<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A-1
( 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)
<TABLE>
<CAPTION>
DELAWARE 34-1024665
- ------------------------------------------------ ---------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
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/A-1
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......................................................................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................... 18
Signatures ...................................................................................... 19
</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
------------- ---------
(Restated - See Note 2)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25.1 $ 21.7
Customer receivables 333.2 303.6
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 652.8 622.2
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 127.1 102.5
Patents and other assets, net 85.0 88.4
------------- -------------
TOTAL ASSETS $1,681.4 $1,646.6
============= =============
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 251.5 184.5
------------- -------------
TOTAL CURRENT LIABILITIES 434.2 332.4
Long-term debt 504.2 501.5
Other noncurrent liabilities and deferred income taxes 37.6 39.8
------------- -------------
TOTAL LIABILITIES 976.0 873.7
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 85.1 143.7
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 705.4 772.9
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,681.4 $1,646.6
============= =============
</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
----------- -----------
(Restated - See Note 2)
<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 131.8 130.1
Depreciation on revenue equipment 4.9 4.6
----------- ---------
Total cost of sales 136.7 134.7
----------- ---------
Gross margin 108.7 111.3
Operating expenses:
Selling, general and administrative 92.9 86.2
Provision for doubtful accounts 5.0 4.2
Restructuring charges 17.2 --
Research, development and engineering 6.5 5.4
Amortization of intangible assets 5.2 4.6
----------- ---------
Total operating costs and expenses 126.8 100.4
----------- ---------
Operating (loss) income (18.1) 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 (81.7) 2.9
(Benefit) Provision for income taxes (23.1) 0.8
----------- ---------
Net (loss) income $ (58.6) $ 2.1
=========== =========
Basic and Diluted (loss) earnings per common share $ (0.79) $ 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
-------------- --------------
(Restated - See Note 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (58.6) $ 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 14.2 (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 (20.0) --
Other operating assets and liabilities, net (0.9) (32.3)
-------------- --------------
Net cash used in operating activities (30.6) (48.4)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6.5) (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 1.9 3.2
-------------- --------------
Net cash used in investing activities (13.1) (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)
1) 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.
2) RESTATEMENT OF FINANCIAL STATEMENTS
In May 1997, the Company agreed in principle with Pinkertons Inc.
("Pinkertons") to the principal terms of the sale of the Company's
U.S. commercial/industrial direct sales and service business subject
to completion of due diligence and definitive agreements.
During the fourth quarter of fiscal 1997, the Company recognized a
$12.0 restructuring liability for estimated losses due to the
Company's plan to sell this business. In August 1997, the Company
discontinued negotiations with Pinkertons due to the companies'
inability to reach mutually acceptable terms.
In September 1997, the Company sold its U.S. commercial/industrial
direct sales and service business to Securities Technology Group
("STG"). Unlike the Pinkertons transaction, as one of the terms of the
sale, the Company is required to reimburse STG for costs to complete
certain jobs in process if those costs exceed defined amounts. The
Company originally retained the $12.0 restructuring liability as an
estimate of losses under its new agreement with STG which the Company
viewed as addressing the same underlying business and risk profile as
in the Pinkertons agreement in principle.
In connection with a review of its financial statements incorporated by
reference in the Company's pending registration statement registering
the Company's 6 1/2% Convertible Preferred Stock and related Depository
Shares, the Company has determined that all of the requirements to
recognize the indicated loss under Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies", were not met as a
result of the new agreement with STG. Accordingly, the $12.0 liability
for estimated losses due to the Company's plan to sell this business
which was originally recorded during the fourth quarter of fiscal 1997
was reversed in the first quarter of fiscal 1998. The Company's
consolidated financial statements for the quarter ended September 30,
1997 have been restated to include the effects of reversing this
liability. Any probable losses associated with the Company's sale of
this business to STG will be recognized in future periods when
reasonably estimable. The effects of this adjustment on the Company's
previously reported consolidated financial statements for the quarter
ended September 30, 1997 are as follows:
5
<PAGE> 7
Consolidated Condensed Statements of Operations:
<TABLE>
<CAPTION>
Quarter Ended
September 30, 1997
-------------------------------------
As Reported As Restated
----------- -----------
<S> <C> <C>
Restructuring Charges $ 29.2 $ 17.2
Operating loss $(30.1) $(18.1)
Loss from continuing operations $(65.9) $(58.6)
Net loss $(65.9) $(58.6)
Basic and diluted loss per share $ (.89) $ (.79)
</TABLE>
Consolidated Condensed Balance Sheets:
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------
As Reported As Restated
----------- -----------
<S> <C> <C>
Total assets $1,683.1 $1,681.4
Total current liabilities $ 443.2 $ 434.2
Total shareholders' equity $ 698.1 $ 705.4
</TABLE>
3) RESTRUCTURING
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. 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 divestiture of non-core businesses. The
restructuring charges recorded in the fourth quarter of fiscal 1997 and
the first quarter of fiscal 1998, net of the reversal of $12.0 million
described in Note 2, totaled $44.0 million with an after-tax impact of
$29.0 million. Included in the total of $44.0 million were inventory
write-downs related to restructuring activities of $4.2 million which
were recorded in "cost of sales".
The following table sets forth the details and the activity of the
restructuring charge reserves as of September 30, 1997:
6
<PAGE> 8
1996 Reserve
<TABLE>
<CAPTION>
Accrual Accrual
Utilization Balance at Utilization Balance at
1996 ----------------- June 30, ----------------- Reserve June 30,
Provision Cash Non-Cash 1996 Cash Non-Cash Reallocations 1997
--------- ---- -------- ---------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other...... $ 45.3 $ -- $(34.2) $11.1 $ -- $(12.4) $ 2.8 $ 1.5
Closure of facilities and
related costs.................... 23.5 (1.0) (1.6) 20.9 (1.4) (6.5) (7.3) 5.7
Employee termination and related
costs............................ 16.5 (10.4) (0.7) 5.4 (6.6) -- 4.5 3.3
------ ------ ------ ----- ----- ------ ----- -----
Total.......................... $ 85.3 $(11.4) $(36.5) $37.4 $(8.0) $(18.9) $ -- $10.5
====== ====== ====== ===== ===== ====== ===== =====
Inventory write downs
recorded as a component of
cost of sales(2)................. (19.6) 10.6 (9.0) 9.0 --
------ ------ ------ ----- ----- ------ ----- -----
Total.......................... $ 65.7 $(11.4) $(25.9) $28.4 $(8.0) $ (9.9) $ -- $10.5
====== ====== ====== ===== ===== ====== ===== =====
</TABLE>
1996 Reserve (continued)
<TABLE>
<CAPTION>
Accrual Accrual
Balance at Utilization Balance at
June 30, ------------------- September 30,
1997 Cash Non-Cash 1997
--------- ---- -------- ----------
<S> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other................ $ 1.5 $ -- $ -- $1.5
Closure of facilities and related costs...... 5.7 (0.4) 0.2 5.5
Employee termination and related costs...... 3.3 (1.3) -- 2.0
----- ----- ----- ----
Total.................................... $10.5 $(1.7) $ 0.2 $9.0
===== ===== ===== ====
</TABLE>
1997/1998 Reserve(1)
<TABLE>
<CAPTION>
Accrual Accrual
Balance at 1998 Utilization Balance at
1997 June 30, Additions ----------------- September 30,
Provision 1997 (Reversals) Cash Non-Cash 1997
--------- --------- ----------- ----- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other...... $ 2.9 $ 2.9 $ -- $ -- $(1.4) $ 1.5
Closure of facilities and
related costs.................... 6.5 6.5 8.8 (1.3) 14.0
Closure of facilities(2)........... -- (2.9) (2.9)
Employee termination and related
costs............................ 0.5 0.5 20.4 (1.3) -- 19.6
Non-core business divestitures..... 16.9 16.9 (12.0) -- -- 4.9
----- ----- ----- ----- ----- -----
Total.......................... $26.8 $23.9 $17.2 $(1.3) $(2.7) $37.1
===== ===== ===== ===== ===== =====
Inventory write downs recorded
as a component of
cost of sales(2)................. -- (4.2) 0.9 (3.3)
----- ----- ----- ----- ----- -----
Total.......................... $26.8 $19.7 $17.2 $(1.3) $(1.8) $33.8
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------------------------
(1) Certain amounts related to non-core business divestitures have been
restated. See Note 2.
(2) Amounts classified directly to the impaired assets.
7
<PAGE> 9
4) 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 (38.2) (39.6)
--------- --------
Total accounts receivable, net $ 277.3 $ 251.6
Less: Amounts due in 1 year, net (276.9) (251.6)
--------- --------
Total noncurrent accounts receivable , 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 $ 465.7 $ 442.1
Less: Amounts due in 1 year, net 333.2 303.6
--------- --------
Total noncurrent customer receivables $ 132.5 $ 138.5
========= ========
</TABLE>
5) 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 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.
8
<PAGE> 10
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.
6) 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 excess and obsolete inventory (31.0) (29.1)
--------- ----------
Total inventories, net $ 202.2 $ 199.6
========= ==========
</TABLE>
7) DIVESTITURES
In September 1997, the Company sold its U.S commercial/industrial
direct sales and service business to Securities Technology Group
("STG") for total proceeds of $10.5. The Company also agreed in such
transaction to sell its monitoring business, which was consummated in
October 1997. The Company retained ownership of all of the accounts
receivable related to these operations totaling approximately $30.7.
As one of the terms of the sale, the Company is required to reimburse
STG for costs to complete certain jobs in process if those costs
exceed defined amounts. While there is no stated "cap" or limit on the
amount the Company is obligated to pay the buyer under this provision,
the range of the probable loss that may be incurred by the Company
under this provision is estimated to be between $4.7 and $8.0. No gain
on the sale has been recognized pending the outcome of this
uncertainty.
The U.S. commercial/industrial direct sales and service business had
annual sales of approximately $80.0. 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 were $11.4.
9
<PAGE> 11
8) 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.
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>
$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 Pounds 52.1
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:
1998 1999
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
10
<PAGE> 12
9) 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.
11
<PAGE> 13
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 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 $37.0,
has been recorded 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.
12
<PAGE> 14
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 charges (and the reversal of certain of such charges)
and net litigation charges recorded in fiscal 1998, which are
discussed 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 effect on
revenues of non-core 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.
13
<PAGE> 15
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 44.3% for the three month period ended
September 30, 1997 compared with 45.2% for the comparable periods of
the prior year. Included in cost of sales for the three month period
ended September 30, 1997 is $3.0 of incremental charges (margin impact
of 1.2%) related to the Company's extensive review of its balance
sheet.
Selling, general and administrative expenses, as a percentage of total
revenues, was 37.9% for the first quarter of fiscal 1998 as compared
to 35.0% for the comparable periods in fiscal 1997. Included in
selling, general and administrative expenses for the first quarter of
fiscal 1998 are incremental charges of $10.8, or 4.4% of revenues, for
certain employee separation and contract resolution costs.
14
<PAGE> 16
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.
Operating income for the three months ended September 30, 1997
decreased to $(.9) versus $10.9 for the comparable period of fiscal
1997. The impact of the incremental charges discussed under gross
margins and under selling, general and administrative expenses above,
was to reduce operating income by $13.8 million in fiscal 1998.
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 28.6%
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 a net loss of $9.6, or $0.13 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. The net loss for the first quarter of
fiscal 1998 includes the effect of the incremental charges of $3.0
discussed under gross margins and of $10.8 discussed under selling,
general and administrative expense, which had a negative after-tax
impact of $9.7 or $.13 per share.
LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended September 30, 1997, cash flow used in
operating activities was $30.6 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.
15
<PAGE> 17
The Company's investing activities used $13.1 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 $6.5, 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 44.7% 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
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
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
16
<PAGE> 18
included the divestment of non-core businesses and additional
cost-reduction plans, which mainly include staff reductions within its
European operations. During the fourth quarter of fiscal 1997, the
Company recognized $26.8 of this charge with plans to record the
remaining portion in the first quarter of fiscal 1998. As a result,
the Company recorded $17.2 in restructuring charges during the first
quarter of fiscal 1998, net of the reversal of $12.0 described in Note
2 to the Consolidated Condensed Financial Statements. These charges
related primarily to product rationalization and related equipment
impairment charges, facility closures and severance costs.
The Company expects to record additional restructuring charges in
future periods related to the Company's sale of its U.S.
commercial/industrial direct sales and service business to STG as any
probable losses become reasonably estimable.
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.
17
<PAGE> 19
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Note: Unless otherwise indicated below, the
following Exhibits were filed with the
original Report and are not being
re-filed with this Amendment.
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
(Amended schedule is filed herewith).
27) Financial Data Schedule (for SEC use only)
(Amended schedule is filed herewith).
b) Reports on Form 8-K:
There were no reports on Form 8-K filed
during the three - month period ended
September 30, 1997.
18
<PAGE> 20
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, Chief
Administrative Officer and
Chief Financial Officer
(Principal Financial Officer)
Date: August 17, 1999
19
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A-1
( 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)
<TABLE>
<CAPTION>
DELAWARE 34-1024665
- ------------------------------------------------ ---------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
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/A-1
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......................................................................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................... 18
Signatures ...................................................................................... 19
</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
------------- ---------
(Restated - See Note 2)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25.1 $ 21.7
Customer receivables 333.2 303.6
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 652.8 622.2
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 127.1 102.5
Patents and other assets, net 85.0 88.4
------------- -------------
TOTAL ASSETS $1,681.4 $1,646.6
============= =============
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 251.5 184.5
------------- -------------
TOTAL CURRENT LIABILITIES 434.2 332.4
Long-term debt 504.2 501.5
Other noncurrent liabilities and deferred income taxes 37.6 39.8
------------- -------------
TOTAL LIABILITIES 976.0 873.7
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 85.1 143.7
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 705.4 772.9
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,681.4 $1,646.6
============= =============
</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
----------- -----------
(Restated - See Note 2)
<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 131.8 130.1
Depreciation on revenue equipment 4.9 4.6
----------- ---------
Total cost of sales 136.7 134.7
----------- ---------
Gross margin 108.7 111.3
Operating expenses:
Selling, general and administrative 92.9 86.2
Provision for doubtful accounts 5.0 4.2
Restructuring charges 17.2 --
Research, development and engineering 6.5 5.4
Amortization of intangible assets 5.2 4.6
----------- ---------
Total operating costs and expenses 126.8 100.4
----------- ---------
Operating (loss) income (18.1) 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 (81.7) 2.9
(Benefit) Provision for income taxes (23.1) 0.8
----------- ---------
Net (loss) income $ (58.6) $ 2.1
=========== =========
Basic and Diluted (loss) earnings per common share $ (0.79) $ 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
-------------- --------------
(Restated - See Note 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (58.6) $ 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 14.2 (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 (20.0) --
Other operating assets and liabilities, net (0.9) (32.3)
-------------- --------------
Net cash used in operating activities (30.6) (48.4)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6.5) (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 1.9 3.2
-------------- --------------
Net cash used in investing activities (13.1) (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)
1) 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.
2) RESTATEMENT OF FINANCIAL STATEMENTS
In May 1997, the Company agreed in principle with Pinkertons Inc.
("Pinkertons") to the principal terms of the sale of the Company's
U.S. commercial/industrial direct sales and service business subject
to completion of due diligence and definitive agreements.
During the fourth quarter of fiscal 1997, the Company recognized a
$12.0 restructuring liability for estimated losses due to the
Company's plan to sell this business. In August 1997, the Company
discontinued negotiations with Pinkertons due to the companies'
inability to reach mutually acceptable terms.
In September 1997, the Company sold its U.S. commercial/industrial
direct sales and service business to Securities Technology Group
("STG"). Unlike the Pinkertons transaction, as one of the terms of the
sale, the Company is required to reimburse STG for costs to complete
certain jobs in process if those costs exceed defined amounts. The
Company originally retained the $12.0 restructuring liability as an
estimate of losses under its new agreement with STG which the Company
viewed as addressing the same underlying business and risk profile as
in the Pinkertons agreement in principle.
In connection with a review of its financial statements incorporated by
reference in the Company's pending registration statement registering
the Company's 6 1/2% Convertible Preferred Stock and related Depository
Shares, the Company has determined that all of the requirements to
recognize the indicated loss under Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies", were not met as a
result of the new agreement with STG. Accordingly, the $12.0 liability
for estimated losses due to the Company's plan to sell this business
which was originally recorded during the fourth quarter of fiscal 1997
was reversed in the first quarter of fiscal 1998. The Company's
consolidated financial statements for the quarter ended September 30,
1997 have been restated to include the effects of reversing this
liability. Any probable losses associated with the Company's sale of
this business to STG will be recognized in future periods when
reasonably estimable. The effects of this adjustment on the Company's
previously reported consolidated financial statements for the quarter
ended September 30, 1997 are as follows:
5
<PAGE> 7
Consolidated Condensed Statements of Operations:
<TABLE>
<CAPTION>
Quarter Ended
September 30, 1997
-------------------------------------
As Reported As Restated
----------- -----------
<S> <C> <C>
Restructuring Charges $ 29.2 $ 17.2
Operating loss $(30.1) $(18.1)
Loss from continuing operations $(65.9) $(58.6)
Net loss $(65.9) $(58.6)
Basic and diluted loss per share $ (.89) $ (.79)
</TABLE>
Consolidated Condensed Balance Sheets:
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------
As Reported As Restated
----------- -----------
<S> <C> <C>
Total assets $1,683.1 $1,681.4
Total current liabilities $ 443.2 $ 434.2
Total shareholders' equity $ 698.1 $ 705.4
</TABLE>
3) RESTRUCTURING
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. 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 divestiture of non-core businesses. The
restructuring charges recorded in the fourth quarter of fiscal 1997 and
the first quarter of fiscal 1998, net of the reversal of $12.0 million
described in Note 2, totaled $44.0 million with an after-tax impact of
$29.0 million. Included in the total of $44.0 million were inventory
write-downs related to restructuring activities of $4.2 million which
were recorded in "cost of sales".
The following table sets forth the details and the activity of the
restructuring charge reserves as of September 30, 1997:
6
<PAGE> 8
1996 Reserve
<TABLE>
<CAPTION>
Accrual Accrual
Utilization Balance at Utilization Balance at
1996 ----------------- June 30, ----------------- Reserve June 30,
Provision Cash Non-Cash 1996 Cash Non-Cash Reallocations 1997
--------- ---- -------- ---------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other...... $ 45.3 $ -- $(34.2) $11.1 $ -- $(12.4) $ 2.8 $ 1.5
Closure of facilities and
related costs.................... 23.5 (1.0) (1.6) 20.9 (1.4) (6.5) (7.3) 5.7
Employee termination and related
costs............................ 16.5 (10.4) (0.7) 5.4 (6.6) -- 4.5 3.3
------ ------ ------ ----- ----- ------ ----- -----
Total.......................... $ 85.3 $(11.4) $(36.5) $37.4 $(8.0) $(18.9) $ -- $10.5
====== ====== ====== ===== ===== ====== ===== =====
Inventory write downs
recorded as a component of
cost of sales(2)................. (19.6) 10.6 (9.0) 9.0 --
------ ------ ------ ----- ----- ------ ----- -----
Total.......................... $ 65.7 $(11.4) $(25.9) $28.4 $(8.0) $ (9.9) $ -- $10.5
====== ====== ====== ===== ===== ====== ===== =====
</TABLE>
1996 Reserve (continued)
<TABLE>
<CAPTION>
Accrual Accrual
Balance at Utilization Balance at
June 30, ------------------- September 30,
1997 Cash Non-Cash 1997
--------- ---- -------- ----------
<S> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other................ $ 1.5 $ -- $ -- $1.5
Closure of facilities and related costs...... 5.7 (0.4) 0.2 5.5
Employee termination and related costs...... 3.3 (1.3) -- 2.0
----- ----- ----- ----
Total.................................... $10.5 $(1.7) $ 0.2 $9.0
===== ===== ===== ====
</TABLE>
1997/1998 Reserve(1)
<TABLE>
<CAPTION>
Accrual Accrual
Balance at 1998 Utilization Balance at
1997 June 30, Additions ----------------- September 30,
Provision 1997 (Reversals) Cash Non-Cash 1997
--------- --------- ----------- ----- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other...... $ 2.9 $ 2.9 $ -- $ -- $(1.4) $ 1.5
Closure of facilities and
related costs.................... 6.5 6.5 8.8 (1.3) 14.0
Closure of facilities(2)........... -- (2.9) (2.9)
Employee termination and related
costs............................ 0.5 0.5 20.4 (1.3) -- 19.6
Non-core business divestitures..... 16.9 16.9 (12.0) -- -- 4.9
----- ----- ----- ----- ----- -----
Total.......................... $26.8 $23.9 $17.2 $(1.3) $(2.7) $37.1
===== ===== ===== ===== ===== =====
Inventory write downs recorded
as a component of
cost of sales(2)................. -- (4.2) 0.9 (3.3)
----- ----- ----- ----- ----- -----
Total.......................... $26.8 $19.7 $17.2 $(1.3) $(1.8) $33.8
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------------------------
(1) Certain amounts related to non-core business divestitures have been
restated. See Note 2.
(2) Amounts classified directly to the impaired assets.
7
<PAGE> 9
4) 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 (38.2) (39.6)
--------- --------
Total accounts receivable, net $ 277.3 $ 251.6
Less: Amounts due in 1 year, net (276.9) (251.6)
--------- --------
Total noncurrent accounts receivable , 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 $ 465.7 $ 442.1
Less: Amounts due in 1 year, net 333.2 303.6
--------- --------
Total noncurrent customer receivables $ 132.5 $ 138.5
========= ========
</TABLE>
5) 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 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.
8
<PAGE> 10
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.
6) 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 excess and obsolete inventory (31.0) (29.1)
--------- ----------
Total inventories, net $ 202.2 $ 199.6
========= ==========
</TABLE>
7) DIVESTITURES
In September 1997, the Company sold its U.S commercial/industrial
direct sales and service business to Securities Technology Group
("STG") for total proceeds of $10.5. The Company also agreed in such
transaction to sell its monitoring business, which was consummated in
October 1997. The Company retained ownership of all of the accounts
receivable related to these operations totaling approximately $30.7.
As one of the terms of the sale, the Company is required to reimburse
STG for costs to complete certain jobs in process if those costs
exceed defined amounts. While there is no stated "cap" or limit on the
amount the Company is obligated to pay the buyer under this provision,
the range of the probable loss that may be incurred by the Company
under this provision is estimated to be between $4.7 and $8.0. No gain
on the sale has been recognized pending the outcome of this
uncertainty.
The U.S. commercial/industrial direct sales and service business had
annual sales of approximately $80.0. 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 were $11.4.
9
<PAGE> 11
8) 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.
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>
$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 Pounds 52.1
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:
1998 1999
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
10
<PAGE> 12
9) 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.
11
<PAGE> 13
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 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 $37.0,
has been recorded 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.
12
<PAGE> 14
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 charges (and the reversal of certain of such charges)
and net litigation charges recorded in fiscal 1998, which are
discussed 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 effect on
revenues of non-core 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.
13
<PAGE> 15
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 44.3% for the three month period ended
September 30, 1997 compared with 45.2% for the comparable periods of
the prior year. Included in cost of sales for the three month period
ended September 30, 1997 is $3.0 of incremental charges (margin impact
of 1.2%) related to the Company's extensive review of its balance
sheet.
Selling, general and administrative expenses, as a percentage of total
revenues, was 37.9% for the first quarter of fiscal 1998 as compared
to 35.0% for the comparable periods in fiscal 1997. Included in
selling, general and administrative expenses for the first quarter of
fiscal 1998 are incremental charges of $10.8, or 4.4% of revenues, for
certain employee separation and contract resolution costs.
14
<PAGE> 16
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.
Operating income for the three months ended September 30, 1997
decreased to $(.9) versus $10.9 for the comparable period of fiscal
1997. The impact of the incremental charges discussed under gross
margins and under selling, general and administrative expenses above,
was to reduce operating income by $13.8 million in fiscal 1998.
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 28.6%
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 a net loss of $9.6, or $0.13 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. The net loss for the first quarter of
fiscal 1998 includes the effect of the incremental charges of $3.0
discussed under gross margins and of $10.8 discussed under selling,
general and administrative expense, which had a negative after-tax
impact of $9.7 or $.13 per share.
LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended September 30, 1997, cash flow used in
operating activities was $30.6 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.
15
<PAGE> 17
The Company's investing activities used $13.1 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 $6.5, 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 44.7% 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
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
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
16
<PAGE> 18
included the divestment of non-core businesses and additional
cost-reduction plans, which mainly include staff reductions within its
European operations. During the fourth quarter of fiscal 1997, the
Company recognized $26.8 of this charge with plans to record the
remaining portion in the first quarter of fiscal 1998. As a result,
the Company recorded $17.2 in restructuring charges during the first
quarter of fiscal 1998, net of the reversal of $12.0 described in Note
2 to the Consolidated Condensed Financial Statements. These charges
related primarily to product rationalization and related equipment
impairment charges, facility closures and severance costs.
The Company expects to record additional restructuring charges in
future periods related to the Company's sale of its U.S.
commercial/industrial direct sales and service business to STG as any
probable losses become reasonably estimable.
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.
17
<PAGE> 19
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Note: Unless otherwise indicated below, the
following Exhibits were filed with the
original Report and are not being
re-filed with this Amendment.
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
(Amended schedule is filed herewith).
27) Financial Data Schedule (for SEC use only)
(Amended schedule is filed herewith).
b) Reports on Form 8-K:
There were no reports on Form 8-K filed
during the three - month period ended
September 30, 1997.
18
<PAGE> 20
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, Chief
Administrative Officer and
Chief Financial Officer
(Principal Financial Officer)
Date: August 17, 1999
19
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