-----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, GkeRSYMzR/Z7S4jfIQtXwtIZErfZzgbv6+FNAPht/yHPEzYOzNguZOGsG+zTTl0l LiCdh7nADdsmOs/2EydDNg== 0000093469-95-000006.txt : 19951101 0000093469-95-000006.hdr.sgml : 19951101 ACCESSION NUMBER: 0000093469-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951031 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: 95586081 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 SEPTEMBER 30, 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 September 30, 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 (October 1, 1995). Common Stock 2,626,024 Class A Stock 11,314,700 PITTWAY CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1995 INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Statement of Income - Three Months and Nine Months Ended September 30, 1995 and 1994 3 Consolidated Balance Sheet - September 30, 1995 and December 31, 1994 4 - 5 Consolidated Statement of Cash Flows - Nine Months Ended September 30, 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 AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Dollars in Thousands, Except Per Share Data) (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Net Sales............................ $239,131 $202,026 $694,855 $567,789 Operating Expenses: Cost of sales....................... 149,867 124,486 428,995 345,427 Selling, general and administrative. 69,400 58,946 205,228 170,666 Depreciation and amortization....... 5,417 5,226 15,844 15,077 224,684 188,658 650,067 531,170 Operating Income..................... 14,447 13,368 44,788 36,619 Other Income (Expense): Gain on sale of investment.......... 19,506 Income from marketable securities and other interest................. 674 913 2,058 2,872 Interest expense.................... (1,631) (1,053) (4,095) (2,513) Income from investments............. 332 (168) 747 1,114 Miscellaneous, net.................. 606 439 1,844 1,280 (19) 131 554 22,259 Income Before Income Taxes........... 14,428 13,499 45,342 58,878 Provision For Income Taxes........... 5,248 5,203 16,712 23,217 Net Income........................... $ 9,180 $ 8,296 $ 28,630 $ 35,661 Net Income Per Share of Common and Class A Stock....................... $ .66 $ .60 $ 2.06 $ 2.56 Cash Dividends Declared Per Share: Common.............................. $ .10 $ .10 $ .30 $ .30 Class A............................. $ .125 $ .125 $ .375 $ .375 Average Number of Shares Outstanding (in thousands)...................... 13,941 13,941 13,941 13,941 See accompanying notes. 3 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Dollars in Thousands) (UNAUDITED) September 30, December 31, 1995 1994 ASSETS CURRENT ASSETS: Cash and equivalents................... $ 3,470 $ 10,359 Marketable securities.................. 26,364 34,313 Accounts and notes receivable, less allowance for doubtful accounts of $8,455 and $6,348.................... 167,455 137,747 Inventories............................ 165,331 124,801 Future income tax benefits............. 18,204 17,879 Prepayments, deposits and other........ 13,958 11,805 394,782 336,904 PROPERTY, PLANT AND EQUIPMENT, at cost: Buildings.............................. 24,913 24,769 Machinery and equipment................ 182,119 157,061 207,032 181,830 Less: Accumulated depreciation......... (106,052) (94,426) 100,980 87,404 Land................................... 2,369 2,369 103,349 89,773 INVESTMENTS: Real estate and other ventures......... 55,428 56,261 Leveraged leases....................... 22,525 22,752 77,953 79,013 OTHER ASSETS: Goodwill, less accumulated amortization of $8,211 and $7,193.... 48,285 40,935 Other intangibles, less accumulated amortization of $10,126 and $9,597... 5,654 6,256 Notes receivable....................... 7,595 4,370 Miscellaneous.......................... 6,219 6,036 67,753 57,597 $643,837 $563,287 See accompanying notes. 4 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Dollars in Thousands) (UNAUDITED) September 30, December 31, 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable........................... $ 92,542 $ 46,232 Long-term debt due within one year...... 3,078 5,184 Dividends payable....................... 1,764 1,758 Accounts payable........................ 71,489 58,246 Accrued expenses........................ 42,245 41,391 Income taxes payable.................... 5,015 10,093 Retirement and deferred compensation plans.................... 1,665 1,148 Unearned income......................... 3,450 5,797 221,248 169,849 LONG-TERM DEBT, less current maturities... 8,764 5,088 DEFERRED LIABILITIES: Income taxes............................ 48,955 54,158 Other................................... 11,476 6,062 60,431 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....................... 315,355 291,756 Cumulative marketable securities valuation adjustment.................. (1,552) (3,050) Cumulative foreign currency translation adjustment............................ (2,698) (2,865) 353,394 328,130 $643,837 $563,287 See accompanying notes. 5 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Dollars in Thousands) (UNAUDITED) 1995 1994 Cash Flows From Operating Activities: Net Income....................................... $ 28,630 $ 35,661 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 15,844 15,077 Gain on sale of investment, net of taxes....... (11,776) Deferred income taxes.......................... (6,526) 1,426 Retirement and deferred compensation plans..... 5,270 1,635 Income/loss from investments adjusted for cash distributions received................... 1,027 (888) Provision for losses on accounts receivable.... 3,135 2,222 Change in assets and liabilities, excluding effects from acquisitions, disposition and foreign currency adjustments: Increase in accounts receivable............. (25,556) (23,129) Increase in inventories..................... (33,142) (18,536) Increase in accounts payable and accrued expenses....................... 7,837 11,632 (Decrease) increase in income taxes payable.............................. (4,846) 5,724 Other changes, net.......................... (10,361) (3,430) Net cash (used in) provided by operations........ (18,688) 15,618 Cash Flows From Investing Activities: Capital expenditures............................. (29,865) (22,916) Proceeds from the sale of investment, net of taxes of $9,730................................. 14,776 Proceeds from the sale of marketable securities.. 16,034 27,949 Purchases of marketable securities............... (5,846) (35,933) Disposition of property and equipment............ 1,899 1,144 Additions to investments......................... (52) (7,546) Net assets of businesses acquired, net of cash... (7,565) (1,444) Disposition of business.......................... 177 Net increase in notes receivable................. (2,793) (46) Net cash used in investing activities............ (28,011) (24,016) Cash Flows From Financing Activities: Net increase in notes payable.................... 46,305 15,021 Proceeds of long-term debt....................... 3,197 3,614 Repayments of long-term debt..................... (4,743) (5,372) Dividends paid................................... (5,025) (5,032) Net cash provided by financing activities........ 39,734 8,231 Effect of Exchange Rate Changes on Cash ........... 76 199 (Decrease) Increase in Cash and Equivalents........ (6,889) 32 Cash and Equivalents at Beginning of Period........ 10,359 1,908 Cash and Equivalents at End of Period.............. $ 3,470 $ 1,940 See accompanying notes. ============================================================================= Supplemental cash flow disclosure: 1995 1994 Interest paid.................................... $ 4,081 $ 2,597 Income taxes paid................................ 28,150 18,138 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. Certain prior year amounts in the consolidated statement of cash flows have been reclassified to conform to the current year classification. 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. Acquisitions and Disposition During the first nine months of 1995, the Company acquired a 100% interest in a foreign manufacturer of commercial intrusion alarms and control panels and the assets and business of a domestic manufacturer of residential burglar/fire alarm controls for $7,565 cash and $3,089 in notes. The acquisitions were accounted for as purchase transactions in the consolidated financial statements from their respective dates of acquisition. Their impact on consolidated results of operations was not significant. During the 1995 second quarter, the Company sold its 51% interest in a business offering seminars and other business training programs to its minority stockholders for $177 cash and a $177 note due in one year. No significant gain or loss resulted from the sale. Operating results were included in the consolidated financial statements to the date of disposition. Note 3. Marketable Securities At September 30, 1995 and December 31, 1994, marketable securities consisted of adjustable rate preferred stocks, which had gross unrealized holding losses of $2,587 and $5,083, respectively. Realized gains and losses are based upon the specific identification method. During the first nine months of 1995 and 1994, such gains amounted to $198 and $330, respectively, and losses amounted to $453 and $76, respectively. 7 In connection with an initial public offering of First Alert, Inc. common stock in 1994, the Company sold its 16.67% ownership in First Alert, Inc. The sale of the shares resulted in a pretax gain of $19,506. The $24,506 pre-tax proceeds from the sale 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. Note 4. Inventories Inventories consist of the following: September 30, December 31, 1995 1994 Raw materials $ 39,886 $ 32,520 Work in process 17,460 11,653 Finished goods - Manufactured by the Company 56,472 43,096 Manufactured by others 52,440 37,794 Total 166,258 125,063 Less LIFO reserve (927) (262) $165,331 $124,801 Note 5. 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 6. 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. In December 1994, Saddlebrook's motion for summary judgment based on collateral estoppel was granted on the ground that Plaintiffs' claims were fully retried and rejected in a related administrative proceeding. Plaintiffs have appealed the trial court's decision granting summary judgment. 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 For the third quarter of 1995, sales increased 18% due to higher alarm segment sales. For the first nine months of 1995, sales increased 22% due to higher sales in both the alarm and publishing segments. On a year-to- date basis, domestic sales increased 20% and international sales, representing approximately 11% of total consolidated sales, increased 38%. Cost of sales grew at a higher rate than sales due to factors noted below. Selling, general and administrative expenses increased 18% over the third quarter and 20% over the first nine months of 1994 primarily due to increased costs associated with the expanded sales volume and to higher deferred compensation expense resulting from the significant increase in the price of the Company's stock during the third quarter. Alarm product sales increased 24% to $196.4 million for the quarter and 26% to $550.5 million year-to-date 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 has been partly aided by the bankruptcy of a major competitor. Operating income for the segment increased 3% to $13.8 million for the quarter and 19% to $40.2 million year-to-date primarily because of the expanded sales volume partially offset by costs associated with the development and introduction of new products. For the quarter, publishing sales declined 1% to $42.3 million and operating income declined 6% to $1.6 million as a result of the sale of a seminar and other training programs business in the second quarter of 1995. Excluding the results of this ancillary business, publishing sales increased 10% and operating income increased 6%. On a year-to-date basis, publishing sales increased 10% to $144.0 million and operating income increased 12% to $9.0 million. Excluding the year-to-date results of seminar business, publishing sales increased 13% and operating income increased 16%. The increase in sales of the segment's present operations was due primarily to higher magazine revenues. The increase in profits generated from the increase in advertising pages and page rates was partially offset by significantly higher paper and postage costs. Included in other income in 1994 is a $19.5 million pretax gain on the sale of First Alert, Inc. common stock recorded in the first half of the year. Excluding the gain on sale of investment, other income was less favorable in 1995 primarily due to increased interest expense on a higher level of debt and reduced income from marketable securities. Earnings from affiliates and from other long-term investments was higher in the 1995 third quarter than the comparable period in 1994 due to cash distributions received from real estate limited partnerships. Earnings from affiliates and other long-term investments was lower in the first nine months of 1995 9 because of reduced income from leveraged leases and the unfavorable results of a 45%-owned affiliate which recorded a loss in 1995 due to large product development expenses. Partially offsetting this affiliate loss in 1995 were cash distributions from real estate limited partnerships totaling $1.5 million. The effective tax rates for the 1995 periods presented decreased approximately two percentage points from 1994 periods primarily due to the benefit of certain foreign tax credits along with an overall lower effective tax rate on increased earnings at the foreign locations. FINANCIAL CONDITION The Company's financial condition remained strong through the third 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. Through the first nine months of 1995, the primary source of cash provided by operations was profits before depreciation and amortization. Such cash generated from operations, along with a $45 million net increase in debt and $10 million net proceeds from marketable securities, was used to finance the $63 million net increase in working capital items and to pay approximately $30 million for capital expenditures, $8 million to acquire new businesses and $5 million in dividends. 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 either have been or may be sold or turned over to lenders due to the present weak commercial real estate market. Such events have no effect on net income although they do have a negative impact on the Company's cash position because significant tax payments become due when the properties are sold or returned to the lenders. After paying $9 million through the first nine months of 1995, the Company has approximately $6 million accrued at September 30, 1995 to fully cover the remaining tax payments that would be due if all the properties are sold or returned to the lenders. It is now expected that substantially all of the remaining $6 million will be paid during the remainder of 1995 and during 1996. 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 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, based on collateral estoppel 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. 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: October 31, 1995 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 9-MOS DEC-31-1995 SEP-30-1995 3,470 26,364 175,910 8,455 165,331 394,782 209,401 106,052 643,837 221,248 8,764 13,941 0 0 339,453 643,837 694,855 694,855 428,995 428,995 15,844 3,135 4,095 45,342 16,712 28,630 0 0 0 28,630 2.06 2.06
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