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 39 weeks ended September 25, 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 November 3, 1999, 61,598,465 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
September 25, 1999 and September 26, 1998........ 2
Condensed Consolidated Statement of Income
(Unaudited) for the 39 week periods ended
September 25, 1999 and September 26, 1998........ 3
Condensed Consolidated Balance Sheet
as of September 25, 1999 (Unaudited) and
December 26, 1998................................ 4
Condensed Consolidated Statement of Cash Flows
(Unaudited) for the 39 week periods ended
September 25, 1999 and September 26, 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.
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
13 Weeks Ended
--------------------
Sept. 25, Sept. 26,
1999 1998
(In millions, except per share data) --------- ---------
Net sales.................................. $ 736.2 $ 698.5
--------- ---------
Costs and expenses:
Cost of products sold.................... 468.2 447.4
Delivery, sales, and
administrative expense................. 195.5 188.3
Interest expense......................... 6.1 3.2
Interest income.......................... (0.7) (0.8)
Other income, net........................ (1.3) (1.3)
--------- ---------
Total costs and expenses.............. 667.8 636.8
--------- ---------
Income before income taxes................. 68.4 61.7
Provision for income taxes................. 24.0 23.0
--------- ---------
Net income................................. 44.4 38.7
Retained earnings, beginning of period..... 873.7 783.9
Cash dividends declared.................... (6.7) (6.2)
Cost of treasury stock issued
in excess of option exercise prices...... (9.4) (5.8)
--------- ---------
Retained earnings, end of period........... $ 902.0 $ 810.6
========= =========
Net income per common share................ $ 0.72 $ 0.63
========= =========
Net income per common share--
assuming dilution........................ $ 0.70 $ 0.60
========= =========
Average number of common shares
outstanding.............................. 61.3 61.8
========= =========
Average number of common shares
and assumed conversions.................. 63.7 64.5
========= =========
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)
39 Weeks Ended
--------------------
Sept. 25, Sept. 26,
1999 1998
(In millions, except per share data) --------- ---------
Net sales.................................. $2,150.5 $1,990.2
--------- ---------
Costs and expenses:
Cost of products sold.................... 1,356.3 1,264.7
Delivery, sales, and
administrative expense................. 604.3 566.8
Interest expense......................... 18.2 9.9
Interest income.......................... (2.5) (2.8)
Other income, net........................ (2.0) (1.5)
--------- ---------
Total costs and expenses.............. 1,974.3 1,837.1
--------- ---------
Income before income taxes................. 176.2 153.1
Provision for income taxes................. 64.3 58.2
--------- ---------
Net income................................. 111.9 94.9
Retained earnings, beginning of period..... 832.1 749.7
Cash dividends declared.................... (19.6) (18.0)
Cost of treasury stock issued
in excess of option exercise prices...... (22.4) (16.0)
--------- ---------
Retained earnings, end of period........... $ 902.0 $ 810.6
========= =========
Net income per common share................ $ 1.82 $ 1.53
========= =========
Net income per common share--
assuming dilution........................ $ 1.75 $ 1.47
========= =========
Average number of common shares
outstanding.............................. 61.4 61.9
========= =========
Average number of common shares
and assumed conversions.................. 63.8 64.7
========= =========
Dividends declared per common share........ $ 0.32 $ 0.29
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 3 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Sept. 25,
1999 December 26,
(Unaudited) 1998
(In millions) --------- ---------
Cash and cash equivalents................. $ 175.9 $ 147.6
Accounts and notes receivable............. 494.1 497.4
Less allowances for
doubtful accounts..................... (20.3) (20.6)
--------- ---------
473.8 476.8
Inventories............................... 438.7 455.1
Deferred income tax benefits.............. 74.9 79.9
Prepaid expenses.......................... 34.3 36.4
Prepaid income taxes...................... 7.2 -
--------- ---------
Total current assets.................. 1,204.8 1,195.8
--------- ---------
Property, plant, and equipment............ 1,212.8 1,174.5
Less accumulated depreciation........... (642.7) (611.9)
--------- ---------
570.1 562.6
Intangibles, net of accumulated
amortization............................ 242.1 247.2
Other assets.............................. 88.0 90.3
--------- ---------
Total assets.......................... $2,105.0 $2,095.9
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 4 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
Sept. 25,
1999 December 26,
(Unaudited) 1998
(In millions) --------- ----------
Accounts payable.......................... $ 137.1 $ 152.2
Short-term borrowings and current
portion of long-term debt............... 128.6 21.3
Accrued liabilities....................... 393.7 403.4
Income taxes payable...................... - 12.2
--------- ---------
Total current liabilities............. 659.4 589.1
--------- ---------
Long-term debt............................ 157.3 261.1
Accrued postretirement benefit cost....... 129.2 125.2
Other liabilities......................... 104.7 116.9
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........................... 369.2 359.7
Retained earnings......................... 902.0 832.1
Treasury stock, 7,578,160 shares at
September 25, 1999 and 7,175,365 shares
at December 26, 1998, at cost........... (250.3) (236.7)
Unearned portion of restricted
stock issued for future service......... (2.2) (3.4)
Accumulated other comprehensive income.... (33.3) (17.1)
--------- ---------
Total shareholders' equity............ 1,054.4 1,003.6
--------- ---------
Total liabilities and
shareholders' equity................ $2,105.0 $2,095.9
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
- 5 -
PREMARK INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
39 Weeks Ended
--------------------
Sept. 25, Sept. 26,
1999 1998
(In millions) --------- ---------
Cash flows from operating activities:
Net income............................ $ 111.9 $ 94.9
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization..... 66.7 59.2
Changes in assets and liabilities:
Accounts and notes receivable... (5.7) (6.5)
Inventory....................... 11.0 (29.2)
Accounts payable
and accrued liabilities....... (10.3) (10.2)
Current income taxes............ (19.3) (6.9)
Deferred income taxes........... 4.0 -
Prepaid expenses................ (1.7) (1.5)
Other........................... 6.9 7.3
-------- --------
Net cash provided by
operating activities........ 163.5 107.1
-------- --------
Cash flows from investing activities:
Capital expenditures.................. (78.5) (78.5)
Business acquisitions................. (8.5) (67.2)
Other................................. 3.2 3.9
-------- --------
Net cash used in
investing activities ....... (83.8) (141.8)
-------- --------
Cash flows from financing activities:
Net increase in
short-term borrowings............... 14.1 3.1
Repayment of long-term debt........... (9.6) (2.7)
Proceeds from exercise of
stock options....................... 9.8 5.4
Purchase of treasury stock............ (46.1) (29.4)
Payment of dividends.................. (19.1) (17.4)
-------- --------
Net cash used in financing
activities.................. (50.9) (41.0)
-------- --------
Effect of exchange rate changes on
cash and cash equivalents............. (0.5) (0.9)
-------- --------
Net increase (decrease) in cash
and cash equivalents.................. $ 28.3 $ (76.6)
======== ========
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):
September 25, December 26,
1999 1998
-------- --------
Finished goods.................. $ 214.2 $ 225.2
Work in process................. 23.7 16.8
Raw materials and supplies...... 200.8 213.1
-------- --------
Total inventories $ 438.7 $ 455.1
======== ========
Note 3: Comprehensive Income
The components of comprehensive income, net of related tax, for
the 13 week and 39 week periods ended September 25, 1999 and
September 26, 1998 are as follows (in millions):
13 Weeks Ended 39 Weeks Ended
------------------ ------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
-------- -------- -------- --------
Net income................. $ 44.4 $ 38.7 $ 111.9 $ 94.9
Foreign currency
translation adjustment... 3.0 5.1 (16.2) 1.6
-------- -------- -------- --------
Comprehensive income....... $ 47.4 $ 43.8 $ 95.7 $ 96.5
======== ======== ======== ========
Accumulated other comprehensive income, net of related tax benefits,
at September 25, 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 39 Weeks Ended
------------------ ------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
-------- -------- -------- --------
(In millions, except earnings per share)
Numerator for both basic
and diluted earnings
per share--net income.... $ 44.4 $ 38.7 $ 111.9 $ 94.9
======== ======== ======== ========
Denominator for basic
earnings per share--
weighted average shares.. 61.3 61.8 61.4 61.9
Plus: Effect of dilutive
securities--employee
stock options............ 2.4 2.7 2.4 2.8
-------- -------- -------- --------
Denominator for diluted
earnings per share--
weighted average shares
and assumed conversions.. 63.7 64.5 63.8 64.7
======== ======== ======== ========
Basic earnings per share... $ 0.72 $ 0.63 $ 1.82 $ 1.53
======== ======== ======== ========
Diluted earnings per share. $ 0.70 $ 0.60 $ 1.75 $ 1.47
======== ======== ======== ========
In 1998, options to purchase 775,300 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 approxi-
mately $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
----------------------
Sept. 25, Sept. 26,
1999 1998
--------- ---------
(In millions)
Net sales
Food Equipment Group..................... $ 384.2 $ 363.0
Decorative Products Group................ 277.4 256.2
Consumer Products Group.................. 74.6 79.3
--------- ---------
Total net sales............................ $ 736.2 $ 698.5
========= =========
Segment profit
Food Equipment Group..................... $ 36.2 $ 30.4
Decorative Products Group................ 35.1 29.6
Consumer Products Group.................. 6.1 7.0
--------- ---------
Total segment profit....................... 77.4 67.0
Unallocated expenses..................... (3.6) (2.9)
Interest expense, net.................... (5.4) (2.4)
--------- ---------
Income before income taxes................. $ 68.4 $ 61.7
========= =========
39 Weeks Ended
----------------------
Sept. 25, Sept. 26,
1999 1998
--------- ---------
(In millions)
Net sales
Food Equipment Group..................... $1,121.2 $1,030.9
Decorative Products Group................ 809.0 745.3
Consumer Products Group.................. 220.3 214.0
--------- ---------
Total net sales............................ $2,150.5 $1,990.2
========= =========
Segment profit
Food Equipment Group..................... $ 90.6 $ 76.3
Decorative Products Group................ 93.5 75.0
Consumer Products Group.................. 17.9 17.7
--------- ---------
Total segment profit....................... 202.0 169.0
Unallocated expenses..................... (10.1) (8.8)
Interest expense, net.................... (15.7) (7.1)
--------- ---------
Income before income taxes................. $ 176.2 $ 153.1
========= =========
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.
Note 7: Merger with Illinois Tool Works
On September 9, 1999, the company announced that it had entered
into an agreement to merge with Illinois Tool Works (ITW). In the
merger, Premark stockholders will receive a fraction of a share of
ITW common stock for each share of Premark common stock they own.
The fraction will be determined using a formula that is based on
the average closing market price of ITW common stock over a 20-day
trading period ending on the second business day before the merger.
A meeting of Premark stockholders will be held on November 23, 1999
to consider the merger agreement.
- 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 39 weeks ended September 25, 1999, compared with the
13 weeks and 39 weeks ended September 26, 1998, and changes in
financial condition during the 39 weeks ended September 25, 1999.
Net Sales
Net sales for the third quarter of 1999 were a record $736.2
million, an increase of 5% compared with net sales of $698.5
million in 1998. For the first three quarters of 1999, net sales
rose to $2,150.5 million, which was an improvement of 8% from
1998's net sales of $1,990.2 million. For both the quarter and
the first nine months, record sales occurred at the Food Equipment
Group, Wilsonart and Precor. Florida Tile's sales were flat to last
year for the quarter, but year-to-date rose modestly. West Bend's
sales declined in both periods. Excluding the effects of foreign
exchange rates, sales rose 6% and 9% for the third quarter and
first nine months of 1999, respectively.
Costs and Expenses
Cost of products sold as a percentage of net sales was 63.5% for the
third quarter of 1999 compared with 64.1% in the third quarter of
1998. For the first nine months, the percentages in 1999 and 1998
were 63.1% and 63.5%, respectively. The improvement for the quarter
was due to 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 and lower pricing at
Wilsonart due to competitive pressures. The year-to-date change,
in addition to the above, was due to increased productivity, better
yields, and lower material costs at Wilsonart.
Delivery, sales and administrative expense as a percent of net
sales was 26.5% and 28.1% for the third quarter and first nine
months of 1999, respectively, compared with the 1998 ratios of 26.9%
and 28.5%, respectively. The improvement for the quarter was due
to a decline in marketing and administrative expenses at the Food
Equipment Group, an overall decline in expenses at West Bend, and
lower other operating expenses at Precor. These items more than
offset higher selling and general administrative costs at Wilsonart.
For the year-to-date period, lower marketing expenses as a
percentage of sales at the Food Equipment Group as well as an
overall drop in expenses at West Bend and lower other operating
expenses at Precor more than offset higher selling and new product
technology costs at Wilsonart.
Net Interest Expense
Interest expense, net of interest income, was $5.4 million in the
third quarter of 1999 versus $2.4 million in the third quarter of
1998. For the first nine months of 1999, net interest expense was
$15.7 million versus $7.1 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 35.1% and 36.5% for the third quarter and
first nine months of 1999, respectively, compared with 37.3% for the
third quarter and 38% for the first nine months of 1998, and 38% for
the year ended December 26, 1998. For the quarter and first nine
months 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 increased nearly 15% to $44.4 million,
or 70 cents per diluted share, in 1999 from $38.7 million, or 60
cents per diluted share, in 1998. For the first nine months, net
income grew 18% to $111.9 million, or $1.75 per diluted share, in
1999 from $94.9 million, or $1.47 per diluted share, in 1998. For
the quarter, a significant growth in profitability at the Food
Equipment Group and Florida Tile, as well as continued improvement
at Wilsonart more than offset declines at West Bend and Precor,
along with higher net interest expense. For the year-to-date
period, substantial gains at the Food Equipment Group, Wilsonart and
Florida Tile, coupled with a good improvement at West Bend, more
than offset a decline at Precor and higher net interest expense.
Segment Results
Food Equipment Group
Net sales for the third quarter of 1999 were a record $384.2
million, an increase of nearly 6% from $363.0 million in 1998.
Excluding the negative impact of a stronger U.S. dollar, sales for
the group rose more than 7%. For the first nine months, net sales
grew from $1,030.9 million in 1998 to $1,121.2 million in 1999, an
increase of 9%. Excluding exchange rate impacts, sales for the
first nine months of 1999 rose almost 10%. For both the third
quarter and first nine months, the U.S. and Other International
sectors exhibited local currency growth, while Europe was
essentially flat. The improvement was aided by the impact of
acquisitions. International operations accounted for 36% of segment
sales for both the third quarter and first three quarters of 1999.
For the third quarter, segment profit of $36.2 million was 19%
higher than 1998's $30.4 million. For the first nine months,
segment profit rose significantly to $90.6 million from $76.3
million in 1998. For both periods, all sectors registered local
currency improvements. International operations accounted for 26%
and 27% of segment profit for the third quarter and first nine
months, respectively.
United States sales rose 9% to a record $245.7 million for the third
quarter of 1999. Year-to-date, sales rose 14% to $713.8 million.
For both periods, the impact of recent acquisitions, increases in
all of Hobart's channels, and growth at Vulcan-Hart and Wolf more
than offset lower export volume. Excluding acquisitions, sales grew
4% for the third quarter and 6% for the first nine months. A record
segment profit of $26.7 million rose 15% from the third quarter of
1998. For the first three quarters of 1999, segment profit rose 20%
to $65.9 million. For both the quarter and first nine months 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 third quarter of 1998 to $109.9
million. On a local currency basis, European sales rose 3% for the
quarter, reflecting the acquisition of MBM in the fourth quarter of
1998, which was mostly offset by the absence of sales from certain
non-core product lines of Eurotec, which were sold in the fourth
quarter of 1998, as well as a decline in France. Segment profit for
the sector was $6.9 million for the third quarter of 1999, a 3%
increase from the same period in 1998. Excluding foreign exchange
rate impacts, segment profit rose 9%, reflecting the inclusion of
MBM and a favorable cost structure due to the closure of a French
plant late last year, which offset reductions in Germany, Italy and
the U.K. For the first nine months of 1999, sales of $330.3 million
rose 2% excluding the impact of foreign exchange rates, due to the
acquisition of MBM, offset in part by the absence of sales from
certain non-core product lines of Eurotec. Segment profit for the
sector was $19.3 million for the first three quarters of 1999, 1%
ahead of 1998 in local currency, as higher profits in Germany and
France 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 operating gains in 1998.
Sales for the other international operations of $28.6 million
represented an increase of 15% for the third quarter of 1999.
Year-to-date, sales of $77.1 million increased 6%. On a local
currency basis, sales grew 14% and 8% for the third quarter and
first nine months, respectively. The improvement in both the
quarter and first nine months was due to strength in Mexico, Canada
and most Asia Pacific markets, which more than offset declines in
Argentina and Japan, and, for the year-to-date period, Australia and
Brazil. Segment profit for the third quarter rose significantly to
$2.6 million, while the first nine months profit also increased
substantially to $5.4 million. Improvements were noted in all Asia
Pacific markets, along with Mexico and Canada.
Decorative Products
Net sales were $277.4 million for the third quarter of 1999, an
increase of 8% compared with $256.2 million in the same period
in 1998. For the first three quarters, sales grew nearly 9% to
$809.0 million from $745.3 million in 1998. Segment profit of
$35.1 million in the third quarter of 1999 was an 18% improvement
from a profit of $29.6 million in the same period in 1998.
Year-to-date, segment profit grew 25% to $93.5 million.
Wilsonart reported record sales and profits for both the quarter and
first nine months of 1999, with sales increasing 10% and 9% for the
quarter and year-to-date periods, respectively. The growth in both
periods was led by the laminate flooring and Gibraltar product lines
as well as sales from Direct Worktops, which was acquired in the
fourth quarter of 1998. Absent the acquisition, sales grew 6% for
both periods. Segment profit rose 3% and 14% for the quarter and
year-to-date, respectively, on higher sales, favorable manufacturing
yields, increased productivity, a lower overseas cost structure and
lower material costs, partially offset by higher selling and
administrative expenses in the quarter and increased selling and new
product technology expenses for the year-to-date period.
Florida Tile sales were even with last year's third quarter but
rose 5% for the first nine months. The year-to-date growth was 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 the third quarter and first
nine months of 1998. The quarter change was driven by improved
gross margins, while the year-to-date change was a result of higher
volume and better gross margins.
Consumer Products
Net sales were $74.6 million for the third quarter of 1999, a
decrease of 6% compared with $79.3 million in 1998. For the first
nine months, sales grew 3% from $214.0 million to $220.3 million in
1999. Segment profit for the third quarter fell nearly 13% from
$7.0 million to $6.1 million. For the first nine months, segment
profit increased to $17.9 million from $17.7 million last year.
West Bend's sales fell 23% for the quarter and 9% year-to-date. For
the quarter, Housewares sales fell 26% due to lower bread maker and
slow cooker volume. Year-to-date, Housewares sales dropped 8% as a
falloff in bread maker volume more than offset increases in most
other product lines. Direct-to-the-home cookware sales fell 13% and
11% for the third quarter and the first nine months of 1999,
respectively, due to lower private label volume. Segment profit for
West Bend fell 15% for the quarter as the lower sales volume offset
a favorable mix of products at Housewares and overall lower
operating expenses. For the first three quarters, segment profit
was 11% above 1998 as improved gross margins at Housewares and lower
operating expenses more than offset lower overall sales volume.
Precor had a 26% and 20% growth in sales to record levels for the
third quarter and first nine months of 1999, respectively, due to
the inclusion of Pacific Fitness, a company acquired in the fourth
quarter of 1998, good international volume and 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 8% for the quarter and 6% year-to-date as the increased
volume was offset by higher manufacturing costs and inefficiencies,
along with higher selling and royalty expenses.
Financial Condition
Net cash provided by operating activities in the first three
quarters of 1999 was $163.5 million compared with $107.1 million in
the first three quarters of 1998. The increased cash generation
this year reflects higher net income as well as a decrease in
inventories compared with last year, primarily at the Food Equipment
Group and West Bend, partially offset by higher taxes paid.
Net cash used in investing activities in 1999 was $83.8 million
compared with $141.8 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 $67.2 million, while in 1999 the
amount spent for acquisitions was $8.5 million, not including $1
million in debt from one of the acquisitions. Capital expenditures
were $78.5 million for both 1999 and 1998.
Net cash used in financing activities was $50.9 million for the
first nine months of 1999 versus $41.0 million in 1998, as a result
of higher share repurchases.
The total debt-to-capital ratio at the end of the third quarter of
1999 was 21.3%, compared with 12.5% at the end of the third quarter
of 1998 and 22.0% as of December 26, 1998. The ratio as of the
third quarter of 1999 and year end 1998 versus the third quarter of
1998 is higher because of the issuance of $150 million of 10 year
notes in November 1998.
Working capital as of September 25, 1999 decreased by $61.3 million
from December 26, 1998. The largest change among the components of
working capital was an increase in short-term borrowings and current
portion of long-term debt due to a reclassification of $100 million
from long-term debt, representing debt that is due on September 15,
2000. The decrease in working capital was also aided by lower
inventory balances at the Food Equipment Group and West Bend.
Somewhat offsetting those decreases were a higher cash balance and
lower accounts payable, accrued liabilities and taxes payable.
As of September 25, 1999, unused lines of credit were approximately
$413.1 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. Under this plan, through September 25, 1999, and
November 4, 1999, the company repurchased 4,884,745 shares at an
average cost of $30 per share. In connection with the pending
merger with ITW, the repurchase program has been terminated.
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 September 25, 1999, nearly all 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 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 third quarter
of 1999 is filed as an exhibit to this Report.
(b) Reports on Form 8-K
During the quarter ended September 25, 1999, the
Registrant filed a Current Report on Form 8-K dated
September 9, 1999 (and subsequently amended on
September 13, 1999) reporting that the Registrant
had entered into an agreement to merge with Illinois Tool
Works (ITW), that the Registrant had entered into a stock
option agreement with ITW, and that the Registrant had
amended its Rights Agreement, dated November 6, 1996,
to provide that the rights would not be exercisable as
a result of the merger.
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
November 4, 1999
EXHIBIT INDEX
Exhibit No. Description
(27) A Financial Data Schedule for the
third fiscal quarter of 1999 is
filed as an exhibit to this Report.