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 26, 1999
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 2, 1999, 61,265,992 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 26, 1999 and June 27, 1998.................. 2
Condensed Consolidated Statement of Income
(Unaudited) for the 26 week periods ended
June 26, 1999 and June 27, 1998.................. 3
Condensed Consolidated Balance Sheet
as of June 26, 1999 (Unaudited) and
December 26, 1998................................ 4
Condensed Consolidated Statement of Cash Flows
(Unaudited) for the 26 week periods ended
June 26, 1999 and June 27, 1998.................. 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 26, 1998.
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 26, June 27,
1999 1998
-------- --------
(In millions, except per share data)
Net sales................................... $ 729.9 $ 675.3
-------- --------
Costs and expenses:
Cost of products sold..................... 456.0 426.2
Delivery, sales, and
administrative expense.................. 205.3 194.0
Interest expense.......................... 6.2 3.1
Interest income........................... (0.7) (0.8)
Other expense, net........................ 0.3 0.2
-------- --------
Total costs and expenses............... 667.1 622.7
-------- --------
Income before income taxes.................. 62.8 52.6
Provision for income taxes.................. 23.4 20.3
-------- --------
Net income.................................. 39.4 32.3
Retained earnings, beginning of period...... 849.3 760.3
Cash dividends declared..................... (6.8) (6.2)
Cost of treasury stock issued
in excess of option exercise prices....... (8.2) (2.5)
-------- --------
Retained earnings, end of period............ $ 873.7 $ 783.9
======== ========
Net income per common share................. $ 0.64 $ 0.52
======== ========
Net income per common share--
assuming dilution......................... $ 0.62 $ 0.50
======== ========
Average number of common shares
outstanding............................... 61.3 62.0
======== ========
Average number of common shares
and assumed conversions................... 63.7 64.9
======== ========
Dividends declared per common share......... $ 0.11 $ 0.10
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 2 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
26 Weeks Ended
--------------------
June 26, June 27,
1999 1998
(In millions, except per share data) --------- ---------
Net sales.................................. $1,414.3 $1,291.7
--------- ---------
Costs and expenses:
Cost of products sold.................... 888.1 817.3
Delivery, sales, and
administrative expense................. 408.8 378.5
Interest expense......................... 12.1 6.7
Interest income.......................... (1.8) (2.0)
Other income, net........................ (0.7) (0.2)
--------- ---------
Total costs and expenses.............. 1,306.5 1,200.3
--------- ---------
Income before income taxes................. 107.8 91.4
Provision for income taxes................. 40.3 35.2
-------- --------
Net income................................. 67.5 56.2
Retained earnings, beginning of period..... 832.1 749.7
Cash dividends declared.................... (12.9) (11.8)
Cost of treasury stock issued
in excess of option exercise prices...... (13.0) (10.2)
--------- ---------
Retained earnings, end of period........... $ 873.7 $ 783.9
========= =========
Net income per common share................ $ 1.10 $ 0.91
========= =========
Net income per common share
--assuming dilution...................... $ 1.06 $ 0.87
========= =========
Average number of common shares
outstanding.............................. 61.4 62.0
========= =========
Average number of common shares
and assumed conversions.................. 63.9 64.8
========= =========
Dividends declared per common share......... $ 0.21 $ 0.19
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 3 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 26,
1999 December 26,
(Unaudited) 1998
--------- ---------
(In millions)
Cash and cash equivalents................. $ 126.6 $ 147.6
Accounts and notes receivable............. 477.2 497.4
Less allowances for
doubtful accounts..................... (20.0) (20.6)
--------- ---------
457.2 476.8
Inventories............................... 449.9 455.1
Deferred income tax benefits.............. 75.4 79.9
Prepaid expenses.......................... 36.3 36.4
Recoverable income taxes.................. 8.9 -
--------- ---------
Total current assets.................. 1,154.3 1,195.8
--------- ---------
Property, plant, and equipment............ 1,190.5 1,174.5
Less accumulated depreciation........... (629.4) (611.9)
--------- ---------
561.1 562.6
Intangibles, net of accumulated
amortization............................ 241.9 247.2
Other assets.............................. 83.6 90.3
--------- ---------
Total assets.......................... $2,040.9 $2,095.9
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 4 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
June 26,
1999 December 26,
(Unaudited) 1998
--------- ---------
(In millions)
Accounts payable........................... $ 133.3 $ 152.2
Short-term borrowings and current
portion of long-term debt................ 24.9 21.3
Accrued liabilities........................ 377.2 403.4
Income taxes payable....................... - 12.2
--------- ---------
Total current liabilities.............. 535.4 589.1
--------- ---------
Long-term debt............................. 259.7 261.1
Accrued postretirement benefit cost........ 127.9 125.2
Other liabilities.......................... 107.4 116.9
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............................ 364.9 359.7
Retained earnings.......................... 873.7 832.1
Treasury stock, 7,810,673 shares at
June 26, 1999 and 7,175,365 shares
at December 26, 1998, at cost............ (258.3) (236.7)
Unearned portion of restricted
stock issued for future service.......... (2.5) (3.4)
Accumulated other comprehensive income..... (36.3) (17.1)
--------- ---------
Total shareholders' equity............. 1,010.5 1,003.6
--------- ---------
Total liabilities and
shareholders' equity................. $2,040.9 $2,095.9
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 5 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
26 Weeks Ended
-------------------
June 26, June 27,
1999 1998
-------- --------
(In millions)
Cash flows from operating activities:
Net income................................ $ 67.5 $ 56.2
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 44.8 39.4
Changes in assets and liabilities:
Accounts and notes receivable....... 8.3 19.7
Inventory........................... (1.9) (33.1)
Accounts payable and
accrued liabilities............... (27.8) (19.2)
Current income taxes................ (20.0) (16.0)
Deferred income taxes............... 3.3 0.4
Prepaid expenses.................... (3.9) (2.7)
Other............................... 8.3 8.2
-------- --------
Net cash provided by
operating activities............ 78.6 52.9
-------- --------
Cash flows from investing activities:
Capital expenditures...................... (50.1) (38.9)
Business acquisitions..................... (7.9) (67.7)
Other..................................... 1.7 1.4
-------- --------
Net cash used in
investing activities............ (56.3) (105.2)
-------- --------
Cash flows from financing activities:
Net proceeds from (repayment of)
short-term borrowings................... 5.3 (2.6)
Repayment of long-term debt............... (1.6) (0.4)
Proceeds from exercise of stock options... 5.5 4.1
Purchase of treasury stock................ (40.2) (13.4)
Payment of dividends...................... (12.3) (11.2)
-------- --------
Net cash used in
financing activities............ (43.3) (23.5)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents...................... - (0.9)
-------- --------
Net decrease in cash
and cash equivalents...................... $ (21.0) $ (76.7)
======== ========
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 26, December 26,
1999 1998
----------- -----------
Finished goods.................. $ 225.1 $ 225.2
Work in process................. 30.9 16.8
Raw materials and supplies...... 193.9 213.1
-------- --------
Total inventories $ 449.9 $ 455.1
======== ========
Note 3: Comprehensive Income
The components of comprehensive income, net of related tax, for
the 13 week and 26 week periods ended June 26, 1999 and June 27, 1998
are as follows:
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
Net income................. $ 39.4 $ 32.3 $ 67.5 $ 56.2
Foreign currency
translation adjustment... (7.2) - (19.2) (3.5)
-------- -------- -------- --------
Comprehensive income....... $ 32.2 $ 32.3 $ 48.3 $ 52.7
======== ======== ======== ========
Accumulated other comprehensive income, net of related tax
benefits, at June 26, 1999 and December 26, 1998, is comprised
solely of foreign currency translation adjustments.
Note 4: Net Income per Share
The following table sets forth the computation of basic and
diluted earnings per share.
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
(In millions, except earnings per share)
Numerator for both basic
and diluted earnings
per share--net income.... $ 39.4 $ 32.3 $ 67.5 $ 56.2
======== ======== ======== ========
Denominator for basic
earnings per share--
weighted average shares.. 61.3 62.0 61.4 62.0
Plus: Effect of dilutive
securities--employee
stock options............ 2.4 2.9 2.5 2.8
-------- -------- -------- --------
Denominator for diluted
earnings per share--
weighted average shares
and assumed conversions.. 63.7 64.9 63.9 64.8
======== ======== ======== ========
Basic earnings per share... $ 0.64 $ 0.52 $ 1.10 $ 0.91
======== ======== ======== ========
Diluted earnings per share. $ 0.62 $ 0.50 $ 1.06 $ 0.87
======== ======== ======== ========
In 1998, options to purchase 777,500 shares of common stock at $32.25
per share were outstanding but were not included in the computation
of the 1998 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 1999, the Food Equipment Group purchased
the Stanley Knight Corporation and KaiRak, Inc., manufacturers of
fabricated products that often include refrigeration, for
approximately $4 million and $5 million, respectively, including the
assumption of $1 million of debt at Stanley Knight. The funds used
to purchase these companies came from available cash.
Note 6: Segment Information
13 Weeks Ended
---------------------
June 26, June 27,
1999 1998
-------- --------
(In millions)
Net sales:
Food Equipment Group..................... $ 382.4 $ 355.0
Decorative Products Group................ 280.1 255.9
Consumer Products Group.................. 67.4 64.4
--------- ---------
Total net sales............................ $ 729.9 $ 675.3
========= =========
Segment profit
Food Equipment Group..................... $ 31.4 $ 27.5
Decorative Products Group................ 36.3 27.3
Consumer Products Group.................. 4.4 3.7
--------- ---------
Total segment profit....................... 72.1 58.5
Unallocated expenses..................... (3.8) (3.6)
Interest expense, net.................... (5.5) (2.3)
--------- ---------
Income before income taxes................. $ 62.8 $ 52.6
========= =========
26 Weeks Ended
---------------------
June 26, June 27,
1999 1998
-------- --------
(In millions)
Net sales:
Food Equipment Group..................... $ 737.0 $ 667.9
Decorative Products Group................ 531.6 489.1
Consumer Products Group.................. 145.7 134.7
--------- ---------
Total net sales............................ $1,414.3 $1,291.7
========= =========
Segment profit
Food Equipment Group..................... $ 54.4 $ 45.9
Decorative Products Group................ 58.4 45.4
Consumer Products Group.................. 11.8 10.7
--------- ---------
Total segment profit....................... 124.6 102.0
Unallocated expenses..................... (6.5) (5.9)
Interest expense, net.................... (10.3) (4.7)
--------- ---------
Income before income taxes................. $ 107.8 $ 91.4
========= =========
There are no intersegment sales or profit or loss. Unallocated
expenses are corporate expenses and other items not related to
the operations of the segments.
- 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 26, 1999, compared with the 13
weeks and 26 weeks ended June 27, 1998, and changes in financial
condition during the 26 weeks ended June 26, 1999.
Net Sales
Net sales for the second quarter of 1999 were a record $729.9
million, an increase of 8% compared with net sales of $675.3
million in 1998. In the first half of 1999, net sales rose to
$1,414.3 million, which was an improvement of nearly 10% from 1998's
net sales of $1,291.7 million. For both the quarter and the first
half, record sales occurred at the Food Equipment Group, Wilsonart,
Florida Tile and Precor. For the second quarter, West Bend's sales
declined slightly, while year-to-date, sales rose slightly.
Excluding the effects of foreign exchange rates, sales rose 9% and
10% for the second quarter and first half of 1999, respectively.
Costs and Expenses
Cost of products sold as a percentage of net sales was 62.5% for
the second quarter of 1999 compared with 63.1% in the second
quarter of 1998. For the first half, the rates in 1999 and 1998 were
62.8% and 63.3%, respectively. The improvements for both the quarter
and year-to-date were due to increased productivity and improved
yields at Wilsonart, along with lower manufacturing costs at West
Bend and Florida Tile, which more than offset higher manufacturing
costs at the recent acquisitions of the Food Equipment Group.
Delivery, sales and administrative expenses as a percentage of net
sales was 28.1% and 28.9% for the second quarter and first half of
1999, respectively, compared with the 1998 ratios of 28.7% and 29.3%,
respectively. The improvement for both periods was due to a decline
in marketing and other operating expenses as a percent of sales at
the Food Equipment Group, an overall decline in expenses as a percent
of sales at Florida Tile, and lower advertising and other operating
expenses at Precor. These items more than offset higher selling and
new product technology costs at Wilsonart.
Net Interest Expense
Interest expense, net of interest income, was $5.5 million in the
second quarter of 1999 versus $2.3 million in the second quarter of
1998. For the first half of 1999, net interest expense was $10.3
million versus $4.7 million in 1998. The increase in net interest
expense in both periods for 1999 was principally due to a higher net
debt position as a result of the placement of $150 million of
long-term debt in November, 1998. The majority of income on cash
investments, which are held in non-interest bearing vehicles, is
included in other income for all periods.
Tax Rate
The effective tax rate was 37.3% and 37.4% for the second quarter and
first half of 1999, respectively, compared with 38.5% for both the
second quarter and first half of 1998, and 38% for the year ended
December 26, 1998. For the quarter and first half of 1999, the
company had lower foreign income taxes compared with corresponding
periods in 1998 as well as with the full year 1998.
Net Income
For the quarter, net income improved nearly 22% to $39.4 million, or
62 cents per diluted share, in 1999 from $32.3 million, or 50 cents
per diluted share, in 1998. For the first half, net income grew 20%
to $67.5 million, or $1.06 per diluted share, in 1999 from $56.2
million, or 87 cents per diluted share, in 1998. For both periods, a
significant improvement in profitability at Wilsonart, the Food
Equipment Group, Florida Tile and West Bend more than offset a
decline at Precor and higher net interest expense.
Segment Results
Food Equipment Group
Net sales for the second quarter of 1999 were a record $382.4
million, an increase of nearly 8% from $355.0 million in 1998.
Excluding the negative impact of a stronger U.S. dollar, sales for
the group rose 9%. For the first half, net sales improved from
$667.9 million in 1998 to $737.0 million in 1999, an increase of 10%.
Excluding exchange rate impacts, sales for the first half of 1999
rose 11%. For both the second quarter and first half, all sectors
exhibited local currency growth. In addition, the improvement was
aided by the effect of acquisitions. International operations
accounted for 36% of segment sales for both the second quarter and
first half of 1999.
For the second quarter, segment profit of $31.4 million was 14%
higher than 1998's $27.5 million. Increases were reported in the
United States and Other International sectors. Europe was
essentially flat to last year. For the first half, segment profit
rose significantly to $54.4 million from $45.9 million in 1998.
While Europe declined slightly, improvement was seen in the United
States as well as in the Other International sector. International
operations accounted for 31% and 28% of segment profit for the second
quarter and first half, respectively.
United States sales rose 13% to a record $244.7 million for the
second quarter of 1999. For the first half, sales rose 16% to $468.1
million. For both periods, the impact of recent acquisitions,
improvements in all of Hobart's channels, and growth at Vulcan-Hart
more than offset lower export volume. Excluding acquisitions, sales
grew 6% for the second quarter and 7% for the first half. A record
segment profit of $21.8 million rose 11% from the second quarter of
1998. For the first half of 1999, segment profit rose 24% to $39.1
million. For both the quarter and first half of the year, the growth
in profit was a result of higher volume, lower operating expenses as
a percent of sales, and the effect of recent acquisitions.
European sales fell 3% from the second quarter of 1998 to $111.7
million. On a local currency basis European sales rose 1% for the
quarter, reflecting the acquisition of MBM in the fourth quarter of
1998, which was offset by the absence of sales from certain non-core
product lines of Eurotec, which were sold in the fourth quarter of
1998. Segment profit for the sector was $7.2 million for the second
quarter of 1999, a 3% decline from the same period in 1998.
Excluding foreign exchange rate impacts, segment profit rose 1%. For
the first six months of 1999, sales rose 2% excluding the impact of
foreign exchange rates, reflecting the acquisition of MBM and
increases in several countries, offset in part by the absence of
sales from certain non-core product lines of Eurotec. Segment profit
for the sector was $12.4 million for the first half of 1999 versus
$13.1 million for the same period last year, as higher profits in
Germany, Tasselli and the inclusion of MBM were offset by the impact
of the sale of certain Eurotec product lines, lower results in the
U.K. and the nonrepeat of one-time nonoperating gains in 1998.
Sales for the other international operations of $26.0 million rose 8%
in the second quarter of 1999. Year-to-date, sales of $48.5 million
increased 1%. On a local currency basis, sales improved 9% and 5%
for the second quarter and first half, respectively. The improvement
in both the quarter and first half was due to strength in Mexico,
Canada and Hong Kong, which more than offset declines in Argentina
and Australia. Segment profit for the second quarter rose
significantly to $2.4 million, while the first half profit also
increased substantially to $2.9 million. Improvements were noted in
most Asia Pacific markets, along with Mexico and Canada.
Decorative Products
Net sales were $280.1 million for the second quarter of 1999, an
improvement of 9% compared with $255.9 million in the same period in
1998. For the first half, sales grew nearly 9% to $531.6 million
from $489.1 million in 1998. Segment profit of $36.3 million in the
second quarter of 1999 was a 33% improvement from a profit of $27.3
million in the same period in 1998. Year-to-date, segment profit
grew 29% to $58.4 million.
Wilsonart reported record sales and profits for both the quarter
and first half of 1999, with sales increasing 9% for both periods.
The growth in both periods was led by laminate flooring, Gibraltar
and solid surfacing veneer product lines as well as sales from Direct
Worktops, which was acquired in the fourth quarter of 1998. Absent
the acquisition, sales grew 5% for both periods. Segment profit rose
19% and 21% for the quarter and year-to-date, respectively, on higher
sales, improved manufacturing yields, increased productivity and a
lower overseas cost structure, partially offset by higher selling and
new product technology expenses.
Florida Tile also reported record sales for both the quarter and
first half. Sales rose 11% for the quarter and 8% for the first six
months as a result of new products and higher volume in company-owned
distribution centers. A segment profit was reported for both
periods, versus a segment loss for both second quarter and first half
of 1998, as a result of higher volume, improved gross margins, lower
selling and marketing expenses and a decline in warehouse expense as
a percent of sales.
Consumer Products
Net sales were $67.4 million for the second quarter of 1999, an
increase of nearly 5% compared with $64.4 million in 1998. For the
first half, sales grew 8% from $134.7 million to $145.7 million in
1999. Segment profit for the second quarter rose nearly 16% from
$3.7 million to $4.4 million. For the first half, segment profit
increased to $11.8 million from $10.7 million last year.
West Bend's sales fell 3%, but rose almost 1% for the second quarter
and first six months of 1999, respectively. For the quarter,
Housewares sales fell 5% as lower bread maker volume offset
improvements in most other product lines. Year-to-date, Housewares
sales rose 7% on the strength of higher slow cooker and drip coffee
maker volume, which more than offset a decline in bread maker volume.
Direct-to-the-home cookware sales fell 1% and 10% for the second
quarter and first half of 1999, respectively, due to lower private
label volume. Segment profit for West Bend rose substantially for
both periods, as improved gross margins at Housewares more than
offset the lower sales volume in the cookware sector.
Precor had a 17% and 18% growth in sales to record levels for the
second quarter and first half of 1999, respectively, due to the
inclusion of Pacific Fitness, a company acquired in the fourth
quarter of 1998, as well as a strong increase in sales of the
elliptical cross trainer product, which more than offset a decline in
retail treadmills. Precor's segment profit declined 37% for the
quarter and 5% year-to-date as the higher volume was offset by higher
manufacturing costs and inefficiencies.
Financial Condition
Net cash provided by operating activities in the first half of 1999
was $78.6 million, compared with $52.9 million in the first half of
1998. The increased cash generation this year reflects higher net
income as well as a lower growth in inventories compared with last
year, primarily at the Food Equipment Group and West Bend.
Net cash used in investing activities in 1999 was $56.3 million,
compared with $105.2 million last year, due to fewer acquisitions
made. In 1998, the company acquired its Arborite, Resopal, Somat,
Wittco and Traulsen businesses, along with a majority investment in
a joint venture in Thailand, for $67.7 million, while in 1999 the
company purchased Stanley Knight and KaiRak for $7.9 million, not
including $1 million in debt from one of the acquisitions. Capital
expenditures totaled $50.1 million and $38.9 million in 1999 and
1998, respectively. The increase in expenditures is mainly due to
Wilsonart, reflecting projects at Direct Worktops and Resopal, along
with expansion projects in the U.S.
Net cash used in financing activities was $43.3 million for the
first half of 1999 versus $23.5 million in 1998, as a result of
higher share repurchases.
The total debt-to-capital ratio at the end of the second quarter
of 1999 was 22.0%, compared with 12.4% at the end of the second
quarter of 1998 and 22.0% as of December 26, 1998. The ratio as of
the second quarter of 1999 and year end 1998 versus the second
quarter of 1998 is higher because of the issuance of $150 million of
10 year notes in November 1998.
Working capital as of June 26, 1999, increased by $12.2 million
from December 26, 1998. The largest changes among the components
of working capital were lower accounts payable and accrued
liabilities, partially offset by a decrease in cash and cash
equivalents and accounts and notes receivable.
As of June 26, 1999, unused lines of credit were approximately
$414.1 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 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 26, 1999, and August 2, 1999, respectively,
the company has repurchased 4,740,000 shares and 4,818,000 shares
at an average cost of $30 per share for both periods.
Year 2000
As is more fully described in the company's annual report on Form
10K for the fiscal year ended December 26, 1998, the company is
modifying or replacing portions of its software as well as
certain hardware to enable continued operations beyond
December 31, 1999. As of June 26, 1999, most of this effort has been
completed.
The total cost of the company's Year 2000 activities is currently
estimated to be $17 million, which represents no change from that
estimated at December 26, 1998. Management's assessment of the
risks associated with the Year 2000 project are unchanged from
that described in the 1998 annual report.
The company's plans to complete the Year 2000 modifications are
based on management's best estimates, which are based on numerous
assumptions about future events including the continued
availability of certain resources and other factors. There can
be no guarantee that these estimates will be achieved, however,
and actual results could differ materially from those
anticipated.
Cautionary Statement
The information above and in the company's annual report contains
forward-looking statements, including, without limitation,
statements relating to the company's plans, strategies,
objectives, expectations, intentions, and adequate resources that
are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The safe harbor
provisions are intended to encourage companies to provide
prospective information about their companies. Readers are
cautioned that forward-looking statements about Year 2000 and
other matters should be read with the following understanding.
Forward-looking statements speak only as of the date on which
they are made, are not representations of future actions or
results, and caution should be used in considering them in making
investment decisions. Actual results and experience may differ
materially from the forward-looking statements as a result of
many factors, including changes in the economic conditions in the
markets served by the company, increasing competition,
fluctuation in raw materials and energy prices, and other
unanticipated events and conditions. Risk factors include the
factors noted in Item 1 "Business," Item 3 "Legal Proceedings" and
Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of the company's annual report. It is not
possible to foresee or identify all such factors. The company makes
no commitment to update any forward-looking statement or to disclose
any facts, events or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 annual meeting of shareholders of the Registrant occurred
on May 5, 1999. The following matters were voted upon at the
meeting: the election as a director of the Registrant of each of
Gary P. Coughlan, Harry W. Bowman, W. James Farrell and Janice D.
Stoney, the ratification of the appointment of Ernst & Young LLP as
independent auditors of the Registrant, and a proposal to amend the
1994 Incentive Plan and reapprove performance goals.
The results of the voting were as follows:
Votes
Votes Against/ Broker
Matter Voted For Withheld* Abstained Non-Votes
Election of
Gary P. Coughlan 53,703,344 314,364 N/A 0
Election of
Harry W. Bowman 53,694,712 322,996 N/A 0
Election of
W. James Farrell 53,857,784 159,924 N/A 0
Election of
Janice D. Stoney 53,857,598 160,110 N/A 0
Approval of
Ernst & Young 53,740,197 102,462 175,049 0
Approval of amend-
ment to the 1994
Incentive Plan 45,315,799 8,285,602 416,307 0
*Numbers shown for director elections are votes withheld. For the
other matters 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, L. Don Brown, Richard S.
Friedland, John B. McKinnon and David R. Parker.
Item 5. Other Information
The Board of Directors elected L. Don Brown a director of the
Registrant effective May 5, 1999, to serve until the 2000 annual
meeting of shareholders, at which meeting he will stand for election.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
(27) A Financial Data Schedule for the second quarter
of 1999 is filed as an exhibit 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 4, 1999
EXHIBIT INDEX
Exhibit No. Description
(27) A Financial Data Schedule for
the second quarter of 1999 is filed
as an exhibit to this Report.