Napco Security Systems Inc. (NSSC, Financial) filed Quarterly Report for the period ended 2008-12-31.
NAPCO SECURITY SYSTEMS is engaged in the development manufacture distribution and sale of security alarm products and door security devices for commercial and residential installations. Napco Security Systems Inc. has a market cap of $21.58 million; its shares were traded at around $1.24 with a P/E ratio of 12.56 and P/S ratio of 0.32. Napco Security Systems Inc. had an annual average earning growth of 13.1% over the past 10 years.
29% and 34% of the Company's accounts receivable at December 31, 2008 and June
30, 2008, respectively. Sales to neither of these customers exceeded 10% of net
sales in any of the past three fiscal years.
Three months ended December 31, Six months ended December 31,
(dollars in thousands) (dollars in thousands)
- -
% Increase/ % Increase/
2008 2007 (decrease) 2008 2007 (decrease)
-
Net sales $ 19,079 $ 16,166 18.0% $ 36,562 $ 30,042 21.7%
Gross profit 6,214 5,447 14.1% 11,820 10,671 10.8%
Gross profit as a % of net sales 32.6% 33.7% (1.1)% 32.3% 35.5% (3.2)%
Selling, general and administrative 5,448 4,162 30.9% 10,224 8,583 19.1%
Selling, general and administrative as a percentage of net sales 28.6% 25.7% (2.9)% 28.0% 28.6% (0.6)%
Operating income 766 1,285 (40.0)% 1,596 2,088 (23.6)%
Interest expense, net 429 224 91.5% 744 419 77.6%
Other (income) expense (54) 11 (590.9)% 25 18 38.9%
Minority interest in net loss of subsidiary 70 20 350.0% 112 59 89.8%
Provision (Benefit) for income taxes 129 (102) 226.5% 285 163 74.8%
Net income 332 1,172 (71.7)% 654 1,547 (57.7)%
Gross profit for the three months ended December 31, 2008 increased to
$6,214,000 or 32.6% of sales as compared to $5,447,000 or 33.7% of sales for the
same period a year ago. Gross profit for the six months ended December 31, 2008
increased to $11,820,000 or 32.3% of sales as compared to $10,671,000 or 35.5%
of sales for the same period a year ago. The increase in Gross profit in dollars
for the three and six months was primarily due to the addition of the Gross
profit of Marks ($1,557,000 and $2,614,000, respectively) resulting from the
acquisition on August 18, 2008 as partially offset by an increase in certain
overhead expenses in Cost of sales. The decrease in gross profit as a percentage
of sales declined primarily from the increase in certain overhead expenses as
well as a decrease in production of the Company's non-Marks product lines,
resulting in lower overhead absorption.
Selling, general and administrative expenses for the three months ended December
31, 2008 increased by $1,286,000 to $5,448,000, or 28.6% of sales, as compared
to $4,162,000, or 25.7% of sales a year ago. Selling, general and administrative
expenses for the six months ended December 31, 2008 increased by $1,641,000 to
$10,224,000, or 28.0% of sales, as compared to $8,583,000, or 28.6% of sales a
year ago. The increase in dollars for the three and six months ended December
31, 2008 was due primarily to the additional expenses relating to Marks
($1,137,000 and $1,591,000, respectively). The three months ended December 31,
2008 also included an increase in tradeshow expenses due to a major tradeshow
occurring in October 2008 ($199,000). This tradeshow occurred in September 2007
and was therefore included in Selling, general and administrative expense for
the first quarter of fiscal 2008.
The Company's provision for income taxes for the three months ended December 31,
2008 increased by $231,000 to a provision of $129,000 as compared to a benefit
of $102,000 for the same period a year ago. The Company's provision for income
taxes for the six months ended December 31, 2008 increased by $122,000 to
$285,000 as compared to $163,000 for the same period a year ago. The increase in
provision for income taxes for the three and six months resulted primarily from
the Company's corporate restructuring during the quarter ended December 31,
2007. As a result, the Company's effective rate for income tax was 28.0% and
30.4% for the three and six months ended December 30, 2008, respectively as
compared to (9.5)% and 9.5% for the same periods a year ago.
On August 18, 2008, the Company and its banks amended and restated the existing
$25,000,000 revolving credit agreement. The amended facility is $50,000,000 and
provides for a $25,000,000 revolving credit line as well as a $25,000,000 term
portion of which the entire $25,000,000 was utilized to finance the asset
purchase agreement as described in Note 5. The amended revolving credit
agreement and term loan was amended to $20,000,000 in November 2008 and is
secured by all the accounts receivable, inventory, the Company's headquarters in
Amityville, New York and certain other assets of Napco Security Technologies,
Inc. and the common stock of three of the Company's subsidiaries. The agreements
bear interest at either the Prime Rate or an alternate rate based on LIBOR as
described in the agreement. The August amendment extended the revolving credit
agreement to August 2012. Any outstanding borrowings are to be repaid or
refinanced on or before that time. As of December 31, 2008 there was $14,100,000
outstanding under the revolving credit facility with an interest rate of 3.5%
and $24,107,000 outstanding under the term loan with an interest rate of 3.3%.
The term loan is to be repaid in 19 quarterly installments of $893,000 each
commencing in December 2008 and a final payment of $8,033,000 due in August
2013. The agreements contain various restrictions and covenants including, among
others, restrictions on payment of dividends, restrictions on borrowings and
compliance with certain financial ratios, as defined in the agreement. As of
December 31, 2008 the Company was not in compliance with the covenants relating
to the ratio of Funded Debt to EBITDA, Debt Service Coverage Ratio and a
Modified Quick Ratio for which it has received the appropriate waivers from its
banks.
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NAPCO SECURITY SYSTEMS is engaged in the development manufacture distribution and sale of security alarm products and door security devices for commercial and residential installations. Napco Security Systems Inc. has a market cap of $21.58 million; its shares were traded at around $1.24 with a P/E ratio of 12.56 and P/S ratio of 0.32. Napco Security Systems Inc. had an annual average earning growth of 13.1% over the past 10 years.
Highlight of Business Operations:
The Company had two customers with accounts receivable balances that aggregated29% and 34% of the Company's accounts receivable at December 31, 2008 and June
30, 2008, respectively. Sales to neither of these customers exceeded 10% of net
sales in any of the past three fiscal years.
Three months ended December 31, Six months ended December 31,
(dollars in thousands) (dollars in thousands)
- -
% Increase/ % Increase/
2008 2007 (decrease) 2008 2007 (decrease)
-
Net sales $ 19,079 $ 16,166 18.0% $ 36,562 $ 30,042 21.7%
Gross profit 6,214 5,447 14.1% 11,820 10,671 10.8%
Gross profit as a % of net sales 32.6% 33.7% (1.1)% 32.3% 35.5% (3.2)%
Selling, general and administrative 5,448 4,162 30.9% 10,224 8,583 19.1%
Selling, general and administrative as a percentage of net sales 28.6% 25.7% (2.9)% 28.0% 28.6% (0.6)%
Operating income 766 1,285 (40.0)% 1,596 2,088 (23.6)%
Interest expense, net 429 224 91.5% 744 419 77.6%
Other (income) expense (54) 11 (590.9)% 25 18 38.9%
Minority interest in net loss of subsidiary 70 20 350.0% 112 59 89.8%
Provision (Benefit) for income taxes 129 (102) 226.5% 285 163 74.8%
Net income 332 1,172 (71.7)% 654 1,547 (57.7)%
Gross profit for the three months ended December 31, 2008 increased to
$6,214,000 or 32.6% of sales as compared to $5,447,000 or 33.7% of sales for the
same period a year ago. Gross profit for the six months ended December 31, 2008
increased to $11,820,000 or 32.3% of sales as compared to $10,671,000 or 35.5%
of sales for the same period a year ago. The increase in Gross profit in dollars
for the three and six months was primarily due to the addition of the Gross
profit of Marks ($1,557,000 and $2,614,000, respectively) resulting from the
acquisition on August 18, 2008 as partially offset by an increase in certain
overhead expenses in Cost of sales. The decrease in gross profit as a percentage
of sales declined primarily from the increase in certain overhead expenses as
well as a decrease in production of the Company's non-Marks product lines,
resulting in lower overhead absorption.
Selling, general and administrative expenses for the three months ended December
31, 2008 increased by $1,286,000 to $5,448,000, or 28.6% of sales, as compared
to $4,162,000, or 25.7% of sales a year ago. Selling, general and administrative
expenses for the six months ended December 31, 2008 increased by $1,641,000 to
$10,224,000, or 28.0% of sales, as compared to $8,583,000, or 28.6% of sales a
year ago. The increase in dollars for the three and six months ended December
31, 2008 was due primarily to the additional expenses relating to Marks
($1,137,000 and $1,591,000, respectively). The three months ended December 31,
2008 also included an increase in tradeshow expenses due to a major tradeshow
occurring in October 2008 ($199,000). This tradeshow occurred in September 2007
and was therefore included in Selling, general and administrative expense for
the first quarter of fiscal 2008.
The Company's provision for income taxes for the three months ended December 31,
2008 increased by $231,000 to a provision of $129,000 as compared to a benefit
of $102,000 for the same period a year ago. The Company's provision for income
taxes for the six months ended December 31, 2008 increased by $122,000 to
$285,000 as compared to $163,000 for the same period a year ago. The increase in
provision for income taxes for the three and six months resulted primarily from
the Company's corporate restructuring during the quarter ended December 31,
2007. As a result, the Company's effective rate for income tax was 28.0% and
30.4% for the three and six months ended December 30, 2008, respectively as
compared to (9.5)% and 9.5% for the same periods a year ago.
On August 18, 2008, the Company and its banks amended and restated the existing
$25,000,000 revolving credit agreement. The amended facility is $50,000,000 and
provides for a $25,000,000 revolving credit line as well as a $25,000,000 term
portion of which the entire $25,000,000 was utilized to finance the asset
purchase agreement as described in Note 5. The amended revolving credit
agreement and term loan was amended to $20,000,000 in November 2008 and is
secured by all the accounts receivable, inventory, the Company's headquarters in
Amityville, New York and certain other assets of Napco Security Technologies,
Inc. and the common stock of three of the Company's subsidiaries. The agreements
bear interest at either the Prime Rate or an alternate rate based on LIBOR as
described in the agreement. The August amendment extended the revolving credit
agreement to August 2012. Any outstanding borrowings are to be repaid or
refinanced on or before that time. As of December 31, 2008 there was $14,100,000
outstanding under the revolving credit facility with an interest rate of 3.5%
and $24,107,000 outstanding under the term loan with an interest rate of 3.3%.
The term loan is to be repaid in 19 quarterly installments of $893,000 each
commencing in December 2008 and a final payment of $8,033,000 due in August
2013. The agreements contain various restrictions and covenants including, among
others, restrictions on payment of dividends, restrictions on borrowings and
compliance with certain financial ratios, as defined in the agreement. As of
December 31, 2008 the Company was not in compliance with the covenants relating
to the ratio of Funded Debt to EBITDA, Debt Service Coverage Ratio and a
Modified Quick Ratio for which it has received the appropriate waivers from its
banks.
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