<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1995
[ ] 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: 0-8125
_____________________
DETECTION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
State of New York 16-0958589
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) dentification Number)
130 Perinton Parkway
Fairport, New York 14450
(Address of principal executive offices) (Zip Code)
(716) 223-4060
(Registrant's telephone number, including area code)
_____________________
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 __
As of August 10, 1995, there were outstanding 2,787,718 shares of
the registrant's common stock, par value $.05 per share.
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PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
<S> <C> <C>
ASSETS 6/30/95 3/31/95
Current Assets: ----------- -----------
Cash & cash equivalents $ 1,225,380 $ 4,580,751
Short-term investments, at cost, which
approximates market value 3,416,487 2,437,842
Accounts receivable, less allowance
for doubtful accounts of $100,000 5,521,101 4,916,052
Inventories 6,108,984 5,255,724
Income tax receivable 113,846 94,121
Deferred income tax charges 354,500 354,500
Prepaid expenses and other assets 585,084 314,285
---------- ----------
Total Current Assets 17,325,382 17,953,275
Fixed assets at cost 13,262,540 12,655,276
Less accumulated depreciation 9,009,265 8,734,705
---------- ----------
4,253,275 3,920,571
Property under capital lease 4,760,810 4,760,810
Less accumulated depreciation 2,114,506 2,035,297
---------- ----------
2,646,304 2,725,513
Other Assets 142,556 145,934
---------- ----------
Total Assets $24,367,517 $24,745,293
=========== ===========
LIABILITIES
Current Liabilities
Current portion of long-term debt $ 414,761 $ 434,934
Accounts payable 971,127 1,213,958
Accrued payroll & benefits 748,486 1,074,103
Other accrued liabilities 285,728 266,526
---------- ----------
Total Current Liabilities 2,420,102 2,989,521
Obligations under capital leases 652,879 745,733
Deferred compensation 1,641,920 1,527,638
Deferred income tax 288,200 288,200
Shareholders' Equity
Common stock, par value $.05 per share
Authorized 12,000,000 shares
Issued 2,792,489,186 shares at 6/30/95
and at 3/31/95 139,624 139,624
Capital in excess of par value 6,853,435 6,853,246
Retained earnings 12,887,647 12,724,265
---------- ----------
19,880,706 19,717,135
Less: Treasury stock, 4,171 shares at 6/30/95
at cost and 7,468 at 3/31/95 at cost (35,003) (36,326)
Notes receivable for stock purchases (481,287) (486,608)
---------- ----------
19,364,416 19,194,201
---------- ----------
Total Liabilities & Shareholders' Equity $24,367,517 $24,745,293
=========== ===========
(See accompanying notes to financial information.)
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DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement (Unaudited)
<S> <C> <C>
For the Three Months Ended: 6/30/95 6/30/94
(Current Year) (Preceding Year)
Gross sales less discounts,
returns and allowances $ 8,791,464 $ 8,172,780
Other income 102,507 81,930
----------- -----------
Total income 8,893,971 8,254,710
Costs and expenses:
Production 5,223,462 4,980,495
Development 989,333 980,584
Marketing, administrative & general 2,159,525 1,523,663
Interest expenses 47,269 38,969
----------- ----------
Total costs and expenses 8,419,589 7,523,711
Income before taxes 474,382 730,999
Provision for taxes (311,000) (273,000)
----------- -----------
Net income 163,382 457,999
Retained earnings at beginning of period 12,724,265 11,209,776
Dividends none none
Retained earnings at end of period $12,887,647 $11,667,775
Net Income Per Share $0.06 $0.16
===== =====
(See accompanying notes to financial information)
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DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
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<S> <C> <C>
For the Three Months Ended June 30,
1995 1994
Cash Flows from Operating Activities:
Net Income $163,382 $457,999
-------- --------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 355,260 352,279
Fixed asset retirements 1,887 2,625
Change in obsolescence reserve 0 50,000
Deferred compensation 114,282 20,466
Change in assets and liabilities:
Accounts receivable (605,049) (366,146)
Inventories (853,260) 257,391
Income tax receivable (19,725) 139,468
Prepaid expenses and other assets (270,799) (178,886)
Accounts payable (242,831) (90,627)
Accrued payroll and benefits (325,617) 81,461
Other accrued liabilities 19,202 (186,683)
Income taxes payable 0 130,405
Total adjustments (1,826,650) 211,753
Net cash (used) provided in operating
activities (1,663,268) 669,752
Cash flows from investing activities:
Capital expenditures (607,264) (230,555)
Short-term investments (978,645) 0
Net cash (used) provided in investing
activities (1,585,909) (230,555)
Cash flows from financing activities:
Principal payments on long-term debt and
capital lease obligations (113,027) (110,074)
Common stock transactions, net 6,833 5,341
Net cash (used) by financing activities (106,194) (104,733)
Net (decrease) in cash and cash equivalents (3,355,371) 334,464
Cash and cash equiv. at beginning of period $4,580,751 $3,907,111
Cash and cash equivalents at end of period $1,225,380 $4,241,575
Cash paid during the period for:
Interest 7,346 36,752
Income taxes 324,349 18,374
Non-cash transactions:
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
See accompanying notes to financial information.
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DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE-MONTH PERIOD ENDED
June 30, 1995
(Unaudited)
BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes which are normally
included in the Form 10-K and annual report to shareholders. The
financial statements reflect all adjustments which, in the opinion
of management, are necessary for a fair statement of results for
the interim periods.
INVENTORIES:
Major classifications of inventory follow:
June 30, 1995 March 31, 1995
------------- --------------
Component Parts 2,512,253 2,100,894
Work In Process 997,012 475,927
Finished Products 2,599,719 2,678,903
--------- ---------
6,108,984 5,255,724
========= =========
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three month period ended June 30, 1995,
increased $617,000 as compared to the comparable year ago quarter.
This increase was attributable to increased unit sales in most
product categories as well as increased sales to distribution
accounts. The Company has recently increased its support of
domestic wholesale distribution companies in the promotion of its
products. The Company sells a variety of electronic security and
fire detection equipment that has a significant range in both sales
price and gross product margin. Based on customer demand, sales of
different product types have shown noticeable shifts on a quarter
to quarter basis. It is projected that average prices will continue
to decline in fiscal 1996, consistent with historical trends. The
Company is adding reduced featured versions of its standard product
line to accommodate this trend.
Gross profit margins on sales for the quarter ended June 30,
1995 improved slightly as compared with the same period a year ago.
Fluctuations in gross profit margin are usually attributable to
product mix. Gross profit margins in fiscal 1996 are also
projected to be impacted by the Company's international initiative.
During fiscal 1995, an international subsidiary was
established to address international markets. An experienced
international executive was appointed to lead this operation.
Subsidiaries were established in Hong Kong and Australia. A branch
office was established in France. A manufacturing facility in
Southeast Asia has been leased and manufacturing operations at this
facility are targeted to commence later this year. The Company
believes this facility will allow the Company to achieve reduced
manufacturing costs in the future when associated volumes increase.
Other income increased during the quarter. This was partially
due to increased sales from the Company s foreign sales corporation.
It was also impacted by increased moneys available for investment
during the majority of the quarter ended June 30, 1995.
Production expenses for the three months ended June 30, 1995
increased at a rate consistent with sales activity as compared with
the same period one year ago. The Company expects production
expenses to increase in fiscal 1996, primarily due to the start-up
of the Southeast Asia manufacturing facility.
Development expenses for the quarter ended June 30, 1995
remained consistent with that of the quarter ended June 30, 1994.
Marketing, administrative and general expenses increased
$636,000 in the three month period ended June 30, 1995 as compared
with the same period a year ago. This increase was primarily due
to the start-up of the Company's international venture.
Interest expenses remained constant for the three month period
ended June 30, 1995 versus the same period a year ago.
Pretax income was $474,000 for the quarter ended June 30, 1995
compared to $731,000 for the equivalent year ago quarter. The
decrease was primarily due to the full expensing of international
start-up costs.
The Company s effective tax rate for the quarter ended June 30,
1995 was 65.6% as compared to 37.3% for the same quarter a year
ago. The higher rate results from the tax impact of subsidiary
consolidation. If and when the Company's subsidiaries become
profitable, loss carryforwards will be utilized to offset earnings.
FINANCIAL CONDITION
At June 30, 1995, the Company had net working capital of $14.9
million, including approximately $4.6 million in cash, cash
equivalents and short-term investments. This compares to net
working capital of approximately $15.0 million and $7.0 million in
cash and cash equivalents at March 31, 1995. Operations for the
three-month period ended June 30, 1995 used net cash of $1,663,000.
The cash outflow results from start-up costs associated with the
Company's international initiative. The Company believes that
current levels of cash, cash equivalents and short-term
investments, together with available lines of credit, will be
sufficient to meet its foreseeable working capital needs. On a
long term basis, most cash requirements of the international
initiative are expected to be derived from operations of overseas
subsidiaries.
The Company has bank commitments for revolving credit
facilities totaling $9,000,000, that extend into fiscal 1998. These
commitments include an interest rate based on either the bank s
stated prime rate or the London Interbank Offered Rates (LIBOR) and
a five year term loan provision for repayment of balance due, if
necessary.
The Company continually reviews its capital assets and
upgrades them as required to insure that its technical and
manufacturing capabilities stay on the leading edge of the
industries it serves. The Company expects to make a substantial
expenditure for manufacturing equipment for its new southeast Asia
manufacturing facility and for business system software to enhance
the Company's ability to communicate in a global market place. The
Company believes it has the resources to fund these expenditures
internally.
Although the Company has a broad customer base, it does have
several customers who individually account for substantial amounts
of business. A significant change in purchases by one of these
customers could result in significant fluctuations in sales and
profit. To minimize these fluctuations, the Company has increased
its emphasis on partnership opportunities with its national and
large regional accounts. In addition, the Company is increasing
its support of domestic wholesale distribution companies. The
Company's international initiative is also expected to minimize
fluctuations in sales.
During the past several years, the Company has made
substantial expenditures on the development of new products and
markets. The Company expects to continue this trend for the
foreseeable future. These expenditures will include continued
investment in security detection, fire detection, alarm control
products and several wireless projects, as well as the expansion of
the Company s international marketing efforts.
Accounts receivable increased $605,000 from the prior quarter.
This increase was attributable to the increased sales volumes for
the quarter ended June 30, 1995. The Company s standard credit
terms are net 30 days.
Inventories increased $853,000 from the March 31,1995 level
due to the build-up of inventory to support our international
venture. The Company regularly reviews its reserve for
obsolescence and adjusts it accordingly. Occasionally, a new
product will render another obsolete. However, it has been the
Company s policy to time the release of new products to minimize
this impact.
Prepaid expenses and other assets increased $271,000 from
March 31, 1995 due to the prepayment of the Company s comprehensive
insurance premium for fiscal year 1996.
Accounts payable decreased $243,000 from the March 31, 1995
level due to timing of payments on inventory purchases to finance
our international initiative.
Accrued payroll and benefits decreased $326,000 from March 31,
1995, primarily due to the payment of fiscal 1995 year-end
performance bonuses.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 6. Exhibits and Reports for Form 8-K.
INDEX
(a) (3ii) Text of the Certification of Incorporation, as
amended. Incorporated by reference to Exhibit 3a to
the registrants Form 10K dated June 25, 1993.
(a) (3ia) Certificate of Amendment of Certificate of
Incorporation as filed with New York Secretary of
State. Incorporated by reference to Exhibit 3a to
the registrants Form 10K dated June 25, 1993.
(a) (3ii) The text of the registrant's By-laws, as amended,
are incorporated by reference to Exhibit 3b to the
Company's Report on Form 10K dated June 25, 1993.
(a) (10) Executive Employment Agreements dated May 24, 1994
are incorporated by reference to Exhibit starting
on page 134 to the registrant's Report on Form 10K
dated June 27, 1994.
(a) (11) Statement re computation of per share earnings.
See Exhibit 11 on page 11.
(b) The registrant filed no reports on Form 8-K during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements 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.
DETECTION SYSTEMS, INC.
Registrant
DATE: August 14, 1995 By: /s/ Karl H. Kostusiak
Karl H. Kostusiak, President
By: /s/ Frank J. Ryan
Frank J. Ryan, Vice President,
Secretary and Treasurer
(Chief Financial & Accounting
Officer)
<PAGE>
<PAGE> Exhibit 11
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Computation of Net Income Per Common
And Common Equivalent Share
For the Three Months Ended June 30, 1995
Net Income $ 163,429
ADD - Interest on deferred compensation 20,081
---------
Adjusted net income applicable to common stock $ 183,510
Number of Shares:
Weighted average number of shares 2,787,120
Common Stock equivalent due to
assumed exercise of stock options
and warrants 236,116
---------
3,023,236
=========
Net Income per Common and Common
Equivalent share $0.06
=====
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 1,225,380
<SECURITIES> 3,416,487
<RECEIVABLES> 5,621,101
<ALLOWANCES> (100,000)
<INVENTORY> 6,108,984
<CURRENT-ASSETS> 17,325,382
<PP&E> 18,023,350
<DEPRECIATION> 11,123,771
<TOTAL-ASSETS> 24,367,517
<CURRENT-LIABILITIES> 2,420,102
<BONDS> 0
<COMMON> 6,993,059
0
0
<OTHER-SE> 12,887,647
<TOTAL-LIABILITY-AND-EQUITY> 24,367,517
<SALES> 8,791,464
<TOTAL-REVENUES> 8,893,971
<CGS> 5,223,462
<TOTAL-COSTS> 8,372,320
<OTHER-EXPENSES> 3,148,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,269
<INCOME-PRETAX> 474,382
<INCOME-TAX> 311,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,382
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
