CompuDyne Reports Anticipated Loss, $0.33 Per Share for 2nd Quarter; Backlogs Increased Significantly, Gross Margins Improved; Results Negatively Impacted by SOX/404 and Legal Costs.ANNAPOLIS Annapolis, river, Canada Annapolis, river, c.75 mi (120 km) long, rising in W Nova Scotia, Canada, and flowing SW past Annapolis Royal to Annapolis Basin, an arm of the Bay of Fundy. , Md. -- CompuDyne Corporation (Nasdaq:CDCY), an industry leader in sophisticated security products, integration and technology for the public security markets, announced that as expected, it had a loss in the second quarter of 2005. The loss for the quarter was $2.6 million (without a provision for taxes), or $0.33 per share, compared to a profit of $90 thousand or $0.01 per share in the second quarter of 2004. Revenue for the quarter was $31.1 million compared to $37.8 million in the second quarter of 2004. For the first half of 2005 the loss was $3.0 million (without a provision for taxes), or $0.36 per share, compared to a loss of $217 thousand or $0.03 per share in the first half of 2004. Revenue for the first half of 2005 was $67.4 million compared to $76.8 million in the first half of 2004. The second quarter represented a considerable improvement in the Company's operating fundamentals. While second quarter revenues declined $6.7 million versus the 2004 second quarter, gross margins improved from 29.5% in the second quarter of 2004 to 33.5% in the second quarter of 2005. The gross margin improvement was largely due to significant and ongoing cost reductions and efficiency improvements at our Attack Protection business, as well as some improvement in revenue mix towards our higher margin businesses. If 2005 revenues had been equal to 2004 revenues, and 2005 gross margin remained at 33.5%, gross profit in the 2005 second quarter would have been $2.6 million higher. During the quarter, backlogs increased by $15.4 million from $115.7 million to $131.1 million. Orders during the quarter totaled $46.3 million. July July: see month. orders are expected to be in excess of $14 million, consistent with this increased rate of order activity. As these heightened order rates convert to revenues over time, assuming gross margins remain at improved levels, the impact on future earnings should be very salutary sal·u·tar·y adj. Favorable to health; wholesome. salutary healthful. salutary Healthy, beneficial . Second quarter earnings were severely depressed Depressed A description of a market, security, or product that is experiencing weak demand and lowering prices. Notes: A depressed market, security, or product implies that prices and volume are low. There are many reasons for a depressed market, security, or product. by exceptionally high costs for compliance with new requirements of Section 404 of the Sarbanes-Oxley Act See SOX. ("SOX/404") and the SEC. Related charges and audit expenses totaled $1.4 million. The SOX/404 charges will remain high in the second half but the Company continues to seek ways to reduce these expenses. The $1.4 million does not include considerable internal staffing requirements and diversion A turning aside or altering of the natural course or route of a thing. The term is chiefly applied to the unauthorized change or alteration of a water course to the prejudice of a lower riparian, or to the unauthorized use of funds. of management attention due to the SOX/404 efforts. Legal expenses were $623 thousand, which was also higher than usual. The legal charges related largely to efforts to pursue claims and change order recoveries on problem projects from prior years, an effort which is resulting in positive impacts on cash and is expected to have positive impacts on income in coming quarters. Material legal costs are also being incurred in defending against the protest of a $25 million contract awarded to our Integrated Electronic Services ("IES") segment. Second half results are expected to be improved over the first half and could be significantly improved depending on the outcome of several efforts and opportunities that may come to fruition fru·i·tion n. 1. Realization of something desired or worked for; accomplishment: labor finally coming to fruition. 2. Enjoyment derived from use or possession. 3. . Continued heavy spending on SOX/404 requirements will impact second half results. Institutional Security Systems ("ISS ISS See Institutional Shareholder Services (ISS). ") had revenues of $11.7 million in the second quarter of 2005, down from $14.0 million in the second quarter of 2004. Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta income for ISS was a loss of $532 thousand for the second quarter of 2005 compared to a loss of $84 thousand in the second quarter of 2004. ISS backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. at June June: see month. 30, 2005 was $56.5 million, an increase of $13.8 million or 32.3% during the quarter. Attack Protection ("AP") had revenues of $6.1 million in the second quarter of 2005, down from $6.7 million in the second quarter of 2004. Pre-tax income for AP was a loss of $840 thousand for the second quarter of 2005 compared to a loss of $456 thousand in the second quarter of 2004. AP backlog at June 30, 2005 was $19.5 million, a decrease of $673 thousand during the quarter but still at near-record levels. Project quoting activity is at very high levels at AP and is expected to continue at very high levels for the balance of the year. Public Safety & Justice ("PS&J") had revenues of $11.4 million in the second quarter of 2005, down from $12.7 million in the second quarter of 2004. Pre-tax income for PS&J was $400 thousand for the second quarter of 2005, down from $960 thousand in the second quarter of 2004. PS&J backlog at June 30, 2005 was $46.0 million, up $1.6 million during the quarter. PS&J earnings have been pressured by delays in negotiating contracts on two large projects, and due to expenditures to develop next generation software products. PS&J had an excellent awards month in July, estimated to be in excess of $11 million. IES had revenues of $1.9 million in the second quarter of 2005, down from $4.4 million in the second quarter of 2004. Pre-tax income for IES was $16 thousand for the second quarter of 2005, down from $214 thousand in the second quarter of 2004. IES backlog at June 30, 2005 was $9.1 million, up $0.7 million during the quarter. IES revenue suffered from delays in the startup (STARTing UP) "At startup" means when the computer is first turned on or when a program is first loaded. See Startup folder. of a major project and a large new contract, both of which are now underway in the third quarter. Due to the continuing heavy burden of SOX/404 expenses and related expenditures that result from CompuDyne's complex organization and decentralized de·cen·tral·ize v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es v.tr. 1. To distribute the administrative functions or powers of (a central authority) among several local authorities. structure, and due to limited resources to pursue all of the expanding opportunities that are available in all of our businesses, the Company continues to explore and evaluate opportunities to simplify its structure and to focus its resources on fewer markets, products and services. Certain statements made in this press release constitute "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by such forward-looking statements. Factors which could cause actual results to differ from expectations include, among others, capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. patterns of the security market and the demand for the Company's products, competitive factors and pricing pressures, changes in legislation, regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. , government budget problems, the Company's ability to secure new contracts, the ability to successfully grow the Company by completing acquisitions, the ability to remain in compliance with its bank covenants, delays in government procurement Government procurement, also called public tendering, is the procurement of goods and services on behalf of a public authority, such as a government agency. With 10 to 15% of GDP in developed countries, and up to 20% in developing countries, government procurement accounts processes, ability to obtain bid, payment and performance bonds on various of the Company's projects, technological change or difficulties, the ability to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. debt when it becomes due, product development risks, commercialization difficulties, adverse results in litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , the level of product returns, the amount of remedial REMEDIAL. That which affords a remedy; as, a remedial statute, or one which is made to supply some defects or abridge some superfluities of the common law. 1 131. Com. 86. The term remedial statute is also applied to those acts which give a new remedy. Esp. Pen. Act. 1. work needed to be performed, costs of compliance with Sarbanes-Oxley requirements and the impact of the failure to comply with such requirements, risks associated with internal control weaknesses identified in complying with Section 404 of Sarbanes-Oxley, the Company's ability to simplify its structure and modify its strategic objectives, and general economic conditions. Risks inherent in the Company's business and with respect to future uncertainties are further described in its other filings with the Securities Exchange Commission, such as the Company's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , Form 10-Q Form 10-Q See 10-Q. , and Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. reports.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30, December 31,
2005 2004
--------- ------------
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 4,432 $ 5,198
Marketable securities 8,502 19,577
Cash and marketable securities - pledged 489 -
Accounts receivable, net 31,354 34,291
Contract costs in excess of billings 14,568 16,087
Inventories 5,776 5,165
Prepaid expenses and other 6,001 5,412
--------- ------------
Total Current Assets 71,122 85,730
Cash and marketable securities - pledged 5,100 -
Property, plant and equipment, net 11,169 12,094
Goodwill 25,932 25,894
Other intangible assets, net 8,275 8,460
Other 676 713
--------- ------------
Total Assets $122,274 $ 132,891
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 18,269 $ 21,771
Billings in excess of contract costs incurred 11,205 13,497
Deferred revenue 5,110 5,998
Current portion of notes payable 440 440
--------- ------------
Total Current Liabilities 35,024 41,706
Notes payable 3,265 3,565
Convertible subordinated notes payable, net 39,212 39,118
Deferred tax liabilities 2,072 2,072
Other 501 599
--------- ------------
Total Liabilities 80,074 87,060
--------- ------------
Commitments and Contingencies
Shareholders' Equity 42,200 45,831
--------- ------------
Total Liabilities and Shareholders' Equity $122,274 $ 132,891
========= ============
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- -------- -------- --------
(in thousands, except per share data)
Revenues $ 31,104 $37,783 $67,410 $76,810
Cost of sales 20,677 26,636 44,600 55,465
--------- -------- -------- --------
Gross profit 10,427 11,147 22,810 21,345
Selling, general & administrative
expenses 10,295 8,677 20,322 16,831
Research and development 2,242 1,874 4,353 3,629
--------- -------- -------- --------
(Loss) income from operations (2,110) 596 (1,865) 885
--------- -------- -------- --------
Total other expense, net 529 443 1,093 1,243
--------- -------- -------- --------
(Loss) income before income taxes (2,639) 153 (2,958) (358)
Income taxes expense (benefit) - 63 - (141)
--------- -------- -------- --------
Net (loss) income $ (2,639) $ 90 $(2,958) $ (217)
========= ======== ======== ========
(Loss) income per share:
------------------------
Basic (loss) income per common
share $ (.33) $ .01 $ (.36) $ (.03)
========= ======== ======== ========
Weighted average number of common
shares outstanding 8,118 8,075 8,141 8,042
========= ======== ======== ========
Diluted (loss) income per common
share $ (.33) $ .01 $ (.36) $ (.03)
========= ======== ======== ========
Weighted average number of common
shares and equivalents 8,118 8,376 8,141 8,042
========= ======== ======== ========
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL DATA
(in thousands, unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Revenues
Institutional Security Systems $11,728 $13,954 $27,460 $30,011
Attack Protection 6,065 6,741 12,963 13,694
Public Safety and Justice 11,423 12,717 23,080 25,159
Integrated Electronic Systems 1,888 4,371 3,907 7,946
-------- -------- -------- --------
$31,104 $37,783 $67,410 $76,810
======== ======== ======== ========
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Pre-tax income (loss)
Institutional Security Systems $ (532) $ (84) $ 698 $ 123
Attack Protection (840) (456) (341) (1,135)
Public Safety and Justice 400 960 (82) 1,395
Integrated Electronic Systems 16 214 8 414
Corporate (1,683) (481) (3,241) (1,155)
-------- -------- -------- --------
$(2,639) $ 153 $(2,958) $ (358)
======== ======== ======== ========
Backlog June 30, December 31,
2005 2004
---------- ------------
Institutional Security Systems $ 56,492 $ 49,324
Attack Protection 19,466 20,803
Integrated Electronic Systems 9,105 8,299
Public Safety and Justice 46,045 48,434
---------- ------------
Total $ 131,108 $ 126,860
========== ============
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- -------- -------- -------
Net income (loss) $ (2,639) $ 90 $(2,958) $ (217)
Interest expense 750 845 1,553 1,594
Tax expense - 63 - (141)
Depreciation and amortization 847 663 1,724 1,367
--------- -------- -------- -------
EBITDA $ (1,042) $ 1,661 $ 319 $2,603
========= ======== ======== =======
This press release contains unaudited financial information that is not prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principals (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (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 Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
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