<PAGE> 1
UNITED STATES
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, 1997 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
- -------------------------------------------------------------------------------
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 74,328,433 shares of Common Stock (par value
$.01 per share) as of October 31, 1997.
<PAGE> 2
SENSORMATIC ELECTRONICS CORPORATION
INDEX
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Page
----
<S> <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 ........................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 16
Item 6. Exhibits and Reports on Form 8-K .............................. 17
Signatures ................................................................ 18
</TABLE>
<PAGE> 3
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except par value amounts)
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1997 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25.1 $ 21.7
Customer receivables 321.2 291.6
Inventories, net 202.2 199.6
Current portion of deferred income taxes 43.0 42.9
Other current assets 49.3 54.4
-------- --------
TOTAL CURRENT ASSETS 640.8 610.2
Customer receivables - noncurrent 132.5 138.5
Revenue equipment, net 69.5 66.8
Property, plant and equipment, net 138.2 145.5
Costs in excess of net assets acquired, net 476.3 482.7
Deferred income taxes 140.8 111.5
Patents and other assets, net 85.0 88.4
-------- --------
TOTAL ASSETS $1,683.1 $1,643.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 65.8 $ 21.8
Accounts payable and accrued liabilities 116.9 126.1
Other current liabilities and deferred income taxes 260.5 181.5
-------- --------
TOTAL CURRENT LIABILITIES 443.2 329.4
Long-term debt 504.2 501.5
Other noncurrent liabilities and deferred income taxes 37.6 39.8
-------- --------
TOTAL LIABILITIES 985.0 870.7
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10.0 shares authorized, none issued -- --
Common stock, $.01 par value, 125.0 shares authorized, 74.3 shares
outstanding at September 30, 1997 and June 30, 1997 730.5 730.5
Retained earnings 77.8 143.7
Treasury stock at cost and other, 1.7 shares at September 30, 1997
and June 30, 1997 (13.8) (14.0)
Currency translation adjustments (96.4) (87.3)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 698.1 772.9
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,683.1 $1,643.6
======== ========
</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,
1997 1996
-------- ---------
<S> <C> <C>
Revenues:
Sales $ 204.5 $ 205.0
Rentals 12.6 12.5
Installation, maintenance and other 28.3 28.5
-------- --------
Total revenues 245.4 246.0
-------- --------
Operating costs and expenses:
Costs of sales 128.8 130.1
Depreciation on revenue equipment 4.9 4.6
-------- --------
Total cost of sales 133.7 134.7
-------- --------
Gross margin 111.7 111.3
Operating expenses:
Selling, general and administrative 87.1 90.4
Restructuring charges 43.0 --
Research, development and engineering 6.5 5.4
Amortization of intangible assets 5.2 4.6
-------- --------
Total operating costs and expenses 141.8 100.4
-------- --------
Operating (loss) income (30.1) 10.9
-------- --------
Other (expenses) income:
Interest income 3.6 4.3
Interest expense (12.3) (11.6)
Litigation settlement (53.0) --
Other, net (1.9) (0.7)
-------- --------
Total other (expenses) income (63.6) (8.0)
-------- --------
(Loss) Income before income taxes (93.7) 2.9
(Benefit) Provision for income taxes (27.8) 0.8
-------- --------
Net (loss) income $ (65.9) $ 2.1
======== ========
Primary (loss) earnings per common share $ (0.89) $ 0.03
======== ========
Cash dividends per common share $ -- $ 0.055
======== ========
Common shares used in computation
of (loss) earnings per common share 74.3 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
(In millions)
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Ended September 30,
-------------------------------------
1997 1996
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (65.9) $ 2.1
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 17.0 14.6
Restructuring charges, net 40.0 (1.6)
Litigation settlement charge 53.0 --
Net changes in operating assets and liabilities,
net of effects of acquisitions and divestitures:
Increase in receivables and sales-type leases (27.9) (27.9)
Increase in inventories (7.4) (3.3)
Increase in current and deferred income taxes
relating to restructuring and litigation charges (28.8) --
Other operating assets and liabilities, net (9.1) (32.3)
-------- --------
Net cash used in operating activities (29.1) (48.4)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5.5) (12.9)
Proceeds from sale of business, net 4.5 --
Increase in revenue equipment, net of deletions (8.5) (7.4)
Additional investment in acquisitions (4.5) (5.2)
Other, net (0.6) 3.2
-------- --------
Net cash used in investing activities (14.6) (22.3)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and other debt 46.9 21.1
Proceeds from issuance of common stock under employee
benefit plans and for acquisitions -- 2.7
Dividends paid -- (4.1)
Other, net 0.2 --
-------- --------
Net cash provided by financing activities 47.1 19.7
-------- --------
Net increase (decrease) in cash 3.4 (51.0)
Cash and cash equivalents at beginning of the year 21.7 113.7
-------- --------
Cash and cash equivalents at end of the period $ 25.1 $ 62.7
======== ========
</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 consolidated condensed financial statements include the accounts of
Sensormatic Electronics Corporation and all of its subsidiaries (the
"Company"). The accompanying unaudited 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, 1997 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1998. 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, 1997.
b) Restructuring and Special Charges
During the fourth quarter of fiscal 1997, the Company announced
additional restructuring activities principally pertaining to workforce
reductions in the Company's European operations and the divestment of
non-core businesses which included the U.S. commercial/industrial
direct sales and service business sold in September 1997. As a result,
the Company recorded restructuring and special charges totaling $48.6
pretax in the fourth quarter of fiscal 1997 and restructuring charges
of $43.0 pretax in the first quarter of fiscal 1998.
The following table sets forth the details and the activity of the
restructuring charge reserves as of September 30, 1997:
<TABLE>
<CAPTION>
Reserve Reserve
Balance at Balance at
June 30, 1998 September
1997 Additions Cash Non-cash 30, 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other $ 4.4 $ 3.0 $ -- $(2.5) $ 4.9
Closure of facilities and related costs 12.2 10.6 (0.4) (1.1) 21.3
Employee termination and related 3.8 29.4 (2.6) -- 30.6
costs
Non-core business divestments 16.9 -- 4.5 (4.6) 16.8
-----------------------------------------------------------------------------------------------------------
Total $ 37.3 $ 43.0 $ 1.5 $(8.2) $ 73.6
-----------------------------------------------------------------------------------------------------------
</TABLE>
The restructuring activity is expected to be substantially completed
prior to the end of fiscal 1998 and the Company believes the provisions
recorded are adequate to cover the costs associated with these plans.
5
<PAGE> 7
c) Customer Receivables
Amounts due to the Company in the form of accounts receivable (which
are generally 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 (which principally have periodic
payments over lease terms of five to six years) at September 30, 1997
and June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
September 30 June 30
------------ --------
<S> <C> <C>
Accounts receivable $ 315.5 $ 291.2
Allowance for doubtful accounts (50.2) (51.6)
-------- --------
Total accounts receivable, net $ 265.3 $ 239.6
Less: Amounts due in 1 year, net (264.9) (239.6)
-------- --------
Total noncurrent accounts receivables, net $ .4 $ --
======== ========
Deferred receivables $ 8.0 $ 7.3
Installment receivables 48.3 46.0
Allowance for doubtful accounts (10.2) (7.8)
Unearned interest and maintenance (17.3) (18.0)
-------- --------
Total deferred and installment receivables, net 28.8 27.5
-------- --------
Less: Amounts due in 1 year, net (22.6) (17.6)
-------- --------
Total noncurrent deferred and
installment receivables, net $ 6.2 $ 9.9
======== ========
Sales-type leases-minimum lease payments receivable $ 210.5 $ 215.5
Allowance for uncollectible minimum lease payments (17.9) (16.4)
Unearned interest and maintenance (33.0) (36.1)
-------- --------
Total sales-type leases, net 159.6 163.0
-------- --------
Less: Amounts due in 1 year, net (33.7) (34.4)
-------- --------
Total noncurrent sales-type leases, net $ 125.9 $ 128.6
======== ========
Total customer receivables $ 453.7 $ 430.1
Less: Amounts due in 1 year, net 321.2 291.6
-------- --------
Total noncurrent customer receivables $ 132.5 $ 138.5
======== ========
</TABLE>
d) Accounts Receivable Financing
Effective January 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", for
the transfer of receivables that occurred subsequent to January 1,
1997. Only receivables sold or transferred under financing agreements
which meet the criteria for off-balance sheet treatment as defined by
SFAS No. 125 are recognized as receivable sales. All other transfers of
receivables are treated as a financing transaction. See Note 4 of Notes
to
6
<PAGE> 8
Consolidated Financial Statements in the Company's 1997 Annual Report
on Form 10-K for additional discussion on the Company's various
receivable financing programs.
The uncollected principal balance of receivables and sales-type leases
sold prior to January 1, 1997, under then existing agreements, which
are subject to varying amounts of recourse totaled $190.7 at September
30, 1997. Loss reserves have been provided for receivables and
sales-type lease receivables sold and are included in accrued
liabilities.
e) Inventory
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Finished goods $ 154.2 $ 145.0
Parts 56.8 58.8
Work-in-process 22.2 24.9
-------- --------
233.2 228.7
Less allowance for inventory losses (31.0) (29.1)
-------- --------
Total inventories, net $ 202.2 $ 199.6
======== ========
</TABLE>
f) Divestitures
In September 1997, the Company sold its U.S. commercial/industrial
systems integration business. The Company also agreed in such
transaction to sell its monitoring business, which was consummated in
October 1997. The Company will receive total proceeds of $11.5 from the
sale of these operations, of which $5.4 was paid as of September 30,
1997 and the remainder is to be paid by December 1997. The Company has
retained ownership of all of the accounts receivable related to these
operations totaling approximately $28.1. The revenues of these
operations prior to the divestiture date and included in the Company's
Consolidated Condensed Statement of Operations for the three months
ended September 30, 1997 was $10.8.
g) Financial Instruments
Interest rate agreements
The Company enters into interest rate agreements, principally to manage
interest rate exposure associated with its sale of certain U.S.
receivables. See Note 14 of Notes to Consolidated Financial Statements
in the Company's 1997 Annual Report on Form 10-K for additional
discussion.
7
<PAGE> 9
At September 30, 1997, the Company was a party to the following significant
interest rate agreements:
<TABLE>
<CAPTION>
Notional Expiration Fixed Rate Floating Rate
Amount Date to be Paid to be Received
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$5.0 May 1999 7.75% 1 Month LIBOR
4.5 September 1999 5.84% 1 Month LIBOR
5.0 May 2000 6.16% 1 Month LIBOR
1.8 April 2000 6.58% 1 Month LIBOR
1.0 April 1999 4.60% 1 Month LIBOR
0.9 August 1998 4.80% 1 Month LIBOR
0.7 May 1998 4.94% 1 Month LIBOR
0.5 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, 1997 were 6.3% and
5.7%, respectively.
In fiscal 1997, the Company entered into an interest rate swap
agreement with a party to its U.K. receivable financing program. The
effect of the interest rate swap agreement is to revert to the Company
the differential between the fixed rate to be received on the
receivables sold under this program and the floating rate to be paid to
the purchasers of the receivables. As of September 30, 1997 the
notional amount of this interest rate swap agreement was L52.1
million. The interest rate agreement will expire when the underlying
receivables are paid down. At September 30, 1997 the floating rate to
be paid by the Company is the one month Fed AA commercial paper
composite rate and the fixed rate to be received is approximately
10.5%.
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, 1997, the Company owned forward contracts and options
which allow it to sell currencies for the indicated U.S. dollar
amounts, in fiscal year 1998 and 1999, as follows:
<TABLE>
<CAPTION>
1998 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
French Francs $ 57.1 $ 9.3
British Pounds 28.8 2.7
German Marks 79.2 10.7
Italian Lire 46.7 -
Other 29.0 -
- ----------------------------------------------------------------------------------------------------------
Total $ 240.8 $ 22.7
- ----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 10
h) Litigation and other matters
During the first six months of fiscal 1996, a number of 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
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.
Further, in May and July 1997, actions were filed in federal court
against the Company and certain of its current and former officers and
certain of its current and former directors by two of the Company's
three directors and officers liability insurance carriers during the
period December 15, 1994 to December 15, 1995. The insurance contracts
at issue in the suits
9
<PAGE> 11
provide $10.0 each in policy limits and are in excess to $10.0 in
primary directors and officers liability insurance for the period. The
complaints seek, among other things, (i) rescission of the
above-referenced insurance contracts; (ii) reformation of the insurance
contracts to exclude the hazards raised by the pending securities class
actions and derivative actions referred to above, the GILFORD action
and the SEC proceeding, all of which are described in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997; and
(iii) a declaratory judgment that the above-referenced insurance
contracts do not afford coverage for defendants for any loss arising
out of such actions and proceeding. The complaints allege, among other
things, that in the Company's applications for these insurance
contracts and attachments thereto contained material
misrepresentations, omissions, concealment of facts and incorrect
statements relating principally to the Company's revenue recognition
practices which are also a subject of the actions and proceeding
referred to above.
The Company has reached an agreement to settle the above-referenced
class actions. The agreement provides, among other things, for the
payment by the Company of approximately $53.0. The agreement will be
submitted to the Court for approval. The Company expects to recover a
portion of the settlement and related expenses from its primary
directors and officers liability insurance policy, which has a policy
limit of $10.0. In addition, the Company is seeking payment from its
excess insurance carriers having combined policy limits of $20.0. As
noted above, the Company is currently in litigation with such excess
carriers. A pretax charge of $53.0, with an after-tax effect of $37.1,
has been taken by the Company for payments to be made in connection
with this settlement.
The Company intends to vigorously defend against the derivative actions
and insurance carrier actions referred to above, and to vigorously
pursue the recovery of insurance proceeds from such excess directors
and officers insurance carriers. In light of the uncertainty as to the
outcome of those actions, the Company has not recorded a provision for
any liability or recovery that may result from those actions.
10
<PAGE> 12
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 1997 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, 1997 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1996
The following discussion of operating results excludes the effects of
restructuring and litigation charges recorded in fiscal 1998, which are
discussed in the section "Restructuring and Special Charges" below and
the "Litigation and other matters" footnote included in the Notes to
Consolidated Condensed Financial Statements included herein.
Revenues
Revenues of $245.4 for the first quarter of fiscal 1998 were
essentially flat with the revenues of $246.0 for the same period in
fiscal 1997. Fiscal 1998 results were negatively affected by the
strengthening of the U.S. dollar and the related impact of foreign
currency translation, resulting in a reduction in revenues of
approximately $13.2. Fiscal 1998 revenues also reflect the decline in
revenues of certain non-core businesses, principally the U.S.
commercial/industrial direct sales and service business which was sold
in September 1997. Excluding the effects of the strengthening U.S.
dollar and non-core businesses, first quarter fiscal 1998 revenues
increased approximately 11.0% in comparison with the first quarter
fiscal 1997.
Consolidated Electronic Article Surveillance ("EAS") systems revenues
increased 9.2% to $126.6 in the first quarter of fiscal 1998 as
compared to the same period in fiscal 1997. The increase in first
quarter EAS revenues over the comparable period in the prior year
resulted principally from Ultra-Max product line revenues, which
increased 35.0% as compared to the year ago quarter. These increases
were offset by decreases of 31.1%, when compared to the prior year
period, in revenues from the Company's SensorStrip Checkout technology,
which is sold principally in Europe.
Integrated Security Systems ("ISS"), which includes CCTV, Access
Control and Intelligent Tagging and Tracking systems, revenues
decreased 12.6% to $77.9 in the first quarter of 1998 as compared with
the same period of fiscal 1997 principally as a result of a decline in
revenues of non-core businesses. Excluding revenues of certain non-core
businesses, ISS revenues increased 1.8% in the first quarter of 1998 as
compared to the year ago quarter. Revenues were essentially flat on a
comparable basis due to delayed product launches and pricing pressures.
Revenues generated by the Commercial/Industrial Worldwide Operations
("C/I Worldwide") decreased 13.6% in the first quarter of fiscal 1998
as compared to fiscal 1997. The decrease in revenues is principally due
to the divestiture in September 1997 of the U.S. commercial/industrial
direct sales business. Excluding the effects on revenues of non-core
11
<PAGE> 13
businesses, C/I Worldwide indirect revenues increased 19.0% in the
first quarter of fiscal 1998 as compared with the same period of fiscal
1997.
In September 1997, the Company sold its U.S. commercial/industrial
systems integration business which had annual fiscal year 1997 sales of
approximately $80.0, to Securities Technologies Group ("STG"). The
Company also agreed in such transaction to sell to STG the Company's
monitoring business, which was consummated in October 1997.
For the first quarter of fiscal 1998, North America Retail revenues
increased 12.8% as compared to the same period for fiscal 1997. Market
penetration continues to increase in the following markets: hardware,
music, sporting goods, cosmetics, fragrances, discounters, mass
merchants and hypermarkets. Excluding the effect on revenues of
non-core businesses North America Retail revenues increased 16.0% in
the first quarter of fiscal 1998 as compared with the same period from
fiscal 1997. In addition, source tagging unit label volume increased
64.0% for the first quarter of 1998 as compared to the same period of
fiscal 1997.
Europe Retail revenues decreased 15.6% for the first quarter of fiscal
1998 as compared to the same period for fiscal 1997. The decrease in
Europe retail revenues continues to reflect the challenges that
precipitated the profit improvement actions the Company announced in
August 1997. First quarter Europe Retail revenues were also negatively
affected by foreign currency translation of approximately $10.8 due to
the strengthening U.S. dollar. European revenues were also negatively
affected by governmental restrictions in France on the growth of
hypermarkets, a key customer base.
International Retail revenues, which includes Latin America, Asia
Pacific and the Middle East, increased 46.0% for the first quarter of
fiscal 1998 as compared to the comparable periods of fiscal 1997. The
increase in International Retail was largely due to Latin America
revenues which increased by 85.4% in the first quarter of fiscal 1998
as compared to the same period of fiscal 1997, primarily due to the
acquisition in October 1997 of Argentina distributor and increased
revenues in Brazil. Excluding the effect of acquisitions, Latin America
revenues for the first quarter of fiscal 1998 increased 36.7% as
compared to the first quarter of fiscal 1997.
Gross Margins, Operating Expenses and Operating Income
Gross margins on revenues were 45.5% for the three month period ended
September 30, 1997 compared with 45.2% for the comparable periods of
the prior year.
Selling, general and administrative expenses, as a percentage of total
revenues, was 35.5% for the first quarter of fiscal 1998 as compared to
36.7% for the comparable periods in fiscal 1997. The decrease in
expenses as a percentage of revenues for the first quarter of fiscal
1998 reflects the divestiture of the U.S. commercial/industrial direct
sales and service business which typically had a higher operating
expense level in relation to revenues.
Research, development and engineering expenses increased to 2.6% of
revenue in the three months ended September 30, 1997 as compared to
2.2% for the same periods in fiscal 1997. Research, development and
engineering spending has increased as a percentage of revenues as
compared to the prior year due to the Company's increased focus on new
product developments in all product categories.
12
<PAGE> 14
Operating income for the three months ended September 30, 1997
increased to $12.9, or 5.3% of revenues versus $10.9, or 4.4% of
revenues for the comparable period of fiscal 1997.
Interest Expense, Other Income and Taxes
Net interest expense of $8.7 for the first quarter of fiscal 1998
reflected an increase of $1.4 over the comparable periods of fiscal
1997. This increase is primarily due to increased debt levels
outstanding during the period.
The benefit for income taxes for the first quarter of fiscal 1998,
including the restructuring and litigation charge, is based on an
estimated effective annual consolidated tax benefit rate of 30.0%
compared to an estimated effective annual consolidated tax provision
rate of 29.0% utilized for the first quarter of fiscal 1997. The tax
benefit for the current year related primarily to the restructuring and
litigation charges recorded during the first quarter.
The Company reported net income of $1.3, or $0.02 per share, for the
first quarter of fiscal 1998 as compared to net income of $2.1, or
$0.03 per share, for the same period of fiscal 1997, as a result of the
factors discussed above. Including the restructuring and litigation
charges, the Company reported a net loss of $65.9, or $0.89 per share,
for the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended September 30, 1997, cash flow used in
operating activities was $29.1 compared with cash used in operations
for the three month period ended September 30, 1996 of $48.4. The use
of cash in the three month period ended September 30, 1997 was
primarily a result of increases in customer receivables.
The Company's investing activities used $14.6 of cash in the first
three months of fiscal 1998, compared to $22.3 of cash used in the
first three months of fiscal 1997. The investing activity in fiscal
1998 was principally due to capital expenditures of $5.5, increases in
the Company's investment in revenue equipment of $8.5 and additional
investments in acquisitions of $4.5; offset by the proceeds received
from the sale of the U.S. commercial/industrial direct sales and
service business. The capital expenditures principally include
investments in manufacturing operations for new production equipment
and the addition of an enterprise-wide management information system
software.
For the three month period ended September 30, 1997, financing
activities generated $47.1 of cash as compared to $19.7 in the three
month period ended September 30, 1996. Cash flows from financing
activities were principally due to additional borrowings of
approximately $46.9, primarily from the Company's unsecured revolving
credit facility. The Company's percentage of total debt to total
capital was 43.9% at September 30, 1997 as compared to 40.4% at June
30, 1997.
The Company uses the U.S. dollar as the reporting currency for
financial statement purposes. The Company conducts business in numerous
countries around the world through its international subsidiaries which
use local currencies to denominate their transactions, and is,
therefore, subject to certain risks associated with fluctuating foreign
currencies. The resulting changes in the
13
<PAGE> 15
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 the current
U.S. dollar exchange rate. Because of the long-term nature of the
Company's investment in these subsidiaries, 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 $9.0 decrease for the three
months ended September 30, 1997 resulted primarily from the translation
of the balance sheets denominated in British pounds, reflecting the
strengthening of the U.S. dollar relative to such currency at September
30, 1997. The Company monitors its currency exposures but has decided
not to hedge its translation exposures due to the high economic costs
of such a program and the long-term nature of its investment in its
international subsidiaries.
As a result of the agreement to settle a series of shareholder class
action suits filed during 1995, the Company has recorded a pretax
charge of $53.0 during the first quarter of fiscal 1998. The Company
believes that the liquidity provided by existing cash and financing
arrangements is more than sufficient to meet the Company's funding
requirements for such settlement.
At September 30, 1997, the Company's primary source of liquidity
consisted of cash and a committed line of credit totaling approximately
$250.0 (of which approximately $56.0 was utilized) and receivable
financing agreements totaling approximately $200.0 (of which
approximately $130.0 was utilized), all of which are available subject
to compliance with certain covenants and, in the case of such
receivable financing agreements, subject to the terms within such
agreements. The Company believes that the liquidity provided by future
operations, existing cash and the financing arrangements described
above will be sufficient to meet the Company's future capital
requirements.
RESTRUCTURING AND SPECIAL CHARGES
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. In addition, during fiscal 1997, the
Company announced further restructuring actions which included the
divestment of non-core businesses and additional cost-reduction plans,
which mainly include staff reductions within its European operations,
as well as additional special charges principally for increases to the
valuation allowances for accounts receivable and receivables financed
with third parties. During the fourth quarter of fiscal 1997, the
Company recognized $48.9 of this charge with plans to record the
remaining portion in the first quarter of fiscal 1998. As a result, the
Company recorded $43.0 in restructuring charges during the first
quarter of fiscal 1998, primarily for product rationalization and
related equipment impairment charges, facility closures and severance
costs.
Related to the fiscal 1996 restructuring plan, the Company planned for
the reduction of 875 people and the sale, disposal or termination of
lease arrangements of approximately 30 locations, principally in the
U.K. and U.S. As of September 30, 1997, all planned staff reductions
are completed and approximately one-half of the locations have been
eliminated and the remaining locations are in various stages of
disposition. Approximately $33.3 of these restructuring costs will
result in cash outlays, of which $21.1 has been disbursed as of
September 30, 1997.
14
<PAGE> 16
Related to the fiscal 1997 restructuring plan, the Company continued to
focus its organization and reduce costs. Accordingly, the Company
divested and sold its U.S. commercial/industrial direct sales and
service business in September 1997. The Company elected to exit this
business activity due to market conflicts with its indirect sales
channels and the need to focus on products related to the Company's
strategy of total systems integration. The Company has planned for the
reduction in workforce of approximately 1,200 positions, of which 600
will be eliminated in connection with the divestment of non-core
businesses and the remaining positions principally represent the
termination of administrative personnel in Europe. The total cash
outlay related to this restructuring plan, net of proceeds from the
divestment of non-core businesses, is estimated to be $30.0.
During the first three months of fiscal 1998, the total restructuring
reserve was reduced by approximately $6.7 as a result of cash and
non-cash charges.
All of the Company's restructuring activities are expected to be
substantially complete prior to the end of fiscal 1998 and the Company
believes the provisions identified as required are adequate to cover
the costs associated with these plans.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Except for historical matters, the matters discussed in this Form 10-Q
are forward-looking statements which reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and
uncertainties which could cause actual results to differ materially
from historical results or those anticipated. Readers are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. The following
factors could cause actual results to differ materially from historical
results or those anticipated: 1) changes in international operations 2)
exchange rate risk 3) market conditions for the Company's products 4)
the Company's ability to provide innovative and cost-effective
solutions 5) development risks 6) competition and 7) changes in the
economic climate.
15
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has reached an agreement to settle the consolidated
shareholder class actions filed during calendar 1995 and pending
against the Company and certain of its current and former officers and
directors in the United States District Court for the Southern District
of Florida. These actions, which challenged the Company's prior revenue
recognition and other accounting practices in fiscal year 1995 and
earlier, are described in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 ("Form 10-K"). The agreement
provides, among other things, for the payment by the Company of $53.0
million . The agreement will be submitted to the Court for approval.
The Company expects to recover a portion of the settlement and related
expenses from its primary directors and officers liability insurance
policy, which has a policy limit of $10.0 million. In addition, the
Company is seeking payment from its excess insurance carriers having
combined policy limits of $20.0 million. The Company is currently in
litigation with such excess carriers in the United States District
Court for the Southern District of Florida, which action by such
carriers, seeking to avoid coverage under the policies, is also
described in the Form 10-K. The Company intends to vigorously defend
against the claims made by those carriers and to pursue the recovery of
insurance proceeds from them.
In the Gilford action described in the Form 10-K, plaintiff has now
filed an amended complaint, the allegations of which are essentially as
summarized in the description of the original complaint set forth in
the Form 10-K. The Company intends to continue to vigorously defend
against this section.
In addition, reference is made to Item 3 of Part I of the Form 10-K.
16
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4) First Amendment, dated as of October 31, 1997, to the
Note Agreement, dated as of March 29, 1996, among the
Company and Purchasers named therein (see exhibit
4(b) of the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997).
10) First Amendment dated as of October 31, 1997, to the
Amended and Restated Multicurrency Revolving Credit
Agreement, dated as of March 18, 1997, between the
Company and the First National Bank of Boston as
Agent and other lenders referred to therein (see
exhibit 10(w) of the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1997).
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, 1997.
17
<PAGE> 19
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, 1997
18
<PAGE> 1
Exhibit 10
FIRST AMENDMENT
TO AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AGREEMENT
First Amendment dated as of October 31, 1997 to Amended and Restated
Multicurrency Revolving Credit Agreement (the "First Amendment"), by and among
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation (the "Parent"),
BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) and the
other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (collectively, the "Banks"), amending certain provisions of
the Amended and Restated Multicurrency Revolving Credit Agreement dated as of
March 18, 1997 (as amended and in effect from time to time, the "Credit
Agreement") by and among the Parent, the other Borrowing Subsidiaries (as such
term is defined in the Credit Agreement) which may from time to time become
parties thereto in accordance with the terms thereof (collectively with the
Parent, the "Borrowers"), the Banks and BANKBOSTON, N.A. as agent for the Banks
(in such capacity, the "Agent"), with NATIONSBANK, N.A. as syndication agent
thereunder. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrowers and the Majority Banks have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this First Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ss.1. Amendment to ss.1 of the Credit Agreement. Section 1 of the
Credit Agreement is hereby amended as follows:
(a) the definition of "Consolidated Net Worth" is hereby amended by
deleting such definition in its entirety and restating it as follows:
Consolidated Net Worth. The consolidated stockholders equity
of the Parent and its Subsidiaries determined in accordance with
generally accepted accounting principles, provided, however, solely for
purposes of calculating compliance with the financial covenants set
forth in ss.ss.10.1, 11.2 and 11.3 hereof, the Shareholder Litigation
Charge, to the extent deducted as a charge in arriving at Consolidated
Net Worth, shall be added back to Consolidated Net Worth.
(b) Section 1 of the Credit Agreement is further amended by inserting
the following definitions in the appropriate alphabetical order:
<PAGE> 2
-2-
Class Action Settlement. The settlement or any proposed
settlement of the shareholders' class actions filed in 1995 and
consolidated before the Hon. William Zloch, United States District
Judge for the United States District Court for the Southern District of
Florida.
CTA. Each currency translation adjustment that results in a
change (whether positive or negative) in the foreign currency
adjustment account balance which the Parent records as an equity
account on its balance sheet pursuant to generally accepted accounting
principles.
EBIT. With respect to any fiscal period, an amount equal to
Consolidated Net Income for such fiscal period after eliminating
therefrom, without duplication, all non-cash extraordinary nonrecurring
items of gains or losses for such period and after eliminating
therefrom the Parent's September 30, 1997 restructuring charge and the
Shareholder Litigation Charge for such period in which such charges
relate, plus, to the extent otherwise deducted in arriving at
Consolidated Net Income and without duplication, (a) tax expense for
such period, plus (b) Net Interest Expense for such period, all as
determined in accordance with generally accepted accounting principles.
Interest Coverage Ratio. As at any date of determination, the
ratio of (a) EBIT of the Parent and its Subsidiaries for the Reference
Period ending on such date to (b) Net Interest Expense of the Parent
and its Subsidiaries for such Reference Period.
Net Interest Expense. As at any date of determination, (a)
Consolidated Total Interest Expense of the Parent and its Subsidiaries
for the relevant period, less (b) interest income of the Parent and its
Subsidiaries for such period as determined in accordance with generally
accepted accounting principles.
Reference Period. Each period of four consecutive complete
fiscal quarters (or such shorter period of three consecutive fiscal
quarters as has elapsed since June 30, 1997).
Shareholder Litigation Charge. The after tax charge taken by
the Parent on or before December 31, 1997, associated with the Class
Action Settlement and in accordance with generally accepted accounting
principles, less any subsequent insurance recoveries (such recoveries
to be net of taxes and expenses incurred in connection with such
recoveries) received by the Parent (whether by assignment or otherwise)
in connection therewith; provided, however, for purposes of calculating
compliance with the financial covenants set forth in ss.11 hereof, such
charge shall not exceed, in the aggregate, $40,000,000.
ss.2. Amendment to ss.8 of the Credit Agreement. Section 8 of the
Credit Agreement is hereby amended as follows:
<PAGE> 3
-3-
(a) Section 8.4(b) of the Credit Agreement is hereby amended by
deleting ss.8.4(b) in its entirety and restating it as follows:
(b) Except for (x) matters disclosed in the Parent's (i) Forms
10-K for the fiscal years ended, respectively, June 30, 1996 and June
30, 1997 (the "Forms 10-K"), (ii) Forms 10-Q for the quarterly periods
ended, respectively, September 30, 1996, December 31, 1996 and March
31, 1997 (the "Forms 10-Q") and (iii) Form 8-K filed on November 21,
1996 (the "Form 8-K") (other than the actions, suits and proceedings
that are subject to the Class Action Settlement), as to which the
ultimate outcome, and whether or not such matters could reasonably be
expected to have a Material Adverse Effect, are not known at this time
(or, if the outcome is known, such outcome could not reasonably be
expected to have a Material Adverse Effect), (y) the actions, suits and
proceedings that are subject to the Class Action Settlement, the
outcome of which the Parent believes will not have a Material Adverse
Effect, and (z) any other actions, suits or proceedings based primarily
on allegations similar to those contained in the actions, suits or
proceedings that are the subject of clauses (x) and (y) above, since
June 30, 1997, there has been no event, act, condition or occurrence
having a Material Adverse Effect; provided, that, during the term of
this Credit Agreement and after the Closing Date, future
representations as to the matters set forth in this ss.8.4 shall be
deemed to refer to the most recent financial statements delivered
pursuant to ss.9.4(a) or (b), respectively, including notes thereto and
any statement of the Parent or auditors accompanying such financial
statements
(b) Section 8.5 of the Credit Agreement is hereby amended by deleting
ss.8.5 in its entirety and restating it as follows:
8.5. No Litigation. Except for (x) the proceedings described
in the Forms 10-K, the Forms 10-Q and Form 8-K referred to above (other
than those that are subject to the Class Action Settlement), as to
which the ultimate outcome, and whether or not such matters could
reasonably be expected to have a Material Adverse Effect, are not known
at this time (or, if the outcome is known, such outcome could not
reasonably be expected to have a Material Adverse Effect), and any
other actions, suits or proceedings based primarily on allegations
similar to those contained in such proceedings disclosed in such Forms
10-K, Forms 10-Q and Form 8-K, and (y) the proceedings that are subject
to the Class Action Settlement, the outcome of which the Parent
believes will not have a Material Adverse Effect, there is no action,
suit or proceeding pending, or to the knowledge of each Borrower,
threatened, against or affecting such Borrower or any of the
Subsidiaries of such Borrower before any court or arbitrator or any
governmental body, agency or official which could reasonably be
expected to have a Material Adverse Effect or which could impair in any
material respect the ability of the Borrowers taken as a whole or, on
the occasion of each borrowing, of the Borrower making such borrowing,
to perform its obligations under, this Credit Agreement, the Notes or
any of the other Loan Documents executed by
<PAGE> 4
-4-
such Borrower. In addition, there is no action, suit or proceeding
pending, or to the knowledge of each Borrower threatened, against or
affecting such Borrower or any of the Subsidiaries of such Borrower
before any court or arbitrator or any governmental body, agency or
official which in any manner draws into question the validity of this
Credit Agreement, the Notes or any of the other Loan Documents executed
by such Borrower.
ss.3. Amendment to ss.10 of the Credit Agreement. Section 10.9 of the
Credit Agreement is hereby amended by deleting all the text which immediately
follows the words "provided, however," and inserting in place thereof the
following:
"so long as no Default or Event of Default has occurred and is
continuing or would exist as a result of such a transaction, the Parent
and its Subsidiaries shall be permitted to (a) enter into a sale and
leaseback transaction pertaining to the Parent's "Corporate Office
Building" located at 951 Yamato Road, Boca Raton, Florida 33431 and the
Parent's "Boca Operations Center" located at 6600 Congress Avenue, Boca
Raton Florida 33487 so long as the purchase price for each such sale
and leaseback is no less than the fair market value of the applicable
asset at the time of the sale and (b) other sale and leaseback
transactions so long as (i) the aggregate net cash proceeds received
for all such sales or dispositions does not exceed $5,000,000 during
the term of this Credit Agreement and (ii) the purchase price for each
such sale and leaseback is no less than the fair market value of the
applicable asset at the time of the sale."
ss.4. Amendment to ss.11 of the Credit Agreement. Section 11 of the
Credit Agreement is hereby amended as follows:
(a) Section 11.1 of the Credit Agreement is hereby amended by deleting
ss.11.1 in its entirety and restating it as follows:
11.1. Net Worth. The Parent will not permit at any time its
Consolidated Net Worth to be less than (a) $730,000,000 less the
Shareholder Litigation Charge, plus (i) if the date of determination is
any day during the period from and including January 1, 1997 through
June 30, 1998 ("Period 1"), 100% of the aggregate net CTA from the
first day of Period 1 to through the date of determination; (ii) if the
date of determination is any day during the period from and including
July 1, 1998 through June 30, 1999 ("Period 2"), the sum of the 100% of
the aggregate net CTA for Period 1, plus seventy five percent (75%) of
the aggregate net CTA from the first day of Period 2 through such date
of determination; and (iii) if the date of determination is any day
during the period commencing on or after July 1, 1999 ("Period 3"), the
sum of 100% of the aggregate net CTA for Period 1 plus seventy five
percent (75%) of the aggregate net CTA for Period 2 plus fifty percent
(50%) of the aggregate net CTA during the period from and including the
first day of Period 3 through the date of determination; plus (b) the
cumulative sum of fifty percent (50%) of Consolidated Net Income
(without reduction for any net losses) for each
<PAGE> 5
-5-
completed fiscal year ending after June 30, 1997 and on or before the
date 120 days prior to the date of determination, plus (c) for the then
current fiscal year, the cumulative sum of fifty percent (50%) of
Consolidated Net Income (without reduction for any net losses) from the
beginning of such year to the last day of the Fiscal Quarter of the
Parent most recently ended as of the date sixty (60) days prior to the
date of determination. For purposes of calculating compliance with this
ss.11.1, the Parent will include as a debit (without duplication of any
amounts which already may be reflected in the financial statements of
the Parent or its Subsidiaries with respect to such amounts) the net
after tax charge of any judgment or settlement in respect of any
litigation described in Forms 10-K, Forms 10-Q or Form 8-K (as defined
in ss.8.4(b) hereof) or any other actions, suits or proceedings based
primarily on allegations similar to those contained in such
proceedings, in the case of a judgment, upon the entry of such judgment
by the court (unless such judgment is being appealed and execution of
such judgment is stayed) and, in the case of a settlement, upon the
approval of such settlement by the court (or, if such settlement is not
to be approved by the court, upon payment of such settlement).
(b) Section 11 of the Credit Agreement is further amended by inserting
the following immediately after the end of ss.11.3:
11.4. EBIT to Interest. The Parent will not, as of the end of
any Reference Period ending on any date described in the table set
forth below, permit the Interest Coverage Ratio for such Reference
Period to be less than the ratio set forth opposite such period in such
table:
<TABLE>
--------------------------------------- -------------------------
Reference Period Ending Ratio
--------------------------------------- -------------------------
<S> <C>
03/31/98 1.05:1.00
--------------------------------------- -------------------------
06/30/98 , 09/30/98 and 12/31/98 1.70:1.00
--------------------------------------- -------------------------
03/31/99 - 06/30/99 1.90:1.00
--------------------------------------- -------------------------
the last day of each fiscal quarter
ending thereafter 2.00:1.00
--------------------------------------- -------------------------
</TABLE>
ss.5. Amendment to Exhibit I. The Compliance Certificate Worksheet
attached to Exhibit I to the Credit Agreement is hereby amended by making all
modifications to the financial covenants and definitions used therein
(including, without limitation, adding the Interest Coverage Ratio set forth in
ss.11.4 to the Credit Agreement) to conform such definitions and covenants to
the definitions and covenants to the Credit Agreement as modified by this First
Amendment.
ss.6. Consent to Amendment to Senior Notes. Upon the effectiveness of
this First Amendment as set forth in ss.7 below, the Majority Banks hereby
consent to the amendment of the Note Agreement (1996) provided such amendment is
substantially in the form and substance as the amendment attached hereto as
Exhibit A.
<PAGE> 6
-6-
ss.7. Conditions to Effectiveness. This First Amendment shall not
become effective until the Agent receives the following:
(a) a counterpart of this First Amendment executed by the Borrowers and
the Majority Banks;
(b) evidence satisfactory to the Agent that the Parent has obtained an
amendment to the covenants contained in the Note Agreement (1996), which
amendment shall be in form and substance satisfactory to the Agent;
(c) receipt by the Agent for the respective pro rata accounts of each
Bank consenting to this First Amendment of an amendment fee, in cash, in amount
equal to five basis points on the aggregate Commitments of all the Banks
consenting to this First Amendment.
ss.8. Representations and Warranties. Each of the Borrowers hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in ss.8 of the Credit Agreement (except to the extent that
such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, each of the Borrowers
hereby represents and warrants that the execution and delivery by such Borrower
of this First Amendment and the performance by such Borrower of all of its
agreements and obligations under the Credit Agreement as amended hereby are
within the corporate authority of such Borrower and have been duly authorized by
all necessary corporate action on the part of such Borrower, and further
represents and warrants that the execution and deliver by such Borrower of this
First Amendment and the performance by such Borrower of the transactions
contemplated hereby will not contravene, or constitute a default under, any
material provision of applicable law or regulation or, to the best of the
Borrower's knowledge, of any material agreement relating to Debt, or other
material instrument relating to Debt, judgment, injunction, order or decree
binding upon the Borrower.
ss.9. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Credit Agreement and this First Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement, the
Loan Documents or any related agreement or instrument to the Credit Agreement
shall hereafter refer to the Credit Agreement as amended hereby.
ss.10. No Waiver. Nothing contained herein shall constitute a waiver
of, impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Agent or the Banks consequent thereon.
ss.11. Counterparts. This First Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
<PAGE> 7
-7-
ss.12. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as a document under seal as of the date first above written.
SENSORMATIC ELECTRONICS
CORPORATION
By:
-------------------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------------------
Name:
Title:
SUN TRUST BANK, SOUTH FLORIDA, N.A.
By:
-------------------------------------
Name:
Title:
CITIBANK, N.A.
By:
-------------------------------------
Name:
Title:
<PAGE> 8
-8-
THE FUJI BANK LIMITED,
NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
CIBC, INC.
By:
-------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
-------------------------------------
Name:
Title:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
LTCB TRUST COMPANY
By:
-------------------------------------
Name:
Title:
<PAGE> 9
-9-
MITSUBISHI TRUST & BANKING
CORPORATION (U.S.A.)
By:
-------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED
By:
-------------------------------------
Name:
Title:
THE YASUDA TRUST AND BANKING
COMPANY LIMITED, NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY
By:
-------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------------------
Name:
Title:
INSTITUTO BANCARIO SAN PAOLO di
TORINO SPA
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10(b)
AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT (this "Amendment"),
dated as of September 30, 1997, among Kitty Hawk Funding Corporation (the
"Company"), Sensor SPC Inc., as transferor (the "Transferor"), Sensormatic
Electronics Corporation, individually and as collection agent (the "Collection
Agent") and NationsBank, N.A., as agent (the "Agent") and bank investor (the
"Bank Investor").
W I T N E S S E T H:
WHEREAS, the Company, the Transferor, the Collection Agent, the Agent
and the Bank Investor have entered into a Transfer and Administration Agreement,
dated as of June 27, 1997 (the "Agreement");
WHEREAS, the Transferor and the Collection Agent have requested that
the Agreement be amended in the manner set forth below; and
WHEREAS, the Company, the Agent and the Bank Investor have agreed,
subject to the terms and conditions of this Amendment, to amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the parties hereby agree as follows:
1. Definitions. Terms used but not defined herein shall have the
meaning assigned thereto in the Agreement.
2. Amendments of Agreement. The Agreement shall be and is hereby
amended, as of the Effective Date (as hereinafter defined), as follows:
(a) Section 5.1(m) of the Agreement is hereby amended by
changing the reference to September 30, 1997 to December 31, 1997.
<PAGE> 2
(b) Section 5.1(n) of the Agreement is hereby amended by
changing the reference to September 30, 1997 to December 31, 1998.
3. Representations and Warranties. In order to induce the
Company, the Transferor, the Agent and the Bank Investor to enter into this
Amendment, the Transferor and the Collection Agent each makes the following
representations and warranties (which representations and warranties shall
survive the execution and delivery of this Amendment) as of the date hereof:
(a) The Transferor and the Collection Agent each restates
and repeats (as of the date hereof other than any such representation or
warranty which is made as of a specific earlier date) each of the
representations and warranties made by it and contained in the Agreement.
(b) There has occurred and is continuing no Termination
Event and there has occurred and is continuing no event which, with the giving
of notice or the passage of time or both, would constitute a Termination Event.
4. Effective Date. This Amendment shall become effective as of
September 30, 1997 (the "Effective Date") when the Agent shall have received a
counterpart of this Amendment, duly executed and delivered by each of the
parties hereto.
5. Counterparts. This Amendment may be executed by the parties
hereto individually or in any combination, in one or more counterparts, each of
which shall be an original and all of which shall constitute one and the same
amendment.
6. Agreement and All Other Related Agreements in Full Force and
Effect; Confirmation of Collateral. Except as amended by this Amendment, all of
the provisions of the Agreement and all of the provisions of each related
agreement shall remain in full force and effect from and after the date hereof.
The Transferor and the Collection Agent each hereby confirms and agrees that all
collateral security granted by the Transferor in connection with the Agreement
remains in full force and effect after giving effect to this Amendment.
7. References to Agreement. From and after the Effective Date,
(a) all references in the Agreement to "this Agreement", "hereof", "herein", or
similar terms, (b) all references to the Agreement in each agreement, instrument
and other document
-2-
<PAGE> 3
executed or delivered in connection with the Agreement and (c) all references to
the Agreement, shall mean and refer to the Agreement as amended by this
Amendment.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Company, the Transferor, the Collection Agent,
the Agent and the Bank Investor have caused this Amendment to be duly executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
KITTY HAWK FUNDING CORPORATION, as
Company
By:
--------------------------------------
Name:
Title:
SENSOR SPC INC., as Transferor
By:
--------------------------------------
Name:
Title:
SENSORMATIC ELECTRONICS
CORPORATION, as Collection Agent
By:
--------------------------------------
Name:
Title:
NATIONSBANK, N.A., as Agent and a Bank
Investor
By:
--------------------------------------
Name:
Title:
-4-
<PAGE> 1
Exhibit 10(c)
FIRST AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT
FIRST AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of October 31, 1997, among Kitty Hawk Funding Corporation
(the "Company"), Sensor SPC Inc., as transferor (the "Transferor"), Sensormatic
Electronics Corporation, individually and as collection agent (the "Collection
Agent") and NationsBank, N.A., as agent (the "Agent") and bank investor (the
"Bank Investor").
W I T N E S S E T H:
WHEREAS, the Company, the Transferor, the Collection Agent, the Agent
and the Bank Investor have entered into the Transfer and Administration
Agreement, dated as of June 27, 1997 (as heretofore amended, the "Agreement");
WHEREAS, the Transferor and the Collection Agent have requested that
the Agreement be amended in the manner set forth below; and
WHEREAS, the Company, the Agent and the Bank Investor have agreed,
subject to the terms and conditions of this Amendment, to amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the parties hereby agree as follows:
1. Definitions. Terms used but not defined herein shall have the
meaning assigned thereto in the Agreement.
2. Amendments of Agreement. The Agreement shall be and is hereby
amended, as of the Effective Date (as hereinafter defined), as follows:
a. In Section 1.1 of the Agreement, the definition of "Reports" is
amended to read in its entirety as follows:
"Reports" means the Seller's (i) Forms 10-K for the fiscal
years ended, respectively, June 30, 1996 and June 30, 1997, and (ii)
Forms 10-Q for the quarterly periods ended, respectively, September 30,
1996, December 31, 1996 and March 31, 1997.
b. Section 1.1 of the Agreement is further amended by inserting the
following new definition in the proper alphabetical order:
"Class Action Settlement" means the settlement or any proposed
settlement of the shareholders' class actions filed in 1995 and
consolidated before
<PAGE> 2
the Hon. William Zloch, United States District Judge for the
United States District Court for the Southern District of
Florida.
c. Section 3.4(e) of the Agreement is hereby amended to read in
its entirety as follows:
(e) No Actions; Suits. Except for (i) the proceedings
described in the Reports (other than those that are subject to the
Class Action Settlement), as to which the ultimate outcome, and whether
or not such matters could reasonably be expected to have a Material
Adverse Effect, are not now known (or, if the outcome is known, such
outcome could not reasonably be expected to have a Material Adverse
Effect), and any other actions, suits or proceedings based primarily on
allegations similar to those contained in such proceedings disclosed in
such Reports, and (ii) the proceedings that are subject to the Class
Action Settlement, the outcome of which the Collection Agent believes
will not have a Material Adverse Effect, there are no actions, suits or
proceedings pending or, to the Collection Agent's knowledge, threatened
against or affecting the Collection Agent or any of its Subsidiaries,
at law or in equity or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect.
3. Representations and Warranties. In order to induce the
Company, the Agent and the Bank Investor to enter into this Amendment, the
Transferor and the Collection Agent each makes the following representations and
warranties (which representations and warranties shall survive the execution and
delivery of this Amendment) as of the date hereof, after giving effect to the
amendments set forth herein and in the amendment of even date herewith to the
Receivables Purchase Agreement (the "RPA Amendment"):
(a) The Transferor and the Collection Agent each restates and
repeats (as of the date hereof, other than any such representations or
warranty which is made as of a specific earlier date) each of the
representations and warranties made by it contained in the Agreement,
as amended by this Amendment.
(b) There has occurred and is continuing no Termination Event
or Potential Termination Event.
4. Effective Date. This Amendment shall become effective as of
October 31, 1997 (the "Effective Date") when the Agent shall have received a
counterpart of this Amendment, duly executed and delivered by each of the
parties hereto.
5. Counterparts. This Amendment may be executed by the parties
hereto individually or in any combination, in one or more counterparts, each of
which shall be an original and all of which shall constitute one and the same
amendment.
2
<PAGE> 3
6. Agreement and all other Related Agreements in Full Force
and Effect; Confirmation of Collateral. Except as amended by this Amendment, all
of the provisions of the Agreement and all of the provisions of each of each
related agreement shall remain in full force and effect from and after the date
hereof. The Transferor and the Collection Agent each hereby confirms and agrees
that all collateral security and all ownership interests granted by the
Transferor in connection with the Agreement remains in full force and effect
after giving effect to this Amendment.
7. References to Agreement. From and after the Effective Date,
(a) all references in the Agreement to "this Agreement", "hereof", "herein" or
similar terms, (b) all references to the Agreement in each agreement, instrument
and other document executed or delivered in connection with the Agreement, and
(c) all references to the Agreement, shall mean and refer to the Agreement as
amended by this Amendment.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company, the Transferor, the
Collection Agent, the Agent and the Bank Investor have caused this Amendment to
be duly executed by their respective officers thereunder duly authorized as of
the day and year first above written.
KITTY HAWK FUNDING
CORPORATION, as Company
By
--------------------------------
Title:
SENSOR SPC INC., as Transferor
By
--------------------------------
Title:
SENSORMATIC ELECTRONICS
CORPORATION, as Collection Agent
By
--------------------------------
Title:
NATIONSBANK, N.A., as Agent and as a
Bank Investor
By
--------------------------------
Title:
4
<PAGE> 1
Exhibit 10(d)
FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT
FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT (this "Amendment"),
dated as of October 31, 1997, between Sensormatic Electronics Corporation, as
seller and as collection agent (the "Seller") and Sensor SPC Inc., as Purchaser
(the "Purchaser"), with the acknowledgment hereon and consent hereto by
NationsBank, N.A., as agent (the "Agent") and bank investor (the "Bank
Investor"), and Kitty Hawk Funding Corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Seller, the Purchaser, the Company, and the Agent have
entered into the Receivables Purchase Agreement, dated as of June 27, 1997 (the
"Agreement");
WHEREAS, the Seller and the Purchaser have requested that the Agreement
be amended in the manner set forth below; and
WHEREAS, the Company, the Agent and the Bank Investor have agreed,
subject to the terms and conditions of this Amendment, to amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the parties hereby agree as follows:
1. Definitions. Terms used but not defined herein shall have the
meaning assigned thereto in the Agreement.
2. Amendments of Agreement. The Agreement shall be and is hereby
amended, as of the Effective Date (as hereinafter defined), as follows:
a. In Section 1.1 of the Agreement, the definition of
"Consolidated Net Worth" is amended to read in its entirety as
follows:
"Consolidated Net Worth" shall mean the consolidated
stockholders' equity of the Seller and its Subsidiaries determined in
accordance with generally accepted accounting principles; provided,
however, solely for purposes of calculating compliance with the
financial covenants set forth in Sections 5.2(i) and 5.2(u), the
Shareholder Litigation Charge, to the extent deducted as a charge in
arriving at Consolidated Net Worth, shall be added back to Consolidated
Net Worth.
<PAGE> 2
b. In Section 1.1 of the Agreement, there shall be added the
following new definitions in the appropriate alphabetical
positions:
"Class Action Settlement" shall mean the settlement or any proposed
settlement of the shareholders' class actions filed in 1995 and consolidated
before the Hon. William Zloch, United States District Judge for the United
States District Court for the Southern District of Florida.
"Consolidated Net Total Interest Expense" shall mean for any period,
the sum of (a) the aggregate amount of interest expense in respect of all
Indebtedness of the Seller and its Subsidiaries for such period on a
consolidated basis determined in accordance with generally accepted accounting
principles (including, without limitation, all non-cash interest payments, the
interest portion of any deferred payment obligations and the interest component
of Capitalized Lease Obligations), minus (b) the aggregate amount of all
interest income of the Seller and its Subsidiaries for such period on a
consolidated basis determined in accordance with generally accepted accounting
principles.
"CTA" shall mean each currency translation adjustment that results in a
change (whether positive or negative) in the foreign currency adjustment account
balance which the Seller records as an equity account on its balance sheet
pursuant to generally accepted accounting principles.
"EBIT" shall mean with respect to any period, an amount equal to
Consolidated Net Income for such period after eliminating therefrom, without
duplication, all non-cash extraordinary non-recurring items of gains or losses
for such period and after eliminating therefrom the Seller's September 30, 1997
restructuring charge and the Shareholder Litigation Charge for such period in
which such charges relate, plus, to the extent otherwise deducted in arriving at
such Consolidated Net Income and without duplication, (a) tax expense for such
period, plus Consolidated Net Total Interest Expense for such period, all as
determined in accordance with generally accepted accounting principles.
"Interest Coverage Ratio" shall mean as at any date of determination,
the ratio of (a) EBIT of the Seller and its Subsidiaries on a consolidated basis
for the Reference Period ending on such date, to (b) Consolidated Net Total
Interest Expense for such Reference Period.
"Reference Period" shall mean each period of four consecutive complete
fiscal quarters of the Seller (or such shorter period of three consecutive
fiscal quarters as has elapsed since June 30, 1997).
"S&P" shall mean Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
<PAGE> 3
"Shareholder Litigation Charge" shall mean the after-tax charge taken
by the Seller on or before December 31, 1997, associated with the Class Action
Settlement and in accordance with generally accepted accounting principles, less
any subsequent insurance recoveries (such recoveries to be net of taxes and
expenses incurred in connection with such recoveries) received by the Seller
(whether by assignment or otherwise) in connection therewith; provided, however,
for purposes of calculating compliance with the financial covenants set forth in
Sections 5.1(i) and (t), such charge shall not exceed, in the aggregate,
$40,000,000.
c. Section 4.1(g) of the Agreement is hereby amended to read in
its entirety as follows:
(g) No Actions; Suits. Except for (i) the proceedings
described in the Reports (other than those that are subject to the
Class Action Settlement), as to which the ultimate outcome, and whether
or not such matters could reasonably be expected to have a Material
Adverse Effect, are not now known (or, if the outcome is known, such
outcome could not reasonably be expected to have a Material Adverse
Effect), and any other actions, suits or proceedings based primarily on
allegations similar to those contained in such proceedings disclosed in
such Reports, and (ii) the proceedings that are subject to the Class
Action Settlement, the outcome of which the Seller believes will not
have a Material Adverse Effect, there are no actions, suits or
proceedings pending or, to the Seller's knowledge, threatened against
or affecting the Seller or any of its Subsidiaries, at law or in equity
or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
d. Section 5.2(o) of the Agreement is hereby amended to read in
its entirety as follows:
(o) Sale and Leaseback.
The Seller will not, and will not permit any of its
Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Seller or any Subsidiary of the Seller shall sell or
transfer any property owned by it in order then or thereafter to lease
such property or lease other property that the Seller or any Subsidiary
of the Seller intends to use for substantially the same purpose as the
property being sold or transferred; provided, however, so long as no
Termination Event (other than any Termination Event arising under
Section 7.1(g), so long as the Seller is not the Collection Agent,
7.1(h) in the event of a voluntary termination of the Receivables
Purchase Agreement, or Sections 7.1(k) through 7.1(r) of the Transfer
Agreement) has occurred and is continuing or would exist as a result of
such a transaction, the Seller and its Subsidiaries shall be permitted
to
<PAGE> 4
(i) enter into a sale and leaseback transaction pertaining to the
Seller's "Corporate Office Building" located at 951 Yamato Road, Boca
Raton, Florida 33431 and the Seller's "Boca Operating Center" located
at 6600 Congress Avenue, Boca Raton, Florida 33487 so long as the
purchase price for each such sale and leaseback is no less than the
fair market value of the applicable asset at the time of the sale, and
(ii) other sale and leaseback transactions so long as (x) the aggregate
net cash proceeds received for all such sales or dispositions does not
exceed $5,000,000 during the term of this Agreement and (y) the
purchase price for each such sale and leaseback is no less than the
fair market value of the applicable asset at the time of the sale.
e. The first sentence of Section 5.2(t) of the Agreement is
hereby amended to read in its entirety as follows (the
remainder of said Section 5.1(t) to remain unamended):
The Seller will not permit at any time its Consolidated Net Worth to be
less than (i) $730,000,000 less the Shareholder Litigation Charge, plus
(a) if the date of determination is any day during the period from and
including January 1, 1997 through June 30, 1998 ("Period No. 1"), 100%
of the aggregate net CTA from the first day of Period No. 1 through
such date of determination; (b) if the date of determination is any day
during the period from and including July 1, 1998 through June 30, 1999
("Period No. 2"), the sum of the aggregate net CTA for Period No. 1
plus 75% of the aggregate net CTA from the first day of Period No. 2
through such date of determination; and (c) if the date of
determination is any day during the period commencing on or after July
1, 1999 ("Period No. 3"), the sum of 100% of the aggregate net CTA for
Period 1 plus seventy-five (75%) of the aggregate net CTA for Period 2
plus fifty percent (50%) of the aggregate net CTA during the period
from and including the first day of Period 3 through the date of
determination, plus (ii) the cumulative sum of 50% of Consolidated Net
Income (without reduction for any net losses) for each completed Fiscal
Year of the Seller ending after June 30, 1997 and on or before the date
120 days prior to the date of determination, plus (iii) for the then
current Fiscal Year of the Seller, the cumulative sum of 50% of
Consolidated Net Income (without reduction for any net losses) from the
beginning of such year to the last day of the Fiscal Quarter of the
Seller most recently ended as of the date 60 days prior to the date of
determination.
f. At the end of Section 5.2 of the Agreement there shall be
added a new Section 5.2(v) as follows:
(v) Interest Coverage Ratio. The Seller will not, as of the
end of any Reference Period ending on any date set forth in the table
below, permit the
<PAGE> 5
Interest Coverage Ratio for such Reference Period to be less than the
ratio set forth opposite such date in such table:
<TABLE>
<CAPTION>
Reference Period Ending Date Ratio
---------------------------- -----
<S> <C>
March 31, 1998 1.05:1.00
June 30, 1998, 1.70:1.00
September 30, 1998 and
December 31, 1998
March 31, 1999 - June 30, 1999 1.90:1.00
Each fiscal quarter-end date
after June 30, 1999 2.00:1.00
</TABLE>
3. Representations and Warranties. In order to induce the
Company, the Agent and the Bank Investor to enter into this Amendment, the
Transferor and the Collection Agent each makes the following representations and
warranties (which representations and warranties shall survive the execution and
delivery of this Amendment) as of the date hereof, after giving effect to the
amendments set forth herein and in the amendment of even date herewith to the
Receivables Purchase Agreement (the "RPA Amendment"):
(a) The Transferor and the Collection Agent each restates and
repeats (as of the date hereof, other than any such representations or warranty
which is made as of a specific earlier date) each of the representations and
warranties made by it contained in the Agreement, as amended by this Amendment.
(b) There has occurred and is continuing no Termination Event and
there has occurred and is continuing no event which, with the giving of notice
or the passage of time or both, would constitute a Termination Event.
4. Effective Date. This Amendment shall become effective as of
October 31, 1997 (the "Effective Date") when the Agent shall have received a
counterpart of this Amendment, duly executed and delivered by each of the
parties hereto.
5. Counterparts. This Amendment may be executed by the parties
hereto individually or in any combination, in one or more counterparts, each of
which shall be an original and all of which shall constitute one and the same
amendment.
6. Agreement and all other Related Agreements in Full Force and
Effect; Confirmation of Collateral. Except as amended by this Amendment, all of
the provisions of the Agreement and all of the provisions of each of each
related agreement shall remain in full force and effect from and after the date
hereof. The Transferor and the Collection Agent each hereby
<PAGE> 6
confirms and agrees that all collateral security and all ownership interests
granted by the Transferor in connection with the Agreement remains in full force
and effect after giving effect to this Amendment.
7. References to Agreement. From and after the Effective Date,
(a) all references in the Agreement to "this Agreement", "hereof", "herein" or
similar terms, (b) all references to the Agreement in each agreement, instrument
and other document executed or delivered in connection with the Agreement and
(c) all references to the Agreement, shall mean and refer to the Agreement as
amended by this Amendment.
8. Certain Consents by the Company, the Agent and the Bank
Investor. Each of the Company, the Agent and the Bank Investor for purposes of
Section 5.1(p) of the Agreement, consents to the amendments to the Credit
Agreement and the Note Agreement (1996) on the terms and conditions heretofore
disclosed to the Agent.
<PAGE> 7
IN WITNESS WHEREOF, the Company, the Transferor, the Collection Agent,
the Agent and the Bank Investor have caused this Amendment to be duly executed
by their respective officers thereunder duly authorized as of the day and year
first above written.
KITTY HAWK FUNDING
CORPORATION, as Company
By
--------------------------------
Title:
SENSOR SPC INC., as Transferor
By
--------------------------------
Title:
SENSORMATIC ELECTRONICS
CORPORATION, as Collection Agent
By
--------------------------------
Title:
NATIONSBANK, N.A., as Agent and as a
Bank Investor
By
--------------------------------
Title:
<PAGE> 1
Exhibit 4
FIRST AMENDMENT TO NOTE AGREEMENT
FIRST AMENDMENT, dated as of October 31, 1997, to the Note
Agreement, dated as of March 29, 1996, (the "Note Agreement") between
SENSORMATIC ELECTRONICS CORPORATION (the "Company") and the Purchasers parties
thereto, in respect of the Company's $230,000,000 principal amount 7.74% Senior
Notes due March 29, 2006, $50,000,000 principal amount 7.11% Senior Notes due
March 29, 2001, and $70,000,000 principal amount Senior Notes due March 29,
2000.
WHEREAS, the Company has requested certain amendments to the
Note Agreement; and
WHEREAS, the holders of the Notes (as defined in the Note
Agreement) are willing to agree to such amendments on the terms and conditions
set forth herein;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
Company and the holders of the Notes hereby agree as follows:
A. Certain Defined Terms.
Except as expressly defined in this First Amendment,
capitalized terms defined in the Note Agreement shall have their respective
meanings as defined therein when used in this First Amendment.
B. Amendments to Note Agreement.
Effective upon (i) the execution and delivery of this First
Amendment by holders of at least 66-2/3% in aggregate principal amount of the
Notes and (ii) the approval by the Company's Board of Directors (or a committee
thereof) of the terms of the Class Action Settlement (as herein defined), the
Note Agreement is hereby amended as follows:
1. At the end of Section 1 of the Note Agreement, there
shall be added a new Section 1.3 as follows:
1.3 Certain Payments. In consideration of the
agreement of the holders of the Notes to enter into the First
Amendment dated as of October 31, 1997, to this Agreement, the
Company agrees to make to the holder of each Note payments,
from the date on which such First Amendment becomes effective
by its terms to but not including the earliest of (i) the
maturity date for such Note, (ii) the date of repayment or
prepayment in full of such Note in accordance with this
Agreement, or (iii) the date on which the Debt Rating (as
hereinafter defined) is changed to BBB- or higher (the
earliest such date being called the "Termination
-1-
<PAGE> 2
Date"). Such payments shall be calculated on the outstanding
principal amount of each Note, at the rate per annum set forth
in the following table with respect to such Note:
<TABLE>
<S> <C>
For each 7.74% Senior Note
due March 29, 2006 0.30%
For each 7.11% Senior Note
due March 29, 2001 0.23%
For each 6.99% Senior Note
due March 29, 2000 0.22%,
</TABLE>
and shall be computed on the basis of a 360-day year of twelve
30-day months, payable on March 30 and September 30 in each
year, commencing March 30, 1998, and on the Termination Date.
Such payments shall be made in lawful money of the United
States of America in the manner and at the place provided with
respect to interest on such Note in Section 2.4 of this
Agreement.
2. In Section 5.1 of the Note Agreement, the definition
of "Consolidated Net Worth" shall be amended to read in its entirety as follows:
Consolidated Net Worth. The consolidated
stockholders' equity of the Company and its Subsidiaries
determined in accordance with generally accepted accounting
principles; provided, that solely for purposes of calculating
compliance with the financial covenants set forth in Sections
7.2 and 7.3, the Shareholder Litigation Charge, to the extent
deducted as a charge in arriving at Consolidated Net Worth,
shall be added back to Consolidated Net Worth.
3. In Section 5.1 of the Note Agreement, there shall be
added the following new definitions in the appropriate alphabetical position:
Class Action Settlement. The settlement or any
proposed settlement of the shareholders' class actions filed
in 1995 and consolidated before the Hon. William Zloch, United
States District Judge for the United States District Court for
the Southern District of Florida.
Consolidated Net Total Interest Expense. For any
period, the sum of (a) the aggregate amount of interest
expense in respect of all Indebtedness of the Company and its
Subsidiaries for such period on a consolidated basis
determined in accordance with generally accepted accounting
principles (including, without limitation, to the extent such
items are included in interest expense under generally
accepted accounting principles, all non-cash interest
payments, the
-2-
<PAGE> 3
interest portion of any deferred payment obligations and the
interest component of Capitalized Lease obligations), minus
(b) the aggregate amount of all interest income of the Company
and its Subsidiaries for such period on a consolidated basis
determined in accordance with generally accepted accounting
principles.
CTA. Each currency translation adjustment that
results in a change (whether positive or negative) in the
foreign currency adjustment account balance which the Company
records as an equity account on its balance sheet pursuant to
generally accepted accounting principles.
Debt Rating. The rating of the Company's public
unsecured long-term senior debt, without third party credit
enhancement, issued by S&P or any Successor Rating Agency;
provided, that until such time as the Company receives such a
rating on such public unsecured long-term senior debt, the
Company's corporate credit rating by S&P or such Successor
Rating Agency shall apply. In the event that S&P or such
Successor Rating Agency changes its debt rating designations,
definitions or symbols, the Company and holders of at least
66- 2/3% in aggregate principal amount of the Notes then
outstanding shall agree, in good faith, as to the exact
application of such new debt rating terminology to this
Agreement, taking into account the explanation of such new
rating terminology by S&P or such Successor Rating Agency, as
the case may be, and its comparability to the Debt Rating in
effect immediately prior thereto.
EBIT. With respect to any period, an amount equal to
Consolidated Net Income for such period after eliminating
therefrom, without duplication, (i) all extraordinary items of
income or expense for such period, (ii) the Company's
September 30, 1997 restructuring charge and (iii) the
Shareholder Litigation Charge, plus, to the extent otherwise
deducted in arriving at such Consolidated Net Income and
without duplication, (a) income tax expense for such period
determined in accordance with generally accepted accounting
principles and (b) Consolidated Net Total Interest Expense for
such period.
Interest Coverage Ratio. As at any date of
determination, the ratio of (a) EBIT of the Company and its
Subsidiaries on a consolidated basis for the Reference Period
ending on such date, to (b) Consolidated Net Total Interest
Expense for such Reference Period.
Reference Period. Each period of four consecutive
complete fiscal quarters of the Company, commencing with the
four-quarter period ending on June 30, 1998.
S&P. Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc., or any successor thereto.
-3-
<PAGE> 4
Shareholder Litigation Charge. The after-tax charge
taken by the Company on or before December 31, 1997,
associated with the Class Action Settlement and in accordance
with generally accepted accounting principles; provided, that
solely for purposes of calculating compliance with the
financial covenants set forth in Sections 7.1, 7.2 and 7.3,
such charge shall be deemed not to exceed, in the aggregate,
the excess of (a) $40,000,000 over (b) to the extent not
deducted from such charge under generally accepted accounting
principles, the aggregate amount of all recoveries, by
assignment or otherwise, from insurance (net of all taxes and
expenses reasonably incurred in connection with such
recoveries) with respect to the Class Action Settlement.
Successor Rating Agency. Any rating service or
services other than S&P as the Company may designate from time
to time with the consent of holders of at least 66-2/3% in
aggregate principal amount of the Notes then outstanding.
4. Section 7.1 of the Note Agreement shall be amended to
read in its entirety as follows:
7.1 Net Worth. The Company will not permit at any
time its Consolidated Net Worth to be less than the sum of (i)
$730,000,000 less the Shareholder Litigation Charge, plus (a)
if the date of determination is any day during the period from
and including January 1, 1997 through June 30, 1998 ("Period
No. 1"), 100% of the aggregate net CTA from the first day of
Period No. 1 through such date of determination; (b) if the
date of determination is any day during the period from and
including July 1, 1998 through June 30, 1999 ("Period No. 2"),
the sum of 100% of the aggregate net CTA for Period No. 1 plus
75% of the aggregate net CTA from the first day of Period No.
2 through such date of determination; and (c) if the date of
determination is any day during the period commencing on or
after July 1, 1999 ("Period No. 3"), the sum of 100% of the
aggregate net CTA for Period No. 1, plus 75% of the aggregate
net CTA for Period No. 2, plus 50% of the aggregate net CTA
during the period from and including the first day of Period
No. 3 through the date of determination, plus (ii) the
cumulative sum of 50% of Consolidated Net Income (without
reduction for any net losses) for each completed fiscal year
of the Company ending after June 30, 1997 and on or before the
date 120 days prior to the date of determination, plus (iii)
for the then current fiscal year of the Company, the
cumulative sum of 50% of Consolidated Net Income (without
reduction for any net losses) from the beginning of such year
to the last day of the fiscal quarter of the Company most
recently ended as of the date 60 days prior to the date of
determination.
5. At the end of Section 7 of the Note Agreement there
shall be added a new Section 7.9 as follows:
-4-
<PAGE> 5
7.9 Interest Coverage Ratio. The Company will not, as
of the end of any Reference Period ending on any date set
forth in the table below, permit the Interest Coverage Ratio
for such Reference Period to be less than the ratio set forth
opposite such date in such table:
<TABLE>
<CAPTION>
Reference Period Ending Date Ratio
---------------------------- -----
<S> <C>
June 30, 1998 1.70:1.00
September 30, 1998 1.70:1.00
December 31, 1998 1.70:1.00
March 31, 1999 1.90:1.00
June 30, 1999 1.90:1.00
Each fiscal quarter-end date
after June 30, 1999 2.00:1.00;
</TABLE>
provided, that the foregoing covenant shall not apply to any
Reference Period ending on any date set forth above if, at the
close of business on such date, the Debt Rating is BBB- or
higher.
6. References in the Note Agreement to "this Agreement",
and the words "hereof", "herein", "hereto" and the like (when such words refer
to the Note Agreement as whole and not simply to any individual provision
thereof), shall be deemed to refer to the Note Agreement as amended by this
First Amendment.
C. Representations and Warranties; Covenant.
1. The Company hereby represents and warrants as
follows:
This First Amendment has been duly authorized on the part of
the Company, and this First Amendment, the Note Agreement as amended hereby, and
the Notes constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except that the enforcement of this First Amendment, the Note Agreement or the
Notes may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of the rights of creditors of by equitable principles,
regardless of whether enforcement is sought in equity or at law. The compliance
by the Company with all of the provisions of this First Amendment, the Note
Agreement as amended hereby, and the Notes (i) are within the corporate powers
of the Company, (ii) have been duly authorized by proper corporate action, (iii)
are legal and will not violate any provisions of any law or regulation or order
of any court, governmental authority or agency, and (iv) will not result in any
breach of any of, or constitute a default under, or result in the creation of
any Lien on any property of the Company or any Material Subsidiary under the
provisions of, any charter document, by-law, loan agreement or other agreement
or instrument relating to Indebtedness of the Company or any
-5-
<PAGE> 6
Material Subsidiary to which the Company or any Material Subsidiary is a party
or by which any of them or their property may be bound. No event has occurred
and no condition exists which, upon the effectiveness of this First Amendment,
would constitute a Default or an Event of Default under the Note Agreement as
amended hereby.
2. The Company hereby agrees that, promptly after the Class
Action Settlement has been executed by the parties thereto and approved by the
court, the Company will deliver to each holder of Notes an Officer's Certificate
to that effect.
D. Miscellaneous.
1. Except as expressly modified by this First Amendment,
the Note Agreement shall remain unmodified and in full force and effect.
2. THIS FIRST AMENDMENT AND THE NOTE AGREEMENT AS
AMENDED HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
3. The headings of the sections and subsections of this
First Amendment are inserted for convenience only and do not constitute part of
this Agreement. This First Amendment expresses the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
understandings, whether oral or written, with respect to such subject matter.
4. This First Amendment may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument, and it
shall not be necessary in making proof this First Amendment to produce or
account for more than one such counterpart or reproduction thereof permitted by
Section 11.3 of the Note Agreement.
IN WITNESS WHEREOF, the Company and the holders of the Notes
have caused this First Amendment to be executed and delivered by their
respective officer or officers thereunto duly authorized.
SENSORMATIC ELECTRONICS
CORPORATION
By:
--------------------------
Title:
-6-
<PAGE> 7
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK as Trustee
of a Commingled Pension Fund
By:
-----------------------------------------
Title:
J.P. MORGAN INVESTMENT
MANAGEMENT INC. as Investment
Manager for All Institutional Investors for
which it is acting under the Note Agreement
By:
-----------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK as
Investment Manager for All Institutional
Investors for which it is acting under
the Note Agreement
By:
-----------------------------------------
Title:
<PAGE> 8
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
----------------------------
Title:
PRUCO LIFE INSURANCE COMPANY
By:
----------------------------
Title:
<PAGE> 9
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:
----------------------------
Title:
<PAGE> 10
CONNECTICUT GENERAL LIFE
By: CIGNA Investments, Inc.
By:
---------------------------
Title:
CONNECTICUT GENERAL LIFE
under the Note Agreement
By: CIGNA Investments, Inc.
By:
---------------------------
Title:
CENTURY INDEMNITY COMPANY
By: CIGNA Investments, Inc.
By:
---------------------------
Title:
LIFE INSURANCE COMPANY OF
By: CIGNA Investments, Inc.
By:
---------------------------
Title:
<PAGE> 11
TEACHERS INSURANCE AND
By:
-------------------------
Title:
<PAGE> 12
THE EQUITABLE LIFE ASSURANCE
By:
-------------------------
Title:
<PAGE> 13
THE MINNESOTA MUTUAL LIFE
By: MIMLIC Asset Management Company
By:
-------------------------
Title:
<PAGE> 14
THE OHIO NATIONAL LIFE
By:
-------------------------
Title:
<PAGE> 15
MODERN WOODMEN OF AMERICA
By:
-------------------------
Title:
<PAGE> 16
PRINCIPAL MUTUAL LIFE
By:
-------------------------
Title:
By:
-------------------------
Title:
<PAGE> 17
NATIONWIDE LIFE AND ANNUITY
By:
-------------------------
Title:
NATIONWIDE LIFE INSURANCE
By:
-------------------------
Title:
<PAGE> 18
SUNLIFE ASSURANCE COMPANY OF
By: By:
--------------------------- -------------------------
Title:
SUNLIFE ASSURANCE COMPANY OF
By: By:
--------------------------- -------------------------
Title:
<PAGE> 19
METROPOLITAN INSURANCE AND
By:
----------------------------
Title:
METROPOLITAN INSURANCE AND
By:
----------------------------
Title:
<PAGE> 20
GENERAL AMERICAN LIFE
By:
----------------------------
Title:
<PAGE> 21
SALKELD AND COMPANY
By:
----------------------------
Title:
<PAGE> 22
WEST COAST LIFE INSURANCE
COMPANY
By:
----------------------------
Title:
<PAGE> 1
EXHIBIT 11
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months ended
September 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Net (loss) income $ (65.9) $ 2.1
-------- --------
Common shares:
Weighted average shares
outstanding during the period 74.3 73.9
Potential dilutive exercise
of stock options and warrants --(1) .1
-------- --------
Shares included in computation
of (loss) earnings per share 74.3 74.0
======== ========
</TABLE>
(1) Not presented as the effect is anti-dilutive.
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 532
<ALLOWANCES> 78
<INVENTORY> 202
<CURRENT-ASSETS> 641
<PP&E> 243
<DEPRECIATION> 105
<TOTAL-ASSETS> 1,683
<CURRENT-LIABILITIES> 443
<BONDS> 570
0
0
<COMMON> 730
<OTHER-SE> (32)
<TOTAL-LIABILITY-AND-EQUITY> 1,683
<SALES> 204
<TOTAL-REVENUES> 245
<CGS> 134
<TOTAL-COSTS> 275
<OTHER-EXPENSES> 63
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (93)
<INCOME-TAX> (30)
<INCOME-CONTINUING> (66)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
