-----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, t2YmV0kVauUbzz/cHGHDLqx/T+vysrMGQzCao095xUnXCQzyMzVnyzcdEK5Qj9lB pB8CLFXCsiI3UzuA2sovwQ== 0000912057-94-001638.txt : 19940518 0000912057-94-001638.hdr.sgml : 19940518 ACCESSION NUMBER: 0000912057-94-001638 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PITTWAY CORP /DE/ CENTRAL INDEX KEY: 0000093469 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94527107 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 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, 1994 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, 1994). Common Stock 2,626,024 Class A Stock 11,314,700 1 PITTWAY CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED MARCH 31, 1994 INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Statement of Income - Three Months Ended March 31, 1994 and 1993 3 Consolidated Balance Sheet - March 31, 1994 and December 31, 1993 4 - 5 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1994 and 1993 6 Notes to Consolidated Financial Statements 7 - 10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 11 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 12 - 13 ITEM 6. Exhibits and Reports on Form 8-K 14 SIGNATURE 14 2 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (Dollars in Thousands, Except Per Share Data (UNAUDITED)
1994 1993 CONTINUING OPERATIONS: Net Sales.......................... $176,543 $151,777 Operating Expenses: Cost of sales.................... 105,292 92,305 Selling, general and administrative................. 54,573 47,631 Depreciation and amortization.... 4,783 4,116 164,648 144,052 Operating Income................... 11,895 7,725 Other Income (Expense): Gain on sale of investment....... 17,051 Income from marketable securities and other interest............. 812 698 Interest expense................. (754) (533) Income from investments.......... 538 582 Miscellaneous, net............... 434 8 18,081 755 Income From Continuing Operations Before Income Taxes.............. 29,976 8,480 Provision For Income Taxes......... 12,020 3,311 INCOME FROM CONTINUING OPERATIONS.. 17,956 5,169 Income From Discontinued Operations 9,459 Income Before Cumulative Effect of Changes in Accounting Principles. 17,956 14,628 Cumulative Effect of Changes In Accounting For Income Taxes and Postretirement Benefits.......... 1,535 NET INCOME......................... $ 17,956 $ 16,163 Per Share of Common and Class A Stock: Income from continuing operations $ 1.29 $ .37 Income from discontinued operations .68 Cumulative effect of changes in accounting principles.......... .11 Net Income....................... $ 1.29 $ 1.16 Cash Dividends Declared Per Share: Common.......................... $ .10 $ .15 Class A......................... $ .125 $ .175 Average Number of Shares Outstanding (in thousands).................. 13,941 13,941
See accompanying notes. 3 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in Thousands) (UNAUDITED)
March 31, December 31, 1994 1993 ASSETS Current Assets: Cash and equivalents............. $ 45 $ 1,908 Marketable securities............ 35,222 31,407 Accounts and notes receivable, less allowance for doubtful accounts of $6,069 and $5,521.. 141,907 115,947 Inventories...................... 108,976 100,065 Future income tax benefits....... 13,597 15,232 Prepayments, deposits and other.. 9,294 7,974 309,041 272,533 Property, Plant and Equipment, at cost: Buildings........................ 26,098 25,530 Machinery and equipment.......... 139,789 132,168 165,887 157,698 Less: Accumulated depreciation... (85,196) (81,375) 80,691 76,323 Land............................. 2,403 2,403 83,094 78,726 Investments: Real estate and other ventures... 46,565 51,153 Leveraged leases................. 22,724 21,954 69,289 73,107 Other Assets: Goodwill, less accumulated amortization of $6,451 and $6,159..................... 40,052 40,357 Other intangibles, less accumulated amortization of $8,609 and $8,288.............. 6,548 6,658 Notes receivable................ 6,004 5,362 Miscellaneous................... 5,107 5,234 57,711 57,611 $519,135 $481,977
See accompanying notes. 4 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in Thousands) (UNAUDITED)
March 31, December 31, 1994 1993 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable..................... $ 34,994 $ 30,859 Long-term debt due within one year 5,950 5,649 Dividends payable................. 1,758 1,757 Accounts payable.................. 42,739 44,489 Accrued expenses.................. 35,791 33,744 Income taxes payable.............. 16,027 4,911 Retirement and deferred compensation plans.............. 634 605 Unearned income................... 5,697 5,320 143,590 127,334 Long-term Debt, less current maturities........................ 9,005 6,083 Deferred Liabilities: Income taxes...................... 51,345 51,883 Other............................. 4,882 4,613 56,227 56,496 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................. 269,907 253,628 Cumulative marketable securities valuation adjustment............ 1,544 Cumulative foreign currency translation adjustment.......... (3,427) (3,853) 310,313 292,064 $519,135 $481,977
See accompanying notes. 5 PITTWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (Dollars in Thousands) (UNAUDITED)
1994 1993 Cash Flows From Continuing Operating Activities: Income from continuing operations. $ 17,956 $ 5,169 Adjustments for noncash items included in income from continuing operations: Depreciation and amortization. 4,783 4,116 Gain on sale of investment, net of taxes................ (10,249) Deferred income taxes......... 1,796 (615) Retirement and deferred compensation plans.......... 346 (620) Income from investments adjusted for cash distributions received...... (424) (517) Provision for losses on accounts receivable......... 695 822 Change in assets and liabilities, excluding effects of acquisitions, dispositions and foreign currency adjustments: Increase in accounts and notes receivable.............. (5,416) (5,016) Increase in inventories... (8,549) (6,159) Decrease in accounts payable and accrued expenses.... (351) (6,090) Increase in income taxes payable................. 2,584 3,399 Other changes, net........ (1,037) 110 Net cash provided by (used in) continuing operations........... 2,134 (5,401) Cash Flows From Investing Activities: Capital expenditures................ (8,474) (6,377) Proceeds from the sale of marketable securities............. 8,356 20,592 Purchases of marketable securities.. (8,793) (18,092) Disposition of property and equipment......................... 71 31 Additions to investments............ (786) (6) Collections of notes receivable..... 176 78 Net cash used in investing activities (9,450) (3,774) Cash Flows From Financing Activities: Net increase in notes payable....... 3,964 8,309 Proceeds of long-term debt.......... 3,230 Repayments of long-term debt........ (131) (152) Dividends paid...................... (1,676) Net cash provided by (used in) financing activities.............. 5,387 8,157 Effect of Exchange Rate Changes on Cash 66 (74) Net Cash Used By Discontinued Operations (2,364) Decrease In Cash And Equivalents...... (1,863) (3,456) Cash And Equivalents At Beginning Of Period................. 1,908 3,638 Cash And Equivalents At End Of Period. $ 45 $ 182
See accompanying notes.
1994 1993 Supplemental cash flow disclosure: Interest paid....................... $ 654 $ 705 Income taxes paid................... 1,429 1,804
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 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 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, 1993. Note 2. Changes in Accounting Principles On January 1, 1994 the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which requires the Company to record its investments in certain debt and equity securities available-for-sale at market value. Changes in market value for these securities are to be reported, net of tax, in a separate component of stockholders' equity until realized. Prior to the adoption of SFAS No. 115, these securities were valued at the lower of aggregate cost or market. SFAS No. 115 does not apply to investments accounted for using the equity method or for which readily determinable market values are not available. As a result of adopting SFAS No. 115, a $141 unrealized gain, net of tax, was recorded to stockholders' equity at January 1, 1994. The adoption of this statement had no impact on net income and prior year financial statements are not restated. On January 1, 1993 the Company adopted the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", and No. 109, "Accounting for Income Taxes". The cumulative effect of the changes in accounting principles on years prior to 1993 was a $1,965 benefit for income taxes and a $430 after-tax charge for postretirement benefits. 7 Note 3. Marketable Securities Information about the Company's available-for-sale securities at March 31, 1994 and December 31, 1993 is as follows:
Preferred Common Municipal Stocks Stock Bonds March 31, 1994 - Aggregate cost $ 22,386 $ 629 $ 9,604 Net unrealized holding gain 116 2,454 5 Aggregate fair value $ 22,502 $ 3,083 $ 9,609 December 31, 1993 - Aggregate cost $ 15,118 $ 16,174 Net unrealized holding gain 163 72 Aggregate fair value $ 15,281 $ 16,246
The contractual maturities for the municipal bonds (at fair value) are as follows: within one year ($4,694), after one year through five years ($2,414), after five years through ten years ($1,500) and after ten years ($1,001). 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, resulting in a pretax gain of $2,454 which will be recorded in the second quarter of 1994. The $24,505 proceeds from the two sales were received in April. $21,422 is included in accounts receivable and $3,083 in marketable securities in the consolidated balance sheet at March 31, 1994. Prior to the initial public offering, the Company's equity investment in First Alert, Inc. was recorded at a cost of $5 million. The $2,454 unrealized gain on the 195,000 shares of First Alert, Inc. common stock held at March 31, 1994 is included, net of tax, in a separate component of stockholders' equity at March 31, 1994 (see Note 2). 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:
1994 1993 Cash proceeds $ 8,356 $ 20,525 Realized gains - First Alert $ 17,051 Other $ 180 $ 341 Realized losses $ 6 $ 97
8 Note 4. Inventories Inventories consist of the following:
March 31, December 31, 1994 1993 Raw materials $ 26,235 $ 23,313 Work in process 11,530 9,311 Finished goods - Manufactured by the Company 39,802 33,912 Manufactured by others 32,057 34,087 Total 109,624 100,623 Less LIFO reserve (648) (558) $108,976 $100,065
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. Discontinued Operations The Company distributed its investment in the Seaquist packaging group (now known as AptarGroup, Inc.) to stockholders in a tax- free spinoff on April 22, 1993. Net sales of the discontinued operations were $95,210 for the three months ended March 31, 1993. Note 7. Legal Proceedings On May 10, 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 December 1990 the trial court entered an order vacating the judgment and awarding a new trial, which was affirmed on appeal in March 1992. On remand to the trial court, Saddlebrook's motion for summary judgment, on the ground that plaintiff's claims were fully tried and rejected in a related administrative proceeding, is pending. If that motion is not granted, retrial is currently set for October 1994. The Company and Saddlebrook have entered into an agreement to split equally the costs of the defense of 9 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS Sales increased 16% over the first quarter of 1993 due to higher sales in both the alarm and publishing segments. Gross profit grew at a faster rate than sales, 20%, reflecting better coverage of fixed costs through higher volume. Selling, general and administrative expenses increased 15% due to increased costs associated with the expanded sales volume. Alarm product sales increased due to continued market acceptance of the newer burglar and commercial fire alarm products. Operating income increased primarily because of the expanded sales volume partially offset by costs of new product introductions, particularly low profile smoke detectors. Publishing sales rose from a year ago due to a modest increase in advertising pages coupled with a firming of page rates. Operating income increased due to higher list rentals, increased advertising pages at higher rates and profits from a bi-annual directory. Included in other income 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, other income was more favorable in 1994 due to higher miscellaneous income. The increase in investment income was offset by higher interest expense. The effective tax rate increased from 39% in 1993 to 40% in 1994 due to an increase in the U.S. Federal income tax rate in August 1993 from 34% to 35%. One-time accounting changes applicable to 1993 continuing operations included a $2.0 million benefit from the adoption of SFAS No. 109, "Accounting for Income Taxes", and an after-tax charge of $.4 million from the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". 10 Earnings from discontinued operations amounted to $6.4 million. A $3.1 million benefit from the adoption of SFAS No. 109 is also included in income from discontinued operations. FINANCIAL CONDITION The Company's financial condition remained strong through the first quarter of 1994. Management anticipates that operations and borrowings will continue to be the primary source of funds needed to meet ongoing programs for capital expenditures, to finance acquisitions and investments, to pay dividends and to reduce debt. As a result of selling its investment in First Alert, Inc. the Company received $24.5 million in April 1994. It is expected that these proceeds will be used to reduce outstanding debt, finance the growth in operations, invest in real estate and other ventures and pay approximately $9.7 million in income taxes associated with the sale. In the 1994 first quarter, the primary sources of cash provided by continuing operations were profits before depreciation, amortization, deferred income taxes and the net gain on sale of investment. Such cash generated was largely used to finance the $14 million increase in accounts receivable and inventories. The $2 million available cash generated from operations, along with a $4 million increase in short-term bank borrowings were used to pay dividends and to pay for $8.5 million in capital expenditures. Indebtedness of approximately $3 million was recorded in the first quarter of 1994 to record a sale/leaseback transaction on certain production equipment. For 1993, the cash dividends normally paid in January were paid in December 1992. The Company is continually investigating opportunities for growth in related areas and is presently committed to invest approximately $17 million in certain ventures through 1996. 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 deferred income tax liability accounts fully cover the tax payments that would be due if properties were sold or returned to the lenders and such events would have no effect on income. However, any such tax payments would negatively impact the Company's cash position. The likelihood, extent and timing of such payments is not readily determinable, but the maximum total amount at March 31, 1994 is approximately $15 million. 11 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 the participants await its decision. The other appeal is being briefed and awaiting a hearing date. Saddlebrook moved for summary judgment on December 22, 1993 on the ground that plaintiffs' claims were fully litigated and decided in administrative action. The trial court ordered that, in the event plaintiffs' appeals are resolved by July 1994, Saddlebrook's motion for summary judgment will be heard in August 1994 and, in the event that such motion is denied, retrial will begin in October 1994. 12 Until October 14, 1989, the Company and 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. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are included with this report. (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 9, 1994 14 -----END PRIVACY-ENHANCED MESSAGE-----