the same period a year ago. For the three months ended March 31, 1997, interest and other expenses also decreased $64,000 as compared to the same period in fiscal 1995 due primarily by the Company's continued reduction in its outstanding debt. Provision for income taxes decreased $49,000 to $451,000 or an effective rate of 29% for the nine months ended March 31, 1997 as compared to $500,000 or 40% a year ago. The decrease in the effective rate in 1997 as compared to 1996 is the result of lower levels of permanent non-deductible expenses and lower reserve requirements. For the three months ended March 31, 1997 the provision for income taxes increased to $128,000 or an effective rate of 37% as compared to $75,000 or 41% for the same period a year ago. The higher effective tax rate in the current fiscal quarter as compared to the prior two quarters reflects an increase of non-deductible permanent differences between book and tax income in the three months ended March 31, 1997. Net income increased by 53% to $1,121,000 or $.26 per share for the nine months ended March 31, 1997 from $735,000 or $.17 per share for the same period a year ago. For the three months ended March 31, 1997 net income increased by 97% to $215,000 or $.05 per share as compared to $109,000 or $.02 per share for the same quarter a year ago. These increases are primarily the result of the items discussed above. -8- 9 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources During the nine months ended March 31, 1997 the Company utilized a large portion of its cash generated from operations to make principal payments on its debt as well as to purchase property, and equipment. The remaining cash provided by operations resulted in an increase in cash and cash equivalents to $1,456,000 at March 31, 1997 from $426,000 as of June 30, 1996. Accounts Receivable at March 31, 1997 decreased by $1,590,000 to $12,169,000 as compared to $13,759,000 at June 30, 1996. This decrease is primarily the result of the higher sales volume during the quarter ended June 30, 1996 as compared to the quarter ended March 31, 1997 as well as improved collection procedures. Inventory at March 31, 1997 was $26,919,000, increasing by $975,000 from $25,944,000 at June 30, 1996. This increase is predominantly the result of the Company's build-up of resources in connection with the production of several new product lines. On July 27, 1994, the Company entered into an $11,000,000 secured revolving credit and term loan facility with two banks, with the Company's primary bank acting as agent. In conjunction with this agreement, the banks have received as collateral all accounts receivable and inventory located in the United States. The revolving credit loan, which bears interest based on a number of options available to the Company, converts to a term loan on June 30, 1997 payable in sixteen (16) equal quarterly installments beginning on September 30, 1997. The agreement contains various covenants and restrictions on the Company. As of March 31, 1997 the Company was not in compliance with certain of these financial covenants for which they anticipate receiving the appropriate waivers from the banks. On March 31, 1995, the Company amended its existing revolving credit and term loan facility to provide for an additional $2,000,000 secured line of credit. The balance under this line was fully paid in October 1995. On July 28, 1994 the Company entered into a separate $2,000,000 line of credit with its primary bank to be used in connection with commercial and standby letters of credit. On 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, a $3,000,000 line of credit to be used in connection with commercial and standby letters of credit, and the replacement of the $2,500,000 standby letter of credit securing an earlier loan from another bank in connection with the Company's international operations. These agreements replaced the $11,000,000 and $2,000,000 credit agreements described above. 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 facility. The revolving credit agreement will expire in May, 2000 and any outstanding borrowings are to be repaid on or before that time. On April 26, 1993 the Company's foreign subsidiary entered into a 99 year land lease of approximately four acres of land in the Dominican Republic, at an annual cost of approximately $272,000. The foreign subsidiary relocated its operations to this site at the end of fiscal 1995. As of March 31, 1997 the Company had no material committments for capital expenditures. -9- 10 PART II: OTHER INFORMATION Item 1. Legal Proceedings There are no pending or threatened material legal proceedings to which NAPCO or its subsidiaries or any of their property is subject other than as follows: In August 1995, the Internal Revenue Service ("IRS") informed the Company that it is proposing adjustments to the Company's Federal tax returns for fiscal years 1987 through 1992. The IRS has issued a report to the Company that the proposed adjustments would result in taxes due of approximately $4.3 million excluding interest charges. The primary adjustments presented by the IRS relate to intercompany pricing and royalty charges, DISC earnings and charitable contributions. The Company disagrees with the IRS and intends to vigorously appeal this assessment using all remedies and procedural actions available under the law. In October 1996, the Company gave the IRS additional information supporting its position. As a result, the Appeals Division of the IRS has advised the Company that the case will be returned to the Audit Division for further consideration. The Company believes that it has provided adequate reserves at March 31, 1997 to address the ultimate resolution of this matter, so that it will not have a material adverse effect on the Company's consolidated financial statements. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Earnings Per Share (b) No reports on Form 8-K have been filed during the Company's fiscal quarter ended March 31, 1997. -10- 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. May 13, 1997 NAPCO SECURITY SYSTEMS, INC. (Registrant) By: /s/ Richard Soloway By: /s/ Kenneth Rosenberg ----------------------------------- ------------------------------- Richard Soloway Kenneth Rosenberg Chairman of the Board of Directors President and Treasurer and Secretary (Co-Principal Executive Officer) (Co-Principal Executive Officer) By: /s/ Kevin S. Buchel ------------------------------- Kevin S. Buchel Senior Vice President of Operations and Finance (Principal Financial and Accounting Officer) -11- 12 INDEX TO EXHIBITS
Exhibits Page - -------- ---- 11 Computation of Earnings Per Share E-1 27 Financial Data Schedule
-12- EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit (11) NAPCO SECURITY SYSTEMS, INC. COMPUTATION OF EARNINGS PER SHARE (unaudited)
Nine Months Ended March 31, --------------------- 1997 1996 ------ ------ (in thousands, except per share data) Average Shares Outstanding 4,368 4,368 Add: Common Stock Equivalents 16 19 ------ ------ Weighted Average Shares Outstanding 4,384 4,387 ====== ====== Net Income $1,121 $ 735 ====== ====== Earnings Per Share $ 0.26 $ 0.17 ====== ======
Three Months Ended March 31, --------------------- 1997 1996 ------ ------ (in thousands, except per share data) Average Shares Outstanding 4,368 4,368 Add: Common Stock Equivalents 19 24 ------ ------ Weighted Average Shares Outstanding 4,387 4,392 ====== ====== Net Income $ 215 $ 109 ====== ====== Earnings Per Share $ 0.05 $ 0.02 ====== ======
Primary earnings per share computations are based on the weighted average number of shares outstanding plus common stock equivalents calculated at the monthly average market price per share. E-1 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 1,456 0 12,169 628 26,919 42,133 12,160 10,057 57,205 13,888 0 59 0 0 723 57,205 38,067 38,067 28,621 28,621 6,873 0 1,001 1,572 451 1,121 0 0 0 1,121 .26 .26
-----END PRIVACY-ENHANCED MESSAGE-----