SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4821
PITTWAY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-5616408
(State of Incorporation) (I.R.S. Employer Identification No.)
200 South Wacker Drive, Chicago, Illinois 60606-5802
(Address of Principal Executive Offices) (Zip Code)
312/831-1070
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (October 21,
1997).
Common Stock 3,938,832
Class A Stock 17,050,745
<PAGE>
PITTWAY CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Consolidated Statement of Income -
Three and Nine Months Ended
September 30, 1997 and 1996 3
Consolidated Balance Sheet -
September 30, 1997 and December 31, 1996 4 - 5
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12 - 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
<PAGE>
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited; Dollars in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
NET SALES............................ $357,264 $285,726 $997,635 $815,564
OPERATING EXPENSES:
Cost of sales....................... 220,869 176,011 611,031 499,549
Selling, general and administrative. 99,481 80,622 283,334 234,523
Depreciation and amortization....... 9,152 7,393 26,093 21,272
329,502 264,026 920,458 755,344
OPERATING INCOME..................... 27,762 21,700 77,177 60,220
OTHER INCOME (EXPENSE):
Gain on sale of investment.......... 13,162
Gain on Cylink capital
transactions....................... 6,396 6,396 23,279
Equity in Cylink acquisition
charge-off......................... (18,943) (18,943)
Income from marketable securities,
investments and other interest..... 1,218 1,310 4,325 3,087
Interest expense.................... (3,122) (2,192) (8,957) (6,237)
Miscellaneous, net.................. (598) (57) (889) 387
(15,049) (939) (18,068) 33,678
INCOME BEFORE INCOME TAXES........... 12,713 20,761 59,109 93,898
PROVISION FOR INCOME TAXES........... 4,378 8,005 21,880 35,324
NET INCOME........................... $ 8,335 $ 12,756 $ 37,229 $ 58,574
NET INCOME PER SHARE OF COMMON AND
CLASS A STOCK...................... $ .39 $ .61 $ 1.77 $ 2.80
CASH DIVIDENDS DECLARED PER SHARE:
Common............................. $ .067 $ .067 $ .200 $ .200
Class A............................ $ .083 $ .083 $ .250 $ .250
AVERAGE NUMBER OF SHARES OUTSTANDING
(in thousands)..................... 20,986 20,924 20,975 20,919
See accompanying notes.
3
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PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Unaudited; Dollars in Thousands)
September 30, December 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents................... $ 20,693 $ 32,409
Marketable securities.................. 15,612 26,026
Accounts and notes receivable, less
allowance for doubtful accounts of
$11,420 and $9,670................... 241,736 208,182
Inventories............................ 230,826 203,254
Future income tax benefits............. 19,773 19,358
Prepayments, deposits and other........ 12,774 10,287
541,414 499,516
PROPERTY, PLANT AND EQUIPMENT, at cost:
Buildings.............................. 44,170 43,413
Machinery and equipment................ 248,936 224,268
293,106 267,681
Less: Accumulated depreciation......... (142,860) (132,867)
150,246 134,814
Land................................... 2,715 2,787
152,961 137,601
INVESTMENTS:
Marketable securities.................. 32,614 37,814
Investment in affiliate................ 19,938 31,183
Real estate and other ventures......... 39,759 39,242
Leveraged leases....................... 19,105 19,515
111,416 127,754
OTHER ASSETS:
Goodwill, less accumulated
amortization of $11,671 and $9,707... 87,017 54,068
Other intangibles, less accumulated
amortization of $10,536 and $10,668.. 4,881 5,022
Notes receivable....................... 11,287 8,070
Miscellaneous.......................... 7,411 7,062
110,596 74,222
$916,387 $839,093
See accompanying notes.
4
<PAGE>
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Unaudited; Dollars in Thousands)
September 30, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable........................... $ 87,288 $ 46,525
Long-term debt due within one year...... 4,904 3,933
Dividends payable....................... 1,718 1,724
Accounts payable........................ 95,266 102,077
Accrued expenses........................ 68,462 53,937
Income taxes payable.................... 6,539 5,685
Retirement and deferred
compensation plans.................... 10,999 6,782
Unearned income......................... 3,783 3,538
278,959 224,201
LONG-TERM DEBT, less current maturities... 90,225 87,916
DEFERRED LIABILITIES:
Income taxes............................ 61,005 65,738
Other................................... 12,992 14,366
73,997 80,104
STOCKHOLDERS' EQUITY:
Preferred stock, none issued............
Common capital stock, $1 par value-
Common stock.......................... 3,939 3,939
Class A stock......................... 17,048 16,987
Capital in excess of par value.......... 24,390 21,714
Retained earnings....................... 423,934 391,753
Cumulative marketable securities
valuation adjustment.................. 10,401 12,453
Cumulative foreign currency translation
adjustment............................ (6,506) 26
473,206 446,872
$916,387 $839,093
See accompanying notes.
5
<PAGE>
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1997 AND 1996
(Unaudited; Dollars in Thousands)
1997 1996
Cash Flows From Operating Activities:
Net Income....................................... $37,229 $ 58,574
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 26,093 21,272
Gain on sale of investment, net of taxes....... (8,149)
Gain on Cylink capital transactions,
net of taxes.................................. (3,997) (14,413)
Equity in Cylink acquisition charge-off,
net of taxes.................................. 11,839
Deferred income taxes.......................... 961 (2,359)
Retirement and deferred compensation plans..... 4,081 4,163
Income/loss from investments adjusted
for cash distributions received............... (1,435) 1,091
Provision for losses on accounts receivable.... 3,159 4,043
Change in assets and liabilities, excluding
effects from acquisitions, dispositions
and foreign currency adjustments:
Increase in accounts and notes receivable.... (37,295) (28,993)
Increase in inventories...................... (26,956) (34,852)
Increase in prepayments and deposits......... (1,966) (3,121)
Increase in accounts payable and accrued
expenses................................... 2,733 18,420
Increase in income taxes payable............. 1,201 2,774
Other changes, net............................. 156 (55)
Net cash provided by operating activities........ 15,803 18,395
Cash Flows From Investing Activities:
Capital expenditures............................. (41,430) (27,721)
Proceeds from sale of investment, net of taxes... 10,748
Proceeds from the sale of marketable securities.. 25,105 11,065
Purchases of marketable securities............... (13,595) (5,900)
Disposition of property and equipment............ 570 493
Additions to investments......................... (57) (4,066)
Increase in notes receivable..................... (1,239) (4,343)
Net assets of businesses acquired, net of cash... (34,676) (3,065)
Net cash used by investing activities............ (65,322) (22,780)
Cash Flows From Financing Activities:
Net increase in notes payable.................... 41,741 283
Proceeds of long-term debt....................... 8,596 72
Repayments of long-term debt..................... (8,210) (767)
Stock options exercised.......................... 956
Dividends paid................................... (5,053) (5,062)
Net cash provided (used) by financing activities. 38,030 (5,474)
Effect of Exchange Rate Changes on Cash............ (228) 50
Net Decrease in Cash and Equivalents............... (11,716) (9,809)
Cash and Equivalents at Beginning of Period........ 32,409 31,407
Cash and Equivalents at End of Period.............. $ 20,693 $ 21,598
See accompanying notes.
6
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PITTWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in Thousands, Except per Share Data)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Pittway Corporation and its majority-owned subsidiaries (the
"Company" or "Registrant"). Summarized financial information for the
limited real estate partnership ventures and other affiliates is
omitted because, when considered in the aggregate, they do not
constitute a significant subsidiary.
The accompanying consolidated financial statements are unaudited but
reflect all adjustments of a normal recurring nature which are, in the
opinion of management, necessary for a fair presentation of the
financial statements contained herein. However, the financial
statements and related notes do not include all disclosures normally
provided in the Company's Annual Report on Form 10-K. Accordingly,
these financial statements and related notes should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
NOTE 2. ACQUISITIONS
In the first nine months of 1997, the Company acquired the assets and
businesses of a domestic manufacturer and distributor of fire controls,
a foreign distributor of alarm and other security products and a
producer of trade shows and conferences. The total purchase price for
these businesses was $34,676 cash and $4,453 in deferred payouts
through 2002. These acquisitions were accounted for as purchase
transactions in the consolidated financial statements from their
respective dates of acquisition. The impact on consolidated results of
operations was not significant.
NOTE 3. INVENTORIES
The recorded value of inventories at September 30, 1997 and December
31, 1996 approximate current cost and consist of the following:
1997 1996
Raw materials $ 56,155 $ 41,568
Work in process 20,120 19,560
Finished goods -
Manufactured by the Company 83,655 69,020
Manufactured by others 70,896 73,106
$230,826 $203,254
7
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NOTE 4. MARKETABLE SECURITIES
Information about the Company's marketable securities at September 30,
1997 and December 31, 1996 is as follows:
1997 1996
Current - Adjustable Rate Preferred Stocks -
Aggregate cost $ 15,639 $ 27,937
Net unrealized holding loss (27) (1,911)
Aggregate fair value $ 15,612 $ 26,026
Non-Current - USSB Common Stock -
Aggregate cost $ 15,789 $ 15,789
Unrealized holding gain 16,825 22,025
Aggregate fair value $ 32,614 $ 37,814
In February 1996, the Company sold 13% of its investment in United
States Satellite Broadcasting Company, Inc. (USSB) as part of an
initial public offering of USSB's common stock. The sale of the shares
resulted in an after-tax gain of $8,149, or $.39 per share.
Realized gains and losses are based upon the specific identification
method. Such gains and losses on the adjustable rate preferred stock,
for the nine months ended September 30, 1997 and 1996 were not
significant.
NOTE 5. INVESTMENT IN AFFILIATE
The investment in affiliate consists of the Company's interest in
Cylink Corporation (Cylink), which is carried at equity. In September
1997, Cylink acquired Algorithmic Research, an information security
company, for cash and Cylink stock totaling $76.2 million. The Company
recorded a $4.0 million after-tax gain ($.19 per share) as a result of
the stock issued in the acquisition and an $11.8 million after-tax
expense ($.57 per share) for its equity in Cylink's write-off of "in-
process technology" acquired in the transaction. At September 30, 1997
the Company's 8.6 million shares of Cylink stock had a quoted market
value of $136.1 million.
In 1996, the carrying value of the investment in Cylink was increased
by $23,279 to reflect the increase in the Company's equity in Cylink's
net book value as a result of an initial public offering in February
1996. The after-tax gain recorded on the increase in Cylink's equity
was $14,413, or $.69 per share.
NOTE 6. EARNINGS PER SHARE
Net income per share of common capital stock is based on the combined
weighted average number of Common and Class A shares outstanding during
each period and does not include Class A shares issuable upon exercise
of stock options or for other stock awards because the dilutive effect
is not significant.
8
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NOTE 7. LEGAL PROCEEDINGS
In 1989 a judgment was entered against Saddlebrook Resorts, Inc.
("Saddlebrook"), a former subsidiary of the Company, in a lawsuit which
arose out of the development of Saddlebrook's resort and a portion of
the adjoining residential properties owned and developed by the
Company. The lawsuit alleged damage to plaintiffs' adjoining property
caused by surface water effects from improvements to the properties.
Damages of approximately $8 million were awarded to the plaintiffs and
an injunction was entered requiring, among other things, that
Saddlebrook work with local regulatory authorities to take corrective
actions. In 1990 the trial court entered an order vacating the
judgment and awarding a new trial. In December 1994, Saddlebrook's
motion for summary judgment based on collateral estoppel was granted on
the ground that Plaintiffs' claims were fully retried and rejected in a
related administrative proceeding. Plaintiffs appealed the trial
court's decision granting summary judgment. In August 1996, the
appellate court affirmed all but three issues in the trial court's
summary judgment order in favor of Saddlebrook. A hearing took place on
May 15, 1997 to determine the scope of the three issues remaining for
retrial. The trial court must rule on the scope before the retrial can
take place which is expected to begin in 1998. The Company believes
that the ultimate outcome of the aforementioned lawsuit will not have a
material adverse effect on its financial statements.
The Company in the normal course of business is subject to a
number of lawsuits and claims both actual and potential in nature
including a lawsuit claiming patent infringement. While management
believes that resolution of the patent infringement suit and other
existing claims and lawsuits will not have a material adverse effect on
the Company's financial statements, management is unable to estimate
the magnitude of financial impact of claims and lawsuits which may be
filed in the future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the third quarter and first nine months of 1997, sales increased 25%
to $357.3 million and 22% to $997.6 million over the respective periods
in 1996. These increases reflect higher sales levels in the Company's
alarm group segment and to a lesser extent the publishing segment.
Domestic and international sales grew 27% and 15% for the quarter and
23% and 19% for the first nine months, respectively. International
business relates to the alarm group segment and represents 14% of total
consolidated sales for both 1997 and 1996. Most of the foreign sales
growth in 1997 is from expansion of European operations. Gross profit
increased at about the same rate as sales in the third quarter and year-
to-date. Selling, general and administrative expenses increased 23% in
the third quarter and 21% in the first nine months of 1997 primarily as
a result of increased costs associated with the higher sales volume.
9
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Alarm Group sales for the quarter increased 28% to $306.5 million and
for the first nine months increased 25% to $844.1 million accounting for
85% of consolidated revenues in 1997 versus 83% in 1996. This growth
was led by increased manufacturing sales of burglar alarm products and
systems to major customers and ongoing expansion in the worldwide alarm
systems market. Operating income for this segment increased 23% to $23.3
million for the third quarter and 23% to $63.6 million for the first
nine months. The increases in income are primarily due to the expanded
sales volume despite increased distribution expenses associated with the
UPS strike during the third quarter.
Publishing sales for the quarter and year-to-date grew to $50.7 million
and $153.4 million representing 9% and 10% increases over the same
periods in 1996. Operating income increased 60% to $5.7 million for the
third quarter and 49% to $19.1 million for the first nine months of
1997. These favorable results were achieved through a combination of
increased revenues, including a newly acquired trade show held in the
second quarter, and containment of operating costs. Also, special
issues in the third quarter of 1997 contributed to both revenue and
earnings gains.
Depreciation and amortization expense increased 24% in the third quarter
and 23% for the first nine months, mainly as a result of capital
additions in the alarm segment.
Other income (expense) in the third quarter of 1997 and year to date
includes two special items recorded in connection with an acquisition
made by the Company's Cylink affiliate: a $6.4 million pretax gain as a
result of the stock issued in the acquisition; and an $18.9 million pre-
tax expense for the Company's equity in Cylink's write-off of "acquired
in-process technology." In the first nine months of 1996, other income
included a pretax gain of $13.2 million on the sale of 622,500 shares of
USSB stock in connection with its initial public offering and a $23.3
million increase in the book value of the Company's investment in Cylink
resulting from stock issued in its initial public offering. Excluding
these special items in both years, other income (expense) was less
favorable for the quarter and year-to-date principally due to increased
interest expense from higher borrowing levels.
Effective tax rates were 34.4% and 38.6% for the third quarter of 1997
and 1996, respectively, and 37.0% and 37.6% for the first nine months of
1997 and 1996, respectively. Excluding the special items related to
Cylink, the effective tax rate for the third quarter of 1997 was 36.0%,
which was lower than the prior-year period due to reserves no longer
required.
ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share" (EPS). The statement replaces primary EPS with basic EPS,
10
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which excludes dilution, and requires presentation of both basic and
diluted EPS on the face of the income statement. Diluted EPS is
computed similarly to the current fully diluted EPS. The statement is
effective for financial statements issued for periods ending after
December 15, 1997, and requires restatement of all prior-period EPS data
presented. The adoption of this statement is not expected to materially
affect either current or prior-period EPS.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". The statement requires the addition of comprehensive income
and its components in the primary financial statements. Comprehensive
income includes cumulative foreign currency translation adjustments and
unrealized investment gains and losses, which are not included in income
under current accounting principles. The statement is effective for
fiscal years beginning after December 15, 1997, and requires comparative
amounts in financial statements for earlier periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". The statement requires the
Company to report financial and descriptive information about its
reportable segments, determined using the management approach (i.e.,
internal management reporting). The statement is effective for fiscal
years beginning after December 15, 1997.
The Company has not yet determined the impact that SFAS No. 130 and No.
131 will have on its financial statements.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first nine
months of 1997. Management anticipates that operations, borrowings and
marketable securities will continue to be the primary source of funds
needed to meet ongoing programs for capital expenditures, to finance
acquisitions and investments and to pay dividends.
In the first nine months of 1997, income before depreciation,
amortization, and the special items recorded in connection with the
acquisition made by the Company's Cylink affiliate, provided $71.2
million of net cash which was used primarily to finance the net increase
in working capital items including a $27.0 million increase in inventory
balances and a $37.3 million increase in accounts receivable. Three
acquisitions were completed in the period which were financed through
$34.7 million of short term borrowings. Additional short term
borrowings of $7.0 million, the net $15.8 million of cash generated from
operations, along with $11.5 million of net proceeds from the sale of
marketable securities, $1.0 million of proceeds from the exercise of
stock options, $11.7 million of cash on hand and $.7 million of cash
from additional sources were used to finance $41.4 million of capital
additions, $5.1 million of dividends paid to stockholders, and a net
increase of $1.2 million in notes receivable.
11
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The Company continually investigates investment opportunities for growth
in related areas and is presently committed to invest up to $24.8
million in certain affordable housing ventures through 2005.
The Company has real estate investments in various limited partnerships
with interests in commercial rental properties which may be sold or
turned over to lenders due to the weak commercial real estate market of
the past several years. Such events have no effect on net income
although they do have a negative impact on the Company's cash position
because tax payments become due when the properties are sold or returned
to the lenders. The Company has approximately $4.2 million accrued at
September 30, 1997 to fully cover the remaining tax payments that would
be due if all the properties were sold or returned to the lenders.
The Company presently intends to hold its existing investments in
preferred stocks, USSB and Cylink although occasional sales of preferred
and USSB stocks may be made selectively as conditions warrant.
****
This quarterly report, other than historical financial information,
contains forward-looking statements that involve a number of risks and
uncertainties. Important factors that could cause actual results to
differ materially from those indicated by such forward-looking
statements are set forth in Item 1 of the Company's annual report on
Form 10-K for the year ended December 31, 1996. These include risks and
uncertainties relating to government regulation, competition and
technological change, intellectual property rights, capital spending,
international operations, and the Company's acquisition strategies.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 10, 1989, the Circuit Court of the Sixth Judicial Circuit in and
for Pasco County, Florida, entered a judgment against Saddlebrook
Resorts, Inc. ("Saddlebrook"), a former subsidiary of the Company, in a
lawsuit which arose out of the development of Saddlebrook's resort and a
portion of the adjoining residential properties owned and developed by
the Company. The lawsuit (James H. Porter and Martha Porter, Trustees,
et al. vs. Saddlebrook Resorts, Inc. and The County of Pasco, Florida;
Case No. CA83-1860), alleges damage to plaintiffs' adjoining property
caused by surface water effects from improvements to the properties.
Damages of approximately $8 million were awarded to the plaintiffs and
an injunction was entered requiring, among other things, that
Saddlebrook work with local regulatory authorities to take corrective
12
<PAGE>
actions. Saddlebrook made two motions for a new trial, based on
separate grounds. One such motion was granted on December 18, 1990.
Such grant was appealed by the plaintiffs. The other such motion was
denied on February 28, 1991. Saddlebrook appealed such denial. The
appeals were consolidated, fully briefed and heard in February 1992.
Saddlebrook received a favorable ruling on March 18, 1992, dismissing
the judgment and remanding the case to the Circuit Court for a new
trial. An agreed order has been entered by the Court preserving the
substance of the injunction pending final disposition of this matter.
As part of its plan to comply with the agreed order, Saddlebrook filed
applications with the regulatory agency to undertake various remediation
efforts. Plaintiffs, however, filed petitions for administrative review
of the applications, which administrative hearing was concluded in
February 1992. On March 31, 1992, the hearing officer issued a
recommended order accepting Saddlebrook's expert's testimony. The
agency's governing board was scheduled to consider this recommended
order on April 28, 1992, however, shortly -before the hearing, the
plaintiffs voluntarily dismissed their petitions and withdrew their
challenges to the staff's proposal to issue a permit.
At the April 28, 1992 hearing the governing board closed its file on the
matter and issued the permits. Saddlebrook appealed the board's refusal
to issue a final order. On July 9, 1993 a decision was rendered for
Saddlebrook remanding jurisdiction to the governing board for further
proceedings, including entry of a final order which was issued on
October 25, 1993. The plaintiffs appealed the Appellate Court decision
to the Florida Supreme Court and appealed the issuance of the final
order to the Second District Court of Appeals. The Florida Supreme
Court heard the appeal on May 3, 1994 and denied plaintiffs' appeal.
The other appeal was voluntarily dismissed by the plaintiffs on June 17,
1994. On remand to the trial court, Saddlebrook's motion for summary
judgment, based on collateral estoppel on the ground that plaintiffs'
claims were fully retried and rejected in a related administrative
proceeding was granted on December 7, 1994. Plaintiffs filed for a
rehearing which was denied. Plaintiffs appealed the trial court's
decision granting summary judgment. In August 1996, the appellate court
affirmed all but three issues in the trial court's summary judgment
order in favor of Saddlebrook. A hearing took place on May 15, 1997 to
determine the scope of the three issues remaining for retrial. The trial
court must rule on the scope before the retrial can take place which is
expected to begin in 1998.
Until October 14, 1989, Saddlebrook disputed responsibility for ultimate
liability and costs (including costs of corrective action). On that
date, the Company and Saddlebrook entered into an agreement with regard
to such matters. The agreement, as amended and restated on July 16,
1993, provides for the Company and Saddlebrook to split equally the
costs of the defense of the litigation and the costs of certain related
litigation and proceedings, the costs of the ultimate judgment, if any,
and the costs of any mandated remedial work. Subject to certain
conditions, the agreement permits Saddlebrook to obtain subordinated
13
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loans from the Company to enable Saddlebrook to pay its one-half of the
costs of the latter two items. No loans have been made to date. The
Company believes that the ultimate outcome of the aforementioned lawsuit
will not have a material adverse effect on its financial statements.
The Company in the normal course of business is subject to a number of
lawsuits and claims both actual and potential in nature including a
lawsuit claiming patent infringement. While management believes that
resolution of the patent infringement suit and other existing claims and
lawsuits will not have a material adverse effect on the Company's
financial statements, management is unable to estimate the magnitude of
financial impact of claims and lawsuits which may be filed in the
future.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Number Description
27 Financial Data Schedule
(submitted only in electronic format)
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PITTWAY CORPORATION
(Registrant)
By /s/ Paul R. Gauvreau
Paul R. Gauvreau
Financial Vice President
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 3, 1997
14
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,693
<SECURITIES> 15,612
<RECEIVABLES> 253,156
<ALLOWANCES> 11,420
<INVENTORY> 230,826
<CURRENT-ASSETS> 541,414
<PP&E> 295,821
<DEPRECIATION> 142,860
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<COMMON> 20,987
<OTHER-SE> 452,219
<TOTAL-LIABILITY-AND-EQUITY> 916,387
<SALES> 997,635
<TOTAL-REVENUES> 997,635
<CGS> 611,031
<TOTAL-COSTS> 611,031
<OTHER-EXPENSES> 26,093
<LOSS-PROVISION> 3,159
<INTEREST-EXPENSE> 8,957
<INCOME-PRETAX> 59,109
<INCOME-TAX> 21,880
<INCOME-CONTINUING> 37,229<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,229<F1>
<EPS-PRIMARY> 1.77<F1>
<EPS-DILUTED> 1.77<F1>
<FN>
<F1>Excluding net after-tax charges of $7.842 million, or $.38 per share,
resulting from an acquisition by the Company's affiliate, Cylink
Corporation, net income was $45.071 million, or $2.15 per share.
</FN>
</TABLE>
