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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT ( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
June 30, 1995 Number 0-3953
SENSORMATIC ELECTRONICS CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 34-1024665
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number: (305) 420-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock (Par Value $.01 Per Share) New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The aggregate market value of Common Stock (par value $.01 per share) held by
non-affiliates of the Registrant as of October 10, 1995 was $1,612,995,538
based on the sales prices of such Common Stock on such date as reported by the
New York Stock Exchange.
The Registrant had outstanding 73,317,979 shares of Common Stock (par value
$.01 per share) as of October, 10, 1995.
Documents incorporated by reference:
Definitive proxy statement for the Company's 1995 Annual Meeting of
Stockholders (incorporated in Part III to the extent provided in Items 10, 11,
12 and 13 hereof).
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PART I
ITEM 1. BUSINESS
Sensormatic Electronics Corporation is a fully integrated supplier of
electronic security systems to retail markets and commercial, industrial and
governmental ("commercial/industrial") markets. The Company designs,
manufactures, markets and services electronic article surveillance ("EAS") and
electronic asset protection ("EAP") systems (including the reusable tags and
disposable labels used with such systems), closed circuit television ("CCTV")
systems (including microprocessor-controlled CCTV systems and exception
monitoring systems) and access control systems. The Company's EAS and CCTV
systems are used by both soft goods and hard goods retailers to deter
shoplifting and internal theft. Sensormatic's CCTV, access control and EAP
security systems are used by retail and commercial/industrial customers to
protect assets, information and people. The Company's products are marketed by
an extensive worldwide sales and service organization complemented by a broad
network of business partners, independent distributors and dealers.
The Company operates in a single business segment. Certain information about
the Company's operations by geographic area is contained in the table under
Summary of Revenues below and in Note 10 of Notes to Consolidated Financial
Statements under Item 14 of this report.
As used in this report, the terms "Company" and "Sensormatic" refer to
Sensormatic Electronics Corporation and its subsidiaries unless the context
indicates otherwise.
INDUSTRY BACKGROUND
Retail and commercial/industrial businesses utilize electronic security
products to improve profitability and operational efficiency and to provide
security for their personnel and premises. In retail environments, use of EAS
products has increasingly become a standard operating practice. For over
twenty-five years these products have proven to be a cost effective method of
reducing inventory shrinkage. Inventory shrinkage is often the second largest
variable operating expense of retailers, after payroll costs. Shrinkage in
retail stores will normally range from 1% to 5% of sales, varying depending on
a number of factors. An effective EAS program can reduce the loss from
shrinkage by over 50% and increase productivity by reducing efforts aimed at
detecting shoplifting. In addition, EAS products can contribute to increasing
sales volume by allowing retailers to openly display merchandise which
previously was displayed in locked cases, behind sales counters or protected
with cables and chains. Finally, effective EAS programs often also mean that
the most desirable merchandise, in the most preferred sizes, colors, styles and
models, are available to the paying customer and not stolen by the shoplifter.
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EAS products were first used by retailers to protect soft goods (apparel
merchandise). Due to technological advances, applications for hard goods
merchandise (which is generally packaged merchandise) have also become
economical and effective. Hard goods retailers such as supermarkets,
hypermarkets and home improvement centers, as well as drug, mass merchandise,
optical, music, hardware, book and video stores, have increasingly become users
of EAS products.
Several of the newer applications used by hard goods retailers are also used by
commercial/industrial businesses to protect assets such as personal computers,
facsimile and copy machines, telephones, artwork, limited access files, and
portable laboratory equipment and tools from loss by unauthorized removal.
Other specialized applications include the protection of newborn infants in
hospitals and patients in nursing homes and other long-term care facilities.
Retail and commercial/industrial businesses also make extensive use of CCTV and
access control products to enhance security. The Company has a broad range of
these products for use in retail and commercial/industrial applications.
Businesses in general are increasingly receptive to the Company's ability to
design, supply, install and service integrated systems that combine EAS, EAP,
CCTV and sophisticated access control products.
COMPANY DEVELOPMENT AND GENERAL STRATEGIES
The Company's initial EAS systems were designed for use by department and
specialty store retailers to protect soft goods merchandise. As a result of
its sales and marketing expertise and the technological advantages of its
products, the Company is the world leader in supplying EAS products to soft
goods retailers.
While the Company continues to service and support the EAS needs of soft goods
retailer, many of the Company's newer EAS product lines have been developed and
targeted for specific hard goods retail applications. The Company has become
the leading supplier of EAS products to hard goods retailers. Hard goods
retailers are estimated to be a substantially larger potential user group than
soft goods retailers and have only begun to significantly use EAS products
during the last several years. Further, hard goods retailers primarily use EAS
disposable labels which are affixed to merchandise. Use of the hard goods EAS
systems creates a continuing need for additional disposable labels to be
affixed to new merchandise, a major source of recurring revenues.
CCTV products are used to protect against inventory shrinkage in retail
businesses, and for the protection and monitoring of personnel and assets in
office and manufacturing complexes, warehouses, gaming establishments and
numerous other non-retail facilities. The Company also markets packaged, lower
cost CCTV systems for retail and commercial businesses primarily in the United
Kingdom (the U.K.), the United States (the U.S.) and France.
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The Company's electronic door lock access control systems have been
helping companies such as Boeing and General Motors protect high security areas
since 1991. These systems allow employees with access clearance to have free
access and movement around the plant and offices without the need for constant
checks or locked doors. The Company strengthened its position in access
control in this market segment in fiscal 1995 with the acquisition of Software
House, Inc. ("Software House"). The Company is preparing to launch a range of
new access control systems that will enable all types and sizes of retail and
commercial/industrial customers to take advantage of these new technologies.
The Company's strategies to increase revenue include adding new proprietary
CCTV and access control products and establishing alternative channels of
distribution to broaden the Company's customer base. The Company's increased
internal product research, development and engineering activities have resulted
in a broad array of new proprietary CCTV and access control products. In
addition, through selected niche acquisitions in recent years including Robot
Research, Inc. ("Robot Research") and American Dynamics, CCTV systems
manufacturers, and Software House and Continental Instruments Corporation
("Continental Instruments"), access control developers, the Company acquired
additional product lines to complement its existing CCTV and access control
products. Robot Research, American Dynamics, Software House and Continental
also had well-established distribution channels through independent dealers and
distributors.
In June 1995, in order to bring the foregoing companies under common management
and control, the Company created the Security Products Division (SPD). The
combination of these subsidiaries into one business unit will leverage their
combined strengths worldwide. The SPD will develop and distribute products and
provide service and support to independent distributors and dealers on a global
basis.
Another element of the strategy is the broadening of the Company's distribution
to commercial/industrial customers through selected niche acquisitions of
organizations having trained and experienced sales organizations. The Company
has strengthened its direct sales and service organization through the
acquisitions of Glen Industrial Communications, Inc. ("Glen Industrial"),
Advanced Entry Systems, Inc. ("Advanced Entry") and Security Specialists of San
Francisco, Inc. ("Security Specialists"), three regional U.S. electronic
security systems integrators experienced in designing, assembling, installing
and servicing systems made up of products from a number of manufacturers for a
variety of commercial/industrial customers, and Case Security Limited ("Case
Security"), a distributor of visual security systems (primarily camera and CCTV
products) principally to financial institutions in the U.K. The Company
intends to explore opportunities to acquire other similar systems integrators,
particularly in Europe, during the next several years.
Glen Industrial also performs central alarm monitoring and access control
processing for commercial/industrial customers in its
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region. Building on this base, the Company recently announced the formation of
a new subsidiary, Sensormatic Security Monitoring (SSM). SSM will capitalize
on a central alarm monitoring and access control processing market which is
estimated to exceed $10 billion by the year 2000.
In March 1994, as part of the Company's strategy to expand general awareness of
the Company's expansion in the commercial/industrial market, Sensormatic was
named the official electronic security supplier to the 1996 Olympic Games in
Atlanta, Georgia. The Company will provide electronic security technology
including CCTV and access control products, and, on a smaller scale, EAS and
EAP products. The Olympic site will represent the largest private security
installation in the world covering 46 venues throughout the U.S.
Significantly, the Company's association with the Games has already generated
new business from companies not previously aware of the Company's total
electronic security capabilities.
The Company has increased its presence in a number of the geographic areas in
which it markets its products and has expanded into new geographic areas. The
Company has greatly expanded its direct sales and service efforts in North
America, Europe and certain Asia Pacific and Latin America countries in recent
years. This was accomplished through, among other things, the merger with
Knogo Corporation's operations outside of the United States, Puerto Rico and
Canada ("Knogo"), the acquisition of the ALPS' distribution organization based
in the U.K. and the acquisitions of the Company's distributors in the
Scandinavian countries, Mexico and Puerto Rico.
The Company's strategy to expand internationally also includes the use of
distribution agreements with independent, local parties in certain countries,
and, in some cases, joint ventures with local parties with Sensormatic
maintaining a 51% ownership control. Currently the Company has 51% owned
distributors in Brazil, Peru and Turkey. The Company plans to expand into
China and certain additional countries in the Middle East, Latin America,
Africa and eastern Europe using similar distribution arrangements.
KNOGO AND ALPS - To further broaden its already substantial global presence,
the Company merged with Knogo in December 1994. Previously, in July 1992, the
Company acquired from Automated Security (Holdings) PLC ("ASH"; together with
its subsidiaries, the "ASH Group") the ASH Group's European EAS, CCTV and
exception monitoring loss prevention systems division ("ALPS"). With the
merger with Knogo and acquisition of ALPS, previously large European
distributors of EAS and CCTV products, the Company now offers an expanded base
of European customers full range of EAS, CCTV and access control products,
backed by the combined sales and service organizations.
In connection with the acquisition of ALPS, the Company acquired the ASH
Group's interest of approximately 30% in Security Tag Systems, Inc. ("Security
Tag"), a U.S.-based manufacturer of loss prevention products. Prior to June
1993, the Company distributed Security Tag's products outside North and South
America under an
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exclusive distribution agreement. In June 1993, the Company acquired the
remaining interest in Security Tag (approximately 70%).
Another principal strategy of the Company is to expand its base of recurring
revenues. Recurring revenues are generated by sales of disposable labels to
the hard goods retailers, maintenance agreements entered into in connection
with the sale or lease of systems and rental revenues from operating leases, a
particular focus of the marketing efforts of certain of its European and
Asia/Pacific subsidiaries. Total recurring revenues were approximately $152
million, $120 million and $106 million in fiscal 1995, 1994 and 1993,
respectively. As the Company expands its sales of integrated electronic
security systems, additional recurring revenue is anticipated from the sales,
maintenance and support of the related software products.
Over the last several years the Company has expanded its efforts to increase
future recurring label revenues through its Universal Product Protection
(UPP(SM)) program (also referred to as source labeling). Under this program,
EAS labels (or tags) are incorporated into or affixed to the merchandise to be
protected during the process of manufacturing, packaging or distribution rather
than at the retail store.
In fiscal 1994, a prominent U.S. home center retailer, The Home Depot, became
the first major retailer to embrace the concept of source tagging on a
chain-wide basis. Approximately 170 manufacturers located worldwide apply the
Company's Ultra-Max(R) labels to merchandise delivered to Home Depot stores in
the U.S. Additionally, the Company has been working with a number of its
retailer customers around the world, from various segments of the soft and hard
goods retail marketplace (including retailers from the music, home improvement
centers and discount industries), as well as strategically identified suppliers
and manufacturers to accelerate this strategic initiative. In Europe and North
America combined, we now have over 422 vendors source tagging with Sensormatic
labels. This represented over 200 million items that were source tagged for
10,000 Sensormatic protected stores in fiscal 1995. In Latin America there are
over 100 vendors in Argentina alone source tagging Sensormatic labels. Recent
global successes include such accounts as Peacocks, Habitat and HMV, in the
U.K., and Autogrill, Oviesse, and Silos, in Italy.
PRINCIPAL PRODUCTS AND USERS
Electronic Article Surveillance Products for Retail Use
The Company has the broadest and most flexible line of EAS systems, tags,
labels and accessories, such as applicators and deactivators, for use by soft
and hard goods retailers. Revenues generated by the marketing of EAS product
lines to retailers in fiscal 1995, 1994 and 1993 were $511 million, $406
million and $330 million, respectively.
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The Company's EAS systems consist of electronic detection units, housed in
pedestals or overhead units or concealed in the walls, ceilings or floors, and
placed at exits of stores or departments within stores or at checkout aisles.
These units are used in conjunction with specially designed and sensitized
reusable tags and disposable labels, which are affixed to the merchandise to be
protected. After the protected merchandise has been purchased, its tag or
label is then removed or deactivated by a sales person using a specially
designed detacher or deactivator, enabling the merchandise to be taken through
the controlled zone without incident. Alternatively, if the label is not to be
deactivated, the merchandise is passed around the controlled zone by the sales
person. If the protected merchandise passes through a controlled zone with the
tag or label still affixed and active, the tag or label will be identified by
the electronic detectors, causing an alarm to sound, a light to activate and/or
other suitable control devices to be set into operation.
SOFT GOODS RETAILERS - Following is a brief description of the Company's soft
goods EAS product lines.
The Company's traditional EAS system, based on high radio frequency technology,
is marketed for use primarily by soft goods department, specialty and other
retail stores, for the protection of clothing and other soft goods merchandise.
Various models of reusable soft or hard plastic tags are available for use with
these traditional EAS systems. Introduced in 1973, the Company's Alligator(R)
tag became the most widely recognized hard plastic reusable tag. The smaller,
lighter MicroGator(R) tag, introduced in the mid-1980's, has surpassed the
Alligator tag as the industry standard. In June 1994 the Company introduced
Super Tag(TM), which uses Ultra-Max technology (further discussed below) and
has a patented rotary clamp intended to make unauthorized removal more
difficult than conventional tags.
The acquired Knogo EAS systems is marketed primarily to low end to mid-market
retailer. These systems are available for sale by the Company outside the
North America and Puerto Rico and are based principally on very low frequency
electromagnetic signals. The Company's Security Tag line of EAS systems are
used primarily by smaller soft goods retailers and are based on a proprietary,
split, very low radio frequency technology which has an added advantage of
reducing incidences of false alarms. This technology more closely approximates
the performance of the Company's Ultra-Max technology than do the other
existing radio frequency technologies.
The Company's Sensor-Ink(R) and Inktag(R) products are part of a family of
"benefit denial" products which are designed to render the merchandise unfit
for use or resale by shoplifters. Unauthorized removal of these benefit denial
tags causes vials of ink inside the unit to break and stain the merchandise.
It also may stain, and thus identify, the would-be shoplifter. They may be
used separately or in conjunction with the Company's existing reusable EAS tags
to provide an incremental level of security for soft goods retailers. Other
benefit denial products, used to protect items such as eye glasses and jewelry
products, create physical obstructions to use of the merchandise until removed.
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HARD GOODS RETAILERS - The sale of EAS products to hard goods retailers has
been a significant factor in the Company's growth. These retailers include,
among others, supermarkets, hypermarkets and home improvement centers, as well
as drug, mass merchandise, optical, hardware, book, music and video stores.
The Company has a broad array of products, each designed and marketed to meet
the particular needs of specific customer applications. The Company believes
that the revenues and earnings potential of supplying products to hard goods
retailers is significantly greater than supplying products to soft goods
retailers. Hard goods merchandise is protected with self-adhesive, stick-on
labels which leave the store with the merchandise, representing a major source
of recurring revenues to the Company.
Following is a brief description of the Company's principal hard goods EAS
product lines.
The Ultra-Max product line, which utilizes a proprietary acousto-magnetic
technology, is marketed primarily to music stores, drugstores, home improvement
centers, mass merchandise stores, supermarkets, hypermarkets and specialty hard
goods retailers. Hard goods retailers use the Ultra-Max product line in
conjunction with the Rattler(R) label. Additionally, soft goods retailers are
using Ultra-Max with Ultra-Gator(R) products. The success of Ultra-Max with
retailers is attributable to its unique combination of features, which include
freedom from false alarms, unobstructed coverage of wide exits, a high "pick
rate" or ability to detect labels or tags and ease of deactivation. The
system's sophisticated electronic capability can distinguish and filter out
items which can cause false alarms, a problem which may be encountered by
retailers using competitive products.
The AisleKeeper(R) product line, which uses a proprietary magnetostrictive
technology, was developed specifically for use in supermarkets and
hypermarkets. These businesses generally contain the retail industry's
harshest environment for EAS systems, as the checkout aisle area where systems
are usually placed can be in close proximity to bar code scanners, point of
sale terminals, conveyor belts and metal counters, all of which may adversely
impact the effectiveness of the electronics in many EAS systems. Further, the
systems are subjected to physical damage caused by shopping carts passing
through the aisles and harsh chemical cleaning solutions. The AisleKeeper
system, which consists of two transceiver pedestals (containing transmitting
and reception coils, a shield and alarm circuits) that are covered with durable
plastic to resist staining and physical damage, and have rubber bumpers on the
edges and a wear bumper along the pedestal faces, successfully addresses these
environmental problems. The standard AisleKeeper label is a thin micromagnetic
wire encapsulated in transparent tape attached to protected merchandise which
is passed around the system during the checkout process or, with certain
versions, may be deactivated by means of a deactivation pad which fits in the
conveyor belt. The recently introduced SensorStrip(TM) label is a smaller,
proprietary, low cost label that is equal in performance
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to the standard AisleKeeper label. The reduction in length allows for easy
application utilizing hand held applicators.
CCTV and Exception Monitoring Systems for Retail Use
SensorVision(R) systems, which are microprocessor-based CCTV systems, are used
principally to protect against inventory shrinkage and losses due to internal
or employee theft in retail businesses, and are also used in
commercial/industrial environments (see Commercial/Industrial Users below).
The SensorVision systems, including the highly acclaimed SpeedDome(R), consist
of special ceiling domes, which conceal small, high resolution, high speed
cameras, and monitoring and control consoles specially designed for the
programming, identification and recording of monitored activities or areas.
The SensorVision systems can be programmed to monitor merchandise and cash
handling at point-of-sale stations in retail environments (as well as
warehouse, shipping and other activities in retail and commercial/industrial
environments) in an "unattended mode". The systems can also be interfaced with
cash registers to monitor and electronically record predetermined "exception"
transactions (such as cash or credit card sales over specified dollar amounts,
customer sales credits, and purchases by pre-identified employees) by utilizing
the Company's Point of Sale Exception Monitoring (POS/EM(R)) products; such
exception monitoring applications include supermarkets and hypermarkets, as
well as other retail environments where cash registers are used. Additionally,
the SensorVision systems are often integrated with EAS systems to produce a
more comprehensive overall loss prevention program.
Revenues generated by the marketing of all CCTV product lines to retailers
(including exception monitoring systems, but excluding CamEra(TM) systems (see
Non-Retail Users below)) in fiscal 1995, 1994 and 1993 were $112 million, $73
million and $41 million, respectively.
Commercial/Industrial Users
The Company's U.S.-based Commercial/Industrial Group markets EAP systems,
SensorVision and other CCTV systems and access control systems to U.S.
commercial/industrial customers and other international customers. These
Sensormatic products are marketed primarily for the protection, monitoring and
control of people and assets in large-scale office and manufacturing complexes,
warehouses, hospitals and nursing homes, nurseries, transportation centers,
colleges and universities, casinos, nuclear power plants and numerous other
non-retail facilities. Assets which are protected or controlled by the
Company's EAP products include limited access files, computer magnetic tapes
and disks, personal computers, facsimile and copy machines and other portable
office equipment, portable hospital equipment, garments and supplies, and many
other valuable items. Non-retail businesses are increasingly receptive to
systems integrating combinations of these products, supplied and serviced by a
single vendor. In order to improve its
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system integration capabilities and expand its direct sales to
commercial/industrial businesses, the Company has acquired several regional
system integrators in the U.S. and certain European countries. The Company
intends to look for opportunities to acquire similar systems integrators in the
next several years, particularly in Europe.
The Company has broadened its commercial/industrial customer base by adding
new proprietary products and expanding its distribution network. Focused
research, development and engineering activities as well as strategic
acquisitions have been, and continue to be, critical elements of the Company's
strategy.
American Dynamics, a leading U.S. manufacturer of CCTV components, was acquired
in February 1991. Its products include large switching systems capable of
controlling hundreds of cameras from a central location, sophisticated video
motion detectors, and quad splitters which allow the display of images from up
to four cameras on a single monitor. It markets its products principally to
non-retail users through a network of independent dealers and distributors both
in the United States and internationally.
Robot Research, a U.S. based manufacturer and marketer of sophisticated CCTV
display and transmission systems, was acquired in September 1993. It is a
leader in the design, manufacture and sale of digital video signal processing
equipment and has gained worldwide recognition in the field of security,
productivity management and other visual communication applications. Robot
Research markets its products through a network of independent dealers and
distributors worldwide. The Company also utilizes Robot Research's and
American Dynamics' products in the design and configuration of large,
sophisticated CCTV systems which it markets through the Commercial/Industrial
Group's direct sales organization in the U.S. and through specialized
international sales efforts.
Continental, a supplier of proprietary electronic access control systems, was
acquired in July 1989. Its electronic access control product line is marketed
to small and medium sized industrial businesses and is distributed through a
network of independent dealers and distributors in the United States and
Europe. Sensormatic, using one of the Continental products as a technology
platform, has developed a sophisticated access control system for sale to large
commercial and industrial businesses having multiple locations and thousands of
employees which it markets through the Commercial/Industrial Group's direct
sales organization in the U.S. and through specialized international sales
efforts.
Software House, a leading U.S. designer and marketer of mid-range to high-end
access control products, was acquired in July 1994. It designs, develops,
markets and services midrange to high-end access control systems for use in
office buildings, airports and universities. Software House markets its
products through independent dealers and system integrators. The Company
utilizes Software House's products in the design and configuration of large,
sophisticated access control systems which it markets through the
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Commercial/Industrial Group's direct sales organization in the U.S. and through
specialized international sales efforts.
Revenues generated from the sale of CCTV, EAP and access control systems
(including installation revenues) by the Commercial/Industrial Group in the
U.S. and specialized international sales efforts in fiscal 1995, 1994 and 1993
were $205 million, $120 million and $65 million, respectively, (including
CamEra(TM) systems to non-retail users, discussed below).
The Company's CamEra systems consist principally of packaged, low cost CCTV
systems, primarily for use by smaller retail and commercial businesses. The
most basic CamEra system consists of one or two stationary cameras, a monitor
and a video cassette recorder. It may be significantly expanded as well as
interfaced with the Company's exception monitoring products. The CamEra
systems business was acquired as part of the ALPS acquisition and was operated
in the U.K. In fiscal 1994, the Company began to market these systems in the
U.S. and France (see Marketing, Direct Sales Activities). Revenues generated
from the marketing of CamEra systems to retail and non-retail users in fiscal
1995, 1994 and 1993, primarily in the U.K., were approximately $66 million, $48
million and $31 million, respectively.
MARKETING AND SALES
General
The Company operates under the name Sensormatic(R) throughout the world. The
Company markets its products directly throughout North America, Europe and
certain Asia/Pacific countries, and through its 51% owned subsidiaries in
Brazil, Peru and Turkey. In over 40 other countries, the Company sells its
products to distributors for resale or lease principally to retailers. For
each of the three fiscal years in the period ended June 30, 1995, no single
customer accounted for 10% or more of the Company's consolidated revenues.
Marketing
DIRECT SALES ACTIVITIES
Sensormatic markets its EAS products primarily to soft goods (apparel
merchandise) retailers and hard goods (packaged merchandise) retailers through
its worldwide direct sales organization (see Sales and Service Organizations).
The Company presently sells, leases and services its products directly through
five regional offices in the U.S., through wholly-owned subsidiaries operating
in Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong,
Hungary, Italy, Mexico, The Netherlands, New Zealand, Norway, Portugal, Puerto
Rico, Singapore, Spain, Sweden, Switzerland and the U.K., and through its 51%
owned subsidiaries in Brazil, Peru and Turkey.
Historically, Sensormatic has marketed its traditional EAS products to high end
soft goods retailers (for example, large department stores and national chains)
throughout the world. Security Tag EAS systems are primarily targeted at
smaller, independent soft goods
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retail customers. Sensormatic's traditional, Knogo and Security Tag EAS
systems, and the benefit denial product line, and including related
accessories, all used primarily by soft goods retailers, generated collectively
approximately 19% of fiscal 1995 consolidated sales and lease revenues.
The MicroLabel(R) product, introduced in the late 1980's, allows the
traditional EAS system to be used by hard goods retailers. The AisleKeeper and
the Standard and Enhanced Magnetic product lines, used primarily by hard goods
retailers, generated approximately 11% of fiscal 1995 consolidated sales and
lease revenues, while the Ultra-Max product line, used by both soft and hard
goods retailers, generated approximately 24% of fiscal 1995 consolidated sales
and lease revenues.
The Company's CCTV, EAP and access control systems are marketed by the
Commercial/Industrial Group in the U.S. and through specialized international
sales efforts (see Commercial/Industrial Group). The Company's CamEra products
are marketed through specialized sales organizations in the U.K. and the U.S.,
and through the normal sales organization in France. The Company's CCTV
systems are used by both retail and commercial/industrial customers and
generated approximately 28% of fiscal 1995 consolidated revenues.
The Commercial/Industrial Group's direct sales and service organization has
been strengthened through strategic acquisitions during the last two years of
several regional electronic security system integrators operating in the U.S.
and in certain European countries. These acquired companies principally
specialized in integrating products from a variety of manufacturers to meet the
particular security needs of a customer. These acquired companies have been
integrated into the direct sales and service organization of the
Commercial/Industrial Group.
INDIRECT SALES NETWORK
The Company's products are also marketed through exclusive distributors in
Argentina, Chile, Columbia, Indonesia, Japan, Saudi Arabia, South Africa,
Taiwan, Venezuela and in over 30 other countries. In fiscal 1995 the Company
established a representative office in Moscow to support its network of
distributors in the Russian Federation. In September 1995, the Company
received approval to open a representative office in Beijing, The Peoples
Republic of China, to expand its distribution of products in mainland China.
Over the last several years, the Company began to establish an alternative
distribution network in the U.S. to market its commercial/industrial product
lines. This network is made up of independent distributors, dealers and
systems integrators located throughout the U.S. This network was formed
predominantly in conjunction with the acquisition of product and technology
based companies, such as American Dynamics, Robot Research and Software House
(see Commercial/Industrial Users).
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Additionally, a similar network of independent distributors, dealers and
systems integrators is being developed through the establishment of a direct
SPD presence in Europe, leveraging on the existing distribution networks of the
above mentioned acquired U.S. companies. The Company intends to look for
opportunities to acquire other similar integrators operating in Europe in the
next several years.
Sensormatic products marketed through its indirect sales network (except for
exclusive distributors in certain countries) are normally not labeled as
Sensormatic products in order to reduce the effect of "channel conflict."
Sales Revenues
The Company's sales revenues are predominantly generated by direct sales and
sales-type leases of new equipment. Additionally, the Company generates sales
revenues by: (i) export sales of new equipment to distributors in foreign
countries; (ii) sales to third-party leasing companies of selected operating
leases, primarily in Europe; (iii) sales of selected new equipment to dealers
and systems integrators, primarily in the U.S.; and (iv) sales of leased
equipment to existing customers converting from lease to purchase, primarily in
Europe.
The Company sells its products on a current, deferred or installment payment
basis. Substantially all deferred payment obligations are payable within one
year. Installment contract obligations are payable monthly over terms
generally up to five years. Both obligations are subject to stated or imputed
interest at prevailing market rates and are generally secured by the purchased
equipment. The Company's sales-type leases consist of non-cancelable leases of
new equipment with terms of 60 months or greater. The Company believes that
the marketing of equipment on flexible terms, including long-term financing,
provides it with a competitive advantage.
The Company's sales of selected operating leases to third party financing
institutions by certain of its European subsidiaries are generally made on a
non-recourse basis, under agreements with such financing institutions providing
for: (i) sales from time to time as agreed to by the parties of selected leases
(predominantly newly signed leases) entered into by the Company directly with
its retail customers, together with the related equipment; and (ii) the re-
marketing of such equipment on a non-priority basis upon termination of the
original lease.
Rental and Other Revenues
The Company also leases equipment under non-cancelable operating leases. Such
leases are generally for terms of 36 to 54 months. Substantially all of the
Company's operating lease revenues are generated by certain of its European
subsidiaries. Additionally,
12
<PAGE> 14
the Company generates revenues from the installation, maintenance and servicing
of its equipment.
Non-cancelable operating leases in existence at June 30, 1995 provide for
minimum future lease revenues aggregating approximately $107 million over the
next several years (see Note 1e. of Notes to Consolidated Financial
Statements). Additionally, the Company has unearned maintenance fees of $36
million at June 30, 1995, which will be recognized as revenue in future
periods.
Summary of Revenues
The following table summarizes the results of the Company's marketing and sales
efforts for each of the five fiscal years in the period ended June 30, 1995 and
the month ended June 30, 1992.
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<PAGE> 15
<TABLE>
<CAPTION>
SUMMARY OF REVENUES
-------------------
(Dollars in millions)
---------------------
YEAR ENDED
-------------------------------------------------------------------------------
June 30, 1995 (1) June 30, 1994 (1) June 30, 1993 (1)
----------------- ----------------- -----------------
Sales (2)
- ---------
<S> <C> <C> <C>
United States $372.0 42% $290.9 44% $197.6 41%
International Subsidiaries 358.9 40 239.7 37 182.1 37
Export to International
Distributors 31.5 4 26.8 4 18.4 4
----- --- ----- --- ----- ---
762.4 86 557.4 85 398.1 82
Rentals and other (3)
- ---------------------
International Subsidiaries'
Rentals 49.0 6 44.6 7 44.3 9
United States Installation and
Maintenance Fees 47.0 5 30.3 5 21.4 4
International Subsidiaries'
Installation and
Maintenance Fees 29.1 3 21.7 3 21.7 5
Other 1.6 - 2.0 - 1.8 -
----- --- ----- --- ----- ---
126.7 14 98.6 15 89.2 18
----- --- ----- --- ----- ---
Total $889.1 100% $656.0 100% $487.3 100%
===== === ===== === ===== ===
Total revenues (4)
- ------------------
United States $421.2 47% $323.2 49% $220.7 45%
International Subsidiaries 436.4 49 306.0 47 248.1 51
Export Sales to International
Distributors 31.5 4 26.8 4 18.5 4
----- --- ----- --- ----- ---
Total $889.1 100% $656.0 100% $487.3 100%
===== === ===== === ===== ===
<CAPTION>
SUMMARY OF REVENUES
-------------------
(Dollars in millions)
---------------------
YEAR ENDED
--------------------------------------------------------
May 31, 1992 May 31, 1991
---------------- ----------------
Sales (2)
- ---------
<S> <C> <C>
United States $175.4 57% $131.4 55%
International Subsidiaries 65.5 21 51.4 21
Export to International
Distributors 11.7 4 8.9 4
----- --- ----- ---
252.6 82 191.7 80
Rentals and other (3)
- ---------------------
International Subsidiaries'
Rentals 28.7 9 26.6 11
United States Installation and
Maintenance Fees 18.0 6 12.0 5
International Subsidiaries'
Installation and
Maintenance Fees 8.8 3 7.3 3
Other 1.8 - 1.6 1
----- --- ----- ---
57.3 18 47.5 20
----- --- ----- ---
Total $309.9 100% $239.2 100%
===== === ===== ===
Total revenues (4)
- ------------------
United States $195.6 63% $145.0 61%
International Subsidiaries 102.6 33 85.2 35
Export Sales to International
Distributors 11.7 4 9.0 4
----- --- ----- ---
Total $309.9 100% $239.2 100%
===== === ===== ===
</TABLE>
(1) For additional information relating to revenues, see "Revenues"
under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(2) Total sales for the month ended June 30, 1992 were $15.2 consisting
of $5.4 United States (26%); $8.5 international subsidiaries (41%);
and $1.2 export to international distributors (6%).
(3) Total rentals and other for the month ended June 30, 1992 were $5.8
consisting of $3.4 international subsidiaries' rentals (16%); $1.2
United States installation and maintenance fees (6%); $1.0
international subsidiaries' installation and maintenance fees (5%);
and $0.1 other.
(4) Total revenues for the month ended June 30, 1992 were $21.0
consisting of $6.8 United States (32%); $13.0 international
subsidiaries (62%); and $1.2 export sales to international
distributors (6%).
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<PAGE> 16
Sales and Service Organizations
At June 30, 1995, the Company employed a total of over 3,400 sales and customer
engineering personnel worldwide to market and service its products.
Additionally, over 600 sales and customer engineering personnel employed by
international distributors also contribute to this effort. Sales and service
personnel are directed from offices located throughout the U.S. and in more
than 60 countries. The Company believes that a major factor in its success has
been the high quality of its extensive and experienced sales and service
organization.
The Company has organized its sales force into specialized sales groups to
market its products to specific customer groups. For example, in the U.S.,
specialized sales groups have been created to target the supermarket industry
and to focus on non-retail users. In Europe, similar specialization has been
concentrated on self-service stores and hypermarkets, and certain CCTV and
exception monitoring systems, primarily for smaller retail and commercial
businesses. In fiscal 1995, the Company began to develop a specialized sales
effort and identified specific dealers aimed at marketing its products to the
commercial/industrial customers in Europe and certain other parts of the world.
The Company will continue to specialize its sales force and believes such
specialization will accelerate its success in marketing to the targeted user
groups.
COMMERCIAL/INDUSTRIAL GROUP
The Company's new product development and marketing efforts directed to
commercial, industrial and other non-retail users are a further outgrowth of
the Company's strategic plan. The Company's Commercial/Industrial Group
includes a U.S. direct sales organization (including that of the recently
acquired Glen Industrial, Advanced Entry and Security Specialists) aimed at
large global and multi-location businesses. The Commercial/Industrial Group
also markets through independent dealers and distributors and manages, through
its newly formed Security Products Division (SPD), these indirect sales
activities including that of Continental, American Dynamics, Robot Research and
Software House. It offers EAP systems, SensorVision and other CCTV systems,
access control systems, and integrated electronic security systems, to various
customers, including a number of the largest companies based in the United
States.
Internationally, the SPD continues to expand by utilizing established third
party channels of distribution. Initial focus on global expansion began with
SPD Europe, with headquarters in Paris, France and a distribution facility in
Belgium. This organization will leverage high demand for CCTV and access
control products with enhanced sales, service and distribution capabilities.
In fiscal 1995, approximately 53% of the Company's revenues were derived from
all non-U.S. operations. In fiscal 1995, revenues of international subsidiaries
equaled $436 million while revenues from international distributors equaled $32
million. (For additional
15
<PAGE> 17
information regarding the Company's operations by geographic area, see Note 10.
of Notes to Consolidated Financial Statements.)
The Company's international business is subject to the usual inherent risks of
operating internationally, including currency restrictions, currency
fluctuations and changes in international laws and regulations. The Company
has adopted certain hedging practices intended to minimize the effect of
foreign currency fluctuations with respect to certain foreign currency
denominated intercompany transactions over which the Company has no control
(see Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview and Note 1g. of Notes to Consolidated Financial
Statements).
SEASONAL ASPECTS OF THE BUSINESS
Although the business of the Company is not necessarily seasonal, it has been
the Company's experience, with respect to its retail customers, that new orders
and installations generally decrease during the December through February
period. The Company believes this is attributable to the preoccupation of
retail store management with the Christmas selling season and year-end
inventory analysis during this period. Additionally, the traditional European
lengthy vacation period during the months of July and August result in a
general decline of new orders and installations during this period.
BACKLOG
As of June 30, 1995 and June 30, 1994, the Company had a backlog of orders for
sales of approximately $105 million and $56 million, and had a backlog of
orders for operating leases providing for future lease revenues aggregating
approximately $14 million and $16 million, respectively.
Backlog includes only firm orders which are expected to be installed or
delivered within one year. Backlog at any time is not necessarily indicative
of the level of business to be expected in the ensuing period.
COMPETITION
The electronic security industry is highly competitive. There are many
alternatives available to protect people and assets, in addition to the use of
EAS, EAP, access control and CCTV systems. These alternatives include, among
other things, guards and private detective services, mirrors, burglar alarms
and other magnetic and electronic devices, and services combining some or all
of the above elements. To the Company's knowledge, there are several other
companies that market, directly or through distributors, EAS equipment to
retail stores, of which Checkpoint Systems, Inc. ("Checkpoint"), Knogo North
America Inc., and, Minnesota, Mining and Manufacturing Company ("3M") in the
U.S., and Actron (part of
16
<PAGE> 18
ADT - Britannia), Checkpoint, Esselte Meto, Nedap B.V. and 3M in Europe, are
the Company's principal competitors. With respect to CCTV products, there are
numerous companies, including Phillips, Panasonic, Pelco and Vicon Industries,
Inc., that market directly or through distributors such equipment to both
retail and non-retail customers. However, to the Company's knowledge, there is
no single principal competitor marketing CCTV systems. For access control
systems there are many competing companies, including CardKey Inc.,
Westinghouse Electronic Corporation, Northern Computers Inc. and Casi-Rusco
Inc.
There can be no assurance that other firms with greater financial and other
resources may not enter into direct competition, or expand the scope of their
existing competition, with the Company. The Company competes in marketing EAS,
CCTV, EAP and access control systems principally on the basis of product
performance, multiple technologies and service.
PRODUCT RESEARCH, DEVELOPMENT AND ENGINEERING
The Company has significantly increased its research, development and
engineering expenditures during the past decade. The increase in these
activities has resulted in the continued broadening of the product lines
offered by the Company resulting in the expansion of the applications and
customer base for the Company's products. A large portion of the Company's
recent growth in revenue can be attributed to the products and technologies
resulting from these efforts.
The Company has significantly strengthened its research, development and
engineering activities by increasing its investment in sophisticated
engineering equipment, expanding key consulting relationships throughout the
world, and substantially increasing its professional engineering staff, with
particular emphasis on magnetic materials research and software development
skills. Several of the Company's EAS products depend on the use of magnetic
materials. Software is another major element in the Company's new product
designs and manufacturing processes. At June 30, 1995, the Company employed a
staff of 289 on the engineering payroll of which 177 were engineers with
university/college degrees, including 64 with advanced Masters and Ph.D.
degrees.
Another important source of new products and technologies has been the
Company's strategic acquisitions of companies and products during the last few
years. The Company will continue to make acquisitions of related businesses or
products consistent with its overall product and marketing strategies.
The Company recently restructured its engineering operations to organize groups
having similar product responsibilities under common leadership. This change
is expected to substantially reduce product redundancy and overlapping
technical responsibility that resulted from the recent acquisitions. Each of
the Company's core product lines and the related technical competency now
report to a single individual. Additionally, the Company has established an
17
<PAGE> 19
engineering group to coordinate the development of systems that combine the
many separate electronic security products into integrated security system
products.
In fiscal 1995, 1994 and 1993, the Company spent $26 million, $20 million and
$16 million, respectively, for research, development and engineering
(approximately 29% of these amounts provide engineering support for products
currently in production and are accounted for as product costs (cost of sales)
). A further increase in research, development and engineering is expected in
fiscal 1996 (to approximately $31 million) as the Company continues to invest
in new product development activities.
PATENT AND RELATED RIGHTS
The Company owns or is the exclusive licensee of over 169 active patents issued
by the U.S. Patent Office. These patents cover a variety of inventions
including the Company's traditional EAS system as well as its electromagnetic,
acousto-magnetic, CCTV and low radio frequency systems. Patents corresponding
to many of these United States patents have been issued or are pending in
various foreign countries. In connection with the Knogo merger, the Company
acquired the exclusive rights to 28 patents outside of North America. The
Company is a non-exclusive licensee under certain patents issued in the U.S.
and various foreign countries relating to the manufacture, use and sale of
certain labels for use with its electromagnetic systems, for which license the
Company pays royalties. The Company has over 53 patent applications pending in
the United States for various other inventions relating to its products.
Patent applications for some of these inventions are also pending in other
countries. There can be no assurance that any patents will be issued to the
Company on any of its pending applications.
The Company does not make any representation as to the scope, validity or value
of any patents which have been or may be issued or licensed to it or as to the
possible infringement by its products on patents owned by others. Although the
Company's patent program is important, the Company believes that because of its
technical knowledge and experience and the abilities of its established and
experienced sales and service organization, it is not dependent upon patent
protection to maintain its leadership in the electronic security industry.
MANUFACTURING
The Company manufactures most of its products in facilities located in Puerto
Rico, Florida and Ireland (formally opened in October 1994) and has developed
over the years a highly integrated manufacturing capability. The Company's
manufacturing strategy is to rely primarily on in-house capability and to
vertically integrate manufacturing processes to the extent possible and
economically practical. This integration and in-house capability provides
significant control over costs, quality and responsiveness
18
<PAGE> 20
to the demands of the market which results in a distinct competitive advantage.
The Company utilizes independent suppliers in procuring various component
products and materials required to manufacture its products. Certain of the
magnetic material for the Ultra-Max labels and tags is purchased from a single
vendor under a supply agreement. The Company also contracts with independent
parties for the manufacture of certain products, such as the Aisle Keeper and
Standard Magnetic Labels, made to the Company's specifications. Additionally,
certain OEM equipment and mechanical and component parts, supplies and
accessories (such as cables, cameras, VCRs and television monitors related to
the SensorVision system), are purchased from independent suppliers. With
respect to products developed or acquired in the future, the Company may
manufacture such products or, if deemed appropriate, may contract for the
manufacture of such products.
Certain of the tags used with the Security Tag EAS systems are manufactured by
a Hong Kong-based supplier under a manufacturing agreement. Additionally, the
CamEra CCTV accessories and components are purchased, under the Company's
specifications, from approximately 10-15 large international electronics
manufacturers.
The Company has improved, and expects to continue to improve, its production
efficiencies through increased automation and improved cost reducing product
designs. Such increased automation, particularly to increase capacity and
lower production costs of disposable EAS labels, has required additional
capital expenditures for new production equipment.
In September 1994, the Company completed construction of a 100,000 square foot
addition to its U.S. manufacturing facility to meet the Company's current and
anticipated EAS label needs (principally the Ultra-Max label). In fiscal 1995
the Company began manufacturing operations in an 80,000 square foot leased
facility located in Cork, Ireland. This facility allows the Company to
manufacture certain EAS and CCTV products (including tags and labels) closer to
its large European customer base, in addition to being located in a low income
tax jurisdiction. Additionally, the Company entered into an agreement with the
Industrial Development Agency of Ireland providing for certain wage and
training tax credits and rent subsidies.
Over 70% of the value of EAS and CCTV products sold by the Company is currently
produced in Puerto Rico, contributing significantly to the relatively low
effective tax rate enjoyed by the Company due to the favorable income tax
status of the Puerto Rico operations. There can be no assurance, however, that
such favorable status will be maintained. Legislation proposal in the U.S.
Congress in recent years have sought to limit or phase out the favorable tax
status in Puerto Rico.
19
<PAGE> 21
WORKING CAPITAL ITEMS
The Company has historically had a high level of receivables and sales-type
leases outstanding, measured as a percentage of revenues. This results in part
from a key element of the Company's marketing strategy, based on its size and
financial strength, to increase market penetration by providing alternative
financing options to its retail customers (i.e., vendor financing). This
strategy has given the Company a significant competitive advantage and has
helped the Company penetrate markets and increase customer loyalty and
commitment to Sensormatic. The ability to pursue such a strategy results from
the Company's relatively high profit margins, strong balance sheet and its
ability to sell receivables and leases to financing institutions.
Additionally, like other companies which do business with retailers, the
Company has experienced an historical pattern of delayed payments by certain
major retail customers which has extended its receivables aging profile. While
the aging profile may show amounts that are technically 30, 60 or even 90 days
past due, internal approvals and processing of accounts payable for many
retailers normally take between 30 and 90 days, resulting in more aged accounts
receivables outstanding. In addition, further delays in payments are often a
business practice by large retailers, and not an indication of credit
unworthiness.
Though working to accelerate collection of receivables, the Company
historically has accepted the longer collection cycles as part of its strategy
to maintain and further penetrate this important market segment. The lost
interest income due to the delayed payment is another cost factor that is
considered by the Company in the pricing of its product.
The Company continues to manage its receivables and sales-type leases by, among
other things, using third party servicing agents to enhance the efficiency of
its billing and collection practices and expanding the number and use of
relationships with third party financing institutions to sell or assign
receivables and sales-type leases (see Note 2. of Notes to Consolidated
Financial Statements). The results of these ongoing efforts have been to
reduce the average collection time and to provide the Company with the
flexibility to convert its receivables and sales-type leases into cash as
needed.
Finally, short-term receivables from the Company's slower paying retail
customers are becoming a relatively smaller part of its overall business as a
result of 1) the expansion of the Company's source labeling program, whereby
Sensormatic sells labels to vendors and manufacturers who apply the labels
prior to shipment to the retailer; and 2) the continued growth of the
commercial/industrial customer base which is made up of customers which (i)
tend to be the higher end commercial/industrial users with higher credit
ratings than many retailers and (ii) a closely monitored network of independent
dealers and distributors. By adding this new commercial/industrial customer
base, the Company has added generally faster paying customers.
20
<PAGE> 22
GOVERNMENTAL REGULATION
The Company's traditional EAS systems generate microwaves and are subject to
the Radiation Control for the Health and Safety Act of 1968. The United States
Department of Health, Education and Welfare ("HEW") conducted rule-making
proceedings and adopted standards for certain microwave equipment. The Bureau
of Radiological Health ("BRH") of HEW tested a traditional EAS system in
January 1976 and notified the Company that no such proceedings with respect to
the Company's equipment were contemplated. BRH conducted additional tests of
various EAS systems in 1979 and concluded that the finding of both its earlier
and more recent tests confirmed the BRH position that "emissions from the
Sensormatic devices fall well below current U.S. exposure guidelines for
permissible exposure of humans to microwave radiation."
The Department of Health and Human Services, successor to HEW, and other U.S.
and local governmental authorities have continued to consider the safe emission
levels for microwave and electronic magnetic fields ("EMF") generated by
equipment such as radio and television transmitters, cellular telephones,
household appliances and power lines. The EMF emissions from the Company's EAS
systems are within the levels permitted by the current U.S. safety standards
applicable to such equipment. Although there can be no assurance that rules or
regulations establishing more restrictive standards will not be adopted in the
U.S., the Company believes that the EMF levels generated by its EAS systems
will remain within any new safety standards which may be established.
The Company has been made aware through articles in newspapers and other
periodicals of an announcement by the Food and Drug Administration (FDA) on or
about September 8, 1995 that it intends to conduct a study into the effects of
devices such as airport metal detectors, store security systems and some
cellular telephones on implantable heart devices. The Company has yet to
receive any direct notice from the FDA with regard to that study.
Certification of the Company's EAS systems is required under applicable
regulations of the U.S. Federal Communications Commission ("FCC"). The Company
has obtained such certification of its presently marketed equipment.
Application for certification of new equipment will be made as such equipment
is developed by the Company. There can be no assurance that such future
applications will be approved.
In an order adopted in May 1990, the FCC issued new regulations relative to the
certification of radio equipment operating in the 902 to 928 MHz frequency
range where the Company's traditional EAS systems operate. The new regulations
permit the use of low power, short range wireless equipment in this frequency
range for new consumer and other devices. A number of such devices have been
certified pursuant to these regulations. The Company is not aware of any
reported interference complaints over the past four years with its traditional
EAS systems from such devices.
Additionally, to further ensure that the FCC's regulations are unlikely to
affect its business, the Company has redesigned its
21
<PAGE> 23
traditional EAS systems to employ an advanced spread spectrum modulation
technique that effectively time-randomizes the actual frequency of operation,
thus minimizing the possibility for co-user frequency interference.
In a recent Rulemaking dated February 6, 1995, the FCC adopted new rules for
licensing location and monitoring services (LMS) in the 902 to 928 Mhz
frequency range. The new rules permit the shared use of this band with
existing unlicensed services and a safe harbor has been established for EAS
equipment in the 902 to 904 and 909.75 to 919.75 Mhz sub-bands using indoor
antennas. The Company's earlier effort in redesigning its traditional EAS
systems and the safe harbor provisions should ensure that the possibility for
co-user frequency interference from LMS services is minimized. A number of
petitions for reconsideration have been filed with the FCC, but no ruling has
been made on these petitions.
FCC regulations are subject to change or amendment generally, and there can be
no assurance that adverse changes or amendments will not take place or that
future adverse rulings by the FCC will not be rendered.
Internationally, as in the United States, the sale and use of the Company's EAS
systems are subject to regulation by governmental authorities having
jurisdiction over electronic and communication equipment use. Such systems are
in compliance with the applicable requirements under the regulations of
government authorities in countries in which the Company markets such products
through its subsidiaries and in many other countries. In addition, in view of
the political and economic changes taking place in the European Union ("EU")
markets and the Company's high level of business activity in the EU, the
Company actively participates in the development of evolving new technical
standards that are currently being issued by CENELEC (Committee on European
Normalization of Electrical Standards) and ETSI (European Telecommunications
Standards Institute). These new standards are required to be met to apply the
CE Mark and market products in the EU after January 1, 1996. The Company
expects that the vast majority of its products will meet these requirements.
There can be no assurance that all products of the Company subject to
regulations will meet the requirements of such regulations in all countries in
which the Company desires its products to be marketed, nor can there be any
assurance that adverse changes or amendments to existing regulations will not
take place, nor that future adverse rulings by the regulating authorities of
such foreign countries will not be rendered.
EMPLOYEES
As of June 30, 1995, the Company employed approximately 7,500 persons worldwide
of whom approximately 3,400 were engaged in field sales, customer engineering
and marketing activities; approximately 2,900 in production; approximately 900
in administrative and approximately 300 in research, development and
engineering. The Company is not a party to collective bargaining agreements,
except
22
<PAGE> 24
with respect to a Belgium manufacturing facility acquired as part of the Knogo
merger. This facility will be converted into the distribution facility of the
SPD by December 1995 and will result in the significant reduction of the less
than 200 employees currently subject to any collective bargaining agreement.
ITEM 2. PROPERTIES
In the U.S., the Company owns or leases facilities in Florida, Puerto Rico,
California, Massachusetts, New York and Texas for executive, marketing, product
development, manufacturing and warehousing activities. The Company also leases
space in various locations throughout the U.S. for sales and customer
engineering offices and warehouse space in order to most effectively serve its
customers.
The Company's international subsidiaries own or lease office and warehouse
space for their operations. The principal facilities are located in Australia,
Belgium, Brazil, Canada, France, Germany, Ireland, Mexico, The Netherlands,
Singapore, Spain, Sweden and the U.K.
The Company considers its key properties identified above as suitable to its
business and, in general, adequate for its current and near-term needs. All
such properties are fully utilized. In July 1995, the Company purchased a
150,000 square foot facility in Boca Raton, Florida to consolidate its research
and product development and engineering support personnel and equipment and the
Company's primary corporate administrative functions.
23
<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS
1. The Company and Ronald G. Assaf were named defendants in a putative class
action commenced on November 22, 1993, in United States District Court for the
Southern District of Florida, entitled Silver v. Sensormatic Electronics
Corporation, et al., Civil Action No. 93-8619. Plaintiff, who claims to have
been a shareholder of the Company, asserts federal securities and negligent
misrepresentation claims alleging, among other things, that defendants made
false representations concerning the growth of the Company and the quality of
its Ultra-Max product. Plaintiff sought class certification and unspecified
compensatory damages for himself and other putative class members who purchased
the Company's common stock in the period from January 8, 1993, through November
11, 1993.
A motion to dismiss the complaint and to stay discovery pending determination
of the motion was filed on behalf of both defendants on January 31, 1994.
Defendants' motion was denied and discovery is now proceeding. Plaintiff's
motion for certification of the proposed class has been granted in part and
denied in part, with the Court excluding from the putative class purchasers of
the Company's stock during the period after March 19, 1993. Plaintiffs have
indicated their intention to file a motion for reconsideration of that
decision.
The Company is vigorously defending against this suit.
2. Thirteen shareholder actions have been filed against the Company in the
United States District Court for the Southern District of Florida, following
announcements by the Company that its earnings for the quarter and year ended
June 30, 1995, would be substantially below expectations and, in the more
recent actions and complaint amendment, that the scope of the Company's
year-end audit had been expanded. The actions were filed by (i) William Neuman
("Neuman") on or about July 10, 1995, (ii) Robert Ehrenreich ("Ehrenreich") on
or about July 10, 1995, (iii) Eugene Friedman and Clara Friedman, as joint
tenants, on or about July 12, 1995, (iv) Raymond Cayuso on or about July 20,
1995 (in the case of each of (i) through (iv), above, on their own behalf and
on behalf of a putative class of purchasers of the Company's common stock or
related securities during the period December 30, 1994, through July 6, 1995),
(v) Steve Silvers ("Silvers") on or about July 17, 1995 (on his own behalf and
24
<PAGE> 26
on behalf of a putative class of purchasers of the Company's common stock
during the period December 30, 1994, through July 7, 1995), (vi) the Thomas E.
Powell Profit Sharing Plan ("Powell") on or about August 3, 1995 (on its own
behalf and on behalf of a putative class of purchasers of the Company's common
stock during the period August 19, 1993, through July 10, 1995), (vii) William
Steiner ("Steiner") on or about September 1, 1995 (on his own behalf and on
behalf of a putative class of former Knogo stockholders who received stock of
the Company pursuant to the merger of Knogo with the Company), (viii) Jeffrey
Kaliser ("Kaliser") on or about September 1, 1995 (on his own behalf and on
behalf of a putative class of purchasers of shares of the Company's common
stock during the period July 7, 1995 through August 30, 1995), (ix) Joseph
DeFrank, on or about September 5, 1995 (on his own behalf and on behalf of a
putative class of purchasers of shares of the Company's common stock during the
period December 30, 1994 through September 1, 1995), (x) Helen D'Amato
("D'Amato") on or about September 7, 1995 (on her own behalf and on behalf of a
putative class of purchasers of the Company's stock during the period of July
10, 1995 through August 31, 1995), (xi) Andrew W. Schonzeit, custodian for
Gabriel M. Schonzeit, on or about September 13, 1995 (on his own behalf and on
behalf of a putative class of purchasers of shares of the Company's common
stock during the period October 18, 1994, through August 31, 1995), (xii) Sol
Leventhal, on or about September 13, 1995 (on his own behalf and on behalf of a
putative class of purchasers of shares of the Company's common stock during the
period October 18, 1994 through August 31, 1995), and (xiii) Charles Miller,
Robert Booth, Bernice Tillman and Jed Pomerantz ("Miller") on or about
September 14, 1995 (on their own behalf and on behalf of a putative class of
purchasers of the Company's stock between August 10, 1994 through September 1,
1995). Neuman filed an amendment to his complaint on or about September 5,
1995, which also added as plaintiffs Barry Kirshner and K. A. Krinsk. Notices
of joinder have been filed in the Ehrenreich action by Barbara E.
Oldziej-Pardon and Mark Matthews.
The original Neuman complaint and the complaints referenced in clauses (ii)
through (iv), above, which are substantially identical, allege, among other
things, that commencing on December 30, 1994, the Company and certain other
named defendants issued false and misleading statements about the Company's
business prospects and failed to disclose allegedly adverse information,
particularly relating to the Company's merger with Knogo Corporation
consummated December 30, 1994, all of which allegedly inflated the price of the
Company's stock artificially in violation of Federal Securities law. Also
named as defendants in those actions were: Ronald G. Assaf, Chairman of the
Board, President and Chief Executive Officer; Gerd Witter, President of
Sensormatic Europe; Lawrence J. Simmons, Vice President of Finance and Chief
Accounting Officer; Michael E. Pardue, formerly Executive Vice President, Chief
Operating Officer and Chief Financial Officer and a director; and John T. Ray,
Jr. and Arthur G. Milnes, directors.
The Silvers complaint alleges violations of Federal Securities law similar to
those alleged in the above-referenced actions and also alleges, among other
things, common law claims for negligent misrepresentation, fraud and deceit.
In addition to the Company, also named as defendants in the Silvers action are
Messrs. Assaf and Pardue.
The Powell complaint alleges, among other things, that the Company made false
and misleading public disclosures about its revenues and earnings and failed to
disclose hazards affecting individuals wearing pacemakers allegedly caused by
certain of its products, and that certain of the Company's accounting practices
25
<PAGE> 27
were not in accordance with applicable accounting standards, during the period
August 19, 1993, through July 10, 1995. In the Powell action, the defendants,
in addition to the Company, are: Messrs. Assaf, Pardue, Simmons and Milnes;
James E. Lineberger, Chairman of the Executive Committee and a director of the
Company; Jerome M. LeWine, a director; and the Company's auditors, Ernst &
Young, LLP ("E&Y").
The D'Amato complaint is substantially similar to the complaints in the actions
referred to in clauses (i) through (iv), above, but additionally challenges the
Company's July 10, 1995, press release regarding, among other things, its
results for the fiscal quarter ended June 30, 1995, the Company's disclosures
regarding the above-referenced class action suits, and the Company's August 31
and September 1, 1995, disclosures regarding, among other things, the expansion
of its audit. The complaint names Mr. Assaf as a defendant in addition to the
Company.
The Kaliser, Schonzeit, DeFrank and Leventhal complaints, like the complaints
described above, allege, among other things, that the defendants knowingly or
recklessly made untrue statements about, omitted to state and/or
misrepresented, material facts regarding, the Company, and artificially
inflated the market price of the Company's securities, in violation of Federal
Securities law. The Leventhal complaint also alleges a common law claim for
negligent misrepresentation. These complaints recite many of the same specific
allegations detailed above. In addition to the Company, Messrs. Assaf, Simmons
and Ray are named as defendants in the Kaliser complaint. The Schonzeit,
DeFrank and Leventhal complaints name as defendants, in addition to the
Company, Messrs. Assaf, Pardue, Simmons, Witter, Milnes and Ray.
The amendment to the Neuman complaint added allegations that certain of the
Company's accounting practices were not in accordance with applicable
accounting standards, referenced disclosures of the Company after July 7th (as
detailed above in connection with the D'Amato action), and seeks to expand the
class period to the period beginning August 10, 1994, through at least
September 1, 1995. The amended Neuman complaint also added as defendants E&Y
and Messrs. Lineberger and LeWine.
The Miller complaint is substantially similar to that in the Neuman action
referred to above, as amended, and names as defendants, in addition to the
Company, Messrs. Assaf, Lineberger, Pardue, Ray, Milnes, LeWine, Witter and
Simmons and E&Y.
The Steiner complaint alleges that the financial information set forth in
certain offering documents disseminated in connection with the Company's merger
with Knogo contained untrue statements or omissions of material fact and were
materially false and misleading. Also named as defendants in the action, in
addition to the Company, are Messrs. Assaf, Pardue, Lineberger, LeWine, Milnes,
Ray and Simmons, as well as Thomas Buffett, a director of the Company.
26
<PAGE> 28
Each of the plaintiffs in the above actions claim to own limited amounts (i.e.
in all cases less than 3,000 shares, and in many cases as few as 100 shares) of
the Company's common stock (or, in one instance, options to purchase such
stock) and seek class certification, rescissory damages and/or unspecified
compensatory damages, interest, costs, attorneys' fees and/or other relief.
The Steiner plaintiff, who claims to have purchased 500 shares of Knogo stock
(which were exchanged for 272 shares of Sensormatic pursuant to the merger),
also seeks rescission of the vote on the merger between Sensormatic and Knogo
and the dissemination of a revised proxy statement.
The Company intends to vigorously defend against these suits.
3. Three derivative actions were filed against certain directors of the
Company in the Court of Chancery of the State of Delaware by Marion Lord and
Norman Rabinstein, Alan Freberg, and Harry Lewis, on or about September 7,
September 14 and September 13, 1995, respectively. The complaints name six of
the Company's current directors and Mr. Pardue, a former director, as
defendants and the Company as nominal defendant. The complaints assert, among
other things, claims for breach of fiduciary duties of care and loyalty,
mismanagement and waste of corporate assets. The plaintiffs, who claim to be
stockholders of the Company, seek restitution and/or damages in favor of the
Company and imposition of a constructive trust upon defendants' trading
activities in the Company's securities based on non-public information,
together with costs, attorneys' fees, accountants' fees and experts' fees and
other relief.
The Company intends to vigorously defend against these suits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
27
<PAGE> 29
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of September 5, 1995 with respect
to the executive officers of the Company.
<TABLE>
<CAPTION>
Year
First
Became
Executive
Name Age Officer Offices
- ---- --- ------- -------
<S> <C> <C> <C>
Ronald G. Assaf 60 1967 Chairman of the Board of
Directors, President and
Chief Executive Officer
C. Dawson Buck 49 1992 Senior Vice President and
President of Sensormatic
International
John F. Daut 60 1988 Vice President of
Manufacturing
Walter A. Engdahl 57 1993 Vice President - Corporate
Counsel and Secretary
Miguel A. Flores 41 1988 Vice President and Treasurer
Olin S. Giles 54 1985 Vice President of Engineering
Dennis C. Gillette 56 1980 Senior Vice President
Jerry T. Kendall 52 1993 Vice President of Corporate
Marketing
James E. Lineberger 58 1974 Chairman of the Executive
Committee and Director
Raymond Monteleone 47 1995 Vice President of Corporate
Development and Acting Chief
Financial Officer
Terry W. Price 51 1991 Group Vice President -
Commercial/Industrial
Gerd Witter 51 1983 President of Sensormatic
Europe
</TABLE>
The terms of office of each of the above officers, pursuant to the By-Laws of
the Company, will continue until the next Annual Meeting of the Board of
Directors (to be held after the next Annual Meeting of Stockholders) and until
a successor is elected and qualified.
Ronald G. Assaf, a founder of the Company, has been a Director of the Company
since 1967 and Chairman of the Board of Directors since October 1971 and served
as President and Chief Executive Officer of
28
<PAGE> 30
the Company from 1974 to January 1986. In January 1988, Mr. Assaf was
appointed Co-Chief Executive Officer and in July 1988 was re-appointed to the
positions of President and Chief Executive Officer. Additionally, Mr. Assaf is
a member of the Board of Directors of Hilite Industries Inc. and Computer
Integration Corp.
C. Dawson Buck joined Sensormatic as Chief Executive Officer of Securitag
(U.K.) Ltd., a subsidiary acquired from ASH on July 29, 1992 and was appointed
Senior Vice President and President of Sensormatic International Division in
August 1992. Prior to joining Sensormatic, Mr. Buck was the Chief Executive
Officer of the UK operations of ASH, having joined ASH in 1975 and serving in
various management capacities including managing ASH's Loss Prevention
business. Additionally, Mr. Buck has been a member of the Board of Directors
of ASH since 1988.
John F. Daut joined the Company in December 1988 as Vice President of
Manufacturing. Prior to his joining the Company, Mr. Daut had over 31 years of
experience in manufacturing at IBM, including Site General Management.
Walter A. Engdahl joined the Company in November 1983 as Corporate Counsel.
Mr. Engdahl was appointed Vice President - Corporate Counsel in February 1992.
In November 1993, Mr. Engdahl was appointed Secretary of the Company. He is a
member of the Bars of both Florida and New York.
Miguel A. Flores joined the Company in October 1983 and served in various
financial management capacities, including Director of Finance. In November
1988, Mr. Flores was appointed Treasurer and Secretary of the Company. In
November 1993, Mr. Flores relinquished his duties as Secretary and was
appointed Vice President and Treasurer of the Company. He is a Certified
Public Accountant.
Olin S. Giles joined the Company in May 1985 as Vice President of Engineering
and served as Vice President of Operations from July 1987 to October 1988, when
he was re-appointed as Vice President of Engineering.
Dennis C. Gillette joined the Company in August 1970 and served in various
sales and marketing capacities. Mr. Gillette was appointed Vice President of
Marketing, Eastern Region in October 1980 and served as Vice President of Sales
from January 1984 until February 1986 when he was appointed Vice President of
Sales and Marketing. In September 1988, he was appointed Senior Vice President
of the Company.
Jerry T. Kendall joined Sensormatic as Senior Vice President - Sales, Marketing
and Service of Security Tag Systems, Inc. ("Security Tag"), which was acquired
by the Company during fiscal 1993, and was appointed Vice President of
Marketing in September 1993. Prior to joining Sensormatic, Mr. Kendall served
in various sales and marketing executive capacities at Security Tag from
January 1990 to April 1991 and from January 1992 to September 1993. During the
interim, Mr. Kendall held the position of Executive Vice President with
Computone Corp., a public company. Prior to
29
<PAGE> 31
joining Security Tag, he served in various executive positions for 11 years,
including President and Chief Executive Officer of Paradyne Corporation, a data
communications company.
James E. Lineberger has been a Director of the Company since 1968 and Chairman
of the Executive Committee since 1974. From January 1988 to July 1988, Mr.
Lineberger served as Co-Chief Executive Officer of the Company. He has been a
partner of Lineberger & Co. and its predecessors, private investment firms,
since 1974. Additionally, Mr. Lineberger serves as Chairman of the Board of
Directors of Hilite Industries Inc.
Raymond Monteleone joined the Company in May 1988 as Assistant to the President
and was subsequently appointed Vice President of Corporate Development and
Planning in February 1992. In September 1995, Mr. Monteleone was also
appointed acting Chief Financial Officer of the Company. Prior to joining the
Company, Mr. Monteleone was a Partner with the accounting firm of Arthur Young
& Company where he held significant management positions within the firm. Mr.
Monteleone is a Certified Public Accountant and, in addition to serving on many
governmental appointed, business and professional Boards of Director, is a
member of the Board of Directors of Rexall Sundown and Pointe Financial
Corporation.
Terry W. Price joined the Company in April 1991 as Group Vice President -
Commercial/Industrial. In his capacity, Mr. Price oversees the Company's
Commercial/Industrial Group. Prior to joining the Company he served as
President and Chief Executive Officer of AmeriSystems, a telecommunications
firm, for more than 5 years.
Gerd Witter joined the Company in April 1979 as General Manager of its German
subsidiary. Mr. Witter served as Director of European Operations from July 1981
until March 1983 when he was appointed Vice President of European Operations.
Mr. Witter was appointed President of Sensormatic Europe in September 1988.
None of the above executive officers has any family relationship with any other
director or executive officer of the Company.
30
<PAGE> 32
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol SRM. Trading on such exchange commenced on May 16, 1991.
Previously, the Company's Common Stock was traded in the over-the-counter
market on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") National Market System, under the symbol SNSR. The following
table sets forth for each quarterly period during the two fiscal years ended
June 30, 1995 and 1994, the high and low sales prices for the Common Stock as
reported by the NYSE. Such prices have been adjusted, where appropriate, to
reflect a three-for-two stock split effected in November 1993.
<TABLE>
<CAPTION>
Sales Prices
-------------------------
High Low
--------- ---------
<S> <C> <C>
1995
- ----
First Quarter 35 3/4 28
Second Quarter 37 7/8 30 3/4
Third Quarter 35 7/8 27 1/2
Fourth Quarter 38 1/4 25 5/8
1994
- ----
First Quarter 30 5/12 24
Second Quarter 35 27 3/4
Third Quarter 38 7/8 33
Fourth Quarter 34 5/8 27 1/2
</TABLE>
As of October 10, 1995, there were 5,371 shareholders of record of the
Company's Common Stock.
The Company paid regular semiannual cash dividends of $.017 per share of Common
Stock from December 1978 through January 1990, regular quarterly cash dividends
of $.05 per share from April 1990 through November 1993 and has paid a regular
quarterly cash dividend of $.055 per share since February 1994. The
declaration and payment of future dividends will be determined by the Board of
Directors in light of conditions then existing, including the Company's
earnings, financial condition, contractual debt covenants and capital
requirements.
31
<PAGE> 33
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30, Years ended May 31,
------------------------------------------------- -------------------------
1995 (1) 1994 1993 (1) 1992 (2) 1991
-------- -------- -------- -------- --------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues $ 889.1 $ 656.0 $ 487.3 $ 309.9 $ 239.2
======== ======== ======== ======== ========
Operating income $ 97.9 $ 104.8 $ 71.0 $ 43.6 $ 29.3
======== ======== ======== ======== ========
Income from continuing
operations $ 69.6 $ 72.1 $ 54.1 $ 31.5 $ 24.7
======== ======== ======== ======== ========
Net Income $ 73.7 $ 72.1 $ 54.1 $ 31.5 $ 24.7
======== ======== ======== ======== ========
Primary earnings
per common share:
Continuing operations $ .97 $ 1.16 $ .97 $ .73 $ .60
======== ======== ======== ======== ========
Net income $ 1.02 $ 1.16 $ .97 $ .73 $ .60
======== ======== ======== ======== ========
Fully diluted earnings
per common share:
Continuing operations $ .97 $ 1.13 $ .93 $ .73 $ .60
======== ======== ======== ======== ========
Net income $ 1.02 $ 1.13 $ .93 $ .73 $ .60
======== ======== ======== ======== ========
Cash dividends per
common share $ .22 $ .21 $ .15(5) $ .20 $ .20
======== ======== ======== ======== ========
At period end:
Total assets $1,570.9 $1,155.5 $ 926.9 $ 467.3 $ 421.8
======== ======== ======== ======== ========
Total debt (3) $ 326.7 $ 219.2 $ 308.4 $ 150.6 $ 148.7
======== ======== ======== ======== ========
Total stockholders' equity $ 952.7 $ 727.7(3) $ 489.8 $ 255.7 $ 222.2
======== ======== ======== ======== ========
</TABLE>
(Continued on the following page.)
32
<PAGE> 34
ITEM 6. SELECTED FINANCIAL DATA (CONT'D)
(1) In fiscal 1995, the Company acquired Knogo Corporation's operations
outside of the United States, Puerto Rico and Canada and in fiscal
1993, it acquired ALPS and the outstanding common stock of Security
Tag. (see Note 11 of Notes to Consolidated Financial Statements).
(2) In fiscal 1991, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Post-retirement Benefits
Other Than Pensions" (see Note 8f of Notes to Consolidated Financial
Statements).
(3) In fiscal 1994, approximately $114 million of the $115 million
principal amount of 7% convertible subordinated debentures, issued in
fiscal 1991, were converted to approximately 7.3 million shares of
Common Stock and in fiscal 1993, the Company issued $135 million
aggregated principal amount of 8.21% Senior Notes (see Notes 6 and 7
of Notes to Consolidated Financial Statements).
(4) Selected financial data for and as of the end of the one month ended
June 30, 1992 is as follows: total revenues - $21.0; operating loss -
$3.3; loss from continuing operations and net loss - $2.5; primary and
fully diluted loss per common share for continuing operations and net
loss - $.06; total assets - $462.2; total debt - $150.3; and total
stockholders' equity - $258.3.
(5) Fourth quarter dividend of $.05 per share of Common Stock was declared
in July 1993.
33
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's consolidated financial statements present a consolidation of its
worldwide operations. This discussion supplements the detailed information
presented in the Consolidated Financial Statements and Notes thereto and is
intended to assist the reader in understanding the financial results and
condition of the Company.
Overview
Consolidated revenues increased 36% in fiscal 1995 compared to fiscal 1994, and
35% and 57% in fiscal 1994 and 1993, respectively, over the prior years,
representing an annual compounded growth rate of 42% over the last three fiscal
years. This growth rate is largely attributable to successfully implementing a
strategy of product, customer and geographic market diversification. More than
52% of fiscal 1995 revenues were generated from outside of the United States.
The Company's increased internal product research, development and engineering
activities resulting in a broad array of new proprietary products, as well as
selected strategic acquisitions over the last several years, have been a key
element in the diversification strategy. The Company invested $25.5 million in
fiscal 1995, and anticipates investing approximately $31.0 million in fiscal
1996, in research and product development and engineering support. These
activities will contribute to broadening product lines and expanding product
applications. Introduction of new products into the market place will be made
in accordance with its strategic marketing plans.
Additionally, the Company has made a number of strategic acquisitions over the
last several years including Security Tag Systems, Inc. (Security Tag), a
U.S.-based manufacturer and marketer of loss prevention products, Software
House, Inc. (Software House), a premier U.S.-based developer of high-end
access control and integrated security systems, Robot Research Inc. (Robot
Research), a U.S. manufacturer of sophisticated CCTV equipment, and Case
Security Limited (Case Security), a distributor of visual security systems, and
Automated Loss Prevention Systems (ALPS), as well as the merger with Knogo
Corporation's operations outside of the U.S., Puerto Rico and Canada (Knogo),
all under the diversification strategy (see Note 11 to Notes to Consolidated
Financial Statements).
The acquisitions of Knogo and ALPS significantly broadened the Company's
presence and direct distribution capacity in Europe. The acquisitions of
Software House, Robot Research and Case Security, as well as American Dynamics
and Continental Instruments Corporation in fiscal 1991 and 1990, respectively,
broadened the Company's customer base by adding new proprietary products and
distribution channels aimed at commercial, industrial and other non-retail
customers.
Another strategy is to focus on expanding the Company's base of recurring
revenues. Recurring revenues are generated from sales of
34
<PAGE> 36
disposable labels to the hard goods retailers, maintenance agreements entered
into in connection with the sale or lease of systems, and rental revenues from
operating leases. The later is a particular focus of the marketing efforts of
certain European and Asia/Pacific subsidiaries. In fiscal 1995, recurring
revenues were approximately $152 million compared to approximately $120 million
and $106 million in fiscal 1994 and 1993, respectively. The sale of disposable
labels to the hard goods retailers is the fastest growing component of the
recurring revenue stream, growing from less than $4 million in fiscal 1988 to
approximately $76 million in fiscal 1995, an annual compounded growth rate of
over 52%.
In fiscal 1993, the Company took a major step in its efforts to increase future
recurring label revenues through the introduction of its Universal Product
Protection (UPP(SM)) program. Under this program (also referred to as source
labeling), EAS labels are incorporated into or affixed to the merchandise to
be protected during the process of manufacturing, packaging or distribution
rather than at the retail store. At June 30, 1995, over 500 manufacturers and
suppliers located worldwide applied the Company's labels to merchandise
delivered to retailers' stores. The Company has been working with a number of
its retailer customers around the world, from various segments of the soft and
hard goods retail marketplace (including retailers from the music, home
improvement centers and discount industries), as well as strategic suppliers
and manufacturers, to accelerate this initiative.
Operating income in fiscal 1995 decreased 7% from fiscal 1994. This was
primarily a result of a 51% increase in selling, customer service and
administrative and research, development and engineering expenses (increasing
as a percentage of revenue to 46% in fiscal 1995 from 41% in fiscal 1994),
including approximately $6.0 of expenses related to acquisitions, primarily the
merger with Knogo. This was partially offset by a 36% increase in product
sales earning gross margins of 54% (consistent with fiscal 1994). Operating
income as a percentage of total revenues decreased to 11% compared to 16% in
fiscal 1994. Operating income in fiscal 1994 increased 48% over fiscal 1993.
Growth in operating income outpaced the revenue growth as a result of improved
gross margins and a reduction is operating expenses.
Income from continuing operations decreased 3% in fiscal 1995 and increased 33%
in fiscal 1994 as a result of the matters discussed above. In addition Net
income was $74 million for fiscal 1995 compared to $72 million for fiscal 1994.
Fiscal 1995 net income included the effects of a $4.1 million reduction of
income taxes payable relating to a previously discontinued business, which
reserve was no longer required.
Currency Risks. The Company uses the U.S. dollar as the reporting currency for
financial statement purposes. It conducts business in numerous countries
around the world (primarily in Western European countries which have relatively
stable economies and currencies) through its international subsidiaries which
use local country currencies to denominate their transactions. Therefore, the
Company is subject to certain risks associated with fluctuating foreign
currencies.
35
<PAGE> 37
The three major areas of currency risks the Company is exposed to are: (a) the
translation of revenues and expenses denominated in foreign currencies, for
reporting purposes; (b) the translation of assets and liabilities denominated
in foreign currencies, for reporting purposes and (c) the settlement of
intercompany sales of products invoiced in local currencies by U.S. dollar
based subsidiaries to international subsidiaries (transaction exposure). The
Company monitors its currency exposures but has decided not to hedge either of
its translation exposures due to the high economic costs of such a program and
the long-term nature of its investments in its international subsidiaries. The
Company, does have, however, a policy of managing its transaction exposure in
order to reduce the impact of currency fluctuations on the Company's financial
performance. This policy provides for the purchasing of forward exchange
contracts and options designated to hedge its transaction exposure arising from
intercompany product purchase commitments.
The translation of revenues and expenses denominated in foreign currencies is
affected by fluctuations in the average U.S. dollar exchange rate relative to
these foreign currencies, from period to period. While changes in the income
statements caused by fluctuating rates are not indicative of any underlying
changes in the operations of the international subsidiaries, they do affect the
comparability of reported operating results from period to period. In fiscal
1995, operating income reported by its international subsidiaries was higher by
approximately $3.5 million (4%) due to the weaker average U.S. dollar when
compared to fiscal 1994. In fiscal 1994, operating income reported by
international subsidiaries was lower by approximately $4 million (4%) due to
the stronger average U.S. dollar when compared to fiscal 1993 (no effect in
fiscal 1993). The exposure to currency changes in future periods may be
mitigated by operating decisions such as pricing, sourcing of raw material
purchases and currency of invoicing. The Company's translation exposure is
primarily in France, Germany, Spain and the United Kingdom.
The translation of assets and liabilities denominated in foreign currencies is
affected by fluctuations in the currency exchange rates, from date to date,
affecting the comparability of the Company's financial position from period to
period. The resulting changes in the statements do not indicate any underlying
changes in the financial position of the international subsidiaries but merely
adjust the carrying value of the net assets of these subsidiaries at current
U.S. dollar exchange rates. Because of the long-term nature of the Company's
investment in these subsidiaries (aggregating approximately $300 million and
$250 million at June 30, 1995 and 1994, respectively, primarily located in 15
countries in Europe), the translation adjustments resulting from these exchange
rate fluctuations are excluded from results of operations and recorded in a
separate component of consolidated stockholders' equity. The fiscal 1995 and
1994 translation increase of $2 million and $16 million, respectively, in
consolidated stockholders' equity resulted primarily from the translation of
the balance sheets denominated in British pounds, French francs, German marks
and Spanish pesetas reflecting the weaker U.S. dollar relative to such
currencies at June 30, 1995 and 1994 compared to June 30, 1994 and 1993,
respectively. The Company's balance sheet translation exposure is primarily in
France, Germany, Spain and the United Kingdom due to the relatively large
investments in
36
<PAGE> 38
subsidiaries located in these countries. The effects of currency movements
will not deter the Company's expansion of its international subsidiaries
because of the long-term nature of its investments and operating activities in
those stable countries.
The Company maintains a formal currency hedging policy to manage its
transaction exposure arising from intercompany product purchase commitments.
The Company recognizes that hedging certain transaction exposures may not
necessarily economically improve the settlement of the underlying transaction
(i.e., the Company may forego possible foreign exchange gains). However
hedging reduces risk by making the outcome more certain. The policy provides
senior management with the flexibility and information (including regular
reporting of hedge contracts outstanding and anticipated commitments) to manage
the identified transaction exposure, within a minimum and maximum set of
parameters, in order to react to changing economic circumstances. The policy
also provides for the use of forward exchange contracts (forward contracts) and
options to sell the currencies received from the international subsidiaries in
settlement of intercompany product purchases. The Company utilizes forward
contracts to hedge between 60% and 90% of its intercompany commitments and
normally uses options to hedge between 10% and 20% of its exposure, over a
rolling 18 month period. Such period corresponds with the purchase commitment
provisions of the Company's License Agreements with its international
subsidiaries. The hedge positions are monitored and adjusted on a regular
basis to reflect changes to commitment amounts. Historically, inventory
purchases by international subsidiaries closely approximate the amounts of the
hedged commitments. The Company's transaction exposure primarily relates to
the British pound, French franc, German mark and Spanish peseta currencies.
In July 1995 the Emerging Issues Task Force (EITF) reached a consensus which
narrows the scope of intercompany foreign currency commitments which are
eligible to be hedged for financial reporting purposes. This applies to
transactions arising after July 21, 1995.
The Company has not completed the complex analyses and comprehensive study of
this matter to either estimate its current or future effect on the Company's
operating results or hedging strategy. However, the Company believes it can
modify its current hedging practices in order to comply with the new consensus
without having a materially adverse effect on its financial condition.
Forward contracts and options are subject to the risk of gain or loss from
changes in exchange rates, but these gains or losses are effectively offset by
losses or gains on the designated hedged commitments. Forward contracts
represent a contractual obligation of the Company to sell a specific amount of
a local currency at a specific exchange rate while options give the Company the
right to sell the currency, but do not contractually obligate it to do so (for
example, if future currency rates fluctuate in a way to make it economically
beneficial not to exercise the option to sell the currency at the specified
rate, the Company would elect to let the option expire).
The Company believes its policy to hedge its transaction exposures has been
successful as foreign exchange losses were minimal in
37
<PAGE> 39
fiscal 1995, 1994 and 1993. (See Notes 1g. and 12. of Notes to Consolidated
Financial Statements.)
Interest Rate Risks. The Company is subject to the risk of fluctuating
interest rates in the normal course of business on various assets, (consisting
primarily of cash and marketable securities, installment receivables and net
investment in sales-type leases (sales-type leases)) and debt. The Company
does not normally enter into interest rate swap agreements (or other similar
agreements, e.g., interest rate cap agreements) except with respect to its
management of the interest rate exposure associated with the sale of
installment receivables and in isolated situations, such as to reduce the
interest expense on the $135 million 8.21% Senior Notes by taking advantage of
lower prevailing short-term interest rates (see Notes 1., 2., 6. and 12. of
Notes to Consolidated Financial Statements).
After giving effect to the interest rate swap agreements, approximately 95% of
the Company's outstanding debt bears interest at fluctuating rates, which
allowed the Company to take advantage of lower prevailing short-term interest
rates, primarily in fiscal 1993 and 1994. An increase in short-term interest
rates would result in higher interest expense, as it did in fiscal 1995
compared with 1994. However, the Company maintains a short average maturity on
its invested cash and marketable securities to mitigate this risk. The Company
believes the expected future operating results would more than adequately cover
any incremental interest expense caused by higher interest rates. In addition,
the Company has no financial debt covenants affected by an increase in interest
expense.
Derivatives. Interest rate swap agreements and currency forward contracts and
options (derivatives) contain an element of risk that the counterparty may be
unable to perform. However, the Company minimizes such risk by limiting the
counterparties used to major financial institutions with investment grade
credit ratings. The Company monitors its counterparty credit risks by
maintaining open communications with the counterparties used and reviewing
their respective credit ratings and related economic news.
The Company does not enter into speculative derivative transactions. The
derivative instruments it does own are not held as investments, and it is the
Company's intent to hold such instruments for their respective terms.
Therefore, changes in their fair values will have no effect on the Company's
operations, cash flows or financial position (see Note 12. of Notes to
Consolidated Financial Statements for additional discussion, including how the
fair values were determined). Additionally, the Company does not enter into
leveraged swap arrangements.
Financial Condition
During fiscal 1995, cash and marketable securities increased $16 million
primarily due to: (a) increased short-term borrowings ($105 million); (b)
proceeds from issuance of Common Stock pursuant to employee benefit plans ($13
million); and (c) a net decrease in deferred and installment receivables and
sales-type leases ($14 million).; offset in part by (a) increased inventory
available for
38
<PAGE> 40
sale ($63 million); (b) capital expenditures ($63 million); and (c) the payment
of dividends on Common Stock ($16 million).
Total receivables and sales-type leases increased from $309 million at June 30,
1994 to $401 million at June 30, 1995 principally as a result of the higher
level of business in fiscal 1995 and from the acquisition of Knogo
(approximately $37 million acquired at December 29, 1994); offset in part by an
increase in sales of receivables and sales-type leases to third party financing
institutions (described further below).
The Company has historically had a high level of receivables and sales-type
leases outstanding, measured as a percentage of revenues. This results in part
from a key element of the Company's marketing strategy, based on its size and
financial strength, to increase market penetration by providing alternative
financing options to its retail customers (i.e., vendor financing). This
strategy has given the Company a significant competitive advantage and has
helped the Company penetrate markets and increase customer loyalty and
commitment to Sensormatic. The ability to pursue such a strategy results from
the Company's relatively high profit margins, strong balance sheet and its
ability to sell receivables and leases to financing institutions.
Additionally, like other companies which do business with retailers, the
Company has experienced an historical pattern of delayed payments by certain
major retail customers which has extended the Company's receivables aging
profile. Internal approvals and processing of accounts payable for many
retailers normally take between 30 and 90 days, which has extended its
receivables aging profile. In addition, further delays in payments are often a
business practice by large retailers, and not an indication of credit
unworthiness. Though working to accelerate collection of receivables, the
Company historically has accepted the longer collection cycles as part of its
strategy to maintain and further penetrate this important market segment. The
lost interest income due to the delayed payment is another cost factor that is
considered by the Company in the pricing of the product.
The Company continues to manage its receivables and sales-type leases by, among
other things, using third party servicing agents to enhance the efficiency of
its billing and collection practices and expanding the number and use of
relationships with third party financing institutions to sell or assign
receivables and sales-type leases (see Note 2. of Notes to Consolidated
Financial Statements). The results of these ongoing efforts have been to
reduce the average collection time and to provide the Company with the
flexibility to convert its receivables and sales-type leases into cash as
needed. The Company received proceeds of $458 million and $271 million from
the sale and assignment of receivables and sales-type leases in fiscal 1995 and
1994, respectively (net of repurchases due to customer non-payment of
approximately $14 million and $13 million, respectively).
Finally, short-term receivables from the Company's slower paying retail
customers are becoming a relatively smaller part of its overall business as a
result of 1) the expansion of the Company's source labeling program, whereby
Sensormatic sells labels to
39
<PAGE> 41
vendors and manufacturers who apply the labels prior to shipment to the
retailer; and 2) the continued growth of the commercial/industrial customer
base which is made up of customers which (i) tend to be the higher end
commercial/industrial users with higher credit ratings than many retailers and
(ii) a closely monitored network of third-party dealers and distributors. In
adding this new commercial/industrial customer base to the Company's historical
retail customer base, the Company has developed a base of generally faster
paying customers.
The Company believes its total allowance for doubtful accounts for receivables
and sales-type leases, and its related reserve for receivables and sales-type
leases sold to financing institutions which are subject to full or partial
recourse, are adequate after taking into account, among other things: (a) the
aging of its receivables and sales-type leases (including those repurchased or
subject to repurchase from financing institutions); (b) the payment history of
its customers; (c) the Company's security interest in equipment financed under
deferred and installment sales contracts and the Company's retention of title
in equipment under sales-type leases; (d) its ability to re-market such
equipment if needed; (e) the prospects of its collection efforts; and (f) its
relationship with major retail customers. Additionally, with the broadening of
the Company's customer base both geographically and to include hard goods
retailers, and commercial and industrial customers, the Company's historical
concentration in soft goods retailers is being reduced.
Inventories at June 30, 1995 increased $77 million over June 30, 1994 to meet
increased forecasted production and sales levels and reduce the risk of
inventory shortages resulting from the rapid growth in market demand. Other
property, plant and equipment increased $44 million primarily due to the
purchases of additional production equipment in Florida and Puerto Rico and the
start-up of the manufacturing facility in Ireland. Deferred income taxes,
patents and other assets increased $42 million primarily as a result of
increased deferred income taxes and other assets principally related to
companies acquired in fiscal 1995.
Total stockholders' equity at June 30, 1995 increased $225 million over the
June 30, 1994 balance, to $953 million, principally as a result of the issuance
of 4.6 million shares of Common Stock (aggregating $149 million) in connection
with acquisitions and net income.
Total debt increased $108 million over the June 30, 1994 balance, to $327
million, primarily as a result of an increase in short-term credit line
borrowings and other debt (approximately $23 million of Knogo debt was incurred
as part of the merger). The debt-to-total capitalization ratio was .26 to 1 at
June 30, 1995 compared to .23 to 1 at June 30, 1994.
The Company estimates capital requirements for fiscal 1996 to include capital
expenditures for new production equipment and a facility to consolidate the
Company's research and product development, engineering support, and certain
corporate marketing and administrative personnel and equipment at approximately
$30 million, and expenditures for research and product development and
engineering support at approximately $31 million. Such capital requirements
and other expenditures will be funded through
40
<PAGE> 42
operating activities (including sale of receivables and sales-type leases),
existing cash and marketable securities and worldwide credit lines (see Note 6.
of Notes to Consolidated Financial Statements).
Additionally, future niche acquisitions, a fundamental element of the Company's
diversification and growth strategy, may be funded, when deemed appropriate,
through the issuance of shares of Sensormatic Common Stock. The Company
maintains a shelf registration statement filed with the Securities and Exchange
Commission under which the Company is able to issue up to 4.5 million shares of
its Common Stock (approximately 2.5 million shares remain available).
Results From Continuing Operations
Revenues
Consolidated revenues for fiscal 1995 were $889 million, a 36% increase from
$656 million in fiscal 1994. The revenue growth in 1995 resulted principally
from: (a) increased EAS revenues particularly from the Ultra-Max product line,
primarily for hard goods retail customers and used in source labeling
programs; (b) increased CCTV product volume from retailers; (c) increased
volume from the U.S.-based Commercial/Industrial Group, and (d) the foreign
exchange effect on the international subsidiaries' local currency revenues when
translated into U.S. dollars for financial statement purposes caused by the
weaker average U.S. dollar (relative to the international subsidiaries' local
currencies, in the aggregate) throughout fiscal 1995 compared to fiscal 1994
(approximately $3 million).
Consolidated revenues from the EAS product lines for retail customers increased
25% to $511 million in fiscal 1995 compared to $406 million in fiscal 1994.
This increase resulted principally from a 47% volume increase from the
Ultra#Max product line and the inclusion in the last six months of fiscal 1995
of revenues from the Knogo product line ($29 million). Revenues from the CCTV
product lines for retailers exceeded $112 million compared to $72 million in
fiscal 1994. Revenues from the Commercial/Industrial Group (including
installation revenues) increased 83%, to $143 million compared to $78 million
in fiscal 1994, due primarily to the sale of CCTV and access control products
to non-retail customers, and incremental revenue from recent acquisitions.
Revenues from the Company's CamEra(TM) systems increased 38% to $66 million in
fiscal 1995 compared to $48 million in fiscal 1994. The Company generated $256
million of revenue in fiscal 1995 from all of its CCTV products and systems
combined, worldwide.
International revenues were $468 million, $333 million and $267 million in
fiscal 1995, 1994 and 1993, respectively, and included revenues of the European
subsidiaries of $386 million, $275 million and $232 million, respectively.
In fiscal 1994, consolidated revenues increased $169 million (35%) compared to
fiscal 1993 principally as a result of increased revenue from the Ultra-Max
product line, inclusion of revenue from the Security Tag EAS and Ink Tag(R)
product line, increased revenues
41
<PAGE> 43
from the sale of CCTV products to retailers, and increased revenues from the
Commercial/Industrial Group; offset in part by the foreign exchange effect
caused by the stronger average U.S. dollar (approximately $34 million).
In fiscal 1993, consolidated revenues increased $177 million (57%) compared to
fiscal 1992 principally as a result of the inclusion of revenues generated from
ALPS products, increased worldwide revenues in every EAS product line for the
hard goods retailers, increased revenues from the sale of CCTV products to
retailers and increased revenues from the Commercial/Industrial Group.
Operating Costs and Expenses
Operating costs and expenses in fiscal 1995 increased to 89% of consolidated
revenues, compared with 84% in fiscal 1994 and 85% in fiscal 1993. The reduced
operating margin in fiscal 1995 was due primarily to: 1) higher than budgeted
selling and customer service expenses (in part due to the opening of a
distribution center and a customer response center in the U.S., and activities
associated with the expansion of the source labeling program); 2) significant
integration costs and expenses related to acquisitions, primarily Knogo
(approximately $6 million); 3) costs associated with the opening of the
manufacturing facility in Ireland; and 4) expenses associated with the
Company's sponsorship of the 1996 Summer Olympics.
Gross margin on product sales in fiscal 1995 remained at 54% compared to fiscal
1994. Gross margin on product sales in fiscal 1994 increased to 54% from 53%
in fiscal 1993, primarily from improved gross margins on certain EAS and CCTV
product lines (resulting from improved manufacturing efficiencies) and the
inclusion of the manufacturer's gross margin (as a result of the acquisition of
Security Tag) on the Security Tag product line; offset in part by a relative
increase in sales of lower margin products (such as CCTV products and labels)
compared to fiscal 1993.
Total selling and customer service, administrative, research, development and
engineering expenses (operating expenses) for fiscal 1995 increased to 46%, as
a percentage of total consolidated revenues, from 41% in fiscal 1994, and
increased 51% over fiscal 1994, primarily as a result of higher selling and
customer service expenses including significant integration costs of the Knogo
operations in Europe. The increases in operating expenses include the foreign
exchange effect caused by the weaker average U.S. dollar (approximately $15
million). Operating expenses in fiscal 1994 and 1993 increased 31% and 62%
over the respective prior fiscal year primarily as a result of the higher
levels of business (including the effect of the ALPS acquisition in fiscal
1993) and an increase in research, development and engineering expenses of 31%
and 20% over the respective prior years; offset in part by the foreign exchange
effect caused by the stronger average U.S. dollar in fiscal 1994 compared to
1993 ($14 million).
Other Income (Expenses)
Interest income increased by $3 million in fiscal 1995 principally due to
higher amounts of sales-type leases and deferred and installment receivables
outstanding throughout fiscal 1995 compared
42
<PAGE> 44
to fiscal 1994. Interest income declined by $3 million in fiscal 1994 due
primarily to a decline in long-term interest rates throughout the year earned
on higher amounts of sales-type leases and deferred and installment
receivables. In fiscal 1993 interest income increased by $10 million
principally due to interest income earned on sales-type leases acquired in
connection with the ALPS acquisition and higher amounts of deferred and
installment receivables.
Interest expense increased by $6 million, $4 million and $7 million in fiscal
1995, 1994 and 1993, respectively, due to higher levels of net short-term bank
borrowings used to fund (i) increases in the Company's working capital
(including the longer-term receivables and sales-type leases) and (ii) in
fiscal 1995, debt assumed as part of the acquisition of Knogo and increased
long-term debt in fiscal 1993, incurred with respect to the acquisition of
ALPS. As previously mentioned, the Company entered into three-year interest
rate swaps in fiscal 1993 to lower its current interest expense on the $135
million 8.21% Senior Notes by exchanging their fixed interest rate for a
floating interest rate based on six month LIBOR rates (throughout the term of
the swap agreements) in order to take advantage of the then lower prevailing
short-term interest rates. The effective rate on the Senior Notes was
approximately 9.2%, 6.8% and 6.8% in fiscal 1995, 1994 and 1993 through the use
of these swap agreements.
Income Taxes
The effective consolidated tax rate on income from continuing operations was
22% for fiscal 1995, and 25% for both fiscal 1994 and 1993. The fiscal 1995
effective tax rate was negatively affected by (i) earnings of the Company's
international subsidiaries which are subject to statutory tax rates generally
higher than the U.S. effective rate, (ii) increases in U.S. earnings not
qualifying for U.S./Puerto Rico "Section 936" tax benefits (see Note 5. of
Notes to Consolidated Financial Statements) and (iii) increases in amortization
of costs in excess of net assets acquired (substantially all of which are
non-deductible for income tax purposes). However, these effects were offset by
an adjustment of prior years' tax accruals which were no longer required. In
addition to the items above, changes in U.S. and Puerto Rico tax law related
to the Company's operations in Puerto Rico(effective for fiscal 1995), as well
as potentially more adverse changes presently being considered by the U.S.
Congress, will continue to exert upward pressure on the Company's effective tax
rate. Legislation proposal in the U.S. Congress in recent years have sought to
limit or phase out the favorable tax status in Puerto Rico. The potential
effect of these items is continually being examined by the Company in order to
develop strategies to minimize their effect.
Discontinued Operations
In fiscal 1995, the Company recorded a $4.1 million reduction in income tax
liabilities related to a previously discontinued business which was no longer
required.
43
<PAGE> 45
Net Income
Consolidated net income for fiscal 1995, 1994 and 1993 increased $2 million,
$18 million and $23 million compared to their respective prior years,
representing an annual compounded rate of growth of 33% over the last three
fiscal years, due principally to the factors discussed above.
44
<PAGE> 46
Item 8. Financial Statements and Supplementary Data
See Item 14 for a list of the Sensormatic Electronics Corporation Consolidated
Financial Statements filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Part III
The information required by Item 10 (Directors and Executive Officers of the
Registrant) (other than information as to executive officers of the Company,
which is set forth in Part I under the caption "Executive Officers of the
Registrant"), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships
and Related Transactions) is incorporated by reference to the Company's
definitive proxy statement for the 1994 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before October 28,
1995.
Part IV
Item 14. Exhibits, Financial Statements and Supplementary Data, Financial
Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) (2) Financial Statements
The financial statements, financial statement schedules and
supplementary information listed in the accompanying Index To
Financial Statements.
(3) Exhibits
The exhibits listed in the accompanying Index To Exhibits.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth
quarter of the Company's fiscal year.
<PAGE> 47
SENSORMATIC ELECTRONICS CORPORATION
INDEX TO FINANCIAL STATEMENTS
(Item 14(a)(1) and (2))
Reference
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at June 30, 1995 and 1994 F-2
Consolidated Statements of Income for the years
ended June 30, 1995, 1994 and 1993 F-3-4
Consolidated Statements of Cash Flows for the years
ended June 30, 1995, 1994 and 1993 F-5-6
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1995, 1994 and 1993 F-7-8
Notes to Consolidated Financial Statements F-9-35
</TABLE>
All Consolidated Financial Statement schedules have been omitted since the
required information is not present or is not present in amounts sufficient to
require submission of the schedules, or because the information required is
included in the Consolidated Financial Statements or notes thereto.
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Sensormatic Electronics Corporation
We have audited the accompanying consolidated balance sheets of Sensormatic
Electronics Corporation as of June 30, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Sensormatic Electronics Corporation at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 9. to the consolidated financial statements, the Company
is a defendant in various lawsuits brought by alleged shareholders claiming,
among other things, violations of federal securities laws. The Company
strongly disputes these charges and intends to vigorously defend against these
lawsuits. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result has
been made in the consolidated financial statements.
As discussed in Note 5. to the consolidated financial statements, in 1994 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 30, 1995
F-1
<PAGE> 49
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Cash and marketable securities (including
marketable securities of $26,727 in
1995 and $33,618 in 1994) $ 70,307 $ 54,542
Accounts receivable, net 221,873 134,517
Deferred and installment receivables, net 67,843 64,375
Net investment in sales-type leases 110,942 109,607
Inventories, net 240,807 163,906
Revenue equipment, less accumulated
depreciation of $46,439 in 1995
and $36,183 in 1994 49,920 58,326
Other property, plant and equipment, net 150,957 107,152
Deferred income taxes, patents and
other assets, less accumulated
amortization of $17,685 in 1995
and $13,114 in 1994 161,614 120,061
Costs in excess of net assets acquired,
less accumulated amortization of
$29,863 in 1995 and $17,930 in 1994 496,641 343,017
---------- ----------
$1,570,904 $1,155,503
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 63,314 $ 40,884
Accrued liabilities 209,091 143,067
Accrued and deferred income taxes payable 19,059 24,687
Debt 326,710 219,173
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
10,000 shares authorized, none
issued
Common stock, $.01 par value,
125,000 shares authorized,
73,023 and 67,612 shares
outstanding in 1995 and 1994,
respectively 713,866 546,577
Retained earnings 295,680 237,553
Treasury stock at cost and other,
1,095 shares in 1995 and 1,162
shares in 1994 (13,222) (10,835)
Currency translation adjustments (43,594) (45,603)
---------- ----------
Total stockholders' equity 952,730 727,692
---------- ----------
$1,570,904 $1,155,503
========== ==========
</TABLE>
The notes to consolidated financial statements on pages F-9 to F-35 are an
integral part of these statements.
F-2
<PAGE> 50
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In thousands, except per share amount)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales $762,375 $557,393 $398,122
Rentals 50,601 46,566 46,021
Other 76,107 52,007 43,176
-------- -------- --------
Total revenues 889,083 655,966 487,319
Operating costs and expenses:
Costs of sales 353,990 256,003 188,138
Depreciation on revenue
equipment 16,327 14,974 15,394
Selling, customer service
and administrative 383,583 251,933 192,077
Research, development and
engineering 22,666 18,023 13,739
Amortization of intangible
assets 14,598 10,246 6,963
-------- -------- --------
Total operating costs
and expenses 791,164 551,179 416,311
-------- -------- --------
Operating income 97,919 104,787 71,008
Other income (expenses):
Interest income 17,221 14,262 17,114
Interest expense (28,989) (22,711) (18,656)
Other, net 2,900 (373) 2,518
-------- -------- --------
Total other income (expenses) (8,868) (8,822) 976
-------- -------- --------
Income from continuing operations
before income taxes 89,051 95,965 71,984
Provision for income taxes 19,500 23,900 17,900
-------- -------- --------
Income from continuing operations 69,551 72,065 54,084
-------- -------- --------
Discontinued operations - adjustment
of prior year amounts (Note 5.) 4,100 - -
-------- -------- --------
Net income $ 73,651 $ 72,065 $ 54,084
======== ======== ========
Primary earnings per common share:
Continuing operations $ .97 $ 1.16 $ .97
Discontinued operations .05 - -
-------- -------- --------
Net income $ 1.02 $ 1.16 $ .97
======== ======== ========
Fully diluted earnings per common share:
Continuing operations $ .97 $ 1.13 $ .93
Discontinued operations .05 - -
-------- -------- --------
Net income $ 1.02 $ 1.13 $ .93
======== ======== ========
</TABLE>
The notes to consolidated financial statements on pages F-9 to F-35 are an
integral part of these statements.
F-3
<PAGE> 51
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities: $69,551 $72,065 $54,084
Income from continuing operations
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating
activities:
Depreciation 26,705 22,603 21,446
Amortization 14,615 11,681 7,917
Other non-cash charges to operations, net 19,993 11,502 9,508
Net changes in operating assets and
liabilities, net of effects of acquisitions:
Inventories (63,589) (56,333) (6,299)
Net investment in sales-type leases 17,194 (42,269) (9,824)
Accounts receivable and receivables from financing
institutions (77,294) (23,858) (52,742)
Deferred and installment receivables (3,099) (9,268) 12,277
Other assets (9,497) (31,345) 1,541
Accrued liabilities 3,197 13,506 14,320
Accounts payable 15,108 10,801 (2,778)
Income taxes (3,830) 7,473 12,631
------- ------- --------
Net cash provided by (used in) operating
activities 9,054 (13,442) 62,081
------- ------- --------
Cash flows from investing activities:
Capital expenditures (62,972) (51,835) (26,735)
Purchases of marketable securities (843) (18,178) (8,921)
Maturities of marketable securities 7,717 13,294 24,262
Increase in revenue equipment and
inventory available for lease (3,959) (17,033) (35,177)
Acquisitions (net of cash acquired of $6,687 in 1995,
$1,135 in 1994 and $8,223 in 1993) (9,587) (11,467) (299,342)
Other, net 5,696 5,676 2,837
------- ------- --------
Net cash used in investing activities (63,948) (79,543) (343,076)
------- ------- --------
(Continued on the following page.)
</TABLE>
F-4
<PAGE> 52
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Bank borrowings and other debt 105,370 30,500 128,271
Proceeds from issuances of common stock
under employee benefit plans and for
acquisitions 12,902 17,167 212,154
Cash dividends (15,524) (12,530) (10,588)
Repayments of bank borrowings and other
debt (25,198) (10,329) (109,934)
Issuance of Senior Notes, net - - 134,111
-------- ------- --------
Net cash provided by
financing activities 77,550 24,808 354,014
-------- ------- --------
Net increase (decrease) in cash 22,656 (68,177) 73,019
Cash at beginning of year 20,924 89,101 16,082
-------- ------- --------
Cash at end of period 43,580 20,924 89,101
Marketable securities at end of year 26,727 33,618 28,798
-------- ------- --------
Cash and marketable securities at end of year $ 70,307 $54,542 $117,899
======== ======= ========
</TABLE>
The notes to consolidated financial statements on pages F-9 to F-35
are an integral part of these statements.
F-5
<PAGE> 53
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In thousands, except dollar per share amounts)
<TABLE>
<CAPTION>
Currency
Common Retained Treasury Stock Translation
Stock Earnings and Other Adjustments Total
-------- -------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $146,430 $132,574 $(30,242) $9,500 $258,262
Issued in connection with acquisitions
(14,231 shares) 236,619 - - - 236,619
Issued pursuant to employee benefit
plans (1,567 shares) 6,314 - (249) - 6,065
Collections of notes receivable from
stock sales - - 6,952 6,952
Common stock cash dividends
($.15 per share) - (8,640) - - (8,640)
Net income - 54,084 - - 54,084
Other (581 shares) 3,528 - 3,882 (70,995) (63,585)
-------- -------- -------- ------- --------
Balance at June 30, 1993 392,891 178,018 (19,657) (61,495) 489,757
Conversion of Debentures (7,280 shares) 111,869 - - - 111,869
Issued in connection with acquisitions
(1,065 shares) 31,055 - - - 31,055
Issued pursuant to employee benefit
plans (1,038 shares) 8,755 - 5,761 - 14,516
Common stock cash dividends
($.21 per share) - (12,530) - - (12,530)
Net income - 72,065 - - 72,065
Other (150 shares) 2,007 - 3,061 15,892 20,960
-------- -------- -------- ------- --------
Balance at June 30, 1994 546,577 237,553 (10,835) (45,603) 727,692
</TABLE>
(Continued on the following page.)
F-6
<PAGE> 54
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In thousands, except dollar per share amounts)
<TABLE>
<CAPTION>
Currency
Common Retained Treasury Stock Translation
Stock Earnings and Other Adjustments Total
------- -------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 546,577 237,553 (10,835) (45,603) 727,692
Issued in connection with acquisitions
(4,630 shares) 149,284 - - - 149,284
Issued pursuant to employee benefit
plans (631 shares) 13,897 - (3,286) - 10,611
Common stock cash dividends
($.22 per share) - (15,524) - - (15,524)
Net income - 73,651 - - 73,651
Other (150 shares) 4,108 - 899 2,009 7,016
-------- -------- -------- -------- --------
Balance at June 30, 1995 $713,866 $295,680 $(13,222) $(43,594) $952,730
======== ======== ======== ======== ========
</TABLE>
The notes to consolidated financial statements on pages F-9 to F-35
are an integral part of these statements.
F-7
<PAGE> 55
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
a. Basis of presentation
The Consolidated Financial Statements include the accounts of Sensormatic
Electronics Corporation and all of its subsidiaries (the Company). All
significant intercompany balances and transactions have been eliminated.
The accompanying Consolidated Balance Sheets are presented in a format
which does not segregate current assets and current liabilities. As a
result of the constantly changing mix of inventories and revenue equipment
sold and leased, including sales of equipment originally installed under
lease contracts, it is not possible to accurately determine the amount of
revenue equipment that will be sold and thus realized currently. The
Company believes presentation of its financial position in the
non-classified format avoids misunderstandings as to the relationships of
current and non-current assets and liabilities. However, information with
respect to the current and non-current nature of certain assets and
liabilities is included in Notes below.
b. Cash and marketable securities
The Company classifies cash equivalents (highly liquid investments with a
maturity of three months or less when acquired) as cash.
Effective July 1, 1994, the Company adopted FASB Statement No. 115
"Accounting for Certain Investments in Debt and Equity Securities". In
accordance with FASB 115, the Company has classified certain of its
non-equity investments as available-for-sale securities which are carried
at market value (versus cost or amortized cost prior to the adoption of FASB
115). Unrealized gains and losses are recorded, net of tax, in
Stockholders' equity ($0.3 million loss at June 30, 1995).
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
d. Revenue equipment and other property, plant and equipment
Revenue equipment (principally equipment on lease) and other property,
plant and equipment (including assets acquired under capital leases) are
recorded at cost and depreciated using the straight-line method over their
estimated useful lives (4 years and 6 years for revenue equipment, 10 years
F-8
<PAGE> 56
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (Cont'd)
through 40 years for buildings and improvements and 3 years through 10
years for other property, plant and equipment).
e. Revenue recognition
Revenue from sales of equipment is recognized when a customer takes
title to the product, in accordance with the terms agreed upon by the
parties (i.e. "FOB Shipping Point", "FOB Destination", acceptance of a
customer order to purchase presently installed equipment or acceptance
by a third party leasing company of an operating lease and the related
equipment). Payment terms are either cash and/or acceptance of
deferred term (i.e., extended payment terms normally not greater than
365 days) or installment obligations (generally with terms of 60
months) subject to stated or imputed interest, and are generally
secured. Revenue from sales-type leases (primarily with terms of
sixty months or greater) is recognized as a "sale" upon receipt of a
customer order and shipment in an amount equal to the present value of
the minimum rental payments under the fixed non-cancelable lease
term. Interest income on deferred and installment obligations and net
investment in sales-type leases is recognized over the term of the
contract using the effective interest method.
The Company also leases equipment under long-term operating leases
(primarily leases with terms of 36 to 54 months) which are generally
non-cancelable. Rental revenues are recognized as earned over the
term of the lease. Minimum future rentals on non-cancelable operating
leases at June 30, 1995 aggregated (in millions) $107.2 and are due as
follows: 1996 - $32.4; 1997 - $25.8; 1998 - $22.0; 1999 - $15.5 and
2000 - $11.5.
Service revenues are recognized as earned and maintenance revenues are
recognized ratably over the service contract term.
f. Research, development and engineering
In fiscal 1995, 1994 and 1993 "Research, development and engineering"
included research and development expenses of $18.2 million, $14.7
million and $11.9 million, respectively.
g. Accounting for currency translation and transactions
The Company's international subsidiaries' assets and liabilities are
translated into U.S. dollars at the rate of exchange in effect at
their balance sheet dates and their revenues, costs and expenses are
translated into U.S. dollars at the average rate of exchange in effect
during their respective fiscal years. Translation adjustments
F-9
<PAGE> 57
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (Cont'd)
resulting therefrom and transaction gains or losses attributable to
certain intercompany transactions are excluded from results of
operations and accumulated in a separate component of consolidated
stockholders' equity. Gains and losses attributable to other
intercompany transactions are included in results of operations.
The Company has a policy of not hedging its investment in the net
assets of its international subsidiaries (aggregating $370 million and
$250 million at June 30, 1995 and 1994, respectively, primarily
located in 15 countries in Europe) against exchange rate fluctuations
due to the high economic costs of such a program and the long-term
nature of its investments. The gains and losses resulting from these
exchange rate fluctuations ($2.0 million and $15.9 million net gain in
fiscal 1995 and fiscal 1994, respectively) are excluded from results
of operations and accumulated in a separate component of consolidated
stockholders' equity.
The Company has a policy of purchasing forward exchange
contracts (forward contracts) and options designated to hedge certain
identifiable, foreign currency anticipatory, intercompany commitments.
Forward contracts and options are stated at cost, if any. Market
value gains or losses resulting from such forward contracts and
options, and from the related hedged commitments, occurring in periods
prior to the period in which they are settled, are deferred, to be
recognized in the period when they are settled. Cash flows resulting
from the settlement of the forward contracts and options are included
in cash provided by operating activities.
Net currency exchange gains (losses) in fiscal 1995, 1994 and 1993
resulting from the settlement of intercompany transfers of products
manufactured in Florida and Puerto Rico and sold to certain
international subsidiaries were (in millions) $3.0, $0.7 and $(0.1),
respectively. Additionally, non-recurring net currency exchange gains
of $2.2 million and $1.3 million were recognized in fiscal 1995 and
1993, respectively, after the Knogo and ALPS acquisitions. Net
currency exchange gains are included in "Other income (expenses)" in
the Consolidated Statements of Income.
h. Intangible assets.
Patents, stated at cost, are amortized using the straight-line method
over 17 years. Costs in excess of net assets acquired are amortized
using the straight-line method over 20 to 40 years. The carrying
value of costs in excess of net assets acquired (or goodwill) will be
reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates the goodwill will not be fully
recoverable over the remaining amortization period, as determined
based on the estimated undiscounted cash flows of the assets
F-10
<PAGE> 58
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (Cont'd)
acquired, the carrying value of the goodwill will be adjusted
accordingly. (See Notes 1k. and 11.)
i. Interest rate instruments
The differential to be paid or received on interest rate swap
agreements and interest rate cap agreements (interest rate
instruments) is accrued as interest rates change and is recognized as
an adjustment to interest expense. Premiums paid or received for the
early termination of interest rate instruments will be amortized into
interest expense over the remaining original term of the instruments
should the Company elect to terminate any of the interest rate
instruments prior to their expiration date. Interest rate instruments
are stated at cost, if any.
j. Primary and fully diluted earnings per common share
Primary earnings per common share is calculated based on the weighted
average number of common shares and dilutive common stock equivalents
outstanding during the period. Common stock equivalents include stock
options issued under employee benefit plans and common stock warrants.
Fully diluted earnings per common share in 1993 and 1994 included the
if-converted dilutive effect of the 7% Convertible Subordinated
Debentures due in 2001 which were fully converted in May 1994.
k. Prospective accounting changes
In March 1995, FASB Statement No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be disposed Of" was
issued. FASB 121 requires impairment losses to be recorded on
long-lived assets (e.g., revenue equipment, property, plant and
equipment, patents and costs in excess of net assets acquired related
to such assets) used in operations when impairment indicators are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. FASB 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of.
The Company will adopt the provisions of FASB 121 in the first quarter
of fiscal 1996 and, based on current circumstances, does not believe
the effect of adoption will be material.
In July 1995, the Emerging Issues Task Force (EITF) reached a
consensus which narrows the scope of intercompany foreign currency
commitments which are eligible to be hedged for financial reporting
purposes. This applies to transactions arising after July 21, 1995.
F-11
<PAGE> 59
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (Cont'd)
The Company has not completed the complex analyses and comprehensive
study of this matter to either estimate its current or future effect on
the Company's operating results or hedging strategy. However, the Company
believes it can modify its current hedging practices in order to comply
with the new consensus without having a materially adverse effect on its
financial condition.
1. Reclassifications
Certain amounts in the prior years' Consolidated Financial Statements
have been reclassified to conform to the current fiscal year's
presentation.
2. Receivables and net investment in sale-type leases
Accounts receivable are stated net of an allowance for doubtful accounts
of $13.5 million and $10.4 million at June 30, 1995 and 1994,
respectively.
Net deferred receivables ($24.5 million and $30.5 million outstanding at
June 30, 1995 and 1994, respectively) and installment receivables are
stated net of the following (at June 30, in millions):
1995 1994
------ ------
Allowance for doubtful accounts $ 5.5 $ 6.4
Unearned interest and maintenance $24.4 $19.5
The Company leases equipment under sales-type lease agreements expiring
in various years through 2002. The net investment in sales-type leases
(sales-type leases) consisted of the following (at June 30, in millions):
1995 1994
------ ------
Minimum lease payments receivable $168.8 $151.6
Allowance for uncollectible minimum
lease payments (7.5) (3.4)
Unearned interest and maintenance (50.4) (38.6)
------ ------
$110.9 $109.6
====== ======
Net receivables and sales-type leases at June 30, 1995 are due as follows
(in millions): 1996 - $252.0 and 21.2; 1997 - $12.7 and $22.8; 1998 -
$11.8 and $21.8; 1999 - $8.9 and $21.3; 2000 - $4.4 and $18.2,
respectively, and with respect to sales-type leases (in millions): $5.6
thereafter.
The Company has agreements with third party financing institutions whereby
certain installment receivables in the United States (U.S.) and sales-type
leases in Europe
F-12
<PAGE> 60
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Receivables and net investment in sale-type leases (Cont'd)
together with certain related rights are sold to the financing
institutions. Under such agreements, should certain events occur
(principally related to customer non-payment or other customer-related
defaults), the Company is obligated to repurchase the specific
receivables and sales-type leases.
Under the principal agreement in the U.S., the Company sells fixed
interest rate receivables to the financing institution. Under such
agreement, the financing institution earns interest throughout the
term of the receivables at a floating rate of interest indexed to one
month LIBOR. Any resulting differential in interest caused by the
varying interest rates (variance amounts) is either paid or received
by the Company. In order to manage the risk associated with the
variance amounts, the Company enters into interest rate instruments
for notional amounts (on a portfolio basis) equal to the outstanding
principal amounts of receivables sold. This results in offsetting
interest rate differential payments or receipts thereby limiting the
variance amounts paid or received by the Company.
Additionally, the Company has an agreement with a third party
financing institution whereby the Company may assign certain
pre-approved U.S. accounts receivable. At June 30, 1995 and 1994,
receivables assigned and outstanding under such agreement were $79.7
million and $57.9 million, respectively, (substantially all of which
were not subject to recourse resulting from the customer's inability
to pay) of which the financing institution had advanced in
anticipation of their collection $74.6 million and $50 million,
respectively, to the Company (bearing interest at fluctuating rates,
6.5% and 4.9% at June 30, 1995 and 1994, respectively).
The Company received proceeds of $458.1 million and $270.5 million
upon the sale and assignment of receivables and leases under these
agreements in fiscal 1995 and 1994, respectively (net of repurchases
due to customer non-payment of approximately $12.6 million and $12.8
million, respectively). The uncollected principal balance of
receivables and leases sold which is subject to varying amounts of
recourse totaled $333.0 million and 199.8 million at June 30, 1995 and
1994, respectively. Adequate reserves have been provided for
receivables and leases sold and are included in accrued liabilities.
At June 30, 1995 balances due from financing institutions under these
agreements aggregated $8.2 million, are due within one year and are
included in "Deferred income taxes, patents and other assets".
At June 30, 1995 and 1994, there were receivables (including those
subject to recourse) due from the following sectors of
F-13
<PAGE> 61
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Receivables and net investment in sale-type leases (Cont'd)
the U.S. retail market which represented a concentration of
credit risk to the Company: department and discount stores 1995 -
$48.9 million and 1994 - $40.5 million; supermarkets 1995 - $31.9
million and 1994 - $26.2 million; and specialty stores 1995 - $26.2
million and 1994 - $30.7 million. Assuming the obligors under these
receivables were to fail to completely perform according to the
terms of the receivables at June 30, 1995, the Company estimates it
would have incurred a loss with respect to each retail market of
approximately $36.1 million, $21.1 million and $21.2 million,
respectively, representing the amount of the receivables less any
related allowance for doubtful accounts and the estimated realizable
value of the collateralized equipment securing these receivables.
The Company minimizes its exposure to credit risk through its credit
review procedures, collection practices, and its policy of retaining
a security interest in the underlying equipment and ability to
re-market such repossessed equipment.
The activity in the allowance for doubtful accounts related to
receivables and sales-type leases during fiscal 1995, 1994 and
1993 is as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $20.1 $13.5 $10.6
Additions charged to income 19.6 11.0 8.8
Amounts written off, net (15.5) (6.1) (5.6)
Other (including currency translation) 2.2 1.7 (0.3)
----- ----- -----
Balance at end of year $26.4 $20.1 $13.5
===== ===== =====
</TABLE>
3. Inventories
Inventories are summarized as follows (at June 30, in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Available for sale or lease $183.0 $118.4
Parts 44.7 35.3
Work-in-process 23.4 20.8
------ ------
251.1 174.5
Less allowance for inventory losses (10.3) (10.6)
------ ------
$240.8 $163.9
====== ======
</TABLE>
The activity in the allowance for inventory losses during fiscal
1995, 1994 and 1993 is as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $10.6 $ 8.6 $7.1
Additions charged to income 5.5 4.7 3.5
Amounts written off, net (6.0) (2.8) (1.8)
Other (including currency translation) 0.2 0.1 (0.2)
----- ----- ----
$10.3 $10.6 $8.6
===== ===== ====
</TABLE>
F-14
<PAGE> 62
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Other property, plant and equipment
Other property, plant and equipment is summarized as follows (at
June 30, in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Machinery and equipment $131.5 $ 89.3
Buildings and improvements 49.1 41.0
Leasehold improvements and furniture and
fixtures 33.4 19.8
Land 11.8 11.8
------ ------
225.8 161.9
Less accumulated depreciation and
amortization (74.9) (54.7)
------ ------
$150.9 $107.2
====== ======
</TABLE>
5. Income taxes
Effective July 1, 1993, the Company adopted FASB Statement No. 109
"Accounting for Income Taxes" (FASB 109). As permitted by FASB 109,
the Company elected not to restate the financial statements of any
prior periods. The cumulative effect of the change was not material
and therefore no adjustment was separately reported in the
Consolidated Statement of Income for the year ended June 30, 1994.
The United States (including Puerto Rico) and international
components of income from continuing operations before income taxes
are as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States $62.8 $65.7 $49.8
International 26.2 30.3 22.2
----- ----- -----
$89.0 $96.0 $72.0
===== ===== =====
</TABLE>
The components of the provision for income taxes on income from
continuing operations before income taxes are as follows (in
millions):
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1995:
U.S. Federal $2.0 $ 4.6 $ 6.6
International 3.2 10.0 13.2
Other - (0.3) (0.3)
---- ----- -----
$5.2 $14.3 $19.5
==== ===== =====
</TABLE>
F-15
<PAGE> 63
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income taxes (Cont'd)
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1994:
U.S. Federal $ 5.6 $ 2.1 $ 7.7
International 12.3 3.1 15.4
Other 1.4 (0.6) 0.8
----- ----- -----
$19.3 $ 4.6 $23.9
===== ===== =====
1993:
U.S. Federal $ 8.4 $(4.1) $ 4.3
International 11.0 (0.2) 10.8
Other 3.3 (0.5) 2.8
----- ----- -----
$22.7 $(4.8) $17.9
===== ===== =====
</TABLE>
The deferred provision is presented net of a tax benefit of $20
million for 1995, and $4.1 million for 1994, relating to net
operating losses.
A reconciliation between the statutory U.S. Federal income tax rate
and the consolidated effective tax rate on income from continuing
operations before income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 34.5%
Benefits due to
tax exempt
earnings and
investment income
of the Puerto Rico
operations (10.2) (9.5) (12.0)
Amortization of costs in
excess of net assets
acquired 4.6 2.7 2.7
Adjustment of prior years'
accruals (4.9) (3.4) -
Other (2.6) 0.1 (0.3)
----- ---- ----
21.9% 24.9% 24.9%
===== ==== ====
</TABLE>
Discontinued Operations-In fiscal 1995, the Company also reduced
income tax liabilities by an additional $4.1 million. This
amount, which is related to a previously discontinued business and is
no longer required, is a non-cash adjustment of prior year amounts.
Undistributed earnings of international subsidiaries are
indefinitely reinvested in the respective subsidiaries' operations
except for earnings of the Company's subsidiary in Germany which are
periodically distributed in order to avail itself of the lower German
integrated tax rate. No provision has been made for income taxes that
might be payable upon the remittance of the indefinitely reinvested
earnings. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to reductions for foreign tax credits) and
withholding taxes payable to the various foreign countries. The
Company has not attempted to determine the amount of unrecognized
deferred tax liability associated with these
F-16
<PAGE> 64
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income taxes (Cont'd)
permanently reinvested earnings due to the complexity of such a
hypothetical calculation.
The Company's manufacturing subsidiary located in Puerto Rico
has been granted an exemption from the Commonwealth of Puerto Rico
income taxes which remains in effect until August 2008 (extended in
fiscal year 1995 three additional years as part of the relocation of
the manufacturing subsidiary to Aquadilla, Puerto Rico). The grant
exempts 90% of the subsidiary's operating and qualified investment
income earned through that date. Additionally, such earnings are
presently not subject to U.S. Federal income taxes unless those
earnings exceed the limitations implemented with recent U.S. tax law
changes applicable beginning in fiscal 1995. The Company's tax
benefit for 1995 did not exceed such limitations. Beginning in
fiscal 1994, certain Commonwealth of Puerto Rico taxes (tollgate
taxes) must be provided upon remittance of post-1993 earnings (at
rates ranging from 0% to 10% depending on the fiscal year earned).
Puerto Rico tollgate taxes have been provided at 0% and 5% on fiscal
year 1994 and 1995 earnings, respectively. At June 30, 1995,
approximately $146 million of undistributed earnings were deemed
indefinitely reinvested in the Puerto Rico subsidiary, upon which no
tollgate taxes have been provided.
The tax effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities, at June 30, 1995 and
1994 are as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
-------------------- -----------------------
Assets Liab. Assets Liab.
------ ----- ------ -----
<S> <C> <C> <C> <C>
Property, plant and equipment $ 32.2 $ 20.7 $19.0 $13.3
Reserves and allowances 31.6 0.3 14.3 0.6
Knogo acquisition reserves and
allowances 15.8 -
Sales-type leases 10.6 96.3 2.6 28.3
Undistributed earnings of
German subsidiary 6.0 7.2 6.4 7.7
Prepaid royalties 0.8 - 5.8 -
Deemed sales revenues from Puerto Rico
operations 13.5 - 9.7 -
Tax credit carryforwards 10.8 - 4.4 -
Other 11.1 18.9 9.5 8.5
NOL carryforwards 74.0 - 20.2 -
Valuation allowance (23.1) - (2.6) -
------ ------ ----- -----
Deferred income taxes $183.3 $143.4 $89.3 $58.4
====== ====== ===== =====
</TABLE>
The principal sources of deferred income tax benefits in 1993 not
restated to reflect the adoption of FASB 109) are as follows
(in millions):
<TABLE>
<CAPTION>
1993
----
<S> <C>
Intercompany inventory
profit elimination $(1.1)
Depreciation 1.8
Accelerated income recognition
</TABLE>
F-17
<PAGE> 65
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income taxes (Cont'd)
<TABLE>
<CAPTION>
1993
----
<S> <C>
of revenue equipment (3.2)
Income recognition from
sales-type leases (2.0)
NOL carryforwards -
Other (3.3)
-----
Total deferred tax
benefit $(4.8)
=====
</TABLE>
The fiscal 1995 increase in the valuation allowance relates
primarily to certain deferred tax assets recorded in connection with
the acquisition of Knogo. The valuation allowance at July 1, 1993,
was $2.1 million.
At June 30, 1995, tax carryforwards available and related expiration
dates are as follows (in millions):
<TABLE>
<S> <C>
Net operating losses:
United States (fiscal 2001 through 2010) $ 41.0
International (generally no expiration dates) $174.0
Foreign tax credits (fiscal 1996 through 2000) $ 1.9
</TABLE>
The Company made income tax payments of approximately $5.9 million,
$9.0 million and $11.2 million in fiscal 1995, 1994 and 1993,
respectively.
The Company's Federal income tax returns for fiscal 1989 through
1992 are currently being examined by the U.S. Internal Revenue
Service. The examination has not been completed; however, adjustments
proposed by the IRS to date are not material to the Consolidated
Financial Statements.
6. Debt
Debt is summarized as follows (at June 30, in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
8.21% Senior Notes $135.0 $135.0
Unsecured revolving credit notes
payable, at 4.9% to 12.4% 181.9 64.0
Capital lease obligations and other,
at 4.4% to 12.0%, net of unamortized
interest of $5.4 and $5.3 at
1995 and 1994, respectively 9.8 20.2
------ ------
$326.7 $219.2
====== ======
</TABLE>
In January 1993, the Company issued $135 million aggregate principal
amount of 8.21% Senior Notes due January 2003 (the Senior Notes) and
repaid $100 million in short-term bank borrowings primarily incurred
in connection with the acquisition
F-18
<PAGE> 66
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Debt (Cont'd)
of ALPS in July 1992. (See Note 11.) Interest on the Senior Notes is
payable semiannually. Under the terms of the related Note Agreement, the
Company is required, among other things, to maintain a certain minimum
net worth, as defined, is allowed to incur debt up to a level whereby
certain debt-to-total capitalization ratios would not be exceeded, and
is subject to certain limitations with respect to repurchases of its
Common Stock and payment of dividends. The Company was in full
compliance with all of these terms at June 30, 1995 and 1994. In the
event of a change in control, as defined, principal payment on the
Senior Notes may be accelerated.
Subsequently, the Company entered into fixed to floating interest rate
swap agreements in order to reduce the Company's interest expense by
taking advantage of lower prevailing short-term interest rates. The
effective interest rate on the Senior Notes for the years ended June 30,
1995, 1994 and 1993 was 9.2%, 6.8%, and 6.8%, respectively.
At June 30, 1995 and 1994, outstanding borrowings under all the Company's
credit lines bore interest at weighted average rates of 6.4% and 6.5%,
respectively. The Company has a multi-currency committed line of credit
agreement expiring in December 1995 with a group of financial
institutions which provides for aggregate unsecured borrowings by the
Company and its European subsidiaries of up to $100 million (fully
utilized at June 30, 1995). Borrowings under this agreement bear
interest at fluctuating rates at LIBOR plus 0.3% and are subject to an
annual facility fee of 0.15% of the total credit line.
Additionally, the Company has uncommited line of credit agreements with
several financial institutions which provide for aggregate unsecured
borrowings up to approximately $173 million ($81.9 million utilized at
June 30, 1995). Borrowings under these agreements bear interest at
fluctuating rates generally at LIBOR plus 0.3% to 0.5% and are due on
demand.
The Company paid interest of $26.5 million, $22.5 million and $13.6
million, during fiscal 1995, 1994 and 1993, respectively.
7. Stock option plans
Under the Company's existing stock option plan (the 1995 Plan) stock
options may be granted to officers, key employees, and directors who are
also officers or employees or otherwise participate in the 1995 Plan.
The 1995 Plan provides for granting of other awards, such as stock
appreciation rights, stock awards and cash awards, although the Company
intends to continue to principally grant stock options under this plan.
The Company also has a Directors Stock Option Plan under which
non-qualified stock options may be granted to directors not covered by
the 1995 Plan.
The exercise price of a stock option granted under all stock option plans
is not less than the fair market value of the
F-19
<PAGE> 67
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Stock option plans (Cont'd)
Common Stock on the date of grant. Stock options under all such plans
generally become exercisable, cumulatively, in equal annual installments
over three years, and expire five or ten years from the date of grant.
However, certain recently granted options to corporate officers become
exercisable in full the earlier of five years from the date of grant or
at any time after one year from the date of grant when the price of the
Company's Common Stock equals or exceeds 135% of the exercise price.
Additionally, the Company has granted to certain corporate officers
performance-based options under the 1995 Plan. These options become
exercisable from four to nine years after grant depending upon the
Company's attainment of certain performance objectives.
All such options are non-compensatory; therefore, any U.S. Federal income
tax benefits received upon their exericse are recorded as an increase to
"Stockholders' equity - Common stock."
Information for all such plans is summarized for fiscal 1995, 1994 and
1993 as follows (in millions, except for price per option amounts):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at
beginning of year 4.2 3.7 3.1
Granted 0.9 1.3 2.0
Exercised (0.5) (0.8) (1.4)
---- ---- ----
Options outstanding at
end of year 4.6 4.2 3.7
Average price of options ==== ==== ====
exercised $ 15.45 $ 13.50 $ 7.42
Prices of options out- $5.87 to $4.83 to $4.83 to
standing at end of year $ 36.38 $ 36.38 $ 27.17
Average price of options
outstanding at end of year $ 23.52 $ 21.52 $ 15.73
Exercisable options at end of 2.0 1.3 0.9
year
Options available for
future grants at end
of year 3.0 0.2 1.5
</TABLE>
At June 30, 1995 and 1994, 8.8 million and 5.7 million shares of Common
Stock, respectively, were reserved for issuance of which 7.7 million and
4.4 million, respectively, were reserved for the exercise of stock
options.
8. Defined contribution plans
F-20
<PAGE> 68
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has: (a) retirement plans for U.S. employees, Puerto Rico
employees and for certain European employees which allow or require
employee contributions (b) a Senior Executive Defined Contribution
Retirement Plan for certain officers and (c) a Key Executive
Supplemental Retirement Plan covering certain officers and key
employees. Annual contributions by the Company to all such retirement
plans are discretionary.
The Company charged to operations (in millions) $2.3, $2.6 and $1.7
in fiscal 1995, 1994, 1993, respectively, related to all the plans
described under this section.
9. Commitments, contingencies and other matters
a. Commitments
The Company leases certain operating plant and equipment. The
future lease commitments for plant and equipment and other assets at
June 30, 1995 aggregated $48.2 million and are due as follows (in
millions): 1996 - $12.0; 1997 - $11.7; 1998 - $5.8; 1999 - $3.6; 2000
- $2.3 and 12.8 thereafter. Rent expense was charged to operations as
follows (in millions): 1995 - $10.4; 1994 - $10.2 and 1993 - $4.7.
b. Contingent royalty payments
In connection with certain acquisitions, the Company pays royalties
(ranging from 3% to 10%) on revenues generated by the acquired
businesses for periods expiring in 1996 through 2004. Such
contingent payments, when incurred, will be recorded as additional
cost of the related acquisitions and amortized over the remaining
amortization period. Royalty payments in fiscal 1995, 1994 and 1993
were $13.3 million, $7.6 million and $5.6 million, respectively.
c. Litigation
In July, August and September 1995, thirteen actions were filed by
alleged shareholders of the Company following announcements by the
Company that its earnings for the quarter and year ended June 30,
1995, would be substantially below expectations and, in the more
recent actions and a complaint amendment, that the scope of the
Company's year-end audit had been expanded. The various complaints
allege, among other things, that the Company and certain of its
directors and officers who are named as defendants issued false and
misleading statements about the Company's business prospects, failed
to follow appropriate accounting practices, and failed to disclose
adverse information. One of the complaints also alleges, among other
things, that the Company failed to disclose hazards affecting
F-21
<PAGE> 69
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments, contingencies and other matters (Cont'd)
individuals wearing pacemakers allegedly caused by certain of its
products.
The claimants are seeking class certification, rescissory damages
and/or unspecified compensatory damages, as well as interest, costs
and various fees and expenses, on behalf of themselves and other
putative class members who purchased the Company's common stock or
related securities during the respective class periods alleged by
their complaints. In one of the actions, allegedly brought on behalf
of Company shareholders who obtained their shares in the Company's
merger with Knogo Corporation, the relief sought also includes
rescission of the vote on that merger.
Also in September 1995, three derivative actions were filed against
the Company and its directors for breach of fiduciary duties,
mismanagement and waste of corporate assets. Those claimants are
seeking, among other relief, restitution and/or damages in favor of
the Company and imposition of a constructive trust.
The Company intends to vigorously defend against the actions. The
ultimate outcome of these actions cannot presently be determined.
Accordingly, no provision for any liability that may result has been
made in the consolidated financial statements.
d. Restatement of interim financial statements
In fiscal 1995, revenues related to certain shipments that were
recorded incorrectly in fiscal 1995 were identified and were reported
to the Audit Committee of the Board of Directors by the Company's
independent certified public accountants. The Audit Committee
authorized an expansion of the scope of the fiscal 1995 audit and
retained independent counsel to assist in the investigation of this
matter.
The results of the investigation concluded that certain accounting
irregularities resulted in incorrectly recording revenues and related
costs and expenses for certain product shipments in each quarter of
1995, 1994 and 1993. These shipments included both product shipments
actually made after the end of each quarter as well as shipments
subject to nonstandard contractual terms.
In addition, during fiscal 1995, certain expenses were incorrectly
capitalized during the third and fourth quarters of fiscal 1995 as an
element of the purchase price of Knogo Corporation.
After carefully evaluating the findings, the Company concluded the
financial statements for the third quarter of fiscal 1995
F-22
<PAGE> 70
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
required restatement. (See Note 13.) Further, the Company concluded
the effects of these matters on fiscal 1993, on fiscal 1994 and the
quarters therein and on the first and second quarters of fiscal 1995
were such that restatement of the financial statements of such
periods was not required.
10. Business segment, geographic area and international operations data
The Company operates in a single business segment and its principal
products are electronic article surveillance and closed circuit
television systems. The Company's operations by geographic area are
as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
North America $ 603.4 $ 457.0 $307.4
Europe 367.6 274.7 232.0
Inter area transfers (81.9) (75.7) (52.1)
-------- -------- ------
Total consolidated $ 889.1 $ 656.0 $487.3
======== ======== ======
Operating income:
North America $ 91.3 $ 85.0 $ 51.5
Europe 29.8 41.7 35.5
Inter area transfers 7.5 2.2 1.8
Corporate items (30.7) (24.1) (17.8)
-------- -------- ------
Total consolidated 97.9 104.8 71.0
Total other income
(expenses) (8.8) (8.8) 1.0
-------- -------- ------
Income from continuing
operations before
income taxes $ 89.1 $ 96.0 $ 72.0
======== ======== ======
Identifiable assets:
North America $ 676.0 $ 532.3 $329.6
Europe 786.5 543.8 457.0
Corporate items 108.4 79.4 140.3
-------- -------- ------
Total consolidated $1,570.9 $1,155.5 $926.9
======== ======== ======
</TABLE>
In fiscal 1995, 1994, 1993, export sales of $30.9 million; $26.8
million and $18.5 million, respectively, are reported in North America
revenues. Transfers from North America to Europe are accounted for at
prices sufficient to recover a reasonable profit margin. Corporate
items include general corporate expenses, research, development and
engineering expenses and amortization of patents. At June 30, 1995 and
1994, the international subsidiaries' liabilities aggregated $252.0
million and $166.0 million, respectively.
Identifiable assets are comprised of those assets of the Company that
are identified with the operations in each geographic area.
Corporate items are comprised principally of cash and marketable
securities and patents.
11. Acquisitions
On December 29, 1994, the Company acquired the operations outside of
the United States, Puerto Rico and Canada of Knogo Corporation
("Knogo") for approximately 3.1 million shares of the Company's
Common Stock (with a value of approximately $100 million).
F-23
<PAGE> 71
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based on the preliminary purchase price allocation, the significant
identifiable assets acquired and liabilities assumed and/or incurred
in connection with the Knogo acquisition were as follows:
<TABLE>
<S> <C>
Cash and marketable securities $ 5.8
Accounts receivable, net 18.7
Net investment in sales-type leases 17.8
Inventories, net 12.5
Deferred income taxes, patents and other assets,
net 26.0
Accrued liabilities 54.0
Debt 23.5
</TABLE>
In fiscal 1993, the Company acquired Automated Loss Prevention
Systems (ALPS), a large European distributor of EAS and CCTV products,
and Security Tag Systems, Inc. (Security Tag), a U.S.- based
manufacturer and marketer of loss prevention products, for an aggregate
amount of approximately $323 million consisting of approximately $280
million (funded with net proceeds of approximately $194.8 million from
the issuance of 12.6 million shares of its Common Stock and from
borrowings under a short-term credit facility) and 1.5 million shares
of the Company's Common Stock (with a value of approximately $43
million).
The acquisitions of Knogo, ALPS and Security Tag resulted in costs in
excess of net assets acquired of approximately $114 million, $223
million and $47 million, respectively, (based on a preliminary
allocation of the Knogo purchase price) which are being amortized using
the straight-line method over 40 years. These acquisitions were
accounted for under the purchase method and the respective subsidiaries
were consolidated in the Company's financial statements from their
respective dates of acquisition.
The Company's unaudited proforma consolidated condensed statements of
income for fiscal 1995, 1994 and 1993, assuming the acquisitions of
Knogo (fiscal 1995 and 1994), ALPS (fiscal 1993) and Security Tag
(fiscal 1993) were effected at the beginning of each year, are
summarized as follows (in millions, except per share data):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total revenues $922.3 $726.1 $510.2
Income from continuing
operations before
income taxes 89.6 108.7 72.3
Net income 73.7 79.3 53.9
Primary earnings per
common share $ 1.00 $ 1.22 $ .91
Fully diluted earnings
per common share $ .99 $ 1.16 $ .89
</TABLE>
This proforma information does not purport to be indicative of the
results which may have been obtained had the acquisitions been
consummated at the dates assumed (see the financial statements and
other information related to Knogo in the
F-24
<PAGE> 72
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's Current Report on Form 8-K filed January 11, 1995, as
amended on Form 8-K/A) filed January 27, 1995).
In connection with acquisitions during fiscal 1995, 1994 and 1993,
the market value of the assets acquired was as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash paid (net of cash acquired) $ 9.6 $11.5 $299.3
Liabilities assumed and/or incurred 101.1 13.2 76.6
Common stock 149.3 31.0 43.4
------ ----- ------
Market value of assets acquired $260.0 $55.7 $419.3
====== ===== ======
</TABLE>
12. Financial Instruments
a. Fair value of financial instruments
The carrying or notional amount and estimated fair values of financial
instruments consist of the following (at June 30, in millions):
<TABLE>
<CAPTION>
1995 1994
------------------ --------------------
Carrying Fair Carrying Fair
Balance Sheet Instruments Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Marketable securities $26.7 $26.7 $33.6 $34.0
Receivables other than leases and accounts
receivable 67.8 67.8 71.3 71.3
Debt, excluding capital
leases 321.7 320.5 214.9 215.0
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------- --------------------
Notional Fair Notional Fair
Off-Balance Sheet Instruments Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Interest rate instruments $181.9 $(1.1) $170.4 $(3.3)
Currency hedging instruments 187.5 (16.1) 147.5 (7.4)
</TABLE>
The fair values of marketable securities are based primarily on
quoted market prices for those instruments.
The fair values of receivables other than leases and accounts
receivable and debt, excluding capital leases and unsecured revolving
credit notes payable, were estimated by discounting future cash flows
using current market interest rates.
The fair values for unsecured revolving credit notes payable, which are
generally due on demand, approximate their carrying amounts.
The fair values of interest rate instruments and currency hedging
instruments were based on the estimated costs to terminate these
agreements in the OTC market as determined by the financial
institution counterparties at fiscal year end. The financial
institution counterparties determine the costs to terminate swap
agreements by discounting over the remaining term of these agreements
the differential cash flow between offsetting swap agreements at market
interest rates and existing
F-25
<PAGE> 73
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Financial Instruments (Cont'd)
swap agreements at their coupon rates. The negative fair values
(disclosed in the table above) represent the incremental cost
assuming the Company were to have terminated these financial
instruments at June 30, 1995. The increase in the fair value of the
interest rate instruments from June 30, 1994 resulted primarily from
the decrease in market interest rates over such period and the shorter
period to maturity of certain of the interest rate swap agreements.
The decrease in the fair value of the currency hedging instruments
from June 30, 1994 was primarily due to the weakening of the U.S.
dollar over such period. These financial instruments have been
designated to hedge the currency and interest rate risks associated
with specific transactions and are not held as investments. It is the
Company's intent to hold such instruments for their respective terms.
Therefore, changes in their fair values will have no net effect on the
Company's operations, cash flows or financial position. (See Note 1g.)
b. Currency hedging instruments
At June 30, 1995, the Company owned forward contracts and
options (designated to hedge substantially all of the Company's
intercompany commitments) which allowed it to sell currencies for the
indicated U.S. dollar amounts, in fiscal 1996 and 1997, as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
Currencies Options Forwards Options Forwards
---------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
French Francs $ - $27.3 $0.8 $ 45.1
Deutschemarks - 18.0 0.6 23.7
British Pounds - 17.1 - 22.7
Other - 10.1 - 22.1
--- ----- ---- ------
$ - $72.5 $1.4 $113.6
===== ===== ==== ======
</TABLE>
The credit risk of these forward contracts and options is
considered low due to the credit quality of the issuers.
c. Interest rate instruments
The Company has entered into interest rate swap and cap agreements
with financial institution counterparties. (see Notes 2.
and 6.). Swap agreements are contracts between two parties to exchange
interest rate payments based on a single principal amount (notional
amount) over a specified term. Cap agreements are interest rate
protection agreements in which the owner is compensated if a floating
index exceeds a predetermined interest rate. The swap and cap
agreements contain an element of risk that the counterparty may be
unable to perform, in which case, the effective interest rate on the
debt or underlying transactions would revert to the respective
contractual rates. However, the Company minimized such risk by limiting
the counterparties to major financial institutions with investment
grade credit ratings. At June 30, 1995, the Company was a party to the
following swap and cap agreements (in millions):
F-26
<PAGE> 74
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Financial Instruments (Cont'd)
FIXED TO FLOATING SWAP AGREEMENTS
<TABLE>
<CAPTION>
Notional Expiration Floating Rate Fixed Rate
Amount Date to be Paid to be Received
-------- ---------- ------------- --------------
<S> <C> <C> <C>
$50.0 February 1996 6 Month LIBOR 5.45%
50.0 February 1996 6 Month LIBOR 5.40%
35.0 June 1996 6 Month LIBOR 5.01%
</TABLE>
These swap agreements were entered into in order to convert the
$135 million Senior Notes from fixed interest rate debt to floating
interest rate debt. (See Note 6.)
The 5.45% swap agreement expiring February 1996 will be extended
to February 1998 should the two-year bid swap rate (5.9% at June 30,
1995) on February 16, 1996 equal or exceed 7%. The rate received by
the Company under this agreement will increase to 6.92% in February
1996 should the expiration be extended.
The weighted average interest rate paid and received under all
such Fixed to Floating Swap Agreements at June 30, 1995 was 6.0% and
5.3%, respectively, and would have been the same assuming market
conditions existing at June 30, 1995.
FLOATING TO FIXED SWAP AGREEMENTS
<TABLE>
<CAPTION>
Notional Expiration Fixed Rate Floating Rate
Amount Date to be Paid to be Received
-------- ---------- ------------- --------------
<S> <C> <C> <C>
$12.0 May 1999 7.75% 1 Month LIBOR
10.0 May 2000 6.16% 1 Month LIBOR
4.9 April 2000 6.58% 1 Month LIBOR
4.3 April 1999 4.60% 1 Month LIBOR
4.2 August 1998 4.80% 1 Month LIBOR
3.1 May 1998 4.94% 1 Month LIBOR
1.9 March 1999 4.65% 1 Month LIBOR
</TABLE>
These swap agreements were entered into in order to manage the
interest rate exposure associated with the U.S. receivables sales
program. (See Note 2.)
The weighted average interest rate paid and received under all
such Floating to Fixed Swap Agreements at June 30, 1995 was 6.2% and
6.1%, respectively, and would have been the same assuming market
conditions existing at June 30, 1995.
INTEREST RATE CAP AGREEMENT
In fiscal 1995, the Company entered into an interest rate cap
agreement expiring in September 1999 with a notional amount of $6.5
million as part of its program to manage the interest rate exposure
associated with the U.S. receivables sales program. (See Note
2.) Under the agreement the Company will be paid an amount equal to
the excess, if any, of 1 month LIBOR over 7.00% multiplied by the
notional amount. At June 30, 1995 there was no such excess.
F-27
<PAGE> 75
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Consolidated Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------
September December March June
30 31 31 30
--------- ----------- --------- -----------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Fiscal 1995 (restated)
- ----------- (d) (e)
Total revenues $190.9 $217.8 $218.5 $261.9
Operating income $ 28.4 $ 35.2 $ 22.9 $ 11.4
Income from continuing operations $ 20.1 $ 25.3 $ 15.7 $ 8.5
Discounted operations - adjustment of
prior year amounts $ - $ - $ - $ 4.1
Net income $ 20.1 $ 25.3 $ 15.7 $ 12.6
Primary and fully diluted earnings
per common share: (a)
Income from continuing operations $ .29 $ .36 $ .21 $ .11
Discontinued operations - adjustment of
prior year amounts $ - $ - $ - $ .05
Net income $ .29 $ .36 $ .21 $ .16
Fiscal 1994
- -----------
Total revenues $143.3 $159.9 $162.2 $190.7
Operating income $ 22.3 $ 28.5 $ 25.1 $ 28.9
Net income $ 14.8 $ 18.8 $ 16.4 $ 22.0
Primary earnings per common share (a) $ .25 $ .31 $ .27 $ .34
Fully diluted earnings per common share (a)(b) $ .24 $ .29 $ .26 $ .34
</TABLE>
(a) Adjusted to reflect the three-for-two stock split declared in November
1993.
(b) Fully diluted earnings per common share include the if-converted dilutive
effect of the 7% Convertible Subordinated Debentures due in 2001 which
were converted in May 1994. (See Note 7.)
(c) In fiscal 1995 the Company reduced income taxes payable by $4.1 million.
This amount related to a previously discontined business and is no longer
required. (See Note 5.)
F-28
<PAGE> 76
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) As more fully discussed in Note 9d., the Company restated its
consolidated financial statements for the three months ended March 31,
1995. The effect of such restatement was as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1995
--------------
Reported Restated
-------- --------
<S> <C> <C>
Revenues $238.6 $218.5
Operating income $ 34.3 $ 22.9
Net income $ 24.1 $ 15.7
Primary earnings
per common share $ 0.33 $ 0.21
Fully diluted earnings
per common share $ 0.33 $ 0.21
</TABLE>
(e) During the fourth quarter, the Company recorded adjustments relating
primarily to (i) current year product installation costs, (ii) expenses related
to the merger with Knogo, (iii) certain operating assets and (iv) deferral of
certain revenue, (reducing income from continuing operations by approximately
$7 million, in the aggregate); offest by a reduction of prior years' income tax
liabilities associated with both continuing and discontinued operations, which
were no longer required (totaling approximately $9 million; see note 5).
F-29
<PAGE> 77
SENSORMATIC ELECTRONICS CORPORATION
INDEX TO EXHIBITS
(Item 14 (a)(3))
Exhibit
Number Description
2(a) - Amended and Restated Agreement and Plan of Merger
dated as of August 14, 1994, between Sensormatic
Electronics Corporation, Knogo Corporation ("Knogo")
and Knogo North America Inc. ("Knogo North America")
(excluding schedules, but including: Exhibit A -
Form of Delaware Certificate of Merger, Exhibit B -
Form of New York Certificate of Merger, Exhibit C -
Form of Contribution and Divestiture Agreement
between Knogo and Knogo North America and certain
Exhibits thereto (incorporated by reference to
Exhibits 2(a), 2(b) and 2(c) to Registration
Statement No. 33-56619)).
(Copies of omitted schedules will be furnished
supplementally to the Securities and Exchange
Commission upon request.)
3(a) - Composite Restated Certificate of Incorporation of
the Company filed pursuant to Rule 232.102(c) of
Regulation S-T (incorporated by reference to Exhibit
4(d) to Registration Statement No. 33-61626).
3(b) - By-Laws of the Company (incorporated by reference to
Exhibit 4(b) to Registration Statement No.
33-59865).
4(a) - Article FOURTH of the Restated Certificate of
Incorporation of the Company (incorporated by
reference to Exhibit 4(d) to Registration Statement
No. 33-61626).
4(b) - Note Agreement, dated as of January 15, 1993, among
the Company, The Northwestern Mutual Life Insurance
Company and the other Purchasers named therein,
including the form of 8.21% Senior Notes due January
30, 2003, issued thereunder, and First Amendment to
such Note Agreement dated as of May 31, 1993
(incorporated by reference to Exhibit 4.4 to
Registration Statement No. 33-62750).
4(c) - The Registrant agrees to furnish copies of any
instrument defining the rights of holders of
long-term debt of the Registrant and its consolidated
subsidiaries that does not exceed 10 percent of the
total assets of the Registrant and its consolidated
subsidiaries, which is not required to be filed as an
exhibit, to the Commission upon request.
<PAGE> 78
SENSORMATIC ELECTRONICS CORPORATION
INDEX TO EXHIBITS
(Item 14 (a)(3))
10(a) - Grant of Industrial Tax Exemption to Sensormatic
Electronics Corporation (Puerto Rico) from the
Commonwealth of Puerto Rico (incorporated by
reference to Exhibit 10(n) to Form 10-K for the
fiscal year ended May 31, 1986) and Order of
Conversion of Grant of Industrial Tax Exemption
(incorporated by reference to Exhibit 10(m) to Form
10-K for the fiscal year ended May 31, 1988).
10(b) - Description of Non-qualified Stock Option Plan
(incorporated by reference to Registration Statement
No. 2-74526) and representative form of non-qualified
stock option (incorporated by reference to Exhibit
3(c) to Registration Statement No. 2-74526).
10(c) Amended 1989 Stock Incentive Plan and representative
forms of non-qualified stock option under such Plan
(incorporated by reference to Exhibit 10(c) to Form
10-K for the fiscal year ended June 30, 1994).
10(d) - 1995 Stock Incentive Plan and representative forms of
non-qualified stock options and Restricted Stock
Agreement under such Plan.
10(e) - Directors Stock Option Plan and representative form
of a non-qualified stock option under such Plan
(incorporated by reference to Exhibit 10(h) to Form
10-K for the fiscal year ended May 31, 1992).
10(f) - Stock Purchase Loan Plan (incorporated by reference
to Exhibit 10(g) to Form 10-K for the fiscal year
ended May 31, 1986).
10(g) - Executive Salary Continuation Plan and representative
form of agreement thereunder (incorporated by
reference to Exhibit 10(g) to Form 10-K for the
fiscal year ended May 31, 1989).
10(h) - Board of Directors Retirement Plan and representative
form of agreement thereunder (incorporated by
reference to Exhibit 10(h) to Form 10-K for the
fiscal year ended May 31, 1989).
10(i) - Senior Executive Defined Contribution Retirement Plan
and representative form of agreement thereunder
(incorporated by reference to Exhibit 10(h) to Form
10-K for the fiscal year ended June 30, 1994).
<PAGE> 79
SENSORMATIC ELECTRONICS CORPORATION
INDEX TO EXHIBITS
(Item 14 (a)(3))
10(j) - Employment Agreement, dated as of September 24, 1993,
between the Company and Ronald G. Assaf, Chairman of
the Board, President and Chief Executive Officer of
the Company (incorporated by reference to Exhibit
10(j) to Form 10-K for the fiscal year ended June 30,
1993).
10(k) - Employment Agreement, dated as of November 1, 1990,
between the Company and Gerd Witter, President of
Sensormatic Europe (incorporated by reference to
Exhibit 10(l) to Form 10-K for the fiscal year ended
May 31, 1991).
10(l) - Agreement, dated as of December 23, 1988, between the
Company and Ronald G. Assaf, Chairman of the Board,
President and Chief Executive Officer of the Company
(incorporated by reference to Exhibit 10(l) to Form
10-K for the fiscal year ended May 31, 1989).
10(m) - Agreement, dated as of December 23, 1988, between the
Company and James E. Lineberger, Chairman of the
Executive Committee and a director of the Company,
and amendment thereto, dated as of January 27, 1989
(incorporated by reference to Exhibit 10(m) to Form
10-K for the fiscal year ended May 31, 1989).
10(n) - Agreement, dated as of December 23, 1988, between the
Company and Dennis C. Gillette, Senior Vice President
of the Company (incorporated by reference to Exhibit
10(o) to Form 10-K for the fiscal year ended May 31,
1989).
10(o) - Agreement, dated as of December 23, 1988, between the
Company and Gerd Witter, President of Sensormatic
Europe (incorporated by reference to Exhibit 10(p) to
Form 10-K for the fiscal year ended May 31, 1989).
<PAGE> 80
SENSORMATIC ELECTRONICS CORPORATION
INDEX TO EXHIBITS
(Item 14 (a)(3))
10(p) - Service Agreement, dated as of July 27, 1992, between
Sensormatic Limited (successor to Securitag U.K.
Limited) and Charles Dawson Buck, Senior Vice
President and President of Sensormatic International
Division (incorporated by reference to Exhibit 10(q)
to Form 10-K for the fiscal year ended June 30,
1993).
10(q) - Form of Agreement, dated as of January 27, 1989,
between the Company and Dr. Arthur G. Milnes,
director of the Company (incorporated by reference to
Exhibit 10(r) to Form 10-K for the fiscal year ended
May 31, 1989).
10(r) - Agreement, dated as of December 23, 1988, between the
Company and Jerome M. LeWine, a director of the
Company, and amendment thereto, dated as of January
27, 1989 (incorporated by reference to Exhibit 10(s)
to Form 10-K for the fiscal year ended May 31, 1989).
10(s) Termination Agreement dated as of June 5, 1995,
between the Company and Michael E. Pardue formerly
Executive Vice President, Chief Operating Officer and
a director of the Company.
10(t) - Directors and Officers Liability Insurance Policies.
10(u) - Credit Agreement, dated as of August 26, 1994,
between the Company, Wachovia Bank of Georgia, N.A.,
ABN Amro Bank N.V., the other Borrowers listed herein
and the domestic banks and foreign company banks
listed herein (incorporated by reference to Exhibit
10 (t) to Form 10-K for the fiscal year ended June
30, 1994).
11 - Computation of Earnings Per Common Share for the
years ended June 30, 1995, 1994 and 1993.
21 - List of Subsidiaries of the Company.
23(a) - Consents of Independent Certified Public Accountants.
23(b) - Consents of Independent Certified Public Accountants.
27 - Financial Data Schedule (for SEC use only)
<PAGE> 81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on October 13, 1995.
SENSORMATIC ELECTRONICS CORPORATION
By: Ronald G. Assaf
-------------------------------------
Ronald G. Assaf
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities indicated on October 13, 1995.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Ronald G. Assaf Chairman of the Board of
- -------------------------------------------- Directors
Ronald G. Assaf
Vice Chairman of the Board
- -------------------------------------------- of Directors
Thomas V. Buffett
James E. Lineberger Chairman of the Executive
- -------------------------------------------- Committee and Director
James E. Lineberger
Raymond Monteleone Acting Chief Financial Officer and
- -------------------------------------------- Vice President of Corporate Development
Raymond Monteleone and Planning
Timothy P. Hartman Director
- --------------------------------------------
Timothy P. Hartman
Jerome M. LeWine Director
- --------------------------------------------
Jerome M. LeWine
Arthur G. Milnes Director
- --------------------------------------------
Dr. Arthur G. Milnes
John T. Ray Director
- --------------------------------------------
John T. Ray
</TABLE>
<PAGE> 1
EXHIBIT 10(d)
SENSORMATIC ELECTRONICS CORPORATION
1995 STOCK INCENTIVE PLAN
1. Purpose. The purpose of the 1995 Stock Incentive Plan (the "Plan") is
to aid the Company in attracting, retaining and motivating officers, key
employees and directors by providing them with incentives for making
significant contributions to the growth and profitability of the Company. The
Plan is designed to accomplish this goal by offering stock options and other
incentive awards, thereby providing Participants with a proprietary interest in
the growth, profitability and success of the Company.
2. Definitions.
(a) Award. Any form of stock option, stock appreciation right, stock or
cash award granted under the Plan, whether granted singly, in combination or in
tandem, pursuant to such terms, conditions and limitations as the Committee may
establish in order to fulfill the objectives, and in accordance with the terms
and conditions, of the Plan.
(b) Award Agreement. An agreement between the Company and a Participant
setting forth the terms, conditions and limitations applicable to an Award.
(c) Board. The Board of Directors of Sensormatic Electronics Corporation.
(d) Code. The Internal Revenue Code of 1986, as amended from time to time.
(e) Committee. Such committee of the Board as may be designated from time
to time by the Board to administer the Plan or any subplan under the Plan. Any
such committee shall consist of not less than two members of the Board who are
not officers or employees of the Company.
(f) Company. Sensormatic Electronics Corporation and its direct and
indirect subsidiaries.
(g) Fair Market Value. If the Stock is listed on the New York Stock
Exchange (or other national exchange), the average of the high and low sale
prices as reported on the New York Stock Exchange (or such other exchange) or,
if the Stock is not listed on a national exchange, the average of the high and
low sale prices of the Stock in the over-the-counter market, as reported by the
National Association of Securities Dealers through its Automated Quotation
System or otherwise, in either case for the date in question, provided that if
no transactions in the Stock are reported for that date, the average of the
high and low sale prices as so reported for the preceding day on which
transactions in the Stock were effected.
(h) Participant. An officer, director or employee of the Company to whom
an Award has been granted.
(i) Sensormatic. Sensormatic Electronics Corporation.
(j) Stock. Authorized and issued or unissued shares of Common Stock of
Sensormatic or any security issued in exchange or substitution therefor.
<PAGE> 2
3. Eligibility. Only officers, key employees, and directors who are also
officers or employees of the Company or who have been designated by the Board
as eligible to receive Awards are eligible to receive Awards under the Plan.
Key employees are those employees who hold positions of responsibility or whose
performance, in the judgment of the Committee, can have a significant effect on
the growth and profitability of the Company.
4. Stock Available for Awards. Subject to Section 14 hereof, a total of
3,900,000 shares of Stock shall be available for issuance pursuant to Awards
granted under the Plan, provided, however, that the aggregate number of shares
of Stock subject to options and upon which stock appreciation rights are based
pursuant to Awards hereunder shall not exceed 800,000 for any Participant
during any three consecutive fiscal-year periods beginning on or after July 1,
1994. From time to time, the Board and appropriate officers of Sensormatic
shall file such documents with governmental authorities and, if the Stock is
listed on the New York Stock Exchange (or other national exchange), with such
stock exchange, as are required to make shares of Stock available for issuance
pursuant to Awards and publicly tradeable. Shares of Stock related to Awards,
or portions of Awards, that are forfeited, canceled or terminated, expire
unexercised, are surrendered in exchange for other Awards, or are settled in
cash in lieu of Stock or in such manner that all or some of the shares of Stock
covered by an Award are not and will not be issued to a Participant, shall be
restored to the total number of shares of Stock available for issuance pursuant
to Awards.
5. Administration.
(a) General. The Plan shall be administered by the Committee, which shall
have full and exclusive power to (i) authorize and grant Awards to persons
eligible to receive Awards under the Plan; (ii) establish the terms, conditions
and limitations of each Award or class of Awards; (iii) construe and interpret
the Plan and all Award Agreements; (iv) grant waivers of Plan restrictions; (v)
adopt and amend such rules, procedures, regulations and guidelines for carrying
out the Plan as it may deem necessary or desirable; and (vi) take any other
action necessary for the proper operation and administration of the Plan, all
of which powers shall be exercised in a manner consistent with the objectives,
and in accordance with the terms and conditions, of the Plan. The Committee's
powers shall include, but shall not be limited to, the authority to (A) adopt
such subplans as may be necessary or appropriate (1) to provide for the
authorization and granting of Awards to promote specific goals or for the
benefit of specific classes of Participants, (2) to provide for grants of
Awards by means of formulae, standardized criteria or otherwise, or (3) for any
other purposes as are consistent with the objectives of the Plan, and to
segregate shares of Stock available for issuance under the Plan generally as
being available specifically for the purposes of one or more subplans, and (B)
subject to Section 11 hereof, adopt modifications, amendments, rules,
procedures, regulations, subplans and the like as may be necessary or
appropriate (1) to comply with provisions of the laws of other countries in
which the Company may operate in order to assure the effectiveness of Awards
granted under the Plan and to enable Participants employed in such other
countries to receive advantages and benefits under the Plan and such laws, (2)
to effect the continuation, acceleration or modification of Awards under
certain circumstances, including events which might constitute a Change in
Control (as set forth in Section 7 hereof) of Sensormatic, or (3) for any other
purposes as are consistent with the objectives of the Plan. All such
modifications, amendments, rules, procedures, regulations and subplans shall be
deemed to be a part of the Plan as if stated herein.
(b) Committee Actions. All actions of the Committee with respect to the
Plan shall require the vote of a majority of its members or, if there are only
two members, by the vote of both. Any action of the Committee may be taken by
a written instrument signed by a majority (or both members) of the Committee,
and any action so taken shall be as effective as if it had been
-2-
<PAGE> 3
taken by a vote at a meeting. All determinations and acts of the Committee as
to any matters concerning the Plan, including interpretations or constructions
of the Plan and any Award Agreement, shall be conclusive and binding on all
Participants and on any parties validly claiming through any Participants.
6. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer of Sensormatic and to other executive officers of the Company
certain of its administrative duties under the Plan, pursuant to such
conditions or limitations as the Committee may establish, except that the
Committee may not delegate its authority with respect to (a) the selection of
eligible persons as Participants in the Plan, (b) the granting or timing of
Awards, (c) establishing the amount, terms and conditions of any such Award,
(d) interpreting the Plan, any subplan or any Award Agreement or (e) amending
or otherwise modifying the terms or provisions of the Plan, any subplan or any
Award Agreement.
7. Awards. Subject to Section 4, the Committee shall determine the types
and timing of Awards to be made to each Participant and shall set forth in the
related Award Agreement the terms, conditions and limitations applicable to
each Award. Awards may include, but are not limited to, those listed below in
this Section 7. Awards may be granted singly, in combination or in tandem, or
in substitution for Awards previously granted under the Plan. Awards may also
be made in combination or in tandem with, in substitution for, or as
alternatives to, grants or rights under any other benefit plan of the Company,
including any such plan of any entity acquired by, or merged with or into, the
Company. Any such Awards made in substitution for, or as alternatives to,
grants or rights under a benefit plan of an entity acquired by, or merged with
or into, the Company in order to give effect to the transaction shall be deemed
to be issued in accordance with the terms and conditions of the Plan. Awards
shall be effected through Award Agreements executed by the Company in such
forms as are approved by the Committee from time to time.
All or part of any Award may be subject to conditions established by the
Committee, and set forth in the Award Agreement, which conditions may include,
without limitation, achievement of specific business objectives, increases in
specified indices, attainment of growth rates and other measurements of Company
performance.
The Committee may determine to make any or all of the following Awards:
(a) Stock options. A grant of a right to purchase a specified number of
shares of Stock at an exercise price not less than 100% of the Fair Market
Value of the Stock on the date of grant, during a specified period, all as
determined by the Committee. Without limitation, a stock option may be in the
form of (i) an incentive stock option which, in addition to being subject to
such terms, conditions and limitations as are established by the Committee,
complies with Section 422 of the Code or (ii) a non-qualified stock option
subject to such terms, conditions and limitations as are established by the
Committee.
(b) Stock Appreciation Rights. A right to receive a payment, in cash or
Stock, equal to the excess of the Fair Market Value (or other specified
valuation) of a specified number of shares of Stock on the date the stock
appreciation right ("SAR") is exercised over the Fair Market Value (or other
specified valuation) on the date of grant of the SAR, except that if an SAR is
granted in tandem with a stock option, valuations on the grant and exercise
dates shall be no less than as determined on the basis of Fair Market Value.
The eventual amount, vesting or issuance of an SAR may be subject to future
service, performance standards and such other restrictions and conditions as
may be established by the Committee.
-3-
<PAGE> 4
(c) Stock Awards. An Award made in Stock or denominated in units of
Stock. The eventual amount, vesting or issuance of a Stock Award may be
subject to future service, performance standards and such other restrictions
and conditions as may be established by the Committee. Stock Awards may be
based on Fair Market Value or another specified valuation.
(d) Cash Awards. An Award made or denominated in cash. The eventual
amount of a cash Award may be subject to future service, performance standards
and such other restrictions and conditions as may be established by the
Committee.
Dividend equivalency rights, on a current or deferred basis, may be extended
to and be made part of any Award denominated in whole or in part in Stock or
units of Stock, subject to such terms, conditions and restrictions as the
Committee may establish.
Notwithstanding the provisions of the paragraphs of this Section 7, Awards
may be subject to acceleration of exercisability or vesting in the event of a
Change in Control of Sensormatic (i) as set forth in agreements between
Sensormatic and certain of its officers, directors and key employees which
provide for certain protections and benefits in the event of a change in
control (as defined in such agreements) or (ii) as may otherwise be determined
by the Committee under and in accordance with the terms and conditions of the
Plan. "Change in Control" for purposes of the Plan shall mean a change in
control of Sensormatic under such circumstances as shall be specified by (x)
the Committee or (y) where applicable to any Awards granted under the Plan by
such agreements between Sensormatic and a Participant as (1) may have been
entered into prior to the effective date of the Plan or (2) shall be entered
into after the effective date of the Plan with, to the extent such an agreement
is applicable to an Award, the approval of the Committee. A "Change in
Control" may, without limitation, be deemed to have occurred if (A) any
"person" or "group" of persons (as the terms "person" and "group" are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 and the rules
thereunder) is or becomes the beneficial owner, directly or indirectly, of
securities of Sensormatic representing 30% or more of the combined voting power
of the then outstanding securities of Sensormatic or (B) a change of more than
25% in the composition of the Board occurs within a two-year period, unless
such change in composition was approved in advance by at least two-thirds of
the previous directors.
8. Payment under Awards. Payment by the Company pursuant to Awards may be
made in the form of cash, Stock or combinations thereof and may be subject to
such restrictions as the Committee determines, including, in the case of Stock,
restrictions on transfer and forfeiture provisions. Stock subject to transfer
restrictions or forfeiture provisions is referred to herein as "Restricted
Stock". The Committee may provide for payments to be deferred, such future
payments to be made in installments or by lump-sum payment. The Committee may
permit selected Participants to elect to defer payments of some or all types of
Awards in accordance with procedures established by the Committee to assure
that such deferrals comply with applicable requirements of the Code.
The Committee may also establish rules and procedures for the crediting of
interest on deferred cash payments and of dividend equivalencies on deferred
payments to be made in Stock or units of Stock.
At the discretion of the Committee, a Participant may be offered an election
to substitute an Award for another Award or Awards, or for awards made under
any other benefit plan of the Company, of the same or different type.
-4-
<PAGE> 5
9. Stock Option Exercise. The price at which shares of Stock may be
purchased upon exercise of a stock option shall be paid in full at the time of
the exercise, in cash or, if permitted by the Committee, by (a) tendering Stock
or surrendering another Award, including Restricted Stock, or an option or
other award granted under another benefit plan of the Company, in each case
valued at, or on the basis of, Fair Market Value on the date of exercise, (b)
delivery of a promissory note issued by a Participant to the Company pursuant
to the terms and conditions of the Company's Stock Purchase Loan Plan or
otherwise as determined by the Committee, or (c) any other means acceptable to
the Committee. The Committee shall determine acceptable methods for tendering
Stock or surrendering other Awards or grants and may impose such conditions on
the use of Stock or other Awards or grants to exercise a stock option as it
deems appropriate. If shares of Restricted Stock are tendered as consideration
for the exercise of a stock option, the Committee may require that the number
of shares issued upon exercise of the stock option equal to the number of
shares of Restricted Stock used as consideration therefor be subject to the
same restrictions as the Restricted Stock so surrendered and any other
restrictions as may be imposed by the Committee. The Committee may also permit
Participants to exercise stock options and simultaneously sell some or all of
the shares of Stock so acquired pursuant to a brokerage or similar arrangement
which provides for the payment of the exercise price substantially concurrently
with the delivery of such shares.
10. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Award payment or shares of Stock receivable under an
Award and to withhold an appropriate number of shares of Stock for payment of
taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all tax withholding obligations. In
addition, the Committee may permit Participants to elect to (a) have the
Company deduct applicable taxes resulting from any Award payment to, or
exercise of an Award by, such Participant by withholding an appropriate number
of shares of Stock for payment of tax obligations or (b) tender to the Company
for the purpose of satisfying tax payment obligations other Stock held by the
Participant. If the Company withholds shares of Stock to satisfy tax payment
obligations, the value of such Stock in general shall be its Fair Market Value
on the date of the Award payment or the date of exercise of an Award, as the
case may be. If a Participant tenders shares of Stock pursuant to clause (b)
above to satisfy tax payment obligations, the value of such Stock shall be the
Fair Market Value on the date the Participant tenders such Stock to the
Company.
11. Amendment, Modification, Suspension or Termination of the Plan. The
Board may amend, modify, suspend or terminate the Plan, or adopt subplans under
the Plan, (a) for the purpose of meeting or addressing any changes in any
applicable tax, securities or other laws, rules or regulations or (b) for any
other purpose permitted by law. Subject to changes in law or other legal
requirements which would permit otherwise, the Plan may not be amended without
the approval of the holders of a majority of the shares of Stock voting on such
amendment to (i) materially increase the aggregate number of shares of Stock
that may be issued under the Plan (except for any increase resulting from
adjustments pursuant to Section 14 hereof), (ii) materially increase the
benefits accruing to Participants (except that the limit on the aggregate
number of shares that may be issued to any individual participant during any
three consecutive fiscal-year periods pursuant to option, or which are used as
a basis of SARs, may not be amended at all without the approval of
stockholders) or (iii) materially modify the requirements as to eligibility for
participation in the Plan. In addition, no subplan which provides for the
granting of Awards by a formula whose provisions fix the selection of
Participants, the granting and timing of Awards and the terms and conditions of
such Awards, shall be amended with respect to such provisions more frequently
than once every six months (other than to comport with changes in the Code or
the Employee Retirement Income Security Act or the rules thereunder). Further,
the Plan may not be amended in a manner that would alter, impair, amend,
modify, suspend or terminate any rights of a
-5-
<PAGE> 6
Participant or obligation of the Company under any Awards theretofore granted,
in any manner adverse to any such affected Participant, without the consent of
such affected Participant.
12. Termination of Employment. Except as otherwise set forth in an
applicable Award Agreement or determined by the Committee, or as otherwise
provided in paragraph (a) or (b) of this Section 12, if a Participant's
employment or association with the Company terminates, all unexercised,
deferred and unpaid Awards (or portions of Awards) shall be canceled
immediately.
(a) Retirement, Resignation or Other Termination. If a Participant's
employment or association with the Company terminates by reason of the
Participant's retirement or resignation, or for any other reason (other than
the Participant's death or disability), the Committee may, under circumstances
in which it deems an exception from the provisions of the first sentence of
this Section 12 to be appropriate to carry out the objectives of the Plan and
to be consistent with the best interests of the Company, permit Awards to
continue in effect and be exercisable or payable beyond the date of such
termination, up until the expiration date specified in the applicable Award
Agreement and otherwise in accordance with the terms of the applicable Award
Agreement, and may accelerate the exercisability or vesting of any Award, in
either case, in whole or in part.
(b) Death or Disability.
(i) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period, not
extending beyond the expiration date specified in the applicable Award
Agreement (except as otherwise provided in such Award Agreement),
within which to exercise any outstanding Award held by the
Participant, as may be specified in the Award Agreement or as may
otherwise be determined by the Committee. All rights in respect of
any such outstanding Awards shall pass in the following order: (A) to
beneficiaries so designated in writing by the Participant; or if none,
then (B) to the legal representative of the Participant; or if none,
then (C) to the persons entitled thereto as determined by a court of
competent jurisdiction. Awards so passing shall be exercised or paid
at such times and in such manner as if the Participant were living,
except as otherwise provided in the applicable Award Agreement or as
determined by the Committee.
(ii) If a Participant ceases to be employed or
associated with the Company because the Participant is deemed by the
Company to be disabled, outstanding Awards held by the Participant may
be paid to or exercised by the Participant, if legally competent, or
by a committee or other legally designated guardian or representative
if the Participant is legally incompetent, for a period, not extending
beyond the expiration date specified in the applicable Award Agreement
(except as otherwise provided in such Award Agreement), following the
termination of his employment or association with the Company, as may
be specified in the Award Agreement or as may otherwise be determined
by the Committee.
(iii) After the death or disability of a
Participant, the Committee may at any time (A) terminate restrictions
with respect to Awards held by the Participant, (B) accelerate the
vesting or exercisability of any or all installments and rights of the
Participant in respect of Awards held by the Participant and (C)
instruct the Company to pay the total of any accelerated payments
under the Awards in a lump sum to the Participant or to the
Participant's estate, beneficiaries or representatives,
notwithstanding that, in the absence of such termination of
restrictions or acceleration of payments, any or all of the payments
due under the Awards might ultimately have become payable to other
beneficiaries.
-6-
<PAGE> 7
(iv) In the event of uncertainty as to the
interpretation of, or controversies concerning, paragraph (b) of this
Section 12, the Committee's determinations shall be binding and
conclusive on all Participants and any parties validly claiming
through them.
13. Nonassignability.
(a) Except as provided for in paragraphs (a) and (b) of Section 12
hereof and paragraph (b) of this Section 13, no Award or any other
benefit under the Plan, or any right with respect thereto, shall be assignable
or transferable, or payable to or exercisable by, anyone other than the
Participant to whom it is granted.
(b) If a Participant's employment or association with the Company
terminates in order for such Participant to assume a position with a
governmental, charitable or educational agency or institution, and the
Participant retains Awards pursuant to paragraph (a) of Section 12 hereof, the
Committee, in its discretion and to the extent permitted by law, may authorize
a third party (including, without limitation, the trustee of a "blind" trust),
acceptable to the applicable authorities, the Participant and the Committee, to
act on behalf of the Participant with respect to such Awards.
14. Adjustments. In the event of any change in the outstanding
Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger or similar event, the
Committee shall adjust proportionally (a) the number of shares of Stock (i)
reserved under the Plan, (ii) available for options or other Awards and
available for issuance pursuant to options, or upon which SARs may be based,
for individual Participants and (iii) covered by outstanding Awards denominated
in Stock or units of Stock; (b) the prices related to outstanding Awards; and
(c) the appropriate Fair Market Value and other price determinations for such
Awards. In the event of any other change affecting the Stock or any
distribution (other than normal cash dividends) to holders of Stock, such
adjustments as may be deemed equitable by the Committee, including adjustments
to avoid fractional shares, shall be made to give proper effect to such event.
In the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume stock options or other awards, whether or not in
a transaction to which Section 425(a) of the Code applies, by means of
substitution of new stock options or Awards for previously issued options or
awards or an assumption of previously issued stock options or awards.
15. Notice. Any written notice to Sensormatic required by any of the
provisions of the Plan shall be addressed to the Committee, c/o the Secretary
of Sensormatic, and shall become effective when received by the Secretary.
16. Unfunded Plan. Insofar as the Plan provides for Awards of cash or
Stock, the Plan shall be unfunded unless and until the Board or the Committee
otherwise determines. Although bookkeeping accounts may be established
with respect to Participants who are entitled to cash, Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. Unless the Board otherwise determines, (a) the Company shall not
be required to segregate any assets that may at any time be represented by
cash, Stock or rights thereto, nor shall the Plan be construed as providing for
such segregation, nor shall the Company, the Board or the Committee be deemed
to be a trustee of any cash, Stock or rights thereto to be granted under the
Plan; (b) any liability of the Company to any Participant with respect to a
grant of cash, Stock or rights thereto under the Plan shall be based solely
upon any contractual obligations that may be created by the Plan and an Award
Agreement; (c) no such obligation of the Company shall be deemed to be secured
by any pledge or other encumbrance on any property of the Company; and (d)
neither the Company, the Board nor the Committee shall be required to give
-7-
<PAGE> 8
any security or bond for the performance of any obligation that may be created
by or pursuant to the Plan.
17. Payments to Trust. Notwithstanding the provisions of Section 16
hereof, the Board or the Committee may cause to be established one or
more trust agreements pursuant to which the Committee may make payments of
cash, or deposit shares of Stock, due or to become due under the Plan to
Participants.
18. No Right to Employment. Neither the adoption of the Plan nor the
granting of any Award shall confer on any Participant any right to
continued employment or association with the Company or in any way interfere
with the Company's right to terminate the employment or association of any
Participant at any time, with or without cause, and without liability therefor.
Awards, payments and other benefits received by a Participant under the Plan
shall not be deemed a part of the Participant's regular, recurring compensation
for any purpose, including, without limitation, for the purposes of any
termination indemnity or severance pay law of any jurisdiction.
19. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code
or the securities laws of the United States, shall be governed by and construed
under the laws of the State of Delaware.
20. Effective and Termination Dates. The Plan, and any
amendment hereof requiring stockholder approval, shall become effective as of
the date of its adoption by the Board, subject to the subsequent approval of
the stockholders of Sensormatic by the affirmative vote of a majority of the
votes cast at a stockholders' meeting at which the approval of the Plan (or any
such amendment) is considered, provided that the total vote cast represents
over 50% of all shares entitled to vote on the proposal. The Plan shall
terminate ten years after its initial effective date, subject to earlier
termination by the Board pursuant to Section 11 hereof, except as to Awards
then outstanding.
-8-
<PAGE> 9
SENSORMATIC ELECTRONICS CORPORATION
NON-QUALIFIED STOCK OPTION
For valuable consideration, receipt of which is hereby
acknowledged, SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation (the
"Company"), hereby grants to ____________________________________________, who
resides at ____________________________________________ (the "Optionee"), a
non-qualified stock option ("Option"), subject to the terms and conditions
hereof, to purchase from the Company an aggregate of ____________ shares of the
Common Stock of the Company, par value $.01 per share (the "Common Stock"), at
the price of $_________ per share (the "Option Price"), such option to be
exercisable in installments as set forth below on or before the day (the
"Termination Date") preceding the tenth anniversary of the date hereof.
This Option may be exercised as to one-third of the shares of
Common Stock subject hereto after the first anniversary of the date hereof, as
to an additional one-third of such shares after the second anniversary of the
date hereof, and as to the remaining one-third of such shares after the third
anniversary of the date hereof.
This Option is granted pursuant to the Company's 1995 Stock
Incentive Plan (the "Plan") and is subject to the terms and conditions thereof.
The Plan is administered by the Company's Stock Incentive Plan Committee (the
"Committee"). All determinations and acts of the Committee as to any matters
concerning the Plan, including interpretations or constructions of this Option
and of the Plan, shall be conclusive and binding on the Optionee and any
parties claiming through the Optionee.
<PAGE> 10
Unless the Optionee ceases to be employed by the Company or a
direct or indirect subsidiary thereof, the right of the Optionee to purchase
shares subject to any installment may be exercised in whole at any time or in
part from time to time after the accrual of such respective installment and
prior to the Termination Date, except as otherwise provided herein. This
Option may be exercised only with respect to full shares.
Subject to the provisions of this Option, this Option may be
exercised by written notice (the "Notice") to the Company stating the number of
shares of Common Stock with respect to which it is being exercised. The Notice
shall be accompanied by the Optionee's payment in full of the Option Price for
each of the shares to be purchased by the Optionee, such payment to be made by
(a) certified or bank cashier's check payable to the order of the Company or
(b) any other means acceptable to the Committee.
As soon as practicable after receipt of the Notice and
payment, and subject to the next two paragraphs, the Company shall, without
transfer or issue tax or other incidental expense to the Optionee, deliver to
the Optionee a certificate or certificates for the shares of Common Stock so
purchased. Such delivery shall be made (a) at the offices of the Company at
500 Northwest 12th Avenue, Deerfield Beach, Florida 33442, (b) at such other
place as may be mutually acceptable to the Company and the Optionee, or (c) at
the election of the Company, by certified mail addressed to the Optionee at (i)
the Optionee's address shown in the employment records of the Company or (ii)
the location at which the Optionee is employed by the Company.
The Company shall have the right to withhold an appropriate
number of shares of Common Stock (based on the fair market value thereof on the
date of exercise) for payment of taxes required by law or to take such other
-2-
<PAGE> 11
action as may be necessary in the opinion of the Company to satisfy all tax
withholding obligations.
The Company may postpone the time of delivery of
certificate(s) for shares of Common Stock for such additional time as the
Company shall deem necessary or desirable to enable it to comply with the
requirements of any securities exchange upon which the Common Stock may be
listed, or the requirements of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, any rules or regulations of the
Securities and Exchange Commission promulgated thereunder, or any applicable
state laws relating to the authorization, issuance or sale of securities.
The issuance of the shares of Common Stock subject hereto and
issuable upon the exercise of this Option and the transfer or resale of such
shares shall be subject to such restrictions as are, in the opinion of the
Company's counsel, required to comply with the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and the
certificate(s) representing such shares shall, if it is deemed advisable by the
Company's counsel, bear a legend to such effect.
If, upon tender of delivery thereof, the Optionee fails to
accept delivery of and pay or have paid for all or any part of the number of
shares of Common Stock specified in the Notice, the Optionee's right to
exercise this Option with respect to such undelivered and unpaid for shares may
be terminated by the Company.
During the Optionee's lifetime, this Option shall be
exercisable only by the Optionee (except as otherwise provided below), and
neither this Option nor any right hereunder shall be assignable or transferable
otherwise than by will or the laws of descent and distribution (as provided
below), or be subject to attachment, execution or other similar process. In
the event of any attempt by
-3-
<PAGE> 12
the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of
this Option or of any right hereunder, except as provided for herein, or in the
event of any levy or any attachment, execution or similar process upon the
rights or interest hereby conferred, the Company may terminate this Option by
notice to the Optionee, and it shall become null and void.
If, prior to the Termination Date, the Optionee's employment
with the Company or its direct or indirect subsidiaries terminates for any
reason (otherwise than by reason of the Optionee's death or disability (as
defined below)), this Option, and all rights hereunder to the extent that such
rights shall not have been exercised, shall immediately terminate and become
null and void.
In the event of the Optionee's death prior to the Termination
Date, and while the Optionee is employed by the Company or a direct or indirect
subsidiary thereof, this Option shall immediately become fully exercisable and
may be exercised within one year after the date of the Optionee's death by the
person(s) to whom the right passes pursuant to the following sentence, but in
no event may this Option be exercised later than the Termination Date. All
rights with respect to this Option, including the right to exercise it, shall
pass in the following order: (a) to such person(s) as the Optionee may
designate in a writing duly delivered to the Company (in the form available
from the Company for such purpose), or in the absence of such a designation,
then (b) to the Optionee's estate (the Option to be exercised by the legal
representative).
In the event that the Optionee, prior to the Termination Date,
ceases to be employed by the Company or a direct or indirect subsidiary thereof
because the Optionee is deemed by the Company to be disabled, this Option shall
immediately become fully exercisable and may be exercised by the Optionee, if
legally competent, or by a committee or other legally designated guardian or
representative if the Optionee is legally incompetent, within one year
-4-
<PAGE> 13
after the date the Optionee ceases to be employed by the Company or a direct or
indirect subsidiary thereof as a result of such disability, but in no event may
this Option be exercised later than the Termination Date. For purposes of this
Option, the Optionee shall be deemed by the Company to be disabled if the
Optionee is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months. The Optionee shall not be
considered to be disabled unless the Optionee or the Optionee's representative
furnishes proof of the existence of such disability in such form and manner,
and at such times, as may be required by the Committee, and unless such proof
shall be satisfactory to the Committee. The determination by the Committee
with respect to the existence of such disability shall be conclusive and
binding upon the Optionee and any parties claiming through the Optionee.
In the event of any change in the outstanding Common Stock by
reason of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger or similar event, the Committee shall adjust
proportionally the number of shares of Common Stock covered by this Option and
the Option Price thereof. In the event of any other change affecting the
Common Stock or any distribution (other than normal cash dividends) to holders
of Common Stock, such adjustments as may be deemed equitable by the Committee,
including adjustments to avoid fractional shares, shall be made to give proper
effect to such event. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation,
the Committee may authorize the assumption of this Option or the substitution
of a new stock option for this Option, whether or not in a transaction to which
Section 424(a) of the Internal Revenue Code of 1986, as amended from
-5-
<PAGE> 14
time to time, applies. The judgment of the Committee with respect to any
matter referred to in this paragraph shall be conclusive and binding upon the
Optionee and any parties claiming through the Optionee.
Neither the Optionee nor any person or persons entitled to
exercise the Optionee's rights under this Option in accordance herewith shall
have any rights to dividends or any other rights of a stockholder with respect
to any shares of Common Stock subject to this Option, except to the extent that
a certificate for such shares shall have been issued upon the exercise of this
Option as provided herein.
Each notice relating to this Option shall be in writing and
delivered in person or by certified mail to the proper address. All notices to
the Company shall be addressed to it at its offices at 500 Northwest 12th
Avenue, Deerfield Beach, Florida 33442, attention of the Committee, c/o the
Company's Secretary, and shall become effective when received by the Secretary.
All notices to the Optionee or other person or persons then entitled to
exercise any rights with respect to this Option shall be addressed to the
Optionee or such other person or persons at (i) the Optionee's address shown in
the employment records of the Company or (ii) the location at which the
Optionee is employed by the Company. Anyone to whom a notice may be given
under this Option may designate a new address by notice to that effect.
Neither the adoption of the Plan nor the granting of this
Option confers on the Optionee any right to continued employment with the
Company (or any of its direct or indirect subsidiaries) or in any way
interferes with or alters the Company's (and its direct and indirect
subsidiaries') right to terminate the employment of the Optionee at any time,
with or without cause, and without liability therefor. This Option shall not
be deemed a part of the Optionee's regular, recurring compensation for any
purpose, including, without limitation, for
-6-
<PAGE> 15
the purposes of any termination indemnity or severance pay law of any
jurisdiction.
This Option and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Internal Revenue
Code of 1986, as amended from time to time, or the securities laws of the
United States, shall be governed by and construed under the laws of the State
of Delaware.
IN WITNESS WHEREOF, SENSORMATIC ELECTRONICS CORPORATION has
caused this Option to be executed by its officers, thereunto duly authorized,
as of the ____ day of ____________, 19__.
SENSORMATIC ELECTRONICS
CORPORATION
By:
---------------------
Ronald G. Assaf
Chairman of the Board
and President
ATTEST:
- --------------------------
Marian E. Fetchik
Assistant Secretary
or the securities laws of the United States, shall be governed by and construed
under the laws of the State of Delaware.
IN WITNESS WHEREOF, SENSORMATIC ELECTRONICS CORPORATION has caused
this Option to be executed by its officers, thereunto duly authorized, as of
the ____ day of ____________, 19__.
-7-
<PAGE> 16
SENSORMATIC ELECTRONICS
CORPORATION
By:
----------------------------
Michael E. Pardue
Executive Vice President
and Chief Operating Officer
ATTEST:
- -------------------------
Marian E. Fetchik
Assistant Secretary
-8-
<PAGE> 17
or the securities laws of the United States, shall be governed by and construed
under the laws of the State of Delaware.
IN WITNESS WHEREOF, SENSORMATIC ELECTRONICS CORPORATION has caused
this Option to be executed by its officers, thereunto duly authorized, as of
the ____ day of ____________, 19__.
SENSORMATIC ELECTRONICS
CORPORATION
By:
Name:
Title:
ATTEST:
- -------------------------
Marian E. Fetchik
Assistant Secretary
-9-
<PAGE> 18
SENSORMATIC ELECTRONICS CORPORATION
NON-QUALIFIED STOCK OPTION
For valuable consideration, receipt of which is hereby
acknowledged, SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation (the
"Company"), hereby grants to ____________________________________________, who
resides at ____________________________________________ (the "Optionee"), a
non-qualified stock option ("Option"), subject to the terms and conditions
hereof, to purchase from the Company an aggregate of ____________ shares of the
Common Stock of the Company, par value $.01 per share (the "Common Stock"), at
the price of $_________ per share (the "Option Price"), such option to be
exercisable in installments as set forth below on or before the day (the
"Termination Date") preceding the tenth anniversary of the date hereof.
This Option may be exercised in full (i) after the fifth
anniversary of the date hereof, or (ii) on such earlier date on which the Fair
Market Value (as defined in the Company's 1995 Stock Incentive Plan (the
"Plan")) of Common Stock has exceeded the Option Price by at least 35% for at
least ten consecutive trading days, provided that such earlier date is after
the first anniversary of the date hereof.
This Option is granted pursuant to the Plan, and is subject to
the terms and conditions thereof. The Plan is administered by the Company's
Stock Incentive Plan Committee (the "Committee"). All determinations and acts
of the Committee as to
<PAGE> 19
any matters concerning the Plan, including interpretations or constructions of
this Option and of the Plan, shall be conclusive and binding on the Optionee
and any parties claiming through the Optionee.
Unless the Optionee ceases to be associated with the Company
or a direct or indirect subsidiary thereof, the right of the Optionee to
purchase shares subject to any installment may be exercised in whole at any
time or in part from time to time after the accrual of such respective
installment and prior to the Termination Date, except as otherwise provided
herein. This Option may be exercised only with respect to full shares.
Subject to the provisions of this Option, this Option may be
exercised by written notice (the "Notice") to the Company stating the number of
shares of Common Stock with respect to which it is being exercised. The Notice
shall be accompanied by the Optionee's payment in full of the Option Price for
each of the shares to be purchased by the Optionee, such payment to be made by
(a) certified or bank cashier's check payable to the order of the Company or
(b) any other means acceptable to the Committee.
As soon as practicable after receipt of the Notice and
payment, and subject to the next two paragraphs, the Company shall, without
transfer or issue tax or other incidental expense to the Optionee, deliver to
the Optionee a certificate or certificates for the shares of Common Stock so
purchased. Such delivery shall be made (a) at the offices of the Company at
500 Northwest 12th Avenue, Deerfield Beach, Florida 33442, (b) at such other
place as may be mutually acceptable to the Company and the Optionee, or (c) by
certified mail addressed to the Optionee at the Optionee's address shown in the
records of the Company.
The Company shall have the right to withhold an appropriate
number of shares of Common Stock (based on the fair market value thereof on
-2-
<PAGE> 20
the date of exercise) for payment of taxes required by law or to take such
other action as may be necessary in the opinion of the Company to satisfy all
tax withholding obligations.
The Company may postpone the time of delivery of
certificate(s) for shares of Common Stock for such additional time as the
Company shall deem necessary or desirable to enable it to comply with the
requirements of any securities exchange upon which the Common Stock may be
listed, or the requirements of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, any rules or regulations of the
Securities and Exchange Commission promulgated thereunder, or any applicable
state laws relating to the authorization, issuance or sale of securities.
The issuance of the shares of Common Stock subject hereto and
issuable upon the exercise of this Option and the transfer or resale of such
shares shall be subject to such restrictions as are, in the opinion of the
Company's counsel, required to comply with the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and the
certificate(s) representing such shares shall, if it is deemed advisable by the
Company's counsel, bear a legend to such effect.
If, upon tender of delivery thereof, the Optionee fails to
accept delivery of and pay or have paid for all or any part of the number of
shares of Common Stock specified in the Notice, the Optionee's right to
exercise this Option with respect to such undelivered and unpaid for shares may
be terminated by the Company.
During the Optionee's lifetime, this Option shall be
exercisable only by the Optionee (except as otherwise provided below), and
neither this Option nor any right hereunder shall be assignable or transferable
otherwise than by will or the laws of descent and distribution (as provided
below), or be subject to
-3-
<PAGE> 21
attachment, execution or other similar process. In the event of any attempt by
the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of
this Option or of any right hereunder, except as provided for herein, or in the
event of any levy or any attachment, execution or similar process upon the
rights or interest hereby conferred, the Company may terminate this Option by
notice to the Optionee, and it shall become null and void.
If, prior to the Termination Date, the Optionee's association
with the Company or its direct or indirect subsidiaries terminates for any
reason (otherwise than by reason of the Optionee's death or disability (as
defined below)), this Option and all rights hereunder, to the extent that this
Option and such rights shall not have been exercised and are exercisable
pursuant to the terms hereof on the date of such termination, shall remain
exercisable for a period of only three months following the date of such
termination or until the Termination Date, if earlier.
In the event of the Optionee's death prior to the Termination
Date, and while the Optionee is associated with the Company or a direct or
indirect subsidiary thereof, this Option shall immediately become fully
exercisable and may be exercised within one year after the date of the
Optionee's death by the person(s) to whom the right passes pursuant to the
following sentence, but in no event may this Option be exercised later than the
Termination Date. All rights with respect to this Option, including the right
to exercise it, shall pass in the following order: (a) to such person(s) as the
Optionee may designate in a writing duly delivered to the Company (in the form
available from the Company for such purpose), or in the absence of such a
designation, then (b) to the Optionee's estate (the Option to be exercised by
the legal representative).
In the event that the Optionee, prior to the Termination Date,
ceases to be associated with the Company or a direct or indirect subsidiary
-4-
<PAGE> 22
thereof because the Optionee is deemed by the Company to be disabled, this
Option shall immediately become fully exercisable and may be exercised by the
Optionee, if legally competent, or by a committee or other legally designated
guardian or representative if the Optionee is legally incompetent, within one
year after the date the Optionee ceases to be associated with the Company or a
direct or indirect subsidiary thereof as a result of such disability, but in no
event may this Option be exercised later than the Termination Date. For
purposes of this Option, the Optionee shall be deemed by the Company to be
disabled if the Optionee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve months. The Optionee
shall not be considered to be disabled unless the Optionee or the Optionee's
representative furnishes proof of the existence of such disability in such form
and manner, and at such times, as may be required by the Committee, and unless
such proof shall be satisfactory to the Committee. The determination by the
Committee with respect to the existence of such disability shall be conclusive
and binding upon the Optionee and any parties claiming through the Optionee.
In the event of any change in the outstanding Common Stock by
reason of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger or similar event, the Committee shall adjust
proportionally the number of shares of Common Stock covered by this Option and
the Option Price thereof. In the event of any other change affecting the
Common Stock or any distribution (other than normal cash dividends) to holders
of Common Stock, such adjustments as may be deemed equitable by the Committee,
including adjustments to avoid fractional shares, shall be made to give proper
effect to such event. In the event of a corporate merger,
-5-
<PAGE> 23
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Committee may authorize the assumption of this Option or the
substitution of a new stock option for this Option, whether or not in a
transaction to which Section 424(a) of the Internal Revenue Code of 1986, as
amended from time to time, applies. The judgment of the Committee with respect
to any matter referred to in this paragraph shall be conclusive and binding
upon the Optionee and any parties claiming through the Optionee.
Neither the Optionee nor any person or persons entitled to
exercise the Optionee's rights under this Option in accordance herewith shall
have any rights to dividends or any other rights of a stockholder with respect
to any shares of Common Stock subject to this Option, except to the extent that
a certificate for such shares shall have been issued upon the exercise of this
Option as provided herein.
Each notice relating to this Option shall be in writing and
delivered in person or by certified mail to the proper address. All notices to
the Company shall be addressed to it at its offices at 500 Northwest 12th
Avenue, Deerfield Beach, Florida 33442, attention of the Committee, c/o the
Company's Secretary, and shall become effective when received by the Secretary.
All notices to the Optionee or other person or persons then entitled to
exercise any rights with respect to this Option shall be addressed to the
Optionee or such other person or persons at the Optionee's address shown in the
records of the Company. Anyone to whom a notice may be given under this Option
may designate a new address by notice to that effect.
This Option and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Internal Revenue
Code of 1986, as amended from time to time, or the securities laws of the
United
-6-
<PAGE> 24
States, shall be governed by and construed under the laws of the State of
Delaware.
IN WITNESS WHEREOF, SENSORMATIC ELECTRONICS CORPORATION has
caused this Option to be executed by its officers, thereunto duly authorized,
as of the ____ day of ____________, 19__.
SENSORMATIC ELECTRONICS
CORPORATION
By:
Name:
Title:
ATTEST:
- ---------------------------
Marian E. Fetchik
Assistant Secretary
-7-
<PAGE> 25
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT (the "Agreement"), dated as of the 2nd
day of December, 1994, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation (the "Company"), and ________________________ (the "Grantee").
W I T N E S S E T H:
WHEREAS, the Company has adopted the Sensormatic Success Sharing
Program, a comprehensive incentive compensation program for the Company's
management and other key personnel who are expected to contribute significantly
to the growth and profitability of the Company (the "SSSP");
WHEREAS, one of the components of the SSSP is a long-term,
stock-based incentive compensation program adopted pursuant to the Company's
1995 Stock Incentive Plan (the "1995 Plan") providing for awards of restricted
stock and stock options to SSSP participants who are also participants in, or
eligible for participation in, the 1995 Plan; and
WHEREAS, the Grantee is a participant in the SSSP and the 1995
Plan.
NOW, THEREFORE, in consideration of the premises, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Grantee agree as follows:
1. Definitions. Capitalized terms used, but not defined,
herein have the meanings ascribed to them in the 1995 Plan.
<PAGE> 26
2. Issuance of Shares; Legend.
(a) Upon the Grantee's execution and delivery to the Company
of this Agreement, the Company shall issue, or cause to be issued, to the
Grantee shares of Common Stock of the Company (the "Restricted
Shares"), pursuant to the 1995 Plan and subject to the terms, conditions and
restrictions set forth in this Agreement and the 1995 Plan. Together with the
executed Agreement, the Grantee is hereby tendering to the Company, in cash,
cashier's check, certified check or personal check subject to collection, the
sum of $__________ in payment of the par value of the Restricted Shares. A
certificate representing the Restricted Shares, bearing the legend set forth
below, shall be issued in the name of the Grantee and delivered to the Grantee
(i) at the offices of the Company at 500 Northwest 12th Avenue, Deerfield
Beach, Florida 33442, (ii) at such other place as may be mutually acceptable to
the Company and the Grantee, or (iii) at the election of the Company, by
certified mail addressed to the Grantee at the Grantee's address shown in the
employment records of the Company or the location at which the Grantee is
employed by the Company. Notwithstanding anything to the contrary contained
herein, the Company shall retain any and all cash dividends paid on or in
respect of the Restricted Shares, and neither the Grantee nor any other person
or persons entitled to exercise any of the Grantee's rights under this
Agreement in accordance herewith and with the 1995 Plan shall have any rights
to any such accrued dividends except when, and to the extent, any such
Restricted Shares shall have vested in the Grantee or such other person or
persons in accordance with this Agreement, at which time the accrued cash
dividends with respect to the Vested Shares (as defined below) shall be
transferred to the Grantee or such other person or persons.
(b) Each certificate representing the Restricted Shares shall,
unless otherwise specifically provided by this Agreement, bear the following
legend or such other legend as the Company's counsel may deem appropriate to
reflect the terms and conditions hereof:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Sensormatic Electronics Corporation 1995 Stock Incentive
Plan, the Sensormatic Success Sharing Program and the Restricted Stock
Agreement of even date herewith between Sensormatic Electronics Corporation and
the registered owner hereof. Copies of such documents are on file at the
offices of Sensormatic Electronics Corporation, 500 N.W. 12th Avenue, Deerfield
Beach, Florida 33442."
3. Restrictions against Transfer. During the Grantee's
lifetime, none of the Restricted Shares, this Agreement or any right or
interest hereunder or in the Restricted Shares shall be assignable or
transferable otherwise than by will or the laws of descent and distribution (as
provided in this Agreement), or be subject to attachment, execution or other
similar process, except (i) when and to the extent any of the Restricted
-2-
<PAGE> 27
Shares shall have vested in the Grantee in accordance with this Agreement or
(ii) otherwise as determined by the Committee in accordance with the 1995 Plan.
If the Grantee attempts to alienate, assign, pledge, hypothecate or otherwise
dispose of any of the Restricted Shares or any rights under this Agreement,
except as provided for herein, or in the event of any levy or any attachment,
execution or similar process upon any of the Restricted Shares or the rights
hereby conferred, the Company may terminate this Agreement by notice to the
Grantee and cancel on its books the Restricted Shares issued to the Grantee
pursuant to Section 2.
4. Forfeiture. Any Restricted Shares which do not vest in the
Grantee or other permitted persons in accordance with Section 5 shall be
automatically forfeited to the Company and the Company shall cancel such
Restricted Shares on its books. The Grantee shall, immediately on demand from
the Company, deliver to the Company for cancellation each stock certificate
issued to the Grantee representing any forfeited Restricted Shares. All rights
and interests of the Grantee in and to such forfeited Restricted Shares,
including the right to any accrued dividends thereon, shall terminate upon
forfeiture.
5. Vesting of Restricted Shares.
(a) Subject to Sections 5(b) through (d), the Restricted
Shares shall vest (i) upon the achievement of the conditions, and to the
extent, set forth in Exhibit A attached hereto as of the Early Vesting Date, as
defined in Exhibit A, provided that the Grantee is employed by, or associated
with, the Company or a direct or indirect subsidiary thereof on such date; and
(ii) in full as to all remaining Restricted Shares on the fifteenth anniversary
of the date hereof, provided that the Grantee is employed by, or associated
with, the Company or a direct or indirect subsidiary thereof on such date (the
Restricted Shares that shall have vested in accordance with this Section 5
referred to as the "Vested Shares").
(b) Notwithstanding the foregoing, in the event of the
Grantee's death prior to the vesting of all of the Restricted Shares pursuant
to Section 5(a), and while the Grantee is employed by, or associated with, the
Company or a direct or indirect subsidiary thereof, the Restricted Shares shall
immediately vest in full, in (i) such person(s) as the Grantee may designate in
a writing duly delivered to the Company (in the form available from the Company
for such purpose), or, in the absence of such a designation, (ii) the Grantee's
estate.
(c) In the event of a Change in Control of the Company prior
to the vesting of all of the Restricted Shares pursuant to Section 5(a), and
while the Grantee is employed by, or associated with, the Company or a direct
or indirect subsidiary thereof, the Restricted Shares shall immediately vest in
full in the Grantee.
-3-
<PAGE> 28
(d) If the Grantee's employment or association with the
Company or its direct or indirect subsidiaries is terminated for any reason
other than those specified in Sections 5(b) and (c) above, including, without
limitation, because the Grantee is deemed by the Company to be disabled or by
voluntary termination by the Grantee or the Company or any of its direct or
indirect subsidiaries, whether or not for cause, in any case prior to the
vesting of all of the Restricted Shares pursuant to Section 5(a), then, except
as otherwise determined by the Committee in accordance with the 1995 Plan, all
such Restricted Shares shall automatically be forfeited to the Company on and
as of the date of such termination.
6. Removal of Legend. After any of the Restricted Shares
shall have vested pursuant to Section 5 and the restrictions thereon have
lapsed, the Grantee or such other person or persons in whom the Vested Shares
have vested shall be entitled to have the restrictive legend removed from each
certificate representing the Vested Shares and to have a new, unlegended
certificate representing the Vested Shares delivered to him. The Grantee shall,
promptly following the Committee's determination that Restricted Shares have
vested, deliver to the Company each stock certificate issued to the Grantee
representing any Vested Shares. The Company shall, as soon as practicable
thereafter, issue to the Grantee an unlegended stock certificate representing
the Vested Shares and a stock certificate containing the legend set forth in
Section 2 representing the remaining Restricted Shares, if any. The Grantee
shall be free to hold or dispose of the Vested Shares subject to applicable
securities laws.
7. General Provisions.
(a) Administration and Construction. The award of the
Restricted Shares is made to the Grantee pursuant to the 1995 Plan and is
subject to the terms and conditions thereof. The 1995 Plan is administered by
the Company's Stock Incentive Plan Committee (the "Committee"). All
determinations and acts of the Committee as to any matters concerning the Plan,
including interpretations or constructions of this Agreement and of the Plan,
shall be conclusive and binding on the Grantee and any parties claiming through
the Grantee. Without limiting the generality of the foregoing, any
determination as to whether or not, and the extent to which, the conditions set
forth in Exhibit A for early vesting of Restricted Shares have been met by the
Company, or whether or not any other event has occurred or failed to occur
which causes the Restricted Shares or any of them to be vested or forfeited
pursuant to this Agreement or the 1995 Plan, shall be made by the Committee in
accordance with the SSSP and the 1995 Plan.
(b) Conditions to Issuance of Restricted Shares.
Notwithstanding anything contained herein to the contrary, the shares of
Restricted Stock issuable to the Grantee may be issued from either previously
authorized but unissued shares of Common Stock, or issued shares which have
been reacquired by the Company. The Company may postpone the time of delivery
of certificate(s) representing any Restricted Shares or Vested Shares for such
-4-
<PAGE> 29
time as the Company shall deem necessary or desirable to enable it to comply
with the requirements of any securities exchange upon which the Common Stock
may be listed, or the requirements of the Securities Act of 1933, as amended,
the Securities Act of 1934, as amended, any rules or regulation of the
Securities and Exchange Commission promulgated thereunder, or any applicable
state laws relating to the authorization, issuance or sale of securities.
(c) Withholding. The Company shall have the right to withhold
from any payments to be made to the Grantee (whether under this Agreement or
otherwise) any taxes the Company determines it is required to withhold with
respect to the award of the Restricted Shares under the laws and regulations of
any governmental authority, including, without limitation, taxes in connection
with the issuance or transfer of any of the Restricted Shares or the lapse of
restrictions on any of the Restricted Shares.
(d) Agreement Binding. This Agreement shall be binding upon
and inure to the benefit of the Company, its successors and assigns, including
any assignee of the Company and any successor to the Company by merger,
consolidation or otherwise, and the Grantee and his heirs, devises and legal
representatives.
(e) No Employment Rights. None of the award of the Restricted
Shares, entry into this Agreement, adoption of the SSSP or the 1995 Plan
confers upon the Grantee any right to continued employment by, or association
with, the Company or any of its direct or indirect subsidiaries, or shall in
any way affect the right of the Company or any of its direct or indirect
subsidiaries to dismiss, or otherwise terminate the employment, or association
with the Company, of the Grantee at any time for any reason or no reason, and
without liability therefor. Neither the Company nor any of its direct or
indirect subsidiaries shall have any liability for or in respect of any
forfeiture of Restricted Shares which may result under this Agreement if the
Grantee's employment or association is so terminated. The award of the
Restricted Shares shall not be deemed a part of the Grantee's regular,
recurring compensation for any purpose, including, without limitation, for the
purposes of any termination indemnity or severance pay law of any jurisdiction.
(f) Recapitalization. In the event of (i) any change in the
outstanding Common Stock by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger or similar
event, (ii) any other change affecting the Common Stock or any distribution
(other than normal cash dividends) to holders of Common Stock, or (iii) a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Restricted Shares shall be treated in the
same manner as the Common Stock generally, subject to the restrictions
contained in this Agreement.
(g) Notices. Each notice relating to this Agreement and the
Restricted Shares shall be in writing and delivered in person or by certified
-5-
<PAGE> 30
mail to the proper address. All notices to the Company shall be addressed to it
at its offices at 500 Northwest 12th Avenue, Deerfield Beach, Florida 33442,
attention of the Committee, c/o the Company's Secretary, and shall become
effective when received by the Secretary. All notices to the Grantee or other
person or persons then entitled to exercise any rights with respect to this
Agreement shall be addressed to the Grantee or such other person or persons at
the Grantee's address shown in the records of the Company. Anyone to whom a
notice may be given under this Agreement may designate a new address by notice
to that effect.
-6-
<PAGE> 31
(h) Governing Law. This Agreement and all determinations
made and actions taken pursuant hereto, to the extent not otherwise governed by
the Internal Revenue Code of 1986, as amended from time to time, or the
securities laws of the United States, shall be governed by and construed under
the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and the Grantee has signed his
name, as of the date first written above.
SENSORMATIC ELECTRONICS CORPORATION
(CORPORATE SEAL)
By:____________________________________
Name:
Attest: Title:
______________________________________
Secretary
____________________________________
Grantee
-7-
<PAGE> 1
EXHIBIT 10(s)
TERMINATION AGREEMENT
AGREEMENT, dated as of June 5, 1995, between SENSORMATIC
ELECTRONICS CORPORATION, a Delaware corporation (the "Company"), and MICHAEL E.
PARDUE ("Pardue").
W I T N E S S E T H:
WHEREAS, Pardue has served the Company in various management
capacities since 1978, including service as its Executive Vice President and
Chief Operating Officer since September 1988, and has been a director of the
Company since 1992;
WHEREAS, Pardue has announced his intention to resign his
offices and retire as of June 30, 1995;
WHEREAS, Pardue is entitled to receive from the Company, (i)
after age 60, payments over a period of 15 years under the Company's Executive
Salary Continuation Plan and Senior Executive Retirement Plan and (ii) amounts
on account of accrued and unused vacation and sick days and for reimbursement
of expenses incurred by Pardue in accordance with the Company's expense
reimbursement policies, and the Company has determined to pay Pardue a bonus
for the Company's 1995 fiscal year and to pay amounts in connection with his
non-competition covenant set forth below; and
WHEREAS, the Company and Pardue wish to set forth their
agreement as to these and certain other matters in connection with the
termination of Pardue's employment;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements set forth herein, the parties agree as follows:
1. RESIGNATION AND TERMINATION OF EMPLOYMENT. Effective
at the close of business on June 30, 1995 (the "Effective Date"), Pardue's
employment with the Company shall terminate and Pardue shall resign from the
offices of Executive Vice President and Chief Operating Officer and as a
director of the Company, and from all offices and directorships that he holds
with any of the Company's subsidiaries or affiliates. Concurrently with the
execution of this Agreement, Pardue has delivered to the Company a signed
letter of resignation to such effect.
2. PAYMENTS. The Company shall make payments to Pardue
on account of the amounts referred to in the third recital of this Agreement
(and reflecting discounting of future payments) as follows: July 1, 1995,
$500,000; July 1, 1996, $279,000; and July 1, 1997, $250,000; provided,
however, that the payments due in 1996 and 1997 shall not be made if Pardue
breaches any of the provisions of Sections 7, 8 or 9.
3. OPTIONS. As of the date of this Agreement, Pardue
holds (a) non-qualified options to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $23.00
<PAGE> 2
per share, granted January 22, 1993, and which are scheduled to vest on January
22, 1996, (b) non-qualified options to purchase 35,000 shares of the Company's
Common Stock at an exercise price of $31.625 per share, granted April 18, 1994,
and which are scheduled to vest on April 18, 1999 (or earlier, if the market
price of the Common Stock appreciates above $42.70 per share), (c)
non-qualified options to purchase 35,000 shares of the Company's Common Stock
at an exercise price of $28.50 per share, granted February 3, 1995, and which
are scheduled to vest on February 3, 2000 (or earlier after February 3, 1996,
if such market price appreciates above $38.48 per share), and (d) long-term
stock options under the Company's Success Sharing Plan to purchase 38,000
shares of the Company's Common Stock and 11,800 shares of Restricted Stock
under such Plan, none of which are vested.
Notwithstanding the termination of Pardue's employment, the
options referred to in clauses (a) and (b) above shall not terminate on such
event, but shall continue in full force and effect for the full terms of such
options and in accordance with the respective terms and conditions of the
related option agreements (including those with respect to vesting); provided,
however, that if Pardue breaches any of the provisions of Sections 7, 8 or 9,
any of such options which are outstanding at such time shall thereupon
automatically terminate without any further action by the Company. The options
and restricted stock referred to in clauses (c) and (d) above shall be canceled
and shall be of no further force or effect as of the Effective Date.
4. MEDICAL AND DENTAL PLAN COVERAGE. On and after the
Effective Date and until such time, if any, as Pardue begins full-time
employment with another employer which makes available to Pardue medical and
dental coverage comparable to that which the Company currently provides to
Pardue (but otherwise without time limit other than as provided below), the
Company shall make available to Pardue standard family medical and dental
coverage for Pardue under, and subject to the terms and conditions of, such
group medical and dental insurance plans as the Company makes available
generally for its employees from time to time (currently the Jefferson-Pilot
medical and dental plans); provided, however, that Pardue shall be responsible
for reimbursing to the Company, on demand, all premiums for such coverage (or
the equivalent thereof, if such coverage is self-insured by the Company) and
for paying an administrative charge equal to 2% of such premiums (or such other
like charge as is then standard for the Company). The Company's obligations
under this Section 4 shall cease when Pardue reaches age 65, unless the
Company's group plan coverage is extended beyond age 65, in which case the
Company's obligations shall cease when Pardue reaches the maximum age allowed
under such extended coverage. It is agreed that the first 18 months of this
arrangement shall fulfill the Company's obligations to Pardue under COBRA.
Nothing in this Section 4 shall be construed to require the Company to
institute or maintain any or any particular benefit plan, program or policy.
5. RETIREMENT PLANS. The Company shall make its matching
and Corporate Profit-Sharing contributions to Pardue's accounts in the
Company's SensorSave Plan (401-K Plan) and Employee Stock Ownership Plan for
the 1995 fiscal year. Pardue shall have such rights with respect to his
participation and accounts in the Company's SensorSave Plan (401-K Plan) and
Employee Stock Ownership Plan, regarding retention, distribution, rollover and
otherwise, as are provided under the terms of such plans.
-2-
<PAGE> 3
6. AUTOMOBILE. Pardue shall continue to have use of the
Lexus automobile that the Company currently leases and provides to him for his
use. The Company shall be responsible for all payments under the lease for such
automobile, as well as maintaining required insurance thereon, and Pardue shall
be responsible for all related repair, maintenance and fuel costs for such
automobile. This arrangement shall terminate at the end of the lease term for
such vehicle on February 26, 1996.
7. NON-COMPETITION. In consideration of payments and
accommodations to be made to Pardue pursuant to Sections 2, 3, 4 and 6, Pardue
agrees that, until July 1, 1997 and thereafter so long as any of the options
referred to in clauses (a) or (b) of Section 3 remain in effect, he shall not,
anywhere in the State of Florida, the United States or elsewhere in the world
(or for such lesser area or such lesser period as may be determined by a court
of competent jurisdiction to be a reasonable limitation on the competitive
activity of Pardue), directly or indirectly:
(a) engage in the business of manufacturing, leasing,
selling, promoting, marketing, maintaining or servicing anti-shoplifting, theft
detection, inventory control, exception monitoring, closed-circuit television,
access control or article surveillance devices which are similar to or
accomplish results similar to the Company's systems and products;
(b) otherwise engage in competition with the Company;
(c) solicit or attempt to solicit business of any
customer or prospective customer of the Company to whom proposals have been
made, for products or services the same or similar to those offered or provided
or under development by the Company;
(d) otherwise divert or attempt to divert any business
from the Company;
(e) solicit or attempt to solicit for any business
endeavor any employee of the Company;
(f) interfere with any business relationship between the
Company and any other party; or
(g) render any services as an officer, director,
employee, partner, consultant or otherwise to, or have any interest as a
stockholder, partner, lender or otherwise in, any person or entity which is
engaged in activities which, if performed by Pardue, would violate this Section
7.
The foregoing shall not prevent Pardue from purchasing or owning up to 5% of
the voting securities of any corporation, the securities of which are
publicly-traded. For the purposes of this Section 7 and of Section 8,
references to the Company include its affiliates, including distributors,
licensees and franchisees, subsidiaries and joint ventures.
-3-
<PAGE> 4
8. CONFIDENTIALITY.
(a) As a result of his employment with the Company,
Pardue has become informed of, and has had access to, certain information which
the Company regards as valuable and confidential, including, without
limitation, patent rights, inventions, technical information, know-how and
trade secrets relating to the Company's products and product research and
development, as well as business plans, projections and other information
relating to the business, affairs, finances and prospects of the Company
(together, "Information"). Pardue agrees and acknowledges that the Information,
even whether or not it is novel or unique or known to others, is the exclusive,
valuable, confidential property of the Company, to be held by Pardue in trust
and solely for the Company's benefit. Accordingly, at all times after the date
hereof, and in consideration of the payments, option extensions and other
accommodations to be made to Pardue pursuant to Sections 2(a), 3, 4 and 6,
Pardue agrees that he shall not, except as may be specifically requested or
consented to by the Company, use or disclose to any third party any
Information. This obligation shall not apply to any Information (i) to the
extent that becomes generally known to the public from authorized sources other
than Pardue or (ii) which Pardue is required by law to disclose (but only to
the extent required to be so disclosed and only after Pardue first timely
notifies the Company of any demand or requirement that he make such disclosure,
so that the Company shall have a reasonable time to seek a protective order or
other appropriate relief).
(b) On or before the Effective Date, Pardue shall
promptly deliver to the Company all material in his possession or control
containing Information (whether or not marked as confidential), including,
without limitation, financial statements or projections, drawings, letters,
notes, notebooks, reports and customer and suppliers lists, and all copies
thereof, other than any such material which the Company specifically agrees he
may retain.
9. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES. Pardue
shall (without any additional compensation) promptly disclose in writing to the
Board of Directors of the Company all ideas, formulas, programs, systems,
devices, processes, discoveries and inventions (together, "Discoveries")
whether or not patentable, which he, (i) in the course of performing services
for the Company at any time prior to the Effective Date, conceived, made,
developed, acquired or reduced to practice, or (ii) after the Effective Date,
through July 1, 1997 and thereafter so long as any of the options referred to
in clauses (a) or (b) of Section 3 remain in effect, conceives, makes,
develops, acquires or reduces to practice, in either case, whether alone or
with others and whether during or after usual working hours, and which are
related to the Company's business, or are used or usable by the Company in its
business. Pardue hereby transfers and assigns to the Company all right, title
and interest in and to any Discoveries, including any and all domestic and
foreign patent rights therein and any renewals thereof. On request of the
Company, Pardue shall (without any additional compensation), from time to time,
execute such further instruments (including, without limitation, applications
for letters patent and assignments thereof) and do all such other acts and
things as may be deemed necessary or desirable by the Company to protect or
enforce its rights in respect of the Discoveries. All expenses of filing or
prosecuting any patent applications
-4-
<PAGE> 5
shall be borne by the Company, but Pardue shall cooperate in filing and
prosecuting any such applications.
10. REMEDIES. Because the Company does not have an
adequate remedy at law to protect its business from Pardue's unfair competition
or to protect its interest in the Information and similar commercial assets,
the Company shall be entitled to injunctive relief, in addition to such other
remedies and relief that would, in the event of a breach of the provisions of
Sections 7, 8 or 9, be available to it. In the event of such a breach, in
addition to any other remedies, the Company shall be entitled to receive from
Pardue reimbursement for its reasonable attorneys' fees and disbursements
incurred in successfully enforcing any such provision.
11. TERMINATION OF PRIOR AGREEMENTS. On the Effective
Date, any agreements between the Company and Pardue relating to his employment
or employee benefits, other than this Agreement, shall terminate and be of no
further force or effect.
12. LITIGATION COOPERATION. From time to time, as
requested by the Company, Pardue shall make his time and attention reasonably
available to, and shall cooperate with, the Company with respect to any aspect
of any litigation or governmental proceedings involving the Company regarding
periods during which he was an employee of the Company and a reasonable period
thereafter. The Company shall reimburse Pardue for any travel, lodging and
other expenses he reasonably incurs in this regard, in accordance with the
Company's standard reimbursement policies. In addition, the Company shall pay
Pardue a per diem fee for such advice and consultation of $1,000 per 8-hour day
or portion thereof; provided, however, that during the first three years of
this Agreement, such per diem fee shall be payable only to the extent that such
services entail more than 10 days per year.
13. RELEASE. Pardue, in consideration of good and
valuable consideration received and to be received from the Company hereunder,
the sufficiency of which is acknowledged, releases and discharges the Company,
and its officers, directors, shareholders, employees, agents, attorneys and
affiliates and its and their respective heirs, personal representatives,
successors and assigns (together, the "Company Releasees"), of and from all
claims, demands, causes of action, suits, actions, proceedings, judgments,
debts, damages, liabilities and obligations, at law, equity or otherwise,
including, without limitation: any federal, state, local or administrative
Equal Employment Opportunity or other claims arising under the Civil Rights
Acts of 1866, 1870 and 1871, the Equal Pay Act of 1963, Title VII of the Civil
Rights Act of 1964, as amended, the Age Discrimination in Employment Act of
1967, as amended, The Civil Rights Act of 1968, the Rehabilitation Act of 1973,
the Vietnam-Era Veterans' Readjustment Assistance Act of 1974, the Veteran's
Reemployment Rights Act, the Immigration Reform and Control Act, the Americans
with Disabilities Act of 1990, the Civil Rights Act of 1991, the Florida Civil
Human Rights Act, the Florida Wage Discrimination Law and any applicable
federal, state, or local anti-discrimination or equal employment opportunity
statues or regulations, including, without limitation, any fair employment or
human rights ordinance of any municipality or county in the State of Florida;
which Pardue or his heirs, personal representatives, successors and assigns
had, have or may hereafter have against the Company Releasees for, on or by
-5-
<PAGE> 6
reason of any matter, cause or thing whatsoever from the beginning of the world
to the date hereof; except that, Pardue in no way releases or discharges the
Company's obligations under this Agreement. Nothing herein shall be construed
as an admission by the Company that Pardue has any claim against it. Pardue and
his heirs, personal representatives, successors and assigns, further waive any
and all manner of notice, knowledge or discovery of any and all such actual or
alleged claims of cause of action.
14. ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding of the parties with respect to its subject matter, merges
and supersedes any prior or contemporaneous understandings with respect to its
subject matter, and shall not be modified or terminated except by a written
instrument executed by the Company and Pardue. Failure of a party to enforce
one or more of the provisions of this Agreement or to require at any time
performance of any of the obligations hereunder shall not be construed to be a
waiver of such provisions by such party nor to in any way affect the validity
of this Agreement or such party's right thereafter to enforce any provision of
this Agreement, nor to preclude such party from taking any other action at any
time which it would legally be entitled to take.
15. SEVERABILITY. If any provision of this Agreement is
held to be invalid or unenforceable by any court or tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and such provision shall be carried out as nearly as possible
according to its original terms and intent to eliminate such invalidity or
unenforceability. In this regard, the Company and Pardue agree that the
provisions of Section 7, including, without limitation, the scope of its
territorial and time restrictions, are reasonable and necessary to protect and
preserve the Company's legitimate interests. If the provisions of Section 7 are
held by a court of competent jurisdiction to be in any respect unreasonable,
then such court may reduce the territory or time to which it pertains or
otherwise modify such provisions to the extent necessary to render such
provisions reasonable and enforceable.
16. SUCCESSORS AND ASSIGNS. Pardue shall have no right to
assign this personal Agreement, or any rights or obligations hereunder, without
the consent of the Company. On the sale of all or substantially all of the
assets of the Company to another party, or on the merger of the Company with
another corporation, this Agreement shall inure to the benefit of, and be
binding on, both Pardue and the party purchasing such assets or surviving such
merger in the same manner and to the same extent as though such other party
were the Company. Subject to the foregoing, this Agreement shall inure to the
benefit of, be binding on and be enforceable by, the parties and their
respective heirs, personal representatives, successors and assigns.
17. COMMUNICATIONS. All notices, consents and other
communications given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered by hand or by Federal Express
or a similar overnight courier to, (b) five days after being deposited in any
United States post office enclosed in a postage prepaid registered or certified
envelope addressed to, or (c) when successfully transmitted by telecopier (with
a confirming copy of such communication to be sent as provided in (a) or (b)
above) to, the party for whom intended, at the address or telecopier number for
-6-
<PAGE> 7
such party set forth below, or to such other address or telecopier number as
may be furnished by such party by notice in the manner provided herein;
provided, however, that any notice of change of address or telecopier number
shall be effective only upon receipt.
-7-
<PAGE> 8
If to the Company: If to Pardue:
Sensormatic Electronics Corporation Mr. Michael E. Pardue
500 N. W. 12th Avenue 1615 Lands End Road
Deerfield Beach, Florida 33432-1795 Manalpan, Florida 33462
Attention: Mr. Ronald G. Assaf Telecopier No.: (407) 586-8957
Telecopier No.: (305) 421-5433
18. CONSTRUCTION; COUNTERPARTS. The headings contained in
this Agreement are for convenience only and shall in no way restrict or
otherwise affect the construction of the provisions hereof. References in this
Agreement to Sections are to the sections of this Agreement. This Agreement may
be executed in multiple counterparts, each of which shall be an original and
all of which together shall constitute one and the same instrument.
19. GOVERNING LAW. This Agreement shall be governed by
the laws of the State of Florida applicable to agreements made and fully to be
performed in such state, without giving effect to conflicts of law principles.
20. CONSENT TO JURISDICTION. Each party irrevocably
submits to the jurisdiction and venue of the federal and state courts sitting
in Broward or Palm Beach Counties, Florida, and waives any and all objections
it may have with respect to the jurisdiction of such forums or the
inconvenience of such forums or venues, in connection with any action to
enforce any provision of this Agreement or any dispute or controversy arising
hereunder, and agrees that service may be served on him or it by mail, personal
service or such other manner as may be permissible under the rules of the
applicable jurisdiction.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement as of the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION
By /s/ Ronald G. Assaf
-------------------------------------
Ronald G. Assaf
President
/s/ Michael E. Pardue
-------------------------------------
MICHAEL E. PARDUE
-8-
<PAGE> 1
EXHIBIT 10(t)
NATIONAL UNION
FIRE INSURANCE COMPANY
OF PITTSBURGH, PA.
444-19-67
A CAPITAL STOCK COMPANY RENEWAL OF:
ADMINISTRATIVE OFFICES: 440-30-94
70 PINE STREET, NEW YORK, N.Y. 10270-0150
DIRECTORS AND OFFICERS INSURANCE AND COMPANY REIMBURSEMENT POLICY
NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE
OF THIS POLICY IS LIMITED GENERALLY TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE
FIRST MADE AGAINST THE INSUREDS AND REPORTED TO THE INSURER DURING THE POLICY
PERIOD. PLEASE READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE THEREUNDER
WITH YOUR INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL
BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL
DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT.
NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND; HOWEVER, THE INSURER
MAY, AND IN CERTAIN CIRCUMSTANCES MUST, ADVANCE DEFENSE COSTS PAYMENTS PRIOR TO
THE FINAL DISPOSITION OF A CLAIM.
DECLARATIONS
ITEM 1. NAMED CORPORATION: SENSORMATIC ELECTRONICS CORP.
MAILING ADDRESS: 500 NH 12TH AVE
DEERFIELD BEACH, FL 33442
STATE OF INCORPORATION OF THE NAMED CORPORATION:
Delaware
ITEM 2. SUBSIDIARY COVERAGE: any PAST, present or future Subsidiary of the
Named Corporation
ITEM 3. POLICY PERIOD: From December 15, 1994 to December 15, 1995
(12:01 A.M. Standard Time at the address stated In Item 1)
ITEM 4. LIMIT OF LIABILITY: $10,000,000 aggregate for Coverages A
and B combined (including Defense
Costs)
ITEM 5. RETENTION:
Company Reimbursement and indemnifiable Loss: $500,000 for Loss arising from
claims alleging the same Wrongful Act or
<PAGE> 2
ITEM 6. PREMIUM: $225,000 related Wrongful Acts.
--------
JAYME PAYNE
Jan 11, 1995
------------
SEDGWICK JAMES OF PENNSYLVANIA Authorized Representative
600 GRANT STREET, ST[. #5300
USX TONER
PITTSBURGH, PA 15219
131447 Countersignature Countersigned
47352 (8/88) Date At
I
NATIONAL UNION
FIRE INSURANCE COMPANY
OF PITTSBURGH PA. POLICY NUMBER:
444-19-67
A CAPITAL STOCK COMPANY RENEWAL OF:
ADMINISTRATIVE OFFICES: 440-30-94
70 PINE STREET, NEW YORK, N.Y. 10270-0150
DIRECTORS AND OFFICERS INSURANCE AND COMPANY REIMBURSEMENT POLICY
NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE
OF THIS POLICY IS LIMITED GENERALLY TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE
FIRST MADE AGAINST THE INSUREDS AND REPORTED TO THE INSURER DURING THE POLICY
PERIOD. PLEASE READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE THEREUNDER
WITH YOUR INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL
BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL
DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT.
NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND; HOWEVER, THE INSURER
MAY, AND IN CERTAIN CIRCUMSTANCES MUST, ADVANCE DEFENSE COSTS PAYMENTS PRIOR TO
THE FINAL DISPOSITION OF A CLAIM.
DECLARATIONS
ITEM 1. NAMED CORPORATION: SENSORMATIC ELECTRONICS CORP.
MAILING ADDRESS: 500 NM 12TH AVE
flffRfIfLD BEACH, FL 33442
STATE OF INCORPORATION OF THE NAMED CORPORATION:
Delaware
ITEM 2. SUBSIDIARY COVERAGE: ANY PAST, PRESENT or future Subsidiary OF THE
NAMED Corporation
<PAGE> 3
ITEM 3. POLICY PERIOD: From December 15, 1994 to December 15, 1995
(12:01 A.M. Standard Time at the address stated In Item 1)
ITEM 4. LIMIT OF LIABILITY: $10,000,000 aggregate for Coverages
A and B combined
(including Defense Costs)
ITEM 5. RETENTION:
Company Reimbursement and indemnifiable Loss: $500,000 for Loss
arising from claims alleging the same Wrongful Act or
related Wrongful Acts.
ITEM 6. PREMIUM: $225,000
--------
JAYME PAYNE
Jan 11, 1995
------------
SEDGWICK JAMES Of PENNSYLVANIA Authorized Representative
600 GRANT STREET, STE. #5300
USX TONER
PITTSBURGH, PA 15219
131447 Countersignature Countersigned
47352 (8/88) DATE AT
<PAGE> 4
FINANCIAL PRODUCTS INSURANCE POLICY
NDA 0106919-94
--------------
POLICY NUMBER
RELLIANCE INSURANCE COMPANY
Coverage provided In the Company designated by
Each is a stock insurance company, herein called the Underwriters.
6 UNITED PACIFIC INSURANCE
COMPANY Philadelphia, Pennsylvania
NOTICE: THIS IS A CLAIMS MADE POLICY. EXCEPT AS MAY BE OTHERWISE PROVIDED
HEREIN,THE COVERAGE OF THIS POLICY IS LIMITED TO LIABILITY FOR ACTS COVERED BY
UNDERLYING INSURANCE (ITEM D.) FOR WHICH CLAIMS ARE FIRST MADE AGAINST THE
INSURED(S) WHILE THE POLICY IS IN FORCE. THIS POLICY DOES NOT PROVIDE FOR
THE UNDERWRITERS TO DEFEND THE INSURED AND ANY DEFENSE COSTS AND OTHER COSTS
AND OTHER CLAIM EXPENSE
THE POLICY ARE PART OF AND NOT IN ADDITION TO THE LIMIT OF
LIABILITY. PLEASE READ AND REVIEW THE POLICY CAREFULLY
DECLARATIONS
ITEM A. Name of Insured: (hereinafter called the "Insured") SENSORMATIC
ELECTRONICS CORPORATION
Address of Insured: 500 Northwest 12th Avenue
Deerfield Beach, FL 33442
B. Policy Period: from 12:01 a.m. on December 15, 1994
To 12:01 a.m. on December 15, 1995
(Standard Time at the address stated in Item A)
ITEM C. Limit of Liability $ 10,000,000 Aggregate each Policy Year,
Including claim expense.
ITEM D. SCHEDULE OF UNDERLYING INSURANCE:
11) Primary Policy:
Company: National Union Fire Insurance Company
<PAGE> 5
Policy Number: 444-19-67
Limit of Liability: $10,000,000
12) Underlying Excess Policy(ies): N/A
ITEM E. ENDORSEMENTS EFFECTIVE AT INCEPTION: R035 R013 R016 END.4END.5 END.6
END.7
ITEM F. TERMINATION OF PRIOR POLICY(IES): NDA 0106919-93
ITEM G. DISCOVERY CLAUSE:
(1) Additional Premium: $70,650
(2) Additional Period: One Year
ITEM H. POLICY PERIOD PREMIUM: $94,200
September 11, 1995
------------------
Authorized Representative Date
DO 00 R034 0594
<PAGE> 6
CHUBB GROUP OF INSURANCE COMPANIES
"UE3E3 15 MOUNTAIN VIEW ROAD, Warren, NEW JERSEY 07059
Item 1. Parent Corporation:
SENSORMATIC ELECTRONICS CORPORATION
Item 2. Principal Address:
500 Northwest 12th Avenue
Deerfield Beach, FL 33442
DECLARATIONS
DIRECTORS AND OFFICERS LIABILI"
AND REIMBURSEMENT EXCESS
Policy Number 8142-09-26
FEDERAL INSURANCE COMPANY
Incorporated under THE LAWS of INDIANA,
a STOCK INSURANCE COMPANY, HEREIN CALLED THE COMPANY
Item 3. Limit of Liability:
Each Policy Year $io,ooo,ooo.
Item 4. Underlying Policy(ies):
(A) Primary Policy: See Endorsement #1
(B) Other Policy(ies): See Endorsement #1
<PAGE> 7
Item 5. Policy Period:
From 12:01 A.M. December 15, 1994 TO 12:01 A.M. December 15, 1995
Item 6. Endorsement(s) Effective At Inception: I through 5
Item 7. Termination of Prior Policy(ies): NONE
IN WITNESS WHEREOF, the Company issuing this policy has caused this policy to
be signed by its Authorized Officers, but it shall not be valid unless also
signed by a duly authorized representative of the Company.
FEDERAL INSURANCE COMPANY
SECRETARY
Authorized Representative
Mark S. Lamendola
Date
01/05/95 nr
FOWN 14-02-207 (ED. 4-80) (@T 1-81) MAJR-5@O (LM)
Page 1 of 4
<PAGE> 8
CHUBB GROUP OF INSURANCE COMPANIES
IL-A
OMUE3E3 15 Mountain View Road, Warren, NJ 07059
ENDORSEMENT
Company: FEDERAL INSURANCE COMPANY
Effective date of
this endorsement: December 15, 1994 Endorsement No. I
To be attached to and form part of
Policy No. 8142-09-26
Issued to: SENSORMATIC ELECTRONICS CORPORATION
It is agreed that Item 4., Underlying Policy(ies) shall read as follows:
(A) Primary Policy: National Union Fire Insurance Company
of Pittsburgh, PA
Policy No.: 444-19-67
Policy Period: From 12:01 A.M. on December 15,
1994
To 12:01 A.M. on December 15, 1995
Limit of Liability: $10,000,000.
(B) Other Policy(ies): Reliance Insurance Company
Policy No.: NDA 0106919-94
Policy Period: From 12:01 A.M. on
December 15, 1994
To 12:01 A.M. on December 15, 1995
Limit of Liability: $10,000,000.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED
Authorized Employee (Mark S. Lamendola)
January 5, 1995 nr
Date
<PAGE> 9
FORM 14-02-236 (ED. 1-81)
MAIR 48193 (15M)
<PAGE> 1
Exhibit 11
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In thousands)
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------
Income: 1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Income from continuing operations $69,551 $72,065 $54,084
Discontinued operations 4,100 - -
------- ------- -------
73,651 72,065 54,084
Add interest expense (net of tax) on 7% convertible
subordinated debentures - 4,902 5,133
------- ------- -------
Adjusted net income for fully diluted computation $73,651 $76,967 $59,217
======= ======= =======
Common shares (1):
Weighted average shares outstanding during the year 71,982 60,097 54,179
Potential dilutive exercise of stock options
and warrants (2) 176 1,788 1,849
-------- ------- -------
Shares included in computation of primary
earnings per share 72,158 61,885 56,028
Shares issuable on conversion of 7%
convertible subordinated debentures - 6,359 7,287
Maximum dilution of stock options and warrants (3) 187 99 317
------- ------- -------
Shares included in computation of fully diluted
earnings per share 72,345 68,343 63,632
======== ======= =======
</TABLE>
(1) Share amounts reflect the three-for-two stock split declared in
November 1993.
(2) Computed under the treasury stock method based on the average price
during the periods.
(3) Computed under the treasury stock method based on stock price at end
of periods if higher than the average price during the periods.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES (1)
OCTOBER 9, 1995
<TABLE>
<CAPTION>
Place of Incorporation
or Organization
-------------------------
OPERATING COMPANIES
- -------------------
<S> <C>
North America
- -------------
American Dynamics New Jersey
CamEra Inc. Delaware
Glen Industrial Communications, Inc. Delaware
POS Data Products, Inc. Delaware
Robot Research Inc. Delaware
Sensormatic Canada, Inc. Canada
Sensormatic Electronics Corporation (Puerto Rico) Delaware
Sensormatic, SA de CV Mexico
Sensormatic del Caribe, Inc. Puerto Rico
Software House, Inc. Delaware
Europe
- ------
All Security Systems N.V. Belgium
BAN Sensormatic Security Systems G.m.b.H. Germany
Case Security Limited United Kingdom
Knogo Australia Pty. Ltd. Australia
Knogo S.A. Belgium
Knogo Nederland B.V. Netherlands
Secure Imaging Limited United Kingdom
Sensormatic AB Sweden
Sensormatic A.G. Switzerland
Sensormatic A/S Denmark
Sensormatic AS Norway
Sensormatic Belgium NV Belgium
Sensormatic B.V. The Netherlands
Sensormatic CamEra Ltd. United Kingdom
Sensormatic CamEra S.A.R.L. France
Sensormatic Distribution Inc. Delaware (primary
operation
in Switzerland)
Sensormatic E.C., S.A. Spain
Sensormatic E.C., S.R.L. Italy
Sensormatic France SA France
Sensormatic Ges.m.b.H. Austria
Sensormatic G.m.b.H. Germany
Sensormatic Electronics Corporation
(Ireland) Limited Ireland
Sensormatic Finance Limited United Kingdom
SEC Investments of Ireland Ireland
Sensormatic Ireland Limited Ireland
Sensormatic International Ltd. United Kingdom
Sensormatic Portugesa Seguranca L.D.A. Portugal
Sensormatic Proteccao Contra O Furto, L.D.A. Portugal
Sensormatic Limited United Kingdom
N.V. Sensormatic S.A. Belgium
</TABLE>
<PAGE> 2
Exhibit 21
LIST OF SUBSIDIARIES (1)
OCTOBER 9, 1995
(CONT'D)
<TABLE>
<CAPTION>
Place of Incorporation
or Organization
-----------------------
Europe (Cont'd)
- ---------------
<S> <C>
Sensormatic OY Finland
Sensormatic Kft. Hungary
Sensormatic France Services S.A.R.L. France
Svensk Sakerhetskonsult SAKON AB Sweden
Visual Information Systems Limited United Kingdom
Asia/Pacific
- ------------
Sensormatic Asia/Pacific, Inc. Delaware (primary
operation in
Singapore)
Sensormatic Australia Pty Limited Australia
Sensormatic Hong Kong Limited Hong Kong
Sensormatic New Zealand Limited New Zealand
OTHER SUBSIDIARIES
- -------------------
Sensormatic Middle East, Inc. Delaware
Senelco Iberia, Inc. Delaware
International Financing, Inc. Delaware
Sensormatic (Barbados) Export, Inc. Barbados
Sensormatic Cayman Finance Ltd. Cayman Islands
Sensormatic del Peru Peru
Sensormatic Distribution & Holdings B.V. The Netherlands
Sensormatic Electronics Corporation (Brazil) Delaware
Sensormatic Holdings Ltd. United Kingdom
Sensormatic International, Inc. Delaware
Senelco Resting, ApS Denmark
Sensormatic International Management Corporation Delaware
Sensormatic Investments Associates B.V. The Netherlands
SEC Investments of Canada Ltd. Canada
Sensormatic Investments Ltd. United Kingdom
Sensormatic Holding Ges.m.b.H. Austria
Sensormatic Electronics Corporation (Japan) Japan
Sensormatic S.A. France
Sensormatic (U.K.) Ltd. United Kingdom
Elkinlane Ltd. United Kingdom
BI Merger Corp. Delaware
Kingsclere Investments Ltd. United Kingdom
Knogo Holdings S.A. Belgium
Sensormatic International Distributors, Inc. Delaware
Sensormatic do Brasil Electronica Ltda. Brazil
Sensormatic Guvenlik Sistemleri
Ticaret, A.S. Turkey
</TABLE>
(1) All companies listed herein are wholly owned by the Company, directly
or indirectly, with the exception of Sensormatic do Brasil Electronica
Ltda., Sensormatic Guvenlik Sistemleri Ticaret A.S. and Sensormatic de
Peru which are 51% owned.
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-19339, 33-26786, 33-38753, 33-54626 and 33-58299) pertaining
to the Incentive and Non-Qualified Stock Option Plans and the Employee Stock
Purchase Plan of Sensormatic Electronics Corporation of our report dated
September 30, 1995, with respect to the consolidated financial statements of
Sensormatic Electronics Corporation included in the Annual Report (Form 10-K)
for the year ended June 30, 1995.
ERNST & YOUNG LLP
West Palm Beach, Florida
October 13, 1995
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-61626 and 33-59865 and Form S-4 No. 33-51957) of Sensormatic
Electronics Corporation and in the related Prospectuses of our report dated
September 30, 1995, with respect to the consolidated financial statements of
Sensormatic Electronics Corporation included in this Annual Report (Form 10-K)
for the year ended June 30, 1995.
ERNST & YOUNG LLP
West Palm Beach, Florida
October 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SENSORMATIC ELECTRONICS CORPORATION FOR THE YEAR ENDED
JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 43,580
<SECURITIES> 26,727
<RECEIVABLES> 4,200
<ALLOWANCES> 26,442
<INVENTORY> 240,807
<CURRENT-ASSETS> 0
<PP&E> 225,860
<DEPRECIATION> 74,903
<TOTAL-ASSETS> 1,570,904
<CURRENT-LIABILITIES> 0
<BONDS> 181,888
<COMMON> 713,866
0
0
<OTHER-SE> 238,864
<TOTAL-LIABILITY-AND-EQUITY> 952,730
<SALES> 762,375
<TOTAL-REVENUES> 889,083
<CGS> 353,990
<TOTAL-COSTS> 370,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,893
<INTEREST-EXPENSE> 28,989
<INCOME-PRETAX> 89,051
<INCOME-TAX> 19,500
<INCOME-CONTINUING> 69,551
<DISCONTINUED> 4,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,651
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
