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YAHUD, Israel, July 17 /PRNewswire-FirstCall/ -- Magal Security Systems Ltd. (Nasdaq NM:MAGS; TASE:MAGS) today announced that it has filed today its audited financial statements and its Annual Report on Form 20-F for the year ended December 31, 2005 with the SEC. As a result of a subsequent to year end cancellation of a turnkey project by an Eastern European customer, the Company decided to reconsider its previous revenue recognition of this project in its financial statements for the year ended December 31, 2005. The reversal of those revenues initially recognized by the Company in its February 2006 press release has resulted in a reduction in revenues to $61.3 million and a net loss of $3.2 million for the year ended December 31, 2005.
In February 2006, the Company had, based on its unaudited results, reported in a press release revenues of $68.6 million and net income of $1.1 million for 2005.
In May 2005 the Company entered into an agreement to supply comprehensive security solutions for a sensitive site in Eastern Europe. As part of the agreement, the Company received an advance payment, secured by a bank advanced payment guarantee that was to be reduced proportionally as execution of the project progressed. In addition, the Company issued the customer a performance bank guarantee. The Company commenced the project and delivered some of the equipment and other deliverables to the customer in 2005. In April 2006, the customer informed the Company that it was canceling the agreement due to alleged errors in the design documents submitted by the Company. In addition, the customer did not make payments required under the agreement. Based on its cancellation of the agreement, the customer collected $3.2 million under the bank advanced payment guarantee on June 20, 2006.
The Company believes that there is no factual or legal ground for the cancellation of the agreement or the demand for payment under the bank performance guarantee, and accordingly believes that the agreement is still valid. On April 28, 2006, the Company commenced arbitration proceedings against the customer. In these proceedings the Company asked the arbitrators to find that the agreement is valid and to enforce the payments due to the Company pursuant to the agreement. Based on the opinion of the Company's legal counsel, the Company believes that there is a good likelihood that the arbitration will result in a favorable determination. The Company intends to vigorously pursue its claim. The customer has not yet filed its response.
On July 11, 2006, the customer made a demand for additional payment under a bank performance guarantee for $1.4 million. Upon the Company's motion, the District Court in Haifa, Israel issued a temporary injunction against the payment of such guarantee pending a hearing in August 2006. Although the Company obtained the temporary injunction, the Company's chances to ultimately prevent the forfeiture of the guarantee remain unclear. In view of the above and due to the uncertainty in preventing the forfeiture of the performance bank guarantee , the Company included a provision in the amount of $1.4 million in respect of this guarantee in its financial statements for 2005.
Mr. Jacob Even-Ezra, Chairman of Magal, said: "Even though we believe that we have a good likelihood to win the arbitration proceeding , we believe that it is appropriate not to record the revenues from this project in 2005 and to reduce income accordingly."
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. Magal also supplies video monitoring services through Smart Interactive Systems, Inc., a subsidiary in the US 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. Israeli-based Magal has subsidiaries in the US, Canada, the UK, Germany, Romania, Mexico and an office in China.
Magal trades under the symbol MAGS in the US on the Nasdaq National Market since 1993 and in Israel on the Tel-Aviv Stock Exchange (TASE) since July 2001.
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.
Contacts:
Company Investor Relations
Magal Security Systems, Ltd Gelbart Kahana Investor Relations
Raya Asher, CFO Ehud Helft/Kenny Green
Tel: +972-3-5391444 Tel: +1-866-704-6710
Fax: +972-3-5366245 E-mail:
E-mail:
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31,
2004 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,964 $ 10,099
Short-term bank deposits - 17,053
Trade receivables (net of allowance for doubtful
accounts of $ 320 and $ 306 at December 31, 2004
and 2005, respectively) *) 15,102 24,012
Unbilled accounts receivable *) 5,595 8,596
Other accounts receivable and prepaid expenses 3,858 4,455
Deferred income taxes 488 1,187
Inventories 12,702 11,110
Total current assets 49,709 76,512
LONG-TERM INVESTMENTS AND RECEIVABLES:
Long-term trade receivables 344 290
Long-term bank deposits 2,994 1,800
Structured notes 3,000 -
Severance pay fund 2,142 2,070
Total long-term investments and receivables 8,480 4,160
PROPERTY AND EQUIPMENT, NET 14,659 15,587
DEFERRED INCOME TAXES 186 828
OTHER INTANGIBLE ASSETS, NET 656 569
GOODWILL 4,286 4,186
Total assets $ 77,976 $ 101,842
*) Reclassified.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
December 31,
2004 2005
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ 15,618 $ 18,068
Current maturities of long-term debt 1,849 3,647
Trade payables 3,189 6,360
Customer advances - 3,990
Other accounts payable and accrued expenses 6,669 8,914
Unrealized losses on hedging forward contracts 781 79
Total current liabilities 28,106 41,058
LONG-TERM LIABILITIES:
Unrealized losses on hedging forward contracts 650 50
Long-term bank debt 3,500 1,653
Accrued severance pay 2,172 2,131
Total long-term liabilities 6,322 3,834
SHAREHOLDERS' EQUITY:
Share capital -
Ordinary shares of NIS 1 par value -
Authorized: 19,748,000 shares at December 31, 2004
and 2005; Issued and outstanding: 8,672,448 and
10,372,448 shares at December 31, 2004 and 2005,
respectively 2,825 3,220
Additional paid-in capital 32,526 47,509
Deferred stock compensation (477) (38)
Accumulated other comprehensive income 1,639 2,435
Retained earnings 7,035 3,824
Total shareholders' equity 43,548 56,950
Total liabilities and shareholders' equity $ 77,976 $ 101,842
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except per share data)
Year ended December 31,
*) 2003 *) 2004 2005
Revenues $ 58,655 $ 60,468 $ 61,282
Cost of revenues 32,847 33,226 39,154
Gross profit 25,808 27,242 22,128
Operating expenses:
Research and development, net 4,773 4,683 5,265
Selling and marketing, net 11,427 12,519 13,180
General and administrative 5,305 5,771 5,961
Award granted by principal shareholders - 1,200 -
Total operating expenses 21,505 24,173 24,406
Operating income (loss) 4,303 3,069 (2,278)
Financial expenses, net 1,003 762 800
Income (loss) before income taxes 3,300 2,307 (3,078)
Income taxes (tax benefit) 910 1,133 (23)
Income (loss) from continuing
operations 2,390 1,174 (3,055)
Gain (loss) from discontinued
operations, net 14 (121) (156)
Net income (loss) $ 2,404 $ 1,053 $ (3,211)
Basic net earnings (loss) per share
from continuing operations $ 0.30 $ 0.13 $ (0.31)
Basic net loss per share from
discontinued operations - (0.01) (0.01)
Basic net earnings (loss) per share $ 0.30 $ 0.12 $ (0.32)
Diluted net earnings (loss) per share
from continuing operations $ 0.30 $ 0.13 $ (0.31)
Diluted net loss per share from
discontinued operations - (0.01) (0.01)
Diluted net earnings (loss) per share $ 0.30 $ 0.12 $ (0.32)
*) Reclassified.
DATASOURCE: Magal Security Systems Ltd
CONTACT: Contacts: Company, Magal Security Systems, Ltd, Raya Asher,
CFO, Tel: +972-3-5391444, Fax: +972-3-5366245, E-mail:
, Investor Relations, Gelbart Kahana Investor
Relations, Ehud Helft/Kenny Green, Tel: +1-866-704-6710, E-mail:
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