NAPCO Announces Third Quarter Sales Increase of 4.2% and EPS of $0.17 vs. $0.06 Last Year

NAPCO Security Systems, 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 third quarter ended March 31, 2008. Net sales for the three months ended March 31, 2008 were $16.2 million, compared to $15.6 million for the same quarter a year earlier, an increase of 4.2%. Net income for the quarter was $3.3 million, or $0.17 per diluted share, compared to net income of $1.1 million or $0.06 per diluted share, for the same year ago period. Net sales for the nine months ended March 31, 2008 was $46.3 million as compared to $45.7 million for the prior year period, an increase of 1.3%. Net income for the nine months ended March 31, 2008 was $4.8 million or $0.24 per diluted share, compared to $3.2 million or $0.16 per diluted share in the prior year period. The Company’s Net Income of $3.3 million was the highest quarterly net income ever in the Company’s history. This was largely due to a one-time tax benefit of $2.1 million, which represents a reversal of a previous tax liability that is no longer required and relates to the Company’s offshore operation in the Dominican Republic. Richard Soloway, Chairman and President, noted, "I am pleased that for the second quarter in a row we produced year over year increases on both the top and bottom line. We have continued to see strong growth in our International Sales, which increased 18% and 25% for the three and nine months ended March 31, 2008, respectively, over the same periods a year ago. In addition, International Sales have now had sequential growth for 2 quarters in a row. Our door technology products, which carry a higher gross margin than many of our other products, grew 8% this quarter. In addition, the Company benefited this quarter as a result of the new tax structure we implemented last quarter. This benefit should continue in future quarters. "The Company’s inventory levels continued to increase significantly during the third quarter of fiscal 2008 for the following reasons: we level-load our manufacturing plant; we built inventory to support the introduction of the Company’s new Freedom 64 coded and code-less intrusion alarm systems, the new iSeeVideo product line and several other key new products. The inventory also increased due to higher forecasted sales versus actual. The inventory increase has centered on core components and new products. The Company has previously initiated several steps in order to reduce inventory levels and it is our expectation that we will begin seeing noticeable reductions during the fourth quarter of fiscal 2008 and continuing in fiscal 2009.” Mr. Soloway concluded, "We are extremely confident about our long-term growth prospects. We believe that even though many companies are struggling in the weak economic climate of today, our Company is in a very good position to grow and prosper in the essential security and life-safety industry. By providing cutting-edge products to an ever expanding population of worldwide security system dealers and adding product lines in burgeoning market segments such as our iSeeVideo that provides Napco and its dealers with new sources of recurring monthly service revenue, we believe we can achieve our objectives of continued greater sales, profits and gains in shareholder value.” About NAPCO Security Systems, Inc. NAPCO Security Systems, Inc. is one of the world’s leading manufactures of technologically advanced electronic security equipment including intrusion and fire alarm systems, access control systems and door technology products. The Company’s products, including those of Alarm Lock and Continental Instruments, feature some of the most popular and best-selling control panels, sensors, door technology products and access control products. They are used in residential, commercial, institutional, industrial and governmental applications. NAPCO security products have earned a reputation for technical excellence, reliability and innovation, poising the Company for revenue growth in the rapidly expanding electronic security market, a Market whose current size exceeds $30 billion. For additional information on NAPCO, visit the Company’s website 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 form 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. NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)     Three Months Ended March 31, 2008 2007 (in thousands, except share and per share data)   Net sales $ 16,222 $ 15,566 Cost of sales   10,699   10,072   Gross Profit 5,523 5,494 Selling, general and administrative expenses   3,955   4,226   Operating Income   1,568   1,268   Interest expense, net 216 168 Other expenses, net   12 4   Other expenses   228   172   Income Before Minority Interest and (Benefit) Provision for Income Taxes 1,340 1,096   Minority interest in loss of subsidiary   33   41   Income Before (Benefit) Provision for Income Taxes   1,373   1,137   (Benefit) provision for income taxes   (1,904) 5   Net Income $ 3,277 $ 1,132       Earnings per common share:   Basic $ 0.17 $ 0.06   Diluted $ 0.17 $ 0.06     Weighted average number of common shares outstanding:   Basic   19,092,487   20,078,996   Diluted   19,626,043   20,576,505 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)     Nine Months Ended March 31, 2008 2007 (in thousands, except share and per share data)   Net sales $ 46,264 $ 45,672 Cost of sales   30,356     28,794   Gross Profit 15,908 16,878 Selling, general and administrative expenses   12,252     12,205   Operating Income   3,656     4,673   Interest expense, net 635 377 Other expenses, net   30     13   Other expenses   665     390   Income Before Minority Interest and (Benefit) Provision for Income Taxes 2,991 4,283   Minority interest in loss of subsidiary   92     95   Income Before (Benefit) Provision for Income Taxes 3,083 4,378   (Benefit) Provision for income taxes   (1,741 )   1,150   Net Income $ 4,824   $ 3,228       Earnings per common share:   Basic $ 0.25   $ 0.16   Diluted $ 0.24   $ 0.16     Weighted average number of common shares outstanding:   Basic   19,319,967     20,021,196   Diluted   19,873,655     20,673,139 NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS   March 31,   June 30, ASSETS 2008 (unaudited) 2007 (in thousands, except share data) Current Assets: Cash and cash equivalents $ 2,060 $ 1,748 Accounts receivable, less reserve for doubtful accounts 21,808 25,579 Inventories, net 26,057 21,342 Prepaid expenses and other current assets 1,291 1,171 Income tax receivable 443 - Deferred income taxes   765     1,050     Total Current Assets 52,424 50,890 Inventories - non-current, net 8,623 6,881 Property, plant and equipment, net 8,950 9,135 Goodwill, net 9,686 9,686 Other assets   306     193     Total Assets $ 79,989   $ 76,785       LIABILITIES AND STOCKHOLDERS' EQUITY   Current Liabilities: Accounts payable $ 6,173 $ 5,045 Accrued expenses 1,062 1,638 Accrued salaries and wages 2,149 2,631 Accrued income taxes -     96     Total Current Liabilities 9,384 9,410   Long-term debt 13,900 10,900 Accrued income taxes 288 1,836 Deferred income taxes 1,680 1,235 Minority interest in subsidiary   147     147     Total Liabilities   25,399     23,528     Stockholders' Equity:     Common stock, par value $.01 per share; 40,000,000 shares authorized, 20,092,473 and 20,090,313 shares issued and 19,092,473 and 19,665,141 shares outstanding, respectively 201 201 Additional paid-in capital 13,366 13,147 Retained earnings   46,638     42,299     60,205 55,647 Less: Treasury Stock, at cost (1,000,000 and 425,172 shares, respectively)   (5,615 )   (2,390 )   Total stockholders' equity 54,590 53,257     Total Liabilities and Stockholders' Equity $ 79,989   $ 76,785