SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 8-K/A
AMENDMENT NO. 1 TO THE
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 14, 1994
Sensormatic Electronics Corporation
(Exact name of registrant as specified in charter)
Delaware 0-3953 34-1024665
(State or other jurisdic- (Commission (IRS employer
tion of incorporation) file number) identification No.)
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(305) 420-2000
(Former name or former address, if changed since last report)
Item 5. Other Events.
On August 14, 1994, the Company entered into an Agreement
and Plan of Merger with Knogo Corporation ("Knogo") and Knogo's
wholly-owned subsidiary, Knogo North America Inc. ("Knogo North
America"), providing for the merger (the "Merger") of Knogo with and
into the Company. The agreement contemplates that immediately prior
to the Merger, Knogo's operations in the United States, Puerto Rico
and Canada will be contributed to Knogo North America and the stock of
Knogo North America distributed to Knogo's stockholders or otherwise
disposed of (the "Divestiture"), so that pursuant to the Merger,
Knogo's businesses outside the United States, Puerto Rico and Canada
will be combined with those of the Company.
Pursuant to the agreement, following the Divestiture and
upon the effectiveness of the Merger, each share of Knogo common stock
will be exchanged for the Company's Common Stock having a value (based
on the average of the closing prices of the Company's Common Stock for
the twenty trading days preceding the merger) of $18, which value
would be increased, in the event such average closing price exceeds
$33, by .273 times the amount of such excess. The Company has the
right to pay all or a portion of the merger consideration in cash in
the event that such average closing price of its Common Stock is less
than $28, subject, however, to Knogo's right in such event to require
that the merger consideration be paid entirely in the Company's Common
Stock at a fixed valuation of $28 per share.
Consummation of the Merger is subject to the expiration of
applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, approval of Knogo's shareholders and certain
other conditions. The agreement also has provisions for the payment
of break-up fees, under certain conditions, payable by either party
should the transaction fail to close.
In addition to a Contribution and Divestiture Agreement
governing the assets contributed by Knogo to Knogo North America and
the related liabilities to be assumed by Knogo North America, it is
contemplated by the agreement that under a Supply Agreement, the
Company will purchase certain products from Knogo North America over a
term of 30 months. It is also contemplated that the parties will
enter into a License Agreement governing the use of certain patent
rights and technology.
Knogo is an international, New York-based company engaged
primarily in the business of manufacturing, marketing and servicing
electronic article surveillance systems employing swept radio
frequency, dual radio frequency and magnetic technologies. Knogo also
markets closed circuit video systems. Knogo's worldwide revenues for
the fiscal year ended February 28, 1994 were $89.3 million, with net
income of $3.6 million or $0.65 per share. The Knogo operations being
acquired by the Company pursuant to the Merger posted revenues of
$70.6 million for the same period.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
The information with respect to Knogo in the financial
statements and pro forma financial information below has been supplied by
Knogo, and the information with respect to Sensormatic in such pro forma
financial information has been supplied by Sensormatic.
(a)(1) UNAUDITED FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
Unaudited consolidated financial statements of Knogo for the
period ended May 31, 1994:
Knogo Corporation and Subsidiaries Condensed Consolidated
Balance Sheet (Unaudited), at May 31, 1994
Knogo Corporation and Subsidiaries Consolidated
Statement of Operations (Unaudited), for the period ended
May 31, 1994
Knogo Corporation and Subsidiaries Consolidated Statement
of Cash Flows (Unaudited), for the period ended May 31, 1994
Knogo Corporation and Subsidiaries Notes to Consolidated
Financial Statements (Unaudited)
(a)(2) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
Consolidated financial statements of Knogo for the fiscal year
ended February 28, 1994:
Independent Auditors' Report - Deloitte & Touche LLP
Knogo Corporation and Subsidiaries Consolidated Balance
Sheet, at February 28, 1994
Knogo Corporation and Subsidiaries Consolidated Statement of
Income, for the fiscal year ended February 28, 1994
Knogo Corporation and Subsidiaries Consolidated Statement of
Shareholders' Equity, for the fiscal year ended February 28,
1994
Knogo Corporation and Subsidiaries Consolidated Statement of
Cash Flows, for the fiscal year ended February 28, 1994
Knogo Corporation and Subsidiaries Notes to Consolidated
Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION. Unaudited pro
forma combined financial information for the
fiscal year ended June 30, 1994, relating to the
Company's acquisition of Knogo:
Unaudited Condensed Pro Forma Combined Balance
Sheet, dated June 30, 1994
Unaudited Condensed Pro Forma Combined Statement
of Income, for the fiscal year ended June 30, 1994
Notes to Unaudited Condensed Pro Forma Combined
Financial Information.
(c) EXHIBITS:
Exhibit
Number Description
2(a) Agreement and Plan of Merger ("Merger
Agreement") dated August 14, 1994,
between Sensormatic Electronics
Corporation, Knogo Corporation
("Knogo") and Knogo North America,
Inc. ("Knogo North America")
(including Exhibit A - Delaware
Certificate of Merger; Exhibit B - New
York Certificate of Merger; and
Exhibit C - Form of Contribution and
Divestiture Agreement (the "Divesti-
ture Agreement") between Knogo and
Knogo North America)
(previously filed)
2(b) Form of License Agreement between
Knogo and Knogo North America
(Exhibit B to Divestiture Agreement)
(previously filed)
2(c) Form of Supply Agreement between Knogo
and Knogo North America (Exhibit C to
Divestiture Agreement)
(previously filed)
(Schedules to Exhibits 2(a), 2(b) and
2(c) are not included. Copies will be
furnished supplementally to the
Securities and Exchange Commission
upon request.)
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of Deloitte & Touche LLP
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF KNOGO FOR THE
PERIOD ENDED MAY 31, 1994:
KNOGO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except stock par value)
May 31, 1994
ASSETS (Unaudited)
CASH AND CASH EQUIVALENTS $ 6,423
MARKETABLE SECURITIES 2,814
ACCOUNTS RECEIVABLE, less allowance
for doubtful accounts of $4,713 24,031
NET INVESTMENT IN SALES-TYPE LEASES 27,820
INVENTORIES 21,496
SECURITY DEVICES - Net 5,283
PROPERTY, PLANT AND EQUIPMENT-Net 19,899
OTHER ASSETS 4,673
________
$112,439
LIABILITIES AND SHAREHOLDERS' EQUITY
NOTES PAYABLE - BANKS $ 24,015
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 17,172
INCOME TAXES PAYABLE 1,094
DEFERRED INCOME TAXES 1,218
DEFERRED LEASE RENTALS 3,340
________
46,839
SHAREHOLDERS' EQUITY
Participating cumulative
preferred shares, Series A,
$.01 par value: authorized
200 shares; none issued
Preferred stock, $.01 par value:
Authorized 2,800 shares;
none issued
Common stock, $.01 par value:
Authorized 20,000 shares; issued
and outstanding - 5,385 shares 54
Additional paid-in capital 35,672
Retained earnings 16,006
Equity adjustment from foreign
currency translation 13,868
________
65,600
________
$112,439
See notes to the condensed consolidated financial statements.
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended May 31,
1994 1993
(Unaudited)
Revenues:
Sales of security devices
and related interest income $16,767 $19,648
Lease rentals and other 3,166 4,274
_______ ______
Total revenue 19,933 23,922
Operating costs and expenses:
Cost of security devices sold 6,759 8,999
Depreciation and amortization
of security devices and
property, plant and equipment 1,163 1,367
Selling, general and adminis-
trative expenses 10,249 10,800
Research and development 1,108 1,004
Unusual item (See Note F) 651 -
_______ ______
Total operating costs
and expenses 19,930 22,170
_______ ______
Operating profit 3 1,752
Interest expense 419 518
Foreign currency (gain)loss (2) 45
Interest (income) (75) (55)
_____ ______
Income (loss) before income taxes (339) 1,244
Income taxes (benefit) (68) 311
Net income (loss) $ (271) $ 933
Net income (loss) per common share $ (.05) $ .17
Weighted average common shares 5,384 5,570
See notes to the condensed consolidated financial statements.
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended May 31,
1994 1993
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (271) $ 933
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization
of security devices and
property, plant and equipment 1,151 1,173
Provision for bad debts 373 979
Gain on disposal of fixed assets (14) (6)
Amortization of deferred charges 20 11
Unrealized foreign currency
transaction loss 85 362
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 2,660 (1,017)
Increase in net investment in
sales-type leases (1,157) (988)
(Increase) decrease in
inventories (983) 214
Increase in security devices-net (741) (532)
Increase in other assets (577) (952)
(Decrease) increase in accounts
payable and accrued liabilities (2,428) 1,141
(Decrease) increase in income
taxes payable (297) 558
Increase in deferred lease
rentals 240 842
_____ _____
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (1,939) 2,718
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and
equipment (205) (307)
Proceeds from sale of property,
plant and equipment 39 54
_____ _____
NET CASH USED IN INVESTING ACTIVITIES (166) (253)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments under short-term lines
of credit and overdraft facilities (473) (2,043)
Repayments on long-term borrowings (1,250) -
Proceeds from exercise of stock
options 33 38
______ ______
NET CASH USED IN FINANCING ACTIVITIES (1,690) (2,005)
Effect of exchange rate on cash (260) 277
______ ______
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (4,055) 737
CASH AND CASH EQUIVALENTS, at beginning
of period 10,478 7,351
CASH AND CASH EQUIVALENTS, at end of
period $6,423 $8,088
See notes to the condensed consolidated financial statements.
KNOGO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 1994
NOTE A -- BASIS OF PRESENTATION
The financial information presented is unaudited. In the opinion of
management, all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of the financial
information for the periods indicated have been included. Interim
results are not necessarily indicative of results for a full year.
NOTE B -- NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is computed using the
weighted average number of common shares outstanding during the
period, plus when dilutive, net additional shares issuable upon
exercise of options.
NOTE C -- NET INVESTMENT IN SALES-TYPE LEASES
Knogo is the lessor of security devices under agreements
expiring in various years through 2001. The net investment in
sales-type leases consists of:
May 31, 1994
(000's omitted)
Minimum lease payments
receivable $36,812
Allowance for uncollectible
minimum lease payments (1,799)
Unearned income (7,730)
Portion of lease payments
representing executory costs (1,154)
Unguaranteed residual value 1,691
_______
$27,820
NOTE D -- INVENTORIES
Inventories consist of the following:
May 31, 1994
(000's omitted)
Raw materials $ 4,652
Work-in-process 9,827
Finished goods 7,017
_______
$21,496
NOTE E -- SECURITY DEVICES ON LEASE
Security devices are stated at cost and are summarized as follows:
May 31, 1994
(000's omitted)
Security devices on lease $18,448
Less allowance for depreciation 13,165
_______
$ 5,283
NOTE F -- UNUSUAL ITEM
On May 10, 1994, Arthur J. Minasy, Chairman of the Board of Directors
and Chief Executive Officer, died. Knogo will pay a death
benefit related to the termination of an employment contract in 24
equal monthly installments of $28,960, commencing in May 1994. This
termination death benefit, with a present value of approximately
$651,000 (computed at an effective rate of 7%), has been charged to
expense in the first quarter of fiscal 1995.
NOTE G -- SUBSEQUENT EVENTS
MERGER WITH SENSORMATIC AND SPIN-OFF
On June 27, 1994, Knogo announced that it was holding discussions
involving a possible merger or sale of Knogo or the addition of
a significant investor.
On August 14, 1994, Knogo and its newly established, wholly-owned
subsidiary Knogo North America, Inc. ("Knogo N.A.") entered into a
Merger Agreement with Sensormatic Electronics Corporation
("Sensormatic"). The Merger Agreement contemplates that Knogo will be
merged into Sensormatic (the "Merger"). Consummation of the Merger
is subject to Knogo shareholder and regulatory approval.
Immediately prior to the Merger, Knogo will contribute to Knogo N.A.
certain assets and liabilities of Knogo relative to its operations in
the United States, Canada and Puerto Rico (the "Knogo N.A. Territory").
The Knogo N.A. common stock will be distributed to the Knogo
shareholders, or Knogo will otherwise dispose of the stock or assets
of Knogo N.A. so that upon the effectiveness of the Merger, Knogo's
business interests outside of the United States, Canada, and
Puerto Rico will be combined with those of Sensormatic.
Each outstanding share of Knogo Common Stock will be converted in the
Merger into a fraction of a share of Sensormatic Common Stock, having
a value of $18, subject to certain adjustments.
Supply and License Agreement
Pursuant to a related supply agreement, Sensormatic is obligated to
purchase products from Knogo N.A. in the amount of $12,000,000 during
the first 12 months and an additional $12,000,000 during the ensuing 18
months. Such products will be priced to yield Knogo N.A. a 35% gross
margin.
Pursuant to a related license agreement, Knogo N.A. will have the
exclusive right to manufacture and sell existing Knogo products within
the Knogo N.A. Territory, and Sensormatic shall have such right elsewhere,
except that Knogo N.A. and Sensormatic will each have the right to
develop and market the SuperStrip technology in the Knogo N.A. territory.
Decline in Operations
Subsequent to May 31, 1994, Knogo has experienced a decline in
operating results principally as a result of declining revenues and
professional fees in connection with the proposed merger and related
agreements. Should Sensormatic fail to consummate the Merger (other
than for breach by Knogo of its obligations or failure to obtain
shareholder approval), Knogo would receive from Sensormatic a
payment of either four million or ten million dollars, depending
on the circumstances giving rise to the payment obligation. In
the opinion of Knogo management, payment of such fees should provide
sufficient funding for Knogo to maintain continuity of its existing
operations as it seeks to return to previous operating levels.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF KNOGO FOR THE FISCAL YEAR
ENDED FEBRUARY 28, 1994:
INDEPENDENT AUDITORS' REPORT
Board of Directors
Knogo Corporation
Hauppauge, New York
We have audited the accompanying consolidated balance sheet of Knogo
Corporation and subsidiaries as of February 28, 1994 and the related
consolidated statements of income, shareholders' equity and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Knogo Corporation
and subsidiaries as of February 28, 1994, and the results of their
operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
As described in Note 2 to the consolidated financial statements, the
Company has entered into a Merger Agreement with Sensormatic
Electronics Corporation.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Jericho, New York
May 18, 1994
(September 16, 1994 as to Notes 2, 7, 8 and 11)
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1994
(In thousands, except stock par value)
ASSETS
CASH AND CASH EQUIVALENTS $ 10,478
INVESTMENTS 2,814
ACCOUNTS RECEIVABLE, less allowance
for doubtful accounts of $4,932 26,442
NET INVESTMENT IN SALES-TYPE LEASES 25,819
INVENTORIES 20,090
SECURITY DEVICES ON LEASE, net 5,145
PROPERTY, PLANT AND EQUIPMENT, net 19,604
INTANGIBLES, including patent costs,
less accumulated amortization of
$1,109 960
OTHER ASSETS 3,099
________
$114,451
LIABILITIES AND SHAREHOLDERS' EQUITY
NOTES PAYABLE, banks $ 26,150
ACCOUNTS PAYABLE 6,454
ACCRUED LIABILITIES 12,152
INCOME TAXES PAYABLE 1,374
DEFERRED INCOME TAXES 1,181
DEFERRED LEASE RENTALS 2,883
________
50,194
COMMITMENTS AND CONTINGENCIES
(Notes 2, 7, 10 and 11)
SHAREHOLDERS' EQUITY:
Participating cumulative preferred shares
Series A, $.01 par value: authorized
200 shares; none issued
Preferred stock, $.01 par value:
authorized 2,800 shares; none issued
Common stock, $.01 par value: authorized
20,000 shares; issued and outstanding
5,380 54
Additional paid-in capital 35,640
Retained earnings 16,277
Equity adjustment from foreign currency
translation 12,286
_______
64,257
_______
$114,451
See notes to consolidated financial statements
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED FEBRUARY 28, 1994
(in thousands, except per share data)
REVENUES:
Sales of security devices
and related interest
income $74,556
Lease rentals and other 14,746
_______
89,302
COSTS AND EXPENSES:
Cost of security devices sold 32,620
Depreciation and amortization
of security devices and
property, plant and equipment 4,590
Research and development 3,550
Selling, general and
administrative expenses 41,356
_______
82,116
OPERATING PROFIT 7,186
______
INTEREST (INCOME) (445)
INTEREST EXPENSE 2,358
FOREIGN CURRENCY LOSS 736
_______
INCOME BEFORE INCOME TAXES 4,537
INCOME TAXES 923
_______
NET INCOME $ 3,614
NET INCOME PER SHARE $ .65
WEIGHTED AVERAGE COMMON SHARES 5,557
See notes to consolidated financial statements
<TABLE>
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year ended February 28, 1994
(in thousands)
<CAPTION>
Equity
Adjustment
Additional from Foreign Total
Common Stock Paid-in Retained Currency Shareholders'
Shares Amount Capital Earnings Translation Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 28, 1993 5,338 $54 $35,373 $12,663 $13,274 $61,364
NET INCOME - - - 3,614 - 3,614
EXERCISE OF STOCK OPTIONS 42 - 267 - - 267
TRANSLATION ADJUSTMENT - - - - (988) (988)
_____ ___ _______ ________ _______ ________
BALANCE, February 28, 1994 5,380 $54 $35,640 $16,277 $12,286 $64,257
</TABLE>
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 28, 1994
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,614
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization of
security devices and property,
plant and equipment 3,819
Amortization of intangibles 223
Deferred income taxes 176
Provision for bad debts 2,467
Gain on disposal of property,
plant and equipment (28)
Unrealized foreign currency
transaction loss 1,124
Changes in operating assets and
liabilities:
Decrease in accounts
receivable 7,163
Increase in net investment in
sales-type leases (6,475)
Increase in inventories (2,198)
Increase in security devices, net (1,696)
Decrease in other assets 547
Increase in accounts payable and
accrued liabilities 866
Increase in income tax
payable 352
Decrease in deferred lease
rentals (75)
______
Net cash provided by operating
activities 9,879
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment, net (1,798)
Proceeds from sale of property,
plant and equipment 187
Increase in intangibles (30)
_______
Net cash used in investing
activities (1,641)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under short-term lines
of credit and overdraft facilities (2,007)
Repayment of long-term borrowings (3,832)
Proceeds from exercise of stock
options 267
_______
Net cash used in financing
activities (5,572)
_______
EFFECT OF EXCHANGE RATE ON CASH 461
INCREASE IN CASH AND CASH
EQUIVALENTS 3,127
CASH AND CASH EQUIVALENTS, at beginning
of year 7,351
_______
CASH AND CASH EQUIVALENTS, at end of
year $10,478
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 2,154
Income taxes $ 598
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred for
the purchase of office equipment
and other assets $ 40
See notes to consolidated financial statements
KNOGO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION - The consolidated
financial statements include the accounts of Knogo
Corporation and its subsidiaries ("Knogo"), all of which are
wholly-owned. All significant intercompany accounts and
transactions have been eliminated in consolidation.
b. REVENUE RECOGNITION - Knogo manufactures security
devices which it offers for sale or lease. Revenue related
to the sale of equipment is recorded at the time of shipment
or upon acceptance by a third-party leasing company of a
customer lease and the related equipment. In addition, in
accordance with Statement of Financial Accounting Standards
No. l3, "Accounting for Leases", lease contracts which meet
the following criteria are accounted for as sales-type
leases: collection is reasonably assured, there are no
important uncertainties, and (l) the present value of the
rental payments over the term of the lease is at least 90%
of the fair value of the equipment or (2) the lease term is
equal to 75% or more of the estimated economic life of the
equipment or (3) the lease contains a bargain purchase
option. Under this method, revenue is recognized as a sale
at the time of installation or acceptance by the lessee in
an amount equal to the present value of the required rental
payments under the fixed, noncancellable lease term. The
difference between the total lease payments and the present
value is amortized over the term of the lease so as to
produce a constant periodic rate of return on the net
investment in the lease.
The operating method of accounting for leases is followed
for lease contracts not meeting the above criteria. Under
this method of accounting, aggregate rental revenue is
recognized over the term of the lease (usually 12 to 48
months), which commences with date of installation or
acceptance by the lessee.
Service revenues are recognized as earned and maintenance
revenues are recognized ratably over the service contract
period. Warranty costs associated with products sold with
warranty protection are estimated based on Knogo's historical
experience and recorded in the period the product is sold.
c. CASH EQUIVALENTS AND INVESTMENTS - Knogo considers all
highly liquid investments purchased with a maturity of three
months or less as cash equivalents. Included in cash
equivalents are certificates of deposit of $516,000 at
February 28, 1994. Investments are stated at cost which
approximates market value. Investments consist principally
of tax exempt interest-bearing bonds of the Government
Development Bank of Puerto Rico.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities",
which requires changes in the accounting and reporting of
investments in debt and equity securities. Knogo is required
to adopt SFAS No. 115 in fiscal 1995. The effect of adopting
SFAS No. 115 on Knogo's consolidated financial statements is
not expected to be material.
d. INVENTORIES - Inventories are stated at the lower of
cost (first-in, first-out method) or market. Component
parts and systems in inventory available for assembly and
customer installation are considered as work-in-process.
e. SECURITY DEVICES ON LEASE - Security devices on lease
are stated at cost and consist of completed systems which
have been installed.
f. DEPRECIATION AND AMORTIZATION - Depreciation of
security devices on lease and property, plant and equipment
is provided for using the straight-line method over their
related estimated useful lives. The security devices
generally have estimated useful lives of six years, except
the cost of security devices related to operating leases
with bargain purchase options are depreciated over the life
of the lease.
g. INTANGIBLES - Costs and expenses incurred in obtaining
patents are amortized over the remaining life of the
patents, not exceeding l7 years, using the straight-line
method.
h. DEFERRED LEASE RENTALS - Deferred lease rentals consist
of amounts of rentals related to operating leases billed or
paid in advance.
i. INCOME TAXES - Knogo accounts for income taxes pursuant to
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes", which requires an asset and
liability approach to financial accounting and reporting for
income taxes.
j. INCOME PER COMMON SHARE - Income per common share is
computed using the weighted average number of common shares
outstanding during the year, plus when dilutive, net
additional shares issuable upon exercise of stock options.
k. FOREIGN CURRENCY TRANSLATION - Assets and liabilities
of foreign subsidiaries are translated at year-end exchange
rates. Revenues and expenses are translated using the
average exchange rates prevailing throughout the period.
Exchange rate changes arising from translation from the
foreign subsidiaries' functional currency to U.S. dollars
are included in the equity adjustment from foreign currency
translation component of shareholders' equity. Gains and
losses from foreign currency transactions denominated in a
currency other than the parent company's or its
subsidiaries' functional currencies are included in results
of operations.
2. SUBSEQUENT EVENTS
MERGER WITH SENSORMATIC AND SPIN-OFF
On June 27, 1994, Knogo announced that it was holding discussions
involving a possible merger or sale of Knogo or the addition of
a significant investor.
On August 14, 1994, Knogo and its newly established, wholly-owned
subsidiary Knogo North America, Inc. ("Knogo N.A.") entered into a
Merger Agreement with Sensormatic Electronics Corporation
("Sensormatic"). The Merger Agreement contemplates that Knogo will be
merged into Sensormatic (the "Merger"). Consummation of the Merger
is subject to Knogo shareholder and regulatory approval.
Immediately prior to the Merger, Knogo will contribute to Knogo N.A.
certain assets and liabilities of Knogo relative to its operations in
the United States, Canada and Puerto Rico (the "Knogo N.A. Territory").
The Knogo N.A. common stock will be distributed to the Knogo
shareholders, or Knogo will otherwise dispose of the stock or assets
of Knogo N.A. so that upon the effectiveness of the Merger, Knogo's
business interests outside of the United States, Canada, and
Puerto Rico will be combined with those of Sensormatic.
Each outstanding share of Knogo Common Stock will be converted in the
Merger into a fraction of a share of Sensormatic Common Stock, having
a value of $18, subject to certain adjustments.
Supply and License Agreement
Pursuant to a related supply agreement, Sensormatic is obligated to
purchase products from Knogo N.A. in the amount of $12,000,000 during
the first 12 months and an additional $12,000,000 during the ensuing 18
months. Such products will be priced to yield Knogo N.A. a 35% gross
margin.
Pursuant to a related license agreement, Knogo N.A. will have the
exclusive right to manufacture and sell existing Knogo products within
the Knogo N.A. Territory, and Sensormatic shall have such right elsewhere,
except that Knogo N.A. and Sensormatic will each have the right to
develop and market the SuperStrip technology in the Knogo N.A. territory.
Decline in Operations
Subsequent to May 31, 1994, Knogo has experienced a decline in
operating results principally as a result of declining revenues and
professional fees in connection with the proposed merger and related
agreements. Should Sensormatic fail to consummate the Merger (other
than for breach by Knogo of its obligations or failure to obtain
shareholder approval), Knogo would receive from Sensormatic a
payment of either four million or ten million dollars, depending
on the circumstances giving rise to the payment obligation. In
the opinion of Knogo management, payment of such fees should provide
sufficient funding for Knogo to maintain continuity of its existing
operations as it seeks to return to previous operating levels.
3. NET INVESTMENT IN SALES-TYPE LEASES AND OPERATING LEASE DATA
Knogo is the lessor of security devices under agreements
expiring in various years through 2001. The net investment in
sales-type leases consist of:
1994
(in thousands)
Minimum lease payments receivable $34,431
Allowance for uncollectible minimum
lease payments (1,674)
Unearned income (7,424)
Portion of lease payments representing
executory costs (1,083)
Unguaranteed residual value 1,569
_______
$25,819
At February 28, l994, future minimum lease payments receivable
under sales-type leases and noncancellable operating leases are as
follows:
Sales-Type Operating
Leases Leases
(in thousands)
l995 $11,307 $5,423
1996 9,381 5,670
1997 7,009 4,954
1998 4,245 3,029
1999 and thereafter 2,489 886
_______ ______
$34,431 $19,962
4. INVENTORIES
Inventories consist of the following:
1994
(in thousands)
Raw materials $ 4,348
Work in process 9,184
Finished goods 6,558
_______
$20,090
5. SECURITY DEVICES ON LEASE
Security devices are stated at cost and are summarized as
follows:
1994
(in thousands)
Security devices on lease $17,262
Less allowance for depreciation 12,117
_______
$ 5,145
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are
summarized as follows:
Estimated Useful 1994
Lives (Years) (in thousands)
Land $ 3,547
Buildings and improvements 25-40 13,491
Machinery and equipment 3-l0 11,216
Furniture, fixtures and
office equipment 3-l0 5,565
Leasehold improvement l-6 376
______
34,195
Less allowance for
depreciation and
amortization 14,591
_______
$19,604
7. NOTES PAYABLE
1994
(in thousands)
Short-term lines of
credit, overdraft
facilities, and
other $ 9,900
Term loans 16,250
_______
$26,150
Knogo has various informal short-term overdraft and credit
lines available on which Knogo may borrow in various currencies at
prevailing market rates. At February 28, 1994, an amount of
$3,049,000 was outstanding under a domestic credit line at an annual
interest rate of 6%, maturing on July 14, 1994, subject to renewal.
Amounts drawn in foreign currencies aggregated $5,278,000 with annual
interest rates approximating 7.1%.
Knogo has two equal term loan agreements with domestic banks.
The term loans are payable in 13 remaining equal quarterly
installments of $1,250,000. All borrowings under these agreements
bear interest at the London Interbank Offered Rate plus 2.5% or the
Alternate Base Rate, as defined, plus 1%. At February 28, 1994, the
interest rate on outstanding borrowings was 6%. The terms of the
agreements, among other matters, provide restrictions on additional
borrowings, capital expenditures and payment of dividends and require
that Knogo maintain certain minimum net worth and working capital, as
defined. Knogo has pledged the shares of certain subsidiaries as
collateral for the loans. Knogo has received from its term loan
lenders a waiver of the "no net loss" covenant of its existing term
loans for the quarter ended May 31, 1994.
Aggregate maturities of notes payable, banks, are as follows (in
thousands):
1995 $13,870
1996 5,278
1997 5,280
1998 1,474
1999 82
Thereafter 166
Subsequent to year end, Knogo received a commitment from a
group of European banks to provide a three year credit financing
of 40 million European Currency Units (ECU's) (approximately $44
million) at an interest rate of 1 1/4% above the appropriate
Interbank offered rate for each currency. Borrowings under the
facility will be based upon eligible accounts receivable and
lease contracts. As of September 16, the financing has not
been consummated as a result of the Merger Agreement with
Sensormatic (see Note 2).
8. SHAREHOLDERS' EQUITY
a. Knogo's Stock Option Plan provides for grants of up to
950,000 options to purchase Knogo's common stock. In
connection with the Merger Agreement with Sensormatic, the
Knogo stock options will be cancelled and options of Sensormatic
and Knogo N.A. issued in replacement therefor. Under the
Plan, options may be granted through May 4, l996 to executives
and key employees at prices determined by the Stock Option
Committee. Options become exercisable in whole or in part
from time-to-time as shall be determined by the Committee at
the time of grant of each option. Currently, options become
exercisable 20% per year over a five-year period. All options
granted in fiscal year 1994 were issued at fair market value
at date of grant. Transactions during the year ended February
28, 1994 were as follows:
Shares Under Option
Option Price Number
Per Share of Shares
Balance, February 28, l993 558,427
Granted $8.88 5,000
Exercised $5.13 - $7.75 (41,600)
Cancelled $5.13 - $6.25 (11,200)
__________
Balance, February 28, l994 510,627
Additionally, options to purchase 30,000 shares of Knogo's
common stock were granted to the outside directors of Knogo. The
option price per share was $l2.00 which was the fair market value on
the date of the grant. Such options were fully exercisable at
February 28, 1994 and expire in 1998.
As of February 28, 1994, options were outstanding at a
weighted average exercise price of $6.57 per share, and expire at
various dates beginning November 1, 1995. As of February 28, 1994,
options for 312,673 shares were available for future grants and
options for 331,187 shares were exercisable. As of February 28, 1994,
853,300 shares of common stock were reserved for issuance in
connection with the exercise of stock options.
b. Knogo has a Shareholders' Rights Plan that provides
rights to purchase new Knogo Corporation Participating
Cumulative Preferred Shares Series A, par value $.0l per
share ("Series A Preferred Shares") which would be
distributed as a dividend at the rate of one right per
common share. Rights become exercisable ten days after any
person or group acquires 20% or more or announces a tender
offer for 30% or more of Knogo's outstanding common stock.
If and when the Rights become exercisable, each Right will
entitle the holder thereof to purchase one one-hundredth
(1/100th) of a Series A Preferred Share at an initial
exercise price of $l00. The terms of the Series A Preferred
Shares have been designed so that each one one-hundredth
(l/l00th) of a Series A Preferred Share will be entitled to
participate in dividends and to vote on an equivalent basis
with one whole share of Knogo's common shares. Rights
under the Rights Plan, together with the outstanding shares
of Knogo Common Stock, will be exchanged for Sensormatic
Common Stock and extinguished in the Merger.
9. DIVIDENDS
Knogo paid a regular quarterly cash dividend from July 1987
through December 1991. In January 1992, the Board of Directors
determined to eliminate the dividend in connection with the
restructuring of Knogo. Any further decision by the Board of
Directors as to the declaration and payment of dividends will depend
upon the earnings and financial condition of Knogo and such other
facts as the Board of Directors deems appropriate at such time. The
amount of cash dividends Knogo may pay is restricted under certain of
its bank credit agreements. As of February 28, 1994, based on the
most restrictive of the debt covenants, approximately $2,711,000 is
available for payment of dividends.
10. INCOME TAXES
Income before income taxes consists of:
1994
(in thousands)
Domestic $ 857
Foreign 3,680
______
$4,537
The components of Knogo's income tax provisions are as
follows:
1994
(in thousands)
Domestic:
Current $396
Deferred -
____
396
Puerto Rico:
Current 390
Deferred (164)
____
226
Foreign:
Current (39)
Deferred 340
____
301
____
$923
The reconciliation between total tax expense and the
expected U.S. Federal income tax is as follows:
1994
(in thousands)
Expected tax expense at 34% $ 1,543
Add/(deduct):
Losses of foreign subsidiaries
producing no tax benefit 207
Effect of foreign tax credits and
lower foreign tax rates (1,108)
U.S. losses producing no tax benefit 1,116
Benefits of nontaxable income of
Puerto Rico subsidiary (1,106)
Prior years' estimated tax adjustment 271
_______
$ 923
Significant components of deferred tax assets and
liabilities are comprised of:
1994
Deferred Tax
(Assets)
Liabilities
(in thousands)
Assets:
Accounts receivable $ (2,186)
Inventories (1,004)
Accrued liabilities (922)
Research and development (403)
Intercompany transactions (1,890)
Net operating loss carryforwards (8,788)
Other (519)
_______
Gross deferred tax assets (15,712)
Less: Valuation allowance 7,305
_______
(8,407)
Liabilities:
Security devices on lease 2,077
Property, plant and equipment 1,392
Sales-type leases 5,175
Deferred sales 475
Other 469
________
Gross deferred tax liabilities 9,588
________
Net deferred tax liability $ 1,181
The decrease in the valuation allowance of $1,838,000
during the year ended February 28, 1994 was primarily the result
of utilization of net operating loss carryforwards.
Knogo's Puerto Rico manufacturing subsidiary is exempt from
Federal income taxes under Section 936 of the Internal Revenue Code.
Also, Knogo was granted a partial income tax exemption under the
provisions of the Puerto Rico Industrial Incentives Act of l978 from
the payment of Puerto Rico taxes on income derived from marketing
certain products manufactured by the subsidiary. The grant provides
for a 90% exemption from Puerto Rico taxes until January 1, 2008.
Knogo provides tollgate taxes on the earnings of the Puerto Rico
subsidiary which it intends to remit, in the form of a dividend, to
the parent company based upon the applicable rates. Such provision
amounted to $20,000 for the year ended February 28, 1994.
Knogo has approximately $2,800,000 in marketable securities
which Knogo intends to maintain in Puerto Rico in order to obtain
reduced tollgate taxes to be paid when the Puerto Rican source
earnings are repatriated.
Deferred income taxes have not been provided on the portion
of the earnings of foreign subsidiaries aggregating approximately
$14,585,000 which are to be indefinitely reinvested.
At February 28, 1994, Knogo had tax credit carryforwards of
approximately $250,000 for Federal tax purposes available to offset
future U.S. income tax liabilities through 2009. Knogo has available
domestic and foreign net operating loss carryforwards of approximately
$22,800,000 for tax purposes expiring through 2009.
The prior years income tax returns of Knogo and its
wholly-owned subsidiaries are currently being examined by various
taxing authorities. Knogo has recorded the estimated settlement costs
for these matters. Management anticipates that adjustments, if any,
resulting from the conclusion of these examinations will not have a
material effect on the consolidated financial statements.
11. COMMITMENTS AND CONTINGENCIES
a. Aggregate annual rent expense under leases for office,
warehouse, manufacturing facilities, automobiles and other
rental equipment amounted to approximately $2,498,000 for
1994. At February 28, 1994, the minimum rental commitments
under all noncancellable operating leases are $1,333,000
(1995), $648,000 (1996), $273,000 (1997), $158,000 (1998),
and $26,000 (1999).
b. Knogo has a severance compensation plan covering
certain officers and employees which provides that in the
event a participant's employment is terminated under certain
circumstances within two years following a change in
control, as defined, the participant would be entitled to a
severance payment, as defined. In addition, the participant
would be entitled to a cash payment in settlement of all
outstanding stock options and to the continuation for a
period of 18 months of certain benefits received under
Knogo's various employee benefit arrangements. This
severance compensation plan will not apply to, and
will be terminated as a result of, the Merger. (Note 2)
c. Knogo is a party to litigation arising in the normal
course of business. Management believes the final
disposition of such matters will not have a material adverse
effect on the consolidated financial statements.
d. Knogo has a voluntary profit sharing deferred
contribution plan, which complies with section 401(k) of the
Internal Revenue Code. The plan permits eligible employees
to make voluntary contributions to a trust, up to a maximum
of 10% of compensation, subject to certain limitations, with
Knogo making a matching contribution presently at 50% of the
first 6%. Knogo contributed to the plan approximately
$54,000 for the year ended February 28, 1994.
e. Knogo has an employment agreement with a senior
executive through May, 1996 for which Knogo has a
minimum annual commitment of approximately $300,000.
On May 10, 1994, Arthur J. Minasy, Chairman of the Board of
Directors and Chief Executive Officer, died. Knogo will pay
a death benefit related to the termination of an employment
contract in 24 equal monthly installments of $28,960,
commencing in May 1994. This termination death benefit,
with a present value of approximately $650,000 (computed at
an effective rate of 7%), will be charged to expense in the
first quarter of fiscal 1995.
f. In connection with intercompany transactions, Knogo
purchases future currency exchange contracts to hedge the
risk associated with fluctuations between the Belgian Franc
and the United States Dollar. At February 28, 1994, Knogo
had two equal contracts expiring through February 15, 1995
to purchase a total of $10 million United States dollars.
The contracts mature at set rates in $400,000 increments
every two weeks during the contract period.
12. BUSINESS SEGMENT DATA
Knogo is engaged in only one segment and line of business,
the manufacture, distribution, installation and servicing of systems
designed to detect the unauthorized movement of articles and persons.
Knogo's customers are principally in the retail industry.
Certain information about Knogo's operations in different
geographic areas as of and for the year ended February 28, 1994 is
as follows:
Revenues:
North America $ 18,695
Europe and other 70,607
________
Total revenues $ 89,302
Operating profit before
items below:
North America $ 1,473
Europe and other 7,435
________
Total operating profit
before items below 8,908
Corporate expenses (1,722)
Interest income 445
Interest expense (2,358)
Foreign currency loss (736)
________
Income before
income taxes $ 4,537
Identifiable assets:
North America $ 33,418
Europe and other 75,927
________
Total identifiable assets 109,345
General corporate assets 5,106
________
Total assets $114,451
The activities of Knogo's Canadian operations, which are not
material for separate disclosure, are included in North America.
Transfers between geographic areas are accounted for at
cost, plus a reasonable profit, and amounted to approximately
$12,524,000.
Liabilities of foreign subsidiaries, exclusive of
intercompany accounts amounted to $22,852,000.
13. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a tabulation of the quarterly results of
operations for the year ended February 28, 1994:
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands except per share data)
Revenues $23,922 $22,449 $21,375 $21,556
Operating profit 1,752 2,022 2,276 1,136
Income before income
taxes 1,244 1,269 1,545 479
Net income 933 952 1,159 570
Net income per common
and common
equivalent share $.17 $.17 $.21 $.10
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION FOR
THE FISCAL YEAR ENDED JUNE 30, 1994, RELATING TO THE
COMPANY'S ACQUISITION OF KNOGO:
PRO FORMA COMBINED FINANCIAL INFORMATION
Introductory Note
The following tables set forth certain unaudited condensed
pro forma combined financial information for Sensormatic after
giving effect to the Divestiture and the Merger, using the purchase
method of accounting as if such transaction had been consummated,
with respect to the statement of income, on July 1, 1993 and,
with respect to the balance sheet, as of June 30, 1994. The
information contained in the following tables does not purport
to be indicative of the results of operations and financial
position of Sensormatic which may have been obtained had the
Divestiture and the Merger with Knogo been consummated on the
dates assumed.
The unaudited Knogo historical financial statements for the
12-month period ended May 31, 1994 have been adjusted to reflect
the division of Knogo into Knogo N.A. and "Knogo International"
and the reversal of intercompany transactions and balances (net
of the related income tax effect thereon) eliminated as part of
determining the Knogo historical financial statements. The
resulting balances (under the heading "Historical Knogo International")
are combined with Sensormatic in the accompanying pro forma financial
information.
The unaudited condensed pro forma combined financial
information reflects a preliminary allocation of the purchase
price of Knogo and, accordingly, is subject to change upon, among
other things, completion of the Divestiture and the Merger with
Knogo. A final determination of required purchase accounting
adjustments, including the allocation of the purchase price to
the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made. Accordingly,
the purchase accounting adjustments made in connection with
the development of the unaudited condensed pro forma combined
financial information appearing herein are preliminary and have
been made solely for purposes of developing such pro forma
combined financial information.
The pro forma information with respect to the Merger
assumes that 3,125,000 shares of Sensormatic Common Stock were
issued to the Shareholders at an Average Sensormatic Share Price of
$32.00 (which is equal to the closing price of a share of
Sensormatic Common Stock on the NYSE Composite Tape on August 12,
1994). If the Average Sensormatic Share Price for these purposes
had been $28.00, pro forma primary and fully diluted earnings per share
for the fiscal year ended June 30, 1994 would have been $1.22 and $1.18,
respectively.
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
June 30, 1994
(in thousands)
Combined
Historical Sensormatic
Sensor- Knogo Pro Forma and Knogo
matic International (a) Adjustments International
ASSETS
Cash and
marketable
securities $ 54,542 $ 8,401 $(664)(g) $ 62,279
Trade and
other
receivables
and
investment in
sales-type
leases, net 308,499 46,033 354,532
Inventories,
net 163,906 13,654 2,705(g) 180,265
Revenue
equipment and
other
property,
plant and
equipment,
net 165,478 13,231 (800)(g) 177,909
Deferred
charges,
patents and
other assets,
net 120,061 2,995 123,056
Costs in
excess of net
assets
acquired, net 343,017 -- $80,076(b) 423,093
_________ ______ __________ _______
Total assets $1,155,503 $84,314 $81,317 $1,321,134
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Accounts and
income taxes
payable
and accrued
liabilities $208,638 $23,802 $18,662(b)(g) $251,102
Debt 219,173 23,367 242,540
Common stock 546,577 99,800(b) 646,377
Retained
earnings 237,553 37,145 (37,145)(b) 237,553
Other
shareholders'
equity (56,438) (56,438)
________ _______ ___________ _______
Total
stockholders'
equity 727,692 37,145 62,655 827,492
Total
liabilities
and
stockholders'
equity $1,155,503 $ 84,314 $ 81,317 $1,321,134
____________________
See Accompanying Notes to Unaudited Condensed Pro Forma
Combined Financial Information.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended June 30, 1994
(in thousands, except per share amounts)
Combined
Historical Sensormatic
Knogo In- and Knogo
Sensor- ternational Pro Forma Inter-
matic <F1>(a) Adjustments national<F1>
Total revenues $655,966 $70,088 $726,054
Cost of
revenues 270,977 29,885 $(3,600)(e) 297,262
Operating
expenses 280,202 34,513 (6,298)(c)(d) 308,417
_______ _________ ________ ________
Operating
income 104,787 5,690 9,898 120,375
Other income
(expenses),
net (8,822) (2,031) (10,853)
_______ ________ ________ ________
Income before
income taxes 95,965 3,659 9,898 109,522
Provision for
income taxes 23,900 395 5,061(f)(h) 29,356
_______ ______ _______ _______
Net income $72,065 $3,264 $4,837 $80,166
Primary
earnings per
common share $ 1.16 $ 1.23
Fully diluted
earnings per
common share $ 1.13 $ 1.19
Common shares
used in the
computation
of:
Primary
earnings
per common
share 61,885 65,010
Fully
diluted
earnings
per common
share 68,343 71,468
_______________________
<F1> Includes Knogo International for the 12-month period ended May
31, 1994.
See Accompanying Notes to Unaudited Condensed Pro Forma
Combined Financial Information.
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL
INFORMATION
(a) The unaudited Knogo Historical financial statements
for the 12-month period ended May 31, 1994, have been adjusted to
reflect Knogo N.A. and Knogo International as separate entities.
Consolidated Balance Sheet
May 31, 1994
(in thousands)
(unaudited)
Historical
Less Knogo
Knogo Knogo N.A. Adjust- Inter-
Historical Historical ments(*) national
__________ __________ _________ _____________
Assets:
Cash and
marketable
securities $ 9,237 $ 836 $ $ 8,401
Trade and
other
receivables
and
investment
in sales-
type
leases, net 51,851 11,356 5,538 46,033
Inventories 21,496 9,522 1,680 13,654
Revenue
equipment
and other
property,
plant and
equipment,
net 25,182 13,502 1,551 13,231
Deferred
charges,
patents
and other
assets 4,673 1,678 2,995
_______ _______ _______ _______
$112,439 $36,894 $8,769 $84,314
________ _______ _______ _______
Liabilities
and Share-
holders'
Equity:
Accounts
and income
taxes
payable and
accrued
liabilities $ 22,824 $ 4,956 $5,934 $23,802
Debt 24,015 648 23,367
_______ _______ ______ _______
46,839 5,604 5,934 47,169
Equity 65,600 31,290 2,835 37,145
________ _______ ________ _______
$112,439 $36,894 $8,769 $84,314
________ _______ ________ _______
Consolidated Statement of Operations
Twelve Months Ended May 31, 1994
(In thousands)
(unaudited)
Historical
Knogo Less Knogo
Historical Knogo N.A. Adjust- Inter-
(**) Historical ments (*) national
__________ __________ ___________ _________
Revenues:
Total
revenues $85,313 $27,149 $11,924 $70,088
Costs and
Expenses:
Cost of
revenues 30,380 13,786 13,291 29,885
Operating
expenses 49,496 12,823 (2,160) 34,513
_______ _______ ________ _______
Operating
income 5,437 540 793 5,690
Other income
(expenses), (2,483) (452) (2,031)
net _______ _______ _______ ______
Income before
income taxes 2,954 88 793 3,659
Provision
for income
taxes 544 504 355 395
______ _____ _______ _____
Net Income
(Loss) $ 2,410 $ (416) $ 438 $ 3,264
________ _______ _______ ________
*Adjustments represent primarily (i) the reversal of intercompany
transactions and balances (and the related income tax effect thereon)
eliminated as part of determining the Knogo Historical financial
statement and (ii) an adjustment to reclassify depreciation on
security devices from operating expenses to cost of revenues to
conform to the presentation used in the Sensormatic financial
statements.
** Knogo's historical year end is Feburary 28. These amounts represent
Knogo's operating results for the year ended February 28, 1994, minus
the quarter ended May 31, 1993, plus the quarter ended May 31, 1994.
(b) An adjustment to record the preliminary allocation
of the costs of the Merger ($100.0 million), the estimated
acquisition costs (approximately $3.0 million) and the amount of
stock issuance costs ($200,000). This adjustment also records
costs in excess of net assets acquired ($80.1 million) and
eliminates the historical Knogo International retained earnings
($37.1 million) and records additional purchase accounting reserves
and adjustments, including the incremental costs related to the
supply agreement between Sensormatic and Knogo N.A. These
additional purchase accounting reserves and adjustments were
approximately $21.0 million, net of related income tax benefits.
(c) An adjustment to record the amortization of the
costs in excess of net assets acquired related to the Merger
(approximately $80.1 million) over 40 years. Amortization
expense was approximately $2.0 million for the year ended
June 30, 1994.
(d) An adjustment to record an estimate of the cost
savings associated with the implementation by Sensormatic of a
formal plan to reduce duplicative operating expenses arising from
the Merger. This adjustment was approximately $8.3 million for
the year ended June 30, 1994.
(e) Adjustment for costs associated with supply agreement
purchase accounting reserve (see (b) above). This adjustment was
approximately $3.6 million for the year ended June 30, 1994.
(f) To eliminate the income tax benefits related to net
operating losses of Historical Knogo International prior to the Merger,
which will be accounted for as a reduction of costs in excess of net
assets acquired as benefits are realized. This adjustment was
approximately $1.0 million for the year ended June 30, 1994.
(g) Adjustments to effectuate the Divestiture.
(h) Adjustments to record the income tax effect of the
pro forma adjustments, as applicable.
<PAGE>
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.
Dated: September 20, 1994
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ MIGUEL A. FLORES
Miguel A. Flores
Vice President and Treasurer
<PAGE>
Exhibit Index
Exhibit
Number Description
2(a) Agreement and Plan of Merger ("Merger (previously
Agreement") dated August 14, 1994, filed)
between Sensormatic Electronics
Corporation, Knogo Corporation
("Knogo") and Knogo North America,
Inc. ("Knogo North America")
(including Exhibit A - Delaware
Certificate of Merger; Exhibit B - New
York Certificate of Merger; and
Exhibit C - Form of Contribution and
Divestiture Agreement (the "Divesti-
ture Agreement") between Knogo and
Knogo North America)
2(b) Form of License Agreement between (previously
Knogo and Knogo North America filed)
(Exhibit B to Divestiture Agreement)
2(c) Form of Supply Agreement between Knogo (previously
and Knogo North America (Exhibit C to filed)
Divestiture Agreement)
(Schedules to Exhibits 2(a), 2(b) and
2(c) are not included. Copies will be
furnished supplementally to the
Securities and Exchange Commission
upon request.)
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment
No. 2 to Registration Statement No. 33-61626 on Form S-3 and
Amendment No. 1 to Registration Statement No. 33-51957 on Form S-4
of Sensormatic Electronics Corporation of our report dated May 18,
1994 (September 16, 1994 as to Notes 2, 7, 8 and 11) appearing in this
Current Report on Form 8-K of Sensormatic Electronics Corporation
dated September 19, 1994 as to the consolidated financial
statements of Knogo Corporation and subsidiaries for the year ended
February 28, 1994.
Deloitte & Touche LLP
Jericho, New York
September 16, 1994
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment
Nos. 2-19339, 33-26786, 33-38753 and 33-54626 on Form S-8
pertaining to the Incentive and Non-Qualified Stock Option Plans
and the Employee Stock Purchase Plan of Sensormatic Electronics
Corporation of our report dated May 18, 1994 (September 16, 1994 as
to Notes 2, 7, 8 and 11) appearing in this Current Report on Form 8-K of
Sensormatic Electronics Corporation dated September 19, 1994 as to
the consolidated financial statements of Knogo Corporation and
subsidiaries for the year ended February 28, 1994.
Deloitte & Touche LLP
Jericho, New York
September 16, 1994
