SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For Quarter Ended December 31, 2000 Commission File No. 1-7939
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VICON INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK STATE 11-2160665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
89 Arkay Drive, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 952-2288
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(Former name, address, and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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At December 31, 2000, the registrant had outstanding 4,646,081 shares of Common
Stock, $.01 par value.
PART I - FINANCIAL INFORMATION
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
12/31/00 12/31/99
Net sales............................. $17,376,279 $19,524,470
Cost of sales......................... 11,475,557 14,134,206
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Gross profit........................ 5,900,722 5,390,264
Operating expenses:
Selling expense................... 3,158,939 3,181,520
General & administrative expense.. 1,382,150 1,066,863
Engineering & development expense. 931,941 862,536
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5,473,030 5,110,919
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Operating income.................... 427,692 279,345
Gain on sale of securities............ (2,404,233) -
Interest expense...................... 160,116 166,088
Interest income....................... (32,661) (17,389)
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Income before income taxes........ 2,704,470 130,646
Income tax expense.................... 982,000 46,000
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Net income........................ $ 1,722,470 84,646
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Earnings per share:
Basic $ .37 $ .02
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Diluted $ .37 $ .02
=== ===
Shares used in computing earnings per share:
Basic 4,638,415 4,584,934
Diluted 4,645,027 4,699,703
See Notes to Condensed Consolidated Financial Statements.
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VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/00 9/30/00
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CURRENT ASSETS
Cash............................................ $ 2,733,861 $ 2,115,118
Marketable securities........................... 366,151 2,775,196
Accounts receivable (less allowance
of $1,328,000 at December 31, 2000 and
$1,063,000 at September 30, 2000)............. 16,622,772 17,101,618
Inventories:
Parts, components, and materials.............. 2,865,679 3,011,071
Work-in-process............................... 3,487,196 3,285,213
Finished products............................. 12,589,584 12,364,719
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18,942,459 18,661,003
Deferred income taxes........................... 1,842,873 955,003
Prepaid expenses................................ 772,042 896,923
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TOTAL CURRENT ASSETS............................ 41,280,158 42,504,861
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Property, plant and equipment................... 16,020,432 15,796,751
Less accumulated depreciation and amortization.. (7,558,984) (7,295,079)
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8,461,448 8,501,672
Goodwill, net of accumulated amortization....... 1,593,705 1,639,678
Deferred income taxes........................... 786,234 805,087
Other assets.................................... 434,977 466,590
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TOTAL ASSETS.................................... $52,556,522 $53,917,888
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Borrowings under revolving credit agreement..... $ 203,036 $ 129,424
Current maturities of long-term debt............ 1,382,791 1,311,386
Accounts payable................................ 2,300,378 2,939,936
Accrued compensation and employee benefits...... 1,221,653 1,895,766
Accrued expenses................................ 1,780,060 1,713,316
Unearned service revenue........................ 956,928 835,045
Income taxes payable............................ 1,184,609 315,481
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TOTAL CURRENT LIABILITIES 9,029,455 9,140,354
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Long-term debt.................................. 5,235,803 7,090,253
Unearned service revenue........................ 2,157,239 2,011,123
Other long-term liabilities..................... 690,229 677,775
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 47,406 47,106
Capital in excess of par value.................. 21,494,936 21,444,638
Retained earnings............................... 14,534,764 12,812,294
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36,077,106 34,304,038
Less treasury stock, at cost.................... (577,018) (555,097)
Accumulated other comprehensive (loss) income... (56,292) 1,249,442
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TOTAL SHAREHOLDERS' EQUITY 35,443,796 34,998,383
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $52,556,522 $53,917,888
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See Notes to Condensed Consolidated Financial Statements.
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VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
12/31/00 12/31/99
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Cash flows from operating activities:
Net income..................................... $ 1,722,470 $ 84,646
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on sale of securities................... (2,404,233) -
Depreciation and amortization................ 258,287 211,352
Goodwill amortization........................ 45,973 51,964
Deferred income taxes........................ (37,418) (539,936)
Change in assets and liabilities:
Accounts receivable........................ 503,563 (1,446,286)
Inventories................................ (266,781) (1,170,423)
Prepaid expenses........................... 125,971 81,401
Other assets............................... 31,613 (12,909)
Accounts payable........................... (641,631) 168,188
Accrued compensation and employee benefits. (674,309) (936,041)
Accrued expenses........................... 65,551 509,876
Unearned service revenue................... 267,999 (53,348)
Income taxes payable....................... 866,606 276,744
Other liabilities.......................... 12,454 (29,572)
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Net cash used in operating activities..... (123,885) (2,804,344)
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Cash flows from investing activities:
Proceeds from sale of securities............. 2,624,858 -
Capital expenditures......................... (209,441) (470,165)
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Net cash provided by (used in)
investing activities................... 2,415,417 (470,165)
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Cashflows from financing activities:
(Decrease) increase in borrowings under U.S.
bank credit agreement...................... (1,500,000) 1,000,000
Increase in borrowings under U.K.
revolving credit agreement................. 71,736 192,348
Proceeds from mortgage loan.................. - 1,200,000
Proceeds from exercise of stock options...... 28,677 5,838
Repayments of U.S. term loan................. (225,000) (225,000)
Repayments of other debt..................... (61,086) (77,039)
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Net cash (used in) provided by
financing activities................... (1,685,673) 2,096,147
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Effect of exchange rate changes on cash.......... 12,884 (16,056)
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Net increase (decrease) in cash.................. 618,743 (1,194,418)
Cash at beginning of year........................ 2,115,118 1,998,767
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Cash at end of period............................ $ 2,733,861 $ 804,349
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See Notes to Condensed Consolidated Financial Statements.
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VICON INDUSTRIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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December 31, 2000
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended December 31, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
2000. Certain prior year amounts have been reclassified to conform to current
year presentation.
Note 2: Earnings per Share
The Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" requires companies to present
basic and diluted earnings per share (EPS). Basic EPS is computed based on the
weighted average number of shares outstanding for the period. Diluted EPS
reflects the maximum dilution that would have resulted from the exercise of
stock options and incremental shares issuable under a deferred compensation
agreement. The following table provides the components of the basic and diluted
earnings per share (EPS) computations for the three months ended December 31,
2000 and 1999:
2000 1999
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(Unaudited) (Unaudited)
Basic EPS Computation
Net income.............................. $1,722,470 $ 84,646
Weighted average shares outstanding..... 4,638,415 4,584,934
Basic earnings per share................ $ .37 $ .02
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Diluted EPS Computation
Net income.............................. $1,722,470 $ 84,646
Weighted average shares outstanding... 4,638,415 4,584,934
Stock options......................... 6,612 108,730
Stock compensation arrangement........ - 6,039
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Diluted shares outstanding.............. 4,645,027 4,699,703
Diluted earnings per share.............. $ .37 $ .02
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Note 3: Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in the financial statements. The Company's total comprehensive income
for the three months ended December 31, 2000 and 1999 was as follows:
2000 1999
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(Unaudited) (Unaudited)
Net income............................. $ 1,722,470 $ 84,646
Other comprehensive income (loss), net of tax:
Change in unrealized gain on
securities........................ (1,356,820) -
Change in equity due to foreign
currency translation adjustments.. 51,086 (94,894)
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Comprehensive income (loss)............ $ 416,736 $ (10,248)
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Note 4: Segment and Related Information
The Company operates in one industry which encompasses the design, manufacture,
assembly and marketing of video systems and system components for the electronic
protection segment of the security industry. The Company manages its business
segments primarily on a geographic basis. The Company's principal reportable
segments are comprised of its United States (U.S.) and United Kingdom (U.K.)
based operations. Its U.S. based operations consist of Vicon Industries, Inc.,
the Company's corporate headquarters and principal operating entity. Its U.K.
based operations consist of Vicon Industries Limited, a wholly owned subsidiary
which markets and distributes the Company's products principally within Europe
and the Middle East. Other segments include the operations of Vicon Industries
(H.K.) Ltd., a Hong Kong based majority owned subsidiary which markets and
distributes the Company's products principally within Hong Kong and mainland
China, and Telesite U.S.A., Inc. and subsidiary, a U.S. and Israeli based
manufacturer and distributor of remote video surveillance systems.
The Company evaluates performance and allocates resources based on, among other
things, the net profit for each segment, which excludes intersegment sales and
profits. Segment information for the three months ended December 31, 2000 and
1999 was as follows:
2000 U.S. U.K. Other Consolid. Totals
- ---- ---------- --------- --------- ---------- -------
Net sales to
external customers $13,408,000 $3,140,000 $ 828,000 $ - $17,376,000
Intersegment
net sales 1,815,000 - 343,000 - 2,158,000
Net income (loss) 2,002,000 171,000 (406,000) (45,000) 1,722,000
Interest expense 139,000 45,000 11,000 (35,000) 160,000
Interest income 66,000 - - (33,000) 33,000
Depreciation and
amortization 189,000 40,000 29,000 46,000 304,000
Total assets 46,390,000 6,550,000 3,797,000 (4,180,000) 52,557,000
Capital expenditures 131,000 16,000 62,000 - 209,000
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1999 U.S. U.K. Other Consolid. Totals
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Net sales to
external customers $16,244,000 $2,392,000 $ 888,000 $ - $19,524,000
Intersegment
net sales 1,594,000 - 84,000 - 1,678,000
Net income (loss) 160,000 26,000 (47,000) (54,000) 85,000
Interest expense 143,000 40,000 5,000 (22,000) 166,000
Interest income 52,000 - - (35,000) 17,000
Depreciation and
amortization 176,000 26,000 9,000 52,000 263,000
Total assets 47,074,000 5,525,000 2,735,000 (3,437,000) 51,897,000
Capital expenditures 452,000 - 18,000 - 470,000
The consolidating segment above includes the elimination and consolidation of
intersegment transactions.
Note 5: Marketable Securities
In the quarter ended December 31, 2000, the Company realized a $2.4 million gain
($1.6 million net of tax effect) on the sale of a majority of its equity
interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which,
among other things, manufactures certain of the Company's proprietary products.
In July 2000, CSE completed an initial public offering of approximately 1.4
million shares of its stock in South Korea, at which time the Company's
ownership interest was reduced to approximately 21%. At December 31, 2000, the
Company recorded an unrealized gain on its remaining security holdings of
$320,000 ($198,000 net of tax effect) based upon a $366,000 fair market value
and $46,000 cost basis. Realized gains from the sale of these securities were
$316,000 in the quarter ended September 30, 2000. Prior to CSE's public
offering, the Company recognized this investment on the cost method of
accounting. As of December 31, 2000, the Company's ownership interest in CSE was
approximately 3%.
Note 6: Derivative Instruments
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS 137 and SFAS 138, as of October 1, 2000. SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
The Company's derivative financial instruments consist of foreign currency
forward exchange contracts and interest rate swap agreements. Implementation of
this statement did not have a material impact on the Company's financial
position or results of operations for the quarter ended December 31, 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 2000 Compared with December 31, 1999
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Net sales for the quarter ended December 31, 2000 decreased $2.1 million or 11%
to $17.4 million compared with $19.5 million in the year ago period. Domestic
sales decreased $2.4 million or 16% to $12.5 million. Indirect sales to the
United States Postal Service under a national supply contract decreased $1.2
million or 20% to $4.8 million. The contract was due to expire on December 31,
2000 and was extended to March 16, 2001. Other domestic sales decreased $1.2
million or 13% to $7.7 million principally as a result of a decrease in large
system sales. Despite weaker European currencies, international sales increased
$.3 million or 5% to $4.9 million. The backlog of unfilled orders was $7.5
million at December 31, 2000 compared with $9.2 million at December 31, 1999.
Gross profit margins for the first quarter of fiscal 2001 increased to 34.0%
compared with 27.6% in the year ago period. The margin increase was wholly
attributable to the effects of a $1.3 million charge for warranty costs incurred
in the year ago period.
Operating expenses for the first quarter of fiscal 2001 were $5.5 million or
31.5% of net sales compared with $5.1 million or 26.2% of net sales in the year
ago period. The increase in operating expenses was principally the result of
increased product development costs and an additional provision for bad debts
relating to a customer bankruptcy.
Operating income increased to $428,000 for the first quarter of fiscal 2001
compared with $279,000 in the year ago period. The year ago period was impacted
by a $1.3 million warranty charge.
In the first quarter of fiscal 2001, the Company realized a $2.4 million gain on
the sale of a majority of its equity interest in Chun Shin Electronics, Inc., a
South Korean company which, among other things, manufactures certain of the
Company's proprietary products.
Interest expense was $160,000 for the first quarter of fiscal 2001 compared with
$166,000 in the year ago period.
Income tax expense was $982,000 for the first quarter of fiscal 2001 compared
with $46,000 in the year ago period.
As a result of the foregoing, net income increased to $1.7 million for the first
quarter of fiscal 2001 compared with $85,000 for the year ago period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Financial Condition
Net cash used in operating activities was $124,000 for the first quarter of
fiscal 2001. Net cash provided by investing activities was $2.4 million for the
first quarter of 2001 due principally to the receipt of $2.6 million of proceeds
from the sale of a majority of the Company's equity interest in Chun Shin
Electronics, Inc. Net cash used in financing activities was $1.7 million, which
included the paydown of $1.5 million of borrowings under the Company's U.S.
revolving credit agreement. As a result of the foregoing, cash increased by
$619,000 for the first quarter of 2001 after the nominal effect of exchange rate
changes on the cash position of the Company.
The Company has a $9.5 million revolving credit facility with a bank which
expires in July 2002. Borrowings under the facility bear interest at the bank's
prime rate minus 2% or, at the Company's option, LIBOR plus 90 basis points
(7.50% and 7.45%, respectively, at December 31, 2000). At December 31, 2000,
there were no outstanding borrowings under this facility. The agreement contains
restrictive covenants which, among other things, require the Company to maintain
certain levels of earnings and ratios of debt service coverage and debt to
tangible net worth.
The Company also maintains a bank overdraft facility of 600,000 Pounds Sterling
(approximately $882,000) in the U.K. to support local working capital
requirements of Vicon Industries Limited. At December 31, 2000, outstanding
borrowings under this facility were approximately $203,000.
The Company believes that cash flow from operations and funds available under
its credit agreements will be sufficient to meet its anticipated operating,
capital expenditures and debt service requirements for at least the next twelve
months.
Certain Related Party Transactions
The Company is substantially dependent upon certain outside suppliers to
manufacture and assemble its products. During the three months ended December
31, 2000, approximately $1.2 million or 13% of the Company's purchases of
components and finished products were supplied indirectly from CSE. The Company
has no control over the operations of CSE and its relationship with this
investee is strictly that of a buyer and supplier dealing with each other at
arm's length. Although the Company believes that the majority of components and
products supplied by CSE could, in time, be sourced through alternative
suppliers at prices comparable to those paid to CSE, the immediate loss of CSE
or any other significant supplier for any reason would impair the Company's
ability to meet its obligations to customers and would have a material adverse
effect on the Company's business.
Gross profit margins attributable to sales of CSE sourced products are generally
comparable with the margins reported in the accompanying statements of
operations.
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"Safe" Harbor Statement under the Private Securities Litigation Reform Act of
1995
Statements in this Report on Form 10-Q and other statements made by the Company
or its representatives that are not strictly historical facts including, without
limitation, statements included herein under the captions "Results of
Operations", "Liquidity and Financial Condition" and "Certain Related Party
Transactions" are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that should be considered as subject to
the many risks and uncertainties that exist in the Company's operations and
business environment. The forward-looking statements are based on current
expectations and involve a number of known and unknown risks and uncertainties
that could cause the actual results, performance and/or achievements of the
Company to differ materially from any future results, performance or
achievements, express or implied, by the forward- looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
and that in light of the significant uncertainties inherent in forward-looking
statements, the inclusion of such statements should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company also assumes no obligation to
update its forward-looking statements or to advise of changes in the assumptions
and factors on which they are based.
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PART II
ITEM 1 - LEGAL PROCEEDINGS
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The Company has no material outstanding litigation.
ITEM 2 - CHANGES IN SECURITIES
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None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
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None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
ITEM 5 - OTHER INFORMATION
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None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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On January 25, 2001, the Company filed Form 8-K announcing the
execution of an extension of the United States Postal Service contract
to March 16, 2001.
-11-
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 14, 2001
VICON INDUSTRIES, INC.
Kenneth M. Darby John M. Badke
Chairman and Vice President, Finance
Chief Executive Officer Chief Financial Officer
-12-
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 14, 2001
VICON INDUSTRIES, INC.
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VICON INDUSTRIES, INC.
Kenneth M. Darby John M. Badke
- --------------------------- ------------------------------
Kenneth M. Darby John M. Badke
Chairman and Vice President, Finance
Chief Executive Officer Chief Financial Officer