SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For Quarter Ended December 31, 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 STATE 11-2160665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
89 Arkay Drive, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 952-2288
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(Former name, address, and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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At December 31, 2001, the registrant had outstanding 4,652,712 shares of Common
Stock, $.01 par value.
PART I - FINANCIAL INFORMATION
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
12/31/01 12/31/00
Net sales............................. $13,550,833 $17,376,279
Cost of sales......................... 9,078,363 11,475,557
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Gross profit........................ 4,472,470 5,900,722
Operating expenses:
Selling expense................... 2,958,130 3,164,609
General & administrative expense.. 998,270 1,338,213
Engineering & development expense. 997,087 970,208
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4,953,487 5,473,030
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Operating (loss) income............. (481,017) 427,692
Gain on sale of securities............ - (2,404,233)
Interest expense...................... 97,933 160,116
Interest income....................... (62,009) (32,661)
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(Loss) income before income taxes. (516,941) 2,704,470
Income tax (benefit) expense.......... (170,000) 982,000
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Net (loss) income................. $ (346,941) $ 1,722,470
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(Loss) earnings per share:
Basic $ (.07) $ .37
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Diluted $ (.07) $ .37
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Shares used in computing (loss) earnings per share:
Basic 4,648,471 4,638,415
Diluted 4,648,471 4,645,027
See Accompanying Notes to Condensed Consolidated Financial Statements.
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VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/01 9/30/01
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CURRENT ASSETS
Cash and cash equivalents....................... $10,354,454 $ 9,795,148
Accounts receivable (less allowance
of $1,088,000 at December 31, 2001 and
$1,115,000 at September 30, 2001)............. 11,608,786 11,438,334
Inventories:
Parts, components, and materials.............. 2,127,377 2,518,782
Work-in-process............................... 2,694,352 2,777,211
Finished products............................. 10,768,070 11,800,197
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15,589,799 17,096,190
Deferred income taxes........................... 1,478,404 1,420,372
Prepaid expenses................................ 436,276 566,861
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TOTAL CURRENT ASSETS............................ 39,467,719 40,316,905
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Property, plant and equipment................... 16,481,609 16,371,853
Less accumulated depreciation and amortization.. (8,510,256) (8,232,536)
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7,971,353 8,139,317
Goodwill, net of accumulated amortization....... 1,521,445 1,571,058
Deferred income taxes........................... 1,601,789 1,366,625
Other assets.................................... 488,573 531,660
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TOTAL ASSETS.................................... $51,050,879 $51,925,565
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under revolving credit agreement..... $ 916,896 $ -
Current maturities of long-term debt............ 1,285,396 2,144,727
Accounts payable................................ 2,448,082 2,375,825
Accrued compensation and employee benefits...... 1,437,117 1,789,401
Accrued expenses................................ 1,850,884 2,227,825
Unearned service revenue........................ 1,321,875 1,294,576
Income taxes payable............................ 282,604 479,361
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TOTAL CURRENT LIABILITIES 9,542,854 10,311,715
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Long-term debt.................................. 4,003,420 3,498,099
Unearned service revenue........................ 2,090,847 2,334,348
Other long-term liabilities..................... 806,296 883,356
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 47,765 47,565
Capital in excess of par value.................. 21,647,787 21,542,541
Retained earnings............................... 13,962,501 14,309,442
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35,658,053 35,899,548
Less treasury stock, at cost.................... (658,422) (633,422)
Accumulated other comprehensive loss............ (392,169) (368,079)
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TOTAL SHAREHOLDERS' EQUITY 34,607,462 34,898,047
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $51,050,879 $51,925,565
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See Accompanying Notes to Condensed Consolidated Financial Statements.
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VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
12/31/01 12/31/00
Cash flows from operating activities:
Net (loss) income.............................. $ (346,941) $ 1,722,470
Adjustments to reconcile net (loss) income to
cash provided by (used in) operating activities:
Gain on sale of securities................... - (2,404,233)
Depreciation and amortization................ 287,883 258,287
Goodwill amortization........................ 49,613 45,973
Stock compensation expense................... 56,696 -
Deferred income taxes........................ (318,445) (37,418)
Change in assets and liabilities:
Accounts receivable........................ (218,888) 503,563
Inventories................................ 1,472,574 (266,781)
Prepaid expenses........................... 127,471 125,971
Other assets............................... 43,087 31,613
Accounts payable........................... 77,730 (641,631)
Accrued compensation and employee benefits. (349,289) (674,309)
Accrued expenses........................... (370,253) 65,551
Unearned service revenue................... (216,202) 267,999
Income taxes payable....................... (189,509) 866,606
Other liabilities.......................... (2,795) 12,454
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Net cash provided by (used in)
operating activities................... 102,732 (123,885)
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Cash flows from investing activities:
Proceeds from sale of securities............. - 2,624,858
Capital expenditures, net of disposals....... (138,757) (209,441)
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Net cash (used in) provided by
investing activities................... (138,757) 2,415,417
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Cash flows from financing activities:
Repayments of borrowings under U.S. bank
credit agreement........................... - (1,500,000)
Increase in borrowings under U.K.
revolving credit agreement................. 910,572 71,736
Proceeds from exercise of stock options...... 23,750 28,677
Repayments of U.S. term loan................. (225,000) (225,000)
Repayments of other debt..................... (123,302) (61,086)
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Net cash provided by (used in)
financing activities................... 586,020 (1,685,673)
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Effect of exchange rate changes on cash.......... 9,311 12,884
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Net increase in cash............................. 559,306 618,743
Cash at beginning of year........................ 9,795,148 2,115,118
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Cash at end of period............................ $10,354,454 $ 2,733,861
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See Accompanying Notes to Condensed Consolidated Financial Statements.
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VICON INDUSTRIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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December 31, 2001
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended December 31, 2001 are not
necessarily indicative of the results that may be expected for the fiscal year
ended September 30, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended September 30, 2001. Certain prior
year amounts have been reclassified to conform to current year presentation.
Note 2: Earnings per Share
Basic earnings (loss) per share (EPS) is computed based on the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
maximum dilution that would have resulted from the exercise of stock options and
incremental common shares issuable under a deferred compensation agreement. The
following table provides the components of the basic and diluted EPS
computations for the three months ended December 31, 2001 and 2000:
2001 2000
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Basic EPS Computation
Net (loss) income....................... $ (346,941) $1,722,470
Weighted average shares outstanding..... 4,648,471 4,638,415
Basic (loss) earnings per share......... $ (.07) $ .37
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Diluted EPS Computation
Net (loss) income....................... $ (346,941) $1,722,470
Weighted average shares outstanding... 4,648,471 4,638,415
Stock options......................... - 6,612
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Diluted shares outstanding.............. 4,648,471 4,645,027
Diluted (loss) earnings per share....... $ (.07) $ .37
========== ==========
For the three months ended December 31, 2001, 44,167 shares have been omitted
from the calculation of diluted EPS, as their effect would have been
antidilutive.
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Note 3: Comprehensive Income
The Company's total comprehensive income for the three months ended December 31,
2001 and 2000 was as follows:
2001 2000
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Net (loss) income........................... $ (346,941) $1,722,470
Other comprehensive income (loss), net of tax:
Unrealized gain on securities............. - (1,356,820)
Unrealized gain on derivatives............ 49,015 -
Foreign currency translation adjustment... (73,105) 51,086
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Comprehensive (loss) income................. $ (371,031) $ 416,736
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Note 4: Segment and Related Information
The Company operates in one industry which encompasses the design, manufacture,
assembly and marketing of video surveillance 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 consists 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 and the Middle East. Other segments include the
operations of Vicon Industries (H.K.) Ltd., a Hong Kong based majority owned
subsidiary which markets and distributes the Company's products principally
within Hong Kong and mainland China, and TeleSite U.S.A., Inc. and subsidiary, a
U.S. and Israeli based manufacturer and distributor of remote video surveillance
systems.
The Company evaluates performance and allocates resources based on, among other
things, the net profit or loss for each segment, excluding intersegment sales
and profits. Segment information for the three months ended December 31, 2001
and 2000 was as follows:
Three Months Ended
December 31, 2001 U.S. Europe Other Consolid. Totals
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Net sales to
external customers $ 9,129,000 $3,482,000 $ 940,000 $ - $13,551,000
Intersegment
net sales 2,101,000 - 144,000 (2,245,000) -
Net income (loss) (433,000) 236,000 (91,000) (59,000) (347,000)
Total assets 43,933,000 8,216,000 3,479,000 (4,577,000) 51,051,000
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Three Months Ended
December 31, 2000 U.S. Europe Other Consolid. Totals
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Net sales to
external customers $13,408,000 $3,140,000 $ 828,000 $ - $17,376,000
Intersegment
net sales 1,815,000 - 343,000 (2,158,000) -
Net income (loss) 2,002,000 171,000 (406,000) (45,000) 1,722,000
Total assets 46,390,000 6,550,000 3,797,000 (4,180,000) 52,557,000
The consolidating segment above includes the elimination and consolidation of
intersegment transactions.
Note 5: Gain on Sale of Securities
During the three months ended December 31, 2000, the Company realized a $2.4
million gain ($1.6 million net of tax effect) on the sale of a majority of its
equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company
which manufactures certain of the Company's proprietary products.
Note 6: Derivative Instruments
At December 31, 2001, the Company had interest rate swaps and forward exchange
contracts outstanding with notional amounts aggregating $3.8 million and
$766,000, respectively, whose aggregate fair value was a liability of
approximately $192,000. The change in the amount of the liability for these
instruments is shown as a component of accumulated other comprehensive loss, net
of tax.
Note 7: Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". 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".
Upon adoption, the Company will be required to assign its goodwill ($1.5 million
at December 31, 2001, which relates to its acquisition of TeleSite U.S.A., Inc.
in 1999) to "reporting units" as defined under SFAS No. 142. The Company's
reporting units are anticipated to be equivalent to its current operating
segments. Goodwill assigned to each of the reporting units will be tested for
impairment as of October 1, 2002 by comparing the carrying amount of the
reporting units' net assets (including goodwill) to its fair value. The Company
has six months from October 1, 2002 to complete this "first step" of this
transitional goodwill impairment test. If the carrying amount of the net assets
of a reporting unit (including goodwill) exceeds the fair value of that
reporting unit, a "second step" of the transitional goodwill impairment test
must be completed as soon as possible, but not later than September 30, 2003.
Due to the complexities involved with the transitional provisions of SFAS No.
142, the Company has not yet completed its evaluation of the possible effects of
its adoption of SFAS No. 142 on the Company's financial condition or results of
operations.
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Until the Company's adoption of SFAS No. 142, the Company is continuing to
amortize goodwill over its original 10-year period, and continuing to evaluate
impairment. The Company believes that its ability to recover the carrying amount
of its goodwill is dependent upon, among other things, its ability to
successfully complete the development and marketing of certain new products.
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.
Note 8: Amendment to U.S. Bank Revolving Credit and Term Loan Agreement
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On February 12, 2002, the Company executed an amendment agreement that modified
its unsecured revolving credit and term loan agreement with its bank to provide
for a $5 million secured revolving credit facility through July 2004. Borrowings
under such facility bear interest at the bank's prime rate or, at the Company's
option, LIBOR plus 190 basis points. The amendment agreement grants the bank a
security interest in all the assets of the Company and, among other things,
effectively modified the financial covenants contained in all the existing loan
and mortgage agreements with this bank.
Current and long-term debt maturing in the nine months ended September 30, 2002
and in each of the subsequent fiscal years approximates $966,000 for the nine
months ended September 30, 2002, $1,300,000 in 2003, $316,000 in 2004, $324,000
in 2005, $330,000 in 2006 and $2,053,000 thereafter.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 2001 Compared with December 31, 2000
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Net sales for the quarter ended December 31, 2001 decreased $3.8 million or 22%
to $13.6 million compared with $17.4 million in the year ago period. Domestic
sales decreased $3.9 million or 32% to $8.6 million principally as a result of a
$3.7 million decline in indirect sales to the United States Postal Service
(USPS) under a former national supply contract. Indirect sales to the USPS for
the quarter ended December 31, 2001 decreased 77% to $1.1 million compared with
$4.8 million in the year ago period. In March 2001, the USPS announced a 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 for the quarter ended December 31, 2001 increased
2% to $5.0 million compared with $4.9 million in the year ago period.
Gross profit margins for the first quarter of fiscal 2002 decreased to 33.0%
compared with 34.0% in the year ago period. The margin decline was principally
due to the effect of fixed production costs relative to the quarter's lower
sales.
Operating expenses for the first quarter of fiscal 2002 were $5.0 million or
36.6% of net sales compared with $5.5 million or 31.5% of net sales in the year
ago period. The decrease in operating expenses principally resulted from a
decline in sales related costs. Despite decreased sales in the quarter, the
Company continued its investment in new product development incurring $1.0
million of engineering and development expenses.
The Company incurred an operating loss of $481,000 for the first fiscal quarter
of 2002 compared with operating income of $428,000 in the year ago period
principally as a result of lower sales.
In the prior year quarter, the Company realized a $2.4 million gain ($1.6
million net of tax effect) on the sale of a majority of its equity interest in
Chun Shin Electronics, Inc., a South Korean company which, among other things,
manufactures certain of the Company's proprietary products.
Interest expense decreased to $98,000 for the first quarter of fiscal 2002
compared with $160,000 in the year ago period principally as a result of the
paydown of bank borrowings.
The Company recorded an income tax benefit of $170,000 for the first quarter of
fiscal 2002 compared with income tax expense of $982,000 in the year ago period.
As a result of the foregoing, the Company incurred a net loss of $347,000 for
the first quarter of fiscal 2002 compared with net income of $1.7 million in the
year ago period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Financial Condition
Net cash provided by operating activities was $103,000 for the first quarter of
fiscal 2002. Net cash used in investing activities was $139,000 for the first
quarter of fiscal 2002 relating to general capital expenditures. Net cash
provided by financing activities was $586,000, which included $911,000 of
borrowings under the Company's U.K. bank overdraft facility offset by $348,000
of scheduled repayments under U.S. bank mortgage and term loans. As a result of
the foregoing, cash increased by $559,000 for the first quarter of fiscal 2002
after the nominal effect of exchange rate changes on the cash position of the
Company.
At December 31, 2001, the Company had a $9.5 million unsecured revolving credit
facility in the U.S. with a bank that was scheduled to expire in July 2002.
Borrowings under that facility bore interest at the bank's prime rate minus 2%
or, at the Company's option, LIBOR plus 90 basis points (2.75% and 2.78%,
respectively, at December 31, 2001). At December 31, 2001, there were no
outstanding borrowings under this facility. The agreement contained restrictive
covenants which, among other things, required the Company to maintain certain
levels of earnings and ratios of debt service coverage and debt to tangible net
worth.
On February 12, 2002, the Company executed an amendment agreement that modified
its unsecured revolving credit and term loan agreement referred to above to
provide for a $5 million secured revolving credit facility through July 2004.
Borrowings under such facility bear interest at the bank's prime rate or, at the
Company's option, LIBOR plus 190 basis points. The amendment agreement grants
the bank a security interest in all the assets of the Company and, among other
things, effectively modified the financial covenants contained in all the
existing loan and mortgage agreements with this bank.
The Company also maintains a bank overdraft facility of 600,000 Pounds Sterling
(approximately $870,000) in the U.K. to support local working capital
requirements of Vicon Industries Limited. At December 31, 2001, outstanding
borrowings under this facility amounted to $917,000.
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.
-10-
"Safe" Harbor Statement under the Private Securities Litigation Reform Act of
1995
Statements in this Report on Form 10-Q and other statements made by the Company
or its representatives that are not strictly historical facts including, without
limitation, statements included herein under the captions "Results of
Operations" 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 update its forward- looking statements or
to advise of changes in the assumptions and factors on which they are based.
-11-
PART II
ITEM 1 - LEGAL PROCEEDINGS
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The Company has no material outstanding litigation.
ITEM 2 - CHANGES IN SECURITIES
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None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
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None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
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None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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Exhibit
Number Description
10 Material Contracts
(.1) Amendment No. 1 to the Credit Agreement between
the Registrant and Washington Mutual Bank, FA
dated February 12, 2002
(.2) Security Agreement between the Registrant and
Washington Mutual Bank, FA dated February 12, 2002
No Form 8-K was required to be filed during the current quarter.
-12-
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VICON INDUSTRIES, INC.
February 14, 2002
By:/s/ Kenneth M. Darby By:/s/ John M. Badke
- ----------------------- -----------------------
Kenneth M. Darby John M. Badke
Chairman and Vice President, Finance
Chief Executive Officer Chief Financial Officer
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