<TABLE>
<CAPTION>
Exhibit 13
DETECTION SYSTEMS, INC.
SCHEDULE V - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands of dollars)
Year ended March 31, 2000
-------------------------
Additions
Balance at charged to Deduction Balance
beginning costs and Write-off at end
Description of year expenses of assets of year
----------- --------- --------- --------- -------
<S> <C> <C> <C> <C>
Allowance for $1,006 $350 $336 $1,020
doubtful accounts
Allowance for 2,975 865 940 2,900
obsolete inventory
----- ----- ----- -----
$3,981 $1,215 $1,276 $3,920
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31, 1999
-------------------------
Additions
Balance at charged to Deduction: Balance
beginning costs and Write-off at end
Description of year expenses of assets of year
----------- --------- --------- --------- -------
<S> <C> <C> <C> <C>
Allowance for $1,033 $376 $403 $1,006
doubtful accounts
Allowance for 2,292 1,440 757 2,975
obsolete inventory
----- ----- ----- -----
$3,325 $1,816 $1,160 $3,981
===== ===== ===== =====
</TABLE>
Exhibit 13
Report of Independent Accountants
To the Board of Directors and
Shareholders of Detection Systems, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) (1) and (2) on page 24 present fairly, in all
material respects, the financial position of Detection Systems, Inc. and its
subsidiaries at March 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March
31, 2000, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Rochester, New York
June 1, 2000
Exhibit 13
DETECTION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
At March 31, ....................................... 2000 1999
-------- --------
Assets
Current assets:
Cash and cash equivalents .......................... $ 7,799 $ 4,414
Accounts receivable, less allowance for doubtful
accounts ($1,020 and $1,006, respectively) ....... 22,505 20,916
Inventories, net ................................... 32,594 37,762
Other current assets ............................... 5,822 3,249
-------- --------
68,720 66,341
-------- --------
Fixed assets, net .................................. 12,565 12,420
Goodwill, net ...................................... 9,169 9,381
Other assets ....................................... 5,164 4,670
-------- --------
$ 95,618 $ 92,812
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Short term borrowings .............................. $ 336 $ 1,416
Current portion of long term debt .................. 657 647
Accounts payable ................................... 9,515 7,076
Accrued payroll and benefits ....................... 1,933 1,863
Income taxes payable ............................... 1,703 2,108
Other current liabilities .......................... 3,447 4,134
-------- --------
17,591 17,244
-------- --------
Other liabilities .................................. 2,968 2,645
Long term debt ..................................... 16,595 17,179
Shareholders' equity:
Common stock, par value $.05 per share
Authorized - 24,000,000 shares
Issued - 6,579,341 shares and 6,562,499
shares, respectively ............................. 329 328
Capital in excess of par value ..................... 43,601 45,073
Other accumulated comprehensive loss ............... (695) (310)
Retained earnings .................................. 17,915 14,447
-------- --------
61,150 59,538
Less-Treasury stock, at cost - 177,400 shares
and 227,404 shares, respectively ................. (2,561) (3,780)
Notes receivable for stock purchases ............... (125) (14)
-------- --------
58,464 55,744
-------- --------
$ 95,618 $ 92,812
======== ========
See accompanying Notes to Consolidated Financial Statements.
Exhibit 13
DETECTION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(in thousands, except per share data)
Year ended March 31, .................... 2000 1999 1998
--------- --------- ---------
Net sales ............................... $ 141,918 $ 138,045 $ 126,343
Costs and expenses
Production ............................. 85,537 85,163 82,893
Research and development ............... 10,503 8,507 8,579
Marketing, administrative and general .. 37,315 35,727 30,039
Litigation ............................. 1,381
--------- --------- ---------
134,736 129,397 121,511
--------- --------- ---------
Operating income ........................ 7,182 8,648 4,832
Other income (expense)
Net interest expense .................. (1,090) (1,504) (2,035)
Other income (expense) ................ (507) 163 (460)
--------- --------- ---------
Income before income taxes .............. 5,585 7,307 2,337
Provision for income taxes .............. 2,117 2,836 955
--------- --------- ---------
Net income .............................. 3,468 4,471 1,382
Other comprehensive loss
Foreign currency translation adjustment (385) (266) (39)
--------- --------- ---------
Total comprehensive income .............. 3,083 4,205 1,343
Retained earnings at beginning of year .. 14,447 9,976 8,594
Less: other comprehensive loss .......... 385 266 39
--------- --------- ---------
Retained earnings at end of year ........ $ 17,915 $ 14,447 $ 9,976
========= ========= =========
Earnings per share:
Basic ................................. $ 0.55 $ 0.71 $ 0.25
========= ========= =========
Diluted ............................... $ 0.51 $ 0.65 $ 0.24
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
Exhibit 13
DETECTION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, except per share data)
Year Ended March 31, ......................... 2000 1999 1998
------- ------- --------
Cash flows from operating activities
Net income .................................. $ 3,468 $ 4,471 $ 1,382
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .............. 3,846 3,223 3,226
Deferred compensation ...................... -- -- 457
Deferred income taxes ...................... (354) 627 501
Stock based compensation ................... -- -- 87
Changes in operating assets and liabilities:
Accounts receivable ........................ (1,503) 2,704 (1,795)
Inventories ................................ 5,274 1,022 (1,574)
Accounts payable ........................... 2,238 (5,642) (4,711)
Accrued payroll and benefits ............... 58 227 (1,449)
Other assets and liabilities ............... (3,240) 565 (2,177)
------- ------- --------
Total adjustments .......................... 6,319 2,726 (7,435)
Net cash provided by (used in) operating
activities ................................. 9,787 7,197 (6,053)
------- ------- --------
Cash flows from investing activities
Purchase of businesses net of cash acquired . (621) (505) (9,618)
Capital expenditures ........................ (3,381) (3,354) (2,832)
------- ------- --------
Net cash used in investing activities ........ (4,002) (3,859) (12,450)
------- ------- --------
Cash flows from financing activities
Short term borrowings ....................... (1,079) (194) 2,741
Proceeds from long term debt ................ -- 2,392 --
Principal payments on long term debt and
capital lease obligations .................. (574) (4,034) (12,398)
Issuance of common stock .................... -- -- 28,702
Repurchase of common stock .................. (806) -- (3,767)
Stock options exercised ..................... 444 18 4,180
------- ------- --------
Net cash (used in) provided by financing
activities ................................. (2,015) (1,818) 19,458
------- ------- --------
Effect of exchange rate changes on cash
balances ................................... (385) (266) (39)
Net increase in cash and cash equivalents .... 3,385 1,254 916
Cash and cash equivalents at beginning of year 4,414 3,160 2,244
------- ------- --------
Cash and cash equivalents at end of year ..... $ 7,799 $ 4,414 $ 3,160
======= ======= ========
Cash paid during the year for:
Interest ..................................... $ 1,613 $ 1,745 $ 2,438
======= ======= ========
Income taxes ................................. $ 3,926 $ 2,426 $ 1,502
======= ======= ========
See accompanying Notes to Consolidated Financial Statements.
Exhibit 13
DETECTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
(in thousands, except per share data)
NOTE 1-DESCRIPTION OF OPERATIONS AND ACCOUNTING POLICIES:
DESCRIPTION OF OPERATIONS -
Detection Systems, Inc. ("the Company") designs, manufactures and markets
electronic detection, control and communication equipment for the security,
fire protection, access control and CCTV industries.
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements of the Company include all
majority-owned U.S. and non-U.S. subsidiaries. Intercompany accounts,
transactions and profits are eliminated. Certain amounts in the prior years'
financial statements have been reclassified to conform with the current
year's presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at year-end as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -
Cash equivalents include time deposits and highly liquid investments with
original maturities of three months or less as of the date of purchase.
INVENTORIES -
Inventories, which include materials, labor and overhead, are recorded at the
lower of cost, determined by the first-in, first-out method, or market
value. The Company provides inventory reserves for excess, obsolete or
slow-moving inventory based on changes in customer demand, technology
developments, or other economic factors.
FIXED ASSETS AND EQUIPMENT UNDER CAPITAL LEASE -
Buildings and related improvements are depreciated using the straight-line
method over an estimated useful life ranging from 26 to 40 years. Land
improvements, machinery and equipment, production tooling and furniture are
depreciated on the straight-line method over estimated useful lives ranging
from three to ten years. Expenditures for maintenance and repairs are
charged to expense as incurred. Major improvements are capitalized.
GOODWILL -
Goodwill represents the excess of the cost of net tangible assets acquired in
business combinations over their fair value. Goodwill is amortized using the
straight-line method over periods ranging from three to twenty years. The
Company evaluates goodwill and all long-lived assets for impairment when
events or changes in circumstances indicate their carrying amounts may not be
recoverable, in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121. This is accomplished by comparing the estimated undiscounted
future cash flows with the respective carrying amount as of the date of
assessment. Should aggregate future cash flows be less than the carrying
value, a write-down would be required, measured as the difference between the
carrying value and the discounted future cash flows. Accumulated
amortization of goodwill at March 31, 2000 and 1999 was approximately
$2,734,000 and $2,045,000, respectively.
RETIREMENT PLANS -
The Company has two defined contribution pension plans which, in aggregate,
cover substantially all domestic employees. The first plan requires the
Company to match 100% of an employee's contribution up to one percent of the
employee's base salary and 25% of an employee's contribution between two and
four percent of the employee's base salary. The second plan permits
employees to contribute up to 20% of their eligible earnings. Annual
contributions by the Company out of its net profits are in amounts approved
by the Company's Board of Directors. The Company's contributions to these
plans were approximately $229,000, $231,000 and $239,000 in 2000, 1999 and
1998, respectively.
The Company has a defined benefit pension plan for certain key executives.
This plan provides for an annual benefit of 30% of their ending base annual
compensation and medical expense coverage for life after retirement. The
liability is being recognized over their remaining service periods.
REVENUE RECOGNITION -
Revenues are recognized when product is shipped. Revenue is reduced for
estimated customer returns and allowances. A provision for estimated product
warranty cost is also recorded for product shipments.
RESEARCH AND DEVELOPMENT COSTS -
All product development costs are charged to operations during the period
incurred.
FOREIGN CURRENCY TRANSLATION -
Assets and liabilities of non-U.S. subsidiaries are translated at current
exchange rates, and related revenues and expenses are translated at average
exchange rates in effect during the period. Resulting translation
adjustments are recorded as a separate component of shareholders' equity.
STOCK BASED COMPENSATION -
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," which requires compensation cost
to be recognized based on the difference, if any, between the quoted market
price of the stock on the grant date and the amount an employee must pay to
acquire the stock.
INCOME TAXES -
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes in accordance SFAS No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities applying enacted statutory rates in effect
for the year in which the differences are expected to reverse.
EARNINGS PER SHARE -
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." There are no 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. Reconciling items between the number of shares used in the
calculation of basic and diluted earnings per share relate to deferred
compensation plans, options and warrants, as follows:
Year ended March 31, 2000 1999 1998
---- ---- ----
Weighted average number of shares outstanding 6,344 6,319 5,433
Shares associated with deferred compensation,
option and warrant plans 480 508 290
CONCENTRATION OF CREDIT RISK -
Financial instruments which potentially expose the Company to concentration
of credit risk consist principally of bank deposits, temporary investments
and accounts receivable. The Company performs ongoing credit evaluations of
its customers' financial condition and the Company maintains an allowance for
uncollectible accounts receivable based upon the expected collectibility of
all accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
The carrying amount of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable and
short-term borrowings, approximates their fair value at March 31, 2000 and
1999 as the maturity of these instruments is short term. The carrying amount
of the Company's long-term debt obligations approximates their fair value as
the interest rates on such obligations approximate the market rate at March
31, 2000 and 1999.
NOTE 2-ACQUISITIONS
In 1995, the Company adopted a strategy which focused on expanding its
product offerings, establishing an international sales presence, increasing
its manufacturing capacity and improving its overall cost structure. The
Company has since made ten acquisitions and established a manufacturing
facility in Asia. These initiatives have enabled the Company to
significantly expand its product catalog and market scope.
All of the acquisitions have been accounted for as purchases and,
accordingly, the results are included in the consolidated financial
statements as of the date of acquisition. The financial statements reflect
the final allocation of purchase price for each business.
Fiscal 2000 Acquisitions
During the second quarter ended September 30, 1999, the Company acquired all
of the outstanding shares of Caetec S.r.l. ("Caetec") for approximately
$700,000 in cash. Caetec is an Italian technology company with a line of
fire control products.
Fiscal 1999 Acquisitions
In June 1998, the Company acquired all of the outstanding stock of Efsec AB
("Efsec")for approximately $1,250,000 comprised of cash and 28,161 shares of
its common stock. Efsec is a Swedish distributor of electronic security
equipment and had annual net sales of approximately $3,000,000 prior to its
acquisition.
In June 1998, the Company acquired all of the outstanding stock of Alarm
Center Kft ("Alarm Center") for $135,000 in cash. Alarm Center is a
Hungarian distributor of electronic security equipment and had annual net
sales of approximately $500,000 prior to its acquisition.
Fiscal 1998 Acquisitions
In May 1997, the Company acquired all of the outstanding stock of Digital
Audio Ltd. ("DA Systems") for approximately $4,000,000 in cash. DA Systems
is a British manufacturer of security control equipment and had annual net
sales of approximately $10,800,000 prior to its acquisition.
In June 1997, the Company acquired 99.5% of the outstanding stock of Seriee
S.A. ("Seriee") of France, in exchange for 34,141 shares of its common stock,
valued at approximately $600,000. Seriee is a manufacturer of electronic
control and communication equipment and had annual net sales of approximately
$6,300,000 prior to its acquisition.
In June 1997, the Company acquired 98.7% of the outstanding stock of
Radio-Active Systems N.V.("RAS") of Belgium for approximately $3,600,000 in
cash. RAS has one of the largest security equipment distribution networks in
Belgium and had annual net sales of approximately $9,900,000 prior to its
acquisition.
In November 1997, the Company acquired all of the outstanding stock of
Security Supplies NZ Ltd. ("Security Supplies") of New Zealand for
approximately $50,000 in cash. Security Supplies provided the Company with
immediate access to an established market base in New Zealand. Security
Supplies had annual sales of approximately $800,000 prior to its acquisition.
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 $2,800,000 in cash. EDM
is a major Australian manufacturer of security control equipment and had
annual net sales of approximately $4,600,000 prior to its acquisition.
NOTE 3-INVENTORIES:
Major classifications of inventory are as follows.
<TABLE>
<CAPTION>
Year Ended March 31, ........ 2000 1999
-------- --------
<S> <C> <C>
Component parts ............. $ 12,875 $ 16,007
Work in process ............. 2,015 2,658
Finished products ........... 20,604 22,072
-------- --------
35,494 40,737
Less-Reserve for obsolescence (2,900) (2,975)
-------- --------
$ 32,594 $ 37,762
======== ========
</TABLE>
NOTE 4-FIXED ASSETS:
Major classifications of fixed assets are as follows.
<TABLE>
<CAPTION>
Year Ended March 31, ........ 2000 1999
-------- --------
<S> <C> <C>
Land and improvements ....... $ 767 $ 716
Building and improvements ... 6,775 6,748
Machinery and equipment ..... 19,364 16,719
Production tooling .......... 5,160 5,402
Furniture ................... 3,082 2,737
-------- --------
35,148 32,322
Less-Accumulated depreciation (22,583) (19,902)
-------- --------
$ 12,565 $ 12,420
======== ========
</TABLE>
Total depreciation expense on fixed assets was approximately $3,376,000,
$3,133,000 and $3,393,000 in 2000, 1999, and 1998, respectively.
NOTE 5-INDEBTEDNESS
A summary of the Company's borrowings is as follows:
<TABLE>
<CAPTION>
Year Ended March 31, ...... 2000 1999
-------- --------
<S> <C> <C>
Revolving lines of credit . $ 336 $ 1,416
Term loan-due 2005 ........ 14,133 14,350
Mortgage loan-due 2006 .... 2,812 3,064
Other long term debt ...... 168 248
Capital lease obligations . 139 164
-------- --------
17,588 19,242
Less-current portion ...... (993) (2,063)
-------- --------
$ 16,595 $ 17,179
======== ========
</TABLE>
The Company has a line of credit, payable upon demand, secured by the general
business assets of the Company. This line allows borrowings of up to
$17,000,000 bearing interest at a rate of approximately 9.0% at March 31,
2000. There were no borrowings against this line during 2000. This facility
matures July 31,2000. One of the Company's European subsidiaries has a short
term borrowing facility, which is payable on demand, for borrowings up to
$350,000. The interest rate on this facility ranged from 5.46% to 6.26%
during 2000. The maximum amount of borrowings during 2000 was approximately
$260,000.
At March 31, 2000, the Company has a term loan, secured by general business
assets, of $14,133,000 and a mortgage loan, secured by certain real estate,
of $2,812,000. The term loan requires principal and interest payments
through 2005. The mortgage loan requires principal and interest payments
through 2006. Interest on the outstanding debt accrues based upon either the
federal funds rate, the prime rate or LIBOR, each adjusted by a factor which
varies based upon the rates of funded debt to earnings before interest, tax,
depreciation and amortization. At March 31, 2000 and 1999, the interest rate
on these borrowings was approximately 6.8% and 6.6%, respectively.
During May 2000, the Company and its primary lender agreed to consolidate the
term loan and line of credit into a three year, $35,000,000 revolving line of
credit. This facility will require interest only payments through June
2003. Principal and interest payments will be required from June 2003
through May 2007.
The Company has certain ratios and covenants to maintain with respect to
items such as working capital, funded debt and fixed charges. Failure to
comply with these guidelines constitutes a default and permits the lenders to
cause the obligations to become currently due. On March 31, 2000, the
Company was in compliance with all covenants and requirements under the terms
of its borrowing agreements.
Annual maturities of the Company's long term debt and capital leases for the
next five years are approximately: 2001-$748,000; 2002-$313,000;
2003-$296,000; 2004-$3,278,000; and, 2005-$3,529,000.
NOTE 6-DEFERRED COMPENSATION PLANS:
The Company's deferred compensation plan allows certain employees to defer
the receipt of salary or bonuses which they may be entitled to receive. The
compensation is normally payable at retirement and is fully vested when
deferred. For salaries or bonuses deferred, the employee elects, at the time
of deferral, to be paid in either stock or cash plus interest which has
accrued from the date of deferral. Unissued common share equivalents are
limited to 146,000 shares under provisions of the plan. As of March 31, 2000
and 1999, unissued common share equivalents of 98,000 existed under the plan.
The Company's stock bonus plan provided for bonuses payable in stock to
certain officers and key personnel if specified criteria was attained. The
plan also provided that recipients may defer receipt of stock bonuses until
retirement or resignation. The bonus fully vests when deferred. Unissued
common share equivalents existing under the plan were 279,000 in 2000 and
1999. The stock bonus plan was terminated during fiscal 1998. Stock bonuses
deferred prior to termination will be distributed in accordance with the
terms of the plan.
NOTE 7-SHAREHOLDERS' EQUITY:
The following table presents the changes in shareholders' equity balances
during the three years ended March 31, 2000.
<TABLE>
<CAPTION>
Common Stock Treasury Stock Capital
---------------- ---------------- in
excess
Shares Amount Shares Amount of par
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 4,479 $224 6 $53 $9,449
Distribution of stock bonuses 5 - - - 86
Options and warrants exercised 30 2 (3) (33) 101
Treasury stock purchases - - 226 3,765 3,755
Common stock issued 2,004 100 - - 31,387
Other - - - - 27
----- --- --- ---- ------
Balance at March 31, 1998 6,518 326 229 3,785 44,805
Options and warrants exercised 16 1 (2) (5) 72
Common stock issued 28 1 - - 256
Other - - - - (60)
----- --- --- ---- ------
Balance at March 31, 1999 6,562 328 227 3,780 45,073
===== === === ===== ======
Options and warrants exercised 17 1 (137) (2,025) (1,472)
Treasury stock purchases - - 87 806 -
----- --- --- ---- ------
Balance at March 31, 2000 6,579 $329 177 $2,561 $43,601
===== === === ===== ======
</TABLE>
In September 1997, the Company sold 1,557,000 shares of common stock at $20
per share in a public offering. Expenses associated with this offering of
approximately $2,700,000 were netted against proceeds.
The Company has two fixed stock option plans whereby options for a total of
875,000 shares of the Company's common stock may be granted to key employees
or non-employees of the Company by the Board of Directors and a fixed stock
option plan whereby options for a total of 50,000 shares of the Company's
common stock may be granted to non-employee Directors of the Company. The
exercise price of the options must equal or exceed the market value of the
Company's common stock on the date of grant. Options are generally
exercisable at a rate of 40% in the first year after grant, 60% in the second
year after grant, 80% in the third year after grant and in full thereafter.
Options expire up to ten years after the date of grant.
Pro forma net earnings and earnings per share information, as required by
SFAS No. 123, "Accounting for Stock-Based Compensation," has been determined
as if the Company had accounted for employee stock options under SFAS No.
123's fair value method. The fair value of these options was estimated at
the grant date using a Black-Scholes option pricing model with the following
weighted-average assumptions: a risk-free interest rate based on the
anticipated length of time until exercise ranging from 4.75% to 5.75%;
expected life of 4 to 5 years; and an expected volatility of 62%. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period (generally 4 years).
The Company's pro forma information follows:
<TABLE>
<CAPTION>
Year ended March 31, 2000 1999 1998
---- ---- ----
Net earnings
<S> <C> <C> <C>
As reported $3,468 $4,471 $1,382
Pro forma $2,635 $3,683 $ 594
Net earnings per diluted share
As reported $0.51 $0.65 $0.24
Pro forma $0.39 $0.54 $0.11
</TABLE>
This disclosure is not likely to be representative of the effects on reported
net earning for future years, because options vest over four years and
additional awards generally are made each year.
A summary of the status of the Company's stock option plan and outstanding
warrants as of March 31, 2000, 1999 and 1998, and changes during the years
ending on those dates, is presented below:
<TABLE>
<CAPTION>
2000 1999 1998
----------------- ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------- ----- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 536 $8.69 404 $8.08 356 $ 5.89
Granted 99 9.47 164 9.75 110 14.41
Exercised (175) 4.62 (18) 4.46 (34) 4.31
Forfeited (6) 8.99 (14) 8.41 (28) 9.68
--- ---- --- ---- --- -----
Outstanding at
end of year 454 $10.34 536 $8.69 404 $8.08
=== ==== === ==== === =====
Options exercisable
at year-end 216 $10.24 278 $6.84 191 $5.44
=== ==== === ==== === ====
Weighted-average
fair value of
options granted
during the year $5.21 $5.98 $9.08
==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Options & Warrants Outstanding Options Exercisable
------------------------------- --------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Outstanding Exercise
Exercise Prices at March 31, Contractual Price Per at March Price Per
Per Share 2000 Life Years Share 31, 2000 Share
---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.01- $4.99 57 1.0 $ 3.97 57 $ 3.96
$5.00- $9.99 171 3.9 9.45 38 9.43
$10.00-$14.99 191 2.9 11.59 96 11.94
$15.00-$19.99 30 2.0 19.08 22 19.11
$20.00-$24.99 5 2.5 22.50 3 22.50
$0.01-$24.99 454 3.0 $10.34 216 $10.24
</TABLE>
NOTE 8-INCOME TAXES:
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consists of the following.
Year Ended March 31, ................... 2000 1999 1998
------ ------- -----
Federal
<S> <C> <C> <C>
Current ............................... $ 532 $ 876 $ (39)
Deferred .............................. 368 618 494
State
Current ............................... 76 448 (13)
Deferred .............................. 141 (78) 118
Foreign
Current ............................... 936 885 506
Deferred .............................. 64 87 (111)
------ ------- -----
$2,117 $ 2,836 $ 955
====== ======= =====
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
rate is as follows.
<TABLE>
<CAPTION>
Year Ended March 31, ................... 2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Statutory federal rate ................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit .... 2.6 3.3 3.0
Foreign tax rate differences ........... (7.0) (3.6) (3.9)
Change in valuation allowances ......... -- -- --
Research and development credits ....... -- -- --
Goodwill amortization .................. 3.7 2.7 3.0
Other permanent items .................. 4.6 2.4 4.8
------ ------ ------
Effective income tax rate .............. 37.9% 38.8% 40.9%
==== ==== ====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
Year Ended March 31, ..................... 2000 1999
------- -------
<S> <C> <C>
Book accruals not currently
deductible for tax ...................... $ 635 $ 434
Deferred compensation .................... 676 799
Inventory ................................ 599 534
Accrued payroll and related costs ........ 379 436
Tax basis of intangibles in excess of book 2,367 2,781
Tax credit carryforwards ................. 549 607
Other .................................... 241 215
------- -------
Total deferred tax assets ................ 5,446 5,806
------- -------
Depreciation ............................. (1,369) (1,301)
Other .................................... (169) (48)
------- -------
Total deferred tax liabilities ........... (1,538) (1,349)
------- -------
Deferred tax asset valuation reserve ..... (431) (407)
------- -------
Net deferred tax asset ................... $ 3,477 $ 4,050
======= =======
</TABLE>
Valuation allowances have been recorded for net operating loss and credit
carryforwards which expire at various times between 2002 and 2011.
Deferred income taxes have not been provided on the undistributed earnings of
foreign subsidiaries. The amount of such earnings included in consolidated
retained earnings at March 31, 2000 was approximately $6,739,000. These
earnings have been substantially reinvested and the Company does not plan to
initiate any action that would precipitate the payment of income taxes
thereon.
NOTE 9-GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The Company's operating structure includes operating segments in the
Americas, Asia Pacific and Europe. Management evaluates the performance of
its operating segments separately to monitor the different factors affecting
financial performance in the different regions. Segment profit or loss
includes substantially all of the segment's costs of production, distribution
and administration. The Company manages income taxes on a global basis,
thus, the Company evaluates segment performance based on profit or loss
before income taxes.
Net sales by the Company to unaffiliated customers outside the United States
represents 41.6%, 38.4% and 32.4% of consolidated net sales for the years
ended March 31, 2000, 1999 and 1998. Net sales by the Company's domestic
operations to unaffiliated customers outside the United States represent
0.8%, 2.3% and 4.3% of the Company's consolidated net sales for the years
ended March 31, 2000, 1999 and 1998, respectively.
The following table presents net sales, income (loss) before income taxes,
identifiable assets, capital expenditures and depreciation expense of the
Company's domestic and foreign operations. Net sales and income (loss)
before income taxes of the Company's domestic operations include the impact
of export sales. Inter-area sales are presented on a basis intended to
reflect the market value of the products as nearly as possible. Identifiable
assets are those assets of the Company that are identified with the
operations in the respective geographic area.
<TABLE>
<CAPTION>
Year Ended March 31, ................. 2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales to unaffiliated customers
America operations ................... $ 84,058 $ 88,232 $ 90,938
Asia Pacific operations .............. 24,787 20,023 12,501
European operations .................. 33,073 29,790 22,904
--------- --------- ---------
$ 141,918 $ 138,045 $ 126,343
========= ========= =========
Sales between affiliates
America operations ................... $ 9,235 $ 7,997 $ 7,362
Asia Pacific operations .............. 36,429 40,966 32,018
European operations .................. 476 248 85
--------- --------- ---------
$ 46,140 $ 49,211 $ 39,465
========= ========= =========
Income (loss) before income taxes
America operations ................... $ 2,482 $ 4,988 $ 1,799
Asia Pacific operations .............. 5,311 4,617 1,614
European Operations .................. (2,612) (1,485) (774)
Eliminations ......................... 404 (813) (302)
--------- --------- ---------
$ 5,585 $ 7,307 $ 2,337
========= ========= =========
Identifiable assets
America operations ................... $ 45,919 $ 45,514 $ 46,802
Asia Pacific operations .............. 28,005 27,369 30,193
European operations .................. 21,694 19,929 17,049
--------- --------- ---------
$ 95,618 $ 92,812 $ 94,044
========= ========= =========
Capital expenditures
America operations ................... $ 1,779 $ 1,081 $ 1,336
Asia Pacific operations .............. 803 1,636 1,061
European operations .................. 799 637 435
--------- --------- ---------
$ 3,381 $ 3,354 $ 2,832
========= ========= =========
Depreciation expense
America operations ................... $ 1,839 $ 1,721 $ 2,186
Asia Pacific operations .............. 1,035 1,035 700
European operations .................. 502 377 507
--------- --------- ---------
$ 3,376 $ 3,133 $ 3,393
========= ========= =========
</TABLE>
During 2000, sales to the Company's two largest customers accounted for
15.7% and 1.2% of net sales, respectively. During 1999, sales to the
Company's two largest customers accounted for 11.3% and 4.6% of net sales,
respectively. During 1998, sales to the Company's two largest customers
accounted for 9.9% and 6.6% of net sales, respectively. Accounts receivable
from the Company's largest customers represented 17.7% of the accounts
receivable balances at March 31, 2000.
NOTE 10-COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities pursuant to operating lease
agreements. Operating lease expense for offices and other equipment was
approximately $2,140,000, $2,705,000 and $2,267,000 in 2000, 1999 and 1998,
respectively. Future minimum rental payments under noncancelable operating
lease agreements are as follows: 2001-$2,369,000 2002-$2,325,000;
2003-$2,198,000; 2004-$2,075,000; 2005-$1,318,000; thereafter-$2,943,000.
Restructuring
The Company recorded a restructuring charge of approximately $400,000 during
the first quarter of fiscal 1999 for severance costs related to the
termination of employees at the Fairport, New York and Southall, England
facilities. The charge has been included in the results from continuing
operations and had a material impact on operating results in the first
quarter of 1999.
The Company recorded a restructuring charge of approximately $400,000 during
the fourth quarter of fiscal 1998 for severance costs related to the
termination of 47 employees at the Salinas, California facility. The charge
has been included in the results from continuing operations and had a
material impact on operating results in the fourth quarter of 1998.
The restructurings of the Salinas, California, Fairport, New York and
Southall, England facilities are substantially complete.
Legal Matters
The Company and certain officers and directors have been named defendants in
several class-action lawsuits alleging violations of federal securities laws
relating to the Company's September 1997 public offering and certain of the
Company's public filings in 1997 and early 1998. The underwriters of the
public offering have also been named as defendants in three of these class
actions. The actions allege that the Company, certain of its officers and
directors and the underwriters made or are responsible for alleged
misstatements and omissions in various press releases and public filings
concerning the Company's business and financial condition.
In March, 2000, the Company reached an agreement in principle to settle the
consolidated shareholder class action suits. The settlement is subject to
certain conditions, including court approval. The Company recorded a
one-time charge of $1.4 million during the fourth quarter ending March 31,
2000, for costs not covered by insurance.
