-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ahnq4jqNxf8fm7u/uF2nHdohnUQb0dGSNYl+2Wy4O3cDoVUwQKB/pbyQunZTFRDC tmTdVlHp9qlLbOl49qoO7Q== 0000912057-96-026106.txt : 19961115 0000912057-96-026106.hdr.sgml : 19961115 ACCESSION NUMBER: 0000912057-96-026106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HONEYWELL INC CENTRAL INDEX KEY: 0000048305 STANDARD INDUSTRIAL CLASSIFICATION: AUTO CONTROLS FOR REGULATING RESIDENTIAL & COMML ENVIRONMENT [3822] IRS NUMBER: 410415010 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20629 FILM NUMBER: 96662267 BUSINESS ADDRESS: STREET 1: HONEYWELL PLZ CITY: MINNEAPOLIS STATE: MN ZIP: 55408 BUSINESS PHONE: 6129511000 MAIL ADDRESS: STREET 1: PO BOX 524 CITY: MINEAPOLIS STATE: MN ZIP: 55440-0524 FORMER COMPANY: FORMER CONFORMED NAME: MINNEAPOLIS HONEYWELL REGULATOR CO DATE OF NAME CHANGE: 19670213 10-Q 1 10-Q 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 quarterly period ended September 29, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: NOT APPLICABLE Commission File No. 1-971 HONEYWELL INC. (Exact name of registrant as specified in its charter) DELAWARE 41-0415010 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) Honeywell Plaza, Minneapolis, Minnesota 55408 (Address of principal executive offices) (Zip Code) (612) 951-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- As of September 29, 1996, the number of shares outstanding of the registrant's common stock, $1.50 par value, was 126,499,066. PART I. FINANCIAL INFORMATION Item 1. Financial Statements INCOME STATEMENT Honeywell Inc. and Subsidiaries (Unaudited) (Dollars in Millions Except Per Share Amounts)
Third Quarter Ended ------------------------------------- September 29, 1996 October 1, 1995 - -------------------------------------------------------------------------------- SALES $ 1,803.1 $ 1,680.3 ---------- --------- COSTS AND EXPENSES Cost of sales 1,221.7 1,148.1 Research and development 84.5 75.0 Selling, general and administrative 323.4 312.5 Interest - net 19.3 16.8 Equity loss 1.0 0.2 ---------- --------- 1,649.9 1,552.6 ---------- --------- INCOME BEFORE INCOME TAXES 153.2 127.7 PROVISION FOR INCOME TAXES 52.1 43.5 ---------- --------- NET INCOME $ 101.1 $ 84.2 ---------- --------- ---------- --------- EARNINGS PER COMMON SHARE $ 0.80 $ 0.66 ---------- --------- ---------- ---------
INCOME STATEMENT Honeywell Inc. and Subsidiaries (Unaudited) (Dollars in Millions Except Per Share Amounts)
Nine Months Ended ------------------------------------- September 29, 1996 October 1, 1995 - -------------------------------------------------------------------------------- SALES $ 5,194.2 $ 4,814.6 ---------- ---------- COSTS AND EXPENSES Cost of sales 3,553.3 3,299.1 Research and development 252.1 237.2 Selling, general and administrative 962.7 917.9 Interest - net 55.1 52.4 Equity income (7.0) (6.9) ---------- ---------- 4,816.2 4,499.7 ---------- ---------- INCOME BEFORE INCOME TAXES 378.0 314.9 PROVISION FOR INCOME TAXES 128.5 107.1 ---------- ---------- NET INCOME $ 249.5 $ 207.8 ---------- ---------- ---------- ---------- EARNINGS PER COMMON SHARE $ 1.97 $ 1.63 ---------- ---------- ---------- ---------- AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 126,667,672 127,222,511
STATEMENT OF CASH FLOWS Honeywell Inc. and Subsidiaries (Unaudited) (Dollars in Millions)
Nine Months Ended ------------------------------------- September 29, 1996 October 1, 1995 - ------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities Net income $ 249.5 $ 207.8 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 176.2 178.1 Amortization of intangibles 37.8 42.7 Deferred income taxes 7.9 17.7 Equity income, net of dividends received (5.6) (5.6) Loss on sale of assets 0.4 3.6 Contributions to employee stock plans 32.3 21.2 Increase in receivables (38.6) (30.8) Increase in inventories (104.2) (44.2) Decrease in accounts payable (62.2) (49.1) Increase (decrease) in accrued income taxes and interest 55.8 (16.9) Other changes in working capital, excluding short-term investments and short-term debt (21.1) (29.4) Other noncurrent items - net 5.1 (7.7) ---------- --------- Net cash flows from operating activities 333.3 287.4 ---------- --------- Cash Flows from Investing Activities Proceeds from sale of assets 50.2 12.3 Capital expenditures (212.4) (173.5) Investment in acquisitions, net of cash acquired (352.3) (41.5) Increase in short-term investments (1.4) Other - net (0.7) (0.9) ---------- --------- Net cash flows from investing activities (515.2) (205.0) ---------- --------- Cash Flows from Financing Activities Net decrease in short-term debt (4.1) (11.5) Proceeds from issuance of long-term debt 300.0 147.7 Repayment of long-term debt (104.3) (130.8) Purchase of treasury stock (127.7) (104.2) Proceeds from exercise of stock options 40.3 54.0 Dividends paid (100.8) (95.4) ---------- --------- Net cash flows from financing activities 3.4 (140.2) ---------- --------- Effect of Exchange Rate Changes on Cash (4.9) 9.9 ---------- --------- Decrease in Cash and Cash Equivalents (183.4) (47.9) Cash and Cash Equivalents at Beginning of Year 291.6 267.4 ---------- --------- Cash and Cash Equivalents at End of Nine Months $ 108.2 $ 219.5 ---------- --------- ---------- ---------
STATEMENT OF FINANCIAL POSITION Honeywell Inc. and Subsidiaries (Unaudited) (Dollars in Millions)
September 29, 1996 October 1, 1995 - ----------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 108.2 $ 291.6 Short-term investments 8.8 9.0 Receivables (less allowance for doubtful accounts: 1996, $32.5; 1995, $34.5) 1,567.0 1,477.3 Inventories (less progress billing on uncompleted contracts: 1996, $59.4; 1995, $56.4) 953.1 794.4 Deferred income taxes 193.2 194.6 ------------ ------------ 2,830.3 2,766.9 Investments and Advances 233.8 244.8 Property, Plant and Equipment Property, plant and equipment 2,999.3 2,857.1 Less accumulated depreciation 1,868.8 1,758.2 ------------ ------------ 1,130.5 1,098.9 Other Assets Long-term receivables (less allowance for doubtful accounts: 1996, $0.7; 1995, $0.7) 27.9 46.8 Intangible assets 869.7 624.2 Deferred income taxes 73.5 71.8 Other 223.3 206.8 ------------ ------------ Total Assets $ 5,389.0 $ 5,060.2 ------------ ------------ ------------ ------------ Liabilities and Stockholders' Equity Current Liabilities Short-term debt $ 315.3 $ 312.4 Accounts payable 472.1 491.5 Customer advances 178.9 158.2 Accrued income taxes 320.0 274.8 Deferred income taxes 21.8 20.4 Other accrued liabilities 770.6 765.2 ------------ ------------ 2,078.7 2,022.5 Long-Term Debt 675.1 481.0 Deferred Income Taxes 53.6 39.2 Other Liabilities 496.6 477.4 Stockholders' Equity Common stock - $1.50 par value Authorized - 250,000,000 shares Issued - 1996 - 187,848,521 shares 281.8 1995 - 188,126,704 shares 282.2 Additional paid-in capital 507.6 481.3 Retained earnings 2,955.5 2,805.8 Treasury stock - 1996 - 61,349,455 shares (1,746.3) 1995 - 61,306,251 shares (1,650.2) Accumulated foreign currency translation 105.9 140.9 Pension liability adjustment (19.5) (19.9) ------------ ------------ 2,085.0 2,040.1 ------------ ------------ Total Liabilities and Stockholders' Equity $ 5,389.0 $ 5,060.2 ------------ ------------ ------------ ------------
NOTES TO FINANCIAL STATEMENTS (Dollars in Millions Except Per Share Amounts) (Unaudited) (1) The financial information and statements of companies owned 20 percent to 50 percent accounted for using the equity method are omitted pursuant to Rule 10-01 of Regulation S-X. (2) Interest consists of the following:
Third Quarter Ended Nine Months Ended ------------------- ----------------- September 29, 1996 October 1, 1995 September 29, 1996 October 1, 1995 ------------------- --------------- ------------------ --------------- Interest expense $20.7 $20.2 $60.9 $63.4 Interest income (1.4) (3.4) (5.8) (11.0) ----- ----- ----- ----- Total $19.3 $16.8 $55.1 $52.4 ----- ----- ----- ----- ----- ----- ----- -----
Interest paid amounted to $4.9 and $47.1 for the third quarter and nine months of 1996 and $17.8 and $61.5 for the third quarter and nine months of 1995, respectively. (3) Income tax provisions for interim periods are based on estimated effective annual income tax rates. Income tax expense varies from the normal U.S. statutory tax rate primarily because of state taxes and variations in the tax rates on foreign source income. While a portion of the annual tax provisions will be deferred income taxes, it is not practicable to determine the amount or composition of deferred income taxes for interim periods. Income taxes paid, net of refunds received, amounted to ($34.7) and $58.5 for the third quarter and nine months of 1996 and $21.4 and $93.6 for the third quarter and nine months of 1995, respectively. (4) Dividends per share of common stock were $0.27 and $0.79 for the third quarter and nine months of 1996 and $0.25 and $0.75 for the third quarter and nine months of 1995, respectively. (5) Inventories consist of the following:
September 29, December 31, 1996 1995 ------------ ----------- Finished goods $ 470.1 $ 356.6 Inventories related to long-term contracts 78.7 73.6 Work in process 170.2 159.5 Raw materials and supplies 234.1 204.7 -------- -------- Total $ 953.1 $ 794.4 -------- -------- -------- --------
(6) Litigation. On March 13, 1990, Litton Systems, Inc. (`Litton') filed suit against Honeywell in U.S. District Court, Central District of California, alleging Honeywell patent infringement relating to the process used by Honeywell to coat mirrors incorporated in its ring laser gyroscopes; attempted monopolization and predatory pricing by Honeywell in certain alleged markets for products containing ring laser gyroscopes; and intentional interference by Honeywell with Litton's prospective advantage and with its contractual relationships with Ojai Research, Inc., a California corporation. Honeywell generally denied Litton's allegations, contested both the validity and infringement of the patent; and alleged that the patent had been obtained by Litton's inequitable conduct before the United States Patent and Trademark Office. Honeywell also filed counterclaims against Litton alleging, among other things, that Litton's business and litigation conduct violated federal and state laws, causing Honeywell considerable damage and expense. On January 9, 1995, Judge Mariana Pfaelzer of the U.S. District Court set aside an August 1993 jury verdict and damage award of $1.2 billion against Honeywell in the patent and interference with contract case. She ruled, among other things, that the Litton patent was unenforceable because it was obtained by inequitable conduct and invalid because it was an invention that would have been obvious from combining existing processes. She further ruled that if her judgment were ever subsequently vacated or reversed on appeal, Honeywell would be granted a new trial on the issue of damages because the jury's 1993 award was inconsistent with the clear weight of the evidence and permitting it to stand would constitute a miscarriage of justice. Litton appealed all of Judge Pfaelzer's rulings to the Court of Appeals for the Federal Circuit, Washington, D.C. On July 3, 1996, a three judge panel of the Federal Circuit Court of Appeals, in a split 2 to 1 decision, overruled the District Court's rulings of patent invalidity, unenforceability and non-infringement, and also found Honeywell liable under Litton's interference with contract claims. However, the panel upheld the District Court's ruling that Honeywell is entitled to a new trial for damages on all claims, as well as its granting to Honeywell of certain intervening patent rights. Honeywell requested a rehearing by the full Court of Appeals, which was denied on September 11, 1996. Honeywell is petitioning the U.S. Supreme Court for review of that decision. On September 9, 1996, the U.S. District Court had Litton and Honeywell agree to mediate the above patent state tort claims, along with the antitrust claim described below, before retired California Supreme Court Chief Justice Malcolm Lucas, and this process has commenced. The case will conclude only when the U.S. Supreme Court, if review is granted, resolves certain legal issues that could reduce or eliminate the verdict; or, if and when mediation leads to a settlement of the parties' claims; or, if mediation fails and there is a new trial on the issue of damages, when the new trial for damages ends; and thereafter, if either party appeals the result thereof, when all legal issues arising from such appeal are resolved. As a result, no provision has been made in the financial statements with respect to this contingent liability. The jury trial for the antitrust case began November 20, 1995 before Judge Mariana R. Pfaelzer. After the parties presented their evidence, the court dismissed, for failure of proof, Litton's contentions that Honeywell engaged in below-cost predatory pricing, illegal tying and bundling, and illegally acquired Sperry Avionics in 1986. On February 2, 1996, the case was submitted to the jury on two claims, monopolization and attempt to monopolize, both based on Litton's allegations that Honeywell entered into certain exclusive dealing and penalty arrangements with aircraft manufacturers and airlines to exclude Litton from the commercial aircraft market, and that Honeywell failed to provide Litton with ASCB interface information. On February 29, 1996, the jury returned a $234 million verdict against Honeywell for the monopolization claim. On March 1, 1996, the jury indicated that it was unable to reach a verdict on damages for the attempted monopolization claim, and a mistrial was declared on that claim. Following the verdict, Honeywell filed a Motion for Judgment as a Matter of Law and a Motion for a New Trial with the trial court, contending that the jury's partial verdict should be overturned because Litton (i) failed to prove essential elements of liability and (ii) failed to submit competent evidence to support its claim for damages by offering only a speculative, all-or-nothing $298.5 million damage study. Litton filed a Motion for Injunctive Relief and a Motion for Entry of Judgment. On July 24, 1996, the U.S. District Court issued an Order denying Honeywell's Motion for Judgment as a Matter of Law, Litton's Motion for Injunctive Relief and Litton's Motion for Entry of Judgment. The court concluded, however, that the aggregated damage study Litton presented to the jury was seriously flawed and granted Honeywell's Motion for a New Trial as to the issue of damages only. As noted above, on September 9, 1996, the U.S. District Court ordered Litton and Honeywell to mediate the antitrust claim, and this process has commenced. No date has been set for a new trial on the issue of damages. The case will conclude only when mediation leads to a settlement of the parties' claims, if mediation is successful; or if mediation fails, when the trial for damages ends and other legal issues relating to this matter are resolved. As a result, no provision has been made in the financial statements with respect to this contingent liability. On September 12, 1994, Honeywell filed a declaratory judgment action against American Flywheel Systems, Inc. (`AFS') in the Superior Court of Maricopa County, Arizona, seeking a declaration as to the rights and obligations of the parties under an agreement regarding the development of an electro- mechanical flywheel battery. In October 1994, Honeywell ceased work under the project as a result of AFS's failure to make payments under the agreement. On July 21, 1995, AFS filed an answer and counterclaim alleging breach of contract and related tort claims, including fraud. Honeywell denied AFS's allegations and amended its complaint to seek damages for nonpayment of monies owed under the agreement. A jury trial in this case commenced October 7, 1996 and is expected to conclude in late November. Honeywell believes that there is no merit to the claims asserted by AFS and as a result, that it will prevail based on the merits of its case, and in any event, an adverse decision if any, is not likely to be material to Honeywell's net income financial position or liquidity. (7) As of September 29, 1996, Honeywell had reserved 8,710,652 shares of common stock for the issuance of shares in connection with stock option and stock bonus plans. (8) In 1996, Honeywell adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), `Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of'. SFAS 121 requires that (i) assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable; (ii) an impairment loss be recognized when the estimated future cash flows from the asset are less than the carrying value of the asset; and (iii) assets to be disposed of be reported at the lower of their carrying amount or their fair value, less cost to sell. Adoption of SFAS 121 did not have any effect on results of operations or financial position in the third quarter and nine months of 1996. In 1996, Honeywell adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), `Accounting for Stock-Based Compensation'. SFAS 123 requires expanded disclosures of stock-based compensation arrangements with employees and nonemployees and encourages a new method of accounting for employee stock compensation awards based on their estimated fair value at the date of grant and the recognition of associated compensation expense over the service period in the income statement. Companies are permitted to continue following Accounting Principles Board Opinion No. 25 (APB 25), `Accounting for Stock Issued to Employees', but must disclose pro forma net income and pro forma earnings per share, as if the fair value method of SFAS 123 had been applied, in a footnote to the financial statements. The fair value measurement and recognition provisions of SFAS 123 must be applied to all stock-based arrangements with nonemployees. As permitted by SFAS 123, Honeywell has elected to continue following the guidance of APB 25 for measurement and recognition of stock-based transactions with employees. SFAS 123 disclosures are not required on an interim reporting basis unless a complete set of financial statements is presented. (9) On April 24, 1996, Honeywell issued $300 million of long-term debt through an underwritten offering with maturities of 5 and 12 years. Honeywell subsequently entered into interest rate swap agreements effectively converting this debt from fixed-rate debt to floating-rate debt. (10)The amounts set forth in this quarterly report are unaudited but, in the opinion of the registrant, include all adjustments necessary for a fair presentation of the results of operations for the three-month and nine- month periods ended September 29, 1996, and October 1, 1995, respectively. Honeywell's accounting policies are described in the notes to financial statements in its 1995 Annual Report on Form 10-K. Certain amounts in prior year's statement of financial position have been reclassified to conform to the current year presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net income was $101.1 million ($0.80 per share) and $249.5 million ($1.97 per share) for the third quarter and nine months of 1996 compared with $84.2 million ($0.66 per share) and $207.8 million ($1.63 per share) for the third quarter and nine months of 1995. Worldwide sales increased 7 percent to $1,803 million for the third quarter and 8 percent to $5,194 million for the nine months of 1996. Operating profit increased 13 percent to $190.0 million for the third quarter and 14 percent to $498.7 million for the nine months of 1996. Orders increased 2 percent for the third quarter and 6 percent for the nine months when compared with last year. A stronger U.S. dollar in the third quarter had a negative translation effect on total orders and sales of approximately 1 percent and minimal effect on profits for the quarter and nine months of 1996. Cost of sales improved to 67.8 percent of sales for the third quarter compared with 68.3 percent in the third quarter of 1995, largely due to margin improvement in Space and Aviation Control. Home and Building Control sales and operating profit each increased 11 percent for the third quarter and 9 percent and 8 percent, respectively, for the nine months of 1996. Orders were up 15 percent for the third quarter and 11 percent for the nine months of 1996. Currency translation negatively impacted sales and orders by 1 percent for the quarter and year-to-date. Home Control sales were up sharply for the third quarter and year-to-date. Margins in Home Control declined slightly in the third quarter due to integration costs and the amortization of goodwill associated with the Duracraft acquisition. Adjusted for Duracraft orders, Home Control orders were up modestly for the third quarter and year-to-date. Building Control sales increased moderately for the third quarter and nine months of 1996; operating profit was up moderately in the third quarter and nine months of 1996, due to continued profitability improvement in installed systems and building security. Building Control orders increased moderately in the third quarter with growth in installed systems and strengthening in the energy retrofit market. The strategy of market expansion through selective acquisitions continued. During the quarter, Home and Building Control announced the acquisition of four companies in Europe, including the Swiss manufacturer Satronic Holding A.G., an acquisition that will help Honeywell expand its global boiler controls business. In the United States, the business acquired the assets of Applied Product Technology, a privately held company that designs, manufactures and assembles compressed air control systems. Applied Product Technology's capabilities will allow Honeywell to offer enhanced energy retrofit solutions to growing industrial markets. Industrial Control sales and operating profit increased 5 percent and 8 percent, respectively, for the third quarter of 1996. Sales and operating profit increased 9 percent and 10 percent, respectively, for the nine months of 1996. Orders declined 5 percent for the third quarter and were up 2 percent for the nine months of 1996. Currency translation had a 2 percent negative impact on sales and orders for the quarter and a 1 percent negative impact for the nine months of 1996. Industrial Automation and Control sales and operating profit were up moderately in the third quarter. Sales were up moderately and operating profit was up sharply for the nine months of 1996. Margin improvements continued in the third quarter as lower overhead, coupled with better project execution, lower product cost and improved mix from higher profit field instruments, more than offset planned Leeds and Northrup costs, including facility consolidation expenses. Industrial Automation and Control orders declined in the third quarter as a result of order delays when compared to a strong third quarter in 1995. Orders are up slightly on a year-to-date basis. During the quarter, Industrial Automation and Control celebrated a major milestone with the first customer shipments of the new TotalPlant-Registered Trademark- Solution System (TPS-TM-) Global User Station. In addition, capitalizing on a long and beneficial relationship, Amoco and Honeywell announced a business alliance to provide automation solutions for Amoco facilities worldwide. The agreement is Amoco's first global business alliance and reflects the company's desire to standardize its worldwide hardware, software and services for industrial automation. Under the alliance, Honeywell and Amoco will jointly develop automation solutions to help Amoco reduce production costs and increase yields in its plants. Sensing and Control sales increased modestly for the third quarter and nine months of 1996. Operating profit increased moderately during the third quarter due to cost control measures implemented earlier in the year. Operating profit on a year-to-date basis declined moderately due to low sales volume in the first six months in the industrial distribution business which carries high margins. Sensing and control orders were up moderately in the third quarter of 1996 with strength in electro-mechanical and opto-electronic products. Space and Aviation Control sales and operating profit increased 1 percent and 21 percent, respectively, for the third quarter and 5 percent and 30 percent, respectively, for the nine months of 1996. Space and Aviation margins increased from 8 to 10 percent in the quarter and year-to-date driven by Commercial Aviation. Orders declined 10 percent for the third quarter compared to 1995 when Military Avionics booked several large multi-year orders. Orders are up 1 percent for the nine months of 1996. Commercial Aviation Systems sales increased modestly for the third quarter and nine months. Operating profit was up sharply for the third quarter and nine months of 1996 as a result of continued productivity improvement in both the business and commuter and commercial transport businesses. Military Avionics sales and operating profit declined in the third quarter. Sales increased for the nine months of 1996 and operating profit declined. The operating profit decline was due primarily to increased development expenses related to new programs. Space Systems sales and operating profit declined for the third quarter of 1996. Sales are up on a year-to-date basis though operating profit has declined. The profit decline is a result of the timing and lower margin mix of programs. The Space business won a key NASA contract to develop an Integrated GPS/Inertial Navigation System for space use. The initial contract is worth $7.2 million, with excellent potential for significant follow-on contracts in programs such as the Space Shuttle and International Space Station. Sales from other operations, which include Solid State Electronics and the Honeywell Technology research and development centers, increased for the third quarter and nine months of 1996. These units had operating profits of $6.8 million and $5.9 million for the nine months of 1996 and 1995, respectively. Financial Condition Stockholders' equity increased to $2,085 million from $2,040 million at the end of 1995. Stockholders' equity includes an increase of $150 million in retained earnings from current year earnings net of dividends, a $35 million decrease in the accumulated foreign currency translation balance, and $70 million of net treasury stock transactions. Common shares outstanding decreased from 126.8 million at the end of 1995 to 126.5 million. Shares repurchased during the first nine months of 1996 totaled 2.5 million at a cost of $135 million. Shares issued through stock option and stock bonus plans totaled 2.1 million shares and yielded $40 million in proceeds. Debt as a percentage of total capital at the end of the third quarter was 32.2 percent compared with 28.0 percent at the end of 1995. Total debt increased $197 million from 1995 year end. The proceeds from the debt increase, along with the reduction of cash balances, was used to finance general corporate requirements, including capital expenditures, working capital, and $352 million of acquisitions (net of cash acquired). Cash flows used by investing activities exceeded cash flows from operating activities by $182 million in the first nine months of 1996, primarily due to acquisition activities and capital expenditures reduced by proceeds from asset sales. On September 29, 1996, Honeywell had $725 million of revolving committed credit lines with 21 banks. There were no outstanding borrowings under these lines. In addition, certain foreign units had $340 million in credit lines available at the end of the third quarter. Honeywell believes its available cash, committed credit lines and access to the public debt markets through commercial paper and medium-term note programs provide adequate short-term and long-term liquidity. As of September 29, 1996, Honeywell's credit rating for long-term and short-term debt were, respectively, A/A-1 by Standard and Poor's Corporation, A/Duff1 by Duff and Phelps Credit Rating Co. and A3/P-2 by Moody's Investors Service, Inc. On October 7, 1996, Moody's Investors Service, Inc. raised Honeywell's credit rating to A2/P1. Honeywell has entered into various foreign currency exchange contracts and interest rate swaps to manage its net exposure to changes in currency and interest rate fluctuation. At September 29, 1996, the notional amount of outstanding foreign exchange contracts was approximately $1,006 million. The amount of hedging gains and losses deferred was not material at September 29, 1996. The notional amount of outstanding interest rate swaps was $495 million at September 29, 1996. Cautionary Statement Honeywell may occasionally make statements regarding its businesses and the markets therefor, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends and other matters, which to the extent they are not historical fact, may constitute `forward- looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Statements containing the words or phrases `will likely result', `are expected to,' `will continue,' `is anticipated,' `estimate,' `project' or similar expressions, which may appear herein or in certain documents, reports (including but not limited to those filed with the Securities and Exchange Commission), press releases, and written or oral presentations made by officers of the company to analysts, shareholders, investors, news organizations and others, identify such forward-looking statements. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. Therefore, all forward-looking statements are qualified in their entirety by reference to, and are accompanied by, the factors listed in Exhibit 99(i) to this report, which could cause Honeywell's actual results to differ materially from those projected in such forward-looking statements. PART II. OTHER INFORMATION Item 1. Legal Proceedings Honeywell is a defendant in a lawsuit filed by Litton Systems, Inc., alleging patent infringement relating to the process used by Honeywell to coat mirrors incorporated in its ring laser gyroscopes; attempted monopolization by Honeywell of certain alleged markets for products containing ring laser gyroscopes; and intentional interference by Honeywell with Litton's prospective advantage and with its contractual relationships with Ojai Research, Inc., a California corporation. The information reported in Note (6) to the Financial Statements set forth in Item 1 of Part I of this report with respect to recent developments in this litigation, is incorporated by reference into this Item 1. On September 12, 1994, Honeywell filed a declaratory judgment action against American Flywheel Systems, Inc. (`AFS') in the Superior Court of Maricopa County, Arizona, seeking a declaration as to the rights and obligations of the parties under an agreement regarding the development of an electro-mechanical flywheel battery. In October 1994, Honeywell ceased work under the project as a result of AFS's failure to make payments under the agreement. On July 21, 1995, AFS filed an answer and counterclaim alleging breach of contract and related tort claims, including fraud. Honeywell denied AFS's allegations and amended its complaint to seek damages for nonpayment of monies owed under the agreement. A jury trial in this case commenced October 7, 1996 and is expected to conclude in late November. Honeywell believes that there is no merit to the claims asserted by AFS and that it will prevail based on the merits of its case. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: (11) Computation of Earnings Per Share. (12) Computation of Ratio of Earnings to Fixed Charges. (27) Financial Data Schedule. (b) Reports on Form 8-K: (i) Report dated July 16, 1996, regarding the results of the registrant's operations for the fiscal quarter ended June 30, 1996. (ii) Report dated July 18, 1996, regarding a Distribution Agreement entered into by Honeywell Inc., Honeywell Finance B.V. and Honeywell Canada Limited with Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Citicorp Securities, Inc., Dillon, Read & Co. Inc. and J.P. Morgan Securities Inc., for the public offering of up to U.S. $500,000,000 aggregate initial offering price of their Medium-Term Notes. (iii) Report dated July 24, 1996, regarding the court's disposition of several motions in an antitrust trial involving Litton Systems Inc., in which the registrant is a defendant. (iv) Report dated September 13, 1996, regarding developments in the patent and antitrust cases involving Litton Systems Inc., in which the registrant is a defendant. 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. HONEYWELL INC. Date: November 13, 1996 By: /s/ E. D. Grayson ------------------------- E. D. Grayson Vice President and General Counsel Date: November 13, 1996 By: /s/ P.M. Palazzari ------------------------- P. M. Palazzari Vice President and Controller (Chief Accounting Officer) INDEX TO EXHIBITS
Exhibit No. Page No. - ----------- -------- 11 Computation of Earnings Per Share i 12 Computation of Ratio of Earnings to Fixed Charges ii 27 Financial Data Schedule iii 99(i) Cautionary Statements For Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 iv
EX-11 2 EXHIBIT 11 EXHIBIT (11) HONEYWELL INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Dollars in Millions Except Per Share Amounts) (Unaudited)
Third Quarter Ended Nine Months Ended ------------------------------ ------------------------------- September 29, October 1, September 29, October 1, 1996 1995 1996 1995 -------------- ----------- --------------- ---------- Primary: Income: Net income $ 101.1 $ 84.2 $ 249.5 $ 207.8 -------------- ----------- --------------- ----------- -------------- ----------- --------------- ----------- Shares: Weighted average of shares outstanding during the year 126,518,538 127,263,618 126,667,672 127,222,511 -------------- ----------- --------------- ----------- -------------- ----------- --------------- ----------- Earnings per share: Net income $ 0.80 $ .66 $ 1.97 $ 1.63 -------------- ----------- --------------- ----------- -------------- ----------- --------------- ----------- Assuming full dilution: Income: Net income $ 101.1 $ 84.2 $ 249.5 $ 207.8 -------------- ----------- --------------- ----------- -------------- ----------- --------------- ----------- Shares: Weighted average of shares outstanding during the year 126,518,538 127,263,618 126,667,672 127,222,511 Shares issuable in connection with stock plans less shares purchasable from proceeds 2,638,374 1,653,849 2,848,464 1,812,115 -------------- ----------- --------------- ----------- Total Shares 129,156,912 128,917,467 129,516,136 129,034,626 -------------- ----------- --------------- ----------- -------------- ----------- --------------- ----------- Earnings per share: Net income $ 0.78 $ 0.65 $ 1.93 $ 1.61 -------------- ----------- --------------- ----------- -------------- ----------- --------------- -----------
i EX-12 3 EXHIBIT 12 EXHIBIT (12) HONEYWELL INC. AND SUBSIDIARIES COMBINED WITH PROPORTIONAL SHARES OF 50% OWNED COMPANIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Unaudited) (Dollars in Millions)
Nine Months Ended September 29, 1996 ------------------ Income before Income Taxes $ 378.00 Deduct: Equity income (loss) 7.00 --------- Subtotal 371.00 Add (deduct): Dividends from less than 50% owned companies 1.02 Proportional share of income (loss) before income taxes of 50% owned companies (0.31) --------- Adjusted income 371.71 --------- Fixed Charges Interest on indebtedness 57.44 Amortization of debt expense 3.50 Interest portion of rent expense 37.35 --------- Total Fixed Charges 98.29 --------- Total Available Income $ 470.00 --------- --------- Ratio of Earnings to Fixed Charges 4.78 --------- ---------
ii EX-27 4 EXHIBIT 27
5 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-29-1996 108 9 1600 33 953 2830 2999 1869 5389 2079 675 282 0 0 1803 5389 5194 5194 3553 3553 252 2 61 378 129 250 0 0 0 250 1.97 1.93
EX-99 5 EXHIBIT 99I Exhibit 99(i) CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Honeywell may occasionally make statements regarding its businesses and the markets therefor, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends and other matters, which to the extent they are not historical fact, may constitute `forward- looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Statements containing the words or phrases `will likely result', `are expected to,' `will continue,' `is anticipated,' `estimate,' `project' or similar expressions, which may appear in certain documents, reports (including but not limited to those filed with the Securities and Exchange Commission), press releases, and written or oral presentations made by officers of the company to analysts, shareholders, investors, news organizations and others, identify such forward-looking statements. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors which could cause them to differ materially. Therefore, Honeywell wishes to ensure that any written or oral forward-looking statements made by it or on its behalf, are accompanied by, or referenced to, meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by or on behalf of Honeywell are hereby qualified in their entirety by reference to the following important factors, among others, that could affect the company's businesses and cause actual results to differ materially from those projected. Any forward-looking statement speaks only as of the date on which such statement is made, and Honeywell undertakes no obligation to update such statement to reflect events or circumstances arising after such date. Foreign Sales. A significant portion of Honeywell's revenues are generated from international business operations. Changes in trade, monetary policies and regulatory requirements of the United States and other nations, as well as political instability in certain regions may affect Honeywell's international business. Many of Honeywell's sales outside the United States are denominated in local currencies; therefore, exchange rate fluctuations and the ability of Honeywell to hedge against such exchange rate risks may affect overall financial performance. Project Management. Performance related programs and retrofit projects have increasingly become an integral part of Honeywell's businesses. The success of some of these programs may depend in part on the performance of third parties. Honeywell manages its businesses in such a manner as to minimize the potential impact of third party performance; nonetheless, bid variances, third party labor disputes, and the availability, quality and timely delivery of supplies are factors that could affect the company's ability to manage these programs within their budgetary guidelines. Competition. Honeywell's businesses are subject to various competitive pressures, including but not limited to, the introduction of new competitive technologies, industry consolidation, the growing acceptance of open systems environments and the deregulation of certain industries. Developments in these areas may influence Honeywell's strategies in certain markets and create new challenges or opportunities. Human Resources. Innovative products and solutions are continuously developed by Honeywell's businesses for application in the markets they serve. Highly trained technical and managerial employees are required for this effort, and Honeywell's ability to manage its businesses successfully depends, in part, on its ability to attract and retain such people. Shortages of skilled personnel or negative compensation trends are factors that can affect the availability of such people or increase Honeywell's costs in attracting and retaining same. In certain foreign markets, local labor rates and practices may affect Honeywell's operating costs or its ability to conduct business in such areas. Government Regulation. In many of the markets in which Honeywell competes, such as aviation, processing and refining, government regulation is extensive. Compliance with safety or environmental standards, may impact Honeywell in those markets by increasing Honeywell's costs or alternately, by providing opportunities for Honeywell to provide solutions for customers affected thereby. Technology. Honeywell's products and services are based on innovative technologies developed by the company or licensed from others. To the extent the company can secure intellectual property protection for products it develops, it may be able to enhance its competitive position in certain markets. Honeywell's ability to obtain licenses from third parties for other key technologies, or to develop new technologies or solutions independently or through collaborative efforts can impact the company's businesses. Customer Trends. The demand for Honeywell's products is subject to the demands in major customer markets. For example, the requirements of major airlines for new aircraft may affect the demand for avionics and cockpit controls produced by Honeywell's Space and Aviation Control business; new construction or modernization activity may influence the demand for products and services provided by the Home and Building Control business; and growth in certain industrial sector markets may increase the demand for new or modernized processing plants which in turn can provide opportunities for Honeywell's Industrial Control business. The company endeavors to forecast such demands, but unforeseen general economic conditions in the United States and internationally, as well as industry specific factors, may affect such forecasts. The foregoing factors are not exhaustive and new factors may emerge which impact Honeywell's businesses. It is impossible for management to predict such factors, therefore, forward-looking statements should not be relied upon as a prediction of actual future results. -----END PRIVACY-ENHANCED MESSAGE-----