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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-29798
CompuDyne Corporation
(Exact name of registrant as specified in its charter)
Nevada 23-1408659
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7249 National Drive, Hanover, Maryland 21076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 712-0275
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock $.75 par value
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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. [X].
Indicate by checkmark whether the registrant is an accelerated
filer (as defined in rule 12b-2 of the act)
Yes X NO
As of March 31, 2003, a total of 7,760,892 shares of Common Stock,
$.75 par value, were outstanding.
The aggregate market value of Common Stock held by non-affiliates
of the Registrant, based upon the average of the bid and asked
prices on the Nasdaq National Market on June 30, 2002
was approximately $86.5 million.
(see ITEM 5).
Documents incorporated by reference: Portions of the Proxy
Statement relating to the 2002 Annual Meeting of Shareholders and
the Current Report on 8-K filed March 31, 2003 are incorporated in
Part II and Part III.
PART I
ITEM 1. BUSINESS
Description of Business
CompuDyne Corporation, ("CompuDyne" or the "Company") was
reincorporated in Nevada in 1996, and is a leading provider of
products and services to the Public Security market. The
Company operates in four (4) distinct segments in this
marketplace: Institutional Security Systems (formerly known as
Corrections), Attack Protection, Federal Security Systems and
Public Safety and Justice.
The Institutional Security Systems segment is headquartered in
Montgomery, Alabama and is known to the trade as Norment Security
Group ("Norment"). This segment provides physical and electronic
security products and services to the corrections industry prisons
and jails) and to the courthouse, municipal and commercial
markets. Norment serves as a contractor, responsible for most
installation work on larger projects. Installations involve hard-
line (steel security doors,frames, locking devices, etc.) and
sophisticated electronic security systems, including software,
electronics, touch-screens, closed circuit TV, perimeter alarm
devices and other security monitoring controls. Norment also
developed a product called MaxWall. MaxWall is a modular steel,
concrete filled prefabricated jail cell. It allows for
construction projects to use considerably less space and can save
the project owner significant amounts of money. Norment, through
a network of regional offices provides field level design,
installation and maintenance of both physical and electronic
security products.
Included in the Institutional Security Systems segment is the
TrenTech line which designs, manufactures and integrates
electronic security systems. TrenTech integrates generally
available products and software as well as designing its own
proprietary systems. TrenTech has developed a sophisticated
proprietary video badging system which has become the virtual
standard for the United States Air Force and has been installed at
over 200 United States Air Force facilities throughout the world.
The Institutional Security Systems segment also manufactures a
complete line of locks and locking devices under the brand name
Airteq. Airteq is an industry leader in pneumatic and electro-
mechanical sliding devices used in the corrections industry.
The Attack Protection segment is the country's largest Original
Equipment Manufacturer (OEM)of bullet, blast and attack resistant
windows and doors designed for high security applications such as
embassies, courthouses, Federal buildings, banks, corporate
headquarters and other facilities that insist on having the
highest level of protection currently available. CompuDyne is
a premier provider of Level 8 security products, the highest
rating level of commercial security products. The product
manufactured is an integrated and structurally secure product
where the rated protection comes not only from the glass but also
from the frame and encasement, which are specifically designed to
become integral parts of the structure into which they are to be
installed. Existing product installations number in the thousands
and range from the Middle East to the White House. Working under
contracts from the United States Department of State, the
segment's largest customer, Attack Protection is the largest
supplier of bullet and blast resistant windows and doors to United
States embassies throughout the world. Products are also sold to
drug stores, convenience stores, and banks to secure drive through
facilities. Other commercial applications include guard booths,
tollbooths, cash drawers and other similar items. Additionally,
this segment designs and installs both fixed and pop-up bollards
and barrier security systems.
The Attack Protection segment also manufactures a highly
sophisticated fiber optic sensor system, known as Fiber SenSys,
used to detect physical intrusion. This application is designed
to protect large perimeters including such applications as Federal
facilities, oil fields, airport tarmacs, public utilities, nuclear
reactors and water systems. In addition, it has been installed to
protect the perimeters of numerous private estates and other
similar properties. A related product is SecurLan, which protects
data lines from physical intrusion using a fiber optic technology
similar to the Fiber SenSys technology.
The Federal Security Systems segment is known as Quanta Systems
Corporation. This segment has been serving the Federal
government's security needs since 1952. Its customer base
includes military, governmental agencies, and state and local
governmental units. Federal Security Systems provides turnkey
systems integration of public security and safety systems. This
segment is a classic security integrator and specializes in a wide
range of customized access control and badging, intrusion
detection, surveillance and assessment, communications,
command and control, fire and life safety, and asset tracking
systems. Federal Security Systems provides central station
oversight and control of multiple and separate facilities as well
as security and public life safety systems and equipment.
The Public Safety and Justice segment consists of two subsidiaries
known to the industry as CorrLogic, Inc., ("CorrLogic") and
Tiburon, Inc., ("Tiburon"). CorrLogic is a leading developer
of inmate management and institutional medical software systems.
CorrLogic specializes in the development, implementation and
support of complex, integrated inmate management software
systems, including inmate medical management that improves the
efficiency and accuracy of correctional facility operations.
CorrLogic's focus is entirely on information solutions for the
corrections industry.
CompuDyne expanded its offerings in the Public Safety and Justice
sector through the completion of its acquisition of Tiburon, on
May 2, 2002. The Company elected to complete the purchase of
Tiburon for 50% cash consideration and 50% stock consideration.
Total consideration paid for the purchase of the portion of
Tiburon that the Company did not previously own amounted to
approximately $10.4 million, net in cash and approximately 1.1 million
shares of CompuDyne common stock for a total acquisition cost of
$33.8 million.
Tiburon provides a fully integrated suite of products including
computer assisted dispatch,records management, court and probation
software systems for the law enforcement, fire and rescue,
corrections and justice environments. Tiburon is a worldwide
market leader in the development, implementation and support of
public safety and justice automation systems. In business since
1980, with more than 450 systems supporting over 700 agencies,
Tiburon is a leader in public safety and justice solutions.
At December 31, 2002 the Company had approximately $204 million in
backlog.
Direct sales to the U.S. government for the years ended December
31, 2002, 2001 and 2000 were approximately $17.0 million, $21.4
million and $11.8 million, respectively, or 10.9%, 16.8% and
9.0% of the company's total net sales for the respective years.
CompuDyne has no other customers that account for 10% or more of its
sales.
Market
- ------
The market for jail and prison security systems is related to new
facility construction, existing facility upgrades, and the trend
towards outsourcing government services. Approximately $3.1
billion is spent annually on correctional facility construction,
of which typically 14%-15% relates to security hardware and
security electronics. Most upgrade and all maintenance work would
be in addition to the amount spent on contracting. The new
MaxWall product introduced by Norment has the potential to more
than double these percentages to 28%-30%. Other security
markets, which the Company serves, including state and local
government facilities, federal government facilities and large
commercial installations are much larger.
The Company faces considerable competition, from large and small
companies, in all of its lines of business. While the Company is
the largest supplier of physical and electronic security to the
corrections industry, it does compete with one other medium sized
competitor and many small competitors.
Most of the Company's business is done on a bid or request for
proposal basis. Much of the Federal Security Systems work is on a
cost plus basis and is subject to audit by the Defense Contract
Audit Agency, ("DCAA").
The Public Safety and Justice segment competes in a market where
annual sales are approximately $450 million. Most of the competitors
in this market are smaller than CompuDyne. Some of the larger
competitors include divisions of Motorola, Intergraph and Northrop
Grumman.
General Information
- -------------------
The Company purchases most of the parts and raw materials used in
its products from various suppliers. The primary raw materials
used in the manufacturing of its products are electronic
components and steel or aluminum sheets, stampings and castings. These
materials are generally available from a number of different
suppliers. While the bulk of such raw material is purchased
from relatively few sources of supply, the Company believes that
alternative sources are readily available.
There is no significant seasonality in CompuDyne's business.
At December 31, 2002, the Company had 923 permanent employees. Of
the permanent employees, 33 are subject to collective bargaining
agreements. The Institutional Security Systems Segment regularly
hires union personnel on a temporary basis for field projects.
These personnel are subject to various collective bargaining
agreements depending on their skills and locale. At December 31,
2002, 75 of these temporary employees were covered under
collective bargaining agreements.
Cautionary Statement Regarding Forward-Looking Information
- ----------------------------------------------------------
Certain statements made in this Annual Report with regard to the
Company's expectations as to future revenues, expenses, financial
position and industry conditions, the Company's ability to secure
new contracts, it's goals for future operations, implementation of
business strategy and other future events constitute "forward-
looking statements" within the meaning of the federal securities
law. When used in this Annual Report, words such as "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions,
as they relate to management, identify forward-looking statements.
Although the Company makes such statements based on current
information and assumptions it believes to be reasonable, there can
be no assurance that actual results will not differ materially from
those expressed or implied by such forward-looking statements. Actual
results could differ materially from those contemplated by the
forward-looking statements as a result of certain important factors,
including but not limited to, demand for the Company's products,
competitive factors and pricing pressures, changes in legal and
regulatory requirements, government budget problems, delays in
government procurement processes, technological change or difficulties,
product development risks, commercialization, difficulties, adverse
results in litigation and general economic conditions. Risks inherent
in the Company's business and with respect to future uncertainties are
further described in our other filings with the Securities and Exchange
Commission.
Available Information
- ---------------------
Our investor relations website is www.CompuDyne.com. The Company posts
all of its SEC filings on the Company website.
ITEM 2. PROPERTIES
The Company occupies its principal executive offices close to
Baltimore Washington International Airport in Hanover, Maryland.
The Company leases approximately 3,200 square feet of office
space.
At December 31, 2002 the Institutional Security Systems segment
leased primary facilities for engineering, assembly and
administration including Alabama - 62,075 square feet, California
- - 15,795 square feet, Oregon - 30,327 square feet, Maryland -
- - 9,500 square feet, Arizona - 2,500 square feet, North Carolina -
3,900 square feet and Wisconsin - 5,200 square feet.
At December 31, 2002 the Attack Protection segment owned primary
facilities for engineering, manufacturing and administration in
Alabama - 211,703 square feet. These facilities are encumbered by
an Industrial Revenue Bond. The Attack Protection segment also
leases 6,466 square feet of office/warehouse space in Oregon.
At December 31, 2002 the Federal Security Systems segment leased
primary facilities for engineering, assembly and administration in
Maryland - 18,090 square feet.
At December 31, 2002 the Public Safety and Justice segment leased
primary facilities for engineering and administration including
California - 36,351 square feet, Colorado - 15,378 square feet,
Texas - 7,711 square feet, Florida - 2,347 square feet, Maryland -
7,749 square feet, Utah - 5,422 square feet, Oregon - 4,591 square
feet, and Wisconsin - 3,308 square feet.
The Company leases only those properties necessary to conduct its
business and does not invest in real estate or interests in real
estate on a speculative basis. The Company believes that its
current properties are suitable and adequate for its current
operations, however; as its operations grow, additional space may
be required to service contracts in other areas.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain legal actions and inquiries for
environmental and other matters resulting from the normal course
of business. Although the total amount of liability with respect
to these matters cannot be ascertained, management of the Company
believes that any resulting liability should not have a material
effect on its financial position, results of future operations or
cash flows.
The Company has been served over the past several years with a
number of New York, New Jersey, Rhode Island and Pennsylvania
lawsuits involving asbestosis related personal injury and death
claims in which York-Shipley, Inc., (a former subsidiary of
CompuDyne, Inc.) and/or CompuDyne Corporation and/or CompuDyne,
Inc., (an inactive subsidiary) is a defendant. The complaints
against CompuDyne, Inc. have been referred to the trustee in
bankruptcy for CompuDyne, Inc. The Company itself was named as a
defendant more frequently in 2000 and 2001 in New York
state litigation and has advised its insurers of each of these
cases for which the insurers are providing a defense pursuant to
agreement with the Company, subject to reservation of rights by
the insurer. The insurers have advised that claims in such
litigation for punitive damages and intentional conduct are not
covered. The Company cannot ascertain the total amount of
potential liability with respect to these matters, but does not
believe that any such liability should have a material effect on
its financial position, future operations or future cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
CompuDyne Common Stock is quoted on the Nasdaq National Market,
under the symbol "CDCY". There were 1,495 common shareholders of
record as of March 25, 2003.
The following table sets forth the high and low sales for
CompuDyne Common Stock as quoted on the NASDAQ National Market.
2002 2001
---- ----
Quarter Ended High Low High Low
- ------------- ---- ---- ---- ----
March 31 $ 17.30 $ 11.70 $ 8.38 $ 5.13
June 30 17.87 12.22 10.25 7.50
September 30 15.94 6.00 19.55 7.75
December 31 9.23 5.59 19.30 9.75
The Company did not pay any dividends on its common stock during the
years ended December 31, 2002 and 2001, and its Board of Directors has no
intention of declaring a dividend in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is a consolidated summary of operations of CompuDyne and
its subsidiaries for the years ended December 31, 2002, 2001, 2000, 1999
and 1998. The information in the table below is based upon the audited
consolidated financial statements of CompuDyne and its subsidiaries for
the years indicated appearing elsewhere in this annual report or in prior
annual reports on Form 10-K filed by the Company with the SEC, and should
be read in conjunction therewith and the notes thereto.
(In thousands except per share data):
For the years ended December 31,
-------------------------------
2002(a) 2001 2000(b) 1999(c) 1998(d)
------ ----- ------ ------ -----
Net sales $ 155,556 $ 127,394 $ 130,611 $ 111,446 $ 31,916
======= ======= ======= ======= ======
Gross profit $ 34,816 $ 25,280 $ 25,502 $ 21,355 $ 6,052
Operating
expenses 25,785 17,378 17,792 15,231 4,415
Research and
development 4,916 70 220 80 169
------ ------ ------ ------ -----
Operating income $ 4,115 $ 7,832 $ 7,490 $ 6,044 $ 1,468
====== ====== ====== ====== ======
Interest expense,
net of interest
income $ 1,394 $ 2,540 $ 1,934 $ 2,057 $ 295
====== ====== ====== ====== ======
Net income $ 1,814 $ 4,092 $ 4,139 $ 2,670 $ 847
====== ====== ====== ====== ======
Earnings per share(e):
Basic
- -----
Net income $ .24 $ .75 $ .78 $ .51 $ .20
====== ====== ====== ====== ======
Weighted average number
of common shares
outstanding 7,456 5,424 5,339 5,237 4,166
====== ====== ====== ====== ======
Diluted
- -------
Net income $ .23 $ .67 $ .69 $ .46 $ .20
====== ====== ====== ====== ======
Weighted average
number of common
shares and
equivalents 7,940 6,110 6,028 5,868 4,343
====== ====== ====== ====== ======
Total assets $ 124,361 $ 76,431 $ 59,866 $ 57,447 $ 43,570
======== ======= ======== ======== =======
Long-term debt $ 27,510 $ 15,162 $ 20,217 $ 19,613 $ 20,535
======== ======= ======== ======== =======
Total
shareholders'
equity $ 49,204 $ 32,637 $ 13,796 $ 10,030 $ 5,890
======== ======= ======== ======== =======
Notes:
(a) Includes operations of Tiburon, Inc. from May 2, 2002, the date of
purchase.
(b) Includes operations of Fiber SenSys, Inc. from October 31, 2000.
(c) Includes operations of CorrLogic from May 30, 1999, the date of
purchase, Ackley Dornbach from November 12, 1999, the date of
purchase, and MicroAssembly from January 1, 1999 through May 31,
1999, the date of disposition.
(d) Includes the operations of Norment/Norshield from November 28, 1998,
the date of acquisition.
(e) No dividends have been paid on Common Stock during the above
periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 17
through 26 of the Company's Annual Report to Shareholders which is
included in the Current Report on Form 8-K filed on March 31, 2003 is
herein incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
- ------------------
CompuDyne has fixed and variable rate notes payable. These on-balance
sheet financial instruments expose the Company to interest rate risk,
with the primary interest rate exposure resulting from changes in the
LIBOR rate used to determine the interest rate applicable to the
borrowing under the Company's bank borrowings.
The information below summarizes CompuDyne's sensitivity to market risks
associated with fluctuations in interest rates as of December 31, 2002.
To the extent that the Company's financial instruments expose the Company
to interest rate risk, they are presented in the table below. The table
presents principal cash flows and related interest rates by year of
maturity of the Company's notes payable with variable rates of interest
in effect at December 31, 2002. Note 10 to the consolidated financial
statements contains descriptions of the Company's notes payable and
should be read in conjunction with the table below.
Financial Instruments by Expected Maturity Date
Year Ending December 31
2003 2004 2005 2006 2007
---- ---- ---- ---- ----
Notes Payable:
Variable rate ($) $ 2,401,667 $21,103,333 $ 440,000 $ 440,000 $ 440,000
Average interest rate 4.5% 5.0% 6.0% 6.5% 7.5%
Fixed rate ($) $ - $ - $ - $ - $ -
Average interest rate - - - - -
Year Ending December 31 Thereafter Total Fair Value
---------- ----- ----------
Notes Payable:
Variable rate ($) $ 2,685,000 $ 27,510,000 $ 27,510,000
Average Interest Rate 7.0% 5.2% 5.2%
Fixed rate ($) $ - $ - $ -
Average Interest Rate - - -
Year Ending December 31
2003 2004 2005 2006 2007
---- ---- ---- ---- ----
Interest Rate Swaps:
Variable to Fixed ($) $2,705,880 $2,705,880 $2,029,420 $ - $ -
Average pay rate 4.90% 4.90% 4.90% - -
Average receive rate 2.00% 3.00% 4.00% - -
Year Ending December 31 Thereafter Total Fair Value
---------- ----- ----------
Interest Rate Swaps:
Variable to Fixed ($) $ - $ 7,441,180 ($ 337,757)
Average pay rate - - -
Average receive rate - - -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of CompuDyne Corporation at December
31, 2002 and December 31, 2001, and for each of the three years in the
period ended December 31, 2002, and the Report of Independent Auditors
thereon, and our unaudited quarterly financial data for the two-year
period ended December 31, 2002 which is included in the Current Report on
Form 8-K filed on March 31, 2003, are herein incorporated by reference
from the registrants 2002 Annual Report to Shareholders, on pages 27
through 44 .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Information required by Items 10, 11, 12 and 13 about CompuDyne is
incorporated herein by reference from the definitive proxy statement of
CompuDyne to be filed with the SEC within 120 days following the end of
the fiscal year ended December 31, 2002 or April 30, 2003, relating to
its 2003 Annual Meeting of Stockholders.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
As of March 21, 2003, CompuDyne's management conducted an evaluation,
under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective in alerting them in a timely manner to
material information required to be included in the Company's SEC
reports, except as noted below.
Exceptions
Institutional Security Systems Segment
During the third and fourth quarters of 2002, the Company recognized
margin write-downs of approximately $600 thousand and $1.2 million
respectively. These write downs were due to increases in labor hour
estimates and other matters resulting from operational difficulties
experienced in the performance of contracts at the West Coast operations
of the Institutional Security Systems segment. Management recorded the
margin write-downs in the quarters in which the operational difficulties
were experienced, however established policies and procedures regarding
the management of contracts were not followed, including the policies for
maintaining contractual data in the information systems and management
oversight. Compliance with established policies and procedures would
have allowed these operational issues to be identified earlier and
potentially mitigated the required margin write-downs.
To address this situation, the Company has replaced certain personnel at
its West Coast operations and implemented more centralized controls
including direct oversight of the West Coast operations by the segment's
President and its Executive Vice-President. The Company is also
implementing standardized training programs for its project oversight
employees and involving the Company's internal auditor in monitoring
certain critical monthly and quarterly closing processes. The Company
analyzed all estimates and current data surrounding projects managed by
its West Coast operations as of December 31, 2002 to ensure its books and
records accurately reflected the status of these projects.
Public Safety and Justice Segment
The Company's Public Safety and Justice segment consists of its CorrLogic
and Tiburon operations. The Company acquired Tiburon on May 2, 2002. In
evaluating Tiburon's control environment, the Company identified a lack
of controls surrounding the reconciliation process over Tiburon's balance
sheet accounts. Additionally, Tiburon did not have adequate policies and
procedures to identify contractual changes and updates to the estimates
to complete.
To address this situation, the Company has commenced additional training
and replacement of certain individuals, involved the Company's internal
auditor in monitoring critical monthly and quarterly closing processes,
and instituted additional management oversight and detailed reviews. The
Company reconciled all significant accounts and updated estimates to
complete as of December 31, 2002, to ensure its books and records
accurately reflected its financial position and results of operations.
CompuDyne's management, including the Chief Executive Officer and the
Chief Financial Officer, reviewed the internal controls, and there have
been no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls subsequent
to March 21, 2003. The Company continually strives to improve its
disclosure controls and procedures to enhance the quality of its
financial reporting.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS
AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The financial statements listed in the accompanying index to
financial statements are incorporated by reference from CompuDyne's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 31, 2003.
(2) Schedule II - Schedule of valuation and qualifying accounts
(b) Reports on Form 8-K - A current report on Form 8-K regarding
the amendment of the Company's credit facility with its banks dated
March 21, 2003 and filed with the Securities and Exchange Commission
on March 31, 2003.
(C) Exhibits
The Exhibits listed on the index below are filed as a part of this
Annual Report.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(Item 14(a)(1))
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Operations for the years ended December
31, 2002, 2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended December
31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
The consolidated financial statements listed above are incorporated
by reference from the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 31, 2003
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
CompuDyne Corporation
Hanover, Maryland
We have audited the consolidated financial statements of CompuDyne
Corporation and its subsidiaries (the "Company") as of December 31, 2002
and 2001, and for each of the three years in the period ended December
31, 2002, and have issued our report thereon dated March 25, 2003; such
report has previously been filed as part of the Company's Annual Report
for the year ended December 31, 2002 included in the Current Report on
Form 8-K dated March 31, 2003. Our audits also included the financial
statement schedule of CompuDyne Corporation and its subsidiaries, listed
in the accompanying index at Item 14(a)(2). This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, such 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.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
March 25, 2003
(Item 14(a)(2))
Schedule II - Valuation and Qualifying
Accounts for the Years Ended December 31, 2002, 2001 and 2000
SCHEDULE II
COMPUDYNE CORPORATION AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
($ thousands)
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deduction of Period
- ----------- --------- -------- --------- ---------
Year Ended December 31, 2002
Reserve and allowances
deducted from asset accounts:
Obsolescence reserve
for inventory $ 385 257 - $ 642
Reserve for
accounts receivable $ 1,094 79 - $ 1,173
Tax asset allowance $ - 92 - $ 92
Year Ended December 31, 2001
Reserve and allowances
deducted from asset accounts:
Obsolescence reserve
for inventory $ 691 - (306) $ 385
Reserve for
accounts receivable $ 1,260 - (166) $ 1,094
Year Ended December 31, 2000
Reserve and allowances
deducted from asset accounts:
Obsolescence reserve for
inventory $ 610 81 - $ 691
Reserve for
accounts receivable $ 402 939 (81) $ 1,260
COMPUDYNE CORPORATION
INDEX TO EXHIBITS
(Item 10(c))
2(A). Agreement and Plan of Merger dated as of May 10, 2001 by and among
CompuDyne Corporation, Tiburon, Inc. and New Tiburon, Inc., herein
incorporated by reference to Exhibit 2(c) of Registrant's Quarterly
Report on Form 10-Q filed May 15, 2001.
2(B). First Amendment to Agreement and Plan of Merger dated as of January
25, 2002 by and among CompuDyne Corporation, Tiburon, Inc. and New
Tiburon, Inc., herein incorporated by reference to Exhibit 2(B) of
Registrant's Registration Statement on Form S-4 dated March 25,
2002.
3(A). Articles of Incorporation of CompuDyne Corporation filed with the
Secretary of State of the State of Nevada on May 8, 1996, herein
incorporated by reference to Registrant's Proxy Statement dated
April 18, 1997 for its 1997 Annual Meeting of Shareholders.
3(B). Amendment to the Articles of Incorporation of CompuDyne Corporation
increasing the number of authorized common shares filed with the
Secretary of the State of Nevada on February 16, 2001, herein
incorporated by reference to exhibit 3(B) to the registrants 10-K
filed March 27, 2001.
3(C). Agreement and Plan of Merger dated May 8, 1996, herein incorporated
by reference to Exhibit 3(B) to registrant's 10-K filed March 31,
1997.
3(D). By-Laws, as amended through January 28, 1997 and as presently in
effect, herein incorporated by reference to Exhibit 3(C) to
registrant's 10-K filed March 31, 1997.
10(A) CompuDyne Corporation 1996 Stock Incentive Compensation Plan for
Employees, herein incorporated by reference to Registrant's Proxy
Statement dated July 17, 2001 for its 2001 Annual Meeting of
Shareholders.
10(B) Credit Agreement dated November 16, 2001 by and among CompuDyne
Corporation, its subsidiaries, certain participating lenders and
PNC Bank, National Association in its capacity as agent for the
lenders, herein incorporated by reference to Exhibit 10 (B) to
registrant's 8-K filed November 21, 2001.
10(C) First Amendment to Credit Agreement dated December 19, 2001 by and
among CompuDyne Corporation, its subsidiaries, certain
participating lenders and PNC Bank, National Association in its
capacity as agent for the lenders, herein incorporated by reference
to Exhibit 10 (C) to Registrant's 10-K filed on March 29, 2002.
Second Amendment to Credit Agreement dated April 22, 2002 by and
among CompuDyne Corporation, its subsidiaries, certain
participating lenders and PNC Bank, National Association in its
capacity as agent for the lenders, herein incorporated by reference
to Exhibit 99 to Registrant's 8-K filed on May 2, 2002.
* Third Amendment to Credit Agreement dated September 30, 2002 by and
among CompuDyne Corporation, its subsidiaries, certain
participating lenders and PNC Bank, National Association in its
capacity as agent for the lenders.
Fourth Amendment to Credit Agreement dated March 21, 2003 by and
among CompuDyne Corporation, its subsidiaries, certain
participating lenders and PNC Bank, National Association in its
capacity as agent for the lenders, herein incorporated by reference
to Exhibit 99 to Registrant's 8-K filed on March 31, 2003.
10(D) 1996 Stock Non-Employee Director Plan, herein incorporated by
reference to Registrant's Proxy Statement dated April 18,
1997 for its 1997 Annual Meeting of Shareholders.
10(E) Stock Option Agreement dated August 21, 1995 by and between Martin
A. Roenigk and CompuDyne Corporation, herein incorporated by
reference to Exhibit (4.5) to Registrant's Form 8-K filed September
5, 1995.
13 * 2002 Annual Report to Shareholders.
21.* Subsidiaries of the Registrant.
23.* Independent Auditors' Consent
99. Registrant's Registration Statement dated March 25, 2002, herein
incorporated by reference to Registrant's Form S-4 filed on March
25, 2002.
99.1* Certification Pursuant To 18 U.S.C. Section 1350 As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, for
Mr. Martin Roenigk
99.2* Certification Pursuant To 18 U.S.C. Section 1350 As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, for
Mr. Geoffrey F. Feidelberg
* Filed herewith.
SIGNATURES
Pursuant to the requirements of 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.
COMPUDYNE CORPORATION
(Registrant)
By:/s/ Geoffrey F. Feidelberg
----------------------
Geoffrey F. Feidelberg
Dated: March 31, 2003 Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 31, 2003.
/s/ Martin A. Roenigk Director, Chairman, President
and Chief Executive Officer
/s/ David W. Clark, Jr. Director
/s/ Millard H. Pryor, Jr. Director
/s/ Alan Markowitz Director
/s/ Philip M. Blackmon Director and
Executive Vice-President
/s/ Wade B. Houk Director
/s/ Geoffrey F. Feidelberg Chief Financial Officer
/s/ Bruce Kelling Director
CERTIFICATION
I, Martin Roenigk, certify that:
1. I have reviewed this annual report on Form 10-K of CompuDyne
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: March 31, 2003 /s/ Martin Roenigk
----------------------
Martin Roenigk
Chief Executive Officer
CERTIFICATION
I, Geoffrey F. Feidelberg, certify that:
1. I have reviewed this annual report on Form 10-K of CompuDyne
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: March 31, 2003 /s/ Geoffrey F. Feidelberg
--------------------------
Geoffrey F. Feidelberg
Chief Financial Officer
H:\METZLER\COMPUDYN\General\SEC Filings\2002 FILINGS\10K 2002\form10k.txt