Magal Security Systems Ltd. Announces Second Quarter And Six Months Financial Results; Revenues...

Business Editors

YAHUD, Israel--(BUSINESS WIRE)--July 22, 2002

Magal Security Systems, Ltd. (NASDAQ NM: MAGS; TASE: MAGS), today announced results for the three- and six-month periods ended June 30, 2002.

When presenting the financial results, Mr. Jacob Even-Ezra, Chairman

Mr. Even-Ezra added: "As was reported in May this year, the Company received an order for a large turnkey project to protect thousands of communication facilities in India. Accordingly, and based on our current marketing activities, management believes that the second half of the year 2002 will be better than the first half."

Mr. Even-Ezra, concluded, "Results for the second quarter of 2002 continue to be negatively impacted by the ramping up of operations of Smart Interactive Systems Inc. (SIS), and in particular, the associated marketing and selling efforts. SIS is performing in line with the Company's expectations, and we remain confident that it will reach breakeven towards the end of the year 2003."

Revenues for the second quarter increased quarter-over-quarter by 13 percent to $10.7 million, from $9.5 million. Year-over-year revenues for the second quarter increased by 1 percent, compared to $10.6 in the second quarter of 2001.

Revenues for the first half of 2002 increased year-over-year by 3 percent to $20.1 million, from $19.6 million.

Operating expenses for the quarter increased year-over-year by 8 percent to $4.0 million, from $3.7 million. Within operating expenses, G&A expenses declined year-over-year by 23 percent to $976,000, from $1.3 million. Selling and marketing expenses increased year-over-year by 41 percent to $2.3 million, from $1.6 million, as a result of marketing incentives and selling efforts in connection with the ramping up of operation of SIS.

Operating expenses for the first half of 2002 increased year-over-year by 2.5 percent to $7.6 million, from $7.4 million.

Operating income for the quarter decreased year-over-year by 25 percent to $937,000, from $1.2 million for the second quarter of 2001. Operating margins for the quarter declined to 8.8 percent from 11.8 percent for the same quarter last year. Excluding the impact of SIS and the new accounting rule for the amortization of goodwill, operating income for the quarter decreased by 5 percent to $1.2 million, representing an 11 percent operating margin.

Operating income for the first half of 2002 decreased year-over-year by 12.5 percent to $1.6 million, from $1.9 million for the first half of 2001. Operating margins for the half declined to 8.1 percent, from 9.5 percent for the first half of last year. Excluding the impact of SIS and the new accounting rule for the amortization of goodwill, operating income for the half increased by 8 percent to $2 million, representing a 10 percent operating margin.

Income before taxes remained relatively unchanged at $1.0 million for the second quarter of 2002, and at $1.8 million for the first half.

Net income for the quarter increased quarter-over-quarter by 18 percent to $710,000, or $0.09 per fully diluted share, from $600,000, or $0.08 per fully diluted share in the first quarter of 2002. Year-over-year, net income for the quarter declined by 19 percent, from $877,000, or $0.11 per fully diluted share reported for the second quarter of last year. Excluding losses generated by SIS and the impact of the new accounting regulation regarding the amortization of goodwill, net income for the second quarter of 2002 increased by 8 percent to $950,000, or $0.12 per fully diluted share.

Net income for the first half of 2002 decreased year-over-year by 8 percent to $1.3 million, from $1.4 million. Excluding losses generated by SIS and the impact of the new accounting regulations regarding the amortization of goodwill, net income for the first half of 2002 increased by 19 percent to $1.7 million, of $0.22 per fully diluted share.

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 established in the U.S. in June 2001. 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 U.S., Canada, the U.K., Germany, Mexico and an office in China.

Revenues for fiscal year 2001 were US$41 million, with net income of US$3.2 million.

Magal trades in the U.S. on the NASDAQ National Market since 1993 and in Israel on the Tel-Aviv Stock Exchange (TASE) since July 2001, in both under the symbol MAGS.

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 Report on Form 8-K filed with the Securities and Exchange Commission.

                      MAGAL SECURITY SYSTEMS LTD.
         UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
        (All numbers except EPS expressed in thousands of US$)

                        Six Months Ended June 30    Quarter Ended June 30

                           2002        2001           2002        2001

REVENUES                 $ 20,119    $ 19,563       $ 10,653    $ 10,551

Cost of revenues           10,910      10,304          5,738       5,625
                        ----------  ----------     ----------  ----------

Gross Profit                9,209       9,259          4,915       4,926

OPERATING EXPENSES:

Research and development
 expenses, net              1,426       1,612            723         803

Selling and marketing
 expenses                   4,039       3,298          2,279       1,614

General and administrative
 expenses                   2,112       2,484            976       1,266
                        ----------  ----------     ----------  ----------
                            7,577       7,394          3,978       3,683
                        ----------  ----------     ----------  ----------

OPERATING INCOME            1,632       1,865            937       1,243

FINANCIAL INCOME
 (EXPENSES), NET              171         (90)            71        (207)
                        ----------  ----------     ----------  ----------

INCOME BEFORE TAXES
 ON INCOME                  1,803       1,775          1,008       1,036
TAXES ON INCOME               493         346            298         159
                        ----------  ----------     ----------- ----------

NET INCOME               $  1,310    $  1,429       $    710    $    877
                        ==========  ==========     =========== ==========

BASIC EARNINGS PER
 SHARE                   $   0.17    $   0.19       $   0.09    $   0.12
                        ==========  ==========     =========== ==========

SHARES USED IN COMPUTING
 BASIC PER SHARE
  (IN THOUSANDS)            7,625       7,466          7,635       7,473
                        ==========  ==========     =========== ==========

DILUTED EARNINGS PER
 SHARE                   $   0.17    $   0.19       $   0.09    $   0.11
                        ==========  ==========     =========== ==========

SHARES USED IN COMPUTING
 DILUTED EARNINGS PER
  SHARE (IN THOUSANDS)      7,867       7,595          7,876       7,630
                        ==========  ==========     =========== ==========

                                            Financial Ratios

                         Six months Ended June 30,  Quarter Ended June 30,

                              2002      2001            2002      2001

Gross Margin                  45.8%     47.3%           46.1%     46.7%
R&D as a % of Revenues         7.1%      8.2%            6.8%      7.6%
Selling & Marketing as a %
 of Revenues                  20.1%     16.9%           21.4%     15.3%
G&A Expenses as a %
 of Revenues                  10.5%     12.7%            9.2%     12.0%
Operating Margin               8.1%      9.5%            8.8%     11.8%
Net income Margin              6.5%      7.3%            6.7%      8.3%
Total Debt to Total
 Capitalization            (a)0.41   (b)0.35         (a)0.41   (b)0.35
Current Ratio              (a)1.80   (b)2.31         (a)1.80   (b)2.31

(a) As of June 30, 2002
(b) As of December 31, 2001


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

                                           June 30,       December 31,
                                             2002             2001
                                           Unaudited        Audited

CURRENT ASSETS:
Cash and cash equivalents                    3,275           2,738
Short-term bank deposits                     3,637           8,289
Accounts receivable - trade:
Related parties                                 38              58
Other                                        9,139           6,113
Unbilled accounts receivable                 6,652           5,586
Other accounts receivable                    1,086             575
Inventories                                  8,422           8,549
Deferred income taxes                          279             473
                                        -----------     -----------

Total current assets                        32,528          32,381
                                        -----------     -----------

Long term receivable                         1,607           2,213
Long-term bank deposits                      8,470           3,560
Severance pay fund                           1,510           1,592
                                        -----------     -----------
Total long term investments                 11,587           7,365
                                        -----------     -----------

FIXED ASSETS, NET                            8,895           8,550
                                        -----------     -----------

OTHER ASSETS, NET                            5,714           5,051
                                        -----------     -----------

TOTAL ASSETS                                58,724          53,347
                                        ===========     ===========

CURRENT LIABILITIES:
Short-term bank credit                       5,545           2,405
Current maturities of long-term bank loans   4,311           3,859
Trade payables                               3,054           3,394
Other payables and accrued liabilities       5,160           4,332
                                        -----------     -----------

Total current liabilities                   18,070          13,990
                                        -----------     -----------

LONG-TERM LOANS                              4,498           5,038
                                        -----------     -----------

ACCRUED SEVERANCE PAY, NET                   1,524           1,619
                                        -----------     -----------

SHAREHOLDERS' EQUITY:
Share capital                                2,594           2,583
Additional paid-in capital                  22,123          21,670
Deferred compensation                          (11)            (20)
Accumulated other comprehensive loss          (737)         (1,294)
Retained earnings                           10,663           9,761
                                        -----------     -----------

Total shareholders' equity                  34,632          32,700
                                        -----------     -----------

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY    58,724          53,347
                                        ===========     ===========