Exhibit 99
CompuDyne Reports Preliminary Unaudited 2004 Results: $0.78 Loss for 4th
Quarter, $1.04 Loss for Year
ANNAPOLIS, Md.--(BUSINESS WIRE)--March 17, 2005--CompuDyne Corporation
(NASDAQ:CDCY):
Includes $1.8 Million of Goodwill & Intangible Impairment Writeoffs;
Operational Restructuring is Proceeding;
2005 Anticipated to Be Profitable
CompuDyne Corporation (NASDAQ:CDCY), an industry leader in sophisticated
security products, integration and technology for the public security markets,
reported a preliminary unaudited net loss of $6.4 million, or $0.78 per share,
on revenues of $32.6 million, for the fourth quarter of 2004. This compares to
net income of $447 thousand, or $0.05 per share, on revenues of $45.8 million
for the fourth quarter of 2003. The fiscal year 2004 net loss was $8.5 million,
or $1.04 per share, on revenues of $142.8 million. This compares to a net income
of $3.4 million, or $0.42 per share, on revenues of $193.3 million, for fiscal
year 2003. EBITDA for the fourth quarter of 2004 was a negative $3.5 million,
down from a positive $2.1 million in the fourth quarter of 2003. EBITDA for
fiscal 2004 was a negative $2.4 million, down from a positive $10.1 million in
fiscal 2003.
The Company has not yet finalized its accounting for income taxes and is
continuing to evaluate its tax provision and related tax balance sheet accounts.
The 2004 loss, the first annual loss since 1995, was attributable to a
combination of factors, including: the cost of completing problem projects; low
revenues due to depressed backlogs; write-offs of goodwill and intangibles
related to the Institutional Security Systems segment; and significant
expenditures to comply with requirements under Sarbanes-Oxley and related
regulations.
Institutional Security Systems ("ISS") had a pre-tax loss of $4.3 million
in the fourth quarter of 2004 and a pre-tax loss of $5.0 million for the year
2004 on revenues of $12.2 million and $54.0 million respectively. In 2003 ISS
had pre-tax income of $800 thousand and $3.6 million for the fourth quarter and
full year, respectively. A revenue decline of $11.0 million in the fourth
quarter of 2004 compared to 2003, and $44.7 million for fiscal 2004 compared to
fiscal 2003 made it very difficult to achieve profitability despite significant
reductions in operating costs. Compounding the earnings problem at ISS were the
continuing problems in our West Coast office. Since the initial identification
of the problems in the second half of 2002, the West Coast office has lost
cumulatively $12.9 million pre-tax, of which $2.2 million was lost during the
fourth quarter of 2004 and $6.1 million was lost in fiscal 2004. In addition, in
light of the continued decline in ISS's backlogs, the Company believes
approximately $1.8 million of goodwill and other intangibles related to the ISS
operations were impaired in the fourth quarter of 2004 and accordingly, the
Company has written them off. ISS is undergoing a significant organizational and
expense restructuring, including a partial consolidation of its regional offices
and an increased focus on centralized performance of the most complicated
security projects. While ISS year-end backlogs remain at very depressed levels,
$7.9 million below December 31, 2003 levels, bidding activity appears to be
picking up significantly. The total construction value of prison and jail
projects that are in the planning stage, but have not yet been awarded, is at a
higher level than at any time in the past four years. There is, however, no
assurance that the Company will be awarded any of these projects, and if the
Company is awarded certain of these projects, it should be noted that any
increase in backlogs will not convert to meaningfully increased revenues for at
least eight to twelve months. ISS is undertaking a significant expansion of its
sales and marketing activities, especially in efforts to attract non-traditional
commercial security work.
Attack Protection ("AP") had a pre-tax loss of $2.0 million in the fourth
quarter of 2004 and a pre-tax loss of $5.2 million for the year 2004 on revenues
of $5.0 million and $25.2 million, respectively. Attack Protection had pre-tax
income of $700 thousand in the fourth quarter of 2003 and pre-tax income of $600
thousand for the year 2003 on revenues of $7.5 million and $28.4 million,
respectively. AP's revenues declined $2.5 million in the fourth quarter of 2004
and $3.2 million for the year 2004 as compared to the fourth quarter of 2003 and
year 2003, respectively. Contributing to the 2004 loss was rework required on a
major project which resulted in charges of $2.0 million for the full year 2004.
With the addition of a new President at AP, significant further restructuring
steps have been taken to reduce costs, improve efficiency, and raise quality
levels. AP's U.S. embassy market has finally picked up significantly, resulting
in near-record backlogs at the end of 2004, and expectations of continuing high
levels of activity during the coming years. AP has expanded its sales and
marketing efforts, with a renewed emphasis on commercial applications for its
bullet and blast resistant products, and on its security bollards and barriers
product line. AP's Fiber SenSys ("FSI") perimeter sensor business has met with
notable success in its markets and has expanded its business, marketing, and
engineering efforts significantly. During January 2005, FSI received its single
largest order ever, approximately $2.3 million. FSI has significant perimeter
product extensions scheduled to be released in the third and fourth quarters of
2005 that should sustain the strong growth in this area.
Public Safety & Justice ("PS&J") had pre-tax income of $599 thousand in the
fourth quarter of 2004 and $2.4 million for the year 2004 on revenues of $12.4
million and $49.4 million respectively. PS&J had a pre-tax loss of $933 thousand
in the fourth quarter of 2003 and pre-tax income of $407 thousand for the year
2003 on revenues of $11.1 million and $49.8 million, respectively. PS&J's
pre-tax income represented an increase over the $407 thousand earned for the
full year 2003, largely attributable to the $1.6 million pre-tax contract
write-off which occurred in 2003. Backlog at PS&J has fallen from $63.7 million
at the end of 2003 to $48.4 million at the end of 2004, which will impact
revenue early in the year; however, proposal activity appears to have picked up
in recent months. The Company hired a new CEO for PS&J late in 2004 and hired
several new senior managers for this business. PS&J is also investing heavily in
its new .NET based product suite and quoting activity has picked up
significantly in recent months.
Federal Security Systems ("FSS") had pre-tax income of $112 thousand in the
fourth quarter of 2004 and $663 thousand for the year 2004 on revenues of $3.1
million and $14.3 million, respectively. This compares to pre-tax income of $227
thousand for the fourth quarter of 2003 and $953 thousand for the year 2003 on
revenues of $4.1 million and $16.4 million, respectively. While full year
earnings for FSS were down in 2004, this business made significant progress with
developing and marketing its signals intercept product line, and enters 2005
with a business-wide backlog about even with December 31, 2003.
Corporate expenses rose significantly during the fourth quarter and year,
heavily influenced by the costs of complying with the requirements under Section
404 of Sarbanes-Oxley and related regulations. Charges related to this process
approximated $700 thousand in the fourth quarter of 2004 and $1.2 million for
the full year. In addition, considerable manpower and attention was diverted
throughout the Company on this effort, a process that is continuing into the
first quarter of 2005 and beyond.
The Company's balance sheet improved significantly during 2004 despite the
net loss for the year. Cash and marketable securities at December 31, 2004
totaled $20.4 million. All of our senior bank debt at the end of 2003 was repaid
with the proceeds from our public offering of subordinated convertible notes
early in 2004; this debt is not due until 2011.
The effective tax benefit was approximately 19% for the year ended December
31, 2004 and the effective tax rate was approximately 41% for the year ended
December 31, 2003. The difference in rates is largely attributable to the losses
experienced in 2004 and the related valuation allowance established for
substantially all of the Company's net deferred tax assets as of December 31,
2004.
During 2004 the Company began strengthening its senior management by hiring
a Chief Operating Officer and new senior managers for its Attack Protection and
Public Safety & Justice businesses. Restructuring programs are well underway at
both the Attack Protection and Institutional Security Systems businesses
designed to: lower operating costs; improve competitiveness; raise quality
levels to Six Sigma standards; expand and broaden sales and marketing efforts;
and emphasize a customer centric approach to business. The Company believes that
the combination of the elimination of one-time costs and charges, these
restructuring and management efforts, along with near-record backlogs in Attack
Protection and a recovery in bidding activity in Institutional Security Systems,
should result in fiscal year 2005 reflecting a return to profitability.
The Company cannot timely file its Annual Report on Form 10-K for the year
ended December 31, 2004 due to reasons that could not be eliminated without
unreasonable effort or expense. The Company has filed a Form 12b-25,
Notification of Late Filing, with the Securities and Exchange Commission. The
Company has not finalized its 2004 financial statements and specifically is
continuing to assess its accounting for income taxes. Additionally, the
Company's evaluation of the effectiveness of its internal control over financial
reporting pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002 has not yet been completed. Because these assessments and evaluations
have not been completed and because of the related requirements of the
Securities and Exchange Commission, the Company needs additional time to
finalize its Form 10-K in order to ensure a complete and accurate Form 10-K. The
Company intends to file its Form 10-K no later than fifteen calendar days
following the prescribed due date.
In connection with our evaluation and testing activities under Section 404
of the Sarbanes-Oxley Act of 2002, we have concluded that two control
deficiencies in our internal control over financial reporting, more fully
described in our March 17, 2005 Form 8-K filing, as of December 31, 2004
constitute "material weaknesses" within the meaning of the Public Company
Accounting Oversight Board Auditing Standard No. 2.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in a more than remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. As a result of the material weaknesses identified, the Company's
management believes that it will conclude in its Management Report on Internal
Control over Financial Reporting in the Company's 2004 Form 10-K, that the
Company's internal control over financial reporting was not effective as of
December 31, 2004. Also, as a result of the material weaknesses, the Company's
management believes that the report of its independent registered public
accounting firm will contain an adverse opinion with respect to the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2004.
We believe that our remedial actions and our continuing evaluation of
additional controls and procedures will strengthen our internal control over
financial reporting and address the two material weaknesses identified.
We are not aware of any additional material weaknesses in our internal
control over financial reporting as of December 31, 2004.
Certain statements made in this press release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including those statements concerning the Company's expectations with
respect to future operating results and other events. Although the Company
believes it has a reasonable basis for these forward-looking statements, these
statements involve risks and uncertainties that cannot be predicted or
quantified and consequently, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors which could
cause actual results to differ from expectations include, among others, capital
spending patterns of the security market, competitive factors, pricing measures,
regulatory requirements, the Company's ability to secure new contracts, risks
associated with internal control weaknesses identified in complying with Section
404 of Sarbanes-Oxley, costs related to potential acquisitions, the level of
product returns, the costs associated with work to be performed pursuant to
Section 404, and the risks inherent in CompuDyne's business and future
uncertainties which are further described in its filings with the Securities and
Exchange Commission, such as the Company's Form 10-K, Form 10-Q, and Form 8-K
reports.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31,
ASSETS 2004 2003
--------- ---------
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 863 $ 1,869
Marketable securities 19,577 -
Accounts receivable, net 34,291 41,780
Contract costs in excess of billings 16,087 17,568
Inventories 5,165 6,704
Deferred tax assets 1,418 1,371
Prepaid expenses and other 3,684 2,322
--------- ---------
Total Current Assets 81,085 71,614
Property, plant and equipment, net 12,094 10,079
Goodwill, net 25,960 23,416
Other intangible assets, net 8,460 9,785
Other 713 904
--------- ---------
Total Assets $128,312 $115,798
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 15,771 $ 21,078
Billings in excess of contract costs
incurred 13,497 13,551
Deferred revenue 5,998 6,036
Current portion of notes payable 440 2,103
--------- ---------
Total Current Liabilities 35,706 42,768
Notes payable 3,565 15,555
Convertible subordinated notes payable, net 39,118 -
Deferred tax liabilities 3,554 3,728
Other 599 820
--------- ---------
Total Liabilities 82,542 62,871
Commitments and Contingencies
Shareholders' Equity 45,770 52,927
--------- ---------
Total Liabilities and Shareholders' Equity $128,312 $115,798
========= =========
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
--------- --------- --------- ---------
(in thousands, except for per share data)
Revenues $ 32,612 $ 45,822 $142,782 $193,263
Cost of sales 25,087 35,007 105,104 146,867
--------- --------- --------- ---------
Gross profit 7,525 10,815 37,678 46,396
Selling, general and
administrative expenses 10,100 8,390 36,219 32,305
Research and development 2,075 1,568 7,755 7,374
Impairment of goodwill and
other intangibles 1,826 - 1,826 -
--------- --------- --------- ---------
(Loss) income from
operations (6,476) 857 (8,122) 6,717
--------- --------- --------- ---------
Total other expense 525 36 2,308 961
--------- --------- --------- ---------
(Loss) income before income
taxes (7,001) 821 (10,430) 5,756
Income taxes (benefit)
expense (568) 374 (1,930) 2,348
--------- --------- --------- ---------
Net (loss) income $ (6,433) $ 447 $ (8,500) $ 3,408
========= ========= ========= =========
Earnings (loss) per share:
- --------------------------
Basic earnings (loss) per
common share $ (.78) $ .06 $ (1.04) $ .43
========= ========= ========= =========
Weighted average number of
common shares outstanding 8,288 7,936 8,136 7,895
========= ========= ========= =========
Diluted earnings (loss) per
common share $ (.78) $ .05 $ (1.04) $ .42
========= ========= ========= =========
Weighted average number of
common shares and
equivalents 8,288 8,210 8,136 8,158
========= ========= ========= =========
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL DATA
(in thousands, unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues
Public Safety and Justice $ 12,446 $ 11,061 $ 49,376 $ 49,794
Institutional Security
Systems 12,158 23,156 53,952 98,653
Attack Protection 4,957 7,463 25,161 28,375
Federal Security Systems 3,051 4,142 14,293 16,441
--------- --------- --------- ---------
$ 32,612 $ 45,822 $142,782 $193,263
========= ========= ========= =========
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
--------- --------- --------- ---------
Pre-tax income (loss)
Public Safety and Justice $ 599 $ (933) $ 2,364 $ 407
Institutional Security
Systems (4,291) 825 (4,974) 3,613
Attack Protection (2,008) 704 (5,244) 551
Federal Security Systems 112 227 663 953
Corporate (1,413) (2) (3,239) 232
--------- --------- --------- ---------
$ (7,001) $ 821 $(10,430) $ 5,756
========= ========= ========= =========
December 31,
2004 2003
--------- ---------
Backlog
Public Safety and Justice $ 48,434 $ 63,727
Institutional Security Systems 49,324 57,258
Attack Protection 20,803 10,043
Federal Security Systems 8,299 8,326
--------- ---------
$126,860 $139,354
========= =========
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss) $(6,433) $ 447 $(8,500) $ 3,408
Interest expense 855 310 3,298 1,389
Tax expense (568) 374 (1,930) 2,348
Depreciation and amortization 822 972 2,921 2,988
Impairment of goodwill and other
intangibles 1,826 - 1,826 -
-------- -------- -------- --------
EBITDA $(3,498) $ 2,103 $(2,385) $10,133
======== ======== ======== ========
This press release contains unaudited financial information that is not
prepared in accordance with generally accepted accounting principals (GAAP).
Investors are cautioned that the non-GAAP financial measures are not to be
construed as an alternative to GAAP. The Company's management uses earnings
before interest, taxes, depreciation and amortization (EBITDA), in its internal
analysis of net income and monitors it to ensure compliance with certain
covenants under the Company's credit facility. Management believes that EBITDA
provides useful information to investors for meaningful comparison to prior
periods and analysis of the critical components of its results of its
operations. Management also believes that EBITDA is a valuable financial measure
to investors because it allows them to monitor the Company's compliance with
certain covenants under its credit facility.
CONTACT: CompuDyne Corporation
Geoffrey F. Feidelberg, 410-224-4415 ext.313
investors.relations@compudyne.com