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 December 31, 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 February 20, 1998 there were outstanding 6,286,495 shares
of the registrant's common stock, par value $.05 per share.
</PAGE>
PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
Dec. 31, 1997 Mar. 31, 1997
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 7,128,288 $ 2,244,265
Accounts receivable, less allowance
for doubtful accounts of $563,400 and 23,428,292 15,246,309
$313,800, respectively
Inventories 33,844,010 29,995,215
Deferred income tax charges 2,173,715 2,132,156
Prepaid expenses and other assets 1,774,764 883,137
---------- ----------
68,349,069 50,501,082
---------- ----------
Fixed assets 11,746,215 11,248,171
Deferred income taxes 3,046,420 3,046,200
Goodwill and other intangibles 4,975,111 2,942,626
Other assets 598,455 537,772
---------- ----------
Total Assets $88,715,270 $68,275,851
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long term debt $ 2,935,971 $ 953,648
Current portion of capital lease
obligation 58,987 147,574
Short term borrowings 684,000 0
Accounts payable 14,467,732 12,259,380
Accrued payroll and benefits 1,315,461 2,818,487
Other accrued liabilities 2,537,267 3,254,593
---------- ----------
21,999,418 19,433,682
Obligations under capital leases 25,000 54,125
Other long term liabilities 3,330,784 2,924,975
Long term debt 14,650,644 28,031,802
Shareholders' equity:
Common stock, par value $.05 per
share; Authorized - 12,000,000
shares; Issued - 6,325,282 shares
at December 31, 1997, and
4,478,993 shares at March 31, 1997 316,221 223,950
Capital in excess of par value 42,601,283 9,448,917
Retained earnings 10,210,540 8,594,306
---------- ----------
53,128,044 18,267,173
Less - Treasury stock, at cost (3,785,647) (52,553)
Notes receivable for stock
purchases (325,401) (378,373)
Cumulative translation adjustment (307,572) (4,980)
---------- ----------
48,709,424 17,831,267
---------- ----------
Total liabilities and shareholders'
equity $88,715,270 $68,275,851
========== ==========
(See accompanying notes to financial statements)
</PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings
(Unaudited)
Dec. 31, 1997 Dec. 31, 1996
For the Three Months Ended: (Current (Preceding
Year) Year)
---------- -----------
Net sales $31,346,845 $26,441,837
Costs and expenses:
Production 21,392,505 17,366,386
Research and development 2,266,100 2,046,418
Marketing, administrative and general 7,185,519 5,165,390
---------- ----------
Total costs and expenses 30,844,124 24,578,194
Operating income 502,721 1,863,643
Interest income 91,813 54,270
Interest expense (418,948) (464,645)
Other income (expense) (21,981) 0
---------- ----------
Income before taxes 153,605 1,453,268
Provision for taxes 48,000 379,000
---------- ----------
Net income $ 105,605 $ 1,074,268
========== ==========
Retained earnings at beginning of
period 10,104,935 6,287,437
---------- ----------
Retained earnings at end of period $10,210,540 $ 7,361,705
========== ==========
Earnings per share
Basic $0.02 $0.24
Diluted $0.02 $0.21
(See accompanying notes to financial statements)
</PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement(Unaudited)
For the Nine Months Ended: Dec. 31, 1997 Dec. 31, 1996
(Current Year) (Preceding
Year)
----------- ----------
Net Sales $94,017,726 $74,485,802
Costs and expenses:
Production 62,483,836 49,309,576
Research and development 6,554,052 5,803,833
Marketing, administrative and general 20,990,760 14,635,291
---------- ----------
Total costs and expenses 90,028,648 69,748,700
Operating income 3,989,078 4,737,102
Interest income 97,843 82,396
Interest expense (1,873,248) (1,332,458)
Other income 216,777 23,643
---------- -----------
Income before taxes 2,430,450 3,510,683
Provision for taxes 826,200 1,018,000
---------- -----------
Net income $ 1,604,250 $ 2,492,683
---------- -----------
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 $10,210,540 $ 7,361,705
========== ===========
Earnings per share
Basic $0.31 $0.58
Diluted $0.28 $0.52
(See accompanying notes to financial information)
</PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended December 31 1997 1996
Cash Flows from Operating Activities: ---- ----
Net income $1,604,250 $2,492,683
--------- ----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,951,340 1,901,244
Gain on sale of land (205,000)
Stock based compensation 85,975
Deferred compensation 457,415 (16,669)
Changes in operating assets and
liabilities:
Accounts receivable (1,820,675) (4,222,330)
Inventories 2,313,245 (10,177,328)
Income tax receivable (829,486) 97,424
Prepaid expenses and other assets (959,934) (1,155,565)
Accounts payable (2,279,886) 5,100,922
Accrued payroll and benefits (1,643,109) 1,354,410
Other accrued liabilities (2,577,193) (248,677)
--------- ---------
Total adjustments (4,507,308) (7,366,569)
--------- ---------
Net cash used in operating
activities (2,903,058) (4,873,886)
Cash Flows from Investing Activities:
Proceeds from sale of land 312,000
Capital expenditures (1,976,675) (2,317,285)
Purchase of companies, net of cash (6,816,052)
acquired
--------- ----------
Net cash used in investing activities (8,480,727) (2,317,285)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowings 6,718,198 5,257,700
Proceeds from issuance of common stock 28,519,669 2,000,005
Principal payments on long-term debt
and (19,135,399) (527,789)
capital lease obligations
Common stock transactions 455,948 437,521
Amortization of redeemable common stock 11,984
--------- ----------
Net cash provided by financing 16,570,400 7,167,437
activities
--------- ----------
Effect of exchange rate changes on cash (302,592)
balances
Net increase in cash and cash
equivalents 4,884,023 (23,704)
Cash and cash equivalents at 2,244,265 913,716
beginning of period
Cash and cash equivalents at end of $7,128,288 $889,982
period
========= =========
Cash paid during the year for:
Interest $1,531,948 $976,200
Income taxes $1,611,600 $585,200
(See accompanying notes to financial information)
</PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
THREE AND NINE MONTH PERIODS ENDED
December 31, 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 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).
Earnings per share - The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," during
the quarter ended December 31, 1997. As required by this
Statement, earnings per share of prior periods are presented in
accordance with the provisions of SFAS No. 128. There are no
significant reconciling items between net income as presented in
the consolidated statement of operations and net income available
to common stockholders used in the calculation of earnings per
share. Earnings per share in future periods will be impacted by
the acquisition of EDM in January 1998 (See Note 3). Reconciling
items between the number of shares used in the calculation of
basic and diluted earnings per share relate only to deferred
compensation plans, options and warrants, as follows:
Three months ending Nine months ending
Dec. 31, Dec. 31,
1997 1996 1997 1996
Weighted average number
of shares outstanding 6,047,782 4,451,985 5,164,808 4,320,765
Shares associated with
deferred compensation,
option and warrant plans 582,474 582,297 590,755 469,182
NOTE 2. INVENTORIES
Major classifications of inventory follow:
Dec. 31, 1997 Mar. 31, 1997
Component parts $17,488,101 $19,457,368
Work in process 1,778,394 2,697,459
Finished products 14,577,516 7,840,388
---------- ----------
$33,844,010 $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 shares of its common stock.
The shares were 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.
In January 1998, the Company acquired all of the outstanding
stock of Electronics Design & Manufacturing Pty Limited ("EDM")
of Australia in exchange for 186,667 shares of its common stock
and $2.8 million in cash. EDM is a major Australian manufacturer
of security control equipment with annual net sales of
approximately $4.6 million.
These transactions have been accounted for as purchases and,
accordingly, the results of DA Systems, Seriee, RAS and EDM are
included, or in the case of EDM, will be included in the
consolidated financial information as of the date of acquisition.
The financial information reflects the preliminary allocation of
purchase price as the purchase price allocation has not been
finalized. Unallocated excess of purchase price over net assets
acquired as of December 31, 1997 is $2.3 million and is included
with goodwill and other intangibles.
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. The Company had
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,
and this option was exercised in October 1997. Expenses
associated with this offering of approximately $2.7 million were
net against proceeds.
NOTE 5. RESTATEMENT
The company has discovered an incorrect posting in Second
Quarter fiscal quarter 1998 accounts payable of approximately
$950,000. This error occurred in the conversion of its China
manufacturing facility's existing information system to the
corporate system. The Company is restating its second quarter of
fiscal 1998. As a result of this, net income for the second
quarter was $0.4 million ($0.08 per basic share and $0.07 per
diluted share) compared to previously reported net income of $1.1
million ($0.22 per basic share and $0.20 per diluted share).
This week, the Company will file an amendment to its quarterly
report on Form 10-Q for the quarter and six months ended
September 30, 1997 as filed on November 14, 1997. The year to
date results of operations and Management's Discussion and
Analysis included in this report reflect the restated results of
operations for the quarter ended September 30, 1997.
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 six
acquisitions, opened sales offices in six countries and
established a manufacturing facility in China. The Company's net
sales increased 26.2% to $94.0 million in the nine months ended
December 31, 1997 from $74.5 million in the comparable period in
fiscal 1997. Approximately $15.6 million of the Company's sales
for the nine months ended December 31, 1997 are from these
acquired companies.
The Company's significant acquisitions during the current
fiscal year were: (i) purchase in May 1997 of DA Systems in the
U.K., with annual net sales of approximately $10.8 million, (ii)
purchase in June 1997 of Seriee in France, with annual net sales
of approximately $6.3 million, (iii) purchase in June 1997 of RAS
in Belgium, with annual net sales of approximately $10.0 million
and (iv) purchase in January 1998 of EDM in Australia, with
annual net sales of approximately $4.6 million. Previous
significant acquisitions were Radionics (February 1996) and
Senses International, Inc. (July 1996). These acquisitions have a
significant impact on the comparative financial information for
the three and nine month periods ending December 31, 1997 and
1996. The acquisitions were funded by borrowings under a
commercial credit facility and/or issuance of the Company's
common stock.
Since the opening of the China manufacturing facility in
late fiscal 1996 and throughout fiscal 1997, a portion of the
Company's manufacturing was moved from domestic plants to the
China facility. While production of the Company's highest volume
products were moved to China during this period, such products
were limited in number relative to the Company's entire product
line. During the first and second quarters of fiscal 1998, a far
greater number of products that continued to be manufactured at
the Company's Radionics subsidiary were moved to the China
facility. Manufacturing efficiencies consistent with previous
product transfers are anticipated, but the short term impact of
this rapid shift in production location resulted in unexpected
inefficiencies, exacerbated by the Company's multiple
manufacturing information systems, which created difficulties in
effectively coordinating overall materials procurement,
production and scheduling. Consequently, production quantities,
yields and efficiency of the China facility declined during this
period while production related overhead expenses, such as
freight, remained constant or increased. To help assure timely
customer deliveries, the Company restarted manufacturing some of
its products at its Radionics facility. These factors resulted in
higher average unit costs for much of the product sold by the
Company during the second and third quarters of fiscal 1998.
Recently, the Company assigned a senior executive, George E.
Behlke, Vice President of Engineering, to manage and improve
manufacturing operations worldwide. In addition, the Company has
added key personnel to both the financial and management
information systems departments. This team is leading the
modification of the Company's inventory and manufacturing
information systems, allowing the Company to improve all aspects
of the supply chain process.
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:
Three months Nine months Fiscal year
ended Dec. 31, ended Dec. 31, March 31,
1997 1996 1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Production 68.3 65.7 66.5 66.2 64.2 66.9
Research and 7.2 7.7 7.0 7.8 8.0 11.2
development
Marketing,
administrative 22.9 19.6 22.3 19.6 21.1 25.1
and general
Purchased in-process
research and 22.3
development
---- ---- ---- ---- ---- ----
Operating 1.6 7.0 4.2 6.4 6.7 (25.5)
income(loss)
Interest income 0.3 0.0 0.1 0.0 0.2 0.8
Interest expense 1.3 1.8 2.0 1.8 1.7 0.8
Other income (0.1) 0.3 0.3 0.1 0.0 0.0
(expense)
---- ---- ---- ---- ---- ----
Income (loss) before
income taxes 0.5 5.5 2.6 4.7 5.2 (25.5)
Provision (benefit)
for income taxes 0.2 1.4 0.9 1.4 1.5 (6.7)
---- ---- ---- ---- ---- ----
Net income (loss) 0.3% 4.1% 1.7% 3.3% 3.7% (18.8)%
==== ==== ==== ==== ==== =====
Three Months Ended December 31, 1997 Compared to Three Months
Ended December 31, 1996
The Company's net sales increased 18.6% to $31.3 million in
the fiscal 1998 period from $26.4 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 1998,
accounted for $6.5 million of this increase. Excluding the
impact of acquisitions, sales declined $1.6 million primarily as
a result of reduced sales volumes to the Company's largest
domestic distributor. In addition, during the third quarter of
fiscal 1998, two of the Company's larger customers were acquired
by other companies. It is anticipated that these transactions
may result in some decline in sales to these customers in the
future. However, the Company is working to minimize any
potentially adverse impact.
Production expenses increased 23.2% to $21.4 million in the
fiscal 1998 period from $17.4 million in the comparable period in
1997. The increase in production expenses was primarily due to a
corresponding increase in the Company's net sales. Gross margin
during the third quarter of fiscal 1998 of 31.7% declined from
the 34.3% gross margin reported for the third quarter of fiscal
1997. Margins have been adversely impacted by lower margin sales
from companies acquired during fiscal 1998 as well as
manufacturing inefficiencies from the consolidation of
manufacturing operations in China, previously discussed.
Research and development expenses increased 10.7% to $2.3
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 7.2% in the fiscal
1998 period from 7.7% 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 39.1% to
$7.2 million in the fiscal 1998 period from $5.2 million in the
comparable period in fiscal 1997. As a percentage of net sales,
marketing, administrative and general expenses increased to 22.9%
in the fiscal 1998 period from 19.6% in the comparable period in
fiscal 1997. This increase was primarily due to additional
marketing, administrative and general expenses related to the
newly acquired companies and increased international marketing
expenditures. General expenses also included $250,000 of
exchange losses during the quarter ended December 31, 1997.
Exchange losses were insignificant during the same quarter last
year. The Company is currently reviewing strategies to reduce
exposure to currency fluctuations.
Interest expense decreased to $0.4 million in the fiscal 1998
period from $0.5 million in the comparable period in fiscal 1997.
This decrease was primarily due to the repayment of borrowings
originally used to finance the Company's international expansion
and increased inventory levels. Borrowings were repaid using
proceeds from the second quarter offering of common stock.
The Company's effective income tax rate for the fiscal 1998
period was 31.2% compared to 26.1% for the comparable period in
fiscal 1997. The higher effective rate is due to a shift in the
source of pretax income among domestic and international
entities.
Nine Months Ended December 31, 1997 Compared to Nine Months Ended
December 31, 1996
The Company's net sales increased 26.2% to $94.0 million in
the fiscal 1998 period from $74.5 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 $15.6 million of this increase. Excluding
the impact of these acquisitions, sales increased $3.9 million or
5.2% as a result of increased sales penetration across many
accounts.
Production expenses increased 26.7% to $62.5 million in the
fiscal 1998 period from $31.9 million in the comparable period in
fiscal 1997 primarily due to the corresponding increase in sales.
Gross margins remained steady at 33.5% in the fiscal 1998 period
compared to 33.8% reported in the comparable year ago period.
Research and development expenses increased 12.9% to $6.6
million in the fiscal 1998 period from $5.8 million in the
comparable period in fiscal 1997. As a percentage of net sales,
research and development expenses decreased to 7.0% 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 43.4% to
$21.0 million in the fiscal 1998 period from $14.6 million in the
comparable period in fiscal 1997. As a percentage of net sales,
marketing, administrative and general expenses increased to 22.3%
in the fiscal 1998 period from 19.6% in the comparable period in
1997. This increase was primarily due to additional marketing,
administrative and general expenses related to the newly acquired
companies and increased international marketing expenditures.
General expenses for the nine months ended December 31, 1998 also
include $431,000 of losses associated with foreign exchange
transactions, an increase of approximately $325,000 over the same
period of fiscal 1997.
Interest expense increased to $1.9 million in the fiscal 1998
period from $1.3 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.
The Company's effective income tax rate for the fiscal 1998
period was 34.0% compared to 29.0% 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.
Nine Months Ended December 31, 1997. During the nine months
ended December 31, 1997, the Company used cash in its operations
of $2.9 million. This use of cash was primarily driven by an
increase in net working capital due to the increase in inventory
related to the shift in manufacturing to the Company's China
facility and significant reductions in accounts payable, payroll
and other accruals.
During the nine months ended December 31, 1997, cash used for
investing activities was $8.5 million. Approximately $6.8
million was used for the acquisition of RAS, DA Systems and $2.0
million was used for capital expenditures, primarily for
production tooling.
During the nine months ended December 31, 1997, cash flows
provided by financing activities were $16.6 million. Net proceed
from the sale of common stock were approximately $28.4 million,
with $19.1 million of these proceeds being used to repay
outstanding borrowings.
Capital Resources. On December 31, 1997, the Company had cash
balances of $7.1 million. On that date, the Company also has
$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 or
required cash expenditures.
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: February 23, 1998 /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.
Not Applicable
Item 5. Other matters
Not Applicable
Item 6. Exhibits and Reports for Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
On February 2, 1998, a Form 8-K was filed under Item 5,
related to the Registrant's acquisition of all of the
outstanding stock of Electronics Design & Manufacturing
Pty Limited on January 21, 1998. 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.
10 (c) Deferred Compensation Plans are included as Exhibit
10(c) of this Quarterly Report on Form 10-Q.
(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 Quarterly 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: December 31, 1997
--------------
Net Income $105,605
Weighted average number of shares 6,047,782
Common Stock equivalent due to assumed
exercise of stock options and warrants and
deferred compensation plan shares 582,474
Earnings per share
Basic $0.02
Diluted $0.02
For the Nine Months Ended: December 31, 1997
------------------
$1,604,250
Net Income
Plus: amortization of redeemable stock 11,984
---------
Net income available to common stockholders $1,616,234
=========
Weighted average number of shares 5,164,808
Common Stock equivalent due to assumed
exercise of stock options and warrants and
deferred compensation plan shares 590,755
Earnings per share
Basic $0.31
Diluted $0.28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 7,128,288
<SECURITIES> 0
<RECEIVABLES> 23,991,692
<ALLOWANCES> 563,400
<INVENTORY> 33,844,010
<CURRENT-ASSETS> 68,349,069
<PP&E> 29,744,332
<DEPRECIATION> 17,999,117
<TOTAL-ASSETS> 88,715,270
<CURRENT-LIABILITIES> 21,999,418
<BONDS> 0
0
0
<COMMON> 39,131,857
<OTHER-SE> 9,577,567
<TOTAL-LIABILITY-AND-EQUITY> 88,715,270
<SALES> 31,346,845
<TOTAL-REVENUES> 31,416,677
<CGS> 21,392,505
<TOTAL-COSTS> 30,844,124
<OTHER-EXPENSES> 9,451,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418,948
<INCOME-PRETAX> 153,605
<INCOME-TAX> 48,000
<INCOME-CONTINUING> 105,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,605
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
[8/20/97 Restatement]
DETECTION SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
1. Purpose
Detection Systems, Inc. (the "Company") has adopted this Deferred
Compensation Plan (the "Plan") to assist its officers with their
individual tax and retirement income planning and to permit the
Company to remain competitive in attracting, retaining, motivating and
rewarding key executives who can directly influence the Company's
operating results. The Plan permits officers to defer the receipt of
salary or bonuses which they may be entitled to receive from the
Company and the Company to make Company contributions for the benefit
of its officers. The Plan was originally adopted as of August 1,
1986. This restatement is effective as of August 20, 1997.
2. Eligibility
Any officer of the Company is eligible to participate in this
Plan.
3. Contributions
a. Company Contributions
The Company may contribute to an officer's
Participant Account any amount, at any time and for any
reason as the Company in its sole discretion may determine.
The Company has no obligation to make such contributions to
any officer's account and contributions need not be the same
for all officers.
b. Officer Deferrals
(1) Amount of Deferral. In addition to Company
contributions, a participant may elect to defer receipt
of up to 10 percent of his or her base salary and up to
100 percent of any bonus otherwise payable to the
participant by the Company during a calendar year.
(2) Time for Electing Deferral. An election to
commence a deferral may be made at any time in
accordance with the procedures set forth in subsection
(3) below, provided that any election to defer
compensation must be made prior to the time that such
compensation is to be earned by the participant. Any
election so made shall remain in effect until the
participant elects in writing to change his or her
election.
(3) Manner of Electing Deferral. A participant
shall elect a deferral by giving written notice to the
Committee in a form prescribed by the Committee. The
notice shall include (1) the amount to be deferred; (2)
the period with respect to which the deferral relates;
(3) an election of a lump sum payment or the number of
monthly installments (not to exceed 120) for the
payment of the deferred amounts; and (4) the date
benefit payments are to be made or to commence. A
participant may designate any date for the commencement
of benefit payments but in the event the participant
retires or otherwise terminates employment, benefit
payments shall commence within 60 days of retirement or
termination notwithstanding any later date specified in
the participant's election form. In addition, if any
scheduled payment from this Plan during a taxable year
of the Company would, in combination with other
compensatory payments to the participant during such
year, result in the participant's compensation
exceeding the $1 million cap under Code Section 162(m),
the Company in its sole discretion may defer benefit
payments to the first subsequent year when the
participant's compensation will not exceed the $1
million cap.
4. Participant Accounts
For each participant there shall be established both a
Participant Interest Account and a Participant Stock Account
(collectively referred to as the Participant Account). Each
Participant Interest Account shall be credited with the amounts
deferred by, or contributed by the Company on behalf of, a participant
plus an assumed annual interest on such amounts at a rate designated
by the Committee from time to time as the benchmark assumed interest
rate. This assumed interest shall be compounded annually and treated
as earned from the date of crediting to the date of withdrawal.
The Participant Stock Account shall be credited at the end of
each month with the number of shares of Company Common Stock that
could be purchased at the Common Stock's then fair market value with
the amounts deferred by, or contributed by the Company on behalf of, a
participant each month plus any hypothetical dividends payable during
such month on the Company Common Stock previously credited to the
Participant Stock Account. The value of each Participant Interest and
Stock Account shall be adjusted no less frequently than monthly to
reflect contributions to the Account, payments from the Account as
hereinafter provided, and assumed interest on the Interest Account or
additional stock purchases from hypothetical dividends on the Stock
Account. The Stock Account shall also be adjusted no less frequently
than monthly to reflect any gains (or losses) in the fair market value
of Company Common Stock.
All amounts credited to Participant Accounts shall be fully
vested at all times. Except for the possible claims of the Company's
general creditors, they shall not be subject to forfeiture on account
of any action by a participant or by the Company, including
termination of employment.
The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to make
actual contributions to fund this plan or to acquire or set aside any
particular assets for the discharge of its obligations, nor is any
participant to have any property rights in any particular assets held
by the Company, whether or not held for the purpose of funding the
Company's obligations hereunder.
5. Payment of Deferred Amounts
No withdrawal may be made from a Participant Account except as
provided in this section 5. Payments from an Account shall normally
commence within 60 days following a participant's retirement or other
termination of employment provided that a participant may elect an
earlier date for payment of his own deferrals in the election form to
which his deferred amounts relate. In the case of financial hardship,
the Committee, in its sole discretion, may distribute all or a portion
of an Account before termination of employment but the amount of the
distribution shall not exceed the amount needed to relieve the
financial hardship. In the case of a potential violation of the $1
million cap on compensation under Code Section 162(m), the Company may
defer payments to a later year as authorized in section 3. Any
payments deferred for Section 162(m) purposes shall be paid as soon as
payment would no longer constitute a violation of the Code Section
162(m) compensation cap. Such payments shall be made in a manner as
consistent as possible with the participant's original deferral
election. For example, if installment payments were elected, the
originally scheduled installment payments shall be made on schedule
for a year even if the participant is paid a lump sum in that same
year for the deferred payments.
At any time prior to his becoming eligible to commence receiving
benefits, the participant shall make a single, irrevocable election
with the Committee to receive his benefits from either his Participant
Interest Account or his Participant Stock Account. If no such
election is made, or in the event of the participant's death, payment
shall be made from whichever account has the higher value, measured at
the time of the benefit commencement date. Payments from an Interest
Account shall be made only in cash and payments from a Stock Account
shall be made only in stock, provided that any fractional shares from
a Stock Account shall be paid in cash.
An aggregate of 182,250 shares of Company Common Stock (subject
to substitution or adjustment as provided below) shall be available
for stock payments under this Plan. Such shares may be authorized and
unissued shares or may be treasury shares. In the event of any change
in the Common Stock of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up,
combination, or exchange of shares, or rights offering to purchase
Common Stock at a price substantially below fair market value, or of
any similar change affecting the Common Stock, the number and kind of
shares which thereafter are available for stock payments under the
Plan shall be appropriately adjusted consistent with such change in
such manner as the Committee may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
participants in the Plan.
All payments from a Participant Account shall be made in the form
of either a lump sum payment or monthly installments over a period of
years not to exceed ten as elected by the participant. This election
shall be made on the participant's deferral notice, provided that the
participant may change this election, by written notice to the
Committee at any time up to 36 months prior to the actual benefit
commencement date. Any requested change of an earlier election that
is made within the 36 month period preceding the actual benefit
commencement date shall not be effective and shall be disregarded by
the Committee. Where payments are made in monthly installments, the
balance credited to a Participant Account shall be adjusted
periodically for assumed interest or stock purchases as provided in
section 4.
If installment payments are elected, the first installment shall
equal the value of the Participant Account at such time multiplied by
a fraction, the numerator of which is one and the denominator of which
is the total number of monthly installments to be made. All
subsequent installments shall equal the value of the Participant
Account as of the last valuation date preceding the installment which
is to be paid multiplied by a fraction, the numerator of which is one
and the denominator of which is the total number of installments
elected minus the number of installments already paid.
In the event of a participant's death before the participant has
received all of the deferred payments to which the participant is
entitled hereunder, the remaining number of installments which would
have been paid to the participant shall be paid to the participant's
estate in the same manner that the participant would have received
them.
Notwithstanding a participant's election of installment payments,
the Committee, in its sole discretion, shall have a right to
accelerate any such payments or to make payment of the balance in a
Participant Account in a lump sum.
6. Participant's Rights Unsecured
The right of any participant or, if applicable, the participant's
estate, to receive benefits under the provisions of this Plan shall be
an unsecured claim against the general assets of the Company. Any
amounts held in a Participant Account are a part of the Company's
general assets and shall be reachable by the general creditors of the
Company.
7. Statement of Account
Statements will be sent to participants no less frequently than
annually setting forth the value of their Participant Accounts.
8. Transferability
The rights of a participant under this Plan shall not be
transferable other than by will or the laws of descent and
distribution and are exercisable during the participant's lifetime
only by him or by his guardian or legal representative.
9. Plan Administrator
The administrator of this Plan shall be a committee of the Board
of Directors of the Company as from time to time designated by the
Board. The Committee's members shall be non-employees of the Company.
The Committee shall have the authority to adopt rules and regulations
for carrying out the Plan and to interpret, construe and implement the
provisions of the Plan.
10. Amendment
This Plan may at any time or from time to time be amended,
modified or terminated by the Company's Board of Directors. No
amendment, modification or termination shall, without the consent of a
participant, adversely affect such participant's accruals in his or
her Participant Account.
11. Governing Law
This Plan and any participant elections hereunder shall be
interpreted and enforced in accordance with the laws of the State of
New York.
12. Effective Date
The effective date of this restated Plan is August 20, 1997.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officer to execute this Plan document on its behalf this 20th day of
August 1997.
DETECTION SYSTEMS, INC.
By _________________________
Frank J. Ryan, Vice President
Federal Tax Aspects
The Plan is a non-qualified deferred compensation plan under the
provisions of the Internal Revenue Code. At the time a Company
contribution or a participant's deferral of compensation is made, it
is intended that the participants will not recognize income, for
Federal income tax purposes. In addition, assumed interest and
hypothetical dividends will not be treated as income at the time they
are credited to the participant accounts.
Participants will recognize ordinary income at the time the
Company contributions and participant deferrals, together with the
earnings credited to these amounts, are actually paid out or made
available to the participants. The amount of such ordinary income
will equal the amount of cash received plus the fair market value, on
the date of payment, of any shares paid or made available.
The ultimate sale or exchange of any shares of common stock
received under the Plan will result in either long-term or short term
capital gain, or loss depending on the holding period. Under current
law, long term capital gains or losses will result upon the
disposition of shares that are held for more than six months. A
participant's basis in the shares will be the amount of income he
recognizes at the time the shares were actually paid or made available
to the participant.
The Company is not entitled to deduct the amount of contributions
or deferrals into the Plan or the assumed interest or hypothetical
dividends credited to an account. Instead, the Company is entitled to
take a deduction at the time a participant recognizes income. The
amount of the deduction is the amount of income that a participant
must recognize.
For Social Security tax (F.I.C.A.) purposes the Company
contributions and participant deferrals under the Plan are taxable as
"wages" at the time the services are performed. This will result in
Social Security taxes to a participant and to the Company only where a
participant is otherwise below the Social Security Wage Base at the
time the contributions or deferrals are made.
The Plan is not a tax-qualified plan under Section 401(a) of the
Internal Revenue Code and is not subject to ERISA. The Company has
not received any ruling from the Internal Revenue Service concerning
the tax consequences of the Plan.
[8/20/97 Restatement]
DETECTION SYSTEMS, INC.
DEFERRED STOCK BONUS PLAN
1. Purpose
Detection Systems, Inc. (the "Company") has adopted this Deferred
Stock Bonus Plan (the "Plan") for the benefit of its key personnel who
wish to defer the receipt of stock bonuses which they may be entitled
to receive from the Company. The purposes of the Plan are to assist
key personnel with their individual tax and retirement income planning
and to permit the Company to remain competitive in attracting,
retaining, motivating and rewarding personnel who can directly
influence the Company's operating results. The Plan was originally
adopted as of January 1, 1989. This restatement is effective as of
August 20, 1997.
2. Eligibility
All key personnel selected by the Committee established under
Section 9 shall be eligible to participate in this Plan.
3. Contributions
a. Company Contributions
The Company may contribute to a participant's account
any amount of Company Stock, at any time and for any reason
as the Company in its sole discretion may determine. The
Company has no obligation to make such contributions to any
participant's account and contributions need not be the same
for all participants.
b. Participant Deferrals
(1) Amount of Deferral. In addition to Company
contributions, a participant may elect to defer receipt
of up to 100 percent of any stock bonus otherwise
payable to the participant by the Company during a
calendar year.
(2) Time for Electing Deferral. An election to
commence a deferral may be made at any time in
accordance with the procedures set forth in subsection
(3) below, provided that any election to defer a stock
bonus must be made prior to the time that such stock
bonus will be earned by the participant. Any election
so made shall remain in effect until the participant
elects in writing to change his or her election.
(3) Manner of Electing Deferral. A participant
shall elect a deferral by giving written notice to the
Committee in a form prescribed by the Committee. The
notice shall include (1) the amount to be deferred; (2)
the period with respect to which the deferral relates;
(3) an election of a lump sum payment or the number of
monthly installments (not to exceed 120) for the
payment of the deferred amounts; and (4) the date
benefit payments are to be made or to commence. A
participant may designate any date for the commencement
of benefit payments but in the event the participant
retires or otherwise terminates employment, benefit
payments shall commence within 60 days of retirement or
termination notwithstanding any later date specified in
the participant's election form. In addition, if any
scheduled payment from this Plan during a taxable year
of the Company would, in combination with other
compensatory payments to the participant during such
year, result in the participant's compensation
exceeding the $1 million cap under Code Section 162(m),
the Company in its sole discretion may defer benefit
payments to the first subsequent year when the
participant's compensation will not exceed the $1
million cap.
4. Participant Accounts
For each participant there shall be established both a
Participant Interest Account and a Participant Stock Account
(collectively referred to as the Participant Account). Each
Participant Interest Account shall be credited with the fair market
value, determined as of the date of the deferral, of the stock bonus
deferred on behalf of a participant plus an assumed annual interest on
such amounts at a rate designated by the Committee from time to time
as the benchmark assumed interest rate. This assumed interest shall
be compounded annually and treated as earned from the date of
crediting to the date of withdrawal.
The Participant Stock Account shall be credited at the end of
each month with the number of shares of Company Common Stock whose
payment is deferred plus any hypothetical dividends payable on the
Company Common Stock previously credited to the Participant Stock
Account. The value of each Participant Interest and Participant Stock
Account shall be adjusted no less frequently than monthly to reflect
contributions to the Account, payments from the Account as hereinafter
provided, and assumed interest on the Interest Account or additional
stock purchases from hypothetical dividends on the Stock Account. The
Stock Account shall also be adjusted as of the end of the Company's
fiscal year to reflect gains (or losses) in the fair market value of
Company Common Stock. For purposes of this Plan, the fair market
value of the Company's Common Stock shall equal the Stock's average
share value during the fiscal year preceding the date on which the
valuation is performed. The Committee has the discretion to determine
the precise method for calculating the average share value.
All amounts credited to Participant Accounts shall be fully
vested at all times. Except for the possible claims of the Company's
general creditors, they shall not be subject to forfeiture on account
of any action by a participant or by the Company, including
termination of employment.
The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to acquire or
set aside any particular assets for the discharge of its obligations,
nor is any participant to have any property rights in any particular
assets held by the Company, whether or not held for the purpose of
funding the Company's obligations hereunder.
5. Payment of Deferred Amounts
No withdrawal may be made from a Participant Account except as
provided in this section 5. Payments from an Account shall normally
commence within 60 days following the earlier of (1) the benefit
commencement date contained in the participant's initial deferral
notice or (2) the participant's retirement or other termination of
employment. At the election of a participant who could be subject to
suit under section 16(b) of the Securities Exchange Act of 1934,
payment can be delayed for up to six months and a day following
termination of employment. In the case of financial hardship, the
Committee, in its sole discretion, may distribute all or a portion of
an Account before the normal benefit commencement date determined
above but the amount of the distribution shall not exceed the amount
needed to relieve the financial hardship. In the case of a potential
violation of the $1 million cap on compensation under Code Section
162(m), the Company may defer payments to a later year as authorized
in section 3. Any payments deferred for Section 162(m) purposes shall
be paid as soon as payment would no longer constitute a violation of
the Code Section 162(m) compensation cap. Such payments shall be made
in a manner as consistent as possible with the participant's original
deferral election. For example, if installment payments were elected,
the originally scheduled installment payments shall be made on
schedule for a year even if the participant is paid a lump sum in that
same year for the deferred payments.
At any time prior to his benefit commencement date, the
participant shall make a single, irrevocable election with the
Committee to receive his benefits from either his Participant Interest
Account or his Participant Stock Account. If no such election is made
or in the event of the participant's death, payment shall be made from
whichever account has the higher value, measured at the time of the
benefit commencement date. Payments from an Interest Account shall be
made only in cash and payments from a Stock Account shall be made only
in stock, provided that any fractional shares from a Stock Account
shall be paid in cash.
The number of shares of Company Common Stock that shall be
available for stock payments under this Plan shall be limited to a
maximum of 10% of the total shares outstanding. Such shares may be
authorized and unissued shares or may be treasury shares. In the
event of any change in the Common Stock of the Company by reason of
any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Common Stock at a price substantially below fair
market value, or of any similar change affecting the Common Stock, the
number and kind of shares which thereafter are available for stock
payments under the Plan shall be appropriately adjusted consistent
with such change in such manner as the Committee may deem equitable to
prevent substantial dilution or enlargement of the rights granted to,
or available for, participants in the Plan.
All payments from a Participant Account shall be made in the form
of either a lump sum payment or monthly installments over a period of
years not to exceed ten as elected by the participant. This election
shall be made on the participant's deferral notice, provided that the
participant may change this election, by written notice to the
Committee at any time up to 36 months prior to the actual benefit
commencement date. Any purported change of an earlier election that
is made within the 36 month period preceding the actual benefit
commencement date shall not be effective and shall be disregarded by
the Committee. Where payments are made in monthly installments, the
balance credited to a Participant Account shall be adjusted
periodically for assumed interest or stock purchases as provided in
section 4.
In the event of a participant's death before the participant has
received all of the deferred payments to which the participant is
entitled hereunder, the remaining number of installments which would
have been paid to the participant shall be paid to the participant's
estate in the same manner that the participant would have received
them.
Notwithstanding a participant's election of installment payments,
the Committee, in its sole discretion, shall have a right to
accelerate any such payments or to make payment of the balance in a
Participant Account in a lump sum.
6. Participant's Rights Unsecured
The right of any participant or, if applicable, the participant's
estate, to receive benefits under the provisions of this Plan shall be
an unsecured claim against the general assets of the Company. Any
amounts held in a Participant Account are a part of the Company's
general assets and shall be reachable by the general creditors of the
Company.
7. Statement of Account
Statements will be sent to participants no less frequently than
annually setting forth the value of their Participant Accounts.
8. Transferability
The rights of a participant under this Plan shall not be
transferable other than by will or the laws of descent and
distribution and are excercisable during the participant's lifetime
only by him or by his guardian or legal representative.
9. Plan Administrator
The administrator of this Plan shall be a committee of the Board
of Directors of the Company as from time to time designated by the
Board. The Committee's members shall be non-employees of the Company.
The Committee shall have the authority to adopt rules and regulations
for carrying out the Plan and to interpret, construe and implement the
provisions of the Plan.
10. Amendment
This Plan may at any time or from time to time be amended,
modified or terminated by the Company's Board of Directors. No
amendment, modification or termination shall, without the consent of a
participant, adversely affect such participant's accruals in his or
her Participant Account.
11. Governing Law
This Plan and any participant elections hereunder shall be
interpreted and enforced in accordance with the laws of the State of
New York.
12. Effective Date
The effective date of this restated Plan is August 20, 1997.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officer to execute this Plan document on its behalf this 20th day of
August 1997.
DETECTION SYSTEMS, INC.
By ___________________________
Frank J. Ryan, Vice President
