-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WldSjpLJSiqnIyOftHZz29Z1DQcnPCnD1bYgnKnUCm189o0EzdvgiAb/vyJUw9ov mMAdVVyswf0ooSPn94bK9g== 0000950144-95-003265.txt : 19951120 0000950144-95-003265.hdr.sgml : 19951120 ACCESSION NUMBER: 0000950144-95-003265 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951115 SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENSORMATIC ELECTRONICS CORP CENTRAL INDEX KEY: 0000088974 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 341024665 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10739 FILM NUMBER: 95593358 BUSINESS ADDRESS: STREET 1: 500 N W 12TH AVE CITY: DEERFIELD BEACH STATE: FL ZIP: 33442 BUSINESS PHONE: 3054202000 MAIL ADDRESS: STREET 1: 500 NW 12TH AVENUE CITY: DEERFIELD STATE: FL ZIP: 33442 FORMER COMPANY: FORMER CONFORMED NAME: JKR CORP DATE OF NAME CHANGE: 19730607 10-Q/A 1 SENSORMATIC ELECTRONICS 10-Q/A (AMEND. #1) 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q/A (Amendment No. 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, 1995 Commission File No. 1-10739 -------------------- ---------- SENSORMATIC ELECTRONICS CORPORATION ----------------------------------- (Exact name of Registrant as specified in its charter) Delaware 34-1024665 - --------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 500 N.W. 12th Avenue, Deerfield Beach, Florida 33442-1795 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (305) 420-2000 - -------------------------------------------------------------------------------- (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 73,331,769 shares of Common Stock (par value $.01 per share) as of November 7, 1995. 2 SENSORMATIC ELECTRONICS CORPORATION INDEX FORM 10-Q/A (Amendment No. 1) THREE MONTHS ENDED SEPTEMBER 30, 1995
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. . . . . . . . . . . 1 Consolidated Condensed Balance Sheets . . 2 Consolidated Condensed Statements of Income . . . . . . . . . . . . . . . . 3 Consolidated Condensed Statements of Cash Flows. . . . . . . . . . . . . . . 4 Notes to Consolidated Condensed Financial Statements. . . . . . . . . . 5-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . 10-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K. . . . . 14 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 15
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial information included herein is unaudited. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company's 1995 Annual Report on Form 10-K and amendment thereof. Other than as indicated herein, there have been no significant changes from the financial data published in said report. In the opinion of Management, such unaudited information reflects all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the unaudited information shown. Results for the interim period presented herein are not necessarily indicative of results expected for the full year. 1 4 SENSORMATIC ELECTRONICS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In millions, except par value amounts)
September 30, June 30, 1995 1995 ---- ---- ASSETS Cash and marketable securities (including marketable securities of $27 at September 30 and June 30) $ 89 $ 70 Accounts receivable, net 262 222 Deferred and installment receivables, net 59 68 Net investment in sales-type leases 125 111 Inventories, net 241 241 Revenue equipment, net 43 50 Other property, plant and equipment, net 166 151 Deferred income taxes, patents and other assets, net 189 161 Costs in excess of net assets acquired, net 501 497 ------ ------ $1,675 $1,571 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 68 $ 63 Accrued liabilities 201 209 Accrued and deferred income taxes payable 20 19 Debt 423 327 Stockholders' equity: Preferred stock, $.01 par value Common stock, $.01 par value, 73 shares outstanding at September 30 and June 30 718 714 Retained earnings 309 296 Treasury stock at cost and other (14) (13) Currency translation adjustments (50) (44) ------ ------ Total stockholders' equity 963 953 ------ ------ $1,675 $1,571 ====== ======
The notes to consolidated condensed financial statements on pages 5-9 are an integral part of these statements. 2 5 SENSORMATIC ELECTRONICS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (In millions, except per share amounts)
1995 1994 ------- ------- Revenues: Sales $ 236 $ 164 Rentals 12 12 Other 19 15 ------- ------- Total revenues 267 191 Operating costs and expenses: Costs of sales 112 75 Depreciation on revenue equipment 4 4 Selling, customer service and administrative 111 76 Research, development and engineering 7 5 Amortization of intangible assets 4 3 ------- ------- Total operating costs and expenses 238 163 ------- ------- Operating income 29 28 Other expenses, net (5) (1) ------- ------- Income before income taxes 24 27 Provision for income taxes 7 7 ------- ------- Net income $ 17 $ 20 ======= ======= Earnings per common share $ .23 $ .29 ======= ======= Cash dividends per common share $ .055 $ .055 ======= ======= Common shares used in computation of earnings per common share 74 70 ======= =======
The notes to consolidated condensed financial statements on pages 5-9 are an integral part of these statements. 3 6 SENSORMATIC ELECTRONICS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (In millions)
1995 1994 ------ ------ Cash flows from operating activities: Net income $ 17 $ 20 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 11 9 Other non-cash charges to operations 6 3 Net changes in operating assets and liabilities, net of effect of acquisitions (86) (60) ------ ------ Net cash used in operating activities (52) (28) ------ ------ Cash flows from investing activities: Capital expenditures (24) (13) Acquisitions and other investments (7) (2) Decrease (increase) in revenue equipment and inventory available for lease 2 (3) ------ ------ Net cash used in investing activities (29) (18) ------ ------ Cash flows from financing activities: Bank borrowings 99 47 Proceeds from issuances of common stock under employee benefit plans, net 4 4 Cash dividends (4) (4) Other, net - 1 ------ ------ Net cash provided by financing activities 99 48 ------ ------ Net increase in cash 18 2 ------ ------ Cash at beginning of period 44 21 ------ ------ Cash at end of period 62 23 Marketable securities at end of period 27 33 ------ ------ Cash and marketable securities at end of period $ 89 $ 56 ====== ======
The notes to consolidated condensed financial statements on pages 5-9 are an integral part of these statements. 4 7 SENSORMATIC ELECTRONICS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS a) Receivables and net investment in sales-type leases Amounts due to the Company in the form of accounts receivable (which are due within 90 days), deferred receivables (which are generally due within one year), installment receivables (which generally have periodic payments over a term of five years) and net investment in sales-type leases (sales-type leases) (which have periodic payments over lease terms from five to six years) at September 30 and June 30, 1995 are summarized as follows (in millions):
September 30 June 30 ------------ ------- Accounts receivable $ 275 $ 236 Deferred and installment receivables 87 98 Sales-type leases 188 169 ----- ----- Gross receivables and sales-type leases 550 503 Less allowance for doubtful accounts (24) (27) Unearned interest and maintenance (80) (75) ----- ----- Net receivables and sales-type leases $ 446 $ 401 ===== =====
The Company received net proceeds of $112 million and $84 million from the sale or assignment of certain of its receivables and sales-type leases in the three months ended September 30, 1995 and 1994, respectively. The uncollected principal balance of receivables and sales-type leases sold which is subject to varying amounts of recourse totaled $327 million and $333 million at September 30 and June 30, 1995, respectively. Adequate reserves have been provided for receivables and leases sold and are included in accrued liabilities. During the quarter ended September 30, 1995, the average age of accounts receivables increased for certain business units. The Company intends to intensify internal collection efforts and, where appropriate, to out-source certain collection efforts, in order to improve the aging profile of its receivables. In addition, due to customer bankruptcies, the Company's estimated realization of certain receivable balances, particularly those related to customers involved in reorganization proceedings, will be reexamined. Such reexamination could result in an adjustment to the allowance for doubtful accounts. b) Inventories Inventories are summarized as follows (in millions):
September 30 June 30 ------------ ------- Available for sale or lease $ 187 $ 183 Parts 45 45 Work-in-process 21 23 ----- ----- 253 251 Less allowance for inventory losses (12) (10) ----- ----- $ 241 $ 241 ===== =====
c) Deferred income taxes, patents and other assets At September 30 and June 30, 1995, deferred income taxes, patents and other assets are comprised of the following (in millions):
September 30 June 30 ------------ ------- Deferred income taxes $ 56 $ 53 Patents and other intangibles 39 36 Prepaid expenses and deposits 32 24 Receivables from financing institutions (due within one year) 21 8 Deferred charges 14 17 Other 27 23 ----- ----- $ 189 $ 161 ===== =====
5 8 d) Debt Debt at September 30 and June 30, 1995 is summarized as follows (in millions):
September 30 June 30 ------------ ------- Senior Notes $ 135 $ 135 Unsecured revolving credit notes payable 279 182 Capital lease obligations and other, net 9 10 ----- ----- $ 423 $ 327 ===== =====
Interest expense for the three months ended September 30, 1995 and 1994 was $9 million and $5 million, respectively. The Company made interest payments of $11 million and $8 million for the three months ended September 30, 1995 and 1994, respectively. e) Income taxes For the three months ended September 30, 1995 and 1994, the provision for income taxes was computed using an estimated annual effective tax rate based on a United States statutory rate of 35% adjusted principally for anticipated United States/Puerto Rico "Section 936" tax benefits, amortization of costs in excess of net assets acquired and international tax rate differentials. f) Acquisitions On December 29, 1994, the Company acquired the operations outside of the United States, Puerto Rico and Canada of Knogo Corporation ("Knogo") for approximately 3.1 million shares of the Company's Common Stock. The Company's unaudited pro forma consolidated condensed statement of income for the three months ended September 30, 1994, assuming the acquisition of Knogo was effected at the beginning of such period, is summarized as follows (in millions, except per share amounts): Total revenues $ 206 Net income $ 20 Earnings per share $ .27
This pro forma information does not purport to be indicative of the results which may have been obtained had the acquisition been consummated at the date assumed. In connection with acquisitions, the market value of the assets acquired for the three months ended September 30, 1995 and 1994 was as follows (in millions):
1995 1994 ------ ------ Cash paid (net of cash acquired) $ 7 $ - Liabilities assumed and/or incurred - 8 Common stock issued - 32 ---- ---- Market value of assets acquired $ 7 $ 40 ==== ====
6 9 g) Financial Instruments (i) Currency hedging instruments The Company has a policy of purchasing forward exchange contracts and options designated to hedge certain intercompany transactions and identifiable anticipatory intercompany commitments which are denominated in foreign currencies. At September 30, 1995, the Company owned forward exchange contracts which allowed it to sell currencies for the indicated U.S. dollar amounts with respect to fiscal 1996 and 1997 intercompany transactions and commitments, as follows (in millions):
1997 1996 ---- ---- Currencies French Francs $ 38 $ 38 Deutschemarks 25 21 British Pounds 21 12 Other 14 18 ---- ---- $ 98 $ 89 ==== ====
In July 1995 the Emerging Issues Task Force (EITF) reached a consensus which narrows the scope of intercompany foreign currency commitments which are eligible to be hedged for financial reporting purposes. This applies to transactions arising after July 21, 1995. Adoption of this consensus did not have a material effect on the Company's results of operations or financial condition during the first quarter of fiscal 1996 and is not expected to have a material effect in future periods. (ii) Interest rate instruments The Company has entered into interest rate instruments with financial institution counterparties in order to manage its exposure to interest rate fluctuations associated with certain transactions and debt. (See notes 2., 6. and 12. of Notes to Consolidated Financial Statements in the Company's 1995 Annual Report on Form 10-K/A for additional discussion). At September 30, 1995, the Company was a party to the following agreements (in millions): FIXED TO FLOATING SWAP AGREEMENTS
Notional Expiration Floating Rate Fixed Rate Amount Date to be Paid to be Received -------- ---------- ------------- -------------- $ 50 February 1996 6 Month LIBOR 5.45% 50 February 1996 6 Month LIBOR 5.40% 35 June 1996 6 Month LIBOR 5.01%
The weighted average interest rate paid and received under all such Fixed to Floating Swap Agreements at September 30, 1995 was 6.0% and 5.3%, respectively. 7 10 FLOATING TO FIXED SWAP AGREEMENTS
Notional Expiration Fixed Rate Floating Rate Amount Date to be Paid to be Received -------- ---------- ---------- -------------- $ 12 May 1999 7.75% 1 Month LIBOR 11 May 2000 5.84% 1 Month LIBOR 9 May 2000 6.16% 1 Month LIBOR 5 April 2000 6.58% 1 Month LIBOR 4 April 1999 4.60% 1 Month LIBOR 4 August 1998 4.80% 1 Month LIBOR 3 May 1998 4.94% 1 Month LIBOR 2 March 1999 4.65% 1 Month LIBOR
The weighted average interest rate paid and received under all such Floating to Fixed Swap Agreements at September 30, 1995 was 6.2% and 5.9%, respectively. h) Reclassifications Certain amounts in the prior period's consolidated condensed financial statements have been reclassified to conform to the current period's condensed presentation. i) Litigation In July, August and September 1995, thirteen actions were filed by alleged shareholders of the Company following announcements by the Company that its earnings for the quarter and year ended June 30, 1995, would be substantially below expectations and, in the more recent actions and a complaint amendment, that the scope of the Company's year-end audit had been expanded. The various complaints allege, among other things, that the Company and certain of its directors and officers who were named as defendants issued false and misleading statements about the Company's business prospects, failed to follow appropriate accounting practices, and failed to disclose adverse information. One of the complaints also alleges, among other things, that the Company failed to disclose hazards affecting individuals wearing pacemakers allegedly caused by certain of its products. The claimants are seeking class certification, rescissory damages and/or unspecified compensatory damages, as well as interest, costs and various fees and expenses, on behalf of themselves and other putative class members who purchased the Company's common stock or related securities during the respective class periods alleged by their complaints. In one of the actions, allegedly brought on behalf of Company shareholders who obtained their shares in the Company's merger with Knogo Corporation, the relief sought also includes rescission of the vote on that merger. Also in September 1995, three derivative actions were filed against the Company and its directors for breach of fiduciary duties, mismanagement and waste of corporate assets. Those claimants are seeking, among other relief, restitution and/or damages in favor of the Company and imposition of a constructive trust. An additional, similar action was filed on or about October 31, 1995. The Company intends to vigorously defend against the actions. The ultimate outcome of these actions cannot presently be determined. Accordingly, no provision for any liability that may result has been made in the consolidated condensed financial statements. 8 11 j) Subsequent event The Securities and Exchange Commission (the "SEC") has entered a formal order of private investigation In the Matter of Sensormatic Electronics Corporation (the "Order"). The Order authorizes the SEC to investigate, among other things, trading in the Company's securities and certain disclosure, accounting and financial reporting issues. Documents sought by the SEC in a subpoena to the Company, issued pursuant to the Order, include documents relating to the Company's revenue recognition policies and procedures, which were the subject of an expanded audit by Ernst & Young LLP, the Company's independent auditors (see note 9d. of Notes to Consolidated Financial Statements in the Company's 1995 Annual Report on Form 10-K and amendment thereof for additional discussion). The Company had previously been cooperating with an informal inquiry by the SEC into these issues and intends to continue to cooperate with the SEC in its formal investigation. 9 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's consolidated condensed financial statements present a consolidation of its worldwide operations. This discussion supplements the detailed information presented in the Consolidated Condensed Financial Statements and Notes thereto (which should be read in conjunction with the financial statements and related notes contained in the Company's 1995 Annual Report on Form 10-K and amendment thereto) and is intended to assist the reader in understanding the financial results and condition of the Company. Financial Condition Cash and marketable securities increased $19 million primarily due to net short-term borrowings ($99 million); offset in part by: (a) net cash used in operations ($52 million) due primarily to increases in receivables and net investment in sales-type leases and deferred income taxes, patents and other assets, and a decrease in accrued liabilities, and (b) net capital expenditures ($24 million); including approximately $21 million related to the acquisitions of a corporate and a business unit headquarters. Total stockholders' equity at September 30 increased $10 million to $963 million. The debt-to-total capitalization ratio was .31 to 1 at September 30, 1995, compared to .26 to 1 at June 30, 1995. Total receivables and net investment in sales-type leases increased to $446 million at September 30, 1995 from $401 million at June 30, 1995. The increase primarily resulted from lower than anticipated sales of receivables and leases to financing institutions during the quarter ended September 30, 1995. Certain financial institutions in Europe delayed purchasing additional receivables or leases until after the completion of the fiscal 1995 audit and filing of the Form 10-K. In addition, anticipated sales of recievables in the U.S. were not completed by the end of the quarter. The Company expects to resume selling these receivables and leases in future quarters. The Company has historically had a high level of receivables and sales-type leases outstanding, measured as a percentage of revenues. A key element of the Company's marketing strategy has been, to increase market penetration by providing customers alternative financing options. This strategy has been successful. It has also helped the Company increase customer loyalty and commitment 10 13 The Company believes its total allowance for doubtful accounts for receivables and sales-type leases, and its related reserve for receivables and sales-type leases sold to financing institutions which are subject to full or partial recourse, are adequate. The decrease in the total allowance for doubtful accounts from $27 million at June 30 to $24 million at September 30, 1995 is primarily attributable to write-offs of receivables. These receivables were substantially provided for in the June 30, 1995 allowance for doubtful accounts. During the quarter ended September 30, 1995, the average age of accounts receivables increased for certain business units. The Company intends to intensify internal collection efforts and, where appropriate, to out-source certain collection efforts, in order to improve the aging profile of its receivables. In addition, due to customer bankruptcies, the Company's estimated realization of certain receivable balances, particularly those related to customers involved in reorganization proceedings, will be reexamined. Such reexamination could result in an adjustment to the allowance for doubtful accounts. Inventories at September 30, 1995 remained consistent with the June 30, 1995 levels. Deferred income taxes, patents and other assets increased $28 million primarily as a result of increases in prepaid expenses and receivables due within one year from financing institutions. Total debt increased $96 million over the June 30, 1995 balance, to $423 million, primarily as a result of additional borrowings under short-term credit lines. The Company believes it is positioned to meet anticipated future cash requirements through the use of funds to be generated by future operating activities (including the sale and assignment of receivables and leases to financing institutions), existing cash and marketable securities ($89 million at September 30, 1995), and funds available from existing worldwide credit lines ($42 million unused at September 30, 1995). The Company maintains a shelf registration statement filed with the Securities and Exchange Commission under which the Company is able to issue up to 4.5 million shares of its Common Stock (approximately 2.5 million shares remain available). These securities are intended to be used in connection with acquisitions of other businesses or assets. 11 14 Results of Operations Three Months Ended September 30, 1995 Compared to Three Months Ended September 30, 1994 Revenues for the three months ended September 30, 1995 increased 40% over the three months ended September 30, 1994. The revenue growth resulted principally from increased EAS revenues, particularly from: increased revenues from the Ultra-Max(R) product line, which is primarily for hard goods retail customers and is used in the Company's Universal Product Protection (UPPsm) program for source tagging; increased revenues from the Aislekeeper(R) product line; increased sales of CCTV products used by retailers; and increased revenues from the U.S.-based Commercial/Industrial Group. Revenues from retail customers for EAS product lines increased 44% to $160 million in the first quarter of fiscal 1996 from the comparable period of fiscal 1995. This increase resulted principally from growth of 68% in revenues from the Ultra-Max product line, and the inclusion of approximately $13 million of revenues from the Knogo product line. Revenues from the CCTV product lines for retailers increased 30% to $35 million for the first quarter of fiscal 1996 from the comparable period of fiscal 1995. Revenues from the U.S.-based Commercial/Industrial Group increased 52% to $46 million (including installation revenues) in the first quarter of fiscal 1996 compared to fiscal 1995 due primarily to increased sales of CCTV and access control products to non-retail customers, and revenue from recent acquisitions. Operating income for the three months ended September 30, 1995 increased approximately 1% over last year's comparable period primarily due to the higher level of business; offset in part by reduced gross margins and an increase in selling, customer service and research, development and engineering expenses. The gross margin for the first quarter of fiscal 1996 was 52%, lower than the 54% gross margin for last year's comparable period. The reduction in the total gross margin resulted primarily from lower gross margins realized on the sale of CCTV products in the U.S. due to a high volume of trade-ins and lower margin sales to major customers and lower margin sales of Ultra-Max products to major customers in the U.S. Total selling, customer service and administrative, and research, development and engineering expenses, as a percentage of total revenues, were 44% and 42% for the first quarter of fiscal 1996 and 1995, respectively. The increase as a percentage of revenues is primarily attributable to increased selling, customer service and administrative expenses in Europe and to additional audit and legal fees incurred as a result of the expansion of the Company's fiscal 1995 year- end audit (approximately $2 million) which are included in administrative expense. The aggregate amount of these 12 15 expenses increased by 48% in the current year's first quarter over last year's comparable period primarily as a result of the higher level of business in fiscal 1996. Costs at every level in the Company have and continue to be reexamined. Management's stated goal is to reduce annual operating expenses by 10%, while continuing to make required investments in the infrastructure to support profitable growth. Certain cost reductions may require eliminating redundant functions. These actions may result in severance and related costs which will be recorded in the period these decisions are made and communicated. Total net other non-operating expenses in the first quarter of fiscal 1996 increased approximately $4 million compared to the comparable period of fiscal 1995, principally due to an increase in interest expense resulting from the higher level of short-term borrowings outstanding during the first quarter of fiscal 1996. The Company utilizes interest rate swap agreements and currency forward contracts and options (derivatives) to hedge certain of its currency and interest rate risks. The Company does not enter into speculative derivative transactions. The derivative instruments it does purchase are not held as investments, and it is the Company's intent to hold such instruments for their respective terms. Therefore, changes in their fair values will have no effect on the Company's operations, cash flows or financial position (see Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 1., 2., 6. and 12. of Notes to Consolidated Financial Statements in the Company's fiscal 1995 Annual Report on Form 10-K and amendment thereof for further discussion of the Company's currency and interest rate risks and use of derivatives). In July 1995 the Emerging Issues Task Force (EITF) reached a consensus which narrows the scope of intercompany foreign currency commitments which are eligible to be hedged for financial reporting purposes. This applies to transactions arising after July 21, 1995. Adoption of this consensus did not have a material effect on the Company's operations or financial condition during the first quarter of fiscal 1996 and is not expected to have a material effect in future periods. The provision for income taxes for the first quarter of fiscal 1996 is based on an estimated effective annual consolidated tax rate of 28% compared to an estimated effective annual tax rate of 25% utilized for the first quarter of fiscal 1995. The increase in the rate resulted primarily from the following: an increase in the relative proportion of the Company's profits earned from international subsidiaries, which are subject to statutory tax rates generally higher than those in the U.S.; increases in U.S. earnings not qualifying for U.S./Puerto Rico "Section 936" tax benefits; and increases in amortization of costs in excess of net assets acquired. Consolidated net income for the first quarter of fiscal 1996 decreased $3 million when compared to the prior year's comparable period due primarily to the factors discussed above. 13 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings A shareholder action was filed by Steven M. Fradin (Fradin) on or about October 31, 1995 against the Company in the United States District Court for the Southern District of New York. The complaint is similar to a number of complaints filed in July, August and September 1995, 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. The Fradin plaintiff, who claims to have purchased 200 shares of the Company's common stock during the period December 30, 1994 through July 6, 1995, alleges, on behalf of himself and a putative class of purchasers of the Company's shares during such period, that commencing on December 30, 1994, the Company and certain other named defendants issued false and misleading statements about the Company's business prospects and failed to disclose allegedly adverse information, including information relating to the Company's merger with Knogo Corporation consummated December 30, 1994, all of which allegedly inflated the price of the Company's stock artificially in violation of federal securities law. The complaint also alleges a common law claim for negligent misrepresentation. In addition to the Company, also named as defendants were: Ronald G. Assaf, Chairman of the Board, President and Chief Executive Officer; Gerd Witter, President of Sensormatic Europe; Lawrence J. Simmons, formerly Vice President of Finance and Chief Accounting Officer; Michael E. Pardue, formerly Executive Vice President, Chief Operating Officer and Chief Financial Officer and a director; and John T. Ray, Jr. and Arthur G. Milnes, directors. As in the previously-filed actions referred to above, the Fradin plaintiff seeks class certification, unspecified compensatory damages, interest, attorneys', accountants' and experts' fees and other relief. The Company intends to vigorously defend against this suit. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 11) Computation of Earnings Per Common Share. 27) Financial Data Schedule (for SEC use only). b) Reports on Form 8-K: On July 20, 1995, the Company filed a Current Report on Form 8-K, as amended August 15, 1995, with respect to certain actions filed against the Company and certain of its directors and officers (see note i of Notes to Consolidated Condensed Financial Statements). On November 2, 1995, the Company filed a Current Report on Form 8-K with respect to a formal order of private investigation entered by the Securities and Exchange Commission In the Matter of Sensormatic Electronics Corporation (see note j of Notes to Consolidated Condensed Financial Statements). 14 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SENSORMATIC ELECTRONICS CORPORATION By /s/ RAYMOND MONTELEONE --------------------------------- Raymond Monteleone Vice President of Corporate Development and Acting Chief Financial Officer Date: November 15, 1995 15 -----END PRIVACY-ENHANCED MESSAGE-----