NAPCO Reports First Quarter Results for Fiscal 2009

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, 2008.

Net sales for the first quarter ended September 30, 2008 were $17,483,000, an increase of 26% compared to $13,876,000 reported for the same quarter a year earlier. Operating income for the quarter was $830,000, an increase of 3% from $803,000 a year ago. Net income for the quarter was $322,000, or $0.02 per fully diluted share, a decrease of 14% from $374,000, or $0.02 per fully diluted share last year. Per share results are based on 19,479,269 and 20,157,065 fully diluted weighted average shares outstanding in fiscal 2009 and 2008, respectively.

As previously reported, the increase in net sales was largely the result of the six weeks of revenues contributed from the Marks USA acquisition. The increase in operating income was primarily due to increased revenue from Marks partially offset by a lower gross margin (32%) compared to the first quarter a year ago (38%). The gross margin of 32% for the quarter was an improvement of approximately two percentage points over the fiscal 2008 level of 30%.

Richard Soloway, Chairman and President, stated, “I am pleased with the sales level of the first quarter, that included just six weeks of results from the Marks USA acquisition as well as an increase in our existing business. I am also encouraged with the improved gross margin level (32%) over the level that we achieved for all of fiscal 2008 (30%). This improvement is due to several factors: a better product mix, less low margin buy-sell sales transactions, a lower percentage of international sales and the impact of the aforementioned six weeks of Marks USA revenue.”

International sales for the quarter were 12% of total revenue as compared to 17% a year ago. This lower percentage is primarily due to the fact that the majority of Marks sales, which had a significant impact on total sales for the quarter, are domestic.

Mr. Soloway continued, “The focus of the Company continues to be to grow our revenue and profits by providing the security marketplace with innovative products and systems that will maintain NAPCO’s position as a market leader in developing and providing security products and systems to meet the needs of our industrial, commercial and residential customers. We will continue to improve our gross margins through ongoing cost cutting measures and efficiency improvements. The continued integration of Marks USA into our Company should also have a positive effect on our margins. Inventory reduction also remains a top priority for the Company as well as a vigilant approach to controlling our selling, general and administrative expenses. While such costs increased $355,000 for the quarter, as a percentage of sales, selling, general and administrative costs decreased to 27.3% of sales for the quarter as compared to 31.9% a year ago. This increase in dollars as well as the lower percentage is primarily due to the inclusion of six weeks of Marks USA results.”

Mr. Soloway amplified, “Traditionally, a deteriorating economic climate ushers in a greater need for protection of life and property. With one of the industry’s most diverse and technologically advanced portfolios of security solutions, NAPCO is well-positioned to help, our global network of thousands of security service providers and their customers, meet what will be a growing need for security. Our new product and strategic direction emphasizes the delivery of enhanced and increased capabilities to meet the increased, future security demands of our end-users and consumers.

More effective alarm communication, as delivered by our new Starlink™ full-data wireless alarm communicator and our Netlink™ internet communicator, assures that alarm signals get through to central stations despite any countermeasures by intruders or assailants.

The iSee Video™ product and service line, offers a higher level of video surveillance capability never before made available to residential and small business customers. The system offers consumers a library of video clips, emailed at the time of the event, which show users possible security breaches in high-resolution video. The Starlink and iSeeVideo product lines offer NAPCO and its dealers an ongoing, recurring revenue income stream.

The Alarm Lock introduction of a proximity card, standalone access control lock, enables us to cost-effectively address high security applications such as assisted living facilities, office suites, hospital drug storage rooms and mental health facilities.

Continental Access Control’s new software capabilities allow for a total facility to instantaneously lockdown all of its controlled doors from a centralized command point, should the security need arise.

New product introductions from our new Marks USA division also emphasize the future need for greater security and increased life safety protection. Marks’ new ANSI Grade 1, Institutional Life Safety locksets address managed liability concerns in security and behavioral health care institutions. The shape and construction of the SS50 Series Locksets are designed to restrict the attachment of lines, laces, etc. to door knobs, greatly aiding in suicide prevention. Marks’ new HI-SECURITY™ cylinder line prevents unauthorized key duplication, resists picking, drilling, bumping and utilizes a patented key control system.”

Mr. Soloway concluded, “Our primary objective for fiscal 2009 and beyond is to continue to work aggressively to gain market penetration and increase market share throughout all segments of our business. Despite the economic climate of today, the global security market remains healthy and I continue to believe that we are well positioned to achieve a strong financial performance while increasing shareholder value.”

A conference call is scheduled for today at 11:00AM EST. Interested parties may participate in the call by dialing (877) 407-8291; international callers dial (201) 689-8345 about 5-10 minutes prior to 11:00 AM EST. The conference call will also be available on replay starting at 3:00 PM EST on November 17, 2008 and ending on December 1, 2008. For the replay, please dial (877) 660-6853 (replay account # 332, replay conference # 303513). The access number for the replay for international callers is (201) 612-7415 (replay account # 332, replay conference # 303513).

NAPCO Security Systems, 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.