-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, d0W2squOh3tahJq55tSTdA8BioD2QB44tUUH35t8nXgzCY9CqG0jLAuwBAfW9ZnM zFsblZunF/KoGO6Nqowr2A== 0000093469-95-000003.txt : 19950504 0000093469-95-000003.hdr.sgml : 19950504 ACCESSION NUMBER: 0000093469-95-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950503 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PITTWAY CORP /DE/ CENTRAL INDEX KEY: 0000093469 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 135616408 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04821 FILM NUMBER: 95534253 BUSINESS ADDRESS: STREET 1: 200 S WACKER DR STE 700 CITY: CHICAGO STATE: IL ZIP: 60606-5802 BUSINESS PHONE: 3128311070 MAIL ADDRESS: STREET 1: 200 S WACKER DR STE 700 CITY: CHICAGO STATE: IL ZIP: 60606-5802 FORMER COMPANY: FORMER CONFORMED NAME: STANDARD SHARES INC DATE OF NAME CHANGE: 19900321 FORMER COMPANY: FORMER CONFORMED NAME: STANDARD POWER & LIGHT CORP DATE OF NAME CHANGE: 19660905 10-Q 1 MARCH 31, 1995 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-4821 PITTWAY CORPORATION (Exact Name of Registrant as Specified in its Charter) DELAWARE 13-5616408 (State of Incorporation) (I.R.S. Employer Identification No.) 200 South Wacker Drive, Chicago, Illinois 60606-5802 (Address of Principal Executive Offices) (Zip Code) 312/831-1070 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (April 1, 1995). Common Stock 2,626,024 Class A Stock 11,314,700 PITTWAY CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED MARCH 31, 1995 INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Statement of Income - Three Months Ended March 31, 1995 and 1994 3 Consolidated Balance Sheet - March 31, 1995 and December 31, 1994 4 - 5 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1995 and 1994 6 Notes to Consolidated Financial Statements 7 - 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 10 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 11 - 12 ITEM 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 13 2 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (Dollars in Thousands, Except Per Share Data) (UNAUDITED) 1995 1994 NET SALES.................................. $220,404 $176,543 OPERATING EXPENSES: Cost of sales............................ 134,546 105,292 Selling, general and administrative...... 66,523 54,573 Depreciation and amortization............ 5,073 4,783 206,142 164,648 OPERATING INCOME........................... 14,262 11,895 OTHER INCOME (EXPENSE): Gain on sale of investment............... 17,051 Income from marketable securities and other interest..................... 616 812 Interest expense......................... (961) (754) Income (loss) from investments........... (358) 538 Miscellaneous, net....................... 273 434 (430) 18,081 INCOME BEFORE INCOME TAXES................. 13,832 29,976 INCOME TAXES............................... 5,112 12,020 NET INCOME................................. $ 8,720 $ 17,956 NET INCOME PER SHARE OF COMMON AND CLASS A STOCK........................ $ .63 $ 1.29 CASH DIVIDENDS DECLARED PER SHARE: Common.................................. $ .10 $ .10 Class A................................. $ .125 $ .125 AVERAGE NUMBER OF SHARES OUTSTANDING (in thousands)........................... 13,941 13,941 See accompanying notes. 3 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 1995 AND DECEMBER 31, 1994 (Dollars in Thousands) (UNAUDITED) March 31, December 31, 1995 1994 ASSETS CURRENT ASSETS: Cash and equivalents................... $ 6,465 $ 10,359 Marketable securities.................. 33,267 34,313 Accounts and notes receivable, less allowance for doubtful accounts of $7,318 and $6,348.................... 147,201 137,747 Inventories............................ 130,496 124,801 Future income tax benefits............. 19,528 17,879 Prepayments, deposits and other........ 12,072 11,805 349,029 336,904 PROPERTY, PLANT AND EQUIPMENT, at cost: Buildings.............................. 24,686 24,769 Machinery and equipment................ 168,900 157,061 193,586 181,830 Less: Accumulated depreciation......... (98,998) (94,426) 94,588 87,404 Land................................... 2,369 2,369 96,957 89,773 INVESTMENTS: Real estate and other ventures......... 55,861 56,261 Leveraged leases....................... 22,556 22,752 78,417 79,013 OTHER ASSETS: Goodwill, less accumulated amortization of $7,481 and $7,193.... 40,546 40,935 Other intangibles, less accumulated amortization of $9,738 and $9,597.... 6,039 6,256 Notes receivable...................... 4,123 4,370 Miscellaneous......................... 6,013 6,036 56,721 57,597 $581,124 $563,287 See accompanying notes. 4 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 1995 AND DECEMBER 31, 1994 (Dollars in Thousands) (UNAUDITED) March 31, December 31, 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable........................... $ 49,575 $ 46,232 Long-term debt due within one year...... 5,494 5,184 Dividends payable....................... 1,759 1,758 Accounts payable........................ 59,944 58,246 Accrued expenses........................ 39,057 41,391 Income taxes payable.................... 13,702 10,093 Retirement and deferred compensation plans.................... 1,040 1,148 Unearned income......................... 5,866 5,797 176,437 169,849 LONG-TERM DEBT, less current maturities... 7,609 5,088 DEFERRED LIABILITIES: Income taxes............................ 54,469 54,158 Other................................... 7,145 6,062 61,614 60,220 STOCKHOLDERS' EQUITY: Preferred stock, none issued............ Common capital stock, $1 par value- Common stock.......................... 2,626 2,626 Class A stock......................... 11,315 11,315 Capital in excess of par value.......... 28,348 28,348 Retained earnings....................... 298,798 291,756 Cumulative marketable securities valuation adjustment.................. (2,873) (3,050) Cumulative foreign currency translation adjustment............................ (2,750) (2,865) 335,464 328,130 $581,124 $563,287 See accompanying notes. 5 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (Dollars in Thousands) (UNAUDITED) 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.................................... $ 8,720 $ 17,956 Adjustments for noncash items included in net income: Depreciation and amortization............... 5,073 4,783 Gain on sale of investment, net of taxes.... (10,249) Deferred income taxes....................... (1,464) 1,796 Retirement and deferred compensation plans.. 690 346 Income/loss from investments adjusted for cash distributions received............ 577 (424) Provision for losses on accounts receivable. 859 695 Change in assets and liabilities, excluding effects of acquisitions, dispositions and foreign currency adjustments: Increase in accounts and notes receivable.............................. (8,066) (5,416) Increase in inventories.................. (2,291) (8,549) Decrease in accounts payable and accrued expenses................................ (3,015) (351) Increase in income taxes payable......... 3,606 2,584 Other changes, net....................... (3,009) (1,037) Net cash provided by operating activities..... 1,680 2,134 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.......................... (12,627) (8,474) Proceeds from the sale of marketable securities....................... 6,028 8,356 Purchases of marketable securities............ (4,862) (8,793) Disposition of property and equipment......... 635 71 Additions to investments...................... (8) (786) Collections of notes receivable............... 320 176 Net cash used in investing activities......... (10,514) (9,450) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in notes payable................. 3,498 3,964 Proceeds of long-term debt.................... 3,240 3,230 Repayments of long-term debt.................. (319) (131) Dividends paid................................ (1,676) (1,676) Net cash provided by financing activities..... 4,743 5,387 EFFECT OF EXCHANGE RATE CHANGES ON CASH......... 197 66 NET DECREASE IN CASH AND EQUIVALENTS............ (3,894) (1,863) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD..... 10,359 1,908 CASH AND EQUIVALENTS AT END OF PERIOD........... $ 6,465 $ 45 Supplemental cash flow disclosure: 1995 1994 Interest paid................................. $ 1,016 $ 654 Income taxes paid............................. 2,968 1,429 See accompanying notes. 6 PITTWAY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Unaudited) Note 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of Pittway Corporation and its majority-owned subsidiaries (the "Company" or "Registrant"). Summarized financial information for the limited real estate partnership ventures and other affiliates is omitted because, when considered in the aggregate, they do not constitute a significant subsidiary. The accompanying consolidated financial statements are unaudited but reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial statements contained herein. However, the financial statements and related notes do not include all disclosures normally provided in the Company's Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Note 2. Marketable Securities Information about the Company's available-for-sale securities at March 31, 1995 and December 31, 1994 is as follows: March 31, December 31, 1995 1994 Adjustable Rate Preferred Stocks - Aggregate cost $ 38,055 $ 39,396 Net unrealized holding loss (4,788) (5,083) Aggregate fair value $ 33,267 $ 34,313 In March 1994, the Company reduced its 16.67% ownership holdings in First Alert, Inc. by selling 1,355,000 of its 1,550,000 shares in connection with an initial public offering of First Alert, Inc. common stock. The sale of the shares resulted in a pretax gain of $17,051. The Company sold its remaining 195,000 shares in April 1994, resulting in a pretax gain of $2,455. The $24,506 proceeds from the two sales were received in April 1994. Prior to the initial public offering, the Company's equity investment in First Alert, Inc. was recorded at a cost of $5 million. Realized gains and losses are based upon the specific identification method. Information about the Company's sales transactions of available- for-sale securities for the three months ended March 31 is as follows: 7 1995 1994 Cash proceeds $ 6,028 $ 8,356 Realized gains - First Alert $ 17,051 Other $ 79 $ 180 Realized losses $ 253 $ 6 Note 3. Inventories Inventories consist of the following: March 31, December 31, 1995 1994 Raw materials $ 33,472 $ 32,520 Work in process 12,366 11,653 Finished goods - Manufactured by the Company 46,015 43,096 Manufactured by others 38,995 37,794 Total 130,848 125,063 Less LIFO reserve (352) (262) $130,496 $124,801 Note 4. Earnings per Share Net income per share of common capital stock is based on the combined weighted average number of Common and Class A shares outstanding during each period and does not include Class A shares issuable upon exercise of stock options because the dilutive effect is not significant. Note 5. Legal Proceedings In 1989 a judgment was entered against Saddlebrook Resorts, Inc. ("Saddlebrook"), a former subsidiary of the Company, in a lawsuit which arose out of the development of Saddlebrook's resort and a portion of the adjoining residential properties owned and currently under development by the Company. The lawsuit alleged damage to plaintiffs' adjoining property caused by surface water effects from improvements to the properties. Damages of approximately $8 million were awarded to the plaintiffs and an injunction was entered requiring, among other things, that Saddlebrook work with local regulatory authorities to take corrective actions. In 1990 the trial court entered an order vacating the judgment and awarding a new trial. On remand to the trial court, Saddlebrook's motion for summary judgment, on the ground that plaintiffs' claims were fully retried and rejected in a related administrative proceeding, was granted in December 1994. Plaintiffs have appealed the trial court's decision granting summary judgment based on collateral estoppel. The Company believes that the ultimate outcome of the aforementioned lawsuit will not have a material adverse effect on its financial statements. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales increased 25% over the first quarter of 1994 due to higher sales in both the alarm and publishing segments. Domestic sales increased 23%. International sales, representing approximately 10% of total consolidated sales, increased 37%. Gross profit grew at a slower rate than sales, 21%, due to higher costs described below and to a higher sales contribution from the alarm distribution business which has a lower gross profit level than the other operations. Selling, general and administrative expenses increased 22% primarily due to increased costs associated with the expanded sales volume. Alarm product sales increased 28% to $171.3 million due to a combination of overall market growth and, more significantly, increased market share. The latter has resulted from growing customer preference for the service and convenience offered by the Company's distribution business and for numerous new products introduced by the Company's manufacturing units in recent years. The success of the distribution business was partly aided by operating difficulties experienced by a major competitor. Operating income for the segment increased 23.5% to $13.2 million primarily because of the expanded sales volume partially offset by costs of new product development expenses. Publishing sales rose 15% to $49.1 million due to a modest increase in advertising pages and page rates and to an increase in ancillary operations, including a direct mail production company which was purchased in the 1994 third quarter. Operating income decreased 5.4% to $2.8 million primarily as a result of large paper and postage cost increases in 1995 and the inclusion in 1994 of profits from a bi-annual directory. Included in other income in 1994 is a $17.1 million pretax gain on the sale of 1,355,000 shares of First Alert, Inc. common stock which were included in an initial public offering. Excluding the gain on sale of investment, which amounted to $10.2 million after taxes or $.74 per share, other income was less favorable in 1995 due to increased interest expense on a higher level of debt, reduced earnings on the sale of marketable securities and a net loss from investment in 1995 versus income in 1994. The unfavorable swing in earnings from investments is primarily attributable to the results of a 45%-owned affiliate which recorded a loss in 1995 due to large new product development expenses versus income in 1994. The effective tax rate decreased from 40% in 1994 to 37% in 1995 primarily due to an overall lower tax rate on increased earnings at the foreign operations. 9 FINANCIAL CONDITION The Company's financial condition remained strong through the first quarter of 1995. Management anticipates that operations, borrowings and marketable securities will continue to be the primary source of funds needed to meet ongoing programs for capital expenditures, to finance acquisitions and investments and to pay dividends. In the 1995 first quarter, the primary sources of the $1.7 million cash provided by operations were profits before depreciation and amortization. Such cash generated was largely used to finance the net increase in working capital items. The remaining cash generated from operations, along with a $6.4 million net increase in debt and $2.1 million net proceeds from marketable securities and other investing transactions, were used principally for capital expenditures of $12.6 million and dividends of $1.7 million. The Company is continually investigating investment opportunities for growth in related areas and is presently committed to invest approximately $7.5 million in certain affordable housing ventures through 1997. The Company has real estate investments in various limited partnerships with interests in commercial rental properties which may be sold or turned over to lenders due to the present weak commercial real estate market. The Company's income tax liability accounts include approximately $15 million at March 31, 1995 to fully cover the tax payments that would be due if properties are sold or returned to the lenders and such events would have no effect on net income. Any such tax payments would negatively impact the Company's cash position. Although no payments have been made through March 31, 1995, it is expected that approximately $6.4 million will be paid for the tax year 1995. 10 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 10, 1989, the Circuit Court of the Sixth Judicial Circuit in and for Pasco County, Florida, entered a judgment against Saddlebrook Resorts, Inc. ("Saddlebrook"), a former subsidiary of the Company, in a lawsuit which arose out of the development of Saddlebrook's resort and a portion of the adjoining residential properties owned and currently under development by the Company. The lawsuit (James H. Porter and Martha Porter, Trustees, et al. vs. Saddlebrook Resorts, Inc. and The County of Pasco, Florida; Case No. CA83-1860), alleges damage to plaintiffs' adjoining property caused by surface water effects from improvements to the properties. Damages of approximately $8 million were awarded to the plaintiffs and an injunction was entered requiring, among other things, that Saddlebrook work with local regulatory authorities to take corrective actions. Saddlebrook made two motions for a new trial, based on separate grounds. One such motion was granted on December 18, 1990. Such grant was appealed by the plaintiffs. The other such motion was denied on February 28, 1991. Saddlebrook appealed such denial. The appeals were consolidated, fully briefed and heard in February 1992. Saddlebrook received a favorable ruling on March 18, 1992, dismissing the judgment and remanding the case to the Circuit Court for a new trial. An agreed order has been entered by the Court preserving the substance of the injunction pending final disposition of this matter. As part of its plan to comply with the agreed order, Saddlebrook filed applications with the regulatory agency to undertake various remediation efforts. Plaintiffs, however, filed petitions for administrative review of the applications, which administrative hearing was concluded in February 1992. On March 31, 1992, the hearing officer issued a recommended order accepting Saddlebrook's expert's testimony. The agency's governing board was scheduled to consider this recommended order on April 28, 1992, however, shortly before the hearing, the plaintiffs voluntarily dismissed their petitions and withdrew their challenges to the staff's proposal to issue a permit. At the April 28, 1992 hearing the governing board closed its file on the matter and issued the permits. Saddlebrook appealed the board's refusal to issue a final order. On July 9, 1993 a decision was rendered for Saddlebrook remanding jurisdiction to the governing board for further proceedings, including entry of a final order which was issued on October 25, 1993. The plaintiffs have appealed the Appellate Court decision to the Florida Supreme Court and appealed the issuance of the final order to the Second District Court of Appeals. The Florida Supreme Court heard the appeal on May 3, 1994 and denied plaintiffs' appeal. The other appeal was voluntarily dismissed by the plaintiffs on June 17, 1994. On remand to the trial court, Saddlebrook's motion for summary judgment, on the ground that plaintiffs' claims were fully retried and rejected in a related administrative proceeding was granted on December 7, 1994. Plaintiffs filed for a rehearing which was denied. Plaintiffs have appealed the trial court's granting of summary judgment based on collateral estoppel. 11 Until October 14, 1989, Saddlebrook disputed responsibility for ultimate liability and costs (including costs of corrective action). On that date, the Company and Saddlebrook entered into an agreement with regard to such matters. The agreement, as amended and restated on July 16, 1993, provides for the Company and Saddlebrook to split equally the costs of the defense of the litigation and the costs of certain related litigation and proceedings, the costs of the ultimate judgment, if any, and the costs of any mandated remedial work. Subject to certain conditions, the agreement permits Saddlebrook to obtain subordinated loans from the Company to enable Saddlebrook to pay its one-half of the costs of the latter two items. No loans have been made to date. The Company believes that the ultimate outcome of the aforementioned lawsuit will not have a material adverse effect on its financial statements. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Number Description 27 Financial Data Schedule (submitted only in electronic format) (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. 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 thereunto duly authorized. PITTWAY CORPORATION (Registrant) By /s/ Paul R. Gauvreau Paul R. Gauvreau Financial Vice President and Treasurer (Duly Authorized Officer and Principal Financial Officer) Date: May 3, 1995 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 MAR-31-1995 6,465 33,267 154,519 7,318 130,496 349,029 195,955 98,998 581,124 176,437 7,609 13,941 0 0 321,523 581,124 220,404 220,404 134,546 134,546 5,073 859 961 13,832 5,112 8,720 0 0 0 8,720 .63 .63
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