UNITED STATES
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 quarterly period ended June 30, 1996
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: 0-8125
_____________________
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) Identification 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 12, 1996, there were outstanding 2,845,237 shares of the
registrant's common stock, par value $.05 per share.
PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS June 30, 1996 March 31, 1996
Current Assets: ------------- --------------
Cash & cash equivalents $ 1,264,370 $ 913,716
Short-term investments, at cost, which
approximates market value 16,373 16,296
Accounts receivable, less allowance
for doubtful accounts of $100,000 11,935,584 10,482,660
Inventories 14,433,293 14,065,843
Income tax receivable 141,807 532,895
Deferred income tax charges 1,554,900 1,554,900
Prepaid expenses and other assets 1,049,625 860,018
---------- ----------
Total Current Assets 30,395,952 28,426,328
Fixed assets at cost 17,288,760 16,767,326
Less accumulated depreciation 10,293,657 9,681,969
---------- ----------
6,995,103 7,085,357
Property under capital lease 4,740,110 4,760,810
Less accumulated depreciation 2,316,821 2,269,335
---------- ----------
2,423,289 2,491,475
Deferred Income Taxes 3,983,200 3,983,200
Goodwill and other intangibles 3,666,136 3,762,327
Other Assets 159,425 148,891
---------- ----------
Total Assets $47,623,105 $45,897,578
========== ==========
LIABILITIES
Current Liabilities
Current portion of long-term debt $ 116,274 $ 559,860
Accounts payable 6,104,470 6,231,737
Accrued payroll & benefits 2,243,852 1,566,777
Notes payable 1,478,930 1,183,750
Other accrued liabilities 3,616,814 3,171,914
---------- ----------
Total Current Liabilities 13,560,340 12,714,038
Obligations under capital leases 157,024 186,471
Other long-term liabilities 1,931,900 1,931,900
Long-term debt 17,750,000 17,750,000
Deferred compensation 1,782,934 1,745,886
Shareholders' Equity
Common stock, par value $.05 per share
Authorized 12,000,000 shares. Issued
2,835,817 shares at 6/30/96 and at 3/31/96 141,791 140,568
Capital in excess of par value 7,235,365 6,972,431
Retained earnings 5,493,306 4,869,022
---------- ----------
12,870,462 11,982,021
Less: Treasury stock, 1,658 shares at 6/30/96
at cost and 2,207 at 3/31/96 at cost (8,658) (12,363)
Notes receivable for stock purchases (413,675) (392,514)
Cumulative translation adjustment (7,222) (7,861)
---------- ----------
12,440,907 11,569,283
---------- ----------
Total Liabilities & Shareholders' Equity $47,623,105 $45,897,578
========== ==========
</TABLE>
(See accompanying notes to financial information.)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement (Unaudited)
For the Three Months Ended:
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<S> <C> <C>
June 30, 1996 June 30, 1995
(Current Year) (Preceding Year)
-------------- ---------------
Gross sales less discounts,
returns and allowances $23,178,323 $ 8,791,464
Other income 19,342 102,507
---------- ----------
Total income 23,197,665 8,893,971
Costs and expenses:
Production 15,365,822 5,223,462
Development 1,759,931 989,333
Marketing, administrative & general 4,691,654 2,159,525
Interest expenses 354,975 47,269
---------- ----------
Total costs and expenses 22,172,382 8,419,589
Income before taxes 1,025,283 474,382
Provision for taxes 401,000 311,000
---------- ----------
Net income 624,283 163,382
Retained earnings at beginning
of period 4,869,023 12,724,265
Dividends 0 0
Retained earning at end of period $5,493,306 $12,887,647
Net Income Per Share $0.20 $0.06
===== =====
</TABLE>
(See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months Ended June 30, 1996
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<S> <C> <C>
1996 1995
---- ----
Cash Flows from Operating Activities:
Net Income $ 624,283 $ 163,382
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 744,831 355,260
Fixed asset retirements 0 1,887
Deferred compensation 37,048 114,282
Change in assets and liabilities:
Accounts receivable (1,452,924) (605,049)
Inventories (367,450) (853,260)
Income tax receivable 391,088 (19,725)
Prepaid expenses and other assets (189,607) (270,799)
Accounts payable (127,267) (242,831)
Accrued payroll and benefits 677,076 (325,617)
Other accrued liabilities 444,900 19,202
Income taxes payable 0
-------- --------
Total adjustments 157,695 (1,826,650)
Net cash (used) provided in operating
activities 781,978 (1,663,268)
Cash flows from investing activities:
Capital expenditures (500,734) (607,264)
Short-term investments (77) (978,645)
-------- --------
Net cash (used) provided in investing
activities (500,811) (1,585,909)
Cash flows from financing activities:
Note payable 295,180 0
Principal payments on long-term debt and
capital lease obligations (473,033) (113,027)
Common stock transactions, net 247,340 6,833
-------- --------
Net cash (used) by financing activities 69,487 (106,194)
Net (decrease) in cash and cash equivalents 350,654 (3,355,371)
Cash and cash equivalents at beginning
of period 913,716 4,580,751
--------- ---------
Cash and cash equivalents at end of period $1,264,370 $1,225,380
========= =========
Cash paid during the period for:
Interest 103,786 7,346
Income taxes 5,897 324,349
Non-cash transactions:
The Company considers all highly liquid investments
with a maturity of three months or less to be cash equivalents.
</TABLE>
See accompanying notes to financial information.
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE-MONTH PERIOD ENDED
June 30, 1996
(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, 1996 March 31, 1996
------------- --------------
Component Parts $ 7,134,048 $ 6,408,670
Work In Process 1,054,835 705,473
Finished Products 6,244,410 6,951,700
--------- ---------
$14,433,293 $14,065,843
========== ==========
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, 1996, increased
$14.4 million as compared to the same period a year ago. $13.2 million of
this increase was attributable to the acquisition of Radionics, Inc. on
February 12, 1996. In addition, international sales for the quarter ended
June 30, 1996 increased to $3.4 million as compared to $1.5 million for the
same quarter a year ago. The Company has also benefited from a broader
customer base.
The Company sells a variety of electronic security and fire protection
equipment that range in both sales price and gross margin. Based on
customer demand, sales of different product types shift on a quarter to
quarter basis. Detection Systems has lowered prices on certain products
based on anticipated savings generated from the manufacturing of these
products in the Company's Southeast Asia manufacturing facility. The
Company expects that average prices will continue to decline in fiscal 1997.
Gross profit margins on sales for the quarter ended June 30, 1996
declined 6.9 points from the same quarter a year ago. This decline was
attributable to price reductions in anticipation of lower production costs
associated with the Southeast Asia manufacturing facility. In addition, the
transitioning of products from the Company's two established domestic
manufacturing operations to the Southeast Asia facility has resulted in some
temporary inefficiencies.
Late in fiscal 1996, Detection Systems purchased all of the equity in
Radionics, Inc. for approximately $18 million. The acquisition of Radionics
had a significant impact on the comparative information for the quarter
ended June 30, 1996 versus the quarter ended June 30, 1995, both for the
results of operations as well as for asset and liability balances.
Other income declined by approximately $83,000 for the quarter ended
June 30, 1996 as compared with the same quarter ended June 30, 1995. The
decrease was attributable to the reduction in amounts available for
investments.
Production expenses increased $10.1 million for the quarter ended June
30, 1996 as compared with the same period a year ago. This increase was
primarily attributable to Radionics' cost of sales and other manufacturing
costs. The transitioning of products from both the Detection System plant
and the Radionics plant to the Southeast Asia plant has temporarily
increased total production costs. These costs should diminish as the
Southeast Asia facility becomes fully operational.
Development expenses increased $0.8 million for the three months ended
June 30, 1996 as compared with the same period one year ago. This increase
was attributable to Radionics' research and development efforts for the
quarter. The Company expects to spend between $7.0 and $8.0 on research and
development efforts in fiscal 1997.
Marketing, administrative and general expenses for the quarter ended
June 30, 1996 versus June 30, 1995 increased by $2.5 million. Although this
was primarily due to the addition of Radionics, these expenses were also
impacted by the Company's international sales initiative.
Interest expense increased $0.3 million for the three months ended
June 30, 1996 as compared with the three months ended June 30, 1995. This
increase was due to the debt financing associated with the Radionics
acquisition.
Income before taxes rose to $1,025,000 for the quarter ending June 30,
1996 as compared with $474,000 for the same period one year ago. Results
improved as a result of higher sales volumes and reduced costs associated
with international operations. The Company's effective tax rate for the
quarter ended June 30, 1996 was 39.1% as compared to 65.6% for the same
period one year ago. The higher rate one year ago resulted from the tax
impact on subsidiary losses during consolidation. When the Company's
subsidiaries become profitable, loss carryforwards will be utilized to
offset earnings. The current tax reflects the statutory rate on domestic
operations.
FINANCIAL CONDITION
At June 30, 1996, the Company had net working capital of $16.8
million, including approximately $1.3 million in cash, cash equivalents and
short term investments. This compares to net working capital of
approximately $15.7 million and $0.9 million in cash, cash equivalents and
short term investments at March 31, 1996. Operations for the three-month
period ended June 30, 1996 provided net cash of $0.8 million.
The Company has a $6.5 million bank commitment for a revolving line of
credit facility that extends into fiscal 1999. This commitment includes an
interest rate based on the London Interbank Offered Rate plus applicable
points based on the Company's performance. The balance becomes fully due
and payable on May 31, 1998. At June 30, 1996, the Company had short-term
borrowings of $1.5 million from its line of credit. The Company believes
that current levels of cash, cash equivalents and short term investments,
together with its available line of credit, will meet its foreseeable
working capital needs.
The Company expects to continue expenditures on the development of new
products and markets. These expenditures will include continued investment
in security detection, fire detection, security, fire and access control
products. The Company's effort to market its products internationally will
continue as well.
To meet customer demands for its products, the Company plans to add a
third production line to its Southeast Asia facility in the Fall of 1996.
Funding for this expenditure is expected to come from the Company's
revolving line of credit facility.
At June 30, 1996, accounts receivable increased 13.9% from the March
31, 1996 level. This increase was attributable to the higher sales volume
achieved during the first fiscal quarter. The Company's standard credit
terms are net 30 days, with variations depending on pricing and prepayment
discounts.
Inventories increased slightly at June 30, 1996 as compared to March
31, 1996. This increase was attributable to the shift of manufacturing to
the Company's Southeast Asia facility.
Prepaid expenses and other assets increased by $190,000 at June 30,
1996 versus the March 31, 1996 level. This increase was attributable to the
prepayment of premiums for certain benefits.
Accounts payable at June 30, 1996 remained consistent with levels at
March 31, 1996.
Accrued payroll and benefits increased by $677,000 at June 30, 1996
versus the March 31, 1996 levels. This increase was attributable to the
accrual of performance bonuses for fiscal 1997.
Other accrued liabilities increased to $3.6 million at June 30, 1996
from $3.2 million at March 31, 1996 due to the reclassification of payables.
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) (3ii) 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 are incorporated by reference to
Exhibit 10 of the registrant's Report on Form 10K/A dated July
12, 1996.
(a) (11) Statement re computation of per share earnings. See Exhibit 11
on page 13.
(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, 1996 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)
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, 1996
Net Income $624,283
ADD - Interest on deferred compensation 15,840
-------
Adjusted net income applicable to common stock $640,123
Number of Shares:
Weighted average number of shares 2,825,680
Common Stock equivalent due to
assumed exercise of stock options
and warrants 305,918
---------
3,131,598
=========
Net Income per Common and Common
Equivalent share $0.20
=====
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 1,264,370
<SECURITIES> 16,373
<RECEIVABLES> 11,935,584
<ALLOWANCES> (100,000)
<INVENTORY> 14,433,293
<CURRENT-ASSETS> 30,395,952
<PP&E> 22,028,870
<DEPRECIATION> 12,610,478
<TOTAL-ASSETS> 47,623,105
<CURRENT-LIABILITIES> 13,560,340
<BONDS> 0
0
0
<COMMON> 7,377,156
<OTHER-SE> 5,493,306
<TOTAL-LIABILITY-AND-EQUITY> 47,623,105
<SALES> 23,178,323
<TOTAL-REVENUES> 23,197,665
<CGS> 15,365,822
<TOTAL-COSTS> 21,817,407
<OTHER-EXPENSES> 6,451,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354,975
<INCOME-PRETAX> 1,025,283
<INCOME-TAX> 401,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 624,283
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
