NAPCO Security Systems, Inc. Announces Record First Quarter Sales and Sharply Higher Profits

NAPCO Security Systems, Inc., one of the world's leading suppliers of high performance electronic security equipment for over 30 years, today announced financial results for its first quarter ended September 30, 2004.

Net sales for the first quarter ended September 30, 2004 increased 37% to $13.4 million from $9.8 million reported for the same quarter a year earlier. The net income for the quarter was $513,000 or $0.06 per share, compared to a net loss of $(282,000), or $(0.04) per share, for the same year ago period.

The robust results in the first fiscal quarter are directly related to the continued strong acceptance of NAPCO's products while maintaining tight control on expenses. Selling, general and administrative expenses increased slightly to $3.4 million, or 25.1% of sales, as compared to $3.3 million, or 33.3% of sales in the same period a year earlier. NAPCO continues to maintain a strong R&D effort expending $1.4 million in the quarter.

Richard Soloway, Chairman and President, noted, "Typically, the first quarter is our softest quarter. However, we believe that we will look back at this year's first quarter as a breakthrough period for NAPCO. Sales and earnings have exceeded our most optimistic expectations but even more importantly, we see the momentum generated in the quarter as a turning point for continued top and bottom line growth for NAPCO."

"In particular, our burglar and fire alarm business strategy of reallocating sales across our extensive national network of independent distributors has proven to be valid," stated Soloway, "and the outlook for stronger growth in this previously flat sector of our business appears revitalized. These independent distributors have proven to be effective in marketing and selling the NAPCO alarm products to a wide and growing group of security dealers who focus on residential, commercial, industrial and governmental security installations."

"In addition," Soloway added, "our Alarm Lock electronic locking product lines and our Continental access control lines are showing good growth and our custom manufacturing initiatives continue to gain traction. These activities, when added to the burgeoning sales from our NAPCO burglar and fire alarm business, should result in an outstanding fiscal 2005."

NAPCO is financially stronger than at any time in its recent history and is rapidly repaying its long term debt. Bank debt at September 30, 2004 was $6.3 million, a $2 million decrease from the end of June 2004. Cash generated from operations was $2.9 million and EBITDA(1) (Earnings before interest, taxes depreciation and amortization) increased $1.2 million to $1.150 million. In addition, the current ratio remained strong at 4.4 to 1.

The company also announced that its Board of Directors has declared a 20% stock dividend. The stock dividend will be payable on or about December 6th to all NAPCO shareholders of record as of November 22, 2004. As a result of the stock dividend, shareholders will receive one additional share of common stock for every five shares held on the record date. Upon completion of the stock dividend, the total number of shares of common stock outstanding will increase from approximately 7,090,592 to approximately 8,508,710.

In commenting on the stock dividend, Soloway noted, "The Board believes that a 20% stock dividend will further improve trading liquidity and broaden ownership of the Company's common shares."

Soloway concluded, "We are delighted that our efforts have resulted in four consecutive quarters of earnings growth, fueled by our state-of-the-art security products and solutions which serve residential, commercial, industrial and governmental markets throughout the world. Furthermore, we believe that our current performance and the outlook for significant future growth could lead to noteworthy gains in shareholder values."