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 June 30, 2001
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 (I.R.S. Employer
of 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 August 14, 2001, a total of 5,078,522 shares of Common Stock, $.75
par value, were outstanding.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements - Unaudited
Consolidated Balance Sheets - June 30, 2001
and December 31, 2000 3-4
Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risks 16
Part II. Other Information 17-18
Signature 19
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2001 2000
-------- -----------
(in thousands)
ASSETS
Current Assets
Accounts receivable, net $ 25,181 $ 32,475
Costs in excess of billings 12,480 7,738
Inventories
Finished goods 72 83
Work in process 1,036 1,200
Raw materials and supplies 3,440 3,506
_____ _____
Total Inventories 4,548 4,789
_____ _____
Deferred tax assets 1,178 1,178
Prepaid expenses and other current assets 1,130 712
_____ _____
Total Current Assets 44,517 46,892
------ ------
Property, plant and equipment, at cost
Land and improvements 250 250
Buildings and leasehold improvements 3,016 3,307
Machinery and equipment 3,837 4,097
Furniture and fixtures 1,030 595
Automobiles 350 383
Construction in progress 121 72
_____ _____
8,604 8,704
Less: accumulated depreciation and
amortization (3,279) (2,654)
_____ _____
Net Property, Plant and Equipment 5,325 6,050
----- -----
Capitalized software, net 1,886 2,072
Goodwill, net 1,383 1,413
Other intangible assets, net 2,302 2,275
Investment in Tiburon common stock, equity basis 3,047 -
Investment in Tiburon preferred stock 3,033 -
Other assets 482 87
_____ ______
Total Assets $ 61,975 $ 58,789
====== ======
See Notes to Consolidated Financial Statements
LIABILITIES AND SHAREHOLDERS' EQUITY
(unaudited)
June 30, December 31,
2001 2000
------ ----------
(in thousands, except share data)
Current Liabilities
Accounts payable $ 11,075 $ 13,670
Accrued payroll expense 2,652 2,452
Other accrued expenses 286 733
Billings in excess of contract costs incurred 4,406 6,632
Income taxes payable - 423
Accrued interest 226 60
Bank line of credit 4,400 3,100
Current portion of long term debt 3,433 2,685
------ ------
Total Current Liabilities 26,478 29,755
Term loan 8,794 3,100
Subordinated notes 10,175 9,512
Industrial revenue bond 1,820 1,820
Warranty reserves 423 527
Deferred tax liabilities 116 116
Other liabilities 162 163
------ ------
Total Liabilities 47,968 44,993
------ ------
Commitments and Contingencies
Shareholders' Equity
Common stock, par value $.75 per share:
15,000,000 shares authorized;
5,521,991 shares issued at June 30, 2001
and 5,472,891 shares issued at
December 31, 2000 4,141 4,104
Other capital 12,582 11,870
Treasury shares, at cost: 457,369 shares
at June 30, 2001 and 164,732 shares at
December 31, 2000 (3,082) (790)
Accumulated earnings (deficit) 366 (1,388)
------- -------
Total Shareholders' Equity 14,007 13,796
------- -------
Total Liabilities and Shareholders' Equity $ 61,975 $ 58,789
======= =======
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except share data)
Net sales $ 31,319 $ 33,374 $ 61,193 $ 63,935
Cost of sales 25,060 27,222 48,657 51,831
------- ------- ------- -------
Gross margin 6,259 6,152 12,536 12,104
Selling, general and
administrative expenses 4,368 4,212 8,796 8,378
Research and development 8 50 55 89
------ ------ ------ ------
Operating income 1,883 1,890 3,685 3,637
Other (income) expense
Interest expense 549 547 1,069 1,046
Dividend income (8) - (8) -
Equity in earnings of Tiburon (7) - (7) -
Other income (70) (22) (81) (90)
------ ------ ------ ------
Total other (income) expense 464 525 973 956
------ ------ ------ ------
Income before
income tax provision 1,419 1,365 2,712 2,681
Income tax provision 473 538 958 1,051
------ ------ ------ ------
Net income $ 946 $ 827 $ 1,754 $ 1,630
====== ====== ====== ======
Earnings per share:
- ------------------
Basic earnings per share $ .19 $ .15 $ .34 $ .31
====== ====== ====== ======
Weighted average number of
common shares outstanding 5,130 5,341 5,224 5,341
====== ====== ====== ======
Diluted earnings per share $ .16 $ .14 $ .30 $ .27
====== ====== ====== ======
Weighted average number of
common shares and equivalents 5,799 6,050 5,875 6,050
====== ====== ====== ======
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2001 2000
---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 1,754 $ 1,630
Adjustments to reconcile net income to
net cash from operations:
Gain on the sale of property, plant
and equipment (63) -
Depreciation and amortization 926 933
Deferred income taxes - 63
Equity in earnings of Tiburon (7) -
Other, net - (15)
Changes in assets and liabilities:
Accounts receivable 7,294 779
Costs in excess of billings (4,742) 891
Inventories 241 (1,134)
Prepaid expenses and other current assets (418) (137)
Other assets (395) (51)
Accounts payable (2,595) 599
Accrued expenses (81) (1,185)
Income taxes payable (423) (6)
Billings in excess of contract
costs incurred (2,226) 65
Other liabilities (105) (1,866)
------- -------
Net cash flows (used in) provided by operations (840) 566
------- -------
Cash flows from investing activities:
Additions to intangibles (112) (16)
Additions to property, plant and equipment (232) (305)
Proceeds from the sale of property, plant
and equipment 395 -
Purchase of Tiburon common stock (3,040) -
Purchase of Tiburon preferred stock (3,033) -
------- -------
Net cash flows used in investing activities (6,022) (321)
------- -------
Cash flows from financing activities:
Sale of common stock 749 124
Purchase of treasury stock (2,292) -
Borrowings on line of credit, net 1,300 -
Proceeds from long-term debt 12,750 -
Repayment of long-term debt (5,645) (1,070)
------- -------
Net cash provided by (used in)
financing activities 6,862 (946)
------- -------
Net decrease in cash and cash equivalents - (701)
Cash and cash equivalents at beginning of period - 701
------- -------
Cash and cash equivalents at end of period $ - $ -
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 917 $ 1,075
Income taxes $ 932 $ 707
See Notes to Consolidated Financial Statements
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.
The consolidated balance sheet as of December 31, 2000 has been derived
from the Company's December 31, 2000 audited financial statements.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with accounting principles
generally accepted in the United States of America, 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,
2000.
New Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
two new pronouncements: Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS 141 is effective as follows: a) use of the
pooling-of-interest method is prohibited for business combinations
initiated after June 30, 2001; and b) the provisions of SFAS 141 also
apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001 (that is, the date of the
acquisition is July 1, 2001 or later). There are also transition
provisions that apply to business combinations completed before July 1,
2001, that were accounted for by the purchase method. SFAS 142 is
effective for fiscal years beginning after December 15, 2001 to all
goodwill and other intangible assets recognized in an entity's statement
of financial position at that date, regardless of when those assets were
initially recognized. The Company is currently evaluating the provisions
of SFAS 141 and SFAS 142 and has not adopted such provisions in its June
30, 2001 consolidated financial statements. The Company is currently
evaluating the provisions of SFAS 141 and SFAS 142 and has not yet
determined the impact such statements will have on its consolidated
financial statements.
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liability, replaced FASB
Statement No. 125". The Statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities. The Company adopted SFAS 140 effective
April 1, 2001. The adoption of SFAS 140 did not have a significant
impact on the financial position, results of operations, or cash flows
of the Company.
Certain 2000 amounts have been reclassified to conform to the 2001
presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
(dollars in thousands) June 30, December 31,
2001 2000
---- ----
U.S. Government Contracts - Billed $ 2,685 $ 3,129
Commercial
Billed 18,077 25,126
Unbilled 5,728 5,480
------ ------
23,805 30,606
------ ------
Total Accounts Receivable 26,490 33,735
Less: Allowance for Doubtful Accounts (1,309) (1,260)
------ ------
Net Accounts Receivable $ 25,181 $ 32,475
======= =======
3. COMMON STOCK AND COMMON STOCK OPTIONS
The Compensation and Stock Option Committee ("Committee") granted the
following options:
Date of Grant Number of Shares Grantee Market Price
- ------------- ---------------- ------- ------------
January 22, 2001 2,000 Non-Employee directors $7.875
April 11, 2001 1,500 Non-Employee directors $7.825
June 25, 2001 1,500 Non-Employee directors $8.200
Date of Grant Number of Shares Grantee Market Price
- ------------- ---------------- ------- ------------
March 21, 2001 10,000 Norshield Security Products $7.750
key employee
March 26, 2001 10,000 Fiber SenSys key employee $7.750
April 3, 2001 10,000 Norshield Security Products $7.625
key employee
May 18, 2001 35,000 Norment Security Group $8.550
key employees
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of shares outstanding
for the period. Diluted earnings per share is computed in a manner
consistent with that of basic earnings per share and 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 earnings per common share:
Per Share
Income Shares Amount
------ ------ ------
(dollars in thousands)
Basic earnings per common share for the
three months ended June 30, 2001:
Income available to common stockholders $ 946 5,129,711 $ .19
------
Effect of dilutive stock options 669,536
---------
Diluted earnings per common share for the
three months ended June 30, 2001 $ 946 5,799,247 $ .16
------- --------- ------
Basic earnings per common share for the
three months ended June 30, 2000:
Income available to common stockholders $ 827 5,341,409 $ .15
------
Effect of dilutive stock options 708,198
---------
Diluted earnings per common share for the
three months ended June 30, 2000 $ 827 6,049,607 $ .14
------- --------- ------
Basic earnings per common share for the
six months ended June 30, 2001:
Income available to common stockholders $ 1,754 5,224,149 $ .34
------
Effect of dilutive stock options 651,277
---------
Diluted earnings per common share for the
six months ended June 30, 2001 $ 1,754 5,875,426 $ .30
------- --------- ------
Basic earnings per common share for the
six months ended June 30, 2000:
Income available to common stockholders $ 1,630 5,341,409 $ .31
------
Effect of dilutive stock options 708,198
---------
Diluted earnings per common share for the
six months ended June 30, 2000 $ 1,630 6,049,607 $ .27
------- --------- ------
5. OPERATING SEGMENT INFORMATION
Amounts shown for 2000 for the Corrections segment have been changed
since previously reported in order to conform to the new operating
segments as defined in 2001.
Revenue From Gross Operating
External Customers Margin Income/(Loss)
------------------ ------ -------------
(Six Months ended June 30)
(in thousands) 2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Corrections $ 38,080 $ 44,509 $ 6,931 $ 7,847 $ 2,447 $ 3,028
Attack Protection 11.679 11,470 3,443 2,056 1,608 893
Federal Systems 8,984 5,892 1,160 996 673 502
Public Safety 2,450 2,064 1,002 1,205 (306) 41
CompuDyne Corporate - - - - (737) (827)
------- ------- ------- ------ ------- ------
$ 61,193 $ 63,935 $ 12,536 $12,104 $ 3,685 $ 3,637
======= ======= ======= ====== ======= ======
6. ACQUISITIONS OF BUSINESSES
Tiburon Investment/Acquisition
- ------------------------------
On June 19, 2001, the Company purchased 624,996 shares of common stock
of Tiburon, Inc. ("Tiburon"), from certain of Tiburon's shareholders for
$3.0 million in cash for a 12.5% ownership interest. The Company also
purchased 520,833 newly issued shares of 7.5% cumulative convertible
preferred stock of Tiburon for an additional $3.0 million in cash. The
acquisition was funded by borrowings from SunTrust Bank and LaSalle Bank
National Association. Prior to the date of the purchase of the common
and preferred stock, the Company had a Cooperative Agreement with
Tiburon, which is used to sell certain products and services jointly to
certain customers. Pursuant to the Agreements signed on May 10, 2001
between the Company and Tiburon, the Company has an option to cause the
merger of Tiburon into a wholly owned subsidiary of the Company ("Stage
2"). The Company exercised this option on July 9, 2001. Consummation of
the Stage 2 merger is subject to the approval of the Company's
shareholders, and certain other considerations, including reasonable
financing of the Shareholder "put" as described below. If reasonable
financing of the Shareholder "put" is not obtained, the Company will not
continue with Stage 2. In the Stage 2 merger, the holders of Tiburon
common stock will receive Company common stock in exchange for their
shares of Tiburon common stock in a ratio determined by dividing the
merger price by the value assigned to the Company's common stock below.
The merger price (to be paid in shares of Company common stock) for the
Tiburon common stock is $4.80 per share plus increments of $0.045 per
share for each full month after September 2, 2001 until March 2, 2002,
$0.05 per share for each of the next six full months, and $0.075 per
share for each full month thereafter until the Stage 2 merger is
completed. For purposes of the Stage 2 merger exchange ratio, the
Company's common stock has been valued, based on its volume weighted
average price reported on the NASDAQ National Market for the sixty days
ended July 6, 2001, at $8.6164 per share.
In connection with the acquisition of the Tiburon common and preferred
shares of stock, the Company entered into an arrangement (the
"Arrangement") with William Blair Mezzanine Capital Fund II, L.P. (the
"Shareholder"). The Shareholder owns 1.076 million shares of the
Company's common stock, and warrants to purchase 297,924 shares of the
Company's common stock, and holds a $9 million subordinated note issued
by the Company bearing annual interest at 13.15%. The Arrangement allows
the Shareholder to put its stock and warrants to the Company if the
Company completes Stage 2 of the Tiburon Agreement or prepays 50% or
more of the subordinated note. The put price will be determined by
multiplying the Shareholder's fully diluted common equity ownership
percentage by the value of the Company's equity, to be determined from
an appraisal by an independent appraisal company or by agreement between
the Company and the Shareholder, adjusted for certain defined items, in
particular, the value of the Company's equity not including any increment
from the anticipated Stage 2 merger. Payment to the Shareholder of the
put price may be deferred for up to two years with interest charged at
15% per year. Additionally, at the Shareholder's option, the
subordinated note will mature at the earlier of the original maturity
date of December 31, 2005, or the completion of Stage 2. The Arrangement
is now in effect since the Company has exercised its option to complete
Stage 2, however, the Shareholder may rescind its put option upon
determination of the value of this Company's equity and the put price.
The Arrangement also provides the Company with a call option on the
Shareholder's equity positions. The call option would be exercisable
one year after (i) the repayment of 100% of the subordinated note, or
(ii) upon completion of Stage 2. The call option is exercisable on
each anniversary of (i) or (ii) above. Upon exercise of the call option
the Shareholder's equity would be valued on the same basis as described
for the put option except that the effect of the Stage 2 merger
will be included in the value of the Company equity. A minimum price of
$8 per share would be established, with an escalator clause of 10% per
year. In addition, if the Shareholder exercises its contractual right
to prohibit a Company investment approved by the Company's Board of
Directors, the call option can be exercised but the minimum price would
not be applicable. The Shareholder may require the subordinated note to
be repaid upon the Company's exercise of the call option.
7. INVESTMENT IN TIBURON COMMON STOCK
The equity method of accounting is used for the Company's investment in
Tiburon common stock because the Company has the ability to exercise
significant influence. The Company has included its share of the results
of operations of Tiburon from June 19, 2001, the date of acquisition, in
the accompanying consolidated statement of income. The amount of equity
underlying the Tiburon common stock at the date of acquisition totaled
approximately $800 thousand. The difference of approximately $2.2
million is included in the investment balance and is being amortized
over 15 years. Summarized financial information for Tiburon at June 30,
2001 and for the year then ended is as follows: total assets $26.0
million; total liabilities $17.0 million; total revenues $41.7 million;
and total expenses $41.9 million.
8. LONG-TERM DEBT
Long-term debt consisted of the following:
(in thousands)
June 30, 2001 December 31, 2000
------------- -----------------
Term loan $ 11,500 $ 5,475
Subordinated notes 10,762 9,682
Industrial revenue bond 1,960 1,960
-------- -------
24,222 17,117
Current maturities (3,433) (2,685)
-------- -------
$ 20,789 $ 14,432
======== =======
During the three months ended June 30, 2001, the Company obtained an
$11.5 million term note, bearing interest at LIBOR plus a fixed credit
spread of 2.75%, collateralized by virtually all of the Company's
assets, due in quarterly installments beginning on September 30, 2001.
The Company used $6 million of the $11.5 million to acquire $3 million
in Tiburon common stock and $3 million in Tiburon convertible preferred
stock. The remaining $5.5 million was used to pay the existing December
31, 2000 term loan balance.
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Amounts shown for 2000 for the Corrections segment have been changed
since previously reported in order to conform to the new operating
segments as defined in 2001.
Second Quarter 2001 and 2000 Comparison
- ---------------------------------------
Net sales for the Company were $31.3 million for the second quarter of
2001, a decrease of $2.1 million from $33.4 million for the second
quarter of 2000. Sales in the Corrections segment were $18.8 million, a
decrease of $4.3 million from $23.1 million in 2000. This decrease is
primarily attributable to slower than anticipated output on several
projects at Norment due to general construction delays and the better
performance in 2000. Net sales for the Attack Protection segment were
$6.2 million in the second quarter of 2001, an increase of $468 thousand
from $5.7 million for the same period in 2000. This increase is
attributable to the addition of sales for the current fiscal year at
Fiber SenSys (acquired November 2000), and increased sales at Sysco
which were partially offset by decreased sales at Norshield. Net
sales for the Federal Systems segment increased $1.7 million to $5.2
million in the second quarter of 2001, from $3.5 million in the same
period in 2000. This increase is due to some large task orders awarded
to Quanta Systems by an existing customer. Net sales in the Public
Safety segment remained consistent at $1.1 million.
CompuDyne's gross margin increased $107 thousand in the second quarter
of 2001 to $6.3 million, compared to $6.2 million in the second quarter
of 2000. The Corrections segment decreased $907 thousand to $3.3 million
for the second quarter 2001 from $4.2 million in 2000 primarily as a
result of lower revenues. The Attack Protection segment increased $1.1
million to $1.9 million for the second quarter of 2001 from $731 thousand
for the second quarter of 2000. This was due primarily to the addition of
Fiber SenSys, and improved gross margin at Sysco and Norshield. Gross
margin for the Federal Systems segment decreased by $25 thousand from
$620 thousand in the second quarter of 2000 to $595 thousand in the
second quarter of 2001. The Public Safety segment decreased $110
thousand to $461 thousand for the second quarter of 2001 from $571
thousand for the second quarter of 2000.
CompuDyne's selling, general and administrative expenses increased $156
thousand to $4.4 million for the second quarter of 2001 from $4.2 million
for the same period in 2000. The Corrections segment was $2.1 million for
the second quarter of 2001, a decrease of $228 thousand from $2.4
million for the second quarter of 2000. The Attack Protection segment
increased selling, general and administrative expenses by $345 thousand
to $961 thousand for the second quarter of 2001, from $616 thousand for
the same period in 2000. The Federal Systems segment selling, general
and administrative expenses were $221 thousand in the second quarter of
2001, a decrease of $3 thousand from $224 thousand in the second quarter
of 2000. The Public Safety segment was $659 thousand for the second
quarter of 2001, an increase of $90 thousand from $569 thousand for the
second quarter of 2000. CompuDyne corporate selling, general and
administrative expenses decreased $48 thousand from $444 thousand in the
second quarter of 2000 to $396 thousand for the second quarter of 2001.
Although there were slight increases and decreases by segment, selling,
general and administrative expense was 13.9% of sales in the second
quarter of 2001 and 12.6% in the second quarter of 2000 primarily
attributable to the inclusion of Fiber SenSys which was acquired in
November 2000 and an increase in professional fees.
Research and development costs were $8 thousand for the second quarter
of 2001, a decrease of $42 thousand from $50 thousand in 2000. All
research and development costs were incurred at Data Control Systems in
the Federal Systems segment for current product line improvements.
Interest expense was $550 thousand in the second quarter of 2001, an
increase of $3 thousand from $547 thousand in the second quarter of
2000.
Net income for the second quarter of 2001 was $946 thousand, an increase
of $119 thousand from $827 thousand in the second quarter of 2000. Net
income for the Corrections segment decreased $389 thousand to $424
thousand for the second quarter of 2001 from $813 thousand for the second
quarter of 2000. Net income for the Attack Protection segment was $459
thousand for the second quarter of 2001, an increase of $487 thousand
from ($28) thousand for the same period in 2000. The Federal Systems
segment net income increased $34 thousand to $171 thousand in the second
quarter of 2001, from $137 thousand for the second quarter of 2000. Net
income (loss) for the Public Safety segment decreased $88 thousand to
($122) thousand for the second quarter of 2001 from ($34) thousand for
the second quarter of 2000. Unallocated corporate office costs were $15
thousand in the second quarter of 2001 compared with ($61) thousand in
the second quarter of 2000.
Year to Date 2001 and 2000 Comparison
- -------------------------------------
Net sales for the Company were $61.2 million for the first half of 2001,
a decrease of $2.7 million from $63.9 million for the first half of 2000.
Sales in the Corrections segment were $38.1 million, a decrease of $6.4
million from $44.5 million in 2000. Again, this decrease is primarily
attributable to slower than anticipated output on several projects at
Norment due to general construction delays and the better performance in
2000. Net sales for the Attack Protection segment were $11.7 million in
the first half of 2001, an increase of $209 thousand from $11.5 million
for the same period in 2000. This increase is attributable to the
addition of sales for the current fiscal year at Fiber SenSys (acquired
November 2000) , increased sales at Sysco which were partially offset by
decreased sales at Norshield. Net sales for the Federal Systems segment
increased $3.1 million to $9.0 million in the first half of 2001, from
$5.9 million in the same period in 2000. This increase is due to some
large task orders awarded to Quanta Systems by an existing customer.
Sales in the Public Safety segment were $2.4 million, an increase of
$386 thousand from $2.1 million in 2000.
CompuDyne's gross margin increased $432 thousand in the first half of
2001 to $12.5 million, compared to $12.1 million in the first half of
2000. The Corrections segment decreased $915 thousand to $6.9 million
for the first half of 2001 from $7.8 million in 2000. The Attack
Protection segment increased $1.4 million to $3.4 million for the first
half of 2001 from $2.0 million for the first half of 2000. This was due
to the addition of Fiber SenSys, and improved gross margin at Sysco and
Norshield. Gross margin for the Federal Systems segment increased by
$163 thousand from $996 thousand in the first half of 2000 to $1.2
million in the first half of 2001 due to higher revenues. The Public
Safety segment decreased $203 thousand to $1.0 million for the first half
of 2001 from $1.2 million for the first half of 2000.
CompuDyne's selling, general and administrative expenses increased $418
thousand to $8.8 million for the first half of 2001 from $8.4 million for
the same period in 2000 primarily attributable to the inclusion of Fiber
SenSys which was acquired in November 2000 and an increase in
professional fees. The Corrections segment was $4.5 million for the first
half of 2001, a decrease of $334 thousand from $4.8 million for the
first half of 2000. The Attack Protection segment increased selling,
general and administrative expenses by $672 thousand to $1.8 million for
the first half of 2001, from $1.2 million for the same period in 2000.
The Federal Systems segment selling, general and administrative expenses
were $432 thousand in the first half of 2001, an increase of $26
thousand from $406 thousand in the first half of 2000. The Public Safety
segment was $1.3 million for the first half of 2001, an increase of
$144 thousand from $1.2 million for the first half of 2000.
CompuDyne corporate selling, general and administrative expenses
decreased $5 thousand remaining at $1.6 million.
Research and development costs were $55 thousand for the first half of
2001, a decrease of $34 thousand from $89 thousand in 2000. All research
and development costs were incurred in the Federal Systems segment for
current product line improvements.
Interest expense was $1.1 million in the first half of 2001, an increase
of $23 thousand from $1.0 million in the first half of 2000.
Net income for the first half of 2001 was $1.8 million, an increase of
$124 thousand from $1.6 million in the first half of 2000. Net income
for the Corrections segment decreased $307 thousand to $884 thousand for
the first half of 2001 from $1.2 million for the first half of 2000. Net
income for the Attack Protection segment was $776 thousand for the first
half of 2001, an increase of $425 thousand from $351 thousand for the
same period in 2000. The Federal Systems segment net income increased
$119 thousand to $305 thousand in the first half of 2001, from $186
thousand for the first half of 2000. Net income (loss) for the Public
Safety segment decreased $174 thousand to ($226) thousand for the first
half of 2001 from ($52) thousand for the first half of 2000.
Unallocated corporate office costs were $15 thousand in the first half
of 2001 compared with ($45) thousand in the first half of 2000.
The Company had a backlog at the end of the first half of 2001 of $131
million, an increase of $15 million from $116 million at then end of the
first half of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through cash flow generated from its
operations and bank financing. The Company's liquidity requirements
arise from cash to carry its inventories, costs in excess of billings,
billed and unbilled receivables, for payments of principal and interest
on outstanding indebtedness and for acquisitions.
As of June 30, 2001 the Company had working capital of $18.0 million
compared with $17.1 million as of December 31, 2000. At June 30, 2001
the Company had a $10 million line of credit of which $6.4 million was
being used or was committed.
Net income of $1.8 million in the first half of 2001 resulted in cash
used in operations of $840 thousand. This compares with net income in
the first half of 2000 of $1.6 million and cash provided by operations
of $566 thousand. The primary uses of cash were to pay accounts payable
of $2.6 million, an increase in costs in excess of billings of $4.7
million and a decrease in billings in excess of costs of $2.2 million.
This was partially offset by cash provided by payments from customers on
accounts receivable of $7.3 million.
Net cash used in investing activities was $6.0 million in the first half
of 2001 compared with $321 thousand used in investing activities in the
same period of 2000. The Company used $6.1 million to pay for the
investments in Tiburon's common and preferred stock.
Net cash provided by financing activities was $6.9 million in the first
half of 2001 compared with $946 thousand used by financing activities
the first half of 2000. This included cash provided by borrowings of
$1.3 million from the line of credit, net new borrowings totaling $7.1
million, and $2.3 used to purchase treasury stock.
The Company anticipates that cash generated from operations and
borrowings under the working line of credit will enable the Company to
meet its liquidity, working capital and expenditure requirements. As
discussed in Note 6 to the consolidated financial statements, the Company
has exercised its option to merge with Tiburon. Currently, the Company
expects to acquire Tiburon with the Company's common stock and is
seeking financing related to the put option and subordinated note of the
Shareholder, if needed. There are no assurances that it will be
available, or if available, that it can be obtained on terms favorable
to the Company. From time to time, the Company may be party to one or
more non-binding letters of intent regarding material acquisitions,
which, if consummated, may be paid for with cash or through the issuance
of shares of the Company's common stock.
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 line of
credit from LaSalle Bank National Association.
The information below summarizes CompuDyne's sensitivity to market risks
associated with fluctuations in interest rates as of June 30, 2001. 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 June 30, 2001.
Financial Instruments by Expected Maturity Date
Year Ending Subject to Average Subject to Average
December 31 Variable Rate Interest Rate Fixed Rate Interest Rate
------------- ------------- ---------- -------------
Notes Payable:
2001 $ 1,492,942 6.75% $ - -
2002 3,262,552 7.00% 170,583 7.50%
2003 3,262,552 7.25% 170,583 7.50%
2004 3,262,552 7.50% 2,170,584 12.71%
Thereafter 3,429,406 7.75% 7,000,000 13.15%
---------- ---------
Total $ 14,710,004 - $ 9,511,750
Fair Value $ 14,710,004 - $ 9,511,750
Year Ending
December 31 Variable to Fixed Average Pay Rate Fixed Receive Rate
----------------- ---------------- ------------------
Interest Rate Swaps:
2001 $ 10,147,060 4.90% 4.90%
2002 $ 7,441,180 5.15% 4.90%
2003 $ 4,735,300 5.40% 4.90%
2004 $ 2,029,420 5.65% 4.90%
Thereafter $ - - -
The Company used a foreign exchange contract to partially hedge its
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 June 30, 2001.
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
Proposal #1 Election of Directors.
At the annual meeting on July 18, 2001, the shareholders elected Wade B.
Houk Director for a period of two years to expire at the 2003 Annual
Meeting. The votes were cast as follows:
For 4,244,221
Against -
Withheld 15,334
At the annual meeting on July 18, 2001, the shareholders elected Martin
A. Roenigk Director for a period of three years to expire at the 2004
Annual Meeting. The votes were cast as follows:
For 4,256,093
Against -
Withheld 3,462
At the annual meeting on July 18, 2001, the shareholders elected Alan
Markowitz Director for a period of three years to expire at the 2004
Annual Meeting. The votes were cast as follows:
For 4,255,393
Against -
Withheld 4,162
Proposal #2 Ratification of appointment of independent auditors.
At the annual meeting on July 18, 2001, the shareholders approved the
appointment of Deloitte & Touche LLP as the independent auditors of the
corporation for the fiscal year ending December 31, 2001. The votes
were cast as follows:
For 4,250,844
Against 7,346
Abstain 1,365
Proposal #3 Proposed amendment to the articles of incorporation.
At the annual meeting on July 18, 2001, although the Company had
received proxies sufficient to approve the amendment of the Company's
Articles of Incorporation, management withdrew the proposal for reasons
having to do with the timing of filings with the Securities and Exchange
Commission.
Proposal #4 Amend the 1996 stock incentive compensation plan for
employees.
At the annual meeting on July 18, 2001, the shareholders approved to
amend the 1996 Stock Incentive Plan to increase the number of shares of
Common Stock, which may be issued or transferred under the Plan upon
exercise of options or other rights to 1,200,000 shares. The votes
were cast as follows:
For 3,444,004
Against 39,199
Abstain 28,683
Non-vote 747,669
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: August 14, 2001 /s/ William C. Rock
----------------------------
William C. Rock
Chief Financial Officer