SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: DECEMBER
31, 2001
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)
(631) 842-9400
(Registrant's telephone number including area code)
NONE
(Former name, former address and former fiscal year
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock, as of: DECEMBER 31, 2001
COMMON STOCK, $.01 PAR VALUE PER SHARE 3,338,296
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
DECEMBER 31, 2001
Page
PART I: FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
December 31, 2001 and June 30, 2001 3
Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 2001 and 2000 4
Condensed Consolidated Statements of Income for the Six
Months Ended December 31, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II: OTHER INFORMATION 14
SIGNATURE PAGE 15
INDEX TO EXHIBITS 16
-2-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
December 31, June 30,
ASSETS 2001 2001
----------------- -------------------
Current Assets: (in thousands, except share data)
Cash and cash equivalents $ 2,744 $ 1,037
Accounts receivable, less reserve for doubtful accounts:
December 31, 2001 $ 841
June 30, 2001 $ 700 13,607 16,940
Inventories (Note 2) 23,490 23,234
Prepaid expenses and other current assets 887 895
----------------- -------------------
Total current assets 40,728 42,106
Property, Plant and Equipment, net of accumulated depreciation
and amortization (Note 3):
December 31, 2001 $ 15,962
June 30, 2001 $ 15,288 10,351 10,663
Goodwill, net of accumulated amortization 9,686 9,686
Deferred income taxes 785 785
Other Assets 411 437
----------------- -------------------
$ 61,961 $ 63,677
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 3,509 $ 3,533
Accounts payable 3,979 3,361
Accrued and other current liabilities 1,640 1,925
Accrued income taxes 76 55
---------------- -------------------
Total current liabilities 9,204 8,874
Long-Term Debt 20,163 21,567
Deferred Income Taxes 292 292
---------------- -------------------
Total liabilities 29,659 30,733
---------------- -------------------
Stockholders' Equity:
Common stock, par value $.01 per share; 21,000,000
shares authorized, 5,938,852 and 5,938,852
shares issued, respectively; 3,338,296 and
3,366,596 shares outstanding respectively 60 59
Additional paid-in capital 903 831
Retained earnings 36,756 37,228
Less: Treasury stock, at cost (2,621,056 and
2,572,256 shares respectively) (5,417) (5,174)
---------------- -------------------
Total stockholders' equity 32,302 32,944
---------------- -------------------
$ 61,961 $ 63,677
================ ===================
The accompanying notes are an integral part of these condensed consolidated
balance sheets
-3-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended
December 31,
---------------------------------------------
2001 2000
------------------- -------------------
(in thousands, except share and per share data)
Net Sales $ 13,308 $ 13,871
Cost of Sales 9,987 10,127
------------------- -------------------
Gross profit 3,321 3,744
Selling, General and Administrative Expenses 2,772 3,024
------------------- -------------------
Operating income 549 720
------------------- -------------------
Interest Expense, net 412 447
Other Expense, net 13 (161)
------------------- -------------------
425 286
------------------- -------------------
Income before provision for income taxes 124 434
Provision for Income Taxes -- --
------------------- -------------------
Net income $ 124 $ 434
=================== ===================
Net income per share (Note 4): Basic $ 0.04 $ 0.12
=================== ===================
Diluted $ 0.04 $ 0.12
=================== ===================
Weighted average number of shares outstanding (Note 4): Basic 3,328,046 3,503,556
=================== ===================
Diluted 3,466,025 3,524,706
=================== ===================
The accompanying notes are an integral part of these condensed consolidated
statements
-4-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Six Months Ended
December 31,
---------------------------------------------
2001 2000
------------------- -------------------
(in thousands, except share and per share data)
Net Sales $ 23,391 $ 24,965
Cost of Sales 17,314 18,163
------------------- -------------------
Gross profit 6,077 6,802
Selling, General and Administrative Expenses 5,715 5,937
------------------- -------------------
Operating income 362 865
------------------- -------------------
Interest Expense, net 809 912
Other Expense, net 25 (154)
------------------- -------------------
834 758
------------------- -------------------
Income (loss) before provision for income taxes (472) 107
Provision for Income Taxes -- --
------------------- -------------------
Net income (loss) $ (472) $ 107
=================== ===================
Net income (loss) per share (Note 4): Basic $ (0.14) $ 0.03
=================== ===================
Diluted $ (0.14) $ 0.03
=================== ===================
Weighted average number of shares outstanding (Note 4): Basic 3,384,998 3,502,004
=================== ===================
Diluted 3,384,998 3,522,544
=================== ===================
The accompanying notes are an integral part of these condensed consolidated
statements
-5-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
December 31,
-----------------------------------
2001 2000
------------- --------------
(in thousands)
Net Cash Provided by Operating Activities $ 3,667 $ 2,260
------- -------
Cash Flows from Investing Activities:
Acquisition of business, net of cash acquired $ -- $(7,633)
Net purchases of property, plant and equipment (362) (554)
------- -------
Net cash used in investing activities (362) (8,187)
------- -------
Cash Flows from Financing Activities:
Proceeds from acquisition financing $ -- 8,250
Proceeds from long-term borrowings 200 --
Proceeds from sale of Common stock due to the exercise
of stock options 73 44
Principal payments on long-term debt (1,628) (3,033)
Payments for purchase of Treasury stock (243) (29)
------- -------
Net cash provided by (used in) financing activities (1,598) 5,232
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 1,707 (695)
Cash and Cash Equivalents at Beginning of Period 1,037 2,384
------- -------
Cash and Cash Equivalents at End of Period $ 2,744 $ 1,689
======= =======
Cash Paid During the Period for:
Interest $ 788 $1,217
======= =======
Income taxes $ 9 $ --
======= =======
Supplemental Non-cash Financing Activities:
Deferred acquisition payments $ 991 $1,700
======= =======
The accompanying notes are an integral part of these condensed consolidated
statements
-6-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) Summary of Significant Accounting Policies and Other Disclosures The
information for the three and six months ended December 31, 2001 and 2000
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. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2001.
The Company has adopted all recently effective accounting standards which
are relevant to its condensed financial statements and there was no
material effect.
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 and the costs associated with these revenues classified as either
cost of sales, or selling, general, and administrative costs, with footnote
disclosure as to classification of these costs. This standard will require
a restatement of prior periods for changes in classification. Beginning in
the fourth quarter fiscal 2001, the Company records the amount billed to
customers in net revenues and classifies the costs associated with these
revenues in cost of sales. The Company has retroactively restated prior
year financial information to give effect to this new statement.
2.) Inventories
Inventories consist of: December 31, June 30,
2001 2001
----------------- -------------------
(in thousands)
Component parts $ 12,633 $ 12,495
Work-in-process 3,577 3,538
Finished products 7,280 7,201
----------------- -------------------
$ 23,490 $ 23,234
================= ===================
3.) Property, Plant and Equipment
Property, Plant and Equipment consists of: December 31, June 30,
2001 2001
------------------- -------------------
(in thousands)
Land $ 904 $ 904
Building 8,911 8,911
Molds and dies 4,061 3,867
Furniture and fixtures 1,134 1,112
Machinery and equipment 11,117 10,979
Building improvements 186 178
------------------- -------------------
26,313 25,951
Less: Accumulated depreciation
and amortization 15,962 15,288
------------------- -------------------
$ 10,351 $ 10,663
=================== ===================
-7-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.) 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 December 31, 2001
(in thousands, except per share data)
-----------------------------------------------
Net Income Shares Per Share
(numerator) (denominator) Amounts
Net income $ 124 -- --
----- ----- --------
BASIC EPS
Net income attributable to
common stock $ 124 3,328 $ 0.04
EFFECT OF DILUTIVE SECURITIES
Options -- 138 --
----- ----- --------
DILUTED EPS
Net income attributable to
common stock and assumed
option exercises $ 124 3,466 $ 0.04
===== ===== ========
Options to purchase 500 shares of common stock in the three months ended
December 31, 2001 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.
Six Months Ended December 31, 2001
(in thousands, except per share data)
----------------------------------------------
Net Loss Shares Per Share
(numerator) (denominator) Amounts
Net loss $(472) -- --
------ ----- -------
BASIC EPS
Net loss attributable to
common stock $(472) 3,385 $(0.14)
EFFECT OF DILUTIVE SECURITIES
Options -- -- --
------ ----- -------
DILUTED EPS
Net loss attributable to
common stock and assumed
option exercises $(472) 3,385 $(0.14)
====== ===== =======
Options to purchase 377,880 shares of common stock in the six months ended
December 31, 2001 were not included in the computation of diluted EPS
because the impact would have been anti-dilutive. These options were still
outstanding at the end of the period.
-8-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.) Goodwill and Other Intangible Assets
Effective July 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS
No. 141, "Goodwill and Other Intangible Assets". These statements
established financial accounting and reporting standards for acquired
goodwill and other intangible assets. Specifically, the standard addresses
how acquired intangible assets should be accounted for both at the time of
acquisition and after they have been recognized in the financial
statements. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001. In accordance with SFAS
No. 142, intangible assets, including purchased goodwill, must be evaluated
for impairment. Those intangible assets that will continue to be classified
as goodwill or as other intangibles with indefinite lives are no longer
amortized. Based on the results of the Company's transitional impairment
testing, there was no material impact on the consolidated financial results
related to intangible assets or purchased goodwill.
The following table presents pro forma net income and earnings per share
data restated to include the retroactive impact of the adoption of SFAS
No. 142.
Three months Six months
Pro forma: ended December 31, 2000 ended December 31, 2000
------------------------------------------------------
(in thousands, except per (in thousands, except per
share data) share data)
Reported Net Earnings Attributable to Common Stock $ 434 $ 107
Add back: Goodwill amortization, net of tax 92 184
------------------- -------------------
Pro forma Net Earnings $ 526 $ 291
=================== ===================
Basic net earnings per common share:
Reported Net Earnings Attributable to Common Stock
before SFAS No. 142 $ 0.12 $ 0.03
SFAS No. 142 effect, net of tax 0.03 0.05
------------------- -------------------
Pro forma Net Earnings attributable to Common Stock $ 0.15 $ 0.08
=================== ===================
Diluted net earnings per common share:
Reported Net Earnings Attributable to Common Stock
before SFAS No. 142 $ 0.12 $ 0.03
SFAS No. 142 effect, net of tax 0.03 0.05
------------------- -------------------
Pro forma Net Earnings attributable to Common Stock $ 0.15 $ 0.08
=================== ===================
6.) Acquisition of Business
On July 27, 2000, Napco Security Systems, Inc. (the "Company") through a
subsidiary, pursuant to an Asset Purchase Agreement dated July 2000 with
Continental Instruments LLC ("Continental") of Edgewood, New York, acquired
substantially all of the assets of Continental for consideration consisting
of cash and deferred payments as described in the Asset Purchase Agreement
as previously filed on Amendment No. 1 to Form 8-K.
The Continental business involves the manufacturing and distribution of
access control and security management systems. The Company plans to
continue to use the equipment and other physical property acquired in the
Company's access control business.
The acquisition was financed by an $8,250,000 loan from the Company's
primary lender, to be repaid over 60 equal monthly installments. The loan
is secured by a mortgage, guarantees and other collateral. Approximately
$7,800,000, which represents the excess of the purchase price over the cost
of assets acquired, was being amortized on a straight-line basis over an
estimated useful life of 20 years, prior to the adoption of SFAS No. 141
and No. 142 as discussed in Note 5.
-9-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Summarized below are the unaudited pro forma results of operations as
though this acquisition had occurred at the beginning of fiscal 2001 after
the effect of SFAS No. 141 and 142 as discussed in Note 5. Pro forma
adjustments have been made for (1) initial $8,250,000 cash borrowings under
a term loan, (2) cash used as initial consideration in the purchase
transaction, (3) deferred financing costs associated with the term loan and
related amortization, (4) additional salary expense for employees not
previously included in salary expense and (5) additional interest expense
for the term loan.
Six months ended
Adjusted Pro forma: December 31, 2000
-----------------------
(in thousands, except per
share data)
Net sales $ 25,244
===================
Net Earnings Attributable to Common Stock $ 197
===================
Basic net earnings per common share:
Net Earnings Attributable to Common Stock $ 0.06
===================
Diluted net earnings per common share:
Net Earnings Attributable to Common Stock $ 0.06
===================
No pro-forma presentation is required for the Continental acquisition for
the quarter ended December 31, 2000 because Continental's results for the
entire three months are included in the Consolidated Statement of Income
for that period as reported.
7.) Recently Issued Accounting Standards
The financial accounting Standards Board recently issued SFAS No. 144,
which addresses the financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS No. 144 supercedes SFAS No. 121 but
retains fundamental provisions of SFAS No. 121 for (a)
recognition/measurement of impairment of long-lived assets to be held and
used and (b) measurement of long-lived assets to be disposed of by sale.
SFAS No. 144 also supercedes the accounting/reporting provisions of
Accounting Principles Board Opinion No. 30 for segments of a business to be
disposed of but retains APB 30's requirement to report discontinued
operations separately from continuing operations and extends that reporting
to a component of an entity that either has been disposed of or is
classified as held for sale. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The Company does not believe the
adoption of SFAS No. 144 will be material.
-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 three months ended December 31, 2001 decreased by 4.1% to
$13,308,000 as compared to $13,871,000 for the same period a year ago. Sales for
the six months ended December 31, 2001 decreased by 6.3% to $23,391,000 as
compared to $24,965,000 for the same period a year ago. The decrease in net
sales for the three and six months was primarily due to a change in ordering
patterns of one of the Company's major customers, which began during the third
quarter of fiscal 2001, as partially offset by an increase in sales of the
Company's access control products. During the third quarter of fiscal 2001 the
aforementioned major customer altered its ordering pattern in order to
streamline its number of days supply on hand of the Company's products. The
Company believes that this reduction in the number of days of inventory is due,
in part, to streamlining efforts by the customer as a result of the acquisition
of the customer's parent company by another company.
The Company's gross margin for the three months ended December 31, 2001
decreased by $423,000 to $3,321,000 or 25.0% of sales as compared to $3,744,000
or 27.0% of sales for the same period a year ago. Gross margin for the six
months ended December 31, 2001 decreased by $725,000 to $6,077,000 or 26.0% of
sales as compared to $6,802,000 or 27.3% for the same period a year ago. The
decreases in gross margin in dollars and as a percentage of net sales for both
the three and six months was primarily due to the decrease in net sales and
related production as discussed above and the resulting increase in overhead
application rates as well as pricing pressures, particularly in the Company's
foreign markets which were affected by declining foreign currency exchange rates
in relation to the U.S. dollar.
Selling, general and administrative expenses for the three months ended December
31, 2001 decreased by $252,000 to $2,772,000 as compared to $3,024,000 a year
ago. Selling, general and administrative expenses for the six months ended
December 31, 2001 decreased by $222,000 to $5,715,000 as compared to $5,937,000
a year ago. The decrease in both the three and six months was primarily due to
the elimination of amortization of Goodwill resulting from the Company's
adoption of SFAS No. 142 as discussed in Note 5.
Interest and other expense for the three months ended December 31, 2001
increased by $139,000 to $425,000 from $286,000 for the same period a year ago.
Interest and other expense for the six months ended December 31, 2001 increased
by $76,000 to $834,000 from $758,000 period a year ago. These increases resulted
primarily from an insurance settlement during the quarter ended December 31,
2000. This was partially offset by a decrease in interest expense during the
three and six months ended December 31, 2001 resulting from the continued
reduction of the Company's debt as well as a slight decline in interest rates
available to the Company.
The Company had a zero provision for income taxes for the three and six months
ended December 31, 2001 as well as for the same period a year ago.
Net income decreased by $310,000 to $124,000 or $0.04 per share for the three
months ended December 31, 2001 as compared to $434,000 or $0.12 per share for
the same period a year ago. For the six months ended December 31, 2001 net
income decreased to a loss of $472,000 or $(0.14) per share as compared to net
income of $107,000 or $0.03 per share for the same period a year ago. These
decreases were primarily the result of the items discussed above.
Liquidity and Capital Resources
During the six months ended December 31, 2001 the Company utilized a portion of
its cash generated from operations to reduce certain of its outstanding
borrowings, purchase property and equipment and invest in additional inventory
as discussed below. During the first quarter of fiscal 2001, the Company entered
into an $8,250,000 term loan agreement, payable over 60 equal monthly
installments, in order to purchase the assets of Continental Instruments, LLC
(see note 5 to the financial statements). The Company's management believes that
current working capital, cash flows from operations and its revolving credit
agreement will be sufficient to fund the Company's operations through at least
the third quarter of fiscal 2003.
Accounts Receivable at December 31, 2001 decreased $3,333,000 to $13,607,000 as
compared to $16,940,000 at June 30, 2001. This decrease is primarily the result
of the higher sales volume during the quarter ended June 30, 2001 as compared to
the quarter ended December 31, 2001.
Inventory at December 31, 2001 increased by $256,000 to $23,490,000 as compared
to $23,234,000 at June 30, 2001. This slight increase was primarily the result
of the Company increasing production of certain of its existing products in
preparation for the rollout of several new products during the fiscal year as
well as in anticipation of the historical increase of sales during the latter
part of the fiscal year. The Company's inventory levels were reduced during the
quarter ended December 31, 2001 primarily through the Company's production
planning and forecasting procedures.
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 being repaid over a five (5) year period.
-11-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In November 2000 the Company adopted a stock repurchase program. Under this
program, the Company is authorized to repurchase from time to time, 205,000
shares of its common stock. As of December 31, 2001 the Company had repurchased
202,605 shares under this program for a total cash amount of $968,000.
Other than the $8,250,000 loan described above, the Company's bank debt
consisted 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, previously expiring in January 2002, has
been renewed with an $18,000,000 line of credit, at the same terms and
conditions and with an expiration date of July 2004. Any outstanding borrowings
are to be repaid on or before such time.
As of December 31, 2001 the Company had no material commitments for capital
expenditures or inventory purchases other than purchase orders used in the
normal course of business.
Goodwill and Other Intangible Assets
Effective July 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 141, "Goodwill
and Other Intangible Assets". These statements established financial accounting
and reporting standards for acquired goodwill and other intangible assets.
Specifically, the standard addresses how acquired intangible assets should be
accounted for both at the time of acquisition and after they have been
recognized in the financial statements. The provisions of SFAS No. 141 apply to
all business combinations initiated after June 30, 2001. In accordance with SFAS
No. 142, intangible assets, including purchased goodwill, must be evaluated for
impairment. Those intangible assets that will continue to be classified as
goodwill or as other intangibles with indefinite lives are no longer amortized.
Based on the results of the Company's transitional impairment testing, there was
no material impact on the consolidated financial results related to intangible
assets or purchased goodwill.
The following table presents pro forma net income and earnings per share data
restated to include the retroactive impact of the adoption of SFAS No. 142.
Three months Six months
Pro forma: ended December 31, 2000 ended December 31, 2000
------------------------ -------------------------
in thousands, except per (in thousands, except per
share data) share data)
Reported Net Earnings Attributable to Common Stock $ 434 $ 107
Add back: Goodwill amortization, net of tax 92 184
------------------ -------------------
Pro forma Net Earnings $ 526 $ 291
================== ===================
Basic net earnings per common share:
Reported Net Earnings Attributable to Common Stock before SFAS No. 142 $ 0.12 $ 0.03
SFAS No. 142 effect, net of tax 0.03 0.05
------------------ -------------------
Pro forma Net Earnings attributable to Common Stock $ 0.15 $ 0.08
================== ===================
Diluted net earnings per common share:
Reported Net Earnings Attributable to Common Stock before SFAS No. 142 $ 0.12 $ 0.03
SFAS No. 142 effect, net of tax 0.03 0.05
------------------ -------------------
Pro forma Net Earnings attributable to Common Stock $ 0.15 $ 0.08
================== ===================
Recently Issued Accounting Standards
The financial accounting Standards Board recently issued SFAS No. 144, which
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. SFAS No. 144 supercedes SFAS No. 121 but retains
fundamental provisions of SFAS No. 121 for (a) recognition/measurement of
impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. SFAS No. 144 also supercedes the
accounting/reporting provisions of Accounting Principles Board Opinion No. 30
for segments of a business to be disposed of but retains APB 30's requirement to
report discontinued operations separately from continuing operations and extends
that reporting to a component of an entity that either has been disposed of or
is classified as held for sale. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The Company does not believe the
adoption of SFAS No. 144 will be material.
-12-
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Shipping and Handling Revenues and Costs
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 and
the costs associated with these revenues classified as either cost of sales, or
selling, general, and administrative costs, with footnote disclosure as to
classification of these costs. This standard will require a restatement of prior
periods for changes in classification. Beginning in the fourth quarter of fiscal
2001, the Company records the amount billed to customers in net revenues and
classifies the costs associated with these revenues in cost of sales. The
Company has retroactively restated prior year financial information to give
effect to this new statement.
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, 2001. 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 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
December 31, 2001 an aggregate amount of approximately $15,500,000 was
outstanding under this credit facility with an interest rate of 5.0%. If
principal amounts outstanding under this facility remained at this quarter-end
level for an entire year and the interest rate increased or decreased,
respectively, by 1.25% the Company would pay or save, respectively, an
additional $193,750 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 many of 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.
-13-
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
(a) The annual meeting of the stockholders of the Company (the "Annual
Meeting") was held on December 3, 2001.
(b) At the Annual Meeting, Richard Soloway and Kevin S. Buchel were
re-elected as directors through 2004.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) None
-14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 14, 2002
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)
-15-
INDEX TO EXHIBITS
Exhibits
3(i) Amended and Restated Certificate of Incorporation.
-16-