<PAGE>
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 July 4, 1993
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 July 4, 1993, the number of shares outstanding
of the registrant's common stock, $1.50 par value,
was 134,306,604.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INCOME STATEMENT
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter
------------------------------
(Dollars in Millions Except Per Share Amounts) 1993 1992
...............................................................................
<S> <C> <C>
Sales $ 1,452.0 $ 1,485.8
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Costs and Expenses
Cost of sales 982.2 1,005.1
Research & development 86.2 74.8
Selling, general & administrative 266.4 284.5
Litigation settlements & special charges 0.8 (12.3)
Interest - net 13.7 14.0
Equity income (6.3) (5.4)
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1,343.0 1,360.7
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Income before Income Taxes 109.0 125.1
Provision for Income Taxes 37.6 43.3
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Net Income $ 71.4 $ 81.8
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Earnings Per Common Share $ 0.53 $ 0.58
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</TABLE>
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INCOME STATEMENT
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Six Months
-------------------------------
(Dollars in Millions Except Per Share Amounts) 1993 1992
..............................................................................
<S> <C> <C>
Sales $ 2,890.6 $ 2,967.4
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Costs and Expenses
Cost of sales 1,972.0 2,028.1
Research & development 165.1 144.0
Selling, general & administrative 533.7 587.3
Litigation settlements & special charges 0.8 (120.6)
Interest - net 28.5 30.0
Equity income (6.0) (5.3)
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2,694.1 2,663.5
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Income before Income Taxes 196.5 303.9
Provision for Income Taxes 67.8 108.7
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Income before Cumulative Effect
of Accounting Changes 128.7 195.2
Cumulative Effect of Accounting Changes (144.5)
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Net Income $ 128.7 $ 50.7
----------- -----------
----------- -----------
Earnings Per Common Share
Income before Cumulative Effect
of Accounting Changes $ 0.95 $ 1.40
Cumulative Effect of Accounting Changes (1.04)
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Net Income $ 0.95 $ 0.36
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Average Number of
Common Shares Outstanding 135,506,529 139,458,068
</TABLE>
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STATEMENT OF CASH FLOWS
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Six Months
--------------------------
(Dollars in Millions) 1993 1992
............................................................................
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 128.7 $ 50.7
Adjustments to reconcile net income to
net cash flows from operating activities:
Cumulative effect of accounting changes 144.5
Depreciation 120.9 120.9
Amortization of intangibles 24.4 23.9
Deferred income taxes 1.5 0.1
Equity income, net of dividends received (4.7) (4.4)
(Gain) loss on disposition of property,
plant and equipment 2.8 (3.1)
Contributions to employee stock plans 15.3 18.7
(Increase) decrease in receivables 3.5 (126.9)
Increase in inventories (25.6) (6.8)
Decrease in accounts payable (40.3) (91.2)
Increase (decrease) in accrued income
taxes and interest 4.9 (16.3)
Other changes in working capital,
excluding short-term investments and
short-term debt (47.6) 22.9
Other noncurrent items - net (40.5) (26.2)
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Net cash flows from operating activities 143.3 106.8
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Cash Flows from Investing Activities
Reduction of investment in Sperry
Aerospace Group 20.0
Proceeds from sale of assets and
discontinued product lines 6.0 33.3
Capital expenditures (109.9) (119.4)
(Increase) decrease in short-term investments (12.4) 6.3
Other - net (9.0) (4.9)
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Net cash flows from investing activities (105.3) (84.7)
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Cash Flows from Financing Activities
Net increase in short-term debt 73.2 67.5
Proceeds from issuance of long-term debt 1.5
Repayment of long-term debt (6.8) (76.2)
Purchase of treasury stock (121.5) (85.0)
Proceeds from employee stock plans 12.3 17.4
Dividends paid (60.5) (57.5)
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Net cash flows from financing activities (103.3) (132.3)
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Effect of Exchange Rate Changes on Cash (8.7) (9.9)
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Decrease in Cash and Cash Equivalents (74.0) (120.1)
Cash and Cash Equivalents at Beginning of Year 342.4 497.2
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Cash and Cash Equivalents at End of Six Months $ 268.4 $ 377.1
---------- ---------
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</TABLE>
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STATEMENT OF FINANCIAL POSITION
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
July 4, December 31,
(Dollars in Millions) 1993 1992
............................................................................
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 268.4 $ 342.4
Short-term investments 15.8 3.8
Receivables (less allowance for doubtful
accounts: 1993, $26.1; 1992, $26.7) 1,213.3 1,214.5
Inventories (less progress billing on
uncompleted contracts: 1993, $49.5;
1992, $65.0) 848.3 827.6
Deferred income taxes 317.8 319.5
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2,663.6 2,707.8
Investment In and Advances To
Nonconsolidated Companies 179.1 162.1
Property, Plant and Equipment
Property, plant and equipment 2,563.6 2,497.9
Less accumulated depreciation 1,474.1 1,384.4
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1,089.5 1,113.5
Other Assets
Deferred income taxes 155.5 156.8
Long-term receivables (less allowance
for doubtful accounts: 1993, $0.8;
1992, $0.8) 41.2 42.0
Intangible assets 484.7 555.4
Other 154.9 132.5
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Total Assets $ 4,768.5 $ 4,870.1
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Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 255.4 $ 188.4
Accounts payable 315.2 357.2
Customer advances 74.4 85.0
Income taxes 256.1 250.9
Accrued interest 107.2 108.3
Other accrued liabilities 947.6 979.4
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1,955.9 1,969.2
Long-Term Debt 506.1 512.1
Other Liabilities 431.7 451.3
Deferred Income Taxes 145.0 147.1
Stockholders' Equity
Common stock - $1.50 par value
Authorized - 250,000,000 shares
Issued-1993 - 188,371,877 shares 282.6
1992 - 188,439,504 shares 282.7
Additional paid-in capital 425.4 423.8
Retained earnings 2,315.2 2,247.0
Treasury stock-1993 - 54,065,273 shares (1,325.0)
1992 - 51,759,304 shares (1,219.0)
Accumulated foreign currency translation 31.6 55.9
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1,729.8 1,790.4
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Total Liabilities and Stockholders' Equity $ 4,768.5 $ 4,870.1
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</TABLE>
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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:
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------- --------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense $18.1 $23.0 $36.7 $46.4
Interest income ( 4.4) ( 9.0) ( 8.2) (16.4)
----- ----- ------ -----
Total $13.7 $14.0 $28.5 $30.0
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</TABLE>
Interest paid amounted to $26.0 and $35.8 for the second
quarter and six months of 1993, and $48.0 and $60.3 for the
second quarter and six months of 1992, 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 $39.8 and $58.8
for the second quarter and six months of 1993, and $59.6 and
$71.5 for the second quarter and six months of 1992,
respectively.
The recently enacted deficit/reduction legislation is not
expected to have a material impact on the 1993 provision
for income taxes.
(4) Dividends per share of common stock were $.2225 and $.445 for
the second quarter and six months of 1993, and $.20625 and $.4125
for the second quarter and six months of 1992, respectively.
(5) Inventories consist of the following:
<TABLE>
<CAPTION>
July 4, December 31,
1993 1992
-------- ------------
<S> <C> <C>
Finished goods $ 279.4 $ 246.4
Inventories related to long-term contracts 113.3 139.1
Work in process 186.8 196.1
Raw materials and supplies 268.8 246.0
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Total $ 848.3 $ 827.6
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</TABLE>
(6) As of July 4, 1993, Honeywell had reserved 18,403,587 shares
of common stock for the issuance of shares in connection with
employee stock option and stock bonus plans.
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(7) The figures 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 six-month periods ended
July 4, 1993, and June 28, 1992. Honeywell's accounting
policies are described in the notes to financial statements
in its 1992 Annual Report on Form 10-K.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net income was $71.4 million ($0.53 per share) and $128.7 million
($0.95 per share) for the second quarter and six months of 1993
compared with $81.8 million ($0.58 per share) and $50.7 million
($0.36 per share) for the second quarter and six months of 1992.
The second quarter and six months of 1993 includes an after tax
gain of $13.9 million ($0.10 per share) from the settlement of a
lawsuit with Unisys Corporation and other parties in connection
with Honeywell's 1986 purchase of the Sperry Aerospace Group.
The second quarter and six months of 1993 also includes special
charges of $13.3 million ($0.10 per share) after income taxes for
productivity improvements. In addition, the second quarter of
1993 benefitted from higher than expected autofocus royalty
income, and there was a sharp increase in
research-and-development expenditures associated with
next-generation technologies for both the quarter and six months.
The second quarter and six months of 1992 included after-tax
gains of $7.4 million ($0.06 per share) and $72.4 million ($0.52
per share), respectively, from settlements with various companies
for their use of patented Honeywell automatic focus camera
technology. The six months of 1992 also included a $19.3 million
after-tax provision ($0.14 per share), recorded in the first
quarter, for costs associated with productivity improvement
programs and the anticipated disposition of certain non-strategic
product lines. In addition, the second quarter and six months of
1992 have been restated for the effect of adopting three new
Statements of Financial Accounting Standards (SFAS) in the fourth
quarter of 1992. The cumulative effect of adopting these
financial accounting standards at January 1, 1992 was as follows:
SFAS No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions," was a charge to income of $244.1 million,
or $151.3 million ($1.09 per share) after income taxes; SFAS
No. 109, "Accounting for Income Taxes," was an increase in net
income of $31.4 million ($0.23 per share); and SFAS No. 112,
"Employer's Accounting for Postemployment Benefits," was a charge
to income of $39.7 million, or $24.6 million ($0.18 per share)
after income taxes. The 1992 operating impact of adopting these
accounting changes was a decrease in income before income taxes
of $5.0 million, or $3.3 million ($0.03 per share) after income
taxes, for the second quarter and $10.1 million, or $6.7 million
($0.05 per share) after income taxes, for the six months.
Worldwide sales declined 2 percent for the second quarter and 3
percent for the six months when compared with last year.
Compared with 1992, international sales were reduced by the
effect of currency translations because of the strength of the
U.S. dollar against local currencies in countries where Honeywell
does business. Excluding the impact of a stronger U.S. dollar on
international sales, Honeywell sales were relatively flat for the
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second quarter compared to 1992. Home and Building Control sales
were up slightly for the second quarter and flat for the six
months as economic weakness in international markets,
largely due to the deepening recession in Europe,
continued to offset a moderate increase in U.S. sales as home
control sales continued to gain greater penetration among OEM
customers. Industrial sales declined slightly in the second
quarter but were slightly higher for the six months as sales of
control components experienced modest improvement in the U.S.
durable goods market, helping offset softness in Europe.
Industrial systems, with flat sales for the second quarter,
continued to operate in a mixed economic environment,
characterized by weak capital spending in the United States and
Europe, with stronger levels of spending in the Asia Pacific region
and in the Middle East. A decline in Space and Aviation sales of
8 percent for the second quarter and 10 percent for the six months
represents the effects of the continuing cyclical decline in
commercial aircraft production, weak demand in the business jet
market, reduced defense spending and delays in government
contract awards. Other sales, which include various operations
that do not correspond with Honeywell's primary business
segments, such as the Solid State Electronics Center and the
Systems and Research Center, increased $1.1 million in the second
quarter and $10.9 million for the six months.
Worldwide operating profit declined 23 percent for the second
quarter and 8 percent for the six months when compared with 1992.
Home and Building Control operating profit, adversely affected by
the deepening European recession, unfavorable intra-European
currency fluctuations and investment in streamlining the U.S.
field organization, declined 32 percent for the second quarter
and 20 percent for the six months compared with a strong
performance in 1992, which included provisions for productivity
improvements recorded in the first quarter. Higher components
business profitability was primarily responsible for the
Industrial operating profit increase of 7 percent for the second
quarter and 25 percent for the six months compared to 1992, which
included provisions for productivity improvement initiatives in
the components business recorded in the first quarter. As a
result of the sharp volume decline in sales of commercial flight
systems, increased expenditures associated with next-generation
avionics and special charges for productivity initiatives, Space
and Aviation operating profit declined 21 percent for both the
second quarter and six months compared to 1992, which also
included first quarter provisions for productivity initiatives.
Other operating loss of $10.5 million for the six months of
1993 was primarily the result of second quarter special charges
for productivity initiatives, while an operating loss of $10.8
million for the six months of 1992 was primarily the result of
charges related to the anticipated disposition of certain
non-strategic product lines.
Total worldwide orders declined 4 percent for the quarter and 7
percent for the six months, compared with the same periods last
year. Second quarter orders for Home and Building Control jumped
15 percent, led by worldwide acceptance of new products, such as
the Total Home and Excel 5000, and success with
guaranteed-savings programs. Industrial orders increased in the
United States but were flat overall. Orders in Space and
Aviation declined 25 percent.
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Page 9
FINANCIAL CONDITION
Cash flow generated from operations net of investment activities
for the first six months of 1993 was $38.0 million.
Debt as a percentage of total capital at the end of the second
quarter was 30.6% compared with 28.1% at the end of 1992.
Long-term debt was down $6 million and short-term debt increased
$67 million from 1992 year end.
Common shares outstanding decreased by 2,373,596 from the end of 1992 to
134.3 million. Shares repurchased during the first six months of
1993 totaled 3,634,800 at a cost of $125.4 million. Shares
issued through employee stock plans totaled 1,261,204.
Stockholders' equity decreased to $1,730 million from $1,790
million at the end of 1992. The decrease in stockholders' equity
includes a $68 million addition to retained earnings resulting
from current year earnings less dividends offset by $106 million
in net treasury stock transactions and a $24 million reduction
due to changes in the accumulated foreign currency translation
balance.
Honeywell has $645 million of committed credit lines with
fourteen banks. There were no borrowings under these lines. In
addition, certain foreign units had $336 million in credit lines
available at the end of the second quarter. The company believes
its liquidity is adequate to meet its capital requirements.
Honeywell's credit ratings remained unchanged during the quarter. Ratings
for long-term and short-term debt are respectively A/A-1 by
Standard and Poor's Corporation, A/Duff1 by Duff and Phelps
Corporation and A3/P-2 by Moody's Investors Service, Inc.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in Item 3. "Legal Proceedings" of Honeywell's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, 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 in
European markets and with its contractual relationships with Ojai
Research, Inc., a California corporation. On June 4, 1993 the trial
of the patent infringement claim commenced, and a decision is
anticipated in the fall of 1993.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of Honeywell Inc.
in Minneapolis, Minnesota, on April 20, 1993, a
proposal to approve the 1993 Honeywell Stock and
Incentive Plan was submitted to a vote of shareholders.
71,184,893 shares voted in favor of the proposal,
24,522,525 shares voted against the proposal and
2,283,442 shares abstained from voting.
Reference is hereby made to pages 21 through 23 and
pages A-1 through A-8 of the Company's Notice of 1993
Annual Meeting and Proxy Statement dated March 19,
1993, filed with the Securities and Exchange Commission
pursuant to Regulation 14A, for further information
regarding this proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) On April 16, 1993, the registrant filed a report
on Form 8-K regarding the settlement of previously
disclosed litigation against Unisys Corporation.
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SIGNATURE
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: August 18, 1993 By: /s/ E. D. Grayson
--------------------------------
E. D. Grayson
Vice President & General Counsel
Date: August 18, 1993 By: /s/ W. M. Hjerpe
--------------------------------
W. M. Hjerpe
Vice President & Controller
(Chief Accounting Officer)
