CompuDyne Corporation

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CompuDyne Corporation

7249 National Drive
Hanover, Maryland 21076
U.S.A.
Telephone: (410) 712-0275
Fax: (410) 712-0677
Web site: http://www.compudyne.com

Public Company
Incorporated: 1952
Employees: 950
Sales: $127.39 million
Stock Exchanges: NASDAQ
Ticker Symbol: CDCY
NAIC: 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 56162 Security Systems Services; 54171 Research and Development in the Physical, Engineering, and Life Sciences; 541512 Computer Systems Design Services

CompuDyne Corporation is the leading U.S. manufacturer of physical security systems, corrections and emergency dispatch software, and blast- and attack-resistant building materials, all of which are produced by subsidiaries that include Norment Security Group, Norshield Security Products, Quanta Systems, Data Control Systems, CorrLogic, Fiber SenSys, and Tiburon. The company’s primary customers are federal and state government agencies in the United States. CompuDyne head Marty Roenigk owns 25 percent of the firm’s stock.

Early Years

CompuDyne Corporation was formed in Pennsylvania in 1952 to serve as a contractor for the U.S. Defense department through a subsidiary called CompuDyne Controls. In 1967, the firm started making acquisitions by buying a majority stake in American Custom Metals Co., Inc. of Cincinnati, Ohio. The next year, General Indicator Corporation of Pardeeville, Wisconsin, a sign manufacturer, and Hydra-Tool Company of Topeka, Kansas, were purchased.

In 1969, CompuDyne bought Melweb Signs, Inc. of Daytona Beach, Florida, and merged York-Shipley, Inc. of York, Pennsylvania, into the company. A deal to buy the Frimberger Group of companies backfired, however, and after a few months of ownership it was returned to the sellers, with CompuDyne keeping the outstanding shares of Sportsman’s World of Bay City, Michigan, in compensation.

The company sold part of CompuDyne Controls in 1970 and transferred the remainder of that unit’s operations to General Indicator Corp. the following year. Further acquisitions were made during the 1970s, including purchases of the Kolux Division of VLN Corporation in 1973, the NPI Illuminated Signs Division of Essex International, Inc. in 1974, the Republic Electric and Development Co. (REDCO) in 1976, and the Ocean Applied Research Corporation (OAR) in 1978. Along the way, 75 percent of Ovitron Corporation was acquired, and the American Custom Metals Co. was sold.

In 1981, CompuDyne purchased controlling interest in another defense-related company, Quanta Systems Corp. of Rockville, Maryland, as a first step toward acquisition of the entire firm. Three years later, General Indicator Corp., York-Shipley, and Melweb Signs, Inc., were merged into Robintech, Inc. in exchange for 80 percent of Robintech’s stock. The move completed a Chapter 11 reorganization of Robintech, which was a maker of poly vinyl-chloride (PVC) pipe. For fiscal 1984, the company reported sales of $90.1 million, with net earnings of $218,000.

1985: Lydall Buys In

In the fall of 1985, company head Frank Kelley and his wife sold most of their stake in CompuDyne to Lydall, Inc., which consisted of 37 percent of the company’s stock. Kelley also resigned from the firm and was replaced by two Lydall executives, David Stevens (as president and CEO) and David Clark, Jr. (as board chairman). Lydall was a maker of industrial materials, including fiber and elastomeric components.

Several months after these changes, CompuDyne undertook a major restructuring that included selling the billboard operations of Melweb Signs for $16 million. The following summer, the company bought Advanced Navigation, Inc., a maker of air and marine navigation systems, for $1.2 million. In the fall, CompuDyne’s Robintech subsidiary sold its REDCO division to Jetronic Industries, Inc. for $4 million, and discontinued manufacture of PVC pipe. Another acquisition took place in early 1987, when Vega-Cantley Instrument Co. of London was purchased. Vega-Cantley, with annual sales of $3 million, made airborne transponders and ground-based radar systems for the British Ministry of Defense.

CompuDyne was now organized into two divisions: the Defense Electronics group, which provided electronic equipment and systems and related services for American and foreign military intelligence and industrial customers, and the General Indicator group, which manufactured signs for the petroleum, fast food, and convenience store industries, as well as electronic scoreboards and other custom electric signs. In the fall of 1988, the two divisions were reduced to one when CompuDyne sold General Indicator to Everbrite Electric Signs for $7 million.

More changes took place in the spring of 1989 when chairman David Clark took on the roles of president and CEO from David Stevens, who stayed aboard as president of the Vega operation. That unit was subsequently sold, along with CompuDyne’s Ocean Applied Research subsidiary. Both were purchased by Carlton Industries, Inc. of Vienna, Virginia, the home base of Vega. This was a difficult period for CompuDyne, which was experiencing financial stress due to reduced revenues and a sizable debt load. In March of 1991, the company’s stock was delisted by the AMEX and moved to the over-the-counter market. Two years later, in an effort to diversify, Quanta Systems formed a division called QDI to market home improvement products and security systems in the Baltimore-Washington area.

1995: Enter Marty Roenigk

By 1995, CompuDyne’s annual revenues had dropped to just $12.3 million from upwards of $95 million a decade earlier. The firm was in dire straits, and bankruptcy appeared imminent. Fortunately for the company, a white knight appeared in the form of Martin “Marty” Roenigk, chairman and majority owner of Micro Assembly Systems, which made devices that were used in manufacturing processes involving tiny screws. A reverse merger was effected in which MicroAssembly was acquired by CompuDyne in exchange for 1.25 million shares of preferred stock, with Roenigk appointed chairman and CEO. CompuDyne’s outgoing head, Norman Silberdick, bought the company’s home-improvement unit upon his departure.

The Cleveland-born Roenigk had gotten his MBA from the University of Chicago in 1967, then earned a CPA while working for Arthur Andersen in the late 1960s. After a stint with the U.S. Army’s Finance Corps in Vietnam, he joined the Travelers Corporation, where he remained for the next 23 years. During the latter part of his tenure there he served as Vice-President for Corporate Strategy and Research, a position in which he gained much experience in corporate planning, operations research, and acquisitions and divestitures while working with small companies around the United States. In addition, he acquired controlling interest in MicroAssembly Systems, along with partner Alan Markowitz.

Following its merger with MicroAssembly, CompuDyne was reorganized to focus upon its strengths—the Quanta Services and Data Control Systems units. Quanta provided engineering and security-related services, largely to U.S. government agencies, while Data Control produced telemetry and telecommunications products for military, aeronautic, and satellite use.

By the summer of 1996, the firm had rebounded enough to acquire Shorrock Electronic Systems, a U.S. subsidiary of the British Rentokil PLC. Shorrock designed and installed physical security and surveillance systems for courthouses and prisons and had recently begun to emphasize maintenance services, which provided a good fit with CompuDyne’s long-term strategy of developing recurrent business. After the purchase, Shorrock was renamed Quanta SecurSystems. An agreement to distribute the products of sister unit Shorrock Integrated Systems led to the creation of another CompuDyne entity, SYSCO Security Systems.

The year 1996 also saw CompuDyne’s Quanta Systems unit designated the sole worldwide warranty repair and maintenance facility for the IriScan biometric identification system, a deal which gave Quanta the job of performing most major IriScan installations. Sales for 1996 were up dramatically over 1995, at $22.1 million compared to $10.3 million. During the year, and continuing into 1997, the company continued to strengthen its operations, which resulted in the development of a healthy backlog of orders.

Norment and Norshield Acquired in 1998

In late 1998, CompuDyne bought Norment Industries, Inc. and Norshield Corporation from Apogee Enterprises for $22.5 million, funding for which was obtained through William Blair & Co. The two new acquisitions, along with Norment’s subsidiaries Airteq, Trentech, SESCO, and EMSS (Engineered Maximum Security Systems), had annual sales of approximately $80 million. Norment was a leading designer and builder of prison and courthouse security systems worldwide, while Norshield made bullet resistant building products such as doors and windows, which were sold to U.S. embassies and other government and commercial clients. The acquisition of the two Montgomery, Alabama-based firms made CompuDyne the largest supplier of security products and systems integration services to prisons and courthouses in the United States. Roenigk had reportedly spent two years working out the deal.

Company Perspectives:

CompuDyne is an industry leader in sophisticated security products, integration, and technology for the public security markets. CompuDyne operates within four business segments, each with leading positions in physical and electronic security and technology-based solutions.

Following these acquisitions, the company announced plans to expand the regional office system of Quanta SecurSystems to help market Norment products and maintenance services around the United States and to expand by 50 percent Norshield’s manufacturing facility in Montgomery. New contracts for Norment were soon announced that included provision of electronic and pneumatic locking systems, closed circuit television, intercommunications and perimeter detection systems for a new 1400-bed prison in Lexington, Kentucky, and for a 900-bed Federal Correctional Institution in Petersburg, Virginia. These and other deals put Norment’s work backlog at $80 million, a record for the firm. Terrorist attacks on two U.S. embassies in Africa during the year had also precipitated a huge surge in government orders for Norshield blast and attack-resistant building materials.

In the spring of 1999, CompuDyne completed acquisition of the Corrections Information Systems division of BI, Inc., a maker of inmate management software. After the $3.2 million deal was finalized, CompuDyne renamed the unit CorrLogic, Inc. At the same time, the firm was selling its Micro Assembly Systems business, which was purchased for $1.4 million by Penn Engineering & Manufacturing. CompuDyne subsequently moved its headquarters from MicroAssembly’s home base of Willimantic, Connecticut, to Hanover, Maryland, and its stock began trading on the NASDAQ exchange. Although the company was headquartered on the East Coast, Roenigk himself lived in Eureka Springs, Arkansas, where he was restoring two National Historic Register-listed hotels. He also maintained a large collection of antique mechanical musical instruments.

November 1999 saw CompuDyne buy Ackley-Dornbach, a Milwaukee-based detention equipment contractor. After the purchase, the company announced plans to add electronic security products and maintenance services to Ackley-Dornbach’s offerings. The acquisition was another step in the ongoing expansion of CompuDyne’s regional office system.

During 2000, the company logged a number of new orders, including $22 million worth of equipment for a prison in New Jersey and $9 million worth for one in Maine. In the fall, Norment announced the availability of its Max Wall Modular Cell System, a prefabricated steel and concrete prison cell unit complete with doors, hardware, furniture, windows, plumbing, and electrical systems. The company expected the product to generate $12 million in sales in its first year. CompuDyne also began offering the CorrMedica Institutional Health Care System, a medical records software program designed for use in prison hospitals.

In October 2000, the company reached an agreement to purchase Fiber SenSys, Inc., a maker of fiber-optic sensors for use in security systems, for $1.8 million. At year’s end, CompuDyne reported record sales of $130.6 million and net earnings of $4.1 million.

2001: Further Expansion and Increased Profits

In May 2001, the company invested $6 million to buy 19.7 percent of Tiburon, Inc., the largest American maker of software used by fire and police department emergency-dispatch centers, as the first step in an acquisition of the entire company. After September’s terrorist attacks on the World Trade Center and Washington, D.C., CompuDyne’s stock price nearly doubled as investors sought out companies that offered security products. The firm’s Norshield unit was already in the process of upgrading the doors and windows of U.S. embassies in 50 countries, work which had begun following the terrorist bombings of embassies in Africa. Norshield products had also been used in seven of the last eight Federal Reserve buildings, many federal courthouses, and at the White House.

A short time after the stock value rose, CompuDyne sold 1.1 million newly issued shares for $12 each to a group led by 14 institutional investors. William Blair Mezzanine Capital Partners II simultaneously sold 1.37 million shares in the company, and CompuDyne retired $9 million in debt owed to Blair.

In November, the company announced it was expanding its Bullet, Blast, and Attack Protection Division by purchasing a new 75,000-square-foot factory in Montgomery, Alabama. The $3 million facility would incorporate a $650,000 laser cutting machine and would increase production capacity by 40 percent. Since the 9/11 attacks, inquiries had been pouring in, and the company’s order backlog was increasing at a rapid rate for work that included providing strengthened enclosures for nuclear power plants.

CompuDyne also introduced a new package of airport security products and services, including video badging and access control; bullet, blast, and attack-resistant products for entrance protection; fiber-optic perimeter sensing systems; shoreline attack detection systems; and emergency services dispatch and record management software. Orders for several of these systems were soon received from the U.S. Air Force for use in Southeast Asia, Europe, and at Cape Canaveral in Florida. Though sales for 2001 were down slightly from 2000, largely due to delays in a prison-construction project in New Jersey, newly received orders were expected to boost income to the $180 million mark during the next fiscal year.

Key Dates:

1952:: CompuDyne is founded as a U.S. government defense contractor.
1967:: A round of acquisitions begins with investment in American Custom Metals.
1981:: The company buys a majority interest in Quanta Systems Corp. of Maryland.
1985:: Control of CompuDyne is bought by Lydall, Inc.
1987:: Vega-Cantley Instrument Co. of England is acquired.
1993:: QDI home improvement and security division is formed.
1995:: CompuDyne merges with MicroAssembly; Marty Roenigk is installed as president.
2001:: The company’s stock value jumps in aftermath of 9/11 terrorist attacks on U.S.
2002:: Emergency dispatch software maker Tiburon, Inc. is acquired.

In the spring of 2002, after several delays, the acquisition of Tiburon was completed. The company also announced the signing of several new multi-million dollar contracts with the state of California for installation of prison locking and inmate tracking software systems during the year.

CompuDyne Corporation’s expertise in the blast- and attack-resistant building materials category made it a first choice for many government agencies and companies seeking greater protection in the post-9/11 world. When combined with its emergency services software and detection systems offerings, the firm covered a wide range of territory in the security and anti-terrorism fields. CompuDyne’s largest business by volume, the manufacturing and servicing of detention and corrections equipment, was also one for which there remained strong demand.

Principal Subsidiaries

SYSCO Security Systems, Inc.; CompuDyne Corp. of Maryland; Quanta Systems Corp.; CompuDyne, Inc.; CorrLogic, Inc.; Norment Security Group, Inc.; Norshield Corp.; Norment Industries S.A. (Pty) Ltd. (South Africa); Fiber SenSys, Inc.; New Tiburon, Inc.