UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File Number 0-29798
CompuDyne Corporation
(Exact name of registrant as specified in its charter)
Nevada 23-1408659
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7249 National Drive, Hanover, Maryland 21076
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 712-0275
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____
As of May 3, 2000, a total of 5,345,669 shares of Common Stock,
$.75 par value, were outstanding.
Page Two
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 (unaudited)
and December 31, 1999 3-4
Consolidated Statements of Operations (unaudited) -
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Item 3. Quantitative and Qualitative Disclosures
About Market Risks 11
Part II. Other Information 12
Signature 13
Page Three
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2000 1999
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 701
Accounts receivable, net 34,012 33,833
Costs in excess of billings 5,146 5,284
Inventories:
Work in process 2,687 705
Raw materials and supplies 3,051 3,933
Total inventories 5,738 4,638
Deferred tax asset 412 331
Prepaid expenses and other current assets 471 506
Total Current Assets 45,779 45,293
Property, plant and equipment, at cost 7,740 7,613
Less: accumulated depreciation
and amortization 1,609 1,262
Net property, plant and equipment 6,131 6,351
Capitalized software, net 2,565 2,235
Deferred tax asset 443 237
Goodwill, net 844 852
Other intangible assets, net 2,358 2,385
Other assets, net 93 94
Total other assets 6,303 5,803
Total Assets $ 58,213 $ 57,447
See Notes to Consolidated Financial Statements
Page Four
LIABILITIES AND SHAREHOLDERS' EQUITY
(dollars in thousands)
March 31, December 31,
2000 1999
(Unaudited)
LIABILITIES
Current Liabilities:
Accounts payable $ 12,678 $ 11,827
Accrued payroll expense 2,098 3,040
Accrued interest 90 74
Other accrued expenses 1,106 1,319
Billings in excess of
contract costs incurred 9,452 9,498
Deferred losses/revenue on
acquired contracts 565 859
Line of credit borrowings 1,500 -
Current portion of term loan 2,368 2,243
Total Current Liabilities 29,857 28,860
Term loan 4,975 5,500
Subordinated notes 9,910 9,910
Industrial revenue bond 1,960 1,960
Warranty reserves 497 532
Long- term pension liability - 489
Other liabilities 192 166
Total Liabilities 47,391 47,417
SHAREHOLDERS' EQUITY
Common stock, par value $.75 per share:
10,000,000 shares authorized;
5,451,666 shares at March 31, 2000 and
5,412,866 shares at December 31, 1999 4,089 4,060
Other capital 11,803 11,734
Treasury shares, at cost; 105,997 shares
at March 31, 2000 and 88,655 shares at
December 31, 1999 (346) (207)
Receivable from management - (30)
Accumulated deficit (4,724) (5,527)
Total Shareholders' Equity 10,822 10,030
Total Liabilities and
Shareholders' Equity $ 58,213 $ 57,447
See Notes to Consolidated Financial Statements
Page Five
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
March 31,
2000 1999
(Unaudited) (Unaudited)
Net sales $ 30,561 $ 21,987
Cost of sales 24,609 17,676
Gross margin 5,952 4,311
Selling, general and administrative expenses 4,166 3,092
Research and development 39 40
Operating income 1,747 1,179
Other (income) expense
Interest expense 499 549
Other income (68) (45)
Total other (income) expense, net 431 504
Income before income tax provision 1,316 675
Income tax provision 513 265
Net income $ 803 $ 410
Basic earnings per share $ .15 $ .08
Weighted average number of
common shares outstanding 5,333 5,121
Diluted earnings per share $ .13 $ .07
Weighted average number of
common shares and equivalents 6,051 5,711
See Notes to Consolidated Financial Statements
Page Six
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
2000 1999
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 803 $ 410
Adjustments to reconcile net income to
net cash used in operations:
Depreciation and amortization 494 249
Deferred income taxes (287) -
Other, net (15) -
Changes in assets and liabilities:
Accounts receivable (179) 1,188
Costs in excess of billings 138 32
Inventories (1,100) (125)
Prepaid expenses (83) (85)
Other assets 24 13
Accounts payable 851 (1,976)
Accrued liabilities (1,429) (353)
Accrued income taxes 291 (281)
Billings in excess of costs (46) (186)
Other liabilities (1,223) (25)
Net cash flows used in operations (1,761) (1,139)
Cash flows from investing activities:
Additions to intangibles (12) -
Additions to property, plant and equipment (127) (379)
Net cash flows used in investing activities (139) (379)
Cash flows from financing activities:
Sale of common stock 99 -
Borrowings on line of credit 1,500 -
Repayment of long-term debt (400) -
Repayment of related party debt - (10)
Net cash provided by (used in) financing activities 1,199 (10)
Net decrease in cash (701) (1,528)
Cash and cash equivalents at beginning of period 701 1,528
Cash and cash equivalents at end of period $ - $ -
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 482 $ 516
Income taxes $ 223 $ 308
See Notes to Consolidated Financial Statements
Page Seven
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of CompuDyne
Corporation and subsidiaries (the "Company"), have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all necessary adjustments and
reclassifications (all of which are of a normal, recurring nature) that
are necessary for fair presentation for the periods presented. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report to the Securities
and Exchange Commission on Form 10-K for the year ended December 31,
1999.
Certain 1999 amounts have been reclassified to conform to the
2000 presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
(dollars in thousands) March 31, December 31,
2000 1999
U.S. Government Contracts:
Billed $ 1,519 $ 1,433
Unbilled 906 2,636
2,425 4,069
Commercial
Billed 25,610 23,598
Unbilled 6,350 6,568
31,960 30,166
Total Accounts Receivable 34,385 34,235
Less Allowance for Doubtful Accounts (373) (402)
Net Accounts Receivable $ 34,012 $ 33,833
Page Eight
3. COMMON STOCK AND COMMON STOCK OPTIONS
On January 24, 2000 the Compensation and Stock Options Committee
("Committee") granted options to purchase 2,500 shares of common stock
to non-employee directors at a price of $8.47 per share, the then current
market price.
On January 13, 2000 the Committee granted options to purchase 10,000
shares of CompuDyne common stock to a key employee of Norment Security
Group at a price of $8.09 per share, the then current market price.
4. NET INCOME PER SHARE
Earnings per share are presented in accordance with SFAS No. 128,
"Earnings Per Share." This statement requires dual presentation of basic
and diluted earnings per share on the face of the income statement.
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of
shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
The following is a reconciliation of the amounts used in calculating
basic and diluted net income per common share:
Per Share
Income Shares Amount
(dollars
in
thousands)
Basic net income
per common share for the
three months ended March 31, 2000:
Income available to
common stockholders $ 803 5,332,677 $ .15
Effect of dilutive stock options 717,829
Diluted net income per common share
for the three months ended
March 31, 2000 $ 803 6,050,506 $ .13
Basic net income per common share
for the three months ended
March 31, 1999:
Income available to
common stockholders $ 410 5,122,049 $ .08
Effect of dilutive stock options 589,474
Diluted net income per common share
for the three months ended
March 31, 1999 $ 410 5,711,523 $ .07
Page Nine
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the Company were $30.6 million for the first quarter of
2000, an increase of $8.6 million from $22 million for the first quarter
of 1999. Sales in the Corrections group were $22.5 million, up $6.7
million from $15.8 million in 1999. This increase is primarily a result
of increased revenues for the Norment Security Group, completing new work
from the backlog accumulated in 1999. CorrLogic, Inc. had incremental
sales of $993 thousand, since it was acquired April 30, 1999. Net sales
for the Attack Protection group were $5.6 million in the first quarter of
2000, an increase of $2.4 million from the $3.2 million for the same
period in 1999. Net sales for the Federal Systems group were down $122
thousand to $2.4 million in the first quarter of 2000, from $2.5 million
in the same period in 1999. MicroAssembly Systems, Inc. ("MicroAssembly")
which had net sales of $400 in the first quarter of 1999, was sold on
May 28, 1999.
CompuDyne's gross margin increased $1.7 million in the first quarter of
2000 to $6.0 million, up from $4.3 million in the first quarter of 1999.
The Corrections group increased $1.2 million to $4.3 million for the
first quarter in 2000 from $3.1 million for the first quarter of 1999.
This increase was primarily a result of the increased net sales of the
Norment Security Group. Gross margin for the Federal Systems group
increased by $66 thousand from $310 thousand in the first quarter of 1999
to $376 thousand in the first quarter of 2000. The Attack Protection
group increased $520 thousand to $1.3 million for the first quarter in
2000 from $770 thousand for the first quarter of 1999. MicroAssembly,
which had a gross margin of $131 thousand in the first quarter of 1999,
was sold on May 28, 1999.
CompuDyne's selling, general and administrative expenses increased $1.1
million to $4.2 million for the first quarter of 2000 from $3.1 million
for the same period in 1999. The Corrections group was $3.1 million for
the first quarter of 2000, up $1.1 million from $2.0 million for the
first quarter of 1999. This increase is primarily due to the addition of
CorrLogic, Inc. on April 30, 1999. The Attack Protection group decreased
selling, general and administrative expenses by $17 thousand to $487
thousand for the first quarter of 2000, from $504 thousand for the same
period in 1999. The Federal Systems group selling, general and
administrative expenses were $182 thousand in the first quarter of 2000,
up $39 thousand from $143 thousand in the first quarter of 1999.
CompuDyne corporate selling, general and administrative expenses were
up $81 thousand from $302 thousand in the first quarter of 1999 to $383
thousand for the first quarter of 2000. This increase is primarily
attributable to costs associated with the purchase of an annuity to
relieve CompuDyne of the liability for the Kolux pension plan
obligation. MicroAssembly, which had selling, general and administrative
expenses of $88 thousand in the first quarter of 1999, was sold on May
28, 1999.
Page Ten
Research and development costs remained constant at $39 thousand for the
first quarter of 2000 as well as the first quarter of 1999. All research
and development costs for both periods were spent in the Federal Systems
group for improvements to the current product line of Data Control
Systems, a division of Quanta Systems Corporation.
Interest expense was $499 thousand in the first quarter of 2000, down
$50 thousand from $549 thousand in the first quarter of 1999. This is
attributable to principal prepayments made during the third quarter
of 1999.
Net income for the first quarter of 2000 for CompuDyne was $803
thousand, up $393 thousand from $410 thousand in the first quarter of
1999. Net income for the Corrections group increased $48 thousand to
$337 thousand for the first quarter of 2000 from $289 thousand for the
first quarter of 1999. Net income for the Attack Protection group was
$401 thousand for the first quarter 2000, up $309 thousand from $92
thousand for the same period in 1999. The Federal Systems group net
income increased $34 thousand to $49 thousand in the first quarter 2000,
from $15 thousand for the first quarter of 1999. MicroAssembly's
contribution to net income went down by $16 thousand, since it was sold
on May 28, 1999. The unallocated Head Office net income for the first
quarter of 2000 was $15 thousand, up $18 thousand from the ($3) thousand
for the first quarter of 1999.
The Company had a backlog at the end of the first quarter of 2000 of $115
million, up $22 million from $93 million at the end of the first quarter
of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $1.8 million in the first quarter of
2000, up $622 thousand from $1.1 million used in operations in the first
quarter of 1999. The primary uses of cash include a decrease in
accruals of $1.4 million, an increase in inventories of $1.1 million and
property and equipment purchases of $127 thousand. The primary source of
cash to fund operations, investing activities and principal repayments of
debt was a $1.5 million borrowing against the revolving credit line at
LaSalle National Bank, NA.
YEAR 2000 COMPLIANCE
Subsequent to December 31, 1999 and to date, the Company has not had any
adverse effects to its systems or operations resulting from the Year 2000
issues. As a result, there has been no need to implement any Year 2000
contingency plans.
Page Eleven
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
CompuDyne used fixed and variable rate notes payable to finance its
acquisition of Norment/Norshield. These on-balance sheet financial
instruments, to the extent they provide for variable rates of interest,
expose the Company to interest rate risk, with the primary interest rate
exposure resulting from changes in the LIBOR rate used to determine the
interest rate applicable to the borrowing under the Company's loan from
LaSalle National Bank.
The information below summarizes CompuDyne's sensitivity to market risks
associated with fluctuations in interest rates as of March 31, 2000.
To the extent that the Company's financial instruments expose the Company
to interest rate risk, they are presented in the table below. The table
presents principal cash flows and related interest rates by year of
maturity of the Company's notes payable with variable rates of interest
in effect at March 31, 2000.
Financial Instruments by Expected Maturity Date
Year Ending December 31 2000 2001 2002 2003
Notes Payable:
Variable rate ($) $1,500,000 $2,375,000 $2,500,000 $ 600,000
Average interest rate 7.79% 7.85% 7.90% 7.96%
Fixed rate ($) $ - $ - $ - $ -
Average interest rate
Year Ending December 31 Thereafter Total Fair Value
Notes Payable:
Variable rate ($) $ - $ 6,975,000 $ 6,975,000
Average Interest Rate
Fixed rate ($) $ 9,000,000 $ 9,000,000 $ 9,000,000
Average Interest Rate 13.15% 13.15% 13.15%
Year Ending December 31 2000 2001 2002 Thereafter
Interest Rate Swaps:
Variable to Fixed ($) $ 6,750,000 $ 5,475,000 $ - $ -
Average pay rate 7.55% 7.55%
Average receive rate 8.0 % 8.0 %
The Company used a foreign exchange contract to partially hedge their
exposure to exchange rate risk related to one firmly committed sales
contract. The foreign exchange contract was entered into for non-trading
purposes and was matched to the underlying transaction and did not
constitute speculative or leveraged positions independent of this
exposure. As most of this contract has been completed, no significant
exchange risk exists as of March 31, 2000.
Page Twelve
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
Page Thirteen
SIGNATURE
Pursuant to the requirements 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.
COMPUDYNE CORPORATION
Date: May , 2000 /s/ William C. Rock
William C. Rock
Chief Financial Officer