<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 8-K
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 29, 1994
Sensormatic Electronics Corporation
(Exact name of registrant as specified in charter)
Delaware 1-10739 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)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On December 29, 1994, the merger (the "Merger") of Knogo Corporation
("Knogo") into Sensormatic Electronics Corporation (the "Company" or
"Sensormatic") became effective pursuant to the Amended and Restated Agreement
and Plan of Merger, dated as of August 14, 1994, among the Company, Knogo and
Knogo North America Inc. ("Knogo N.A.") (the "Merger Agreement"). Immediately
prior to the Merger, Knogo's operations in the United States, Puerto Rico and
Canada were contributed to Knogo N.A. and one share of common stock of Knogo
N.A. was distributed to Knogo's stockholders for each Knogo share held by them
(the "Divestiture"), so that pursuant to the Merger, only Knogo's businesses
outside the United States, Puerto Rico and Canada were combined with those of
the Company. In connection with the Divestiture and the Merger, the Company
became a party to a Supply Agreement with Knogo N.A. providing for the purchase
by the Company of certain products from Knogo N.A. over a term of 30 months and
a License Agreement with Knogo N.A. governing the use of certain patent rights
and technology.
In accordance with the Merger Agreement, the former holders of
Knogo common stock received .5513 shares of the Company's common stock for
each share of Knogo common stock held by them (in addition to the share of
Knogo N.A. referred to above). Holders entitled to fractional shares
received an amount in cash equal to such fraction multiplied by $32.65.
The Company issued approximately 3,113,562 shares of common stock to the
former stockholders of Knogo pursuant to the Merger. Including such shares
issued pursuant to the Merger, the Company has approximately 72,137,477
shares of common stock outstanding. The Company also expects to issue
approximately 100,000 additional shares of common stock to former
holders of Knogo stock options.
<PAGE> 3
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 August 31, 1994:
Knogo Corporation and Subsidiaries Condensed Consolidated
Balance Sheet (Unaudited), at August 31, 1994
Knogo Corporation and Subsidiaries Consolidated
Statement of Operations (Unaudited), for the three- and six-month
periods ended August 31, 1994
Knogo Corporation and Subsidiaries Consolidated Statement
of Cash Flows (Unaudited), for the six-month period ended
August 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
<PAGE> 4
Knogo Corporation and Subsidiaries Notes to Consolidated
Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION. Unaudited pro
forma combined financial information as of September 30, 1994 and
for the three months ended September 30, 1994 and 1993, and the
fiscal year ended June 30, 1994 relating to the Company's
acquisition of Knogo:
Unaudited Condensed Pro Forma Combined Balance
Sheet, dated September 30, 1994
Unaudited Condensed Pro Forma Combined Statement
of Income, for the fiscal year ended June 30, 1994
Unaudited Condensed Pro Forma Combined Statement of Income
for the three months ended September 30, 1994
Unaudited Condensed Pro Forma Combined Statement of Income for
for the three months ended September 30, 1993
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 N.A.")
(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 N.A.) (incorporated by
reference to Exhibit 2(a) to Registration
Statement on Form S-4, filed on
November 28, 1994 (File No. 33-56619)).
2(b) Form of License Agreement between
Knogo and Knogo N.A.
(Exhibit B to Divestiture Agreement)
(incorporated by reference to Exhibit 2(b)
to Registration Statement on Form S-4,
filed on November 28, 1994 (File
No. 33-56619)).
2(c) Form of Supply Agreement between Knogo
and Knogo N.A. (Exhibit C to
Divestiture Agreement) (incorporated by
reference to Exhibit 2(c) to Registration
Statement on Form S-4, filed on
November 28, 1994 (File No. 33-56619)).
The Supply Agreement, the License Agreement and the
Divestiture Agreement were each executed on
December 29, 1994.
(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
<PAGE> 5
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF KNOGO FOR THE
PERIOD ENDED AUGUST 31, 1994:
KNOGO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except stock par value)
<TABLE>
<CAPTION>
August 31, 1994
ASSETS (Unaudited)
<S> <C>
CASH AND CASH EQUIVALENTS $ 5,660
MARKETABLE SECURITIES 2,814
ACCOUNTS RECEIVABLE, less allowance
for doubtful accounts of $5,210 23,255
NET INVESTMENT IN SALES-TYPE LEASES 27,510
INVENTORIES 21,261
SECURITY DEVICES-Net 5,987
PROPERTY, PLANT AND EQUIPMENT-Net 19,971
OTHER ASSETS 4,298
--------
$110,756
LIABILITIES AND SHAREHOLDERS' EQUITY
NOTES PAYABLE-BANKS $ 23,083
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 17,034
INCOME TAXES PAYABLE 1,035
DEFERRED INCOME TAXES 1,150
DEFERRED LEASE RENTALS 3,165
--------
45,467
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 - 5,410 shares
respectively 54
Additional paid-in capital 35,829
Retained earnings 13,711
Equity adjustment from foreign
currency translation 15,695
--------
65,289
--------
$110,756
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 6
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31 August 31
1994 1993 1994 1993
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales of security devices
and related interest income $15,716 $19,059 $32,483 $38,707
Lease rentals and other 3,159 3,390 6,325 7,664
------- ------- ------- -------
Total revenue 18,875 22,449 38,808 46,371
Operating costs and expenses:
Cost of security devices sold 7,418 8,156 14,177 17,155
Depreciation and amortization
of security devices and
property, plant and equipment 1,249 1,221 2,412 2,588
Selling, general and adminis-
trative expenses 10,608 10,091 20,857 20,891
Research and development 1,022 959 2,130 1,963
Unusual item (See Note G) - - 651 -
------- ------- ------- -------
Total operating costs
and expenses 20,297 20,427 40,227 42,597
------- ------- ------- -------
Operating profit (loss) (1,422) 2,022 (1,419) 3,774
Interest (income) (69) (105) (144) (160)
Interest expense 512 684 931 1,202
Foreign currency loss 182 174 180 219
------- ------- ------- -------
Income (loss) before income taxes (2,047) 1,269 (2,386) 2,513
Income taxes 248 317 180 628
------- ------- ------- -------
Net income (loss) $(2,295) $ 952 $(2,566) $ 1,885
------- ------- ------- -------
Net income (loss) per common share $ (.43) $ .17 $ (.48) $ .34
------- ------- ------- -------
Weighted average common shares 5,393 5,528 5,389 5,549
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 7
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
1994 1993
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $(2,561) $1,885
Adjustments to reconcile net income
(loss) to net cash (used in) or
provided by operating activities:
Depreciation and amortization
of security devices and
property, plant and equipment 1,975 2,342
Deferred income taxes (94) 539
Provision for bad debts 1,016 1,793
Gain on disposal of property
plant and equipment (6) 7
Amortization of deferred charges 40 35
Unrealized foreign currency
transaction loss 386 423
Changes in operating assets and
liabilities:
Decrease in accounts
receivable 3,413 2,072
(Increase) decrease in
inventories (220) 150
Decrease (increase) in net
investment in
sales-type leases 61 (2,551)
Increase in security
devices-net (1,770) (598)
Decrease (increase)
in other assets 86 (1,127)
Decrease in accounts
payable and accrued
liabilities (3,022) (149)
(Decrease) increase
in income
taxes payable (369) 205
(Decrease) increase
in deferred
lease rentals (129) 437
------- -------
NET CASH (USED IN) OR PROVIDED
BY OPERATING ACTIVITIES (1,199) 5,463
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and
equipment-net (1,029) (758)
Proceeds from sale of property,
plant and equipment 125 101
------- -------
NET CASH USED IN INVESTING ACTIVITIES (904) (657)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments under short-term lines
of credit and overdraft facilities (390) (2,203)
Repayments on long-term borrowings (2,547) (1,290)
Proceeds from exercise of stock
options 189 47
------- -------
NET CASH USED IN FINANCING ACTIVITIES (2,748) (3,446)
EFFECT OF EXCHANGE RATE ON CASH 33 138
------- -------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (4,818) 1,498
CASH AND CASH EQUIVALENTS, at beginning
of period 10,478 7,351
CASH AND CASH EQUIVALENTS, at end of
period $ 5,660 $ 8,849
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE> 8
KNOGO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 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 -- 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"),
contemplating the merger of Knogo into Sensormatic (the "Merger").
The Merger was consummated on December 29, 1994. Pursuant to the Merger,
each share of Knogo common stock was converted into .5513 shares of
Sensormatic common stock.
Immediately prior to the Merger, Knogo contributed 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")
and the Knogo N.A. common stock was then distributed to the Knogo shareholders
so that upon the effectiveness of the Merger Knogo's remaining business
interests (i.e., all such interests outside of the United States, Canada and
Puerto Rico) were combined with those of Sensormatic.
SUPPLY AND LICENSE AGREEMENT:
Pursuant to a related supply agreement, Sensormatic will be obligated to
purchase products from Knogo N.A. in the amount of $12 million during the
first 12 months following the Merger and an additional $12 million during
the subsequent 18 months. Such products will be priced to yield Knogo N.A.
a 35% gross margin.
Pursuant to a related license agreement, Sensormatic will have the
exclusive right to manufacture and sell existing Knogo products outside
the Knogo N.A. Territory and Knogo N.A. shall have such right
within the Knogo N.A. Territory, 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.
Both the supply and license agreement are subject to consummation of the
merger.
<PAGE> 9
DECLINE IN OPERATIONS:
Subsequent to May 31, 1994, Knogo has experienced a decline in operating
income principally as a result of declining revenues and of higher
professional fees in connection with the proposed merger and related
agreements.
NOTE C -- 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 D -- 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:
<TABLE>
<CAPTION>
August 31, 1994
(000's omitted)
----------------
<S> <C>
Minimum lease payments
receivable $36,186
Allowance for uncollectible
minimum lease payments (1,812)
Unearned income (7,417)
Portion of lease payments
representing executory costs (1,160)
Unguaranteed residual value 1,713
-------
$27,510
</TABLE>
NOTE E -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, 1994
(000's omitted)
----------------
<S> <C>
Raw materials $ 4,602
Work-in-process 9,719
Finished goods 6,940
-------
$21,261
</TABLE>
NOTE F -- SECURITY DEVICES ON LEASE
Security devices are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
August 31, 1994
(000's omitted)
---------------
<S> <C>
Security devices on lease $20,930
Less allowance for depreciation 14,943
-------
$ 5,987
</TABLE>
NOTE G -- UNUSUAL ITEM
On May 10, 1994, Arthur J. Minasy, Chairman of the Board of Directors
and Chief Executive Officer, died. Knogo is paying 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.
<PAGE> 10
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 Knogo Corporation'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, on
December 29, 1994, Knogo Corporation consummated a merger with Sensormatic
Electronics Corporation.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Jericho, New York
May 18, 1994
(December 29, 1994 as to Notes 2, 7, 8 and 11)
<PAGE> 11
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1994
(In thousands, except stock par value)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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
</TABLE>
See notes to consolidated financial statements
<PAGE> 12
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED FEBRUARY 28, 1994
(in thousands, except per share data)
<TABLE>
<S> <C>
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
</TABLE>
See notes to consolidated financial statements
<PAGE> 13
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year ended February 28, 1994
(in thousands)
<TABLE>
<CAPTION>
Equity
Adjustment Total
Additional from Foreign Share-
Common Stock Paid-in Retained Currency holders'
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>
<PAGE> 14
KNOGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 28, 1994
(In thousands)
<TABLE>
<S> <C>
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
</TABLE>
See notes to consolidated financial statements
<PAGE> 15
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. 13, "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 (1) 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.
<PAGE> 16
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 17 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.
<PAGE> 17
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"), contemplating the Merger of Knogo into Sensormatic
(the "Merger"). The Merger was consummated on December 29, 1994.
Pursuant to the Merger, each share of Knogo common stock was converted
into .5513 shares of Sensormatic common stock.
Immediately prior to the Merger, Knogo contributed 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")
and the Knogo N.A. common stock was distributed to the Knogo shareholders,
so that upon the effectiveness of the Merger Knogo's remaining business
interests (i.e., all such interests outside of the United States, Canada,
and Puerto Rico) were combined with those of Sensormatic.
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 following the Merger and an additional $12,000,000
during the subsequent 18 months. Such products will be priced to yield
Knogo N.A. a 35% gross margin.
Pursuant to a related license agreement, Sensormatic will have the
exclusive right to manufacture and sell existing Knogo products outside
the Knogo N.A. Territory and Knogo N.A. shall have such right within
the Knogo N.A. Territory, 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 income principally as a result of declining revenues and of
professional fees in connection with the proposed merger and related
agreements.
<PAGE> 18
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:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
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
</TABLE>
At February 28, l994, future minimum lease payments receivable
under sales-type leases and noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
Sales-Type Operating
Leases Leases
(in thousands)
<S> <C> <C>
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
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
Raw materials $ 4,348
Work in process 9,184
Finished goods 6,558
-------
$20,090
</TABLE>
<PAGE> 19
5. SECURITY DEVICES ON LEASE
Security devices are stated at cost and are summarized as
follows:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
Security devices on lease $17,262
Less allowance for depreciation 12,117
-------
$ 5,145
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are
summarized as follows:
<TABLE>
<CAPTION>
Estimated Useful 1994
Lives (Years) (in thousands)
<S> <C> <C>
Land $ 3,547
Buildings and improvements 25-40 13,491
Machinery and equipment 3-10 11,216
Furniture, fixtures and
office equipment 3-10 5,565
Leasehold improvement 1-6 376
-------
34,195
Less allowance for
depreciation and
amortization 14,591
-------
$19,604
</TABLE>
7. NOTES PAYABLE
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
Short-term lines of
credit, overdraft
facilities, and
other $ 9,900
Term loans 16,250
-------
$26,150
</TABLE>
<PAGE> 20
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 quarters ended May and August 31, 1994.
Aggregate maturities of notes payable, banks, are as follows (in
thousands):
<TABLE>
<S> <C>
1995 $13,870
1996 5,278
1997 5,280
1998 1,474
1999 82
Thereafter 166
</TABLE>
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 December 29, 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:
<PAGE> 21
<TABLE>
<CAPTION>
Shares Under Option
Option Price Number
Per Share of Shares
<S> <C> <C>
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
</TABLE>
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, were 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.
<PAGE> 22
10. INCOME TAXES
Income before income taxes consists of:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
Domestic $ 857
Foreign 3,680
------
$4,537
</TABLE>
The components of Knogo's income tax provisions are as
follows:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
Domestic:
Current $ 396
Deferred -
-----
396
Puerto Rico:
Current 390
Deferred (164)
-----
226
Foreign:
Current (39)
Deferred 340
-----
301
-----
$ 923
</TABLE>
The reconciliation between total tax expense and the
expected U.S. Federal income tax is as follows:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
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
</TABLE>
<PAGE> 23
Significant components of deferred tax assets and
liabilities are comprised of:
<TABLE>
<CAPTION>
1994
Deferred Tax
(Assets)
Liabilities
(in thousands)
<S> <C>
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
</TABLE>
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 1978 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.
<PAGE> 24
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%), was 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.
<PAGE> 25
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:
<TABLE>
<S> <C>
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
</TABLE>
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.
<PAGE> 26
13. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a tabulation of the quarterly results of
operations for the year ended February 28, 1994:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands except per share data)
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 27
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AS OF
SEPTEMBER 30, 1994 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994
AND 1993, AND 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 transactions had been consummated, with respect to
the statement of income, on July 1, 1993 and, with respect to the balance
sheet, as of September 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 and the three-month periods ended
August 31, 1994 and 1993 have been adjusted to reflect the Divestiture
and the reversal of intercompany transactions and balances (including
the related income tax effect thereon) eliminated as part of determining
the Knogo historical financial statements. The resulting balances (under
the heading "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. 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 is based on
approximately 3,200,000 shares of Sensormatic common stock being issued to the
Knogo shareholders and Knogo optionholders at an average Sensormatic share
price of $32.65 (which is equal to the average closing price of a share of
Sensormatic common stock on the New York Stock Exchange for the twenty trading
days preceeding December 29, 1994).
This information should be read in conjunction with the historical
consolidated financial statements and accompanying notes of the Company
contained in its Annual Report on Form 10-K for the fiscal year ended June 30,
1994 and its Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 and the historical consolidated financial statements and accompanying
notes of Knogo contained herein.
<PAGE> 28
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
September 30, 1994
(in thousands)
<TABLE>
<CAPTION>
Combined
Sensormatic
Sensor- Knogo Pro Forma and Knogo
matic International<F1>(a) Adjustments International
<S> <C> <C> <C> <C>
ASSETS
Cash and
marketable
securities $ 55,827 $ 7,275 $ (315)(b) $ 62,787
Trade and
other
receivables
and
investment in
sales-type
leases, net 335,654 45,088 -- 380,742
Inventories,
net 177,986 14,174 2,235(b) 194,395
Revenue
equipment and
other
property,
plant and
equipment,
net 175,147 13,860 -- 189,007
Deferred
charges,
patents and
other assets,
net 140,418 3,040 657(b) 142,801
Costs in
excess of net
assets
acquired, net 372,532 -- 84,700(c) 457,232
---------- ------- -------- ----------
Total assets $1,257,564 $83,437 $ 85,963 $1,426,964
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Accounts and
income taxes
payable
and accrued
liabilities $ 202,609 $24,755 $ 17,328(b)(c) $ 244,692
Debt 273,212 22,476 -- 295,688
Common stock 582,085 -- 104,841(c) 686,926
Retained
earnings 253,847 36,206 (36,206)(c) 253,847
Other
stockholders'
equity (54,189) -- -- (54,189)
---------- ------- -------- ----------
Total
stockholders'
equity 781,743 36,206 68,635 886,584
Total
liabilities
and
stockholders'
equity $1,257,564 $83,437 $ 85,963 $1,426,964
--------------------
</TABLE>
<F1> (a) Includes Knogo International at August 31, 1994.
See Accompanying Notes to Unaudited Condensed Pro Forma
Combined Financial Information.
<PAGE> 29
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended June 30, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Sensormatic
Knogo In- and Knogo
Sensor- ternational Pro Forma Inter-
matic <F1>(a) Adjustments national
<S> <C> <C> <C> <C>
Total revenues $655,966 $70,088 $726,054
Cost of
revenues 270,977 29,885 $(3,600)(d) 297,262
Operating
expenses 280,202 34,584 (6,182)(e)(f) 308,604
-------- ------- ------- --------
Operating
income 104,787 5,619 9,782 120,188
Other
expenses, net (8,822) (1,960) (10,782)
-------- ------- ------- --------
Income before
income taxes 95,965 3,659 9,782 109,406
Provision for
income taxes 23,900 395 5,061(g)(h) 29,356
-------- ------- ------- --------
Net income $ 72,065 $ 3,264 $ 4,721 $ 80,050
-------- ------- ------- --------
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 65,102
-------- --------
Fully
diluted
earnings
per common
share 68,343 71,560
-------- --------
_______________________
</TABLE>
<F1> (a) Includes Knogo International for the 12-month period ending May
31, 1994.
See Accompanying Notes to Unaudited Condensed Pro Forma
Combined Financial Information.
<PAGE> 30
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
Three months ended September 30, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Sensormatic
Knogo In- and Knogo
Sensor- ternational Pro Forma Inter-
matic <F1>(a) Adjustments national
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $190,882 $14,960 $205,842
Cost of
revenues 79,051 7,507 $ (900)(d) 85,658
Operating
expenses 83,427 9,093 (1,571)(e)(f) 90,949
-------- ------- ------- --------
Operating
income (loss) 28,404 (1,604) 2,471 29,235
Other
expense (net) (1,613) (621) (2,234)
-------- ------- ------- --------
Income (loss)
before income
taxes 26,791 (2,261) 2,471 27,001
Provision for
income taxes 6,700 77 58(g)(h) 6,835
-------- ------- ------- --------
Net income
(loss) $ 20,091 $(2,338) $ 2,412 $ 20,165
-------- ------- ------- --------
Primary
earnings per
common share $ 0.29 $ 0.28
Fully diluted
earnings per
common share $ 0.29 $ 0.28
Common shares
used in the
computation
of:
Primary
earnings
per common
share 69,868 73,085
-------- --------
Fully
diluted
earnings
per share 70,026 73,243
-------- --------
______________
</TABLE>
<F1> (a) Includes Knogo International for the 3-month period ended
August 31, 1994.
See Accompanying Notes to Unaudited Condensed Pro Forma
Combined Financial Information.
<PAGE> 31
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
Three months ended September 30, 1993
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Sensormatic
Knogo In- and Knogo
Sensor- ternational Pro Forma Inter-
matic <F1>(a) Adjustments national
--------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues $143,284 $18,222 $161,506
Cost of
revenues 59,006 7,943 $(1,000)(d) 65,949
Operating
expenses 62,008 8,485 (1,371)(e)(f) 69,122
-------- ------- ------- --------
Operating
income 22,270 1,794 2,371 26,435
Other
expense (net) (2,464) (464) (2,928)
-------- ------- ------- --------
Income
before income
taxes 19,806 1,330 2,371 23,507
Provision for
income taxes 5,000 464 1,016(g)(h) 6,480
-------- ------- ------- --------
Net income $ 14,806 $ 866 $ 1,355 $ 17,027
-------- ------- ------- --------
Primary
earnings per
common share $ 0.25 $ 0.27
Fully diluted
earnings per
common share $ 0.24 $ 0.26
Common shares
used in the
computation
of:
Primary
earnings
per common
share 60,272 63,489
-------- --------
Fully
diluted
earnings
per share 67,589 70,806
-------- --------
___________
</TABLE>
<F1> (a) Includes Knogo International for the 12-month period ended
August 31, 1993.
See Accompanying Notes to Unaudited Condensed Pro Forma
Combined Financial Information.
<PAGE> 32
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL
INFORMATION
The following pro forma adjustments have been made:
(a) The unaudited Knogo Historical financial statements
for the 12-month period ended May 31, 1994, and for the three-month
periods ended August 31, 1994 and 1993, have been adjusted to
reflect the contribution of Knogo's businesses in the United States,
Canada and Puerto Rico to Knogo North America ("Knogo N.A."), formerly
a wholly-owned subsidiary of Knogo, and the distribution of the stock
of Knogo N.A. to Knogo's stockholders--i.e., the Divestiture. Knogo
Corporation is referred to as Knogo International after giving effect
to the Divestiture.
Consolidated Balance Sheet
August 31, 1994
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Knogo Historical
Less as Adjusted
Knogo Knogo N.A. Adjust- ("Knogo
Historical Historical ments(+) International")
---------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Assets:
Cash and
marketable
securities $ 8,474 $ 1,199 $ $ 7,275
Trade and
other
receivables
and
investment
in sales-
type
leases, net 50,765 5,677 45,088
Inventories 21,261 8,660 1,573 14,174
Revenue
equipment
and other
property,
plant and
equipment,
net 25,958 13,538 1,440 13,860
Deferred charges,
patents and other
assets, net 4,298 1,258 3,040
-------- ------- ------- -------
$110,756 $30,332 $ 3,013 $83,437
-------- ------- ------- -------
Liabilities
and Stock-
holders'
Equity:
Accounts
and income
taxes
payable and
accrued
liabilities $ 22,384 $ 4,837 $ 7,208 $24,755
Debt 23,083 607 22,476
-------- ------- ------- -------
45,467 5,444 7,208 47,231
Stockholders'
Equity 65,289 32,096 3,013 36,206
Less:
Due from
affiliates --- (7,208) (7,208) ---
-------- ------- ------- -------
Total
Stockholders'
Equity 65,289 24,888 (4,195) 36,206
-------- ------- ------- -------
$110,756 $30,332 $ 3,013 $88,437
-------- ------- ------- -------
__________
</TABLE>
+ Adjustments represent primarily the reversal of intercompany
transactions and balances (including the related income tax
effect thereon) eliminated as part of determining the Knogo
Historical financial statements.
<PAGE> 33
Consolidated Statement of Operations
Twelve Months Ended May 31, 1994
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Less Knogo
Knogo Knogo N.A. Adjust- Inter-
Historical (*) Historical ments (**) national
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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 12,752 (2,160) 34,584
------- ------- ------- -------
Operating
income 5,437 611 793 5,619
Other
expenses net 2,483 523 1,960
------- ------- ------- ------
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
-------- ------- ------- -------
</TABLE>
<PAGE> 34
Consolidated Statement of Operations
Three Months Ended August 31, 1994 and August 31, 1993
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Less Knogo
Knogo Knogo N.A. Adjust- Inter-
Historical Historical ments (**) national
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
1994:
Revenues:
Total
revenues $18,875 $7,329 $ 3,414 $14,960
Costs and
Expenses:
Cost of
revenues 7,418 4,005 4,094 7,507
Operating
expenses 12,879 3,327 459 9,093
------- ------- ------- -------
Operating
income (loss) (1,422) (3) 221 (1,640)
Other
expenses, net 625 4 621
------- ------- ------- ------
Income (loss)
before
income taxes (2,047) (7) 221 (2,261)
Provision
for income
taxes 248 66 105 77
------ ----- ------- -------
Net income
(loss) $(2,295) $ (73) $ 116 $(2,338)
-------- ------- ------- --------
1993:
Revenues:
Total
revenues $22,449 $7,331 $3,104 $18,222
Costs and
Expenses:
Cost of
revenues 8,156 3,727 3,514 7,943
Operating
expenses 12,271 3,248 (538) 8,485
------- ------- ------- -------
Operating
income 2,022 356 128 1,794
Other
expenses, net 753 289 464
------- ------- ------- ------
Income before
income taxes 1,269 67 128 1,330
Provision
for income
taxes 317 76 223 464
------ ----- ------- ------
Net income
(loss) $ 952 $ (9) $ (95) $ 866
-------- ------- ------- --------
</TABLE>
* Knogo's historical year end is the last day of February. 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.
** Adjustments represent primarily (i) the reversal of intercompany
transactions and balances (including 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.
<PAGE> 35
(b) Adjustments pursuant to the Divestiture Agreement
between Knogo and Knogo N.A. which provided that, at the time of the
divestiture, Knogo N.A. would have a net worth of approximately $24
million (the "Target Net Worth") based on the historical carrying
value of Knogo's assets and liabilities at the divestiture date. The
Target Net Worth at the divestiture date was achieved by a combination
of Knogo N.A.'s net loss through the divestiture date as well as the
transfer of certain assets and the assumption of certain liabilities,
amounting in the aggregate to a reduction of Knogo N.A.'s historical
net worth in the amount of $877,000.
(c) An adjustment to record the preliminary allocation of
the costs of the Merger ($105.0 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 ($84.7 million) and eliminates the historical Knogo
International retained earnings ($36.2 million), and records
additional purchase accounting reserves and adjustments, including
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.
(d) An adjustment for the reversal of incremental costs
related to supply agreement between Sensormatic and Knogo N.A.
recorded as purchase accounting adjustments (see (c) above). This
adjustment was approximately $3.6 million for the year ended June 30,
1994, and approximately $900,000 and $1.0 million for the 3 months
ended September 30, 1994 and 1993, respectively.
(e) An adjustment to record the amortization of the costs in
excess of net assets acquired related to the Merger (approximately
$84.7 million) over 40 years. Amortization expense was approximately
$2.1 million for the year ended June 30, 1994, and approximately
$530,000 for the quarters ended September 30, 1994 and 1993.
(f) 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, and $2.1 million, and $1.9 million for
the 3 months ended September 30, 1994 and 1993,respectively.
(g) To eliminate the income tax benefits for the year ended
June 30, 1994 and the 3 months ended September 30, 1993 related to net
operating losses of historical Knogo International existing prior to
the Merger, which will be accounted for as a reduction of costs in
excess of net assets acquired. This elimination was approximately
$1.0 million for the year ended June 30, 1994, and $55,000 for the 3
months ended September 30, 1993. To record the income tax benefit of
approximately $1.0 million for the 3 months ended September 30, 1994,
related to Knogo International's operating losses.
(h) Adjustments to record the income tax effect of the
pro forma adjustments, as applicable.
<PAGE> 36
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: January 10, 1995
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ MIGUEL A. FLORES
Miguel A. Flores
Vice President and Treasurer
<PAGE> 37
Exhibit Index
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 N.A.")
(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 N.A.) (incorporated by
reference to Exhibit 2(a) to Registration
Statement on Form S-4, filed on
November 28, 1994 (File No. 33-56619)).
2(b) Form of License Agreement between
Knogo and Knogo N.A.
(Exhibit B to Divestiture Agreement)
(incorporated by reference to Exhibit 2(b)
to Registration Statement on Form S-4,
filed on November 28, 1994
(File No. 33-56619)).
2(c) Form of Supply Agreement between Knogo
and Knogo N.A. (Exhibit C to
Divestiture Agreement) (incorporated by
reference to Exhibit 2(c) to Registration
Statement on Form S-4, filed on
November 28, 1994 (File No. 33-56619)).
The Supply Agreement, the License Agreement
and the Divestiture Agreement were each
executed on December 29, 1994.
(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
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment
No. 2 to Registration Statement No. 33-61626 on Form S-3,
Amendment No. 1 to Registration Statement No. 33-51957 on Form S-4
and Registration Statement No. 33-56619 on Form S-4 of
Sensormatic Electronics Corporation of our report dated May 18, 1994
(December 29, 1994 as to Notes 2, 7, 8 and 11) appearing in this
Current Report on Form 8-K of Sensormatic Electronics Corporation
dated December 29, 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
January 9, 1995
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the
Registration Statements 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 (December
29, 1994 as to Notes 2, 7, 8 and 11) appearing in this Current Report
on Form 8-K of Sensormatic Electronics Corporation dated December 29,
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
January 9, 1995
