SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
September 30, 2001 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 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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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $.01
(Title of class)
American Stock Exchange
(Name of each exchange on which registered)
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of December 15, 2001 was approximately $17,300,000.
The number of shares outstanding of the registrant's Common Stock as of December
15, 2001 was 4,652,712.
PART I
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ITEM 1 - BUSINESS
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General
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Vicon Industries, Inc. ("the Company"), incorporated in 1967, designs,
manufactures, assembles and markets a wide range of video systems and system
components used for security, surveillance, safety and control purposes by a
broad group of end users. A video system is generally a private network that can
transmit and receive video, audio and data signals in accordance with the
operational needs of the user. The Company's primary focus is the design of
software-based engineered video systems and components that it sells worldwide,
primarily to installing dealers, system integrators, government entities and
distributors.
The Company operates within the electronic protection segment of the security
industry that includes, among others: fire and burglar alarm systems, access
control, video systems and article surveillance. The U.S. security industry
consists of thousands of individuals and businesses (exclusive of public sector
law enforcement) that provide products and services for the protection and
monitoring of life, property and information. The security industry includes
fire and burglar alarm systems, access control, video systems, article
surveillance, guard services and equipment, locks, safes, armored vehicles,
security fencing, private investigations and others. The Company's products are
typically used for crime deterrence, visual documentation, observation of
inaccessible or hazardous areas, enhancing safety, managing personal liability,
obtaining cost savings (such as lower insurance premiums), managing control
systems and improving the efficiency and effectiveness of personnel. The
Company's products are used in, among others, office buildings, manufacturing
plants, apartment complexes, retail stores, government facilities,
transportation operations, prisons, casinos, sports arenas, health care
facilities and financial institutions.
Products
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The Company's product line consists of approximately 700 products, of which
about a third represent model variations. The Company's product line consists of
various elements of a video system, including video cameras, display units
(monitors), video recorders, switching equipment for video distribution, digital
video and signal processing units (which perform character generation, video
encoding, multi screen display, video insertion, intrusion detection, source
identification and alarm processing), motorized zoom lenses, remote robotic
cameras, system controls, environmental camera enclosures and consoles for
system assembly. In August 1999, the Company acquired TeleSite U.S.A., Inc.
("TeleSite"), which designs, produces and sells remote video surveillance
systems. The Company continues to increase the product development efforts of
TeleSite in order to maximize the potential of its core digital video
compression technology. The Company provides a full line of products due to the
many varied climatic and operational environments in which the products are
expected to perform. In addition to selling from a standard catalog line, the
Company at times produces to specification or will modify an existing product to
meet a customer's requirements.
- 2 -
The Company's products range in price from $10 for a simple camera mounting
bracket to several hundred thousand dollars (depending upon configuration) for a
large digital control and video matrix switching system.
Marketing
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The Company's marketing emphasizes engineered video system solutions which
incorporate system design, project management and technical training and
support. The Company promotes and markets its products through industry trade
shows worldwide, product brochures and catalogues, direct mailings to existing
and prospective customers, product videos, website promotions, in-house training
seminars for customers and end users, road shows which preview new systems and
system components, and advertising through trade and end user magazines and the
Company's internet web site. The Company's products are sold principally to
approximately 2,000 independent dealers, system integrators and distributors.
Sales are made principally by field sales engineers, independent sales
representatives and inside customer service representatives. The Company's sales
effort is supported by in-house customer service coordinators and technical
support groups which provide product information, application engineering,
design detail, field project management, and hardware and software technical
support.
The Company's products are employed in video system installations by: (1)
commercial and industrial users, such as office buildings, manufacturing plants,
warehouses, apartment complexes, shopping malls and retail stores; (2) federal,
state, and local governments for national security purposes, municipal
facilities, prisons, and military installations; (3) financial institutions,
such as banks, clearing houses, brokerage firms and depositories, for security
purposes; (4) transportation departments for highway traffic control, bridge and
tunnel monitoring, and airport, subway, bus and seaport surveillance; (5) gaming
casinos, where video surveillance is often mandated by local regulation; and (6)
health care facilities, such as hospitals, particularly psychiatric wards and
intensive care units. In fiscal 2001, 2000 and 1999, indirect sales to the
United States Postal Service under a national supply contract approximated $15.2
million, $22.8 million and $22.7 million, respectively.
The Company's principal sales offices are located in Hauppauge, New York;
Fareham, England; Zaventem, Belgium; New Territories, Hong Kong; and Shanghai,
China.
International Sales
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The Company sells its products in Europe and the Middle East through its U.K.
based subsidiary, in China through its Hong Kong subsidiary and elsewhere
outside the U.S. principally by direct export from its U.S. based parent
company. Sales are made to installing dealers or independent distributors which,
outside of Europe and China, typically assume the responsibility for warranty
repair as well as sales and marketing costs to promote the Company's product
line. The Company has a few territorial exclusivity agreements with customers
but primarily uses a wide range of installation companies and distributors in
international markets. In Australia, Japan, Norway and South Korea, the Company
permits independent sales representatives to use the Company's name for
marketing purposes.
- 3 -
Direct export sales and sales from the Company's foreign subsidiaries amounted
to $20.5 million, $19.6 million and $15.4 million or 31%, 26% and 21% of
consolidated net sales in fiscal years 2001, 2000, and 1999, respectively.
Export sales are generally made through a wholly owned subsidiary, Vicon
Industries Foreign Sales Corporation, a tax advantaged foreign sales
corporation. The Company's principal foreign markets are Europe and the Pacific
Rim, which together accounted for approximately 78 percent of international
sales in fiscal 2001.
Competition
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The Company operates in a highly competitive marketplace both domestically and
internationally. The Company competes by providing engineered systems and system
components that incorporate broad capability together with high levels of
customer service and technical support. Generally, the Company does not compete
based on price alone.
The Company's principal engineered video systems competitors include the
following companies or their affiliates: Checkpoint Systems, Inc., Matsushita
(Panasonic), Pelco Sales Company, Philips Communications and Security Systems,
Inc., Sensormatic Electronics Corporation, Interlogix, Inc. and Ultrak, Inc.
Many additional companies, both domestic and international, produce products
that compete against one or more of the Company's system components. In
addition, some consumer video electronic companies or their affiliates,
including Matsushita (Panasonic), Mitsubishi Electric Corporation, Sanyo
Electric Co., Ltd. and Sony Corporation, compete with the Company for the sale
of video products and systems. Most of the Company's competitors are larger
companies whose financial resources and scope of operations are substantially
greater than the Company's.
Engineering and Development
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The Company's engineering and development is focused on new and improved video
systems and system components. In recent years, the trend of product development
and demand within the video security and surveillance market has been toward the
application of digital video technology, specifically toward the compression,
transmission, storage and display of digital video. As the demands of the
Company's target market segment requires the Company to keep pace with changes
in technology, the Company has focused its engineering effort in these
developing areas. During the past two years, the Company substantially increased
its product development expenditures to meet the accelerating market shift to
network capable video systems. Development projects are chosen and prioritized
based on direct customer feedback, the Company's analysis as to the needs of the
marketplace, anticipated technological advances and market research.
The Company employs a total of 44 engineers in the following areas: software
development, mechanical design, manufacturing/testing and electrical and circuit
design. Engineering and development expense amounted to approximately 6%, 5% and
4% of net sales in fiscal 2001, 2000 and 1999, respectively.
- 4 -
Source and Availability of Raw Materials
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The Company relies upon independent manufacturers and suppliers to manufacture
and assemble its proprietary products and expects to continue to rely on such
entities in the future. The Company's relationships with independent
manufacturers, assemblers and suppliers are generally not covered by formal
contractual agreements.
Raw materials and components purchased by the Company and its suppliers are
generally readily available in the market, subject to market lead times at the
time of order. The Company is not dependent upon any single source for a
significant amount of its raw materials and components.
Intellectual Property
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The Company owns, and has pending, a limited number of design and utility
patents expiring at various times. The Company has certain trademarks registered
and several other trademark applications pending both in the United States and
in Europe. Many of the Company's products employ proprietary software which is
protected by copyright. However, the laws of certain foreign countries do not
protect intellectual property rights to the same extent or in the same manner as
the laws of the U.S. The Company has no licenses, franchises or concessions with
respect to any of its products or business dealings. The Company does not deem
the limited number of its patents or its lack of licenses, franchises and
concessions to be of substantial significance or to have a material effect on
its business. The Company does, however, consider its proprietary software to be
unique and valuable and is a principal element in the differentiation of the
Company's products from its competition.
Inventories
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The Company maintains sufficient finished goods inventory levels to respond to
unanticipated customer demand, since most sales are to installing dealers and
contractors who normally do not carry any significant inventory. The Company
principally builds inventory to known and anticipated customer demand. In
addition to normal safety stock levels, certain additional inventory levels may
be maintained for products with long purchase and manufacturing lead times. The
Company believes that it is important to carry adequate inventory levels of
parts, components and products to avoid production and delivery delays that
detract from its sales effort.
- 5 -
Backlog
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The backlog of orders believed to be firm as of September 30, 2001 and 2000 was
approximately $6.3 million and $8.4 million, respectively. Orders are generally
cancelable without penalty at the option of the customer. The Company prefers
that its backlog of orders not exceed its ability to fulfill such orders on a
timely basis, since experience shows that long delivery schedules only encourage
the Company's customers to look elsewhere for product availability.
Employees
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At September 30, 2001, the Company employed 251 full-time employees, of whom 5
are officers, 56 administrative, 119 in sales and technical service capacities,
44 in engineering, and 27 production employees. At September 30, 2000, the
Company employed 261 persons. There are no collective bargaining agreements with
any of the Company's employees and the Company considers its relations with its
employees to be good.
ITEM 2 - PROPERTIES
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The Company principally operates from an 80,000 square-foot facility located at
89 Arkay Drive, Hauppauge, New York, which it owns. The Company also owns and
operates a 14,000 square-foot sales, service and warehouse facility in southern
England which services the U.K., Europe and the Middle East. In addition, the
Company operates under leases with offices in Zaventem, Belgium; Tenafly, New
Jersey; Yavne, Israel; Hong Kong and various offices in mainland China.
ITEM 3 - LEGAL PROCEEDINGS
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None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
- 6 -
PART II
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
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MATTERS
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The Company's stock is traded on the American Stock Exchange (AMEX) under the
symbol (VII). The following table sets forth for the periods indicated, the
range of high and low prices for the Company's Common Stock on AMEX:
Quarter
Ended High Low
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Fiscal 2001
December 3.3125 1.6875
March 2.7500 1.8125
June 2.7000 1.7000
September 6.5000 2.0200
Fiscal 2000
December 7.5000 5.0000
March 6.6250 3.4375
June 4.3750 3.0000
September 4.0000 3.0625
The last sale price of the Company's Common Stock on December 15, 2001 as
reported on AMEX was $3.71 per share. As of December 15, 2001, there were
approximately 300 shareholders of record.
The Company has never declared or paid cash dividends on its Common Stock and
anticipates that any earnings in the foreseeable future will be retained to
finance the growth and development of its business. In addition, the Company's
bank credit agreements prohibit the payment of cash dividends on its Common
Stock.
- 7 -
ITEM 6 - SELECTED FINANCIAL DATA
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FISCAL YEAR 2001 2000 1999 1998 1997
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(in thousands, except per share data)
Net sales $65,365 $74,624 $73,414 $63,310 $51,519
Gross profit 21,686 23,054 25,779 21,960 14,475
Operating (loss) income (418) 1,993 7,893 6,869 2,750
Income before income
taxes 2,307 1,589 7,442 5,810 1,647
Net income 1,497 961 4,760 5,810 1,565
Earnings per share:
Basic .32 .21 1.05 1.61 .56
Diluted .32 .21 1.01 1.50 .52
Total assets 51,926 53,918 49,899 44,386 31,200
Long-term debt 3,498 7,090 5,799 7,002 8,344
Working capital 30,005 33,365 29,049 27,642 15,351
Property, plant and
equipment (net) 8,139 8,502 8,053 7,137 3,492
- 8 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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Fiscal Year 2001 Compared with 2000
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Net sales for 2001 decreased $9.2 million or 12% to $65.4 million compared with
$74.6 million in 2000. Domestic sales decreased $10.1 million or 18% to $44.9
million principally as a result of a $7.6 million decline in indirect sales to
the United States Postal Service (USPS) under a national supply contract.
Indirect sales to the USPS decreased 33% to $15.2 million in 2001 compared with
$22.8 million in 2000. In March 2001, the USPS announced an immediate freeze on
all its capital spending due to a severe projected budget deficit. As a result,
the Company has since experienced a material reduction in its USPS order rate.
In addition, the USPS supply contract had expired on June 30, 2001 with no new
contract being awarded. The Company has since been named as one of three
pre-approved suppliers in the latest USPS published specification for video
systems. International sales increased $.9 million or 5% to $20.5 million
primarily as a result of increased sales in Europe. The backlog of unfilled
orders was $6.3 million at September 30, 2001 compared with $8.4 million at
September 30, 2000.
Gross profit margins for 2001 increased to 33.2% compared with 30.9% in 2000.
The margin increase was principally attributable to the effects of a $1.3
million charge for warranty costs incurred in the prior year.
Operating expenses for 2001 were $22.1 million or 33.8% of net sales compared
with $21.1 million or 28.2% of net sales in 2000. The increase in operating
expenses included the write-down of certain foreign assets, certain severance
and payroll related costs and costs incurred in the development of new product
lines.
The Company incurred an operating loss of $418,000 for 2001 compared with
operating income of $2.0 million for 2000 principally as a result of lower sales
and increased operating expenses during 2001.
Interest expense decreased $318,000 to $498,000 for 2001 compared with $816,000
in 2000 principally as a result of the paydown of bank borrowings.
The Company realized a $3.0 million gain ($2.0 million net of tax effect) on the
sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a
South Korean company which, among other things, manufactures certain of the
Company's proprietary products.
Income tax expense for 2001 was $810,000 compared with $628,000 in 2000.
As a result of the foregoing, net income increased to $1.5 million for 2001
compared with $961,000 for 2000.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
RESULTS OF OPERATIONS
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Fiscal Year 2000 Compared with 1999
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Net sales for 2000 increased $1.2 million or 2% to $74.6 million compared with
$73.4 million in 1999. International sales increased $4.2 million or 27% to
$19.6 million primarily as a result of increased sales efforts within new
international markets. Domestic sales decreased $3.0 million or 5% to $55
million principally as a result of a decrease in large system sales. Indirect
sales to the United States Postal Service under a national supply contract
approximated $23 million in both 2000 and 1999. The contract was due to expire
in July 2000 and was extended to December 31, 2000. The backlog of unfilled
orders was $8.4 million at September 30, 2000 compared with $11.3 million at
September 30, 1999.
Gross profit margins for 2000 decreased to 30.9% compared with 35.1% in 1999.
The margin decline was primarily the result of lower selling prices and a
warranty charge of $1.3 million resulting from a technical problem associated
with a new product line.
Operating expenses for 2000 were $21.1 million or 28.2% of net sales compared
with $17.9 million or 24.4% of net sales in 1999. The increase in operating
expenses was principally the result of additional sales, sales support and
product development personnel and related expenses.
Operating income decreased to $2.0 million for 2000 compared with $7.9 million
for 1999 principally as a result of a decrease in gross profit and increased
operating expenses.
Interest expense increased $224,000 to $816,000 for 2000 compared with $592,000
in 1999 principally as a result of an increase in bank borrowings to, among
other things, finance the increase in accounts receivable.
In the fourth quarter of fiscal 2000, the Company realized a $316,000 gain on
the sale of certain of its stock holdings in Chun Shin Electronics, Inc. (CSE),
a South Korean public company and manufacturer of certain of the Company's
proprietary products. CSE completed an initial public offering in South Korea in
July 2000.
Income tax expense for 2000 was $628,000 compared with $2.7 million in 1999.
As a result of the foregoing, net income amounted to $961,000 for 2000 compared
with $4.8 million for 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Net cash provided by operating activities was $8.0 million for 2001 due
primarily to a $5.7 million decrease in accounts receivable and a $1.6 million
decrease in inventories. The accounts receivable decrease was due principally to
lower comparable period sales and improved collections on sales to U.S. Postal
Service contractors. Reported net income for the period of $1.5 million included
a $2.0 million net of tax non-operating gain on the sale of securities. Net cash
provided by investing activities was $2.5 million for 2001 due to the receipt of
$3.3 million of proceeds from the sale of the Company's remaining equity
interest in Chun Shin Electronics, Inc. Net cash used in financing activities
was $2.9 million in 2001, which included the repayment of $1.5 million of
borrowings under the Company's U.S. revolving credit agreement and $1.3 million
of scheduled repayments of bank term and mortgage loans. As a result of the
foregoing, cash increased by $7.7 million for 2001 after the effect of exchange
rate changes on the cash position of the Company.
The Company has a $9.5 million unsecured revolving credit facility in the U.S.
with a bank that expires in July 2002. Borrowings under this facility bear
interest at the bank's prime rate minus 2% or, at the Company's option, LIBOR
plus 90 basis points (4.00% and 4.42%, respectively, at September 30, 2001). At
September 30, 2001, 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.
At September 30, 2001, the Company was not in compliance with certain of the
financial covenants of the aforementioned loan and mortgage agreements.
Subsequent to yearend, the Company received a waiver of such covenant violations
from its bank. At the same time, the Company received and executed a firm
commitment letter from the bank to amend its current unsecured revolving credit
and term loan agreement to provide a $5 million secured revolving credit
facility through July 2004. Borrowings under such facility would bear interest
at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis
points. The amendment agreement, when executed, will grant the bank a security
interest in all the assets of the Company and, among other things, will
effectively modify the financial covenants contained in all existing agreements.
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 September 30, 2001, there were no
outstanding borrowings under this facility.
The Company believes that it has sufficient cash and funds available under its
credit agreements to meet its anticipated operating, capital expenditures and
debt service requirements for at least the next twelve months.
- 11 -
New Accounting Standards Not Yet Adopted
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In July 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations and establishes criteria that intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported separately from goodwill. SFAS No. 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized but, instead, tested for impairment at least annually in accordance
with the provisions of the Statement. SFAS No. 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted the provisions of SFAS No. 141 effective July 1, 2001, which
had no effect on its financial position or results of operations. SFAS No. 142
will be effective for the Company beginning October 1, 2001, at which time the
Company will be required to reassess the useful lives and residual values of its
intangible assets acquired in purchase business combinations and make any
necessary amortization adjustments by the end of the first interim period after
adoption. In addition, to the extent an intangible asset is identified as having
an indefinite useful life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of the Statement. Any
impairment loss will be measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle in the first interim
period.
Amortization expense related to goodwill was $193,543 and $200,659 for the years
ended September 30, 2001 and 2000, respectively. Because of the extensive effort
needed to comply with adopting SFAS No. 142, the Company has not yet been able
to assess the impact of adopting this statement on its financial statements at
the date of this report, including whether any transitional impairment losses
will be required to be recognized as the cumulative effect of a change in
accounting principle.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144
retains the fundamental provisions in SFAS No. 121 for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale, while also resolving significant implementation issues
associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment
under SFAS No. 144 will never result in a write-down of goodwill. Rather,
goodwill will be evaluated for impairment under SFAS No. 142, as discussed
above. The Company is required to adopt SFAS No. 144 on October 1, 2003.
Management does not expect the adoption of SFAS No. 144 for long-lived assets
held for use to have a material impact on the Company's consolidated financial
statements because the impairment assessment under SFAS No. 144 is largely
unchanged from SFAS No. 121.
- 12 -
Foreign Currency Activity
- -------------------------
The Company's foreign exchange exposure is principally limited to the
relationship of the U.S. dollar to the Japanese yen and the British pound
sterling.
Japanese sourced products denominated in Japanese yen accounted for
approximately 6% and 7% of product purchases in fiscal 2001 and 2000,
respectively. The Company attempts to minimize its currency exposure on these
purchases through the purchase of forward exchange contracts. The Company also
attempts to reduce the impact of an unfavorable exchange rate condition through
cost reductions from its suppliers and shifting product sourcing to suppliers
transacting in more stable and favorable currencies.
Sales by the Company's U.K. based subsidiary to customers in Europe and the
Middle East are made in Pounds Sterling or Euros. In fiscal 2001, approximately
$7.1 million of products were sold by the Company to its U.K. based subsidiary
for resale. Since the third quarter of fiscal 2000, the Pound and the Euro have
significantly weakened against the U.S. dollar, thus increasing the cost of U.S.
sourced product sold by this subsidiary. The Company attempts to minimize its
currency exposure on intercompany sales through the purchase of forward exchange
contracts.
On October 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, and the effect of adoption was
not material. As of September 30, 2001, the Company had interest rate swaps and
forward exchange contracts outstanding with notional amounts aggregating $4.1
million and $2.0 million, respectively, whose aggregate fair value was a
liability of approximately $267,000.
In general, the Company seeks lower costs from suppliers and enters into forward
exchange contracts to mitigate exchange rate exposures. However, there can be no
assurance that such steps will be effective in limiting foreign currency
exposure.
Market Risk Factors
- -------------------
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. The Company has a policy that
prohibits the use of currency derivatives or other financial instruments for
trading or speculative purposes.
The Company enters into forward exchange contracts to hedge certain foreign
currency exposures and minimize the effect of such fluctuations on reported
earnings and cash flow (see "Foreign Currency Activity", Note 1 "Derivative
Instruments" and "Fair Value of Financial Instruments" to the accompanying
financial statements). At September 30, 2001, the Company's foreign currency
exchange risks included a $3.8 million intercompany accounts receivable balance
due from the Company's U.K. based subsidiary and a nominal Japanese Yen
denominated trade accounts payable liability due to inventory suppliers. Such
assets and liabilities are short term and will be settled in fiscal 2002. The
following sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables held
constant.
- 13 -
At September 30, 2001, a 10% strengthening or weakening of the U.S. dollar
versus the British Pound would result in a $378,000 decrease or increase,
respectively, in the intercompany accounts receivable balance. Such foreign
currency exchange risk at September 30, 2001 has been substantially hedged by
forward exchange contracts.
At September 30, 2001, the Company had $4.1 million of outstanding floating rate
bank debt which was covered by interest rate swap agreements that effectively
convert the foregoing floating rate debt to stated fixed rates (see "Note 6.
Long-Term Debt" to the accompanying financial statements). Thus, the Company has
substantially no net interest rate exposures on these instruments. However, the
Company had approximately $1.1 million of floating rate bank debt that is
subject to interest rate risk as it was not covered by interest rate swap
agreements.
Inflation
- ---------
The impact of inflation on the Company has been minimal in recent years as the
rate of inflation remains low. However, inflation continues to increase costs to
the Company. As operating expenses and production costs increase, the Company
seeks price increases to its customers to the extent permitted by market
conditions.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
- ------------------------------------------------------------------------------
1995
- ----
Statements in this Report on Form 10-K 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" and "Liquidity and Financial Condition" 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 publicly update or revise its
forward-looking statements or to advise of changes in the assumptions and
factors on which they are based.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
See Part IV, Item 14, for an index to consolidated financial statements and
financial statement schedules.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
- 14 -
PART III
--------
ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT
- --------------------------------------------------
The Directors and Officers of the Company are as follows:
Name Age Position
---- --- --------
Kenneth M. Darby 55 Chairman of the Board, President and
Chief Executive Officer
John M. Badke 42 Vice President, Finance and Chief
Financial Officer
John L. Eckman 52 Vice President, Sales
Peter A. Horn 46 Vice President, Operations
Bret M. McGowan 36 Vice President, Marketing
Yacov A. Pshtissky 50 Vice President, Technology and Development
Milton F. Gidge 72 Director
Peter F. Neumann 67 Director
W. Gregory Robertson 57 Director
Arthur D. Roche 63 Director
Kazuyoshi Sudo 59 Director
The business experience, principal occupations and employment, as well as period
of service, of each of the directors and officers of the Company during at least
the last five years are set forth below.
Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer.
Mr. Darby has served as Chairman of the Board since April 1999, as Chief
Executive Officer since April 1992 and as President since October 1991. He has
served as a director since 1987. Mr. Darby also served as Chief Operating
Officer and as Executive Vice President, Vice President, Finance and Treasurer
of the Company. He joined the Company in 1978 as Controller after more than nine
years at Peat Marwick Mitchell & Co., a public accounting firm. Mr. Darby's
current term on the Board ends in April 2002.
John M. Badke - Vice President, Finance and Chief Financial Officer. Mr. Badke
has been Chief Financial Officer since December 1999 and Vice President, Finance
since October 1998. Previously, he served as Controller since joining the
Company in 1992. Prior to joining the Company, Mr. Badke was Controller for NEK
Cable, Inc. and an audit manager with the international accounting firms of
Arthur Andersen & Co. and Peat Marwick Main & Co.
John L. Eckman - Vice President, U.S. Sales. Mr. Eckman rejoined the Company in
April 2001 as Vice President, U.S. Sales after serving as District General
Manager with Honeywell from June 2000 to April 2001. From July 1996 to June
2000, he served as Vice President, U.S. Sales of the Company after joining the
Company in August 1995 as Eastern Regional Manager. Prior to that time, he was
Director of Field Operations for Cardkey Systems, Inc., an access control
security products manufacturer with whom he was employed for 12 years.
- 15 -
Peter A. Horn - Vice President, Operations. Mr. Horn has been Vice President,
Operations since June 1999. From 1995 to 1999, he was Vice President, Compliance
and Quality Assurance. Prior to that time, he served as Vice President in
various capacities since his promotion in May 1990.
Bret M. McGowan - Vice President, Marketing. Mr. McGowan was promoted to Vice
President, Marketing in October 2001. Previously, he served as Director of
Marketing since 1998 and as Marketing Manager since 1994. He joined the Company
in 1993 as a Marketing Specialist.
Yacov A. Pshtissky - Vice President, Technology and Development. Mr. Pshtissky
has been Vice President, Technology and Development since May 1990. Mr.
Pshtissky was Director of electrical product development from March 1988 through
April 1990.
Milton F. Gidge - Director. Mr. Gidge has been a director of the Company since
1987. He is a retired director and executive officer of Lincoln Savings Bank for
which he served from 1976 to 1994 as Chairman, Credit Policy. He also served as
a director of Interboro Mutual Indemnity Insurance Co., a general casualty
insurance company, from 1980 to 2001 and as a director of Intervest Bancshares
Corporation, a regional bank holding company, from 1988 to 2001. His current
term on the Board ends in April 2004.
Peter F. Neumann - Director. Mr. Neumann has been a director of the Company
since 1987. He is the retired President of Flynn-Neumann Agency, Inc., an
insurance brokerage firm. Since 1978, Mr. Neumann has been serving as a director
of Reliance Federal Savings Bank. Mr. Neumann's current term on the Board ends
in April 2003.
W. Gregory Robertson - Director. Mr. Robertson has been a director of the
Company since 1991. He is President of TM Capital Corporation, a financial
services company which he founded in 1989. From 1985 to 1989, he was employed by
Thomson McKinnon Securities, Inc. as head of investment banking and public
finance. Mr. Robertson's current term on the Board ends in April 2004.
Arthur D. Roche - Director. Mr. Roche has been a director of the Company since
1992. He served as Executive Vice President and co-participant in the Office of
the President of the Company from August 1993 until his retirement in November
1999. For the six months prior to that time, Mr. Roche provided consulting
services to the Company. In October 1991, Mr. Roche retired as a partner of
Arthur Andersen & Co., an international accounting firm which he joined in 1960.
His current term on the Board ends in April 2002.
Kazuyoshi Sudo - Director. Mr. Sudo has been a director of the Company since
1987. Mr. Sudo is President and Chief Executive Officer of Toyo Management,
Inc., a consulting firm which he founded in 2001. Previously, Mr. Sudo was Chief
Executive Officer of CBC (America) Corp., a distributor of electronic, chemical
and optical products, from 1996 to 2001 and a director of its parent company,
CBC Co., Ltd. Mr. Sudo's current term on the Board ends in April 2003.
There are no family relationships between any director, executive officer,
officer or person nominated or chosen by the Company to become a director or
officer.
- 16 -
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company during the year ended September 30, 2001 and certain written
representations, no person, who, at any time during the year ended September 30,
2001 was a director, officer or beneficial owner of more than 10 percent of any
class of equity securities of the Company registered pursuant to Section 12 of
the Exchange Act failed to file on a timely basis, as disclosed in the above
forms, reports required by Section 16(a) of the Exchange Act during the year
ended September 30, 2001.
- 17 -
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth all compensation awarded to, earned by, or paid
for all services rendered to the Company during 2001, 2000 and 1999 by the Chief
Executive Officer and the Company's most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during any such year.
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term Compensation
----------------------------------
Awards Payouts
----------------------- -------
Annual Compensation Restricted Securities
Name and All Other Stock Underlying LTIP
Principal Position Year Salary ($) Bonus ($) Compensation Award Options (#) Payouts
- ------------------ ---- ---------- ---------- ------------ ---------- ------------ -------
Kenneth M. Darby 2001 $285,000 $ 75,000 (1) $ 3,000 (5) - - -
Chief Executive 2000 285,000 42,271 (1) 3,000 (5) 50,813 (6) - -
Officer 1999 275,000 261,690 (4) 3,000 (5) 111,814 (6) - -
Henry B. Murray 2001 $184,615 - $ 87,179 (7) - - -
Executive 2000 100,000 40,000 (2) - - - -
Vice President 1999 - - - - - -
Arthur D. Roche 2001 - - - - - -
Executive 2000 29,769 5,058 (3) - - - -
Vice President 1999 180,000 140,910 (4) - - - -
<FN>
(1) Represents cash bonus based on certain performance measures, including the
Company's profitability, which was adopted by the Board of Directors upon
the recommendation of its Compensation Committee.
(2) Represents minimum guaranteed bonus for fiscal 2000.
(3) Represents cash bonus equal to 1.75% of the sum of consolidated pre-tax
income and provision for officers' bonuses pro-rated for the two-month
period of employment as Executive Vice President. Such bonus formula was
adopted for 2000 by the Board of Directors upon the recommendation of its
Compensation Committee.
(4) Represents cash bonus equal to 3.25% and 1.75% of the sum of consolidated
pre-tax income and provision for officers' bonuses for Mr. Darby and Mr.
Roche, respectively, which bonus formula was adopted for 1999 by the
Board of Directors upon the recommendation of its Compensation Committee.
(5) Represents life insurance policy payment.
(6) Represents deferred compensation benefit of 8,130 and 16,565 shares of
Common Stock awarded in 2000 and 1999, respectively, which are being held
by the Company in Treasury and which vest upon the expiration of Mr.
Darby's employment agreement in October 2004, or earlier upon certain
occurrences including his death, involuntary termination or a change in
control of the Company. The value of such stock is based on the fair
market value on the date of grant. At September 30, 2001, the quoted
market value of such shares approximated $28,000 and $56,000,
respectively, for the 2000 and 1999 awards. No dividends can be paid on
such shares.
(7) Represents lump-sum severance payout pursuant to Mr. Murray's separation
from the Company effective August 31, 2001.
</FN>
- 18 -
Stock Options
- -------------
There were no options granted to the aforementioned executive officers during
fiscal 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
At September 30, 2001
-----------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options Options (2)
------------- -------------
Shares
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized (1) Unexercisable Unexercisable
- ----------------- ----------- ------------ ------------- -------------
Kenneth M. Darby -0- -0- -0-/21,539 -0-/$4,577
Henry B. Murray -0- -0- -0-/-0- -0-/-0-
(1) Calculated based on the difference between the closing quoted market prices
per share at the dates of exercise and the exercise prices.
(2) Calculated based on the difference between the closing quoted market price
($3.40) and the exercise price.
- 19 -
Employment Agreements
- ---------------------
Mr. Darby has entered into an employment agreement with the Company that
provides for an annual salary of $310,000 through fiscal 2004. This agreement
provides for payment in an amount up to three times his average annual
compensation for the previous five years if there is a change in control of the
Company without Board of Director approval (as defined in the agreement). In
addition, Mr. Darby is eligible to receive a cash bonus based on certain
performance measures, including the Company's profitability, which was adopted
by the Board of Directors upon the recommendation of its Compensation Committee.
Directors' Compensation and Term
- --------------------------------
Non-employee directors are compensated at an annual rate of $16,000 for regular
meetings and, for committee membership, receive $1,000 per meeting attended in
person or by teleconference. Employee directors are not compensated for Board or
committee meetings. Directors may not stand for reelection after age 70, except
that any director may serve one additional three-year term after age 70 with the
unanimous consent of the Board of Directors.
- 20 -
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee of the Board of Directors consists of Messrs. Gidge,
Neumann, Robertson and Roche none of whom has ever been an officer of the
Company except for Mr. Roche, who served as Executive Vice President from August
1993 until his retirement in November 1999.
Board Compensation Committee Report
-----------------------------------
The Compensation Committee's compensation policies applicable to the Company's
officers for 2001 were to pay a competitive market price for the services of
such officers, taking into account the overall performance and financial
capabilities of the Company and the officer's individual level of performance.
Mr. Darby makes recommendations to the Compensation Committee as to the base
salary and incentive compensation of all officers other than himself. The
Committee reviews these recommendations with Mr. Darby and, after such review,
determines compensation. In the case of Mr. Darby, the Compensation Committee
makes its determination after direct negotiation with him. For each officer, the
committee's determinations are based on its conclusions concerning each
officer's performance and comparable compensation levels in the security
industry and the Long Island area for similarly situated officers at comparable
companies. The overall level of performance of the Company is taken into account
but is not specifically related to the base salary of these officers. Also, the
Company has established an incentive compensation plan for all of the officers,
which provides a specified bonus to each officer upon the Company's achievement
of certain annual sales and profitability targets and strategic initiatives.
The Compensation Committee grants options to officers to link compensation to
the performance of the Company. Options are exercisable in the future at the
fair market value at the time of grant, so that an officer granted an option is
rewarded by the increase in the price of the Company's stock. The committee
grants options to officers based on significant contributions of such officer to
the performance of the Company. In addition, in determining Mr. Darby's salary
for service as Chief Executive Officer, the committee considered the
responsibility assumed by him in formulating and implementing a management and
long-term strategic plan.
- 21 -
This graph compares the return of $100 invested in the Company's stock on
October 1, 1996, with the return on the same investment in the AMEX U.S. Market
Index and the AMEX Technology Index.
(The following table was represented by a chart in the printed material)
Vicon AMEX U.S. Amex Technology
Date Industries, Inc. Market Index Index
- ---- ---------------- ------------ ---------------
10/01/96 100 100 100
10/01/97 335 126 110
10/01/98 285 118 133
10/01/99 280 152 225
10/01/00 130 188 264
10/01/01 136 137 214
- 22 -
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following sets forth information as to each person, known to the Company to
be a "beneficial owner" (as defined in regulations of the Securities and
Exchange Commission) of more than five percent of the Company's Common Stock
outstanding as of December 15, 2001 and the shares beneficially owned by the
Company's Executive Officers and Directors and by all Executive Officers and
Directors as a group.
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned (1) % of Class
------------------- ---------------------- ----------
CBC Co., Ltd.
and affiliates
2-15-13 Tsukishima
Chuo-ku
Tokyo, Japan 104 543,715 11.5%
Dimensional Fund Advisors
1299 Ocean Avenue
Santa Monica, CA 90401 320,600 (7) 6.8%
Chu S. Chun
C/O I.I.I. Companies, Inc.
915 Hartford Turnpike
Shrewsbury, MA 01545 299,457 (2) 6.3%
******************************************************************************
C/O Vicon Industries, Inc.
Kenneth M. Darby 250,092 5.3%
Arthur D. Roche 146,601 (3) 3.1%
W. Gregory Robertson 20,972 (4) *
Kazuyoshi Sudo 18,772 (4) *
Milton F. Gidge 18,772 (4) *
Peter F. Neumann 17,072 (5) *
Total all Executive Officers and
Directors as a group (6 persons) 472,281 (6) 10.0%
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment control over the shares of stock
owned.
(2) Mr. Chun has voting and dispositive control over 299,457 shares but
disclaims beneficial ownership as to all but 48,400 shares. 195,657
shares are owned by the International Industries, Inc. Profit Sharing
Plan and 103,800 shares are owned by Mr. Chun and immediate family
members.
(3) Includes 50,000 shares held by Mr. Roche's wife, 15,000 shares held by
their children and currently exercisable options to purchase 1,947
shares.
(4) Includes currently exercisable options to purchase 9,072 shares.
(5) Includes currently exercisable options to purchase 8,197 shares.
(6) Includes currently exercisable options to purchase 91,244 shares.
(7) Dimensional Fund Advisors had voting and investment control over 320,600
shares as investment advisor and manager for various mutual funds and
other clients. These shares are beneficially owned by such mutual funds
or other clients.
- 23 -
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The Company and CBC Company, Ltd.(CBC), a Japanese corporation which
beneficially owns 11.5% of the outstanding shares of the Company, have been
conducting business with each other for approximately twenty-two years. During
this period, CBC has served as a lender, a product supplier and sourcing agent,
and a private label reseller of the Company's products. CBC has also acted as
the Company's sourcing agent for the purchase of certain video products. In
fiscal 2001, the Company purchased approximately $3.5 million of products and
components from or through CBC. CBC has the exclusive right to sell Vicon brand
products in Japan and competes with the Company in various markets, principally
in the sale of video products and systems. Sales of all products to CBC were
$303,000 in 2001. Kazuyoshi Sudo is a director of the Company and former
director of CBC and Chief Executive Officer of CBC (America) Corp., a U.S.
subsidiary of CBC.
Mr. Chu S. Chun, who has beneficial voting control over 6.3% of the Common Stock
of the Company, also beneficially owns a minority interest in Chun Shin
Electronics, Inc., (CSE), a South Korean public company that manufactures
certain of the Company's proprietary products. CSE also sells various security
products, including the Company's products, principally within the South Korean
market. In 2001, CSE sold approximately $4.1 million of products to the Company
through International Industries, Inc. (I.I.I.), a U.S. based company controlled
by Mr. Chun. I.I.I. arranges the importation of all the Company's product
purchases from CSE. In addition, I.I.I. purchased approximately $276,000 of
products directly from the Company during 2001 for resale to CSE. -
- 24 -
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
- ----------------------------------------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a) (1) Financial Statements
--------------------
Included in Part IV, Item 14:
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Operations, fiscal years ended
September 30, 2001, 2000, and 1999
Consolidated Balance Sheets at September 30, 2001 and 2000
Consolidated Statements of Shareholders' Equity, fiscal years ended
September 30, 2001, 2000, and 1999
Consolidated Statements of Cash Flows, fiscal years ended September
30, 2001, 2000, and 1999
Notes to Consolidated Financial Statements, fiscal years ended
September 30, 2001, 2000, and 1999
(a) (2) Financial Statement Schedule
----------------------------
Included in Part IV, Item 14:
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 2001, 2000, and 1999
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and, therefore,
have been omitted.
- 25 -
14(a)(3) Exhibits Exhibit Number or
- -------- ---------
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
3 Articles of Incorporation and Incorporated by reference
By-Laws, as amended to the 1985 Annual Report
on Form 10-K; Form S-2
filed in Registration
Statement No. 33-10435
and Exhibit A, B and C of
the 1987 Proxy Statement
4 Instruments defining the rights of
security holders
(.1) Rights Agreement dated December
4, 2001 between the Registrant and
Computershare Investor Services 4.1
10 Material Contracts
(.1) Employment Contract dated Incorporated by reference
October 1, 1999 between the to the 1999 Annual Report
Registrant and Kenneth M. Darby on Form 10-K
(.2) Employment Contract dated April
1, 2001 between Registrant
and John M. Badke 10.2
(.3) Employment Agreement dated October
1, 2001 between Registrant and
Peter Horn 10.3
(.4) Employment Agreement dated October
1, 2000 between the Registrant and
Yacov Pshtissky 10.4
(.5) Employment Agreement dated April
1, 2001 between Registrant and
John L. Eckman 10.5
(.6) Employment Agreement dated October
1, 2001 between the Registrant and
Yigal Abiri 10.6
(.7) Deferred Compensation Agreement Incorporated by reference
dated November 1, 1986 between the to the 1992 Annual Report
Registrant and Donald N. Horn on Form 10-K
- 26 -
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
(.8) 1994 Incentive Stock Option Plan Incorporated by
reference to the
1994 Annual Report
on Form 10-K
(.9) 1994 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1994 Annual Report
on Form 10-K
(.10) 1996 Incentive Stock Option Plan Incorporated by
reference to the
1997 Annual Report
on Form 10-K
(.11) 1996 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1997 Annual Report
on Form 10-K
(.12) Commercial fixed rate loan Incorporated by
agreement between the Registrant reference to the
and National Westminster Bank PLC June 30, 1997 filing
dated April 8, 1997 on Form 10-Q
(.13) Loan Agreement between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.14) Mortgage Note between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.15) Term Loan Note between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.16) Mortgage and Security Agreement Incorporated by
in the amount of $2,512,000 between reference to the
the Registrant and The Dime Savings December 31, 1997
Bank of New York, FSB dated filing on Form 10-Q
January 29, 1998
- 27 -
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ------------
(.17) Mortgage and Security Agreement Incorporated by
in the amount of $388,000 between reference to the
the Registrant and The Dime Savings December 31, 1997
Bank of New York, FSB dated filing on Form 10-Q
January 29, 1998
(.18) Interest rate master swap agreement Incorporated by
between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
(.19) Schedule to the master agreement Incorporated by
between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
(.20) Swap transaction confirmation with Incorporated by
a notional amount of $2,512,000 reference to the
between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.21) Swap transaction confirmation with Incorporated by
a notional amount of $388,000 reference to the
between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.22) Advice of borrowing terms Incorporated by
between the Registrant and reference to the
National Westminster Bank PLC March 31, 2001 filing
dated March 13, 2001 on Form 10-Q
(.23) Credit Agreement between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated June 30, 1998 filing
July 20, 1998 on Form 10-Q
(.24) Swap transaction confirmation with Incorporated by
a notional amount of $4,425,000 reference to the
between the Registrant and KeyBank 1998 Annual Report
National Association dated on Form 10-K
September 9, 1998
(.25) Stock purchase agreement between Incorporated by reference
the Registrant and Isaac Gershoni to the 1999 Annual Report
dated August 12, 1999 on Form 10-K
- 28 -
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
(.26) Escrow agreement among the Incorporated by reference
Registrant, Isaac Gershoni and to the 1999 Annual Report
European American Bank dated on Form 10-K
August 12, 1999
(.27) Loan Agreement between the Incorporated by reference
Registrant and The Dime Savings to the 1999 Annual Report
Bank of New York, FSB dated on Form 10-K
October 12, 1999
(.28) Mortgage Note between the Incorporated by reference
Registrant and The Dime Savings to the 1999 Annual Report
Bank of New York, FSB dated on Form 10-K
October 12, 1999
(.29) Mortgage and Security Agreement Incorporated by reference
in the amount of $1,200,000 between to the 1999 Annual Report
the Registrant and The Dime Savings on Form 10-K
Bank of New York, FSB dated
October 12, 1999
(.30) 1999 Incentive Stock Option Plan Incorporated by reference
to the 1999 Annual Report
on Form 10-K
(.31) 1999 Non-Qualified Stock Option Incorporated by reference
to the 1999 Annual Report
on Form 10-K
21 Subsidiaries of the Registrant Incorporated by
reference to the Notes
to the Consolidated
Financial Statements
23 Independent Auditors' Consent 23
No other exhibits are required to be filed.
14(b) - REPORTS ON FORM 8-K
- ---------------------------
No reports on Form 8-K were required to be filed during the last quarter of the
period covered by this report.
- 29 -
Other Matters - Form S-8 and S-2 Undertaking
- --------------------------------------------
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form S-8 Nos. 33-7892
(filed June 30, 1986), 33-34349 (filed April 1, 1990), 33-90038 (filed February
24, 1995), 333-30097 (filed June 26, 1997) and 333-71410 (filed October 11,
2001) and on Form S-2 No. 333-46841 (effective May 1, 1998):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
- 30 -
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Vicon Industries, Inc.:
We have audited the consolidated financial statements of Vicon Industries, Inc.
and subsidiaries (the "Company") as listed in Part IV, item 14(a)(1). In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Part IV, item
14(a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vicon Industries,
Inc. and subsidiaries at September 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Melville, New York
December 3, 2001, except as to
note 6, which is as of
December 31, 2001
- 31 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years
Ended September 30, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Net sales $65,364,558 $74,624,065 $73,414,046
Cost of sales 43,678,775 51,570,001 47,634,962
------------ ------------ ------------
Gross profit 21,685,783 23,054,064 25,779,084
Operating expenses:
Selling expense 13,025,115 13,117,039 11,159,633
General and administrative expense 4,973,816 4,190,856 3,966,892
Engineering and development expense 4,105,282 3,753,653 2,759,907
------------ ------------ ------------
22,104,213 21,061,548 17,886,432
------------ ------------ ------------
Operating (loss) income (418,430) 1,992,516 7,892,652
Other expense (income):
Interest expense 497,597 816,017 591,826
Gain on sale of securities (3,022,579) (315,955) -
Interest and other income (200,596) (96,751) (141,003)
------------ ------------ ------------
Income before income taxes 2,307,148 1,589,205 7,441,829
Income tax expense 810,000 628,000 2,681,628
------------ ------------ ------------
Net income $ 1,497,148 $ 961,205 $ 4,760,201
============ ============ ============
Earnings per share:
Basic $ .32 $ .21 $1.05
===== ===== =====
Diluted $ .32 $ .21 $1.01
===== ===== =====
See accompanying notes to consolidated financial statements.
- 32 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and 2000
ASSETS 2001 2000
- ------ ---- ----
Current Assets:
Cash and cash equivalents $ 9,795,148 $2,115,118
Marketable securities - 2,775,196
Accounts receivable (less allowance of
$1,115,000 in 2001 and $1,063,000 in 2000) 11,438,334 17,101,618
Inventories:
Parts, components, and materials 2,518,782 3,011,071
Work-in-process 2,777,211 3,285,213
Finished products 11,800,197 12,364,719
----------- -----------
17,096,190 18,661,003
Deferred income taxes 1,420,372 955,003
Prepaid expenses 566,861 896,923
----------- -----------
Total current assets 40,316,905 42,504,861
Property, plant and equipment:
Land 1,161,948 1,160,098
Buildings and improvements 5,394,076 5,380,387
Machinery, equipment, and vehicles 9,815,829 9,256,266
----------- -----------
16,371,853 15,796,751
Less accumulated depreciation and amortization 8,232,536 7,295,079
----------- -----------
8,139,317 8,501,672
Goodwill, net of accumulated amortization 1,571,058 1,639,678
Deferred income taxes 1,366,625 805,087
Other assets 531,660 466,590
----------- -----------
$51,925,565 $53,917,888
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Borrowings under revolving credit agreement $ - $ 129,424
Current maturities of long-term debt 2,144,727 1,311,386
Accounts payable 2,375,825 2,939,936
Accrued compensation and employee benefits 1,789,401 1,895,766
Accrued expenses 2,227,825 1,713,316
Unearned service revenue 1,294,576 835,045
Income taxes payable 479,361 315,481
----------- -----------
Total current liabilities 10,311,715 9,140,354
Long-term debt 3,498,099 7,090,253
Unearned service revenue 2,334,348 2,011,123
Other long-term liabilities 883,356 677,775
Commitments and contingencies - Note 11
Shareholders' equity
Common stock, par value $.01 per share
authorized - 10,000,000 shares
issued 4,756,532 and 4,710,635 shares 47,565 47,106
Capital in excess of par value 21,542,541 21,444,638
Retained earnings 14,309,442 12,812,294
----------- -----------
35,899,548 34,304,038
Treasury stock at cost, 118,249 shares
in 2001 and 85,561 shares in 2000 (633,422) (555,097)
Accumulated other comprehensive income (368,079) 1,249,442
----------- ------------
Total shareholders' equity 34,898,047 34,998,383
----------- -----------
$51,925,565 $53,917,888
=========== ===========
See accompanying notes to consolidated financial statements
- 33 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended September 30, 2001, 2000, and 1999
Accumulated Total
Capital in other share-
Common excess of Retained Treasury comprehensive holders'
Shares Stock par value earnings Stock income equity
------ ------- ----------- ---------- --------- ------------ ---------
Balance September 30, 1998 4,534,710 $45,347 $20,947,515 $7,090,888 $(409,687) $ 162,241 $27,836,304
Comprehensive income:
Net income -- -- -- 4,760,201 -- -- 4,760,201
Foreign currency
translation adjustment -- -- -- -- -- (146,457) (146,457)
Total comprehensive income -- -- -- -- -- -- 4,613,744
Exercise of stock options 120,050 1,200 270,036 -- (99,058) -- 172,178
Tax benefit from exercise
of stock options -- -- 126,125 -- -- -- 126,125
--------- ------ ---------- ---------- --------- ------ ----------
Balance September 30, 1999 4,654,760 46,547 21,343,676 11,851,089 (508,745) 15,784 32,748,351
Comprehensive income:
Net income -- -- -- 961,205 -- -- 961,205
Foreign currency
translation adjustment -- -- -- -- -- (321,304) (321,304)
Unrealized gain on
securities -- -- -- -- -- 1,554,962 1,554,962
Total comprehensive income -- -- -- -- -- -- 2,194,863
Exercise of stock options 55,875 559 100,962 -- (46,352) -- 55,169
--------- ------ ---------- ---------- --------- ------ ----------
Balance September 30, 2000 4,710,635 47,106 21,444,638 12,812,294 (555,097) 1,249,442 34,998,383
Comprehensive income:
Net income -- -- -- 1,497,148 -- -- 1,497,148
Foreign currency
translation adjustment -- -- -- -- -- 113,344 113,344
Reclassification adjustment
for gains on securities
included in net income -- -- -- -- -- (1,554,962) (1,554,962)
Unrealized loss on
derivatives (175,903) (175,903)
Total comprehensive income -- -- -- -- -- -- (120,373)
Repurchases of common stock -- -- -- -- (30,966) -- (30,966)
Exercise of stock options 45,897 459 83,077 -- (47,359) -- 36,177
Tax benefit from exercise
of stock options -- -- 14,826 -- -- -- 14,826
--------- ------- ----------- ----------- ----------- --------- ------------
Balance September 30, 2001 4,756,532 $47,565 $21,542,541 $14,309,442 $ (633,422) $(368,079) $ 34,898,047
========= ======= =========== =========== =========== ========== ============
See accompanying notes to consolidated financial statements.
- 34 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 1,497,148 $ 961,205 $4,760,201
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,062,167 1,019,441 877,698
Goodwill amortization 193,543 200,659 36,279
Deferred income taxes 16,710 (1,145,081) (371,300)
Gain on sale of securities (3,022,579) (315,955) -
Change in assets and liabilities:
Accounts receivable 5,703,378 (3,667,310) (403,392)
Inventories 1,594,450 2,495,615 (3,668,388)
Prepaid expenses 331,955 (283,892) (301,590)
Other assets (65,070) (57,594) (108,383)
Accounts payable (566,837) (1,060,362) 399,202
Accrued compensation and employee benefits (107,988) (324,918) 166,317
Accrued expenses 509,229 (6,536) 414,896
Unearned service revenue 782,756 1,982,288 863,880
Income taxes payable 157,723 147,195 (482,201)
Other liabilities (60,939) (50,509) 60,976
----------- ----------- ------------
Net cash provided by (used in)
operating activities 8,025,646 (105,754) 2,244,195
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures (689,427) (1,640,802) (1,747,030)
Proceeds from sale of securities 3,289,813 347,473 -
Acquisition, net of cash acquired (124,923) - (2,064,857)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 2,475,463 (1,293,329) (3,811,887)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of U.S. term loan (900,000) (900,000) (900,000)
Proceeds from exercise of stock options 51,004 75,518 172,179
Increase (decrease) in borrowings under
short-term revolving credit agreement (127,655) (216,072) (238,003)
Repayments of long-term debt (360,605) (342,274) (275,016)
Borrowings under mortgage loans - 1,200,000 -
Increase (decrease) in borrowings under
U.S. bank credit agreement (1,500,000) 1,500,000 -
Repurchases of common stock (30,966) - -
----------- ----------- ------------
Net cash (used in) provided by
financing activities (2,868,222) 1,317,172 (1,240,840)
----------- ----------- -----------
Effect of exchange rate changes on cash 47,143 198,262 (47,258)
----------- ----------- -----------
Net increase (decrease) in cash 7,680,030 116,351 (2,855,790)
Cash at beginning of year 2,115,118 1,998,767 4,854,557
----------- ----------- -----------
Cash at end of year $ 9,795,148 $ 2,115,118 $ 1,998,767
=========== =========== ===========
Cash paid during the fiscal year for:
Income taxes $ 435,566 $ 1,673,100 $3,517,498
Interest $ 512,354 $ 717,355 $ 608,673
See accompanying notes to consolidated financial statements.
- 35 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 2001, 2000, and 1999
NOTE 1. Summary of Significant Accounting Policies
- ---------------------------------------------------
Nature of Business
- ------------------
The Company designs, manufactures, assembles and markets video systems and
system components for use in security, surveillance, safety and control purposes
by end users. The Company markets its products worldwide directly to installing
dealers, systems integrators, government entities and distributors.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements include the accounts of Vicon
Industries, Inc. (the Company) and its wholly owned subsidiaries: Vicon
Industries, Limited, TeleSite U.S.A., Inc. and subsidiary (Q.S.R. Ltd.), and
Vicon Industries Foreign Sales Corp.; and its majority owned (60%) subsidiary,
Vicon Industries (H.K.) Ltd., after elimination of intercompany accounts and
transactions.
Revenue Recognition
- -------------------
Revenues from product sales are recognized when products are sold and title is
passed to a third party, generally at the time of shipment. Advance service
billings under a national supply contract with one customer are deferred and
recognized as revenues on a pro rata basis over the term of the service
agreement.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on deposit and amounts invested in highly
liquid money market funds.
Marketable Securities
- ---------------------
Marketable securities at September 30, 2000 consisted of an equity investment in
Chun Shin Electronics, Inc. (see Note 3), which was classified as
available-for-sale under SFAS No. 115 and recorded at fair value. Unrealized
market value gains and losses on these securities, net of the related tax
effect, were excluded from earnings and reported as a component of shareholders'
equity in accumulated other comprehensive income until realized. Realized gains
from the sale of available-for-sale securities were determined on a specific
identification basis.
Inventories
- -----------
Inventories are valued at the lower of cost (on a moving average basis which
approximates a first-in, first-out method) or market. When it is determined that
a product or product line will be sold below carrying cost, affected on hand
inventories are written down to their estimated net realizable values.
- 36 -
Long-Lived Assets
- -----------------
Property, plant, and equipment are recorded at cost and include expenditures for
replacements or major improvements. Depreciation, which includes amortization of
assets under capital leases, is computed by the straight-line method over the
estimated useful lives of the related assets. Machinery, equipment and vehicles
are being depreciated over periods ranging from 2 to 10 years. The Company's
buildings are being depreciated over periods ranging from 25 to 40 years and
leasehold improvements are amortized over the lesser of their estimated useful
lives or the remaining lease term.
The Company reviews its long-lived assets (property, plant and equipment and
goodwill arising from purchase business combinations) for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its
fair value.
Goodwill
- --------
Goodwill represents the excess of purchase price over the fair value assigned to
net assets acquired and is being amortized on a straight-line basis over 10
years. Accumulated amortization amounted to $435,870 and $242,327 at September
30, 2001 and 2000, respectively.
Engineering and Development
- ---------------------------
Product engineering and development costs are charged to expense as incurred,
and amounted to approximately $4,100,000, $3,800,000 and $2,800,000 in fiscal
2001, 2000, and 1999, respectively.
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 common shares outstanding. Diluted EPS reflects the
maximum dilution that would have resulted from the exercise of stock options,
warrants and incremental shares issuable under a deferred compensation agreement
(see Note 10).
Foreign Currency Translation
- ----------------------------
The Company translates the financial statements of its foreign subsidiaries by
applying the current rate method under which assets and liabilities are
translated at the exchange rate on the balance sheet date, while revenues,
costs, and expenses are translated at the average exchange rate for the
reporting period. The resulting cumulative translation adjustment of $(192,000)
and $(306,000) at September 30, 2001 and 2000, respectively, is recorded as a
component of shareholders' equity in accumulated other comprehensive income.
- 37 -
Income Taxes
- ------------
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes", which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled (see Note 5).
Derivative Instruments
- ----------------------
On October 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, and the effect of adoption was
not material. This statement establishes accounting and reporting standards for
derivative instruments as either assets or liabilities in the statement of
financial position based on their fair values. Changes in the fair values are
required to be reported in earnings or other comprehensive income depending on
the use of the derivative and whether it qualifies for hedge accounting.
Derivative instruments are designated and accounted for as either a hedge of a
recognized asset or liability (fair value hedge) or a hedge of a forecasted
transaction (cash flow hedge). For derivatives designated as effective cash flow
hedges, changes in fair values are recognized in other comprehensive income.
Changes in fair values related to fair value hedges as well as the ineffective
portion of cash flow hedges are recognized in earnings.
The Company does not use derivative instruments for speculative or trading
purposes. Derivative instruments are primarily used to manage exposures related
to (i) transactions denominated in Japanese Yen, (ii) transactions with the
Company's U.K. subsidiary, and (iii) interest rate risk on certain variable rate
indebtedness. To accomplish this, the Company uses certain contracts, primarily
foreign currency forward contracts ("forwards") and interest rate swaps, which
minimize cash flow risks from changes in foreign currency exchange rates and
interest rates, respectively. These derivatives have been designated as cash
flow hedges for accounting purposes.
As of September 30, 2001, the Company had interest rate swaps and forwards
outstanding with notional amounts aggregating $4.1 million and $2.0 million,
respectively, whose aggregate fair value was a liability of approximately
$267,000. The change in the fair value of these derivatives for the year ended
September 30, 2001, is reflected in other comprehensive income in the
accompanying statement of shareholders' equity, net of tax. The forwards have
maturities of less than one year and require the Company to exchange currencies
at specified dates and rates. The interest rate swaps mature in the same amounts
and over the same periods as the related debt. The Company considers the credit
risk related to the interest rate swaps and the forwards to be low because such
instruments are entered into only with financial institutions having high credit
ratings and are generally settled on a net basis.
- 38 -
Fair Value of Financial Instruments
- -----------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires
disclosure of the fair value of certain financial instruments. The carrying
amounts for trade accounts and other receivables, accounts payable and accrued
expenses approximate fair value due to the short-term maturity of these
instruments. The carrying amounts of the Company's long-term debt instruments
approximate fair value. The aggregate original carrying amounts of the Company's
interest rate swap agreements exceeded their fair market values by approximately
$216,000 at September 30, 2001. This value represents the estimated amount the
Company would need to pay if such agreements were terminated before maturity,
principally resulting from market interest rate decreases. The fair value of
forward exchange contracts is estimated by obtaining quoted market prices. The
contracted exchange rates on committed forward exchange contracts exceeded the
market rates for similar term contracts by approximately $51,000 at September
30, 2001 (see Note 11).
Fair value estimates are made at a specific point in time based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Accounting for Stock-Based Compensation
- ---------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and related
interpretations in accounting for its employee stock options. Under APB No. 25,
compensation expense would be recorded if, on the date of grant, the market
price of the underlying stock exceeded its exercise price. As permitted by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), the Company has retained the accounting
prescribed by APB No. 25 and presents the SFAS No. 123 information in the notes
to its consolidated financial statements.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Such
estimates include, but are not limited to, provisions for doubtful accounts
receivable, net realizable value of inventory and assessments of the
recoverability of the Company's deferred tax assets. Actual results could differ
from those estimates.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform to current year
presentation.
- 39 -
NOTE 2. Business Acquisition
- -----------------------------
In August 1999, the Company acquired all of the outstanding shares of TeleSite
U.S.A., Inc., a manufacturer and distributor of remote video surveillance
systems, for $2.3 million. The acquisition has been accounted for as a purchase,
and the results of the operations of the acquired business have been included in
the consolidated financial statements since the date of acquisition. The excess
of the purchase price over the fair values of the net assets acquired of
approximately $2.0 million has been recorded as goodwill and is being amortized
on a straight-line basis over 10 years.
Assuming this acquisition had occurred on October 1, 1998, consolidated net
sales would have been approximately $75.9 million for 1999. Consolidated pro
forma net income and earnings per share would not have been materially different
from the reported amounts for 1999. Such unaudited pro forma amounts are not
indicative of what the actual consolidated results of operations might have been
if the acquisition had been effective at the beginning of fiscal 1999.
NOTE 3. Marketable Securities
- ------------------------------
At September 30, 2000, the Company had a 19% ownership 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% from 34% at September 30, 1999. At September 30, 2000, the
Company recorded an unrealized gain on these securities of $2.5 million ($1.6
million net of tax effect) based upon a $2.8 million fair market value and
$267,000 cost basis. Realized gains from the sale of these securities were
approximately $3,023,000 and $316,000 in fiscal years 2001 and 2000,
respectively. Prior to CSE's public offering, the Company recognized this
investment on the cost method of accounting.
NOTE 4. Short-Term Borrowings
- ------------------------------
Borrowings under the Company's short-term revolving credit agreement represent
borrowings by the Company's U.K. based subsidiary under a bank overdraft
facility. Such credit agreement provides for maximum borrowings of 600,000
pounds ($882,000) and is secured by all the assets of the subsidiary. Maximum
borrowings during 2001 and 2000 amounted to approximately $618,000 and
$1,018,000, respectively. The weighted-average interest rate on borrowings
during these years was 5.30% in 2001 and 7.81% in 2000.
NOTE 5. Income Taxes
- ---------------------
The components of income tax expense for the fiscal years indicated are as
follows:
2001 2000 1999
---- ---- ----
Federal $ 396,000 $ 368,000 $ 2,392,000
State (19,000) 40,000 200,000
Foreign 433,000 220,000 90,000
------------- ----------- ------------
$ 810,000 $ 628,000 $ 2,682,000
============= =========== ============
- 40 -
A reconciliation of the U.S. statutory tax rate to the Company's effective tax
rate follows:
2001 2000 1999
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
U.S. statutory tax $ 784,000 34.0% $ 540,000 34.0% $2,530,000 34.0%
State tax,net of
federal benefit - - 26,000 1.6 132,000 1.8
Goodwill amortization 65,000 2.8 68,000 4.3 12,000 0.1
Other (39,000) (1.7) (6,000) (0.4) 8,000 0.1
----------- ------ ---------- ------ ---------- ------
Effective Tax Rate $ 810,000 35.1% $ 628,000 39.5% $2,682,000 36.0%
=========== ====== ========== ====== ========== ======
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at September 30, 2001 and 2000 are presented below:
2001 2000
---- ----
Deferred tax assets:
Inventory reserves $ 980,000 $1,499,000
Deferred compensation accruals 149,000 156,000
Allowance for doubtful
accounts receivable 357,000 339,000
Unearned service revenue 1,009,000 639,000
Unrealized loss on derivatives 91,000 -
Other 333,000 150,000
---------- ----------
Total deferred tax assets 2,919,000 2,783,000
Deferred tax liabilities:
Unrealized gain on securities - 953,000
Cash surrender value of officers'
life insurance 80,000 30,000
Other 52,000 40,000
---------- -----------
Total deferred tax liabilities 132,000 1,023,000
---------- -----------
Net deferred tax assets and liabilities $2,787,000 $ 1,760,000
---------- ------------
Pretax domestic income amounted to approximately $1,383,000, $1,079,000 and
$7,385,000 in fiscal years 2001, 2000 and 1999, respectively. Pretax foreign
income amounted to approximately $924,000, $510,000 and $57,000 in fiscal years
2001, 2000 and 1999, respectively.
- 41 -
NOTE 6. Long-Term Debt
- -----------------------
Long-term debt is comprised of the following at September 30, 2001 and 2000:
2001 2000
---- ----
U.S. bank credit agreement $ - $1,500,000
U.S. bank term loan 1,725,000 2,625,000
U.S. bank mortgage loans 3,393,462 3,650,128
U.K. bank term loan 410,373 480,582
Other 113,991 145,929
---------- -----------
5,642,826 8,401,639
Less installments due within one year 2,144,727 1,311,386
---------- ----------
$3,498,099 $7,090,253
========== ==========
In July 1998, the Company entered into a $14 million unsecured revolving credit
and term loan agreement with a bank that includes a $9.5 million revolving
credit facility which expires in July 2002. Borrowings under this facility bear
interest at the bank's prime rate minus 2% (4.00% and 7.50% at September 30,
2001 and 2000, respectively) or, at the Company's option, LIBOR plus 90 basis
points (4.42% and 7.52% at September 30, 2001 and 2000, respectively). At
September 30, 2001, there were no outstanding borrowings under this facility. At
September 30, 2000, outstanding borrowings under this facility were $1.5
million.
The agreement also provided for a $4.5 million five-year term loan payable in
equal monthly installments through July 2003, with interest at LIBOR plus 100
basis points. The agreement contains restrictive covenants that, among other
things, require the Company to maintain certain levels of earnings and ratios of
debt service coverage and debt to tangible net worth. In September 1998, the
Company entered into an interest rate swap agreement with the same bank at the
time to effectively convert the foregoing floating rate long-term loan to a
fixed rate loan. Subsequently, such bank sold its local operations, including
the Company's loans, to another bank while retaining the Company's interest rate
swap agreement. This agreement effectively fixes the Company's interest rate on
its $4.5 million term loan at 6.74%. The interest rate swap agreement matures in
the same amounts and over the same periods as the related term loan.
In January 1998, the Company entered into an aggregate $2.9 million mortgage and
term loan agreement with a bank to finance the purchase of its principal
operating facility. Such agreement includes a $2,512,000 ten-year mortgage loan
payable in monthly installments through January 2008, with a $1,188,000 payment
due at the end of the term. The agreement also provides a $388,000 five-year
term loan payable in monthly installments through January 2003, with a $138,500
payment due at the end of the term. Both loans bear interest at the bank's prime
rate minus 1.35%. The loans are secured by a first mortgage on the property and
fixtures and contain restrictive covenants that, among other things, require the
Company to maintain certain levels of earnings and ratios of debt service
coverage and debt to tangible net worth. At the same time, the Company entered
into interest rate swap agreements with the same bank at the time to effectively
convert the foregoing floating rate long-term loans to fixed rate loans.
Subsequently, such bank sold its local operations, including the Company's
loans, to another bank while retaining the Company's interest rate swap
agreements. These agreements effectively fix the Company's interest rate on its
$2,512,000 mortgage loan at 7.79% and its $388,000 term loan at 7.7%. The
interest rate swap agreements mature in the same amounts and over the same
periods as the related mortgage and term loans.
- 42 -
In October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility. The
loan is payable in equal monthly principal installments through January 2008,
with a $460,000 payment due at the end of the term. The loan bears interest at
the bank's prime rate minus 160 basis points (4.40% and 7.90% at September 30,
2001 and 2000, respectively) or, at the Company's option, LIBOR plus 100 basis
points (4.52% and 7.62% at September 30, 2001 and 2000, respectively) and
contains the same covenants as included in the existing mortgage loans.
At September 30, 2001, the Company was not in compliance with certain of the
financial covenants of the aforementioned loan and mortgage agreements.
Subsequent to yearend, the Company received a waiver of such covenant violations
from its bank. At the same time, the Company received and executed a firm
commitment letter from the bank to amend its current unsecured revolving credit
and term loan agreement to provide a $5 million secured revolving credit
facility through July 2004. Borrowings under such facility would bear interest
at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis
points. The amendment agreement, when executed, will grant the bank a security
interest in all the assets of the Company and, among other things, will
effectively modify the financial covenants contained in all existing agreements.
In April 1997, the Company's U.K. based subsidiary entered into a ten-year
500,000 pound sterling (approximately $735,000) bank term loan. The term loan is
payable in equal monthly installments with interest at a fixed rate of 9%. The
loan is secured by a first mortgage on the subsidiary's property and contains
restrictive covenants which, among other things, require the subsidiary to
maintain certain levels of net worth, earnings and debt service coverage.
Current and long-term debt maturing in each of the fiscal years subsequent to
September 30, 2001 approximates $2,145,000 in 2002, $475,000 in 2003, $316,000
in 2004, $324,000 in 2005, $330,000 in 2006 and $2,053,000 thereafter.
NOTE 7. 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 (Europe)
based operations. Its U.S. based operations consist of Vicon Industries, Inc.,
the Company's corporate headquarters and principal operating entity. Its Europe
based operations consist of Vicon Industries Limited, a wholly owned subsidiary
which markets and distributes the Company's products principally within Europe.
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.
- 43 -
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 fiscal years ended September 30, 2001, 2000
and 1999 is as follows:
2001 U.S. Europe Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
Net sales to
external customers $47,409,000 $14,572,000 $3,384,000 $ - $65,365,000
Intersegment
net sales 8,160,000 - 736,000 - 8,896,000
Net income (loss) 1,749,000 979,000 (1,041,000) (190,000) 1,497,000
Interest expense 440,000 208,000 18,000 (168,000) 498,000
Interest income 348,000 - - (147,000) 201,000
Depreciation and
amortization 780,000 158,000 124,000 194,000 1,256,000
Total assets 44,996,000 8,841,000 3,691,000 (5,602,000) 51,926,000
Capital expenditures $ 296,000 $ 227,000 $ 166,000 - $ 689,000
2000 U.S. Europe Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
Net sales to
external customers $59,488,000 $10,846,000 $4,290,000 $ - $74,624,000
Intersegment
net sales 6,301,000 - 1,248,000 - 7,549,000
Net income (loss) 1,241,000 461,000 (540,000) (201,000) 961,000
Interest expense 672,000 205,000 62,000 (123,000) 816,000
Interest income 243,000 - - (146,000) 97,000
Depreciation and
amortization 766,000 168,000 85,000 201,000 1,220,000
Total assets 48,277,000 5,813,000 3,598,000 (3,770,000) 53,918,000
Capital expenditures $ 1,094,000 $ 115,000 $ 432,000 - $ 1,641,000
1999 U.S. Europe Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
Net sales to
external customers $62,939,000 $8,515,000 $1,960,000 $ - $73,414,000
Intersegment
net sales 5,334,000 - 36,000 - 5,370,000
Net income (loss) 4,787,000 217,000 (194,000) (50,000) 4,760,000
Interest expense 506,000 174,000 7,000 (95,000) 592,000
Interest income 227,000 - - (86,000) 141,000
Depreciation and
amortization 680,000 163,000 35,000 36,000 914,000
Total assets 45,025,000 5,912,000 2,904,000 (3,942,000) 49,899,000
Capital expenditures $ 1,469,000 $ 177,000 $ 101,000 - $ 1,747,000
The consolidating segment information presented above includes the elimination
and consolidation of intersegment transactions.
- 44 -
Net sales and long-lived assets related to operations in the United States and
other foreign countries for the fiscal years ended September 30, 2001, 2000, and
1999 are as follows:
2001 2000 1999
---- ---- ----
Net sales
U.S. $48,339,000 $61,096,000 $63,236,000
Foreign 17,026,000 13,528,000 10,178,000
----------- ----------- -----------
Total $65,365,000 $74,624,000 $73,414,000
Long-lived assets
U.S. $ 6,076,000 $ 6,561,000 $ 6,234,000
Foreign 2,063,000 1,941,000 1,819,000
---------- ----------- -----------
Total $ 8,139,000 $ 8,502,000 $ 8,053,000
U.S. sales include $3,455,000, $6,039,000 and $5,236,000 for export in fiscal
years 2001, 2000, and 1999, respectively. Indirect sales to the United States
Postal Service under a national supply contract approximated $15.2 million,
$22.8 million and $22.7 million in fiscal 2001, 2000 and 1999, respectively.
NOTE 8. Stock Options and Stock Purchase Warrants
- --------------------------------------------------
The Company maintains stock option plans which include both incentive and
non-qualified options covering a total of 323,760 shares of common stock
reserved for issuance to key employees, including officers and directors. Such
amount includes a total of 100,000 options reserved for issuance under the 1999
Incentive Stock Option Plan, as well as a total of 100,000 options reserved for
issuance under the 1999 Non-Qualified Stock Option Plan, approved by the
shareholders in April 1999. All options are issued at fair market value at the
grant date and are exercisable in varying installments according to the plans.
The plans allow for the payment of option exercises through the surrender of
previously owned mature shares based on the fair market value of such shares at
the date of surrender. During fiscal 2001, 2000 and 1999, a total of 18,988,
10,613 and 12,431 common shares, respectively, were surrendered pursuant to
stock option exercises, which are held in treasury. There were 71,889 shares
available for grant at September 30, 2001.
- 45 -
Changes in outstanding stock options for the three years ended September 30,
2001 are as follows:
Weighted
Number Average
of Exercise
Shares Price
- -------------------------------------------------------------------
Balance - September 30, 1998 349,897 $2.94
Options granted 143,000 $7.50
Options exercised (120,050) $2.26
Options forfeited (2,200) $7.00
- -------------------------------------------------------------------
Balance - September 30, 1999 370,647 $4.89
Options granted 129,823 $3.50
Options exercised (55,875) $2.18
Options forfeited (168,611) $7.33
- -------------------------------------------------------------------
Balance - September 30, 2000 275,984 $3.30
Options granted 86,301 $2.39
Options exercised (45,897) $1.81
Options forfeited (64,517) $3.49
- -------------------------------------------------------------------
Balance - September 30, 2001 251,871 $3.15
Price range $2.20 - $3.06
(weighted-average contractual 151,926 $2.58
life of 2.9 years)
Price range $3.07 - $7.44
(weighted-average contractual 99,945 $4.03
life of 4.3 years)
- -------------------------------------------------------------------
Exercisable options -
September 30, 1999 210,147 $2.94
September 30, 2000 140,239 $2.66
September 30, 2001 107,643 $3.30
- -------------------------------------------------------------------
On April 20, 2000, the Board of Directors granted holders of stock options the
right to surrender their underwater options by May 31, 2000 in exchange for a
reduced option grant at an exercise price of $3.18 per share, based on the
closing market price of the Company's common stock on such date. On May 31,
2000, the Company granted 67,823 new options and cancelled 156,750 options with
exercise prices ranging from $6.75 to $8.19 per share. These new grants were
treated as repricings and are subject to variable plan accounting pursuant to
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." Accordingly, compensation expense will be recorded for any
increase in the Company's stock price above the price of $3.18 on July 1, 2000,
the effective date of this pronouncement. In fiscal 2001 and 2000, no
compensation expense was recorded relating to these repriced options.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of this Statement. The fair
value for options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2001,
2000 and 1999:
2001 2000 1999
---- ---- ----
Risk-free interest rate 4.0% 5.0% 5.0%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 66.9% 59.5% 59.0%
Weighted average expected life 4 years 4 years 4 years
- ------------------------------------------------------------------------------
- 46 -
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income and earnings per share are as follows:
2001 2000 1999
---- ---- ----
Net income:
As reported $1,497,148 $ 961,205 $4,760,201
Pro forma $1,424,263 $ 773,082 $4,646,938
Earnings per share:
As reported
Basic $ .32 $ .21 $1.05
Diluted $ .32 $ .21 $1.01
Pro forma
Basic $ .31 $ .17 $1.03
Diluted $ .31 $ .17 $ .98
Weighted average fair value
of options granted $1.30 $1.76 $3.74
In connection with the public offering during fiscal 1998, the Company granted
the Underwriters warrants to purchase up to 145,000 shares of Common Stock. The
warrants are exercisable at any time through May 2003 at a price of $10.50 per
share.
NOTE 9. Shareholder Rights Plan
- --------------------------------
On November 14, 2001, the Company's Board of Directors adopted a Shareholder
Rights Plan, which declared a dividend of one Common Stock Purchase Right (a
Right) for each outstanding share of common stock of the Company to shareholders
of record on December 21, 2001. Each Right entitles the holder to purchase from
the Company one share of common stock at a purchase price of $15 per share. In
the event of the acquisition of or tender offer for 20% or more of the Company's
outstanding common stock by certain persons or group without the Board of
Directors' consent, such purchase price will be adjusted to equal fifty percent
of the average market price of the Company's common stock for a period of thirty
consecutive trading days immediately prior to the event. Until the Rights become
exercisable, they have no dilutive effect on the Company's earnings per share.
- 47 -
The Rights, which are non-voting and exercisable until November 30, 2011, can be
redeemed by the Company in whole at a price of $.001 per Right at any time prior
to the acquisition by certain persons or group of 50% of the Company's common
stock. Separate certificates for the Rights will not be distributed, nor will
the Rights be exercisable, until either (i) a person or group acquires
beneficial ownership of 20% or more of the Company's common stock or (ii) the
tenth day after the commencement of a tender or exchange offer for 20% or more
of the Company's common stock. Following an acquisition of 20% or more of the
Company's common shares, each Right holder, except for the 20% or more
stockholder, can exercise their Right(s), unless the 20% or more stockholder has
offered to acquire all of the outstanding shares of the Company under terms that
a majority of the independent Directors of the Company have determined to be
fair and in the best interest of the Company and its stockholders.
NOTE 10. Earnings Per Share
- ----------------------------
The following table provides the components of the basic and diluted earnings
per share (EPS) computations:
2001 2000 1999
---- ---- ----
Basic EPS Computation
- ---------------------
Net income $1,497,148 $ 961,205 $4,760,201
Weighted average shares
outstanding 4,645,154 4,600,447 4,519,344
Basic earnings per share $ .32 $ .21 $ 1.05
========== ========== ==========
Diluted EPS Computation
Net income $1,497,148 $ 961,205 $4,760,201
Weighted average shares
outstanding 4,645,154 4,600,447 4,519,344
Stock options 6,403 70,808 185,940
Stock compensation arrangement - 1,510 13,075
--------- --------- ---------
Diluted shares outstanding 4,651,557 4,672,765 4,718,359
Diluted earnings per share $ .32 $ .21 $ 1.01
========== ========== ==========
NOTE 11. Commitments and Contingencies
- ---------------------------------------
The Company occupies certain facilities, or is contingently liable, under
operating leases that expire at various dates through 2008. The leases, which
cover periods from three to eight years, generally provide for renewal options
at specified rental amounts. The aggregate operating lease commitment at
September 30, 2001 was $772,000 with minimum rentals for the fiscal years shown
as follows: 2002 - $258,000; 2003 - $200,000; 2004 - $183,000; 2005 - $64,000;
2006 - $22,000; 2007 and thereafter - $45,000.
- 48 -
The Company is a party to employment agreements with seven executives that
provide for, among other things, the payment of compensation if there is a
change in control without Board of Director approval (as defined in the
agreements). The contingent liability under such change in control provisions at
September 30, 2001 was approximately $2,626,000. The total compensation payable
under these agreements, absent a change in control, aggregated $2,650,000 at
September 30, 2001. The Company is also a party to an insured deferred
compensation agreement with a retired officer. The aggregate remaining
compensation payments of approximately $222,000 as of September 30, 2001 are
subject to the individual's adherence to certain non-compete covenants, and are
payable in monthly installments through December 2003. The Company entered into
certain consulting and incentive compensation agreements that provide for the
payout of up to $810,000 of fees and compensation upon the completion and sale
of a specified number of units of a newly developed product line.
In October 1997, 1998 and 1999, the Company's Chief Executive Officer was
provided a deferred compensation benefit of 45,952, 16,565 and 8,130 shares,
respectively, of common stock currently held by the Company in treasury. Such
shares vest upon the expiration of the executive's employment agreement in
October 2004, or earlier under certain occurrences including his death,
involuntary termination or a change in control of the Company. The market value
of such shares approximated $507,000 at the dates of grant, which is being
amortized on the straight-line method over the term of the employment agreement.
Sales to customers from the Company's U.K. based subsidiary are denominated in
British pounds sterling. The Company attempts to minimize its currency exposure
on these sales through the purchase of forward exchange contracts to cover its
billings to this subsidiary. These contracts generally involve the exchange of
one currency for another at a future date and specified exchange rate. At
September 30, 2001 and 2000, the Company had approximately $1,600,000 and
$1,900,000, respectively, of outstanding forward exchange contracts to sell
British pounds. Such contracts have maturities of less than one year.
The Company's purchases of Japanese sourced products through CBC Company, Ltd.,
a related party, are denominated in Japanese yen. At September 30, 2001 and
2000, the Company had approximately $395,000 and $791,000, respectively, of
outstanding forward exchange contracts to purchase Japanese yen.
In fiscal 1999, the Company received notice from a competitor asserting that
certain of the Company's products infringe upon a patent it allegedly owns and
is seeking royalties on the Company's sales of such products. The Company
believes that it has good defenses in this matter. No assurance can be given
that this matter will be resolved in the Company's favor and no reasonable
estimate of potential loss, if any, can be made at this time.
- 49 -
NOTE 12. Related Party Transactions
- ------------------------------------
As of September 30, 2001, CBC Company, Ltd. and affiliates ("CBC") owned
approximately 11.7% of the Company's outstanding common stock. The Company,
which has been conducting business with CBC for approximately 22 years, imports
certain finished products and components through CBC and also sells its products
to CBC. The Company purchased approximately $3.5 million, $4.4 million and $5.4
million of products and components from CBC in fiscal years 2001, 2000, and
1999, respectively, and the Company sold $303,000, $303,000 and $1.3 million of
products to CBC for distribution in fiscal years 2001, 2000, and 1999,
respectively. At September 30, 2001 and 2000, the Company owed $243,000 and
$481,000, respectively, to CBC and CBC owed $58,000 and $50,000, respectively,
to the Company resulting from purchases of products.
As of September 30, 2001, Mr. Chu S. Chun had beneficial voting control over
approximately 6.5% of the Company's outstanding common stock. Mr. Chun controls
and beneficially owns a minority interest in Chun Shin Electronics, Inc. (CSE),
a South Korean manufacturer of certain of the Company's proprietary products
(see Note 3). Mr. Chun also controls International Industries, Inc. (I.I.I.), a
U.S. based company which arranges the importation of all the Company's products
purchased directly or indirectly from CSE. During fiscal years 2001, 2000 and
1999, the Company purchased approximately $4.1 million, $5.0 million and $5.7
million, respectively, of products from CSE through I.I.I. under this agreement.
In addition, the Company sold approximately $276,000, $663,000 and $535,000 of
its products to I.I.I. in 2001, 2000 and 1999, respectively, for resale to CSE.
At September 30, 2001 and 2000, I.I.I. owed the Company approximately $10,000
and $380,000, respectively.
- 50 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Earnings (Loss)
Per Share
Net ----------------
Quarter Net Gross Income
Ended Sales Profit (Loss) Basic Diluted
------- ----- ------ ------ ----- -------
Fiscal 2001
December $17,377,000 $5,901,000 $ 1,722,000 $ .37 $ .37
March 17,160,000 5,706,000 418,000 .09 .09
June 16,081,000 5,465,000 (374,000) (.08) (.08)
September 14,747,000 4,614,000 (269,000) (.06) (.06)
----------- ----------- ----------- ----- -----
Total $65,365,000 $21,686,000 $ 1,497,000 $ .32 $ .32
=========== =========== =========== ===== =====
Fiscal 2000
December $19,525,000 $ 5,390,000 $ 85,000 $ .02 $ .02
March 17,442,000 5,626,000 186,000 .04 .04
June 19,123,000 6,344,000 478,000 .10 .10
September 18,534,000 5,694,000 212,000 .05 .05
----------- ----------- ----------- ----- -----
Total $74,624,000 $23,054,000 $ 961,000 $ .21 $ .21
=========== =========== =========== ===== =====
The Company has not declared or paid cash dividends on its common stock for any
of the foregoing periods. Additionally, certain loan agreements restrict the
payment of any cash dividends in future periods.
Because of changes in the number of common shares outstanding and market price
fluctuations affecting outstanding stock options, the sum of quarterly earnings
per share may not equal the earnings per share for the full year.
- 51 -
SCHEDULE II
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 2001, 2000, and 1999
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
----------- --------- --------- ---------- ---------
Reserves and allowances
deducted from asset
accounts:
Allowance for uncollectible
accounts:
September 30, 2001 $1,063,000 $436,000 $384,000 $1,115,000
========== ======== ======== ==========
September 30, 2000 $ 818,000 $291,000 $ 46,000 $1,063,000
========== ======== ======== ==========
September 30, 1999 $ 694,000 $290,000 $166,000 $ 818,000
========== ======== ======== ==========
- 52 -
SIGNATURES
----------
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VICON INDUSTRIES, INC.
By /s/ Kenneth M. Darby By /s/ John M. Badke
------------------------- -------------------------
Kenneth M.Darby John M. Badke
Chairman Vice President, Finance
(Chief Executive Officer) (Chief Financial Officer)
December 31, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
/s/ Kenneth M. Darby December 31, 2001
- --------------------- ---------------------
Kenneth M. Darby Chairman and CEO Date
/s/ Milton F. Gidge December 31, 2001
- --------------------- ---------------------
Milton F. Gidge Director Date
/s/ Peter F. Neumann December 31, 2001
- --------------------- ---------------------
Peter F. Neumann Director Date
/s/ W. Gregory Robertson December 31, 2001
- --------------------- ---------------------
W. Gregory Robertson Director Date
/s/ Arthur D. Roche December 31, 2001
- --------------------- ---------------------
Arthur D. Roche Director Date
/s/ Kazuyoshi Sudo December 31, 2001
- --------------------- ---------------------
Kazuyoshi Sudo Director Date
- 53 -
SIGNATURES
----------
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VICON INDUSTRIES, INC.
By By
------------------------- --------------------
Kenneth M.Darby John M. Badke
Chairman Vice President, Finance
(Chief Executive Officer) (Chief Financial Officer)
December 31, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
December 31, 2001
- --------------------- -------------------
Kenneth M. Darby Chairman and CEO Date
December 31, 2001
- --------------------- ------------------
Milton F.Gidge Director Date
December 31, 2001
- --------------------- ------------------
Peter F. Neumann Director Date
December 31, 2001
- --------------------- ------------------
W. Gregory Robertson Director Date
_____________________ December 31, 2001
-------------------
Arthur D. Roche Director Date
December 31, 2001
- --------------------- -----------------
Kazuyoshi Sudo Director Date
- 53 -