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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
September 30, 2000 Commission File No. 1-7939
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VICON INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-2160665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
89 Arkay Drive, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 952-2288
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $.01
(Title of class)
American Stock Exchange
(Name of each exchange on which registered)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of December 15, 2000 was approximately $8,700,000.
The number of shares outstanding of the registrant's Common Stock as of December
15, 2000 was 4,646,081.
PART I
ITEM 1 - BUSINESS
General
Vicon Industries, Inc. ("the Company"), incorporated in 1967, designs,
manufactures, assembles and markets a wide range of video systems and system
components used for security, surveillance, safety and control purposes by a
broad group of end users. A video system is generally a private network that can
transmit and receive video, audio and data signals in accordance with the
operational needs of the user. The Company's primary focus is the design of
software-based engineered video systems and components that it sells worldwide,
primarily to installing dealers, system integrators, government entities and
distributors.
The Company operates within the electronic protection segment of the security
industry that includes, among others: fire and burglar alarm systems, access
control, video systems and article surveillance. The U.S. security industry
consists of thousands of individuals and businesses (exclusive of public sector
law enforcement) that provide products and services for the protection and
monitoring of life, property and information. The security industry includes
fire and burglar alarm systems, access control, video systems, article
surveillance, guard services and equipment, locks, safes, armored vehicles,
security fencing, private investigations and others. The Company's products are
typically used for crime deterrence, visual documentation, observation of
inaccessible or hazardous areas, enhancing safety, managing personal liability,
obtaining cost savings (such as lower insurance premiums), managing control
systems and improving the efficiency and effectiveness of personnel. The
Company's products are used in, among others, office buildings, manufacturing
plants, apartment complexes, retail stores, government facilities,
transportation operations, prisons, casinos, sports arenas, health care
facilities and financial institutions.
Products
The Company's product line consists of approximately 700 products, of which
about a third represent model variations. The Company's product line consists of
various elements of a video system, including video cameras, display units
(monitors), video recorders, switching equipment for video distribution, digital
video and signal processing units (which perform character generation, video
encoding, multi screen display, video insertion, intrusion detection, source
identification and alarm processing), motorized zoom lenses, remote robotic
cameras, system controls, environmental camera enclosures and consoles for
system assembly. In August 1999, the Company acquired TeleSite U.S.A., Inc.
("TeleSite"), which designs, produces and sells remote video surveillance
systems. The Company continues to increase the product development efforts of
TeleSite in order to maximize the potential of its core digital video
compression technology. The Company provides a full line of products due to the
many varied climatic and operational environments in which the products are
expected to perform. In addition to selling from a standard catalog line, the
Company at times produces to specification or will modify an existing product to
meet a customer's requirements.
- 2 -
The Company's products range in price from $10 for a simple camera mounting
bracket to approximately one hundred thousand dollars (depending upon
configuration) for a large digital control and video matrix switching system.
Marketing
The Company's marketing emphasizes engineered video system solutions which
incorporate system design, project management and technical training and
support. The Company promotes and markets its products through industry trade
shows worldwide, product brochures and catalogues, direct mailings to existing
and prospective customers, product videos, website promotions, in-house training
seminars for customers and end users, road shows which preview new systems and
system components, and advertising through trade and end user magazines and the
Company's internet web site. The Company's products are sold principally to
approximately 2,000 independent dealers, system integrators and distributors.
Sales are made principally by field sales engineers, independent sales
representatives and inside customer service representatives. The Company's sales
effort is supported by in-house customer service coordinators and technical
support groups which provide product information, application engineering,
design detail, field project management, and hardware and software technical
support.
The Company's products are employed in video system installations by: (1)
commercial and industrial users, such as office buildings, manufacturing plants,
warehouses, apartment complexes, shopping malls and retail stores; (2) federal,
state, and local governments for national security purposes, municipal
facilities, prisons, and military installations; (3) financial institutions,
such as banks, clearing houses, brokerage firms and depositories, for security
purposes; (4) transportation departments for highway traffic control, bridge and
tunnel monitoring, and airport, subway, bus and seaport surveillance; (5) gaming
casinos, where video surveillance is often mandated by local regulation; and (6)
health care facilities, such as hospitals, particularly psychiatric wards and
intensive care units. In fiscal 2000 and 1999, indirect sales to the United
States Postal Service under a national supply contract approximated $23 million
in each year.
The Company's principal sales offices are located in Hauppauge, New York;
Fareham, England; Zaventem, Belgium; New Territories, Hong Kong; and Shanghai,
China.
International Sales
The Company sells its products in Europe and the Middle East through its U.K.
based subsidiary, in China through its Hong Kong subsidiary and elsewhere
outside the U.S. by direct export from its U.S. based parent company. Sales are
made to installing dealers or independent distributors which, outside of Europe
and China, typically assume the responsibility for warranty repair as well as
sales and marketing costs to promote the Company's product line. The Company has
a few territorial exclusivity agreements with customers but primarily uses a
wide range of installation companies and distributors in international markets.
In Australia, Japan, Norway and South Korea, the Company permits independent
sales representatives to use the Company's name for marketing purposes.
- 3 -
Direct export sales and sales from the Company's foreign subsidiaries amounted
to $19.6 million, $15.4 million and $19.0 million or 26%, 21% and 30% of
consolidated net sales in fiscal years 2000, 1999, and 1998, respectively.
Export sales are generally made through a wholly owned subsidiary, Vicon
Industries Foreign Sales Corporation, a tax advantaged foreign sales
corporation. The Company's principal foreign markets are Europe and the Pacific
Rim, which together accounted for approximately 82 percent of international
sales in fiscal 2000.
Competition
The Company operates in a highly competitive marketplace both domestically and
internationally. The Company competes by providing engineered systems and system
components that incorporate broad capability together with high levels of
customer service and technical support. Generally, the Company does not compete
based on price alone.
The Company's principal engineered video systems competitors include the
following companies or their affiliates: Checkpoint Systems, Inc., Matsushita
(Panasonic), Pelco Sales Company, Philips Communications and Security Systems,
Inc., Sensormatic Electronics Corporation, and Ultrak, Inc. Many additional
companies, both domestic and international, produce products that compete
against one or more of the Company's system components. In addition, some
consumer video electronic companies or their affiliates, including Matsushita
(Panasonic), Mitsubishi Electric Corporation, Sanyo Electric Co., Ltd. and Sony
Corporation, compete with the Company for the sale of video products and
systems. Most of the Company's competitors are larger companies whose financial
resources and scope of operations are substantially greater than the Company's.
Research and Development
The Company's research and development ("R&D") is focused on new and improved
video systems and system components. In recent years, the trend of product
development and demand within the video security and surveillance market has
been toward the application of digital video technology, specifically toward the
compression, transmission, storage and display of digital video. As the demands
of the Company's target market segment requires the Company to keep pace with
changes in technology, the Company intends to focus its R&D effort in these
developing areas. During the past year, the Company substantially increased its
product development expenditures to meet the accelerating market shift to
network capable video systems. R&D projects are chosen and prioritized based on
direct customer feedback, the Company's analysis as to the needs of the
marketplace, anticipated technological advances and market research.
The Company employs a total of 43 engineers in the following areas: software
development, mechanical design, manufacturing/testing and electrical and circuit
design. R&D expenditures increased to 5% of net sales in fiscal 2000 compared
with approximately 4% in prior years.
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Source and Availability of Raw Materials
The Company relies upon independent manufacturers and suppliers to manufacture
and assemble its proprietary products and expects to continue to rely on such
entities in the future. The Company's relationships with independent
manufacturers, assemblers and suppliers are generally not covered by formal
contractual agreements.
Raw materials and components purchased by the Company and its suppliers are
generally readily available in the market, subject to market lead times at the
time of order. The Company is not dependent upon any single source for a
significant amount of its raw materials and components.
Intellectual Property
The Company owns, and has pending, a limited number of design and utility
patents expiring at various times. The Company has certain trademarks registered
and several other trademark applications pending both in the United States and
in Europe. Many of the Company's products employ proprietary software which is
protected by copyright. However, the laws of certain foreign countries do not
protect intellectual property rights to the same extent or in the same manner as
the laws of the U.S. The Company has no licenses, franchises or concessions with
respect to any of its products or business dealings. The Company does not deem
the limited number of its patents or its lack of licenses, franchises and
concessions to be of substantial significance or to have a material effect on
its business. The Company does, however, consider its proprietary software to be
unique and valuable and is a principal element in the differentiation of the
Company's products from its competition.
Inventories
The Company maintains sufficient finished goods inventory levels to respond to
unanticipated customer demand, since most sales are to installing dealers and
contractors who normally do not carry any significant inventory. The Company
principally builds inventory to known and anticipated customer demand. In
addition to normal safety stock levels, certain additional inventory levels are
maintained for products with long purchase and manufacturing lead times. The
Company believes that it is important to carry adequate inventory levels of
parts, components and products to avoid production and delivery delays that
detract from its sales effort.
- 5 -
Backlog
The backlog of orders believed to be firm as of September 30, 2000 and 1999 was
approximately $8.4 million and $11.3 million, respectively. Orders are generally
cancelable without penalty at the option of the customer. The Company prefers
that its backlog of orders not exceed its ability to fulfill such orders on a
timely basis, since experience shows that long delivery schedules only encourage
the Company's customers to look elsewhere for product availability.
Employees
At September 30, 2000, the Company employed 261 full-time employees, of whom 5
are officers, 60 administrative, 122 in sales and technical service capacities,
43 in engineering, and 31 production employees. At September 30, 1999, the
Company employed 252 persons. There are no collective bargaining agreements with
any of the Company's employees and the Company considers its relations with its
employees to be good.
ITEM 2 - PROPERTIES
The Company principally operates from an 80,000 square-foot facility located at
89 Arkay Drive, Hauppauge, New York, which it owns. The Company also owns and
operates a 14,000 square-foot sales, service and warehouse facility in southern
England which services the U.K., Europe and the Middle East. In addition, the
Company operates under leases with offices in Zaventem, Belgium; Tenafly, New
Jersey; Yavne, Israel; Hong Kong and Shanghai, China.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
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MATTERS
The Company's stock is traded on the American Stock Exchange (AMEX) under the
symbol (VII). The following table sets forth for the periods indicated, the
range of high and low prices for the Company's Common Stock on AMEX:
Quarter
Ended High Low
Fiscal 2000
December 7-1/2 5
March 6-5/8 3-7/16
June 4-3/8 3
September 4 3-1/16
Fiscal 1999
December 8-13/16 4-5/8
March 9-9/16 6-3/4
June 10-3/8 6-1/2
September 9-7/16 6-3/4
The last sale price of the Company's Common Stock on December 15, 2000 as
reported on AMEX was $1-7/8 per share. As of December 15, 2000, there were
approximately 300 shareholders of record.
The Company has never declared or paid cash dividends on its Common Stock and
anticipates that any earnings in the foreseeable future will be retained to
finance the growth and development of its business. In addition, the Company's
bank credit agreements prohibit the payment of cash dividends on its Common
Stock.
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ITEM 6 - SELECTED FINANCIAL DATA
FISCAL YEAR 2000 1999 1998 1997 1996
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(in thousands, except per share data)
Net sales $74,624 $73,414 $63,310 $51,519 $43,191
Gross profit 23,054 25,779 21,960 14,475 10,957
Income before income
taxes 1,589 7,442 5,810 1,647 385
Net income 961 4,760 5,810 1,565 300
Earnings per share:
Basic .21 1.05 1.61 .56 .11
Diluted .21 1.01 1.50 .52 .11
Total assets 53,918 49,899 44,386 31,200 28,085
Long-term debt 7,090 5,799 7,002 8,344 6,429
Working capital 33,365 29,049 27,642 15,351 12,064
Property, plant and
equipment (net) 8,502 8,053 7,137 3,492 3,034
- 8 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 2000 Compared with 1999
Net sales for 2000 increased $1.2 million or 2% to $74.6 million compared with
$73.4 million in 1999. International sales increased $4.2 million or 27% to
$19.6 million primarily as a result of increased sales efforts within new
international markets. Domestic sales decreased $3.0 million or 5% to $55
million principally as a result of a decrease in large system sales. Indirect
sales to the United States Postal Service under a national supply contract
approximated $23 million in both 2000 and 1999. The contract was due to expire
in July 2000 and was extended to December 31, 2000. The backlog of unfilled
orders was $8.4 million at September 30, 2000 compared with $11.3 million at
September 30, 1999.
Gross profit margins for 2000 decreased to 30.9% compared with 35.1% in 1999.
The margin decline was primarily the result of lower selling prices and a
warranty charge of $1.3 million resulting from a technical problem associated
with a new product line.
Operating expenses for 2000 were $21.1 million or 28.2% of net sales compared
with $17.9 million or 24.4% of net sales in 1999. The increase in operating
expenses was principally the result of additional sales, sales support and
product development personnel and related expenses.
Operating income decreased to $2.0 million for 2000 compared with $7.9 million
for 1999 principally as a result of a decrease in gross profit and increased
operating expenses.
Interest expense increased $224,000 to $816,000 for 2000 compared with $592,000
in 1999 principally as a result of an increase in bank borrowings to, among
other things, finance the increase in accounts receivable.
In the fourth quarter of fiscal 2000, the Company realized a $316,000 gain on
the sale of certain of its stock holdings in Chun Shin Electronics, Inc. (CSE),
a South Korean public company and manufacturer of certain of the Company's
proprietary products. CSE completed an initial public offering in South Korea in
July 2000.
Income tax expense for 2000 was $628,000 compared with $2.7 million in 1999.
As a result of the foregoing, net income amounted to $961,000 for 2000 compared
with $4.8 million for 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fiscal Year 1999 Compared with 1998
Net sales for 1999 increased $10.1 million or 16% to $73.4 million compared with
$63.3 million in 1998. The sales growth was experienced principally in the U.S.
as domestic sales increased $13.7 million or 31% to $58.0 million principally as
a result of increased system sales supplied under a contract with the U.S.
Postal Service. International sales decreased 19% to $15.4 million principally
as a result of the discontinuation of sales to a private label European reseller
and lower sales in Asia. The backlog of unfilled orders was $11.3 million at
September 30, 1999 compared with $12.4 million at September 30, 1998.
Gross profit margins for 1999 increased to 35.1% compared with 34.7% in 1998.
The margin improvement was primarily the result of a favorable sales mix of
higher margin products, lower procurement costs and greater fixed cost
absorption associated with the sales growth.
Operating expenses for 1999 were $17.9 million or 24.4% of net sales compared
with $15.1 million or 23.8% of net sales in 1998. The increase in operating
expenses was principally the result of higher selling expenses associated with
the sales growth.
Operating income increased to $7.9 million for 1999 compared with $6.9 million
for 1998 principally as a result of increased sales.
Interest expense decreased $515,000 to $592,000 for 1999 compared with $1.1
million in 1998 as $9.3 million of interest-bearing debt was repaid in May 1998
with the net proceeds from a secondary stock offering.
Income tax expense for 1999 was $2.7 million, or a 36% effective tax rate. There
was no income tax expense for 1998 due to the utilization of available U.S.
federal and state net operating tax loss carryforwards and the reinstatement of
previously reserved deferred income tax assets.
As a result of the foregoing, net income decreased to $4.8 million for 1999
compared with net income of $5.8 million for 1998. However, results for 1998
benefitted from the utilization of net operating tax loss carryforwards which
affect the comparability of operating results. Assuming that income taxes had
been incurred in 1998 at the same effective tax rate as in 1999, net income for
1998 would have been $3.7 million ($.96 per share diluted) compared with $4.8
million ($1.01 per share diluted) reported for 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND FINANCIAL CONDITION
Net cash used in operating activities was $106,000 for 2000 due primarily to a
$3.7 million increase in accounts receivable, offset in part by a $2.5 million
decrease in inventories and net income of $961,000. The accounts receivable
increase was due principally to slow collections on sales to U.S. Postal Service
contractors. Net cash used in investing activities was $1.3 million for 2000 due
primarily to the expenditure of $1.6 million for expansion of the Company's
principal operating facility and other general capital expenditures. Net cash
provided by financing activities was $1.3 million in 2000, which included $1.5
million of borrowings under the Company's U.S. revolving credit facility and
$1.2 million of proceeds from a mortgage loan used to finance the facility
expansion, offset in part by scheduled repayments of U.S. bank term and mortgage
loans. As a result of the foregoing, cash increased by $116,000 for 2000 after
the effect of exchange rate changes on the cash position of the Company.
The Company has a $9.5 million unsecured revolving credit facility in the U.S.
with a bank that expires in July 2002. Borrowings under this facility bear
interest at the bank's prime rate minus 2% or, at the Company's option, LIBOR
plus 90 basis points (7.50% and 7.52%, respectively, at September 30, 2000). At
September 30, 2000, outstanding borrowings under this facility were $1.5
million. The agreement contains restrictive covenants which, among other things,
require the Company to maintain certain levels of earnings and ratios of debt
service coverage and debt to tangible net worth.
The Company also maintains a bank overdraft facility of 600,000 Pounds Sterling
(approximately $876,000) in the U.K. to support local working capital
requirements of Vicon Industries Limited. At September 30, 2000, outstanding
borrowings under this facility amounted to approximately $129,000.
In October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility. The
loan is payable in equal monthly principal installments through January 2008,
with a $460,000 payment due at the end of the term. The loan bears interest at
the bank's prime rate minus 160 basis points or, at the Company's option, LIBOR
plus 100 basis points (7.90% and 7.62%, respectively, at September 30, 2000) and
contains the same covenants as included in the Company's existing mortgage
loans.
The Company believes that cash flow from operations and funds available under
its credit agreements will be sufficient to meet its anticipated operating,
capital expenditures and debt service requirements for at least the next twelve
months.
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New Accounting Standard Not Yet Adopted
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS 137 and SFAS 138, which will be adopted
by the Company in the first quarter of fiscal 2001. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. The Company's derivative financial instruments
consist of foreign currency forward exchange contracts and interest rate swap
agreements. Implementation of this statement is not expected to have a material
impact on the Company's financial position or results of operations.
Foreign Currency Activity
The Company's foreign exchange exposure is principally limited to the
relationship of the U.S. dollar to the Japanese yen and the British pound
sterling.
Japanese sourced products denominated in Japanese yen accounted for
approximately 7% and 9% of product purchases in fiscal 2000 and 1999,
respectively. In recent years, the U.S. dollar has weakened in relation to the
yen, resulting in increased costs for such products. The Company attempts to
minimize its currency exposure on these purchases through the purchase of
foreign exchange contracts. The Company also attempts to reduce the impact of an
unfavorable exchange rate condition through cost reductions from its suppliers
and shifting product sourcing to suppliers transacting in more stable and
favorable currencies.
Sales by the Company's U.K. based subsidiary to customers in Europe are made in
Pounds Sterling or Euros. In fiscal 2000, approximately $5.6 million of
products were sold by the Company to its U.K. based subsidiary for resale. Since
the third quarter of fiscal 2000, the Pound and the Euro have significantly
weakened against the U.S. dollar, thus increasing the cost of U.S. sourced
product sold by this subsidiary. The Company attempts to minimize its currency
exposure on intercompany sales through the purchase of forward exchange
contracts.
In general, the Company seeks lower costs from suppliers and enters into forward
exchange contracts to mitigate exchange rate exposures. However, there can be no
assurance that such steps will be effective in limiting foreign currency
exposure.
Market Risk Factors
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. The Company has a policy that
prohibits the use of currency derivatives or other financial instruments for
trading or speculative purposes.
- 12 -
The Company enters into forward exchange contracts to hedge certain foreign
currency exposures and minimize the effect of such fluctuations on reported
earnings and cash flow (see "Foreign Currency Activity", Note 1 "Derivative
Instruments" and "Fair Value of Financial Instruments" to the accompanying
financial statements). At September 30, 2000, the Company's foreign currency
exchange risks included a $2.1 million intercompany accounts receivable balance
due from the Company's U.K. based subsidiary and a nominal Japanese Yen
denominated trade accounts payable liability due to inventory suppliers. Such
assets and liabilities are short term and will be settled in fiscal 2001. The
following sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables held
constant.
At September 30, 2000, a 10% strengthening or weakening of the U.S. dollar
versus the British Pound would result in a $177,000 decrease or increase,
respectively, in the intercompany accounts receivable balance. Such foreign
currency exchange risk at September 30, 2000 has been substantially hedged by
forward exchange contracts.
At September 30, 2000, the Company had $5.2 million of outstanding floating rate
bank debt which was covered by interest rate swap agreements that effectively
convert the foregoing floating rate debt to stated fixed rates (see "Note 7.
Long-Term Debt" to the accompanying financial statements). Thus, the Company has
substantially no net interest rate exposures on these instruments. However, the
Company had a total of $2.8 million of floating rate bank debt, including $1.5
million of outstanding borrowings under its bank revolving credit facility and a
$1.1 million mortgage loan that are subject to interest rate risk as they were
not covered by interest rate swap agreements.
Inflation
The impact of inflation on the Company has lessened in recent years as the rate
of inflation remains low. However, inflation continues to increase costs to the
Company. As operating expenses and production costs increase, the Company seeks
price increases to its customers to the extent permitted by market conditions.
- 13 -
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
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1995
- ----
Statements in this Report on Form 10-K and other statements made by the Company
or its representatives that are not strictly historical facts including, without
limitation, statements included herein under the captions "Results of
Operations" and "Liquidity and Financial Condition" are "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that should be considered as subject to the many risks and uncertainties
that exist in the Company's operations and business environment. The
forward-looking statements are based on current expectations and involve a
number of known and unknown risks and uncertainties that could cause the actual
results, performance and/or achievements of the Company to differ materially
from any future results, performance or achievements, express or implied, by the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, and that in light of the significant
uncertainties inherent in forward-looking statements, the inclusion of such
statements should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved. The
Company also assumes no obligation to update its forward-looking statements or
to advise of changes in the assumptions and factors on which they are based.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14, for an index to consolidated financial statements and
financial statement schedules.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
- 14 -
PART III
ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT
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The Directors and Officers of the Company are as follows:
Name Age Position
---- --- --------
Kenneth M. Darby 54 Chairman of the Board, President
and Chief Executive Officer
Henry B. Murray 51 Executive Vice President
John M. Badke 41 Vice President, Finance and Chief
Financial Officer
Peter A. Horn 45 Vice President, Operations
Yacov A. Pshtissky 49 Vice President, Technology and Development
Chu S. Chun 65 Director
Milton F. Gidge 71 Director
Peter F. Neumann 66 Director
W. Gregory Robertson 56 Director
Arthur D. Roche 62 Director
Kazuyoshi Sudo 58 Director
The business experience, principal occupations and employment, as well as period
of service, of each of the directors and officers of the Company during at least
the last five years are set forth below.
Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer.
Mr. Darby has served as Chairman of the Board since April 1999, as Chief
Executive Officer since April 1992 and as President since October 1991. He has
served as a director since 1987. Mr. Darby also served as Chief Operating
Officer and as Executive Vice President, Vice President, Finance and Treasurer
of the Company. He joined the Company in 1978 as Controller after more than nine
years at Peat Marwick Mitchell & Co., a public accounting firm. Mr. Darby's
current term on the Board ends in April 2002.
Henry B. Murray - Executive Vice President. Mr. Murray joined the Company
in March 2000 as Executive Vice President. From 1999 to 2000, he served as Vice
President of Ultrak, Inc., where he was responsible for CCTV and access control
sales in North and South America. From 1997 to 1999, he was the Chief Executive
Officer of Monitor Dynamics, Inc., an access control company. From 1993 to 1997,
he served as Vice President of Control Systems International (CSI), a supplier
and manufacturer of electronic control systems.
John M. Badke - Vice President, Finance and Chief Financial Officer. Mr.
Badke has been Chief Financial Officer since December 1999 and Vice President,
Finance since October 1998. Previously, he served as Controller since joining
the Company in 1992. Prior to joining the Company, Mr. Badke was Controller for
NEK Cable, Inc. and an audit manager with the international accounting firms of
Arthur Andersen & Co. and Peat Marwick Main & Co.
- 15 -
Peter A. Horn - Vice President, Operations. Mr. Horn has been Vice President,
Operations since June 1999. From 1995 to 1999, he was Vice President, Compliance
and Quality Assurance. Prior to that time, he served as Vice President in
various capacities since his promotion in May 1990.
Yacov A. Pshtissky - Vice President, Technology and Development. Mr.
Pshtissky has been Vice President, Technology and Development since May 1990.
Mr. Pshtissky was Director of Electrical Product Development from March 1988
through April 1990. Prior to that time he was an Electrical Design Engineer.
Chu S. Chun - Director. Mr. Chun has been a director of the Company since
April 1998. He has been the President of CSI, Chairman of the Board and Chief
Executive Officer of International Industries, Inc. ("I.I.I.") and President of
Chun Shin Electronics, Inc. since at least 1988 (see Item 13). Mr. Chun's
current term on the Board ends in April 2001.
Milton F. Gidge - Director. Mr. Gidge has been a director of the Company
since 1987. He is a retired director and executive officer of Lincoln Savings
Bank for which he served from 1976 to 1994 as Chairman, Credit Policy. He has
also been a director since 1980 of Interboro Mutual Indemnity Insurance Co., a
general casualty insurance company, and a director of Intervest Bancshares
Corporation, a regional bank holding company since 1988. His current term on the
Board ends in April 2001.
Peter F. Neumann - Director. Mr. Neumann has been a director of the Company
since 1987. He is the retired President of Flynn-Neumann Agency, Inc., an
insurance brokerage firm. Since 1978, Mr. Neumann has been serving as a director
of Reliance Federal Savings Bank. Mr. Neumann's current term on the Board ends
in April 2003.
W. Gregory Robertson - Director. Mr. Robertson has been a director of the
Company since 1991. He is President of TM Capital Corporation, a financial
services company which he founded in 1989. From 1985 to 1989, he was employed by
Thomas McKinnon Securities, Inc. as head of investment banking and public
finance. Mr. Robertson's current term on the Board ends in April 2001.
Arthur D. Roche - Director. Mr. Roche has been a director of the Company
since 1992. He served as Executive Vice President and co-participant in the
Office of the President of the Company from August 1993 until his retirement in
November 1999. For the six months prior to that time, Mr. Roche provided
consulting services to the Company. In October 1991, Mr. Roche retired as a
partner of Arthur Andersen & Co., an international accounting firm which he
joined in 1960. His current term on the Board ends in April 2002.
Kazuyoshi Sudo - Director. Mr. Sudo has been a director of the Company
since 1987. Mr. Sudo is Chief Executive Officer of CBC (America) Corp., a
distributor of electronic, chemical and optical products. From 1981 to 1996, he
was Treasurer of such company. He has also been a director of CBC Company, Ltd.
since 1997. Mr. Sudo's current term on the Board ends in April 2003.
There are no family relationships between any director, executive officer,
officer or person nominated or chosen by the Company to become a director or
officer.
- 16 -
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company during the year ended September 30, 2000 and certain written
representations, no person, who, at any time during the year ended September 30,
2000 was a director, officer or beneficial owner of more than 10 percent of any
class of equity securities of the Company registered pursuant to Section 12 of
the Exchange Act failed to file on a timely basis, as disclosed in the above
forms, reports required by Section 16(a) of the Exchange Act during the year
ended September 30, 2000.
- 17 -
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth all compensation awarded to, earned by, or paid
for all services rendered to the Company during 2000, 1999 and 1998 by the Chief
Executive Officer and the Company's most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during any such year.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
-----------------------
Payouts
Annual Compensation Restricted Securities
Name and All Other Stock Underlying LTIP
Principal Position Year Salary ($) Bonus ($) Compensation Award Options (#) Payouts
- ------------------ ---- ---------- ---------- ------------ ---------- ------------ -------
Kenneth M. Darby 2000 $285,000 $ 42,271 (1) $ 3,000 (6) $ 50,813 (7) - -
Chief Executive 1999 275,000 261,690 (4) 3,000 (6) 111,814 (7) - -
Officer 1998 225,000 297,525 (5) 3,000 (6) 344,640 (7) - -
Henry B. Murray 2000 $100,000 $ 40,000 (2) - - - -
Executive 1999 - - - - - -
Vice President 1998 - - - - - -
Arthur D. Roche 2000 $ 29,769 $ 5,058 (3) - - - -
Executive 1999 180,000 140,910 (4) - - - -
Vice President 1998 170,000 160,206 (5) - - - -
(1) Represents cash bonus based on certain performance measures, including the
Company's profitability, which was adopted by the Board of Directors upon
the recommendation of its Compensation Committee.
(2) Represents minimum guaranteed bonus for fiscal 2000.
(3) Represents cash bonus equal to 1.75% of the sum of consolidated pre-tax
income and provision for officers' bonuses pro-rated for the two-month
period of employment as Executive Vice President. Such bonus formula was
adopted for 2000 by the Board of Directors upon the recommendation of its
Compensation Committee.
(4) Represents cash bonus equal to 3.25% and 1.75% of the sum of consolidated
pre-tax income and provision for officers' bonuses for Mr. Darby and Mr.
Roche, respectively, which bonus formula was adopted for 1999 by the
Board of Directors upon the recommendation of its Compensation Committee.
(5) Represents cash bonus equal to 4.55% and 2.45% of the sum of consolidated
pre-tax income and provision for officers' bonuses for Mr. Darby and Mr.
Roche, respectively, which bonus formula was adopted for 1998 by the
Board of Directors upon the recommendation of its Compensation Committee.
(6) Represents life insurance policy payment.
(7) Represents deferred compensation benefit of 8,130, 16,565 and 45,952
shares of Common Stock awarded in 2000, 1999 and 1998, respectively,
which are being held by the Company in Treasury and which vest upon the
expiration of Mr.Darby's employment agreement in October 2004, or earlier
upon certain occurrences including his death, involuntary termination or
a change in control of the Company. The value of such stock is based on
the fair market value on the date of grant. At September 30, 2000, the
quoted market value of such shares approximated $26,000, $54,000 and
$149,000, respectively, for the 2000, 1999 and 1998 awards. No dividends
can be paid on such shares.
- 18 -
Stock Options
- -------------
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------
Annual Rates of Stock
% of Total Price Appreciation
No. of Granted to Exercise for Option Term
--------------------- -
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
- ------------- ------- ------------- ---------- ----------- -------- ---------
Kenneth M. Darby 21,539 17% 3.1800 5/06 $23,300 $ 53,000
Henry B. Murray 50,000 39% 3.9375 3/06 $67,000 $151,900
Options granted in the year ended September 30, 2000 were issued under the 1999
Incentive Stock Option Plan and the 1999 Non-Qualified Stock Option Plan. The
options granted above are exercisable as follows: up to 30% of the shares on the
second anniversary of the grant date, an additional 30% of the shares on the
third anniversary of the grant date, and the balance of the shares on the fourth
anniversary of the grant date, except that no option is exercisable after the
expiration of six years from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
At September 30, 2000
-----------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options Options (2)
------------- -------------
Shares
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized (1) Unexercisable Unexercisable
Kenneth M. Darby -0- -0- -0-/21,539 -0-/$1,508
Henry B. Murray -0- -0- -0-/50,000 -0-/-0-
(1) Calculated based on the difference between the closing quoted market prices
per share at the dates of exercise and the exercise prices.
(2) Calculated based on the difference between the closing quoted market price
($3.25) and the exercise price.
- 19 -
Employment Agreements
- ---------------------
Mr. Darby has entered into an employment agreement with the Company that
provides for an annual salary of $285,000 through fiscal 2004. This agreement
provides for payment in an amount up to three times his average annual
compensation for the previous five years if there is a change in control of the
Company without Board of Director approval (as defined in the agreement). In
addition, Mr. Darby is eligible to receive a cash bonus based on certain
performance measures, including the Company's profitability, which was adopted
by the Board of Directors upon the recommendation of its Compensation Committee.
Directors' Compensation and Term
- --------------------------------
Non-employee directors are compensated at an annual rate of $10,000 for regular
meetings, and for committee membership, receive $750 per meeting attended in
person. Employee directors are not compensated for Board or committee meetings.
Directors may not stand for reelection after age 70, except that any director
may serve one additional three-year term after age 70 with the unanimous consent
of the Board of Directors.
- 20 -
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee of the Board of Directors consists of Messrs. Gidge,
Neumann, Robertson and Roche none of whom has ever been an officer of the
Company except for Mr. Roche, who served as Executive Vice President from August
1993 until his retirement in November 1999.
Board Compensation Committee Report
-----------------------------------
The Compensation Committee's compensation policies applicable to the Company's
officers for 2000 were to pay a competitive market price for the services of
such officers, taking into account the overall performance and financial
capabilities of the Company and the officer's individual level of performance.
Mr. Darby makes recommendations to the Compensation Committee as to the base
salary and incentive compensation of all officers other than himself. The
Committee reviews these recommendations with Mr. Darby and, after such review,
determines compensation. In the case of Mr. Darby, the Compensation Committee
makes its determination after direct negotiation with him. For each officer, the
committee's determinations are based on its conclusions concerning each
officer's performance and comparable compensation levels in the security
industry and the Long Island area for similarly situated officers at comparable
companies. The overall level of performance of the Company is taken into account
but is not specifically related to the base salary of these officers. Also, the
Company has established an incentive compensation plan for all of the officers,
which provides a specified bonus to each officer upon the Company's achievement
of certain annual profitability targets and strategic initiatives.
The Compensation Committee grants options to officers to link compensation to
the performance of the Company. Options are exercisable in the future at the
fair market value at the time of grant, so that an officer granted an option is
rewarded by the increase in the price of the Company's stock. The committee
grants options to officers based on significant contributions of such officer to
the performance of the Company. In addition, in determining Mr. Darby's salary
for service as Chief Executive Officer, the committee considered the
responsibility assumed by him in formulating and implementing a management and
long-term strategic plan.
- 21 -
This graph compares the return of $100 invested in the Company's stock on
October 1, 1995, with the return on the same investment in the AMEX U.S. Market
Index and the AMEX Technology Index.
(The following table was represented by a chart in the printed material)
Vicon AMEX U.S. Amex Technology
Date Industries, Inc. Market Index Index
- ---- ---------------- ------------ ---------------
10/01/95 100 100 100
10/01/96 133 102 91
10/01/97 447 128 100
10/01/98 380 120 121
10/01/99 373 155 206
10/01/00 173 191 241
- 22 -
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following sets forth information as to each person, known to the Company to
be a "beneficial owner" (as defined in regulations of the Securities and
Exchange Commission) of more than five percent of the Company's Common Stock
outstanding as of December 15, 2000 and the shares beneficially owned by the
Company's Executive Officers and Directors and by all Executive Officers and
Directors as a group.
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned (1) % of Class
------------------- ---------------------- ----------
CBC Co., Ltd.
and affiliates
2-15-13 Tsukishima
Chuo-ku
Tokyo, Japan 104 543,715 11.4%
Dimensional Fund Advisors
1299 Ocean Avenue
Santa Monica, CA 90401 326,800 (8) 6.9%
******************************************************************************
C/O Vicon Industries, Inc.
Kenneth M. Darby 250,092 5.3%
Chu S. Chun 204,507 (2) 4.3%
Arthur D. Roche 144,654 (3) 3.0%
W. Gregory Robertson 19,025 (4) *
Kazuyoshi Sudo 16,125 (5) *
Milton F. Gidge 16,825 (5) *
Peter F. Neumann 15,125 (6) *
Total all Executive Officers and
Directors as a group (8 persons) 666,353 (7) 14.0%
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment control over the shares of stock
owned.
(2) Mr. Chun has voting and dispositive control over 204,507 shares but
disclaims beneficial ownership as to all but 48,400 shares. 100,707
shares are owned by the International Industries, Inc. Profit Sharing
Plan and 55,400 shares are owned by immediate family members.
(3) Includes 50,000 shares held by Mr. Roche's wife and 15,000 shares held
by their children.
(4) Includes currently exercisable options to purchase 12,125 shares.
(5) Includes currently exercisable options to purchase 7,125 shares.
(6) Includes currently exercisable options to purchase 6,250 shares.
(7) Includes currently exercisable options to purchase 32,625 shares.
(8) Dimensional Fund Advisors had voting and investment control over 326,800
shares as investment advisor and manager for various mutual funds and
other clients. These shares are beneficially owned by such mutual funds
or other clients.
- 23 -
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The Company and CBC Company, Ltd.(CBC), a Japanese corporation which
beneficially owns 11.4% of the outstanding shares of the Company, have been
conducting business with each other for approximately twenty-one years. During
this period, CBC has served as a lender, a product supplier and sourcing agent,
and a private label reseller of the Company's products. In past years, CBC
provided a significant amount of funding to the Company in the form of extended
accounts payable related to product purchases. CBC has also acted as the
Company's sourcing agent for the purchase of certain video products. In fiscal
2000, the Company purchased approximately $4.4 million of video products from or
through CBC. CBC has the exclusive right to sell Vicon brand products in Japan
and competes with the Company in various markets, principally in the sale of
video products and systems. Sales of all products to CBC were $303,000 in 2000.
Kazuyoshi Sudo, a director of the Company and of CBC, is Chief Executive Officer
of CBC (America) Corp., a U.S. subsidiary of CBC.
Mr. Chu S. Chun, a director who has beneficial voting control over 4.3% of
the Common Stock of the Company, also beneficially owns a controlling interest
in Chun Shin Electronics, Inc., (CSE), a South Korean public company that
manufactures certain of the Company's proprietary products. CSE also sells
various security products, including the Company's products, principally within
the South Korean market. Mr. Chun is the President and a principal stockholder
of CSE. As of September 30, 2000, the Company owned 19% of CSE's shares. In
2000, CSE sold approximately $5.0 million of products to the Company through
International Industries, Inc. (I.I.I.), a U.S. based company controlled by Mr.
Chun. I.I.I. arranges the importation of all the Company's product purchases
from CSE. In addition, I.I.I. purchased approximately $663,000 of products
directly from the Company during 2000 for resale to CSE. -
- 24 -
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
- ----------------------------------------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a) (1) Financial Statements
--------------------
Included in Part IV, Item 14:
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Operations, fiscal years ended
September 30, 2000, 1999, and 1998
Consolidated Balance Sheets at September 30, 2000 and 1999
Consolidated Statements of Shareholders' Equity, fiscal years ended
September 30, 2000, 1999, and 1998
Consolidated Statements of Cash Flows, fiscal years ended September
30, 2000, 1999, and 1998
Notes to Consolidated Financial Statements, fiscal years ended
September 30, 2000, 1999, and 1998
(a) (2) Financial Statement Schedule
----------------------------
Included in Part IV, Item 14:
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 2000, 1999, and 1998
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and, therefore,
have been omitted.
- 25 -
14(a)(3) Exhibits Exhibit Number or
- -------- ---------
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
3 Articles of Incorporation and Incorporated by reference
By-Laws, as amended to the 1985 Annual Report
on Form 10-K; Form S-2
filed in Registration
Statement No. 33-10435
and Exhibit A, B and C of
the 1987 Proxy Statement
10 Material Contracts
(.1) Employment Contract dated Incorporated by reference
October 1, 1999 between the to the 1999 Annual Report
Registrant and Kenneth M. Darby on Form 10-K
(.2) Employment Contract dated March
13, 2000 between Registrant
and Henry B. Murray 10.2
(.3) Employment Agreement dated October Incorporated by reference
1, 1999 between Registrant and to the 1999 Annual Report
Peter Horn on Form 10-K
(.4) Employment Agreement dated October Incorporated by reference
1, 1999 between Registrant and to the 1999 Annual Report
Yacov Pshtissky on Form 10-K
(.5) Deferred Compensation Agreement Incorporated by reference
dated November 1, 1986 between the to the 1992 Annual Report
Registrant and Donald N. Horn on Form 10-K
(.6) 1994 Incentive Stock Option Plan Incorporated by
reference to the
1994 Annual Report
on Form 10-K
(.7) 1994 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1994 Annual Report
on Form 10-K
(.8) 1996 Incentive Stock Option Plan Incorporated by
reference to the
1997 Annual Report
on Form 10-K
- 26 -
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
(.9) 1996 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1997 Annual Report
on Form 10-K
(.10) Commercial fixed rate loan Incorporated by
agreement between the Registrant reference to the
and National Westminster Bank PLC June 30, 1997 filing
dated April 8, 1997 on Form 10-Q
(.11) Loan Agreement between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.12) Mortgage Note between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.13) Term Loan Note between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.14) Mortgage and Security Agreement Incorporated by
in the amount of $2,512,000 between reference to the
the Registrant and The Dime Savings December 31, 1997
Bank of New York, FSB dated filing on Form 10-Q
January 29, 1998
(.15) Mortgage and Security Agreement Incorporated by
in the amount of $388,000 between reference to the
the Registrant and The Dime Savings December 31, 1997
Bank of New York, FSB dated filing on Form 10-Q
January 29, 1998
(.16) Interest rate master swap agreement Incorporated by
between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
(.17) Schedule to the master agreement Incorporated by
between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
- 27 -
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
(.18) Swap transaction confirmation with Incorporated by
a notional amount of $2,512,000 reference to the
between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.19) Swap transaction confirmation with Incorporated by
a notional amount of $388,000 reference to the
between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.20) Advice of borrowing terms Incorporated by
between the Registrant and reference to the
National Westminster Bank PLC June 30, 2000 filing
dated March 13, 2000 on Form 10-Q
(.21) Credit Agreement between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated June 30, 1998 filing
July 20, 1998 on Form 10-Q
(.22) Swap transaction confirmation with Incorporated by
a notional amount of $4,425,000 reference to the
between the Registrant and KeyBank 1998 Annual Report
National Association dated on Form 10-K
September 9, 1998
(.23) Stock purchase agreement between Incorporated by reference
the Registrant and Isaac Gershoni to the 1999 Annual Report
dated August 12, 1999 on Form 10-K
(.24) Escrow agreement among the Incorporated by reference
Registrant, Isaac Gershoni and to the 1999 Annual Report
European American Bank dated on Form 10-K
August 12, 1999
(.25) Loan Agreement between the Incorporated by reference
Registrant and The Dime Savings to the 1999 Annual Report
Bank of New York, FSB dated on Form 10-K
October 12, 1999
(.26) Mortgage Note between the Incorporated by reference
Registrant and The Dime Savings to the 1999 Annual Report
Bank of New York, FSB dated on Form 10-K
October 12, 1999
- 28 -
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
(.27) Mortgage and Security Agreement Incorporated by reference
in the amount of $1,200,000 between to the 1999 Annual Report
the Registrant and The Dime Savings on Form 10-K
Bank of New York, FSB dated
October 12, 1999
(.28) 1999 Incentive Stock Option Plan Incorporated by reference
to the 1999 Annual Report
on Form 10-K
(.29) 1999 Non-Qualified Stock Option Incorporated by reference
to the 1999 Annual Report
on Form 10-K
22 Subsidiaries of the Registrant Incorporated by
reference to the Notes
to the Consolidated
Financial Statements
24 Independent Auditors' Consent 24
No other exhibits are required to be filed.
14(b) - REPORTS ON FORM 8-K
- ---------------------------
No reports on Form 8-K were required to be filed during the last quarter of the
period covered by this report.
Other Matters - Form S-8 and S-2 Undertaking
- --------------------------------------------
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form S-8 Nos. 33-7892
(filed June 30, 1986), 33-34349 (filed April 1, 1990), 33-90038 (filed February
24, 1995) and 333-30097 (filed June 26, 1997) and on Form S-2 No. 333-46841
(effective May 1, 1998):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
- 29 -
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Vicon Industries, Inc.:
We have audited the consolidated financial statements of Vicon Industries, Inc.
and subsidiaries as listed in Part IV, item 14(a)(1). In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in Part IV, item 14(a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vicon Industries,
Inc. and subsidiaries at September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Melville, New York
November 22, 2000
- 30 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Net sales $74,624,065 $73,414,046 $63,310,466
Cost of sales 51,570,001 47,634,962 41,350,084
------------ ------------ ------------
Gross profit 23,054,064 25,779,084 21,960,382
Operating expenses:
Selling expense 13,117,039 11,159,633 8,955,704
General and administrative expense 4,190,856 3,966,892 3,644,018
Engineering and development expense 3,753,653 2,759,907 2,491,673
------------ ------------ -------------
21,061,548 17,886,432 15,091,395
------------ ------------ ------------
Operating income 1,992,516 7,892,652 6,868,987
Interest expense 816,017 591,826 1,107,196
Gain on sale of securities (315,955) - -
Other income (96,751) (141,003) (48,190)
------------ ------------ ------------
Income before income taxes 1,589,205 7,441,829 5,809,981
Income tax expense 628,000 2,681,628 -
------------ ------------ ------------
Net income $ 961,205 $ 4,760,201 $ 5,809,981
============ ============ ============
Earnings per share:
Basic $ .21 $1.05 $1.61
===== ===== ======
Diluted $ .21 $1.01 $1.50
===== ===== =====
See accompanying notes to consolidated financial statements.
- 31 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and 1999
ASSETS 2000 1999
- ------ ---- ----
Current Assets:
Cash $ 2,115,118 $1,998,767
Marketable securities 2,775,196 -
Accounts receivable (less allowance of
$1,063,000 in 2000 and $818,000 in 1999) 17,101,618 13,771,411
Inventories:
Parts, components, and materials 3,011,071 2,647,781
Work-in-process 3,285,213 5,298,862
Finished products 12,364,719 13,381,900
----------- -----------
18,661,003 21,328,543
Deferred income taxes 955,003 1,303,791
Prepaid expenses 896,923 630,716
----------- -----------
Total current assets 42,504,861 39,033,228
Property, plant and equipment:
Land 1,160,098 1,195,248
Buildings and improvements 5,380,387 5,156,490
Machinery, equipment, and vehicles 9,256,266 8,188,688
----------- -----------
15,796,751 14,540,426
Less accumulated depreciation and amortization 7,295,079 6,486,937
----------- -----------
8,501,672 8,053,489
Goodwill, net of accumulated amortization 1,639,678 1,768,056
Deferred income taxes 805,087 264,218
Other assets 466,590 780,028
----------- -----------
$53,917,888 $49,899,019
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Borrowings under revolving credit agreement $ 129,424 $ 374,806
Current maturities of long-term debt 1,311,386 1,212,316
Accounts payable 2,939,936 4,022,892
Accrued compensation and employee benefits 1,895,766 2,233,441
Accrued expenses 1,713,316 1,749,395
Unearned service revenue 835,045 224,711
Income taxes payable 315,481 167,013
----------- -----------
Total current liabilities 9,140,354 9,984,574
Long-term debt 7,090,253 5,798,641
Unearned service revenue 2,011,123 639,169
Other long-term liabilities 677,775 728,284
Commitments and contingencies - Note 11
Shareholders' equity
Common stock, par value $.01 per share
authorized - 10,000,000 shares
issued 4,710,635 and 4,654,760 shares 47,106 46,547
Capital in excess of par value 21,444,638 21,343,676
Retained earnings 12,812,294 11,851,089
----------- -----------
34,304,038 33,241,312
Treasury stock at cost, 85,561 shares
in 2000 and 74,948 shares in 1999 (555,097) (508,745)
Accumulated other comprehensive income 1,249,442 15,784
----------- ------------
Total shareholders' equity 34,998,383 32,748,351
----------- -----------
$53,917,888 $49,899,019
=========== ===========
See accompanying notes to consolidated financial statements
- 32 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended September 30, 2000, 1999, and 1998
Accumulated Total
Capital in other share-
Common excess of Retained Treasury comprehensive holders'
Shares Stock par value earnings Stock income equity
------ ------- ----------- ---------- --------- ------------ ---------
Balance September 30, 1997 3,047,060 $30,470 $ 9,868,063 $1,280,907 $(298,686) $33,229 $10,913,983
Comprehensive income:
Net income - - - 5,809,981 - - 5,809,981
Foreign currency
translation adjustment - - - - - 129,012 129,012
Total comprehensive income - - - - - - 5,938,993
Common stock offering, net
of issuance costs 1,371,200 13,712 10,787,204 - - - 10,800,916
Exercise of stock options 116,450 1,165 253,063 - (111,001) - 143,227
Tax benefit from exercise
of stock options - - 39,185 - - - 39,185
--------- ------- ---------- ----------- ----------- ---------- -----------
Balance September 30, 1998 4,534,710 45,347 20,947,515 7,090,888 (409,687) 162,241 27,836,304
Comprehensive income:
Net income - - - 4,760,201 - - 4,760,201
Foreign currency
translation adjustment - - - - - (146,457) (146,457)
Total comprehensive income - - - - - - 4,613,744
Exercise of stock options 120,050 1,200 270,036 - (99,058) - 172,178
Tax benefit from exercise
of stock options - - 126,125 - - - 126,125
--------- ------- ----------- ----------- ----------- -------- -----------
Balance September 30, 1999 4,654,760 46,547 21,343,676 11,851,089 (508,745) 15,784 32,748,351
Comprehensive income:
Net income - - - 961,205 - - 961,205
Foreign currency
translation adjustment - - - - - (321,304) (321,304)
Unrealized gain on
securities - - - - - 1,554,962 1,554,962
Total comprehensive income - - - - - - 2,194,863
Exercise of stock options 55,875 559 100,962 - (46,352) - 55,169
--------- ------- ----------- ----------- ---------- ---------- -----------
Balance September 30, 2000 4,710,635 $47,106 $21,444,638 $12,812,294 $ (555,097) $1,249,442 $34,998,383
========= ======= =========== =========== ========== ========== ===========
See accompanying notes to consolidated financial statements.
- 33 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 961,205 $ 4,760,201 $5,809,981
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,019,441 877,698 782,960
Goodwill amortization 200,659 36,279 5,389
Deferred income taxes (1,145,081) (371,300) (1,196,709)
Gain on sale of securities (315,955) - -
Change in assets and liabilities:
Accounts receivable (3,667,310) (403,392) (3,187,475)
Inventories 2,495,615 (3,668,388) (382,087)
Prepaid expenses (283,892) (301,590) (10,068)
Other assets (57,594) (108,383) 228,772
Accounts payable (1,060,362) 399,202 (403,060)
Accrued compensation and employee benefits (324,918) 166,317 842,476
Accrued expenses (6,536) 414,896 188,370
Unearned service revenue 1,982,288 863,880 -
Income taxes payable 147,195 (482,201) 450,979
Other liabilities (50,509) 60,976 179,256
----------- ----------- -----------
Net cash (used in) provided by
operating activities (105,754) 2,244,195 3,308,784
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,640,802) (1,747,030) (4,231,674)
Proceeds from sale of securities 347,473 - -
Acquisition, net of cash acquired - (2,064,857) (158,925)
----------- ----------- -----------
Net cash used in
investing activities (1,293,329) (3,811,887) (4,390,599)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of U.S. term loan (900,000) (900,000) -
Proceeds from exercise of stock options 75,518 172,179 143,227
Increase (decrease) in borrowings under
short-term revolving credit agreement (216,072) (238,003) 443,596
Repayments of long-term debt (342,274) (275,016) (310,692)
Borrowings under term loans - - 4,500,000
Borrowings under mortgage loans 1,200,000 - 2,900,000
Repayments of term loan to related party - - (1,800,000)
Net proceeds from sale of common stock - - 10,800,916
Increase (decrease) in borrowings under
U.S. bank credit agreement 1,500,000 - (6,003,416)
Decrease in interest-bearing accounts
payable to related party - - (5,031,919)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,317,172 (1,240,840) 5,641,712
----------- ----------- -----------
Effect of exchange rate changes on cash 198,262 (47,258) 7,080
----------- ----------- -----------
Net increase (decrease) in cash 116,351 (2,855,790) 4,566,977
Cash at beginning of year 1,998,767 4,854,557 287,580
----------- ----------- ----------
Cash at end of year $ 2,115,118 $ 1,998,767 $ 4,854,557
=========== =========== ===========
Cash paid during the fiscal
year for:
Income taxes $ 1,673,100 $ 3,517,498 $64,523
Interest $ 717,355 $ 608,673 $ 1,265,243
See accompanying notes to consolidated financial statements.
- 34 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 2000, 1999, and 1998
NOTE 1. Summary of Significant Accounting Policies
Nature of Operations
- --------------------
The Company designs, manufactures, assembles and markets video systems and
system components for use in security, surveillance, safety and control purposes
by end users. The Company markets its products worldwide directly to installing
dealers, systems integrators, government entities and distributors.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Vicon
Industries, Inc. (the Company) and its wholly owned subsidiaries: Vicon
Industries Limited (formerly Vicon Industries (U.K.), Ltd.), TeleSite U.S.A.,
Inc. and subsidiary (Q.S.R. Ltd.), and Vicon Industries Foreign Sales Corp.; and
its majority owned (60%) subsidiary, Vicon Industries (H.K.) Ltd., after
elimination of intercompany accounts and transactions.
Revenue Recognition
- -------------------
Revenues are recognized when products are sold and title is passed to a third
party, generally at the time of shipment. Advance service billings under a
national supply contract with one customer are deferred and recognized as
revenues on a pro rata basis over the term of the service agreement.
Inventories
- -----------
Inventories are valued at the lower of cost (on a moving average basis which
approximates a first-in, first-out method) or market. When it is determined that
a product or product line will be sold below carrying cost, affected on hand
inventories are written down to their estimated net realizable values.
Long-Lived Assets
- -----------------
Property, plant, and equipment are recorded at cost and include expenditures for
replacements or major improvements. Depreciation, which includes amortization of
assets under capital leases, is computed by the straight-line method over the
estimated useful lives of the related assets. Machinery, equipment and vehicles
are being depreciated over periods ranging from 2 to 10 years. The Company's
buildings are being depreciated over periods ranging from 25 to 40 years and
leasehold improvements are amortized over the lesser of their estimated useful
lives or the remaining lease term.
The Company reviews its long-lived assets (property, plant and equipment) for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount of the
asset, an impairment loss is recognized as the amount by which the carrying
amount of the asset exceeds its fair value.
- 35 -
Goodwill
- --------
Goodwill represents the excess of purchase price over the fair value assigned to
net assets acquired and is being amortized on a straight-line basis over 10
years. Periodically, the Company reviews the recoverability of goodwill. The
measurement of possible impairment is based primarily on the ability to recover
the balance of goodwill from expected future operating cash flows on an
undiscounted basis. Accumulated amortization amounted to $242,327 and $41,668 at
September 30, 2000 and 1999, respectively.
Research and Development
- ------------------------
Product research and development costs are principally charged to expense as
incurred, and amounted to approximately $3,800,000, $2,800,000 and $2,500,000 in
fiscal 2000, 1999, and 1998, respectively.
Earnings Per Share
- ------------------
The Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" requires companies to present
basic and diluted earnings per share (EPS). Basic EPS is computed based on the
weighted average number of shares outstanding. Diluted EPS reflects the maximum
dilution that would have resulted from the exercise of stock options, warrants
and incremental shares issuable under a deferred compensation agreement (see
Note 10).
Foreign Currency Translation
- ----------------------------
Foreign currency translation is performed utilizing the current rate method
under which assets and liabilities are translated at the exchange rate on the
balance sheet date, while revenues, costs, and expenses are translated at the
average exchange rate for the reporting period. The resulting cumulative
translation adjustment of $(306,000) and $16,000 at September 30, 2000 and 1999,
respectively, is recorded as a component of shareholders' equity in accumulated
other comprehensive income.
Income Taxes
- ------------
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes", which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled (see Note 6).
Derivative Instruments
- ----------------------
The Company's derivative financial instruments consist of foreign currency
forward exchange contracts and interest rate swap agreements. The Company enters
into forward exchange contracts to hedge intercompany accounts receivable with
its U.K. based subsidiary and Japanese Yen denominated trade accounts payable
liabilities due to inventory suppliers. The forward exchange contracts have
maturities of less than one year and require the Company to exchange currencies
at specified dates and rates. Gains and losses on these contracts are recorded
in cost of sales when incurred.
- 36 -
The Company entered into interest rate swap agreements with its bank to
effectively convert certain of its floating rate long-term debt to fixed
interest rates (see Note 7). Such agreements mature in the same amounts and over
the same periods as the related debt. Outstanding notional amounts under such
agreements approximated $5.2 million at September 30, 2000. Gains and losses on
these contracts are recorded in interest expense when incurred.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS 137 and SFAS 138, which will be adopted
by the Company in the first quarter of fiscal 2001. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. Implementation of this statement is not expected to
have a material impact on the Company's financial position or results of
operations.
Fair Value of Financial Instruments
- -----------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires
disclosure of the fair value of certain financial instruments. The carrying
amounts for trade accounts and other receivables, accounts payable and accrued
expenses approximate fair value because of the short-term maturity of these
instruments. The carrying amounts of the Company's long-term debt approximate
fair value. The aggregate fair market value of the Company's interest rate swap
agreements exceeded their carrying amounts by approximately $60,000 at September
30, 2000. This value represents the estimated amount the Company would receive
if such agreements were terminated before maturity, principally resulting from
market interest rate increases. The fair value of forward exchange contracts is
estimated by obtaining quoted market prices. The contracted exchange rates on
committed forward exchange contracts at September 30, 2000 approximated market
rates for similar term contracts (see Note 11).
Accounting for Stock-Based Compensation
- ---------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
Marketable Securities
- ---------------------
Marketable securities at September 30, 2000 consist of an equity investment in
Chun Shin Electronics, Inc. (see Note 3), which is classified as
available-for-sale under SFAS No. 115 and recorded at fair value. Unrealized
market value gains and losses on these securities, net of the related tax
effect, are excluded from earnings and reported as a component of shareholders'
equity in accumulated other comprehensive income until realized. Realized gains
and losses from the sale of available-for-sale securities are determined on a
specific identification basis.
- 37 -
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 2. Business Acquisition
In August 1999, the Company acquired all of the outstanding shares of TeleSite
U.S.A., Inc., a manufacturer and distributor of remote video surveillance
systems, for $2.1 million. As additional compensation, the Company is liable to
pay the sellers an amount equal to 30% of the acquired operation's yearly
incremental consolidated sales for a three-year period commencing January 1,
2000. The acquisition has been accounted for as a purchase, and the results of
the operations of the acquired business have been included in the consolidated
financial statements since the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired of approximately $1.8
million has been recorded as goodwill and is being amortized on a straight-line
basis over 10 years.
Assuming this acquisition had occurred on October 1, 1997, consolidated net
sales would have been approximately $75.9 million for 1999 and $65.6 million for
1998. Consolidated pro forma net income and earnings per share would not have
been materially different from the reported amounts for 1999 and 1998. Such
unaudited pro forma amounts are not indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1998.
NOTE 3. Marketable Securities
At September 30, 2000, the Company had a 19% ownership interest in Chun Shin
Electronics, Inc. (CSE), a South Korean company which, among other things,
manufactures certain of the Company's proprietary products. In July 2000, CSE
completed an initial public offering of approximately 1.4 million shares of its
stock in South Korea, at which time the Company's ownership interest was reduced
to approximately 21% from 34% at September 30, 1999. At September 30, 2000, the
Company recorded an unrealized gain on these securities of $2.5 million ($1.6
million net of tax effect) based upon a $2.8 million fair market value and
$267,000 cost basis. Realized gains from the sale of these securities were
$316,000 in fiscal 2000. Prior to CSE's public offering, the Company recognized
this investment on the cost method of accounting.
- 38 -
Note 4. Public Offering
In May 1998, the Company sold 1,371,200 shares of its common stock in a public
offering, the net proceeds of which were approximately $10.8 million. The
proceeds were principally used to repay certain interest bearing borrowings.
NOTE 5. Short-Term Borrowings
Borrowings under the Company's short-term revolving credit agreement represent
borrowings by the Company's U.K. based subsidiary under a bank overdraft
facility. Such credit agreement provides for maximum borrowings of 600,000
pounds ($876,000) and is secured by all the assets of the subsidiary. Maximum
borrowings during 2000, 1999 and 1998 amounted to approximately $1,018,000,
$852,000 and $676,000, respectively. The weighted-average interest rate on
borrowings during these years was 7.81% in 2000, 7.80% in 1999 and 9.33% in
1998.
NOTE 6. Income Taxes
The components of income tax expense for the fiscal years indicated are as
follows:
2000 1999 1998
---- ---- ----
Federal $ 368,000 $ 2,392,000 $ (515,000)
State 40,000 200,000 380,000
Foreign 220,000 90,000 135,000
------------- ----------- ------------
$ 628,000 $ 2,682,000 $ -
============= =========== ============
A reconciliation of the U.S. statutory tax rate to the Company's effective
tax rate follows:
2000 1999 1998
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
U.S. statutory tax $ 540,000 34.0% $2,530,000 34.0% $1,975,000 34.0%
Change in valuation
allowance - - - - (2,560,000) (44.0)
State tax, net of
federal benefit 26,000 1.6 132,000 1.8 251,000 4.3
Goodwill amortization 68,000 4.3 12,000 0.1 2,000 0.0
Other (6,000) (0.4) 8,000 0.1 332,000 5.7
----------- ------ ---------- ------ ---------- ------
Effective Tax Rate $ 628,000 39.5% $2,682,000 36.0% $ - - %
=========== ====== ========== ====== ========= ======
- 39 -
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at September 30, 2000 and 1999 are presented below:
2000 1999
---- ----
Deferred tax assets:
Inventory reserves $1,499,000 $1,009,000
Deferred compensation accruals 156,000 179,000
Allowance for doubtful
accounts receivable 339,000 256,000
Unearned service revenue 639,000 128,000
Other 150,000 88,000
---------- ----------
Total deferred tax assets 2,783,000 1,660,000
Deferred tax liabilities:
Unrealized gain on securities 953,000 -
Cash surrender value of officers'
life insurance 30,000 46,000
Other 40,000 46,000
---------- -----------
Total deferred tax liabilities 1,023,000 92,000
---------- -----------
Net deferred tax assets and liabilities $1,760,000 $ 1,568,000
---------- ------------
During fiscal year 1998, the Company fully utilized its remaining federal net
operating loss carryforward and reversed the remaining valuation allowance based
on management's assessment that it is reasonably assured that all net deferred
income tax assets will be realized in the future given the Company's present
level of earnings. Pretax domestic income amounted to approximately $1,079,000
$7,385,000 and $5,462,000 in fiscal years 2000, 1999 and 1998, respectively.
Pretax foreign income amounted to approximately $510,000, $57,000 and $348,000
in fiscal years 2000, 1999 and 1998, respectively.
NOTE 7. Long-Term Debt
Long-term debt is comprised of the following at September 30, 2000 and 1999:
2000 1999
---- ----
U.S. bank credit agreement $1,500,000 $ -
U.S. bank term loan 2,625,000 3,525,000
U.S. bank mortgage loans 3,650,128 2,679,000
U.K. bank term loan 480,582 625,626
Other 145,929 181,331
---------- -----------
8,401,639 7,010,957
Less installments due within one year 1,311,386 1,212,316
---------- ----------
$7,090,253 $5,798,641
========== ==========
In July 1998, the Company entered into a $14 million unsecured revolving credit
and term loan agreement with a bank that includes a $9.5 million revolving
credit facility which expires in July 2002. Borrowings under this facility bear
interest at the bank's prime rate minus 2% (7.50% and 6.25% at September 30,
2000 and 1999, respectively) or, at the Company's option, LIBOR plus 90 basis
points (7.52% and 6.30% at September 30, 2000 and 1999, respectively). At
September 30, 2000, outstanding borrowings under this facility were $1.5
million. At September 30, 1999, there were no outstanding borrowings under this
facility.
- 40 -
The agreement also provided for a $4.5 million five-year term loan payable in
equal monthly installments through July 2003, with interest at LIBOR plus 100
basis points. The agreement contains restrictive covenants that, among other
things, require the Company to maintain certain levels of earnings and ratios of
debt service coverage and debt to tangible net worth. In September 1998, the
Company entered into an interest rate swap agreement with the same bank to
effectively convert the foregoing floating rate long-term loan to a fixed rate
loan. This agreement fixes the Company's interest rate on its $4.5 million term
loan at 6.74%. The interest rate swap agreement matures in the same amounts and
over the same periods as the related term loan.
In January 1998, the Company entered into an aggregate $2.9 million mortgage and
term loan agreement with a bank to finance the purchase of its principal
operating facility. Such agreement includes a $2,512,000 ten-year mortgage loan
payable in monthly installments through January 2008, with a $1,188,000 payment
due at the end of the term. The agreement also provides a $388,000 five-year
term loan payable in monthly installments through January 2003, with a $138,500
payment due at the end of the term. Both loans bear interest at the bank's prime
rate minus 1.35%. The loans are secured by a first mortgage on the property and
fixtures and contain restrictive covenants that, among other things, require the
Company to maintain certain levels of earnings and ratios of debt service
coverage and debt to tangible net worth. At the same time, the Company entered
into interest rate swap agreements with the same bank to effectively convert the
foregoing floating rate long-term loans to fixed rate loans. These agreements
fix the Company's interest rate on its $2,512,000 mortgage loan at 7.79% and its
$388,000 term loan at 7.7%. The interest rate swap agreements mature in the same
amounts and over the same periods as the related mortgage and term loans.
In October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility. The
loan is payable in equal monthly principal installments through January 2008,
with a $460,000 payment due at the end of the term. The loan bears interest at
the bank's prime rate minus 160 basis points (7.90% at September 30, 2000) or,
at the Company's option, LIBOR plus 100 basis points (7.62% at September 30,
2000) and contains the same covenants as included in the existing mortgage
loans.
In April 1997, the Company's U.K. based subsidiary entered into a ten-year
500,000 pound sterling (approximately $730,000) bank term loan. The term loan is
payable in equal monthly installments with interest at a fixed rate of 9%. The
loan is secured by a first mortgage on the subsidiary's property and contains
restrictive covenants which, among other things, require the subsidiary to
maintain certain levels of net worth, earnings and debt service coverage.
Long-term debt maturing in each of the fiscal years subsequent to September 30,
2000 approximates $1,311,000 in 2001, $2,787,000 in 2002, $1,290,000 in 2003,
$503,000 in 2004, $244,000 in 2005 and $2,267,000 thereafter.
- 41 -
NOTE 8. Segment and Related Information
The Company operates in one industry which encompasses the design,
manufacture, assembly and marketing of video systems and system components for
the electronic protection segment of the security industry. The Company manages
its business segments primarily on a geographic basis. The Company's principal
reportable segments are comprised of its United States (U.S.) and United Kingdom
(U.K.) based operations. Its U.S. based operations consist of Vicon Industries,
Inc., the Company's corporate headquarters and principal operating entity. Its
U.K. based operations consist of Vicon Industries Limited, a wholly owned
subsidiary which markets and distributes the Company's products principally
within Europe. Other segments include the operations of Vicon Industries (H.K.),
Ltd., a Hong Kong based majority owned subsidiary which markets and distributes
the Company's products principally within Hong Kong and mainland China and
TeleSite U.S.A., Inc. and subsidiary, a U.S. and Israeli based manufacturer and
distributor of remote video surveillance systems.
The Company evaluates performance and allocates resources based on, among other
things, the net profit for each segment, which excludes intersegment sales and
profits. Segment information for the fiscal years ended September 30, 2000, 1999
and 1998 is as follows:
2000 U.S. U.K. Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
Net sales to
external customers $59,488,000 $10,846,000 $4,290,000 $ - $74,624,000
Intersegment
net sales 6,301,000 - 1,248,000 - 7,549,000
Net income (loss) 1,241,000 461,000 (540,000) (201,000) 961,000
Interest expense 672,000 205,000 62,000 (123,000) 816,000
Interest income 243,000 - - (146,000) 97,000
Depreciation and
amortization 766,000 168,000 85,000 201,000 1,220,000
Total assets 48,277,000 5,813,000 3,598,000 (3,770,000) 53,918,000
Capital expenditures $ 1,094,000 $ 115,000 $ 432,000 - $ 1,641,000
1999 U.S. U.K. Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
Net sales to
external customers $62,939,000 $8,515,000 $1,960,000 $ - $73,414,000
Intersegment
net sales 5,334,000 - 36,000 - 5,370,000
Net income (loss) 4,787,000 217,000 (194,000) (50,000) 4,760,000
Interest expense 506,000 174,000 7,000 (95,000) 592,000
Interest income 227,000 - - (86,000) 141,000
Depreciation and
amortization 680,000 163,000 35,000 36,000 914,000
Total assets 45,025,000 5,912,000 2,904,000 (3,942,000) 49,899,000
Capital expenditures $ 1,469,000 $ 177,000 $ 101,000 - $ 1,747,000
- 42 -
1998 U.S. U.K. Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
Net sales to
external customers $54,184,000 $8,542,000 $ 584,000 $ - $63,310,000
Intersegment
net sales 4,668,000 - - - 4,668,000
Net income (loss) 5,597,000 349,000 41,000 (177,000) 5,810,000
Interest expense 1,024,000 187,000 - (104,000) 1,107,000
Interest income 164,000 - - (99,000) 65,000
Depreciation and
amortization 652,000 131,000 - 5,000 788,000
Total assets 40,214,000 5,575,000 1,181,000 (2,584,000) 44,386,000
Capital expenditures $ 4,037,000 $ 191,000 $ 4,000 - $ 4,232,000
The consolidating segment information presented above includes the elimination
and consolidation of intersegment transactions. Net sales and long-lived assets
related to operations in the United States and other foreign countries for the
fiscal years ended September 30, 2000, 1999, and 1998 are as follows:
2000 1999 1998
---- ---- ----
Net sales
U.S. $61,096,000 $63,236,000 $54,184,000
Foreign 13,528,000 10,178,000 9,126,000
----------- ----------- ----------
Total $74,624,000 $73,414,000 $63,310,000
Long-lived assets
U.S. $ 6,561,000 $ 6,234,000 $ 5,443,000
Foreign 1,941,000 1,819,000 1,694,000
---------- ----------- ----------
Total $ 8,502,000 $ 8,053,000 $ 7,137,000
U.S. sales include $6,039,000, $5,236,000 and $9,853,000 for export in fiscal
years 2000, 1999, and 1998, respectively. Indirect sales to the United States
Postal Service under a national supply contract approximated $22.8 million,
$22.7 million and $12.0 million in fiscal 2000, 1999 and 1998, respectively.
NOTE 9. Stock Options and Stock Purchase Warrants
The Company maintains stock option plans which include both incentive and
non-qualified options covering a total of 374,657 shares of common stock
reserved for issuance to key employees, including officers and directors. Such
amount includes a total of 100,000 options reserved for issuance under the 1999
Incentive Stock Option Plan, as well as a total of 100,000 options reserved for
issuance under the 1999 Non-Qualified Stock Option Plan, approved by the
shareholders in April 1999. All options are issued at fair market value at the
grant date and are exercisable in varying installments according to the plans.
The plans allow for the payment of option exercises through the surrender of
previously owned shares based on the fair market value of such shares at the
date of surrender. During fiscal 2000 and 1999, a total of 10,613 and 12,431
common shares, respectively, were surrendered pursuant to stock option
exercises, which are held in treasury. There were 98,673 shares available for
grant at September 30, 2000.
- 43 -
Changes in outstanding stock options for the three years ended September 30,
2000 are as follows:
Weighted
Number Average
of Exercise
Shares Price
- -------------------------------------------------------------------
Balance - September 30, 1997 419,497 $2.27
Options granted 48,250 $6.98
Options exercised (116,450) $2.18
Options forfeited (1,400) $6.50
- -------------------------------------------------------------------
Balance - September 30, 1998 349,897 $2.94
Options granted 143,000 $7.50
Options exercised (120,050) $2.26
Options forfeited (2,200) $7.00
- -------------------------------------------------------------------
Balance - September 30, 1999 370,647 $4.89
Options granted 129,823 $3.50
Options exercised (55,875) $2.18
Options forfeited (168,611) $7.33
- -------------------------------------------------------------------
Balance - September 30, 2000 275,984 $3.30
Price range $1.69 - $3.06
(weighted-average contractual 128,022 $2.44
life of 1.0 years)
Price range $3.19 - $7.44
(weighted-average contractual 147,962 $4.03
life of 4.9 years)
- -------------------------------------------------------------------
Exercisable options -
September 30, 1998 253,123 $2.47
September 30, 1999 210,147 $2.94
September 30, 2000 140,239 $2.66
- -------------------------------------------------------------------
On April 20, 2000, the Board of Directors granted holders of stock options the
right to surrender their underwater options by May 31, 2000 in exchange for a
reduced option grant at an exercise price of $3.18 per share, based on the
closing market price of the Company's common stock on such date. On May 31,
2000, the Company granted 67,823 new options and cancelled 156,750 options with
exercise prices ranging from $6.75 to $8.19 per share. These new grants were
treated as repricings and are subject to variable plan accounting pursuant to
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." Accordingly, compensation expense will be recorded for any
increase in the Company's stock price above the price of $3.18 on July 1, 2000,
the effective date of this pronouncement. In fiscal 2000, no compensation
expense was recorded relating to these repriced options.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of this Statement. The fair
value for options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2000,
1999 and 1998:
2000 1999 1998
---- ---- ----
Risk-free interest rate 5.0% 5.0% 5.0%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 59.5% 59.0% 67.3%
Weighted average expected life 4 years 4 years 3 years
- ------------------------------------------------------------------------------
- 44 -
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income and earnings per share are as follows:
2000 1999 1998
---- ---- ----
Net income:
As reported $ 961,205 $4,760,201 $5,809,981
Pro forma $ 773,082 $4,646,938 $5,638,166
Earnings per share:
As reported
Basic $ .21 $1.05 $1.61
Diluted $ .21 $1.01 $1.50
Pro forma
Basic $ .17 $1.03 $1.56
Diluted $ .17 $ .98 $1.46
Weighted average fair value
of options granted $1.76 $3.74 $3.34
In connection with the public offering, the Company granted the Underwriters
warrants to purchase up to 145,000 shares of Common Stock. The warrants are
exercisable at any time through May 2003 at a price of $10.50 per share.
NOTE 10. Earnings Per Share
The following table provides the components of the basic and diluted earnings
per share (EPS) computations:
2000 1999 1998
---- ---- ----
Basic EPS Computation
Net income $ 961,205 $4,760,201 $5,809,981
Weighted average shares
outstanding 4,600,447 4,519,344 3,605,307
Basic earnings per share $ .21 $ 1.05 $ 1.61
========== ========== ==========
- 45 -
2000 1999 1998
---- ---- ----
Diluted EPS Computation
Net income $ 961,205 $4,760,201 $5,809,981
Weighted average shares
outstanding 4,600,447 4,519,344 3,605,307
Stock options 70,808 185,940 260,425
Stock compensation arrangement 1,510 13,075 7,343
--------- --------- ---------
Diluted shares outstanding 4,672,765 4,718,358 3,873,075
Diluted earnings per share $ .21 $ 1.01 $ 1.50
========== ========== ==========
NOTE 11. Commitments and Contingencies
The Company occupies certain facilities, or is contingently liable, under
operating leases that expire at various dates through 2008. The leases, which
cover periods from three to eight years, generally provide for renewal options
at specified rental amounts. The aggregate operating lease commitment at
September 30, 2000 was $619,000 with minimum rentals for the fiscal years shown
as follows: 2001 - $212,000; 2002 - $152,000; 2003 - $81,000; 2004 - $74,000;
2005 - $37,000; 2005 and thereafter - $63,000.
The Company is a party to employment agreements with four executives that
provide for, among other things, the payment of compensation if there is a
change in control without Board of Director approval (as defined in the
agreements). The contingent liability under such change in control provisions at
September 30, 2000 was approximately $1,989,000. The total compensation payable
under these agreements, absent a change in control, aggregated $1,727,000 at
September 30, 2000. The Company is also a party to an insured deferred
compensation agreement with a retired officer. The aggregate remaining
compensation payments of approximately $328,000 as of September 30, 2000 are
subject to the individual's adherence to certain non-compete covenants, and are
payable in monthly installments through December 2003.
In October 1997, 1998 and 1999, the Company's Chief Executive Officer was
provided a deferred compensation benefit of 45,952, 16,565 and 8,130 shares,
respectively, of common stock currently held by the Company in treasury. Such
shares vest upon the expiration of the executive's employment agreement in
October 2004, or earlier under certain occurrences including his death,
involuntary termination or a change in control of the Company. The market value
of such shares approximated $507,000 at the dates of grant, which is being
amortized on the straight-line method over the term of the employment agreement.
Sales to customers from the Company's U.K. based subsidiary are denominated in
British pounds sterling. The Company attempts to minimize its currency exposure
on these sales through the purchase of forward exchange contracts to cover its
billings to this subsidiary. These contracts generally involve the exchange of
one currency for another at a future date and specified exchange rate. At
September 30, 2000 and 1999, the Company had approximately $1,900,000 and
$1,550,000, respectively, of outstanding forward exchange contracts to sell
British pounds. Such contracts have maturities of less than one year.
- 46 -
The Company's purchases of Japanese sourced products through CBC Company, Ltd.,
a related party, are denominated in Japanese yen. At September 30, 2000 and
1999, the Company had approximately $791,000 and $1,059,000, respectively, of
outstanding forward exchange contracts to purchase Japanese yen.
In fiscal 1999, the Company received notice from a competitor asserting that
certain of the Company's products infringe upon a patent it allegedly owns and
is seeking royalties on the Company's sales of such products. The Company is
reviewing the claim and believes that it has good defenses in this matter. No
assurance can be given that this matter will be resolved in the Company's favor
and no reasonable estimate of potential loss, if any, can be made at this time.
NOTE 12. Related Party Transactions
As of September 30, 2000, CBC Company, Ltd. and affiliates ("CBC") owned
approximately 11.8% of the Company's outstanding common stock. The Company,
which has been conducting business with CBC for approximately 21 years, imports
certain finished products and components through CBC and also sells its products
to CBC. The Company purchased approximately $4.4 million, $5.4 million and $5.3
million of products and components from CBC in fiscal years 2000, 1999, and
1998, respectively, and the Company sold $303,000, $1.3 million and $4.1 million
of products to CBC for distribution in fiscal years 2000, 1999, and 1998,
respectively. At September 30, 2000 and 1999, the Company owed $481,000 and
$955,000, respectively, to CBC and CBC owed $50,000 and $27,000, respectively,
to the Company resulting from purchases of products.
As of September 30, 2000, Mr. Chu S. Chun had beneficial voting control
over approximately 4.4% of the Company's outstanding common stock. Mr. Chun
beneficially owns a controlling interest in Chun Shin Electronics, Inc. (CSE), a
South Korean manufacturer of certain of the Company's proprietary products (see
Note 3). Mr. Chun also controls International Industries, Inc. (I.I.I.), a U.S.
based company which arranges the importation of all the Company's products
purchased directly or indirectly from CSE. During fiscal years 2000, 1999 and
1998, the Company purchased approximately $5.0 million, $5.7 million and $8.0
million, respectively, of products from CSE through I.I.I. under this agreement.
In addition, the Company sold approximately $663,000, $535,000 and $344,000 of
its products to I.I.I. in 2000, 1999 and 1998, respectively, for resale to CSE.
At September 30, 2000, the Company owed I.I.I. approximately $1.2 million and at
September 30, 2000 and 1999, I.I.I. owed the Company approximately $380,000 and
$238,000, respectively.
- 47 -
VICON INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Earnings Per Share
Quarter Net Gross Net
Ended Sales Profit Income Basic Diluted
------- ----- ------ ------ ----- -------
Fiscal 2000
December $19,525,000 $ 5,390,000 $ 85,000 $ .02 $ .02
March 17,442,000 5,626,000 186,000 .04 .04
June 19,123,000 6,344,000 478,000 .10 .10
September 18,534,000 5,694,000 212,000 .05 .05
----------- ----------- ----------- ----- -----
Total $74,624,000 $23,054,000 $ 961,000 $ .21 $ .21
=========== =========== =========== ===== =====
Fiscal 1999
December $17,128,000 $5,864,000 $ 1,060,000 $ .24 $ .23
March 17,500,000 6,124,000 1,161,000 .26 .25
June 19,493,000 6,828,000 1,346,000 .30 .28
September 19,293,000 6,963,000 1,193,000 .26 .25
----------- ----------- ----------- ----- -----
Total $73,414,000 $25,779,000 $ 4,760,000 $1.05 $1.01
=========== =========== =========== ===== =====
The Company has not declared or paid cash dividends on its common stock for any
of the foregoing periods. Additionally, certain loan agreements restrict the
payment of any cash dividends in future periods.
Because of changes in the number of common shares outstanding and market price
fluctuations affecting outstanding stock options, the sum of quarterly earnings
per share may not equal the earnings per share for the full year.
- 48 -
SCHEDULE II
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 2000, 1999, and 1998
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
----------- --------- --------- ---------- ---------
Reserves and allowances
deducted from asset
accounts:
Allowance for uncollectible
accounts:
September 30, 2000 $818,000 $291,000 $ 46,000 $1,063,000
======== ======== ======== ==========
September 30, 1999 $694,000 $290,000 $166,000 $ 818,000
======== ======== ======== ==========
September 30, 1998 $493,000 $285,000 $ 84,000 $ 694,000
======== ======== ======== ==========
- 49 -
SIGNATURES
----------
Pursuant to the requirements of the Section 13 or 15(d) 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.
VICON INDUSTRIES, INC.
By Kenneth M. Darby By John M. Badke
------------------------- -------------------------
Kenneth M.Darby John M. Badke
Chairman Vice President, Finance
(Chief Executive Officer) (Chief Financial Officer)
December 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
Kenneth M. Darby December 27, 2000
- --------------------- ---------------------
Kenneth M. Darby Chairman and CEO Date
Chu S. Chun December 27, 2000
- --------------------- ---------------------
Chu S. Chun Director Date
Milton F. Gidge December 27, 2000
- --------------------- ---------------------
Milton F. Gidge Director Date
Peter F. Neumann December 27, 2000
- --------------------- ---------------------
Peter F. Neumann Director Date
W. Gregory Robertson December 27, 2000
- --------------------- ---------------------
W. Gregory Robertson Director Date
Arthur D. Roche December 27, 2000
- --------------------- ---------------------
Arthur D. Roche Director Date
Kazuyoshi Sudo December 27, 2000
- --------------------- ---------------------
Kazuyoshi Sudo Director Date
- 50 -
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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.
VICON INDUSTRIES, INC.
By By
------------------------- --------------------
Kenneth M.Darby John M. Badke
Chairman Vice President, Finance
(Chief Executive Officer) (Chief Financial Officer)
December 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
December 27, 2000
- --------------------- -------------------
Kenneth M. Darby Chairman and CEO Date
December 27, 2000
- --------------------- -------------------
Chu S. Chun Director Date
December 27, 2000
- --------------------- ------------------
Milton F.Gidge Director Date
December 27, 2000
- --------------------- ------------------
Peter F. Neumann Director Date
December 27, 2000
- --------------------- ------------------
W. Gregory Robertson Director Date
_____________________ December 27, 2000
-------------------
Arthur D. Roche Director Date
December 27, 2000
- --------------------- -----------------
Kazuyoshi Sudo Director Date
- 50 -