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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For The Year Ended December 31, 1993
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, Suite 700, Chicago, Illinois 60606-5802
(Address of Principal Executive Offices) (ZIP Code)
312/831-1070
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE
ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $1.00 par value American Stock Exchange
Class A Stock, $1.00 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
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 and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant (based on closing sales prices on
March 3, 1994): $345,042,000
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date (March 3, 1994):
Common Stock - 2,626,024 shares outstanding; Class A Stock - 11,314,700
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1993 Annual Report to Stockholders are
incorporated by reference into Parts I and II of this report.
Portions of the Registrant's Proxy Statement for the annual meeting
of stockholders to be held on May 19, 1994 are incorporated by reference into
Part III of this report.
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PITTWAY CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
For The Year Ended December 31, 1993
PART I Page
Item 1 Business 3-7
Item 2 Properties 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of
Security Holders 9
PART II
Item 5 Market For Registrant's Common Equity and
Related Stockholder Matters 10
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 10
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10 Directors and Executive Officers of the Registrant 10
Item 11 Executive Compensation 10-11
Item 12 Security Ownership of Certain Beneficial Owners
and Management 11
Item 13 Certain Relationships and Related Transactions 11
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 12
SIGNATURES 13
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PART I
Item 1. Business
(a) General Development of Business
Standard Shares, Inc. ("Standard") was incorporated under Delaware
law in 1925.
On December 28, 1989, Pittway Corporation ("Old Pittway"), a
Pennsylvania corporation incorporated in 1950, merged into Standard
through an exchange of stock and Standard changed its name to
Pittway Corporation ("Pittway" or "Registrant"). Prior to the
merger Standard owned 50.1% of Old Pittway. The merger was
accounted for in a manner similar to a pooling of interests, using
historical book values. Pittway and its subsidiaries are referred
to herein collectively as the "Company."
The Company operates in two reportable industry segments: alarm
and other security products, and publish-ing.
In April 1993, the Company distributed its investment in the
AptarGroup, Inc. (formerly known as the Seaquist Division packaging
group) to stockholders in a tax-free spinoff. AptarGroup, Inc. is
a manufacturer of aerosol valves, dispensing pumps and closures
which are sold to packagers and marketers in the personal care,
fragrance/cosmetics, pharmaceutical, household products and food
industries. In October 1992, the Company sold its Barr Company, a
contract packager for marketers of aerosol and liquid fill (non-
aerosol) personal and household products, to a Canadian packaging
company. In July 1992, the Company sold its First Alert/BRK
Electronics business to a new company formed by BRK management and
an investment firm. Financial information relating to these
transactions is set forth in Note 1 ("Discontinued Operations") to
the Consolidated Financial Statements contained in the 1993 Annual
Report to Stockholders, page 25, which is incorporated herein by
reference.
In 1991, the Company sold its expedited ground transportation
service business to its local management.
(b) Financial Information about Industry Segments
Financial information relating to industry segments for each of the
three years ended December 31, 1993 is set forth in Note 13
("Segment Information") to the Consolidated Financial Statements
contained in the 1993 Annual Report to Stockholders, pages 29-30,
which is incorporated herein by reference.
(c) Narrative Description of Business
The principal operations, products and services rendered by the
Company:
Alarm and Other Security Products Segment
This segment involves the design, manufacture and sale of an
extensive line of burglar alarm and commercial fire detection and
alarm components and systems and the distribution of alarm and
other security products manufactured by other companies. By
offering a broad line of alarm products needed for security
systems, the Company provides a full range of services to
independent alarm installers, which range in size from
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one-man operations to the largest national alarm service companies.
In every major domestic market area, quick delivery is provided
through the Company's computerized regional warehouses and
convenience center outlets, authorized distributors and dealers.
Various products sold through the alarm system distribution group
are purchased from non-affiliated suppliers and manufacturers to
offer a broad range of products. Some of the products purchased
are resold under the Company's Ademco brand name, others are resold
under brand names owned by its suppliers. In the Canadian and
overseas markets, alarm and other security products are sold
through the Company's distribution centers, authorized dealers and
sales agents.
Commercial fire detectors, fire controls and control communicators
are sold through the Company's regional warehouses, electrical and
building supply wholesalers and alarm and fire safety distributors.
Raw materials essential to the Company's businesses are purchased
worldwide in the ordinary course of business from numerous
suppliers. The vast majority of these materials are generally
available from more than one supplier and no serious shortages or
delays have been encountered. Certain raw materials used in
producing some of the Company's products can be obtained only from
a small number of suppliers and could adversely impact production
of alarm equipment and commercial fire detectors by the Company.
The Company believes that the loss of any other single source of
supply would not have a material adverse effect on its overall
business.
Sales and marketing methods common to this industry segment include
communications through the circulation of catalogs and
merchandising bulletins, direct mail campaigns, and national and
local advertising in trade publications. The Company's principal
advantages in marketing are its reputation, broad product line,
high quality products, extensive integrated distribution network,
efficient customer service, competitive prices and brand names.
Within the industry there is competition from large and small
manufacturers in both the domestic and foreign markets. While
competitors will continue to introduce new products similar to
those sold by the Company, the Company believes that its research
and development efforts and expansion of its distribution network
will permit it to remain competitive.
Publishing Segment
This segment is a publisher of 32 national business and trade
magazines with other businesses in the marketing-communications
field. The Company's publications serve both specific industries
and broad functional markets which include specialized
manufacturing, service industries, technical and professional
fields and general management. Most publications are distributed
on a monthly basis with several others distributed on a biweekly,
annual or biennial frequency. With the exception of two magazines
paid for by subscribers, the publications are distributed free
through controlled circulation. The principal source of revenue is
from the sale of advertising space within the magazines. Other
facets of the business include: the operation of a printing plant
for the printing and production of most of the Company's
publications and those of other publishers; a national
mail-marketing organization; a majority-owned subsidiary specializ-
ing in the design and development of courses and conferences for
managerial, professional and technical personnel; research and
telemarketing services; direct-response card mailer service and
special publications.
Within the publishing and marketing communications fields, competi-
tion exists in the form of other publications and media communica-
tion businesses. Reductions in advertising schedules by domestic
industrial companies due to economic and other competitive
pressures directly impacts the display advertising levels of the
Company's publishing segment. The Company competes with one or
more other magazines for advertising
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revenue in each of its magazine titles. The Company's principal
sales advantages include relevant editorial content and innovative
marketing complemented by specialized multi-magazine supplements.
The Company believes that its competitive position benefits from
improvements in manufacturing productivity and from cost control
programs. The Company places great emphasis on providing quality
products and services to its customers.
Real Estate and Other Ventures
The Company is involved in the sale, marketing and development of
land near Tampa, Florida for residential and commercial use.
Fairway Village is an improved residential property being developed
into single family homes situated adjacent to a major resort.
Saddlebrook Village, a 2,000 acre parcel of land nearby, is
approved for development as a master planned community.
Saddlebrook Corporate Center, a nearby 450 acre parcel, is a master
planned business park for mixed use development including light
manufacturing, research and development, distribution and
warehousing, retail and other businesses. Principal competition
comes from other residential and commercial developments in
Florida.
The Company has a limited partnership interest in a real estate
developer with major commercial and residential high rise
properties in Chicago, Dallas, Los Angeles and Boston. See Item 7
of this Form 10-K. The Company also has invested in three rental
apartment complexes located in Chicago and Washington, D.C. as a 5%
limited partner that provide certain tax advantages.
The Company has a 45% interest in a leading manufacturer of
commercial encryption equipment and of spread spectrum radios and
a 5% equity interest in a satellite broadcast company which is
expected to begin operations in the Spring of 1994.
The Company also has a 16 2/3% investment in a manufacturer of
residential fire protection products which has filed a registration
statement with the S.E.C. for an initial public offering of its
stock. See Item 7 of this Form 10-K.
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Other Information
Patents and Trademarks -
While the Company owns or is licensed under a number of patents
which are cumulatively important to its business, the loss of any
single patent or group of patents would not have a material adverse
effect on the Company's overall business.
Products manufactured by the Company are sold primarily under its
own trademarks and tradenames. Some products purchased and resold
by the Company's alarm and security products business are sold
under the Company's tradenames while others are sold under
tradenames owned by its suppliers.
Customers -
Neither of the Company's industry segments is dependent upon a
single customer or a few customers. The loss of any one or more of
these customers would not have a material adverse effect on the
Company's results of operations.
Research and Development -
The Company is engaged in programs to develop and improve products
as well as develop new and improved manufacturing methods.
Expenditures for Company sponsored research and development
activities in the alarm and other security products segment was
$10.8 million in 1993, $10.0 million in 1992 and $10.2 million in
1991. These costs were associated with a number of products in
varying stages of development, none of which represents a
significant item of cost or is projected to be a significant
addition to the Company's line of products.
Acquisitions and Dispositions -
Acquisitions of businesses by the Company in each of the three
years ended December 31, 1993 were not significant to the Company's
sales or results of operations. Dispositions by the Company, other
than the discontinued operations previously discussed in the
"General Development of Business" section, in each of the three years
ended December 31, 1993 were not significant to the Company's sales
or results of operations.
Product Liability -
Due to the nature of the alarm security business, the Company has
been, and continues to be, subjected to numerous claims and
lawsuits alleging defects in its products. This exposure has been
lessened by the sale of First Alert/BRK Electronics. It is likely,
due to the present litigious atmosphere in the United States, that
additional claims and lawsuits will be filed in future years. The
Company believes that it maintains sufficient insurance to cover
this exposure.
While it believes that resolution of existing claims and lawsuits
will not have a material adverse effect on the Company's financial
statements, management is unable to estimate the financial impact
of claims and lawsuits which may be filed in the future.
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Environmental Matters -
The Company anticipates that compliance with various laws and
regulations relating to protection of the environment will not have
a material effect on its capital expenditures, earnings or
competitive position.
Employees -
At December 31, 1993, there were approximately 4,800 persons
employed by the Company, including 4,000 employed in the United
States. Approximately 1,000 of these employees were represented by
labor unions. The Company considers its relations with its
employees to be good.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales
Financial information concerning foreign and domestic operations
and export sales is set forth in Note 13 ("Segment Information") to
the Consolidated Financial Statements contained in the 1993 Annual
Report to Stockholders, pages 29-30, which is incorporated herein
by reference.
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Item 2. Properties
The Company's principal properties and their general
characteristics are as follows:
Principal Lease Approximate
Location Use Expiration Square Feet
Alarm and Other
Security Products Segment-
Syosset, New York (1) N/A 341,000
Syosset, New York (3) 1997 14,000
Northford, Connecticut (1) N/A 179,000
New Haven, Connecticut (2) N/A 42,000
St. Charles, Illinois (1) 2002 158,000
West Chicago, Illinois (1) 1997 10,000
San Antonio, Texas (1) 1995 14,000
Melbourne, Australia (2) 1995 5,000
Sydney, Australia (2) 1998 25,000
Montreal, Canada (2) 1995 8,000
Toronto, Canada (2) 1997 7,000
London, England (1) 1994 18,000
Milan, Italy (1) N/A 14,000
Milan, Italy (2) 1998 8,000
Trieste, Italy (1) N/A 40,000
Juarez, Mexico (4) 1999 39,000
Madrid, Spain (2) 1998 8,000
Publishing Segment-
Cleveland, Ohio (3) 2000 179,000
Cleveland, Ohio (2) 1996 30,000
Berea, Ohio (5) N/A 100,000
New York, New York (3) 1997 10,000
Dunedin, Florida (3) 1995 8,000
Safety Harbor, Florida (1) 1995 19,000
General Corporate-
Chicago, Illinois (3) 2001 12,000
Other properties in the alarm and other security products segment
include 77 full-line convenience centers which function as retail-
like sales distribution outlets to serve the North American market.
The convenience centers are under leases expiring through 2002 and
range in size from 1,200 to 30,000 square feet. Other properties
in the publishing segment include 13 sales and/or editorial offices
under leases expiring through 2003 and located in major cities
throughout the United States. The Company believes the above
facilities are adequate for its present needs.
(1) Offices, Manufacturing and Warehousing
(2) Warehousing
(3) General Offices
(4) Manufacturing
(5) Printing
N/A Not applicable - facilities are owned by the Company
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Item 3. 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. Both appeals are presently being
briefed and expected to be heard in spring 1994. Saddlebrook has
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.
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 to split equally the costs of the defense of the
litigation, the costs of any ultimate judgment and the costs of
mandated remedial work. The agreement provides for the Company to
make subordinated loans to Saddlebrook to enable Saddlebrook to pay
its 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 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters
The information set forth under the heading "Market Prices,
Security Holders and Dividend Information" appearing on page 33 of
the Company's 1993 Annual Report to Stockholders is incorporated
herein by reference.
Item 6. Selected Financial Data
The information set forth under the heading "Supplemental
Information - Five Year Summary of Selected Financial Data"
appearing on page 33 of the Company's 1993 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information set forth under the heading "Management's
Discussion and Analysis of Consolidated Results of Operations and
Financial Condition" appearing on pages 34-35 of the Company's 1993
Annual Report to Stockholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements and Summary of
Accounting Policies and Notes thereto, together with the report
thereon of Price Waterhouse dated February 23, 1994, appearing on
pages 19-32 of the Company's 1993 Annual Report to Stockholders are
incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
PART III
Information required to be furnished in this part of the Form 10-K
has been omitted because the Registrant will file with the
Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange Act of
1934 not later than April 30, 1994.
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the headings "Nominees for Election
by the Holders of Class A Stock", "Nominees for Election by the
Holders of Common Stock", "Executive Officers" and "Section 16(a)
Reports" in the Registrant's Proxy Statement for the annual meeting
of stockholders to be held on May 19, 1994 is incorporated herein
by reference.
Item 11. Executive Compensation
The information set forth under the headings "Compensation
Committee Interlocks and Insider Participation", "Compensation",
"Compensation Committee Report on Executive Compensation" and
"Performance Graph"
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in the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 19, 1994 is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the heading "Security Ownership of
Certain Beneficial Owners and Management" in the Registrant's Proxy
Statement for the annual meeting of stockholders to be held on May
19, 1994 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the headings "Certain Transactions"
and "Compensation Committee Interlocks and Insider Participation"
(which is cross-referenced under the heading "Certain
Transactions") in the Registrant's Proxy Statement for the annual
meeting of stockholders to be held on May 19, 1994 is incorporated
herein by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Financial statements and financial statement schedules filed
as a part of this report are listed in the Index to
Consolidated Financial Statements and Financial Statement
Schedules on pages 14-15 of this Form 10-K and are
incorporated herein by reference.
Exhibits required by Item 601 of Regulation S-K are listed in
the Index to Exhibits on pages 24-25 of this Form 10-K, which
is incorporated herein by reference. Each management contract
or compensatory plan or arrangement required to be filed as an
Exhibit to this report pursuant to Item 14 (c) of Form 10-K is
so identified on the Index to Exhibits.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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. Gauvrea
Financial Vice President and
Treasurer
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on March
25, 1994.
/s/ Neison Harris /s/ Anthony Downs
Neison Harris, Director and Anthony Downs, Director
Chairman of the Board
/s/ King Harris /s/ Leo A. Guthart
King Harris, Director, President and Leo A. Guthart, Director
Chief Executive Officer
/s/ Paul R. Gauvreau /s/ Irving B. Harris
Paul R. Gauvreau, Principal Irving B. Harris, Director
Financial and Accounting Officer
/s/ Eugene L. Barnett /s/ William H. Harris
Eugene L. Barnett, Director William H. Harris, Director
/s/ Sidney Barrows /s/ James H. Lorie
Sidney Barrows, Director James H. Lorie, Director
/s/ Fred Conforti /s/ Sal F. Marino
Fred Conforti, Director Sal F. Marino, Director
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PITTWAY CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
Page reference in
Annual Report to
Stockholders
Financial Statements required by Item 8
of this Form:
Consolidated Balance Sheet
at December 31, 1993 and 1992 20-21
For each of the three years
ended December 31, 1993 -
Consolidated Statement of Income 19
Consolidated Statement of Cash Flows 22
Consolidated Statement of
Stockholders' Equity 23
Summary of Accounting Policies and Notes
to Consolidated Financial Statements 24-31
Report of Independent Accountants 32
Page reference in
Form 10-K
Financial Statement Schedules required by
Article 12 of Regulation S-X:
Report of Independent Accountants on
Financial Statement Schedules 16
Consolidated Financial Statement Schedules -
I. Marketable Securities -
Other Investments 17
II. Amounts Receivable From Related Parties
and Underwriters, Promoters, and Employees
Other Than Related Parties -
Continuing Operations 18
II. Amounts Receivable From Related Parties
and Underwriters, Promoters, and Employees
Other Than Related Parties -
Discontinued Operations 19
VII. Guarantees of Securities of Other Issuers 20
VIII. Valuation and Qualifying Accounts 21
IX. Short-Term Borrowings 22
X. Supplementary Income Statement Information 23
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PITTWAY CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Continued -
The consolidated financial statements of Pittway Corporation,
listed in the above index together with the Report of Independent
Accountants, which are included in the Company's 1993 Annual Report
to Stockholders, are incorporated herein by reference.
All other schedules have been omitted because the required
information is not present, or is not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements or
notes thereto.
With the exception of the aforementioned information and
information incorporated by reference in Part I (in Item 1) and
Part II (in Items 5, 6, 7 and 8) of this Form 10-K, the Company's
1993 Annual Report to Stockholders is not deemed to be filed as
part of this report.
The individual financial statements of the Company have been
omitted because Pittway Corporation is primarily an operating
company and the restricted net assets of subsidiaries together with
the equity in undistributed earnings of equity investees is less
than 25 percent of consolidated net assets. Summarized financial
information for the limited real estate partnerships and other
ventures is omitted because, when considered in the aggregate, they
do not constitute a significant subsidiary.
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Pittway Corporation
Our audits of the Consolidated Financial Statements referred
to in our report dated February 23, 1994 appearing on page 32 of
the 1993 Annual Report to Stockholders (which report and
consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedules listed in the index on page 14 of
this Form 10-K. In our opinion, these Financial Statement Schedul-
es present fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements.
As discussed in Note 4 to the Consolidated Financial
Statements contained in the 1993 Annual Report to Stockholders,
pages 25-26, the Company changed its method of accounting for
income taxes in 1993.
/s/ Price Waterhouse
PRICE WATERHOUSE
Chicago, Illinois
February 23, 1994
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PITTWAY CORPORATION
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Market Carrying
Name of Issue Shares Principal Cost
Value Value
<S> <C> <C> <C> <C>
<C>
Municipal Bonds (A) $16,114 $16,188
$16,260 $16,188
Preferred Stocks (A) 484,010 15,118
15,281 15,118
Other 101
101 101
Total Short-Term
Marketable Securities $31,407
$31,642 $31,407
</TABLE>
<TABLE>
<CAPTION>
Market
Carrying
Description Shares Principal Cost
Value Value
<S> <C> <C> <C> <C>
<C>
5.33% equity interest in
United States Satellite
Broadcasting $13,333
$20,000(B) $13,333
16 2/3% equity investment
in First Alert, Inc. 500,000 5,000(D)
15,000(B) 5,000
5% and 13% equity interests
in limited real estate
partnerships 8,375
9,000(B) 8,375
Land held for development
or lease 16,071
(C) 16,071
Other investments,
principally Cylink, a
45% owned affiliate 8,374
(C) 8,374
Total Real Estate and
Other Ventures $51,153
$51,153
Leveraged Leases $21,954
(C) $21,954
</TABLE>
(A) The securities of no single issuer constitutes 2% or more of total
assets.
(B) Excludes related deferred income taxes. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated market value amounts and the estimates
presented may not necessarily be indicative of the amounts that
the Registrant could realize in a current market exchange.
(C) Market value is not readily determinable but management believes it
to be in excess of its carrying value.
(D) Cost is based upon the cash price per share paid for all other
shares issued by such entity at the time of the sale of
First Alert/BRK Electronics by the Company.
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PITTWAY CORPORATION
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
CONTINUING OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Deductions
Balance at end of period
beginning Amounts
Name of Debtor of period Additions collected Other (C)
Current Not current
<S> <C> <C> <C> <C>
<C> <C>
1993
P. Ibarrondo (A) $435 $56 ($85)
$406
1992
P. Ibarrondo (A) $518 ($83)
$435
1991
P. Mazzacano (B) $160 ($160)
P. Ibarrondo (A) $518
$518
</TABLE>
(A) Loan bearing interest at a variable rate (approximately 13% per annum
at December 31, 1993) and collateralized by marketable securities.
(B) Relocation loan for new housing which was repaid when prior residence
was sold.
(C) Represents adjustments for the translation of local currency into
U.S. dollars.
18
<PAGE>
PITTWAY CORPORATION
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
DISCONTINUED OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Deductions
Balance at end of period
beginning Amounts
Name of Debtor of period Additions collected Other (C)
Current Not current
<S> <C> <C> <C> <C>
<C> <C>
1993
P. Cheru (A) $129 ($129)(F)
C. Siebel (A) 130 (130)(F)
J. Blanie (B) 178 (178)(F)
F. Boutan (D) 118 (118)(F)
1992
P. Cheru (A) $150 ($11) ($10)(E)
$12 $117
C. Siebel (A) 154 (14) (10)(E)
14 116
J. Blanie (B) 197 (6) (13)(E)
7 171
L. Lowrimore (C) 288 (288)
F. Boutan (D) 125 (7)(E)
118
1991
P. Cheru (A) $164 ($11) ($3)(E)
$12 $138
C. Siebel (A) 170 (13) (3)(E)
15 139
J. Blanie (B) 205 (5) (3)(E)
7 190
L. Lowrimore (C) 168 $120
288
F. Boutan (D) 128 (3)(E)
125
</TABLE>
(A) Housing loans which were due in 1999 and 2001 for Mr. Cheru and
Mr. Siebel, respectively, were payable in quarterly installments
and bore interest at 6% and 2.23% per annum for Mr. Cheru and
Mr. Siebel, respectively. The residences were pledged as
collateral.
(B) Relocation loan for new housing which was due in 2009 and bore
interest at 6% per annum.
(C) Relocation loan for new housing which was repaid when prior
residence was sold. The loan was interest-free.
(D) Relocation loan for new housing due in 1995, bearing interest
at 9% per annum and secured by a residence.
(E) Represents adjustments for the translation of local currency
into U.S. dollars.
(F) Represents assumption of the receivable by AptarGroup, Inc.
which was spunoff in April 1993.
19
<PAGE>
PITTWAY CORPORATION
SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS
FOR THE YEAR ENDED DECEMBER 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nature
of any default
by
issuer of securities
Name of issuer of Title of issue
guaranteed in principal,
securities guaranteed of each class Total amount
interest, sinking fund or
by person for which of securities guaranteed and Nature of
redemption provisions, or
statement is filed guaranteed outstanding guarantee
payment of dividends
<S> <C> <C> <C> <C>
Illinois Housing Real Estate First $1,200 Principal and
None
Development Authority Mortgage Notes Interest (A)
(175 N. Harbor Drive Maturing 2008
Limited Partnership)
(A) In participation with Metropolitan Life Insurance Company
20
<PAGE>
PITTWAY CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
</TABLE>
<TABLE>
<CAPTION>
Balance at Charges to
Deductions Balance
beginning costs and
from at end
of period expenses
reserve (A) of period
<S> <C> <C>
<C> <C>
1993
Allowance for doubtful accounts $5,867 $2,938
$3,284 $5,521
Inventory obsolescence reserve 4,583 2,641
2,002 5,222
Valuation allowance-deferred income taxes 4,842(B) 778
5,620
1992
Allowance for doubtful accounts $6,948 $2,806
$3,887 $5,867
Inventory obsolescence reserve 5,557 1,657
2,631 4,583
1991
Allowance for doubtful accounts $5,521 $4,530
$3,103 $6,948
Inventory obsolescence reserve 4,818 2,540
1,801 5,557
</TABLE>
(A) Write-off of accounts considered uncollectible, net of recoveries,
or write-off of obsolete inventory. Also includes valuation
accounts of acquired or divested companies and foreign currency
translation adjustments, net.
(B) Balance established January 1, 1993 with the adoption of Statement
of Financial Accounting Standard No. 109, "Accounting for Income
Taxes".
21
<PAGE>
PITTWAY CORPORATION
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
<TABLE>
<CAPTION>
Maximum
Average Weighted
Weighted amount
amount average
Balance average outstanding
outstanding interest
Category of aggregate at end of interest during the
during the rate during
short-term borrowings period rate period
period (A) the period (B)
<S> <C> <C> <C>
<C> <C>
1993
Short-term notes payable (to banks):
Domestic $28,380 3.60% $30,500
$19,255 3.49%
Foreign 2,479 11.76 2,479
1,874 12.28
1992
Short-term notes payable (to banks):
Domestic $17,600
$4,417 4.18%
Foreign $2,001 16.23% 7,334
3,868 13.27
1991
Short-term notes payable (to banks):
Domestic $10,450
$4,300 6.49%
Foreign $11,399 12.05% 11,399
6,737 11.89
</TABLE>
(A) Average amount outstanding during the period is computed on a
month-end basis.
(B) Average interest for the year is based on the weighted average
of the stated month-end rates.
22
<PAGE>
PITTWAY CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
<TABLE>
<CAPTION>
Charged to costs and
expenses
1993 1992
1991
<S> <C> <C>
<C>
Advertising costs (A) $13,707 $13,807
$14,453
</TABLE>
(A)Advertising costs are charged to expense as incurred.
23
<PAGE>
INDEX TO EXHIBITS
Sequential
Number and Description of Exhibit Page Number***
3.1 Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the year
ended February 29, 1988).
3.2 Certificate of Amendment to Restated Certificate of
Incorporation of Registrant (incorporated by reference
to Exhibit 4.2 of the Registrant's Form S-8 Registration
Statement No. 33 - 33312 filed with the Commission on
February 2, 1990).
3.3 Bylaws of Registrant (incorporated by reference to
Exhibit 4.3 of the Registrant's Form S-8 Registration
Statement No. 33 - 33312 filed with the Commission on
February 2, 1990).
4. The Registrant hereby agrees to provide the Commission,
upon request, copies of such instruments defining the
rights of holders of long-term debt of the Registrant
and its subsidiaries as are specified in
Item 601(b)(4)(iii) of Regulation S-K.
10.1 Amended and Restated Merger Agreement and Plan of
Reorganization (incorporated by reference to Exhibit 2
of the Registrant's Form S-4 Registration Statement
No. 33 - 31519 filed with the Commission
on October 11, 1989).
10.2 Combination Agreement by and among Pittway Corporation,
AptarGroup, Inc. Karin Pilz, Peter Pfeiffer, Klaus
Pfeiffer and Elke Miedler, without exhibits (incorporated
by reference to Exhibit 2.1 to Form S-1 Registration
Statement No. 33 - 58132 of AptarGroup, Inc.
filed February 10, 1993).
10.3 Pittway Corporation 1990 Stock Awards Plan (incorporated
by reference to the Registrant's Form S-8 Registration
Statement No. 33 - 33312 filed with the Commission
on February 2, 1990).
10.4 Second Extension and Amendment of Agreement of
Employment with Sal F. Marino dated December 31, 1993.** 26-27
10.5 Agreement of Employment dated July 2, 1973 with Leo A. Guthart,
as amended (incorporated by reference to Exhibit 10(f) of the
Registrant's Form S-4 Registration Statement No. 33-31519 filed
with the Commission on October 11, 1989).**
24
<PAGE>
INDEX TO EXHIBITS - cont'd.
Sequential
Number and Description of Exhibit Page Number***
13. 1993 Annual Report to Stockholders.* 28-44
21. Subsidiaries of the Registrant. 45-46
23. Consent of Independent Accountants. 47
* Such report, except to the extent incorporated herein by reference,
is being furnished for the information of the Securities and Exchange
Commission only and is not to be deemed filed as a part of this Form 10-K.
** This document is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report pursuant to
Item 14 (c) of Form 10-K.
*** This information appears only in the manually signed original of
this Form 10-K.
25
<PAGE>
EXHIBIT 10.4
PITTWAY CORPORATION
DECEMBER 31, 1993
FORM 10-K
SECOND EXTENSION AND AMENDMENT
Reference is made to the Agreement of Employment dated
July 1, 1990, as extended and amended by the Extension and
Amendment dated as of June 30, 1992 (the "Agreement"), by and
between Penton Publishing, Inc. (the "Corporation") and Sal F.
Marino ("Marino").
The Agreement provides that the "term of employment"
thereunder expires on December 31, 1993 unless extended by the
Corporation and Marino.
The Corporation and Marino desire to extend such "term of
employment", and in connection therewith to make certain amendments
to the Agreement.
Accordingly, the Corporation and Marino hereby agree as
follows:
1.Paragraph 1 of the Agreement is amended in its
entirety to read as follows:
"1. This Agreement shall become effective at 12:01
a.m., EDT, on the date hereof Marino's employment by the
Corporation shall continue until December 31, 1994 (or such later
date as the Corporation and Marino may agree upon in writing during
the term of employment (as defined below)), unless earlier
terminated by Marino's death or pursuant to Paragraph 6. The
period from the date hereof to and including the first to occur of
December 31, 1994 (or such later date), the date of Marino's death,
or the date of termination pursuant to Paragraph 6, is herein
referred to as the "term of employment"."
2. The first sentence of Paragraph 3 of the Agreement is
amended in its entirety to read as follows:
"The Corporation agrees to pay Marino a salary during
the term of employment, which shall be payable in equal monthly
installments at a rate not less than TWO HUNDRED SEVENTY FIVE
THOUSAND DOLLARS ($275,000.00) per year during that portion of the
term of employment occurring prior to December 31, 1992, at a rate
not less than THREE HUNDRED FIVE THOUSAND DOLLARS ($305,000.00) per
year during that portion of the term of employment occurring after
December 31, 1992 and prior to December 31, 1993 and at a rate
not less than THREE HUNDRED FIFTEEN THOUSAND DOLLARS ($315,000.00)
per year during any portion of the term of employment occurring
after December 31, 1993."
26<PAGE>
<PAGE>
EXHIBIT 10.4
PITTWAY CORPORATION
DECEMBER 31, 1993
FORM 10-K
IN WITNESS WHEREOF, the undersigned have executed this Second
Extension and Amendment, as of December 31, 1993.
PENTON PUBLISHING, INC.
By: /s/ King Harris
As Its: Vice President
/s/ Sal F. Marino
Sal F. Marino
27
<PAGE>
EXHIBIT 13
PITTWAY CORPORATION
DECEMBER 31, 1993
FORM 10-K
Pittway Corporation and Subsidiaries
Consolidated Statement of Income
For The Years Ended December 31, 1993, 1992 and 1991
(Dollars in Thousands, Except Per Share)
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C>
<C>
Continuing Operations:
Net Sales........................... $650,105 $568,301
$516,343
Operating Expenses:
Cost of sales..................... 398,756 346,034
316,991
Selling, general and
administrative.................. 200,088 185,369
173,948
Depreciation and amortization..... 17,249 14,829
13,783
616,093 546,232
504,722
Operating Income.................... 34,012 22,069
11,621
Other Income (Expense):
Income from marketable
securities and other interest.. 2,855 2,585
1,382
Interest expense................. (2,789) (3,344)
(4,196)
Income (loss) from investments... 2,573 1,831
(1,516)
Miscellaneous, net............... (511) (1,288)
234
2,128 (216)
(4,096)
Income From Continuing Operations
Before Income Taxes............... 36,140 21,853
7,525
Income Taxes (Note 4):
Current.......................... 8,436 4,055
5,498
Deferred......................... 6,464 5,338
(2,344)
14,900 9,393
3,154
Income From Continuing Operations... 21,240 12,460
4,371
Income From Discontinued Operations
(Note 1):
Earnings from discontinued
operations, net of income taxes
of $3,560, $11,578 and $13,496,
respectively..................... 6,940 18,380
21,145
Net gain on disposal of
discontinued operations,
net of income taxes of
$9,779........................... 16,558
Cumulative effect of change in
accounting for income taxes...... 3,106
10,046 34,938
21,145
Income Before Cumulative Effect of
Changes in Accounting Principles.... 31,286 47,398
25,516
Cumulative Effect of Changes in
Accounting For Income Taxes and
Postretirement Benefits............. 1,535
Net Income............................ $ 32,821 $ 47,398
$ 25,516
Per Share of Common and Class A Stock
(Note 5):
Income from continuing operations... $ 1.52 $ .90
$ .32
Income from discontinued operations. .72 2.52
1.53
Cumulative effect of changes in
accounting principles............. .11
Net income.......................... $ 2.35 $ 3.42
$ 1.85
Average number of shares
outstanding (in thousands) (Note 5). 13,941 13,851
13,823
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated
Financial Statements.
Page 19
<PAGE>
Pittway Corporation and Subsidiaries
Consolidated Balance Sheet
December 31, 1993 and 1992
(Dollars in Thousands, Except Per Share)
<TABLE>
<CAPTION>
ASSETS 1993
1992
<S> <C>
<C>
Current Assets:
Cash and equivalents......................... $ 1,908
$ 3,638
Marketable securities, at the lower
of cost or market.......................... 31,407
32,831
Accounts and notes receivable, less
allowance for doubtful accounts of
$5,521 in 1993 and $5,867 in 1992.......... 115,947
99,638
Inventories (Note 3)......................... 100,065
86,561
Future income tax benefits (Note 4).......... 15,232
13,513
Prepayments, deposits and other.............. 7,974
13,836
272,533
250,017
Property, Plant and Equipment, at cost:
Buildings.................................... 25,530
26,098
Machinery and equipment...................... 132,168
110,652
157,698
136,750
Less: Accumulated depreciation.............. 81,375
71,845
76,323
64,905
Land......................................... 2,403
2,983
78,726
67,888
Investments:
Real estate and other ventures............... 51,153
39,713
Leveraged leases (Note 9).................... 21,954
18,720
73,107
58,433
Other Assets:
Goodwill, less accumulated amortization
of $6,159 in 1993 and $5,064 in 1992....... 40,357
41,331
Other intangibles, less accumulated
amortization of $8,288 in 1993 and
$7,297 in 1992............................. 6,658
5,483
Notes receivable............................. 5,362
7,958
Investment in discontinued
operations (Note 1)........................
137,648
Miscellaneous................................ 5,234
5,248
57,611
197,668
$481,977
$574,006
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated
Financial Statements.
Page 20
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1993
1992
<S> <C>
<C>
Current Liabilities:
Notes payable (Note 8)......................... $ 30,859
$ 2,001
Long-term debt due within one year (Note 8).... 5,649
5,826
Dividends payable.............................. 1,757
74
Accounts payable............................... 44,489
46,472
Accrued expenses............................... 33,744
30,809
Income taxes payable........................... 4,911
2,187
Retirement and deferred compensation plans..... 605
1,511
Unearned income................................ 5,320
4,662
127,334
93,542
Long-Term Debt, less current maturities (Note 8):
Notes payable, 8.6%, due in annual
installments through 1996.................... 3,750
8,750
Other notes and mortgages payable, 6.0% - 8.25%
due in monthly and annual installments
through 2000................................. 2,333
851
6,083
9,601
Deferred Liabilities:
Income taxes (Note 4).......................... 51,883
48,722
Other.......................................... 4,613
2,640
56,496
51,362
Stockholders' Equity:
Preferred stock, authorized 2,000,000 shares;
none issued..................................
Common capital stock, $1 par value (Note 5) -
Common stock, authorized 30,000,000 shares;
2,626,024 shares issued and outstanding..... 2,626
2,626
Class A stock, authorized 24,000,000 shares;
11,314,700 shares issued and outstanding.... 11,315
11,315
Capital in excess of par value................. 28,348
28,348
Retained earnings.............................. 253,628
381,138
Cumulative foreign currency translation
adjustment................................... (3,853)
(3,926)
292,064
419,501
$481,977
$574,006
</TABLE>
Page 21
<PAGE>
Pittway Corporation and Subsidiaries
Consolidated Statement of Cash Flows
For The Years Ended December 31, 1993, 1992 and 1991
(Dollars in Thousands)
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C>
<C>
Cash Flows From Continuing
Operating Activities:
Income from continuing operations......... $ 21,240 $ 12,460
$ 4,371
Adjustments to reconcile income from
continuing operations to net cash
provided by continuing operations:
Depreciation and amortization........... 17,249 14,829
13,783
Deferred income taxes................... 6,464 5,338
(2,344)
Retirement and deferred compensation
plans.................................. 1,231 (325)
4,269
Income/loss from investments
adjusted for cash
distributions received................. 330 (1,678)
1,572
Provision for losses on accounts
receivable............................. 2,938 2,806
4,530
Change in assets and liabilities,
excluding effects from acquisitions,
dispositions and foreign currency
adjustments:
Increase in accounts and
notes receivable..................... (23,340) (16,835)
(9,384)
Increase in inventories............... (13,946) (3,639)
(5,093)
(Decrease) increase in accounts
payable and accrued expenses......... (930) 4,762
10,770
Increase (decrease) in income taxes
payable.............................. 7,284 (6,758)
2,052
Other changes, net.................... 2,340 (4,508)
2,045
Net cash provided by continuing
operations............................... 20,860 6,452
26,571
Cash Flows From Investing Activities:
Capital expenditures...................... (29,478) (17,187)
(13,872)
Disposition of property and equipment..... 585 1,256
822
Additions to real estate investments and
other ventures........................... (12,317) (19,370)
(7,361)
Dispositions of businesses................ 100
3,231
Collections of notes receivable........... 5,434 1,630
2,097
Net decrease (increase) in marketable
securities............................... 1,424 (32,831)
Net assets of businesses acquired,
net of cash.............................. (3,430) (4,208)
(2,677)
Net cash used by investing activities..... (37,782) (70,610)
(17,760)
Cash Flows From Financing Activities:
Net increase (decrease) in notes payable.. 29,200 (7,477)
(3,679)
Proceeds of long-term debt................ 1,996
1,313
Repayments of long-term debt.............. (5,405) (12,201)
(1,138)
Dividends paid............................ (5,722) (17,372)
(10,412)
Net cash provided (used) in financing
activities............................... 20,069 (37,050)
(13,916)
Effect of exchange rate changes on cash.... (166) (447)
(58)
Cash Flows From Discontinued Operations:
Net proceeds from divestitures, net of
income taxes of $9,779................... 81,580
Cash (used) provided by operating,
investing and financing activities....... (4,711) (2,007)
22,163
Net cash (used) provided by discontinued
operations............................... (4,711) 79,573
22,163
Net (decrease) increase in cash and
equivalents............................... (1,730) (22,082)
17,000
Cash and equivalents at beginning of period 3,638 25,720
8,720
Cash and equivalents at end of period...... $ 1,908 $ 3,638
$ 25,720
Supplemental cash flow disclosure:
Interest paid............................. $ 2,804 $ 3,752
$ 3,730
Income taxes paid......................... 8,939 31,591
14,391
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated
Financial Statements.
Page 22
<PAGE>
Pittway Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
For The Years Ended December 31, 1993, 1992 and 1991
(Dollars in Thousands, Except Per Share)
<TABLE>
<CAPTION>
Cumulative
Foreign
Capital In Currency
Common Stock Class
A Stock Excess of Retained Translation
Shares Par Value Shares
Par Value Par Value Earnings Adjustment
<S> <C> <C> <C>
<C> <C> <C> <C>
Balance - December 31, 1990... 2,626,024 $2,626 11,179,156
$11,179 $24,547 $336,046 $13,879
Net income...................
25,516
Cash dividends declared:
Common stock -
$.60 per share.............
(1,575)
Class A stock -
$1.10 per share............
(12,321)
Shares issued pursuant to
performance awards.......... 20,783
21 321
Translation adjustment.......
(661)
Balance - December 31, 1991... 2,626,024 2,626 11,199,939
11,200 24,868 347,666 13,218
Net income...................
47,398
Cash dividends declared:
Common stock -
$.60 per share.............
(1,576)
Class A stock -
$1.10 per share............
(12,350)
Shares issued pursuant to
performance awards.......... 114,761
115 3,480
Translation adjustment.......
(17,144)
Balance - December 31, 1992... 2,626,024 2,626 11,314,700
11,315 28,348 381,138 (3,926)
Net income...................
32,821
Cash dividends declared:
Common stock -
$.45 per share.............
(1,183)
Class A stock -
$.55 per share.............
(6,222)
Distribution of
AptarGroup, Inc. common
stock to stockholders......
(152,926) (90)
Translation adjustment.......
163
Balance - December 31, 1993... 2,626,024 $2,626 11,314,700
$11,315 $28,348 $253,628 $(3,853)
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated
Financial Statements.
Page 23
<PAGE>
Summary of Accounting Policies
(Dollars in Thousands)
Basis of Presentation
The consolidated financial statements include the accounts
of Pittway Corporation and its majority-owned subsidiaries (the
"Company"). The Company follows the equity method of accounting
for its investments in greater than 20%-owned but less than
majority-owned affiliates. All significant intercompany accounts
and transactions have been eliminated. Except where otherwise
indicated, the following notes relate to continuing operations
consisting principally of alarm systems businesses and trade
publishing.
Cash Equivalents
Cash equivalents are generally comprised of highly liquid
instruments with original maturities of three months or less,
such as treasury bills, certificates of deposit, commercial paper
and time deposits.
Marketable Securities
Marketable securities consist of equity and debt securities
carried at the lower of aggregate cost or market value. Net
realized gains (losses) in 1993 and 1992 and unrealized gains and
losses at December 31, 1993 were not significant.
Inventories
Inventories are stated at cost, which is lower than market.
Costs included in inventories are raw materials, direct labor and
manufacturing overhead. Cost of substantially all domestic
inventories is determined by using the last-in, first-out (LIFO)
method, while the remaining inventories are valued primarily
using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are
depreciated over the estimated useful lives of the assets using
the straight-line method for financial reporting purposes.
Depreciation expense amounted to $14,664, $12,526 and $11,504 in
1993, 1992 and 1991, respectively.
Investments
Real estate and other ventures - These investments consist
principally of equity interests in limited real estate
partnerships, land held for development, an affiliate that
manufactures encryption and data communication devices, a
residential security products company and a satellite broadcast
company. The Company's adjusted basis in certain of the limited
real estate partnerships is carried at zero, the affiliate is
carried at equity and investments in other partnerships and
ventures are carried on a cost basis. Cash distributions
received from these partnerships and ventures, other than the
affiliate, were recorded as income from investments and were not
significant.
Leveraged leases - The Company's investment in leveraged
leases consists of the rentals receivable net of the principal
and interest on the related nonrecourse debt, estimated residual
value of the leased property and unearned income. The unearned
income is recognized as leveraged lease revenue in income from
investments over the lease term.
Intangible Assets
Management believes that goodwill, trademarks and tradenames
acquired in purchase transactions have continuing value. It is
the Company's policy to amortize such costs over periods of up to
40 years except for the costs of such assets acquired prior to
1970. Intangible assets of approximately $3,356 related to pre-
1970 acquisitions are not being amortized because the Company
believes there has been no diminution of value.
Other intangibles acquired in purchase transactions or
developed, consisting of non-compete agreements, customer mailing
lists, patents and software development costs, are capitalized
and amortized over their useful lives.
Research and Development Expenses
Research and development costs are expensed as incurred.
These costs amounted to $10,814, $10,040 and $10,298 in 1993,
1992 and 1991, respectively.
Income Taxes
Provisions for income taxes recognize the tax effects of all
transactions entering into the determination of net income for
financial statement purposes, irrespective of when such
transactions are reported for income tax purposes. In general,
depreciation is computed on a straight-line method for financial
reporting purposes and on accelerated methods for income tax
purposes. Deferred income taxes and future income tax benefits
have been recognized for all temporary differences.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income Taxes," which requires the use of the liability method of
accounting for deferred income taxes (see Note 4).
Page 24
<PAGE>
Product Liability and
Workers Compensation Claims
Provisions are made for estimated losses from products
liability and workers compensation claims which are not covered
by insurance.
Translation of Foreign Currencies
The functional currency of the Company's foreign operations
is the local currency. Accordingly, assets and liabilities of
foreign operations are translated to U.S. dollars at the rates of
exchange on the balance sheet date; income and expense are
translated at the average rates of exchange prevailing during the
year. Translation adjustments are accumulated in a separate
section of stockholders' equity. Transaction gains and losses
are reflected in miscellaneous income and amounted to expenses of
$523, $1,020 and $256 in 1993, 1992 and 1991, respectively.
Notes To Consolidated Financial Statements
(Dollars in Thousands, Except Per Share)
Note 1 - Discontinued Operations
The Company distributed its investment, carried at $153,016,
in the Seaquist packaging group (now known as AptarGroup, Inc.)
to stockholders in a tax-free spinoff on April 22, 1993.
In July 1992, the Company sold its First Alert/BRK
Electronics business to a new company formed by BRK management
and an investment firm. The sale price was $87,154 plus a 16
2/3% ownership interest in the new company valued at $5 million.
In October 1992, the Company sold its Barr packaging division
operations, excluding real estate, for $4,205 cash and a $3,200
two-year note. The net after-tax gain on the 1992 divestitures
amounted to $16,558, or $1.20 per share.
At December 31, 1992, the investment in the net assets of
the discontinued operations consisted of:
<TABLE>
<S> <C>
Current assets................. $132,811
Current liabilities............ (102,329)
Net current assets............. 30,482
Net fixed assets............... 138,250
Other noncurrent assets........ 31,589
Noncurrent liabilities......... (62,673)
$137,648
</TABLE>
Net sales of the discontinued operations prior to their
respective dispositions were $117,473, $451,092 and $465,288 in
1993, 1992 and 1991, respectively.
Note 2 - Acquisitions and Dispositions
During 1993, the Company acquired the assets and business of
a domestic access control manufacturer and two publications for
$3,430 cash.
During 1992, the Company acquired the assets and business of
a domestic manufacturer of lighting control equipment and two
publications for $4,208 cash. The Company sold a magazine for
$100 cash and a $400 note.
During 1991, the Company acquired the assets and business of
a foreign manufacturer of fire alarm controls for $2,677 cash.
Also, in 1991, the Company sold its expedited ground
transportation service business to its management. The aggregate
proceeds were approximately $5,431, including $2,200 of
subordinated notes due in 1995 and 1996. No significant gain or
loss resulted from this transaction.
All the aforementioned acquisitions were accounted for as
purchase transactions. The impact of these acquisitions on
consolidated results of operations was not significant. These
companies have been included in the consolidated financial
statements from their respective dates of acquisition or to the
date of disposition.
Note 3 - Inventories
At December 31, 1993 and 1992 approximately 86% and 85%,
respectively, of the total inventories are accounted for by the
LIFO method. At year end, inventories consist of:
<TABLE>
<CAPTION>
1993
1992
<S> <C>
<C>
Raw materials........................ $ 23,313
$ 20,684
Work-in-process...................... 9,311
10,463
Finished goods -
Manufactured by the Company........ 33,912
30,684
Manufactured by others............. 34,087
26,185
Total........................... 100,623
88,016
Less LIFO reserve.................... (558)
(1,455)
$100,065
$ 86,561
</TABLE>
The LIFO reserve represents the excess of FIFO cost, which
approximates current cost, over the LIFO value of inventory.
Note 4 - Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes". The cumulative effect of the
change as of January 1, 1993 was a benefit of $1,965 ($.14 per
share) for continuing operations and $3,106 ($.22 per share) for
discontinued operations. As a result of the 1993 increase in the
U.S. federal income tax rate from 34% to 35%, the current year
effect was to in-
Page 25
<PAGE>
crease the Federal income tax provision by $1,202 consisting of
$400 ($.03 per share) related to 1993 income and $802 ($.06 per
share) to increase prior accumulated deferred taxes.
Income from continuing operations before income taxes
consists of:
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C>
<C>
Domestic income..................... $39,985 $23,969 $
8,883
Foreign loss........................ (3,845) (2,116)
(1,358)
$36,140 $21,853 $
7,525
</TABLE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C>
<C>
Current
Federal........................ $ 5,819 $ 2,383 $
3,455
State and local................ 2,000 1,335
1,272
Foreign........................ 617 337
771
8,436 4,055
5,498
Deferred
Federal........................ 7,131 5,284
(1,797)
Foreign........................ (667) 54
(547)
6,464 5,338
(2,344)
$14,900 $ 9,393 $
3,154
</TABLE>
The difference between the actual income tax provision and
the tax provision computed by applying the statutory federal
income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income
from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C>
<C>
Income tax at statutory rate....... $12,649 $ 7,430 $
2,559
Tax effect of -
State income taxes, net of
federal benefit................. 1,300 879
839
U.S. income tax rate increase on
cumulative timing differences... 802
Earnings of non-consolidated
affiliates...................... (299) (142)
(1,597)
Foreign operations............... 1,296 1,112
567
Amortization of intangibles...... 426 324
360
Reserves no longer required...... (800)
Other items, net................. (474) (210)
426
Actual income tax provision........ $14,900 $ 9,393 $
3,154
Effective income tax rate.......... 41.2% 43.0%
41.9%
</TABLE>
During 1992 and 1991, respectively, deferred income taxes
(benefits) provided for temporary differences in the recognition
of revenue and expense for tax and financial statement purposes
consisted principally of the following: purchased tax benefit
leases - $(2,556) and $(3,422); real estate ventures - $3,775 and
$659; leveraged leases - $1,900 and $1,405; retirement and
deferred compensation plans - $1,130 and $(669); inventory
valuation - $495 and $(13); and bad debts - $233 and $(375).
The components of the deferred tax liabilities (assets) at
December 31, 1993 are comprised of the following:
<TABLE>
<S> <C>
Leveraged leases......................... $ 16,689
Real estate ventures -
Affordable housing.................... 5,309
Other................................. 15,210
Purchased tax benefit leases............. 5,952
Depreciation............................. 2,293
State income taxes, net of
federal benefit........................ 5,354
Other ................................... 1,076
Total deferred tax liabilities........... 51,883
Inventory valuation...................... (5,503)
Tax loss carryforwards................... (5,620)
State income taxes, net of
federal benefit........................ (2,420)
Bad debts................................ (2,044)
Workers compensation..................... (1,191)
Other ................................... (4,074)
Total deferred tax assets................ (20,852)
Valuation allowance...................... 5,620
Net deferred tax liability............... $36,651
</TABLE>
The valuation allowance relates to tax loss carryforwards of
which $2,362 will be credited to goodwill when and if utilized.
Note 5 - Capital Stock and Earnings per Share
Except for voting and dividend rights, the two classes of
common capital stock are identical. Class A stockholders are
entitled to one-tenth vote per share and have the right to elect
25% of all directors, but not less than two. Common stockholders
are entitled to one vote per share and have the right to elect
the remaining number of directors. Upon a change of control of
the Company (as defined in the Company's certificate of
incorporation), the Class A stock will automatically be changed
into Common stock.
Page 26
<PAGE>
Cash dividends declared on Class A stock are required to be
2.5 cents per share more than dividends declared on Common stock
(up to a maximum of 10 cents per share per year). The 2.5 cents
premium was increased to 12.5 cents for each dividend declared in
the ten quarters beginning with the third quarter of 1990 and
ending with the fourth quarter of 1992. As provided in a 1989
corporate charter amendment creating the Class A stock, the
increase in Class A dividends was required due to the relative
market prices of Common and Class A stock during the three months
ended June 28, 1990. Beginning with dividends declared in the
second quarter of 1993, the quarterly dividends on Common stock
and Class A stock were reduced by $.05 as a result of the spinoff
of AptarGroup, Inc. on April 22, 1993.
Net income per share of common capital stock is based on the
combined weighted average number of Class A and Common shares
outstanding which does not include shares issuable upon exercise
of outstanding non-qualified stock options or shares
distributable as performance share awards because the dilutive
effect is not significant.
Note 6 - Stock Options and Awards
The Company's 1990 stock awards plan provides for the
issuance of up to 500,000 shares of Class A stock to employees
pursuant to options, performance share rights and other awards.
Certain awards are payable in the form of Class A stock or cash.
Performance share rights and non-qualified options vest ratably
over terms of three years and five years and are exercisable up
to ten years from date of grant. During 1993 the Compensation
Committee amended the options then outstanding to reflect the
valuation of the AptarGroup, Inc. spunoff in April 1993 by
increasing the options granted by 10,500 shares. During 1992,
the Company vested and issued shares or paid in cash all
performance share rights then outstanding.
Activity in options and performance share rights for Class A
stock is summarized as follows (prices shown are per share):
<TABLE>
<CAPTION>
1993
1992
<S> <C>
<C>
Outstanding at beginning of year................. 10,000
122,840
Rights granted ($30.13 and $26.50)............... 17,595
58,986
Options granted ($25.63)......................... 121,948
Issued in stock ($17.50 to $33.27)...............
(114,761)
Paid in cash ($17.50 to $34.38)..................
(56,887)
Canceled ($26.38)................................
(178)
Outstanding at end of year ($9.48 to $30.13
and $9.48 to $13.57).......................... 149,543
10,000
Exercisable at end of year....................... 0
0
Available for grant.............................. 225,915
365,232
</TABLE>
In addition, the Company has granted other awards which
provide additional deferred compensation based on the fair market
value or the increase in fair market value of the Company's Class
A stock. The cost of these compensation agreements is provided
currently as it relates to prior service and ratably over the
employees' future employment as it applies to future service.
Awards of performance share rights are expensed as compensation
at the date of grant. Expense under all of these arrangements
amounted to $1,180, $2,098, and $2,351 in 1993, 1992 and 1991,
respectively.
Note 7 - Retirement Plans
The Company has various noncontributory retirement plans
covering substantially all current and certain former domestic
employees. Retirement benefits for employees in foreign
countries are generally provided by national statutory programs.
Benefits for domestic employees are based on years of service and
annual compensation as defined by each plan. The Company's
policy is to fund pension costs accrued. In early 1991 the
Company withdrew from participation in a union sponsored
retirement plan. Under the terms of the termination agreement,
the Company recorded a total withdrawal liability of $1,655.
Prior to withdrawal, the Company's contribution to such a plan
was determined and funded based on a collective bargaining
arrangement.
In 1992 the Company recognized a curtailment gain of $1,845
resulting from a net decrease in projected benefit obligations
(less unrecognized prior service costs) of employees of the
divisions sold. This gain is included in the net gain on
disposal of discontinued operations.
The components of net pension cost (income) for the plans
consists of:
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C>
<C>
Service cost - benefits earned
during the year................... $ 3,154 $ 3,181 $
3,086
Interest cost on projected benefit
obligation........................ 3,410 3,181
3,028
Actual return on plan assets........ (12,563) (11,745)
(12,598)
Net amortization and deferred gains
and losses........................ 5,165 5,567
7,396
Net pension cost (income)........... $ (834) $ 184 $
912
</TABLE>
Page 27
<PAGE>
The reconciliation of the funded status of the plans at year
end follows:
<TABLE>
<CAPTION>
1993
1992
<S> <C>
<C>
Actuarial present value of benefit
obligations:
Vested benefit obligation......... $(39,426)
$(37,303)
Nonvested benefit obligation...... (952)
(1,312)
Accumulated benefit obligation.. (40,378)
(38,615)
Excess of projected benefit
obligation over accumulated
benefit obligation................ (11,724)
(10,487)
Projected benefit obligation........ (52,102)
(49,102)
Plan assets at fair value........... 86,734
77,677
Plan assets in excess of
projected benefit obligation...... 34,632
28,575
Unrecognized net gain............... (21,969)
(15,584)
Unrecognized prior service cost..... 1,921
2,225
Unamortized transition net asset.... (10,254)
(11,720)
Prepaid pension cost included
in the consolidated balance sheet. $ 4,330
$ 3,496
</TABLE>
Plan assets consist primarily of U.S. government
obligations, investment grade corporate bonds and common and
preferred stocks. The projected benefit obligation was
determined using an assumed discount rate of 7% and an assumed
rate of increase in compensation of 5% for both years. The
expected long-term rate of return on plan assets was 7% for both
years.
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions", which requires the accrual of the expected cost of
retiree medical and life insurance benefits over the period the
employee provides services to the Company. Prior to the change,
costs were charged to expense as incurred. The cumulative effect
reported in the 1993 consolidated statement of income is an
after-tax charge of $430, or $(.03) per share. The annual
expense for these postretirement benefits was not significant in
1993, 1992 or 1991.
Note 8 - Debt
The average annual interest rate on short-term notes payable
was approximately 4.3% (3.6% domestic and 11.8% foreign) and
16.2% (all foreign) at December 31, 1993 and 1992, respectively.
There are no compensating balance or commitment fee requirements
associated with these short-term borrowings. The Company has
guaranteed indebtedness of $1,200 relating to real estate
ventures in which it participates. Under the terms of the 8.6%
notes payable, retained earnings available for dividends amounted
to $73,501 at December 31, 1993.
Aggregate long-term maturities due annually for the five
years beginning in 1994 are $5,649, $4,050, $288, $297, $1,225
and $223 thereafter.
Note 9 - Leveraged Leases
The Company is an equity participant in leveraged leases of
aircraft and communication satellite transponders. As the
Company has no general liability for the nonrecourse debt
attributable to the acquisition of such assets, the debt has been
offset against the related rentals receivable. The net
investment in leveraged leases consists of:
<TABLE>
<CAPTION>
1993
1992
<S> <C>
<C>
Rentals receivable (net of principal
and interest on nonrecourse debt). $15,069
$13,917
Estimated residual value............ 13,641
11,308
Unearned and deferred income........ (6,756)
(6,505)
Investment in leveraged leases...... 21,954
18,720
Deferred income taxes............... (16,689)
(12,562)
Net investment...................... $ 5,265 $
6,158
</TABLE>
A summary of the components of income from leveraged leases
follows:
<TABLE>
<CAPTION>
1993 1992
1991
<S> <C> <C> <C>
Income before income taxes.......... $ 1,706 $ 1,414 $
137
Current income tax benefit.......... 3,711 1,700
1,367
Deferred income taxes............... (4,183) (1,900)
(1,405)
Income from leveraged leases........ $ 1,234 $ 1,214 $
99
</TABLE>
Minimum annual rent receivable (net of principal and
interest on nonrecourse debt) under leveraged leases for the next
five years beginning with 1994 are $223, $1,305, $274, $567,
$1,490 and an aggregate of $11,210 thereafter.
Page 28
<PAGE>
Note 10 - Lease Commitments
The Company leases certain manufacturing facilities,
warehouses, office space and equipment under noncancelable
operating leases expiring at various dates through the year 2005.
Most of the leases contain renewal options and certain equipment
leases include options to purchase during or at the end of the
lease term. Minimum annual rental commitments under all
noncancelable leases for the next five years beginning with 1994
are $11,242, $10,189, $8,849, $8,095, $7,332 and an aggregate of
$14,014 thereafter. Rental commitments are stated net of minimum
sublease rentals aggregating $4,502. Total rent expense
(including taxes, insurance and maintenance when included in the
rent) amounted to $15,484, $14,365 and $12,237 in 1993, 1992 and
1991, respectively.
Note 11 - Contingencies and Commitments
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 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 the litigation, the costs of
the ultimate judgment, if any, and the costs of mandated remedial
work. The agreement provides for the Company to make
subordinated loans to Saddlebrook to enable Saddlebrook to pay
its 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.
The Company has committed to invest up to a total of $17
million for certain ventures through 1996, including $6.7 million
due in 1994 to complete its investment commitment in a satellite
broadcasting company.
The Company in the normal course of business is subject to a
number of lawsuits and claims both actual and potential in
nature. While management believes that resolution of 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.
Note 12 - Fair Value of Financial Instruments
The carrying amount of cash and equivalents, accounts
receivable, short-term marketable securities, accounts payable,
accrued expenses and notes payable approximates fair value
because of the short maturity of these instruments. At December
31, 1993 and 1992, the estimated fair values of the Company's
notes receivable exceed their carrying values of $9,321 and
$12,174 by approximately $1,700 and $1,200, respectively, and the
estimated fair values of the Company's long-term debt exceed
their carrying values of $11,732 and $15,427 by approximately
$300 and $600, respectively. These fair values were calculated
based upon the present value of estimated cash flows using
appropriate discount rates. The estimated fair values of the
Company's long-term investments which are considered financial
instruments (investments in affordable housing projects, zero
basis real estate ventures, a satellite broadcasting company and
a residential security products company) exceed their carrying
values of $26,708 (excluding related deferred income taxes) at
December 31, 1993 by $17,300 based upon available information.
The estimated fair values of such long-term investments at
December 31, 1992 approximate their carrying values (excluding
related deferred income taxes) of $19,517. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts and the
estimates presented above may not necessarily be indicative of
the amounts that the Company could realize in a current market
exchange.
Note 13 - Segment Information
The Company operates principally in two industry segments.
The Alarm and Other Security Products segment involves the
design, manufacture and sale of an extensive line of burglar
alarm and commercial fire detection and alarm components and
systems and the distribution of alarm and other security products
manufactured by other companies.
The Publishing segment is engaged in the publication of
national business magazines with other businesses in the
marketing-communications field.
Sales within and between segments and geographic areas are
made at approximate arm's-length prices. Operating income
consists of sales less operating expenses. Certain overhead
support expenses previously classified as general corporate
operating expenses have now been allocated to industry segments
and totaled in 1993, 1992 and 1991, respectively: $1,945, $1,855
and $1,147 for Alarm and Other Security Products and $804, $771
and $732 for Publishing. Sales and expenses which were not
related to or identifiable with specific segments are included in
General Corporate and Other. Identifiable assets are those
assets that are specifically identified with the industry
segments and geographic areas in which operations are conducted.
Eliminations include sales between segments and geographic areas
and related intercompany accounts. Export sales were not
material and no single customer accounted for ten percent of
sales.
Page 29
<PAGE>
<TABLE>
<CAPTION>
Depreciation
Operating
Identifiable Capital and
Industry Segments Net Sales Income
Assets* Expenditures Amortization
<S> <C> <C>
<C> <C> <C>
1993
Alarm and Other Security Products... $482,787 $ 33,416
$268,151 $ 23,117 $ 11,464
Publishing.......................... 164,627 7,206
78,733 6,265 5,185
General Corporate and Other......... 2,691 (6,610)
135,093 96 600
Consolidated........................ $650,105 $ 34,012
$481,977 $ 29,478 $ 17,249
1992
Alarm and Other Security Products... $401,250 $ 23,644
$225,394 $ 12,366 $ 9,714
Publishing.......................... 163,063 6,844
76,665 4,777 4,468
General Corporate and Other......... 3,988 (8,419)
134,299 44 647
Consolidated........................ $568,301 $ 22,069
$436,358 $ 17,187 $ 14,829
1991
Alarm and Other Security Products... $339,261 $ 15,890
$212,787 $ 10,581 $ 8,916
Publishing.......................... 161,766 3,294
74,921 2,674 3,992
General Corporate and Other......... 15,316 (7,563)
83,667 617 875
Consolidated........................ $516,343 $ 11,621
$371,375 $ 13,872 $ 13,783
Geographic Areas
1993
Domestic Operations................. $606,199 $ 35,919
$446,244
European Operations................. 38,024 (1,094)
34,598
Other Foreign Operations............ 27,243 9
10,618
Eliminations........................ (21,361) (822)
(9,483)
Consolidated........................ $650,105 $ 34,012
$481,977
1992
Domestic Operations................. $524,922 $ 23,137
$400,543
European Operations................. 37,495 (646)
31,933
Other Foreign Operations............ 24,189 (513)
10,199
Eliminations........................ (18,305) 91
(6,317)
Consolidated........................ $568,301 $ 22,069
$436,358
1991
Domestic Operations................. $479,707 $ 11,862
$355,169
European Operations................. 28,211 561
21,653
Other Foreign Operations............ 24,255 300
14,489
Eliminations........................ (15,830) (1,102)
(19,936)
Consolidated........................ $516,343 $ 11,621
$371,375
</TABLE>
* Excludes investment in discontinued operations of $137,648
and $198,433
in 1992 and 1991, respectively.
Page 30
<PAGE>
Note 14 - Quarterly Results (Unaudited)
Quarterly results of operations for the years ended December
31, 1993
and 1992 are shown below:
<TABLE>
<CAPTION>
Quarter
Total
First Second Third
Fourth For Year
<S> <C> <C> <C>
<C> <C>
Net Sales -1993...... $151,777 $158,414 $165,296
$174,618 $650,105
-1992...... 133,256 139,837 143,418
151,790 568,301
Gross Profit -1993...... 55,356 56,583 58,309
63,852 234,100
-1992...... 47,972 49,499 53,229
56,738 207,438
Income from Continuing
Operations -1993...... 5,169 4,477 5,159
6,435 21,240
-1992...... 1,251 3,364 3,574
4,271 12,460
Income from Discontinued
Operations -1993...... 9,459(a) 1,267
(680)(d) 10,046
-1992...... 6,692 4,955 21,079(c)
2,212 (c) 34,938
Net Income -1993...... 16,163(a)(b) 5,744 5,159
5,755 32,821
-1992...... 7,943 8,319 24,653(c)
6,483 (c) 47,398
Per Share
Income from Continuing
Operations -1993...... .37 .32 .37
.46 1.52
-1992...... .09 .24 .26
.31 .90
Income from Discontinued
Operations -1993...... .68(a) .09
(.05)(d) .72
-1992...... .48 .36 1.52(c)
.16 (c) 2.52
Net Income -1993...... 1.16(a)(b) .41 .37
.41 2.35
-1992...... .57 .60 1.78(c)
.47 (c) 3.42
</TABLE>
(a) Includes a $3,106 benefit ($.22 per share) for a change in
accounting
for income taxes.
(b) Includes a net $1,535 benefit ($.11 per share) for a change
in
accounting for income taxes and postretirement benefits.
(c) Includes a net after-tax gain of approximately $17,700
($1.28 per share)
in the third quarter and after-tax charges of $1,100 ($.08
per share) in
the fourth quarter related to discontinued operations.
(d) Represents additional estimated settlement costs of
outstanding claims.
Page 31
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Pittway Corporation
In our opinion, the accompanying consolidated balance
sheet and the related consolidated statements of income, of cash
flows and of stockholders' equity present fairly, in all material
respects, the financial position of Pittway Corporation and its
subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of Pittway Corporation's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Notes 4 and 7 to the consolidated financial
statements, in 1993 the Company changed its method of accounting
for income taxes and for postretirement benefits other than
pensions.
/s/ Price Waterhouse
Chicago, Illinois
February 23, 1994
Management's Responsibility for Financial Statements
The financial statements of Pittway Corporation and its
consolidated subsidiaries, and all other information presented in
this Annual Report, are the responsibility of the management of
the Company. These statements have been prepared in accordance
with generally accepted accounting principles consistently
applied and reflect in all material respects the substance of
events and transactions that should be included.
Management is responsible for the accuracy and objectivity
of the financial statements, including estimates and judgments
reflected therein, and fulfills this responsibility primarily by
establishing and maintaining accounting systems and practices
adequately supported by internal accounting controls. Management
believes that the internal accounting controls in use are
satisfactory to provide reasonable assurance that the Company's
assets are safeguarded, that transactions are executed in
accordance with management's authorizations, and that the
financial records are reliable for the purpose of preparing
financial statements.
Independent accountants were selected by the Board of
Directors, upon the recommendation of the Audit Committee, to
audit the financial statements in accordance with generally
accepted auditing standards. Their audits, as well as those of
the Company's internal audit department, include a review of
internal accounting control policies and procedures and selective
tests of transactions.
The Audit Committee of the Board of Directors, which
consists of two directors who are not officers or employees of
the Company, meets regularly with management, the internal
auditors and the independent accountants to review matters
relating to financial reporting, internal accounting controls,
and auditing. The independent accountants have unrestricted
access to the Audit Committee.
Page 32
<PAGE>
Supplemental Information
Five Year Summary of Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1993 1992
1991 1990 1989
<S> <C> <C>
<C> <C> <C>
Operating Results
Net Sales of Continuing Operations... $650,105 $568,301
$516,343 $505,243 $441,716
Operating Income from Continuing
Operations......................... 34,012 22,069
11,621 16,192 12,306
Income from Continuing Operations.... 21,240 12,460
4,371 10,596 12,835
Income from Discontinued Operations.. 10,046
34,938(c) 21,145 13,467 19,884
Cumulative Effect of Changes in
Accounting Principles.............. 1,535
Net Income........................... 32,821
47,398(c) 25,516 24,063 32,719
Per Share:
Income from Continuing Operations.. 1.52 .90
.32 .77 .93
Income from Discontinued Operations .72
2.52(c) 1.53 .97 1.45
Cumulative Effect of Changes in
Accounting Principles............ .11
Net Income......................... 2.35
3.42(c) 1.85 1.74 2.38
Cash Dividends Declared Per Share (a):
Common............................. .45 .60
.60 .60 7.26
Class A............................ .55 1.10
1.10 .90 .625
Capital Expenditures................. 29,478 17,187
13,872 14,813 18,726
Depreciation and Amortization........ 17,249 14,829
13,783 13,567 10,511
At Year End
Assets of Continuing Operations...... 481,977 436,358
371,375 346,121 338,932
Investment in Discontinued Operations 137,648
198,433 199,832 181,478
Total Assets......................... 481,977 574,006
569,808 545,955 520,410
Long-Term Debt....................... 6,083 9,601
21,584 27,149 25,588
Stockholders' Equity(d).............. 292,064 419,501
399,578 388,277 365,997
Per Share(d)....................... 20.95 30.09
28.90 28.13 26.54
Market Price Per Share (b)(d):
Common............................. 34.00 38.00
33.13 23.00
Class A............................ 32.25 34.50
29.38 17.38 36.50
</TABLE>
(a) The cash dividends on Common stock for 1989 include $7.11
paid in
connection with the December 1989 merger of the Company
with its
50.1% owned subsidiary ("Old Pittway"). In addition, the
Company
paid a dividend of 1.63 shares of Class A stock for each
Common
share at that time. Cash dividends declared per Class A
share
include dividends declared by Old Pittway, restated based
upon
the conversion ratio of three Class A shares for each Old
Pittway
share before the merger.
(b) Historical prices for Common stock prior to 1990 are not
meaningful.
Prices for Class A stock are restated based upon the
conversion
ratio of three Class A shares for each Old Pittway share.
(c) Includes net gain on disposal of discontinued operations.
(d) Stockholders' equity and market prices at December 31, 1993
reflect
the spinoff of AptarGroup, Inc. in April 1993.
Market Prices, Security Holders and Dividend Information
The Company's Common (ticker symbol PRY) and Class A (ticker
symbol PRYA)
stock are traded on the American Stock Exchange. As of December
31, 1993,
stockholders of record totaled approximately 600 for Common and
1,300
for Class A.
The following table sets forth, on a quarterly basis, the
high and
low prices for the Common and Class A stock on the American Stock
Exchange,
along with the cash dividends declared.
<TABLE>
<CAPTION>
Common Class A Dividends
Declared
High Low High Low Common
Class A
<S> <C> <C> <C> <C> <C>
<C>
1993
Quarter:
First........$44 $37 7/8 $39 1/8 $33 7/8 $ .15
$.175
Second....... 43 1/4 18 1/2 38 1/2 17 7/8 .10 (a)
.125 (a)
Third........ 28 1/2 24 26 5/8 21 7/8 .10 (a)
.125 (a)
Fourth....... 34 25 32 3/8 24 3/8 .10 (a)
.125 (a)
1992
Quarter:
First........$37 1/2 $31 1/2 $32 1/8 $25 5/8 $ .15
$.275 (b)
Second....... 37 5/8 32 1/2 32 3/4 28 .15
.275 (b)
Third........ 36 7/8 33 1/4 31 1/4 28 .15
.275 (b)
Fourth....... 40 32 5/8 34 3/4 29 .15
.275 (b)
</TABLE>
(a) The dividends on Common and Class A stock have been reduced
to a
quarterly rate of $.10 and $.125, respectively, as a result
of the
spinoff of AptarGroup, Inc. on April 22, 1993.
(b) The Class A dividends declared in 1992 include an extra $.10
per
share previously required in connection with the 1989
Standard
Shares-Pittway Merger.
Page 33
<PAGE>
Management's Discussion and Analysis of
Consolidated Results of Operations
and Financial Condition
RESULTS OF CONTINUING OPERATIONS
Sales increased 14% in 1993 and 10% in 1992 principally due
to higher sales levels in the Company's alarm system segment.
Domestic sales increased 15% in 1993 and 9% in 1992.
International sales, representing 10% of total consolidated sales
in 1993 and 11% in 1992, relate to the alarm segment and
increased 6% in 1993 and 18% in 1992. The larger increase in
1992 is primarily due to the expansion of European operations.
Alarm product sales increased 20% in 1993 and 18% in 1992.
Although the overall alarm systems industry is growing slowly,
the Company's manufacturing and distribution businesses are
increasing their market share as a result of growing dealer and
distribution support for new products introduced in the last few
years.
Operating income increased 41% in 1993 and 49% in 1992
because of expanded sales volume in the areas noted above and
because of the benefits of new product development and
manufacturing efficiencies. Research and development expense
amounted to $10.8 million and $10 million in 1993 and 1992,
respectively, reflecting continuing development and expansion of
the Company's burglar and fire alarm products and systems.
Publishing sales for 1993 remained relatively unchanged from
the 1992 and 1991 levels due to the continuing media recession.
Operating income increased 5% in 1993 primarily due to the
ancillary operations of the business and increased 108% in 1992
primarily due to cost controls and restructuring activities.
Depreciation and amortization expense increased both in 1993
and 1992 as a result of capital additions, principally in the
alarm segment.
Other income (expense) was more favorable in 1993 than in
1992 because of reduced translation losses, increased income from
an affiliate and from leveraged leases, and reduced interest
expense. While total borrowings increased in 1993, lower
interest rates on short-term notes payable and the reduction in
long-term debt resulted in a decrease in interest expense. Other
income (expense) was more favorable in 1992 than in 1991 because
of higher income from leveraged leases, lower net interest
expense and the write-off of an investment in a radio-based
credit card approval service in 1991.
Effective tax rates were 41.2% in 1993, 43.0% in 1992 and
41.9% in 1991. An analysis of the Company's effective tax rate
appears in Note 4 to the Consolidated Financial Statements. As a
result of the 1993 increase in the U.S. Federal income tax rate
from 34% to 35%, the current year effect was to increase the
Federal income tax provision by $1.2 million ($.4 million related
to 1993 income and $.8 million to increase prior accumulated
deferred taxes).
ACCOUNTING CHANGES
Effective January 1, 1993 the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions", and No. 109, "Accounting for Income Taxes". The
cumulative effect on prior years of the changes in accounting
principles as of January 1, 1993 was a $1.9 million benefit for
income taxes and a $.4 million after-tax charge for
postretirement benefits.
DISCONTINUED OPERATIONS
Sales and earnings from packaging operations decreased in
1993 due to the spinoff of AptarGroup, Inc. in April 1993.
Income from discontinued operations was favorably impacted by a
$3.1 million benefit from the adoption of SFAS No. 109 in the
first quarter of 1993.
Sales and earnings from packaging operations increased in
1992 as a result of improvement in the cosmetic and perfumery
markets
Page 34
<PAGE>
in Europe and growth in personal care markets in the United
States. These favorable results were partially offset by sales
and earnings reductions in the contract packaging business which
was sold in October 1992. Sales and earnings of residential
smoke detector and related retail products were significantly
lower in 1992 compared to 1991 due to the disposition of these
operations in July 1992, prior to the peak sales season.
A net after-tax gain of $16.6 million was recorded on the
1992 divestitures.
FINANCIAL CONDITION
The Company's financial condition remained strong through
1993. 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. The Company
has an investment of $5 million in common stock of First Alert,
Inc. (formerly Pittway's First Alert/BRK Electronics business).
First Alert filed a registration statement with the S.E.C. in
early February 1994 for an initial public offering of its common
stock. If completed, the offering may also include some or all
of Pittway's stockholding at a price significantly in excess of
its carrying value, providing an additional source of cash for
the Company.
In 1993 the primary sources of the $21 million net cash
provided by operating activities were operating profits, before
depreciation, amortization and deferred taxes, and an increase in
accrued income taxes. Such cash generated was partially used to
finance the $37 million increase in accounts receivable and
inventories. The available cash generated from operations, along
with a $29 million increase in short-term borrowings, were used
to pay for capital expenditures, to increase investments in a
satellite broadcasting venture and in leveraged leases and to
reduce outstanding debt. Capital expenditures of $29.5 million
were made in 1993 primarily in the alarm system segment to
increase capacity to support the increasing product sales levels
and new product introductions.
Dividend payments were lower in 1993 than in 1992 because:
the dividend normally paid in January was paid in December 1992;
the dividends on Class A stock in 1992 included an extra $.10 per
share per quarter related to the 1989 merger of Pittway and
Standard Shares, Inc.; and quarterly dividends were reduced by
$.05 per share in 1993 due to the spinoff of AptarGroup, Inc.
The Company is continually investigating opportunities for
growth in related areas. It is presently committed to invest
approximately $17 million in certain ventures through 1996,
including $6.7 million due in 1994 to complete its investment
commitment in a satellite broadcasting company.
The Company has real estate investments in various limited
partnerships with interests in commercial rental properties which
may be sold or turned over to lendors 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, the required 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 December 31, 1993
is approximately $15.2 million.
The impact of inflation on the Company's results of
operations has lessened in recent years, although inflation does
increase the Company's cost of doing business. The Company
attempts to offset the impact of inflation through productivity
and technological improvements, cost containment programs and by
increasing its selling prices over time as allowed by market
conditions. In addition, substantially all domestic inventories
are valued on the last-in, first-out (LIFO) method, which
generally results in reporting the cost of goods sold at
approximately current costs.
Page
35
<PAGE>
EXHIBIT 21
PITTWAY CORPORATION
DECEMBER 31, 1993
FORM 10-K
Approximate
Percentage
of Voting
Securities
State or
Owned by
Country of
Immediate
Name of Company Incorporation
Parent
Pittway Corporation
Ademco International Marketing Ltd. Delaware
100
Ademco Distribution, Inc. Delaware
100
ADI-Lenox Club, Inc. Delaware
100
Automation Leasing Corp. New York
100
Ademconet, Inc. Delaware
100
Radscan, Inc. Delaware
100
FBX Corporation Delaware
100
Fire Burglary Instruments, Inc. New York
100
Datawave, Inc. Delaware
100
Viewtronics, Inc. Delaware
100
Amgard Products, Inc. Delaware
100
Amgard Monitoring, Inc. Delaware
80
Fire-Lite Alarms, Inc. Connecticut
100
Notifier Engineered Systems Company Delaware
100
MicroLite Corporation California
90
Penton Publishing, Inc. Delaware
100
Penton Learning Systems, Inc. Delaware
51
Quality Alert Institute, Inc. Delaware
100
Links Guide, Inc. Delaware
80
Curtin & Pease/Peneco, Inc. Florida
100
Pittway Real Estate, Inc. Florida
100
Chilpub, Inc. Delaware
100
Xetron Corporation Texas
100
Final Frontier Pittway I, Inc. Illinois
100
Final Frontier Pittway II, Inc. Illinois
100
Pittway Corporation of Canada Canada
100
Pittway Fire Safety, Inc. Delaware
100
Ademco de Juarez, S.A. de C.V. Mexico
100
45
<PAGE>
EXHIBIT
21
PITTWAY
CORPORATION
DECEMBER
31, 1993
FORM 10-
K
Approximate
Percentage
of Voting
Securities
State or
Owned by
Country of
Immediate
Name of Company Incorporation
Parent
Pittway Corporation (continued)
Ademco Italia S.p.A. Italy
100
Ademco (Hong Kong) Limited Hong Kong
100
Pittway Foreign Sales Corp. U.S. Virgin
Islands 100
Pittway International, Ltd. Delaware
100
Ademco Sicherheitseinrichtungen GmbH Germany
100
Notifier Espana, S.A. Spain
100
Notifier (Benelux) S.A. Belgium
100
Notifier Deutschland, GmbH Germany
100
Pittway UK Limited England
100
Notifier Limited England
100
System Sensor Limited England
100
Ademco-Sontrix Limited England
100
Ademco-Sontrix (Australia) Pty. Ltd. Australia
100
Ademco-Sontrix Espana, S.A. Spain
100
Pittway Electronics Italy S.r.l. Italy
100
Notifier Italia S.r.l. Italy
100
Pittway Tecnologica S.p.A. Italy
100
Notes: All of the above subsidiaries are included in the
Registrant's consolidated financial statements. Parent-subsidiary
or affiliate relationships are shown by marginal indentation.
46
<PAGE>
EXHIBIT 23
PITTWAY CORPORATION
DECEMBER 31, 1993
FORM 10-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by
reference in the Registration Statements on Form S-8 (No. 33-33312
and 33-35168) of Pittway Corporation of our report dated February
23, 1994 appearing on page 32 of the Annual Report to Stockholders
which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the
Financial Statement Schedules, which appears on page 16 of this
Form 10-K.
/s/Price Waterhouse
PRICE WATERHOUSE
Chicago, Illinois
March 25, 1994
47
