UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 26 weeks ended June 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-9256
__________________
PREMARK INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3461320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 Deerfield Road, Deerfield, Illinois 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847)
405-6000
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
As of August 5, 1998, 62,005,388 shares of the Common Stock,
$1.00 par value, of the Registrant were outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
a) Financial Statements of Registrant
Page
Index Number
Condensed Consolidated Statement of Income
(Unaudited) for the 13 week periods ended
June 27, 1998 and June 28, 1997.................. 2
Condensed Consolidated Statement of Income
(Unaudited) for the 26 week periods ended
June 27, 1998 and June 28, 1997.................. 3
Condensed Consolidated Balance Sheet
as of June 27, 1998 (Unaudited) and
December 27, 1997................................ 4
Condensed Consolidated Statement of Cash Flows
(Unaudited) for the 26 week periods ended
June 27, 1998 and June 28, 1997.................. 6
Notes to Condensed Consolidated
Financial Statements (Unaudited)................. 7
The condensed consolidated financial statements of the
Registrant included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Although certain information normally
included in financial statements prepared in accordance with
generally accepted accounting principles has been condensed or
omitted, the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It
is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements
and the notes thereto included in the Annual Report on Form 10-K
of the Registrant for its fiscal year ended December 27, 1997.
The condensed consolidated financial statements included herein
reflect all adjustments, consisting only of normal recurring
items, which, in the opinion of management, are necessary to
present a fair statement of the results for the interim periods
presented.
The results for interim periods are not necessarily indicative
of trends or of results to be expected for a full year.
- 1 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
13 Weeks Ended
--------------------
June 27, June 28,
1998 1997
(In millions, except per share data) --------- ---------
Net sales................................... $ 675.3 $ 594.4
-------- --------
Costs and expenses:
Cost of products sold..................... 426.2 371.1
Delivery, sales, and
administrative expense.................. 194.0 175.7
Interest expense.......................... 3.1 3.1
Interest income........................... (0.8) (2.0)
Other expense, net........................ 0.2 0.1
-------- --------
Total costs and expenses............... 622.7 548.0
-------- --------
Income before income taxes.................. 52.6 46.4
Provision for income taxes.................. 20.3 18.1
-------- --------
Net income.................................. 32.3 28.3
Retained earnings, beginning of period...... 760.3 700.4
Cash dividends declared..................... (6.2) (5.6)
Cost of treasury stock issued
in excess of option exercise prices....... (2.5) (4.3)
-------- --------
Retained earnings, end of period............ $ 783.9 $ 718.8
======== ========
Net income per common share................. $ 0.52 $ 0.46
======== ========
Net income per common share
--assuming dilution....................... $ 0.50 $ 0.43
======== ========
Average number of common shares
outstanding............................... 62.0 62.3
======== ========
Average number of common shares
and assumed conversions................... 64.9 65.3
======== ========
Dividends declared per common share......... $ 0.10 $ 0.09
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 2 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
26 Weeks Ended
--------------------
June 27, June 28,
1998 1997
(In millions, except per share data) --------- ---------
Net sales.................................. $1,291.7 $1,140.0
--------- ---------
Costs and expenses:
Cost of products sold.................... 817.3 713.4
Delivery, sales, and
administrative expense................. 378.5 344.4
Interest expense......................... 6.7 6.0
Interest income.......................... (2.0) (5.2)
Other (income) expense, net.............. (0.2) 0.6
--------- ---------
Total costs and expenses.............. 1,200.3 1,059.2
--------- ---------
Income before income taxes................. 91.4 80.8
Provision for income taxes................. 35.2 31.7
-------- --------
Net income................................. 56.2 49.1
Retained earnings, beginning of period..... 749.7 688.2
Cash dividends declared.................... (11.8) (10.6)
Cost of treasury stock issued
in excess of option exercise prices...... (10.2) (7.9)
--------- ---------
Retained earnings, end of period........... $ 783.9 $ 718.8
========= =========
Net income per common share................ $ 0.91 $ 0.79
========= =========
Net income per common share
--assuming dilution...................... $ 0.87 $ 0.75
========= =========
Average number common shares
outstanding.............................. 62.0 62.5
========= =========
Average number common shares
and assumed conversions.................. 64.8 65.5
========= =========
Dividends declared per common share......... $ 0.19 $ 0.17
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 3 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 27,
1998 December 27,
(Unaudited) 1997
(In millions) --------- ---------
Cash and cash equivalents................. $ 74.6 $ 151.3
Accounts and notes receivable............. 440.8 446.2
Less allowances for
doubtful accounts..................... (20.0) (18.1)
--------- ---------
420.8 428.1
Inventories............................... 449.9 394.0
Deferred income tax benefits.............. 81.3 68.8
Prepaid expenses.......................... 39.2 35.2
--------- ---------
Total current assets.................. 1,065.8 1,077.4
--------- ---------
Property, plant, and equipment............ 1,068.5 986.0
Less accumulated depreciation........... (578.3) (550.9)
--------- ---------
490.2 435.1
Intangibles, net of accumulated
amortization............................ 205.3 172.2
Other assets.............................. 78.7 81.1
--------- ---------
Total assets.......................... $1,840.0 $1,765.8
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 4 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
June 27,
1998 December 27,
(Unaudited) 1997
(In millions) --------- ---------
Accounts payable........................... $ 144.6 $ 135.2
Short-term borrowings and current
portion of long-term debt................ 20.3 14.7
Accrued liabilities........................ 387.5 395.4
--------- ---------
Total current liabilities.............. 552.4 545.3
--------- ---------
Long-term debt............................. 113.3 112.3
Accrued postretirement benefit cost........ 127.5 124.2
Other liabilities.......................... 101.4 76.1
Shareholders' equity:
Preferred stock, $1.00 par value,
authorized 50,000,000 shares;
issued -- none......................... - -
Series A Junior Participating
Preferred stock, $1.00 par value,
authorized 1,000,000 shares;
issued - none.......................... - -
Common stock, $1.00 par value,
authorized 200,000,000 shares;
issued -- 69,003,840 shares............ 69.0 69.0
Capital surplus............................ 351.9 348.9
Retained earnings.......................... 783.9 749.7
Treasury stock, 7,042,646 shares at
June 27, 1998 and 7,201,201 shares
at December 27, 1997, at cost............ (232.5) (236.1)
Unearned portion of restricted
stock issued for future service.......... (1.3) (1.5)
Accumulated other comprehensive income..... (25.6) (22.1)
--------- ---------
Total shareholders' equity............. 945.4 907.9
--------- ---------
Total liabilities and
shareholders' equity................. $1,840.0 $1,765.8
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 5 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
26 Weeks Ended
--------------------
June 27, June 28,
1998 1997
(In millions) --------- ---------
Cash flows from operating activities:
Net income................................ $ 56.2 $ 49.1
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 39.4 32.5
Changes in assets and liabilities:
Accounts and notes receivable....... 19.7 29.9
Inventory........................... (33.1) (48.8)
Accounts payable and
accrued liabilities............... (19.2) 6.9
Current income taxes................ (16.0) 9.3
Deferred income taxes............... 0.4 0.4
Prepaid expenses.................... (2.7) 0.9
Other............................... 8.2 (7.0)
-------- --------
Net cash provided by
operating activities .............. 52.9 73.2
-------- --------
Cash flows from investing activities:
Capital expenditures...................... (38.9) (38.4)
Sales of short-term investments........... - 84.3
Business acquisitions..................... (67.7) (23.0)
Other..................................... 1.4 0.7
-------- --------
Net cash (used in) provided by
investing activities............... (105.2) 23.6
-------- --------
Cash flows from financing activities:
Net decrease in, and repayment of,
short-term borrowings................... (2.6) (9.2)
Proceeds from long-term debt.............. - 0.5
Repayment of long-term debt............... (0.4) -
Proceeds from exercise of stock options... 4.1 3.8
Purchase of treasury stock................ (13.4) (19.9)
Payment of dividends...................... (11.2) (10.1)
-------- --------
Net cash used in
financing activities............... (23.5) (34.9)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents...................... (0.9) (1.9)
-------- --------
Net (decrease) increase in cash
and cash equivalents...................... $ (76.7) $ 60.0
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 6 -
PREMARK INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation of
financial position, results of operations, and changes in
financial position in conformity with generally accepted
accounting principles. In the opinion of management, the
unaudited condensed consolidated financial statements include
all adjustments, consisting only of normal recurring items,
necessary for a fair presentation of financial position and
results of operations. The results of operations of any interim
period are not necessarily indicative of the results that may be
expected for a full fiscal year.
Note 2: Inventories
Inventories, by component, are summarized as follows (in
millions):
June 27, December 27,
1998 1997
-------- --------
Finished goods.................. $ 232.0 $ 207.4
Work in process................. 28.2 14.8
Raw materials and supplies...... 189.7 171.8
-------- --------
Total inventories $ 449.9 $ 394.0
======== ========
Note 3: Comprehensive Income
The components of comprehensive income, net of related tax, are as
follows (in millions):
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
Net income................. $ 32.3 $ 28.3 $ 56.2 $ 49.1
Foreign currency
translation adjustment... - (0.1) (3.5) (7.1)
-------- -------- -------- --------
Comprehensive income....... $ 32.3 $ 28.2 $ 52.7 $ 42.0
======== ======== ======== ========
Accumulated other comprehensive income, net of related tax benefits,
at June 27, 1998 and December 27, 1997, is comprised solely of
foreign currency translation adjustments.
Note 4: Net Income per Share
In 1997, the company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under the
statement, the calculation of primary and fully diluted earnings per
share has been replaced with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effect of options. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been presented,
and, where appropriate, restated to conform to the SFAS No. 128
requirements.
The following table sets forth the computation of basic and diluted
earnings per share.
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
(In millions, except earnings per share)
Numerator for both basic
and diluted earnings
per share--net income.... $ 32.3 $ 28.3 $ 56.2 $ 49.1
======== ======== ======== ========
Denominator for basic
earnings per share--
weighted average shares.. 62.0 62.3 62.0 62.5
Plus: Effect of dilutive
securities--employee
stock options............ 2.9 3.0 2.8 3.0
-------- -------- -------- --------
Denominator for diluted
earnings per share--
weighted average shares
and assumed conversions.. 64.9 65.3 64.8 65.5
======== ======== ======== ========
Basic earnings per share... $ 0.52 $ 0.46 $ 0.91 $ 0.79
======== ======== ======== ========
Diluted earnings per share. $ 0.50 $ 0.43 $ 0.87 $ 0.75
======== ======== ======== ========
Options to purchase 777,500 shares of common stock at $32.25 per
share were outstanding during 1998 but were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
Note 5: Acquisitions
In the first quarter of 1998, Wilsonart completed the acquisition
of the Resopal (German) and Arborite (Canadian) decorative laminate
businesses from Forbo Holdings AG for approximately $16 million,
including the assumption of $6 million of debt. In addition, the
company's Food Equipment Group completed the acquisition of Somat
Corporation, a manufacturer of commercial waste systems, for $3.7
million and Wittco Foodservice Equipment, Inc., a manufacturer of
cooking equipment, primarily warming, holding and display cabinets,
for $5.7 million.
In the second quarter of 1998, the Food Equipment Group completed
the acquisition of Traulsen & Co., Inc., a manufacturer of
commercial refrigeration equipment, for approximately $42 million,
which includes the assumption of $4 million in debt. In addition,
Wilsonart acquired a majority position in a joint venture in
Thailand for approximately $9 million. This joint venture will
provide Wilsonart manufacturing capacity for laminate in the Far
East.
- 7 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is a discussion of the results of operations for the
13 weeks and 26 weeks ended June 27, 1998, compared with the 13
weeks and 26 weeks ended June 28, 1997, and changes in financial
condition during the 26 weeks ended June 27, 1998.
Net Sales
Net sales for the second quarter of 1998 were a record $675.3
million, an increase of 14% compared with net sales of $594.4
million in 1997. In the first half of 1998, net sales rose to
$1,291.7 million, which was an improvement of 13% from 1997's net
sales of $1,140 million. For both the quarter and the first half,
record sales occurred at the Food Equipment Group, Wilsonart and
Precor. West Bend sales declined somewhat, while Florida Tile's
sales were flat with last year. Excluding the effects of foreign
exchange rates, sales rose 15% for both the second quarter and first
half of 1998.
Costs and Expenses
Cost of products sold as a percentage of net sales was 63.1% for the
second quarter of 1998 compared with 62.4% in the second quarter of
1997. For the first half, the rates in 1998 and 1997 were 63.3% and
62.6%, respectively. The increase in both periods was due to higher
manufacturing costs at Wilsonart's 1998 acquisitions coupled with
lower production levels at Florida Tile.
Delivery, sales and administrative expense as a percentage of net
sales was 28.7% and 29.3% for the second quarter and first half of
1998, respectively, compared with the 1997 ratios of 29.6% and
30.2%, respectively. The improvement for both periods was due to
lower costs at the Food Equipment Group's European sector due to
lower marketing expenses as well as the absence in 1998 of a
provision for reduction in force and benefits from previous
reductions in personnel, along with an overall decline in expenses
as a percent of sales at Wilsonart. These items more than offset
higher new product development costs at Precor.
Net Interest Expense
Interest expense, net of interest income, was $2.3 million in the
second quarter of 1998 versus $1.1 million in the second quarter of
1997. For the first half of 1998, net interest expense was $4.7
million versus $0.8 million in 1997. The increase in net interest
expense for both periods in 1998 was due to a lower cash position as
well as a change in the investment vehicles chosen for cash,
resulting in less cash being invested in interest-bearing
instruments. The majority of income on cash investments is included
in other income in 1998.
Tax Rate
The effective tax rate was 38.5% for both the second quarter and
first half of 1998, compared with 39.0% and 39.2% for the second
quarter and first half of 1997, respectively, and 40.6% for the year
ended December 27, 1997. For the quarter and first half of 1998,
the company had lower foreign income taxes compared with the
corresponding periods in 1997. The full year 1997 rate represents
the company's inability to realize fully the tax benefit of a charge
associated with the global restructuring of the Food Equipment
Group.
Net Income
For the quarter, net income improved 14% to $32.3 million, or 50
cents per diluted share, in 1998 from $28.3 million, or 43 cents per
diluted share, in 1997. For the first half, net income grew 14% to
$56.2 million, or 87 cents per diluted share, in 1998 from $49.1
million, or 75 cents per diluted share, in 1997. For both periods a
significant improvement in profitability at the Food Equipment Group
and Wilsonart more than offset declines at Florida Tile and West
Bend, along with higher net interest expense.
Segment Results
Food Equipment Group
Net sales for the second quarter of 1998 were $355 million, an
increase of nearly 8% from $329.3 million in 1997. Excluding the
negative impact of a stronger U.S. dollar, sales for the group rose
almost 10%. For the first half, net sales improved from $619.1
million in 1997 to $667.9 million in 1998. Excluding exchange rate
impacts, sales for the first half of 1998 rose 10 percent. For the
second quarter, sales growth was driven by improvements in both the
U.S. and Europe, along with the effect of U.S. acquisitions. For
the first half, all sectors exhibited growth, also aided by the
effect of acquisitions. International operations accounted for 39%
and 40% of segment sales for the second quarter and first half of
1998, respectively.
For the second quarter, segment profit of $27.5 million was 34%
higher than 1997's $20.6 million. For the first half, segment
profit rose significantly to $45.9 million from $31.4 million in
1997. Increases were noted in all sectors, aided by the effect of
recent acquisitions. International operations accounted for 29% and
31% of segment profit for the second quarter and first half,
respectively.
U.S. sales rose 14% to $216.0 million for the second quarter of
1998. For the first half, sales rose 11% to $402.5 million. For
both periods, the impact of recent acquisitions, increased demand
for warewashing equipment, improvements in the foodservice market,
higher service revenues, and growth at Vulcan-Hart and Wolf Range
more than offset lower export volume. Excluding acquisitions, sales
grew 3% for both periods. Segment profit of $19.6 million rose 18%
from the second quarter of 1997. For the first half of 1998,
segment profit rose 17% to $31.5 million. For both the quarter and
the first half of the year, the growth in profit was due to higher
sales which more than offset increases in marketing and
administrative expenses, as well as spending on future products and
technologies.
European sales rose 2% for the second quarter of 1998 to $114.8
million. On a local currency basis European sales climbed nearly 6%
for the quarter as a result of gains in several countries, notably
the U.K. and Italy (Eurotec), which more than offset lower export
sales. Segment profit for the sector was $7.4 million for the
second quarter of 1998, almost double from the same period last
year. The change was due to the higher local currency sales,
favorable manufacturing variances and the absence of 1997's $1.7
million provision for manufacturing realignments. For the first six
months of 1998, segment profit of $13.1 million was a substantial
improvement over last year. The growth in profit was due to higher
local currency sales, especially in the U.K., the inclusion of
Eurotec for six months in 1998 versus three months in 1997,
favorable manufacturing variances, and the absence of a $4.1 million
provision for organizational changes and manufacturing realignments.
Sales for the other international operations at $24.1 million fell
by 9% in the second quarter of 1998. Year-to-date, sales of $48
million dropped 3%. On a local currency basis, sales decreased 2%
and increased 5% for the second quarter and first half,
respectively. The decline in the quarter was due to weakness in
Asia Pacific, especially Hong Kong, offsetting growth in Canada and
Latin America. For the year-to-date period, strength in Canada and
Latin America, especially Mexico and Argentina, offset a decline in
the Asia Pacific countries. Segment profit for the second quarter
rose significantly to $0.5 million, while the first half profit also
increased substantially to $1.2 million. The increases were due to
the absence of a 1997 provision of $2.0 million to close the
Australian plant. Absent that provision, segment profit fell
significantly in both periods reflecting the weak Asian markets.
Decorative Products
Net sales were $255.9 million for the second quarter of 1998, an
improvement of 27% compared with $201.2 million in the same period
in 1997. For the first half, sales grew 28% to $489.1 million from
$383.1 million in 1997. Record sales at Wilsonart aided by the
acquisitions made early in the first quarter of 1998 were
responsible for the growth in both periods. Segment profit of $27.3
million in the second quarter of 1998 was an 8% improvement from a
profit of $25.2 million in the same period in 1997. Year-to-date,
segment profit grew 4% to $45.4 million.
Wilsonart reported record sales and profit for both the quarter and
first half of 1998. Sales increased 34% versus the second quarter
of 1997, and 35% over the first half of last year. The growth in
both periods reflects increase in domestic laminate volume,
significant growth in international sales, continuing strength in
new products, as well as the impact of the acquisition of Arborite
and Resopal. Absent the acquisitions, sales would have grown 16%
and 17% for the second quarter and first half, respectively.
Segment profit rose 27% and 23% for the quarter and year to date,
respectively, on higher volume and improved pricing, despite
somewhat higher laminate costs, increased operating expenses due to
international expansion and domestic distribution, and a loss at
Arborite and Resopal. In addition, increased marketing expenses
associated with new product introductions were a factor in the
year-to-date comparison.
Florida Tile's sales were flat when compared to both the second
quarter and first half of 1997 due to no growth in volume. A
segment loss was reported for both periods, versus a segment profit
for both periods in 1997, reflecting lower production in order to
keep inventory levels consistent with sales.
Consumer Products
Net sales were $64.4 million for the second quarter of 1998, an
increase of 1% compared with $63.9 million in 1997. For the first
half, sales declined 2% from $137.8 million to $134.7 million in
1998. Segment profit for the second quarter fell 16% from $4.5
million to $3.7 million. For the first half, segment profit
declined to $10.7 million from $12.5 million last year.
For the quarter, West Bend sales fell 9% from 1997. Housewares
sales declined 22% for both the quarter and year-to-date, as a
result of lower volumes in most products, especially bread makers.
Direct-to-the-home cookware sales rose 23% for the quarter,
reflecting growth in most categories. For the year-to-date period,
sales were flat due to lower private label volume. Segment profit
declined substantially for both periods. For the quarter, lower
volume at Housewares more than offset higher sales in the cookware
sector. For the year-to-date comparison, lower volume at Housewares
more than offset improved manufacturing efficiencies in the cookware
sector and lower operating expenses.
Precor had a 21% growth in sales to record levels for both the
quarter and first half of 1998 on the strength of a large increase
in sales of the elliptical cross trainer product, as well as higher
volume in club treadmills, which more than offset a decline in
retail treadmills. The unit's segment profit increased slightly for
the quarter, but decreased slightly for the first half as a result
of increased new product development efforts.
Financial Condition
In early fiscal 1998, the company completed the acquisition of the
Resopal and Arborite decorative laminate businesses from Forbo
Holdings AG for approximately $16 million including the assumption
of $6 million of debt. In addition, the company purchased Somat
Corporation for $3.7 million and Wittco Foodservice Equipment, Inc.
for $5.7 million. In the second quarter, the company completed the
acquisition of Traulsen & Co. Inc. for approximately $42 million
including the assumption of $4 million of debt. Funds used to
purchase these companies came from available cash.
Net cash provided by operating activities in the first half of 1998
was $52.9 million compared with $73.2 million in the first half of
1997. Lower cash generation in 1998 primarily results from a
decrease in accounts payable and accrued liability balances in 1998
versus an increase in 1997, as well as higher net income tax
payments. This more than offsets an increase in net income as well
as a decrease in inventories when compared with last year, driven by
Florida Tile.
Net cash used in investing activities in 1998 was $105.2 million
versus cash provided by investing activities of $23.6 million in
1997. The large decrease between years is primarily reflective of
the acquisitions made during 1998 of Arborite, Resopal, Somat,
Wittco and Traulsen, versus only Eurotec in 1997. Capital
expenditures were comparable between years, totaling $38.9 million
and $38.4 million in 1998 and 1997, respectively. Net cash provided
by investing activities last year was driven by sales of short-term
investments.
Net cash used in financing activities was $23.5 million for the
first half of 1998 versus $34.9 million in 1997. The decrease
between years in cash used reflects a decrease in borrowings
compared with last year, along with lower repurchases of treasury
stock in 1998.
The total debt-to-capital ratio at the end the second quarter of
1998 was 12.4%, comparable with 12.3% at the end of both the second
quarter of 1997 and December 27, 1997.
Working capital as of June 27, 1998 decreased by $18.7 million from
December 27, 1997. The largest changes among the components of
working capital were a decrease in cash and cash equivalents,
reflecting the purchase of several acquisitions in 1998, offset by
higher net inventories, due to the effect of the recent acquisitions
as well as a seasonal inventory build.
As of June 27, 1998, unused lines of credit were approximately
$448.6 million, including $250 million under a revolving credit
agreement that expires in October, 2002. Future cash flows, lines
of credit, and other short-term financing are expected to be
adequate to fund normal operating and investing activities.
In August, 1996, the company announced it would repurchase 6 million
of its shares, with volume and timing to depend on market
conditions. Purchases will be made in the open market or through
other transactions and will be financed through available cash, cash
flow from operations or issuance of additional debt. Under this
plan, through June 27, 1998, and August 5, 1998, respectively, the
company has repurchased 2,567,000 shares and 2,642,000 shares at an
average cost of $27 per share for both periods.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 annual meeting of shareholders of the Registrant occurred
on May 6, 1998. The following matters were voted upon at the
meeting: the election as a director of the Registrant of each of
Ruth M. Davis, Lloyd C. Elam and John B. McKinnon, and the
ratification of the appointment of Ernst & Young LLP as independent
auditors of the Registrant.
The results of the voting were as follows:
Votes
Votes Against/ Broker
Matter Voted For Withheld* Abstained Non-Votes
Election of
Ruth M. Davis 56,017,853 570,609 N/A 0
Election of
Lloyd C. Elam 56,000,083 588,379 N/A 0
Election of
John B. McKinnon 56,043,359 545,103 N/A 0
Approval of
Ernst & Young 56,263,300 85,418 239,744 0
*Numbers shown for Director elections are votes withheld. For
the other matter voted upon, numbers shown are votes against.
In addition to the directors elected at the meeting, the
directors of the Registrant whose terms of office continued
after the meeting are: James M. Ringler, Harry W. Bowman,
W. James Farrell, Richard S. Friedland, David R. Parker and
Janice D. Stoney.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
(27) Financial Data Schedules for the second quarter
of 1998 and 1997 are filed as exhibits to this
Report.
(b) Reports on Form 8-K
During the quarter, the Registrant did not file any
Current Reports on Form 8-K.
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.
PREMARK INTERNATIONAL, INC.
By: John M. Costigan
------------------------
Senior Vice President,
General Counsel and Secretary
By: Lawrence B. Skatoff
------------------------
Senior Vice President and
Chief Financial Officer
Deerfield, Illinois
August 6, 1998
EXHIBIT INDEX
Exhibit No. Description
(27) Financial Data Schedules for
the second quarter of 1998 and
1997 are filed as exhibits to
this Report.