-----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, EwcJcdX8bNhlOoj+g9oAJnBVHCSoVCkfKAz6WfXt2a+VC8tzpw33VN2F5KRl9nKU 4MwgiqZxbD7dVV6e6blWjA== 0000093469-97-000008.txt : 19970804 0000093469-97-000008.hdr.sgml : 19970804 ACCESSION NUMBER: 0000093469-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970801 SROS: NYSE 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: 97649972 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 JUNE 30, 1997 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 June 30, 1997 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 (July 21, 1997). Common Stock 3,938,832 Class A Stock 17,045,519 PITTWAY CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1997 INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Statement of Income - Three and Six Months Ended June 30, 1997 and 1996 3 Consolidated Balance Sheet - June 30, 1997 and December 31, 1996 4 - 5 Consolidated Statement of Cash Flows - Six Months Ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 - 9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 12 - 14 ITEM 4. Submission of Matters to a Vote of Security Holders 14 ITEM 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 2 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited; Dollars in Thousands, Except Per Share Data) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 NET SALES............................ $339,213 $272,361 $640,371 $529,838 OPERATING EXPENSES: Cost of sales....................... 206,071 165,901 390,162 323,538 Selling, general and administrative. 96,155 78,292 183,853 153,901 Depreciation and amortization....... 8,525 7,069 16,941 13,879 310,751 251,262 590,956 491,318 OPERATING INCOME..................... 28,462 21,099 49,415 38,520 OTHER INCOME (EXPENSE): Gain on sale of investment.......... 13,162 Gain from Cylink stock offering..... (153) 23,279 Income from marketable securities, investments and other interest.... 1,592 944 3,107 1,777 Interest expense.................... (3,221) (2,055) (5,835) (4,045) Miscellaneous, net.................. (213) 257 (291) 444 (1,842) (1,007) (3,019) 34,617 INCOME BEFORE INCOME TAXES........... 26,620 20,092 46,396 73,137 PROVISION FOR INCOME TAXES........... 10,022 7,562 17,502 27,319 NET INCOME........................... $ 16,598 $ 12,530 $ 28,894 $ 45,818 NET INCOME PER SHARE OF COMMON AND CLASS A STOCK...................... $ .79 $ .60 $ 1.38 $ 2.19 CASH DIVIDENDS DECLARED PER SHARE: Common............................. $ .067 $ .067 $ .133 $ .133 Class A............................ $ .083 $ .083 $ .167 $ .167 AVERAGE NUMBER OF SHARES OUTSTANDING (in thousands)..................... 20,981 20,921 20,970 20,916 See accompanying notes. 3 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1997 AND DECEMBER 31, 1996 (Unaudited; Dollars in Thousands) June 30, December 31, 1997 1996 ASSETS CURRENT ASSETS: Cash and equivalents................... $ 15,170 $ 32,409 Marketable securities.................. 19,287 26,026 Accounts and notes receivable, less allowance for doubtful accounts of $11,042 and $9,670................... 227,108 208,182 Inventories............................ 231,355 203,254 Future income tax benefits............. 18,199 19,358 Prepayments, deposits and other........ 14,921 10,287 526,040 499,516 PROPERTY, PLANT AND EQUIPMENT, at cost: Buildings.............................. 44,226 43,413 Machinery and equipment................ 251,747 224,268 295,973 267,681 Less: Accumulated depreciation......... (148,128) (132,867) 147,845 134,814 Land................................... 2,720 2,787 150,565 137,601 INVESTMENTS: Marketable securities.................. 31,196 37,814 Investment in affiliate................ 32,178 31,183 Real estate and other ventures......... 39,599 39,242 Leveraged leases....................... 19,203 19,515 122,176 127,754 OTHER ASSETS: Goodwill, less accumulated amortization of $10,979 and $9,707... 88,147 54,068 Other intangibles, less accumulated amortization of $10,882 and $10,668.. 4,972 5,022 Notes receivable....................... 10,567 8,070 Miscellaneous.......................... 6,985 7,062 110,671 74,222 $909,452 $839,093 See accompanying notes. 4 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1997 AND DECEMBER 31, 1996 (Unaudited; Dollars in Thousands) June 30, December 31, 1997 1996 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable........................... $ 93,573 $ 46,525 Long-term debt due within one year...... 5,711 3,933 Dividends payable....................... 1,717 1,724 Accounts payable........................ 97,545 102,077 Accrued expenses........................ 59,519 53,937 Income taxes payable.................... 5,728 5,685 Retirement and deferred compensation plans.................... 9,202 6,782 Unearned income......................... 3,503 3,538 276,498 224,201 LONG-TERM DEBT, less current maturities... 91,142 87,916 DEFERRED LIABILITIES: Income taxes............................ 62,865 65,738 Other................................... 12,445 14,366 75,310 80,104 STOCKHOLDERS' EQUITY: Preferred stock, none issued............ Common capital stock, $1 par value- Common stock.......................... 3,939 3,939 Class A stock......................... 17,045 16,987 Capital in excess of par value.......... 24,300 21,714 Retained earnings....................... 417,282 391,753 Cumulative marketable securities valuation adjustment.................. 9,218 12,453 Cumulative foreign currency translation adjustment............................ (5,282) 26 466,502 446,872 $909,452 $839,093 See accompanying notes. 5 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30 1997 AND 1996 (Unaudited; Dollars in Thousands) 1997 1996 Cash Flows From Operating Activities: Net Income....................................... $ 28,894 $ 45,818 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 16,941 13,879 Gain on sale of investment, net of taxes....... (8,149) Gain from Cylink stock offering, net of taxes.. (14,413) Deferred income taxes.......................... 442 (889) Retirement and deferred compensation plans..... 1,889 3,282 Income/loss from investments adjusted for cash distributions received............... (1,090) (232) Provision for losses on accounts receivable.... 2,296 2,443 Change in assets and liabilities, excluding effects from acquisitions, dispositions and foreign currency adjustments: Increase in accounts and notes receivable.... (18,986) (13,598) Increase in inventories...................... (26,869) (18,969) Increase in prepayments and deposits......... (4,034) (2,764) Decrease in accounts payable and accrued expenses................................... (4,571) (1,271) Increase in income taxes payable............. 324 131 Other changes, net............................. (1,495) (131) Net cash (used) provided by operating activities. (6,259) 5,137 Cash Flows From Investing Activities: Capital expenditures............................. (29,434) (18,984) Proceeds from sale of investment, net of taxes... 10,748 Proceeds from the sale of marketable securities.. 21,453 7,640 Purchases of marketable securities............... (13,298) (5,900) Disposition of property and equipment............ 230 486 Additions to investments......................... (5) (566) Increase in notes receivable..................... (2,435) (2,077) Net assets of businesses acquired, net of cash... (34,676) (3,065) Net cash used by investing activities............ (58,165) (11,718) Cash Flows From Financing Activities: Net increase in notes payable.................... 47,918 608 Proceeds of long-term debt....................... 8,042 74 Repayments of long-term debt..................... (6,092) (2,320) Stock options exercised.......................... 906 Dividends paid................................... (3,372) (3,386) Net cash provided (used) by financing activities. 47,402 (5,024) Effect of Exchange Rate Changes on Cash............ (217) 15 Net Decrease in Cash and Equivalents............... (17,239) (11,590) Cash and Equivalents at Beginning of Period........ 32,409 31,407 Cash and Equivalents at End of Period.............. $ 15,170 $ 19,817 See accompanying notes. 6 PITTWAY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited; Dollars in Thousands) 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, 1996. NOTE 2. ACQUISITIONS In the first six months of 1997, the Company acquired the assets and businesses of a domestic manufacturer and distributor of fire controls, a foreign distributor of alarm and other security products and a producer of trade shows and conferences. The total purchase price for these businesses was $34,676 cash and $4,453 in deferred payouts through 2002. These acquisitions were accounted for as purchase transactions in the consolidated financial statements from their respective dates of acquisition. The impact on consolidated results of operations was not significant. NOTE 3. INVENTORIES The recorded value of inventories at June 30, 1997 and December 31, 1996 approximate current cost and consist of the following: 1997 1996 Raw materials $ 58,701 $ 41,568 Work in process 18,930 19,560 Finished goods - Manufactured by the Company 85,066 69,020 Manufactured by others 68,658 73,106 $231,355 $203,254 7 NOTE 4. MARKETABLE SECURITIES Information about the Company's marketable securities at June 30, 1997 and December 31, 1996 is as follows: 1997 1996 Current - Adjustable Rate Preferred Stocks - Aggregate cost $ 19,806 $ 27,937 Net unrealized holding loss (519) (1,911) Aggregate fair value $ 19,287 $ 26,026 Non-Current - USSB Common Stock - Aggregate cost $ 15,789 $ 15,789 Unrealized holding gain 15,407 22,025 Aggregate fair value $ 31,196 $ 37,814 In February 1996, the Company sold 13% of its investment in United States Satellite Broadcasting Company, Inc. (USSB) as part of an initial public offering of USSB's common stock. The sale of the shares resulted in an after-tax gain of $8,149, or $.39 per share. Realized gains and losses are based upon the specific identification method. Such gains and losses on the adjustable rate preferred stock, for the six months ended June 30, 1997 and 1996 were not significant. NOTE 5. INVESTMENT IN AFFILIATE The investment in affiliate consists of the Company's interest in Cylink Corporation (Cylink), which is carried at equity. The carrying value of this investment was increased by $23,279 in the first half of 1996 to reflect the increase in the Company's equity in Cylink's net book value as a result of an initial public offering in February 1996. The after-tax gain recorded on the increase in Cylink's equity was $14,413, or $.69 per share. The quoted market value of the Company's investment in Cylink was $97,894 at June 30, 1997. NOTE 6. 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 or for other stock awards because the dilutive effect is not significant. 8 NOTE 7. 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 developed 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 appealed the trial court's decision granting summary judgment. In August 1996, the appellate court affirmed all but three issues in the trial court's summary judgment order in favor of Saddlebrook. A hearing took place on May 15, 1997 to determine the scope of the three issues remaining for retrial. The trial court's ruling is expected in August 1997 and the retrial is expected to begin in early 1998. The Company believes that the ultimate outcome of the aforementioned lawsuit will not have a material adverse effect on its financial statements. The Company in the normal course of business is subject to a number of lawsuits and claims both actual and potential in nature including a lawsuit claiming patent infringement that is scheduled for trial in 1997. While management believes that resolution of the patent infringement suit and other existing claims and lawsuits will not have a material adverse effect on the Company's financial statements, management is unable to estimate the magnitude of financial impact of claims and lawsuits which may be filed in the future. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the second quarter and first six months of 1997, sales increased 25% to $339.2 million and 21% to $640.4 million over the respective periods in 1996. These increases reflect higher sales levels in the Company's alarm group segment and to a lesser extent the publishing segment. Domestic and international sales each grew 25% for the quarter and 21% for the first six months. International business relates to the alarm group segment and represents 14% of total consolidated sales for both 1997 and 1996. Most of the foreign sales growth in 1997 is from expansion of European operations. Gross profit increased at about the same rate as sales. Selling, general and administrative expenses increased 23% in the second quarter and 19% in the first half of 1997 primarily as a result of increased costs associated with the higher sales volume. 9 Alarm Group sales for the quarter increased 27% to $285.2 million and for the first six months increased 23% to $537.7 million accounting for 84% of consolidated revenues in 1997 versus 82% in 1996. This growth was due to continuing gains in market share in key product areas and ongoing expansion in the worldwide alarm systems market. Late in 1996, the Company received significant equipment and distribution commitments from two large installation companies, which are beginning to be reflected in the Company's results. Operating income for this segment increased 31% and 23% for the second quarter and first half, respectively, primarily because of the expanded sales volume. In addition, depreciation expense increased at a lower rate than sales in the second quarter. Publishing sales for the quarter and year-to-date grew to $54.1 million and $102.7 million representing 12% and 10% increases over the same periods in 1996. Operating income increased 42% to $8.5 million for the second quarter and 44% to $13.4 million for the first six months of 1997. These favorable results were achieved through a combination of increased revenues, including a newly acquired trade show held in the second quarter, and stable operating costs. There was also some benefit in 1997 from lower paper prices compared to the second quarter and first half of 1996. Depreciation and amortization expense increased 21% in the second quarter and 22% for the first six months, mainly as a result of capital additions in the alarm segment. Other income (expense) in the first six months of 1996 included a pretax gain of $13.2 million on the sale of 622,500 shares of USSB stock in connection with its initial public offering and a pretax gain of $23.3 million on the increase in the book value of the Company's investment in Cylink resulting from its initial public offering. Excluding these gains, other income (expense) was less favorable for the quarter and year-to-date due to increased interest expense from higher borrowing levels partially offset by increased earnings recorded on the Company's investments. Effective tax rates were 37.6% for the second quarter of 1997 and 1996 and 37.7% and 37.4% for the first six months of 1997 and 1996, respectively. ACCOUNTING CHANGES In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (EPS). The statement replaces primary EPS with basic EPS, which excludes dilution, and requires presentation of both basic and diluted EPS on the face of the income statement. Diluted EPS is computed similarly to the current fully diluted EPS. The statement is effective for financial statements issued for periods ending after 10 December 15, 1997, and requires restatement of all prior-period EPS data presented. The adoption of this statement is not expected to materially affect either current or prior-period EPS. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". The statement requires the addition of comprehensive income and its components in the primary financial statements. Comprehensive income includes cumulative foreign currency translation adjustments and unrealized investment gains and losses, which are not included in income under current accounting principles. The statement is effective for fiscal years beginning after December 15, 1997, and requires comparative amounts in financial statements for earlier periods presented. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The statement requires the Company to report financial and descriptive information about its reportable segments, determined using the management approach (i.e. internal management reporting), in interim and year-end financial statements. The statement is effective for fiscal years beginning after December 15, 1997. The Company has not yet determined the impact that SFAS No. 130 and No. 131 will have on its financial statements. FINANCIAL CONDITION The Company's financial condition remained strong during the first six months of 1997. 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 first six months of 1997, income before depreciation and amortization provided $45.8 million of net cash which was used, in addition to $6.3 million of cash, to finance the net increase in working capital items including a $26.9 million increase in inventory balances and a $19.0 million increase in accounts receivable. Three acquisitions were completed in the period which were financed through $34.7 million of short term borrowings. Additional net short term borrowings of $13.2 million, $8.2 million of net proceeds from the sale of marketable securities, $2.0 million of net long term borrowings, $0.9 million of proceeds from the exercise of stock options and $10.9 million of cash were used to fund $29.4 million in capital expenditures, $3.4 million of dividends paid to stockholders, and a net increase of $2.4 million in notes receivable. The Company continually investigates investment opportunities for growth in related areas and is presently committed to invest up to $11.1 million in certain affordable housing ventures through 2003. 11 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 weak commercial real estate market of the past several years. Such events have no effect on net income although they do have a negative impact on the Company's cash position because tax payments become due when the properties are sold or returned to the lenders. The Company has approximately $4.3 million accrued at June 30, 1997 to fully cover the remaining tax payments that would be due if all the properties were sold or returned to the lenders. The Company presently intends to hold its existing investments in preferred stocks, USSB and Cylink although occasional sales of preferred and USSB stocks may be made selectively as conditions warrant. **** This quarterly report, other than historical financial information, contains forward-looking statements that involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in Item 1 of the Company's annual report on Form 10-K for the year ended December 31, 1996. These include risks and uncertainties relating to government regulation, competition and technological change, intellectual property rights, capital spending, international operations, and the Company's acquisition strategies. 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 developed 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 12 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 appealed the trial court's decision granting summary judgment. In August 1996, the appellate court affirmed all but three issues in the trial court's summary judgment order in favor of Saddlebrook. A hearing took place on May 15, 1997 to determine the scope of the three issues remaining for retrial. The trial court's ruling is expected in August 1997 and retrial is expected to begin in early 1998. 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. 13 The Company believes that the ultimate outcome of the aforementioned lawsuit will not have a material adverse effect on its financial statements. The Company in the normal course of business is subject to a number of lawsuits and claims both actual and potential in nature including a lawsuit claiming patent infringement that is scheduled for trial in 1997. While management believes that resolution of the patent infringement suit and other existing claims and lawsuits will not have a material adverse effect on the Company's financial statements, management is unable to estimate the magnitude of financial impact of claims and lawsuits which may be filed in the future. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders was held on May 8, 1997. Management's slate of nominees for directors was unopposed and elected in its entirety. The results of the voting were as follows: Director For Withheld Broker Non-Votes Common Stock- S. Barrows 3,560,712 9,363 158,137 F. Conforti 3,561,212 8,863 158,137 L. Guthart 3,561,212 8,863 158,137 I. Harris 3,560,712 9,363 158,137 K. Harris 3,561,212 8,863 158,137 N. Harris 3,560,712 9,363 158,137 W. Harris 3,561,212 8,863 158,137 J. Kahn. Jr. 3,561,212 8,863 158,137 L. Mullin 3,561,212 8,863 158,137 Class A Stock- E. Barnett 12,738,176 165,390 1,130,250 E. Coolidge III 12,738,626 162,027 1,130,250 A. Downs 12,738,526 162,145 1,130,250 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. 14 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: August 1, 1997 15 EX-27 2 JUNE 1997 FINANCIAL DATA
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 15,170 19,287 238,150 11,042 231,355 526,040 298,693 148,128 909,452 276,498 91,142 0 0 20,984 445,518 909,452 640,371 640,371 390,162 390,162 16,941 2,296 5,835 46,396 17,502 28,894 0 0 0 28,894 1.38 1.38
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