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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
For the Transition period from _________ to ________
COMMISSION FILE NUMBER: 0-10004
NAPCO SECURITY SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2277818
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
333 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(516) 842-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of September 16, 1999, 3,495,351 shares of Common Stock were
outstanding, and the aggregate market value of the stock (based upon the last
sale price of the stock on such date) held by non-affiliates was approximately
$12,233,729.
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement in connection with its 1999 Annual Meeting of Stockholders are
incorporated by reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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PART I
ITEM 1. BUSINESS.
NAPCO Security Systems, Inc. ("NAPCO") was incorporated in December 1971
in the State of Delaware for the purpose of acquiring National Alarm Products
Co., Inc., a New Jersey corporation founded in 1969 ("National"). In December
1971, NAPCO issued an aggregate of 300,000 shares of its common stock, par value
$.01 per share ("Common Stock"), to the stockholders of National in exchange for
all of the issued and outstanding capital stock of National, after which
National was merged into NAPCO.
NAPCO and its subsidiaries (collectively, the "Company") are engaged in
the development, manufacture, distribution and sale of security alarm products
and door security devices (the "Products") for commercial and residential
installations.
Products
Alarm Systems. Alarm systems usually consist of various detectors, a
control panel, a digital keypad and signaling equipment. When a break-in occurs,
an intrusion detector senses the intrusion and activates a control panel via
hard-wired or wireless transmission that sets off the signaling equipment and,
in most cases, causes a bell or siren to sound. Communication equipment such as
a digital communicator may be used to transmit the alarm signal to a central
station or another person selected by a customer.
The Company manufactures and markets the following products for alarm
systems:
Automatic Communicators. When a control panel is activated by a signal
from an intrusion detector, it activates a communicator that can automatically
dial one or more pre-designated telephone numbers. If programmed to do so, a
digital communicator dials the telephone number of a central monitoring station
and communicates in computer language to a digital communicator receiver, which
prints out an alarm message.
Control Panels. A control panel is the "brain" of an alarm system. When
activated by any one of the various types of intrusion detectors, it can
activate an audible alarm and/or various types of communication devices. For
marketing purposes, the Company refers to its control panels by the trade name,
generally "Magnum Alert(TM)" followed by a numerical designation.
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Combination Control Panels/Digital Communicators and Digital Keypad
Systems. A combination control panel, digital communicator and a digital keypad
(a plate with push button numbers as on a telephone, which eliminates the need
for mechanical keys) has continued to grow rapidly in terms of dealer and
consumer preference. Benefits of the combination format include the cost
efficiency resulting from a single microcomputer function, as well as the
reliability and ease of installation gained from the simplicity and
sophistication of micro-computer technology.
Door Security Devices. The Company manufactures a variety of exit alarm
locks ranging from simple dead bolt locks to door alarms.
Fire Alarm Control Panel. Multi-zone fire alarm control panels, which
accommodate an optional digital communicator for reporting to a central station,
are also manufactured by the Company.
Area Detectors. The Company's area detectors are both passive infrared
heat detectors and combination microwave/passive infrared detectors that are
linked to alarm control panels. Passive infrared heat detectors respond to the
change in heat patterns caused by an intruder moving within a protected area.
Combination units respond to both changes in heat patterns and changes in
microwave patterns occurring at the same time.
Peripheral Equipment
The Company also markets peripheral and related equipment manufactured by
other companies. Revenues from peripheral equipment have not been significant.
Research and Development
The Company's business involves a high technology element. A substantial
amount of the Company's efforts are expended to develop and improve the
Products. During the fiscal years ended June 30, 1999, 1998, and 1997, the
Company expended approximately $4,008,000, $3,817,000, and $3,340,000,
respectively, on Company-sponsored research and development activities conducted
by its engineering department and outside consultants. Substantially all of the
Company's research and development activities during fiscal 1999, 1998 and 1997
were conducted by its engineering department. The Company intends to continue to
conduct a significant portion of its future research and development activities
internally.
Employees
As of June 30, 1999, the Company had approximately 940 full-time
employees.
Marketing and Major Customers
The Company's staff of 37 sales and marketing support employees located at
the Company's headquarters sells and markets the Products directly to
independent distributors and
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wholesalers of security alarm and security hardware equipment. Management
estimates that these channels of distribution represented approximately 80% of
the Company's total sales for the fiscal year ended June 30, 1999. The Company's
sales representatives periodically contact existing and potential customers to
introduce new products and create demand for those as well as other Company
Products. These sales representatives, together with the Company's technical
personnel, provide training and other services to wholesalers and distributors
so that they can better service the needs of their customers. In addition to
direct sales efforts, the Company advertises in technical trade publications and
participates in trade shows in major United States cities. Some of the Company's
products are marketed under the "private label" of certain customers.
Sales to one customer unaffiliated with the Company accounted for
approximately 27%, 23% and 21% of the Company's total sales for the fiscal years
ended June 30, 1999, 1998 and 1997, respectively (see Note 9 to Consolidated
Financial Statements). The loss of this customer could have a material adverse
effect on the Company's business.
Competition
The security alarm products industry is highly competitive. The Company's
primary competitors are comprised of approximately 30 other companies that
manufacture and market security equipment to distributors, dealers, central
stations and original equipment manufacturers. The Company believes that no one
of these competitors is dominant in the industry. Certain of these companies may
have substantially greater financial and other resources than the Company.
The Company competes primarily on the basis of the features, quality,
reliability and price of, and the incorporation of the latest innovative and
technological advances into, its Products. The Company also competes by offering
technical support services to its customers. In addition, the Company competes
on the basis of its expertise, its proven products, reputation and its ability
to provide Products to customers without delay. The inability of the Company to
compete with respect to any one or more of the aforementioned factors could have
an adverse impact on the Company's business. Relatively low-priced
"do-it-yourself" alarm system products have become available in recent years and
are available to the public at retail stores. The Company believes that these
products compete with the Company only to a limited extent because they appeal
primarily to the "do-it-yourself" segment of the market. Purchasers of such
systems do not receive professional consultation, installation, service or the
sophistication that the Company's Products provide.
Raw Materials and Sales Backlog
The Company prepares specifications for component parts used in the
Products and purchases the components from outside sources or fabricates the
components itself. These components, if standard, are generally readily
available; if specially designed for the Company, there is usually more than one
alternative source of supply available to the Company on a competitive basis.
The Company generally maintains inventories of all critical
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components. The Company for the most part is not dependent on any one source for
its raw materials.
In general, orders for the Products are processed by the Company from
inventory. A sales backlog of approximately $918,500 existed as of June 30,
1999. This compared to a sales backlog of approximately $1,240,000 a year ago.
Government Regulation
The Company's telephone dialers, microwave transmitting devices utilized
in its motion detectors and any new communication equipment that may be
introduced from time to time by the Company must comply with standards
promulgated by the Federal Communications Commission ("FCC") in the United
States and similar agencies in other countries where the Company offers such
products, specifying permitted frequency bands of operation, permitted power
output and periods of operation, as well as compatibility with telephone lines.
Each new Product of the Company that is subject to such regulation must be
tested for compliance with FCC standards or the standards of such similar
governmental agencies. Test reports are submitted to the FCC or such similar
agencies for approval.
Patents and Trademarks
The Company has been granted several patents and trademarks relating to
the Products. While the Company obtains patents and trademarks as it deems
appropriate, the Company does not believe that its current or future success is
dependent on its patents or trademarks.
Foreign Sales
The revenues, operating income and identifiable assets attributable to the
foreign and domestic operations of the Company for its last three fiscal years,
and the amount of export sales in the aggregate, are summarized in the following
tabulation.
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Financial Information Relating to Foreign
and Domestic Operations and Export Sales(1)
1999 1998 1997
---- ---- ----
(in thousands)
Sales to unaffiliated
customers:
United States $50,573 $50,269 $53,302
Foreign 0 0 0
Identifiable assets:
United States $33,067 $39,783 $41,242
Foreign 22,720 18,780 16,002
Export sales:
United States(2) $10,713 $12,101 $10,355
ITEM 2. PROPERTIES.
The Company has executive offices and production and warehousing
facilities at 333 Bayview Avenue, Amityville, New York. This facility consists
of a fully-utilized 90,000 square foot building on a six acre plot. This
six-acre plot provides the Company with space for expansion of office,
manufacturing and storage capacities. The Company completed construction on
this facility in 1988 with the proceeds from industrial revenue bonds that
have since been retired.
The Company's foreign subsidiary, NAPCO/Alarm Lock Grupo International,
S.A. (formerly known as NSS Caribe, S.A.), is located in the Dominican Republic,
where it owns a building of approximately 167,000 square feet of production and
warehousing space. That subsidiary also leases the land associated with this
building under a 99-year lease expiring in the year 2092. As of June 30, 1999,
most of the Company's sales related to labor on assemblies, goods and
subassemblies produced at these sites, utilizing U.S.
quality control standards.
Management believes that these facilities are more than adequate to meet
the needs of the Company in the foreseeable future.
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(1) Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) Export sales from the United States in fiscal year 1999 included sales
of approximately $6,730,000, $869,000, $1,653,000 and $1,461,000 to Europe,
North America, South America and other areas, respectively. Export sales from
the United States in fiscal year 1998 included sales of approximately
$6,966,000, $1,070,000, $2,094,000, and $1,971,000 to Europe, North America,
South America and other areas, respectively. Export sales from the United States
in fiscal year 1997 included sales of approximately $6,046,000, $1,608,000,
$1,127,000, and $1,574,000 to Europe, North America, South America and other
areas, respectively.
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ITEM 3. LEGAL PROCEEDINGS.
There are no pending or threatened material legal proceedings to which
NAPCO or its subsidiaries or any of their property is subject, other than as
follows:
In August 1995, the Internal Revenue Service (the "IRS") informed the
Company that it had completed the audit of the Company's Federal tax returns for
fiscal years 1986 through 1993. The IRS had issued a report to the Company
proposing adjustments that would result in taxes due of approximately $4.3
million, excluding interest charges. The primary adjustments presented by the
IRS related to intercompany pricing and royalty charges, DISC earnings and
charitable contributions. The Company disagreed with the IRS and began the
process of vigorously appealing this assessment using all remedies and
procedural actions available under the law. The Company had provided a reserve
to reflect its estimate of the ultimate resolution of this matter, so that the
outcome of this matter would not have a material adverse effect on the Company's
consolidated financial statements.
During fiscal 1998, the Company continued to discuss the assessment with
the IRS Appeals Office and in July 1998 received a revised audit report, which
was subject to final government administrative approval, and which reduced the
original assessment for the years covered by the IRS audit. The Company accepted
the revised audit report and the final government approval was pending as of
June 30, 1998. Accordingly, the Company determined that $900,000 of previously
recorded reserves should be reversed through the 1998 income tax provision to
reflect the expected final settlement with respect to this IRS audit.
In fiscal 1999, the Company received the final government approval on the
IRS audit related to fiscal years 1986 through 1993. In addition, the IRS
completed its audits of fiscal years 1994 through 1997. As a result of the
favorable outcome from the audits, the Company reversed an additional $1,896,000
of previously recorded reserves through the income tax provision in fiscal 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
Principal Market
NAPCO's Common Stock became publicly traded in the over-the-counter
("OTC") market in 1972. In December 1981, the Common Stock was approved for
reporting by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under
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the symbol "NSSC", and in November 1984 the Common Stock was designated by
NASDAQ as a National Market System Security, which has facilitated the
development of an established public trading market for the Common Stock.
The tables set forth below reflect the range of high and low sales of the
Common Stock in each quarter of the past two fiscal years as reported by the
NASDAQ National Market System.
Quarter Ended
------------------------------------------
Fiscal 1999
------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
Common Stock
High $5.88 $4.63 $4.38 $4.13
Low $4.00 $4.00 $2.56 $2.50
Quarter Ended
------------------------------------------
Fiscal 1998
------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
Common Stock
High $6.88 $6.75 $6.25 $8.25
Low $3.75 $5.50 $5.25 $4.75
Approximate Number of Security Holders
The number of holders of record of NAPCO's Common Stock as of September
16, 1999 was 196 (such number does not include beneficial owners of stock held
in nominee name).
Dividend Information
NAPCO has declared no cash dividends during the past three years with
respect to its Common Stock, and the Company does not anticipate paying any cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Years Ended June 30
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except for per share data)
Operations
Net Sales $ 50,573 $ 50,269 $ 53,302 $ 49,088 $ 48,078
Gross Profit 12,059 11,785 12,778 11,302 11,325
(Benefit) Provision for
Income Taxes (1,925) (525) 605 515 532
Net Income 2,493 2,038 1,639 1,014 512
Earnings per Share:
Basic .71 .48 .38 .23 .12
Diluted .71 .48 .37 .23 .12
Cash Dividends per Share(3) 0 0 0 0 0
As of June 30
-----------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(in thousands, except for per share data)
Financial Condition
Total Assets $55,787 $58,563 $57,244 $57,319 $55,739
Long-term Debt 17,241 18,644 13,313 14,150 15,275
Working Capital 34,920 33,942 30,136 28,676 28,660
Stockholders' Equity 31,328 28,833 31,218 29,574 28,560
Stockholders' Equity
Per Outstanding Share 8.98 8.26 7.14 6.77 6.54
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(3) The Company has never declared or paid a cash dividend on its common
stock. It is the policy of the Board of Directors to retain earnings for use in
the Company's business.
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Quarterly Results and Seasonality
The following table sets forth unaudited financial data for each of the
Company's last eight fiscal quarters (in thousands except for per share data):
Year Ended June 30, 1999
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net Sales $11,090 $10,860 $11,672 $16,951
Gross Profit 2,708 2,601 2,722 4,028
Income from Operations 480 106 (525) 1,850
Net Income 272 132 343 1,746
Net Income Per Share
Basic .08 .04 .10 .49
Diluted .08 .04 .10 .49
Year Ended June 30, 1998
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net Sales $12,253 $11,411 $12,023 $14,582
Gross Profit 3,172 2,798 2,822 2,993
Income from Operations 809 552 545 590
Net Income 382 206 121 1,329
Net Income Per Share
Basic .09 .05 .03 .31
Diluted .09 .05 .03 .31
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Company's cash on hand combined with proceeds from operating
activities during fiscal 1999 were adequate to meet the Company's capital
expenditure needs and short and long-term debt obligations. The primary source
of financing related to borrowings under a $16,000,000 secured revolving credit
facility. The Company expects that cash generated from operations and cash
available under the Company's bank line of credit will be adequate to meet its
short-term liquidity requirements. The Company's primary internal source of
liquidity is the cash flow generated from operations. As of June 30, 1999, the
Company's unused sources of funds consisted principally of $2,230,000 in cash
and approximately $1,487,000, which represents the unused portion of its secured
revolving credit facility.
In fiscal 1988, the Company completed construction of a new manufacturing
and administrative facility in Amityville, New York financed by a $3.9 million
industrial revenue bond issue bearing interest at a variable rate determined
weekly by the underwriting bank based upon market conditions. The bonds had a
maturity date of April 1, 2000, subject to quarterly sinking fund payments. Such
bonds were retired in May 1997 as part of the Company's debt refinancing with
its new primary bank as discussed below.
On April 26, 1993, the Company's foreign subsidiary entered into a 99-year
land lease of approximately 4 acres of land in the Dominican Republic, at an
annual cost of approximately $272,000.
On May 13, 1997, the Company refinanced the majority of its bank debt with
a new primary bank and entered into a $16,000,000 secured revolving credit
agreement and a $3,000,000 line of credit to be used in connection with
commercial and standby letters of credit, and replaced the $2,500,000 standby
letter of credit securing an earlier loan from another bank in connection with
the Company's international operations. The Company restructured its debt to
allow for future growth and expansion as well as to obtain terms more favorable
to the Company. As part of the debt restructuring, the Company retired the
outstanding industrial revenue bonds relating to the financing of the
construction of the Company's Amityville, New York facility. The revolving
credit agreement will expire in November 2000 and any outstanding borrowings
are to be repaid on or before that time.
In addition, a subsidiary of the Company maintains a $4,500,000 line of
credit with another bank, $450,000 of which was outstanding as of June 30, 1999
(see Note 5 to Consolidated Financial Statements).
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In May of 1998 the Company repurchased 889,576 shares of Napco common
stock for $5.00 per share from one of its co-founders, Kenneth Rosenberg. $2.5
million was paid at closing with the balance of the purchase price to be paid
over a four (4) year period pursuant to an interest-bearing note. The portion of
the purchase price paid at closing was financed by the Company's primary bank
and is to be repaid over a five (5) year period. At the closing, Mr. Rosenberg
retired as President and Director of the Company but will be available to the
Company pursuant to a consulting agreement. The repurchase agreement also
provides that Mr. Rosenberg will not compete with the Company for a ten (10)
year period.
The Company takes into consideration a number of factors in measuring its
liquidity, including the ratios set forth below:
1999 1998 1997
---- ---- ----
Current Ratio 6.2 to 1 4.3 to 1 3.5 to 1
Sales to Receivables 3.1 to 1 3.4 to 1 3.8 to 1
Total Debt to Equity .8 to 1 1.0 to 1 .8 to 1
As of June 30, 1999, the Company had no material commitments for purchases
or capital expenditures.
Working Capital. Working capital increased by $978,000 to $34,920,000 at
June 30, 1999 from $33,942,000 at June 30, 1998. The additional working capital
was generated primarily from the increase in accounts receivable and the
decrease in Income Taxes Payable resulting from the benefit from income taxes,
which was partially offset by the Company's reduction in its inventory, all as
discussed below.
Accounts Receivable. Accounts receivable increased by $1,686,000 to
$16,446,000 at June 30, 1999 from $14,760,000 at June 30, 1998. This increase
resulted primarily from the 16% increase in sales during the fourth quarter as
compared to the fourth quarter in fiscal 1998.
Inventory. Inventory was reduced by $3,943,000 to $21,495,000 at June 30,
1999 as compared to $25,438,000 at June 30, 1998. The Company generated a
significant reduction in its inventory during the year ended June 30, 1999 due
in part to its efforts at improving various planning and forecasting techniques
as well as the high sales levels achieved in the fourth quarter of fiscal 1999.
Accounts Payable and Accrued Expenses. Accounts payable and accrued
expenses decreased by $408,000 to $4,479,000 at June 30, 1999 from $4,887,000 at
June 30, 1998. This decrease was due primarily to the decrease in component part
purchases, which was a direct result of the improved planning and forecasting as
discussed above.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
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Net Sales. Net sales in fiscal 1999 increased by 1% to $50,573,000 from
$50,269,000 in fiscal 1998. The Company achieved this sales level in fiscal 1999
mainly through the increased sales in the fourth quarter as compared to the same
quarter of fiscal 1998. Sales in the fourth quarter of fiscal 1999 were
$16,951,000 as compared to $14,582,000 in 1998. This increase was due primarily
to a significant increase in the demand of the Company's door locking products
as well as increased orders from a major customer who returned to a more normal
inventory position of the Company's products after tightening these levels
during their acquisition of another company. These increases more than offset
the decrease in sales during the first three quarters of fiscal 1999 which were
affected, in part, by the major customer as discussed above.
Gross Profit. The Company's gross profit increased $274,000 to
$12,059,000 or 23.8% of net sales in fiscal 1999 as compared to $11,785,000 or
23.4% of net sales in fiscal 1998. The increase in gross profit margin was
primarily due to the company's improvement in its component costs.
Expenses. Selling, general and administrative expenses in fiscal 1999
increased 9% to $10,148,000 or 20% of net sales from $9,289,000 or 19% of net
sales in fiscal 1998. This increase is primarily due to the increased selling
and marketing expenses relating to the increased sales of the Company's door
security products as well as the introduction of the Company's new fire and
access control products.
Other Expenses. Other Expenses in fiscal 1999 increased by $360,000 to
$1,343,000 as compared to $983,000 in fiscal 1998. This increase was primarily
due to increased interest expense resulting from increased borrowings related to
the repurchase of common shares at the end of fiscal 1998.
Income Taxes. The benefit for income taxes increased $1,400,000 to a
benefit of $1,925,000 during fiscal 1999. This compared to a benefit of $525,000
during fiscal 1998. The increase in the benefit for fiscal 1999 is primarily
attributable to the favorable outcome of the IRS audits of fiscal years 1986
through 1997 and the resulting impact on related reserve requirements.
Effects of Inflation. During the three-year period ended June 30, 1999,
inflation and changing prices did not have a significant impact on the Company's
operations.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales in fiscal 1998 decreased approximately $3,033,000 or
5.7% to $50,269,000 from $53,302,000 in fiscal 1997. This decrease was primarily
the result of pricing pressures and the decreased sales to one major customer,
as previously disclosed. These decreases were offset, in part, by increased
export sales as well as the markets continued favorable reception of the
Company's hybrid hard-wired/wireless products and digital locks.
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Gross Profit. The Company's gross profit decreased $993,000 to
$11,785,000 or 23.4% of net sales in fiscal 1998 as compared to $12,778,000 or
24.0% of net sales in fiscal 1997. The decrease in gross profit was primarily
due to the pricing pressures and reduction in net sales as discussed above as
partially offset by reduced material and freight costs.
Expenses. Selling, general and administrative expenses in fiscal 1998
increased slightly to $9,289,000 or 18.5% of net sales from $9,133,000 or 17.1%
of net sales in fiscal 1997. This increase was primarily due to the Company's
expansion of its international sales operations and related informational
systems as partially offset by continuing cost saving efforts.
Other Expenses. Other Expenses in fiscal 1998 decreased by $418,000 to
$983,000 as compared to $1,401,000 in fiscal 1997. This decrease was primarily
due to decreased interest expense resulting from more favorable interest rates
available to the Company as well as more favorable foreign currency transaction
rates realized by the Company during the year as partially offset by increased
borrowings.
Income Taxes. Provision for income taxes decreased $1,130,000 to a benefit
of $525,000 during fiscal 1998. This compared to a provision of $605,000 or
approximately 27% of income before provision for income taxes during fiscal
1997. The decrease in the provision for fiscal 1998 was primarily attributable
to the reversal of $900,000 of reserves no longer required with respect to an
IRS audit of fiscal years 1986 through 1993.
Effects of Inflation. During the three-year period ended June 30, 1998,
inflation and changing prices did not have a significant impact on the Company's
operations.
By-Laws
The Board of Directors amended the Company's By-Law provision on
indemnification of officers and directors to make it more detailed as to the
circumstances for such indemnification and the Company entered into an
Indemnification Agreement with the directors.
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 Company believes that virtually all of the Company's systems are now
fully compliant. Due to the fact that the Company's primary software supplier
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.
Although the Company expects its critical systems to be compliant, there
is no guarantee that these results will be achieved. Specific factors that give
rise to this uncertainty include a possible failure to identify all susceptible
systems, noncompliance by third parties whose systems and operations impact the
Company, and other similar uncertainties.
In addition to internal Year 2000 remediation activities, the Company is
in contact with key suppliers and customers to reduce the likelihood of any
significant interruption in the business between the Company and these important
third parties relating to the Year 2000
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issue. A comprehensive survey of all vendors and customers has not been made and
is not presently planned. The Company's efforts thus far have been focused on
key vendors and customers. If these third parties do not convert their systems
in a timely manner and in a way that is compatible with the Company's systems,
the year 2000 issue could have a material adverse effect on the Company's
operations. The Company believes that its actions with key suppliers and
customers will minimize these risks. The vast majority of the Company's products
are not date-sensitive. The Company has collected information on current and
discontinued date-sensitive products.
At this time, the Company does not have in place a comprehensive, global
contingency plan relative to potential Year 2000 disruptions. Rather, each
significant system with a potential problem either has been repaired and tested
or is being updated. Contingency plans for certain types of unforeseen problems
are being developed.
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instrument is long-term debt (consisting
of a revolving credit and term loan facility) that provides for interest at a
spread above the prime rate. The Company is affected by market risk exposure
primarily through the effect of changes in interest rates on amounts payable by
the Company under this credit facility. A significant rise in the prime rate
could materially adversely affect the Company's business, financial condition
and results of operations. At June 30, 1999, an aggregate principal amount of
approximately $15,000,000 was outstanding under the Company's credit facility
and term loan with a weighted average interest rate of 6.5%. If principal
amounts outstanding under the Company's credit facility remained at this
year-end level for an entire year and the prime rate increased or decreased,
respectively, by 1.25% the Company would pay or save, respectively, an
additional $187,500 in interest that year. The Company does not utilize
derivative financial instruments to hedge against changes in interest rates or
for any other purpose.
Where appropriate, the Company requires that letters of credit be provided
on foreign sales. In addition, a significant number of transactions by the
Company are denominated in U.S. dollars. As such, the Company has shifted
foreign currency exposure onto its foreign customers. As a result, if exchange
rates move against foreign customers, the Company could experience difficulty
collecting unsecured accounts receivable, the cancellation of existing orders
or the loss of future orders. The foregoing could materially adversely affect
the Company's business, financial condition and results of operations.
14
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
Page
----
Report of Independent Public Accountants
as of June 30, 1999 and 1998 and for
each of the 3 Years in the Period
Ended June 30, 1999.................................................. 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1999 and 1998.............................................. 17
Consolidated Statements of Income
for the Years Ended June 30,
1999, 1998 and 1997................................................. 18
Consolidated Statements of
Stockholders' Equity for the
Years Ended June 30, 1999, 1998
and 1997............................................................ 19
Consolidated Statements of Cash
Flows for the Years Ended
June 30, 1999, 1998 and 1997........................................ 20
Notes to Consolidated Financial
Statements, June 30, 1999, 1998 and 1997............................ 21
Schedules:
I. Condensed Financial Information on
Parent Company............................................... 32
II. Valuation and Qualifying Accounts........................... 34
15
17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Napco Security Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Napco Security
Systems, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended June 30, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Napco Security Systems, Inc.
and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index to consolidated financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Melville, New York
September 22, 1999
16
18
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
ASSETS 1999 1998
-------- --------
(in thousands, except share data)
CURRENT ASSETS:
Cash $ 2,230 $ 1,989
Accounts receivable, less reserve for doubtful accounts of $887 and $755, respectively
16,446 14,760
Inventories 21,495 25,438
Prepaid expenses and other current assets 809 674
Deferred income taxes 716 1,292
-------- --------
Total current assets 41,696 44,153
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
and amortization of approximately $12,316 and $11,055, respectively 11,280 11,491
GOODWILL, net of accumulated amortization of approximately $1,256 and $1,149, respectively
2,485 2,592
OTHER ASSETS 326 327
-------- --------
$ 55,787 $ 58,563
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,433 $ 1,667
Accounts payable 3,651 3,862
Accrued expenses 828 1,025
Accrued salaries and wages 754 653
Accrued income taxes 110 3,004
-------- --------
Total current liabilities 6,776 10,211
LONG-TERM DEBT 17,241 18,644
DEFERRED INCOME TAXES 442 875
-------- --------
Total liabilities 24,459 29,730
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 21,000,000 shares authorized;
5,908,602 and 5,908,102 shares issued, respectively; 3,490,151 and
3,489,651 shares
outstanding, respectively 59 59
Additional paid-in capital 751 749
Retained earnings 34,967 32,474
Less: Treasury stock, at cost (2,418,451 shares) (4,449) (4,449)
-------- --------
Total stockholders' equity 31,328 28,833
-------- --------
$ 55,787 $ 58,563
======== ========
The accompanying notes are an integral part of these
consolidated balance sheets.
17
19
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
(in thousands, except share and per share data)
NET SALES $ 50,573 $ 50,269 $ 53,302
COST OF SALES 38,514 38,484 40,524
----------- ----------- -----------
Gross profit 12,059 11,785 12,778
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,148 9,289 9,133
----------- ----------- -----------
Operating income 1,911 2,496 3,645
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net (1,359) (1,130) (1,081)
Other, net 16 147 (320)
----------- ----------- -----------
(1,343) (983) (1,401)
----------- ----------- -----------
Income before (benefit) provision for income taxes 568 1,513 2,244
(BENEFIT) PROVISION FOR INCOME TAXES (1,925) (525) 605
----------- ----------- -----------
Net income $ 2,493 $ 2,038 $ 1,639
=========== =========== ===========
EARNINGS PER SHARE (Note 1):
Basic $ .71 $ .48 $ .38
=========== =========== ===========
Diluted $ .71 $ .48 $ .37
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note 1):
Basic 3,493,000 4,263,000 4,369,000
=========== =========== ===========
Diluted 3,512,000 4,285,000 4,383,000
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated statements.
18
20
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(in thousands except share data)
Common Stock
------------------------
Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1996 5,896,602 $ 59 $ 719 $ 28,797 $ (1) $ 29,574
Exercise of employee stock options 2,000 - 5 - - 5
Net income - - - 1,639 - 1,639
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1997 5,898,602 59 724 30,436 (1) 31,218
Purchase of treasury stock - - - - (4,448) (4,448)
Exercise of employee stock options 9,500 - 25 - - 25
Net income - - - 2,038 - 2,038
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1998 5,908,102 59 749 32,474 (4,449) 28,833
Purchase of treasury stock - - - - - -
Exercise of employee stock options 500 - 2 - - 2
Net income - - - 2,493 - 2,493
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1999 5,908,602 $ 59 $ 751 $ 34,967 $ (4,449) $ 31,328
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated statements.
19
21
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
------- ------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,493 $ 2,038 $ 1,639
Adjustments to reconcile net income to net cash provided by (used in)
operating activities-
Depreciation and amortization 1,368 1,289 1,440
Provision for doubtful accounts 230 50 55
Deferred income taxes 143 (259) (11)
Changes in operating assets and liabilities resulting from increases and
decreases in:
Accounts receivable (1,916) (873) (233)
Inventories 3,943 264 242
Prepaid expenses and other current assets (135) (284) 99
Other assets 1 109 (105)
Accounts payable, accrued expenses, accrued salaries and wages and
accrued income taxes (3,201) (2,441) (368)
------- ------- --------
Net cash provided by (used in) operating activities 2,926 (107) 2,758
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property, plant and equipment (1,050) (585) (746)
------- ------- --------
Net cash used in investing activities (1,050) (585) (746)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank - 2,500 -
Principal payments on long-term debt (1,637) (900) (13,400)
Proceeds from long-term debt - 2,550 11,963
Purchase of treasury stock - (2,500) -
Proceeds from exercise of employee stock options 2 25 5
------- ------- --------
Net cash (used in) provided by financing activities (1,635) 1,675 (1,432)
------- ------- --------
NET INCREASE IN CASH 241 983 580
CASH, beginning of year 1,989 1,006 426
------- ------- --------
CASH, end of year $ 2,230 $ 1,989 $ 1,006
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,301 $ 1,289 $ 1,076
======= ======= ========
Income taxes paid $ 259 $ 108 $ 35
======= ======= ========
NON-CASH FINANCING ACTIVITIES:
Issuance of note payable for purchase of treasury stock $ - $ 1,948 $ -
======= ======= ========
The accompanying notes are an integral part of these
consolidated statements.
20
22
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Napco Security Systems, Inc. and subsidiaries (the "Company") is engaged
principally in the development, manufacture and distribution of security alarm
products and door security devices for commercial and residential use.
Principles of Consolidation
The consolidated financial statements include the accounts of Napco Security
Systems, Inc. and all of its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent gains and losses at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is recorded over
the estimated service lives of the related assets using primarily the
straight-line method. Amortization of leasehold improvements is calculated by
using the straight-line method over the estimated useful life of the asset or
lease term, whichever is shorter.
Goodwill
Goodwill is being amortized on a straight-line basis over 35 years. Subsequent
to an acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life of
the goodwill may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted cash flows
over the remaining life of the goodwill in measuring whether it is recoverable.
In the years ended June 30, 1999, 1998 and 1997, there were no adjustments to
the carrying value of goodwill, other than the straight-line amortization.
21
23
Revenue Recognition
Revenue is recognized upon shipment of the Company's products to its customers.
The Company reports its sales levels on a net sales basis, with net sales being
computed by deducting from gross sales the amount of actual sales returns and
the amount of reserves established for anticipated sales returns.
Income Taxes
Deferred income taxes are recognized for the expected future tax consequences of
temporary differences between the amounts reflected for financial reporting and
tax purposes. The provision for income taxes represents U.S. Federal and state
taxes on income generated from U.S. operations. Income generated by the
Company's foreign subsidiary in the Dominican Republic is non-taxable. The
Company accounts for the research and development credit as a reduction of
income tax expense in the year in which such credits are allowable for tax
purposes.
In prior years, the Company did not provide for income taxes on the
undistributed earnings of its Domestic International Sales Corporation ("DISC")
subsidiary because it was the Company's intent to continue the subsidiary's
qualification for tax deferral. Due to the shifting of manufacturing outside the
U.S., management determined in fiscal 1995 that the DISC no longer qualified for
continued tax deferral. As a result, previously deferred earnings of the DISC
totaling $2,031,000 must be reported as taxable income over a ten-year period in
the Company's tax returns, starting with the June 30, 1992 tax year.
The Company does not provide for income taxes on the undistributed earnings of
its foreign subsidiary in the Dominican Republic because such earnings are
reinvested abroad and it is the intention of management that such earnings will
continue to be reinvested abroad. As of June 30, 1999 and 1998, approximately
$19,369,000 and $19,085,000 in cumulative earnings of this foreign subsidiary
are included in consolidated retained earnings.
Earnings Per Share
The Company accounts for Earnings Per Share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of income. Under this new standard, Basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently-required fully diluted EPS. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted.
22
24
A reconciliation between the numerators and denominators of the Basic and
Diluted EPS computations for net income is as follows:
Net Income - Numerator Shares - Denominator Per Share Amounts
---------------------- -------------------- -----------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
Net income .................. $2,493 $2,038 $1,639 -- -- -- $ -- $ -- $ --
Basic EPS
Net income attributable to
common stock ........... 2,493 2,038 1,639 3,493 4,263 4,369 0.71 0.48 0.38
------ ------ ------ ------ ------ ------ ----- ----- -----
Effect of Dilutive Securities
Options .................. -- -- -- 19 22 14 -- -- (0.01)
------ ------ ------ ------ ------ ------ ----- ----- -----
Diluted EPS
Net income attributable to
common stock and assumed
option exercises ........ $2,493 $2,038 $1,639 3,512 4,285 4,383 $ 0.71 $ 0.48 $ 0.37
====== ====== ====== ====== ====== ====== ======= ======== =======
Options to purchase 10,620, 4,400 and 4,200 shares of common stock for the three
years ended June 30, 1999, respectively, were not included in the computation of
diluted EPS because the exercise prices exceeded the average market price of the
common shares for the respective periods because their inclusion would be
antidilutive. These options were still outstanding at the end of the respective
periods.
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of SFAS
No. 123 "Accounting for Stock-Based Compensation". The Company adopted this
standard in fiscal 1997, and has elected to continue the accounting set forth in
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and to provide the necessary pro-forma disclosures (Note 6).
Comprehensive Income
In the first quarter of 1999, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income," which establishes new rules for the reporting of
comprehensive income and its components. The adoption of this statement had no
impact on the Company's net income or stockholders' equity. For the fiscal years
ended 1999, 1998 and 1997, the Company's operations did not give rise to items
includable in comprehensive income which were not already included in net
income. Therefore, the Company's comprehensive income is the same as its net
income for all periods presented.
Segment Reporting
Effective June 30, 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Pursuant to this
pronouncement, the reportable operating segments are determined based on the
Company's management approach. The management approach, as defined by SFAS No.
131, is based on the way that the chief operating decision maker organizes the
segments within an enterprise for making operating decisions and assessing
performance. The Company's results of operations are reviewed by the chief
operating decision maker on a consolidated basis and the Company operates in
only one segment. The company has presented required geographical segment data
in Note 11, and no additional segment data has been presented.
23
25
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements where the fair value
is different than the book value of those financial instruments. When the fair
value approximates book value, no additional disclosure is made. The Company
uses quoted market prices whenever available to calculate these fair values.
When quoted market prices are not available, the Company uses standard pricing
models for various types of financial instruments which take into account the
present value of estimated future cash flows. At June 30, 1999, management of
the Company believes the carrying value of all financial instruments
approximated fair value.
2. INVENTORIES:
Inventories consist of the following:
June 30,
--------
1999 1998
(in thousands)
Component parts .................. $10,093 $10,200
Work-in-process .................. 4,954 4,056
Finished products ................ 6,448 11,182
------- -------
$21,495 $25,438
======= =======
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
Depreciation/
June 30, amortization-
1999 1998 annual rates
(in thousands)
Land ............................. $ 904 $ 904 --
Building ......................... 8,911 8,911 3%
Molds and dies ................... 3,180 2,819 20% to 33%
Furniture and fixtures ........... 964 912 10% to 20%
Machinery and equipment .......... 9,581 8,944 10% to 15%
Leasehold improvements ........... 56 56 Shorter of the lease
------- ------- term or life of asset
23,596 22,546
Less: Accumulated depreciation and
amortization ................... 12,316 11,055
------- -------
$11,280 $11,491
======= =======
Depreciation and amortization expense on property, plant and equipment was
approximately $1,261,000, $1,182,000 and $1,332,000 for the three years ended
June 30, 1999, respectively.
24
26
4. INCOME TAXES:
In August 1995, the Internal Revenue Service (the "IRS") informed the Company
that it had completed the audit of the Company's Federal tax returns for fiscal
years 1986 through 1993. The IRS had issued a report to the Company proposing
adjustments that would result in taxes due of approximately $4.3 million,
excluding interest charges. The primary adjustments presented by the IRS related
to intercompany pricing and royalty charges, DISC earnings and charitable
contributions. The Company disagreed with the IRS and began the process of
vigorously appealing this assessment using all remedies and procedural actions
available under the law. The Company had provided a reserve to reflect its
estimate of the ultimate resolution of this matter, so that the outcome of this
matter would not have a material adverse effect on the Company's consolidated
financial statements.
During fiscal 1998, the Company continued to discuss the assessment with the IRS
Appeals Office and in July 1998 received a revised audit report, that was
subject to final government administrative approval, and which reduced the
original assessment for the years covered by the IRS audit. The Company
accepted the revised audit report and the final government approval was pending
as of June 30, 1998. Accordingly, the Company determined that $900,000 of
previously recorded reserves should be reversed through the 1998 income tax
provision to reflect the expected final settlement with respect to this IRS
audit.
In fiscal 1999, the Company received the final government approval on the IRS
audit related to fiscal years 1986 through 1993. In addition, the IRS completed
its audits of fiscal years 1994 through 1997. As a result of the favorable
outcome from the audits, the Company reversed an additional $1,896,000 of
previously recorded reserves through the income tax provision in fiscal 1999.
(Benefit) provision for income taxes consists of the following:
For the Years Ended June 30,
-------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
Taxes currently payable:
Federal .................................. $(2,271) $ (210) $ 340
State .................................... (4) (56) 120
------- ------- -------
(2,275) (266) 460
Taxes on DISC earnings and other ............ -- -- 156
Deferred income tax (benefit) provision ..... 350 (259) (11)
------- ------- -------
(Benefit) provision for income taxes $(1,925) $ (525) $ 605
======= ======= =======
25
27
The difference between the statutory U.S. Federal income tax rate and the
Company's effective tax rate as reflected in the consolidated statements of
income is as follows:
1999 1998 1997
-------------------- --------------------- -------------------
% of % of % of
Pre-tax pre-tax pre-tax
Amount Income Amount Income Amount Income
(in thousands, except percentages)
Tax at Federal statutory rate .................. $ 193 34% $ 514 34.0% $ 763 34.0%
Increases (decreases) in taxes resulting from:
State income taxes, net of Federal income tax
benefit ................................... (2) (0.4) 38 2.5 96 4.3
Amortization of non-deductible goodwill ..... 36 6.3 36 2.4 36 1.6
Non-taxable foreign source income ........... (362) (63.7) (257) (17.0) (382) (17.0)
Adjustment to reflect IRS settlement ........ (1,896) (333.8) (900) (59.5) -- --
Other, net .................................. 106 18.7 44 2.9 92 4.1
------- ------- ------- ------- ------- -------
(Benefit) provision for income taxes ........... $(1,925) (338.9)% $ (525) (34.7)% $ 605 27.0%
======= ======= ======= ======= ======= =======
Foreign income taxes are not provided on income generated by the Company's
subsidiary in the Dominican Republic, as such income is presently exempt from
domestic income tax.
Deferred tax assets and deferred tax liabilities at June 30, 1999 and 1998 are
as follows (in thousands):
Deferred Net Deferred
Deferred Tax Assets Tax Liabilities Tax Assets (Liabilities)
------------------- --------------- ------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Current:
Accounts receivable $ 255 $ 314 $ - $ - $ 255 $ 314
Inventories 392 902 - - 392 902
Accrued liabilities 93 194 - - 93 194
Other 15 29 39 147 (24) (118)
-------- -------- -------- -------- -------- ---------
755 1,439 39 147 716 1,292
Noncurrent:
Fixed assets - - 442 875 (442) (875)
-------- -------- -------- -------- -------- --------
Total deferred taxes $ 755 $ 1,439 $ 481 $ 1,022 $ 274 $ 417
======== ======== ======== ======== ======== ========
As a result of the Company's U.S. operations generating income in each of the
three years in the period ended June 30, 1999, management believes it is more
likely than not that the Company will realize the benefit of the net deferred
tax assets existing at June 30, 1999 and 1998. Accordingly, the Company has not
reflected any valuation allowance against the deferred tax assets at June 30,
1999 and 1998. Furthermore, management believes that the existing net deductible
temporary differences will reverse during periods in which the Company generates
net taxable income. There can be no assurance, however, that the Company will
generate taxable earnings or any specific level of continuing earnings in the
future.
26
28
5. LONG-TERM DEBT:
Long-term debt consists of the following:
June 30,
----------------------------
1999 1998
(in thousands)
Revolving credit and term loan facility (a) $ 14,513 $ 14,513
Notes payable (b) 4,161 5,798
---------- ----------
18,674 20,311
Less: Current portion 1,433 1,667
---------- ----------
$ 17,241 $ 18,644
========== ==========
(a) On May 13, 1997, the Company refinanced the majority of its bank debt with
a new primary bank and entered into a $16,000,000 secured revolving credit
agreement and a $3,000,000 line of credit to be used in connection with
commercial and standby letters of credit, and replaced the $2,500,000
standby letter of credit securing an earlier loan from another bank in
connection with the Company's international operations. The revolving
credit agreement and the letters of credit are secured by all the accounts
receivable, inventory and certain other assets of Napco Security Systems,
Inc., a first and second mortgage on the Company's headquarters in
Amityville, New York and common stock of two of the Company's subsidiaries.
The revolving credit agreement bears interest at either the bank's prime
rate (7.75% at June 30, 1999) or an alternate rate based on LIBOR as
described in the agreement. As part of the debt restructuring, the Company
retired the outstanding Industrial Revenue Bonds relating to the financing
of the construction of the Company's Amityville, New York facility. The
revolving credit agreement will expire in November 2000 and any outstanding
borrowings are to be repaid on or before that time. The agreement contains
various restrictions and covenants including, among others, restrictions on
payment of dividends, restrictions on borrowings, restrictions on capital
expenditures, the maintenance of minimum amounts of tangible net worth, and
compliance with other certain financial ratios, as defined in the
agreement. As of June 30, 1999, the Company was in compliance with all of
these financial covenants.
(b) In November 1991, a subsidiary of the Company entered into a $4,500,000
line of credit agreement with a bank in connection with the Company's
international operations. The line is secured by a letter of credit from
the Company's primary bank. Interest on amounts outstanding under this line
is payable quarterly at a rate determined periodically based on a number of
options available to the Company. The balance outstanding under the line as
of December 31, 1994 automatically converted to a term loan payable in 20
equal quarterly installments commencing on that date. At June 30, 1999 and
1998, the amounts outstanding ($450,000 and $1,350,000, respectively) bore
interest at rates of 5.57% and 6.19%, respectively. Under the terms of the
agreement, all advances under the line must be used to pay for certain
specified costs incurred by this subsidiary. In addition, the terms of the
agreement limit, among other things, the amount of additional debt or liens
that may be incurred and prohibit the payment of dividends by this
subsidiary. In May 1997, the Company entered into an agreement with its
primary bank to replace a previous $2,500,000 standby letter of credit
agreement which expired in February 1997 with a new $2,500,000 standby
letter of credit, as described above, for the purpose of providing
additional collateral for the line of credit agreement.
In connection with the stock purchase agreement described in Note 7, the
Company entered into a term-loan facility in May 1998 with its primary bank
for a $2,500,000 term loan. Under the terms of the note, the loan is to be
repaid in 60 equal monthly installments of $41,667, plus interest at 7.94%,
beginning on July 1, 1998.
27
29
In addition, the Company issued a four-year term loan in the amount of
$1,947,880 to its former president in connection with the stock purchase
agreement. This note bears interest at 8% and calls for payments to begin
in April 1999, with a final maturity June 2003.
Maturities of long-term debt are as follows (in thousands):
Year Ending June 30,
2000 $ 1,433
2001 15,571
2002 1,116
2003 554
------------
$ 18,674
============
6. STOCK OPTIONS:
In November 1992, the stockholders approved a 10-year extension of the already
existing 1982 Incentive Stock Option Plan (the "1992 Plan"). The 1992 Plan
authorizes the granting of awards, the exercise of which would allow up to an
aggregate of approximately 815,000 shares of the Company's common stock to be
acquired by the holders of such awards. Under the 1992 Plan, the Company may
grant stock options, which are intended to qualify as incentive stock options
("ISOs"), to key employees, officers, and employee directors. Any plan
participant who is granted ISOs and possesses more than 10% of the voting rights
of the Company's outstanding common stock must be granted an option with a price
of at least 110% of the fair market value on the date of grant and the option
must be exercised within five years from the date of grant. Under the 1992 Plan,
stock options have been granted to employees and directors for terms of up to 5
years at an exercise price equal to the fair market on the date of grant and are
exercisable in whole or in part at 20% per year from the date of grant. At June
30, 1999, 138,750 stock options granted to employees and directors were
exercisable. The Company accounts for awards granted to employees, directors and
key employees under APB Opinion No. 25, under which compensation cost is
recognized for stock options granted at an exercise price less than the market
value of the options on the grant date. Had compensation cost for all stock
option grants in fiscal years 1999, 1998 and 1997 been determined consistent
with SFAS No.
123, the Company's net income and earnings per share would have been:
1999 1998 1997
---- ---- ----
(in thousands, except for per share data)
NET INCOME: As reported $ 2,493 $ 2,038 $ 1,639
Pro forma 2,279 1,901 1,629
BASIC EPS: As reported $ 0.71 $ 0.48 $ 0.38
Pro forma 0.65 0.45 0.37
DILUTED EPS: As reported $ 0.71 $ 0.48 $ 0.37
Pro forma 0.65 0.44 0.37
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to option awards
granted prior to fiscal year 1996.
28
30
The following table reflects activity under the plan for the years ended:
June 30,
-----------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 236,250 $3.91 75,750 $3.08 76,000 $3.02
Granted 251,600 3.12 209,000 4.11 3,250 3.59
Exercised (500) 3.88 (9,500) 2.61 (2,000) 2.25
Forfeited (35,500) 4.66 (34,500) 3.76 - -
Canceled/Lapsed (13,750) 4.28 (4,500) 2.97 (1,500) 2.25
-------- ---- ------ ------ ----
Outstanding at end of year 438,100 3.39 236,250 3.91 75,750 3.08
======= ======= ======
Exercisable at end of year 138,570 3.40 72,800 3.71 46,750 3.21
======= ====== ======
Weighted average fair value of options
granted $4.25 $3.04 $1.76
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1999 1998 1997
---- ---- ----
Risk-Free Interest Rates 5.22% 6.10% 5.99%
Expected Lives 5 years 5 years 5 years
Expected Volatility 45% 46% 47%
Expected Dividend Yields 0% 0% 0%
The following table summarizes information about stock options outstanding at
June 30, 1999:
Options Outstanding Options Exercisable
------------------------------------------------------ ------------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Range of Exercise Prices 6/30/99 Contractual Life Price 6/30/99 Price
------------------------ ------- ---------------- ----- ------- -----
$ 2.50 - $ 3.75 261,000 4.23 $2.97 72,350 $2.85
3.76 - 5.63 177,100 3.23 4.00 66,220 4.00
------- ---- ---- ------ ----
2.50 - 5.63 438,100 3.82 3.39 138,570 3.40
======= ==== ==== ======= ====
Effective October 1990, the Company established a non-employee stock option plan
(the "1990 Plan") to encourage non-employee directors and consultants of the
Company to invest in the Company's stock. The 1990 Plan provides for the
granting of non-qualified stock options, the exercise of which would allow up to
an aggregate of 50,000 shares of the Company's common stock to be acquired by
the holders of the stock options. The 1990 Plan provides that the option price
shall not be less than 100% of the fair market value of the stock at the date of
grant. Options are exercisable at 20% per year and expire five years after the
date of grant. The Company has adopted SFAS No. 123 to account for stock-based
compensation awards granted to non-employee consultants, under which a
compensation cost is recognized for the fair value of the options granted as of
the date of grant. As of June 30, 1999, no shares have been granted under this
plan.
29
31
7. STOCK PURCHASE:
On May 28, 1998, the Company entered into a stock purchase agreement with its
former president, which called for the purchase by the Company of all the shares
of the Company's common stock held by the former president (889,576 shares) at a
price of $5 per share, in connection with the former president's retirement .
The agreement also contained a consulting and non-compete agreement for a period
of ten years each. Upon closing, $2,500,000 of the purchase price was paid to
the former president with the proceeds of the term loan discussed in Note 5 (b).
The remaining purchase price is to be paid over a 4 year period according to the
terms of a note issue to the former president. The common stock purchased is
included in treasury stock as of June 30, 1999.
8. 401(k) PLAN:
The Company maintains a 401(k) plan covering all employees with one or more
years of service. The plan is qualified under Sections 401(a) and 401(k) of the
Internal Revenue Code. The Company provides for matching contributions of 50% of
the first 2% of employee contributions. Company contributions to the plan
totaled approximately $54,000, $53,000 and $47,000 for the three years ended
June 30, 1999, respectively.
9. BUSINESS AND CREDIT CONCENTRATIONS:
The Company is engaged in one major line of business - the development,
manufacture and distribution of security alarm products and door security
devices for commercial and residential use. Sales to unaffiliated customers are
primarily shipped from the United States. The Company has customers worldwide
with major concentrations in North America, Europe and South America.
Identifiable assets (net of intercompany receivables and payables) relating to
the Company's foreign subsidiaries were approximately $22,720,000 and
$18,780,000 at June 30, 1999 and 1998, respectively.
Export sales amounted to $10,713,000, $12,101,000 and $10,355,000 for the three
years ended June 30, 1999, respectively.
At June 30, 1999, the Company had two customers (Customer A and B) with accounts
receivable balances that aggregated 49% of the Company's accounts receivable. At
June 30, 1998, the Company had two customers (Customer A and C) with accounts
receivable balances that aggregated 36% of the Company's accounts receivable.
The Company had one customer that accounted for 27%, 23% and 21% of the
Company's net sales in fiscal 1999, 1998 and 1997, respectively. During the past
three fiscal years no other customer represented more than 10% of the Company's
net sales.
30
32
10. COMMITMENTS AND CONTINGENCIES:
Leases
The Company is committed under various operating leases which do not extend
beyond fiscal 2001. Minimum lease payments through the expiration dates of these
leases, with the exception of the land lease referred to below, are as follows
(in thousands):
Year ending June 30,
--------------------
2000 $ 371
2001 165
2002 70
2003 45
Thereafter 15
Rent expense totaled approximately $805,000, $866,000 and $736,000 for the three
years ended June 30, 1999, respectively.
Land Lease
On April 26, 1993, one of the Company's foreign subsidiaries entered into a 99
year lease for approximately four acres of land in the Dominican Republic, at an
annual cost of approximately $272,000, on which the Company's main production
facility is located.
Letters of Credit
At June 30, 1999, the Company was committed for approximately $576,000 under
open commercial letters of credit and steamship guarantees.
Litigation
In the normal course of business, the Company is a party to claims and/or
litigation. Management believes that the settlement of such claims and/or
litigation, considered in the aggregate, will not have a material adverse effect
on the Company's financial position and results of operations.
11. SEGMENT DATA:
As described in Note 1, effective June 30, 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
While the company's results of operations are primarily reviewed on a
consolidated basis, the chief operating decision maker also manages the
enterprise in two geographic segments: (i) United States (ii) Foreign. The
following represents selected consolidated financial information for the
Company's segments for the fiscal years ended June 30, 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
(in thousands)
Sales to unaffiliated customers:
United States $50,573 50,269 53,302
Foreign (see Note 9) 0 0 0
Identifiable assets:
United States 33,067 39,783 41,242
Foreign 22,720 18,780 16,002
31
33
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED BALANCE SHEETS
As of June 30
-------------
ASSETS 1999 1998
- ------ ---- ----
(in thousands)
CASH ...................................... $ 1,452 $ 1,825
ACCOUNTS RECEIVABLE, net .................. 13,311 12,905
INVENTORIES ............................... 6,583 12,656
PREPAID EXPENSES AND OTHER CURRENT ASSETS . 489 533
DEFERRED INCOME TAXES ..................... 716 1,292
------- -------
Total current assets .... 22,551 29,211
INVESTMENT IN SUBSIDIARIES, on equity basis 29,495 25,102
PROPERTY, PLANT AND EQUIPMENT, net ........ 5,777 5,744
OTHER ASSETS .............................. 214 146
------- -------
$58,037 $60,203
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES ....................... $ 5,665 $ 8,917
DUE TO SUBSIDIARIES ....................... 3,361 3,384
LONG-TERM DEBT ............................ 17,241 18,194
DEFERRED INCOME TAXES ..................... 442 875
------- -------
Total liabilities ....... 26,709 31,370
STOCKHOLDERS' EQUITY ...................... 31,328 28,833
------- -------
$58,037 $60,203
======= =======
This schedule should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
32
34
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED STATEMENTS OF INCOME
For the Years Ended June 30,
---------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
NET SALES ................................................... $ 35,733 $ 41,610 $ 43,921
COST OF SALES ............................................... 26,325 32,022 33,733
-------- -------- --------
Gross profit ..................................... 9,408 9,588 10,188
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .................................................. 7,741 7,934 7,826
-------- -------- --------
Operating income ................................. 1,667 1,654 2,362
EQUITY IN EARNINGS OF SUBSIDIARIES .......................... 284 757 1,122
OTHER EXPENSE, net .......................................... (1,383) (898) (1,240)
-------- -------- --------
Income before (benefit) provision for income taxes 568 1,513 2,244
(BENEFIT) PROVISION FOR INCOME TAXES ........................ (1,925) (525) 605
-------- -------- --------
Net income ....................................... $ 2,493 $ 2,038 $ 1,639
======== ======== ========
This schedule should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
33
35
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions (1) Period
----------- --------- -------- -------------- ------
For the year ended June 30, 1997:
Allowance for doubtful accounts (deducted from accounts
receivable) $ 864 $ 55 $ 114 $ 805
======= ======= ======= =======
For the year ended June 30, 1998:
Allowance for doubtful accounts (deducted from accounts
receivable) $ 805 $ 50 $ 100 $ 755
======= ======= ======= =======
For the year ended June 30, 1999:
Allowance for doubtful accounts (deducted from accounts
receivable) $ 755 $ 230 $ 98 $ 887
======= ======= ======= =======
(1) Deductions relate to uncollectible accounts charged off to valuation
accounts, net of recoveries.
This schedule should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
34
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
35
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the Company's definitive proxy statement
for the 1999 annual meeting of stockholders which the Company intends to file
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the Company's 1999 fiscal year, and, accordingly,
items 10, 11, 12 and 13 are omitted pursuant to General Instruction G(3).
36
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)1. Financial Statements
The following consolidated financial statements of NAPCO Security
Systems, Inc. and its subsidiaries are included in Part II, Item 8:
Page
----
Report of Independent Public Accountants as of
June 30, 1999 and 1998 and for each of the
3 Years in the Period Ended June 30, 1999............................................................... 16
Consolidated Balance Sheets as of
June 30, 1999 and 1998.................................................................................. 17
Consolidated Statements of Income for the Years
Ended June 30, 1999, 1998 and 1997...................................................................... 18
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1999, 1998
and 1997................................................................................................ 19
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1999, 1998 and 1997................................................................ 20
Notes to Consolidated Financial Statements,
June 30, 1999, 1998 and 1997............................................................................ 21
(a)2. Financial Statement Schedules
The following consolidated financial statement schedules of NAPCO
Security Systems, Inc. and its subsidiaries are included in Part II, Item 8:
I: Condensed Financial Information
on Parent Company.................................................................................. 32
II: Valuation and Qualifying Accounts.................................................................. 34
Schedules other than those listed above are omitted because of the
absence of the conditions under which they are required or because the required
information is shown in the consolidated financial statements and/or notes
thereto.
37
39
(a)3 and (c). Exhibits
Exhibit
No. Title
--- -----
Ex-3.(i) Articles of Incorporation, as amended................................. Exhibit 3a to Report on Form 10-K for
fiscal year ended June 30, 1988
Ex-3.(ii) Amended and Restated By-Laws - August 9, 1999......................... E-1
Ex-10.A Amended and Restated 1992 Incentive
Stock Option Plan ................................................... E-17
Ex-10.B 1990 Non-Employee Stock Option Plan................................... Exhibit 10c to
Report on Form
10-K for fiscal year
ended June 30, 1991
Ex-10.C Defined Contribution Pension Plan
Basic Plan Document................................................... Exhibit 10d to Report on Form 10-K for
fiscal year ended June 30, 1989
Ex-10.D Defined Contribution Pension Plan
401(k) Profit Sharing Plan
Adoption Agreement.................................................... Exhibit 10e to Report on Form 10-K for
fiscal year ended June 30, 1989
Ex-10.E Promissory Note dated as of November 8,
1991 between Citibank, N.A. and
the Company........................................................... Exhibit 10-i
to Report on Form 10-K for fiscal year
ended June 30, 1992
Ex-10.F Credit Agreement dated November 8,
1991 between N.S.S. Caribe S.A. and
Citibank, N.A......................................................... Exhibit 10-j
38
40
Exhibit
No. Title
--- -----
to Report on Form 10-K for fiscal year
ended June 30, 1992
Ex-10.G Construction Contract dated June 5,
1993.................................................................. Exhibit 10-l
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.H First Amendment dated as of November 5,
1993 to Credit Agreement dated as of
November 8, 1991 with Citibank, N.A................................... Exhibit 10-0
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.I Loan and Security Agreement with
Marine Midland Bank dated as of
May 12, 1997.......................................................... Exhibit 10.I to Rpt. On Form 10K for
fiscal year ended June 30, 1997
Ex-10.J Revolving Credit Note #1 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.J to
Report on Form 10-K for Fiscal year
ended June 30, 1997
Ex-10.K Revolving Credit Note #2 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.K to
Report on Form 10-K for fiscal year
ended June 30, 1997
Ex-10.L Promissory Note to Marine Midland Bank
dated as of May 12, 1997.............................................. Exhibit 10-L to
Report on Form 10-K for fiscal year
ended June 30, 1997
Ex-10.G Construction Contract dated June 5,
1993.................................................................. Exhibit 10-l
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.H First Amendment dated as of November 5,
1993 to Credit Agreement dated as of
November 8, 1991 with Citibank, N.A................................... Exhibit 10-0
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.I Loan and Security Agreement with
Marine Midland Bank dated as of
May 12, 1997.......................................................... Exhibit 10.I to Rpt. On Form 10K for
fiscal year ended June 30, 1997
Ex-10.J Revolving Credit Note #1 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.J to
Report on Form 10-K for Fiscal year
ended June 30, 1997
Ex-10.K Revolving Credit Note #2 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.K to
Report on Form 10-K for fiscal year
ended June 30, 1997
Ex-10.L Promissory Note to Marine Midland Bank
dated as of May 12, 1997.............................................. Exhibit 10-L to
Report on Form 10-K for fiscal year
ended June 30, 1997
39
41
Ex-10.M Amendment No. 1 to the Loan and Security
Agreement with Marine Midland Bank
dated as of May 28, 1998.................................... Exhibit 10-M to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex.-10.N Term Loan Note to Marine Midland Bank dated as of
May 28, 1998................................................ Exhibit
10-N to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex-10.0 Promissory Note to Kenneth Rosenberg dated as of
May 28, 1998................................................ Exhibit 10-O to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex-10.P Consulting Agreement with Kenneth Rosenberg
dated as of May 28, 1998....................................... Exhibit 10-P to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex-10.Q Employment Agreement with Richard Soloway .......... Exhibit 10.Q to Report
in Form 10-Q for
period ended
March 31, 1999.
Ex-10.R Employment Agreement with Jorge Hevia ............... Exhibit 10-R to Report
in Form 10-Q for
period ended
March 31, 1999.
Ex-10.S Amendment No. 2 to the Loan and Security
Agreement with HSBC Bank
dated as of June 30, 1999............................................ E-26
Ex-10.T Indemnification Agreement dated August 9, 1999 ...................... E-29
Ex-11 Computation of earnings per share ................................... E-33
Ex-12 Computation of ratios ............................................... E-34
Ex-21 Subsidiaries of the Registrant ...................................... E-35
40
42
Ex-23 Consent of Independent Public Accountants............................ E-36
Ex-27 Financial Data Schedule.............................................. E-37
Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. Stockholders of the registrant will be
provided with copies of these exhibits upon written request to the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June
30, 1999.
41
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
September 28, 1999
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
By: /s/ RICHARD SOLOWAY By: /s/ KEVIN S. BUCHEL
Richard Soloway Kevin S. Buchel
Chairman of the Board of Senior Vice President of
Directors, President and Secretary Operations and Finance and Treasurer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and the dates indicated.
Signature Title Date
--------- ----- ----
/s/ RICHARD SOLOWAY Chairman of the
- ----------------------------- Board of Directors September 28, 1999
Richard Soloway
/s/ KEVIN S. BUCHEL
- -----------------------------
Kevin S. Buchel Director September 28, 1999
/s/ RANDY B. BLAUSTEIN
- -----------------------------
Randy B. Blaustein Director September 28, 1999
/s/ ANDREW J. WILDER
- -----------------------------
Andrew J. Wilder Director September 28, 1999
42
44
INDEX TO EXHIBITS
Ex-3(ii) Amended and Restated By-Laws - August 9, 1999....................................... E-1
Ex-10.A Amended and Restated 1992 Incentive Stock Option Plan............................... E-17
Ex-10.S Amendment No. 2 to the Loan and Security Agreement with HSBC Bank
dated as of June 30, 1999........................................................... E-26
Ex-10.T Indemnification Agreement dated August 9, 1999...................................... E-29
Ex-11 Computation of earnings per share................................................... E-33
Ex-12 Computation of ratios............................................................... E-34
Ex-21 Subsidiaries of the Registrant...................................................... E-35
Ex-23 Consent of Independent Public Accountants........................................... E-36
Ex-27 Financial Data Schedule............................................................. E-37