NAPCO Reports Results for Fiscal 2009

AMITYVILLE, N.Y.-(Business Wire)-September 29, 2009 - NAPCO Security Technologies, Inc., (NASDAQ: NSSC), one of the world’s leading suppliers of high performance electronic security equipment for over 30 years, today announced financial results for its fiscal year ended June 30, 2009.

Highlights:

Net sales for the fourth quarter were $18,979,000, a 35% increase over the net sales for last quarter (three months ended March 31, 2009) of $14,024,000.
Inventory reduction in the quarter ended June 30, 2009 was approximately $6 million as a result of aggressive utilization of existing inventories.
At the end of the March 2009 quarter we announced that production and overhead levels were reduced to better align with the lower sales levels in the third quarter. By aggressively utilizing existing inventories in the fourth quarter, we were able to reduce our production levels even further, to significantly below that sales level, in order to generate the previously mentioned $6 million reduction in inventory. An effect of reducing production levels significantly below the sales level is reduced absorption of fixed overhead expenses.
The Company recorded two non-cash charges during the fourth quarter of fiscal 2009: a non-cash charge of $894,000 in amortization expense for Marks USA intangibles, and a non-cash impairment charge to Goodwill of $9,686,000 relating to acquisitions made in 1985 and 2000. There were no impairment charges relating to the Marks USA acquisition completed during fiscal 2009. These two non-cash charges as well as the aforementioned effect of inventory reduction on overhead absorption resulted in operating income for the fourth quarter of $(11,254,000).
Cash generated from operating activities was approximately $6.8 million for the year and $2.7 million for the quarter ended June 30, 2009.
Debt, net of cash, was reduced by $6.6 million from $35.9 million to $29.3 million since acquiring Marks USA in August of 2008. $2.4 million of this reduction occurred in the fourth quarter of fiscal 2009.

Net sales for the year ended June 30, 2009 were $69,565,000, an increase of 2% compared to $68,367,000 reported for fiscal 2008.

Gross Profit before Restructuring costs (non-GAAP) for the year ended June 30, 2009 was $16,206,000, a decrease of 21% compared to $20,412,000 for the prior year. Gross profit of $15,096,000 reflected Restructuring costs of $1,110,000 in fiscal 2009 relating to the consolidation of its European and Middle Eastern warehousing operations into NAPCO’s headquarters in New York. In August 2009, the Company also completed the move of all of the operations of the Marks subsidiary, acquired in August 2008, into its headquarters and its production facility in the Dominican Republic. The Company began these initiatives in the quarter ended March 31, 2009 and completed the majority of these by August 2009 with the remainder to be completed by December 31, 2009. The Company also recorded an impairment charge of $9,686,000 to the Goodwill relating to acquisitions made in 1985 and 2000.

Operating income for the year ended June 30, 2009, which reflects the items discussed above, was $(14,917,000) a decrease of $18,054,000 from $3,137,000 for the year ended June 30, 2009.

Net income for the year ended June 30, 2009 was $(13,382,000), or $(0.70) per fully diluted share, a decrease of $0.89 from $3,718,000, or $0.19 per fully diluted share last year. Per share results are based on 19,096,000 and 20,802,000 fully diluted weighted average shares outstanding for the years ended June 30, 2009 and 2008, respectively.

Adjusted EBITDA* for the year ended June 30, 2009 was $(159,000) as compared to $4,602,000 for the fiscal 2008. See table attached.

The Company is finalizing its discussions with its primary banks regarding a conditional waiver for non-compliance of certain financial covenants contained in its current credit facilities as well as amendments providing for certain changes to these facilities. While there can be no assurance that we will receive a satisfactory waiver and amendment, the banks have verbally indicated that a proposed waiver and amendment would be forthcoming.

Richard Soloway, Chairman and President, stated, “Fiscal 2009 has been a transitional year for NAPCO. Early in the year we completed the largest acquisition in our history in Marks USA. In August 2009 we completed the transfer of all of the Marks operations from their separate, leased facility into our existing facilities in New York and the Dominican Republic. We also saw the largest economic downturn in the US and foreign markets in the past 35 years. Ninety percent of the Company’s sales are conducted through distributors that sell to thousands of our alarm and locking dealers, both domestically and internationally. As a result of the economic downturn as well as credit line and banking pressures, these distributors were forced to dramatically reduce their carrying inventory levels in the second half of fiscal 2009. This inventory reduction process, although expected to be temporary, hurt the Company’s sales and profits, despite primary demand from our dealers (who buy from those distributors) remaining steady. While certain economic indicators are beginning to signal that the recession has bottomed out, we believe we are close to bottoming-out on this de-inventorying process at distribution level as well. An increasing need for security, as a result of the decline in the economy and the resultant increase in crime levels, has kept dealer demand for alarm and locking products at a respectable level and we continue to be cautiously optimistic that such demand will lead to increased sales and profits during the upcoming fiscal year.”

Mr. Soloway continued, “The cost-saving measures that we implemented and disclosed during the second half of fiscal 2009 will continue and we expect to see the full measure of those savings during fiscal 2010. Furthermore, we intend to continue to examine all operating expenses for additional savings, especially in these difficult times. We are also continuing to absorb certain production of the Marks products into our production facility in the Dominican Republic, which will lower both the labor and overhead costs as compared to producing those products in New York. NAPCO’s cost savings from the complete integration of Marks should approximate $2 million per year. We believe that the restructuring and cost-saving measures we completed this year and which will continue during fiscal 2010, positions NAPCO to take advantage of emerging opportunities when economic conditions begin to improve.”

Mr. Soloway concluded, “We believe that our long-term prospects are excellent, due to the profound value our products provide across the broad security market. Our strong product offerings and ongoing emphasis on advanced technological state-of-the art security solutions for our customers, should enable us to weather the current economic downturn better than many other companies.”

The NAPCO Security Technologies, Inc. annual meeting is set for December 1, 2009, with a record date of October 30, 2009.

NAPCO will host a conference call for the investment community today, 09/29/2009, at 1:00 PM ET. Interested parties may participate in the call by dialing (877) 407-8291; international callers dial (201) 689-8345 about 5 – 10 minutes prior to 1:00 PM ET. The conference call will also be available on replay starting at 3:00 PM ET on September 29, 2009 and ending on October 13, 2009. For the replay, please dial (877) 660-6853 (replay account #332, replay conference #333713). The access number for the replay for international callers is (201) 612-7415 (replay account #332, replay conference #333713).

NAPCO Security Technologies, Inc. is one of the world’s leading manufacturers of technologically advanced electronic security equipment including intrusion and fire alarm systems, access control and door locking systems. The Company consists of NAPCO plus three wholly-owned subsidiaries: Alarm Lock, Continental Instruments, and Marks USA. The products are installed by security professionals worldwide in commercial, industrial, institutional, residential and government applications. NAPCO products have earned a reputation for technical excellence, reliability and innovation, poising the Company for growth in the rapidly expanding electronic security market, a multi-billion dollar market.

For additional information on NAPCO, please visit the Company’s web site at www.napcosecurity.com.

This press release contains forward-looking statements that involve numerous risks and uncertainties. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the Company’s filings with the Securities and Exchange Commission.

- Tables to Follow -

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Years ended June 30, 2009 and 2008
(In thousands, except share and per share data)

	2009			2008

Net sales	$	69,565		$	68,367
Cost of sales		53,359			47,955
Restructuring costs		1,110		-

Gross Profit		15,096			20,412

Selling, general, and administrative expenses		20,163			17,275
Impairment of goodwill		9,686		-
Restructuring costs		164		-

Operating (Loss) Income		(14,917	)		3,137
Other expense:
Interest expense, net		(1,637	)		(819	)
Other, net		(127	)		(42	)

		(1,764	)		(861	)

(Loss) Income Before Minority Interest and Income Taxes		(16,681	)		2,276
Minority interest in loss of subsidiary	-				34

(Loss) Income Before (Benefit) for Income Taxes		(16,681	)		2,310
(Benefit) for income taxes		(3,299	)		(1,408	)

Net (Loss) Income	$	(13,382	)	$	3,718

(Loss) Earnings per share:
Basic	$	(0.70	)	$	0.19
Diluted	$	(0.70	)	$	0.19

Weighted average number of shares outstanding:
Basic		19,096,000			19,263,000
Diluted		19,096,000			20,802,000

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended June 30, 2009 and 2008
(In thousands, except share and per share data)

	2009			2008
Net sales	$	18,979		$	22,103
Cost of sales		15,507			18,078
Gross Profit		3,472			4,025
Selling, general, and administrative expenses		5,021			4,545
Restructuring costs		19			—
Impairment of goodwill		9,686			—
Operating Loss		(11,254	)		(520	)

Other expense:
Interest expense, net		(467	)		(184	)
Other, net		(26	)		(12	)
		(493	)		(196	)

Loss Before Minority Interest and Income Taxes		(11,747	)		( 715	)
Minority interest in loss of subsidiary		—			(58	)

Loss Before (Benefit) Provision for Income Taxes		(11,747	)		(773	)
(Benefit) Provision for income taxes		(2,725	)		333

Net Loss	$	(9,021	)	$	(1,106	)

Loss per share:
Basic	$	(0.48	)	$	( 0.06	)
Diluted	$	(0.48	)	$	( 0.06	)

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
June 30, 2009 and 2008
(In thousands, except share data)

ASSETS

	2009			2008

CURRENT ASSETS
Cash and cash equivalents	$	4,109		$	2,765
Accounts receivable, net of reserves		19,999			25,823
Inventories		18,885			19,548
Prepaid expenses and other current assets		796			1,121
Income tax receivable		192		-
Deferred income taxes		532			769

Total Current Assets		44,513			50,026

Inventories - non-current, net		9,949			7,724
Deferred tax assets		1,585		-
Property, plant and equipment, net		9,070			8,989
Intangible assets, net		15,209		-
Goodwill, net		923			9,686
Other assets		337			298

TOTAL ASSETS	$	81,586		$	76,723


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Loan payable	$	33,421		$	-
Accounts payable		4,049			4,857
Accrued expenses		1,475			1,333
Accrued salaries and wages		1,913			2,543

Total Current Liabilities		40,858			8,733

Long-term debt	-				12,400
Accrued income taxes		213			294
Deferred income taxes	-				1,607
Minority interest in subsidiary	-				147

Total Liabilities		41,071			23,181

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share; 40,000,000 shares authorized; 20,095,713 and 20,092,473 shares issued; 19,095,713 and 19,092,473 shares outstanding, respectively		201			201
Additional paid-in capital		13,779			13,424
Retained earnings		32,150			45,532
		46,130			59,157
Less: Treasury Stock, at cost (1,000,000 shares)		(5,615	)		(5,615	)

TOTAL STOCKHOLDERS' EQUITY		40,515			53,542

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	81,586		$	76,723

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES NON-GAAP MEASURES OF PERFORMANCE* (unaudited) (In thousands)

	3 months ended June 30,						Fiscal year ended June 30,
	2009			2008			2009			2008
Net (loss) income (GAAP)	$	(9,021	)	$	(1,106	)	$	(13,382	)	$	3,718
Add back (benefit) provision for income taxes		(2,725	)		333			(3,299	)		(1,408	)
Add back minority interest in loss of subsidiary		—			58			—			(34	)
Add back interest and other expense		492			195			1,764			861
Operating (Loss) Income (GAAP)	$	(11,254	)	$	(520	)	$	(14,917	)	$	3,137
Adjustments for non-GAAP measures of performance:
Add back impairment of goodwill		9,686			-			9,686			-
Add back amortization of acquisition-related intangibles		894			-			1,231			-
Add back restructuring charges		19			-			1,274			-
Add back stock-based compensation expense		69			58			349			274
Add back costs relating to acquisition		93			-			194			-
Add back elimination of minority interest		-			-			164			-
Add back fees associated with waivers and amendments to credit facilities		113			-			364			-
Adjusted non-GAAP operating income		(380	)		(462	)		(1,655	)		3,411
Add back depreciation		393			337			1,496			1,191
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)	$	13		$	(125	)	$	(159	)	$	4,602

* Non-GAAP Information

Certain non-GAAP measures are included in this press release, including EBITDA, non-GAAP operating income and Adjusted EBITDA. We define EBITDA as GAAP net income plus income tax expense, net interest expense and depreciation and amortization expense. Non-GAAP operating income does not include impairment of goodwill, amortization of intangibles, restructuring charges, stock-based compensation expense and other infrequent or unusual charges. These non-GAAP measures are provided to enhance the user’s overall understanding of our financial performance. By excluding these charges our non-GAAP results provide information to management and investors that is useful in assessing NAPCO’s core operating performance and in comparing our results of operations on a consistent basis from period to period. The presentation of this information is not meant to be a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliation of GAAP to non-GAAP financial measures included in the above.

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