Magal Reports Third Quarter 2008 Results

Nine-Month Revenues at a Record US$72 million; Year-over-Year Growth of 46% 


YAHUD, Israel, November 10  /PRNewswire-FirstCall/ -- Magal Security Systems Ltd. (NASDAQ:MAGS)(TASE:MAGS) today announced its consolidated financial results for the three and nine month periods ended September 30, 2008.

Revenues for the third quarter of 2008, was $20.8 million, compared with US$21.0 million in the third quarter of 2007. In the nine month period ended September 30, 2008, revenues reached US$72.1 million, an increase of 46.4% compared with US$49.2 million in the comparable period of 2007.

Effective from September 1, 2007, Magal's financial statements include the results of a European integration company acquired in August 2007. Following the sale in December 2007 of Magal's U.S. based video monitoring business, the results of that business were reclassified as discontinued operations.

Gross profit for the third quarter of 2008 reached US$7.8 million compared with US$7.7 million in the third quarter of 2007. Gross margin for the quarter stood at 37.6% compared with 36.8% in the third quarter of 2007. Gross profit for the nine month period ended September 30, 2008, reached US$27.0 million compared with US$20.5 million in the comparable period in 2007. Gross margin in the nine month period ended September 30, 2008 was 37.5% compared with 41.7% in the comparable period in 2007. The gross margin in the nine month period of 2008 was adversely affected, by the ongoing weakness of the US Dollar against the Israeli Shekel and Canadian Dollar, as well as the shift in revenue mix towards larger scale integration projects.

On a GAAP basis, operating loss for the third quarter of 2008 was US$0.6 million compared with an operating income of US$0.2 million in the third quarter of 2007. Operating income for the nine month period ended September 30, 2008 was $1.5 million, compared to $1.9 million in the comparable period in 2007.

Operating income on a non-GAAP basis for the third quarter of 2008 was US$0.1 million compared with US$1.2 million in the third quarter of 2007. Operating income on a non-GAAP basis for the nine month period ended September 30, 2008 was $4.8 million, an increase of 64.7% compared with $2.9 million in the comparable period in 2007.

Due to the devaluation of the US Dollar against the Israeli shekel and Canadian Dollar, operating expenses increased in the third quarter by US$0.5 million, compared with that of the third quarter of last year. The operating income on a GAAP basis for the quarter also included a US$0.5 million amortization of intangible assets charge, related to last year's acquisition of a European subsidiary.

On a GAAP basis, net loss for the third quarter of 2008 was US$1.4 million, or US$0.13 per share, compared with a net loss of US$1.6 million, or US$0.16 per share in the third quarter of 2007. Net loss on a GAAP basis for the nine month period ended September 30, 2008 was $1.5 million, or $0.15 per share, compared to a net loss of $1.0 million, or $0.10 per share, in the comparable period in 2007.

On a non-GAAP basis, net loss for the third quarter of 2008 was US$0.8 million, or US$0.08 per share compared with a net loss US$0.3 million, or US$0.02 per share in the third quarter of 2007. Net income on a non-GAAP basis for the nine month period ended September 30, 2008 was $1.2 million, or $0.12 per diluted share, compared to $0.6 million, or $0.06 per diluted share, in the comparable period in 2007.

"In the first nine months of 2008 we matched the revenues achieved in the whole of 2007, and we are on track for a record year in revenues," commented Izhar Dekel, CEO of Magal. "Despite our strong performance in the first six months of 2008, our third quarter revenues were below our expectations and negatively affected our profitability. This was primarily due to some bureaucratic delays with a recently announced US$20 million Latin-American Fortis project, which was expected to generate revenues in the third quarter. We believe the delay will be temporary and hope to start deliveries for this project before the end of the year."

Continued Mr. Dekel, "On a personal note, today I announced my intention to leave Magal in the coming months. During my years at the helm of the Company, Magal has become a pioneer in the security field. Our revenues have diversified internationally, and we have introduced many new, market leading security products such as the Fortis, which is currently generating revenues and very strong interest throughout the world. I leave Magal in a strong position to continue its growth, building on its leadership and reputation in the global security market."

Results Conference Call

The Company will be hosting a conference call today at 10:00 am ET. On the call, management will review and discuss the results and will be available to answer investor questions.

  To participate, please call one of the following teleconferencing
  numbers:

  US Dial-in Number:             1-888-281-1167
  Israel Dial-in Number:            03-918-0691
  UK Dial-in Number:             0-800-917-9141
  International Dial-in Number: [phone]

  at: 10:00 am Eastern Time; 7:00 am Pacific Time; 3:00pm UK Time; 5:00 pm
  Israel Time




A replay of the call will be available for three months from the day after the call. The webcast and the replay will both be accessible from Magal's website at: http://www.magal-ssl.com/.

Use of Non-GAAP Financial Information

In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this release of operating results also contains non-GAAP financial measures, which the Company believes are the principal indicators of the operating and financial performance of its business. The non-GAAP financial measures exclude the effects of stock-based compensation charges recorded in accordance with SFAS 123R as well as amortization of customer related intangible assets and a loss associated with a discontinued operation. Management believes the non-GAAP financial measures provided are useful to investors' understanding and assessment of the Company's on-going core operations and prospects for the future, as the charges eliminated are not part of the day-to-day business or reflective of the core operational activities of the Company. Management uses these non-GAAP financial measures as a basis for strategic decisions, forecasting future results and evaluating the Company's current performance. However, such measures should not be considered in isolation or as substitutes for results prepared in accordance with GAAP. Reconciliation of the non-GAAP measures to the most comparable GAAP measures are provided in the schedules attached to this release.

About Magal Security Systems, Ltd.

Magal Security Systems Ltd. (Magal) is engaged in the development, manufacturing and marketing of computerized security systems, which automatically detect, locate and identify the nature of unauthorized intrusions. The Company's products are currently used in more than 70 countries worldwide to protect national borders, airports, correctional facilities, nuclear power stations and other sensitive facilities from terrorism, theft and other threats.

Magal trades under the symbol MAGS in the U.S. on the Nasdaq Global Market and in Israel on the Tel-Aviv Stock Exchange.

This press release contains forward-looking statements, which are subject to risks and uncertainties. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. A number of these risks and other factors that might cause differences, some of which could be material, along with additional discussion of forward-looking statements, are set forth in the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission.

                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                    (All numbers except EPS expressed in
                            thousands of US$)

                             Nine Months Ended              Three months
                                Sept. 30,                   Ended Sept. 30,
                        2008    2007   % change    2008    2007    % change

  Revenues            72,080  49,220    46.4     20,769  21,016     (1.2)

  Cost of revenues    45,077  28,673    57.2     12,955  13,291     (2.5)

  Gross profit        27,003  20,547    31.4      7,814   7,725      1.2
  Operating expenses:
  Research and
  development, net     4,777   3,885    23.0      1,623   1,283     26.5
  Selling and
  marketing           13,790   9,531    44.7      4,863   3,794     28.2
  General and
  administrative       6,510   4,228    54.0      1,948   1,505     29.4
  Special
  post-employment
  benefit                438     960   (54.4)               960   (100.0)

  Total operating
  expenses            25,515  18,604    37.1      8,434   7,542     11.8

  Operating income
  (loss)               1,488   1,943   (23.4)      (620)    183
  Financial
  expense, net         1,782   1,425    25.1        383     981    (60.1)

  Income (loss)
  from continuing
  operations
  before income
  taxes                 (294)    518             (1,003)   (798)    25.7
  Income tax             885   1,177   (24.8)       314     749    (58.1)

  Net Income
  (loss) from
  continuing
  operations          (1,179)   (659)   78.9     (1,317) (1,547)   (14.9)
  Loss on
  discontinued
  operations, net        351     336                 42      88    (52.3)
  Net loss            (1,530)   (995)   53.8     (1,359) (1,635)   (16.9)

  Basic and
  diluted loss per
  share from
  continuing
  operations           (0.12)$ (0.07)$            (0.13)$ (0.15)$

  Basic and
  diluted loss per
  share from
  discontinued
  operations, net      (0.03)$ (0.03)$            (0.00)$ (0.01)$

  Basic and
  diluted net loss
  per share            (0.15)$ (0.10)$            (0.13)  (0.16)

  FINANCIAL RATIOS
                 Nine Months Ended Sep.30,      Three months Ended Sep.30,
                        2008         2007              2008         2007

  Gross margin          37.5         41.7              37.6         36.8
  Research and
   development,
  net as a % of
  revenues               6.6          7.9               7.8          6.1
  Selling and
  marketing as a
  % of revenues         19.1         19.4              23.4         18.1
  General and
  administrative
  as a % of
  revenues               9.0          8.6               9.4          7.2

  Special post
  employment
  benefit                0.6          2.0                 -          4.6

  Operating
  margin (loss)          2.1          3.9              (3.0)         0.9

  Net income
  (loss) margin
  (before
  discontinued
  operation)            (1.6)        (1.3)             (6.3)        (7.4)

  Loss on
  discontinued
  operation             (0.5)        (0.7)             (0.2)        (0.4)
  Net income
  (loss) margin
  (after
   discontinued
   operation)           (2.1)        (2.0)             (6.5)        (7.8)


                         MAGAL SECURITY SYSTEMS LTD.
                 Reconciliation of GAAP to Non-GAAP Measures
                 (All numbers expressed in thousands of US$)

                                   Nine Months Ended      Three months
                                       Sept. 30,          Ended Sept. 30,
                                  2008     2007           2008     2007

  GAAP operating income (loss)   1,488    1,943           (620)     183

  Amortization of customer
  related intangible assets      2,637        -            537        -

  Special post employment
  benefit                          438      960              -      960

  Amortization of deferred
  stock based compensation         252       20            138       20


  Non-GAAP operating income      4,815    2,923             55    1,163

  GAAP operating income (loss)
  as a percentage of revenues      2.1%     3.9%          (3.0%)    0.9%

  Non-GAAP operating income as
  a percentage of revenues         6.7%     5.9%           0.3%     5.5%



                               Nine Months Ended     Three months Ended
                                   Sep 30,              Sep 30,
                                2008      2007           2008       2007

  GAAP net loss              (1,530)     (995)        (1,359)    (1,635)

  Amortization of customer
  related intangible
  assets                      2,637         -            537          -

  Special post employment
  benefit                       438       960              -        960

  Loss on discontinued
  operation, net                351       336             42         88

  Amortization of deferred
  stock based compensation      252        20            138         20

  Income taxes with
  respect to the above
  items                        (929)     (192)          (161)      (192)

  Income taxes with
  respect to final tax
  assessment relating to
  the years 2001-4                -       500              -        500

  Non-GAAP net income
  (loss)                      1,219       629           (803)      (259)

  GAAP net loss as a
  percentage of revenues       (2.1)     (2.0)          (6.5)      (7.8)

  Non GAAP net income
  (loss) as a percentage
  of revenues                   1.7       1.3           (3.9)      (1.2)

  GAAP basic and diluted
  net loss per share          (0.15)    (0.10)         (0.13)     (0.16)

  Non-GAAP basic and
  diluted net earnings
  (loss) per share             0.12      0.06          (0.08)     (0.02)



                         MAGAL SECURITY SYSTEMS LTD.
                    UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                 (All numbers expressed in thousands of US$)

                                              Sept. 30,        December 31,
                                                 2008              2007
  CURRENT ASSETS:
  Cash and cash equivalents                    11,665             9,205
  Marketable securities                         6,017             9,464
  Short term bank deposits                      1,448            11,220
  Trade receivables                            25,578            26,775
  Unbilled accounts receivable                  5,846             4,053
  Other accounts receivable and prepaid
  expenses                                      6,490             5,753

  Deferred income taxes                         2,916             1,936
  Inventories                                  15,832            23,785
  Total current assets                         75,792            92,191

  Long term investments and receivables:
  Long-term trade receivables                   1,978             2,019
  Long-term loans                                 980               808
  Long-term bank deposits                       1,834             1,846
  Escrow deposit                                  921             4,442
  Severance pay fund                            3,080             2,765
  Total long-term investments and
  receivables                                   8,793            11,880

  PROPERTY AND EQUIPMENT, NET                   9,080             8,429

  DEFERRED INCOME TAXES                         2,203               763

  OTHER INTANGIABLE ASSETS, NET                 4,371             7,040

  GOODWILL                                     12,905             5,610

  ASSETS ATTRIBUTED TO DISCONTINUED
  OPERATION                                        36               244
  Total assets                                113,180           126,157

  CURRENT LIABILITIES:
  Short-term bank credit                       16,130            16,434
  Current maturities of long-term bank debt       803             4,303

  Trade payables                                5,078             7,344
  Other accounts payable, accrued
  expenses and customer advances               19,354            22,584
  Total current liabilities                    41,365            50,665

  LONG-TERM LIABILITIES:
  Long-term bank debt                            2,493            3,095
  Deferred income taxes                          1,127            2,097
  Accrued severance pay                          4,097            3,873
  Total long-term liabilities                    7,717            9,065

  LIABILITIES ATRIBUTED TO DISCONTINUED
  OPERATION                                        222              849

  SHAREHOLDERS' EQUITY                          63,876           65,578

  TOTAL LIABILITIES AND SHAREHOLDERS'          113,180          126,157
  EQUITY
  Total bank debt to total
  capitalization                                  0.30             0.36
  Current ratio                                   1.83             1.82



  Contacts:
  Company
  Magal Security Systems, Ltd
  Lian Goldstein, CFO
  Tel: [phone]
  Fax: [phone]
  E-mail: 

  Investor Relations
  GK Investor Relations
  Ehud Helft/Kenny Green
  Tel: [phone]
  E-mail: 

DATASOURCE: Magal Security Systems Ltd



CONTACT:  Contacts: Company, Magal Security Systems, Ltd, Lian

Goldstein, CFO, Tel: [phone], Fax: [phone], E-mail:

. Investor Relations, GK Investor Relations, Ehud

Helft/Kenny Green, Tel: [phone], E-mail: 

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