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exchange rate ¬‚uctuations ($2.0 million and is recognized as an adjustment to interest expense.
$15.9 million net gain in ¬scal 1995 and ¬scal Premiums paid or received for the early termination
1994, respectively) are excluded from results of of interest rate instruments will be amortized into
operations and accumulated in a separate compo- interest expense over the remaining original term of
nent of consolidated stockholders™ equity. the instruments should the Company elect to termi-
nate any of the interest rate instruments prior to their
The Company has a policy of purchasing forward expiration date. Interest rate instruments are stated
exchange contracts (forward contracts) and options at cost, if any.
designated to hedge certain identi¬able, foreign
currency anticipatory, intercompany commitments. j. Primary and fully diluted earnings per common
Forward contracts and options are stated at cost, if share. Primary earnings per common share is calcu-
any. Market value gains or losses resulting from lated based on the weighted average number of
such forward contracts and options, and from the common shares and dilutive common stock equiva-
related hedged commitments, occurring in periods lents outstanding during the period. Common stock
prior to the period in which they are settled, are equivalents include stock options issued under
deferred, to be recognized in the period when they employee bene¬t plans and common stock war-
are settled. Cash ¬‚ows resulting from the settlement rants. Fully diluted earnings per common share in
of the forward contracts and options are included in 1993 and 1994 included the if-converted dilutive
cash provided by operating activities. effect of the 7% Convertible Subordinated Deben-
tures due in 2001 which were fully converted in May
Net currency exchange gains (losses) in ¬scal 1995, 1994.
1994 and 1993 resulting from the settlement of
intercompany transfers of products manufactured in k. Prospective accounting changes. In March 1995,
Florida and Puerto Rico and sold to certain interna- FASB Statement No. 121 “Accounting for the Impair-
tional subsidiaries were (in millions) $3.0, $0.7 and ment of Long-Lived Assets and for Long-Lived Assets
($0.1), respectively. Additionally, non-recurring net to Be Disposed Of” was issued. FASB 121 requires
currency exchange gains of $2.2 million and $1.3 impairment losses to be recorded on long-lived
million were recognized in ¬scal 1995 and 1993, assets (e.g., revenue equipment, property, plant and
respectively, after the Knogo and ALPS acquisitions. equipment, patents and costs in excess of net assets
Net currency exchange gains are included in “Other acquired related to such assets) used in operations
income (expenses)” in the Consolidated Statements when impairment indicators are present and the
of Income. undiscounted cash ¬‚ows estimated to be generated
725
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17-41 Part 3 Business Analysis and Valuation Applications




by those assets are less than the assets™ carrying 1995 1994
amount. FASB 121 also addresses the accounting Minimum lease payments
for long-lived assets that are expected to be dis-
Sensormatic Electronics Corporation




receivable $168.8 $151.6
posed of. Allowance for uncollectible
minimum lease payments (7.5) (3.4)
The Company will adopt the provisions of FASB 121 Unearned interest and maintenance (50.4) (38.6)
in the ¬rst quarter of ¬scal 1996 and, based on cur- $110.9 $109.6
rent circumstances, does not believe the effect of
adoption will be material. Net receivables and sales-type leases at June 30,
1995 are due as follows (in millions): 1996 -
In July 1995, the Emerging Issues Task Force (EITF)
$252.0 and 21.2; 1997 - $12.7 and $22.8; 1998 -
reached a consensus which narrows the scope of
$11.8 and $21.8; 1999 - $8.9 and $21.3; 2000 -
intercompany foreign currency commitments which
$4.4 and $18.2, respectively, and with respect to
are eligible to be hedged for ¬nancial reporting pur-
sales-type leases (in millions): $5.6 thereafter.
poses. This applies to transactions arising after July
21, 1995. The Company has not completed the The Company has agreements with third-party
complex analyses and comprehensive study of this ¬nancing institutions whereby certain installment
matter to either estimate its current or future effect receivables in the United States (U.S.) and sales-type
on the Company™s operating results or hedging leases in Europe together with certain related rights
strategy. However, the Company believes it can are sold to the ¬nancing institutions. Under such
modify its current hedging practices in order to com- agreements, should certain events occur (principally
ply with the new consensus without having a materi- related to customer non-payment or other customer-
ally adverse effect on its ¬nancial condition. related defaults), the Company is obligated to repur-
chase the speci¬c receivables and sales-type leases.
l. Reclassi¬cations. Certain amounts in the prior
Under the principal agreement in the U.S., the
years™ Consolidated Financial Statements have been
Company sells ¬xed interest rate receivables to the
reclassi¬ed to conform to the current ¬scal year™s
¬nancing institution. Under such agreement, the
presentation.
¬nancing institution earns interest throughout the
term of the receivables at a ¬‚oating rate of interest
Note 2. Receivables and net investment in indexed to one month LIBOR. Any resulting differen-
sales-type leases tial in interest caused by the varying interest rates
(variance amounts) is either paid or received by the
Accounts receivable are stated net of an allowance
Company. In order to manage the risk associated
for doubtful accounts of $13.5 million and
with the variance amounts, the Company enters into
$10.4 million at June 30, 1995 and 1994,
interest rate instruments for notional amounts (on a
respectively.
portfolio basis) equal to the outstanding principal
amounts of receivables sold. This results in offsetting
Net deferred receivables ($24.5 million and $30.5
interest rate differential payments or receipts thereby
million outstanding at June 30, 1995 and 1994,
limiting the variance amounts paid or received by
respectively) and installment receivables are stated
the Company.
net of the following (at June 30, in millions):
Additionally, the Company has an agreement with
1995 1994
a third-party ¬nancing institution whereby the
Allowance for doubtful accounts $ 5.5 $ 6.4
Company may assign certain pre-approved U.S.
Unearned interest and maintenance $ 24.4 $19.5
accounts receivable. At June 30, 1995 and 1994,
receivables assigned and outstanding under such
The Company leases equipment under sales-type agreement were $79.7 million and $57.9 million,
lease agreements expiring in various years through respectively, (substantially all of which were not sub-
2002. The net investment in sales-type leases con- ject to recourse resulting from the customer™s inabil-
sisted of the following (at June 30, in millions): ity to pay) of which the ¬nancing institution had
726 Management Communications




17-42
Management Communications




advanced in anticipation of their collection $74.6 1995 1994 1993
million and $50 million, respectively, to the Com- Beginning of year $20.1 $13.5 $10.6
pany (bearing interest at ¬‚uctuating rates, 6.5% and




Sensormatic Electronics Corporation
Additions charged to income 19.6 11.0 8.8
4.9% at June 30, 1995 and 1994, respectively). Amounts written off, net (15.5) (6.1) (5.6)
Other
The Company received proceeds of $458.1 million (including currency translation) 2.2 1.7 (0.3)
and $270.5 million upon the sale and assignment
Balance at end of year $26.4 $20.1 $13.5
of receivables and leases under these agreements in
¬scal 1995 and 1994, respectively (net of repur-
Note 5. Income taxes
chases due to customer non-payment of approxi-
mately $12.6 million and $12.8 million,
Effective July 1, 1993, the Company adopted FASB
respectively). The uncollected principal balance of
Statement No. 109 “Accounting for Income Taxes”
receivables and leases sold which is subject to vary-
(FASB 109). As permitted by FASB 109, the Com-
ing amounts of recourse totaled $333.0 million and
pany elected not to restate the ¬nancial statements
199.8 million at June 30, 1995 and 1994, respec-
of any prior periods. The cumulative effect of the
tively. Adequate reserves have been provided for
change was not material and therefore no adjust-
receivables and leases sold and are included in
ment was separately reported in the Consolidated
accrued liabilities.
Statement of Income for the year ended June 30,
At June 30, 1995 balances due from ¬nancing insti- 1994.
tutions under these agreements aggregated $8.2
The United States (including Puerto Rico) and inter-
million, are due within one year and are included in
national components of income from continuing
“Deferred income taxes, patents and other assets.”
operations before income taxes are as follows (in
millions):
At June 30, 1995 and 1994, there were receivables
(including those subject to recourse) due from the 1995 1994 1993
following sectors of the U.S. retail market which rep-
United States $62.8 $65.7 $49.8
resented a concentration of credit risk to the Com- International 26.2 30.3 22.2
pany: department and discount stores 1995 - $48.9
$89.0 $96.0 $72.0
million and 1994 - $40.5 million; supermarkets
1995 - $31.9 million and 1994 - $26.2 million;
The components of the provision for income taxes
and specialty stores 1995 - $26.2 million and 1994
on income from continuing operations before
- $30.7 million. Assuming the obligors under these
income taxes are as follows (in millions):
receivables were to fail to completely perform
Current Deferred Total
according to the terms of the receivables at June 30,
1995, the Company estimates it would have 1995:
U.S. Federal $ 2.0 $ 4.6 $ 6.6
incurred a loss with respect to each retail market of
International 3.2 10.0 13.2
approximately $36.1 million, $21.1 million and
Other ” (0.3) (0.3)
$21.2 million, respectively, representing the amount
$5.2 $14.3 $19.5
of the receivables less any related allowance for
doubtful accounts and the estimated realizable 1994:
value of the collateralized equipment securing these U.S. Federal $ 5.6 $ 2.1 $ 7.7
International 12.3 3.1 15.4
receivables. The Company minimizes its exposure to
Other 1.4 (0.6) 0.8
credit risk through its credit review procedures, col-
lection practices, and its policy of retaining a security $19.3 $ 4.6 $23.9
interest in the underlying equipment and ability to 1993:
re-market such repossessed equipment. U.S. Federal $ 8.4 $ (4.1) $ 4.3
International 11.0 (0.2) 10.8
The activity in the allowance for doubtful accounts Other 3.3 (0.5) 2.8
related to receivables and sales-type leases during ¬s-
$22.7 $ (4.8) $17.9
cal 1995, 1994 and 1993 is as follows (in millions):
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17-43 Part 3 Business Analysis and Valuation Applications




The deferred provision is presented net of a tax ben- pany™s year-end audit had been expanded. The var-
e¬t of $20 million for 1995, and $4.1 million for ious complaints allege, among other things, that the
1994, relating to net operating losses. A reconcilia- Company and certain of its directors and of¬cers
Sensormatic Electronics Corporation




tion between the statutory U.S. Federal income tax who are named as defendants issued false and mis-
rate and the consolidated effective tax rate on leading statements about the Company™s business
income from continuing operations before income prospects, failed to follow appropriate accounting
taxes is as follows: practices, and failed to disclose adverse informa-
tion. One of the complaints also alleges, among
1995 1994 1993
other things, that the Company failed to disclose
hazards affecting individuals wearing pacemakers
Statutory rate 35.0% 35.0% 34.5%
Bene¬ts due to tax exempt allegedly caused by certain of its products. The
earnings and investment
claimants are seeking class certi¬cation, rescissory
income of the Puerto Rico
damages and/or unspeci¬ed compensatory dam-
operations (10.2) (9.5) (12.0)
Amortization of costs in excess ages, as well as interest, costs and various fees and
of net assets acquired 4.6 2.7 2.7
expenses, on behalf of themselves and other puta-
Adjustment of prior years™
tive class members who purchased the Company™s
accruals (4.9) (3.4) ”
common stock or related securities during the
Other (2.6) 0.1 (0.3)
respective class periods alleged by their complaints.
21.9% 24.9% 24.9%
In one of the actions, allegedly brought on behalf of
Company shareholders who obtained their shares in
Note 9. Commitments, contingencies the Company™s merger with Knogo Corporation, the
and other matters relief sought also includes rescission of the vote on
that merger. Also in September 1995, three deriva-
a. Commitments. The Company leases certain oper-
tive actions were ¬led against the Company and its
ating plant and equipment. The future lease com-
directors for breach of ¬duciary duties, mismanage-
mitments for plant and equipment and other assets
ment and waste of corporate assets. Those claim-
at June 30, 1995 aggregated $48.2 million and are
ants are seeking, among other relief, restitution
due as follows (in millions): 1996 - $12.0; 1997 -
and/or damages in favor of the Company and
$11.7; 1998 - $5.8; 1999 - $3.6; 2000 - $2.3 and

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