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 September 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 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 November 14, 2001, a total of 6,551,365 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 - September 30, 2001
and December 31, 2000 3
Consolidated Statements of Income -
Three Months and Nine Months
Ended September 30, 2001 and 2000 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures 15
About Market Risks
Part II. Other Information 16-17
Signature 18
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
2001 2000
---- ----
(in thousands)
ASSETS
Current Assets
Accounts receivable, net $ 29,534 $ 32,475
Contract costs in excess of billings 12,371 7,738
Inventories 5,019 4,789
Deferred tax assets 1,178 1,178
Prepaid expenses and other 1,386 712
------ ------
Total Current Assets 49,488 46,892
------ ------
Property, plant and equipment, net 5,821 6,863
Capitalized software, net 1,081 1,259
Goodwill and other intangible assets, net 3,681 3,688
Investment in Tiburon stock 6,057 -
Other 488 87
------ ------
Total Assets $ 66,616 $ 58,789
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 18,020 $ 17,865
Billings in excess of contract
costs incurred 5,211 6,632
Bank line of credit 4,200 3,100
Current portion of long term debt 4,110 2,685
----- -----
Total Current Liabilities 31,541 30,282
Notes payable 9,798 4,920
Subordinated notes 10,174 9,512
Deferred tax liabilities 116 116
Other 10 163
------ ------
Total Liabilities 51,639 44,993
------ ------
Commitments and Contingencies
Shareholders' Equity
Common stock, par value $.75 per share:
15,000,000 shares authorized; 5,619,891 and
5,472,891 shares issued at September 30, 2001 and
December 31, 2000, respectively 4,215 4,104
Additional Paid-in-Capital 12,765 11,870
Treasury shares, at cost: 477,869 and
164,732 shares at September 30, 2001
and December 31, 2000, respectively (3,279) (790)
Retained earnings (deficit) 1,276 (1,388)
----- -----
Total Shareholders' Equity 14,977 13,796
------ ------
Total Liabilities and Shareholders' Equity $ 66,616 $ 58,789
====== ======
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except per share data)
Net sales $ 31,354 $ 30,430 $ 92,547 $ 94,365
Cost of sales 25,524 24,307 74,181 76,138
------ ------ ------ ------
Gross margin 5,830 6,123 18,366 18,227
Selling, general and administrative 4,000 4,145 12,796 12,523
Research and development 7 39 62 129
----- ----- ------ ------
Operating income 1,823 1,939 5,508 5,575
Other (income) expense
Interest expense 697 468 1,766 1,514
Dividend income (56) - (64) -
Equity in earnings of Tiburon (9) - (16) -
Other income (142) (42) (223) (133)
----- ----- ------ ------
Total other (income) expense 490 426 1,463 1,381
----- ----- ------ ------
Income before income tax provision 1,333 1,513 4,045 4,194
Income tax provision 423 591 1,381 1,641
----- ----- ------ ------
Net income $ 910 $ 922 $ 2,664 $ 2,553
====== ====== ======= ======
Earnings per share:
- ------------------
Basic earnings per share $ .18 $ .17 $ . 52 $ .48
====== ====== ======= ======
Weighted average number of
common shares outstanding 5,077 5,352 5,175 5,346
===== ===== ===== =====
Diluted earnings per share $ .16 $ .15 $ .46 $ .42
====== ====== ======= ======
Weighted average number of
common shares and equivalents 5,797 6,015 5,849 6,049
====== ====== ====== ======
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
2001 2000
---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 2,664 $ 2,553
Adjustments to reconcile net income to
net cash from operations:
Gain on the sale of property, plant and equipment (67) -
Depreciation and amortization 1,418 1,392
Deferred income taxes - 63
Equity in earnings of Tiburon (16) -
Other, net - (15)
Changes in assets and liabilities:
Accounts receivable 2,941 4,258
Costs in excess of billings (4,633) (65)
Inventories (230) 41
Prepaid expenses and other (674) (272)
Other assets (400) (72)
Accounts payable and accrued liabilities 264 (3,406)
Billings in excess of contract costs incurred (1,421) (216)
Other liabilities (263) (1,766)
------ -----
Net cash flows (used in) provided by operations (417) 2,495
------ -----
Cash flows from investing activities:
Additions to intangibles (124) (41)
Additions to property, plant and equipment (353) (724)
Proceeds from the sale of property, plant
and equipment 399 -
Purchase of Tiburon stock (6,086) -
------ -----
Net cash flows used in investing activities (6,164) (765)
------ -----
Cash flows from financing activities:
Sale of common stock 1,006 138
Purchase of treasury stock (2,489) (209)
Borrowings on line of credit, net 1,100 -
Proceeds from long-term debt 12,750 -
Repayment of long-term debt (5,786) (1,710)
------ ------
Net cash provided by (used in) financing activities 6,581 (1,781)
------ ------
Net decrease in cash and cash equivalents - (51)
Cash and cash equivalents at beginning of period - 701
------ ------
Cash and cash equivalents at end of period $ - $ 650
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,342 $ 1,531
Income taxes $ 1,065 $ 1,003
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
CompuDyne Corporation and its 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 annual report filed with the
Securities and Exchange Commission on Form 10-K for the year ended
December 31, 2000 and its subsequent reports on Form 10-Q.
New Accounting Pronouncements:
During October 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and
replaces accounting and reporting provisions of APB Opinion No. 30,
"Reporting Results of Operations Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary , Unusual and Infrequently
Occurring Events and Transactions," as it relates to the disposal of a
segment of a business. SFAS No. 144 requires the use of a single
accounting model for long-lived assets to be disposed of by sale,
including discontinued operations, by requiring those long-lived assets
to be measured at the lower of carrying amount or fair value less costs
to dispose. The impairment recognition and measurement provisions of
SFAS No. 121 were retained for all long-lived assets to be held and used
with the exception of goodwill. The Company will adopt this standard on
January 1, 2002. Management has not yet determined the impact that the
adoption of this statement will have on the Company's financial
statements.
In June 2001, the FASB issued two new pronouncements: 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 balance
sheet 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 yet determined the impact that adoption of
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 SFAS
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 any 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:
(in thousands) September 30, December 31,
2001 2000
---- ----
U.S. Government Contracts - Billed $ 2,080 $ 3,129
Commercial
Billed 22,165 25,126
Unbilled 6,423 5,480
------ ------
28,588 30,606
------ ------
Total Accounts Receivable 30,668 33,735
Less: Allowance for Doubtful Accounts (1,134) (1,260)
------ ------
Accounts Receivable, net $ 29,534 $ 32,475
====== ======
3. COMMON STOCK OPTIONS
During the nine months ended September 30, 2001, the Company granted
13,000 options to non-employee directors at prices ranging from $7.825
to $16.63 per share, and 112,500 options to employees at prices
ranging from $7.625 to $8.55 per share. Option prices were at the
market value of the stock on the grant date.
4. OPERATING SEGMENT INFORMATION
Amounts shown for 2000 for the Corrections segment have been reclassified
to be consistent with the way the Company's segments are classified in
2001.
Revenue From Operating
External Customers Gross Margin Income/(Loss)
------------------ ------------ -------------
(Nine Months ended September 30)
(in thousands)
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Corrections $ 57,809 $ 63,421 $ 10,317 $ 11,443 $ 4,094 $ 4,291
Attack Protection 17,266 17,604 4,980 3,344 2,213 1,535
Federal Systems 14,011 9,436 1,747 1,512 1,051 798
Public Safety 3,461 3,904 1,322 1,928 (545) 148
CompuDyne Corporate - - - - (1,305) (1,197)
----- ----- ----- ----- ------ -----
$ 92,547 $ 94,365 $ 18,366 $ 18,227 $ 5,508 $ 5,575
====== ====== ====== ====== ====== ======
5. 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 September 30, 2001:
Income available to common stockholders $ 910 5,076,652 $ .18
Effect of dilutive stock options 720,842
-------
Diluted earnings per common share for the
three months ended September 30, 2001 $ 910 5,797,494 $ .16
----- --------- -----
Basic earnings per common share for the
three months ended September 30, 2000:
Income available to common stockholders $ 922 5,351,827 $ .17
Effect of dilutive stock options 663,571
---------
Diluted earnings per common share for the
three months ended September 30, 2000 $ 922 6,015,398 $ .15
----- --------- -----
Basic earnings per common share for the
nine months ended September 30, 2001:
Income available to common stockholders $ 2,664 5,174,983 $ .52
Effect of dilutive stock options 674,466
---------
Diluted earnings per common share for the
nine months ended September 30, 2001 $ 2,664 5,849,449 $ .46
----- --------- -----
Basic earnings per common share for the
nine months ended September 30, 2000:
Income available to common stockholders $ 2,553 5,345,898 $ .48
Effect of dilutive stock options 703,193
---------
Diluted earnings per common share for the
nine months ended September 30, 2000 $ 2,553 6,049,091 $ .42
----- --------- -----
6. PROPOSED MERGER WITH TIBURON
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 which represents 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. These purchases were made pursuant to agreements (the "Agreements")
entered into on May 10, 2001. These share purchases were funded by bank
borrowings. Prior to the date of the purchase of the common and
preferred stock, the Company had a Cooperative Agreement with Tiburon
enabling the companies to sell certain products and services jointly to
certain customers. Pursuant to the Agreements, 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. 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. 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, pursuant to the
Agreements, 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 owned 1.076 million shares of the
Company's common stock and warrants to purchase 297,924 shares of the
Company's common stock and held a $9 million subordinated note issued by
the Company bearing annual interest at 13.15%. The Arrangement allowed
the Shareholder to put its stock and the shares underlying its warrants
to the Company if the Company completed Stage 2 of the Tiburon
Agreement. The put price was to be determined by agreement between the
Company and the Shareholder. The Arrangement became effective when the
Company exercised its option to complete Stage 2. On October 29, 2001
the Company repaid all of the Shareholder's outstanding subordinated
debt and arranged for the sale of the Shareholder's outstanding stock
and shares underlying its warrants (See note 9).
7. INVESTMENT IN TIBURON COMMON STOCK
The Company's investment in Tiburon common stock is accounted for using
the equity method since the Company has the ability to exercise
significant influence over the operations of Tiburon. 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.
8. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
Note payable to bank $ 11,500 $ 5,475
Subordinated notes 10,762 9,682
Industrial revenue bond 1,820 1,960
------- -------
24,082 17,117
Current maturities (4,110) (2,685)
------- -------
$ 19,972 $ 14,432
======= =======
In June 2001, the Company obtained an $11.5 million bank borrowing,
bearing interest at LIBOR plus a variable margin, 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 repay the existing note payable.
9. SUBSEQUENT EVENT - SALE OF COMMON STOCK
On October 29, 2001 the Company completed the sale of 1.076 million new
common shares in a Private Investment to Public Equity transaction. The
stock was sold at a price of $12.00 per share which netted the Company
approximately $12.0 million in new equity capital after fees and
expenses.
In this same transaction, the Company also arranged for the sale of
approximately 1.37 million CompuDyne common shares and shares underlying
warrants owned by William Blair Mezzanine Capital Partners II, L.P.
(the "Shareholder"). As a result of this transaction the Shareholder
realized approximately $12.8 million, and by agreement with the
Shareholder, the Company realized approximately $2.5 million in net
capital proceeds. In addition, the Company realized approximately $1.0
million from the exercise of the Shareholder warrants. The Company
utilized the proceeds of this offering to retire the $9 million, 13.15%
subordinated note held by the Shareholder and to pay down other bank
debt. Since the $9 million subordinated debt was repaid prior to its
maturity, the Company incurred a $270 thousand (3%) prepayment fee.
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 reclassified
for comparative purposes.
Third Quarter 2001 and 2000 Comparison
- --------------------------------------
Net sales for the Company were $31.4 million for the third quarter of
2001, an increase of $1.0 million from $30.4 million for the third
quarter of 2000. Sales in the Corrections segment were $19.7 million,
an increase of $817 thousand from $18.9 million in 2000. Net sales for
the Attack Protection segment were $5.6 million in the third quarter of
2001, a decrease of $547 thousand from $6.1 million for the same period
in 2000. This change 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 offset by decreased sales at
Norshield. Net sales for the Federal Systems segment increased $1.5
million to $5.0 million in the third 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 decreased $829 thousand from $1.8 million in
2000 to $1.0 million in 2001.
CompuDyne's gross margin decreased $292 thousand in the third quarter of
2001 to $5.8 million, compared to $6.1 million in the third quarter of
2000. The Corrections segment decreased $210 thousand to $3.4 million
for the third quarter 2001 from $3.6 million in 2000. The Attack
Protection segment increased $248 thousand to $1.5 million for the third
quarter of 2001 from $1.3 million for the third quarter of 2000. This
was due primarily to the addition of Fiber SenSys. Gross margin for
the Federal Systems segment increased by $72 thousand from $516 thousand
in the third quarter of 2000 to $588 thousand in the third quarter of
2001. The Public Safety segment decreased $402 thousand to $320 thousand
for the third quarter of 2001 from $722 thousand for the third quarter
of 2000.
CompuDyne's selling, general and administrative expenses decreased $144
thousand to $4.0 million for the third quarter of 2001 from $4.1 million
for the same period in 2000. The Corrections segment was $1.7 million for
the third quarter of 2001, a decrease of $594 thousand from $2.3 million
for the third quarter of 2000. The Attack Protection segment increased
selling, general and administrative expenses by $285 thousand to $931
thousand for the third quarter of 2001, from $646 thousand for the same
period in 2000. The Federal Systems segment selling, general and
administrative expenses were $202 thousand in the third quarter of 2001,
an increase of $22 thousand from $180 thousand in the third quarter of
2000. The Public Safety segment was $560 thousand for the third quarter
of 2001, a decrease of $55 thousand from $615 thousand for the third
quarter of 2000. CompuDyne corporate selling, general and administrative
expenses increased $197 thousand from $371 thousand in the third quarter
of 2000 to $568 thousand for the third quarter of 2001. Although there
were slight increases and decreases by segment, selling, general and
administrative expense was 12.8% of sales in the third quarter of 2001
and 13.6% in the third quarter of 2000.
Interest expense was $697 thousand in the third quarter of 2001, an
increase of $229 thousand from $468 thousand in the third quarter of
2000. This increase is primarily a result of higher levels of
borrowings to fund the purchase of shares of Tiburon, Inc.
Net income for the third quarter of 2001 was $910 thousand, a decrease
of $12 thousand from $922 thousand in the third quarter of 2000. Net
income for the Corrections segment increased $223 thousand to $665
thousand for the third quarter of 2001 from $442 thousand for the third
quarter of 2000. Net income for the Attack Protection segment was $258
thousand for the third quarter of 2001, a decrease of $38 thousand from
$296 thousand for the same period in 2000. The Federal Systems segment
net income increased $47 thousand to $170 thousand in the third quarter
of 2001, from $123 thousand for the third quarter of 2000. Net income
for the Public Safety segment decreased $217 thousand to a loss of $188
thousand for the third quarter of 2001 from $28 thousand for the third
quarter of 2000. Unallocated corporate office costs were $6 thousand
in the third quarter of 2001 compared with $33 thousand in the third
quarter of 2000.
Year to Date 2001 and 2000 Comparison
- -------------------------------------
Net sales for the Company were $92.5 million for the first nine months
of 2001, a decrease of $1.8 million from $94.4 million for the first nine
months of 2000. Sales in the Corrections segment were $57.8 million, a
decrease of $5.6 million from $63.4 million in 2000. This decrease is
primarily attributable to slower than anticipated output on several
projects at Norment due to temporary construction delays by the
Customers. Net sales for the Attack Protection segment were $17.3
million in the first nine months of 2001, a decrease of $338 thousand
from $17.6 million for the same period in 2000. Net sales for the
Federal Systems segment increased $4.6 million to $14.0 million in the
first nine months of 2001, from $9.4 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 $3.5
million, a decrease of $444 thousand from $3.9 million in 2000.
CompuDyne's gross margin increased $139 thousand in the first nine
months of 2001 to $18.4 million, compared to $18.2 million in the first
nine months of 2000. The Corrections segment decreased $1.1 million to
$10.3 million for the first nine months of 2001 from $11.4 million in
2000. The Attack Protection segment increased $1.6 million to $5.0
million for the first nine months of 2001 from $3.3 million for the first
nine months 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 $235 thousand from $1.5 million in
the first nine months of 2000 to $1.7 million in the first nine months of
2001 due to higher revenues. The Public Safety segment decreased $605
thousand to $1.3 million for the first nine months of 2001 from $1.9
million for the first nine months of 2000.
CompuDyne's selling, general and administrative expenses increased $274
thousand to $12.8 million for the first nine months of 2001 from $12.5
million for the same period in 2000 primarily attributable to the
inclusion of Fiber SenSys which was acquired in November 2000. The
Corrections segment was $6.2 million for the first nine months of 2001,
a decrease of $928 thousand from $7.1 million for the first nine months
of 2000. The Attack Protection segment increased selling, general and
administrative expenses by $958 thousand to $2.8 million for the first
nine months of 2001, from $1.8 million for the same period in 2000. The
Federal Systems segment selling, general and administrative expenses were
$634 thousand in the first nine months of 2001, an increase of $48
thousand from $586 thousand in the first nine months of 2000. The Public
Safety segment was $1.9 million for the first nine months of 2001, an
increase of $89 thousand from $1.8 million for the first nine months of
2000. CompuDyne corporate selling, general and administrative expenses
increased $107 thousand from $1.2 million in 2000 to $1.3 million in
2001.
Research and development costs were $62 thousand for the first nine
months of 2001, a decrease of $67 thousand from $129 thousand in 2000.
All research and development costs were incurred in the Federal Systems
segment for current product line improvements.
Interest expense was $1.8 million in the first nine months of 2001, an
increase of $252 thousand from $1.5 million in the first nine months of
2000.
Net income for the first nine months of 2001 was $2.7 million, an
increase of $112 thousand from $2.5 million in the first nine months of
2000. Net income for the Corrections segment decreased $83 thousand to
$1.5 million for the first nine months of 2001 from $1.6 million for the
first nine months of 2000. Net income for the Attack Protection segment
was $1.0 million for the first nine months of 2001, an increase of $387
thousand from $647 thousand for the same period in 2000. The Federal
Systems segment net income increased $166 thousand to $475 thousand in
the first nine months of 2001, from $309 thousand for the first nine
months of 2000. Net income (loss) for the Public Safety segment
decreased $390 thousand to ($414) thousand for the first nine months of
2001 from ($24) thousand for the first nine months of 2000. Unallocated
corporate office costs were $21 thousand in the first nine months of 2001
compared with ($12) thousand in the first nine months of 2000.
The Company had a backlog at September 30, 2001 of $131 million, an
increase of $14 million from $117 million at September 30, 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 September 30, 2001 the Company had working capital of $17.9
million compared with $16.6 million as of December 31, 2000. At
September 30, 2001 the Company had a $10 million line of credit of which
$6.0 million was being used or was committed.
Net income of $2.7 million in the first nine months of 2001 resulted in
cash used in operations of $417 thousand. This compares with net income
in the first nine months of 2000 of $2.6 million and cash provided by
operations of $2.5 million. The primary uses of cash were for the
increase in contract costs in excess of billings of $4.6 million and
decrease in billings in excess of costs of $1.4 million. This was
partially offset by cash provided by payments from customers on accounts
receivable of $2.9 million.
Net cash used in investing activities was $6.1 million in the first nine
months of 2001 compared with $765 thousand used in investing activities
in the same period of 2000. The Company used $6.0 million to purchase
Tiburon's common and preferred stock.
Net cash provided by financing activities was $6.6 million in the first
nine months of 2001 compared with $1.8 million used by financing
activities the first nine months of 2000. In 2001, this included cash
provided by borrowings of $1.1 million from the line of credit, net new
borrowings totaling $7.0 million, and $2.5 million used to purchase
treasury stock.
The Company anticipates that cash generated from operations and
borrowings under its bank lines 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 subject to the approval of
the Company's shareholders and certain other considerations. The merger
price is to be paid in shares of the Company's common stock.
The Company has approved an approximately $3 million capital expansion
program for the Company's Bullet, Blast and Attach protection division
as a result of a significant increase in inquiries, and the anticipated
order flow resulting from the events of September 11. These capital
expenditures will be funded from the cash generated from the Company's
operations and borrowings under its bank lines.
On October 29, 2001 the Company completed the sale of 1.076 million new
common shares in a Private Investment to Public Equity transaction. The
stock was sold at a price of $12.00 per share which netted the Company
approximately $12.0 million in new equity capital after fees and
expenses.
In this same transaction, the Company also arranged for the sale of
approximately 1.37 million CompuDyne common shares and shares underlying
warrants owned by William Blair Mezzanine Capital Partners II, L.P.
(the "Shareholder"). As a result of this transaction the Shareholder
realized approximately $12.8 million, and by agreement with the
Shareholder, the Company realized approximately $2.5 million in net
capital proceeds. In addition, the Company realized approximately $1.0
million from the exercise of the Shareholder warrants. The Company
utilized the proceeds of this offering to retire the $9 million, 13.15%
subordinated note held by the Shareholder and to pay down other bank
debt. Since the $9 million subordinated debt was repaid prior to its
maturity, the Company incurred a $270 thousand (3%) prepayment fee.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
- ------------------
CompuDyne has fixed and variable rate notes payable. 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 borrowings under
the Company's bank line of credit.
The information below summarizes CompuDyne's sensitivity to market risks
associated with fluctuations in interest rates as of September 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 September 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 $ 5,552,942 6.75% $ 9,000,000 13.15%
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% 170,584 7.50%
Thereafter 3,429,406 7.75% - -
--------- ---------
Total $ 18,770,004 $ 9,511,750
Fair Value $ 18,770,004 $ 9,511,750
Year Ending
December 31 Variable to Fixed Average Receive Rate Fixed Pay Rate
----------------- -------------------- --------------
Interest Rate Swaps:
2001 $ 10,147,060 2.59% 4.90%
2002 $ 7,441,180 3.50% 4.90%
2003 $ 4,735,300 4.00% 4.90%
2004 $ 2,029,420 4.90% 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 September 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 an
amendment of 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
Item 6 -- Exhibits and Reports on Form 8-K.
(a) Exhibits:
(3)(ii) By-Laws of the Registrant as amended by the
Board of Directors on October 16, 2001.
Attached hereto.
(b) Reports on Form 8-K.
None.
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: November 14, 2001 /s/ Geoffrey F. Feidelberg
--------------------------
Geoffrey F. Feidelberg
Chief Financial Officer