<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT ( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly
Period Ended September 30, 1996 Commission File No. 1-10739
------------------ -------
SENSORMATIC ELECTRONICS CORPORATION
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 34-1024665
-------- ----------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
951 Yamato Road, Boca Raton, Florida 33431-0700
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 989-7000
------------------------------------------------------------------
(Registrant's telephone number, including area code)
Same
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 .
--- -----
The Registrant had outstanding 73,964,169 shares of Common Stock (par value
$.01 per share) as of November 1, 1996.
<PAGE> 2
SENSORMATIC ELECTRONICS CORPORATION
INDEX
-----
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION> Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets............................... 2
Consolidated Condensed Statements of Operations..................... 3
Consolidated Condensed Statements of Cash Flows..................... 4
Notes to Consolidated Condensed Financial Statements................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................... 15
Signatures............................................................ 16
</TABLE>
<PAGE> 3
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except par value amounts)
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1996 1996
------------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and marketable securities (including marketable securities
of $3.1 in September 30, 1996 and $3.2 in June 30, 1996) $ 65.8 $ 116.9
Accounts receivable, net 248.4 244.0
Current portion of deferred and installment receivables, net 27.9 22.9
Current portion of net investment in sales-type leases 36.4 29.0
Inventories, net 160.4 157.8
Current portion of deferred income taxes 30.5 29.3
Other current assets 66.5 33.9
-------- --------
Total current assets 635.9 633.8
Deferred and installment receivables, net 20.2 41.3
Net investment in sales-type leases 139.4 111.3
Revenue equipment, net 59.1 56.9
Property, plant and equipment, net 151.5 147.8
Costs in excess of net assets acquired, net 485.6 487.5
Deferred income taxes 101.7 96.9
Patents and other assets, net 59.5 54.8
-------- --------
Total assets $1,652.9 $1,630.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 37.8 $ 24.8
Accounts payable 65.3 59.9
Other current liabilities and deferred income taxes 185.4 174.5
-------- --------
Total current liabilities 288.5 259.2
Long-term debt 497.5 491.7
Other noncurrent liabilities and deferred income taxes 38.5 47.7
-------- --------
Total liabilities 824.5 798.6
Stockholders' equity:
Preferred stock, $.01 par value, 10.0 shares authorized - -
Common stock, $.01 par value, 74.0 and 73.9 shares outstanding
at September 30, 1996 and June 30, 1996, respectively 726.1 723.8
Retained earnings 179.8 181.8
Treasury stock at cost and other (12.8) (13.4)
Currency translation adjustments (64.7) (60.5)
-------- --------
Total stockholders' equity 828.4 831.7
-------- --------
Total liabilities and stockholders' equity $1,652.9 $1,630.3
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Unaudited
--------------------------------
Three Months Ended September 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Sales $205.0 $236.1
Rentals 12.5 12.4
Installation, maintenance and other 28.5 18.7
------ ------
Total revenues 246.0 267.2
------ ------
Operating costs and expenses:
Costs of sales 130.1 137.0
Depreciation on revenue equipment 4.6 4.4
Selling, general and administrative 90.4 86.0
Research, development and engineering 5.4 6.7
Amortization of intangible assets 4.6 4.3
------ ------
Total operating costs and expenses 235.1 238.4
------ ------
Operating income 10.9 28.8
------ ------
Other (expenses) income:
Interest income 4.3 3.7
Interest expense (11.6) (8.7)
Other, net (0.7) (0.3)
------ ------
Total other (expenses) income (8.0) (5.3)
Income before income taxes 2.9 23.5
Provision for income taxes 0.8 6.6
------ ------
Net income $ 2.1 $ 16.9
====== ======
Primary earnings per common share $ 0.03 $ 0.23
====== ======
Cash dividends per common share $0.055 $0.055
====== ======
Common Shares used in computation
of earnings per common share 74.0 74.0
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Three Months Ended September 30,
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2.1 $ 16.9
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 14.6 11.8
Other non-cash charges to operations, net 5.4 6.1
Net changes in operating assets and liabilities,
net of effects of acquisitions:
Increase in receivables and sales-type leases (32.1) (52.0)
Inventories (4.7) (4.0)
Net increase in other operating assets and liabilities (38.9) (31.0)
------ ------
Net cash (used in) provided by operating activities (53.6) (52.2)
------ ------
Cash flows from investing activities:
Capital expenditures (12.9) (23.7)
(Increase) decrease in revenue equipment (7.4) 2.0
Other, net 3.2 (7.0)
------ ------
Net cash used in investing activities (17.1) (28.7)
------ ------
Cash flows from financing activities:
Bank borrowings and other debt 21.1 98.7
Proceeds from issuance of common stock under
employee benefit plans and for acquisitions 2.7 4.0
Dividends paid (4.1) (4.1)
------ ------
Net cash provided by financing activities 19.7 98.6
------ ------
Net (decrease) increase in cash (51.0) 17.7
Cash at beginning of year 113.7 44.0
------ ------
Cash at end of year 62.7 61.7
Marketable securities at end of year 3.1 27.2
------ ------
Cash and marketable securities at end of year $ 65.8 $ 88.9
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
a) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
three month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending
June 30, 1997. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996.
In fiscal 1996, the Company changed its presentation from an
unclassified to a classified balance sheet. The Company believes
this change provides a better presentation of the Company's
financial position and conforms with industry practice.
b) RESTRUCTURING PLAN
During fiscal 1996, the Company initiated a restructuring plan which
included an extensive and systematic review of its global operations
and cost structure aimed at reducing its operating expenses,
manufacturing costs and increasing efficiencies. As a result, the
Company recorded restructuring charges of $85.3 primarily for
product rationalization and related equipment impairment charges,
facility closures and severance costs. It is anticipated that
approximately $33.3 of these costs will result in cash outlays, of
which $13.0 was paid as of September 30, 1996.
During the first quarter of fiscal 1997, the restructuring reserve
was reduced by approximately $3.4 as a result of cash and non-cash
charges. The following table sets forth the details and the
cumulative activity of the restructuring charges as of September 30,
1996:
<TABLE>
<CAPTION>
Accrual
Fiscal 1996 Balance at
Provision Cash Reductions Non-cash Reductions September 30, 1996
--------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other $45.3 $ -- $(34.3) $11.0
Closure of facilities and related costs 23.5 (1.4) (3.3) 18.8
Employee termination and related costs 16.5 (11.6) (0.7) 4.2
----- ------ ------ -----
Total $85.3 $(13.0) $(38.3) $34.0
----- ------ ------ -----
</TABLE>
The restructuring plan is expected to be substantially completed
prior to the end of calendar year 1997 and the Company believes the
provisions recorded are adequate to cover the costs associated with
this plan.
5
<PAGE> 7
c) RECEIVABLES AND NET INVESTMENT IN SALES-TYPE LEASES
Amounts due to the Company in the form of accounts receivable (which
are due within 90 days), deferred receivables (which are generally
due within one year), installment receivables (which generally have
periodic payments over a term of five years) and net investment in
sales-type leases (sales-type leases) (which have periodic payments
over lease terms from five to six years) at September 30, 1996 and
June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
September 30 June 30
------------- --------
<S> <C> <C>
Accounts receivable $277.1 $276.1
Allowance for doubtful accounts (28.7) (32.1)
------ ------
Total accounts receivable, net $248.4 $244.0
====== ======
Deferred receivables $ 13.6 $ 11.3
Installment receivables 74.2 90.6
Allowance for doubtful accounts (10.6) (13.4)
Unearned interest and maintenance (29.1) (24.3)
------ ------
Total deferred and installment
receivables, net 48.1 64.2
------ ------
Less: Amounts due in 1 year, net (27.9) (22.9)
------ ------
Total noncurrent deferred and
installment receivables, net $ 20.2 $ 41.3
====== ======
Sales-type leases-minimum lease
payments receivable $247.8 $206.0
Allowance for uncollectible minimum
lease payments (16.8) (17.3)
Unearned interest and maintenance (55.2) (48.4)
------ ------
Total sales-type leases, net 175.8 140.3
------ ------
Less: Amounts due in 1 year, net (36.4) (29.0)
------ ------
Total noncurrent sales-type leases, net $139.4 $111.3
====== ======
</TABLE>
The Company received net proceeds of $75.8 and $111.5 from the sale
or assignment of certain of its receivables and sales-type leases in
the three months ended September 30, 1996 and 1995, respectively.
The uncollected principal balance of receivables and sales-type
leases sold which was subject to varying amounts of recourse totaled
$250.3 and $327.4 at September 30, 1996 and 1995, respectively.
Adequate reserves have been provided for receivables and leases sold
and are included in accrued liabilities.
In addition to existing facilities, in July 1996, the Company entered
into a new $75.0 receivable purchase agreement facility with a group
of financial institutions. This committed facility replaced an
existing facility and allows the Company to sell certain of its U.S.
receivables on a limited recourse basis. The U.S. receivables sold
under this agreement principally include deferred and installment
receivables. The Company has limited availability under its existing
European receivable financing agreements and, accordingly, has
primarily been internally financing its European customer lease
agreements. The Company is currently evaluating a global receivable
financing strategy which will allow for expanded receivable financing
and off-balance sheet
6
<PAGE> 8
treatment under Statement of Financial Accountings Standard No. 125,
which is effective prospectively January 1, 1997 and is applicable to
subsequent periods.
d) INVENTORY
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
------------------- -------------
<S> <C> <C>
Finished goods $134.9 $134.8
Parts 46.2 42.4
Work-in-process 15.4 18.6
------ ------
196.5 195.8
Less allowance for inventory losses (36.1) (38.0)
------ ------
Total inventories, net $160.4 $157.8
====== ======
</TABLE>
e) FINANCIAL INSTRUMENTS
INTEREST RATE AGREEMENTS
The Company enters into interest rate agreements with financial
institution counterparties principally to manage interest rate
exposure associated with its sale of U.S. receivables and debt. See
note 13 of Notes to Consolidated Financial Statements in the
Company's 1996 Annual Report on Form 10-K for additional
discussion.
At September 30, 1996, the Company was a party to the following
interest rate agreements:
(1) 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>
$8.0 May 1999 7.75% 1 Month LIBOR
7.0 September 1999 5.84% 1 Month LIBOR
6.5 May 2000 6.16% 1 Month LIBOR
3.0 April 2000 6.58% 1 Month LIBOR
2.3 April 1999 4.60% 1 Month LIBOR
2.1 August 1998 4.80% 1 Month LIBOR
1.8 May 1998 4.94% 1 Month LIBOR
1.0 March 1999 4.65% 1 Month LIBOR
</TABLE>
The weighted average interest rates paid and received under all
such floating to fixed swap agreements at September 30, 1996 were
6.18% and 5.45%, respectively.
(2) INTEREST RATE CAP AGREEMENT
In fiscal 1995, the Company entered into an interest rate cap
agreement expiring in September 1999, with a notional amount at
September 30, 1996, of $3.0. Under the agreement the
7
<PAGE> 9
Company will be paid an amount equal to the excess, if any, of the
1 month LIBOR over 7% multiplied by the notional amount. At
September 30, 1996 there was no such excess.
FOREIGN CURRENCY CONTRACTS
The Company conducts business in a wide variety of currencies and
consequently enters into foreign exchange forward and option
contracts to manage exposure to fluctuations in foreign currency
exchange rates. These contracts generally involve the exchange of
one currency for another at a future date and are used to hedge
substantially all of the Company's anticipatory intercompany
commitments.
At September 30, 1996, the Company owned forward contracts and
options which allowed it to sell currencies for the indicated U.S.
dollar amounts, in fiscal year 1997 and 1998, as follows:
<TABLE>
<CAPTION>
1998 1997
----- ------
<S> <C> <C>
French Francs $ -- $104.0
British Pounds -- 65.2
German Marks 18.9 33.3
Other 8.8 44.7
----- ------
Total $27.7 $247.2
===== ======
</TABLE>
f) RECLASSIFICATIONS
Certain amounts in the prior period's consolidated condensed
financial statements have been reclassified to conform to the
current period's condensed presentation.
g) LITIGATION AND OTHER MATTERS
During the first six months of fiscal 1996, a number of putative
class actions were filed in federal court by alleged shareholders of
the Company following announcements by the Company that, among other
things, its earnings for the quarter and year ended June 30, 1995,
would be substantially below expectations and, in the later actions
or complaint amendments, that the scope of the Company's year-end
audit for the fiscal year ended 1995 had been expanded and that
results for the third quarter of fiscal 1995 were being restated.
These actions have been consolidated. The consolidated complaint
alleges, among other things, that the Company and certain of its
current and former directors, officers and employees, as well as the
Company's auditors, violated certain Federal securities laws. One
of the claims against the Company's auditors, asserted under state
law, originally included in the consolidated complaint has been
dismissed by the Court. That claim alleged that the Company's
auditors negligently misrepresented certain information regarding
the Company and failed to exercise reasonable care. The claims
recited in the consolidated complaint relate to the same events and
occurrences as those alleged in the various actions referred to
above, updated to incorporate more recent events and occurrences and
to reflect certain information furnished to plaintiffs during
pre-trial discovery. The consolidated complaint requested
certification of the action as a class action on behalf of all
purchasers of the common stock of the Company and certain stock
option traders from August 10, 1994 through October 2, 1995,
including those shareholders who received common stock of the
Company in connection with the Company's merger with Knogo. The
8
<PAGE> 10
consolidated complaint also seeks rescissory and/or compensatory
damages, pre-judgment and post-judgment interest, costs, attorneys'
fees, and other relief, and further provides that the shareholders
of the Company who received common stock of the Company in
connection with the merger with Knogo are tendering back to the
Company such shares of common stock. The consolidated complaint
supersedes all prior complaints in the consolidated actions. By
stipulation, dated September 12, 1996, the parties to the
consolidated class actions agreed to limit the proposed class to all
persons who purchased, or received through the exercise of options,
shares of common stock of the Company during the period from August
10, 1994 through and including August 31, 1995, provided that shares
purchased on August 31, 1995 were purchased at a price of $25.25 per
share or higher. The stipulated class excludes persons who acquired
common stock pursuant to the Company's merger with Knogo approved by
its shareholders in December 1994. The stipulation was approved by
the court in an order entered on September 30, 1996.
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. These actions
have been consolidated.
The Company intends to vigorously defend against the foregoing
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.
9
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's consolidated condensed financial statements present a
consolidation of its worldwide operations. This discussion
supplements the detailed information presented in the Consolidated
Condensed Financial Statements and Notes thereto (which should be
read in conjunction with the financial statements and related notes
contained in the Company's 1996 Annual Report on Form 10-K) and is
intended to assist the reader in understanding the financial results
and condition of the Company.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995
REVENUES
Revenues for the three months ended September 30, 1996 decreased 8%,
as compared to the three months ended September 30, 1995. First
quarter fiscal year 1996 revenues include a major customer roll-out
order of $28.1, thus contributing to the relative decrease in
revenues when compared to first quarter fiscal 1997. Additionally,
the decrease in revenues is due to shortages of key components and
products for certain product lines. The product shortages are
primarily due to manufacturing disruptions in Puerto Rico caused by
Hurricane Hortense in September 1996, and order activity which was
not forecasted and could not be accommodated by lower inventory
levels established in the fourth quarter of fiscal 1996. All regions
were affected by the product shortages. Some of these product
shortages are expected to continue into the second quarter of fiscal
1997.
The process of reducing inventories and improving forecasting began
in late fiscal 1996 and is ongoing. In connection with the Company's
quality improvement effort, new and improved processes are being
implemented which are expected to improve the Company's ability to
forecast manufacturing and inventory requirements.
Consolidated EAS system revenues decreased 21.3% from $160.2 in the
comparable period last year to $126.1 in the first quarter of fiscal
1997. The decrease is principally a result of reduced UltraMax
product line revenues due to product shortages and the increased
level of revenue in the first quarter of fiscal 1996 as a result of
the previously mentioned major roll-out order. First quarter fiscal
1997 CCTV system revenues of $75.8 reflect a slight increase of 7.7%
from $70.6 in the first quarter of fiscal 1996. Worldwide Access
Control system revenues decreased 14.1% to $15.2 million in the first
quarter of fiscal 1997 as compared to $17.7 in the first quarter of
fiscal 1996. Both CCTV system and Access Control system revenues were
negatively affected by product shortages.
Revenues generated by the Commercial/Industrial Worldwide Operations
("C/I Worldwide") increased 11.8% in the first quarter of fiscal
1997 as compared to the first quarter of fiscal 1996. Although
revenues in the current quarter exceeded the first quarter of fiscal
1996 revenues, revenues were lower than expected due to product
availability issues, particularly with respect to video cameras, due
to manufacturing disruptions in Puerto Rico.
For the first quarter of fiscal 1997, North American retail revenues
decreased 23.1%, as compared to the same period for fiscal 1996.
As previously indicated, the first quarter of fiscal 1997 revenues
reflect a decrease from the same period in the prior year due to a
major customer roll-out order of $28.1 in the first quarter for
fiscal 1996. In addition, fiscal 1997 revenues were lower than
expected due to
10
<PAGE> 12
shortages of key components of the Ultra-Max systems and continued
pricing pressures from increased competition.
In Europe, retail revenues decrease 7.0% from the same period in fiscal
1996. Revenues were down in the U.K. as the Company continues to
work through the restructuring of the organization and change its
market focus from low-end, high volume business to medium-end and
larger accounts. France's revenue growth was negatively impacted by
recent legislation restricting the expansion of hypermarkets . Due to
this legislation and the high penetration of self-service markets, a
larger percentage of France's revenues is attributed to equipment
upgrades rather than new EAS installations. The Company continues to
experience increased competition in Europe. The Company has recently
introduced its narrow lower-cost Ultra-Strip label; Max-Checkout, used
in aisle-based hypermarkets; and SensorStrip II proximity deactivatable,
low-cost magnetic labels; and is now offering a handheld price-marking
gun to dispense EAS labels. These products are expected to improve the
Company's competitive position in Europe.
Revenues from the International retail operations (Asia Pacific and
Latin America) for the first quarter of fiscal 1997 remained
unchanged as compared to the comparable period of fiscal 1996. The
Company completed the acquisition of its distributor operations in
Colombia in the fourth quarter of fiscal 1996 and most recently, in
October 1996, acquired its distributor operations in Argentina in a
stock purchase transaction.
GROSS MARGINS AND OPERATING INCOME
In the first quarter of fiscal 1997, the Company has classified
certain customer and engineering expenses, previously classified in
selling, customer service and administrative expenses as a component
of costs of sales. Accordingly, prior period amounts have been
reclassified to conform to the current period presentation.
Gross margins on revenues were 45.2% for the first quarter of fiscal
1997 compared with 47.1% in the first quarter of fiscal 1996. The
decline in margins is due primarily to lower product pricing
resulting from competition in certain segments of the EAS retail and
CCTV markets; the Company expects the pricing pressure to continue in
future quarters. The decrease in gross margins was lessened by lower
manufacturing costs as a result of the Company's cost reduction
program.
Operating income for the first quarter of fiscal 1997 was $10.9
or 4.4% of total revenues, versus $28.8 million or 10.8% of
total revenues for the comparable quarter of fiscal 1996. Operating
costs and expenses in the first quarter of fiscal 1997 increased to
95.6% of consolidated revenues, compared with 89.2% for the same
period in fiscal 1996.
OTHER OPERATING EXPENSES
Total selling, general and administrative expenses, as a percentage
of total revenues, were 36.7% for the first quarter of fiscal 1997 as
compared to 32.2% reported in the first quarter of fiscal 1996. The
increase in expenses over the comparable period is due to the
Company's sponsorship of the 1996 summer Olympics and incremental
investments in the Company's infrastructure aimed at improving
systems and processes.
Research, development and engineering expenses decreased to 2.2% of
revenue in the first quarter of fiscal 1997 as compared to 2.5% in
the same period of fiscal 1996. During fiscal 1997, the Company
expects spending for research, development and engineering to be
11
<PAGE> 13
comparable to or slightly lower versus fiscal 1996. The lower rate of
spending reflects the stage of various programs and not curtailed
efforts or activities.
INTEREST (EXPENSE) AND OTHER INCOME AND TAXES
Net interest expense of $7.3 for the first quarter of fiscal
1997 increased by $2.3 over the first quarter of fiscal 1996.
This increase is primarily due to increased debt levels outstanding
during the period as well as an increase in the Company's weighted
average rate on its borrowings. In the third and fourth quarter of
fiscal 1996, the Company issued $350 million of Senior Notes, the
proceeds of which were used primarily to repay short-term U.S. and
European bank borrowings and for general corporate purposes. The
interest on the Senior Notes is higher than the current short-term
borrowing rate.
The provision for income taxes for the first quarter of fiscal 1997
is based on an estimated effective annual consolidated tax rate of
29% compared to an estimated effective annual consolidated tax rate
of 28% utilized for the first quarter of fiscal 1996. In August
1996, Congress repealed the favorable tax status in Puerto Rico which
will be phased out over a ten year period for years beginning after
December 31, 1995. The Company does not anticipate any immediate
significant adverse effects as a result of the new law.
The Company reported net income of $2.1, or $.03 per share
for the first quarter of fiscal 1997 as compared to net income of
$16.9, or $.23 per share reported in the first quarter of
fiscal 1996, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, cash and marketable securities decreased $51.1
primarily due to an increase in sales-type lease receivables and
third party receivables from financing institutions, offset partially
by an increase in short-term bank borrowings and other debt.
Cash flow used in operating activities was $53.6 for the three month
period ended September 30, 1996 compared with cash used by
operations for the three month period ended September 30, 1995 of
$52.2. The use of cash in the three month period ended September 30,
1996 was primarily a result of an increase in total receivables,
principally caused by a decrease in European sales-type lease receivables
sold to third-party financing institutions, and an increase in third party
receivables from financing institutions for U.S. receivables sold.
The receivables from financing institutions is included as a
component of "other current assets".
The Company's investing activities used $17.1 of cash in the first
quarter of fiscal 1997, compared to $28.7 in the first quarter of
fiscal 1995. Additions to property, plant and equipment totaled
$12.9, and include the addition of new enterprise-wide management
information system software as well as investments in manufacturing
operations for new production equipment. The addition of an
enterprise-wide management information system is expected to
significantly enhance operational efficiencies and improve customer
service. The world-wide implementation of this system is currently
underway and is expected to be complete by the end of fiscal 1998.
For the three month period ended September 30, 1996, financing
activities generated $19.7 of cash as compared to $98.6 in the three
month period ended September 30, 1995. Cash flows from financing
activities were principally due to increased borrowings of
approximately $21.1 primarily from the Company's unsecured revolving
credit facility, offset in part by cash dividends paid on
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<PAGE> 14
common stock. The Company's percentage of total debt to total
capital was 39.3% at September 30, 1996 as compared to 38.3% at June
30, 1996. The increase in debt is primarily due to an increase in
sales-type lease receivables.
In the first quarter of fiscal 1997, the Company entered into a new
$75.0 receivables purchase agreement facility with a group of
financial institutions. This committed facility replaced an existing
facility and allows the Company to sell certain of its U.S.
receivables on a limited recourse basis. The U.S. receivables sold
under this agreement principally represent deferred and installment
receivables. The Company has limited availability under its
existing European receivable financing agreements and, accordingly,
has primarily been internally financing its European customer lease
agreements. The Company is currently evaluating a global receivable
financing strategy, which will allow for expanded receivable
financing and off-balance sheet treatment under Statement of
Financial Accounting Standards No. 125, which becomes effective
prospectively January 1, 1997 and is applicable to subsequent
periods.
At September 30, 1996, the Company's primary sources of liquidity
consisted of cash, committed and uncommitted lines of credit totaling
approximately $431.5 (of which approximately $37.8 was utilized) and
receivable financing agreements, all of which are available subject
to compliance with certain covenants. The Company believes that the
liquidity provided by existing cash and the financing arrangements
described above will be sufficient to meet the Company's capital
requirements for fiscal 1997.
RESTRUCTURING PLAN
During fiscal 1996, the Company initiated a restructuring plan with
the following objectives: (i) expense reduction and asset control,
(ii) improved processes and systems, and (iii) quality growth. The
initial phase of this plan included an extensive review of the
Company's operations and cost structure. As a result, the Company
recorded restructuring charges of $85.3 in the second and third quarter
of fiscal 1996 primarily for product rationalization and related
equipment impairment charges, facility closures and severance costs.
The Company planned for the reduction of 875 people and the sale,
disposal or termination of lease arrangements of 30 locations,
principally in the U.K. and U.S. As of September 30, 1996, the
planned staff reductions are substantially complete and 15 locations
have been eliminated. During the first quarter of fiscal 1997, the
restructuring reserve was reduced by approximately $3.4 as a result of
cash and non-cash charges.
Of the total restructuring charges, the anticipated cash outlay is
$33.3 of which $13.0 million has been disbursed as of September 30,
1996. The restructuring plan is expected to be substantially
complete prior to the end of calendar year 1997 and, the Company
believes the provisions recorded are adequate to cover the costs
associated with this plan.
13
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
With respect to the consolidated putative shareholder class actions
pending in the United States District Court for the Southern District
of Florida, described in the Company's Annual Report on Form 10-K for
the year ended June 30, 1996, the stipulation described in such Report
limiting the proposed class was approved by the court in an order
entered September 30, 1996.
14
<PAGE> 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11) Computation of Earnings Per Common Share.
27) Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three-month
period ended September 30, 1996.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SENSORMATIC ELECTRONICS CORPORATION
By /s/ Garrett E. Pierce
-----------------------------
Garrett E. Pierce
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 1996
16
<PAGE> 1
EXHIBIT 11
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months ended
September 30,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Net income $ 2.1 $16.9
Common shares:
Weighted average shares
outstanding during the period 73.9 73.2
Potential dilutive exercise
of stock options and warrants 0.1 0.8
----- -----
Shares included in computation
of earnings (loss) per share 74.0 74.0
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 63
<SECURITIES> 3
<RECEIVABLES> 538
<ALLOWANCES> 66
<INVENTORY> 160
<CURRENT-ASSETS> 636
<PP&E> 237
<DEPRECIATION> 85
<TOTAL-ASSETS> 1,653
<CURRENT-LIABILITIES> 289
<BONDS> 38
0
0
<COMMON> 726
<OTHER-SE> 102
<TOTAL-LIABILITY-AND-EQUITY> 1,653
<SALES> 205
<TOTAL-REVENUES> 246
<CGS> 104
<TOTAL-COSTS> 135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 3
<INCOME-TAX> 1
<INCOME-CONTINUING> 2
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
