-----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, WzqUIZjlINIg8KbiWK5yCOf0uCqRUYfke9OKo9ii3Zvl4I/0deJ6msklE1Odmeig l5wknQ/LQUnpi6EA0wcr2w== 0000950123-98-005031.txt : 19980515 0000950123-98-005031.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950123-98-005031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: SEC FILE NUMBER: 000-10004 FILM NUMBER: 98621352 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 NAPCO SECURITIES SYSTEMS INC. 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, 1998 / / 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, 1998 COMMON STOCK, $.01 PAR VALUE PER SHARE 4,379,227 2 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES INDEX MARCH 31, 1998
Page ---- PART I: FINANCIAL INFORMATION (unaudited) Condensed Consolidated Balance Sheets, March 31, 1998 and June 30, 1997 3 Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II: OTHER INFORMATION 12 SIGNATURE PAGE 13 INDEX TO EXHIBITS 14
-2- 3 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, June 30, ASSETS 1998 1997 -------- -------- Current Assets: (in thousands) Cash and cash equivalents $ 2,014 $ 1,006 Accounts receivable, less allowance for doubtful accounts: March 31, 1998 $ 735,000 June 30, 1997 $ 805,000 12,228 13,937 Inventories, net (Note 2) 27,949 25,702 Prepaid expenses and other current assets 605 390 Deferred income taxes, net 986 986 -------- -------- Total current assets 43,782 42,021 Property, Plant and Equipment, net of accumulated depreciation and amortization (Note 3): March 31, 1998 $ 10,800,000 June 30, 1997 $ 10,344,000 11,595 12,088 Excess of Cost Over Fair Value of Assets Acquired, net 2,619 2,699 Other Assets 387 436 -------- -------- $ 58,383 $ 57,244 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 900 $ 900 Accounts payable 4,020 5,500 Accrued and other current liabilities 1,636 1,808 Accrued taxes 3,859 3,677 -------- -------- Total current liabilities 10,415 11,885 Long-Term Debt 15,188 13,313 Deferred Income Taxes 828 828 -------- -------- Total liabilities 26,431 26,026 Stockholders' Equity: Common stock: par value $.01 per share; 21,000,000 shares authorized, 5,908,102 and 5,896,602 shares issued, respectively 59 59 Additional paid-in capital 749 724 Retained earnings 31,145 30,436 Less: Treasury stock, at cost (1,528,875 shares) (1) (1) -------- -------- Total stockholders' equity 31,952 31,218 -------- -------- $ 58,383 $ 57,244 ======== ========
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, --------------------------- 1998 1997 ---------- ---------- (in thousands, except per share data) Net Sales $ 35,687 $ 38,067 Cost of Sales 26,895 28,621 ---------- ---------- Gross Profit 8,792 9,446 Selling, General and Administrative Expenses 6,886 6,873 ---------- ---------- Operating income 1,906 2,573 ---------- ---------- Interest Expense, net 811 820 Other Expense, net 112 181 ---------- ---------- 923 1,001 ---------- ---------- Income before provision for income taxes 983 1,572 Provision for Income Taxes 274 451 ---------- ---------- Net income $ 709 $ 1,121 ========== ========== Earnings Per Share (Note 5): Basic $ 0.16 $ 0.26 ========== ========== Diluted $ 0.16 $ 0.26 ========== ========== Weighted Average Number of Shares Outstanding (Note 5): Basic 4,374,477 4,367,727 ========== ========== Diluted 4,398,293 4,383,616 ========== ==========
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, --------------------------- 1998 1997 ---------- ---------- (in thousands, except per share data) Net Sales $ 12,023 $ 13,583 Cost of Sales 9,201 10,428 ---------- ---------- Gross Profit 2,822 3,155 Selling, General and Administrative Expenses 2,277 2,487 ---------- ---------- Operating income 545 668 ---------- ---------- Interest Expense, net 282 262 Other Expense, net 100 63 ---------- ---------- 382 325 ---------- ---------- Income before provision for income taxes 163 343 Provision for Income Taxes 42 128 ---------- ---------- Net income $ 121 $ 215 ========== ========== Earnings Per Share (Note 5): Basic $ 0.03 $ 0.05 ========== ========== Diluted $ 0.03 $ 0.05 ========== ========== Weighted Average Number of Shares Outstanding (Note 5): Basic 4,379,227 4,367,727 ========== ========== Diluted 4,403,651 4,386,859 ========== ==========
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, ---------------------- 1998 1997 ------- ------- (in thousands) Net Cash (Used in) Provided by Operating Activities $ (904) $ 2,706 ------- ------- Cash Flows from Investing Activities: (Purchases) dispositions of property, plant and equipment 37 (476) ------- ------- Net cash provided by (used in) investing activities 37 (476) ------- ------- Cash Flows from Financing Activities: Proceeds from long-term debt borrowings 2,550 -- Principal payments on long-term debt (675) (1,200) ------- ------- Net cash provided by (used in) financing activities 1,875 (1,200) ------- ------- Net Increase in Cash and Cash Equivalents 1,008 1,030 Cash and Cash Equivalents at Beginning of Period 1,006 426 ------- ------- Cash and Cash Equivalents at End of Period $ 2,014 $ 1,456 ======= ======= Cash Paid During the Period for: Interest $ 663 $ 793 ======= ======= Income taxes $ 85 $ 30 ======= =======
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, 1998 and 1997 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, 1998 1997 ------- ------- (in thousands) Component parts $12,963 $12,197 Work-in-process 3,569 3,374 Finished products 11,417 10,131 ------- ------- $27,949 $25,702 ======= =======
3.) Property, Plant and Equipment Property, Plant and Equipment consists of:
March 31, June 30, 1998 1997 ------- ------- (in thousands) Land $ 904 $ 904 Building 8,911 8,911 Molds and dies 2,607 2,554 Furniture and fixtures 981 977 Machinery and equipment 8,560 8,660 Building improvements 432 426 ------- ------- 22,395 22,432 Less: Accumulated depreciation and amortization 10,800 10,344 ------- ------- $11,595 $12,088 ======= =======
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. The Company believes that it has provided adequate reserves at March 31, 1998 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 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5.) Net Income Per Common Share Effective December 31, 1997, the Company adopted 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. Net income per share amounts for the same prior-year periods have been restated to conform to the provisions of SFAS No. 128. A reconciliation between the numerators and denominators of the basic and diluted EPS computations for net income is as follows:
Nine Months Ended March 31, 1998 (in thousands, except per share data) ------------------------------------------------- Net Income Shares Per Share (numerator) (denominator) Amounts Net income $709 -- -- ---- BASIC EPS Net income attributable to common stock $709 4,374 $0.16 ---- EFFECT OF DILUTIVE SECURITIES Options -- 69 -- ---- ----- ----- DILUTED EPS Net income attributable to common stock and assumed option exercises $709 4,443 $0.16 ==== ===== =====
Three Months Ended March 31, 1998 (in thousands, except per share data) ------------------------------------------------ Net Income Shares Per Share (numerator) (denominator) Amounts Net income $121 -- -- ---- BASIC EPS Net income attributable to common stock 121 4,379 $0.03 EFFECT OF DILUTIVE SECURITIES Options -- 69 -- ---- ----- ----- DILUTED EPS Net income attributable to common stock and assumed option exercises $121 4,448 $0.03 ==== ===== =====
Options to purchase 4,400 shares of common stock in the quarter ended March 31, 1998 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 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6.) Year 2000 Date Conversion As the century turns from 1900 to 2000, date-sensitive systems may recognize the year 2000 as 1900 or not at all. This results primarily because of the conventional use of a two digit date field in most software applications. The inability to properly recognize the year 2000 may cause systems to process financial and operational information incorrectly. The majority of the Company's systems are already Year 2000 compliant. The Company expects that virtually all of its systems will be fully compliant by July 1998. Due to the fact that the Company's software manufacturer includes the Year 2000 upgrade as part of its ongoing maintenance, the Company expects to expend a minimal amount of its resources in this area. -9- 10 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, 1998 decreased 6% to $35,687,000 as compared to $38,067,000 for the same period a year ago. For the three months ended March 31, 1998 sales decreased 11% to $12,023,000 from $13,583,000 a year ago. These decreases were primarily due to the significant reduction in sales to a major customer as disclosed in the Company's most recent Form 10-K and annual report. Also, because of improved delivery response to the Company's customers, the sales orders during the quarter are closer to a "just in time" basis even though the "sell through" of product to the installer has increased. The effect of these factors was partially offset by an increase in the Company's international sales. During the second quarter, the Company announced that it had reorganized its Sales and Marketing management team. The Company's gross profit margin for the nine months ended March 31, 1998 decreased to $8,792,000 or 24.6% of sales as compared to $9,446,000 or 24.8% of sales for the same period a year ago. For the three months ended March 31, 1998, gross profit decreased to $2,822,000 or 23.5% of sales as compared to $3,155,000 or 23.2% of sales for the same period a year ago. These decreases are primarily the result of the decrease in net sales as partially offset by cost savings being generated by the Company's offshore facility in the Dominican Republic. Selling, general and administrative expenses for the nine months ended March 31, 1998 remained relatively constant at $6,886,000 as compared to $6,873,000 a year ago. For the three months ended March 31, 1998, selling, general and administrative expenses decreased by 8% to $2,277,000 from $2,487,000 last year. These levels were primarily the result of decreased variable expenses relating to the Company's lower sales volume. Interest and other expense for the nine months ended March 31, 1998 decreased to $923,000 from $1,001,000 for the same period a year ago. For the three months ended March 31, 1998, interest and other expenses increased to $382,000 as compared to $325,000 for the same period in fiscal 1997. These changes were primarily the result of lower interest rates as offset in the third quarter by increased outstanding debt. Provision for income taxes decreased $177,000 to $274,000 for the nine months ended March 31, 1998 as compared to $451,000 a year ago. For the three months ended March 31, 1998 the provision for income taxes decreased to $42,000 as compared to $128,000 for the same period a year ago. These changes are primarily the result of the decrease in income before income taxes resulting from the items discussed above. Net income decreased by 37% to $709,000 or $.16 per share for the nine months ended March 31, 1998 from $1,121,000 or $.26 per share for the same period a year ago. For the three months ended March 31, 1998 net income decreased by 44% to $121,000 or $.03 per share as compared to $215,000 or $.05 per share for the same quarter a year ago. These decreases are primarily the result of the items discussed above. -10- 11 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, 1998 the Company utilized a substantial portion of its cash generated from operations as well as additional borrowings to increase its investment in inventory. This resulted in an increase in cash and cash equivalents to $2,014,000 at March 31, 1998 from $1,006,000 as of June 30, 1997 and a net increase in outstanding debt of $1,875,000 to $16,088,000 at March 31, 1998 from $14,213,000 at June 30, 1997. Accounts Receivable at March 31, 1998 decreased by $1,709,000 to $12,228,000 as compared to $13,937,000 at June 30, 1997. This decrease is primarily the result of the higher sales volume during the quarter ended June 30, 1997 as compared to the quarter ended March 31, 1998 and the decrease in net sales as previously discussed. Inventory at March 31, 1998 was $27,949,000, increasing by $2,247,000 from $25,702,000 at June 30, 1997. This increase is predominantly the result of the Company expanding its finished goods inventory levels at its locations that service its international markets as well as in preparation for production of several new product lines. 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 an $11,000,000 and a $2,000,000 credit agreement previously available to the Company. 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. As of March 31, 1998 the Company had no material commitments for capital expenditures except as desscribed herein. In May of 1998 the Company announced that it had reached an agreement in principle with Napco's co-founder Kenneth Rosenberg to repurchase all of Mr. Rosenberg's 889,576 shares of Napco common stock for $5.00 per share. The Company anticipates a Closing to occur shortly, at which time $2.5 million of the purchase price will be paid. The balance will be paid over a 4-year period. The portion of the purchase price payable at Closing will be financed by the Company's primary bank. At the Closing, Mr. Rosenberg, who has recently taken a less active role in the Company's business, will retire as president and director of the Company, but will be available to the Company pursuant to a consulting agreement. The agreement also contemplates that Mr. Rosenberg will not compete with the Company for a 10-year period. -11- 12 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. The Company believes that it has provided adequate reserves at March 31, 1998 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 None (b) No reports on Form 8-K have been filed during the Company's fiscal quarter ended March 31, 1998. -12- 13 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, 1998 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) -13- 14 INDEX TO EXHIBITS Exhibits - -------- 27 Financial Data Schedule -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 2,014 0 12,228 735 27,949 43,782 11,595 10,800 58,383 10,415 0 0 0 59 748 58,383 35,687 35,687 26,895 26,895 6,886 0 923 983 274 709 0 0 0 709 0.16 0.16
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