Pittway Reports 20 Percent Increase in Fourth Quarter Operating Income On 18 Percent Sales Gain; Net Income Declines Due to Affiliate Losses and Discontinued Operations

Pittway Reports 20 Percent Increase in Fourth Quarter Operating Income On 18 Percent Sales Gain; Net Income Declines Due to Affiliate Losses and Discontinued Operations

CHICAGO–(BUSINESS WIRE)–Feb. 16, 1999–Pittway Corporation (NYSE: PRYA) today reported that sales from continuing operations for the fourth quarter increased 18 percent over last year to $352.5 million and operating income increased 20 percent to $29.4 million. Net income for the quarter declined to $13.9 million ($.32 per diluted share) from $18.3 million ($.43 per diluted share) last year. Excluding discontinued operations and the Company’s share of its affiliate, Cylink, net income would have been $17.6 million ($.40 per diluted share) versus $13.9 million ($.33 per diluted share) a year ago, a 27 percent increase (21 percent on a per share basis).

For the year, sales from continuing operations increased 16 percent to $1.33 billion. Operating income, excluding a provision for patent litigation, increased 27 percent to $104.4 million. The litigation charge of $43 million in the first quarter caused reported operating income to decline to $61.4 million from $82.5 million in 1997. Net income for the year declined to $41.9 million from $55.5 million. Excluding discontinued operations, the litigation provision and Cylink results, net income would have increased 33 percent to $63 million ($1.46 per diluted share) from $47.3 million ($1.11 per diluted share) last year.

All per share amounts reflect the 2-for-1 stock split in September 1998.

Commenting on operating results, King Harris, President, said “1998 was a year of change, challenge and accomplishment for Pittway. We achieved record sales and operating earnings in our overall alarm business and increased our industry-leading market share. The sales and operating earnings gains we achieved were especially impressive given the economic turmoil that affected many parts of the world including Asia, Russia, the Middle East and Latin America.

“We did a first-rate job serving the needs of our major customers and, at the same time, reinforced our reputation as the premier supplier to the security and fire alarm industries. We launched a record number of products including new U.S. and European wireless systems at Ademco, new specialty smoke detectors at System Sensor and new intelligent controls at Notifier. We added new engineering groups in closed circuit television (CCTV) and access control.

“We also expanded our business through acquisitions totaling nearly $100 million. We bought Northern Computer, one of the largest manufacturers and distributors of access control systems in the world, in December. We purchased two manufacturers – Video Controls Limited in England and Rapid Eye in Canada – in the fast growing CCTV market. We fortified our fire alarm systems business by buying two manufacturers – Inertia Fire Systems in Australia and IAS in England and one distributor, Safeguard Systems in Australia. Finally, we purchased four burglar/fire alarm components distributors – Alarm Suppliers and King Alarm (closed in 1999) in the United States as well as two small companies in Central Europe.

“We had one major setback during the year, an adverse jury decision in a wireless patent suit with Interactive Technologies, Inc. (ITI). While appealing the decision and preparing for new ITI litigation relating to transmitter enrollment methods in wireless security systems, we took steps to make sure our wireless business would continue no matter what the outcome of these patent-related matters.

“We had mixed results with our non-operating investments during the year. On the positive side, Hughes Electronics announced at year-end that it had reached agreement to acquire United States Satellite Broadcasting (USSB). In early 1999 Pittway sold one million of its 3.8 million shares of USSB and will sell its remaining shares if the acquisition is completed. We expect to realize a minimum after-tax gain of $18 million on the transaction. On the negative side, Cylink, our 29% owned affiliate, incurred substantial operating losses. Based on preliminary information, which is subject to completion of Cylink’s year-end audit, our share of its operating losses for the year was approximately $5.4 million. Included in our fourth quarter results is a pre-tax charge of approximately $4 million for the restatement of Cylink’s results for 1997 and the first three quarters of 1998. Cylink has installed a new top management team to address its ongoing challenges. In March of 1998 Cylink sold its wireless business for a substantial profit leading to a one-time pre-tax gain of approximately $6.6 million for Pittway.

“One final note regarding our financial results. Our effective tax rate for 1998 is lower than our 1997 rate primarily due to a lower effective tax rate for our European operations.”

Pittway manufactures and distributes security and commercial fire alarm equipment and other low voltage products.

This press release, other than historical financial information, contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in Item 1 of the Company’s annual report on Form 10-K for the year ended December 31, 1997. These include risks and uncertainties relating to pending litigation, government regulation, competition and technological change, intellectual property rights, capital spending, international operations, and the Company’s acquisition strategies.

PITTWAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Amounts in Thousands, Except Per Share Data)

Three Months Ended Year Ended

——————- ———-

December 31, December 31,

——————– ——————-

1998 1997 1998 1997

—- —- —- —-

CONTINUING OPERATIONS –

Net Sales $352,481 $299,586 $1,326,646 $1,143,772

——– ——– ———- ———-

Operating Expenses:

Cost of sales 222,747 183,801 841,501 723,547

Selling, general and

administrative 90,805 84,256 345,009 309,583

Provision for patent

litigation (a) 43,000

Depreciation and

amortization 9,502 7,071 35,694 28,141

——– ——– ———- ———-

323,054 275,128 1,265,204 1,061,271

——– ——– ———- ———-

Operating Income 29,427 24,458 61,442 82,501

——– ——– ———- ———-

Other Income (Expense):

Interest expense (3,321) (2,517) (13,153) (10,852)

Change in equity in

Cylink (b) (5,860) 503 1,175 (10,742)

Other income (expense),

net 726 257 7,195 2,383

——– ——– ———- ———-

(8,455) (1,757) (4,783) (19,211)

——– ——– ———- ———-

Income from Continuing

Operations Before Income

Taxes 20,972 22,701 56,659 63,290

Provision for Income Taxes 7,038 8,488 19,762 22,682

——– ——– ———- ———-

Income from Continuing

Operations 13,934 14,213 36,897 40,608

DISCONTINUED OPERATIONS,

net of taxes 4,072 5,031 14,906

——– ——– ———- ———-

NET INCOME $ 13,934 $ 18,285 $ 41,928 $ 55,514

——– ——– ———- ———-

——– ——– ———- ———-

Per Diluted Share of Common and

Class A Stock:

Income from continuing operations,

excluding patent litigation and

Cylink $.40 $.33 $1.46 $1.11

Provision for patent

litigation (.62)

Changes in equity in

Cylink (.08) .02 (.15)

Income from discontinued

operations .10 .11 .35

——– ——– ———- ———-

Net income $.32 $.43 $.97 $1.31

——– ——– ———- ———-

——– ——– ———- ———-

Average Number of Shares and

Dilutive Securities

Outstanding 43,562 42,597 43,240 42,502

(a) Provision for patent litigation after taxes amounted to ($26,875).

(b) Cylink results are preliminary, subject to completion of its

audit.

PITTWAY CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL PRO FORMA INFORMATION

(Amounts in Thousands, Except Per Share Data)

Pro forma operating results after excluding discontinued

operations, the provision for patent litigation, changes in Pittway’s

equity investment in Cylink and related tax effects are as follows:

Three Months Ended

——————

March 31, June 30,

———- ——–

1998 1997 1998 1997

—- —- —- —-

Net Sales $304,139 $252,492 $325,538 $285,158

——– ——– ——– ——–

Operating Income 21,345 16,088 23,369 19,909

Interest Expense (3,501) (2,406) (3,072) (3,014)

Other Income 1,031 820 5,166 999

——– ——– ——– ——–

Income Before Income Taxes 18,875 14,502 25,463 17,894

Provision for Income Taxes 6,896 5,316 9,577 6,417

——– ——– ——– ——–

Net Income $11,979 $9,186 $15,886 $11,477

——– ——– ——– ——–

——– ——– ——– ——–

Per Diluted Share of

Common and Class A Stock: $.28 $.22 $.37 $.27

——– ——– ——– ——–

——– ——– ——– ——–

Average Number of

Shares and Dilutive

Securities Outstanding 42,862 42,418 43,077 42,465

Three Months Ended

——————-

September 30, December 31,

————– ————-

1998 1997 1998 1997

—- —- —- —-

Net Sales $344,488 $306,536 $352,481 $299,586

——– ——– ——– ——–

Operating Income 30,301 22,046 29,427 24,458

Interest Expense (3,259) (2,915) (3,321) (2,517)

Other Income 272 307 726 257

——– ——– ——– ——–

Income Before Income Taxes 27,314 19,438 26,832 22,198

Provision for Income Taxes 9,738 6,678 9,235 8,299

——– ——– ——– ——–

Net Income $17,576 $12,760 $17,597 $13,899

——– ——– ——– ——–

——– ——– ——– ——–

Per Diluted Share of

Common and Class A Stock: $.40 $.30 $.40 $.33

——– ——– ——– ——–

——– ——– ——– ——–

Average Number of

Shares and Dilutive

Securities Outstanding 43,445 42,534 43,562 42,597

Year Ended

December 31,

———————-

1998 1997

—- —-

Net Sales $1,326,646 $1,143,772

———- ———-

Operating Income 104,442 82,501

Interest Expense (13,153) (10,852)

Other Income 7,195 2,383

———- ———-

Income Before Income Taxes 98,484 74,032

Provision for Income Taxes 35,446 26,710

———- ———-

Net Income $ 63,038 $ 47,322

———- ———-

———- ———-

Per Diluted Share of

Common and Class A Stock: $ 1.46 $ 1.11

———- ———-

———- ———-

Average Number of

Shares and Dilutive

Securities Outstanding 43,240 42,502

COPYRIGHT 1999 Business Wire

COPYRIGHT 2000 Gale Group