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Inventories, net 240,807 163,906
Revenue equipment, less accumulated depreciation of
$46,439 in 1995 and $36,183 in 1994 49,920 58,326
Other property, plant and equipment, net 150,957 107,152
Deferred income taxes, patents and other assets, less accu-
mulated amortization of $17,685 in 1995 and $13,114 in
1994 161,614 120,061
Costs in excess of net assets acquired, less accumulated
amortization of $29,863 in 1995 and $17,930 in 1994 496,641 343,017
$1,570,904 $1,155,503


LIABILITIES AND STOCKHOLDERS™ EQUITY
Accounts payable $ 63,314 $ 40,884
Accrued liabilities 209,091 143,067
Accrued and deferred income taxes payable 19,059 24,687
Debt 326,710 219,173

Commitments and contingencies
Stockholders™ equity:
Preferred stock, $.01 par value, 10,000 shares authorized,
none issued; Common stock, $.01 par value, 125,000
shares authorized, 73,023 and 67,612 shares outstanding
in 1995 and 1994, respectively 713,866 546,577
Retained earnings 295,680 237,553
Treasury stock at cost and other, 1,095 shares in 1995 and
1,162 shares in 1994 (13,222) (10,835)
Currency translation adjustments (43,594) (45,603)
Total stockholders™ equity 952,730 727,692
$1,570,904 $1,155,503
721
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17-37 Part 3 Business Analysis and Valuation Applications




CONSOLIDATED STATEMENTS OF INCOME
June 30, 1995, 1994 and 1993 (In thousands, except par value amounts)
Sensormatic Electronics Corporation




1995 1994 1993
Revenues:
Sales $762,375 $557,393 $398,122
Rentals 50,601 46,566 46,021
Other 76,107 52,007 43,176
Total revenues 889,083 655,966 487,319
Operating costs and expenses:
Costs of sales 353,990 256,003 188,138
Depreciation on revenue equipment 16,327 14,974 15,394
Selling, customer service & administrative 383,583 251,933 192,077
Research, development and engineering 22,666 18,023 13,739
Amortization of intangible assets 14,598 10,246 6,963
Total operating costs and expenses 791,164 551,179 416,311
Operating income 97,919 104,787 71,008
Other income (expenses):
Interest income 17,221 14,262 17,114
Interest expense (28,989) (22,711) (18,656)
Other, net 2,900 (373) 2,518
Total other income (expenses) (8,868) (8,822) 976
Income from continuing operations
before income taxes 89,051 95,965 71,984
Provision for income taxes 19,500 23,900 17,900
Income from continuing operations 69,551 72,065 54,084
Discontinued operations - adjustment of
prior year amounts (Note 5.) 4,100 ” ”
Net income $ 73,651 $ 72,065 $ 54,084
Primary earnings per common share:
Continuing operations $ .97 $ 1.16 $ .97
Discontinued operations .05 ” ”
Net income $ 1.02 $ 1.16 $ .97
Fully diluted earnings per common share:
Continuing operations $ .97 $ 1.13 $ .93
Discontinued operations .05 ” ”
Net income $ 1.02 $ 1.13 $ .93
722 Management Communications




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CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30, 1995, 1994 and 1993 (In thousands, except par value amounts)




Sensormatic Electronics Corporation
1995 1994 1993
Cash ¬‚ows from operating activities:
Income from continuing operations $69,551 $72,065 $54,084
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Depreciation 26,705 22,603 21,446
Amortization 14,615 11,681 7,917
Other non-cash charges to operations, net 19,993 11,502 9,508
Net changes in operating assets and liabilities, net of effects
of acquisitions:
Inventories (63,589) (56,333) (6,299)
Net investment in sales-type leases 17,194 (42,269) (9,824)
Accounts receivable and receivables from ¬nancing
institutions (77,294) (23,858) (52,742)
Deferred and installment receivables (3,099) (9,268) 12,277
Other assets (9,497) (31,345) 1,541
Accrued liabilities 3,197 13,506 14,320
Accounts payable 15,108 10,801 (2,778)
Income taxes (3,830) 7,473 12,631
Net cash provided by (used in) operating activities 9,054 (13,442) 62,081
Cash ¬‚ows from investing activities:
Capital expenditures (62,972) (51,835) (26,735)
Purchases of marketable securities (843) (18,178) (8,921)
Maturities of marketable securities 7,717 13,294 24,262
Increase in revenue equipment and available for lease (3,959) (17,033) (35,177)
Acquisitions (net of cash acquired of $6,687 in 1995,
$1,135 in 1994 and $8,223 in 1993) (9,587) (11,467) (299,342)
Other, net 5,696 5,676 2,837
Net cash used in investing activities (63,948) (79,543) (343,076)
Cash ¬‚ows from ¬nancing activities:
Bank borrowings and other debt 105,370 30,500 128,271
Proceeds from issuances of common stock under employee
bene¬t plans and for acquisitions 12,902 17,167 212,154
Cash dividends (15,524) (12,530) (10,588)
Repayments of bank borrowings and other debt (25,198) (10,329) (109,934)
Issuance of Senior Notes, net ” ” 134,111
Net cash provided by ¬nancing activities 77,550 24,808 354,014
Net increase (decrease) in cash 22,656 (68,177) 73,019
Cash at beginning of year 20,924 89,101 16,082
Cash at end of period 43,580 20,924 89,101
Marketable securities at end of year 26,727 33,618 28,798
Cash and marketable securities at end of year $ 70,307 $54,542 $117,899
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of significant
Sensormatic Electronics Corporation




improvements and 3 years through 10 years for
other property, plant and equipment).
accounting policies
e. Revenue recognition. Revenue from sales of
a. Basis of presentation. The Consolidated Financial equipment is recognized when a customer takes title
Statements include the accounts of Sensormatic to the product, in accordance with the terms agreed
Electronics Corporation and all of its subsidiaries upon by the parties (i.e. “FOB Shipping Point,” “FOB
(the Company). All signi¬cant intercompany bal- Destination,” acceptance of a customer order to
ances and transactions have been eliminated. purchase presently installed equipment or accep-
tance by a third party leasing company of an oper-
The accompanying Consolidated Balance Sheets
ating lease and the related equipment). Payment
are presented in a format which does not segregate
terms are either cash and/or acceptance of deferred
current assets and current liabilities. As a result of
term (i.e., extended payment terms normally not
the constantly changing mix of inventories and reve-
greater than 365 days) or installment obligations
nue equipment sold and leased, including sales of
(generally with terms of 60 months) subject to stated
equipment originally installed under lease contracts,
or imputed interest, and are generally secured. Rev-
it is not possible to accurately determine the amount
enue from sales-type leases (primarily with terms of
of revenue equipment that will be sold and thus
60 months or greater) is recognized as a “sale”
realized currently. The Company believes presenta-
upon receipt of a customer order and shipment in
tion of its ¬nancial position in the non-classi¬ed
an amount equal to the present value of the mini-
format avoids misunderstandings as to the relation-
mum rental payments under the ¬xed non-cancel-
ships of current and non-current assets and liabili-
able lease term. Interest income on deferred and
ties. However, information with respect to the current
installment obligations and net investment in sales-
and non-current nature of certain assets and liabili-
type leases is recognized over the term of the con-
ties is included in Notes below.
tract using the effective interest method.
b. Cash and marketable securities. The Company
The Company also leases equipment under long-
classi¬es cash equivalents (highly liquid investments
term operating leases (primarily leases with terms of
with a maturity of three months or less when
36 to 54 months) which are generally non-cancel-
acquired) as cash. Effective July 1, 1994, the Com-
able. Rental revenues are recognized as earned
pany adopted FASB Statement No. 115 “Accounting
over the term of the lease. Minimum future rentals
for Certain Investments in Debt and Equity Securi-
on non-cancelable operating leases at June 30,
ties.” In accordance with FASB 115, the Company
1995 aggregated (in millions) $107.2 and are due
has classi¬ed certain of its non-equity investments as
as follows: 1996 - $32.4; 1997 - $25.8; 1998 -
available-for-sale securities which are carried at
$22.0; 1999 - $15.5 and 2000 - $11.5.
market value (versus cost or amortized cost prior to
the adoption of FASB 115). Unrealized gains and Service revenues are recognized as earned and
losses are recorded, net of tax, in Stockholders™ maintenance revenues are recognized ratably over
equity ($0.3 million loss at June 30, 1995). the service contract term.
c. Inventories. Inventories are stated at the lower of f. Research, development and engineering. In ¬scal
cost (¬rst-in, ¬rst-out) or market. 1995, 1994 and 1993 “Research, development and
engineering” included research and development
d. Revenue equipment and other property, plant and
expenses of $18.2 million, $14.7 million and $11.9
equipment. Revenue equipment (principally equip-
million, respectively.
ment on lease) and other property, plant and equip-
ment (including assets acquired under capital g. Accounting for currency translation and transac-
leases) are recorded at cost and depreciated using tions. The Company™s international subsidiaries™
the straight-line method over their estimated useful assets and liabilities are translated into U.S. dollars
lives (4 years and 6 years for revenue equipment, at the rate of exchange in effect at their balance
10 years through 40 years for buildings and sheet dates and their revenues, costs and expenses
724 Management Communications




17-40
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are translated into U.S. dollars at the average rate of h. Intangible assets. Patents, stated at cost, are
exchange in effect during their respective ¬scal amortized using the straight-line method over 17
years. Translation adjustments resulting therefrom years. Costs in excess of net assets acquired are




Sensormatic Electronics Corporation
and transaction gains or losses attributable to cer- amortized using the straight-line method over 20 to
tain intercompany transactions are excluded from 40 years. The carrying value of costs in excess of net
results of operations and accumulated in a separate assets acquired (or goodwill) will be reviewed if the
component of consolidated stockholders™ equity. facts and circumstances suggest that it may be
Gains and losses attributable to other intercompany impaired. If this review indicates the goodwill will
transactions are included in results of operations. not be fully recoverable over the remaining amorti-
zation period, as determined based on the esti-
The Company has a policy of not hedging its invest- mated undiscounted cash ¬‚ows of the assets
ment in the net assets of its international subsidiaries acquired, the carrying value of the goodwill will be
(aggregating $370 million and $250 million at June adjusted accordingly. (See Notes 1k. and 11.)
30, 1995 and 1994, respectively, primarily located
in 15 countries in Europe) against exchange rate i. Interest rate instruments. The differential to be
¬‚uctuations due to the high economic costs of such paid or received on interest rate swap agreements
a program and the long-term nature of its invest- and interest rate cap agreements (interest rate
ments. The gains and losses resulting from these instruments) is accrued as interest rates change and

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