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 September 30, 1997
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 No.)
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 the filing
requirements for the past 90 days. Yes X No _____
As of November 12, 1997 there were outstanding 6,098,514 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)
Assets Sept. 30, 1997 March 31, 1997
Current assets:
Cash and cash equivalents $ 5,436,013 $ 2,244,265
Accounts receivable, less
allowance for doubtful accounts
of $325,400 and $313,800,
respectively 23,036,151 15,246,309
Inventories 32,384,557 29,995,215
Deferred income tax charges 2,199,638 2,132,156
Prepaid expenses and other assets 1,498,563 883,137
---------- ----------
64,554,922 50,501,082
---------- ----------
Fixed assets 11,656,505 11,248,171
Deferred income taxes 3,046,200 3,046,200
Unallocated excess of purchase
price over net assets acquired 2,219,535
Goodwill and other intangibles 2,729,746 2,942,626
Other assets 957,357 537,772
---------- ----------
Total Assets $85,164,265 $68,275,851
========== ==========
Liabilities
Current liabilities:
Current portion of long
term debt $ 2,486,868 $ 953,648
Current portion of capital lease
obligation 52,188 147,574
Short term borrowings 715,277 0
Accounts payable 12,828,086 12,259,380
Accrued payroll and benefits 2,948,001 2,818,487
Other accrued liabilities 2,316,308 3,254,593
---------- ----------
21,346,728 19,433,682
Obligations under capital
leases 25,750 54,125
Other long term liabilities 3,206,947 2,924,975
Long term debt 15,365,890 28,031,802
Shareholders' equity:
Common stock, par value $.05 per
share; Authorized - 12,000,000
shares; Issued - 6,098,927 shares
at September 30, 1997, and
4,478,993 shares at March 31,
1997 293,296 223,950
Capital in excess of par value 34,641,098 9,448,917
Retained earnings 10,804,414 8,594,306
---------- ----------
45,738,808 18,267,173
Less - Treasury stock, at cost (49,672) (52,553)
Notes receivable for stock
purchases (320,780) (378,373)
Cumulative translation
adjustment (149,406) (4,980)
---------- ----------
45,218,950 17,831,267
---------- ----------
Total liabilities and
shareholders' equity $85,164,265 $68,275,851
========== ==========
(See accompanying notes to financial statements)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings
(Unaudited)
Sept. 30, 1997 Sept. 30, 1996
For the Three Months Ended: (Current Year) (Preceding Year)
---------- -----------
Net sales $34,463,093 $24,865,642
Costs and expenses:
Production 23,108,374 16,577,368
Research and development 2,202,994 1,997,484
Marketing, administrative and 6,860,470 4,778,247
general
---------- ----------
Total costs and expenses 32,171,838 23,353,099
Operating income 2,291,255 1,512,543
Interest income 2,376 8,784
Interest expense (816,831) (512,838)
Other income 23,090 23,643
---------- ----------
Income before taxes $ 1,499,890 $ 1,032,132
Provision for taxes 435,000 238,000
---------- ----------
Net income 1,064,890 794,132
========== ==========
Retained earnings at beginning of
period 9,739,524 5,493,305
Retained earnings at end of
period $10,804,414 $ 6,287,437
========== ==========
Earnings per common and common
equivalent share $0.20 $0.17
==== ====
(See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement(Unaudited)
For the Six Months Ended: Sept. 30, 1997 Sept. 30, 1996
(Current Year) (Preceding Year)
------------ -------------
Net Sales $62,670,881 $48,043,965
Costs and expenses:
Production 40,664,306 31,943,190
Research and development 4,287,952 3,757,415
Marketing, administrative and
general 13,247,027 9,469,901
---------- ----------
Total costs and expenses 58,199,285 45,170,506
Operating income 4,471,596 2,873,459
Interest income 6,030 28,126
Interest expense (1,454,300) (867,813)
Other income 238,798 23,643
---------- ----------
Income before taxes 3,262,124 2,057,415
Provision for taxes 1,064,000 639,000
---------- ----------
Net income $ 2,198,124 $ 1,418,415
---------- ----------
Retained earnings at beginning of
period 8,594,306 4,869,022
Amortization of redeemable common
stock 11,984
Retained earnings at end of period $10,804,414 $ 6,287,437
========== =========
Earnings per common and common
equivalent share $0.42 $0.31
==== ====
(See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended September 30, 1997 1996
Cash Flows from Operating Activities: ---- ----
Net income $2,198,124 $1,418,415
--------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,270,984 1,361,051
Gain on sale of land (205,000)
Stock based compensation 85,975 (107,000)
Deferred compensation 457,415 143,925
Changes in operating assets and
liabilities:
Accounts receivable (1,428,534) (2,721,258)
Inventories 3,772,698 (3,363,358)
Income tax receivable (855,189) (251,009)
Prepaid expenses and other assets (1,042,635) (1,086,466)
Accounts payable (3,781,065) 2,827,413
Accrued payroll and benefits (10,569) 753,866
Other accrued liabilities (2,921,989) (56,835)
--------- ---------
Total adjustments (3,657,909) (2,499,671)
--------- ---------
Net cash used in operating
activities (1,459,785) (1,081,256)
Cash Flows from Investing Activities:
Proceeds from sale of land 312,000
Capital expenditures (1,319,246) (1,025,943)
Purchase of companies, net of cash
acquired (6,816,052)
--------- ----------
Net cash used in investing activities (7,823,298) (1,025,943)
Cash Flows from Financing Activities:
Proceeds from borrowings 6,718,198 2,573,700
Proceeds from issuance of common stock 24,258,745
Principal payments on long-term debt and
capital lease obligations (18,844,028) (497,544)
Common stock transactions 474,358 410,380
Amortization of redeemable common stock
11,984
--------- ----------
Net cash provided by financing
activities 12,619,257 2,486,536
Effect of exchange rate changes (144,426)
--------- ----------
Net increase in cash and cash
equivalents 3,191,748 379,337
Cash and cash equivalents at beginning
of period 2,244,265 913,716
Cash and cash equivalents at end of
period $5,436,013 $1,293,053
========= =========
Cash paid during the year for:
Interest $1,113,000 $484,400
Income taxes $1,576,600 $567,300
Noncash 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)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
THREE AND SIX MONTH PERIODS ENDED
September 30, 1997
(Unaudited)
NOTE 1. GENERAL
The accompanying unaudited interim consolidated financial
information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). The
unaudited interim consolidated financial information include the
consolidated accounts of Detection Systems, Inc. and its majority-
owned subsidiaries (collectively, "the Company") with all
intercompany transactions eliminated. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the financial
position, results of operations and cash flows for the interim
periods presented have been made. Certain footnote disclosures
normally included in financial information prepared in accordance
with generally accepted accounting principles (GAAP) have been
condensed or omitted pursuant to such SEC rules and regulations.
The financial information should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended March 31,
1997.
Cash flow statement - During the first quarter of fiscal 1998,
the Company issued 221,738 and 34,121 shares of common stock in
connection with the acquisitions of DA Systems and Seriee S.A.,
respectively. The Company repurchased the 221,738 shares issued
in connection with the acquisition of DA Systems during the
second quarter of fiscal 1998 (see note 3).
New accounting standards - In February 1997, SFAS No. 128,
"Earnings Per Share," was issued by the Financial Accounting
Standards Board. SFAS No. 128 specified modifications to the
calculation of earnings per share from that currently used by the
Company. Under SFAS No. 128, "basic earnings per share" is
calculated based upon the weighted average number of common
shares actually outstanding, and "diluted earnings per share" is
calculated based upon the weighted average number of common
shares outstanding and other potential common shares (e.g. stock
options and warrants) if they are dilutive. SFAS No. 128 is
effective for periods ending after December 15, 1997 and will be
adopted at that time. Had the Company calculated earnings per
share in accordance with SFAS No. 128 for the three and six
months ended September 30, 1997 and 1996, such earnings per share
data would not have been significantly different from the
Company's current earnings per share disclosures.
NOTE 2. INVENTORIES
Major classifications of inventory follow:
Sept. 30, 1997 March 31, 1997
------------- --------------
Component Parts $15,364,767 $19,457,368
Work In Process 948,519 2,697,459
Finished Products 16,071,271 7,840,388
---------- ----------
$32,384,557 $29,995,215
========== ==========
NOTE 3. ACQUISITIONS
In May 1997, the Company acquired all of the outstanding stock of
DA Systems, in exchange for 221,738 of its common stock. The
shares are callable at the Company's option at $17 per share plus
interest at 8.25% until June 30, 1998, and could be put to the
Company at that price after that date. The Company exercised its
call option to repurchase these shares in connection with the
issuance of common stock in September 1997. The cost of this
acquisition was approximately $4.0 million. DA Systems is a
leading British manufacturer of security control equipment with
annual net sales of approximately $10.8 million.
In June 1997, the Company acquired 99.5% of the outstanding stock
of Seriee S.A. of France, in exchange for 34,121 shares of its
common stock, valued at approximately $0.6 million. Seriee is a
leading manufacturer of electronic control and communication
equipment with annual net sales of approximately $6.3 million.
In June 1997, the Company acquired 98.7% of the outstanding stock
of Radio-Active Systems N.V.("RAS") of Belgium for approximately
$3.6 million in cash. RAS has the largest security equipment
distribution network in Belgium with annual net sales of
approximately $10 million.
These transactions have been accounted for as purchases and,
accordingly, the results of DA Systems, Seriee and RAS are
included in the consolidated financial information since the date
of acquisition. The financial information reflects the
preliminary allocation of purchase price as the purchase price
allocation has not been finalized.
Note 4. ISSUANCE OF COMMON STOCK
In September 1997, the Company sold 1,325,000 shares of common
stock at $20 per share in a public offering. Expenses associated
with this offering of approximately $2,333,500 were net against
proceeds and reflected as a reduction of capital in excess of par
value. The Company granted the underwriters a 30-day option to
purchase up to 231,750 additional shares of common stock under
the same terms and conditions as the public offering to cover
over-allotments. This option was exercised in October 1997.
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading supplier of equipment to the
electronic protection industry. The Company designs,
manufactures and markets electronic detection, control and
communication equipment for security, fire protection, access
control and CCTV applications, offering products primarily for
the commercial and mid- to high-end residential portions of the
market. From its founding in 1968 until 1995, the Company was
primarily a niche provider of intrusion detection devices for
the domestic market. In 1995, the Company adopted a strategy
designed to substantially expand its product offerings, establish
an international sales presence, increase its manufacturing
capacity and improve its manufacturing cost structure. The
Company has since made five acquisitions, opened sales offices in
six countries and successfully established a manufacturing
facility in China. The impact that the implementation of these
strategies has had on the Company is demonstrated by an increase
in the Company's net sales of 30.4% to $62.7 million in the six
months ended September 30, 1997 from $48.0 million in the
comparable period in fiscal 1997 and a corresponding increase in
the Company's net income of 55.0% to $2.2 million from $1.4
million for the same periods.
The Company's acquisitions consisted of: (i) the purchase in
February 1996 of Radionics which had annual net sales of
approximately $43.1 million, (ii) the purchase in July 1996 of
certain assets of Senses International, Inc. which had annual net
sales of approximately $2.0 million, (iii) the purchase in May
1997 of DA Systems which had annual net sales of approximately
$10.8 million, (iv) the purchase in June 1997 of Seriee which had
annual net sales of approximately $6.3 million and (v) the
purchase in June 1997 of RAS which had annual net sales of
approximately $10.0 million. These acquisitions had a
significant impact on the comparative financial information for
the three and six month periods ending September 30, 1997 and
1996. The acquisitions were funded by borrowings under a
commercial credit facility and the issuance of the Company's
common stock.
In April 1995, the Company commenced development of a
manufacturing facility in China which became operational in
October 1995. This facility has significantly increased the
manufacturing capacity of the Company. The Company has realized
manufacturing efficiencies by transitioning to its China facility
a portion of its domestic manufacturing operations, including
substantially all of the manufacturing operations previously
conducted by Radionics. The Company believes that these
efficiencies, coupled with the volume generated by its expanded
product catalog and sales network, may further enable it to
reduce its unit manufacturing costs.
The Company recognizes net sales upon shipment of products to
customers. Production expenses include materials, direct labor
and manufacturing overhead as well as an allocated portion of
indirect overhead. Outgoing freight, customs and other costs
associated with delivery of products to customers are classified
under marketing, administrative and general expenses. Research
and development expenses include costs associated with salaries
and benefits for certain engineering employees, supplies, agency
approvals, depreciation and occupancy, as well as charges for
independent testing and independent contractors engaged for
specific projects. Marketing, administrative and general
expenses include costs related to the Company's sales efforts and
corporate and general administrative functions, including costs
of executive, administrative and sales personnel,
marketing/selling supplies, advertising, depreciation and
professional fees.
Results of Operations
The following table sets forth, for the periods indicated, the
percentages which certain items of income and expense bear to net
sales:
Fiscal Year Ended Three Months Six Months
March 31, Ended Sept. Ended Sept. 30,
30,
1997 1996 1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Production 64.2 66.9 67.1 66.7 64.9 66.5
Research and
development 8.0 11.2 6.4 8.0 6.8 7.8
Marketing,
administrative
and general 21.1 25.1 19.9 19.2 21.1 19.7
Purchased in-process
research and
development 22.3
---- ---- ---- ---- ---- ----
Operating income (loss) 6.7 (25.5) 6.6 6.1 7.1 6.0
Interest income 0.2 0.8 0.0 0.0 0.0 0.0
Interest expense 1.7 0.8 2.2 1.9 2.3 1.7
Other Income 0.0 0.0 0.0 0.0 0.4 0.0
---- ---- ---- ---- ---- ----
Income (loss) before
income taxes 5.2 (25.5) 4.4 4.2 5.2 4.3
Provision (benefit) for
income taxes 1.5 (6.7) 1.3 1.0 1.7 1.3
---- ---- ---- ---- ---- ----
Net income (loss) 3.7% (18.8)% 3.1% 3.2% 3.5% 3.0%
==== ===== ==== ==== ==== ====
Three Months Ended September 30, 1997 Compared to Three Months
Ended September 30, 1996
The Company's net sales increased 38.6% to $34.5 million in
the fiscal 1998 period from $24.9 million in the comparable
period in fiscal 1997. The net sales of DA Systems, RAS and
Seriee, which were acquired in the first quarter of fiscal 1997,
accounted for $6.8 million of this increase. The remaining $2.8
million increase represents sales growth from existing
operations.
Gross margins decreased to 32.9% in the fiscal 1998 period
from 33.3% reported in the comparable year ago period. Gross
margins were negatively impacted by the results of the three
companies acquired in the first fiscal quarter of 1998.
Production expenses increased 39.4% to $23.1 million in the
fiscal 1998 period from $16.6 million in the comparable period in
1997. As a percentage of net sales, production expenses
increased to 67.1% in the fiscal 1998 period from 66.7% in the
comparable period in fiscal 1997. The increase in production
expenses was primarily due to a corresponding increase in the
Company's net sales. The increase in production expenses as a
percentage of net sales was impacted by inefficiencies in the
Company's management information ("MIS") system and associated
production planning, purchasing and traffic management systems,
which made it difficult for the Company to control worldwide
part, inventory and freight given increasing demand for its
products. To correct this problem, the Company has implemented
an integrated MIS system for all manufacturing locations. The
benefits associated with this change may not be fully appreciated
immediately as there may be a transition period before the
benefits of this change are fully realized. The increase in
production expenses was also impacted by the addition of lower
margin sales from the three recent acquisitions. The Company
still believes that there is a long term opportunity to achieve
40% gross margin after all operations are achieving their
individual operating efficiency objectives since a significant
portion of the Company's catalog is proprietary with unique
performance features.
Research and development expenses increased 10.3% to $2.2
million in the fiscal 1998 period from $2.0 million in the
comparable period in fiscal 1997. As a percentage of net sales,
research and development expenses decreased to 6.4% in the fiscal
1998 period from 8.0% in the comparable period in fiscal 1997.
The increase in research and development expenses was primarily
due to the addition of DA Systems and Seriee research and
development expenses. The decrease in research and development
expenses as a percentage of net sales was primarily due to
savings achieved from the continued consolidation of certain
research and development efforts of Radionics and the Company.
Marketing, administrative and general expenses increased 43.6%
to $6.9 million in the fiscal 1998 period from $4.8 million in the
comparable period in fiscal 1997. As a percentage of net sales,
marketing, administrative and general expenses increased to 19.9%
in the fiscal 1998 period from 19.2% in the comparable period in
fiscal 1997. This increase was primarily due to additional
marketing related to acquisitions and international marketing
efforts which, in turn, increased marketing, administrative and
general expenses as a percentage of net sales.
Interest expense increased to $0.8 million in the fiscal 1998
period from $0.5 million in the comparable period in fiscal 1997.
This increase was primarily due to additional borrowings required
to finance the Company's international expansion and increased
inventory levels necessary during the transition of manufacturing
operations to the China facility.
Income before taxes increased 45.3% to $1.5 million in the
fiscal 1998 period from $1.0 million in the comparable period in
fiscal 1997. This improvement was due to the factors described
above.
The Company's effective income tax rate for the fiscal 1998
period was 29.0% compared to 23.1% for the comparable period in
fiscal 1997. The higher effective rate is due to the source of
pretax income among domestic and international entities and is
consistent with the annual rate of 29.0% for fiscal 1997.
Six Months Ended September 30, 1997 Compared to Six Months Ended
September 30, 1996
The Company's net sales increased 30.4% to $62.7 million in
the fiscal 1998 period from $48.0 million in the comparable
period in fiscal 1997. The net sales of DA Systems, RAS and
Seriee which were acquired in the first fiscal quarter of fiscal
1998, accounted for $9.1 million of this increase. The remaining
$5.5 million increase represents sales growth from existing
operations.
Gross margins improved to 35.1% in the fiscal 1998 period from
33.5% reported in the comparable year ago period. Gross margins
were negatively impacted by the results of the three companies
acquired in the first fiscal quarter of 1998.
Production expenses increased 27.3% to $40.7 million in the
fiscal 1998 period from $31.9 million in the comparable period in
fiscal 1997. As a percentage of net sales, production expenses
decreased to 64.9% in the fiscal 1998 period from 66.5% in the
comparable period in fiscal 1997. The increase in production
expenses was primarily due to a corresponding increase in the
Company's net sales. The decrease in production expenses as a
percentage of net sales was primarily due to manufacturing
efficiencies achieved by further transitioning of domestic
manufacturing to the Company's China facility and inefficiencies
associated with the Company's management information ("MIS")
system and associated production planning, purchasing and traffic
management systems, which made it difficult for the Company to
control worldwide part, inventory and freight given increasing
demand for its products. To correct this problem, the Company
has implemented an integrated MIS system for all manufacturing
locations. The benefits associated with this change may not be
fully appreciated immediately as there may be a transition period
before the benefits of this change are fully realized. The
Company still believes that there is a long term opportunity to
achieve 40% gross margin after all operations are achieving their
individual operating efficiency objectives since a significant
portion of the Company's catalog is proprietary with unique
performance features.
Research and development expenses increased 14.1% to $4.3
million in the fiscal 1998 period from $3.8 million in the
comparable period in fiscal 1997. As a percentage of net sales,
research and development expenses decreased to 6.8% in the fiscal
1998 period from 7.8% in the comparable period in fiscal 1997.
The increase in research and development expenses was primarily
due to the addition of DA Systems' and Seriee's research and
development expenses. The decrease in research and development
expenses as a percentage of net sales was primarily due to
savings achieved from the continued consolidation of certain
research and development efforts of Radionics and the Company.
Marketing, administrative and general expenses increased 39.9%
to $13.2 million in the fiscal 1998 period from $9.5 million in the
comparable period in fiscal 1997. As a percentage of net sales,
marketing, administrative and general expenses increased to 21.1%
in the fiscal 1998 period from 19.7% in the comparable period in
1996.
Interest expense increased to $1.5 million in the fiscal 1998
period from $0.8 million in the comparable period in fiscal 1997.
This increase was primarily due to additional borrowings required
to finance the Company's international expansion and increased
inventory levels necessary during the transition of a portion of
the Company's manufacturing operations to the China facility.
Income before taxes increased 58.6% to $3.3 million in the
fiscal 1998 period from $2.1 million in the comparable period in
fiscal 1997. This improvement was due to the factors described
above.
The Company's effective income tax rate for the fiscal 1998
period was 32.6% compared to 31.1% for the comparable period in
fiscal 1997. The higher effective rate reflects a shift in the
source of pretax income between domestic and international
entities.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its
long- and short-term cash requirements. Prior to 1996, those
requirements were primarily met by cash generated from the
Company's operating activities and cash reserves. Since the 1995
implementation of the Company's strategy designed to enhance its
product offerings, manufacturing capacity and international
operations, particularly its acquisitions and the development of
the China facility, the Company has required external sources of
financing to satisfy its liquidity needs.
Six Months Ended September 30, 1997. During the six months
ended September 30, 1997, the Company's operating activities used
$1.5 million of operating cash flow. Net income, depreciation
and amortization provided $4.5 million, a decrease in inventories,
excluding the impact of acquisitions, provided $3.8 million and a
decrease in accounts payable, excluding the impact of acquisitions,
used $3.8 million. Increases in prepaid expenses and other assets,
accountsreceivable and income taxes receivable used $1.0 million, $1.4
million and $0.9 million of operating cash flow, respectively, and other
account changes used $2.6 million of operating cash flow.
During the six months ended September 30, 1997, cash used for
investing activities was $7.8 million and was utilized for the
acquisition of RAS, DA Systems and capital expenditures,
primarily for tooling of fixtures for both new products as well
as moving existing products to lower cost, offshore suppliers.
During the six months ended September 30, 1997, cash flows
provided by financing activities were $12.6 million, primarily
representing proceeds from issuance of common stock.
Capital Resources. On September 30, 1997, the Company had
cash balances of $5.4 million. On that date, the Company had
$17.0 million available under a revolving credit facility. This
credit facility bears interest based on the prime rate or the
London Interbank Offered Rate, plus applicable points based on
the Company's degree of financial leverage, and matures on July
31, 1998.
During September 1997, the Company sold 1,325,000 shares of
common stock at $20 per share. Expenses of approximately
$2,333,500 were net against proceeds. The Company granted the
underwriters a 30-day option to purchase up to 231,750 additional
shares of common stock under the same terms and conditions as the
public offering to cover over-allotments. This option was
exercised in October 1997.
The Company expects to continue its pursuit of acquisitions
and the development of new products and markets. The Company has
budgeted $3.0 million for capital expenditures during fiscal
1998, excluding any amounts required for acquisitions. These
expenditures will include continued investment in facilities and
equipment necessary to produce and market its security detection,
fire detection, security, fire and access control products as
well as certain new products. The Company also plans to continue
its efforts to market its products internationally.
The Company believes that the combination of its current cash
balances, cash flows from operations and existing credit
facilities will be sufficient to fund its planned operations
during fiscal 1998.
Dividend Policy. The Company is dedicated to promoting
shareholder value through long term profitability and growth and
believes that continued investments in future product development
are essential to this goal. For this reason, it has been the
Company's policy to not pay cash dividends.
Year 2000 Issues. The Company does not believe that Year 2000
issues will significantly affect future financial results.
Forward-Looking Statements
The foregoing discussion and analysis contain certain
"forward-looking statements" within the meaning of Section 27A of
the Securities Act, which represent the Company's expectations or
beliefs, including, but not limited to, statements concerning the
Company's operations, performance, financial condition, growth
and acquisition strategies, margins and growth in sales of the
Company's products. For this purpose, any statements contained
therein that are not statements of historical fact may be deemed
to be forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, certain of
which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors.
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: November 14, 1997 /s/ Karl H. Kostusiak
Karl H. Kostusiak, President
/s/ Frank J. Ryan
Frank J. Ryan, Vice President,
Secretary and Treasurer
(Chief Financial Officer)
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on August 20,
1997, the following individuals were elected to the Board
of Directors:
Nominated Director FOR WITHHELD ABSTAINED
------------------ ---------- ---------- ----------
Donald R Adair 4,158,034 28,181 0
Mortimer B Fuller III 4,162,865 23,350 0
Karl H Kostusiak 4,162,902 23,313 0
David B Lederer 4,162,902 23,313 0
Edward C McIrvine 4,162,452 23,763 0
The following proposals were also approved:
FOR WITHHELD ABSTAINE
D
--------- -------- --------
-
Ratify the appointment
of Price Waterhouse as
independent auditors for
the fiscal year ending
March 31, 1998. 4,163,337 9,218 13,660
FOR WITHHELD ABSTAINE
D
--------- -------- --------
-
Approval of the 1997
Stock Option Plan
effective August 20, 2,792,663 214,752 1,178,80
1997. 0
Item 5. Other matters
In September 1997, the Company sold 1,325,000 shares of
common stock at $20 per share in a public offering.
Expenses associated with this offering of approximately
$2,333,500 were net against proceeds and reflected as a
reduction of capital in excess of par value. The Company
granted the underwriters a 30-day option to purchase up
to 231,750 additional shares of common stock under the
same terms and conditions as the public offering to cover
over-allotments. This option was exercised in October
1997.
Item 6. Exhibits and Reports for Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
On May 21, 1997, a Form 8-K was filed under Item 5,
related to the Registrant's acquisition of all of the
outstanding stock of DA Systems from Numerex Corp. on
May 7, 1997. No financial reports were included with
this report.
EXHIBIT INDEX
3 (a) Detection Systems, Inc. Certification of
Incorporation, as amended, are incorporated by
reference to Exhibit 3(a) to the Company's 1997
Annual Report on Form 10-K.
3 (b) Detection Systems, Inc. By-laws, as amended, are
incorporated by reference to Exhibit 3(b) to the
Company's 1997 Annual Report on Form 10-K.
10 (a) Executive Employment Agreement with Karl H. Kostusiak
is incorporated by reference to Exhibit 10(a) of the
Company's Quarterly Report on Form 10-Q for the
quarter ended 6/30/97.
10 (b) Executive Employment Agreements with David B. Lederer
are incorporated by reference to Exhibit 10(b) of the
Company's Quarterly Report on Form 10-Q for the
quarter ended 6/30/97.
(11) Statement regarding computation of per share earnings
is included as Exhibit 11 of this Quarterly Report on
Form 10-Q.
(27) Financial data schedule is included as Exhibit 27 to
the electronic Edgar filing of this Interim Report on
Form 10-Q.
Exhibit 11
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Computation of Earnings Per Common
And Common Equivalent Share
For the Three Months Ended: Sept. 30, 1997
--------------
Net Income $1,064,890
=========
Weighted average number of shares 4,831,166
Common Stock equivalent due to assumed exercise
of stock options and warrants and deferred
compensation plan shares 604,521
---------
5,435,687
=========
Earnings per common and common equivalent share $0.20
====
For the Six Months Ended: Sept. 30, 1997
---------------
---
Net Income $2,198,124
Plus: amortization of redeemable stock 11,984
---------
Adjusted net income applicable to common stock 2,210,108
=========
Weighted average number of shares 4,723,320
Common Stock equivalent due to assumed exercise
of stock options and warrants and deferred
compensation plan shares 594,897
---------
5,318,217
=========
Earnings per common and common equivalent share $0.42
====
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